House Appropriators Attempt to Secure Arctic Oil Revenues

Appropriations UpdateHouse Appropriators Attempt to Secure Arctic Oil RevenuesNew bill language seeks to ensure that ANWR oil and gas lease sales will generate projected revenues.

Energy & Natural Resources,  | Quick Take
May 23, 2019  | 6 min read | Print Article

A new provision in the House’s Department of the Interior funding bill seeks to ensure taxpayers recover most of the promised revenue from oil and gas lease sales in the Arctic National Wildlife Refuge (ANWR) in Alaska. Congress authorized the oil and gas program in the Coastal Plain of ANWR in a provision tacked on to the 2017 Tax Act, ostensibly to offset $1 billion of the package’s $1.4 trillion cost. The new language in the FY2020 Interior appropriations bill tries to guarantee the lease sales raise most of what was projected through minimum bids for leases. The provision survived an amendment to strip it from the bill during the Appropriations Committee’s markup Wednesday, and now moves with the rest of the bill to the House floor for consideration.

Background
From introduction to enactment, the stated reason for establishing a federal oil and gas program in ANWR was always to raise revenue for taxpayers. The FY2018 budget resolution (H.Con.Res.71) directed the Senate Committee on Energy and Natural Resources, through budget reconciliation instructions, to produce legislation that would reduce the deficit by $1 billion. In response, the Committee chaired by Senator Lisa Murkowski (R-AK) provided a measure to raise revenues, in part, by selling oil and gas leases in the Coastal Plain, aka the 1002 Area, of ANWR. Opening up ANWR to drilling had been on the wish list of Alaska’s congressional delegation for decades. But the likelihood of ANWR oil and gas lease sales raising $1 billion in federal receipts was always dubious.

The measure, which was eventually passed as section 20001 of the Tax Act (P.L. 115-97), directed the Department of the Interior (DOI) to hold two oil and gas lease sales that offer up at least 800,000 acres in the Coastal Plain for development within seven years. The legislation also stipulated that 50 percent of revenue generated from the lease sale and any subsequent production should be paid to the State of Alaska.

When the measure passed, the Congressional Budget Office (CBO) estimated that the two lease sales would generate $1.82 billion in bonus bid revenue, of which federal taxpayers would receive $910 million. However, nothing in the recent history of oil and gas leasing on Alaska’s North Slope suggests that generating that much revenue is remotely possible. Because anticipated revenue was used to offset some of the tax act’s cost, any revenue shortfall will directly add to the ballooning budget deficit.

New Developments
In the FY2020 “Interior, Environment, and Related Agencies Appropriations” bill, House appropriators are trying to make sure taxpayers are not completely shorted by the ANWR lease sales. In section 118 of the draft bill, appropriators stipulate that DOI can only hold the sales if they set a minimum bid price for the leases that would ensures the sales raise at least half of the $1 billion agreed to in the FY2018 budget resolution. If only $500 million is raised in bonus bids, net of Alaska’s share, the sales would cost taxpayers the extra $400 million they were promised when the tax act passed. However, the measure attempts to provide a revenue floor that the sales would otherwise be unlikely to meet, and thus offers some protection to taxpayers.

During the House Appropriations Committee’s markup Wednesday, Rep. Ken Calvert (R-CA) offered an amendment to strip the ANWR language from the bill. He argued the bill language would inhibit planned oil and gas development in the Coastal Plain, and refrained from explaining why the planned lease sales couldn’t raise the revenue they were originally expected to generate. Rep. Calvert’s amendment was defeated by a vote of 27-23, leaving the language in the bill intact. The whole bill, which was passed by the committee later in the day, will now move to the House floor for consideration.

Takeaway
How much the sales are likely to raise depends on how many acres DOI offers up for lease in the Coastal Plain. According to the Draft Environmental Impact Statement (DEIS) published in December 2018, DOI is considering alternatives that would offer at most either 1.04 million or 1.56 million acres. If DOI assumes that all acres offered will be sold, it would have to set the minimum bid price at between $639.59 and $964.13 per acre to hope to generate $500 million. Regardless of which alternative DOI adopts, the actual revenue generated is likely to be much less.

At the end of the day, the new provision would provide some safeguards to taxpayers, but it’s unlikely to undo the folly of banking on ANWR lease sales to raise $1 billion.

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