Alaska Dispatch

In February 2008, oil company executives and government officials shuffled into an auditorium at the Z.J. Loussac Public Library. An auction was about to go down to lease 488 tracts of the Chukchi Sea to companies to explore for oil and gas.

From Shell Oil Co. to ConocoPhillips, oil giants bid tens of millions of dollars even on single tracts, signaling a new interest in Arctic oil development. And within just hours, the federal government raised $2.6 billion from leasing rights to the companies to explore across a large swath of the Chukchi.

And Alaska's take of that $2.6 billion? Zero.

The leases were in federal waters and, under current law, the feds don't share proceeds from such lease sales with Alaska. Neither would Alaska or local governments ever receive a cut from the federal taxes on producing the oil and gas. The 2008 Chukchi Sea lease sale illustrates a longtime frustration among Alaskan leaders, who have off and on fought for the state to share in revenue generated from federal offshore oil leasing and production.

In the latest effort to change the law, U.S. Sens. Lisa Murkowski and Mark Begich each recently introduced bills that would cut the state a slice of proceeds raised by the federal government from oil and gas leasing and production taxes in the outer continental shelf. The senators say that having two bills can only help in pushing for the cause and increasing the likelihood that Alaskans get a piece of the action from offshore oil development. And support from other coastal states might also give Alaska a better shot than it's had in the past.

Both bills call for the state to receive 37.5 percent from federal offshore lease sales and taxes collected from the production of oil and gas in federal waters, with the bills differing only slightly in the way they would divide the money among state and local governments, Native corporations and tribes.

If either of the bills had been law in early 2008, the state would have received $975 million from the $2.6 billion Chukchi lease sales. Perhaps even more important, the passage of either bill would ensure that Alaska would get a share of the federal tax royalties generated from allowing oil companies to develop the leases. Alaska depends on oil and gas taxes and fees to fund roughly 90 percent of state government, and oil production on state lands, such as Prudhoe Bay, is in decline. Offshore oil development in federal waters could usher in a new era for Alaska's oil industry.

The bills are currently in the Senate Committee on Energy and Natural Resources, and no hearings are scheduled as of yet. A Begich aide said he expects hearings to be held next month, with a possibility of a hearing in Alaska, while an aide to Murkowski said the senator is considering adding her revenue-sharing measure as an amendment to a Senate energy bill.

The government estimates 30 billion barrels of oil sit in the nation's slice of the Arctic, off the coast of Alaska. Rising temperatures are opening new areas to offshore oil and gas to exploration, as well as fishing, shipping and tourism.

Opposition to offshore oil development in the Alaska Arctic has been strong in recent years, with environmentalists and local governments arguing it would harm whales, polar bears and other marine life, as well as pose threats to subsistence hunting. Among their concerns is that oil companies would have a hard time cleaning up an oil spill in sea ice. (Although the Arctic is warming, ice still covers much of it for most of the year.)

Some longtime opponents, however -- especially local governments -- might soften their stance if revenue sharing were on the table. And that worries environmentalists, who are concerned coastal governments might be more receptive of offshore oil if they were allowed to share in the proceeds from leases sales and royalties, as is proposed by Begich and Murkowski.

Mayor Edward Itta of the North Slope Borough has opposed offshore oil development in the past, and his administration was a plaintiff in a lawsuit that halted Shell Oil Co.'s oil exploration in the Beaufort Sea. More recently, however, a list of the mayor's policy positions states that revenue sharing should be used to offset oil development's impact. Itta did not return calls for comment.

In Alaska, offshore oil proposals have been met with mixed reaction. BP is moving forward with plans to drill in federal waters 15 miles east of Prudhoe Bay at its Liberty prospect, estimated to hold 100 million barrels of recoverable oil. Meanwhile, Shell has pared down its exploration plans in the wake of opposition from some local governments and environmentalists. Shell has now submitted plans to regulators for exploration next year in the Beaufort and Chukchi seas, said Simon King, a Shell spokesman in Anchorage.

Murkowski's bill, introduced in late July, proposes revenue sharing for all U.S. coastal states, with a special provision for Alaska that would call for the state to give 33 percent of its share raised from federal offshore leasing to some Native corporations, and 20 percent to certain coastal governments. Begich's bill, introduced after Murkowski's, focuses on Alaska and follows the same formula for distributing proceeds, but also calls for 7 percent of the state's share to be paid directly to Native tribes.

Sharing of federal revenue from offshore oil and gas development is not a new idea. In 2006, President Bush signed the Gulf of Mexico Energy Security Act, which set a share of 37.5 percent for four Gulf states that produce oil and gas: Texas, Louisiana, Mississippi, and Alabama.

In a recent interview, Begich said he took the best of the Gulf revenue sharing plan and tweaked it for Alaska. Murkowski's and Begich's bills are similar to the Gulf plan in that the revenue received by the state is shared with coastal governments.

"Used to be that with an issue like this you'd have only a few states that saw your perspective," Begich said. "What's different (now) is that you have more activity offshore, more states around the country with the potential to produce oil and gas offshore."

North Carolina's governor has said she has considered supporting offshore drilling in the waters of her state, and Sen. Lindsey Graham of South Carolina has proposed the idea of adding new offshore drilling to the cap-and-trade bill in order to increase support for the bill.

"Coastal state senators see the benefits of this, but senators from landlocked states are harder to convince," said Robert Dillon, a spokesman for Murkowski. "That oil has to come ashore to be processed and piped. That oil doesn't just stay offshore on federal waters. The communities that bear the burden should share in the bounty."

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