Louisiana Eyes Royalties for Coastal Bonds

DALLAS - Louisiana plans to use the state's share of royalties from oil and gas production in the deep Gulf of Mexico to support bonds that would finance coastal restoration and hurricane protection efforts.

The state soon will begin receiving additional revenues under a law passed by Congress in 2006 that increased the share of royalties for states from oil and gas production on federal leases in the Gulf of Mexico's Outer Continental Shelf.

The Gulf of Mexico Energy Security Act of 2006 expanded the available lease area and increased Louisiana's royalty on federal leases from 27% to 37.5%. The law went into effect in mid-March with a lease sale that brought in $3.7 billion in high bids.

Alabama, Mississippi, and Texas will also receive the higher royalties.

The Louisiana Coastal Protection and Restoration Authority last week adopted a plan for fiscal 2009 that includes state funds of $80.5 million for storm protection projects and $143.5 million for coastal restoration projects.

The plan also identifies $1.23 billion in unmet needs in fiscal 2009, most of which is attributed to the state's need to provide matching funds for levee projects in the New Orleans area by the U.S. Army Corps of Engineers. The project shortfalls will total $748 million in fiscal 2010 and $642 million in fiscal 2011.

David Miller, assistant secretary for public works and hurricane flood protection at the Louisiana Department of Transportation and Development, said the offshore royalty revenue bonds will be one of several sources for coastal protection financing.

"We expect to receive royalties of about $8 million to $10 million a year until 2017, when platforms on those leases now being sold will begin producing oil and gas," Miller said. "At that point we should begin seeing royalties of $400 million to $600 million a year."

The Legislature passed a measure last year creating the Louisiana Coastal Protection and Restoration Funding Corp., with the authority to issue bonds based on 100% of the state's OCS royalties.

Voters approved an amendment to the state constitution in 2006 that expanded its dedication of state mineral lease revenues to coastal restoration efforts to include "coastal wetlands conservation, coastal restoration, hurricane protection, and infrastructure directly impacted by coastal wetland losses." The amendment also specifically dedicates the OCS revenues to coastal restoration and hurricane protection.

Miller said it could be difficult to securitize the OCS revenues until a clearer picture emerges of the potential revenue stream.

"We've talked to the financial community, and the concern is that these revenues don't even exist yet," he said. "There needs to be a steady revenue stream before ratings could be determined. OCS revenue bonds will certainly be a tool, but the state is going to take the conservative view. We don't want to over-extend ourselves."

At the recently completed special session, lawmakers allocated $300 million from the state's fiscal 2007 surplus into the Coastal Protection and Restoration Trust Fund to pay for coastal projects, but that money isn't included in the coastal authority's fiscal 2009 plan.

"We had to approve this plan before the governor signed that bill," Miller said. "So it is there, and it reduces the shortfall next year to a little under $1 billion."

The state will look for a variety of sources to provide the matching funds needed for the Corps of Engineers levee projects in New Orleans, Miller said.

The state is considering asking for up to 30 years to meet the match, Miller said, up from the current four years.

"The amount of work being done, and needed to be done, in New Orleans is amazing," he said. "There are more than $14 billion in projects under way, and another $6 billion in the proposed federal budget for fiscal 2009. We are going to need $1.78 billion to match that $6 billion."

Miller called the struggle for matching funds "a huge problem."

"We went from having to provide $25 million to $50 million a year in matching funds for flood projects to needing $600 million to $900 million a year for coastal projects," he said.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER