Louisiana Prepares to Securitize Potential Offshore Revenue

DALLAS — Louisiana’s Coastal Protection and Restoration Financing Corp. is asking for help in its quest to issue debt based on hundreds of million of dollars in offshore energy royalties that won’t begin flowing into the state treasury for another seven years.

The special-purpose public corporation on Monday voted to ask the State Bond Commission for its advice in selecting underwriters and an econometric consultant to help determine the amount of annual royalty revenues it can expect and how to issue bonds that would be supported by those revenues.

The 15-member coastal agency was established by the Legislature in 2007 to manage the state’s increased share of royalties on oil and natural gas production from new federal leases in outer continental shelf waters in the Gulf of Mexico off Louisiana. The corporation is authorized to issue bonds based on 100% of the royalties.

The state will receive the additional revenue under a law passed by Congress in 2006 that increased the offshore royalties for Louisiana, Alabama, Mississippi, and Texas, to 27% until fiscal 2017, when the royalty rate will go to 37.5%. The states will receive royalties of 30%, with coastal counties and parishes receiving 7.5%.

The higher royalties went into effect with a lease sale in March 2008 that brought in $3.7 billion in high bids.

The revenue is expected to be $8 million to $10 million a year until platforms in the newly leased areas begin commercial production in 2017.

When the areas reach full production, Louisiana’s share of the revenue could be as high as $150 million a year, said Chris Macaluso, director of communications for the Governor’s Office of Coastal Activities.

“What we want to do is within the next three to five months get people on board who can tell us how much we can expect in annual revenues, and how we can securitize those revenues before we get them,” he said.

The federal Minerals Management Service expects to complete the rules soon that will provide an accurate basis for determining the expected revenues for each state, Macaluso said.

Macaluso said the state has developed a coastal protection fund, based on past years’ revenue surplus, of $1.5 billion. That fund will be depleted by 2013, he said, and the state no longer enjoys a revenue surplus.

“We are looking for some way to tide us over those four years between when the fund is depleted and the higher revenues begin in 2017,” he said.

Without the proceeds from bonds supported by the future revenue, Macaluso said, it will be difficult to finance projects designed to protect the state from hurricanes and reduce the erosion of coastal areas to the ocean.

“We’re losing coastal areas at the rate of 15 to 25 miles each year, and that is when we don’t have a hurricane,” he said.

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