The Myth of Oil Drilling Royalties

One of the most noteworthy omissions in the 2010 Assembly session is the complete absence of any comprehensive measure to upgrade our state’s transportation system.  (A small exception is the “indexing” bill proposed by Sen. Hanger and myself which increases state maintenance funds to VDOT).

Some of that is driven by the economic recession.  Some of it is driven by inertia or past failures.  And some of it is driven by the myth that we can subsidize our future transportation needs through “oil drilling royalties.”

To paraphrase Winston Churchill — the concept of Virginia receiving royalties from off-shore drilling is a fraud wrapped in a chimera concealed within a pyramid scheme.

And, yet, some members of the State Assembly — including an apparent majority of the Senate and House — believe that it’s appropriate public policy to “allocate” these unrealized funds before they even exist.

Let’s review the basic facts:

1.  Currently, there are no off-shore drilling operations in the coastal waters of Virginia.  Indeed, it’s not certain that there are any petroleum deposits which can be tapped cost-efficiently.  (there is a surplus of natural gas off our coast – but it’s far more cost-effective to obtain it from existing domestic sources)

2.  Current Federal law prohibits drilling within 50 miles of the East Coast.  That is the absolute minimum standard to protect our coastal environment and U.S. Navy operations.  That means that any future off-shore drilling will take place in waters belonging to the U.S.  — not Virginia.

3.  The U.S. Congress has recently rejected the concept that coastal states like Virginia would receive royalties from new drilling off our coastline, if such drilling did occur.  Quite simply, there is no incentive for inland states to share revenue which would otherwise go to the Feds.

In summary, this is a train going nowhere. 

I’ve written earlier on the geologic, political and legal hurdles to off-shore drilling.  Personally, I’m fine with oil and gas exploration off our coasts — if it’s there we ought to know.  That’s a separate issue.

However, we cannot predicate Virginia’s public policy — especially for a key issue like transportation — on a sum of money that we all know will never exist. 

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