American Geological Institute

Government Affairs Program

Update on S. 395: Alaskan Oil Export/Deep-Water Royalty Relief Legislation

(Last updated 12-15-95)

On November 28th, President Clinton signed S. 395 into law, ending a 22-year ban on the export of crude oil from Alaska's North Slope. The legislation also grants royalty relief for oil and gas produced in the deep waters of the Gulf of Mexico. The provisions in S. 395 were included in the omnibus budget reconciliation bill recently vetoed by President Clinton for other reasons. Although S. 395 has now passed as a separate bill, the provisions still count towards the deficit reduction goals in the budget bill.

Elimination of the export ban has been a very high priority for the nation's oil and gas industry, who argue that Alaskan crude has deluged the California and Gulf Coast markets, causing the collapse of many companies in those locales. They have also argued that removal of the ban would increase state and federal revenues by millions of dollars due to increased domestic production. Opponents of this legislation insisted that it was not in the nation's interest to export domestic oil when imports currently exceed 50 percent of domestic consumption. For comparison, oil imports were at 35 percent when the ban was initiated following the oil embargo crisis of 1974. Concern was also voiced that Alaskan oil increasingly will be transported by foreign-flagged vessels that are less seaworthy than the more highly regulated domestic fleet.

The passage of the deep water relief measure ends a hotly debated issue dubbed "corporate welfare" by Republican opponents of the proposition in the House of Representatives who had joined with the pro-environmental block to pass a non-binding resolution earlier in the year that would have dropped royalty relief from the bill in conference. An intense lobbying effort by the oil and gas industry turned 100 votes around by November, and the House accepted the conference report by a large margin. The approved legislation exempts companies that venture into the high-risk deep waters of the central and western Gulf of Mexico from royalty payments. The provision only affects leasing and development in the Gulf west of the Alabama-Florida border. No other region of the Outer Continental Shelf, the Florida coast, or any area subject to moratoria would be affected. This provision is expected to bring in additional revenue streams for the federal government due to increased lease sales in the Gulf but will lose money in the out-years because of the royalty holiday. The measure has been championed by Sen. J. Bennett Johnston (D-LA).

(Contributed by John Dragonetti and David Applegate, American Geological Institute)

(Information obtained from the Washington Post, IPAA Bulletin, and the Environmental and Energy Study Institute Weekly Bulletin)

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Last updated December 15, 1995

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