HQ 0109340 - Applicability of the coastwise laws to movement and use of Canadian-flag drillship and support vessels on the United States outer continental shelf off the North Slope of Alaska - United States International Trade Commision Rulings

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HQ 109340

March 1, 1988

VES-3-15 CO:R:P:C 109340 PH

CATEGORY: CARRIER

Mr. R. F. Calnan
Commodity Tax Section
Gulf Canada Resources Ltd.
Post Office Box 130
Calgary, Alberta, Canada T2P 2H7

RE: Applicability of the coastwise laws to movement and use of Canadian-flag drillship and support vessels on the United States outer continental shelf off the North Slope of Alaska

Dear Mr. Calnan:

This in response to your letter of January 21, 1988, in which you request a ruling on the applicability of the coastwise laws to the movement of a Canadian-flag drillship between drilling sites on the United States outer continental shelf and between such a site and a winter storage site.

FACTS:

A subsidiary of your company is considering the use of a Canadian-flag drillship and Canadian-flag support vessels for the drilling of up to three oil wells in the Chuckchi Sea. These wells would be located more than three miles from the United States coastline. The vessels would proceed from the Canadian Beaufort Sea in late October of 1988 directly to a designated drilling location on the outer continental shelf (OCS) where drilling operations would be commenced. In late December, or early January of 1989, the drillship would be forced to cease drilling and move to a place where it would be sheltered from the winter ice pack. The most convenient point for such shelter would be in the territorial waters of the United States at Kotzebue Sound.

In the spring, as soon as ice conditions permitted, the drillship would leave shelter and return to the well site to continue drilling. If ice conditions were not favorable at the initial drilling site, the drillship would proceed to either of
the other locations and proceed with drilling. Eventually, it would return to the first location to complete the well. The drillship may return to any of the drilled wells to complete further testing.

It is requested that we rule on the following issues:

ISSUES:

1. Does the movement of the drillship by the Canadian-flag support vessels from the first drilling site on the OCS to the winter storage site in Kotzebue Sound violate the coastwise laws?

2. Does the movement of the drillship by the Canadian-flag support vessels from the winter storage site in Kotzebue Sound back to the initial drilling site violate the coastwise laws?

3. Does the movement of the drillship by the Canadian-flag support vessels from one drilling site on the OCS to other completed or partially completed drilling sites on the OCS violate the coastwise laws?

LAW AND ANALYSIS:

Section 27 of the Act of June 5, 1920, as amended (41 Stat. 999; 46 U.S.C. App. 883, often called the Jones Act), provides, in pertinent part, that:

No merchandise shall be transported by water, or by land and water, on penalty of forfeiture of the mer- chandise (or a monetary amount up to the value thereof as determined by the Secretary of the Treasury to be recovered from any consignor, seller, owner, importer, consignee, agent, or other person or persons so trans- porting or causing said merchandise to be transport- ed), between points in the United States ... embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States ....

Section 4370 of the Revised Statutes, as amended (R.S. 4370; 46 U.S.C. App. 316(a), the coastwise towing statute), prohibits the towing of any vessel, other than a vessel in distress, by a vessel not documented under the United States flag to engage in the coastwise or Great Lakes trade between ports or places in the United States embraced within the coastwise laws, either directly or by way of a foreign port or place, or for any part of such towing, or such towing between points in a harbor of the United States.

Section 8 of the Act of June 19, 1886 (24 Stat. 81; 46 U.S.C. App. 289), as interpreted by the Customs Service, prohibits the transportation of passengers between points in the United States embraced within the coastwise laws, either directly or via a foreign port, in a non-coastwise-qualified vessel (see 46 U.S.C. App. 883 and 46 U.S.C. 12106). For purposes of this statute and the Customs Regulations regarding vessels, "passenger" is defined in section 4.50(b), Customs Regulations (19 CFR 4.50(b)), as "... any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business."

For purposes of the coastwise laws, a point in United States territorial waters is considered a point embraced within the coastwise laws. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, adjacent to the coast of the United States and seaward of the territorial sea baseline.

Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (67 Stat. 462; 43 U.S.C. 1333(a)) (OCSLA), provides, in pertinent part, that the laws of the United States are extended to:

... the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and all installa- tions and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom ... to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction located within a State."

Under this provision, Customs has ruled that the coastwise laws and other Customs and navigation laws are extended to mobile oil drilling rigs during the period they are secured to or submerged onto the seabed of the United States outer continental shelf (OCS). The same principles have been applied to drilling platforms, artificial islands, and similar structures, as well as devices attached to the seabed of the OCS for the purpose of resource exploration operations.

In this case, after the drillship is attached to the seabed at the initial drilling site on the OCS, that site would be considered a coastwise point. Once drilling was started, the site would continue to be considered a coastwise point, even if the drillship left it, unless the well site was determined to be nonproductive and was capped or plugged and abandoned (see Customs Service Decision 83-13, copy enclosed). The towing of the drillship from the initial drilling site to a point in United

States territorial waters, such as a winter shelter location, by the Canadian-flag support vessels would be prohibited by 46 U.S.C. App. 316(a).

Just as towing of the drillship by the Canadian-flag support vessels from the initial drilling site to the winter shelter location in United States territorial waters would be prohibited by section 316(a), so the towing of the drillship by those vessels from the winter shelter location back to the initial drilling site would be prohibited by that provision. Further, the towing of the drillship by the Canadian-flag support vessels from one drilling site on the OCS to other completed or partially completed drilling sites on the OCS would, under the OCSLA, be treated as towing between points in the United States embraced within the coastwise laws and would violate section 316(a).

For your information, we note that the use of a foreign-flag drill vessel for drilling and exploration purposes in United States waters or the waters over the United States OCS is not, by itself, considered coastwise trade and would not be prohibited by the coastwise laws (see our ruling VES-3-15-CO:R:CD:C 106448 PH, November 30, 1983, copy enclosed). Accordingly, the use of the drillship you describe would not violate the coastwise laws if the Canadian-flag drillship was used only for drilling and all towing of it between coastwise points was performed by United States-flag coastwise-qualified vessels.

HOLDINGS:

1. The towing of the drillship by the Canadian-flag support vessels from the first drilling site on the OCS to the winter storage site in Kotzebue Sound violates 46 U.S.C. App. 316(a).

2. The towing of the drillship by the Canadian-flag support vessels from the winter storage site in Kotzebue Sound back to the initial drilling site violates 46 U.S.C. App. 316(a).

3. The towing of the drillship by the Canadian-flag support vessels from one drilling site on the OCS to other completed or partially completed drilling sites on the OCS violates 46 U.S.C. App. 316(a).

Sincerely,

Kathryn C. Peterson

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