HQ 0113137 - Coastwise trade; 46 U.S.C. App. 883; 46 U.S.C. App. 289; Merchandise; Passengers; Oil well stimulation - United States International Trade Commision Rulings

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HQ 113137

June 27, 1994

VES-3-15-CO:R:IT:C 113137 GOB

CATEGORY: CARRIER

Robert J. Alario
President
Alario and Associates Incorporated
P.O. Box 23525
New Orleans, Louisiana 70183

RE: Coastwise trade; 46 U.S.C. App. 883; 46 U.S.C. App. 289; Merchandise; Passengers; Oil well stimulation

Dear Mr. Alario:

This is in response to your letter dated May 31, 1994 with respect to your client which proposes to use a foreign-built, foreign-flag, special purpose vessel for certain activities.

FACTS:

Your client proposes to use a foreign-built, foreign-flag, special purpose vessel ("vessel") to store, blend, convert and/or manufacture and pump acids and other components of products for oil and gas well stimulation. In its role as an offshore stimulation vessel, the vessel would engage in formation fracturing services and formation acidizing services.

The formation fracturing service includes the conversion of certain raw materials into a new material which is then pumped with high pressure hydraulic pumps from the ship into the well to stimulate hydrocarbon production. The formation acidizing service differs from the formation fracturing service in that the objective of the formation acidizing service is to repair and enhance the well by chemically removing minerals.

The vessel's equipment includes chemical blending equipment, plumbing equipment, units which store and dispense products, electronic equipment, and high pressure plumbing equipment. The vessel also carries various raw materials on board.

You summarize the work of the vessel as follows. It takes aboard raw materials which it uses to stimulate production from oil and gas wells. After a service contract is issued, it proceeds to the work site and begins blending certain base ingredients into new products, as the specific contract requires. The new products are
pumped directly into the well from the vessel. You state that the products "are used or `consumed' at the jobsite. They are not transshipped or offloaded to any other point from which they are then utilized."

ISSUE:

Whether the vessel's specialized function and field service involves the transportation of passengers and/or merchandise between coastwise points within the meaning of 46 U.S.C. App. 289 and 46 U.S.C. App. 883.

LAW AND ANALYSIS:

Statutory and Regulatory Background

Generally, the coastwise laws prohibit the transportation of passengers or merchandise between points in the United States embraced within the coastwise laws in any vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States.

The coastwise law applicable to the carriage of passengers is found in 46 U.S.C. App. 289 and provides that:

No foreign vessel shall transport passengers between ports or places in the United States either directly or by way of a foreign port, under a penalty of $200 for each passenger so transported and landed.

46 U.S.C. App. 883, the coastwise merchandise statute often called the "Jones Act", provides in part that no merchandise shall be transported 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 vessel other than a vessel built in, documented under the laws of, and owned by citizens of the United States.

The coastwise laws generally apply to points in the territorial sea, which is defined as the belt, three nautical miles wide, seaward of the territorial sea baseline, and to points located in internal waters, landward of the territorial sea baseline.

19 CFR 4.50(b) states as follows:

A passenger within the meaning of this part is any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business.

Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (43 U.S.C. 1333(a); "OCSLA"), provides in 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 installations 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 within a state."

Under the foregoing provision, we have 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 outer Continental Shelf ("OCS"). We have applied that principle to drilling platforms, artificial islands, and similar structures, as well as to devices attached to the seabed of the outer Continental Shelf for the purpose of resource exploration operations.

Previous Customs Rulings

In Ruling 108223 dated March 13, 1986, which involved the provision of stimulation services to OCS wells, we stated as follows:

...we have held that the use of a vessel to blend, mix, and place cement in oil wells is not a use of the vessel in coastwise trade. On the basis of this ruling, we have ruled that the use of a non-coastwise-qualified vessel in oil well stimulation, described as the blending of specific mixtures of water, hydrocloric acid and other agents and then pumping the blended mixture into an oil field, is not coastwise trade. We have ruled that the transportation of the cement used in the oil wells and that of the chemicals, etc., used in the oil well stimulation is not coastwise trade subject to 46 U.S.C. 883 because such transportation is only of supplies incidental to the vessel's service which are consumed in that service.

Accordingly, the use of the [vessel] as described, for oil/gas well stimulation services, whether the oil/gas wells are on the United States OCS or in territorial waters, would not violate the coastwise laws.

Ruling 112218 dated July 22, 1992 involved non-coastwise- qualified barges used as oil and gas well drilling, workover, and service vessels. Certain of the facts were described as follows:

..."workover" and "service" barges are used as platforms or transport vessels for work to be performed at a well. Such work may consist of removing broken tools from a well shaft, repairing tools aboard a barge and placing them back in a well shaft, well cleaning, and well stimulation (the injection of
chemicals into a well in order to stimulate the production of oil and gas). Transportation services may include the carriage of cement, chemicals, and other materials for use in drilling, as well as crew stores.

Ruling 112218 held that:

In view of the fact that the vessels in question will have aboard only necessary equipment and crew members during their movements, we have determined that no coastwise laws will be violated in the course of the proposed vessel voyages.

With respect to the issue of whether "merchandise" was involved, Ruling 112218 stated:

Not included within the general meaning of merchandise is the equipment of a vessel which will be used by that vessel. Such materials have been defined as articles, "...necessary and appropriate for the navigation, operation, or maintenance of the vessel and for the comfort and safety of the persons on board." (Treasury Decision 49815(4), March 13, 1939). Customs has specifically ruled that, "Vessel equipment placed aboard a vessel at one United States port may be removed from the vessel at another United States port at a later date without violation of the coastwise laws." (Customs Ruling Letter 102945, November 8, 1978).

In Ruling 103995 dated July 16, 1979, which involved the engagement in oil field stimulation by a non-coastwise-qualified vessel, we stated as follows:

Headquarters ruling of March 8, 1969, file 216132, to the same applicant held that the carriage of cement on barge no. 809, if incidental to the blending, mixing, and placing of cement in the wells, did not constitute a use in coastwise trade.

...the supplies carried, such as hydrochloric acid, are merely incidental to the vessels' [sic] service and meant to be consumed in that service. Therefore, 46 U.S.C. 883 would not apply.

Determinations

After a consideration of the facts of this ruling request, the applicable statutes and regulations, and the applicable precedent, we make the following determinations.

The vessel's crew and the well stimulation personnel carried on the vessel are not "passengers" within the meaning of 19 CFR 4.50(b) because they are connected with the operation and business of the vessel. Accordingly, there is no transportation of passengers within the meaning of 46 U.S.C. App. 289.

Based on the facts presented, the materials carried on board the vessel, including materials related to the function of the subject special purpose vessel, are not merchandise within the meaning of 46 U.S.C. App. 883. Accordingly, there is no transportation of merchandise within the meaning of 46 U.S.C. App. 883. As we stated in Ruling 108223, the transportation "is only of supplies incidental to the vessel's service which are consumed in that service."

HOLDING:

The vessel's specialized function and field service does not involve the transportation of passengers and/or merchandise within the meaning of 46 U.S.C. App. 289 and 46 U.S.C. App. 883. Accordingly, the use of the vessel, as described, will not violate the coastwise laws.

Sincerely,

Arthur P. Schifflin
Chief

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