HQ 115099 - Mobile Offshore Drilling Unit; Coastwise Trade; Outer Continental Shelf; 43 U.S.C. § 1333(a); 46 U.S.C. App. § 883 - United States International Trade Commision Rulings

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HQ 115099

September 27, 2000

VES-3-15-RR:IT:EC 115099 GEV

CATEGORY: CARRIER

George H. Robinson, Jr., Esq.
Liskow & Lewis
822 Harding Street
P.O. Box 52008
Lafayette, Louisiana 70505-2008

RE: Mobile Offshore Drilling Unit; Coastwise Trade; Outer Continental Shelf; 43 U.S.C. § 1333(a); 46 U.S.C. App. § 883

Dear Mr. Robinson:

This is in response to your letters of June 15, 2000, August 31, 2000, and September 12, 2000, requesting a ruling on behalf of your clients, Amoco Production Company (“Amoco”) and BP Exploration & Oil Inc. (“BPX”) (collectively referred to as “BP Amoco”), regarding their proposed use of the foreign-flag mobile offshore drilling unit, DISCOVERER ENTERPRISE, (the “drill ship”) to conduct oil and gas well drilling, testing, completion, unloading and clean-up activities at multiple prospective sites in the deep water of the Gulf of Mexico on the Outer Continental Shelf (OCS). As you know, we also discussed this matter in a meeting on September 7, 2000, here at Customs Headquarters. Our ruling is set forth below.

FACTS:

Amoco and BPX are the Minerals Management Service designated operators in numerous blocks in the deepwater Gulf of Mexico, on the Outer Continental Shelf. The plans for drilling and preparing such blocks for long term production may be summarized as follows.

BP Amoco plans to use the foreign-built and flagged drill ship in the operation, because there is only one U.S.-built and flagged drilling vessel capable of drilling in the prospect’s water depths, which range from approximately 5480 feet to 6270 feet. At each prospective site
affected by this request, there will be no installation of any devices or artificial islands permanently or temporarily attached to the seabed for the purpose of exploring for, developing, or producing hydrocarbons, except that some of the sites will have been pre-drilled and temporarily abandoned (i.e., coastwise points). This request addresses only those drill sites where no installation of devices for mineral exploration have been installed (i.e., a “pristine ocean floor). Consequently, unless otherwise noted, all references to “drill sites” will refer to those pristine sea floors.

The drill ship will not call at any port of the United States or place within the jurisdiction of the customs laws of the United States other than as noted below.

The drill ship is totally dynamically positioned, and no anchors, chains, or cables will be deployed in the seabed to hold the vessel in position at any time during the operation. The dynamic positioning system consists of the use of electronically controlled (propeller driven) thrusters to hold the drill ship on station during operations.

The respective drill sites will be marked for direction of the drill ship to the drill site by an array of “transponders” which will be temporarily installed. The array consists of 5 acoustic transponders (commonly referred to as COMPATT’S) that are placed in a star-shaped pattern at a distance about 35% of the water depth from the well location. Each transponder assembly consists of 200 pounds of lead anchor, 20 feet of hemp rope and the transponder (8 inch diameter by 30 inches long) with a 20 inch cube float around the cylinder. The assembly is installed by a remote operated vehicle (ROV) which swims down and places the assembly at the appropriate location on the seabed. The ROV is considered part of the drill ship’s equipment and gear necessary to fulfill its exploration and production mission. All of this equipment will be fixed on the drilling ship upon arrival at each prospective site.

The transponders communicate with the dynamic positioning system on the drill ship to initially guide it onto the drill site; thereafter the transponders serve to communicate with the dynamic positioning system to maintain the vessel on station.

When the drill ship arrives at the first drill site on the OCS, it will be transporting only members of its regular complement, those personnel necessary for the routine functioning of the unit, including crew, industrial personnel, general maintenance and support personnel, and
only legitimate equipment, stores and supplies for use in its nautical and drilling operations. The DISCOVERER ENTERPRISE is equipped with the capability for “dual-activity” drilling, which allows for drilling tasks associated with a single well to be accomplished in a concurrent rather than a sequential manner, by utilizing two complete drilling systems under a single derrick aboard the rig. To permit dual-activity capability, the drill ship will be equipped with two identical drilling systems which will possess a rotary table, complete set of travelling gear, a top drive, draw works, and a motion compensator.

At the initial drill site, and each subsequent drill site, the drill ship will drill and possibly test a well, leaving a subsurface well-head approximately ten (10) feet tall. The drill ship will have an extended well-testing capability, allowing the unit to store up to 120,000 barrels of hydrocarbons, produced during testing, in tanks in the hull.

Additionally, it is anticipated that the drill ship will also produce by- products of the produced hydrocarbons. Such by-products basically consist of produced water that has been separated aboard the drill ship from the merchantable hydrocarbons but with an oil content in excess of EPA maximum volume for discharge overboard. The produced water will also be stored aboard the drill ship in separate tanks.

After completion of planned well operations at a drill site, the vessel plans to move to other described drill sites on the OCS for the purpose of drilling other wells, and upon arrival at those drill sites, there will be no installation or other devices or artificial islands for developing or producing resources, other than the transponder array. The transponder array will be removed after the drill ship departs each drill site, and another transponder array will be temporarily set in place at the next drill site. Subsequent to completion of planned well operations, when the drill ship moves from the initial drill site it will be carrying produced hydrocarbons and produced water in its storage tanks.

The drill ship will not be transporting any passengers or any other equipment and materials except as noted immediately above. The same will apply to the vessel when it moves from drill site to drill site on the OCS. In the event that supplies or personnel must be mobilized from the United States to the drill site, BP Amoco will utilize coastwise-qualified vessels.

BP Amoco anticipates that once the drill ship’s hull reaches a sufficient quantity of produced hydrocarbons and produced water to warrant off-loading, a coastwise-qualified barge will meet the drill ship at a point on the high seas (outside of the territorial sea) to accomplish the task. The material loaded onto the coastwise-qualified vessel will then return to a Gulf Coast area refinery for processing and disposal. The drill ship, at the time of off-loading, will have disengaged from the coastwise point (i.e., the temporarily abandoned well). The drill ship will not transport the produced hydrocarbons or the produced water from one coastwise point to another, specifically including temporarily abandoned well sites.

ISSUES:

Whether the transportation of hydrocarbons and/or produced water by the foreign-flagged drill ship from a coastwise point (i.e., a well which has been drilled and equipped with devices and equipment to produce hydrocarbons, on the OCS, within the Exclusive Economic Zone (EEZ)), to a location on the high seas within the EEZ for transshipment to a coastwise-qualified barge would constitute a violation of 46 U.S.C. App. § 883.

Whether the movement of the foreign-flagged drill ship from one coastwise point to another, when laden with hydrocarbons and/or produced water, loading additional hydrocarbons and produced water at coastwise and non-coastwise points but not unlading at another coastwise point, constitutes a violation of 46 U.S.C. App.

Whether the temporary placement of the transponder array at the drill sites where there is no other device or installation of any type would constitute a coastwise point prior to arrival of the subject drill ship on location at the respective drill sites.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, § 883 (46 U.S.C. App. § 883, the merchandise coastwise law 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 one that is coastwise-qualified (i.e., U.S.-built, owned and documented).

Section 4.80b(a), Customs Regulations (19 CFR § 4.80b(a)), promulgated pursuant to the aforementioned statute, provides, in pertinent part, as follows:

A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws (“coastwise point”) is unladen at another coastwise point,”
(Emphasis added)

The coastwise laws generally apply to points in the territorial sea, 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, in cases where the baseline and the coastline differ. The U.S. EEZ is defined in Presidential Proclamation 5030 of March 10, 1983 (48 FR 10605), as extending outward for 200 nautical miles from the baseline from which the territorial sea is measured.

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 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.

The statute was substantively amended by the Act of September 18, 1978 (Pub. L. 95-372, Title II, § 203, 92 Stat. 635), to add, among other things, the language concerning temporary attachment to the seabed. The legislative history associated with this amendment is telling, wherein it is stated that:

...It is thus clear that Federal law is to be applicable to all activities or all devices in contact with the seabed for exploration, development, and production. The committee intends that Federal law is, therefore, to be applicable to activities on drilling rigs, and other watercraft, when they are connected to the seabed by drillstring, pipes, or other appurtenances, on the OCS for exploration, development,
or production purposes. [House Report 95-590 on the OCSLA Amendment of 1978, page 128, reproduced at 1978 U.S.C.C.A.N. 1450, 1534.]

Under the foregoing provision, we have ruled that the Customs and navigation laws, including the coastwise laws, the laws on entrance and clearance of vessels, and the provisions for dutiability of merchandise, are extended to mobile oil drilling rigs during the period they are secured to or submerged onto the seabed of the OCS (Treasury Decision (T.D.) 54281(1)). We have applied the same principles 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, including warehouse vessels anchored over the OCS when used to supply drilling rigs on the OCS. (see Customs Service Decisions (C.S.D.s) 81-214 and 83-52, and Customs Ruling Letter 107579, dated May 9, 1985)

With respect to the issues presented for our consideration, we note the following.

The transportation of hydrocarbons and/or produced water by the drill ship from a coastwise point on the OCS to a location on the high seas (i.e., beyond the 3-mile territorial sea where there is no attachment for purposes of the OCSLA ) where the hydrocarbons and/or produced water are transshipped to a coastwise-qualified barge does not constitute coastwise trade in view of the fact that the point of transshipment (i.e., unlading) is not a coastwise point. Consequently, the foreign-flag drill ship is not prohibited from engaging in this activity.

Likewise, the lading of hydrocarbons and/or produced water at successive coastwise points without their being unladed by the drill ship at a coastwise point does not constitute coastwise trade as defined above and may be accomplished by the subject foreign-flag vessel.

As discussed in our meeting of September 7, 2000, and reflected in your letter of September 12, 2000, our determination with respect to the first two issues for our consideration renders moot the third issue (i.e., whether the transponder array constitutes a coastwise point).

HOLDINGS:

The transportation of hydrocarbons and/or produced water by the foreign-flagged drill ship from a coastwise point (i.e., a well which has been drilled and equipped with devices and equipment to produce hydrocarbons, on the OCS, within the EEZ) to another location on the high seas within the EEZ for transshipment to a coastwise-qualified barge would not constitute a violation of 46 U.S.C. App. § 883.

The movement of a foreign-flagged drill ship from one coastwise point to another, when laden with hydrocarbons and/or produced water, loading additional hydrocarbons and produced water at coastwise and non-coastwise points but not unlading at another coastwise point, does not constitute a violation of 46 U.S.C. App.

As discussed in the Law and Analysis portion of this ruling, the above two holdings renders moot the third issue for our consideration (i.e., whether the transponder array constitutes a coastwise point).

Sincerely,

Larry L. Burton

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