HQ 115293 - Floating, Production, Storage, and Offloading (FPSO) units; Outer Continental Shelf Lands Act; Coastwise Trade; 43 U.S.C. § 1333(a); 46 U.S.C. App. §§ 883, 883-1 - United States International Trade Commision Rulings

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HQ 115293

March 7, 2001

VES-3-21-RR:IT:EC 115293 GEV

CATEGORY: CARRIER

P.A.. Richardson
Captain, U.S. Coast Guard
Chief, Office of Operating and Environmental Standards
2100 Second Street, S.W.
Washington, D.C. 20593-0001

RE: Floating, Production, Storage, and Offloading (FPSO) units; Outer Continental Shelf Lands Act; Coastwise Trade; 43 U.S.C. § 1333(a); 46 U.S.C. App. §§ 883, 883-1

Dear Captain Richardson:

This is in response to your letter dated February 16, 2001, requesting a ruling concerning a variety of issues associated with the operation of Floating, Production, Storage, and Offloading (FPSO) units. The ruling you seek is set forth below.

FACTS:

Generally, FPSOs will remain on station on the Outer Continental Shelf (OCS) using either sophisticated anchoring systems or dynamic positioning systems and will be connected to the OCS by piping from wellheads for the recovery and production of oil or natural gas. It is expected that FPSOs will remain on station and will store oil or natural gas collected and produced from these wells. The oil or natural gas will, as necessary, be transferred to shuttle tankers for delivery to either a U.S. port or deepwater port located on the OCS. In the event of an emergency, an FPSO may be moved off station while laden with oil or natural gas. However, under most circumstances, it is expected that an FPSO that was moved off station in an emergency would return to its original location on the OCS before offloading any oil or natural gas that might be onboard to a shuttle tanker.

ISSUES:

Whether an FPSO operated in the manner described above would be required to be coastwise-qualified (i.e., U.S.-built, owned and documented) pursuant to 46 U.S.C. App. § 883.

Whether an FPSO that was fully or partially loaded with oil or natural gas that detaches from its location on the OCS, under either routine or emergency conditions, would violate 46 U.S.C. App. § 883 if it offloaded its cargo at either a U.S. port or a deepwater port located on the OCS.

Whether a shuttle tanker transporting oil or natural gas from an FPSO located on the OCS to either a U.S. port or deepwater port located on the OCS would be required to be coastwise-qualified pursuant to 46 U.S.C. App. § 883.

Whether 46 U.S.C. App. § 883-1 affects the answers to questions 1- 3 above, and if so, how?

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). Pursuant to § 4.80b(a), Customs Regulations (19 CFR § 4.80b(a)), promulgated pursuant to 46 U.S.C. App. § 883, a coastwise transportation of merchandise takes place when merchandise laden at one coastwise point is unladen at another coastwise point.

Title 46, United States Code Appendix, § 883-1 (the "Bowaters Act") created a narrow exception for certain corporations which could not otherwise meet the stringent 75 percent ownership requirement of 46 U.S.C. App. § 802 for vessels to be documented for the coastwise trade. It allows certain corporations to document vessels for coastwise trade, provided that the vessels are only used to carry proprietary cargo owned by either the corporation or its affiliates. To qualify as a "Bowaters corporation" a corporation must be incorporated under U.S. laws and satisfy five requirements: a majority of its officers and directors must be U.S. citizens; at least 90 percent
of its employees must be U.S. residents; it must be engaged primarily in a manufacturing or mineral industry in the U.S.; the aggregate book value of the corporation's vessels cannot exceed ten percent of the aggregate book value of the corporation's assets; and it must purchase or produce in the U.S. at least 75 percent of the raw materials used or sold in its operations. (Emphasis added)

The Bowaters Act also places several restrictions on Bowaters corporations. These corporations cannot operate vessels which they own as common carriers for the carriage of non-proprietary cargo. The Bowaters Act further provides that no vessel owned by a Bowaters corporation "shall engage in the fisheries or in the transportation of merchandise or passengers for hire between points in the United States...except as a service for a parent or subsidiary corporation." Bowaters corporations are also restricted in their ability to charter out vessels to other parties.

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.

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 coastwise laws 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)

Additional statutory authority extending the applicability of the coastwise laws includes the Deepwater Port Act of 1974 (the “Act”; 33 U.S.C. §§ 1501 et seq.). This legislation provides that the laws of the United States, generally, are made applicable to deepwater ports (as defined in § 1502(10) of the Act) pursuant to § 1518(a)(1) of the Act and only the “Customs laws” (see title 19, United States Code) are specifically made inapplicable under § 1518(d). The merchandise coastwise restrictions which are set forth in 46 U.S.C. App. § 883 are contained within the navigation laws of the United States (not the “Customs laws”) and are, therefore, specifically applicable to deepwater ports (e.g., the Louisiana Offshore Oil Port (LOOP)). Dispositive of this point is the language of § 1644(b) of title 19, United States Code (19 U.S.C. § 1644(b)), wherein it is stated:

For purposes of section 1518(d) of Title 33, the term “customs laws administered by the Secretary of the Treasury” shall mean this [Chapter 4 of title 19, United States Code] and any other provision of law classified to [title 19, United States Code].

Accordingly, the coastwise laws are applicable to deepwater ports as discussed above.

With respect to the issues presented for our consideration, we note at the outset that the FPSOs operated as described above meet the two-part test of the OCSLA (i.e., (1) permanently or temporarily attached to the OCS; and (2) exploring for, developing or producing resources therefrom). Consequently, the subject FPSOs would be considered coastwise points pursuant to the OCSLA. That, however, does not in and of itself require the FPSOs to be coastwise-qualified. As long as any oil or natural gas laden aboard an FPSO at its point of attachment on the OCS is not transported by the FPSO to another coastwise point where it is unladen, there is no coastwise transportation of merchandise and therefore the FPSO need not be coastwise-qualified. In the event an either fully or partially loaded FPSO detaches from its location on the OCS under either routine or emergency conditions and subsequently offloads its cargo at a different coastwise point, a violation of 46 U.S.C. App. § 883 would arise. We note, however, that with respect to the latter condition (i.e., an emergency), possible mitigation of any penalty assessed may be available depending on the circumstances giving rise to the violation.

Since the subject FPSOs are considered coastwise points pursuant to the OCSLA., any shuttle tanker transporting merchandise (e.g., oil or natural gas) between the FPSO and the United States mainland or any other coastwise point would be required to be coastwise-qualified.

With respect to the applicability of 46 U.S.C. App. § 883-1 to the FPSO operations under consideration, in view of the fact that this statute is a limited exception to the provisions of 46 U.S.C. App. § 883, in those instances where a vessel must be coastwise-qualified (i.e., the transportation of merchandise by either the FPSOs or shuttle tankers between coastwise points), satisfaction of the requirements of § 883-1 would allow such vessels to lawfully engage in the coastwise trade. We note, however, that the information contained in your letter is insufficient for us to render a definitive ruling with respect to the applicability of 46 U.S.C. App. § 883-1 to the FPSOs and shuttle tankers referenced herein.

HOLDINGS:

An FPSO operated in the manner described above would not be required to be coastwise-qualified (i.e., U.S.-built, owned and documented) pursuant to 46 U.S.C. App. § 883, provided it does not transport cargo (including oil or natural gas) taken onboard at its OCS location to another coastwise point where it is offloaded.

An FPSO that was fully or partially loaded with oil or natural gas that detaches from its location on the OCS, under either routine or emergency conditions, and offloads its cargo at either a U.S. port or a deepwater port located on the OCS, must be coastwise-qualified pursuant to 46 U.S.C. App. § 883. Any FPSO not so qualified would be subject to the penalty provisions of the aforementioned statute. In the event of an emergency situation, mitigation of any penalty assessed may be available depending upon the circumstances giving rise to the violation.

A shuttle tanker transporting oil or natural gas from an FPSO located on the OCS to either a U.S. port or deepwater port located on the OCS would be required to be coastwise-qualified pursuant to 46 U.S.C. App. § 883.

Assuming, arguendo, the vessels described in questions 1-3 would satisfy the criteria set forth in 46 U.S.C. App. § 883-1, such vessels may lawfully engage in the coastwise trade without incurring violations of 46 U.S.C. App. § 883.

Sincerely,

Larry L. Burton

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