HQ W116737 - HQ 115099 Modified; Mobile Offshore Drilling Unit; Coastwise Trade; Outer Continental Shelf; 43 U.S.C. § 1333(a); 46 U.S.C. § 55102 - United States International Trade Commision Rulings

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HQ W116737

February 16, 2007

VES-3-15-RR:BSTC:CCI W116737 GOB

CATEGORY: CARRIER

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

RE: HQ 115099 Modified; Mobile Offshore Drilling Unit; Coastwise Trade; Outer Continental Shelf; 43 U.S.C. § 1333(a); 46 U.S.C. § 55102

Dear Mr. Robinson:

This letter is with respect to HQ 115099 dated September 27, 2000, issued to you on behalf of 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). We have reviewed HQ 115099 and have determined that it should be modified because the first holding therein is incorrect. Because the second holding of HQ 115099 is correct, we do not address that subject here.

Pursuant to section 625(c), Tariff Act of 1930 (19 U.S.C. 1625(c)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed modification of HQ 115099, as described below, was published in the Customs Bulletin on January 3, 2007. Three written comments were received in response to the notice. All three commenters support the modification of HQ 115099, as proposed.

FACTS:

Amoco and BPX are the Minerals Management Service designated operators in numerous blocks in the deepwater Gulf of Mexico, on the OCS. 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 5,480 feet to 6,270 feet.

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 five 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 (eight inches in 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 drill ship 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 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 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.

ISSUE:

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 which subsequently transports that cargo to a different coastwise point, would constitute a violation of 46 U.S.C. § 55102.

LAW AND ANALYSIS:

Title 46, United States Code, § 55102 (46 U.S.C. § 55102, the merchandise coastwise law often called the “Jones Act,” recodified by Pub. L. 109-304, enacted on October 6, 2006), 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,”

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.

In HQ 115099, we stated that 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 three-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 which subsequently transports that cargo to a different coastwise point, does not constitute coastwise trade in view of the fact that the point of transshipment is not a coastwise point. Consequently, we stated that the foreign-flag drill ship is not prohibited from engaging in this activity.

We have concluded that this analysis is incorrect. Title 46, United States Code, § 55102 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. The OCS drill site where the hydrocarbons and/or water are produced, and are then laden onto the drill ship, is a coastwise point pursuant to the OCSLA. The hydrocarbons and/or produced water are then transported from that coastwise point by the foreign-flagged drill ship to a coastwise-qualified barge on the high seas (a non-coastwise point) for transshipment. The transportation is completed when the hydrocarbons and/or produced water are subsequently transported by the coastwise-qualified barge to a Gulf Coast area refinery (a second coastwise point). Thus, the hydrocarbons and/or water have been transported from one coastwise point (the OCS drill site) to another (the Gulf Coast refinery), albeit with an intervening transshipment on the high seas. Part of this transportation will be accomplished by the foreign-flagged drill ship, and part will be accomplished by a coastwise-qualified vessel. The part of the transportation which will be accomplished by each of the two vessels is within the scope of 46 U.S.C. § 55102, as that statute applies to “any part of the transportation” between coastwise points. Because the drill ship is not coastwise-qualified, its transportation of the hydrocarbons and/or produced water from the OCS drill site to the coastwise-qualified vessel is violative of 46 U.S.C. § 55102, as it has engaged in part of the transportation of merchandise between coastwise points.

HOLDING:

The transportation of hydrocarbons and/or produced water by the foreign-flag 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) to a location on the high seas for transshipment to a coastwise-qualified barge, which will then transport the hydrocarbons and/or produced water to a Gulf Coast area refinery, is violative of 46 U.S.C. § 55102, as the drill ship will engage in part of the transportation of merchandise from one coastwise point to a second coastwise point.

EFFECT ON OTHER RULINGS:

HQ 115099 is modified. In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin.

Sincerely,

Virginia L. Brown
Director

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