After nearly five years of legal wrangling, Furie Operating Alaska LLC and the U.S. Department of Homeland Security have reached a “tentative settlement” over a $15 million fine the government assessed against the company for violating the Jones Act.
The exact terms of the settlement remain unknown as the two sides seek final authorization from the U.S. Department of Justice, according to recent court filings.
U.S. Customs and Border Protection assessed a $15 million fine against Escopeta Oil CO. in October 2011, after the company brought the Spartan 151 jack-up rig to Alaska. The following summer, its successor Furie sued the U.S. Department of Homeland Security over the fine, calling it “unwarranted and unprecedented.” A mediation effort led to settlement discussions between the two sides late last year, according to court filings.
In the years since the lawsuit began, Furie brought the newest offshore platform in Alaska into production and launched development plans for its Kitchen Lights unit.
Suit and countersuit
With three jack-up drilling rigs having passed into Alaska waters over the past five years, it can be easy to forget the hubbub involved in getting the first one to Cook Inlet.
To get the rig to Alaska, Escopeta Oil Co. either needed to comply with the Jones Act or obtain a waiver from the federal government. Whether the company could do, or should do, or did do either of those two things, and whether the federal government handled its enforcement of the Jones Act appropriately, was the basis for the ongoing legal battles.
But the case of Spartan 151 appears to be having ramifications beyond Alaska.
In a recent bulletin titled “Notice to Area Port of New Orleans Trade Community,” the U.S. Customs and Border Protection announced that it had created a new division to enforce coastwise trade laws, starting with the Jones Act. The National Jones Act Division of Enforcement, or JADE, will “assist CBP and industry partners on issues concerning coastwise trade, with the goal of being a clearinghouse for all coastwise trade issues,” New Orleans Area Port Director Vernon T. Foręt wrote in the July 15 notice.
The new division will include a staff of Jones Act experts based out of the New Orleans Field Office. And while the head office will still handle formal rulings, the JADE team will handle everything leading up to those rulings, including whistleblower complaints.
The announcement described the Jones Act as the “foundation of maritime policy of the United States.” The law requires any vessel moving between domestic ports to be built, flagged, crewed and mostly owned by Americans. The power of the law became even greater, and even more relevant to the oil and gas sector, under the Outer Continental Shelf Lands Act of 1953, which extended the Jones Act to territorial waters, including platforms and other installations bolted to the seafloor of the Outer Continental Shelf.
After the Furie case went to court, the Louisiana congressional delegation sponsored legislation ordering CBP to put more muscle into enforcing the Jones Act, particularly on the Outer Continental Shelf, and to create a system for tracking violations and assessing penalties. Similar wording eventually wound up in the $1.1 trillion “omnibus” spending bill approved in late 2015, which explains why CBP is creating the new division now.
As its title indicates, enforcement will be JADE’s central function. The announcement included a link to an online portal where people can submit allegations of Jones Act violations. Given the intricacies of adhering to cabotage laws in a global industry, and the fact that the penalties for violating the Jones Act can be equal to the value of the cargo being shipped, several law firms quickly released policy papers about the new division.
But in an interview with the shipping industry journal The Maritime Executive, Supervisor CBP Officer Mike Hebert sought to soften JADE’s image in the eyes of the oil and gas industry. “Our focus is not writing penalties. There are times when there are enforcement actions, but we want to make sure that the industry is familiar with the regulations. We want to get the word out that we’re here to help,” he said. CBP has promised to make its experts available for “outreach presentations” to industries.
Keeping up with the Joneses
Although it might be a stretch to blame the creation of a new national government division on the affairs of one company in Alaska, the Spartan 151 case received a lot of attention in the shipping world. And the ongoing legal battle between Furie and the federal government certainly provided incentives to step up enforcement going forward.
As home to more than a third of a nation’s coastline, according to National Oceanic and Atmospheric Administration calculations, Alaska is greatly influenced by maritime law.
But, ironically, the issue might be somewhat moot for the time being.
With the most bullish operators having suspended exploration programs in the Beaufort and Chukchi seas, and with the future looking uncertain for a federal Cook Inlet Outer Continental Shelf lease sale in 2017, and with two jack-up rigs currently residing in the Cook Inlet region, the Alaska oil and gas industry would appear to need far fewer ships at the moment than they did when Escopeta was trying to bring Spartan 151 to Alaska.
