Record penalty assessed for Jones Act violation

Furie Operating Alaska has agreed to pay $10 million for transporting an oil rig from the Gulf of Mexico to Alaska on a foreign-flag ship.    Furie Operating Alaska, an oil company that had arranged the shipment of an oil drilling rig from the Gulf of Mexico to Alaska on a Chinese ship in 2011, has agreed to pay a record $10 million civil penalty to satisfy a penalty originally assessed against it by U.S. Customs and Border Protection (CBP) for violating the Jones Act.
   “Resolution of this case demonstrates that the Jones Act will be actively enforced and that an intentional violation will not be rewarded,” the U.S. Department of Justice said.
   The penalty was hailed by the International Transport Workers’ Federation Cabotage Taskforce in a statement Thursday.
   Furie, then known as Escopeta Oil and Gas, was originally assessed a $15 million fine after it had the jack-up drill rig Spartan 151 from Freeport, Texas in 2011 on Kang Shen Kou, a Chinese-flag float-on/float-off heavylift ship owned by the Chinese company COSCO.
   Cargo transported between two points in the U.S. is required under cabotage law, popularly known as the Jones Act, to be done with ships that are built in the United States, owned by U.S. companies, registered in the U.S. and crewed by U.S. seafarers.
   Firms can get waivers from the Jones Act, and Furie had obtained a national defense waiver in 2006 to move a different rig in what it said was a “virtually identical voyage,” but which it was not able to arrange that year.
   Escopeta said the waiver was justified becasue Alaskan cities in South Central Alaska, including Anchorage, and defense-related facilities such as the Joint Base Elemendorf-Richardson and Ted Stevens International Airport were facing a shortage of natural gas unless there was additional production from Cook Inlet.
   Spartan 151 was too large to pass through the Panama Canal, and Danny Davis, the president of Escopeta, contended there was no Jones Act vessel capable of transporting the jack-up rig around Cape Horn.
   Relying on his earlier permit, he arranged for the transport of the rig.
   But DHS said the waiver was no longer applicable and that Jones Act waivers “address specific voyages undertaking specific voyages, they are neither open-ended nor transferable.”
   Also Janet Napolitano, then-secretary of the Department of Homeland Security, which decides whether to grant Jones Act waivers, told Davis that CBP had the Maritime Administration canvass U.S. maritime industry executives and ‘the result indicated that U.S.-flagged vessel operators have barges available that are technically suitable to the task.'”
   Crowley Maritime said between the time the Escopeta waiver was first authorized in 2006 and 2011, it had “invested tens of millions of dollars to renew and modernize its heavy-lift fleet, building nine new barges in U.S. shipyards, as is legally required if the vessels are to provide marine transportation in U.S. domestic trades.”
   So Napolitano denied the waiver, but said as the process of moving the rig had begun, DHS was prepared to “discuss the facts and circumstances of the transportation of the rig that may be relevant to mitigation of the Jones Act penalties that will likely result if your rig is offloaded in Cook Inlet.”
   Escopeta said the waters around Cape Horn were too rough to use a barge, and the rig was damaged in a storm and had to be repaired in Montevideo, Uruguay before completing its voyage.
   As the ship was being moved to Alaska, Spartan brought suit in a Texas court, and asked for the ship be brought to Vancouver because of uncertainty whether it would face penalty if the ship was moved directly to Alaska.
   Escopeta had COSCO turn the ship around at Prince Rupert, British Columbia near the Alaska border, and had work done to prepare the rig for drilling in British Columbia instead of in Alaska.
   The ships was subsequently moved by towboat to the Cook Inlet, but CBP still went ahead and fined the Escopeta for violating the Jones Act.
   The Justice Department said, “Resolution of this case demonstrates that the Jones Act will be actively enforced and that an intentional violation will not be rewarded. The settlement also provides closure to Furie and is designed not to undermine its ability to bring natural gas to market in Southcentral Alaska.”