DOJ Finalizes Largest Jones Act Penalty in History

The Spartan 151 aboard the Kang Sheng Kou, 2011 (Seleza / social media / panoramio)

By MarEx 2017-04-05 21:43:01

On Wednesday, the Department of Justice announced that it has reached a $10 million settlement with Furie Operating Alaska for the use of a Chinese heavy lift ship to transport a jack-up from the Gulf of Mexico to Cook Inlet. It is the largest Jones Act penalty ever assessed. 

DOJ contends that under the terms of U.S. cabotage law, the jack-up should have been transported by a U.S.-flagged, U.S.-crewed vessel. In 2011, Customs and Border Protection fined Escopeta $15 million for the violation, and Furie sued to overturn the fine the following year. The two sides have been in negotiations ever since.

"Resolution of this case demonstrates that the Jones Act will be actively enforced and that an intentional violation will not be rewarded," the Department of Justice said in a statement. "The settlement also provides closure to Furie and is designed not to undermine its ability to bring natural gas to market in Southcentral Alaska."

The circumstances of the case were complex. Escopeta Oil wanted to bring the Spartan 151 from the Gulf of Mexico to upper Cook Inlet for exploration work at its new Kitchen Lights gas field. Rather than hauling the rig the full distance by tugboat, Escopeta chartered the Chinese heavy-lift vessel Kang Sheng Kou to carry it around South America and up to Vancouver, Canada. U.S.-flagged tugs took the rig in tow in Vancouver and brought it the remaining distance to Alaska. 

Escopeta's managers had obtained a Jones Act waiver for the voyage during the George W. Bush administration, but it had long since expired, and the Department of Homeland Security under Janet Napolitano turned down Escopeta’s request to renew it. CBP determined that the firm had violated the Jones Act's cabotage requirements and issued it a $15 million fine. 

The news of the settlement coincides with a growing debate over the use of foreign-flagged ships in the U.S. offshore oil and gas industry. CBP plans to revoke a series of interpretations that allow the carriage of E&P components from U.S. ports to Gulf of Mexico rigs on foreign ships, sparking disagreement between oil firms and U.S.-flag maritime interests.