The Jones Act In Extremis

Escopeta Oil Holds the Jones Act Hostage

By Tony Munoz, Editor-in-Chief of the Maritime Executive Magazine and the MarEx Newsletter

Escopeta Oil is holding the Jones Act hostage in a masterful game of leverage with the Alaskan people and the U.S. government.

The State of Alaska is hungry for oil and gas production in Cook Inlet basin, and many in the state legislature are rallying to have Department of Homeland Security (DHS) Secretary Janet Napolitano waive Jones Act compliance for Escopeta Oil. In 2006, Escopeta obtained a Jones Act waiver because there were no U.S. ships capable of transporting a drilling rig from the Gulf of Mexico (GOM) to Alaska. But the deal fell through, and by law the waiver ceased to exist due to explicit caveats under which it was granted. Nonetheless, in 2011 Escopeta’s president, Danny Davis, leased a jack-up rig (the Spartan 151) in the GOM and hired the MV Kang Sheng Kou, a Chinese heavy-lift vessel, to meet timelines issued by the State of Alaska or lose its oil leases. 

Davis had reached out to DHS in September 2010, pleading for ratification and reconfirmation of the 2006 waiver, but the Department never responded. Then Davis emailed U.S. Customs and Border Protection (CBP) for its reconfirmation of the waiver. On November 8, 2010, CBP made it clear the 2006 Jones Act waiver was “neither open-ended nor transferrable” and advised Davis to get a new waiver. Additionally, DHS wrote Escopeta in May 2011 asserting the 2006 Jones Act waiver was null and void.

Facing the possible loss of oil and gas leases estimated to be worth hundreds of millions of dollars, Danny Davis proceeded to ship the drilling rig in March 2011, but it now sits in Vancouver, Canada awaiting determination of its status by DHS, which has asked the Maritime Administration (MarAd) for its position on the non-availability of U.S.-flagged vessels capable of the transport.

Adding fuel to the fire is the fact that, on March 18, 2011 Michael Roberts, Sr., Vice President and General Counsel, Crowley Maritime Corporation, wrote MarAd Administrator David Matsuda concerning the Escopeta-Spartan 151 request for a Jones Act waiver. Roberts stated that since 2006 his company had invested tens of millions of dollars to renew and modernize its heavy-lift fleet and, based on the information provided by the owner, Crowley is capable of transporting the rig. Roberts also pointed out that Crowley reached out to Davis last year and had he cooperated at that time--or any time last year—the engineering would have been completed and the rig would have been underway to meet the deadlines. 

The Jones Act in Extremis 

What Escopeta should have done was to prepare for a future transport of a rig from the GOM to Alaska pursuant to the Jones Act. Davis knew all along that he planned to drill in Alaskan waters. So if appropriate U.S. tonnage was not available or if Crowley’s heavy-lift equipment was deemed inadequate to transit Cape Horn, then Escopeta could have applied for the new waiver with a valid argument. Instead, after failing to do due diligence with U.S. operators, Davis simply put the Spartan 151 on a Chinese ship and sent it on its way to Alaska, and then began leveraging Senator Susan Murkowski (R-AK), the Alaskan press and the state legislature against the alleged constraints of the Jones Act. 

While the rig sits in a Canadian port awaiting its legal status, Davis now laments in the Alaskan press that the preparation work required on the drilling unit must now be done by foreigners, which means a loss of jobs for Alaskans. Well, the fact is U.S. mariners have already lost work due to Escopeta’s disregard for the Jones Act, and now Davis is leveraging Alaskans to cry foul because of “antiquated protectionist law” while the Spartan 151 sits in a nearby port. Further exasperation for Alaskans comes from the fact that efforts by Escopeta’s competitor, Buccaneer Energy, to get a drilling rig to Cook Inlet have been delayed for at least another year.

The definition of leverage is simply doing more with less, and Davis has masterfully played his hand by end-running the Jones Act law and dangling the Spartan 151 in front of the Alaskan legislature and people. Jones Act vessel operators have been injured by Escopeta Oil, and the U.S. government needs to take appropriate action.

If DHS Secretary Napolitano and MarAd Administrator Matsuda, whose job is to protect U.S. maritime interests, allow Escopeta to offload the rig in Alaska without major repercussions, then they have failed the American people and its laws. If this illegal transport is handled with modest temperance by the government, then Jones Act operators should have legal recourse against the government for the billions of dollars invested in U.S. tonnage and U.S. mariners. Injustice anywhere is a threat to justice everywhere.

 

Tony Munoz can be reached at [email protected].