VES-3-15 CO:R:P:C 109340 PH
Mr. R. F. Calnan
Commodity Tax Section
Gulf Canada Resources Ltd.
Post Office Box 130
Calgary, Alberta, Canada T2P 2H7
RE: Applicability of the coastwise laws to movement and use of
Canadian-flag drillship and support vessels on the United States
outer continental shelf off the North Slope of Alaska
Dear Mr. Calnan:
This in response to your letter of January 21, 1988, in which
you request a ruling on the applicability of the coastwise laws
to the movement of a Canadian-flag drillship between drilling
sites on the United States outer continental shelf and between
such a site and a winter storage site.
FACTS:
A subsidiary of your company is considering the use of a
Canadian-flag drillship and Canadian-flag support vessels for the
drilling of up to three oil wells in the Chuckchi Sea. These
wells would be located more than three miles from the United
States coastline. The vessels would proceed from the Canadian
Beaufort Sea in late October of 1988 directly to a designated
drilling location on the outer continental shelf (OCS) where
drilling operations would be commenced. In late December, or
early January of 1989, the drillship would be forced to cease
drilling and move to a place where it would be sheltered from the
winter ice pack. The most convenient point for such shelter
would be in the territorial waters of the United States at
Kotzebue Sound.
In the spring, as soon as ice conditions permitted, the
drillship would leave shelter and return to the well site to
continue drilling. If ice conditions were not favorable at the
initial drilling site, the drillship would proceed to either of
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the other locations and proceed with drilling. Eventually, it
would return to the first location to complete the well. The
drillship may return to any of the drilled wells to complete
further testing.
It is requested that we rule on the following issues:
ISSUES:
1. Does the movement of the drillship by the Canadian-flag
support vessels from the first drilling site on the OCS to the
winter storage site in Kotzebue Sound violate the coastwise laws?
2. Does the movement of the drillship by the Canadian-flag
support vessels from the winter storage site in Kotzebue Sound
back to the initial drilling site violate the coastwise laws?
3. Does the movement of the drillship by the Canadian-flag
support vessels from one drilling site on the OCS to other
completed or partially completed drilling sites on the OCS
violate the coastwise laws?
LAW AND ANALYSIS:
Section 27 of the Act of June 5, 1920, as amended (41 Stat.
999; 46 U.S.C. App. 883, often called the Jones Act), provides,
in pertinent part, that:
No merchandise shall be transported by water, or by
land and water, on penalty of forfeiture of the mer-
chandise (or a monetary amount up to the value thereof
as determined by the Secretary of the Treasury to be
recovered from any consignor, seller, owner, importer,
consignee, agent, or other person or persons so trans-
porting or causing said merchandise to be transport-
ed), 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 other vessel than a vessel built in and documented
under the laws of the United States and owned by
persons who are citizens of the United States ....
Section 4370 of the Revised Statutes, as amended (R.S. 4370;
46 U.S.C. App. 316(a), the coastwise towing statute), prohibits
the towing of any vessel, other than a vessel in distress, by a
vessel not documented under the United States flag to engage in
the coastwise or Great Lakes trade between ports or places in the
United States embraced within the coastwise laws, either directly
or by way of a foreign port or place, or for any part of such
towing, or such towing between points in a harbor of the United
States.
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Section 8 of the Act of June 19, 1886 (24 Stat. 81; 46 U.S.C.
App. 289), as interpreted by the Customs Service, prohibits the
transportation of passengers between points in the United States
embraced within the coastwise laws, either directly or via a
foreign port, in a non-coastwise-qualified vessel (see 46 U.S.C.
App. 883 and 46 U.S.C. 12106). For purposes of this statute and
the Customs Regulations regarding vessels, "passenger" is defined
in section 4.50(b), Customs Regulations (19 CFR 4.50(b)), as "...
any person carried on a vessel who is not connected with the
operation of such vessel, her navigation, ownership, or
business."
For purposes of the coastwise laws, a point in United States
territorial waters is considered a point embraced within the
coastwise laws. The territorial waters of the United States
consist of the territorial sea, defined as the belt, 3 nautical
miles wide, adjacent to the coast of the United States and
seaward of the territorial sea baseline.
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 pertinent 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 installa-
tions 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 located within a State."
Under this provision, Customs has ruled that the coastwise
laws and other Customs and navigation laws are extended to mobile
oil drilling rigs during the period they are secured to or
submerged onto the seabed of the United States outer continental
shelf (OCS). The same principles have been applied 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.
In this case, after the drillship is attached to the seabed
at the initial drilling site on the OCS, that site would be
considered a coastwise point. Once drilling was started, the
site would continue to be considered a coastwise point, even if
the drillship left it, unless the well site was determined to be
nonproductive and was capped or plugged and abandoned (see
Customs Service Decision 83-13, copy enclosed). The towing of
the drillship from the initial drilling site to a point in United
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States territorial waters, such as a winter shelter location, by
the Canadian-flag support vessels would be prohibited by 46
U.S.C. App. 316(a).
Just as towing of the drillship by the Canadian-flag support
vessels from the initial drilling site to the winter shelter
location in United States territorial waters would be prohibited
by section 316(a), so the towing of the drillship by those
vessels from the winter shelter location back to the initial
drilling site would be prohibited by that provision. Further,
the towing of the drillship by the Canadian-flag support vessels
from one drilling site on the OCS to other completed or partially
completed drilling sites on the OCS would, under the OCSLA, be
treated as towing between points in the United States embraced
within the coastwise laws and would violate section 316(a).
For your information, we note that the use of a foreign-flag
drill vessel for drilling and exploration purposes in United
States waters or the waters over the United States OCS is not, by
itself, considered coastwise trade and would not be prohibited by
the coastwise laws (see our ruling VES-3-15-CO:R:CD:C 106448 PH,
November 30, 1983, copy enclosed). Accordingly, the use of the
drillship you describe would not violate the coastwise laws if
the Canadian-flag drillship was used only for drilling and all
towing of it between coastwise points was performed by United
States-flag coastwise-qualified vessels.
HOLDINGS:
1. The towing of the drillship by the Canadian-flag support
vessels from the first drilling site on the OCS to the winter
storage site in Kotzebue Sound violates 46 U.S.C. App. 316(a).
2. The towing of the drillship by the Canadian-flag support
vessels from the winter storage site in Kotzebue Sound back to
the initial drilling site violates 46 U.S.C. App. 316(a).
3. The towing of the drillship by the Canadian-flag support
vessels from one drilling site on the OCS to other completed or
partially completed drilling sites on the OCS violates 46 U.S.C.
App. 316(a).
Sincerely,
Kathryn C. Peterson
Chief
Carrier Rulings Branch
Enclosures