VES-3-15-CO:R:IT:C 113137 GOB
Robert J. Alario
President
Alario and Associates Incorporated
P.O. Box 23525
New Orleans, Louisiana 70183
RE: Coastwise trade; 46 U.S.C. App. 883; 46 U.S.C. App. 289;
Merchandise; Passengers; Oil well stimulation
Dear Mr. Alario:
This is in response to your letter dated May 31, 1994 with
respect to your client which proposes to use a foreign-built,
foreign-flag, special purpose vessel for certain activities.
FACTS:
Your client proposes to use a foreign-built, foreign-flag,
special purpose vessel ("vessel") to store, blend, convert and/or
manufacture and pump acids and other components of products for oil
and gas well stimulation. In its role as an offshore stimulation
vessel, the vessel would engage in formation fracturing services
and formation acidizing services.
The formation fracturing service includes the conversion of
certain raw materials into a new material which is then pumped with
high pressure hydraulic pumps from the ship into the well to
stimulate hydrocarbon production. The formation acidizing service
differs from the formation fracturing service in that the objective
of the formation acidizing service is to repair and enhance the
well by chemically removing minerals.
The vessel's equipment includes chemical blending equipment,
plumbing equipment, units which store and dispense products,
electronic equipment, and high pressure plumbing equipment. The
vessel also carries various raw materials on board.
You summarize the work of the vessel as follows. It takes
aboard raw materials which it uses to stimulate production from oil
and gas wells. After a service contract is issued, it proceeds to
the work site and begins blending certain base ingredients into new
products, as the specific contract requires. The new products are
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pumped directly into the well from the vessel. You state that the
products "are used or `consumed' at the jobsite. They are not
transshipped or offloaded to any other point from which they are
then utilized."
ISSUE:
Whether the vessel's specialized function and field service
involves the transportation of passengers and/or merchandise
between coastwise points within the meaning of 46 U.S.C. App. 289
and 46 U.S.C. App. 883.
LAW AND ANALYSIS:
Statutory and Regulatory Background
Generally, the coastwise laws prohibit the transportation of
passengers or merchandise between points in the United States
embraced within the coastwise laws in any vessel other than a
vessel built in, documented under the laws of, and owned by
citizens of the United States.
The coastwise law applicable to the carriage of passengers is
found in 46 U.S.C. App. 289 and provides that:
No foreign vessel shall transport passengers between ports or
places in the United States either directly or by way of a
foreign port, under a penalty of $200 for each passenger so
transported and landed.
46 U.S.C. App. 883, the coastwise merchandise statute often
called the "Jones Act", provides in part that no merchandise shall
be transported 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 vessel other than a vessel
built in, documented under the laws of, and owned by citizens of
the United States.
The coastwise laws generally apply to points in the
territorial sea, which is defined as the belt, three nautical miles
wide, seaward of the territorial sea baseline, and to points
located in internal waters, landward of the territorial sea
baseline.
19 CFR 4.50(b) states as follows:
A passenger within the meaning of this part is any person
carried on a vessel who is not connected with the
operation of such vessel, her navigation, ownership, or
business.
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Section 4(a) of the Outer Continental Shelf Lands Act of 1953,
as amended (43 U.S.C. 1333(a); "OCSLA"), provides in 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 installations 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 within a state."
Under the foregoing provision, we have 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 outer Continental Shelf
("OCS"). We have applied that principle to drilling platforms,
artificial islands, and similar structures, as well as to devices
attached to the seabed of the outer Continental Shelf for the
purpose of resource exploration operations.
Previous Customs Rulings
In Ruling 108223 dated March 13, 1986, which involved the
provision of stimulation services to OCS wells, we stated as
follows:
...we have held that the use of a vessel to blend, mix, and
place cement in oil wells is not a use of the vessel in
coastwise trade. On the basis of this ruling, we have ruled
that the use of a non-coastwise-qualified vessel in oil well
stimulation, described as the blending of specific mixtures
of water, hydrocloric acid and other agents and then pumping the
blended mixture into an oil field, is not coastwise trade.
We have ruled that the transportation of the cement used in the
oil wells and that of the chemicals, etc., used in the oil
well stimulation is not coastwise trade subject to 46 U.S.C.
883 because such transportation is only of supplies incidental
to the vessel's service which are consumed in that service.
Accordingly, the use of the [vessel] as described, for
oil/gas well stimulation services, whether the oil/gas wells
are on the United States OCS or in territorial waters, would
not violate the coastwise laws.
Ruling 112218 dated July 22, 1992 involved non-coastwise-
qualified barges used as oil and gas well drilling, workover, and
service vessels. Certain of the facts were described as follows:
..."workover" and "service" barges are used as platforms or
transport vessels for work to be performed at a well. Such
work may consist of removing broken tools from a well shaft,
repairing tools aboard a barge and placing them back in a well
shaft, well cleaning, and well stimulation (the injection of
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chemicals into a well in order to stimulate the production of
oil and gas). Transportation services may include the
carriage of cement, chemicals, and other materials for use in
drilling, as well as crew stores.
Ruling 112218 held that:
In view of the fact that the vessels in question will have
aboard only necessary equipment and crew members during their
movements, we have determined that no coastwise laws will be
violated in the course of the proposed vessel voyages.
With respect to the issue of whether "merchandise" was
involved, Ruling 112218 stated:
Not included within the general meaning of merchandise is the
equipment of a vessel which will be used by that vessel. Such
materials have been defined as articles, "...necessary and
appropriate for the navigation, operation, or maintenance of
the vessel and for the comfort and safety of the persons on
board." (Treasury Decision 49815(4), March 13, 1939).
Customs has specifically ruled that, "Vessel equipment placed
aboard a vessel at one United States port may be removed from
the vessel at another United States port at a later date
without violation of the coastwise laws." (Customs Ruling
Letter 102945, November 8, 1978).
In Ruling 103995 dated July 16, 1979, which involved the
engagement in oil field stimulation by a non-coastwise-qualified
vessel, we stated as follows:
Headquarters ruling of March 8, 1969, file 216132, to the same
applicant held that the carriage of cement on barge no. 809,
if incidental to the blending, mixing, and placing of cement
in the wells, did not constitute a use in coastwise trade.
...the supplies carried, such as hydrochloric acid, are merely
incidental to the vessels' [sic] service and meant to be
consumed in that service. Therefore, 46 U.S.C. 883 would not
apply.
Determinations
After a consideration of the facts of this ruling request, the
applicable statutes and regulations, and the applicable precedent,
we make the following determinations.
The vessel's crew and the well stimulation personnel carried
on the vessel are not "passengers" within the meaning of 19 CFR
4.50(b) because they are connected with the operation and business
of the vessel. Accordingly, there is no transportation of
passengers within the meaning of 46 U.S.C. App. 289.
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Based on the facts presented, the materials carried on board
the vessel, including materials related to the function of the
subject special purpose vessel, are not merchandise within the
meaning of 46 U.S.C. App. 883. Accordingly, there is no
transportation of merchandise within the meaning of 46 U.S.C. App.
883. As we stated in Ruling 108223, the transportation "is only
of supplies incidental to the vessel's service which are consumed
in that service."
HOLDING:
The vessel's specialized function and field service does not
involve the transportation of passengers and/or merchandise within
the meaning of 46 U.S.C. App. 289 and 46 U.S.C. App. 883.
Accordingly, the use of the vessel, as described, will not violate
the coastwise laws.
Sincerely,
Arthur P. Schifflin
Chief
Carrier Rulings Branch