VES-3-02-OT:RR:BSTC:CCR H321240 DMK
Michael J. Wray, Esq.
Svetlana S. Sumina, Esq.
Holman Fenwick Willan USA LLP
5151 San Felipe, Suite 400
Houston, TX 77056
RE: Coastwise Transportation; 46 U.S.C. §§ 55102, 55103; Merchandise; Passengers; Vessel Equipment; Oil Well Stimulation; 19 C.F.R § 4.50(b); 19 C.F.R. § 4.80; 19 C.F.R. § 4.80a; 19 C.F.R. § 4.80b.
Dear Mr. Wray and Ms. Sumina;
This letter is in response to your September 23, 2021, ruling request submitted on behalf of your client, Schlumberger Technology Corporation (“Schlumberger”), regarding whether certain offshore well stimulation operations, contemplated to be conducted by a non-coastwise qualified vessel on the Outer Continental Shelf (“OCS”), as described below, would violate the coastwise laws. Our decision follows.
FACTS
The following facts are from your client’s initial ruling request and supporting information dated September 23, 2021, letter with additional responses dated January 26, 2022, and further responses to our questions dated February 17, 2022, and March 2, 2022. Your client has requested U.S. Customs and Border Protection (“CBP”) to determine whether certain operations related to well stimulation on the OCS in the Gulf of Mexico would violate the Jones Act, 46 U.S.C. § 55102, and the Passenger Vessel Services Act, 46 U.S.C. § 55103 (“PVSA”).
You state the proposed operation is intended to increase the flow of hydrocarbons from the reservoirs to the well bores of various oil and gas facilities on the OCS. As such, Schlumberger has contracted with the operators of these oil and gas facilities to perform the well stimulation operations. Schlumberger proposes to use two non-coastwise-qualified well stimulation vessels, the [] and the [] (individually, “WSV”) to perform the operation which will commence on or about March 2022, and complete on or about December 2026.
The WSV will arrive at Port Fourchon, Louisiana, already equipped with a Well Stimulation Plant (“WSP”), consisting of tanks, pumps, electronics, mixing equipment, and hoses. The WSP will not be removed from the WSV during the project. The WSV will be laden with additional mixing equipment, pumps, tanks, tools, and consumables, a complete list of which you have provided. The WSV will be laden with water, sand, and various liquid chemicals and acids that will be mixed in the WSP to make up the well stimulation fluid (“WSF”) which will be used in this operation. The exact composition of the WSF is tailored to the needs of individual wells, and you have provided a list of the chemicals and acids to be used. The WSV will embark additional well stimulation technicians whose jobs will support the well stimulation operation. You have provided a list of the well stimulation technicians and their duties.
After loading, the WSV will travel to a well on the OCS, where it will perform the well stimulation operation. Upon arrival at the well’s location, the WSV will blend together the WSF. The WSV will maintain position while operating, using a dynamic positioning system to make small corrections as needed to remain in position. The WSV will then transfer the well stimulation fluid to the well via one of five methods:
via Coflexip hose to a second vessel which will in turn interface with a subsea facility;
via Coflexip hose to access wells via a fixed platform’s piping;
via Coflexip hose to access wells via a tension leg platform’s piping;
via Coflexip hose to access wells via a Floating Production Storage and Offloading unit (“FPSO”); and
via Coflexip hose to access wells serviced by a Single Point Anchor Reservoir (“SPAR”) platform.
The WSV will not take on any fluids discharged from the wells and will not remove any hydrocarbons or petrochemical products from the well at any time during the well stimulation operations. Any WSF not used on an individual well would be considered waste and would not leave the WSV. The waste WSF would be collected in a waste tank aboard the WSV and transported back to Port Fourchon where it would be unladed from the WSV at the same point as it was laded, collected, and disposed of.
Schlumberger intends to lade enough components of the WSF mixture to allow the WSV to move between and perform well stimulation operations on multiple wells before returning to Port Fourchon. There, the WSV will replenish components and depart again to service the remaining wells. At the end of the entire operation, the WSV will return to Port Fourchon where the well stimulation crew will disembark the vessel, and any waste fluid will be unladen and disposed of in the manner stated above. In the event that any individual products are not needed or used in the operation, the excess products will be stored in tanks on board the WSV and will be disposed of at the exact same point as they were loaded in Port Fourchon by a tank cleaning company.
ISSUES
Whether the contemplated well stimulation operation by the non-coastwise-qualified vessel violates the Jones Act, 46 U.S.C. § 55102?
Whether the contemplated transportation of individuals onboard the non-coastwise-qualified vessel violates the Passenger Vessel Services Act, 46 U.S.C. § 55103?
LAW AND ANALYSIS
Generally, the coastwise laws prohibit the transportation of 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. Such a vessel, after it has obtained a certificate of documentation with a coastwise endorsement from the U.S. Coast Guard, is said to be “coastwise qualified.”
Issue One: Whether the Well Stimulation Operation Violates 46 U.S.C. § 55102
First, we consider whether the proposed well stimulation operation violates the Jones Act, 46 U.S.C. § 55102. 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. In addition, Section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended, provides that the Constitution and laws and civil and political jurisdiction of the United States are extended to:
the subsoil and seabed of the outer Continental Shelf
all artificial islands on the outer Continental Shelf
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, including non-mineral energy resources; or
any such installation or other device (other than a ship or vessel) for the purpose of transporting or transmitting such resources.
The coastwise law applicable to the transportation of merchandise, often referred to as “the Jones Act,” is found at 46 U.S.C. § 55102, and provides in pertinent part:
Except as otherwise provided in this chapter or chapter 121 of this title, a vessel may not provide any part of the transportation of merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel—
is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and
has been issued a certificate of documentation with a coastwise endorsement under chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement.
Pursuant to 19 U.S.C. § 1401(c), the word “merchandise” is defined as “goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31.” For purposes of the Jones Act, merchandise also includes “valueless material.” See 46 U.S.C. § 55102(a)(2).
CBP has interpreted merchandise not to include “vessel equipment,” that is, items which are “necessary and appropriate for the navigation, operation or maintenance of a vessel and for the comfort and safety of the persons on board.” Necessary and appropriate items are those that are integral to the function of the vessel and are carried by the vessel, including items that aid in the “installation, inspection, repair, maintenance, surveying, positioning, modification, construction, decommissioning, drilling, completion, workover, abandonment or other similar activities or operations of wells, seafloor or subsea infrastructure, flow lines, and surface production facilities.” Whether articles constitute vessel equipment is a fact-specific, case-by-case determination. We have previously determined that chemicals for oil well stimulation are generally considered equipment when aboard a WSV, provided the WSV actually performs the well stimulation operation. See, e.g., HQ 113137 (Jun. 27, 1994).
The CBP Regulations promulgated under the authority of 46 U.S.C. § 55102 provide that a coastwise transportation of merchandise takes place when merchandise laden at a coastwise point is unladen at another coastwise point, regardless of origin or ultimate destination. 19 CFR § 4.80b(a). There is no dispute that the transportation between Port Fourchon and well sites on the OCS would be transportation between coastwise points. See, e.g., HQ 116350 (Jan. 18, 2005); HQ 115134 (Sep. 27, 2000). Accordingly, the remaining issue as it relates to the Jones Act, is whether the articles laden in Port Fourchon are merchandise or vessel equipment.
Scenario in which WSV connects via Coflexip hose to a second vessel which will in turn interface with a subsea facility
The scenario your request refers to as “Scenario 1” involves well stimulation operations at a subsea facility. In this scenario, a second vessel, such as a drill ship, semi-submersible, or a light well stimulation vessel, will interface with the WSV to access the well. The WSV will connect via Coflexip hose to the second vessel. The WSF will then be pumped from the WSV to the second vessel, which would be connected to the well interface below the surface of the water. You anticipate that the second vessel would not be coastwise-qualified.
We find that this scenario violates the Jones Act insofar as the WSF constitutes merchandise and not vessel equipment. It is well established that vessel equipment must be transported on the vessel on which it is used. See HQ 115356 (May 22, 2001); HQ 20051 (Dec. 4, 2007); HQ H058647 (May 18, 2009); and HQ H029417 (Jun. 5, 2008). In this scenario, the WSV does not actually perform any well stimulation operations and instead merely transports the WSF from the port, a coastwise point, to the second vessel, which in turn transfers the well stimulation fluid to the well, a second coastwise point. Because the WSV does not perform the well stimulation in this scenario, the WSF is not “necessary and appropriate for the operation” of the WSV, and accordingly is not vessel equipment.
Scenario in which WSV connects via Coflexip hose to access wells via a fixed platform’s piping
The scenario your request refers to as “Scenario 2” involves well stimulation operations on a fixed platform. In this scenario, WSV would connect via Coflexip hose to the piping of a non-floating platform affixed to the bottom of the seabed on the OCS. The WSV would then transfer the WSF to the well.
We find that this scenario would not violate the Jones Act. In this scenario, the WSV would perform the well stimulation operation, which would make the WSF “necessary and appropriate for the operation” of the WSV. Accordingly, the WSF would constitute vessel equipment in this scenario.
Scenario in which WSV connects via Coflexip hose to access wells via a tension leg platform’s piping
The scenario your request refers to as “Scenario 3” involves well stimulation operations on a tension leg platform. In this scenario, WSV would connect via Coflexip hose to the piping of a vertically moored floating structure permanently moored by means of tethers or tendons connected to the sea floor on the OCS. The WSV would then transfer the WSF to the well.
We find that this scenario would not violate the Jones Act. In this scenario, the WSV performs the well stimulation operation, which makes the WSF “necessary and appropriate for the operation” of the WSV. Accordingly, the WSF constitutes vessel equipment in this scenario.
Scenario in which WSV connects via Coflexip hose to access wells via an FPSO
The scenario your request refers to as “Scenario 4” involves well stimulation operations on an FPSO. In this scenario, WSV would connect via Coflexip hose to the piping of a non-coastwise-qualified FPSO with wellheads on turret, to access the wells serviced by the FPSO on the OCS.
We find that this scenario does not violate the Jones Act provided that the FPSO is connected to the subsea infrastructure while the WSV performs the well stimulation operation. In this scenario, by accessing the wells through the FPSO, the WSV performs the well stimulation operation, which makes the WSF “necessary and appropriate for the operation” of the WSV. Accordingly, the WSF constitutes vessel equipment in this scenario.
Scenario in which WSV connects via Coflexip hose to access wells serviced by a SPAR
The scenario your request refers to as “Scenario 5” involves well stimulation operations on a SPAR. In this scenario, WSV will connect via Coflexip hose to the piping of a single tall floating cylinder supporting a fixed deck tethered to the bottom of the OCS by cables and lines. The WSF will then be pumped from the WSF to wells serviced by the spar.
We find that this scenario does not violate the Jones Act. In this scenario, the WSV performs the well stimulation operation, which makes the WSF “necessary and appropriate for the operation” of the WSV. Accordingly, the WSF constitutes vessel equipment in this scenario.
Issue 2: Whether the transportation of the Well Stimulation Technicians Violates 46 U.S.C. § 55103
Finally, we determine whether transporting the well stimulation technicians, to and from the same U.S. port would be in violation of the Passenger Vessel Services Act, 46 U.S.C. § 55103. Pursuant to 46 U.S.C. § 55103 only coastwise-qualified vessels may transport passengers in the navigable waters in the United States, provided, in pertinent part:
[…] a vessel may not transport passengers between ports or places in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel-
is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and
has been issued a certificate of documentation with a coastwise endorsement under chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement.
The applicable regulation at 19 CFR § 4.50(b) defines a passenger as “any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business.”
In accordance with previous CBP rulings, individuals transported between coastwise points are not classified as “passengers” within the meaning of 46 U.S.C. § 55103 and 19 CFR § 4.50(b) if they are required to be onboard to contribute to the accomplishment of the operation or navigation of the vessel during the voyage or are onboard because of a necessary vessel ownership or business interest during the voyage. See, e.g., HQ H316313 (Feb. 4, 2021); HQ H311603 (Aug. 31, 2020); HQ H183157 (Sept. 2, 2011); HQ H168214 (May 26, 2011); HQ H036016 (Aug. 29, 2008).
In the present case, you state that the well stimulation technicians will join the WSV to perform the well stimulation operation. While the vessel is in transit, the well stimulation technicians will perform a variety of activities. We find that the proposed activities described in your request would be directly and substantially connected with the operation of the WSV and the crew will be onboard because of a necessary business interest. We therefore determine that the subject well stimulation crew are not “passengers” within the meaning of 46 U.S.C. § 55103 and 19 CFR § 4.50(b).
HOLDING
The proposed well stimulation operation in Scenario 1 by a non-coastwise-qualified vessel constitutes “transportation” within the meaning of the Jones Act, 46 U.S.C. § 55102 insofar as the WSV transports the WSF from the port to a second vessel which in turn performs the well stimulation operation. Therefore, the proposed operation would be in violation of the Jones Act.
The proposed well stimulation operation in Scenario 4 by a non-coastwise-qualified vessel does not constitute “transportation” within the meaning of the Jones Act, 46 U.S.C. § 55102, provided that the FPSO remains attached to the well throughout the duration of well stimulation operations. Therefore, the proposed operation would not be in violation of the Jones Act.
The proposed well stimulation operation in the remaining scenarios by a non-coastwise-qualified vessel does not constitute “transportation” within the meaning of the Jones Act, 46 U.S.C. § 55102. Therefore, the proposed operations would not be in violation of the Jones Act.
The subject well stimulation crew are not “passengers” within the meaning of the Passenger Vessel Services Act, 46 U.S.C. § 55103. Therefore, the transportation of such individuals is not in violation of the Passenger Vessel Services Act.
Sincerely,
W. Richmond Beevers
Chief, Cargo Security, Carriers and Restricted Merchandise Branch
Office of Trade; Regulations and Rulings
U.S. Customs and Border Protection