VES-3-02-OT:RR:BSTC:CCR H326621 DMK
Michael J. Wray, Esq.
Christopher R. Hart, 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 Messrs. Wray and Hart;
This letter is in response to your August 8, 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 ruling request and supporting information dated August 8, 2021. 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.
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 WSF to the well.
To transfer the WSF to the well, the WSV will use its own Coflexip hose to connect to a high-pressure treating line which is part of the WSP and provided from the WSV. The high-pressure treating line is then placed on a drillship, where it is connected to a marine riser, which in turn is connected to the subsea well and reservoir. The WSV then mixes and pumps WSF through the Coflexip hose, high-pressure treating line, and marine riser, to reach the reservoir. The WSF never rests nor is landed, unladen, or transferred to the drillship. The WSV will be the only vessel pumping the WSF, and the drillship is only involved insofar as the drillship’s marine riser is what is connected to the well.
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 is considered waste and would not leave the WSV. The waste WSF is 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.
The drillship to which the WSV connects will be present for the purposes of conducting drillship operations for drilling and completion activities for the well including drilling the well, running production casing and cementing casing, perforating the casing and well bore, and related well drilling and completion operations. Its activities are kept separate and distinct from the WSV’s activities, and is hired from a third-party operator to perform different tasks than the tasks Schlumberger is contracted to perform. Depending on the needs of the project and the drillship capabilities, the drillship could be at the well site anywhere from two weeks to nine months, as opposed to the WSV which is typically at a well site for six to nine hours. The drillship will not perform any well stimulation functions other than providing access to the well via the drillship’s marine riser.
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 321240 (Mar. 21, 2022); HQ 113137 (Jun. 27, 1994). 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).
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 at Port Fourchon are merchandise or vessel equipment.
We find that the scenario as described above would not violate the Jones Act. In this scenario, because the WSV would perform the well stimulation operation, the WSF is “necessary and appropriate for the operation” of the WSV. Additionally, though the drillship provides the marine riser and thus access to the well and reservoir, the WSV performs the entirety of the well stimulation operation. The drillship is not involved in mixing, pumping, or disposing of the WSF. This operation is analogous to the well stimulation operation on a fixed platform or tension leg platform piping which was found permissible in HQ H321240 (Mar. 21, 2022). Accordingly, the WSF constitutes vessel equipment in this scenario, and there is no transportation of merchandise between coastwise points.
Issue 2: Whether the transportation of the Well Stimulation Technicians Violates 46 U.S.C. § 55103
Second, 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 H321240 (Mar. 21, 2022); 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 including planning and preparing for each well stimulation operation at a particular well site; inspecting, cleaning, maintaining, and repairing the well stimulation equipment; preparing the well stimulation fluid for a particular well site; and performing well stimulation operations upon arrival to a particular well site. We find that the proposed activities described in your request would be directly and substantially connected with the operation of the WSV or her navigation of the vessel during the voyage. We therefore determine that the subject well stimulation technicians are not “passengers” within the meaning of 46 U.S.C. § 55103 and 19 CFR § 4.50(b).
HOLDING
The proposed well stimulation operation as described above by a non-coastwise-qualified vessel does not constitute “transportation” within the meaning of the Jones Act, 46 U.S.C. § 55102. Accordingly, the proposed operation 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