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May 31, 2011 --- Vol. 17, No. 48May 2011

Escopeta’s jack-up rig heads for Vancouver

What was supposed to be a brief layover off Prince Rupert for a ship delivering a jack-up drilling rig from the Gulf of Mexico to Cook Inlet, Alaska, resulted in a change of course May 29 to Vancouver, British Columbia.

The Spartan 151 jack-up, which arrived on a heavy haul vessel in Vancouver this morning, is under contract to Escopeta Oil. The Houston-based company plans to use the rig to drill its upper Cook Inlet Kitchen Lights unit, thought to contain several large oil and gas fields. It’s the first time in more than a decade that a jack-up rig will be used offshore Southcentral Alaska, a region that is home to two jointly operated military bases and a civilian population that are facing shortfalls in natural gas deliveries for electricity and heat, as well as contending with declining local oil production for use in the making of gasoline and jet fuel.

“The work on the rig that we were going to do with U.S. companies at the OSK dock at Nikiski, Alaska, is going to have to be done by Canadian workers in Vancouver,” Danny Davis told Petroleum News May 29. “It’s a shame.”

Davis said assurances from U.S. Department of Homeland Security Secretary Janet Napolitano that the federal government had no intention of confiscating the rig when it was offloaded in Alaska and that only Escopeta would be fined for violating U.S. maritime law were not enough for jack-up owner Spartan Offshore Drilling, which is demanding Escopeta get a new Jones Act waiver per their agreement.

The Jones Act forbids the transport of goods by a foreign-flagged vessel between two U.S. ports.

On May 25 Spartan sought an immediate injunction in the District Court of Harris County, Texas, which the court denied May 26, although it did set a hearing date for mid-June.

Spartan’s concern that its jack-up might be confiscated was clearly addressed by Napolitano in her May 20 letter to Davis.

Spartan’s other concern, and thus its desire for a Jones Act waiver, was that it might be subject to a substantial fine for having the rig offloaded in Alaska. Napolitano’s letter did not clearly address that issue but it was presumably put to rest on May 26 in an email from Nelson Peacock, Assistant Secretary of the Office of Legislative Affairs, which is part of Homeland Security.

Nelson said he was acknowledging Escopeta’s request for written confirmation that Homeland’s Customs and Border Protection's Border Security and Trade Compliance division, or CBP, “will not seek any enforcement action against the vessel, the rig, or any other person or entity.”

In his email, Peacock said, “I have talked to officials at CBP and they have confirmed to me that they cannot provide such a letter before a violation occurs. Even if such a letter were to be issued, it would not be legally binding because the violative act justifying penalties or other enforcement has yet to take place. However, I have talked to CBP and they have authorized me to pass along what we have communicated to Mr. Davis’s attorneys — that CBP only intends to take enforcement action for the Jones Act violation against Escopeta. They do not intend to take any legal action against any other parties for the Jones Act violation in this case.”

Coscol, the China-based owner of the heavy lift vessel Kang Sheng Kou that is being used to transport the rig to Alaska, was also looking for more assurances before it would offload the Spartan 151 in Kachemak Bay, Alaska, where it was to be towed by U.S. tugs to OSK dock at Nikiski, its home for as long as four years, and possibly longer if Escopeta purchases the rig from Spartan.

Both Spartan and Coscol wanted the rig to be moved to Vancouver, which Davis reluctantly decided to do, despite the added cost.

Once the rig is drill-ready will Escopeta need anything from Homeland Security to transport it from Vancouver, a foreign port, to Alaska?

Davis isn’t sure: “Stay tuned,” he told Petroleum News May 29.

The change in destination will also have some impact on Escopeta’s drilling schedule. Initially the company hoped to spud its first well between June 21 and 30. Davis now hopes to be on location in “early July.”

See full story in June 5 issue, available at 11 a.m. Friday, June 3, at www.PetroleumNews.com

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