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Vol. 17, No. 53 Week of December 30, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Furie says looming $15 million fine is scaring away investors

The federal government has yet to collect a $15 million Jones Act fine against Furie Operating Alaska LLC. But the company’s president says Furie is feeling the pain anyway.

The looming penalty, and the refusal of authorities to mitigate it, “has made it difficult for Furie to secure investors in its resource exploration and development venture,” Furie’s president, Damon Kade, said in a Dec. 14 declaration filed in U.S. District Court in Anchorage.

U.S. Customs and Border Protection assessed the penalty for an alleged violation of the Jones Act, a shipping law. CBP is an agency within the Department of Homeland Security.

The Jones Act requires that cargo transported between domestic ports be done with U.S. ships.

CBP says Furie unlawfully used a foreign-flag, heavy-lift vessel in 2011 to haul the Spartan 151 rig part of the way from Texas to Alaska. Furie, headquartered in League City, Texas, is using the jack-up rig to explore for natural gas offshore in Cook Inlet.

Furie disputes the $15 million fine, calling it arbitrary and excessive, and is suing the government in federal court to try to nullify it.

Federal officials have asked the court to dismiss Furie’s lawsuit. Assessment of the fine is not a “final agency action,” and thus the suit is premature, the government argues. To collect, the government says it would have to sue in federal court, and so far it hasn’t taken that step.

Furie’s lawyers are trying to keep the company’s suit alive, and on Dec. 17 filed an opposition to the government’s motion to dismiss.

Furie argues the dispute already is ripe for court consideration, and the government to trying to get the suit tossed on a “technicality.”

“CBP has issued its final decision, finding Furie’s one-time movement of the rig from the Gulf of Mexico to Alaska a deliberate violation of the Jones Act, which merits the maximum penalty possible and likely the largest Jones Act penalty ever assessed,” Furie said in court papers. “Furie has done everything in its power to convince CBP to remit or mitigate this draconian penalty. CBP has repeatedly stated in writing, however, that the administrative process is ‘closed’ and made clear that it now considers this a collection matter.”

‘Negative implications’

Kade’s declaration was part of Furie’s Dec. 17 court filing.

“The size of the fine and the uncertainty associated with the ultimate outcome of resolving the fine have resulted in substantial negative implications for potential lenders and investors,” Kade said.

“This, in turn, affects Furie’s ability to help address Alaska’s severe energy shortage,” Furie told the court.

One of Furie’s arguments is that federal officials have been inconsistent. In 2006, Homeland Security granted a Jones Act waiver for use of a foreign ship to transport a rig. That effort to bring a rig to Alaska fell through. When Furie again sought a waiver in 2011, the department under a new secretary denied it.

Furie went ahead and used the foreign ship to transport the Spartan 151 rig around South America to Vancouver, British Columbia. It then used U.S. tugs to tow the rig the rest of the way to Alaska.

Furie says no suitable U.S. ships were available to carry the behemoth rig around South America, and that it had a “reasonable belief” the waiver ultimately would be granted.

The fine originally was imposed against Escopeta Oil Company LLC, which Furie acquired in 2011, before the rig arrived in Cook Inlet.

—Wesley Loy



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