Oil Patch Insider: CBP upholds fine against Escopeta for alleged Jones Act violation

Although all the parties involved are staying mum about the matter, the U.S. Customs and Border Protection is apparently upholding its $15 million fine against the company formerly known as Escopeta Oil Co. for violating the federal Jones Act last year.

The agency within the Department of Homeland Security decided the violation was “deliberate, and thus aggravated,” according to an article in “The Maritime Executive.” The article quotes a Jan. 25 letter from John Connors, chief of the penalties branch of CBP.

The federal government fined Escopeta — now Furie Operating Alaska LLC — back in October for moving the Spartan 151 jack-up rig from Freeport, Texas, to Cook Inlet using a foreign-flagged vessel, without having a valid waiver of the federal Jones Act. The $15 million fine was meant to equal the value of the rig.

Escopeta appealed the decision, arguing that there wasn’t a domestic ship capable of bringing the rig to Alaska, and saying Cook Inlet needed the rig as soon as possible in an effort to boost flagging gas supplies. The company asked that the penalty be only $675,000, or around 5 percent of the rig’s value, because of “extenuating and extraordinary circumstances,” according to the shipping industry trade publication.

But according to the article, CBP accused Escopeta of simply wanting to get the rig to Cook Inlet as fast as possible to claim a $25 million one-time tax credit from the state.

The Connors letter claims that the U.S. Department of Transportation Maritime Administration found a suitable domestic ship that would have been available in October 2011, the article said. To meet its work commitments to the state, though, Escopeta needed to have the rig bound for Alaska by March and drill to a certain depth by October.

Because of delays, including one mandated by the Alaska Department of Natural Resources to double-check safety issues, Furie only drilled halfway to depth in the time available to it. The company hopes to complete that well this year, and is waiting for the state to decide whether to extend the terms of the 83,394-acre offshore unit.

To make matters more complicated, Furie claims that information from the half-finished well suggests Kitchen Lights could be among the largest gas fields in Cook Inlet. To make matters even more complicated, the independent Buccaneer Energy Ltd. is bringing a second jack-up rig to Cook Inlet this summer to explore at its two offshore units.

Escopeta previously received a waiver in 2006 to move a different jack-up rig to Cook Inlet, but Department of Homeland Security Secretary Janet Napolitano ultimately decided that the waiver was invalid by early 2011. Escopeta moved the rig anyway, without getting a new waiver, but insisted that it wasn’t breaking any laws by doing so.

“When the facts come out in a court room or in an agency review, they will be able to see we actually broke no laws,” said Danny Davis, the president of Escopeta when the company moved the rig last March. Davis has since resigned from the company, but remains a minority interest owner in leases at the Kitchen Lights unit where Furie is exploring.

Whether that is true remains to be seen: both the CBP and Furie declined to comment.

—Eric Lidji