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Furie fights $15M Jones Act penalty Cook Inlet driller calls fine excessive; suit says foreign ship used because US fleet couldn’t carry rig around South America Wesley Loy For Petroleum News
Furie Operating Alaska LLC is suing the U.S. Department of Homeland Security to challenge a $15 million fine the company calls “unwarranted and unprecedented.”
The 39-page suit, filed Aug. 7 in federal court in Anchorage, concerns the ocean transport of a jack-up drilling rig to Alaska’s Cook Inlet in 2011.
Furie, headquartered in League City, Texas, is using the rig to drill exploratory natural gas wells in its offshore Kitchen Lights unit.
On Oct. 13, 2011, U.S. Customs and Border Protection, an agency within Homeland Security, sent Escopeta Oil Company LLC a notice assessing a $15 million penalty for a violation of the Jones Act. Furie acquired Escopeta in 2011.
The notice said a “nonqualified vessel” was used to transport the Spartan 151 rig. The $15 million fine corresponded to the agency’s determination of the rig’s value.
The Jones Act requires that cargo transported between domestic ports be done with U.S.-made ships, owned and crewed by American citizens.
The lawsuit says Furie has made several attempts to appeal the fine or negotiate a lower penalty, but to no avail.
Arbitrary and unconstitutional Furie assets that, to its knowledge, the $15 million is the largest penalty ever assessed for an alleged Jones Act violation.
A foreign-flag, heavy-lift vessel was use the haul the rig part of the way to Alaska because no suitable U.S. vessels were available, the suit says.
The company asks the court to squash the fine on several grounds, including that it is arbitrary and capricious, and that it violates the “excessive fines” clause of the Eighth Amendment to the U.S. Constitution.
Furie also argues that the rig was not “merchandise” as defined in the law, and therefore no Jones Act violation occurred.
One of the suit’s main points is that, in 2006, the Homeland Security secretary at the time, Michael Chertoff, granted the company a Jones Act waiver to transport a different jack-up rig, the Tellus, to Alaska on a different foreign ship.
The waiver was based on the importance of energy to national security, the suit says. Southcentral Alaska was, and is, facing a natural gas shortage, and the region is home to the strategically important Joint Base Elmendorf-Richardson and the Anchorage international airport.
As it turned out, the company never brought the Tellus to Alaska, as problems developed with that rig.
Furie’s argument is that the facts supporting the 2006 waiver hadn’t changed, yet Napolitano and other officials within Homeland Security refused to reconfirm the 2006 waiver or grant a new one.
The journey begins The suit describes the company’s attempts to gain a clear OK to haul the rig to Alaska, even as the long voyage unfolded. Furie was fearful the government might seize the rig.
On March 18, 2011, the rig departed a Texas port aboard the foreign-flag heavy-lift vessel M/V Kang Sheng Kou, which hauled the rig to Vancouver, British Columbia. From there, U.S.-flag tugs towed the rig to Cook Inlet, arriving on Aug. 11, 2011, the lawsuit says.
The suit says the Kang Sheng Kou was used because the U.S.-flag Jones Act fleet had no ship capable of safely carrying the rig around South America, as the rig was too big to pass through the Panama Canal.
Furie transported the rig to Alaska “based on a reasonable belief that a national defense waiver would be granted under the Jones Act,” and Homeland Security Secretary Janet Napolitano’s “promise” in May 2011 that any penalty imposed would be substantially mitigated, the suit says.
Jaime Ruiz, a spokesman in Los Angeles for U.S. Customs and Border Protection, said his agency “does not comment on pending litigation.”
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