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Settlement finally final: $10M Furie fine for Jones Act violation
Months after agreement was reached, settlement of Furie Operating Alaska LLC’s Jones Act violation fine and suits between the company and the U.S. Customs and Border Protection are official. And terms are now public, with Furie agreeing to pay $10 million, rather than the $15 million assessed by Customs and Border Protection in 2011.
The $15 million fine was assessed against Furie predecessor Escopeta Oil Co. after that company brought the Spartan 151 jack-up rig to Cook Inlet to explore the Kitchen Lights prospect.
A statement from the U.S. Department of Justice said the settlement was the largest penalty in Jones Act history. The Jones Act prohibits a foreign vessel from transporting merchandise between U.S. points. Justice said waivers may be obtained in limited circumstances from the secretary of the Department of Homeland Security in the interest of national defense following a determination that no U.S. vessel is available.
U.S. vessels are those built, flagged, crewed and mostly owned by Americans.
The Jones Act was passed in 1920 and its impact on the oil and gas industry was increased in 1953 with passage of the Outer Continental Shelf Lands Act, which extended the Jones Act to U.S. territorial waters, including platforms and other installations bolted to the OCS seafloor.
A “tentative settlement” was reached this summer, but final authorization was needed from the Department of Justice, the parties said in court filings.
Escopeta once had waiver Escopeta received a waiver of the Jones Act requirements in 2006 for a rig move to Cook Inlet, and tried to persuade Homeland Security officials to either grant a waiver of the Jones Act, or reconfirm the old waiver. But federal officials denied these requests.
The 2006 waiver was for a different jack-up rig, and Department of Homeland Security Secretary Janet Napolitano ultimately decided 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.
The fine was assessed in October 2011; in the summer of 2012 Furie, successor to Escopeta, sued the Department of Homeland Security over the fine.
Furie’s lawyers argued that the Jones Act wasn’t violated because the Spartan rig was not “merchandise” within the meaning of the Jones Act, but was a “vessel” merely being relocated to a new drilling site.
There was a mediation effort and settlement discussions began in late 2015.
Settlement reached A settlement was announced last summer, but details were not available until a review by the Department of Justice was complete.
Early this year the court was told that final approval had been expected last November, but the approval packet seems to have been lost at the department with departures at the department due to the change in administration. When the court asked for a status report and an explanation of the delay, the state of the paperwork was revealed and an expedited review of the settlement was launched.
In February Furie asked for more time to consider the long-delayed settlement, citing the passage of time and the change of administration, and telling the court it wanted “additional time to evaluate the situation and assure that it is entering a valid agreement that will not be subject to collateral attack or criticism from the new administration.”
The Department of Justice told the court there was no basis for questioning the validity of the settlement. Justice approved the settlement in early February nearly seven months after Furie and the Department of Homeland Security announced a tentative settlement in August.
The U.S. District Court for the District of Alaska received notice of agreement to the settlement from the parties and in a March 31 order dismissed Furie’s remaining claims against the government and the government’s counterclaims.
- KRISTEN NELSON
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