Escopeta Oil and Gas Co. is negotiating a possible fine with the U.S. Department of Homeland Security over a violation of the U.S. Jones Act that occurred when the company moved the Spartan Drilling Co. Blake 151 jack-up rig recently from the U.S. Gulf Coast to Cook Inlet.
“There are discussions under way but nothing has been determined,” Escopeta spokesman Steve Sutherlin said.
The Blake 151 is now being prepared for final state inspections by the Alaska Oil and Gas Conservation Commission, Sutherlin said. Drilling is expected to begin within days.
The Jones Act violation occurred after Escopeta used a Chinese heavy-lift vessel to move the Blake 151 part of the way to Alaska. The rig was moved from the Gulf Coast to Vancouver, B.C., with the Chinese vessel, where it was offloaded to allow work to be done on the rig. The subsequent tow from British Columbia to Alaska’s Cook Inlet was done with U.S.-built tugs supplied by Foss Maritime, a U.S. company.
The Jones Act requires cargoes moved between U.S. ports to be in American-built and -operated vessels even if the voyage is broken with a stop at a foreign port, as occurred with the Blake 151 movement.
The resulting uproar over the rig movement, with letters of complaint being written to Homeland Security Secretary Janet Napolitano by several U.S. senators as well as U.S. shipping groups, resulted in Escopeta President Danny Davis stepping down from his position, Davis has acknowledged.
The U.S. Customs and Border Protection, which is part of the Department of Homeland Security, has jurisdiction over Jones Act administration.
In a related development, Alaska’s state oil and gas director, Bill Barron, chastised the company for moving the Blake 151 into location in upper Cook Inlet and lowering the legs on the jack-up rig to the ocean bottom without completing sea bottom site surveys required by the state.
“Our concern is with the company’s operational practices, not the condition of the rig,” Barron said.
Barron wrote Escopeta a sternly worded letter intended to put the company on notice that, “these are not acceptable practices,” he said, referring to the company’s action in moving the rig without having all of the authorizations.
No penalty against Escopeta is contemplated at this time, Barron said.
The state just wants the company to adhere to all rules, he said.
“The last thing we need is a major incident in Cook Inlet,” with an oil and gas operator, Barron said.
In his letter to Escopeta’s current president, Edward Oliver, Barrow said, “While the division is pleased to see a jack-up rig arrive in the state, I am gravely concerned about what I perceive to be Escopeta’s apparent disregard for regulatory requirements.”
In the letter, Barron cited Escopeta’s action to ship the Blake 151 rig to Alaska without having obtained a Jones Act waiver as well as the company’s decision to move the rig to the final location without first having U.S. Army Corps of Engineers permit. However, a Corps of Engineers spokeswoman in Anchorage said the company is now in compliance with its requirements. U.S. Coast Guard rules are also being complied with, a Coast Guard spokesman said.
Escopeta had sought a waiver of the Jones Act arguing that no U.S.-built vessel was available at the time that could have moved the Blake 151 safely through rough seas around the tip of South America. The government had granted Escopeta a waiver in 2006, but financing for the rig fell through and when Escopeta put its deal back together in late 2010, the department would not grant another waiver, citing the lack of a U.S. security justification needed for Jones Act waiver.
Alaska U.S. Sen. Mark Begich said in an interview Aug. 22 that the U.S. Department of Energy, which made the energy security determination for Homeland Security both in 2010 and 2006, has not explained reasons for changing its position. Begich and other members of Alaska’s congressional delegation had interceded on Escopeta’s behalf with Napolitano, although the effort to get the waiver was unsuccessful.
“They would never have stopped the rig being unloaded. Napolitano was always supportive of our efforts to get more exploration in Cook Inlet, particularly for natural gas, which we need,” Begich said.
Begich said a penalty is now being negotiated between the Department of Homeland Security and Escopeta, and that he has asked the department for a “modest” penalty.
“A violation of the Jones Act has occurred but we don’t want the penalty to bankrupt the company,” Begich said.
Jones Act penalties are at least partly based on the value of the cargo being transported, in this case of value of the Blake 151 jack-up rig.