ANCHORAGE (CN) – An oil company claims in court that the Department of Homeland Security broke its word and fined it $15 million after encouraging it to tow a drilling vessel to the Arctic to look for natural gas reserves.
Furie Operating Alaska sued the Department of Homeland Security, Secretary Janet Napolitano, U.S. Customs and Border Protection and its Acting Commissioner David V. Aguilar, in Federal Court.
Furie claims the defendants imposed “an unwarranted and unprecedented penalty” for an alleged violation of the Jones Act because Furie towed its “jack-up rig,” the Spartan 151, from the Gulf of Mexico to Vancouver, B.C., to Cook Inlet, Alaska, without a “national defense waiver” last year.
Furie is successor-in-interest to Escopeta Oil Co. which it bought in June 2011.
“Since September 2011, Furie has used the vessel in the summer months to conduct exploratory drilling for natural gas in Cook Inlet, with the hope of alleviating the shortage of natural gas in South-Central Alaska,” the complaint states. “Furie transported the vessel to Alaska based on a reasonable belief that a national defense waiver would be granted under the Jones Act, 46 U.S.C. § 501(b), and based on a promise made by Secretary Napolitano in May 2011 that any penalty imposed under the Jones Act would be substantially mitigated.”
Furie adds: “In the summer of 2011, concerned that operations in Libya would disrupt petroleum deliveries to the United States, Secretary Napolitano granted no less than 45 waivers of the Jones Act to move petroleum released from the Strategic Petroleum Reserve to the U.S. east coast, specifically noting that petroleum availability was crucial to national defense.”
Furie claims that in 2006, due to oil and national security concerns, then-Secretary Michael Chertoff issued it a national defense waiver of liability for negligence under the Jones Act, so it could tow the Spartan 151 by means outside of Maritime Administration requirements.
The Spartan 151 was too big to pass through the Panama Canal, couldn’t handle the harsh winter conditions around the southern tip of South America, and no U.S.-flagged vessels were available to assist in the journey, according to the complaint.
“The U.S.-flag Jones Act fleet does not contain a vessel capable of safely making such a voyage; indeed, at the time there were only 14 vessels in the entire world fleet capable of doing so,” Furie says in the complaint.
Furie says claims the voyage was not possible from 2006 to 2010 due to “unforeseen circumstances,” including repairs to a towing rig and disputes with the rig’s owner, but primarily because Furie lacked an approved, appropriate barge.
Furie says Napolitano failed to honor “her commitment in writing” to negotiate and denied the waiver in May 2011.
“Even though she denied the waiver request, Secretary Napolitano expressed her department’s desire to work with Furie ‘to find an equitable way to allow transportation of your rig to Cook Inlet’ and invited Furie’s representatives to meet immediately with DHS officials to discuss mitigation of any Jones Act penalties,” the complaint states.
“But for that commitment from Secretary Napolitano and subsequent promise by CBP officials that the vessel would not be seized or forfeited, Furie would not have allowed transport of the Vessel to Alaska and there would have been no putative violation of the Jones Act.”
Furie adds: “Although Secretary Napolitano denied Furie’s request for a waiver, she supported movement of the vessel to Cook Inlet and promised to open discussions immediately regarding mitigation of any Jones Act penalties that might be assessed against Furie.”
Relying on Napolitano’s “promised open discussions” to mitigate penalties, Furie says, it took out a $9 million credit to the benefit of the vessel’s owner, Spartan Offshore Drilling, and to cover unforeseen costs and should the voyage have to be aborted.
Escopeta spent $75 million in its Cook Inlet work, according to a September 2011 article by Petroleum News. Escopeta’s then-president Ed Oliver told Petroleum News, “Turning the rig around at Vancouver, or in Alaska, for a trip back to the Gulf because of possible Jones Act questions really wasn’t a palatable option, considering the enormous costs involved.”
Furie’s current president, Damon Kade, said the company has found 46 billion cubic feet of natural gas. Furie says it will drill a second well this summer and finish in 2013, when it expects to find 3.5 trillion cubic feet of gas in what it calls the largest Cook Inlet reserves in 25 years.
Furie says it has never been penalized before under the Jones Act.
It seeks declaratory judgment that the fine is excessive and an injunction voiding the penalty and preventing seizure of its vessel.
Its lead counsel is Adolf Zeman with Landye Bennett & Blumstein, of Anchorage.