A proposed new interpretation of decades-old customs rules could significantly increase costs for offshore drilling by reclassifying as “merchandise” much of the drilling equipment and consumables used in the US Gulf of Mexico. US Customs and Border Protection (CBP) on 18 January proposed revoking or modifying at least 30 rulings, which, according to CBP, are “contrary” to the original definition of vessel equipment – “portable articles necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board.”
Under the Jones Act, only US-flagged and qualified vessels can transport “merchandise” citizens hold at least a 75% interest in the vessel, according to federal law.
One exception to the Jones Act, observed attorney Charlie Papavizas, partner at Winston and Strawn, is for movement between two US points of “vessel equipment,” which had not been considered “merchandise” as defined in the Jones Act. “CBP has relied on a 1939 definition of ‘vessel equipment,’ which provides that the term ‘includes articles necessary and appropriate for the navigation, operation or maintenance of a vessel….,’” Mr Papavizas wrote. He added that, during the ensuing decades, CBP has issued a number of rulings using this definition to determine that “vessel equipment” included items “essential to the mission of the vessel.”
Equipment impacted could require drilling equipment and consumables to be offloaded from the rig to US-flagged and qualified vessels for transport to the next well. Impacted equipment is likely to include risers, drill pipe and collars, BOP stacks and consumables, such as cement and chemicals.
In deepwater of 5,000-7,000 ft, it could easily take six days to pull riser, drill pipe and stack, offload the gear to a boat and reverse the process at the next rig, according to sources familiar with the process. At even today’s relatively depressed deepwater rig rates, the new proposal could jack up rig costs by more than $1 million.
Further, bad weather preventing the offloading and reloading could easily delay the process, adding additional costs. In addition, sources say, moving the equipment to these boats could easily damage the riser and other gear.
IADC, API and IMCA, along with allies, are working the issue. The deadline for comments is 17 April, an extension from the original 17 February deadline.