Potential Impacts of Offshore Legislation on Industry
The U.S. House of Representatives has introduced legislation that could potentially greatly alter the landscape for oil, gas, and wind installation and decommissioning activities on the U.S. Outer Continental Shelf (“OCS”). Stakeholders should examine the legislation for impacts to their operations.
The House Committee on Transportation and Infrastructure marked up and approved H.R. 3409, the Coast Guard Authorization Act of 2019 (“2019 CGAA”) on June 26, 2019. This legislation, if enacted, could have significant impacts on how oil, gas, and wind vessel activities are conducted on the OCS. Of particular note, the legislation could have an outsized effect on offshore wind in the United States, which is at a nascent stage and requires installation activities of the type contemplated in the 2019 CGAA.
In January 2017, U.S. Customs and Border Protection (“CBP”) proposed to overturn decades of precedent with regard to offshore operations potentially subject to the Jones Act in its “Proposed Modification and Revocation of Ruling Letters Relating to Customs Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points” (the “Notice”). The Notice, which was published in the CBP Customs Bulletin, proposed the modification of approximately 25 CBP rulings that delineated the difference between “equipment of the vessel,” the transportation of which does not implicate the Jones Act, and “merchandise,” which may only be transported by qualified vessels under the Jones Act.
CBP withdrew the Notice on May 10, 2017. Since that time, industry and regulatory officials have been engaging in dialogue to resolve the issues raised in the notice. Some of these same issues are addressed in the 2019 CGAA section on installation vessels. The 2019 CGAA is expected to head to the House of Representatives for a full House vote in the near future. The Senate Commerce Committee is expected to introduce its version of the 2019 CGAA later this month.
Installation Vessel “Waivers”
Under the “Installation Vessel” section of the 2019 CGAA, the Maritime Administration (“MARAD”) would make a determination within 180 days of enactment on whether a Jones Act qualified (i.e. U.S. owned, built, operated) installation vessel exists. The bill would define an “installation vessel” as a vessel with a lifting capacity of 1,000 metric tons (“mt”). As such, the bill would only affect larger lift vessels and would not impact operations by installation vessels less than 1,000 mt. If MARAD determines no coastwise qualified vessel exists, then the CGAA would determine that lifting operations were not Jones Act movements. However, if Congress reduced the crane capacity from 1,000 mt. to something like 100 mt., this could potentially affect almost all lifting operations offshore.
Subsequently, if an owner of a Jones Act installation vessel advises MARAD that it has a new installation vessel that can perform offshore lifting operations, then:
- Any lifting operations by an installation vessel would be prohibited absent a determination from MARAD that a Jones Act qualified installation vessel is unavailable.
- To determine whether a Jones Act qualified vessel is available, vessel owners/operators will have to submit an application to MARAD prior to “transporting” (i.e., installing) any physical component used for any type of offshore exploration, development, or production structure or component thereof.
- Notably, the application would have to be submitted one year before the installation date.
- Such an application would include engineering details and timing requirements.
- MARAD would issue a notification in the federal register with the relevant information, and request comments within 45 days.
- If no information is received within 45 days, or if an owner of a Jones Act qualified vessel submits information but MARAD determines that the vessel is not capable then a vessel can perform the work.
Installation Vessel Inventory
The CGAA would also amend existing U.S. law pertaining to a requirement for MARAD to keep an inventory of vessels for cable laying, maintenance, and repair, to also maintain an inventory of “installation vessels” capable of performing lifting operations offshore as discussed above.
Requirement to Issue a Notice to Revoke Jones Act Rulings
The 2019 CGAA would also require CBP to issue a Notice, including an opportunity for public comment, within 30 days of enactment, to modify or revoke 13 of the same rulings that were initially proposed to be modified or revoked by CBP in 2017 as discussed above.
This legislation could have profound effects on how offshore installation and transportation operations are performed by vessels with respect to future oil, gas, and wind activities. Indeed, this could create significant impediments to future investment in not only the offshore oil and gas industry, but also to the emerging wind industry, which is just now starting to bloom. Accordingly, owners and operators of installation vessels and other stakeholders in these industries should not only review the 2019 CGAA to determine how it could not only affect their immediate operations, but how the legislation could potentially deter future offshore investment in the United States. Based on this analysis, stakeholders should determine what position and action they should take with respect to this pending legislation.
© 2019 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.