Marine Log

July 12, 2006

Coast Guard Act briefing

Winston & Strawn LLP has issued a briefing on Offshore Service Industry, Riding Gang and LNG Terminal Developments. It deals with some key provisions of the the Coast Guard and Maritime Transportation Act of 2006, signed into law July 11, and other legislation,

Offshore Service Industry Developments

The briefing reports that the Coast Guard Act contains new restrictions on vessels engaged in "the setting, relocation, or recovery of anchors or other mooring equipment of a mobile offshore drilling unit that is located over" the U.S. Outer Continental Shelf (OCS) or in transporting merchandise or personnel to a MODU "located over" the U.S. OCS.

Under the Coast Guard Act, such vessels would have to be U.S.-flag registry vessels. A U.S.-flag registry vessel must comply with U.S. domicile and U.S. manning requirementsÑbut need not be constructed in the U.S. (unlike a Jones Act vessel).

The Act does not authorize any U.S.-flag registry vessel to perform work on the U.S. OCS that is now reserved for Jones Act vessels.

The new MODU requirement takes effect immediately upon the execution of the Coast Guard Act by the President.

New Mortgagee Reporting.

The Coast Guard Act adds the word "mortgagees" to the current list of "owners, masters, and charterers" who are persons from whom the U.S. Coast Guard can seek certain information.

The briefing notes that the Senate Report relating to the legislation indicates that the addition "would give the Coast Guard the authority to seek information and reports from foreign mortgage holders as well as 'owners and masters' and 'charterers' of Jones Act vessels for the purposes of ensuring Jones Act ownership requirements."

Buy American on the OCS

The briefing notes that June 29, the U.S. House of Representatives passed the Deep Ocean Energy Resources Act of 2006, which is now pending U.S. Senate consideration.

The Act would, among other things, replace a quarter-century old ban on drilling in most offshore areas with a prohibition on drilling out to 50 miles (unless a state "opts-out"), extendable to 100 miles by coastal states.

A "Sense of the Congress" provision indicating that it is Congress' intention that the Act "result in a healthy and growing American industrial, manufacturing, transportation, and service sector employing vast talents of America's workforce to assist in the development of affordable energy from the Outer Continental Shelf."

Consideration was also given to requiring that all equipment utilized on the U.S. OCS be manufactured in the U.S. with U.S. components.

The Winston & Strawn briefing sees a possibility that the "Sense of Congress" provision could morph into a statutory "Buy American" requirement of some kind as the legislation progresses.

Under existing law, vessels, rigs, platforms and other structures used in defined exploration and drilling operations on the U.S. OCS must be "manned or crewed" by U.S. citizens and foreign citizens lawfully admitted to the U.S. for permanent residence. A 1996 U.S. Court of Appeals for the District of Columbia decision affirmed existing regulations which exempted vessels, rigs, etc., from the U.S. manning requirement so long as the vessels and rigs are owned or controlled by foreign citizens (this excludes vessels engaged in Jones Act services).

The Deep Ocean Act would effectively reverse existing regulations and the 1996 federal court decision to apply federal immigration laws to all workers employed on vessels, rigs, etc., working in defined U.S. OCS activities. Under existing federal immigration law, it is possible to bring into the U.S. foreign workers, but a visa must be obtained and it generally must be shown that no qualified U.S. workers are available.

"The Deep Ocean Act would be a significant departure from the practice that has existed for decades and could greatly exacerbate existing shortages of qualified personnel on the OCS" says Winston & Strawn.

Other Developments

A provision of the Coast Guard Act dealing with riding gangs permits persons who are neither U.S. citizens, nor foreign nationals admitted to the U.S. for permanent residence (i.e. having a "Green Card"), nor those who have a nonimmigrant visa permitting work in the United States, to perform certain defined repair functions with a limit to such work of 60 days per year on any particular vessel. Among other things, the vessel owner/operator must determine that qualified U.S. citizens or resident aliens are unavailable to perform the work before employing aliens for the work.

Winston & Strawn notes that there is also a riding gang provision in the pending defense authorization bill relating to vessels carrying DoD cargoes. The DoD-related provision if enacted would effectively prohibit such vessels from having foreign riding maintenance gangs altogether.

LNG Terminal Preference.

The Coast Guard Act contains a provision amending the Deepwater Port Act requiring that facilities be given "top priority" with respect to the processing of a license for LNG facilities that will be supplied with LNG transported by U.S.-flag LNG tank vessels. There are currently no U.S.-flag LNG tank vessels. The Secretary of Transportation is also directed to "develop and implement a program to promote the transportation of liquefied natural gas to the United States on United States-flag vessels."