HQ 113137

June 27, 1994

VES-3-15-CO:R:IT:C 113137 GOB

CATEGORY: Carriers

Robert J. Alario

President

Alario and Associates Incorporated

P.O. Box 23525

New Orleans, Louisiana 70183

RE: Coastwise trade; 46 U.S.C. App. 883; 46 U.S.C. App. 289;

Merchandise; Passengers; Oil well stimulation

Dear Mr. Alario:

This is in response to your letter dated May 31, 1994 with

respect to your client which proposes to use a foreign-built,

foreign-flag, special purpose vessel for certain activities.

FACTS:

Your client proposes to use a foreign-built, foreign-flag,

special purpose vessel (\"vessel\") to store, blend, convert and/or

manufacture and pump acids and other components of products for oil

and gas well stimulation. In its role as an offshore stimulation

vessel, the vessel would engage in formation fracturing services

and formation acidizing services.

The formation fracturing service includes the conversion of

certain raw materials into a new material which is then pumped with

high pressure hydraulic pumps from the ship into the well to

stimulate hydrocarbon production. The formation acidizing service

differs from the formation fracturing service in that the objective

of the formation acidizing service is to repair and enhance the

well by chemically removing minerals.

The vessel\'s equipment includes chemical blending equipment,

plumbing equipment, units which store and dispense products,

electronic equipment, and high pressure plumbing equipment. The

vessel also carries various raw materials on board.

You summarize the work of the vessel as follows. It takes

aboard raw materials which it uses to stimulate production from oil

and gas wells. After a service contract is issued, it proceeds to

the work site and begins blending certain base ingredients into new

products, as the specific contract requires. The new products are

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pumped directly into the well from the vessel. You state that the

products \"are used or \`consumed\' at the jobsite. They are not

transshipped or offloaded to any other point from which they are

then utilized.\"

ISSUE:

Whether the vessel\'s specialized function and field service

involves the transportation of passengers and/or merchandise

between coastwise points within the meaning of 46 U.S.C. App. 289

and 46 U.S.C. App. 883.

LAW AND ANALYSIS:

Statutory and Regulatory Background

Generally, the coastwise laws prohibit the transportation of

passengers or merchandise between points in the United States

embraced within the coastwise laws in any vessel other than a

vessel built in, documented under the laws of, and owned by

citizens of the United States.

The coastwise law applicable to the carriage of passengers is

found in 46 U.S.C. App. 289 and provides that:

No foreign vessel shall transport passengers between ports or

places in the United States either directly or by way of a

foreign port, under a penalty of \$200 for each passenger so

transported and landed.

46 U.S.C. App. 883, the coastwise merchandise statute often

called the \"Jones Act\", provides in part that no merchandise shall

be transported between points in the United States embraced within

the coastwise laws, either directly or via a foreign port, or for

any part of the transportation, in any vessel other than a vessel

built in, documented under the laws of, and owned by citizens of

the United States.

The coastwise laws generally apply to points in the

territorial sea, which is defined as the belt, three nautical miles

wide, seaward of the territorial sea baseline, and to points

located in internal waters, landward of the territorial sea

baseline.

19 CFR 4.50(b) states as follows:

A passenger within the meaning of this part is any person

carried on a vessel who is not connected with the

operation of such vessel, her navigation, ownership, or

business.

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Section 4(a) of the Outer Continental Shelf Lands Act of 1953,

as amended (43 U.S.C. 1333(a); \"OCSLA\"), provides in part that the

laws of the United States are extended to: \"the subsoil and seabed

of the outer Continental Shelf and to all artificial islands, and

all installations and other devices permanently or temporarily

attached to the seabed, which may be erected thereon for the

purpose of exploring for, developing, or producing resources

therefrom\...to the same extent as if the outer Continental Shelf

were an area of exclusive Federal jurisdiction within a state.\"

Under the foregoing provision, we have ruled that the

coastwise laws and other Customs and navigation laws are extended

to mobile oil drilling rigs during the period they are secured to

or submerged onto the seabed of the outer Continental Shelf

(\"OCS\"). We have applied that principle to drilling platforms,

artificial islands, and similar structures, as well as to devices

attached to the seabed of the outer Continental Shelf for the

purpose of resource exploration operations.

Previous Customs Rulings

In Ruling 108223 dated March 13, 1986, which involved the

provision of stimulation services to OCS wells, we stated as

follows:

\...we have held that the use of a vessel to blend, mix, and

place cement in oil wells is not a use of the vessel in

coastwise trade. On the basis of this ruling, we have ruled

that the use of a non-coastwise-qualified vessel in oil well

stimulation, described as the blending of specific mixtures

of water, hydrocloric acid and other agents and then pumping the

blended mixture into an oil field, is not coastwise trade.

We have ruled that the transportation of the cement used in the

oil wells and that of the chemicals, etc., used in the oil

well stimulation is not coastwise trade subject to 46 U.S.C.

883 because such transportation is only of supplies incidental

to the vessel\'s service which are consumed in that service.

Accordingly, the use of the \[vessel\] as described, for

oil/gas well stimulation services, whether the oil/gas wells

are on the United States OCS or in territorial waters, would

not violate the coastwise laws.

Ruling 112218 dated July 22, 1992 involved non-coastwise-

qualified barges used as oil and gas well drilling, workover, and

service vessels. Certain of the facts were described as follows:

\...\"workover\" and \"service\" barges are used as platforms or

transport vessels for work to be performed at a well. Such

work may consist of removing broken tools from a well shaft,

repairing tools aboard a barge and placing them back in a well

shaft, well cleaning, and well stimulation (the injection of

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chemicals into a well in order to stimulate the production of

oil and gas). Transportation services may include the

carriage of cement, chemicals, and other materials for use in

drilling, as well as crew stores.

Ruling 112218 held that:

In view of the fact that the vessels in question will have

aboard only necessary equipment and crew members during their

movements, we have determined that no coastwise laws will be

violated in the course of the proposed vessel voyages.

With respect to the issue of whether \"merchandise\" was

involved, Ruling 112218 stated:

Not included within the general meaning of merchandise is the

equipment of a vessel which will be used by that vessel. Such

materials have been defined as articles, \"\...necessary and

appropriate for the navigation, operation, or maintenance of

the vessel and for the comfort and safety of the persons on

board.\" (Treasury Decision 49815(4), March 13, 1939).

Customs has specifically ruled that, \"Vessel equipment placed

aboard a vessel at one United States port may be removed from

the vessel at another United States port at a later date

without violation of the coastwise laws.\" (Customs Ruling

Letter 102945, November 8, 1978).

In Ruling 103995 dated July 16, 1979, which involved the

engagement in oil field stimulation by a non-coastwise-qualified

vessel, we stated as follows:

Headquarters ruling of March 8, 1969, file 216132, to the same

applicant held that the carriage of cement on barge no. 809,

if incidental to the blending, mixing, and placing of cement

in the wells, did not constitute a use in coastwise trade.

\...the supplies carried, such as hydrochloric acid, are merely

incidental to the vessels\' \[sic\] service and meant to be

consumed in that service. Therefore, 46 U.S.C. 883 would not

apply.

Determinations

After a consideration of the facts of this ruling request, the

applicable statutes and regulations, and the applicable precedent,

we make the following determinations.

The vessel\'s crew and the well stimulation personnel carried

on the vessel are not \"passengers\" within the meaning of 19 CFR

4.50(b) because they are connected with the operation and business

of the vessel. Accordingly, there is no transportation of

passengers within the meaning of 46 U.S.C. App. 289.

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Based on the facts presented, the materials carried on board

the vessel, including materials related to the function of the

subject special purpose vessel, are not merchandise within the

meaning of 46 U.S.C. App. 883. Accordingly, there is no

transportation of merchandise within the meaning of 46 U.S.C. App.

883\. As we stated in Ruling 108223, the transportation \"is only

of supplies incidental to the vessel\'s service which are consumed

in that service.\"

HOLDING:

The vessel\'s specialized function and field service does not

involve the transportation of passengers and/or merchandise within

the meaning of 46 U.S.C. App. 289 and 46 U.S.C. App. 883.

Accordingly, the use of the vessel, as described, will not violate

the coastwise laws.

Sincerely,

Arthur P. Schifflin

Chief

Carrier Rulings Branch