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The Concerned: Alaska should help cover Furie for Cook Inlet rig fine

Scott Woodham

TO: Alaska State Government
CC: U.S. Congress
Subject: Stampeding politely
Dear Last Frontier Leaders,

We're not sure you heard the news, but the U.S. Department of Homeland Security slapped Furie Operating Alaska LLC with a $15 million fine for violating the federal Jones Act when it shipped a jack-up oil rig to Cook Inlet in great haste. Furie, formerly known as Escopeta Oil Co., was rushing in order to secure some $20 million worth of Alaska state drilling incentives.

People familiar with marine industry are saying the case is one of the most flagrant violations of the Jones Act ever and has resulted in the stiffest penalty ever. The act essentially keeps foreign-flagged vessels from shipping cargo from one U.S. port to another, and it even applies to cargo that stops in a foreign port along the way, as did the Furie rig when a waiver extension was not granted. The Chinese heavy-lift vessel that carried the rig from Texas stopped in Vancouver before the rig was brought to Alaska by American vessels.

The $15 million fine was first levied in October, and this May, the U.S. Customs and Border Protection Department upheld it on appeal.

So far, there's no word on whether or not Furie will be making further appeals. But who knows how that would work out given that the recent decision upholding the fine says that Furie “admits that its violation of the Jones Act was deliberate, intentional and committed for commercial expediency.” We The Concerned are not maritime lawyers, but that seems pretty clear-cut.

When Furie's rig finally arrived in Alaska in 2011, it became the first jack-up rig in Cook Inlet in decades. And it got right to work, too, even a little too fast for some state officials. The rig's feet were put down on the Inlet seabed without necessary OKs from the state, and the Army Corps of Engineers permission wasn't certain when the rig was put in place.

Sure, we The Concerned are worried, as are others, about the rapid pace and corner-cutting that appears to have been involved in Furie's project so far. But we're more concerned that the state isn't living up to its end of the bargain as much as it could.

Sure, $20 million in drilling incentives, $10 million of which would not need to be repaid if certain production goals are met, is plenty of proof the state knows its role is to help. But that role still has room to get bigger as long as there's money in the checkbook.

Now it's looking like a large portion of those state incentives will be going straight through Furie to the feds, like PBR through a hipster, and we The Concerned think it's high time Alaska pony up some more cash. After all, if the state hadn't threatened Escopeta with default on its Cook Inlet leases, and if it hadn't laid in big incentives for the quickest companies to drill Inlet leases, there wouldn't have been any reason to risk a Jones Act violation.

In other words, if Escopeta had been secure enough to take its time, Furie wouldn't be facing such a huge fine.

Other companies have been able to operate in Cook Inlet without much trouble, and one of them is even preparing to increase its investment by hundreds of millions over the next three years. Still, it doesn't seem fair to us that the company breaking trail in the Cook Inlet renaissance initiated by the state appears about to face such a heavy price.

The state has done a lot to encourage Escopeta/Furie to hang in there, but it can always do more. If Alaska gave Furie, say, $20 million more, that would probably be enough to cover the fine, provide a nice cushion for incidentals, and offer some peace of mind. Maybe then the company won't feel the need to issue press releases about giant new gas fields before all the data comes in.

We know the Legislature is out of session right now, but hopefully something can be done to make Furie whole here. After all, the company is just trying to help Alaska out, right? It's time the state return the favor.

Hike!

The Concerned

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