An Alaska natural gas producer has agreed to pay the U.S. government $10 million in what amounts to the largest penalty ever levied in the history of the nearly century-old Jones Act, the U.S. Justice Department said Tuesday.
But the penalty against Furie Operating Alaska was crafted in part with the natural gas needs of Southcentral Alaska in mind, said Richard Pomeroy, the assistant Alaska U.S. attorney who represented the U.S. Department of Homeland Security in the case.
After violating the act in 2011, Furie discovered natural gas in the Kitchen Lights Unit in Cook Inlet, helping resolve concerns about a looming gas shortage in Alaska's most populated region. Now Furie produces some of the fuel that heats homes and provides electricity across the region.
"I think it's a good settlement for everyone," Pomeroy said on Tuesday.
It shows that the government takes violations of the Jones Act seriously, he said. It also supports continued operations in Cook Inlet by Furie, in part because payments can be made over several years, smoothing out the impact to Furie, he said.
The Jones Act is a protectionist measure from 1920 that preserves U.S. jobs and the U.S. transportation and shipbuilding industries by requiring that American ships and crews be used to haul goods from one U.S. port to another. A waiver can be obtained from the secretary of Homeland Security if no U.S. ship is available and the transport is considered important to national defense.
The company violated the act when it used a foreign ship to haul the Spartan 151 jack-up drill rig from Texas to Alaska. U.S. Customs and Border Protection, an agency within Homeland Security, assessed a penalty of $15 million. Furie sued the federal agency in 2012.
Furie has applied for a waiver but was denied when the department said U.S. vessels were available to carry the drilling rig. Furie disagreed and sought reconsideration of the denial. It began moving the rig, believing a waiver would be granted.
"They assumed incorrectly," Pomeroy said.
Furie officials reached by email Tuesday declined to comment. The company is based in League City, Texas.
The Jones Act allows the value of the transported merchandise to be factored into the penalty. Pomeroy said the drilling rig's value was assessed between $12 million and $15 million.
Justice Department approval of a settlement was delayed for months after a preliminary agreement was reached in 2016. In a Jan. 31 court filing, Pomeroy said the paperwork was apparently lost, after it had been sent to different sections within the agency, and key employees had left. He said it caused "embarrassing" delays.
"It just got misplaced somewhere so I resubmitted the paperwork, and it went through and it was approved," Pomeroy said Tuesday.