By Stephen M. McNabb, Stefan Reisinger, Kimberly Hope Caine and Gwen S. Green
On August 1, 2014, the US Department of Commerce, Bureau of Industry and Security ("BIS") issued a final rule imposing a licensing requirement for the export of a wide range of items to Russia that are intended for use in the exploration or production of oil or gas from deepwater, Arctic offshore, or shale projects. The rule will take effect upon its publication in the Federal Register.
Russian industry sector sanctions
The new rule amends the Export Administration Regulations ("EAR") to create licensing requirements for the export, re-export or re-transfer of specified energy related products to Russia. The restrictions are set forth in newly created section 746.5 of the EAR and are entitled the "Russian Industry Sector Sanctions" ("RISS"). The RISS imposes a BIS license requirement on any exports, reexports, or transfers (in-country) of the following items where the exporter, reexporter, or transferor knows or is informed that the item will be used, directly or indirectly, for exploration or production from deepwater (greater than 500 feet), Arctic offshore, or shale projects in Russia that have the potential to produce oil or gas, or is unable to determine whether the item will be used in such projects in Russia:
Examples of items that are now subject to a licensing requirement include, but are not limited to: drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Arctic-capable marine equipment, wireline and downhole motors and equipment, drill pipe and casing, software for hydraulic fracturing, high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers.
More specifically, the RISSL currently contains 52 items, each identified by a unique 10-digit Schedule B number, that are now subject to licensing requirements to Russia. The RISSL includes items in:
HTS 7304, 7305, and 7306
line pipe, drill pipe, oil well casing/tubing, aluminum containers for liquefied gas
rock drilling or earth boring tools and bits
oil well and oil field pumps and elevators
electrostatic precipitators, industrial gas cleaning and separation equipment
offshore oil and natural gas drilling and production platforms, boring/sinking machinery
oil and gas field machinery parts
oil/gas field wire line and downhole equipment
mobile drilling derricks
parts and accessories for certain oil and gas exploration vehicles
floating or submersible drilling or production platforms and floating docks
In addition to the items on the RISSL, items classified on the CCL under the following eight ECCNs are also now subject to the license requirement of section 746.5:
Oil and gas exploration equipment, software, and data. This ECCN includes (i) oil and gas exploration data, e.g., seismic analysis data; and (ii) certain hydraulic fracturing items, including hydraulic fracturing design and analysis software and data; hydraulic fracturing 'proppant,' 'fracking fluid,' and chemical additives therefor; and high pressure pumps.
Commercial charges and devices containing energetic materials and nitrogen trifluoride in a gaseous state
Firing sets and equivalent high-current pulse generators (for detonators controlled by ECCN 3A232)
Neutron generator systems, including tubes, having both of the following characteristics
Detonators and multipoint initiation systems
Marine or terrestrial acoustic equipment capable of detecting or locating underwater objects or features or positioning surface vessels or underwater vehicles; and "specially designed" "parts" and "components"
Vessels, marine systems or equipment, not controlled by ECCNs 8A001 or 8A002, and "specially designed" "parts" and "components" therefor, and marine boilers and "parts," "components," "accessories," and "attachments" therefor
"Software" "specially designed" for the operation of unmanned submersible vehicles used in the oil and gas industry
The new license requirements apply only where the exporter, reexporter, or transferor knows or is informed that the item will be used in deepwater, Arctic offshore, or shale projects that have the potential to produce oil or gas, or is unable to determine whether the item will be used in such projects in Russia. Applications to export, reexport or retransfer such items to oil (as opposed to gas) exploration or production projects will be subject to a presumption of denial. No license exceptions are available to overcome the license requirements set forth in section 746.5, except License Exception GOV.
There are several additional key aspects of the new rule that are noteworthy:
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We will continue to monitor developments in Russia and Ukraine closely and issue additional briefings as events warrant.
1 "Deepwater" is defined to include depths of more than 500 feet. "Arctic offshore" and "shale projects" are not, however, defined in the regulation.
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