Norton Rose Fulbright: Commerce Announces Russian Oil Industry Export Controls

Norton Rose Fulbright: Commerce Announces Russian Oil Industry Export Controls

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:

  • any items subject to the EAR listed in newly created Supplement No. 2 to Part 746 (the "Russian Industry Sector Sanctions List") ("RISSL"); or
  • items specified on the Commerce Control List ("CCL") under ECCNs 0A998, 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, and 8D999.1

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

HTS 8207

rock drilling or earth boring tools and bits

HTS 8413

oil well and oil field pumps and elevators

HTS 8421

electrostatic precipitators, industrial gas cleaning and separation equipment

HTS 8430

offshore oil and natural gas drilling and production platforms, boring/sinking machinery

HTS 8431

oil and gas field machinery parts

HTS 8479

oil/gas field wire line and downhole equipment

HTS 8705

mobile drilling derricks

HTS 8708

parts and accessories for certain oil and gas exploration vehicles

HTS 8905

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:


0A998 (new)

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. 

1C992

Commercial charges and devices containing energetic materials and nitrogen trifluoride in a gaseous state

3A229

Firing sets and equivalent high-current pulse generators (for detonators controlled by ECCN 3A232)

3A231

Neutron generator systems, including tubes, having both of the following characteristics

3A232

Detonators and multipoint initiation systems

6A991

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"

8A992

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

8D999 (new)

"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:

  • The rule has no "savings clause."  Accordingly, in-process shipments of items that are not eligible for a license exception or that cannot be exported or reexported without a license as a result of this rule may not proceed to Russia on or after the date of publication of this rule in the Federal Register.
  • The rule does not control any new "technology" to Russia.  If however, technology was previously controlled to Russia, it would no longer qualify for license exceptions and would be subject to a presumption of denial if intended for prohibited end-uses.
  • Although seismic analysis data does not fall within the definition of "technology," BIS considers it to be a commodity sold by companies and, therefore, to be controlled under ECCN 0A998. BIS also has made an exception to its general policy of not including software in A group ECCNs by including oil and gas exploration software in ECCN 0A998.
  • The rule revokes Russia's favorable license review status for items controlled for national security (NS) reasons.  Although such items will be reviewed on a case-by-case basis, if they are intended for use in deepwater, Arctic offshore, or shale projects, denial would seem likely given that many EAR99 items are now subject to license denial.
  • Other provisions of the EAR, including parts 742 (CCL-based controls) and 744 (end-use and end-user controls) still apply to exports and reexports to Russia.
  • BIS has added a new "foreign policy" reason for control to the ECCNs and delivered the requisite report under Section 6(f) of the Export Administration Act to Congress on August 1, 2014.  Items classified under ECCN 0A998 are controlled for this reason.

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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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