Decision No. 203-W-2011

May 30, 2011

May 30, 2011

APPLICATION by Multi Klient Invest AS, pursuant to the Coasting Trade Act, S.C., 1992, c. 31, for a licence.

File No. W9125/11-00624


INTRODUCTION

Application

[1] Multi Klient Invest AS (MKI) applied, through its Canadian representative, for a licence to use the "SANCO SPIRIT", a Norwegian seismic research ship, to complete a 2D seismic survey offshore the Labrador Shelf and Baffin Bay, commencing June 1 and ending November 30, 2011.

Notice and offer

[2] On February 4, 2011, Canadian Transportation Agency (Agency) staff gave notice of the application to the Canadian marine industry.

[3] On February 25, 2011, Geophysical Service Incorporated (GSI) offered the "GSI ADMIRAL", a Canadian non-duty paid seismic research ship, to perform the activity described in the application.

Conclusion

[4] For the reasons set out below, the Agency finds, based on the evidence submitted, that MKI has not demonstrated on a balance of probabilities that the "GSI ADMIRAL" would not be a suitable and available ship to complete the 2D seismic survey offshore the Labrador Shelf and Baffin Bay, commencing June 1 and ending November 30, 2011.

ISSUE

[5] Is there a suitable Canadian ship available to perform the activity described in the application?

LEGISLATIVE CONTEXT

[6] The intent of the Coasting Trade Act is to allow foreign ships to be used in Canadian waters when there is no suitable Canadian ship or non-duty paid ship available for a proposed activity. The Agency, based on the evidence before it, must make a determination as to whether, on a balance of probabilities, a Canadian ship is suitable and available to perform the proposed activity. The burden of proof rests with the applicant, in this case MKI, to satisfy the Agency, on a balance of probabilities, that a suitable Canadian ship is not available to perform the activity. This is a legal burden and it does not shift to the objector, in this case GSI. However, once an applicant has provided sufficient evidence to prove its case, it follows that the evidentiary burden shifts to the objector. GSI must then adduce evidence and legal argument to support any assertion in rebuttal. A mere statement will not suffice.

TECHNICAL SUITABILITY

[7] MKI indicates that the activity requires survey acquisition parameter optimisation to provide broader bandwidth recording through deep tow streamer techniques and/or a streamer with dual sensors. MKI justifies the need for such seismic survey acquisition techniques by presenting evidence establishing that there are volcanics in the area to be surveyed. GSI does not dispute that there are volcanics in Baffin Bay, which is part of the area to be surveyed. Accordingly, the need for this technology for the activity has been accepted by MKI and GSI.

[8] MKI identifies three possible techniques that would satisfy the requirements of the activity:

  1. Using a dual sensor streamer such as PGS Geophysical's (PGS) proprietary GeoStreamer;
  2. Using a unique variable depth streamer with CGG Veritas' proprietary BroadSeis deghosting and imaging technology; and
  3. Using two streamers that are towed over/under each other with a desired spacing between the cables.

[9] MKI indicates that the "GSI ADMIRAL" does not meet the streamer requirement for the activity as it is equipped with conventional (single sensor) fluid-filled streamers and has not proven its capability to provide broad bandwidth recording through deep tow streamer techniques and/or a streamer with dual sensors.

[10] With respect to the first technique (dual sensor), MKI argues that it is not technically and commercially possible to install the GeoStreamer on the "GSI ADMIRAL". MKI asserts that switching streamers is an involved process and it would not be possible within the timeframe (i.e. prior to the ice-free season offshore Labrador and Baffin Island). In addition, MKI states that it is not commercially feasible to expect PGS to merely hand over its intellectual property to a competitor. In this respect, MKI indicates that PGS has entered into a long-term charter with the "SANCO SPIRIT" for a minimum of five years, which started on January 1, 2011.

[11] GSI indicates that it is willing to charter the "GSI ADMIRAL" (on a bareboat or time charter basis) to MKI in order for it to install the GeoStreamer on it. GSI argues that the GeoStreamer has been installed on the "SANCO SPIRIT" as well as other ships on a charter basis, which contradicts MKI's argument that the GeoStreamer cannot be installed on another ship.

[12] The onus rests on the applicant to demonstrate why it would not be technically or commercially possible to install the GeoStreamer on the "GSI ADMIRAL" for one activity or a multi-year contract. The Agency finds that MKI has not provided persuasive evidence to support its claim that it is technically or commercially impossible to install the GeoStreamer on the "GSI ADMIRAL".

[13] MKI argues that the second technique (variable depth) is not available to GSI as it requires utilization of the proprietary BroadSeis technology, which is only available to CGG Veritas. According to MKI, this proprietary technique encompasses two key elements, i.e. the streamer towing geometry and the processing of recorded data. MKI has provided an e-mail from CGG Veritas confirming that it will not provide any processing services for seismic data that it did not acquire.

[14] GSI indicates that CGG Veritas' Web site states that the BroadSeis technology can be easily deployed on ships equipped with solid streamers. GSI argues that the processing of data is not a material point and only serves as an example to illustrate that a third party could process the data. GSI indicates that it can provide a Sentinel solid streamer or an MSX gel streamer and that it can collect data according to the preferred depth specification of TGS-NOPEC Geophysical Company (TGS). TGS is the party that issued the Expression of Interest (EOI) in November 2010. GSI contends that the acquisition and processing of the data are separate functions, and that GSI could be responsible for collecting the data. According to GSI, TGS could then contract another party to process the data. To support its position, GSI has provided a list of other companies providing processing services.

[15] The Agency notes that MKI did not provide any comment in respect of the possibility of using one of the data processing companies listed by GSI to process the seismic data collected using the variable depth technique. Therefore, MKI failed to demonstrate why the processing could not be undertaken by any of these companies. Accordingly, the Agency finds that MKI has not satisfied the evidentiary burden to prove its position.

[16] MKI argues that the third technique (over/under) is the only technique that GSI could contemplate using. MKI points out that however, GSI does not have any experience in deploying this technique. MKI also states that GSI does not have experienced personnel capable of using the specialized equipment to ensure the accurate vertical positioning of the cables when being towed.

[17] GSI submits that it can provide a dual Sentinel solid streamer at a 8,000-metre length, or alternatively a dual MSX Gel streamer at a 8,000-metre length, and can collect data to TGS's preferred depth specifications. GSI maintains that this technique is similar to 3D operations, with which it has significant experience. Furthermore, GSI states that it has the necessary equipment to conduct such an operation.

[18] To support its claim that it can provide broad bandwidth acquisition techniques (variable depth or over/under techniques), GSI offers the option of either acquiring solid streamers or renting gel streamers. GSI provided written confirmation that these streamers can be made available during the timeframe of the operation. GSI indicates that no modification needs to be made to the "GSI ADMIRAL" handling system for the installation of solid or gel streamers. GSI also states that there are currently many highly skilled and experienced marine and geophysical crews available for immediate hire. To support this claim, GSI provided a letter from a crewing company that it has used in the past, which confirms that the company is committed to providing a full Canadian crew for the "GSI ADMIRAL".

[19] Although it is alleged that the "GSI ADMIRAL" is not suitable because it cannot provide broad bandwidth acquisition techniques and has no experience with such techniques, the Agency finds that the supporting evidence submitted with respect to the suitability of the "GSI ADMIRAL" shows that it could acquire streamers that would meet the requirements of the activity. In addition, the Agency finds that the alleged lack of experience in providing such techniques is not insurmountable and that GSI has provided evidence to demonstrate that it would be able to hire experienced marine and geophysical crews to perform the activity.

COMMERCIAL SUITABILITY

[20] MKI indicates that pursuant to the EOI, MKI and TGS have signed a Joint Operating Agreement (JOA) that covers planning, permitting, seismic acquisition, seismic processing, data management and sales and marketing. MKI further indicates that under to the JOA, MKI will acquire the survey data utilizing the "SANCO SPIRIT". MKI contends that in partnership with TGS, it has committed large sums of risked investment into the project and without this arrangement, the project (i.e. the activity) will not take place.

[21] MKI submits that it has committed large investments to this activity; however, it has not met its burden of proving that no Canadian ship is suitable and available to perform the activity.

[22] If MKI intends to claim that the costs associated with the use of the Canadian ship are significant enough that it would make the project non-viable, it would have to demonstrate this in a comprehensive manner and not by relying on arrangements it has already entered into with respect to foreign ships on unrelated projects. Simply claiming that there are higher costs associated with the use of a duty-paid ship is not sufficient.

[23] The comment by MKI that "both companies [TGS and MKI] are committing large sums of risked investment into the project and without this arrangement the project will not take place" suggests that the project is not of a particularly high priority. Nor does it preclude that an arrangement could be made to outfit the Canadian ship for the purpose, should it be a high priority.

AVAILABILITY

[24] MKI questions the validity of GSI's objection to the present application and the availability of the "GSI ADMIRAL" to perform the prescribed activity, given that the "GSI ADMIRAL" is listed for sale with Offshore Shipbrokers Ltd. MKI alleges that one of the conditions of sale is that the ship's Canadian flag be changed.

[25] In response, GSI states that it still owns the ship and that considerable work has been conducted on the ship in the past few months to upgrade it and shorten the time needed to put it back into quick service. GSI points out that it has been actively bidding the ship out for work and that offering a ship up for charter and/or sale is the normal course of business for ship owners.

[26] The Agency notes that there is no indication that the "GSI ADMIRAL" has been sold and GSI remains the owner of the ship. The Agency finds the fact that it is listed for sale does not affect the present application.

[27] MKI indicates that the "GSI ADMIRAL" is still listed on the Web site of Det Norske Veritas Exchange (DNV), a ship classification society that GSI employs to survey its ship and ensure compliance with regulations, as being "laid up", and that it has many overdue status surveys. MKI states that the "GSI ADMIRAL" has not performed any active work for two to three years and that without rectifying the growing list of outstanding status surveys, the "GSI ADMIRAL" will not be allowed to depart its current berth in Baton Rouge, Louisiana, United States of America.

[28] GSI submits that the purpose of laying up a ship is to allow ship owners to let surveys expire and wait until the ship has work to put it back into service. GSI points out that all of the ship's certificates continue to be in good standing, and that all that is required is the laid up annual survey, which has been completed. GSI explains that the remaining surveys will be conducted on an as-needed basis as they are not currently required. GSI further points out that it maintains an engineering staff of three to four personnel who conduct daily, ongoing repairs on the ship, and that it has confirmed the availability of a top Canadian crew. GSI contends that the ship can be ready in six weeks.

[29] Based on the evidence provided, the Agency accepts GSI's position that the "GSI ADMIRAL" can be mobilized and operational for the proposed activity, and therefore finds that the "GSI ADMIRAL" is available to perform the proposed activity.

DETERMINATION

[30] In light of the above, the Agency determines, pursuant to subsection 8(1) of the Coasting Trade Act, that there is a suitable Canadian ship available to perform the activity described in the application.

[31] The Agency is providing this determination to the Minister of Public Safety and Emergency Preparedness.

PROCUREMENT PROCESS

[32] Prior to filing the present application with the Agency, MKI responded to an EOI bidding process issued by TGS for this activity. GSI acknowledged receipt of the EOI, which had been faxed to it once TGS became aware that GSI was not included on the notification lists. This indicates a good faith effort to involve GSI in the process. However, GSI chose not to respond in the required manner, but simply with a brief e-mail. GSI indicates that it chose not to respond in the manner requested in the EOI because it feels that information it has provided in the past "has been distorted and then used against us."

[33] This refusal to abide by the procurement process was not a factor the Agency considered in reaching this Decision. However, the Agency is concerned about the unwarranted circumvention of a valid tendering process. Such strategies result in unnecessary delays and impose unreasonable burdens on other industry participants and the Agency. Parties should participate in the normal procurement process and should not strictly rely on the Coasting Trade Act afterwards.

Members

  • Jean-Denis Pelletier, P. Eng.
  • Raymon J. Kaduck

Member(s)

Raymon J. Kaduck
J. Mark MacKeigan
Jean-Denis Pelletier, P.Eng.
Date modified: