OT43170 | Non-residents working on the UK continental shelf: transfer pricing: bareboat charter - types of day rates

The contract between the oil company and the operator for drilling services will normally set out different day rates for different situations:

• the period of drilling operations (the ‘operating day’ rate)

• the suspension of operations due to adverse weather conditions (the ‘waiting on weather’ rate)

• rig movements (‘mobilisation’ or ‘demobilisation’ rate)

• remedial work (the term for re-drilling a lost or damaged hole or drilling a substitute hole, caused principally by any negligent act or omission by the contractor)

• fishing work (again caused by a negligent act of the contractor)

• repairs or breakdowns

• and may contain fees for additional activities.

Headline day rates for drilling services are reported widely in the trade press. Fluctuations in day rates reflect a tension between the supply of and demand for drilling services at any point in time. However contracts will be signed for a period of months or years, so movements will lag behind changes in oil prices.

It is important to examine the day-rate contract to ascertain the precise transaction and the risks that are being rewarded in each case