OT43160 - Non-residents working on the UK continental shelf: transfer pricing: bareboat charter - rig market

Before any conclusions can be drawn on bareboat charter rates it is necessary to understand something of the rig market:

• There is only a small market for the hire of a drilling rig on bareboat charter terms.
• Such charters are usually only seen between members of the same group.
• Tax mitigation may be a primary motive behind such arrangements.

When choosing a rig an oil company will be concerned not only with the rig itself but the group behind it; the rig operator is as important as the rig. Large groups therefore have a competitive advantage because of competent, experienced crews and knowledgeable and efficient administrative backup services and good quality equipment. The high capital cost of rigs is also a factor. As a consequence the market is dominated by a small number of larger companies, although new operators do enter the market periodically.