Contractual Mechanisms for Flexibility in Day Rate Drilling Contracts

Flexibility in long term contracts of energy sector has importance which can guarantee their contractual proper performance. Drilling contracts as secondary upstream contracts are being influenced by oil price fluctuation. This matter not only affects contractual balance but also is in contrast with underlying mutual agreement regarding applying of rates equal to market rates. Therefore proper contractual mechanism shall be incorporated in contracts to make possible to adjust and modify contractual rates in accordance with market conditions. Determining a suitable index for adopting rates and set dimension for modification of rates can provide required flexibility in these contracts. In addition to using renegotiation as an independent clause, it can be used as a supplementary clause to manage the inefficiency of using adaptation clause. However, this article aims to examine Day Rate Drilling Contracts and proper mechanism for modification of them.