Contract driller Rowan Cos plans to change its legal domicile to the UK as it expects about 81 percent of its revenue from operations outside the United States, where stricter deepwater drilling regulations are adding to costs.

Rowan shares, which have gained 20 percent in value so far this year, closed at $36.24, down 6 percent, on Tuesday on the New York Stock Exchange, after the company posted weaker-than-expected quarterly profit.

The company said it would merge with a newly formed unit, Rowan Mergeco Llc. Rowan will be an indirect unit of a newly formed English public limited company, which will be likely named Rowan Cos Plc.

Shareholders will have the right to receive American Depositary Shares representing Class A shares of Rowan UK, in exchange for their stake, at the effective time of the merger.

The exchange could be a taxable event for investors, analysts said.

If you have a low-tax basis on the shares you hold and you are a taxable entity, you may have to pay a capital gains tax and you still own the same stock. That can be somewhat of a frustration. said Jeremy Kramer, a portfolio manager at Neuberger Berman's Straus Group.

The group owns 1.9 million Rowan shares.

Houston-based Rowan said the UK will be a much more efficient location to communicate with its rigs, 74 percent of which are located outside the United States.

Term contract work internationally is clearly desired by (the) company, and reorganization better positions them for it, Tudor Pickering wrote in a note to clients.

Rowen said changing base to the UK, where it has substantial operations, will consolidate its position as a global contract driller and help it compete with the tax rates of its peers.

(The) move (is) driven by tax efficiencies ... we wouldn't necessarily infer any incremental tax rate efficiencies above and beyond Wall Street estimates from this move, Simmons & Co analysts wrote in a note.

On a call with analysts, Rowan Chief Financial Officer William Wells said 2012 tax benefits from the relocation should be modest and fully offset by administrative costs.

We would expect benefits to increase over the long term, barring any significant changes in the tax laws, he said.

Rowan first started its operations in UK three decades ago. The relocation will have no impact on jobs, it said, adding that the proposed change in corporate structure is expected to complete by late spring 2012.

UK NORTH SEA ASPIRATIONS

The move could be part of the company's expansion into deepwater drilling. Rowan sold its drilling and mining equipment unit last May and hived off its onshore rig fleet line in July.

Edinburgh-based consultants Wood Mackenzie said in a report that UK North Sea oil and gas investment was set to mark an all-time high in 2012 and that investments should stay consistently high until at least 2014.

There is a rising appetite for UK exploration acreage after Britain awarded 46 new oil and gas exploration licenses in December.

Rowan expects first-quarter revenue to be sequentially higher with the startup of several rigs expected to generate an additional $45 million (28 million pounds) in the current quarter.

However, the company expects full-year revenue to be impacted, with 11 percent of its available rig days in 2012 consumed by shipyard stays and rig moves.

There is likely to be a fairly meaningful improvement in earnings from this year to next year but maybe the pace is not going to be as fast as people thought 24 hours ago, said Kramer.

Near-term earnings are less robust but earnings over the 12 month period are more so.

Rowan anticipates international jack-up demand for its rigs to be about 30 units, driven primarily by southeast Asia, the Middle East, and the North Sea markets.

Rowan has 31 jack-up rigs located worldwide. It will enter the ultra-deepwater market with three high-specification drillships expected to be delivered from late 2013.

(Reporting by Swetha Gopinath in Bangalore; Editing by Gopakumar Warrier and Don Sebastian)