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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

or

☐ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number 1-39270

Patterson-UTI Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware |  | 75-2504748
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
10713 W. Sam Houston Pkwy N, Suite 800 Houston, Texas |  | 77064
(Address of principal executive offices) |  | (Zip Code)

(281) 765-7100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, $0.01 Par Value |  | PTEN |  | The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer |  | ☑ |  | Accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
Non-accelerated filer |  | ☐ |  |  |  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

207,993,589 shares of common stock, $0.01 par value, as of July 27, 2023.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

|  | PART I — FINANCIAL INFORMATION |  |
|  |  |  | Page
ITEM 1. |  | Financial Statements |  |
|  | Unaudited condensed consolidated balance sheets |  | 3
|  | Unaudited condensed consolidated statements of operations |  | 4
|  | Unaudited condensed consolidated statements of comprehensive income (loss) |  | 5
|  | Unaudited condensed consolidated statements of changes in stockholders’ equity |  | 6
|  | Unaudited condensed consolidated statements of cash flows |  | 7
|  | Notes to unaudited condensed consolidated financial statements |  | 8
ITEM 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 23
ITEM 3. |  | Quantitative and Qualitative Disclosures About Market Risk |  | 36
ITEM 4. |  | Controls and Procedures |  | 37
|  | PART II — OTHER INFORMATION |  |
ITEM 1. |  | Legal Proceedings |  | 38
ITEM 1A. |  | Risk Factors |  | 38
ITEM 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  | 43
ITEM 5. |  | Other Information |  | 43
ITEM 6. |  | Exhibits |  | 44
Signature |  |  |  |

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

| June 30, |  |  | December 31, |
| 2023 |  |  | 2022 |
ASSETS |  |  |  |  |
Current assets: |  |  |  |  |
Cash and cash equivalents | $ | 150,288 |  |  | $ | 137,553 |
Accounts receivable, net of allowance for credit losses of $2,828 and $2,875 at June 30, 2023 and December 31, 2022, respectively |  | 491,049 |  |  |  | 565,520 |
Inventory |  | 68,036 |  |  |  | 58,038 |
Other current assets |  | 91,954 |  |  |  | 68,308 |
Total current assets |  | 801,327 |  |  |  | 829,419 |
Property and equipment, net |  | 2,263,581 |  |  |  | 2,260,576 |
Right of use asset |  | 18,771 |  |  |  | 20,841 |
Intangible assets, net |  | 5,140 |  |  |  | 5,845 |
Deposits on equipment purchases |  | 14,222 |  |  |  | 13,051 |
Other assets |  | 10,128 |  |  |  | 10,881 |
Deferred tax assets, net |  | 4,027 |  |  |  | 3,210 |
Total assets | $ | 3,117,196 |  |  | $ | 3,143,823 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |
Current liabilities: |  |  |  |  |
Accounts payable | $ | 245,562 |  |  | $ | 237,056 |
Accrued liabilities |  | 204,006 |  |  |  | 308,787 |
Lease liability |  | 4,753 |  |  |  | 5,123 |
Total current liabilities |  | 454,321 |  |  |  | 550,966 |
Long-term lease liability |  | 17,287 |  |  |  | 19,594 |
Long-term debt, net of debt discount and issuance costs of $4,992 and $5,468 at June 30, 2023 and December 31, 2022, respectively |  | 822,408 |  |  |  | 830,937 |
Deferred tax liabilities, net |  | 58,635 |  |  |  | 28,738 |
Other liabilities |  | 44,376 |  |  |  | 48,065 |
Total liabilities |  | 1,397,027 |  |  |  | 1,478,300 |
Commitments and contingencies (see Note 9) |  |  |  |  |
Stockholders' equity: |  |  |  |  |
Preferred stock, par value $0.01; authorized 1,000,000 shares, no shares issued |  | — |  |  |  | — |
Common stock, par value $0.01; authorized 400,000,000 shares with 304,927,639 and 302,325,853 issued and 207,993,589 and 213,567,131 outstanding at June 30, 2023 and December 31, 2022, respectively |  | 3,049 |  |  |  | 3,023 |
Additional paid-in capital |  | 3,208,927 |  |  |  | 3,202,973 |
Retained earnings (deficit) |  | 62,899 |  |  |  | (87,394 | )
Treasury stock, at cost, 96,934,050 and 88,758,722 shares at June 30, 2023 and December 31, 2022, respectively |  | (1,554,706 | ) |  |  | (1,453,079 | )
Total stockholders' equity |  | 1,720,169 |  |  |  | 1,665,523 |
Total liabilities and stockholders' equity | $ | 3,117,196 |  |  | $ | 3,143,823 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

| Three Months Ended |  |  | Six Months Ended |
| June 30, |  |  | June 30, |
| 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Operating revenues: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 432,375 |  |  | $ | 304,586 |  |  | $ | 851,401 |  |  | $ | 561,226 |
Pressure pumping |  | 250,241 |  |  |  | 238,376 |  |  |  | 543,509 |  |  |  | 427,966 |
Directional drilling |  | 55,141 |  |  |  | 54,825 |  |  |  | 111,404 |  |  |  | 98,159 |
Other |  | 21,128 |  |  |  | 24,451 |  |  |  | 44,373 |  |  |  | 44,262 |
Total operating revenues |  | 758,885 |  |  |  | 622,238 |  |  |  | 1,550,687 |  |  |  | 1,131,613 |
Operating costs and expenses: |  |  |  |  |  |  |  |  |  |  |
Contract drilling |  | 231,420 |  |  |  | 196,269 |  |  |  | 461,778 |  |  |  | 372,975 |
Pressure pumping |  | 196,473 |  |  |  | 191,455 |  |  |  | 416,589 |  |  |  | 348,923 |
Directional drilling |  | 47,365 |  |  |  | 45,438 |  |  |  | 95,411 |  |  |  | 82,392 |
Other |  | 12,827 |  |  |  | 13,738 |  |  |  | 26,966 |  |  |  | 25,822 |
Depreciation, depletion, amortization and impairment |  | 126,814 |  |  |  | 121,553 |  |  |  | 254,994 |  |  |  | 238,491 |
Selling, general and administrative |  | 33,257 |  |  |  | 26,079 |  |  |  | 63,823 |  |  |  | 53,540 |
Merger and integration expenses |  | 7,940 |  |  |  | 182 |  |  |  | 7,940 |  |  |  | 2,045 |
Other operating income, net |  | (1,793 | ) |  |  | (9,238 | ) |  |  | (7,359 | ) |  |  | (10,456 | )
Total operating costs and expenses |  | 654,303 |  |  |  | 585,476 |  |  |  | 1,320,142 |  |  |  | 1,113,732 |
Operating income |  | 104,582 |  |  |  | 36,762 |  |  |  | 230,545 |  |  |  | 17,881 |
Other income (expense): |  |  |  |  |  |  |  |  |  |  |
Interest income |  | 1,212 |  |  |  | 14 |  |  |  | 2,452 |  |  |  | 29 |
Interest expense, net of amount capitalized |  | (9,738 | ) |  |  | (10,658 | ) |  |  | (18,564 | ) |  |  | (21,223 | )
Other |  | 2,323 |  |  |  | (2,452 | ) |  |  | 3,809 |  |  |  | (870 | )
Total other expense |  | (6,203 | ) |  |  | (13,096 | ) |  |  | (12,303 | ) |  |  | (22,064 | )
Income (loss) before income taxes |  | 98,379 |  |  |  | 23,666 |  |  |  | 218,242 |  |  |  | (4,183 | )
Income tax expense |  | 13,765 |  |  |  | 1,780 |  |  |  | 33,950 |  |  |  | 2,708 |
Net income (loss) | $ | 84,614 |  |  | $ | 21,886 |  |  | $ | 184,292 |  |  | $ | (6,891 | )
Net income (loss) per common share: |  |  |  |  |  |  |  |  |  |  |
Basic | $ | 0.41 |  |  | $ | 0.10 |  |  | $ | 0.88 |  |  | $ | (0.03 | )
Diluted | $ | 0.40 |  |  | $ | 0.10 |  |  | $ | 0.87 |  |  | $ | (0.03 | )
Weighted average number of common shares outstanding: |  |  |  |  |  |  |  |  |  |  |
Basic |  | 207,839 |  |  |  | 216,165 |  |  |  | 209,952 |  |  |  | 215,718 |
Diluted |  | 208,984 |  |  |  | 219,676 |  |  |  | 211,188 |  |  |  | 215,718 |
Cash dividends per common share | $ | 0.08 |  |  | $ | 0.04 |  |  | $ | 0.16 |  |  | $ | 0.08 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

| Three Months Ended |  |  | Six Months Ended |
| June 30, |  |  | June 30, |
| 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net income (loss) | $ | 84,614 |  |  | $ | 21,886 |  |  | $ | 184,292 |  |  | $ | (6,891 | )
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment, net of taxes of $0 for all periods |  | — |  |  |  | 1,678 |  |  |  | — |  |  |  | 1,793 |
Release of cumulative translation adjustment, net of taxes of $3,770, into net income (loss) for three and six months ended June 30, 2022 |  | — |  |  |  | (7,708 | ) |  |  | — |  |  |  | (7,708 | )
Total comprehensive income (loss) | $ | 84,614 |  |  | $ | 15,856 |  |  | $ | 184,292 |  |  | $ | (12,806 | )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

| Common Stock |  |  | Additional |  |  | Retained |  |  | Accumulated Other |  |  |  |  |  |  |
| Number of |  |  |  |  |  | Paid-in |  |  | (Deficit) |  |  | Comprehensive |  |  | Treasury |  |  |  |
| Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Income |  |  | Stock |  |  | Total |
Balance, December 31, 2022 |  | 302,326 |  |  | $ | 3,023 |  |  | $ | 3,202,973 |  |  | $ | (87,394 | ) |  | $ | — |  |  | $ | (1,453,079 | ) |  | $ | 1,665,523 |
Net income |  | — |  |  |  | — |  |  |  | — |  |  |  | 99,678 |  |  |  | — |  |  |  | — |  |  |  | 99,678 |
Vesting of restricted stock units |  | 89 |  |  |  | 1 |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation |  | — |  |  |  | — |  |  |  | (758 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (758 | )
Payment of cash dividends ($0.08 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (16,916 | ) |  |  | — |  |  |  | — |  |  |  | (16,916 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (263 | ) |  |  | — |  |  |  | — |  |  |  | (263 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (74,307 | ) |  |  | (74,307 | )
Balance, March 31, 2023 |  | 302,415 |  |  | $ | 3,024 |  |  | $ | 3,202,214 |  |  | $ | (4,895 | ) |  | $ | — |  |  | $ | (1,527,386 | ) |  | $ | 1,672,957 |
Net income |  | — |  |  |  | — |  |  |  | — |  |  |  | 84,614 |  |  |  | — |  |  |  | — |  |  |  | 84,614 |
Issuance of restricted stock |  | 1,001 |  |  |  | 10 |  |  |  | (10 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Vesting of restricted stock units |  | 1,512 |  |  |  | 15 |  |  |  | (15 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 6,738 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,738 |
Payment of cash dividends ($0.08 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (16,591 | ) |  |  | — |  |  |  | — |  |  |  | (16,591 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (229 | ) |  |  | — |  |  |  | — |  |  |  | (229 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (27,320 | ) |  |  | (27,320 | )
Balance, June 30, 2023 |  | 304,928 |  |  | $ | 3,049 |  |  | $ | 3,208,927 |  |  | $ | 62,899 |  |  | $ | — |  |  | $ | (1,554,706 | ) |  | $ | 1,720,169 |

| Common Stock |  |  | Additional |  |  |  |  |  | Accumulated Other |  |  |  |  |  |  |
| Number of |  |  |  |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Treasury |  |  |  |
| Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Income |  |  | Stock |  |  | Total |
Balance, December 31, 2021 |  | 299,269 |  |  | $ | 2,993 |  |  | $ | 3,171,536 |  |  | $ | (198,316 | ) |  | $ | 5,915 |  |  | $ | (1,372,641 | ) |  | $ | 1,609,487 |
Net loss |  | — |  |  |  | — |  |  |  | — |  |  |  | (28,777 | ) |  |  | — |  |  |  | — |  |  |  | (28,777 | )
Foreign currency translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 115 |  |  |  | — |  |  |  | 115 |
Vesting of restricted stock units |  | 150 |  |  |  | 1 |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 4,642 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,642 |
Payment of cash dividends ($0.04 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,611 | ) |  |  | — |  |  |  | — |  |  |  | (8,611 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (144 | ) |  |  | — |  |  |  | — |  |  |  | (144 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (13 | ) |  |  | (13 | )
Balance, March 31, 2022 |  | 299,419 |  |  | $ | 2,994 |  |  | $ | 3,176,177 |  |  | $ | (235,848 | ) |  | $ | 6,030 |  |  | $ | (1,372,654 | ) |  | $ | 1,576,699 |
Net income |  | — |  |  |  | — |  |  |  | — |  |  |  | 21,886 |  |  |  | — |  |  |  | — |  |  |  | 21,886 |
Foreign currency translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,678 |  |  |  | — |  |  |  | 1,678 |
Release of cumulative translation adjustment |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7,708 | ) |  |  | — |  |  |  | (7,708 | )
Issuance of restricted stock |  | 980 |  |  |  | 10 |  |  |  | (10 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Vesting of restricted stock units |  | 1,287 |  |  |  | 13 |  |  |  | (13 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Exercise of stock options |  | 640 |  |  |  | 6 |  |  |  | 10,362 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 10,368 |
Stock-based compensation |  | — |  |  |  | — |  |  |  | 5,162 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,162 |
Payment of cash dividends ($0.04 per share) |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,652 | ) |  |  | — |  |  |  | — |  |  |  | (8,652 | )
Dividend equivalents |  | — |  |  |  | — |  |  |  | — |  |  |  | (100 | ) |  |  | — |  |  |  | — |  |  |  | (100 | )
Purchase of treasury stock |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (23,252 | ) |  |  | (23,252 | )
Balance, June 30, 2022 |  | 302,326 |  |  | $ | 3,023 |  |  | $ | 3,191,678 |  |  | $ | (222,714 | ) |  | $ | — |  |  | $ | (1,395,906 | ) |  | $ | 1,576,081 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

| Six Months Ended |
| June 30, |
| 2023 |  |  | 2022 |
Cash flows from operating activities: |  |  |  |  |
Net income (loss) | $ | 184,292 |  |  | $ | (6,891 | )
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |  |  |
Depreciation, depletion, amortization and impairment |  | 254,994 |  |  |  | 238,491 |
Deferred income tax expense |  | 29,080 |  |  |  | 404 |
Stock-based compensation |  | 5,980 |  |  |  | 9,804 |
Net gain on asset disposals |  | (1,374 | ) |  |  | (10,408 | )
Gain on early debt extinguishment |  | (1,112 | ) |  |  | — |
Other |  | 896 |  |  |  | 534 |
Changes in operating assets and liabilities: |  |  |  |  |
Accounts receivable |  | 74,471 |  |  |  | (116,859 | )
Inventory |  | (12,302 | ) |  |  | (15,062 | )
Other current assets |  | (24,284 | ) |  |  | (7,659 | )
Other assets |  | 3,525 |  |  |  | 4,930 |
Accounts payable |  | (4,214 | ) |  |  | 42,661 |
Accrued liabilities |  | (106,546 | ) |  |  | (50,313 | )
Other liabilities |  | (6,200 | ) |  |  | (4,615 | )
Net cash provided by operating activities |  | 397,206 |  |  |  | 85,017 |
Cash flows from investing activities: |  |  |  |  |
Purchases of property and equipment |  | (249,995 | ) |  |  | (191,198 | )
Proceeds from disposal of assets |  | 7,792 |  |  |  | 15,346 |
Other |  | (9 | ) |  |  | (2,342 | )
Net cash used in investing activities |  | (242,212 | ) |  |  | (178,194 | )
Cash flows from financing activities: |  |  |  |  |
Purchases of treasury stock |  | (100,915 | ) |  |  | (12,897 | )
Dividends paid |  | (33,507 | ) |  |  | (17,263 | )
Proceeds from borrowings under revolving credit facility |  | — |  |  |  | 45,000 |
Repayment of borrowings under revolving credit facility |  | — |  |  |  | (20,000 | )
Repayment of senior notes |  | (7,837 | ) |  |  | — |
Net cash used in financing activities |  | (142,259 | ) |  |  | (5,160 | )
Effect of foreign exchange rate changes on cash |  | — |  |  |  | 449 |
Net increase (decrease) in cash and cash equivalents |  | 12,735 |  |  |  | (97,888 | )
Cash and cash equivalents at beginning of period |  | 137,553 |  |  |  | 117,524 |
Cash and cash equivalents at end of period | $ | 150,288 |  |  | $ | 19,636 |
Supplemental disclosure of cash flow information: |  |  |  |  |
Net cash received (paid) during the period for: |  |  |  |  |
Interest, net of capitalized interest of $836 in 2023 and $400 in 2022 | $ | (17,512 | ) |  | $ | (20,341 | )
Income taxes |  | (17,666 | ) |  |  | (880 | )
Non-cash investing and financing activities: |  |  |  |  |
Net increase in payables for purchases of property and equipment | $ | 12,720 |  |  | $ | 19,779 |
Net increase in deposits on equipment purchases |  | (1,171 | ) |  |  | (4,363 | )
Cashless exercise of stock options |  | — |  |  |  | 10,368 |

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Basis of presentation — The unaudited interim condensed consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. and its wholly-owned subsidiaries (collectively referred to herein as “we,” “us,” “our,” “ours” and like terms). All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, we have no controlling financial interests in any other entity which would require consolidation. As used in these notes, “we,” “us,” “our,” “ours” and like terms refer collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries. Patterson-UTI Energy, Inc. conducts its business operations through its wholly-owned subsidiaries and has no employees or independent operations. The U.S. dollar is the functional currency for all of our operations.

The unaudited interim condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations, although we believe the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all recurring adjustments considered necessary for a fair statement of the information in conformity with GAAP have been included. The unaudited condensed consolidated balance sheet as of December 31, 2022, as presented herein, was derived from our audited consolidated balance sheet but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year.

Recently Adopted Accounting Standards — In October 2021, the FASB issued an accounting standards update, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. The amendments should be applied prospectively to acquisitions occurring on or after the effective date. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted this new guidance on January 1, 2023, and there was no material impact on our consolidated financial statements.

Recently Issued Accounting Standards —In March 2020, the FASB issued an accounting standards update to provide temporary optional expedients that simplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The amendments in the update are effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications from the beginning of an interim period that includes or is subsequent to March 12, 2020. In December 2022, the FASB issued an update, which deferred the sunset date to December 31, 2024. We do not expect this new guidance will have a material impact on our consolidated financial statements.

2. Business Combination

NexTier Oilfield Solutions Inc.

On June 14, 2023, we and certain subsidiaries of ours entered into a merger agreement (the “NexTier Merger Agreement”) with NexTier Oilfield Solutions Inc. (“NexTier”). Under the terms of the NexTier Merger Agreement, at the effective time set forth in the NexTier Merger Agreement, subject to certain exceptions, each share of common stock of NexTier (“NexTier Common Stock”) then issued and outstanding immediately prior to the effective time (including outstanding restricted shares) will be converted into the right to receive 0.7520 shares of our common stock. Upon consummation of the transactions contemplated by the NexTier Merger Agreement, NexTier will be a wholly owned subsidiary of Patterson-UTI.

NexTier is a predominately U.S. land-focused oilfield service company, with a diverse set of well completion and production services across a variety of active and demanding basins.

The transaction is expected to close in 2023, subject to customary closing conditions and the approval of our and NexTier’s stockholders.

8

3. Revenues

ASC Topic 606 Revenue from Contracts with Customers

Revenue is recognized based on our customers’ ability to benefit from our services in an amount that reflects the consideration we expect to receive in exchange for those services. This typically happens when the service is performed. Services that primarily generate our earned revenue include the operating business segments of contract drilling, pressure pumping and directional drilling, which comprise our reportable segments. We also derive revenues from our other operations, which include our operating business segments of oilfield rentals, equipment servicing, electrical controls and automation, and oil and natural gas working interests. For more information on our business segments, including disaggregated revenue recognized from contracts with customers, see Note 14.

Within each of our operating segments, the services we provide represent a series of distinct services, generally provided daily, that are substantially the same, with the same pattern of transfer to the customer. Because our customers benefit equally throughout the service period and our efforts in providing services are incurred relatively evenly over the period of performance, revenue is recognized over time as we provide services to the customer.

We are a non-operating working interest owner of oil and natural gas properties primarily located in Texas and New Mexico. The ownership terms are outlined in joint operating agreements for each well between the operator of the well and the various interest owners, including us, who are considered non-operators of the well. We receive revenue each period for our working interest in the well during the period. The revenue received for the working interests from these oil and gas properties does not fall under the scope of the new revenue standard, and therefore, will continue to be reported under current guidance ASC 932-323 Extractive Activities – Oil and Gas, Investments – Equity Method and Joint Ventures.

Reimbursement Revenue — Reimbursements for the purchase of supplies, equipment, personnel services, shipping and other services that are provided at the request of our customers are recorded as revenue when incurred. The related costs are recorded as operating expenses when incurred.

Operating Lease Revenue — Lease income from equipment that we lease to others is recognized on a straight-line basis over the lease term. Lease income recognized during the six months ended June 30, 2023 and 2022 was not material.

Accounts Receivable and Contract Liabilities

Accounts receivable is our right to consideration once it becomes unconditional. Payment terms typically range from 30 to 60 days.

Accounts receivable balances were $488 million and $561 million as of June 30, 2023 and December 31, 2022, respectively. These balances do not include amounts related to our oil and gas working interests as those contracts are excluded from Topic 606. Accounts receivable balances are included in “Accounts receivable” in our unaudited condensed consolidated balance sheets.

We do not have any significant contract asset balances. Contract liabilities include prepayments received from customers prior to the requested services being completed. Once the services are complete and have been invoiced, the prepayment is applied against the customer’s account to offset the accounts receivable balance. Also included in contract liabilities are payments received from customers for reactivation or initial mobilization of newly constructed or upgraded rigs that were moved on location to the initial well site. These payments are allocated to the overall performance obligation and amortized over the initial term of the contract. Total contract liability balances were $49.2 million and $148 million as of June 30, 2023 and December 31, 2022, respectively. We recognized $102 million of revenue in the six months ended June 30, 2023 that was included in the contract liability balance at the beginning of the period. Revenue related to our contract liabilities balance is expected to be recognized through 2026. The $15.6 million current portion of our contract liability balance is included in “Accrued liabilities” and $33.6 million noncurrent portion of our contract liability balance is included in “Other liabilities” in our unaudited condensed consolidated balance sheets.

Contract Costs

Costs incurred for newly constructed rigs or rig upgrades based on a contract with a customer are considered capital improvements and are capitalized to drilling equipment and depreciated over the estimated useful life of the asset.

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Remaining Performance Obligations

We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of June 30, 2023 was approximately $760 million. Approximately 29% of the total contract drilling backlog in the United States at June 30, 2023 is reasonably expected to remain at June 30, 2024. We generally calculate our backlog by multiplying the dayrate under our term drilling contracts by the number of days remaining under the contract. The calculation does not include any revenues related to fees for other services such as for mobilization, other than initial mobilization, demobilization and customer reimbursables, nor does it include potential reductions in rates for unscheduled standby or during periods in which the rig is moving or incurring maintenance and repair time in excess of what is permitted under the drilling contract. For contracts that contain variable dayrate pricing, our backlog calculation uses the dayrate in effect for periods where the dayrate is fixed, and, for periods that remain subject to variable pricing, uses commodity pricing or other related indices in effect at June 30, 2023. In addition, our term drilling contracts are generally subject to termination by the customer on short notice and provide for an early termination payment to us in the event that the contract is terminated by the customer. For contracts on which we have received notice for the rig to be placed on standby, our backlog calculation uses the standby rate for the period over which we expect to receive the standby rate. For contracts on which we have received an early termination notice, our backlog calculation includes the early termination rate, instead of the dayrate, for the period over which we expect to receive the lower rate. Please see “Our Current Backlog of Contract Drilling Revenue May Decline and May Not Ultimately Be Realized, as Fixed-Term Contracts May in Certain Instances Be Terminated Without an Early Termination Payment” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

4. Inventory

Inventory consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

| June 30, 2023 |  |  | December 31, 2022 |
Finished goods | $ | 1,576 |  |  | $ | 28 |
Work-in-process |  | 4,431 |  |  |  | 2,341 |
Raw materials and supplies |  | 62,029 |  |  |  | 55,669 |
Inventory | $ | 68,036 |  |  | $ | 58,038 |

5. Other Current Assets

Other current assets consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

| June 30, 2023 |  |  | December 31, 2022 |
Federal and state income taxes receivable | $ | 12,382 |  |  | $ | 399 |
Workers' compensation receivable |  | 32,772 |  |  |  | 34,632 |
Prepaid expenses |  | 22,485 |  |  |  | 11,960 |
Other |  | 24,315 |  |  |  | 21,317 |
Other current assets | $ | 91,954 |  |  | $ | 68,308 |

6. Property and Equipment

Property and equipment consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

| June 30, 2023 |  |  | December 31, 2022 |
Equipment | $ | 7,608,945 |  |  | $ | 7,551,099 |
Oil and natural gas properties |  | 235,753 |  |  |  | 236,156 |
Buildings |  | 168,370 |  |  |  | 175,212 |
Land |  | 23,610 |  |  |  | 23,610 |
Total property and equipment |  | 8,036,678 |  |  |  | 7,986,077 |
Less accumulated depreciation, depletion, amortization and impairment |  | (5,773,097 | ) |  |  | (5,725,501 | )
Property and equipment, net | $ | 2,263,581 |  |  | $ | 2,260,576 |

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On a periodic basis, we evaluate our fleet of drilling rigs for marketability based on the condition of inactive rigs, expenditures that would be necessary to bring inactive rigs to working condition and the expected demand for drilling services by rig type. The components comprising rigs that will no longer be marketed are evaluated, and those components with continuing utility to our other marketed rigs are transferred to other rigs or to our yards to be used as spare equipment. The remaining components of these rigs are abandoned. We had no impairment related to the marketability or condition of our drilling rigs during the three and six months ended June 30, 2023.

We review our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recovered over their estimated remaining useful lives (“triggering events”). In connection with this review, assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings. We estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment. These estimates of cash flows are based on historical cyclical trends in the industry as well as our expectations regarding the continuation of these trends in the future. Provisions for asset impairment are charged against income when estimated future cash flows, on an undiscounted basis, are less than the asset’s net book value. Any provision for impairment is measured at fair value.

7. Accrued Liabilities

Accrued liabilities consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

| June 30, 2023 |  |  | December 31, 2022 |
Salaries, wages, payroll taxes and benefits | $ | 58,138 |  |  | $ | 73,308 |
Workers' compensation liability |  | 61,884 |  |  |  | 67,853 |
Property, sales, use and other taxes |  | 16,952 |  |  |  | 10,119 |
Insurance, other than workers' compensation |  | 2,670 |  |  |  | 3,644 |
Accrued interest payable |  | 10,779 |  |  |  | 10,522 |
Deferred revenue |  | 15,551 |  |  |  | 110,215 |
Federal and state income taxes payable |  | 3,622 |  |  |  | 4,644 |
Accrued merger and integration expenses |  | 7,740 |  |  |  | — |
Other |  | 26,670 |  |  |  | 28,482 |
Accrued liabilities | $ | 204,006 |  |  | $ | 308,787 |

8. Long-Term Debt

Long-term debt consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

| June 30, 2023 |  |  | December 31, 2022 |
3.95% Senior Notes | $ | 482,505 |  |  | $ | 488,505 |
5.15% Senior Notes |  | 344,895 |  |  |  | 347,900 |
|  | 827,400 |  |  |  | 836,405 |
Less deferred financing costs and discounts |  | (4,992 | ) |  |  | (5,468 | )
Total | $ | 822,408 |  |  | $ | 830,937 |

Credit Agreement — On March 27, 2018, we entered into an amended and restated credit agreement (as amended, the “Credit Agreement”) among us, as borrower, Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer, swing line lender and lender, each of the other lenders and letter of credit issuers party thereto, The Bank of Nova Scotia and U.S. Bank National Association, as Co-Syndication Agents, Royal Bank of Canada, as Documentation Agent and Wells Fargo Securities, LLC, The Bank of Nova Scotia and U.S. Bank National Association, as Co-Lead Arrangers and Joint Book Runners.

The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $100 million and a swing line facility that, at any time outstanding, is limited to the lesser of $50 million and the amount of the swing line provider’s unused commitment. Subject to customary conditions, we may request that the lenders’ aggregate commitments be increased by up to $300 million, not to exceed total commitments of $900 million.

On November 9, 2022, we entered into Amendment No. 3 to Amended and Restated Credit Agreement (“Amendment No. 3”) which, among other things, (i) revised the capacity under the letter of credit facility to $100 million; (ii) revised the capacity under the swing line facility to the lesser of $50 million and the amount of the swing line provider’s unused commitment; (iii) changed the LIBOR

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reference rate to a SOFR reference rate; and (iv) extended the maturity date for $416.7 million of revolving credit commitments of certain lenders under the Credit Agreement from March 27, 2025 to March 27, 2026. As a result, of the $600 million of revolving credit commitments under the Credit Agreement, the maturity date for $416.7 million of such commitments is March 27, 2026; the maturity date for $133.3 million of such commitments is March 27, 2025; and the maturity date for the remaining $50 million of such commitments is March 27, 2024.

Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate or base rate. The applicable margin on SOFR rate loans varies from 1.00% to 2.00% and the applicable margin on base rate loans varies from 0.00% to 1.00%, in each case determined based on our credit rating. As of June 30, 2023, the applicable margin on SOFR rate loans was 1.75% and the applicable margin on base rate loans was 0.75%. A letter of credit fee is payable by us equal to the applicable margin for SOFR rate loans times the daily amount available to be drawn under outstanding letters of credit. The commitment fee rate payable to the lenders varies from 0.10% to 0.30% based on our credit rating.

None of our subsidiaries are currently required to be a guarantor under the Credit Agreement. However, if any subsidiary guarantees or incurs debt in excess of the Priority Debt Basket (as defined in the Credit Agreement), such subsidiary is required to become a guarantor under the Credit Agreement.

The Credit Agreement contains representations, warranties, affirmative and negative covenants and events of default and associated remedies that we believe are customary for agreements of this nature, including certain restrictions on our ability and the ability of each of our subsidiaries to incur debt and grant liens. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant, which would require us to have a Pro Forma Debt Service Coverage Ratio (as defined in the Credit Agreement) greater than or equal to 1.50 to 1.00 immediately before and immediately after making any restricted payment. Restricted payments include, among other things, dividend payments, repurchases of our common stock, distributions to holders of our common stock or any other payment or other distribution to third parties on account of our or our subsidiaries’ equity interests. Our credit rating is currently investment grade at one of the two ratings agencies. The Credit Agreement also requires that our total debt to capitalization ratio, expressed as a percentage, not exceed 50%. The Credit Agreement generally defines the total debt to capitalization ratio as the ratio of (a) total borrowed money indebtedness to (b) the sum of such indebtedness plus consolidated net worth, with consolidated net worth determined as of the end of the most recently ended fiscal quarter. We were in compliance with these covenants at June 30, 2023.

As of June 30, 2023, we had no borrowings outstanding under our revolving credit facility. We had no letters of credit outstanding under the Credit Agreement at June 30, 2023 and, as a result, had available borrowing capacity of $600 million at that date.

2015 Reimbursement Agreement — On March 16, 2015, we entered into a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. As of June 30, 2023, we had $61.6 million in letters of credit outstanding under the Reimbursement Agreement.

Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. Fees, charges and other reasonable expenses for the issuance of letters of credit are payable by us at the time of issuance at such rates and amounts as are in accordance with Scotiabank’s prevailing practice. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum, calculated daily and payable monthly, in arrears, on the basis of a calendar year for the actual number of days elapsed, with interest on overdue interest at the same rate as on the reimbursement amounts. A letter of credit fee is payable by us equal to 1.50% times the amount of outstanding letters of credit.

We have also agreed that if obligations under the Credit Agreement are secured by liens on any of our or our subsidiaries’ property, then our reimbursement obligations and (to the extent similar obligations would be secured under the Credit Agreement) other obligations under the Reimbursement Agreement and any letters of credit will be equally and ratably secured by all property subject to such liens securing the Credit Agreement.

Pursuant to a Continuing Guaranty dated as of March 16, 2015, our payment obligations under the Reimbursement Agreement are jointly and severally guaranteed as to payment and not as to collection by our subsidiaries that from time to time guarantee payment under the Credit Agreement. None of our subsidiaries are currently required to guarantee payment under the Credit Agreement.

2028 Senior Notes and 2029 Senior Notes — On January 19, 2018, we completed an offering of $525 million in aggregate principal amount of our 3.95% Senior Notes due 2028 (the “2028 Notes”). On November 15, 2019, we completed an offering of $350 million in aggregate principal amount of our 5.15% Senior Notes due 2029 (the “2029 Notes”).

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During the first quarter of 2023, we elected to repurchase portions of our 2028 Notes and 2029 Notes in the open market. The principal amounts retired through these transactions totaled $6.0 million of our 2028 Notes and $3.0 million of our 2029 Notes, plus accrued interest. We recorded corresponding gains on the extinguishment of these amounts totaling $0.8 million and $0.3 million, respectively, net of the proportional write-off of associated deferred financing costs and original issuance discounts. These gains are included in “Interest expense, net of amount capitalized” in our unaudited condensed consolidated statements of operations.

We pay interest on the 2028 Notes on February 1 and August 1 of each year. The 2028 Notes will mature on February 1, 2028. The 2028 Notes bear interest at a rate of 3.95% per annum.

We pay interest on the 2029 Notes on May 15 and November 15 of each year. The 2029 Notes will mature on November 15, 2029. The 2029 Notes bear interest at a rate of 5.15% per annum.

The 2028 Notes and 2029 Notes (together, the “Senior Notes”) are our senior unsecured obligations, which rank equally with all of our other existing and future senior unsecured debt and will rank senior in right of payment to all of our other future subordinated debt. The Senior Notes will be effectively subordinated to any of our future secured debt to the extent of the value of the assets securing such debt. In addition, the Senior Notes will be structurally subordinated to the liabilities (including trade payables) of our subsidiaries that do not guarantee the Senior Notes. None of our subsidiaries are currently required to be a guarantor under the Senior Notes. If our subsidiaries guarantee the Senior Notes in the future, such guarantees (the “Guarantees”) will rank equally in right of payment with all of the guarantors’ future unsecured senior debt and senior in right of payment to all of the guarantors’ future subordinated debt. The Guarantees will be effectively subordinated to any of the guarantors’ future secured debt to the extent of the value of the assets securing such debt.

At our option, we may redeem the Senior Notes in whole or in part, at any time or from time to time at a redemption price equal to 100% of the principal amount of such Senior Notes to be redeemed, plus accrued and unpaid interest, if any, on those Senior Notes to the redemption date, plus a “make-whole” premium. Additionally, commencing on November 1, 2027, in the case of the 2028 Notes, and on August 15, 2029, in the case of the 2029 Notes, at our option, we may redeem the respective Senior Notes in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, on those Senior Notes to the redemption date.

The indentures pursuant to which the Senior Notes were issued include covenants that, among other things, limit our and our subsidiaries’ ability to incur certain liens, engage in sale and lease-back transactions or consolidate, merge, or transfer all or substantially all of their assets. These covenants are subject to important qualifications and limitations set forth in the indentures.

Upon the occurrence of a change of control triggering event, as defined in the indentures, each holder of the Senior Notes may require us to purchase all or a portion of such holder’s Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

The indentures also provide for events of default which, if any of them occurs, would permit or require the principal of, premium, if any, and accrued interest, if any, on the Senior Notes to become or to be declared due and payable.

Debt issuance costs — Debt issuance costs, except those related to line-of-credit arrangements, are presented in the balance sheet as a direct reduction of the carrying amount of the related debt. Debt issuance costs related to line-of-credit arrangements are included in “Other non-current assets” in our unaudited condensed consolidated balance sheets. Amortization of debt issuance costs is reported as interest expense.

Presented below is a schedule of the principal repayment requirements of long-term debt as of June 30, 2023 (in thousands):

Year ending December 31, |  |
2023 | $ | — |
2024 |  | — |
2025 |  | — |
2026 |  | — |
2027 |  | — |
Thereafter |  | 827,400 |
Total | $ | 827,400 |

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9. Commitments and Contingencies

As of June 30, 2023, we maintained letters of credit in the aggregate amount of $61.6 million primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. These letters of credit expire annually at various times during the year and are typically renewed. As of June 30, 2023, no amounts had been drawn under the letters of credit.

As of June 30, 2023, we had commitments to purchase major equipment totaling approximately $114 million for our contract drilling, pressure pumping, directional drilling and oilfield rentals businesses.

Our pressure pumping business has entered into agreements to purchase minimum quantities of proppants and chemicals from certain vendors. As of June 30, 2023, the remaining minimum obligation under these agreements was approximately $10.9 million, of which approximately $7.9 million and $3.0 million relate to the remainder of 2023 and 2024, respectively.

We are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, cash flows or results of operations.

10. Stockholders’ Equity

Cash Dividend — On July 26, 2023, our Board of Directors approved a cash dividend on our common stock in the amount of $0.08 per share to be paid on September 21, 2023 to holders of record as of September 7, 2023. The amount and timing of all future dividend payments, if any, are subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our debt agreements and other factors. Our Board of Directors may, without advance notice, reduce or suspend our dividend to improve our financial flexibility and position our company for long-term success. There can be no assurance that we will pay a dividend in the future.

Share Repurchases and Acquisitions — In September 2013, our Board of Directors approved a stock buyback program. In April 2023, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases. All purchases executed to date have been through open market transactions. Purchases under the buyback program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the buyback program. As of June 30, 2023, we had remaining authorization to purchase approximately $281 million of our outstanding common stock under the stock buyback program. Shares of stock purchased under the buyback program are held as treasury shares.

Treasury stock acquisitions during the six months ended June 30, 2023 were as follows (dollars in thousands):

| Shares |  |  | Cost |
Treasury shares at January 1, 2023 |  | 88,758,722 |  |  | $ | 1,453,079 |
Purchases pursuant to stock buyback program |  | 7,426,044 |  |  |  | 93,276 |
Acquisitions pursuant to long-term incentive plan |  | 749,284 |  |  |  | 8,351 |
Treasury shares at June 30, 2023 |  | 96,934,050 |  |  | $ | 1,554,706 |

11. Stock-based Compensation

We use share-based payments to compensate employees and non-employee directors. We recognize the cost of share-based payments under the fair-value-based method. Share-based awards include equity instruments in the form of stock options or restricted stock units that have included service conditions and, in certain cases, performance conditions. Our share-based awards also include share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. In 2020, we granted performance-based cash-settled phantom units, which are accounted for as a liability classified award. We issue shares of common stock when vested stock options are exercised and after restricted stock units and share-settled performance unit awards vest.

The Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan (the “2021 Plan”) was originally approved by our stockholders on June 3, 2021. Subject to stockholder approval, our Board of Directors approved an amendment to the 2021 Plan to increase the number of shares available for issuance under the 2021 Plan by 5.445 million shares (the “Amendment” and the 2021 Plan, as amended by the Amendment, the “Plan”). On June 8, 2023, our stockholders approved the Amendment. The aggregate number of shares of

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Common Stock authorized for grant under the Plan is approximately 18.9 million, which includes approximately 4.9 million shares previously authorized for grant under our Amended and Restated 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”).

Stock Options — We estimate the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of our common stock over the most recent period equal to the expected term of the options as of the date such options are granted. The expected term assumptions are based on our experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. No options were granted during the six months ended June 30, 2023 or 2022.

Stock option activity from January 1, 2023 to June 30, 2023 follows:

|  |  |  | Weighted |
|  |  |  | Average |
| Underlying |  |  | Exercise Price |
| Shares |  |  | Per Share |
Outstanding at January 1, 2023 |  | 2,905,150 |  |  | $ | 22.19 |
Exercised |  | — |  |  | $ | — |
Expired |  | (662,500 | ) |  | $ | 22.70 |
Outstanding at June 30, 2023 |  | 2,242,650 |  |  | $ | 22.04 |
Exercisable at June 30, 2023 |  | 2,242,650 |  |  | $ | 22.04 |

Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Forfeitable dividend equivalents are accrued on certain restricted stock units that will be paid upon vesting. We use the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock unit activity from January 1, 2023 to June 30, 2023 follows:

|  |  |  |  |  |  | Weighted |
|  |  |  |  |  |  | Average Grant |
| Time |  |  | Performance |  |  | Date Fair Value |
| Based |  |  | Based |  |  | Per Share |
Non-vested restricted stock units outstanding at January 1, 2023 |  | 3,090,846 |  |  |  | 359,315 |  |  | $ | 12.71 |
Granted |  | 1,675,657 |  |  |  | — |  |  | $ | 11.32 |
Vested |  | (1,600,786 | ) |  |  | — |  |  | $ | 9.89 |
Forfeited |  | (13,002 | ) |  |  | — |  |  | $ | 15.45 |
Non-vested restricted stock units outstanding at June 30, 2023 |  | 3,152,715 |  |  |  | 359,315 |  |  | $ | 12.93 |

As of June 30, 2023, we had unrecognized compensation cost related to our unvested restricted stock units totaling $41.1 million. The weighted-average remaining vesting period for these unvested restricted stock units was 2.26 years as of June 30, 2023.

Performance Unit Awards — We have granted share-settled performance unit awards to certain employees (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive shares of common stock upon the achievement of certain performance goals during a specified period established by the Compensation Committee. The performance period for the Performance Units is generally the three-year period commencing on April 1 of the year of grant.

The performance goals for the Performance Units are tied to our total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. For the performance units granted in April 2022 and April 2021, the peer group includes one market index and three market indices, respectively. The performance goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the respective Performance Units. The recipients will receive the target number of shares if our total shareholder return during the performance period, when compared to the peer group, is at the 55th percentile. If our total shareholder return during the performance period, when compared to the peer group, is at the 75th percentile or higher, then the recipients will receive two times the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is at the 25th percentile, then the recipients will only receive one-half of the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is between the 25th and 55th percentile, or the 55th and 75th percentile, then the shares to be received by the recipients will be determined using linear interpolation for levels of achievement between these points.

The payout under the Performance Units shall not exceed the target number of shares if our absolute total shareholder return is negative or zero.

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The total target number of shares with respect to the Performance Units for the awards granted in 2019-2023 is set forth below:

| 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |
| Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
| Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Target number of shares |  | 631,700 |  |  |  | 414,000 |  |  |  | 843,000 |  |  |  | 500,500 |  |  |  | 489,800 |

In April 2022, 979,600 shares were issued to settle the 2019 Performance Units. In May 2023, 1,001,000 shares were issued to settle the 2020 Performance Units. The Performance Units granted in 2021, 2022 and 2023 have not reached the end of their respective performance periods.

Because the Performance Units are share-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Performance Units is set forth below (in thousands):

| 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |
| Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
| Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Aggregate fair value at date of grant | $ | 8,440 |  |  | $ | 10,743 |  |  | $ | 7,225 |  |  | $ | 826 |  |  | $ | 9,958 |

These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Performance Units is shown below (in thousands):

| 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |
| Performance |  |  | Performance |  |  | Performance |  |  | Performance |  |  | Performance |
| Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |  |  | Unit Awards |
Three months ended June 30, 2023 | $ | 469 |  |  | $ | 895 |  |  | $ | 602 |  |  | N/A |  |  | N/A |
Three months ended June 30, 2022 | N/A |  |  | $ | 895 |  |  | $ | 602 |  |  | $ | 69 |  |  | N/A |
Six months ended June 30, 2023 | $ | 469 |  |  | $ | 1,791 |  |  | $ | 1,204 |  |  | $ | 69 |  |  | N/A |
Six months ended June 30, 2022 | N/A |  |  | $ | 895 |  |  | $ | 1,204 |  |  | $ | 138 |  |  | $ | 830 |

As of June 30, 2023, we had unrecognized compensation cost related to our unvested Performance Units totaling $16.0 million. The weighted-average remaining vesting period for these unvested Performance Units was 1.64 years as of June 30, 2023.

Phantom Units — In May 2020, the Compensation Committee approved a grant of long-term performance-based phantom units to our Chief Executive Officer and President, William A. Hendricks, Jr. (the “Phantom Units”). The Phantom Units were granted outside of the 2014 Plan. Pursuant to this phantom unit grant, Mr. Hendricks could earn from 0% to 200% of a target award of 298,500 phantom units based on our achievement of the same performance conditions over the same performance period that applies to the Performance Units granted in April 2020, as described above. Because the Phantom Units were cash-settled awards, they were accounted for as a liability classified award. The grant date fair value of the Phantom Units was $1.2 million. Compensation expense was recognized on a straight-line basis over the performance period, with the amount recognized fluctuating as a result of the Phantom Units being remeasured to fair value at the end of each reporting period due to their liability-award classification. We recognized a reversal of $1.0 million of compensation expense in the first quarter of 2023. We recognized $0.5 million and $3.6 million of compensation expense during the three and six months ended June 30, 2022, respectively. The Phantom Units settled in May 2023, with a cash payment of $7.4 million, which was determined by multiplying 597,000 earned phantom units by our average trading price per share over the twenty consecutive trading days preceding March 31, 2023.

12. Income Taxes

Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.

Our effective income tax rate for the three months ended June 30, 2023 was 14.0%, compared with 7.5% for the three months ended June 30, 2022. The higher effective income tax rate for the three months ended June 30, 2023 compared to June 30, 2022, was primarily attributable to the impact of valuation allowances on deferred tax assets between periods. For the three months ended June 30, 2022, due to valuation allowances, only certain income tax expense related to Colombia and certain U.S. states was recorded, resulting in a lower overall effective income tax rate.‌

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Our effective income tax rate for the six months ended June 30, 2023 was 15.6%, compared with (64.7)% for the six months ended June 30, 2022. The change in effective income tax rate for the six months ended June 30, 2023 was primarily attributable to the impact of valuation allowances between periods. For the six months ending June 30, 2022, due to valuation allowances, only certain income tax expense related to Colombia and certain U.S. states was recorded during a period with a pre-tax loss. This resulted in a negative effective income tax rate for the six months ended June 30, 2022.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, and when necessary, valuation allowances are provided. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We assess the realizability of our deferred tax assets quarterly and consider carryback availability, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In the second quarter of 2023, the effective tax rate takes into consideration the estimated valuation allowance based on forecasted 2023 income.

We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.

13. Earnings Per Share

We provide a dual presentation of our net income (loss) per common share in our unaudited condensed consolidated statements of operations: basic net income (loss) per common share (“Basic EPS”) and diluted net income (loss) per common share (“Diluted EPS”).

Basic EPS excludes dilution and is determined by dividing the earnings attributable to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive effect of potential common shares, including stock options and non-vested performance units and non-vested restricted stock units. The dilutive effect of stock options, non-vested performance units and non-vested restricted stock units is determined using the treasury stock method.

The following table presents information necessary to calculate net income (loss) per share for the three and six months ended June 30, 2023 and 2022 as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive (in thousands, except per share amounts):

| Three Months Ended |  |  | Six Months Ended |
| June 30, |  |  | June 30, |
| 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
BASIC EPS: |  |  |  |  |  |  |  |  |  |  |
Net income (loss) attributed to common stockholders | $ | 84,614 |  |  | $ | 21,886 |  |  | $ | 184,292 |  |  | $ | (6,891 | )
Weighted average number of common shares outstanding |  | 207,839 |  |  |  | 216,165 |  |  |  | 209,952 |  |  |  | 215,718 |
Basic net income (loss) per common share | $ | 0.41 |  |  | $ | 0.10 |  |  | $ | 0.88 |  |  | $ | (0.03 | )
DILUTED EPS: |  |  |  |  |  |  |  |  |  |  |
Net income (loss) attributed to common stockholders | $ | 84,614 |  |  | $ | 21,886 |  |  | $ | 184,292 |  |  | $ | (6,891 | )
Weighted average number of common shares outstanding |  | 207,839 |  |  |  | 216,165 |  |  |  | 209,952 |  |  |  | 215,718 |
Add dilutive effect of potential common shares |  | 1,145 |  |  |  | 3,511 |  |  |  | 1,236 |  |  |  | — |
Weighted average number of diluted common shares outstanding |  | 208,984 |  |  |  | 219,676 |  |  |  | 211,188 |  |  |  | 215,718 |
Diluted net income (loss) per common share | $ | 0.40 |  |  | $ | 0.10 |  |  | $ | 0.87 |  |  | $ | (0.03 | )
Potentially dilutive securities excluded as anti-dilutive |  | 6,084 |  |  |  | 3,683 |  |  |  | 2,572 |  |  |  | 9,982 |

14. Business Segments

At June 30, 2023, we had three reportable business segments: (i) contract drilling of oil and natural gas wells, (ii) pressure pumping services and (iii) directional drilling services. Each of these segments represents a distinct type of business and has a separate management team that reports to our chief operating decision maker. The results of operations in these segments are regularly reviewed by the chief operating decision maker for purposes of determining resource allocation and assessing performance.

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The following tables summarize selected financial information relating to our business segments (in thousands):

| Three Months Ended |  |  | Six Months Ended |
| June 30, |  |  | June 30, |
| 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Revenues: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 435,510 |  |  | $ | 307,618 |  |  | $ | 857,569 |  |  | $ | 567,301 |
Pressure pumping |  | 250,241 |  |  |  | 238,376 |  |  |  | 543,509 |  |  |  | 427,966 |
Directional drilling |  | 55,141 |  |  |  | 54,825 |  |  |  | 111,404 |  |  |  | 98,159 |
Other operations (1) |  | 33,195 |  |  |  | 29,233 |  |  |  | 65,736 |  |  |  | 54,259 |
Elimination of intercompany revenues - Contract drilling (2) |  | (3,135 | ) |  |  | (3,032 | ) |  |  | (6,168 | ) |  |  | (6,075 | )
Elimination of intercompany revenues - Other operations (2) |  | (12,067 | ) |  |  | (4,782 | ) |  |  | (21,363 | ) |  |  | (9,997 | )
Total revenues | $ | 758,885 |  |  | $ | 622,238 |  |  | $ | 1,550,687 |  |  | $ | 1,131,613 |
Income (loss) before income taxes: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 113,342 |  |  | $ | 21,720 |  |  | $ | 213,672 |  |  | $ | 18,556 |
Pressure pumping |  | 25,304 |  |  |  | 20,091 |  |  |  | 69,736 |  |  |  | 26,512 |
Directional drilling |  | 1,341 |  |  |  | 4,028 |  |  |  | 3,449 |  |  |  | 5,816 |
Other operations |  | (1,995 | ) |  |  | 3,300 |  |  |  | (1,160 | ) |  |  | 4,041 |
Corporate |  | (33,410 | ) |  |  | (12,377 | ) |  |  | (55,152 | ) |  |  | (37,044 | )
Interest income |  | 1,212 |  |  |  | 14 |  |  |  | 2,452 |  |  |  | 29 |
Interest expense |  | (9,738 | ) |  |  | (10,658 | ) |  |  | (18,564 | ) |  |  | (21,223 | )
Other |  | 2,323 |  |  |  | (2,452 | ) |  |  | 3,809 |  |  |  | (870 | )
Income (loss) before income taxes | $ | 98,379 |  |  | $ | 23,666 |  |  | $ | 218,242 |  |  | $ | (4,183 | )
Depreciation, depletion, amortization and impairment: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 85,633 |  |  | $ | 84,905 |  |  | $ | 172,499 |  |  | $ | 166,928 |
Pressure pumping |  | 25,976 |  |  |  | 24,713 |  |  |  | 52,001 |  |  |  | 48,498 |
Directional drilling |  | 4,514 |  |  |  | 3,859 |  |  |  | 8,685 |  |  |  | 7,203 |
Other operations |  | 9,557 |  |  |  | 6,803 |  |  |  | 17,136 |  |  |  | 13,200 |
Corporate |  | 1,134 |  |  |  | 1,273 |  |  |  | 4,673 |  |  |  | 2,662 |
Total depreciation, depletion, amortization and impairment | $ | 126,814 |  |  | $ | 121,553 |  |  | $ | 254,994 |  |  | $ | 238,491 |
Capital expenditures: |  |  |  |  |  |  |  |  |  |  |
Contract drilling | $ | 74,464 |  |  | $ | 50,165 |  |  | $ | 154,613 |  |  | $ | 101,875 |
Pressure pumping |  | 29,640 |  |  |  | 34,554 |  |  |  | 51,065 |  |  |  | 68,016 |
Directional drilling |  | 7,331 |  |  |  | 4,036 |  |  |  | 16,405 |  |  |  | 7,002 |
Other operations |  | 8,031 |  |  |  | 7,189 |  |  |  | 13,310 |  |  |  | 13,391 |
Corporate |  | 12,928 |  |  |  | 426 |  |  |  | 14,602 |  |  |  | 914 |
Total capital expenditures | $ | 132,394 |  |  | $ | 96,370 |  |  | $ | 249,995 |  |  | $ | 191,198 |

| June 30, 2023 |  |  | December 31, 2022 |
Identifiable assets: |  |  |  |  |
Contract drilling | $ | 2,195,695 |  |  | $ | 2,197,137 |
Pressure pumping |  | 475,312 |  |  |  | 541,975 |
Directional drilling |  | 124,713 |  |  |  | 121,111 |
Other operations |  | 110,828 |  |  |  | 93,947 |
Corporate (3) |  | 210,648 |  |  |  | 189,653 |
Total assets | $ | 3,117,196 |  |  | $ | 3,143,823 |

(1)
Other operations includes our oilfield rentals business, drilling equipment service business, the electrical controls and automation business and the oil and natural gas working interests.

(2)
Intercompany revenues consist of revenues from contract drilling for services provided to our other operations, and revenues from other operations for services provided to contract drilling, pressure pumping and within other operations. These revenues are generally based on estimated external selling prices and are eliminated during consolidation.

(3)
Corporate assets primarily include cash on hand and certain property and equipment.

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15. Fair Values of Financial Instruments

The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturity of these items. These fair value estimates are considered Level 1 fair value estimates in the fair value hierarchy of fair value accounting.

The estimated fair value of our outstanding debt balances as of June 30, 2023 and December 31, 2022 is set forth below (in thousands):

| June 30, 2023 |  |  | December 31, 2022 |
| Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
| Value |  |  | Value |  |  | Value |  |  | Value |
3.95% Senior Notes | $ | 482,505 |  |  | $ | 429,878 |  |  | $ | 488,505 |  |  | $ | 431,556 |
5.15% Senior Notes |  | 344,895 |  |  |  | 311,388 |  |  |  | 347,900 |  |  |  | 313,164 |
Total debt | $ | 827,400 |  |  | $ | 741,266 |  |  | $ | 836,405 |  |  | $ | 744,720 |

The fair values of the 3.95% Senior Notes and the 5.15% Senior Notes at June 30, 2023 and December 31, 2022 are based on quoted market prices, which are considered Level 1 fair value estimates in the fair value hierarchy of fair value accounting. The fair values of the 3.95% Senior Notes implied a 6.75% market rate of interest at June 30, 2023 and a 6.69% market rate of interest at December 31, 2022, based on their quoted market prices. The fair values of the 5.15% Senior Notes implied a 7.07% market rate of interest at June 30, 2023 and a 7.01% market rate of interest at December 31, 2022, based on their quoted market prices.

16. Subsequent Event

On July 3, 2023, we and certain subsidiaries of ours entered into a merger agreement (the “Ulterra Merger Agreement”) to acquire Ulterra Drilling Technologies, L.P. (“Ulterra”), pursuant to which, upon the terms and subject to the conditions set forth therein, we will acquire Ulterra on a debt-free basis for aggregate consideration of 34.9 million shares of our common stock and $370 million of cash, subject to customary purchase price adjustments. Ulterra is a global provider of specialized drill bit solutions.

The transaction is expected to close in the third quarter of 2023, subject to customary closing conditions and receipt of required regulatory approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) and other public filings, press releases and presentations by us contain “forward-looking statements” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, as amended. As used in this Report, “we,” “us,” “our,” “ours” and like terms refer collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries. Patterson-UTI Energy, Inc. conducts its operations through its wholly-owned subsidiaries and has no employees or independent business operations. These “forward-looking statements” involve risk and uncertainty. These forward-looking statements include, without limitation, statements relating to: liquidity; revenue, cost and margin expectations and backlog; financing of operations; oil and natural gas prices; rig counts and frac spreads; source and sufficiency of funds required for building new equipment, upgrading existing equipment and acquisitions (if opportunities arise); demand and pricing for our services; competition; equipment availability; government regulation; legal proceedings; debt service obligations; impact of inflation and economic downturns; and other matters. Our forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words such as “anticipate,” “believe,” “budgeted,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “potential,” “project,” “pursue,” “should,” “strategy,” “target,” or “will,” or the negative thereof and other words and expressions of similar meaning. The forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from actual future results expressed or implied by the forward-looking statements. These risks and uncertainties relate to:

•
the receipt of approval of stockholders of both Patterson-UTI and NexTier Oilfield Solutions Inc. (“NexTier”);
•
the time required to complete the NexTier merger and the Ulterra Drilling Technologies, L.P. (“Ulterra”) acquisition;
•
uncertainty as to whether the conditions to closing the NexTier merger or the Ulterra acquisition will be satisfied or whether the NexTier merger or the Ulterra acquisition will be completed;
•
the occurrence of any event, change or other circumstance that could give rise to a termination of the NexTier merger or the Ulterra acquisition;
•
the diversion of management time on merger- and acquisition-related issues;
•
the ultimate timing, outcome and results of integrating the operations of Patterson-UTI, NexTier and Ulterra;
•
the effects of the business combination on Patterson-UTI, NexTier and Ulterra, including the combined company’s future financial condition, results of operations, strategy and plans;
•
potential adverse reactions or changes to business relationships resulting from the announcement or completion of the NexTier merger or the Ulterra acquisition;
•
expected benefits from the NexTier merger and the Ulterra acquisition and the timing and ability of Patterson-UTI to realize those benefits;
•
the significant costs required to complete the NexTier merger and the Ulterra acquisition and integrate operations of Patterson-UTI, NexTier and Ulterra;
•
expectations regarding regulatory approval of the Ulterra acquisition;
•
whether litigation relating to the NexTier merger or the Ulterra acquisition will occur and, if so, the results of any litigation, settlements and investigations;
•
adverse oil and natural gas industry conditions;
•
global economic conditions, including inflationary pressures and risks of economic downturns or recessions in the United States and elsewhere;
•
volatility in customer spending and in oil and natural gas prices that could adversely affect demand for our services and their associated effect on rates;

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•
excess availability of land drilling rigs, pressure pumping and directional drilling equipment, including as a result of reactivation, improvement or construction;
•
competition and demand for our services;
•
the impact of the ongoing conflict in Ukraine;
•
strength and financial resources of competitors;
•
utilization, margins and planned capital expenditures;
•
liabilities from operational risks for which we do not have and receive full indemnification or insurance;
•
operating hazards attendant to the oil and natural gas business;
•
failure by customers to pay or satisfy their contractual obligations (particularly with respect to fixed-term contracts);
•
the ability to realize backlog;
•
specialization of methods, equipment and services and new technologies, including the ability to develop and obtain satisfactory returns from new technology;
•
the ability to retain management and field personnel;
•
loss of key customers;
•
shortages, delays in delivery, and interruptions in supply, of equipment and materials;
•
cybersecurity events;
•
synergies, costs and financial and operating impacts of acquisitions;
•
difficulty in building and deploying new equipment;
•
governmental regulation;
•
climate legislation, regulation and other related risks;
•
environmental, social and governance practices, including the perception thereof;
•
environmental risks and ability to satisfy future environmental costs;
•
technology-related disputes;
•
legal proceedings and actions by governmental or other regulatory agencies;
•
the ability to effectively identify and enter new markets;
•
public health crises, pandemics and epidemics;
•
weather;
•
operating costs;
•
expansion and development trends of the oil and natural gas industry;
•
ability to obtain insurance coverage on commercially reasonable terms;
•
financial flexibility;
•
adverse credit and equity market conditions;
•
availability of capital and the ability to repay indebtedness when due;
•
our return of capital to stockholders;
•
stock price volatility;
•
compliance with covenants under our debt agreements; and
•
other financial, operational and legal risks and uncertainties detailed from time to time in our filings with the SEC.

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We caution that the foregoing list of factors is not exhaustive. Additional information concerning these and other risk factors is contained elsewhere in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2022 and may be contained in our future filings with the SEC. You are cautioned not to place undue reliance on any of our forward-looking statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to update publicly or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise. In the event that we update any forward-looking statement, no inference should be made that we will make additional updates with respect to that statement, related matters or any other forward-looking statements. All subsequent written and oral forward-looking statements concerning us or other matters and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management Overview and Recent Developments in Market Conditions — We are a Houston, Texas-based oilfield services company that primarily owns and operates one of the largest fleets of land-based drilling rigs in the United States and a large fleet of pressure pumping equipment.

Our contract drilling business operates in the continental United States and internationally in Colombia and, from time to time, we pursue contract drilling opportunities in other select markets. Our pressure pumping business operates primarily in Texas and the Appalachian region. We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States, and we provide services that improve the statistical accuracy of directional and horizontal wellbores. We have other operations through which we provide oilfield rental tools in select markets in the United States. We also service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries, in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico.

Crude oil prices and demand for drilling and completions equipment and services increased in 2022, and industry supply of Tier-1, super-spec rigs became constrained. Commodity price volatility in the second quarter of 2023 resulted in a decline in industry activity; however, commodity prices have recently increased. The current demand for equipment and services remains dependent on macro conditions, including commodity prices, geopolitical environment, inflationary pressures, economic conditions in the United States and elsewhere and continued focus by exploration and production companies and service companies on capital discipline. Oil prices reached a low of $67.08 per barrel and averaged $73.54 per barrel in the second quarter of 2023, as compared to $76.08 per barrel in the first quarter of 2023. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.16 per MMBtu in the second quarter of 2023 as compared to an average of $2.65 per MMBtu in the first quarter of 2023.

Our average active rig count in the United States for the second quarter of 2023 was 128 rigs. This was a decrease from our average active rig count for the first quarter of 2023 of 131. We expect our rig count in the United States will average approximately 119 rigs during the third quarter. Based on contracts in place in the United States as of July 26, 2023, we expect an average of 71 rigs operating under term contracts during the third quarter of 2023 and an average of 44 rigs operating under term contracts during the four quarters ending June 30, 2024.

In pressure pumping, increased whitespace in the calendar and lower pricing, primarily on spot market work, contributed to a sequential decrease in the second quarter in revenues and margins. For the third quarter, we plan to operate 11 spreads.

Based on the outlook for the second half of 2023, we lowered our 2023 capital expenditure forecast to $485 million.

Recent Developments in Merger and Acquisition Activity and Financial Matters — On July 3, 2023, we and certain subsidiaries of ours entered into a merger agreement (the “Ulterra Merger Agreement”) to acquire Ulterra, pursuant to which, upon the terms and subject to the conditions set forth therein, we will acquire Ulterra on a debt-free basis for aggregate consideration of 34.9 million shares of our common stock and $370 million of cash, subject to customary purchase price adjustments. Ulterra is a global provider of specialized drill bit solutions.

The Ulterra transaction is expected to close in the third quarter of 2023, subject to customary closing conditions and receipt of required regulatory approvals, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act.

On June 14, 2023, we and certain subsidiaries of ours entered into a merger agreement (the “NexTier Merger Agreement”) with NexTier. Under the terms of the NexTier Merger Agreement, at the effective time set forth in the NexTier Merger Agreement, subject to certain exceptions, each share of common stock of NexTier (“NexTier Common Stock”) then issued and outstanding immediately prior to the effective time (including outstanding restricted shares) will be converted into the right to receive 0.7520 shares of our common stock. Upon consummation of the transactions contemplated by the NexTier Merger Agreement, NexTier will be a wholly owned subsidiary of Patterson-UTI.

NexTier is a predominately U.S. land-focused oilfield service company, with a diverse set of well completion and production services across a variety of active and demanding basins.

The NexTier transaction is expected to close in 2023, subject to customary closing conditions and the approval of our and NexTier’s stockholders.

During the first quarter of 2023, we elected to repurchase portions of our 2028 Notes and 2029 Notes in the open market. The principal amounts retired through these transactions totaled $6.0 million of our 2028 Notes and $3.0 million of our 2029 Notes, plus

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accrued interest. We recorded corresponding gains on the extinguishment of these amounts totaling $0.8 million and $0.3 million, respectively, net of the proportional write-off of associated deferred financing costs and original issuance discounts. These gains are included in “Interest expense, net of amount capitalized” in our unaudited condensed consolidated statements of operations.

Impact on our Business from Oil and Natural Gas Prices and Other Factors — Our revenues, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and upon our customers’ ability to access capital to fund their operating and capital expenditures. During periods of improved oil and natural gas prices, the capital spending budgets of oil and natural gas operators tend to expand, which generally results in increased demand for our services. Conversely, in periods when oil and natural gas prices are relatively low or when our customers have a reduced ability to access capital, the demand for our services generally weakens, and we experience downward pressure on pricing for our services. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services. We may also be impacted by delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies.

The North American oil and natural gas services industry is cyclical and at times experiences downturns in demand. During these periods, there has been substantially more oil and natural gas service equipment available than necessary to meet demand. As a result, oil and natural gas service contractors have had difficulty sustaining profit margins and, at times, have incurred losses during the downturn periods. We cannot predict either the future level of demand for our oil and natural gas services or future conditions in the oil and natural gas service businesses.

In addition to the dependence on oil and natural gas prices and demand for our services, we are highly impacted by operational risks, competition, labor issues, weather, the availability, from time to time, of products used in our pressure pumping business, supplier delays and various other factors that could materially adversely affect our business, financial condition, cash flows and results of operations. Please see Item 1A of this Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

For the three months ended June 30, 2023 and March 31, 2023 and six months ended June 30, 2023 and 2022, our operating revenues consisted of the following (dollars in thousands):

| Three Months Ended |  | Six Months Ended
| June 30, |  | March 31, |  | June 30 |  | June 30
| 2023 |  | 2023 |  | 2023 |  | 2022
Contract drilling | $432,375 |  | 57.0% |  | $419,026 |  | 52.9% |  | $851,401 |  | 54.9% |  | $561,226 |  | 49.6%
Pressure pumping | 250,241 |  | 33.0% |  | 293,268 |  | 37.0% |  | 543,509 |  | 35.0% |  | 427,966 |  | 37.8%
Directional drilling | 55,141 |  | 7.3% |  | 56,263 |  | 7.1% |  | 111,404 |  | 7.2% |  | 98,159 |  | 8.7%
Other operations | 21,128 |  | 2.7% |  | 23,245 |  | 3.0% |  | 44,373 |  | 2.9% |  | 44,262 |  | 3.9%
| $758,885 |  | 100.0% |  | $791,802 |  | 100.0% |  | $1,550,687 |  | 100.0% |  | $1,131,613 |  | 100.0%

Contract Drilling

We have addressed our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays by improving the capabilities of our drilling fleet. The U.S. land rig industry has in recent years referred to certain high specification rigs as “super-spec” rigs, which we consider to be at least a 1,500 horsepower, AC-powered rig that has at least a 750,000-pound hookload, a 7,500-psi circulating system, and is pad-capable. Due to evolving customer preferences, we refer to certain premium rigs as “Tier-1, super spec” rigs, which we consider as being a super-spec rig that also has a third mud pump and raised drawworks that allow for more clearance underneath the rig floor. As of June 30, 2023, our rig fleet included 172 super-spec rigs, of which 120 were Tier-1, super-spec rigs.

We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of June 30, 2023 was approximately $760 million. Approximately 29% of the total contract drilling backlog in the United States at June 30, 2023 is reasonably expected to remain at June 30, 2024. See Note 3 of Notes to unaudited condensed consolidated financial statements for additional information on backlog.

Pressure Pumping

As of June 30, 2023, we had approximately 1.2 million horsepower in our pressure pumping fleet. We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Substantially all of the revenue in the pressure pumping segment is from well stimulation services, such as hydraulic fracturing, for completion of new wells and remedial work on existing wells. We also provide cementing services through the pressure pumping segment.

Directional Drilling

24

We provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, measurement-while-drilling and supply and rental of downhole performance motors. We also provide services that improve the statistical accuracy of directional and horizontal wellbores.

Other Operations

Our oilfield rentals business, with a fleet of premium oilfield rental tools, along with the results of our ownership, as a non-operating working interest owner, in oil and gas assets located in Texas and New Mexico, provide the largest revenue contributions to our other operations. Other operations also includes the results of our electrical controls and automation business and the results of our drilling equipment service business.

Results of Operations

The following tables summarize results of operations by business segment for the three months ended June 30, 2023 and March 31, 2023:

|  | Three Months Ended |  |  |  |
|  | June 30, |  |  | March 31, |  |  |  |
Contract Drilling |  | 2023 |  |  | 2023 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 432,375 |  |  | $ | 419,026 |  |  |  | 3.2 | %
Direct operating costs |  |  | 231,420 |  |  |  | 230,358 |  |  |  | 0.5 | %
Adjusted gross margin (1) |  |  | 200,955 |  |  |  | 188,668 |  |  |  | 6.5 | %
Selling, general and administrative |  |  | 1,968 |  |  |  | 1,450 |  |  |  | 35.7 | %
Depreciation, amortization and impairment |  |  | 85,633 |  |  |  | 86,866 |  |  |  | (1.4 | )%
Other operating expenses, net |  |  | 12 |  |  |  | 22 |  |  |  | (45.5 | )%
Operating income |  | $ | 113,342 |  |  | $ | 100,330 |  |  |  | 13.0 | %
Operating days - U.S. (2) |  |  | 11,669 |  |  |  | 11,751 |  |  |  | (0.7 | )%
Average revenue per operating day - U.S. |  | $ | 35.94 |  |  | $ | 34.76 |  |  |  | 3.4 | %
Average direct operating costs per operating day - U.S. |  | $ | 19.04 |  |  | $ | 18.88 |  |  |  | 0.9 | %
Average adjusted gross margin per operating day - U.S. (3) |  | $ | 16.91 |  |  | $ | 15.88 |  |  |  | 6.5 | %
Average rigs operating - U.S. (2) |  |  | 128 |  |  |  | 131 |  |  |  | (1.8 | )%
Capital expenditures |  | $ | 74,464 |  |  | $ | 80,149 |  |  |  | (7.1 | )%

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. Average rigs operating is defined as operating days divided by the number of days in the period.
(3)
Average adjusted gross margin per operating day is defined as adjusted gross margin divided by operating days.

Generally, the revenues in our contract drilling segment are most impacted by two primary factors: our average number of rigs operating and our average revenue per operating day. Our average revenue per operating day is largely dependent on the pricing terms of our rig contracts.

Revenues and average revenue per operating day increased primarily due to improved pricing.

The decrease in capital expenditures was primarily due to the timing of order placement and spending on committed deliveries that more heavily impacted the first quarter of 2023.

25

|  | Three Months Ended |  |  |  |
|  | June 30, |  |  | March 31, |  |  |  |
Pressure Pumping |  | 2023 |  |  | 2023 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 250,241 |  |  | $ | 293,268 |  |  |  | (14.7 | )%
Direct operating costs |  |  | 196,473 |  |  |  | 220,116 |  |  |  | (10.7 | )%
Adjusted gross margin (1) |  |  | 53,768 |  |  |  | 73,152 |  |  |  | (26.5 | )%
Selling, general and administrative |  |  | 2,488 |  |  |  | 2,695 |  |  |  | (7.7 | )%
Depreciation, amortization and impairment |  |  | 25,976 |  |  |  | 26,025 |  |  |  | (0.2 | )%
Operating income |  | $ | 25,304 |  |  | $ | 44,432 |  |  |  | (43.1 | )%
Average active spreads (2) |  |  | 12 |  |  |  | 12 |  |  |  | (— | )%
Fracturing jobs |  |  | 137 |  |  |  | 147 |  |  |  | (6.8 | )%
Other jobs |  |  | 162 |  |  |  | 153 |  |  |  | 5.9 | %
Total jobs |  |  | 299 |  |  |  | 300 |  |  |  | (0.3 | )%
Average revenue per fracturing job |  | $ | 1,797.79 |  |  | $ | 1,959.10 |  |  |  | (8.2 | )%
Average revenue per other job |  | $ | 24.35 |  |  | $ | 34.51 |  |  |  | (29.5 | )%
Average revenue per total job |  | $ | 836.93 |  |  | $ | 977.56 |  |  |  | (14.4 | )%
Average direct operating costs per total job |  | $ | 657.10 |  |  | $ | 733.72 |  |  |  | (10.4 | )%
Average adjusted gross margin per total job (3) |  | $ | 179.83 |  |  | $ | 243.84 |  |  |  | (26.3 | )%
Adjusted gross margin as a percentage of revenues (3) |  |  | 21.5 | % |  |  | 24.9 | % |  |  | (13.9 | )%
Capital expenditures |  | $ | 29,640 |  |  | $ | 21,425 |  |  |  | 38.3 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
Average active spreads is the average number of spreads that were crewed and actively marketed during the period.
(3)
Average adjusted gross margin per total job is defined as adjusted gross margin divided by total jobs. Adjusted gross margin as a percentage of revenues is defined as adjusted gross margin divided by revenues.

Generally, the revenues in our pressure pumping segment are most impacted by the number and design of fracturing jobs (including whether or not we provide proppants and other materials). Direct operating costs are also most impacted by these same factors. Our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts and the design of the jobs.

Revenues and direct operating costs decreased primarily due to lower pricing, fewer fracturing jobs, and lower utilization. Average revenue per total job and average direct operating costs per total job decreased due to a decrease in pumping hours per day.

The increase in capital expenditures was primarily due to spending related to maintenance capital and the timing of order placement that more heavily impacted the second quarter of 2023.

|  | Three Months Ended |  |  |  |
|  | June 30, |  |  | March 31, |  |  |  |
Directional Drilling |  | 2023 |  |  | 2023 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 55,141 |  |  | $ | 56,263 |  |  |  | (2.0 | )%
Direct operating costs |  |  | 47,365 |  |  |  | 48,046 |  |  |  | (1.4 | )%
Adjusted gross margin (1) |  |  | 7,776 |  |  |  | 8,217 |  |  |  | (5.4 | )%
Selling, general and administrative |  |  | 1,921 |  |  |  | 1,938 |  |  |  | (0.9 | )%
Depreciation, amortization and impairment |  |  | 4,514 |  |  |  | 4,171 |  |  |  | 8.2 | %
Operating income |  | $ | 1,341 |  |  | $ | 2,108 |  |  |  | (36.4 | )%
Capital expenditures |  | $ | 7,331 |  |  | $ | 9,074 |  |  |  | (19.2 | )%

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Revenue decreased due to decreased job activity. We averaged 40 jobs per day during the three months ended June 30, 2023 as compared to 41 jobs per day during the three months ended March 31, 2023.

The decrease in capital expenditures was primarily due to the purchase of rotary steerable systems and the timing of order placement that more heavily impacted the first quarter of 2023.

26

|  | Three Months Ended |  |  |  |
|  | June 30, |  |  | March 31, |  |  |  |
Other Operations |  | 2023 |  |  | 2023 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 21,128 |  |  | $ | 23,245 |  |  |  | (9.1 | )%
Direct operating costs |  |  | 12,827 |  |  |  | 14,139 |  |  |  | (9.3 | )%
Adjusted gross margin (1) |  |  | 8,301 |  |  |  | 9,106 |  |  |  | (8.8 | )%
Selling, general and administrative |  |  | 739 |  |  |  | 692 |  |  |  | 6.8 | %
Depreciation, depletion, amortization and impairment |  |  | 9,557 |  |  |  | 7,579 |  |  |  | 26.1 | %
Operating income (loss) |  | $ | (1,995 | ) |  | $ | 835 |  |  | NA |
Capital expenditures |  | $ | 8,031 |  |  | $ | 5,279 |  |  |  | 52.1 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Other operations revenue and direct operating costs decreased due to lower volume of production and lower crude oil and natural gas market prices. Additionally, a portion of the decrease in other operations revenue was due to a decrease in the volume of services provided by our oilfield rentals business. The average WTI-Cushing price for the second quarter of 2023 was $73.54 per barrel as compared to $76.08 per barrel in the first quarter of 2023. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.16 per MMBtu in the second quarter of 2023 as compared to $2.65 per MMBtu in the first quarter of 2023.

Depreciation, depletion, amortization and impairment increased primarily due to a $3.8 million impairment recorded in our oil and natural gas business in the second quarter of 2023.

The increase in capital expenditures was primarily related to incremental spending in our oilfield rental and oil and natural gas business.

|  | Three Months Ended |  |  |  |
|  | June 30, |  |  | March 31, |  |  |  |
Corporate |  | 2023 |  |  | 2023 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Selling, general and administrative |  | $ | 26,141 |  |  | $ | 23,791 |  |  |  | 9.9 | %
Merger and integration expenses |  | $ | 7,940 |  |  | $ | — |  |  | NA |
Depreciation |  | $ | 1,134 |  |  | $ | 3,539 |  |  |  | (68.0 | )%
Other operating (income) expenses, net |  |  |  |  |  |  |  |  |
Net (gain) loss on asset disposals |  | $ | (1,912 | ) |  | $ | 538 |  |  | NA |
Legal-related expenses and settlements |  |  | (306 | ) |  |  | 38 |  |  | NA |
Research and development |  |  | — |  |  |  | 136 |  |  |  | (100.0 | )%
Other |  |  | 413 |  |  |  | (6,300 | ) |  | NA |
Other operating (income) expenses, net |  | $ | (1,805 | ) |  | $ | (5,588 | ) |  |  | (67.7 | )%
Interest income |  | $ | 1,212 |  |  | $ | 1,240 |  |  |  | (2.3 | )%
Interest expense |  | $ | 9,738 |  |  | $ | 8,826 |  |  |  | 10.3 | %
Other income |  | $ | 2,323 |  |  | $ | 1,486 |  |  |  | 56.3 | %
Capital expenditures |  | $ | 12,928 |  |  | $ | 1,674 |  |  |  | 672.3 | %

Selling, general and administrative expense increased primarily due to the fair value remeasurements of the phantom unit awards in the first quarter of 2023. See Note 11 of Notes to unaudited condensed consolidated financial statements for additional information on phantom unit awards.

The merger and integration expenses of $7.9 million were related to the merger agreements entered into with NexTier and Ulterra.

Other operating (income) expenses, net includes net gains or losses associated with the disposal of assets. Accordingly, the related gains or losses have been excluded from the results of specific segments. Other operating (income) expenses, net decreased primarily due to a $6.5 million reversal of cumulative compensation costs associated with certain performance-based restricted stock units in the first quarter of 2023, which was partially offset by a $1.9 million gain on asset disposals in the second quarter of 2023.

The increase in capital expenditures was primarily due to the purchase of an aircraft in the second quarter of 2023.

27

The following tables summarize results of operations by business segment for the six months ended June 30, 2023, and June 30, 2022:

|  | Six Months Ended |  |  |  |
|  | June 30, |  |  | June 30, |  |  |  |
Contract Drilling |  | 2023 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 851,401 |  |  | $ | 561,226 |  |  |  | 51.7 | %
Direct operating costs |  |  | 461,778 |  |  |  | 372,975 |  |  |  | 23.8 | %
Adjusted gross margin (1) |  |  | 389,623 |  |  |  | 188,251 |  |  |  | 107.0 | %
Selling, general and administrative |  |  | 3,418 |  |  |  | 2,765 |  |  |  | 23.6 | %
Depreciation, amortization and impairment |  |  | 172,499 |  |  |  | 166,928 |  |  |  | 3.3 | %
Other operating expenses, net |  |  | 34 |  |  |  | 2 |  |  |  | 1,600.0 | %
Operating income |  | $ | 213,672 |  |  | $ | 18,556 |  |  |  | 1,051.5 | %
Operating days - U.S. (2) |  |  | 23,420 |  |  |  | 21,377 |  |  |  | 9.6 | %
Average revenue per operating day - U.S. |  | $ | 35.35 |  |  | $ | 24.56 |  |  |  | 43.9 | %
Average direct operating costs per operating day - U.S. |  | $ | 18.96 |  |  | $ | 16.24 |  |  |  | 16.7 | %
Average adjusted gross margin per operating day - U.S. (3) |  | $ | 16.39 |  |  | $ | 8.32 |  |  |  | 97.1 | %
Average rigs operating - U.S. (2) |  |  | 129 |  |  |  | 118 |  |  |  | 9.6 | %
Capital expenditures |  | $ | 154,613 |  |  | $ | 101,875 |  |  |  | 51.8 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. Average rigs operating is defined as operating days divided by the number of days in the period.
(3)
Average adjusted gross margin per operating day is defined as adjusted gross margin divided by operating days.

Generally, the revenues in our contract drilling segment are most impacted by two primary factors: our average number of rigs operating and our average revenue per operating day. Our average revenue per operating day is largely dependent on the pricing terms of our rig contracts.

Revenues increased primarily due to an increase in operating days and improved pricing. Average revenue per operating day increased primarily due to improved pricing.

Direct operating costs increased due to an increase in operating days as well as inflationary pressure on labor and supplies. Average direct operating costs per operating day increased primarily due to cost inflation.

The increase in capital expenditures was primarily due to higher maintenance capital expenditures related to increased rig activity and upgrading of certain rig components.

28

|  | Six Months Ended |  |  |  |
|  | June 30, |  |  | June 30, |  |  |  |
Pressure Pumping |  | 2023 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 543,509 |  |  | $ | 427,966 |  |  |  | 27.0 | %
Direct operating costs |  |  | 416,589 |  |  |  | 348,923 |  |  |  | 19.4 | %
Adjusted gross margin (1) |  |  | 126,920 |  |  |  | 79,043 |  |  |  | 60.6 | %
Selling, general and administrative |  |  | 5,183 |  |  |  | 4,033 |  |  |  | 28.5 | %
Depreciation, amortization and impairment |  |  | 52,001 |  |  |  | 48,498 |  |  |  | 7.2 | %
Operating income |  | $ | 69,736 |  |  | $ | 26,512 |  |  |  | 163.0 | %
Average active spreads (2) |  |  | 12 |  |  |  | 11 |  |  |  | 9.1 | %
Fracturing jobs |  |  | 284 |  |  |  | 270 |  |  |  | 5.2 | %
Other jobs |  |  | 315 |  |  |  | 323 |  |  |  | (2.5 | )%
Total jobs |  |  | 599 |  |  |  | 593 |  |  |  | 1.0 | %
Average revenue per fracturing job |  | $ | 1,881.29 |  |  | $ | 1,557.35 |  |  |  | 20.8 | %
Average revenue per other job |  | $ | 29.28 |  |  | $ | 23.16 |  |  |  | 26.4 | %
Average revenue per total job |  | $ | 907.36 |  |  | $ | 721.70 |  |  |  | 25.7 | %
Average direct operating costs per total job |  | $ | 695.47 |  |  | $ | 588.40 |  |  |  | 18.2 | %
Average adjusted gross margin per total job (3) |  | $ | 211.89 |  |  | $ | 133.29 |  |  |  | 59.0 | %
Adjusted gross margin as a percentage of revenues (3) |  |  | 23.4 | % |  |  | 18.5 | % |  |  | 26.2 | %
Capital expenditures |  | $ | 51,065 |  |  | $ | 68,016 |  |  |  | (24.9 | )%

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.
(2)
Average active spreads is the average number of spreads that were crewed and actively marketed during the period.
(3)
Average adjusted gross margin per total job is defined as adjusted gross margin divided by total jobs. Adjusted gross margin as a percentage of revenues is defined as adjusted gross margin divided by revenues.

Generally, the revenues in our pressure pumping segment are most impacted by the number and design of fracturing jobs (including whether or not we provide proppants and other materials). Direct operating costs are also impacted by these same factors. Our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts and the size of the jobs.

Revenues increased primarily due to an increase in the number of higher revenue fracturing jobs, improved pricing and continued improvement in asset utilization and efficiency. Direct operating costs increased primarily due to an increase in the number of higher cost fracturing jobs as well as inflationary pressure on labor and supplies.

Our average revenue per total job increased primarily as a result of a shift in the mix of total jobs toward higher revenue fracturing jobs, fracturing job design, and improved pricing. Average revenue per fracturing job increased primarily due to improved pricing and job design. Average direct operating costs per total job increased primarily as a result of a shift toward higher cost fracturing jobs as well as inflationary pressure on labor and supplies.

The decrease in capital expenditures was primarily due to the activation of our twelfth spread in 2022.

|  | Six Months Ended |  |  |  |
|  | June 30, |  |  | June 30, |  |  |  |
Directional Drilling |  | 2023 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 111,404 |  |  | $ | 98,159 |  |  |  | 13.5 | %
Direct operating costs |  |  | 95,411 |  |  |  | 82,392 |  |  |  | 15.8 | %
Adjusted gross margin (1) |  |  | 15,993 |  |  |  | 15,767 |  |  |  | 1.4 | %
Selling, general and administrative |  |  | 3,859 |  |  |  | 2,748 |  |  |  | 40.4 | %
Depreciation, amortization and impairment |  |  | 8,685 |  |  |  | 7,203 |  |  |  | 20.6 | %
Operating income |  | $ | 3,449 |  |  | $ | 5,816 |  |  |  | (40.7 | )%
Capital expenditures |  | $ | 16,405 |  |  | $ | 7,002 |  |  |  | 134.3 | %

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

29

Revenues increased primarily due to improved pricing, which was partially offset by fewer average jobs per day. We averaged 41 jobs per day during the six months ended June 30, 2023 as compared to 44 jobs per day during the six months ended June 30, 2022.

Direct operating costs increased primarily due to cost inflation.

Capital expenditures increased due to the purchase of additional premium equipment, including rotary steerable systems.

|  | Six Months Ended |  |  |  |
|  | June 30, |  |  | June 30, |  |  |  |
Other Operations |  | 2023 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Revenues |  | $ | 44,373 |  |  | $ | 44,262 |  |  |  | 0.3 | %
Direct operating costs |  |  | 26,966 |  |  |  | 25,822 |  |  |  | 4.4 | %
Adjusted gross margin (1) |  |  | 17,407 |  |  |  | 18,440 |  |  |  | (5.6 | )%
Selling, general and administrative |  |  | 1,431 |  |  |  | 1,199 |  |  |  | 19.3 | %
Depreciation, depletion, amortization and impairment |  |  | 17,136 |  |  |  | 13,200 |  |  |  | 29.8 | %
Operating income (loss) |  | $ | (1,160 | ) |  | $ | 4,041 |  |  | NA |
Capital expenditures |  | $ | 13,310 |  |  | $ | 13,391 |  |  |  | (0.6 | )%

(1)
Adjusted gross margin is defined as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). See Non-GAAP Financial Measures below for a reconciliation of GAAP gross margin to adjusted gross margin by segment.

Other operations revenue was consistent with the comparable period. However, our oil and natural gas revenues decreased by $6.3 million as a result of lower crude oil and natural gas market prices. The average WTI-Cushing price for the six months ended June 30, 2023 was $74.73 per barrel as compared to $102.01 per barrel for the six months ended June 30, 2022. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.40 per MMBtu for the six months ended June 30, 2023 as compared to $6.08 per MMBtu for the six months ended June 30, 2022. This decrease was offset by a $7.8 million increase in revenues in our oilfield rental business.

Depreciation, depletion, amortization and impairment increased primarily due to a $5.8 million impairment recorded in our oil and natural gas business during the six months ended June 30, 2023 compared to a $1.2 million impairment during the corresponding period of 2022.

|  | Six Months Ended |  |  |  |
|  | June 30, |  |  | June 30, |  |  |  |
Corporate |  | 2023 |  |  | 2022 |  |  | % Change |
|  | (dollars in thousands) |  |  |  |
Selling, general and administrative |  | $ | 49,932 |  |  | $ | 42,795 |  |  |  | 16.7 | %
Merger and integration expenses |  | $ | 7,940 |  |  | $ | 2,045 |  |  |  | 288.3 | %
Depreciation |  | $ | 4,673 |  |  | $ | 2,662 |  |  |  | 75.5 | %
Other operating (income) expenses, net |  |  |  |  |  |  |  |  |
Net gain on asset disposals |  | $ | (1,374 | ) |  | $ | (10,408 | ) |  |  | (86.8 | )%
Legal-related expenses and settlements |  |  | (268 | ) |  |  | 182 |  |  | NA |
Research and development |  |  | 136 |  |  |  | 492 |  |  |  | (72.4 | )%
Other |  |  | (5,887 | ) |  |  | (724 | ) |  |  | 713.1 | %
Other operating (income) expenses, net |  | $ | (7,393 | ) |  | $ | (10,458 | ) |  |  | (29.3 | )%
Interest income |  | $ | 2,452 |  |  | $ | 29 |  |  |  | 8,355.2 | %
Interest expense |  | $ | 18,564 |  |  | $ | 21,223 |  |  |  | (12.5 | )%
Other income (expense) |  | $ | 3,809 |  |  | $ | (870 | ) |  | NA |
Capital expenditures |  | $ | 14,602 |  |  | $ | 914 |  |  |  | 1,497.6 | %

Selling, general and administrative expense increased primarily due to increased personnel costs as a result of higher headcount, wage growth and changes in stock-based compensation.

Merger and integration expenses for the six months ended June 30, 2023 increased due to the merger agreements entered with NexTier and Ulterra.

Other operating (income) expenses, net includes net gains or losses associated with the disposal of assets. Accordingly, the related gains or losses have been excluded from the results of specific segments. Other operating (income) expenses, net decreased primarily

30

due to release of a $11.5 million cumulative translation adjustment from accumulated other comprehensive income into net income (loss) in our condensed consolidated statements of operations upon substantially completing our exit from our Canadian operations in 2022. The decrease is offset by a $6.5 million reversal of cumulative compensation costs associated with certain performance-based restricted stock units in 2023.

The $4.7 million change in other income (expense) was primarily due to foreign currency adjustments related to our Colombian operations.

The increase in capital expenditures was primarily due to the purchase of an aircraft in 2023.

Income Taxes

Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.

Our effective income tax rate for the three months ended June 30, 2023 was 14.0%, compared with 16.8% for the three months ended March 31, 2023. The lower effective income tax rate for the three months ended June 30, 2023 was primarily attributable to the impact of valuation allowances between periods.

Our effective income tax rate for the six months ended June 30, 2023 was 15.6%, compared with (64.7)% for the six months ended June 30, 2022. The change in effective income tax rate for the six months ended June 30, 2023 was primarily attributable to the impact of valuation allowances between periods. For the six months ending June 30, 2022, due to valuation allowances, only certain income tax expense related to Colombia and certain U.S. states was recorded during a period with a pre-tax loss. This resulted in a negative effective income tax rate for the six months ended June 30, 2022.

We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, availability under our revolving credit facility and cash provided by operating activities. As of June 30, 2023, we had approximately $347 million in working capital, including $150 million of cash and cash equivalents, and $600 million available under our revolving credit facility.

Our amended and restated credit agreement, dated as of March 27, 2018 (as amended, the “Credit Agreement”) is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $100 million and a swing line facility that, at any time outstanding, is limited to the lesser of $50 million and the amount of the swing line provider’s unused commitment. As of June 30, 2023, we had no borrowings outstanding under our revolving credit facility, and no letters of credit outstanding under the Credit Agreement and, as a result, had available borrowing capacity of approximately $600 million at that date. Of the revolving credit commitments, $50 million expires on March 27, 2024, $133.3 million expires on March 27, 2025, and the remaining $416.7 million expires on March 27, 2026. Subject to customary conditions, we may request that the lenders’ aggregate commitments be increased by up to $300 million, not to exceed total commitments of $900 million. Additionally, we have the option, subject to certain conditions, to exercise one one-year extension of the maturity date.

Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate or base rate, as described in “Item 3” below. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant. The Credit Agreement also contains a financial covenant that requires our total debt to capitalization ratio, expressed as a percentage, not exceed 50%.

We also have a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. Fees, charges and other reasonable expenses for the issuance of letters of credit are payable by us at the time of issuance at such rates and amounts as are in accordance with Scotiabank’s prevailing practice. We are obligated to pay to Scotiabank interest on

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all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum. A letter of credit fee is payable by us equal to 1.50% times the amount of outstanding letters of credit.

We had $61.6 million of outstanding letters of credit at June 30, 2023, which was comprised of $61.6 million outstanding under the Reimbursement Agreement and no amounts outstanding under the Credit Agreement. We maintain these letters of credit primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under terms of the underlying insurance contracts. These letters of credit expire annually at various times during the year and are typically renewed. As of June 30, 2023, no amounts had been drawn under the letters of credit.

Our outstanding long-term debt at June 30, 2023 was $827 million and consisted of $482 million of our 2028 Notes and $345 million of our 2029 Notes. We were in compliance with all covenants under the associated indentures at June 30, 2023.

For a full description of the Credit Agreement, the Reimbursement Agreement, the 2028 Notes and the 2029 Notes, please see Note 8 of Notes to unaudited condensed consolidated financial statements.

Cash Requirements

We believe our current liquidity, together with cash expected to be generated from operations, should provide us with sufficient ability to fund the net cash requirement needed for the NexTier merger and the Ulterra acquisition and our current plans to maintain and make improvements to our existing equipment, service our debt and pay cash dividends for at least the next 12 months. We may utilize a combination of cash on hand, borrowing capacity under our revolving credit facility or additional debt or equity financing to repay or refinance debt currently held by NexTier and Ulterra.

If we pursue additional opportunities for growth that require capital, we believe we would be able to satisfy these needs through a combination of working capital, cash flows from operating activities, borrowing capacity under our revolving credit facility or additional debt or equity financing. However, there can be no assurance that such capital will be available on reasonable terms, if at all.

A portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels. Based on the outlook for the second half of 2023, we have lowered our 2023 capital expenditure forecast to $485 million.

The majority of these expenditures are expected to be used for normal, recurring items necessary to support our business.

During the six months ended June 30, 2023, our sources of cash flow included:

•
$397 million from operating activities, and
•
$7.8 million in proceeds from the disposal of property and equipment.

During the six months ended June 30, 2023, our uses of cash flow included:

•
$250 million to make capital expenditures for the betterment and refurbishment of drilling and pressure pumping equipment and, to a much lesser extent, equipment for our other businesses, to acquire and procure equipment to support our contract drilling, pressure pumping, directional drilling, oilfield rentals and manufacturing operations, to acquire an aircraft and to fund investments in oil and natural gas properties on a non-operating working interest basis,
•
$101 million for repurchases of our common stock,
•
$33.5 million to pay dividends on our common stock,
•
$5.2 million for repurchases of our 2028 Notes, and
•
$2.6 million for repurchases of our 2029 Notes.

We paid cash dividends during the six months ended June 30, 2023 as follows:

| Per Share |  |  | Total |
|  |  |  | (in thousands) |
Paid on March 16, 2023 | $ | 0.08 |  |  | $ | 16,916 |
Paid on June 15, 2023 | $ | 0.08 |  |  | $ | 16,591 |
| $ | 0.16 |  |  | $ | 33,507 |

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On July 26, 2023, our Board of Directors approved a cash dividend on our common stock in the amount of $0.08 per share to be paid on September 21, 2023 to holders of record as of September 7, 2023. The amount and timing of all future dividend payments, if any, are subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our debt agreements and other factors. Our Board of Directors may, without advance notice, reduce or suspend our dividend in order to improve our financial flexibility and position our company for long-term success. There can be no assurance that we will pay a dividend in the future.

We may, at any time and from time to time, seek to retire or purchase our outstanding debt for cash through open-market purchases, privately negotiated transactions, redemptions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

In September 2013, our Board of Directors approved a stock buyback program. In April 2023, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases. All purchases executed to date have been through open market transactions. Purchases under the buyback program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the buyback program. As of June 30, 2023, we had remaining authorization to purchase approximately $281 million of our outstanding common stock under the stock buyback program. Shares of stock purchased under the buyback program are held as treasury shares.

Treasury stock acquisitions during the six months ended June 30, 2023 were as follows (dollars in thousands):

| Shares |  |  | Cost |
Treasury shares at beginning of period |  | 88,758,722 |  |  | $ | 1,453,079 |
Purchases pursuant to stock buyback program |  | 7,426,044 |  |  |  | 93,276 |
Acquisitions pursuant to long-term incentive plan (1) |  | 749,284 |  |  |  | 8,351 |
Treasury shares at end of period |  | 96,934,050 |  |  | $ | 1,554,706 |

(1)
We withheld 749,284 shares during the first two quarters of 2023 with respect to employees’ tax withholding obligations upon the settlement of performance unit awards and the vesting of restricted stock units. These shares were acquired at fair market value. These acquisitions were made pursuant to the terms of the Patterson-UTI Energy, Inc. Amended and Restated 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”) and the Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan (the “2021 Plan”), and not pursuant to the stock buyback program.

Commitments — As of June 30, 2023, we had commitments to purchase major equipment totaling approximately $114 million for our drilling, pressure pumping, directional drilling and oilfield rentals businesses. Our pressure pumping business has entered into agreements to purchase minimum quantities of proppants and chemicals from certain vendors. As of June 30, 2023, the remaining minimum obligation under these agreements was approximately $10.9 million, of which approximately $7.9 million and $3.0 million relate to the remainder of 2023 and 2024, respectively.

See Note 9 of Notes to unaudited condensed consolidated financial statements for additional information on our current commitments and contingencies as of June 30, 2023.

Operating lease liabilities totaled $22.0 million at June 30, 2023. There have been no material changes to our operating lease liabilities since December 31, 2022.

Trading and Investing — We have not engaged in trading activities that include high-risk securities, such as derivatives and non-exchange traded contracts. We invest cash primarily in highly liquid, short-term investments such as overnight deposits and money market accounts.

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Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is not defined by accounting principles generally accepted in the United States of America (“GAAP”). We define Adjusted EBITDA as net income plus income tax expense, net interest expense, and depreciation, depletion, amortization and impairment expense. We present Adjusted EBITDA as a supplemental disclosure because we believe it provides to both management and investors additional information with respect to the performance of our fundamental business activities and a comparison of the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be construed as an alternative to the GAAP measure of net income. Our computations of Adjusted EBITDA may not be the same as similarly titled measures of other companies. Set forth below is a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to the GAAP financial measure of net income.

| Three Months Ended |  |  | Six Months Ended |
| June 30, |  |  | March 31, |  |  | June 30, |
| 2023 |  |  | 2023 |  |  | 2023 |  |  | 2022 |
| (in thousands) |
Net income (loss) | $ | 84,614 |  |  | $ | 99,678 |  |  | $ | 184,292 |  |  | $ | (6,891 | )
Income tax expense |  | 13,765 |  |  |  | 20,185 |  |  |  | 33,950 |  |  |  | 2,708 |
Net interest expense |  | 8,526 |  |  |  | 7,586 |  |  |  | 16,112 |  |  |  | 21,194 |
Depreciation, depletion, amortization and impairment |  | 126,814 |  |  |  | 128,180 |  |  |  | 254,994 |  |  |  | 238,491 |
Adjusted EBITDA | $ | 233,719 |  |  | $ | 255,629 |  |  | $ | 489,348 |  |  | $ | 255,502 |

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Adjusted Gross Margin

We define “Adjusted gross margin” as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). Adjusted gross margin is included as a supplemental disclosure because it is a useful indicator of our operating performance.

| Contract Drilling |  |  | Pressure Pumping |  |  | Directional Drilling |  |  | Other Operations |
| (in thousands) |
For the three months ended June 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 432,375 |  |  | $ | 250,241 |  |  | $ | 55,141 |  |  | $ | 21,128 |
Less direct operating costs |  | (231,420 | ) |  |  | (196,473 | ) |  |  | (47,365 | ) |  |  | (12,827 | )
Less depreciation, depletion, amortization and impairment |  | (85,633 | ) |  |  | (25,976 | ) |  |  | (4,514 | ) |  |  | (9,557 | )
GAAP gross margin |  | 115,322 |  |  |  | 27,792 |  |  |  | 3,262 |  |  |  | (1,256 | )
Depreciation, depletion, amortization and impairment |  | 85,633 |  |  |  | 25,976 |  |  |  | 4,514 |  |  |  | 9,557 |
Adjusted gross margin | $ | 200,955 |  |  | $ | 53,768 |  |  | $ | 7,776 |  |  | $ | 8,301 |
For the three months ended March 31, 2023 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 419,026 |  |  | $ | 293,268 |  |  | $ | 56,263 |  |  | $ | 23,245 |
Less direct operating costs |  | (230,358 | ) |  |  | (220,116 | ) |  |  | (48,046 | ) |  |  | (14,139 | )
Less depreciation, depletion, amortization and impairment |  | (86,866 | ) |  |  | (26,025 | ) |  |  | (4,171 | ) |  |  | (7,579 | )
GAAP gross margin |  | 101,802 |  |  |  | 47,127 |  |  |  | 4,046 |  |  |  | 1,527 |
Depreciation, depletion, amortization and impairment |  | 86,866 |  |  |  | 26,025 |  |  |  | 4,171 |  |  |  | 7,579 |
Adjusted gross margin | $ | 188,668 |  |  | $ | 73,152 |  |  | $ | 8,217 |  |  | $ | 9,106 |
For the six months ended June 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 851,401 |  |  | $ | 543,509 |  |  | $ | 111,404 |  |  | $ | 44,373 |
Less direct operating costs |  | (461,778 | ) |  |  | (416,589 | ) |  |  | (95,411 | ) |  |  | (26,966 | )
Less depreciation, depletion, amortization and impairment |  | (172,499 | ) |  |  | (52,001 | ) |  |  | (8,685 | ) |  |  | (17,136 | )
GAAP gross margin |  | 217,124 |  |  |  | 74,919 |  |  |  | 7,308 |  |  |  | 271 |
Depreciation, depletion, amortization and impairment |  | 172,499 |  |  |  | 52,001 |  |  |  | 8,685 |  |  |  | 17,136 |
Adjusted gross margin | $ | 389,623 |  |  | $ | 126,920 |  |  | $ | 15,993 |  |  | $ | 17,407 |
For the six months ended June 30, 2022 |  |  |  |  |  |  |  |  |  |  |
Revenues | $ | 561,226 |  |  | $ | 427,966 |  |  | $ | 98,159 |  |  | $ | 44,262 |
Less direct operating costs |  | (372,975 | ) |  |  | (348,923 | ) |  |  | (82,392 | ) |  |  | (25,822 | )
Less depreciation, depletion, amortization and impairment |  | (166,928 | ) |  |  | (48,498 | ) |  |  | (7,203 | ) |  |  | (13,200 | )
GAAP gross margin |  | 21,323 |  |  |  | 30,545 |  |  |  | 8,564 |  |  |  | 5,240 |
Depreciation, depletion, amortization and impairment |  | 166,928 |  |  |  | 48,498 |  |  |  | 7,203 |  |  |  | 13,200 |
Adjusted gross margin | $ | 188,251 |  |  | $ | 79,043 |  |  | $ | 15,767 |  |  | $ | 18,440 |

Critical Accounting Estimates

Our consolidated financial statements are impacted by certain estimates and assumptions made by management. A detailed discussion of our critical accounting estimates is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes in these critical accounting estimates.

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Recently Issued Accounting Standards

See Note 1 of Notes to unaudited condensed consolidated financial statements for a discussion of the impact of recently issued accounting standards.

Volatility of Oil and Natural Gas Prices and its Impact on Operations and Financial Condition

Our revenue, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and expectations about future prices. Crude oil prices and demand for drilling and completions equipment and services increased in 2022, and industry supply of Tier-1, super-spec rigs became constrained. Commodity price volatility in the second quarter of 2023 resulted in a decline in industry activity; however, commodity prices have recently increased. The current demand for equipment and services remains dependent on macro conditions, including commodity prices, geopolitical environment, inflationary pressures, economic conditions in the United States and elsewhere and continued focus by exploration and production companies and service companies on capital discipline. Oil prices reached a low of $67.08 per barrel and averaged $73.54 per barrel in the second quarter of 2023, as compared to $76.08 per barrel in the first quarter of 2023. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.16 per MMBtu in the second quarter of 2023 as compared to an average of $2.65 per MMBtu in the first quarter of 2023.

In light of these and other factors, we expect oil and natural gas prices to continue to be volatile and to affect our financial condition, operations and ability to access sources of capital. Higher oil and natural gas prices do not necessarily result in increased activity because demand for our services is generally driven by our customers’ expectations of future oil and natural gas prices, as well as our customers’ ability to access sources of capital to fund their operating and capital expenditures. A decline in demand for oil and natural gas, prolonged low oil or natural gas prices, expectations of decreases in oil and natural gas prices or a reduction in the ability of our customers to access capital would likely result in reduced capital expenditures by our customers and decreased demand for our services, which could have a material adverse effect on our operating results, financial condition and cash flows. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We may be exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes in our exposure to market risk.

As of June 30, 2023, we would have had exposure to interest rate market risk associated with any outstanding borrowings and letters of credit that we had under the Credit Agreement and amounts owed under the Reimbursement Agreement.

Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate or base rate. The applicable margin on SOFR rate loans varies from 1.00% to 2.00% and the applicable margin on base rate loans varies from 0.00% to 1.00%, in each case determined based on our credit rating. As of June 30, 2023, the applicable margin on SOFR rate loans was 1.75% and the applicable margin on base rate loans was 0.75%. A letter of credit fee is payable by us equal to the applicable margin for SOFR rate loans times the daily amount available to be drawn under outstanding letters of credit. The commitment fee rate payable to the lenders varies from 0.10% to 0.30% based on our credit rating. As of June 30, 2023, we had no borrowings or letters of credit outstanding under our revolving credit facility.

Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. We are obligated to pay Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum. As of June 30, 2023, no amounts had been disbursed under any letters of credit.

The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturity of these items.

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ITEM 4. Controls and Procedures

Disclosure Controls and Procedures — We maintain disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), designed to ensure that the information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2023.

Changes in Internal Control Over Financial Reporting —There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

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PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

We are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, cash flows and results of operations.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Item 1A., “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 other than those listed in this section.

Completion of each of the NexTier merger and the Ulterra acquisition is subject to certain conditions, and if these conditions are not satisfied or waived, such transaction will not be completed.

The obligations of the parties to each of the NexTier merger and the Ulterra acquisition to complete such transaction are subject to satisfaction or waiver (if permitted) of a number of conditions. Many of the conditions to completion of such transaction are not within the parties’ control, and we can predict when, or if, these conditions will be satisfied. The satisfaction of all of the required conditions could delay the completion of such transaction for a significant period of time or prevent it from occurring. Any delay in completing such transaction could cause us not to realize some or all of the benefits that we expect to achieve if the transaction is successfully completed within its expected time frame. Further, there can be no assurance that the conditions to the closing of such transaction will be satisfied or waived or that such transaction will be completed.

Our business relationships may be subject to disruption due to uncertainty associated with the NexTier merger or the Ulterra acquisition, which could have a material adverse effect on our results of operations, cash flows and financial position pending and following the NexTier merger and the Ulterra acquisition.

Parties with which we do business may experience uncertainty associated with the NexTier merger and the Ulterra acquisition, including with respect to current or future business relationships with us. Our business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than us, NexTier or Ulterra. These disruptions could have a material adverse effect on our results of operations, cash flows and financial position, regardless of whether either the NexTier merger or the Ulterra acquisition are completed, as well as a material adverse effect on our ability to realize the expected cost savings and other benefits of the applicable transaction. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the applicable transaction or the termination of the applicable merger agreement.

Our ability to utilize our historic U.S. net operating loss carryforwards is expected to be limited as a result of the completion of the NexTier Merger.

As of December 31, 2022, we had approximately $1.4 billion of gross U.S. federal NOLs, approximately $48.3 million of gross Canadian NOLs, approximately $18.8 million of gross Colombian NOLs and approximately $1.0 billion of post-apportionment U.S. state NOLs, before valuation allowances. The majority of our U.S. federal NOLs will expire in varying amounts, if unused, between 2030 and 2037. U.S. federal NOLs generated after 2017 can be carried forward indefinitely. Our Canadian NOLs will expire in varying amounts, if unused, between 2037 and 2042. Our Colombian NOLs will expire in varying amounts, if unused, between 2028 and 2032. Our U.S. state NOLs will expire in varying amounts, if unused, between 2023 and 2042.

Section 382 of the Code (“Section 382”) generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone an “ownership change” (as determined under Section 382). An ownership change generally occurs if one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of such corporation’s stock has increased their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. In the event that an ownership change occurs, utilization of the relevant corporation’s NOLs would be subject to an annual limitation under Section 382, generally determined, subject to certain adjustments, by multiplying (i) the fair market value of such corporation’s stock at the time of the ownership change by (ii) a percentage approximately equivalent to the yield on long-term tax-exempt bonds during the month in which the ownership change occurs. Any unused annual limitation may be carried over to later years.

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We expect to undergo an ownership change (under Section 382) as a result of the closing of the NexTier merger. Our ability to utilize our available NOLs and other tax attributes to reduce future taxable income following this expected “ownership change” depends on many factors, including our future income, which cannot be assured. Based on information currently available, this ownership change could cause some of our NOLs incurred prior to January 1, 2018 to expire before we would be able to utilize them to reduce taxable income in future periods, and may also require NOLs to be utilized later than they otherwise would be able to be utilized, increasing cash taxes payable in earlier years.

Uncertainties associated with the NexTier merger and the Ulterra acquisition may cause a loss of management personnel and other key employees, which could adversely affect our future business and operations.

We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. Our success after the transactions will depend in part upon our ability to retain key management personnel and other key employees. Current and prospective employees may experience uncertainty about their roles within the combined company or other concerns regarding the timing and completion of the transactions or the operations of the combined company following the transactions, any of which may have an adverse effect on our ability to retain or attract key management and other key personnel. In addition, the loss of key personnel could diminish the anticipated benefits of the transactions and the integration of the companies may be more difficult. Furthermore, we may have to incur significant costs in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent relating to the business of each of the companies. No assurance can be given that we will be able to retain or attract key management personnel and other key employees of NexTier or Ulterra to the same extent that we have previously been able to retain or attract our own employees.

The NexTier Merger Agreement subjects us to restrictions on our business activities prior to the closing of the NexTier merger.

The NexTier Merger Agreement subjects us to restrictions on our business activities prior to the closing. The NexTier Merger Agreement obligates us to use our commercially reasonable efforts to carry on our business in the ordinary course in all material respects and to preserve our business organizations intact and maintain existing relations and goodwill with governmental entities, customers, suppliers, licensors, licensees, creditors, lessors, service providers and business associates and keep available the services of our and our subsidiaries’ present service providers and agents, except as otherwise expressly contemplated by the NexTier Merger Agreement. These restrictions could prevent us from pursuing certain business opportunities that arise prior to the closing and are outside the ordinary course of business.

The NexTier Merger Agreement limits our ability to pursue alternatives to the NexTier merger, may discourage other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay NexTier a termination fee.

The NexTier Merger Agreement contains certain provisions that restrict our ability to initiate, solicit, propose, knowingly encourage or knowingly facilitate any inquiry regarding, or the making of any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to, an acquisition proposal with respect to us, and we have agreed to certain terms and conditions relating to our ability to engage, continue or otherwise participate in any discussions or negotiations regarding, or furnish to a third party any non-public information with respect to, or otherwise knowingly facilitate any effort or attempt to make, any acquisition proposal. Further, even if our board of directors withdraws, modifies or qualifies in any manner adverse to NexTier its recommendation with respect to the NexTier merger, unless the NexTier Merger Agreement has been terminated in accordance with its terms, we will still be required to submit the related proposals to a vote at the special meeting of our stockholders. In addition, NexTier generally has an opportunity to offer to modify the terms of the NexTier Merger Agreement in response to any competing acquisition proposals or intervening events before our board of directors may withdraw, modify or qualify its recommendation. The NexTier Merger Agreement further provides that under specified circumstances, including after receipt of certain alternative acquisition proposals, we may be required to pay NexTier a cash termination fee equal to $73.0 million.

These provisions could discourage a potential third-party acquirer or other strategic transaction partner that might have an interest in acquiring all or a significant portion of us from considering or pursuing an alternative transaction or proposing such a transaction. These provisions might also result in a potential third-party acquirer or other strategic transaction partner proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

Failure to complete the NexTier merger or the Ulterra acquisition could negatively impact our stock price and have a material adverse effect on our results of operations, cash flows and financial position.

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If the NexTier merger or the Ulterra acquisition is not completed for any reason, including as a result of failure to obtain all requisite regulatory approvals, our ongoing business may be materially adversely affected and, without realizing any of the benefits of having completed the transactions, we would be subject to a number of risks, including the following:

•
we may experience negative reactions from the financial markets, including negative impacts on our stock price;
•
we may experience negative reactions from our customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners;
•
we will still be required to pay certain significant costs relating to the transactions, such as legal, accounting, consulting, financial advisor and printing fees;
•
we may be required to pay a termination fee or expense reimbursement fee as required by the NexTier Merger Agreement;
•
the NexTier Merger Agreement places certain restrictions on the conduct of our business, which may delay or prevent us from undertaking business opportunities that, absent the NexTier Merger Agreement, may have been pursued;
•
matters relating to the transactions (including integration planning) require substantial commitments of time and resources by our management, which may have resulted in the distraction of our management from ongoing business operations and pursuing other opportunities that could have been beneficial to us; and
•
litigation related to any failure to complete the transactions or related to any enforcement proceeding commenced against us to perform our obligations pursuant to the related agreement.

If the NexTier merger or the Ulterra acquisition is not completed, the risks described above may materialize and they may have a material adverse effect on our results of operations, cash flows, financial position and stock price.

We expect to incur significant transaction costs in connection with the NexTier merger and the Ulterra acquisition, which may be in excess of those we anticipated.

We have incurred and are expected to continue to incur significant non-recurring costs associated with negotiating and completing the NexTier merger and the Ulterra acquisition, combining the operations of the three companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by us whether or not the NexTier merger or the Ulterra acquisition is completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention, severance and benefit costs and filing fees. We will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and other employment-related costs. We will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the NexTier merger and the Ulterra acquisition and the integration of the companies’ businesses. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The costs described above and any unanticipated costs and expenses, many of which will be borne by us even if the NexTier merger or the Ulterra acquisition is not completed, could have an adverse effect on our financial condition and operating results.

Litigation relating to the NexTier merger or the Ulterra acquisition could result in an injunction preventing the completion of the applicable transaction and/or substantial costs to us.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger, or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition.

Lawsuits that may be brought against us or our directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the NexTier Merger Agreement or the Ulterra Merger Agreement already implemented and to otherwise enjoin the parties from consummating the applicable transaction. If a plaintiff is successful in obtaining an injunction prohibiting completion of the applicable transaction, that injunction may delay or prevent such transaction from being completed within the expected timeframe or at all, which may adversely affect our business, financial position and results of operations.

There can be no assurance that any of the defendants will be successful in the outcome of any potential future lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the NexTier merger or the Ulterra acquisition is completed may adversely affect our business, financial condition, results of operations and cash flows.

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The NexTier merger or the Ulterra acquisition may be completed even though material adverse changes subsequent to the announcement of the applicable transaction, such as industry-wide changes or other events, may occur.

In general, either party to the applicable transaction can refuse to complete such transaction if there is a material adverse change affecting the other party. However, some types of changes do not permit either party to refuse to complete the transaction, even if such changes would have a material adverse effect on either of the parties. For example, a worsening of a party’s financial condition or results of operations due to a decrease in commodity prices or general economic conditions would not give the other party the right to refuse to complete the transaction. In addition, the parties have the ability, but are under no obligation, to waive any material adverse change that results in the failure of a closing condition and instead proceed with completing the transaction. If adverse changes occur that affect either party but the parties are still required or voluntarily decide to complete the transaction, our share price, business and financial results may suffer.

We may be unable to integrate the businesses of NexTier and Ulterra successfully or realize the anticipated benefits of the NexTier merger and the Ulterra acquisition.

The NexTier merger and the Ulterra acquisition involve the combination of companies that currently operate as independent companies. The combination of independent businesses is complex, costly and time consuming, and we will be required to devote significant management attention and resources to integrating the respective business practices and operations of the companies. Potential difficulties that the companies may encounter as part of the integration process include the following:

•
our inability to successfully combine our business with the businesses of NexTier and Ulterra in a manner that permits us to achieve, on a timely basis or at all, the enhanced revenue opportunities and cost savings and other benefits anticipated to result from the NexTier merger and the Ulterra acquisition;
•
complexities associated with managing the combined businesses, including difficulty addressing possible differences in operational philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;
•
the assumption of contractual obligations with less favorable or more restrictive terms; and
•
potential unknown liabilities and unforeseen increased expenses or delays associated with the transactions.

In addition, we, NexTier and Ulterra have previously operated and, until the completion of the applicable transaction, will continue to operate, independently. It is possible that the integration process could result in:

•
diversion of the attention of each company’s management; and
•
the disruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies.

Any of these issues could adversely affect each company’s ability to maintain relationships with customers, suppliers, employees and other constituencies or achieve the anticipated benefits of the transactions, or could reduce each company’s earnings or otherwise adversely affect our business and financial results.

The benefits and synergies attributable to the NexTier merger and the Ulterra acquisition may vary from expectations.

We may fail to realize the anticipated benefits and synergies expected from the NexTier merger and the Ulterra acquisition, which could adversely affect our business, financial condition and operating results. The success of the transactions will depend, in significant part, on our ability to successfully integrate the acquired businesses and realize the anticipated strategic benefits and synergies from the transactions. The anticipated benefits of the transactions may not be realized fully or at all, or may take longer to realize than expected. Actual operating, technological, strategic and revenue opportunities, if achieved at all, may be less significant than expected or may take longer to achieve than anticipated. If we are not able to achieve these objectives and realize the anticipated benefits and synergies expected from the NexTier merger and the Ulterra acquisition within the anticipated timing or at all, our business, financial condition and operating results may be adversely affected.

Legal proceedings and governmental investigations could have a negative impact on our business, financial condition and results of operations.

The nature of our business following completion of the NexTier merger and the Ulterra acquisition will make it susceptible to legal proceedings and governmental investigations from time to time. In addition, during periods of depressed market conditions, we

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may be subject to an increased risk of our customers, vendors, current and former employees and others initiating legal proceedings against us. Lawsuits or claims against us, including currently pending lawsuits and claims against us, NexTier and Ulterra, could have a material adverse effect on the combined company’s business, financial condition and results of operations. Any legal proceedings or claims, even if fully indemnified or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future.

Ulterra subsidiaries are defendants in a claim brought by a subsidiary of NOV Inc. alleging breach of a license agreement related to certain patents. Ulterra has asserted defenses to the claim and is defending itself vigorously against this claim. An unfavorable judgment or resolution of this claim not covered by indemnity could have a material adverse effect on our business, financial condition and results of operations following completion of the Ulterra acquisition.

Our future results following the NexTier merger and the Ulterra acquisition will suffer if we do not effectively manage our expanded operations.

Following the NexTier merger and the Ulterra acquisition, the size and geographic footprint of our business will increase. Our future success will depend, in part, upon our ability to manage this expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and geographies and associated increased costs and complexity. We may also face increased scrutiny from governmental authorities as a result of the increase in the size of our business. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings, revenue enhancements or other benefits currently anticipated from the NexTier merger and the Ulterra acquisition.

The NexTier merger and the Ulterra acquisition may result in a loss of customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners and may result in the modification or termination of existing contracts.

Following the NexTier merger and the Ulterra acquisition, some of our, NexTier’s or Ulterra’s customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may modify, terminate or scale back their current or prospective business relationships with us. Some customers may not wish to source a larger percentage of their needs from a single company or may feel that we are too closely allied with one of their competitors. In addition, we, and NexTier have contracts with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners that may require us or NexTier to obtain consents from these other parties in connection with the NexTier merger, which may not be obtained on favorable terms or at all. If relationships with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners are adversely affected by the NexTier merger or the Ulterra acquisition, or if we lose the benefits of our contracts or those of NexTier or Ulterra, our business and financial performance following the transactions could suffer.

The market price for our common stock following the NexTier merger and the Ulterra acquisition may be affected by factors different from those that historically have affected or currently affect our common stock.

Upon completion of the NexTier merger and the Ulterra acquisition, our financial position may differ from our financial position before the completion of the transactions, and our results of operations may be affected by factors that are different from those currently affecting our results of operations. In addition, general fluctuations in trading activity and prices on the Nasdaq could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.

Our stockholders as of immediately prior to the NexTier merger and the Ulterra acquisition, will have reduced ownership in the combined company.

The issuance of shares of our common stock in the NexTier merger and the Ulterra acquisition could have the effect of depressing the market price of our common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, our earnings per share could cause the price of our common stock to decline or increase at a reduced rate.

Immediately after the completion of the NexTier merger and after giving effect to the issuance of 34.9 million shares of our common stock in the Ulterra acquisition, it is expected that our stockholders as of immediately prior to the NexTier merger will own approximately 59% of the issued and outstanding shares of our common stock. As a result, our current stockholders will have less influence on the policies of the combined company than they currently have on our policies.

Our bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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Our bylaws provide that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, jurisdiction, another state court or a federal court located within the State of Delaware) is the exclusive forum for any claims, including claims in the right of Patterson-UTI: (a) that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity, or (b) as to which the General Corporation Law of the State of Delaware confers jurisdiction upon the Court of Chancery. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. Our bylaws further provide that the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act, to the fullest extent permitted by law, shall be the federal district courts of the United States. The enforceability of similar exclusive federal forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and while the Delaware Supreme Court has ruled that this type of exclusive federal forum provision is facially valid under Delaware law, there is uncertainty as to whether other courts would enforce such provisions and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find either exclusive forum provision in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, and results of operations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth the information with respect to purchases of our common stock made by us during the quarter ended June 30, 2023.

|  |  |  |  |  |  |  |  |  |  | Approximate Dollar |  |
|  |  |  |  |  |  |  | Total Number of |  |  | Value of Shares |  |
|  |  |  |  |  |  |  | Shares (or Units) |  |  | That May Yet Be |  |
|  |  |  |  |  |  |  | Purchased as Part |  |  | Purchased Under the |  |
|  | Total |  |  | Average Price |  |  | of Publicly |  |  | Plans or |  |
|  | Number of Shares |  |  | Paid per |  |  | Announced Plans |  |  | Programs (in |  |
Period Covered |  | Purchased (1) |  |  | Share |  |  | or Programs |  |  | thousands) (2) |  |
April 2023 |  |  | 153,119 |  |  | $ | 11.69 |  |  |  | — |  |  | $ | 300,000 |  |
May 2023 |  |  | 2,165,522 |  |  | $ | 10.57 |  |  |  | 1,796,927 |  |  | $ | 281,031 |  |
June 2023 |  |  | 227,570 |  |  | $ | 11.58 |  |  |  | — |  |  | $ | 281,031 |  |
Total |  |  | 2,546,211 |  |  |  |  |  |  | 1,796,927 |  |  |  |  |

(1)
We withheld 749,284 shares during the second quarter of 2023 with respect to employees’ tax withholding obligations upon the settlement of performance unit awards and the vesting of restricted stock units. These shares were acquired at fair market value. These acquisitions were made pursuant to the terms of the Patterson-UTI Energy, Inc. Amended and Restated 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”) and the Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan (the “2021 Plan”), and not pursuant to the stock buyback program.
(2)
In September 2013, our Board of Directors approved a stock buyback program. In April 2023, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases. All purchases executed to date have been through open market transactions. Purchases under the buyback program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the buyback program.

ITEM 5. Other Information

(a) On June 8, 2023, in accordance with the recommendation of our Board of Directors, our stockholders approved, on an advisory basis, “Every Year” as the preferred frequency of solicitation of stockholder advisory votes on the compensation of our named executive officers. In accordance with these results, our Board of Directors has subsequently determined that future advisory votes on named executive compensation will be held every year until the next required advisory vote on the frequency of stockholder votes on the compensation of named executive officers.

(c) None.

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ITEM 6. Exhibits

The following exhibits are filed herewith or incorporated by reference, as indicated:

2.1 |  | Agreement and Plan of Merger, dated as of June 14, 2023, by and among Patterson-UTI Energy, Inc., Pecos Merger Sub Inc., Pecos Second Merger Sub LLC and NexTier Oilfield Solutions Inc. (filed June 15, 2023 as Exhibit 2.1 to our Current Report on Form 8-K and incorporated herein by reference).
2.2 |  | Agreement and Plan of Merger, dated as of July 3, 2023, by and among Patterson-UTI Energy, Inc., PJ Merger Sub Inc., PJ Second Merger Sub LLC, BEP Diamond Holdings Corp. and BEP Diamond Topco L.P. (filed July 5, 2023 as Exhibit 2.1 to our Current Report on Form 8-K and incorporated herein by reference).
3.1 |  | Restated Certificate of Incorporation, as amended (filed August 9, 2004 as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and incorporated herein by reference).
3.2 |  | Certificate of Amendment to Restated Certificate of Incorporation, as amended (filed August 9, 2004 as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and incorporated herein by reference).
3.3 |  | Certificate of Elimination with respect to Series A Participating Preferred Stock (filed October 27, 2011 as Exhibit 3.1 to our Current Report on Form 8-K and incorporated herein by reference).
3.4 |  | Certificate of Amendment to Restated Certificate of Incorporation, as amended (filed July 30, 2018 as Exhibit 3.4 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 and incorporated herein by reference).
3.5 |  | Certificate of Designation of the Series A Junior Participating Preferred Stock of Patterson-UTI Energy, Inc., dated April 22, 2020 (filed April 23, 2020 as Exhibit 3.1 to our Current Report on Form 8-K and incorporated herein by reference).
3.6 |  | Amended and Restated Bylaws of Patterson-UTI Energy, Inc., effective June 14, 2023 (filed June 15, 2023 as Exhibit 3.1 to our Current Report on Form 8-K and incorporated herein by reference).
10.1+ |  | Patterson-UTI Energy, Inc. 2021 Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 of the Company's Registration Statement on Form S-8, filed on June 8, 2023).
10.2 |  | Support Agreement and Irrevocable Proxy, dated as of June 14, 2023, by and among Patterson-UTI Energy, Inc., Keane Investor Holdings LLC and Cerberus Capital Management, L.P. (filed June 15, 2023 as Exhibit 10.1 to our Current Report on Form 8-K and incorporated herein by reference).
31.1* |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2* |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* |  | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH* |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL* |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | The cover page from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, has been formatted in Inline XBRL.

* filed herewith.

+ Management contract or compensatory plan.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PATTERSON-UTI ENERGY, INC.
By: |  | /s/ C. Andrew Smith
|  | C. Andrew Smith
|  | Executive Vice President and
|  | Chief Financial Officer
|  | (Principal Financial and Accounting Officer and Duly Authorized Officer)

Date: August 1, 2023

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