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Stock-based Compensation | 6 Months Ended
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Jun. 30, 2024
Share-Based Payment Arrangement [Abstract] |
Stock-based Compensation | 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. 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 “First Amendment”). On June 8, 2023, our stockholders approved the First Amendment. On September 1, 2023, in connection with the NexTier merger, our Board of Directors approved a second amendment to the 2021 Plan (the “Second Amendment,”) to assume approximately 10.0 million shares previously reserved for issuance under the NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan (the “NexTier Plan”). Subject to stockholder approval, our Board of Directors approved an amendment to the 2021 Plan to, among other things, increase the number of shares available for issuance under the 2021 Plan by 20 million shares and eliminate the remaining share reserve of approximately 10 million shares available under the 2021 Plan that was assumed from the NexTier Plan (the “Third Amendment” and the 2021 Plan, as amended through the Third Amendment, the “Plan”). On June 6, 2024, our stockholders approved the Third Amendment. Following the Third Amendment, the aggregate number of shares of Common Stock authorized for grant under the 2021 Plan is approximately 38.9 million. On September 1, 2023, the Board of Directors also approved amendments to the NexTier Plan and the NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan (the “Former C&J Energy Plan” and, together with the NexTier Plan, the “Assumed Plans”) to assume awards that were previously granted under the Assumed Plans (consisting of stock options, time- and performance-based restricted stock units and cash-settled performance unit awards), which, in connection with the NexTier merger, were converted into equity awards in respect of shares of Patterson-UTI Energy, Inc. common stock. 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, 2024 or 2023. Stock option activity from January 1, 2024 to June 30, 2024 follows:
| Underlying Shares |  | Weighted Average Exercise Price Per Share
Outstanding at January 1, 2024 | 2,865,223 |  | $ | 23.36 |
Exercised | — |  | $ | — |
Expired | (654,825) |  | $ | 28.87 |
Outstanding at June 30, 2024 | 2,210,398 |  | $ | 21.72 |
Exercisable at June 30, 2024 | 2,210,398 |  | $ | 21.72 |
Restricted Stock Units (Equity Based) — 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, 2024 to June 30, 2024 follows:
| Time Based |  | Performance Based |  | Weighted Average Grant Date Fair Value Per Share
Non-vested restricted stock units outstanding at January 1, 2024 | 5,827,668 |  | 521,533 |  | $ | 10.60 |
Granted | 3,082,101 |  | — |  | $ | 10.51 |
Vested | (3,010,149) |  | — |  | $ | 9.05 |
Forfeited | (47,135) |  | — |  | $ | 12.33 |
Non-vested restricted stock units outstanding at June 30, 2024 | 5,852,485 |  | 521,533 |  | $ | 11.28 |
As of June 30, 2024, we had unrecognized compensation cost related to our unvested restricted stock units totaling $65.4 million. The weighted-average remaining vesting period for these unvested restricted stock units was 2.16 years as of June 30, 2024. Restricted Stock Units (Liability Based) — We converted NexTier’s cash-settled performance based units into our cash-settled restricted stock units in connection with the NexTier merger. These awards are accounted for as liability classified awards and remeasured at fair value at each reporting period. Compensation expense is recorded over the vesting period and is initially based on the fair value at the award conversion date. Compensation expense is subsequently remeasured at each reporting date during the vesting period based on the change in our stock price. Dividend cash equivalents are not paid on cash-settled units. As of June 30, 2024, $4.3 million is included in “Accrued liabilities” in our unaudited condensed consolidated balance sheets for these awards. 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, except as described below for the Performance Units granted in May 2024. 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, the peer group includes one market index. 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. For the Performance Units granted in April 2022 and May 2023, 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 55 th percentile. If our total shareholder return during the performance period, when compared to the peer group, is at the 75 th 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 25 th 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 25 th and 55 th percentile, or the 55 th and 75 th percentile, then the shares to be received by the recipients will be determined using linear interpolation for levels of achievement between these points. The Performance Units granted in May 2024 are subject to three separate performance periods—a one-year performance period (the “First Performance Period”), a two-year performance period (the “Second Performance Period”) and a three-year performance period (the “Third Performance Period”), each commencing on April 1 of the year of grant. One-third of the total target number of shares subject to the May 2024 Performance Units may become earned in respect of each performance period based on our total shareholder return during such performance period (the target number of shares eligible to vest in the applicable performance period, the “Performance Period Target Amount”). The recipients will earn the Performance Period Target Amount if our total shareholder return during the applicable performance period, when compared to the peer group, is at the 55th percentile. If our total shareholder return during the applicable performance period, when compared to the peer group, is at the 75th percentile or higher, then the recipients will earn two times the Performance Period Target Amount. If our total shareholder return during the applicable performance period, when compared to the peer group, is at the 25th percentile, then the recipients will only earn one-half of the Performance Period Target Amount. If our total shareholder return during the applicable 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 earned by the recipients will be determined using linear interpolation for levels of achievement between these points. Notwithstanding the foregoing, a number of shares no greater than the Performance Period Target Amount may be earned for each of the First Performance Period and the Second Performance Period, unless our total shareholder return during the Third Performance Period is greater than our total shareholder return for, as applicable, the First Performance Period and/or the Second Performance Period, in which case, the number of shares earned in respect of the First Performance and/or the Second Performance Period, as applicable, will be determined as if our total shareholder return during the Third Performance Period was our total shareholder return during the First Performance Period and/or the Second Performance Period, as applicable. If our total shareholder return during the Third Performance Period is zero or negative, no more than the aggregate target number of shares subject to the May 2024 Performance Units may be earned, regardless of results during the First Performance Period and the Second Performance Period. A full three-year vesting period applies to the Performance Units and no shares will vest and be delivered in respect of the May 2024 Performance Units until after the completion of the Third Performance Period. The payout under the Performance Units may not exceed the target number of shares if our absolute total shareholder return is negative or zero. The total target number of shares granted with respect to the Performance Units for the awards granted in 2020-2024 is set forth below:
| 2024 Performance Unit Awards |  | 2023 Performance Unit Awards |  | 2022 Performance Unit Awards |  | 2021 Performance Unit Awards |  | 2020 Performance Unit Awards
Target number of shares | 875,100 |  | 631,700 |  | 414,000 |  | 843,000 |  | 500,500
In May 2023, 1,001,000 shares were issued to settle the 2020 Performance Units. In May 2024, 718,581 shares were issued to settle the 2021 Performance Units. The Performance Units granted in 2022, 2023 and 2024 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):
| 2024 Performance Unit Awards |  | 2023 Performance Unit Awards |  | 2022 Performance Unit Awards |  | 2021 Performance Unit Awards |  | 2020 Performance Unit Awards
Aggregate fair value at date of grant | $ | 10,904 |  |  | $ | 8,440 |  |  | $ | 10,743 |  |  | $ | 7,225 |  |  | $ | 826 |
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):
| 2024 Performance Unit Awards |  | 2023 Performance Unit Awards |  | 2022 Performance Unit Awards |  | 2021 Performance Unit Awards |  | 2020 Performance Unit Awards
Three months ended June 30, 2024 | $ | 606 |  |  | $ | 663 |  |  | $ | 862 |  |  | N/A |  | N/A
Three months ended June 30, 2023 | N/A |  | $ | 469 |  |  | $ | 895 |  |  | $ | 602 |  |  | N/A
Six months ended June 30, 2024 | $ | 606 |  |  | $ | 1,327 |  |  | $ | 1,724 |  |  | $ | 584 |  |  | N/A
Six months ended June 30, 2023 | N/A |  | $ | 469 |  |  | $ | 1,791 |  |  | $ | 1,204 |  |  | $ | 69 |
As of June 30, 2024, we had unrecognized compensation cost related to our unvested Performance Units totaling $17.7 million. The weighted-average remaining vesting period for these unvested Performance Units was 1.54 years as of June 30, 2024.

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