PATTERSON UTI ENERGY INC

Previous wording

Recent Developments in Market Conditions and Outlook — Commodity price volatility in the second quarter of 2023 resulted in a decline in industry activity; commodity prices subsequently increased during the third quarter before declining in the fourth quarter of 2023. Oil prices increased during the first quarter of 2024, while natural gas prices declined significantly. 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, as well as customer consolidation and focus by exploration and production companies and service companies on capital returns. Oil prices reached a low of $70.62 per barrel and averaged $77.50 per barrel in the first quarter of 2024, as compared to $78.53 per barrel in the fourth quarter of 2023. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.31 per MMBtu in the first quarter of 2024 as compared to an average of $2.74 per MMBtu in the fourth quarter of 2023.

Current wording

Recent Developments in Market Conditions and Outlook — Commodity price volatility in the second quarter of 2023 resulted in a decline in industry activity; commodity prices subsequently increased during the third quarter before declining in the fourth quarter of 2023. Oil prices increased during the first quarter of 2024 and moderately fluctuated during the second quarter of 2024. While natural gas prices declined significantly during the first quarter of 2024, natural gas prices increased slightly during the second quarter of 2024. 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, as well as customer consolidation and focus by exploration and production companies and service companies on capital returns. Oil prices reached a low of $74.27 per barrel and averaged $81.81 per barrel in the second quarter of 2024, as compared to $77.50 per barrel in the first quarter of 2024. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.07 per MMBtu in the second quarter of 2024 as compared to an average of $2.31 per MMBtu in the first quarter of 2024.

Previous wording

Our average active rig count in the United States for the first quarter of 2024 was 121 rigs. This was an increase from our average active rig count for the fourth quarter of 2023 of 118. We expect our rig count in the United States will average approximately 114 rigs during the second quarter of 2024. Term contracts help support our operating rig count. Based on contracts in place in the United States as of May 1, 2024, we expect an average of 70 rigs operating under term contracts during the second quarter of 2024 and an average of 41 rigs operating under term contracts during the four quarters ending March 31, 2025.

Current wording

Our average active rig count in the United States for the second quarter of 2024 was 114 rigs. This was a decrease from our average active rig count for the first quarter of 2024 of 121. We expect our rig count in the United States will average approximately 108 rigs during the third quarter of 2024. Term contracts help support our operating rig count. Based on contracts in place in the United States as of July 24, 2024, we expect an average of 63 rigs operating under term contracts during the third quarter of 2024 and an average of 39 rigs operating under term contracts during the four quarters ending June 30, 2025.

Previous wording

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 March 31, 2024 was approximately $527 million. Approximately 14% of our total contract drilling backlog in the United States at March 31, 2024 is reasonably expected to remain at March 31, 2025. See Note 3 of Notes to unaudited condensed consolidated financial statements for additional information on backlog.

Current wording

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, 2024 was approximately $433 million. Approximately 6% of our total contract drilling backlog in the United States at June 30, 2024 is reasonably expected to remain at June 30, 2025. See Note 3 of Notes to unaudited condensed consolidated financial statements for additional information on backlog.

Previous wording

For the second quarter of 2024, we expect total capital expenditures of approximately $180 million.

Current wording

For the third quarter of 2024, we expect total capital expenditures of approximately $219 million.

Previous wording

On August 14, 2023, we completed our acquisition (the “Ulterra acquisition”) of Ulterra Drilling Technologies, L.P. (“Ulterra”). Total consideration for the acquisition included the issuance of 34.9 million shares of our common stock and payment of approximately $376 million cash (before purchase price adjustments), which based on the closing price of our common stock of $14.94 on August 14, 2023, valued the transaction at closing at approximately $897 million. Ulterra is a global provider of specialized drill bit solutions.

Current wording

On August 14, 2023, we completed our acquisition (the “Ulterra acquisition”) of Ulterra Drilling Technologies, L.P. (“Ulterra”). Total consideration for the acquisition included the issuance of 34.9 million shares of our common stock and payment of approximately $373 million of cash (after purchase price adjustments), which based on the closing price of our common stock of $14.94 on August 14, 2023, valued the transaction at closing at approximately $895 million. Ulterra is a global provider of specialized drill bit solutions.

Previous wording

As of March 31, 2024, we had no borrowings outstanding under our revolving credit facility. We had $2.5 million in letters of credit outstanding under the Credit Agreement at March 31, 2024 and, as a result, had available borrowing capacity of approximately $548 million at that date.

Current wording

As of June 30, 2024, we had no borrowings outstanding under our revolving credit facility. We had $2.3 million in letters of credit outstanding under the Credit Agreement at June 30, 2024 and, as a result, had available borrowing capacity of approximately $613 million at that date.

Previous wording

For the three months ended March 31, 2024, December 31, 2023, and March 31, 2023 our operating revenues consisted of the following (dollars in thousands):

Current wording

For the three months ended June 30, 2024 and March 31, 2024 and the six months ended June 30, 2024 and 2023 our operating revenues consisted of the following (dollars in thousands):

Previous wording

Effective as of the third quarter of 2023, we revised our reportable segments to align with certain changes in how our Chief Operating Decision Maker (“CODM”) manages and allocates resources to our business as a result of the Ulterra acquisition and NexTier merger. We now have the following reportable business segments: (i) drilling services, (ii) completion services and (iii) drilling products. Accordingly, we recast our results of operations for the three months ended March 31, 2023 to align with our revised reportable segments.

Current wording

Effective as of the third quarter of 2023, we revised our reportable segments to align with certain changes in how our Chief Operating Decision Maker (“CODM”) manages and allocates resources to our business as a result of the Ulterra acquisition and NexTier merger. We now have the following reportable business segments: (i) drilling services, (ii) completion services and (iii) drilling products. Accordingly, we recast our results of operations for the six months ended June 30, 2023 to align with our revised reportable segments.

Previous wording

Capital expenditures increased primarily due to the timing of order placement and spending on committed deliveries that more heavily impacted the first quarter of 2024.

Current wording

Capital expenditures decreased primarily due to the timing of order placement and spending on committed deliveries that more heavily impacted the first quarter of 2024.

Previous wording

Completion services revenues decreased $69.4 million, or 6.8%. The decrease was primarily due to lower activity.

Current wording

Completion services revenues and direct operating costs decreased primarily due to lower activity.

Previous wording

Capital expenditures increased primarily due to spending related to maintenance capital and the timing of order placement that more heavily impacted the first quarter of 2024.

Current wording

Capital expenditures decreased due to the timing of order placement and spending on committed deliveries that more heavily impacted the first quarter of 2024.

Previous wording

Direct operating costs and depreciation, amortization and impairment were approximately $2.2 million and $5.8 million higher than they would have otherwise been for the three months ended March 31, 2024, respectively, as a result of the step up to fair value of our drill bits in accordance with purchase accounting. For the three months ended December 31, 2023, direct operating costs and depreciation, amortization and impairment were approximately $5.2 million and $9.8 million higher, respectively, as a result of the step up to fair value of our drill bits.

Current wording

Direct operating costs and depreciation, amortization and impairment were approximately $1.5 million and $3.2 million higher than they would have otherwise been for the three months ended June 30, 2024, respectively, as a result of the step up to fair value of our drill bits in accordance with purchase accounting. For the three months ended March 31, 2024, direct operating costs and depreciation, amortization and impairment were approximately $2.2 million and $5.8 million higher, respectively, as a result of the step up to fair value of our drill bits.

Previous wording

The changes for the three months ended March 31, 2024 as compared to March 31, 2023 can be primarily attributed to the NexTier merger, which closed on September 1, 2023. The NexTier merger had a material impact on our reported results of operations. The results for the three months ended March 31, 2024 represent the combination of the well completion business from the NexTier merger and our legacy pressure pumping business. Due to the full integration of our legacy pressure pumping business into the NexTier legal entity in the first quarter of 2024, we are unable to provide a meaningful year-over-year comparison excluding the impact of the NexTier merger.

Current wording

The changes for the six months ended June 30, 2024 as compared to June 30, 2023 can be primarily attributed to the NexTier merger, which closed on September 1, 2023. The NexTier merger had a material impact on our reported results of operations. The results for the six months ended June 30, 2024 represent the combination of the well completion business from the NexTier merger and our legacy pressure pumping business. Due to the full integration of our legacy pressure pumping business into the NexTier legal entity in the first quarter of 2024, we are unable to provide a meaningful year-over-year comparison excluding the impact of the NexTier merger.

Previous wording

The results of our drilling products segment reflect the operations of our Ulterra acquisition, which closed on August 14, 2023. As such, there were no comparable results for the three months ended March 31, 2023.

Current wording

The results of our drilling products segment reflect the operations of our Ulterra acquisition, which closed on August 14, 2023. As such, there were no comparable results for the six months ended June 30, 2023.

Previous wording

Depreciation, depletion, amortization and impairment decreased primarily due to a $0.8 million impairment recorded in our oil and natural gas properties business in the fourth quarter of 2023.

Current wording

Depreciation, depletion, amortization and impairment decreased primarily due to a $5.8 million impairment recorded in our oil and natural gas business during the six months ended June 30, 2023.

Previous wording

Merger and integration expense increased due to the NexTier merger and the Ulterra acquisition. The increase was primarily attributable to compensation associated with severance payments.

Current wording

Merger and integration expense increased due to the NexTier merger and the Ulterra acquisition. The increase was primarily attributable to compensation associated with severance and retention payments.

Previous wording

Our effective income tax rate for the three months ended March 31, 2024 was 27.9%, compared with 16.8% for the three months ended March 31, 2023. The difference in effective income tax rates was primarily attributable to the impact of valuation allowances on deferred tax assets between periods. In addition, the difference in effective income tax rates was attributable to the impact of permanent differences against earnings between periods.

Current wording

Our effective income tax rate for the three months ended June 30, 2024 was 60.5%, compared with 27.9% for the three months ended March 31, 2024. The higher effective income tax rate for the six months ended June 30, 2024 was primarily attributable to the impact of valuation allowances on deferred tax assets between periods, as well as the impact of permanent differences against earnings between periods.

Previous wording

Our effective income tax rate for the three months ended March 31, 2024 was 27.9%, compared with 33.6% for the three months ended December 31, 2023. The difference in effective income tax rates was primarily attributable to the impact of valuation allowances on deferred tax assets between periods.

Current wording

Our effective income tax rate for the six months ended June 30, 2024 was 37.4%, compared with 15.6% for the six months ended June 30, 2023. The higher effective income tax rate for the six months ended June 30, 2024 was primarily attributable to the impact of valuation allowances on deferred tax assets between periods, as well as the impact of permanent differences against earnings between periods.

Previous wording

Our primary sources of liquidity are cash and cash equivalents, availability under our revolving credit facility and cash provided by operating activities. As of March 31, 2024, we had approximately $438 million in working capital, including $170 million of cash and cash equivalents, and approximately $548 million available under our revolving credit facility.

Current wording

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, 2024, we had approximately $428 million in working capital, including $75 million of cash and cash equivalents, and approximately $613 million available under our revolving credit facility.

Previous wording

As part of the NexTier merger, we assumed the obligations of NexTier Completions Solutions Inc. (“NCS”) under a Master Loan and Security Agreement (as amended, the “Master Agreement”) with Caterpillar Financial Services Corporation. The Master Agreement allows NCS to enter into secured equipment financing term loans from time to time (the “Equipment Loans”). The Equipment Loans may be drawn in multiple tranches, with each loan evidenced by a separate promissory note. The Master Agreement and the Equipment Loans contain customary affirmative and negative covenants, including limitations on further encumbrance of the collateral other than the applicable loans under the Master Agreement. We were in compliance with these covenants at March 31, 2024. The Equipment Loans bear interest at a rate of 5.25% per annum, and we pay interest on the 1 st of each month. The Equipment Loans will mature on June 1, 2025.

Current wording

Equipment Loans may be drawn in multiple tranches, with each loan evidenced by a separate promissory note. The Master Agreement and the Equipment Loans contain customary affirmative and negative covenants, including limitations on further encumbrance of the collateral other than the applicable loans under the Master Agreement. We were in compliance with these covenants at June 30, 2024. The Equipment Loans bear interest at a rate of 5.25% per annum, and we pay interest on the 1 st of each month. The Equipment Loans will mature on June 1, 2025.

Previous wording

The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $615 million ($550 million at March 31, 2024), 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.

Current wording

The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $615 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 $50.0 million and the amount of the swing line provider’s unused commitment.

Previous wording

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 March 31, 2024, we had $82.8 million in letters of credit outstanding under the Reimbursement Agreement.

Current wording

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, 2024, we had $43.8 million in letters of credit outstanding under the Reimbursement Agreement.

Previous wording

We had $87.2 million of outstanding letters of credit at March 31, 2024, which was comprised of $82.8 million outstanding under the Reimbursement Agreement, $2.5 million outstanding under the Credit Agreement, and $2.5 million outstanding with financial institutions providing for short-term borrowing capacity, overdraft protection and bonding requirements. 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 and compliance with contractual obligations. These letters of credit expire annually at various times during the year and are typically renewed. As of March 31, 2024, no amounts had been drawn under the letters of credit.

Current wording

We had $48.0 million of outstanding letters of credit at June 30, 2024, which was comprised of $43.8 million outstanding under the Reimbursement Agreement, $2.3 million outstanding under the Credit Agreement, and $1.9 million outstanding with financial institutions providing for short-term borrowing capacity, overdraft protection and bonding requirements. 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 and compliance with contractual obligations. These letters of credit expire annually at various times during the year and are typically renewed. As of June 30, 2024, no amounts had been drawn under the letters of credit. As of June 30, 2024, we had $35 million in surety bond exposure issued as financial assurance on an insurance agreement.

Previous wording

Our outstanding long-term debt at March 31, 2024 was $1.2 billion and consisted of $483 million of our 2028 Notes, $345 million of our 2029 Notes, $400 million of our 2033 Notes and $14.7 million of our Equipment Loans. We were in compliance with all covenants under the associated agreements and indentures at March 31, 2024.

Current wording

Our outstanding long-term debt at June 30, 2024 was $1.2 billion and consisted of $483 million of our 2028 Notes, $345 million of our 2029 Notes, $400 million of our 2033 Notes and $12.6 million of our Equipment Loans. We were in compliance with all covenants under the associated agreements and indentures at June 30, 2024.

Previous wording

A portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels. For the second quarter, we expect total capital expenditures of approximately $180 million.

Current wording

A portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels. For the third quarter, we expect total capital expenditures of approximately $219 million.

Previous wording

We anticipate $59.3 million of expenditures for the remainder of 2024 related to various contractual obligations such as certain commitments to purchase proppants and lease liabilities.

Current wording

We anticipate $41.1 million of expenditures for the remainder of 2024 related to various contractual obligations such as certain commitments to purchase proppants and lease liabilities.

Previous wording

During the three months ended March 31, 2024, our sources of cash flow included:

Current wording

During the six months ended June 30, 2024, our sources of cash flow included:

Previous wording

•$366 million from operating activities, and

Current wording

•$563 million from operating activities, and

Previous wording

•$2.4 million in proceeds from the disposal of property and equipment.

Current wording

•$9.3 million in proceeds from the disposal of property and equipment.

Previous wording

During the three months ended March 31, 2024, our uses of cash flow included:

Current wording

During the six months ended June 30, 2024, our uses of cash flow included:

Previous wording

•$227 million to make capital expenditures for the betterment and refurbishment of drilling services and completion services equipment and, to a much lesser extent, equipment for our other businesses, to acquire and procure equipment to support our drilling services, completion services, drilling products, and other operations,

Current wording

•$357 million to make capital expenditures for the betterment and refurbishment of drilling services and completion services equipment and, to a much lesser extent, equipment for our other businesses, to acquire and procure equipment to support our drilling services, completion services, drilling products, and other operations,

Previous wording

•$97.8 million for repurchases of our common stock,

Current wording

•$230 million for repurchases of our common stock,

Previous wording

•$32.6 million to pay dividends on our common stock, and

Current wording

•$64.4 million to pay dividends on our common stock, and

Previous wording

•$27.2 million for finance lease payments.

Current wording

•$31.9 million for finance lease payments.

Previous wording

We paid cash dividends during the three months ended March 31, 2024 as follows:

Current wording

We paid cash dividends during the six months ended June 30, 2024 as follows:

Previous wording

In September 2013, our Board of Directors approved a stock buyback program. In February 2024, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $1.0 billion 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 March 31, 2024, we had remaining authorization to purchase approximately $945 million of our outstanding common stock under the stock buyback program. Shares of stock purchased under the buyback program are held as treasury shares.

Current wording

In September 2013, our Board of Directors approved a stock buyback program. In February 2024, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $1.0 billion 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, 2024, we had remaining authorization to purchase approximately $819 million of our outstanding common stock under the stock buyback program. Shares of stock purchased under the buyback program are held as treasury shares.

Previous wording

Treasury stock acquisitions during the three months ended March 31, 2024 were as follows (dollars in thousands):

Current wording

Treasury stock acquisitions during the six months ended June 30, 2024 were as follows (dollars in thousands):

Previous wording

(1)We withheld 395,813 shares during the first quarter of 2024 with respect to employees’ tax withholding obligations upon 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. 2021 Long-Term Incentive Plan, as amended, the NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan and the NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan and not pursuant to the stock buyback program.

Current wording

(1)We withheld 1,146,823 shares during the six months ended June 30, 2024 with respect to employees’ tax withholding obligations upon 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. 2021 Long-Term Incentive Plan, as amended, the NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan and the NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan and not pursuant to the stock buyback program.

Previous wording

Commitments— As of March 31, 2024, we had commitments to purchase major equipment totaling approximately $158 million. Our completion services segment has entered into agreements to purchase minimum quantities of proppants from certain vendors. As of March 31, 2024, the remaining minimum obligation under these agreements was approximately $31.8 million, of which approximately $25.9 million, $4.0 million, and $2.0 million relate to the remainder of 2024, 2025 and 2026, respectively.

Current wording

Commitments— As of June 30, 2024, we had commitments to purchase major equipment totaling approximately $154 million. Our completion services segment has entered into agreements to purchase minimum quantities of proppants from certain vendors. As of June 30, 2024, the remaining minimum obligation under these agreements was approximately $25.8 million, of which approximately $16.9 million, $6.5 million, and $2.4 million relate to the remainder of 2024, 2025 and 2026, respectively.

Previous wording

Operating lease liabilities totaled $54.1 million and finance lease liabilities totaled $33.3 million as of March 31, 2024.

Current wording

Operating lease liabilities totaled $51.7 million and finance lease liabilities totaled $30.2 million as of June 30, 2024.