PATTERSON UTI ENERGY INC - 10-Q Quarterly Report

Back to GetFilings.com

- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

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 0-22664

PATTERSON-UTI ENERGY, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 75-2504748
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

P. O. BOX 1416, 4510 LAMESA HIGHWAY, SNYDER, TEXAS, 79550
(Address of principal executive offices) (Zip Code)

(325) 574-6300
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year,
if changed since last report.)

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 [x] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [x] No [ ]

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

80,328,609 shares of common stock, $0.01 par value, as of April 30, 2003

- --------------------------------------------------------------------------------

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE FOLLOWING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INCLUDE ALL ADJUSTMENTS WHICH, IN THE OPINION OF MANAGEMENT, ARE NECESSARY
IN ORDER TO MAKE SUCH FINANCIAL STATEMENTS NOT MISLEADING.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)

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 INCOME (UNAUDITED)
(in thousands, except per share amounts)

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

4

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)

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 CASH FLOWS (UNAUDITED)
(in thousands)

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

6

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF CONSOLIDATION AND PRESENTATION

The consolidated financial statements include the accounts of
Patterson-UTI Energy, Inc. ("Patterson-UTI") and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.

The interim condensed consolidated financial statements have been prepared
by management of the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes the
disclosures included herein are adequate to make the information presented not
misleading. In the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for presentation of the
information have been included. The unaudited condensed consolidated balance
sheet as of December 31, 2002, as presented herein, was derived from the audited
balance sheet of the Company. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the annual report on Form 10-K for the
year ended December 31, 2002.

The U.S. dollar is the functional currency for all of the Company's
operations except for its Canadian operations, which use the Canadian dollar as
functional currency. The effects of exchange rate changes are reflected in
accumulated other comprehensive income, which is a separate component of
stockholders' equity (see Note 4).

In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," ("SFAS
No. 115"), investments in Available-for-Sale equity securities are recorded at
fair value. Unrealized gains and losses of such investments, net of tax, are
included in accumulated other comprehensive income (loss) in our consolidated
balance sheet as of March 31, 2003 and are shown as a separate component of
stockholders' equity (see Note 4).

The Company provides a dual presentation of its earnings per share in its
Consolidated Statements of Income: Basic Earnings per Share ("Basic EPS")
and Diluted Earnings per Share ("Diluted EPS"). Basic EPS is computed using the
weighted average number of shares outstanding during the periods presented.
Diluted EPS includes common stock equivalents, generally stock options and
warrants that are "in the money", which are dilutive to earnings per share. For
the three months ended March 31, 2003, dilutive securities included in the
calculation of Diluted EPS were 1.9 million shares. For the three months ended
March 31, 2002, dilutive securities of 2.5 million shares were included in the
calculation of Diluted EPS. For the three month periods ended March 31, 2003 and
2002, there were 15,000 and 470,000, respectively, potentially dilutive options
and warrants which were excluded from the calculation of Diluted EPS as their
exercise price was greater than the average market price for the period.

The results of operations for the three months ended March 31, 2003, are
not necessarily indicative of the results to be expected for the full year.

Certain reclassifications have been made to the 2002 consolidated
financial statements in order for them to conform with the 2003 presentation.

2. RECENT ACQUISITIONS

SEI Drilling Company -- In January 2003, the Company acquired four
land-based drilling rigs and related equipment from SEI Drilling Company for a
purchase price of $6.0 million in cash. The transaction was accounted for as a
purchase and the related purchase price was allocated among the rigs based on
their estimated fair values.

7

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED

2. RECENT ACQUISITIONS - (CONTINUED)

Mesa Drilling, Inc. -- In February 2003, the Company acquired three
land-based drilling rigs, a yard, top drive, inventory and other related
equipment from Mesa Drilling, Inc. and related entities for a purchase price of
$10.5 million in cash. The transaction was accounted for as a purchase and the
related purchase price was allocated among the rigs based on their estimated
fair values.

3. STOCK-BASED COMPENSATION

At March 31, 2003, the Company has seven stock-based employee compensation
plans, of which three are active. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation (in thousands, except per share amounts):

4. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table illustrates the Company's comprehensive income
including the effects of foreign currency translation adjustments for the three
months ended March 31, 2003 and 2002 (in thousands):

8

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED

5. SETTLEMENT OF MEXICO RECEIVABLE

In March 2003, the Company received approximately $2.5 million in cash as
settlement for contract drilling services previously provided in Mexico by
Norton Drilling Company Mexico, Inc., a wholly-owned subsidiary. The Company has
been party to a lawsuit for a number of years in an effort to collect the
underlying receivable. As the collectibility of the receivable was not certain,
a reserve for the full amount of the receivable was recorded at the time of the
Company's acquisition of Norton Drilling Company Mexico, Inc. in 1999. The
amount is reflected as a credit to Other Expenses and included as a component of
Operating Income.

6. BUSINESS SEGMENTS

Our revenues, operating profits and identifiable assets are primarily
attributable to four industry segments: contract drilling of oil and natural gas
wells, provision of drilling and completion fluid services and pressure pumping
services to operators in the oil and natural gas industry, and the exploration,
development, acquisition and production of oil and natural gas. Separate
financial data for each of our four business segments is provided below (in
thousands).

- ----------

(a) Corporate assets primarily include cash on hand managed by the parent
corporation and certain deferred federal income tax assets.

9

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED

7. RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143") in June 2001. SFAS No. 143 addresses financial
accounting requirements for retirement obligations associated with tangible
long-lived assets. The Company adopted SFAS No. 143 in January 2003. As a
result, a charge of $469,000 (net of tax) was recorded as a cumulative effect of
a change in accounting principle for the quarter ended March 31, 2003. The
change relates to the cost associated with the future abandonment of oil and
natural gas properties. The related effect to both basic and diluted earnings
per share as a result of the change in accounting principle was a decrease of
$0.01 per share.

The FASB issued Statement of Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," ("SFAS No.
146") in June 2002. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The provisions of SFAS No. 146,
which the Company adopted on January 1, 2003, did not have a material impact on
the Company's consolidated financial statements.

The FASB issued Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation," ("SFAS No. 148") in December 2002.
SFAS No. 148 amends the disclosure requirements of Statement of Financial
Accounting Standards No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
provisions of SFAS No. 148, which the Company adopted on January 1, 2003, did
not have a material impact on the Company's consolidated financial statements
(see Note 3).

The FASB issued Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements, Including Guarantees of Indebtedness of Others," ("FIN
45"), which the Company adopted effective January 1, 2003. FIN 45 requires that
upon issuance of certain types of guarantees, a guarantor recognize and account
for the fair value of the guarantee as a liability. FIN 45 contains exclusions
to this requirement, including the exclusion of a parent's guarantee of its
subsidiaries' debt to a third party. Upon adoption, this new accounting
pronouncement had no material impact on the Company's consolidated financial
position, results of operations or cash flows.

The FASB issued Interpretation No. 46, "Consolidation of Variable Interest
Entities," ("FIN 46"), which the Company adopted effective January 31, 2003.
This statement addresses the consolidation of variable interest entities
("VIEs") by business enterprises that are the primary beneficiaries. A VIE is an
entity that does not have sufficient equity investment at risk to permit it to
finance its activities without additional subordinated financial support, or
whose equity investors lack the characteristics of a controlling financial
interest. The primary beneficiary of a VIE is the enterprise that has the
majority of the risks or rewards associated with the VIE. The Company believes
it has no material interests in VIEs that will require disclosure or
consolidation under FIN 46.

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill and
covenants-not-to-compete arising from business combinations. In accordance with
Statement of Financial Standards No. 142, "Goodwill and Other Intangible
Assets," all of our intangible assets that have definite lives are being
amortized on a straight-line basis over their estimated useful lives and
goodwill is evaluated to determine if fair value of the asset has decreased
below its carrying value. At December 31, 2002, we performed the annual goodwill
evaluation and determined no adjustment to impair goodwill was necessary.
Goodwill and other intangible assets as of March 31, 2003 and December 31, 2002
are as follows (in thousands):

10

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED

8. GOODWILL AND OTHER INTANGIBLE ASSETS - (CONTINUED)

Change in the net carrying amount of goodwill for the three months ended
March 31, 2003 is as follows (in thousands):

Amortization expense for the three months ended March 31, 2003 and 2002
consists of the following (in thousands):

Our weighted average amortization period for other intangible assets is
approximately 10 years. The following table shows the estimated amortization
expense for these assets for each of the five succeeding fiscal years (in
thousands):

2004 ........................ $ 97
2005 ........................ $ 97
2006 ........................ $ 97
2007 ........................ $ 97
2008 ........................ $ 97

9. INVESTMENT IN EQUITY SECURITIES

In 2002, the Company purchased 1,058,673 shares of the common stock of
TMBR/Sharp Drilling, Inc. ("TMBR"), $.10 par value per share, for an aggregate
cash purchase price of $17.6 million, or $16.60 per share plus approximately
$84,000 of additional costs incurred to acquire the shares. The Company owns
approximately 19.5% of the outstanding shares of TMBR based on its shares
outstanding as reported in its 10-Q for the three-month period ended December
31, 2002.

11

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-
CONTINUED

9. INVESTMENT IN EQUITY SECURITIES (CONTINUED)

The accounting treatment of shares representing the Company's investment
in the common stock of TMBR is affected by the Company's ability to sell shares
within one year. As of March 31, 2003, the Company has restrictions on its
ability to sell 838,547 of the TMBR shares within one year. These shares are
reflected in the balance sheet at cost under the cost method of accounting in
accordance with Accounting Principles Board Opinion No. 18, "The Equity Method
of Accounting for Investment in Common Stock," ("APB 18"). The remaining 220,126
TMBR shares are not restricted from sale within one year. These shares are
classified as Available-for-Sale and are reflected in the balance sheet at fair
value in accordance with SFAS No. 115. Fair value is determined from publicly
quoted market prices as of the balance sheet date. In accordance with SFAS No.
115, unrealized gains and losses recorded as a result of the adjustment to fair
value are reflected directly in stockholders' equity.

The following table summarizes the Company's unrealized gain on its
investment in equity securities as of March 31, 2003 (in thousands, except share
amounts):

10. LEGAL MATTER

Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta,
Inc. ("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries,
Patterson Petroleum LP and Patterson Drilling Company LP, in the Circuit Court,
Rankin County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter
agreement entered into in July 2000 between Patterson Petroleum and Westfort
concerning the drilling of a daywork well in Mississippi. This lawsuit was filed
by Westfort after Patterson Petroleum made demand on Westfort for payment of the
contract drilling services. There have been no significant developments in these
proceedings since year-end 2002.

In this lawsuit, Westfort alleges breach of contract, fraud, and
negligence causes of action. Westfort seeks alleged monetary damages, the return
of shares of Westfort stock, unspecified damages from alleged lost profits, lost
use of income stream, and additional operating expenses, along with alleged
punitive damages to be determined by the jury, but not less than 25% of
Patterson's net worth. The Company intends to vigorously contest the allegations
made by Westfort and asserts claims against Westfort, including the monies owed
Patterson Petroleum LP under the letter agreement in the amount of approximately
$5,075,000.

In addition to the Westfort lawsuit, 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.

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

In addition to established accounting policies, our consolidated financial
statements are impacted by certain estimates and assumptions made by management.
The following is a discussion of our critical accounting policies pertaining to
property and equipment, oil and natural gas properties, impairment, revenue
recognition, and the use of estimates.

Property and equipment -- Property and equipment, including betterments
which extend the useful life of the asset, are stated at cost. Maintenance and
repairs are charged to expense when incurred. We provide for the depreciation of
our property and equipment using the straight-line method over the estimated
useful lives. No provision for salvage value is considered in determining
depreciation of our property and equipment. We review our assets, including
intangible assets, for impairment when events or changes in circumstances
indicate that the carrying values of certain assets either exceed their
respective fair values or may not be recovered over their estimated remaining
useful lives. Provisions for asset impairment are charged to income when
estimated future cash flows, on an undiscounted basis, are less than the asset's
net book value. Impairment charges are recorded based on discounted cash flows.
There were no impairment charges during the periods ended March 31, 2003 or
2002.

Oil and natural gas properties -- We follow the successful efforts method
of accounting, using the field as the accumulation center, for our oil and
natural gas properties. Exploration and development costs which result directly
in the discovery of oil and natural gas reserves are capitalized. Exploration
costs which do not result directly in the discovery of oil and natural gas
reserves are charged to expense. Capitalized costs, consisting of lease and well
equipment, lease acquisition costs, and intangible development costs, are
depreciated, depleted, and amortized on the units-of-production method, based on
petroleum engineer estimates of recoverable oil and natural gas reserves of each
respective field. Impairment of proved oil and natural gas properties is
periodically assessed based on estimated future net cash flows at a field level
as determined by an independent reserve engineer. Impairment expense is included
in depreciation, depletion, and amortization in the accompanying financial
statements.

Revenue recognition -- Generally, revenues are recognized when services
are performed. The Company follows the percentage-of-completion method of
accounting for footage contract drilling arrangements. Under this method,
drilling revenues and costs related to a well in progress are recognized
proportionately over the time it takes to drill the well. Due to the nature of
turnkey contract drilling arrangements and risks therein, the Company follows
the completed contract method of accounting for such arrangements. Under this
method, all drilling advances and costs (including maintenance and repairs)
related to a well in progress are deferred and recognized as revenues and
expenses in the period the well is completed. Provisions for losses on
incomplete or in-process wells are made when estimated total costs are expected
to exceed estimated total revenues.

In accordance with Emerging Issues Task Force No. 00-14, the Company
recognizes reimbursements received for out-of-pocket expenses incurred as
revenues and accounts for out-of-pocket expenses as direct costs.

Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosures of contingent assets
and liabilities at the balance sheet date and the amounts of revenues and
expenses recognized during the reporting period. Actual results could differ
from such estimates.

Key estimates used by management include:

o allowance for doubtful accounts,

o depreciation, depletion, and amortization,

o asset impairment,

o reserves for self-insured levels of insurance coverages, and

13

o fair values of assets and liabilities assumed.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2003, we had working capital of approximately $167.1
million including cash and cash equivalents of $70.8 million. For the three
months ended March 31, 2003, our significant sources of cash flow were:

o $21.7 million provided by operations,

o $2.0 million from the exercise of stock options and warrants, and

o $839,000 from the sale of certain property and equipment.

Correspondingly, we used approximately $16.5 million to acquire seven
land-based drilling rigs (see Note 2 of Notes to Unaudited Condensed
Consolidated Financial Statements included as part of Item 1 to this report) and
approximately $19.5 million:

o to make capital expenditures for the betterment and refurbishment of
our drilling rigs,

o for the acquisition and procurement of drilling equipment,

o to fund capital expenditures for our drilling and completion fluids
and pressure pumping divisions, and

o to fund leasehold acquisition and exploration and development of oil
and natural gas properties.

In January 2003, the Company purchased four land-based drilling rigs and
related equipment from SEI Drilling Company for a purchase price of $6.0 million
in cash. The transaction was accounted for as a purchase and the related
purchase price was allocated among the assets based on their fair values.

In February 2003, the Company purchased three land-based drilling rigs and
related equipment from Mesa Drilling, Inc. and related entities for $10.5
million in cash. The transaction was accounted for as a purchase and the related
purchase price was allocated among the assets based on their fair values.

The Company has entered into an agreement to acquire seven land-based
drilling rigs and related equipment for $10.0 million in cash. The transaction
is expected to be completed in the second quarter of 2003. The Company completed
the acquisition of two additional land-based drilling rigs in April 2003 for
$3.9 million in cash.

We believe that the current level of cash and short-term investments,
together with cash generated from operations, should be sufficient to meet our
capital needs. From time to time, acquisition opportunities are reviewed. The
timing, size or success of any acquisition and the associated capital
commitments are unpredictable. Over the longer term, should further
opportunities for growth requiring capital arise, we believe we would be able to
satisfy these needs through a combination of working capital, cash generated
from operations, and either debt or equity financing. However, there can be no
assurance that such capital would be available.

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

The Company maintains letters of credit in the aggregate amount of $24.2
million 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
variously during each calendar year. No amounts have been drawn under the
letters of credit.

Westfort Energy LTD and Westfort Energy (US) LTD f/k/a Canadian Delta, Inc.
("Westfort"), filed a lawsuit against two Patterson-UTI subsidiaries, Patterson
Petroleum LP and Patterson Drilling Company LP, in the Circuit Court, Rankin
County, Mississippi, Case No. 2002-18. The lawsuit relates to a letter agreement
entered into in July 2000 between Patterson Petroleum and Westfort concerning
the drilling of a daywork well in Mississippi. This lawsuit was filed by
Westfort after Patterson Petroleum made demand on Westfort for payment of the
contract drilling services. There have been no significant developments in these
proceedings since year-end 2002.

In this lawsuit, Westfort alleges breach of contract, fraud,and negligence
causes of action. Westfort seeks alleged monetary damages, the return of shares
of Westfort stock, unspecified damages from alleged lost profits, lost use of
income stream, and additional operating expenses, along with alleged punitive
damages to be determined by the jury, but not less than 25% of Patterson's net
worth. The Company intends to vigorously contest the allegations made by
Westfort and asserts claims against Westfort, including the monies owed
Patterson Petroleum LP under the letter agreement in the amount of approximately
$5,075,000.

In addition to the Westfort lawsuit, 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.

14

RESULTS OF OPERATIONS

The following tables summarize operations by business segment for the three
months ended March 31, 2003 and 2002:

Our rig count began to decline in the third quarter of 2001 and continued
until March 2002 when our rig count bottomed at 103 rigs (90 rigs in the U.S.
and 13 rigs in Canada). The deterioration in our rig count was primarily the
result of weakening natural gas prices through mid-February 2002. As natural gas
prices improved through most of 2002 and the first quarter of 2003, our rig
count also improved. Average natural gas prices increased from $2.51 per Mcf in
the first quarter of 2002 to $5.91 per Mcf in the first quarter of 2003.
Accordingly, our rig count continued to improve and averaged 176 rigs (161 in
the U.S. and 15 rigs in Canada) in the first quarter of 2003.

Increased operating results in 2003 were reflective of increased demand
for our contract drilling services as evidenced by increases in the number of
operating days and average rig utilization. Increased revenues and direct
operating costs are attributable to increases in demand as noted above, however,
increased competition for available jobs due to the weakened industry conditions
experienced in 2002 resulted in downward pricing pressure and decreases in
revenue per operating day and average margin per operating day. Decreased
operating costs per day resulted primarily from efficiencies in payroll
expenses. Payroll expenses were high on a per day basis in 2002 as experienced
field personnel were retained despite the low level of rig utilization.

Decreases in revenues and expenses despite a significant increase in total
jobs for our drilling and completion fluids operations resulted from work on
significantly smaller jobs in the 2003 quarter compared to the 2002 quarter.
This is further evidenced by the reduced average revenue and costs per job for
the 2003 quarter compared to the 2002 quarter. The continued slow down of
activity in the Gulf of Mexico was largely attributable to this shift in job mix
for our drilling and completion fluids operations.

15

The increases in revenues and expenses for our pressure pumping operations
were attributable to improved industry conditions, as discussed in Contract
Drilling above. Expansion of our pressure pumping services in 2002 into the
Appalachian regions of Kentucky and West Virginia resulted in increased
depreciation and capital expenditures in the 2003 quarter compared to the 2002
quarter. Selling, general and administrative expense increased as a result of
the expansion in operations as discussed above as well as increased payroll and
related expenses during the first quarter of 2003. The decrease in average
revenue per job was attributable to an approximate 17% decline in average
revenue received on cement jobs, which comprised approximately 73% of total jobs
for our pressure pumping operations in the first quarter of 2003. This decline
resulted from a more competitive pricing environment in the industry.

Increased revenues and operating income are primarily attributable to
increased prices received from sales of oil and natural gas as well as marginal
increases in production.

Increased selling, general, and administrative expenses relate primarily
to an increase in insurance premiums. In 2003, Other primarily reflects a
payment received in the first quarter of 2003 of approximately $2.5 million as
settlement for contract drilling services previously provided in Mexico by
Norton Drilling Company Mexico, Inc., a wholly-owned subsidiary. The underlying
accounts receivable balance had been reserved as uncollectible at the time of
the Company's acquisition of Norton Drilling Company Mexico, Inc. in 1999.

VOLATILITY OF OIL AND NATURAL GAS PRICES AND ITS IMPACT ON OPERATIONS

Our revenue, profitability and future rate of growth are substantially
dependent upon prevailing prices for oil and natural gas, with respect to all of
our operating segments. Historically, oil and natural gas prices and markets
have been volatile. Prices are affected by market supply and demand factors as
well as actions of state and local agencies, the United States and foreign
governments and international cartels. All of these are beyond our control.

16

Any significant or extended decline in oil and/or natural gas prices would have
a material adverse effect on our financial condition and results of operations.

The contract drilling business has previously experienced increased demand
for drilling services from 1995 through most of 1997 and from mid-1999 through
the second quarter of 2001. However, except for those periods and other
occasional upturns, generally, there have been substantially more drilling rigs
available than necessary to meet demand in most operational and geographic
segments of the North American land drilling industry. As a result, drilling
contractors have had difficulty sustaining profit margins.

IMPACT OF INFLATION

We believe that inflation will not have a significant near-term impact on
our financial position.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We currently have no significant exposure to interest rate market risk
because we have no outstanding balance under our credit facility. Should we
incur a balance in the future, we would have exposure associated with the
floating rate of the interest charged on that balance. The revolving credit
facility calls for periodic interest payments at a floating rate ranging from
LIBOR plus 1.75 % to 2.75%. The applicable rate above LIBOR (1.75% at March 31,
2003) is based upon our trailing twelve-month EBITDA (earnings before interest
expense, income taxes, and depreciation, depletion, and amortization expense).
Our exposure to interest rate risk due to changes in LIBOR is not expected to be
material.

We conduct some business in Canadian dollars through our Canadian
land-based drilling operations. The exchange rate between Canadian dollars and
U.S. dollars has fluctuated over the last ten years. If the value of the
Canadian dollar against the U.S. dollar weakens, revenues and earnings of our
Canadian operations will be reduced when they are translated to U.S. dollars.
Also, the value of our Canadian net assets in U.S. dollars may decline.

ITEM 4. CONTROLS AND PROCEDURES

Within 90 days before filing this report, we evaluated the effectiveness
of the design and operation of our disclosure controls and procedures. Our
disclosure controls and procedures are the controls and other procedures that we
designed to ensure that we record, process, summarize and report in a timely
manner the information we must disclose in reports that we file with or submit
to the SEC. Our disclosure controls and procedures include our internal
accounting controls. Based on our evaluation, our disclosure controls and
procedures were effective.

There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
our evaluation.

17

----------

FORWARD LOOKING STATEMENTS AND CAUTIONARY STATEMENTS FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

"Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 2 of this Report contains
forward-looking statements which are made pursuant to the "safe harbor"
provisions of The Private Securities Litigation Reform Act of 1995. These
statements include, without limitation, statements relating to: liquidity;
financing of operations; continued volatility of oil and natural gas prices;
source and sufficiency of funds required for immediate capital needs and
additional rig acquisitions (if further opportunities arise); and other matters.
The words "believes," "plans," "intends," "expected," "estimates" or "budgeted"
and similar expressions identify forward-looking statements. 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. We do not undertake to update, revise or correct any of the
forward-looking information. Factors that could cause actual results to differ
materially from our expectations expressed in the forward-looking statements
include, but are not limited to, the following:

o Changes in prices and demand for oil and natural gas;

o Changes in demand for contract drilling, pressure pumping and
drilling and completion fluids services;

o Shortages of drill pipe and other drilling equipment;

o Labor shortages, primarily qualified drilling personnel;

o Effects of competition from other drilling contractors and
providers of pressure pumping and drilling and completion
fluids services;

o Occurrence of operating hazards and uninsured losses inherent
in our business operations; and

o Environmental and other governmental regulation.

For a more complete explanation of these various factors and others,
see "Forward Looking Statements and Cautionary Statements for Purposes of the
'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of
1995" included in our Annual Report on Form 10-K for the year ended December 31,
2002, beginning on page 13.

You are cautioned not to place undue reliance on any of our
forward-looking statements, which speak only as of the date of the document or
in the case of documents incorporated by reference, the date of those documents.

----------

18

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS.

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

2.1 Agreement and Plan of Merger dated March 10, 2002, among Patterson-UTI
Energy, Inc., Patterson-UTI Drilling Company LP, LLLP and Odin
Drilling, Inc.(1)

2.2 Stock Purchase Agreement dated as of June 11, 2002 by and among
Patterson-UTI Energy, Inc. and Roper Family Properties, Ltd., Estate of
Joe G. Roper, Patricia R. Elledge, Judy Kathleen Roper Davis, Jeanie
Elisabeth Cornelius and J. Mark Roper.(2)

2.3 Stock Purchase Agreement dated as of October 28, 2002 by and between
Patterson-UTI Energy, Inc. and J. Mark Roper.(3)

3.1 Restated Certificate of Incorporation.(4)

3.1.1 Certificate of Correction of Restated Certificate of Incorporation.(5)

3.2 Amended and Restated Bylaws.(5)

3.3 Rights Agreement dated January 2, 1997, between Patterson Energy, Inc.
and Continental Stock Transfer & Trust Company.(6)

3.3.1 Amendment to Rights Agreement dated as of October 23, 2001.(7)

4.1 Excerpt from Restated Certificate of Incorporation of Patterson-UTI
Energy, Inc. regarding authorized Common Stock and Preferred Stock.(8)

4.2 Certificate of Designation.(9)

4.2.1 Amendment to Certificate of Designation.(5)

4.3 Registration Rights Agreement with Bear, Stearns and Co. Inc., dated
March 25, 1994, as assigned to REMY Capital Partners III, L.P.(5)

4.4 Patterson-UTI Energy, Inc. 1993 Stock Incentive Plan, as amended.(10)*

4.5 Patterson-UTI Energy, Inc. Non-Employee Directors' Stock Option Plan,
as amended.(11)*

4.6 Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term
Incentive Plan.(12)*

4.7 Amended and Restated Non-Employee Director Stock Option Plan of
Patterson-UTI Energy, Inc.(13)*

4.8 Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee Stock
Option Plan.(13)*

4.9 1997 Stock Option Plan of DSI Industries, Inc.(12)*

4.10 Stock Option Agreement dated July 20, 2001 between Patterson-UTI
Energy, Inc. and Kenneth R. Peak (a non-employee director of
Patterson-UTI Energy, Inc.).(5)*

19

4.11 Stock Option Agreement dated July 20, 2001 between Patterson-UTI
Energy, Inc. and Stephen J. DeGroat (a non-employee director of
Patterson-UTI Energy, Inc.).(5)*

10.1 For additional material contracts, see Exhibits 4.3 through 4.11.

10.2 Amended and Restated Loan and Security Agreement, dated July 26,
2002.(8)

10.3 Revolving Loan Promissory Note, dated July 26, 2002.(8)

10.4 Amended and Restated Guaranty Agreement, dated July 26, 2002.(8)

10.5 Amended and Restated Pledge Agreement, dated July 26, 2002.(8)

10.6 Model Form Operating Agreement.(14)

10.7 Form of Drilling Bid Proposal and Footage Drilling Contract.(14)

10.8 Form of Turnkey Drilling Agreement.(14)

99.1 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.

- ----------

(1) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended March 31, 2002.

(2) Incorporated herein by reference to Item 7, "Material to be Filed as
Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31, 2002.

(3) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2002.

(4) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated and filed on May 8, 2001.

(5) Incorporated herein by reference to Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" to Annual Report on Form
10-K for the fiscal year ended December 31, 2001.

(6) Incorporated by reference to Item 2, "Exhibits" to Registration
Statement on Form 8-A filed on January 14, 1997.

(7) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended September 30,
2001, filed on October 31, 2001.

(8) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2001,
filed on August 1, 2001.

(9) Incorporated herein by reference to Item 2, "Exhibits" to Registration
Statement on Form 8-A (File No. 000-22664) filed on January 14, 1997.

(10) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998.

(11) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997.

(12) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(file No. 333-60470) filed on July 25, 2001.

(13) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No.1 to Registration Statement on Form S-8
(file No. 333-60466) filed on July 25, 2001.

(14) Incorporated by reference to Item 27, "Exhibits" to Registration
Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30, 1993.

* Management Contract or Compensatory Plan identified as required by Item
15(a)(3) of Form 10-K.

(b) Reports on Form 8-K.

There were no reports on Form 8-K filed during the three months ended
March 31, 2003.

20

SIGNATURES

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/ Cloyce A. Talbott
----------------------------------------
Cloyce A. Talbott
Chief Executive Officer

By: /s/ Jonathan D. Nelson
----------------------------------------
Jonathan D. Nelson
Vice President, Chief Financial Officer,
Secretary and Treasurer

DATED: May 1, 2003

21

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Cloyce A. Talbott, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy,
Inc.;

(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

(5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

(6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness.

Date: May 1, 2003

/s/ Cloyce A. Talbott
-------------------------------
Cloyce A. Talbott
Chief Executive Officer

22

CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Jonathan D. Nelson, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Patterson-UTI Energy,
Inc.;

(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

(5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

(6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness.

Date: May 1, 2003

/s/ Jonathan D. Nelson
----------------------------------------
Jonathan D. Nelson
Vice President, Chief Financial Officer,
Secretary and Treasurer

INDEX TO EXHIBITS

- ----------

(1) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended March 31, 2002.

(2) Incorporated herein by reference to Item 7, "Material to be Filed as
Exhibits" to Amendment No. 1 to Schedule 13D filed on October 31, 2002.

(3) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2002.

(4) Incorporated herein by reference to Item 7, "Financial Statements and
Exhibits" to Form 8-K dated and filed on May 8, 2001.

(5) Incorporated herein by reference to Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" to Annual Report on Form
10-K for the fiscal year ended December 31, 2001.

(6) Incorporated by reference to Item 2, "Exhibits" to Registration
Statement on Form 8-A filed on January 14, 1997.

(7) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended September 30,
2001, filed on October 31, 2001.

(8) Incorporated herein by reference to Item 6, "Exhibits and Reports on
Form 8-K" to Form 10-Q for the quarterly period ended June 30, 2001,
filed on August 1, 2001.

(9) Incorporated herein by reference to Item 2, "Exhibits" to Registration
Statement on Form 8-A (File No. 000-22664) filed on January 14, 1997.

(10) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on March 13, 1998.

(11) Incorporated herein by reference to Item 8, "Exhibits" to Registration
Statement on Form S-8 (File No. 33-39471) filed on November 4, 1997.

(12) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No. 1 to Registration Statement on Form S-8
(file No. 333-60470) filed on July 25, 2001.

(13) Incorporated herein by reference to Item 8, "Exhibits" to
Post-Effective Amendment No.1 to Registration Statement on Form S-8
(file No. 333-60466) filed on July 25, 2001.

(14) Incorporated by reference to Item 27, "Exhibits" to Registration
Statement on Form SB-2 (File No. 33-68058-FW) filed on August 30, 1993.

* Management Contract or Compensatory Plan identified as required by Item
15(a)(3) of Form 10-K.