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Document and Entity Information (USD  $)
9 Months Ended
Sep. 30, 2010
Oct. 29, 2010
Jun. 30, 2009
Document and Entity Information [Abstract]
Entity Registrant Name PATTERSON UTI ENERGY INC
Entity Central Index Key 0000889900
Document Type 10-Q
Document Period End Date 2010-09-30
Amendment Flag false
Document Fiscal Year Focus 2010
Document Fiscal Period Focus Q3
Current Fiscal Year End Date --12-31
Entity Well-known Seasoned Issuer Yes
Entity Voluntary Filers No
Entity Current Reporting Status Yes
Entity Filer Category Large Accelerated Filer
Entity Public Float  $ 1,944,259,033
Entity Common Stock, Shares Outstanding 154,126,195
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Consolidated Balance Sheets (Unaudited) (USD  $)
In Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2010
Dec. 31, 2009
Current assets:
Cash and cash equivalents  $ 73,916  $ 49,877
Accounts receivable, net of allowance for doubtful accounts of  $8,053 and  $10,911 at September 30, 2010 and December 31, 2009, respectively 251,646 164,498
Federal and state income taxes receivable 4,635 118,869
Inventory 9,530 6,941
Deferred tax assets, net 62,313 32,877
Assets held for sale 0 42,424
Other 49,454 41,782
Total current assets 451,494 457,268
Property and equipment, net 2,397,218 2,110,402
Goodwill 86,234 86,234
Deposits on equipment purchases 49,860 914
Other 12,602 7,334
Total assets 2,997,408 2,662,152
Current liabilities:
Accounts payable 181,134 83,700
Accrued expenses 125,869 109,608
Current portion of long term debt 5,000 0
Total current liabilities 312,003 193,308
Long term debt 95,000 0
Deferred tax liabilities, net 448,645 381,656
Other 7,621 5,488
Total liabilities 863,269 580,452
Commitments and contingencies (see Note 11)    
Stockholders' equity:
Preferred stock, par value  $.01; authorized 1,000,000 shares, no shares issued 0 0
Common stock, par value  $.01; authorized 300,000,000 shares with 181,461,796 and 180,828,773 issued and 154,118,246 and 153,610,785 outstanding at September 30, 2010 and December 31, 2009, respectively 1,814 1,808
Additional paid-in capital 791,265 781,635
Retained earnings 1,941,854 1,901,853
Accumulated other comprehensive income 19,646 14,996
Treasury stock, at cost, 27,343,550 shares and 27,217,988 shares at September 30, 2010 and December 31, 2009, respectively (620,440) (618,592)
Total stockholders' equity 2,134,139 2,081,700
Total liabilities and stockholders' equity  $ 2,997,408  $ 2,662,152
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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD  $)
In Thousands, except Share data
Sep. 30, 2010
Dec. 31, 2009
Current assets:
Allowance for doubtful accounts  $ 8,053  $ 10,911
Stockholders' equity:
Preferred stock, par value  $ 0.01  $ 0.01
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, shares issued 0 0
Common stock, par value  $ 0.01  $ 0.01
Common stock, shares authorized 300,000,000 300,000,000
Common stock, shares issued 181,461,796 180,828,773
Common stock, shares outstanding 154,118,246 153,610,785
Treasury stock, shares 27,343,550 27,217,988
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Consolidated Statements of Operations (Unaudited) (USD  $)
In Thousands, except Per Share data
3 Months Ended 9 Months Ended
Sep. 30, 2010
Sep. 30, 2009
Sep. 30, 2010
Sep. 30, 2009
Operating revenues:
Contract drilling  $ 290,759  $ 112,294  $ 741,470  $ 439,714
Pressure pumping 81,104 41,687 194,219 113,408
Oil and natural gas 6,800 5,690 21,564 15,255
Total operating revenues 378,663 159,671 957,253 568,377
Operating costs and expenses:
Contract drilling 174,999 71,035 459,448 254,306
Pressure pumping 51,305 31,092 132,401 87,419
Oil and natural gas 1,484 1,780 5,326 5,576
Depreciation, depletion and impairment 85,431 69,582 239,930 207,571
Selling, general and administrative 13,685 11,384 37,491 33,213
Net gain on asset disposals (250) (868) (21,940) (423)
Provision for bad debts (500) 285 (1,500) 6,035
Total operating costs and expenses 326,154 184,290 851,156 593,697
Operating income (loss) 52,509 (24,619) 106,097 (25,320)
Other income (expense):
Interest income 64 53 1,631 318
Interest expense (6,227) (1,448) (9,011) (2,734)
Other 260 228 509 263
Total other income (expense) (5,903) (1,167) (6,871) (2,153)
Income (loss) before income taxes 46,606 (25,786) 99,226 (27,473)
Income tax expense (benefit):
Current (1,748) (2,677) (4,230) (5,231)
Deferred 18,980 (6,295) 40,368 (4,372)
Total income tax expense (benefit) 17,232 (8,972) 36,138 (9,603)
Income (loss) from continuing operations 29,374 (16,814) 63,088 (17,870)
Loss from discontinued operations, net of income taxes (1,766) (2,250)
Net income (loss)  $ 29,374  $ (18,580)  $ 63,088  $ (20,120)
Basic income (loss) per common share:
Income (loss) from continuing operations  $ 0.19  $ (0.11)  $ 0.41  $ (0.12)
Loss from discontinued operations, net of income taxes  $ 0  $ (0.01)  $ 0  $ (0.01)
Net income (loss)  $ 0.19  $ (0.12)  $ 0.41  $ (0.13)
Diluted income (loss) per common share:
Income (loss) from continuing operations  $ 0.19  $ (0.11)  $ 0.41  $ (0.12)
Loss from discontinued operations, net of income taxes  $ 0  $ (0.01)  $ 0  $ (0.01)
Net income (loss)  $ 0.19  $ (0.12)  $ 0.41  $ (0.13)
Weighted average number of common shares outstanding:
Basic 152,933 152,242 152,682 151,975
Diluted 154,109 152,242 152,682 151,975
Cash dividends per common share  $ 0.05  $ 0.05  $ 0.15  $ 0.15
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Consolidated Statement of Changes in Stockholders Equity (Unaudited) (USD  $)
In Thousands
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
Treasury Stock
Total
Beginning Balance at Dec. 31, 2008  $ 1,801  $ 765,512  $ 1,970,824  $ 5,774  $ (616,969)  $ 2,126,942
Beginning Balance, Shares at Dec. 31, 2008 180,192
Comprehensive income:
Net income (loss) (20,120) (20,120)
Foreign currency translation adjustment, net of tax of  $4,183 and  $2,814 respectively 7,214 7,214
Total comprehensive income (20,120) 7,214 (12,906)
Issuance of restricted stock 6 (6)
Issuance of restricted stock, shares 604
Vesting of stock unit awards, Shares 6
Forfeitures of restricted stock, shares (41)
Exercise of stock options 1 378 379
Exercise of stock options, shares 61
Stock-based compensation 14,108 14,108
Tax expense related to stock-based compensation (2,720) (2,720)
Payment of cash dividends (23,005) (23,005)
Purchase of treasury stock (1,623) (1,623)
Ending Balance at Sep. 30, 2009 1,808 777,272 1,927,699 12,988 (618,592) 2,101,175
Ending Balance, Shares at Sep. 30, 2009 180,822
Beginning Balance at Dec. 31, 2009 1,808 781,635 1,901,853 14,996 (618,592) 2,081,700
Beginning Balance, Shares at Dec. 31, 2009 180,829
Comprehensive income:
Net income (loss) 63,088 63,088
Foreign currency translation adjustment, net of tax of  $4,183 and  $2,814 respectively 4,650 4,650
Total comprehensive income 63,088 4,650 67,738
Issuance of restricted stock 6 (6)
Issuance of restricted stock, shares 646
Vesting of stock unit awards, Shares 7
Forfeitures of restricted stock, shares (54)
Exercise of stock options 290 290
Exercise of stock options, shares 34
Stock-based compensation 11,881 11,881
Tax expense related to stock-based compensation (2,535) (2,535)
Payment of cash dividends (23,087) (23,087)
Purchase of treasury stock (1,848) (1,848)
Ending Balance at Sep. 30, 2010  $ 1,814  $ 791,265  $ 1,941,854  $ 19,646  $ (620,440)  $ 2,134,139
Ending Balance, Shares at Sep. 30, 2010 181,462
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Consolidated Statement of Changes in Stockholders Equity (Unaudited) (Parenthetical) (USD  $)
In Thousands
9 Months Ended
Sep. 30, 2010
Sep. 30, 2009
Comprehensive income:
Tax effect of foreign currency translation adjustment  $ 2,814  $ 4,183
Accumulated Other Comprehensive Income
Comprehensive income:
Tax effect of foreign currency translation adjustment  $ 2,814  $ 4,183
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Consolidated Statements of Cash Flows (Unaudited) (USD  $)
In Thousands
9 Months Ended
Sep. 30, 2010
Sep. 30, 2009
Cash flows from operating activities:
Net income (loss)  $ 63,088  $ (20,120)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and impairment 239,930 207,571
Provision for bad debts (1,500) 6,035
Dry holes and abandonments 479 120
Deferred income tax expense 40,368 (4,372)
Stock-based compensation expense 11,881 13,848
Net gain on asset disposals (21,940) (423)
Tax expense related to stock-based compensation (2,535) (2,720)
Changes in operating assets and liabilities:
Accounts receivable (97,455) 255,856
Income taxes receivable/payable 114,209 (116)
Inventory and other assets (6,864) 7,738
Accounts payable 31,674 (79,466)
Accrued expenses 18,227 (25,510)
Other liabilities 2,218 (55)
Net cash provided by operating activities of discontinued operations 10,687 55,122
Net cash provided by operating activities 402,467 413,508
Cash flows from investing activities:
Purchases of property and equipment (513,679) (350,441)
Proceeds from disposal of assets 27,224 3,173
Net cash provided by investing activities of discontinued operations 42,646 (54)
Net cash used in investing activities (443,809) (347,322)
Cash flows from financing activities:
Purchases of treasury stock (1,848) (1,623)
Dividends paid (23,087) (23,005)
Debt issuance costs (10,328) (6,169)
Proceeds from long term debt 100,000
Proceeds from exercise of stock options 290 379
Net cash provided by (used in) financing activities 65,027 (30,418)
Effect of foreign exchange rate changes on cash 354 2,252
Net increase in cash and cash equivalents 24,039 38,020
Cash and cash equivalents at beginning of period 49,877 81,223
Cash and cash equivalents at end of period 73,916 119,243
Net cash (paid) received during the period for:
Interest expense (3,031) (1,440)
Income taxes 115,661 7,754
Supplemental investing and financing information:
Net increase (decrease) in payables for purchases of property and equipment 66,819 (12,235)
Net (increase) decrease in deposits on equipment purchases  $ (48,946)  $ 43,944
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Basis of Consolidation and Presentation
9 Months Ended
Sep. 30, 2010
Basis of Consolidation and Presentation [Abstract]
Basis of Consolidation and Presentation
1. Basis of Consolidation and Presentation
     The unaudited interim consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. (the “Company”) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, the Company has no controlling financial interests in any entity which would require consolidation.
     The unaudited interim consolidated financial statements have been prepared by management of the Company 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 accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair statement of the information in conformity with accounting principles generally accepted in the United States have been included. The Unaudited Consolidated Balance Sheet as of December 31, 2009, as presented herein, was derived from the audited consolidated balance sheet of the Company, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year.
     The U.S. dollar is the functional currency for all of the Company’s operations except for its Canadian operations, which uses the Canadian dollar as its functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders’ equity.
     Certain reclassifications have been made to the 2009 consolidated financial statements in order for them to conform with the 2010 presentation.
     The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value.
     The Company provides a dual presentation of its net income per common share in its unaudited consolidated statements of operations: Basic net income per common share (“Basic EPS”) and diluted net income per common share (“Diluted EPS”).
     Basic EPS excludes dilution and is computed by first allocating earnings between common stockholders and holders of non-vested shares of restricted stock. Basic EPS is then determined by dividing the earnings attributable to common stockholders by the weighted average number of common shares outstanding during the period, excluding non-vested shares of restricted stock.
     Diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive effect of potential common shares, including stock options, non-vested shares of restricted stock and restricted stock units. The dilutive effect of stock options and restricted stock units is determined based on the treasury stock method. The dilutive effect of non-vested shares of restricted stock is based on the more dilutive of the treasury stock method or the two-class method, assuming a reallocation of undistributed earnings to common stockholders after considering the dilutive effect of potential common shares other than non-vested shares of restricted stock.
     The following table presents information necessary to calculate income from continuing operations per share, income from discontinued operations per share and net income per share for the three and nine months ended September 30, 2010 and 2009 as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding, as their inclusion would have been anti-dilutive (in thousands, except per share amounts):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
BASIC EPS:
                               
Income (loss) from continuing operations
   $ 29,374      $ (16,814 )    $ 63,088      $ (17,870 )
Adjust for (income) loss attributed to holders of non-vested restricted stock
    (224 )     159       (476 )     170  
 
                       
Income (loss) from continuing operations attributed to common stockholders
   $ 29,150      $ (16,655 )    $ 62,612      $ (17,700 )
 
                       
 
                               
Loss from discontinued operations, net
   $      $ (1,766 )    $      $ (2,250 )
Adjust for income attributed to holders of non-vested restricted stock
          16             20  
 
                       
Loss from discontinued operations attributed to common stockholders
   $      $ (1,750 )    $      $ (2,230 )
 
                       
 
                               
Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock
    152,933       152,242       152,682       151,975  
 
                       
 
                               
Basic income (loss) from continuing operations per common share
   $ 0.19      $ (0.11 )    $ 0.41      $ (0.12 )
Basic loss from discontinued operations per common share
   $ 0.00      $ (0.01 )    $ 0.00      $ (0.01 )
Basic net income (loss) per common share
   $ 0.19      $ (0.12 )    $ 0.41      $ (0.13 )
 
                               
DILUTED EPS:
                               
Income (loss) from continuing operations attributed to common stockholders
   $ 29,150      $ (16,655 )    $ 62,612      $ (17,700 )
Add incremental earnings related to potential common shares
    1                    
 
                       
Adjusted income (loss) from continuing operations attributed to common stockholders
   $ 29,151      $ (16,655 )    $ 62,612      $ (17,700 )
 
                       
 
                               
Weighted average number of common shares outstanding, excluding non-vested shares of restricted stock
    152,933       152,242       152,682       151,975  
Add dilutive effect of potential common shares
    1,176                    
 
                       
Weighted average number of diluted common shares outstanding
    154,109       152,242       152,682       151,975  
 
                       
 
                               
Diluted income (loss) from continuing operations per common share
   $ 0.19      $ (0.11 )    $ 0.41      $ (0.12 )
Diluted loss from discontinued operations per common share
   $ 0.00      $ (0.01 )    $ 0.00      $ (0.01 )
Diluted net income (loss) per common share
   $ 0.19      $ (0.12 )    $ 0.41      $ (0.13 )
 
                               
Potentially dilutive securities excluded as anti-dilutive
    4,644       8,204       6,726       8,204  
 
                       
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Discontinued Operations
9 Months Ended
Sep. 30, 2010
Discontinued Operations [Abstract]
Discontinued Operations
2. Discontinued Operations
     On January 20, 2010, the Company exited the drilling and completion fluids business, which had previously been presented as one of the Company’s reportable operating segments. On that date, the Company’s wholly owned subsidiary, Ambar Lone Star Fluids Services LLC, completed the sale of substantially all of its assets, excluding billed accounts receivable. The sales price was approximately  $42.6 million. Upon the Company’s exit from the drilling and completion fluids business, the Company classified its drilling and completion fluids operating segment as a discontinued operation. Accordingly, the results of operations of this business have been reclassified and presented as results of discontinued operations for all periods presented in these consolidated financial statements. As of December 31, 2009, the assets to be disposed of were considered held for sale and were presented separately within current assets under the caption “Assets held for sale” in the consolidated balance sheet. Upon being classified as held for sale, the assets to be disposed of were adjusted to fair value less estimated costs to sell resulting in an impairment loss of  $1.9 million. Due to the fact that the carrying value of the assets had been adjusted to net realizable value, no additional gain or loss was recognized in connection with the sale in 2010.
     Summarized operating results from discontinued operations for the three and nine months ended September 30, 2010, and 2009 are shown below (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Drilling and completion fluids revenues
   $      $ 16,488      $ 3,737      $ 64,585  
 
                       
 
                               
Loss before income taxes
   $      $ (2,666 )    $      $ (3,398 )
Income tax benefit
          (900 )           (1,148 )
 
                       
Loss from discontinued operations, net of income tax
   $      $ (1,766 )    $      $ (2,250 )
 
                       
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Acquisitions
9 Months Ended
Sep. 30, 2010
Acquisitions [Abstract]
Acquisitions
3. Acquisitions
     On October 1, 2010, two subsidiaries of the Company, Universal Pressure Pumping, Inc. (“UPP”) and Universal Wireline, Inc. completed the acquisition of certain assets from Key Energy Pressure Pumping Services, LLC (“Key Pressure Pumping”) and Key Electric Wireline Services, LLC (together with Key Pressure Pumping, the “Sellers”) relating to the businesses of providing pressure pumping services and electric wireline services to participants in the oil and natural gas industry for an approximate aggregate purchase price of  $238 million in cash (the “Purchase Price”). This acquisition expands the Company’s pressure pumping operations to additional markets primarily in Texas. The Purchase Price, which was funded through a combination of cash on hand and a  $200 million draw on the Company’s revolving credit facility, is subject to certain adjustments based on closing inventory. The Company is in the process of determining the fair values of the assets acquired and liabilities assumed and the results of operations for these acquired businesses will be included in the Company’s consolidated results of operations beginning in the quarter ending December 31, 2010. The acquisition was effected pursuant to an Asset Purchase Agreement dated July 2, 2010, as amended, modified and supplemented, by and among Patterson-UTI Energy, Inc., UPP (formerly known as Portofino Acquisition Company), Sellers and Key Energy Services, Inc., a Maryland corporation.
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Stock-based Compensation
9 Months Ended
Sep. 30, 2010
Stock-based Compensation [Abstract]
Stock-based Compensation
4. Stock-based Compensation
     The Company uses share-based payments to compensate employees and non-employee directors. The Company recognizes the cost of share-based payments under the fair-value-based method. Share-based awards consist of equity instruments in the form of stock options, restricted stock or restricted stock units and have included service and, in certain cases, performance conditions. Additionally, share-based awards also include both cash-settled and share-settled performance unit awards. Cash-settled performance unit awards are accounted for as liability awards. Share-settled performance unit awards are accounted for as equity awards. The Company issues shares of common stock when vested stock options are exercised, when restricted stock is granted and when restricted stock units and share-settled performance unit awards vest.
     Stock Options. The Company estimates the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of the Company’s common stock over the most recent period equal to the expected term of the options as of the date the options are granted. The expected term assumptions are based on the Company’s 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. Weighted-average assumptions used to estimate the grant date fair values for stock options granted in the three and nine month periods ended September 30, 2010 and 2009 follow:
                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2010   2009   2010   2009
Volatility
    N/A       49.53 %     45.98 %     49.90 %
Expected term (in years)
    N/A       4.00       5.00       4.00  
Dividend yield
    N/A       1.39 %     1.35 %     1.67 %
Risk-free interest rate
    N/A       2.27 %     2.47 %     1.67 %
     Stock option activity from January 1, 2010 to September 30, 2010 follows:
                 
            Weighted  
            Average  
    Underlying     Exercise  
    Shares     Price  
Outstanding at January 1, 2010
    6,841,770      $ 20.17  
Granted
    1,016,250      $ 14.85  
Exercised
    (33,868 )    $ 8.56  
Cancelled
    (10,000 )    $ 13.17  
Expired
    (77,000 )    $ 19.46  
 
           
Outstanding at September 30, 2010
    7,737,152      $ 19.54  
 
           
Exercisable at September 30, 2010
    5,930,096      $ 20.86  
 
           
     Restricted Stock. For all restricted stock awards to date, shares of common stock were issued when the awards were made. Non-vested shares are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Non-forfeitable dividends are paid on non-vested shares of restricted stock. For restricted stock awards made prior to 2008, the Company uses the “graded-vesting” attribution method to recognize periodic compensation cost over the vesting period. For restricted stock awards made in 2008 and thereafter, the Company uses the straight-line method to recognize periodic compensation cost over the vesting period.
     Restricted stock activity from January 1, 2010 to September 30, 2010 follows:
                 
            Weighted  
            Average  
            Grant Date  
    Shares     Fair Value  
Non-vested restricted stock outstanding at January 1, 2010
    1,231,901      $ 21.67  
Granted
    645,950      $ 14.27  
Vested
    (713,329 )    $ 23.64  
Forfeited
    (54,128 )    $ 22.08  
 
           
Non-vested restricted stock outstanding at September 30, 2010
    1,110,394      $ 16.08  
 
           
     Restricted Stock Units. For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions. Non-forfeitable cash dividend equivalents are paid on non-vested restricted stock units.
     Restricted stock unit activity from January 1, 2010 to September 30, 2010 follows:
                 
            Weighted  
            Average  
            Grant Date  
    Shares     Fair Value  
Non-vested restricted stock units outstanding at January 1, 2010
    16,167      $ 26.81  
Granted
    9,000      $ 13.81  
Vested
    (7,333 )    $ 28.08  
Forfeited
         $  
 
           
Non-vested restricted stock units outstanding at September 30, 2010
    17,834      $ 19.73  
 
           
     Performance Unit Awards. On April 28, 2009, the Company granted cash-settled performance unit awards to certain executive officers (the “2009 Performance Units”). The 2009 Performance Units provide for those executive officers to receive a cash payment upon the achievement of certain performance goals established by the Company during a specified period. The performance period for the 2009 Performance Units is the period from April 1, 2009 through March 31, 2012, but can extend through March 31, 2014 in certain circumstances. The performance goals for the 2009 Performance Units are tied to the Company’s total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee of the Board of Directors. These goals are considered to be market conditions under the relevant accounting standards and the market conditions are factored into the determination of the fair value of the performance units. Generally, the recipients will receive a base payment if the Company’s total shareholder return is positive and, when compared to the peer group, is at or above the 25th percentile but less than the 50th percentile, two times the base if at or above the 50th percentile but less than the 75th percentile, and four times the base if at the 75th percentile or higher. The total base amount with respect to the 2009 Performance Units is approximately  $1.7 million. As the 2009 Performance Units are to be settled in cash at the end of the performance period, the Company’s pro-rated obligation is measured at estimated fair value at the end of each reporting period using a Monte Carlo simulation model. As of September 30, 2010 this pro-rated obligation was approximately  $1.7 million.
     On April 27, 2010, the Company granted stock-settled performance unit awards to certain executive officers (the “2010 Performance Units”). The 2010 Performance Units provide for those executive officers to receive a grant of shares of stock upon the achievement of certain performance goals established by the Company during a specified period. The performance period for the 2010 Performance Units is the period from April 1, 2010 through March 31, 2013, but can extend through March 31, 2015 in certain circumstances. The performance goals for the 2010 Performance Units are tied to the Company’s total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee of the Board of Directors. These goals are considered to be market conditions under the relevant accounting standards and the market conditions are factored into the determination of the fair value of the performance units. Generally, the recipients will receive a base number of shares if the Company’s total shareholder return is positive and, when compared to the peer group, is at or above the 25th percentile but less than the 50th percentile, two times the base if at or above the 50th percentile but less than the 75th percentile, and four times the base if at the 75th percentile or higher. The grant of shares when achievement is between the 25th and 75th percentile will be determined on a pro-rata basis. The total base number of shares with respect to the 2010 Performance Units is 89,375 shares. Because the 2010 Performance Units are stock-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant. The fair value of the 2010 Performance Units as of the date of grant was approximately  $3.1 million using a Monte Carlo simulation model. This amount will be recognized on a straight-line basis over the performance period. During the three and nine months ended September 30, 2010, the Company recognized approximately  $260,000 and  $520,000, respectively, in expense related to the 2010 Performance Units.
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Property and Equipment
9 Months Ended
Sep. 30, 2010
Property and Equipment [Abstract]
Property and Equipment
5. Property and Equipment
     Property and equipment consisted of the following at September 30, 2010 and December 31, 2009 (in thousands):
                 
    September 30,     December 31,  
    2010     2009  
Equipment
   $ 3,684,115      $ 3,230,737  
Oil and natural gas properties
    102,594       93,354  
Buildings
    56,824       56,563  
Land
    10,291       9,795  
 
           
 
    3,853,824       3,390,449  
Less accumulated depreciation and depletion
    (1,456,606 )     (1,280,047 )
 
           
Property and equipment, net
   $ 2,397,218      $ 2,110,402  
 
           
     During the nine months ended September 30, 2010, the Company sold certain rights to explore and develop zones deeper than depths that it generally targets for certain of the oil and natural gas properties in which it has working interests. The proceeds from this sale were approximately  $22.3 million and the sale resulted in a gain on disposal of  $20.1 million.
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Business Segments
9 Months Ended
Sep. 30, 2010
Business Segments [Abstract]
Business Segments
6. Business Segments
     The Company’s revenues, operating profits and identifiable assets are primarily attributable to three business segments: (i) contract drilling of oil and natural gas wells, (ii) pressure pumping services and (iii) the investment, on a working interest basis, in oil and natural gas properties. Each of these segments represents a distinct type of business. These segments have separate management teams which report to the Company’s chief operating decision maker. The results of operations in these segments are regularly reviewed by the chief operating decision maker for purposes of determining resource allocation and assessing performance. As discussed in Note 2, in January 2010 the Company exited the drilling and completion fluids business which previously was reported as a business segment. Operating results for that business for the three and nine months ended September 30, 2010 and 2009 are presented as discontinued operations in the consolidated statements of operations. Separate financial data for each of our business segments is provided in the table below (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
Revenues:
                               
Contract drilling
   $ 291,597      $ 112,620      $ 743,967      $ 440,359  
Pressure pumping
    81,104       41,687       194,219       113,408  
Oil and natural gas
    6,800       5,690       21,564       15,255  
 
                       
Total segment revenues
    379,501       159,997       959,750       569,022  
Elimination of intercompany revenues (a)
    (838 )     (326 )     (2,497 )     (645 )
 
                       
Total revenues
   $ 378,663      $ 159,671      $ 957,253      $ 568,377  
 
                       
 
                               
Income (loss) before income taxes:
                               
Contract drilling
   $ 41,479      $ (19,911 )    $ 72,279      $ 6,215  
Pressure pumping
    17,586       1,211       28,769       (562 )
Oil and natural gas
    2,465       1,854       8,209       (1,144 )
 
                       
 
    61,530       (16,846 )     109,257       4,509  
Corporate and other
    (9,271 )     (8,641 )     (25,100 )     (30,252 )
Net gain on asset disposals (b)
    250       868       21,940       423  
Interest income
    64       53       1,631       318  
Interest expense
    (6,227 )     (1,448 )     (9,011 )     (2,734 )
Other
    260       228       509       263  
 
                       
Income (loss) from continuing operations before income taxes
   $ 46,606      $ (25,786 )    $ 99,226      $ (27,473 )
 
                       
                 
    September 30,     December 31,  
    2010     2009  
Identifiable assets:
               
Contract drilling
   $ 2,563,883      $ 2,129,567  
Pressure pumping
    246,034       213,094  
Oil and natural gas
    30,991       25,355  
Corporate and other (c)
    156,500       294,136  
 
           
Total assets
   $ 2,997,408      $ 2,662,152  
 
           
 
(a)   Consists of contract drilling intercompany revenues for drilling services provided to the oil and natural gas exploration and production segment.
 
(b)   Net gains or losses associated with the disposal of assets relate to corporate strategy decisions of the executive management group. Accordingly, the related gains or losses have been separately presented and excluded from the results of specific segments.
 
(c)   Corporate and other assets at December 31, 2009 primarily include identifiable assets associated with the Company’s former drilling and completion fluids segment as well as cash on hand, income taxes receivable and certain deferred Federal income tax assets. Corporate assets at September 30, 2010 primarily include cash on hand and certain deferred Federal income tax assets.
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Goodwill
9 Months Ended
Sep. 30, 2010
Goodwill [Abstract]
Goodwill
7. Goodwill
     Goodwill is evaluated at least annually to determine if the fair value of recorded goodwill has decreased below its carrying value. The Company performs this annual evaluation in the fourth quarter of each year. For purposes of impairment testing, goodwill is evaluated at the reporting unit level. The Company’s reporting units for impairment testing have been determined to be its operating segments.
     As of September 30, 2010 and December 31, 2009, the Company had goodwill of  $86.2 million, all within its contract drilling reporting unit. In the event that market conditions weaken, the Company may be required to record an impairment of goodwill in its contract drilling reporting unit in the future, and such impairment could be material.
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Accrued Expenses
9 Months Ended
Sep. 30, 2010
Accrued Expenses [Abstract]
Accrued Expenses
8. Accrued Expenses
     Accrued expenses consisted of the following at September 30, 2010 and December 31, 2009 (in thousands):
                 
    September 30,     December 31,  
    2010     2009  
Salaries, wages, payroll taxes and benefits
   $ 23,929      $ 14,744  
Workers’ compensation liability
    63,660       66,015  
Insurance, other than workers’ compensation
    11,332       11,261  
Sales, use and other taxes
    16,053       10,975  
Other
    10,895       6,613  
 
           
 
   $ 125,869      $ 109,608  
 
           
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Asset Retirement Obligation
9 Months Ended
Sep. 30, 2010
Asset Retirement Obligation [Abstract]
Asset Retirement Obligation
9. Asset Retirement Obligation
     The Company records a liability for the estimated costs to be incurred in connection with the abandonment of oil and natural gas properties in the future. This liability is included in the caption “other” in the liabilities section of the consolidated balance sheet. The following table describes the changes to the Company’s asset retirement obligations during the nine months ended September 30, 2010 and 2009 (in thousands):
                 
    Nine Months Ended  
    September 30,  
    2010     2009  
Balance at beginning of year
   $ 2,955      $ 3,047  
Liabilities incurred
    279       125  
Liabilities settled
    (331 )     (304 )
Accretion expense
    83       89  
Revision in estimated costs of plugging oil and natural gas wells
          (14 )
 
           
Asset retirement obligation at end of period
   $ 2,986      $ 2,943  
 
           
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Long Term Debt
9 Months Ended
Sep. 30, 2010
Long Term Debt [Abstract]
Long Term Debt
10. Long Term Debt
     On July 2, 2010, the Company entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) among the Company, as borrower, and Wells Fargo Bank, N.A., as administrative agent and lender. The 364-Day Credit Agreement was a committed senior unsecured single draw term loan credit facility that permitted a borrowing of up to  $250 million; provided that the loan must be drawn no later than September 30, 2010 or, if an additional fee was paid, October 30, 2010. The maturity date under the 364-Day Credit Agreement was 364 days after the date on which the closing conditions under the 364-Day Credit Agreement were met. The loan was not drawn as of September 30, 2010 and the 364-Day Credit Agreement expired at that time.
     On August 19, 2010, the Company entered into a Credit Agreement (the “2010 Credit Agreement”) among the Company, as borrower, Wells Fargo Bank, N.A., as administrative agent, letter of credit issuer, swing line lender and lender, and each of the other letter of credit issuer and lender parties thereto. The 2010 Credit Agreement is a committed senior unsecured credit facility that permits aggregate borrowings of up to  $500 million pursuant to a revolving credit facility and a term loan facility. The 2010 Credit Agreement replaced a previous unsecured revolving credit facility.
     The revolving credit facility permits aggregate borrowings of up to, at any time outstanding,  $400 million, which contains a letter of credit facility that, at any time outstanding, is limited to  $150 million and a swing line facility that, at any time outstanding, is limited to  $40 million. Subject to customary conditions, the Company may request that the lenders’ aggregate commitments with respect to the revolving credit facility be increased by up to  $100 million, not to exceed total commitments of  $500 million. The maturity date for the revolving facility is August 19, 2013.
     The term loan facility provided for a loan of  $100 million which was funded on August 19, 2010. The term loan facility is payable in quarterly principal installments commencing November 19, 2010, and the installment amounts vary from 1.25% of the original principal amount for each of the first four quarterly installments, 2.50% of the original principal amount for each of the subsequent eight quarterly installments, 5.00% of the original principal amount for the next subsequent three quarterly installments and the remainder at maturity. The maturity date for the term loan facility is August 19, 2014.
     Loans under the 2010 Credit Agreement bear interest by reference, at the Company’s election, to the LIBOR rate or base rate, provided, that swing line loans bear interest by reference only to the base rate. The applicable margin on LIBOR rate loans varies from 2.75% to 3.75% and the applicable margin on base rate loans varies from 1.75% to 2.75%, in each case determined based upon the Company’s debt to capitalization ratio. As of September 30, 2010, the applicable margin on LIBOR rate loans was 2.75% and the applicable margin on base rate loans was 1.75%. A letter of credit fee is payable by the Company equal to the applicable margin for LIBOR rate loans times the daily amount available to be drawn under outstanding letters of credit. The commitment fee payable to the lenders for the unused portion of the revolving credit facility varies from 0.50% to 0.75% based upon the Company’s debt to capitalization ratio and was 0.50% as of September 30, 2010.
     Each domestic subsidiary of the Company other than any immaterial subsidiary has unconditionally guaranteed all existing and future indebtedness and liabilities of the Company and the other guarantors arising under the 2010 Credit Agreement and other loan documents. Such guarantees also cover obligations of the Company and any subsidiary of the Company arising under any interest rate swap contract with any person while such person is a lender or affiliate of a lender under the 2010 Credit Agreement.
     The 2010 Credit Agreement contains customary representations, warranties, indemnities and affirmative and negative covenants. The 2010 Credit Agreement also requires compliance with two financial covenants. The Company must not permit its debt to capitalization ratio to exceed 45% at any time. The 2010 Credit Agreement generally defines the debt to capitalization ratio as the ratio of (a) total borrowed money indebtedness to (b) the sum of such indebtedness plus consolidated net worth, with consolidated net worth determined as of the last day of the most recently ended fiscal quarter. The Company also must not permit the interest coverage ratio as of the last day of a fiscal quarter to be less than 3.00 to 1.00. The 2010 Credit Agreement generally defines the interest coverage ratio as the ratio of earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the four prior fiscal quarters to interest charges for the same period. The Company does not expect that the restrictions and covenants will impact its ability to operate or react to opportunities that might arise.
     As of September 30, 2010, the Company had  $100 million outstanding under the term loan facility at an interest rate of 3.125% and no borrowings outstanding under the revolving credit facility. The Company had  $41.2 million in letters of credit outstanding at September 30, 2010 and, as a result, had available borrowing capacity of approximately  $359 million at that date.
     Presented below is a schedule of the principal repayment requirements of long-term debt by fiscal year as of September 30, 2010 (in thousands):
         
Year ending December 31,
       
2010
   $ 1,250  
2011
    6,250  
2012
    10,000  
2013
    12,500  
2014
    70,000  
Thereafter
     
 
     
Total
   $ 100,000  
 
     
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Commitments, Contingencies and Other Matters
9 Months Ended
Sep. 30, 2010
Commitments, Contingencies and Other Matters [Abstract]
Commitments, Contingencies and Other Matters
11. Commitments, Contingencies and Other Matters
     As of September 30, 2010, the Company maintained letters of credit in the aggregate amount of  $41.2 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 annually at various times during the year and are typically renewed. As of September 30, 2010, no amounts had been drawn under the letters of credit.
     As of September 30, 2010, the Company had commitments to purchase approximately  $250 million of major equipment.
     The Company is party to various legal proceedings arising in the normal course of its business. The Company does not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations or cash flows.
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Stockholders Equity
9 Months Ended
Sep. 30, 2010
Stockholders' Equity [Abstract]
Stockholders' Equity
12. Stockholders’ Equity
     Cash Dividends — The Company paid cash dividends during the nine months ended September 30, 2009 and 2010 as follows:
                 
    Per Share     Total  
            (in thousands)  
2009:
               
Paid on March 31, 2009
   $ 0.05      $ 7,655  
Paid on June 30, 2009
    0.05       7,675  
Paid on September 30, 2009
    0.05       7,675  
 
           
Total cash dividends
   $ 0.15      $ 23,005  
 
           
                 
    Per Share     Total  
            (in thousands)  
2010:
               
Paid on March 30, 2010
   $ 0.05      $ 7,677  
Paid on June 30, 2010
    0.05       7,706  
Paid on September 30, 2010
    0.05       7,704  
 
           
Total cash dividends
   $ 0.15      $ 23,087  
 
           
     On October 27, 2010, the Company’s Board of Directors approved a cash dividend on its common stock in the amount of  $0.05 per share to be paid on December 30, 2010 to holders of record as of December 15, 2010. The amount and timing of all future dividend payments, if any, is subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of the Company’s credit facilities and other factors.
     On August 1, 2007, the Company’s Board of Directors approved a stock buyback program authorizing purchases of up to  $250 million of the Company’s common stock in open market or privately negotiated transactions. During the nine months ended September 30, 2010, the Company purchased 8,743 shares of its common stock under the program at a cost of approximately  $123,000. As of September 30, 2010, the Company is authorized to purchase approximately  $113 million of the Company’s outstanding common stock under the program. Shares purchased under the program are accounted for as treasury stock.
     The Company purchased 116,819 shares of treasury stock from employees during the nine months ended September 30, 2010. These shares were purchased at fair market value upon the vesting of restricted stock to provide the employees with the funds necessary to satisfy payroll tax withholding obligations. The total purchase price for these shares was approximately  $1.7 million. These purchases were made pursuant to the terms of the Patterson-UTI Energy, Inc. 2005 Long-Term Incentive Plan and not pursuant to the stock buyback program.
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Income Taxes
9 Months Ended
Sep. 30, 2010
Income Taxes [Abstract]
Income Taxes
13. Income Taxes
     On January 1, 2010, the Company converted its Canadian operations from a Canadian branch to a controlled foreign corporation for Federal income tax purposes. Because the statutory tax rates in Canada are lower than those in the United States, this transaction triggered a  $5.1 million reduction in the Company’s deferred tax liabilities, which is being amortized as a reduction to deferred income tax expense over the weighted average remaining useful life of the Canadian assets.
     As a result of the above conversion, the Company’s Canadian assets are no longer subject to United States taxation, provided that the related unremitted earnings are permanently reinvested in Canada. Effective January 1, 2010, the Company has elected to permanently reinvest these unremitted earnings in Canada, and it intends to do so for the foreseeable future. As a result, no deferred United States Federal or state income taxes have been provided on such unremitted foreign earnings, which totaled approximately  $1.7 million as of September 30, 2010.
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Recently Issued Accounting Standards
9 Months Ended
Sep. 30, 2010
Recently Issued Accounting Standards [Abstract]
Recently Issued Accounting Standards
14. Recently Issued Accounting Standards
     In June 2009, the FASB issued a new accounting standard that amends the accounting and disclosure requirements for the consolidation of variable interest entities. This new standard removes the previously existing exception from applying consolidation guidance to qualifying special-purpose entities and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. Before this new standard, generally accepted accounting principles required reconsideration of whether an enterprise is the primary beneficiary of a variable interest entity only when specific events occurred. This new standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. This new standard became effective for the Company on January 1, 2010. The adoption of this standard did not impact the Company’s consolidated financial statements.
     In October 2009, the FASB issued a new accounting standard that addresses the accounting for multiple-deliverable revenue arrangements to enable vendors to account for deliverables separately rather than as a combined unit. This new standard addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. Existing accounting standards require a vendor to use objective and reliable evidence of fair value for the undelivered items or the residual method to separate deliverables in a multiple-deliverable arrangement. Under the new standard, it is expected that multiple-deliverable arrangements will be separated in more circumstances than under current requirements. The new standard establishes a hierarchy for determining the selling price of a deliverable for purposes of allocating revenue to multiple deliverables. The selling price used will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The new standard must be prospectively applied to all revenue arrangements entered into in fiscal years beginning on or after June 15, 2010 and will be effective for the Company on January 1, 2011. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
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Subsequent Events
9 Months Ended
Sep. 30, 2010
Subsequent Events (Abstract)
Subsequent Events
15. Subsequent Events
     On October 5, 2010, the Company completed an issuance and sale of  $300 million in aggregate principal amount of its 4.97% Series A Senior Notes due October 5, 2020 (the “Notes”) in a private placement. A portion of the proceeds from the Notes were used to repay a  $200 million borrowing on the Company’s revolving credit facility which had been drawn to fund a portion of the acquisition that closed on October 1, 2010 as discussed in Note 3. The Notes are senior unsecured obligations of the Company, which rank equally in right of payment with all other unsubordinated indebtedness of the Company. The Notes are guaranteed on a senior unsecured basis by each of the existing domestic subsidiaries of the Company other than immaterial subsidiaries.
     The Notes bear interest at a rate of 4.97% per annum and were priced at 100% of the principal amount of the Notes. The Company will pay interest on the Notes on April 5 and October 5 of each year commencing on April 5, 2011. The Notes will mature on October 5, 2020. The Notes are prepayable at the Company’s option, in whole or in part, provided that in the case of a partial prepayment, prepayment must be in an amount not less than 5% of the aggregate principal amount of the Notes then outstanding, at any time and from time to time at 100% of the principal amount prepaid, plus accrued and unpaid interest to the prepayment date, plus a “make-whole” premium as specified in the note purchase agreement. The Company must offer to prepay the Notes upon the occurrence of any change of control. In addition, the Company must offer to prepay the Notes upon the occurrence of certain asset dispositions if the proceeds therefrom are not timely reinvested in productive assets. If any offer to prepay is accepted, the purchase price of each prepaid Note is 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the prepayment date.
     The note purchase agreement requires compliance with two financial covenants. The Company must not permit its debt to capitalization ratio to exceed 50% at any time. The note purchase agreement generally defines the debt to capitalization ratio as the ratio of (a) total borrowed money indebtedness to (b) the sum of such indebtedness plus consolidated net worth, with consolidated net worth determined as of the last day of the most recently ended fiscal quarter. The Company also must not permit the interest coverage ratio as of the last day of a fiscal quarter to be less than 2.50 to 1.00. The note purchase agreement generally defines the interest coverage ratio as the ratio for the four prior quarters of EBITDA to interest charges.
     Events of default under the note purchase agreement include failure to pay principal or interest when due, failure to comply with the financial and operational covenants, a cross default event, a judgment in excess of a threshold event, the guaranty agreement ceasing to be enforceable, the occurrence of certain ERISA events, a change of control event and bankruptcy and other insolvency events. If an event of default occurs and is continuing, then holders of a majority in principal amount of the Notes have the right to declare all the Notes then outstanding to be immediately due and payable. In addition, if the Company defaults in payments on any Note, then until such defaults are cured, the holder thereof may declare all the Notes held by it to be immediately due and payable.
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