April 18, 2011

 

Dear Stockholder:

 

We cordially invite you to attend Patterson-UTI Energy, Inc.’s annual stockholders’ meeting. The annual meeting will be held Wednesday, June 8, 2011, at 10:00 a.m., local time, at the Hilton Houston North Hotel, 12400 Greenspoint Drive, Houston, Texas 77060.

 

We are pleased to take advantage of Securities and Exchange Commission rules that allow us to furnish these proxy materials and our annual report primarily over the Internet. We believe that posting these materials on the Internet enables us to provide stockholders with the information that they need quickly, while lowering our costs of printing and delivery and conserving natural resources. We encourage you to vote via the Internet and follow the links to our proxy statement and annual report, which are both available at www.proxyvote.com.

 

For those stockholders who have elected to receive their proxy materials in the mail, please review our proxy statement and annual report and vote via the Internet, by telephone or using your proxy card.

 

Your vote is important to us. Please review your proxy materials carefully and send in your vote today.

 

Thank you for your support.

 

Sincerely,

 

 

PATTERSON-UTI ENERGY, INC.
450 Gears Road, Suite 500
Houston, Texas 77067

 

 

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 8, 2011

 

 

The 2011 annual meeting of the stockholders of Patterson-UTI Energy, Inc., a Delaware corporation (“Patterson-UTI”), will be held Wednesday, June 8, 2011, at 10:00 a.m., local time, at the Hilton Houston North Hotel, 12400 Greenspoint Drive, Houston, Texas 77060 (the “Meeting”), for the following purposes:

 

 

Stockholders of record at the close of business on April 11, 2011 are entitled to vote at the Meeting and any adjournment or postponement thereof.

 

Your vote is important to us. Whether or not you plan to attend the Meeting in person, we urge you to promptly vote your shares via the Internet, by telephone, or if the accompanying proxy statement was mailed to you, by completing, signing, dating and returning your proxy card as soon as possible in the enclosed postage prepaid envelope.

 

By order of the Board of Directors

 

Seth D. Wexler

General Counsel and Secretary

 

April 18, 2011

PATTERSON-UTI ENERGY, INC.
450 Gears Road, Suite 500
Houston, Texas 77067

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 8, 2011

 

GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

 

The Board of Directors (the “Board” or “Board of Directors”) of Patterson-UTI Energy, Inc., a Delaware corporation (“Patterson-UTI”), has made these proxy materials available to you on the Internet, or, upon your request has delivered printed versions of these materials to you by mail beginning on or about April 26, 2011. Patterson-UTI is furnishing this proxy statement in connection with the solicitation by the Board of Directors of proxies to be voted at the 2011 annual meeting of stockholders of Patterson-UTI (the “Meeting”). The Meeting will be held Wednesday, June 8, 2011, at 10:00 a.m., local time, at the Hilton Houston North Hotel, 12400 Greenspoint Drive, Houston, Texas 77060, or at any adjournment thereof. The Notice of Internet Availability of Proxy Materials (the “Notice”) was mailed to each of Patterson-UTI’s stockholders (other than those who previously requested electronic delivery) entitled to vote at the Meeting on or about April 26, 2011.

 

Pursuant to the “notice and access” rules adopted by the Securities and Exchange Commission (the “SEC”), Patterson-UTI has elected to provide stockholders access to its proxy materials over the Internet. Accordingly, Patterson-UTI sent a Notice to all of its stockholders as of the record date. The Notice includes instructions on how to access Patterson-UTI’s proxy materials over the Internet and how to request a printed copy of these materials. In addition, by following the instructions in the Notice, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

 

Choosing to receive your future proxy materials by email will save us the cost of printing and mailing documents to you and will help conserve natural resources. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it.

 

If your shares are registered directly in your name with our transfer agent, Continental Stock Transfer & Trust Company, you are considered the “stockholder of record” with respect to those shares, and the Notice was sent directly to you.

 

If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are the beneficial owner of shares held in “street name,” and the Notice was forwarded to you by that organization. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account.

 

Whether you are a “stockholder of record” or hold your shares in “street name,” you may direct your vote without attending the Meeting in person.

 

If you are a stockholder of record, you may vote by Internet or by telephone by following the instructions on the Notice. If you request printed copies of the proxy materials by mail, you may also vote by signing and submitting your proxy card and returning it by mail. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity.

 

If you are the beneficial owner of shares held in street name, you may be eligible to vote your shares electronically over the Internet or by telephone by following the instructions on the Notice. If you request printed

copies of the proxy materials by mail, you may also vote by signing the voter instruction card provided by your brokerage firm, bank, broker-dealer, or other similar organization and returning it by mail. If you provide specific voting instructions by mail, telephone or the Internet, your shares will be voted by your brokerage firm, bank, broker-dealer, or similar organization as you have directed.

 

Properly submitted proxies received either by mail, Internet, telephone or in person, in time to be counted for the Meeting will be voted as you have directed in your proxy, unless you revoke your proxy in the manner provided below. As to any matter for which you give no direction in your proxy, your shares will be voted as follows:

 

 

If you are a stockholder of record, you may revoke your proxy before the proxy is voted by either:

 

 

If your shares are held in street name, you must obtain a proxy executed in your favor from the stockholder of record (that is, your brokerage firm, bank, broker-dealer or similar organization) to be able to vote at the Meeting.

 

The Board of Directors is making this solicitation. Patterson-UTI’s officers and other employees, without compensation other than regular compensation, may solicit proxies by mail, email, the Internet, telephone, electronic means and personal interview. Patterson-UTI does not intend to retain a proxy solicitation firm to assist in the solicitation of proxies of stockholders, but may do so if circumstances warrant. Patterson-UTI will pay all costs associated with this solicitation.

 

SHARES OUTSTANDING AND VOTING RIGHTS

 

Only stockholders of record of Patterson-UTI’s common stock, $.01 par value per share (the “Common Stock”), at the close of business on April 11, 2011 are entitled to notice of and to vote at the Meeting or any adjournment or postponement thereof. At the close of business on April 11, 2011, there were 154,246,395 shares of Common Stock issued and outstanding. Holders of record of Common Stock on April 11, 2011 will be entitled to one vote per share on all matters to properly come before the Meeting. A list of stockholders entitled to notice of and to vote at the Meeting will be made available during regular business hours at the offices of Patterson-UTI Energy, Inc., 450 Gears Road, Suite 500, Houston, Texas 77067, from May 24, 2011 through June 7, 2011 and at the Meeting for examination by any stockholder for any purpose germane to the Meeting.

 

A quorum is necessary to transact business at the Meeting. A majority of the shares of Common Stock outstanding on April 11, 2011 will constitute a quorum. The shares held by each stockholder who attends the Meeting in person, signs and timely returns the form of proxy or properly votes using the Internet or telephone will be counted for purposes of determining the presence of a quorum at the Meeting.

 

“Broker non-votes” will be considered present at the Meeting but will not be counted to determine the total number of votes cast. Broker non-votes occur when nominees, such as brokerage firms, banks, broker-dealers, or

other similar organizations holding shares on behalf of the beneficial owners, are prohibited from exercising discretionary voting authority for beneficial owners who have not provided voting instructions. If you do not give instructions to your bank, brokerage firm or other agent, the bank, brokerage firm or other agent will nevertheless be entitled to vote your shares of Common Stock in its discretion on “routine matters” and may give or authorize the giving of a proxy to vote the shares of Common Stock in its discretion on such matters. The ratification of an independent registered public accounting firm is generally considered a routine matter, whereas the election of directors, action with respect to incentive plans and the advisory votes on executive compensation and the frequency of such future advisory votes are not considered routine matters. For these reasons, please promptly vote in accordance with the instructions provided by your brokerage firm, bank, broker-dealer, or other similar organization.

 

PROPOSAL NO. 1

 

ELECTION OF DIRECTORS

 

Patterson-UTI’s bylaws provide that the number of members of the Board of Directors shall be fixed either by amendment to the bylaws or by resolution of the Board of Directors. Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Patterson-UTI’s bylaws provide that the affirmative vote of a plurality of the votes cast at the meeting at which a quorum is present is required for the election of directors. Shares as to which a stockholder withholds authority to vote on the election of directors and shares as to which a broker indicates that it does not have discretionary authority to vote on the election of directors will not be counted as voting thereon and will not affect the election of the nominees receiving a plurality of the votes cast.

 

The enclosed form of proxy provides a means for you to either:

 

 

The Board of Directors recommends that you vote “FOR” all of the nominees.  Unless you give contrary instructions in your proxy, your proxy will be voted “FOR” the election of all of the nominees to the Board of Directors. If any nominee should become unable or unwilling to accept nomination or election, the person acting under the proxy will vote for the election of such other person as the Board of Directors may recommend. The Board has no reason, however, to believe that any of the nominees will be unable or unwilling to serve if elected. Abstentions will have no effect with respect to the election of directors. A broker non-vote will be counted for purposes of establishing a quorum, but will not be treated as a vote cast with respect to the election of directors. This will have the effect of reducing the absolute number of votes cast for the election of directors.

 

There are no arrangements or understandings between any person and any of the directors pursuant to which such director was selected as a nominee for election at the Meeting. There are no family relationships among any of the directors or executive officers of Patterson-UTI.

 

Our corporate governance guidelines require that if a director receives in an uncontested election a greater number of “withhold” votes than votes cast “for” his or her election, the Nominating and Corporate Governance Committee of the Board of Directors will undertake a prompt evaluation of the appropriateness of the director’s continued service on the Board of Directors. In performing this evaluation, the Nominating and Corporate Governance Committee will review all factors it deems relevant, including the stated reasons why votes were withheld, the director’s length of service, his or her past contributions to Patterson-UTI and the availability of other qualified candidates. The Nominating and Corporate Governance Committee will then make its recommendation to the Board. The Board of Directors will review the Nominating and Corporate Governance Committee’s recommendation and consider such further factors and information as it deems relevant. The Board of Directors will act on the Nominating and Corporate Governance Committee’s recommendation no later than 90 days following the date of the stockholders’ meeting. If the Board of Directors determines remedial action is appropriate, the director shall promptly take whatever action is requested by the Board. If the director does not promptly take the recommended

remedial action or if the Board of Directors determines that immediate resignation is in the best interests of Patterson-UTI and its stockholders, the Board of Directors may accept the director’s resignation that will have been tendered as follows. Each director will as a condition to his or her appointment or election as a director or nomination as a director agree in writing to comply with the terms of Patterson-UTI’s majority voting policy and provide to the Board of Directors an irrevocable resignation that will be effective upon (i) the failure to receive the required vote at the next annual meeting at which such director faces re-election and (ii) the Board of Directors’ acceptance of such resignation.

 

Set forth below is the name, age, position and a brief description of the business experience during at least the past five years of each of the members of Patterson-UTI’s Board of Directors, as well as specific qualifications, attributes and skills of such member that were identified by the Nominating and Corporate Governance Committee when concluding such member should be nominated to serve on the Board of Directors. Each current member of Patterson-UTI’s Board of Directors is a nominee for election to the Board of Directors.

 

 

When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of Patterson-UTI’s business and structure, the Nominating and Corporate Governance Committee and the Board of Directors focused primarily on the information discussed in each of the directors’ individual biographies set forth below.

 

In particular, with regard to Mr. Buckner, the Board of Directors considered his past and current service as a director of oil and gas companies, as well as his experience, expertise and background with regard to accounting matters, which includes his role as the former chairman of Ernst & Young LLP’s United States energy practice.

 

With regard to Mr. Huff, the Board of Directors considered his background as an executive of publicly traded oilfield services companies and as an owner and manager of a private equity firm and investment firm focused on the oilfield service industry. The Board noted his knowledge and experience in a broad range of oilfield products and services and his current and historical experience in managing operations in both the United States and internationally. The Board also considered Mr. Huff’s expertise and background with regard to accounting and legal matters, which, among other things, provides guidance to Patterson-UTI in assessing its corporate governance structure, policies and procedures.

 

With regard to Mr. Hunt, the Board of Directors considered that his over twenty-five years of experience covering most phases of the upstream oil and natural gas industry in the United States and Canada, including the evaluation of exploration and development programs, oil and natural gas production and pipeline operations, and project development and major production facility construction provides Patterson-UTI with an invaluable perspective of the oil and natural gas industry and its customers. In addition, Mr. Hunt’s many years of senior executive experience leading natural gas distribution, storage and marketing companies provides insight into the management of multi-faceted businesses and the markets for natural gas in North America.

 

With regard to Mr. Peak, the Board of Directors considered his nearly forty years in the energy industry, including in a financial capacity, as well as his current role as the chairman and chief executive officer of a publicly traded oil and gas exploration and production company. This experience and background provides Patterson-UTI with an important perspective into its customers, current industry conditions and expectations of where the oil and natural gas market is headed.

With regard to Mr. Talbott, the Board of Directors considered his more than fifty years of experience in the oil and gas industry, more than thirty of which has been with Patterson-UTI, which provides unique and valuable knowledge of the U.S. land drilling industry and a historical perspective of the cyclical nature of the oil and natural gas industry.

 

With regard to Mr. Berns, the Board of Directors considered his more than twenty-five years of financial, mergers and acquisitions and transactional experience, including over fifteen years in the oil and gas industry. This experience and background, provides perspective on the cyclical nature of the oil and gas industry and allows Mr. Berns to provide valuable direction with respect to Patterson-UTI’s financial affairs, corporate transactions and strategic decisions.

 

With regard to Mr. Siegel, the Board of Directors considered his broad business and legal experience, as well as his expertise with respect to Patterson-UTI’s business. In addition, the Board considered Mr. Siegel’s demonstrated leadership for more than 15 years of both Patterson-UTI and one of its predecessor companies, UTI Energy Corp. In addition, the Board considered Mr. Siegel’s prior leadership experience in other public companies and in the oil services industry, and in numerous other businesses and industries. Mr. Siegel also brings substantial experience and expertise in mergers and acquisitions, capital structure transactions, strategic planning, and board and business management. Mr. Siegel’s broad and deep experience and expertise allows him to provide Patterson-UTI with valuable leadership in all areas of its business endeavors.

 

Mark S. Siegel — Mr. Siegel has served as Chairman of the Board and as a director of Patterson-UTI since May 2001. Mr. Siegel served as Chairman of the Board and as a director of UTI Energy Corp. (“UTI”) from 1995 to May 2001, when UTI merged with and into Patterson-UTI. Mr. Siegel has been President of REMY Investors & Consultants, Incorporated (“REMY Investors”) since 1993. From 1992 to 1993, Mr. Siegel was President, Music Division, Blockbuster Entertainment Corp. From 1988 through 1992, Mr. Siegel was an Executive Vice President of Shamrock Holdings, Inc., a private investment company, and Managing Director of Shamrock Capital Advisors, Incorporated. Mr. Siegel holds a Bachelor of Arts degree from Colgate University and a J.D. from the University of California, Berkeley (Boalt Hall) School of Law.

 

Kenneth N. Berns — Mr. Berns has served as Senior Vice President of Patterson-UTI since April 2003 and as a director of Patterson-UTI since May 2001. Mr. Berns served as a director of UTI from 1995 to May 2001. Mr. Berns has been an executive with REMY Investors since 1994. Mr. Berns holds a Bachelors Degree in Business Administration from San Diego State University and a Masters Degree in Taxation from Golden Gate University.

 

Charles O. Buckner — Mr. Buckner has served as a director of Patterson-UTI since February 2007. Mr. Buckner, a private investor, retired from the public accounting firm of Ernst & Young LLP in 2002 after 35 years of service in a variety of client service and administrative roles, including chairmanship of Ernst & Young’s United States energy practice. He presently serves as a director of Global Industries, Ltd., a marine construction services company with global operations, and Energy Partners, Ltd., a publicly held company with oil and natural gas exploration and production on the continental shelf in the Gulf of Mexico. Mr. Buckner served as a director of Gateway Energy Corporation, a publicly held oil and gas pipeline company from 2008 to 2010, Horizon Offshore, Incorporated, a marine construction services company for the offshore oil and gas industry from 2003 to 2007, and Whittier Energy Corporation, a publicly held company with domestic onshore oil and natural gas exploration and production from 2003 to 2007. Mr. Buckner is a Certified Public Accountant and holds a Bachelor of Business Administration from the University of Texas and a Masters of Business Administration from the University of Houston.

 

Curtis W. Huff — Mr. Huff has served as a director of Patterson-UTI since May 2001 and served as a director of UTI from 1997 to May 2001. Mr. Huff is the co-founder and Managing Partner of Intervale Capital, an oilfield service private equity firm that Mr. Huff created in 2006. Mr. Huff is also the President and Chief Executive Officer of Freebird Investments LLC, a private family office investment company that was created in October 2002. Mr. Huff served as the President and Chief Executive Officer of Grant Prideco, Inc., a provider of drill pipe and other drill stem products, from February 2001 to June 2002. From January 2000 to February 2001, Mr. Huff served as Executive Vice President, Chief Financial Officer and General Counsel of Weatherford International, Inc., one of the world’s largest international oilfield services companies. He served as Senior Vice President and General Counsel of Weatherford from May 1998 to January 2000. Mr. Huff began his professional career in 1983 with the

law firm of Fulbright & Jaworski L.L.P. where he specialized in corporate, securities and merger and acquisition matters. Mr. Huff was made a partner in that firm in 1989 where he served until 1998 when he joined Weatherford. Mr. Huff holds a Bachelor of Arts degree and Juris Doctorate from the University of New Mexico, where he graduated as a member of the order of the coif and cum laude, and a Masters of Law from New York University School of Law.

 

Terry H. Hunt — Mr. Hunt has served as a director of Patterson-UTI since April 2003 and served as a director of UTI from 1994 to May 2001. Mr. Hunt is an energy consultant. Mr. Hunt served as Senior Vice President — Strategic Planning of PPL Corporation, an international energy and utility holding company, from 1998 to 2000. Mr. Hunt served as the President and Chief Executive Officer of Penn Fuel Gas, Inc., a Pennsylvania-based natural gas and propane distribution company, from 1992 to 1999. Previously, Mr. Hunt was President of Carnegie Natural Gas and Apollo Gas Company, both Appalachian natural gas distribution companies. He also previously served in senior management positions in natural gas project and venture development, oil and natural gas exploration and development evaluation and operations and major production facilities construction with Texas Oil & Gas Corp. and Atlantic Richfield. Mr. Hunt holds a Bachelor of Engineering degree from the University of Saskatchewan, Canada and a Masters of Business Administration from Southern Methodist University.

 

Kenneth R. Peak — Mr. Peak has served as a director of Patterson-UTI since November 2000. Mr. Peak has served as Chairman and Chief Executive Officer of Contango Oil & Gas Company since September 1999. Mr. Peak entered the energy industry in 1972 as a commercial banker and has held a variety of financial and executive positions in the oil and gas industry prior to starting Contango in 1999. Mr. Peak served as an officer in the U.S. Navy from 1968 to 1971. Mr. Peak received a Bachelor of Science in Physics from Ohio University in 1967 and a Masters of Business Administration from Columbia University in 1972.

 

Cloyce A. Talbott — Mr. Talbott has served as a director of Patterson-UTI since its incorporation in 1978. Mr. Talbott co-founded Patterson-UTI and has served in various capacities, including as its Chief Executive Officer from 1983 until his retirement from that position in September 2007. He also served as Chairman of the Board from 1983 to May 2001. Mr. Talbott is currently employed as a consultant by Patterson-UTI. Mr. Talbott holds a Bachelor of Science degree in petroleum engineering from Texas Tech University.

 

Board Leadership Structure, Lead Director and Board Role in Risk Oversight

 

The Board evaluates its leadership structure and role in risk oversight on an ongoing basis. The decision on whether to combine or separate the Chairman and Chief Executive Officer (“CEO”) role is determined on the basis of what the Board considers to be best for Patterson-UTI at any given point in time. Patterson-UTI’s current Board leadership structure separates the role of Chairman and CEO.

 

The Board also believes part of an effective Board leadership structure is to have a lead independent director, the “Lead Director.” The Board has appointed Mr. Huff as the Lead Director. The independent directors meet regularly in executive sessions at which only independent directors are present, and the Lead Director chairs those sessions. The Lead Director serves as a liaison between the Chairman and the independent directors, consults with regard to Board and agenda items, and works with the chairpersons of Board committees as appropriate.

 

The Nominating and Corporate Governance Committee and the Board currently believe that the Board’s leadership structure, which includes the separation of the role of CEO and Chairman and the appointment of an independent Lead Director, is appropriate because it, among other things, provides for sufficient independence between the Board and management and for an independent director who provides board member leadership.

 

The Board has adopted Corporate Governance Guidelines, which can be accessed electronically in the “Governance” section of Patterson-UTI’s website at www.patenergy.com. The Guidelines describe one of the Board’s primary responsibilities as overseeing Patterson-UTI’s processes for assessing and managing risks. The Board discharges this responsibility, in part, through regular inquiries from the Chairman of the Board and/or the Lead Director to management, periodic communications from management to the Board of Directors of particular risks and events, and discussions during Board meetings with and without management of general and specific risks to Patterson-UTI.

Meetings and Committees of the Board of Directors

 

The Board of Directors met nine times during the year ended December 31, 2010. Each director attended, in person or by telephone, at least 75% of the aggregate of all meetings held by the Board and meetings of each committee on which such director served. A majority of the members of the Board of Directors are independent within the meaning of the Nasdaq Stock Market, Inc. (“Nasdaq”) listing standards. Specifically, the Board has determined that Messrs. Buckner, Huff, Hunt and Peak are independent within the meaning of the Nasdaq listing standards. In reaching this conclusion, the Board considered that Mr. Huff controls and manages two investment companies, which have interests in oilfield service portfolio companies that, prior to 2010, have supplied parts and equipment to Patterson-UTI in the ordinary course of their businesses consistent with customary terms in the industry. In reaching this conclusion, the Board also considered that Mr. Peak is the Chairman and Chief Executive Officer of a publicly traded independent natural gas and oil company, which has a subsidiary that obtained contract drilling services from Patterson-UTI in the ordinary course of their businesses consistent with customary terms in the industry. The Board has determined that these transactions are not material to such companies, Patterson-UTI or Messrs. Huff or Peak and that such transactions do not affect either director’s independence under applicable rules and regulations.

 

The Board of Directors has established four standing committees, an Executive Committee, an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

 

The Executive Committee, which currently is composed of Messrs. Siegel, Talbott and Berns, has the authority, to the extent permitted by applicable law, to act for the Board in all matters arising between regular or special meetings of the Board of Directors.

 

The Audit Committee members are Messrs. Buckner (chairman), Huff and Hunt, each of whom is independent within the meaning of applicable Securities Exchange Act of 1934, as amended (the “Exchange Act”), rules and within the meaning of the Nasdaq listing standards. The Audit Committee oversees management’s conduct of Patterson-UTI’s accounting and financial reporting process, including review of the financial reports and other financial information provided by Patterson-UTI to the public and government and regulatory bodies, Patterson-UTI’s system of internal accounting, Patterson-UTI’s financial controls, and the annual independent audit of Patterson-UTI’s financial statements and internal control over financial reporting. The Audit Committee also oversees compliance with Patterson-UTI’s codes of conduct and ethics and with legal and regulatory requirements. The Board has determined that Messrs. Buckner and Huff are “audit committee financial experts” within the meaning of applicable SEC rules. The Audit Committee selects the independent registered public accounting firm to audit Patterson-UTI’s books and records and considers and acts upon accounting matters as they arise. The Board of Directors has adopted a written charter for the Audit Committee. The Audit Committee held five meetings during the year ended December 31, 2010. Please see “Audit Committee Report” elsewhere in this proxy statement.

 

The Compensation Committee members are Messrs. Hunt (chairman), Buckner, Huff and Peak, each of whom is independent as defined in the Nasdaq listing standards. Among other things, the Compensation Committee sets and administers the policies that govern the compensation of executive officers and directors of Patterson-UTI. The Board of Directors has adopted a written charter for the Compensation Committee. The Compensation Committee held seven meetings during the year ended December 31, 2010. Please see “Compensation Discussion and Analysis” and “Compensation Committee Report” elsewhere in this proxy statement for further information about the Compensation Committee.

 

The Nominating and Corporate Governance Committee members are Messrs. Huff (chairman), Buckner and Peak, each of whom is independent as defined in the Nasdaq listing standards. The purpose of the Nominating and Corporate Governance Committee is to identify individuals qualified to become Board members, to recommend for selection by the Board director nominees for the next annual meeting of stockholders, to review Patterson-UTI’s Code of Business Conduct, to develop and continually make recommendations with respect to the best corporate governance principles and to oversee the evaluation of the Board and management. The Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee held four meetings during the year ended December 31, 2010.

All of the director nominees are existing directors of Patterson-UTI standing for re-election to the Board of Directors.

 

On behalf of the Board, the Nominating and Governance Committee considers director nominees recommended by Patterson-UTI’s stockholders if the recommendations are made in accordance with all legal requirements, including applicable provisions of Patterson-UTI’s restated certificate of incorporation and bylaws. In accordance with Patterson-UTI’s bylaws, in addition to any other applicable requirements, nominations of persons for election to the Board may be made at a meeting of stockholders only by or at the direction of the Board or by a stockholder who is a stockholder of record on the date of the giving of the notice provided for below and on the record date for the determination of stockholders entitled to vote at such annual meeting and gives timely notice of such nomination in writing to the Secretary of Patterson-UTI. To be timely with respect to the 2012 annual meeting of stockholders, a stockholder’s notice must be delivered to or mailed and received at Patterson-UTI’s principal executive offices not earlier than February 9, 2012 and not later than March 10, 2012; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after June 8, 2012, notice by the stockholder must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or public disclosure of the annual meeting date was made, whichever occurs first.

 

A stockholder’s notice to the Secretary of Patterson-UTI shall set forth:

 

 

Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

 

The Nominating and Corporate Governance Committee determines qualification criteria and procedures for the identification and recruitment of candidates for election to serve as directors of Patterson-UTI. The Nominating and Corporate Governance Committee relies on the knowledge and relationships of Patterson-UTI and its officers and directors, as well as third parties when it deems appropriate, to identify and evaluate nominees for director, including nominees recommended by stockholders. In evaluating a nominee for director, the Nominating and Corporate Governance Committee considers the nominee’s skills, expertise, industry and other knowledge, personal and professional ethics, integrity and values, sound business judgment and willingness to commit sufficient time to the Board and be committed to representing the long-term interests of Patterson-UTI’s stockholders. Although the Nominating and Corporate Governance Committee does not have a stand-alone policy with regard to consideration of diversity in identifying director nominees, it considers diversity in professional background, experience, expertise (including as to financial matters) and perspective (including as to age, gender and ethnicity) with respect to the Board of Directors composition as a whole when evaluating a director nominee.

 

Succession Planning

 

The Board of Directors oversees processes and procedures to provide continuity of well-qualified executive leadership and to assess whether such leadership possesses the skill and talent to execute Patterson-UTI’s long term business strategies. The Board of Directors reviews the succession plan for the Chief Executive Officer and the senior executives tailored to reflect the Board’s standards for executive leadership and Patterson-UTI’s business

strategy and vision. The succession plan addresses (i) both current and long term needs of Patterson-UTI and establishes a process for identifying and assessing potential internal candidates; (ii) periodic review and assessment of readiness: (iii) contingency planning for temporary absences of the Chief Executive Officer due to disability or other unexpected event; and (iv) long term continuity planning for succession to the Chief Executive Officer position.

 

Communication with the Board and its Independent Members

 

Persons may communicate with the Board, or directly with its Chairman, Mr. Siegel, by submitting such communication in writing in care of Chairman of the Board of Directors, Patterson-UTI Energy, Inc., 450 Gears Road, Suite 500, Houston, Texas 77067. Persons may communicate with the independent members of the Board by submitting such communication in writing to the Nominating and Corporate Governance Committee of the Board of Directors of Patterson-UTI Energy, Inc., 450 Gears Road, Suite 500, Houston, Texas 77067.

 

Although Patterson-UTI does not have a formal policy regarding attendance by members of the Board at its annual meetings of stockholders, directors are invited to attend annual meetings of Patterson-UTI stockholders. All of the directors attended the 2010 annual meeting of stockholders with six directors attending in person and one director attending via telephone.

 

Corporate Governance Documents Available on Patterson-UTI’s Website

 

Copies of each of the following documents can be accessed electronically in the “Governance” section of the Patterson-UTI website at www.patenergy.com and in print to any stockholder who requests them from the Secretary of Patterson-UTI:

 

 

PROPOSAL NO. 2

 

APPROVAL OF MATERIAL TERMS OF THE PERFORMANCE CRITERIA
UNDER THE LONG-TERM INCENTIVE PLAN

 

Patterson-UTI’s Board of Directors is seeking stockholder approval of the material terms of the performance goals that may apply to performance-based awards under the Patterson-UTI Energy, Inc. 2005 Long-Term Incentive Plan (the “LTIP”). This approval is necessary to preserve Patterson-UTI’s federal income tax deduction for performance-based compensation paid to certain executive officers under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The Compensation Committee places a strong emphasis on performance-based compensation, which promotes stockholder value by linking the employee’s reward to the achievement of Patterson-UTI’s business strategies and goals. The purposes of the LTIP are to motivate key employees to improve stockholder value by linking a portion of their cash compensation to Patterson-UTI’s financial performance, reward key employees for improving Patterson-UTI’s financial performance and help attract and retain key employees. The Board of Directors believes it would be in the best interests of the stockholders and Patterson-UTI to approve the material terms of the performance criteria under the LTIP.

 

Certain material features of the LTIP are discussed below; however, the description is subject to, and qualified by the full text of the LTIP, attached as Appendix A.

Background

 

Section 162(m) of the Code imposes an annual deduction limit of $1 million on the amount of compensation paid to each of the Chief Executive Officer and the other three highest compensated officers of Patterson-UTI (other than the CFO) as determined on the last day of a tax year. The deduction limit does not apply to performance-based compensation that satisfies the requirements of Section 162(m) of the Code. The requirements of Section 162(m) of the Code for performance-based compensation include shareholder approval of the material terms of the performance goals under which the compensation is paid. The material terms include (1) the employees eligible to receive compensation upon attainment of a goal, (2) the business criteria on which the goals may be based, and (3) the maximum amount payable to an employee upon attainment of a goal.

 

Compensation paid under the LTIP, under appropriate circumstances, is intended to meet the “performance-based compensation” exception under Section 162(m) of the Code, so that Patterson-UTI will be permitted to receive a federal income tax deduction for the payment of this incentive compensation. Performance-based awards under the LTIP may be granted to key employees of Patterson-UTI and its subsidiaries and affiliates, and to non-employee directors of Patterson-UTI.

 

The LTIP was approved by Patterson-UTI stockholders in 2005 and subsequently approved by stockholders and Patterson-UTI’s Board of Directors with respect to subsequent amendments. All references to the LTIP in this discussion include a reference to the LTIP amendments.

 

Performance Criteria

 

If the Compensation Committee determines that Section 162(m) of the Code (see “Federal Income Tax Consequences — Performance-Based Compensation” below) applies (or is likely to apply) to a restricted stock award, performance award or other stock unit award, the lapsing of restrictions on the award and the distribution of cash, shares or other property pursuant to such award, shall be subject to the achievement of one or more objective performance goals established by the Compensation Committee, which shall be based on attaining specified levels in one or more areas, such as: net sales; revenue growth; pre-tax income before allocation of corporate overhead and bonus; earnings per share; operating income or net income; return on stockholders’ equity; attainment of strategic and operational initiatives; appreciation in and/or maintenance of the price of the Common Stock or other publicly-traded securities of Patterson-UTI; market share; gross profits; earnings before taxes or before interest and taxes or before interest, taxes, depreciation, depletion and amortization; comparisons with various stock market indices; improvement in or attainment of expense levels or working capital levels; cash margins; safety records; and rig utilization and rig count growth. Performance goals may be measured solely by reference to Patterson-UTI’s performance or the performance of a subsidiary, division, business segment or business unit of Patterson-UTI, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies, in each case as specified by the Compensation Committee in the award. The Compensation Committee also may adjust performance goals to reflect the impact of specified events, occurrences or transactions, accounting or tax law changes or other extraordinary or nonrecurring events.

 

Administration

 

The LTIP is administered by the Compensation Committee of Patterson-UTI’s Board of Directors, which comprises exclusively non-employee independent directors. The LTIP provides for the granting of incentive stock options (“ISOs”) that are intended to meet the provisions of Section 422 of the Code, and non-incentive stock options (“NQSOs”), as well as other awards, such as tandem and freestanding SARs, restricted stock awards, other stock unit awards, performance shares, performance units and dividend equivalents. Certain awards under the LTIP may be paid in cash or Common Stock, as determined by the Compensation Committee. The Compensation Committee has the exclusive authority to select the participants to whom awards may be granted under the LTIP, and to determine the type, size and terms of each such award. The Compensation Committee also makes all determinations that it decides are necessary or desirable in the interpretation and administration of the LTIP. In addition, the Compensation Committee may, if consistent with applicable rules, regulations and Nasdaq requirements, delegate to a committee of one or more directors or to one or more executive officers the right to grant, cancel and suspend awards to employees who are not directors or executive officers of Patterson-UTI.

General Terms

 

The following describes general terms of the LTIP:

 

 

Options

 

 

SARs

 

 

 

Restricted Stock Awards

 

 

Other Stock Units

 

 

Dividend Equivalent Rights

 

 

 

Performance Awards

 

 

Deferrals

 

 

Effect of Certain Transactions and Change of Control

 

The following describes the effects of certain transactions and a change of control:

 

The Compensation Committee may provide in the terms of an award under the LTIP that, on a change of control as defined in the Plan (or award agreement, if awarded prior to April 26, 2010),

 

 

The Compensation Committee, in its discretion, may determine that, upon a change of control, each option and SAR shall terminate within a specified period of days after notice to the participant, or that with respect to such option or SAR each participant shall receive an amount equal to the excess of the fair market value of such share immediately prior to the occurrence of the change of control over the exercise price per share of such option or SAR. The payment may be made in one or more kinds of stock or property or a combination of stock or property. Further, in the event of changes in the capital or corporate structure of Patterson-UTI due to events such as recapitalization, stock split, merger, spin-off or similar transaction, that affect the shares of Common Stock, the Compensation Committee, in its sole discretion, may determine that it is equitable or appropriate to make adjustments or substitutions to the Plan or outstanding options and awards, including to the number, class, kind and option or exercise price or securities subject to awards.

Prior to April 26, 2010, the LTIP provided that the definition of a change of control of Patterson-UTI would be provided in an individual award agreement granted under the LTIP and that the Board retained the discretion to determine the events that constitute a change of control of Patterson-UTI. After April 26, 2010, the LTIP provides the change of control definition that is currently contained in the LTIP. Furthermore, the Board no longer retains the discretion to designate an event that is not described in the change of control definition as a change of control event.

 

Federal Income Tax Consequences

 

The following discussion summarizes certain federal income tax consequences of the issuance and receipt of awards pursuant to the LTIP under the law as in effect on the date of this proxy statement. The rules governing the tax treatment of such awards are quite technical, so the following discussion of tax consequences is necessarily general in nature and is not complete. In addition, statutory provisions are subject to change, as are their interpretations, and their application may vary in individual circumstances. This summary does not purport to cover all federal employment tax or other federal tax consequences associated with the LTIP, nor does it address state, local, or non-U.S. taxes.

 

ISOs

 

In general, a participant will not recognize income upon the grant or exercise of an ISO. However, if the participant is subject to federal “alternative minimum tax,” the exercise of an ISO will be treated essentially the same as a NQSO for purposes of the alternative minimum tax (see NQSOs, SARs, Performance Award, and Other Stock Unit Award below). Subject to certain exceptions for death or disability, if a participant exercises an ISO more than three months after termination of employment, the exercise of the option will be taxed as the exercise of a NQSO, as described below.

 

The general rule is that gain or loss from the sale or exchange of shares acquired on the exercise of an ISO will be treated as capital gain or loss. However, if shares acquired upon the exercise of an ISO are disposed of within two years from the date of grant or within one year after exercise (a “disqualifying disposition”), the participant generally will recognize ordinary income in the year of disposition in an amount equal to the fair market value of the shares at the time of exercise (or, if less, the amount realized on the disposition of the shares) less the exercise price. Any further gain (or loss) realized by the participant generally will be taxed as short-or long-term capital gain (or loss) depending on the holding period.

 

NQSOs, SARs, Performance Award, and Other Stock Unit Award

 

A participant generally is not required to recognize income on the grant of a NQSO, a SAR, performance award or other stock unit award. Instead, ordinary income generally is required to be recognized on the date the NQSO or SAR is exercised, or in the case of performance awards or other stock unit awards, upon the issuance of shares and/or the payment of cash pursuant to the terms of the award. In general, the amount of ordinary income required to be recognized is, (a) in the case of a NQSO, an amount equal to the excess, if any, of the fair market value of the shares on the exercise date over the exercise price, (b) in the case of a SAR, the fair market value of any shares received upon exercise plus the amount of taxes withheld from such amounts, and (c) in the case of performance awards or other stock unit awards, the amount of cash and/or the fair market value of any shares received in respect thereof, plus the amount of taxes withheld from such amounts.

 

Restricted Common Stock

 

Unless a participant who receives an award of restricted Common Stock makes an election under Section 83(b) of the Code as described below, the participant generally is not required to recognize ordinary income on the award of restricted Common Stock. Instead, on the date the shares vest (i.e., become transferable and no longer subject to forfeiture), the participant will be required to recognize ordinary income in an amount equal to the excess, if any, of the fair market value of the shares on such date over the amount, if any, paid for such shares. If a Section 83(b) election has not been made, any dividends received with respect to restricted Common Stock that are subject at that time to a risk of forfeiture or restrictions on transfer generally will be treated as compensation that is taxable as ordinary income to the recipient. If a participant makes a Section 83(b) election within 30 days of the date of transfer

of the restricted Common Stock, the participant will recognize ordinary income on the date the shares are awarded. The amount of ordinary income required to be recognized is an amount equal to the excess, if any, of the fair market value of the shares on the date of award over the amount, if any, paid for such shares. In such case, the participant will not be required to recognize additional ordinary income when the shares vest. However, if the shares are later forfeited, a loss can only be recognized up to the amount the participant paid, if any, for the shares.

 

Gain or Loss on Sale or Exchange of Shares

 

In general, gain or loss from the sale or exchange of shares granted or awarded under the LTIP will be treated as capital gain or loss, provided that the shares are held as capital assets at the time of the sale or exchange. However, if certain holding period requirements are not satisfied at the time of a sale or exchange of shares acquired upon exercise of an ISO (a “disqualifying disposition,” see above), a participant generally will be required to recognize ordinary income upon such disposition.

 

Deductibility by Patterson-UTI

 

To the extent that a participant recognizes ordinary income in the circumstances described above, Patterson-UTI or its subsidiary for which the participant performs services will be entitled to a corresponding deduction, provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code (see Performance Based Compensation and Parachute Payments below).

 

Performance Based Compensation

 

In general, under Section 162(m) of the Code, remuneration paid by a public corporation to its principal executive officer or its three most highly compensated executive officers (excluding the principal executive officer and the principal financial officer of the corporation), ranked by pay, is not deductible to the extent it exceeds $1 million for any year. Taxable payments or benefits under the LTIP may be subject to this deduction limit. However, under Section 162(m) of the Code, qualifying performance-based compensation, including income from stock options and other performance-based awards that are made under shareholder approved plans and that meet certain other requirements, is exempt from the deduction limitation. The LTIP has been designed so that the Compensation Committee in its discretion may grant qualifying exempt performance-based awards under the LTIP.

 

Parachute Payments

 

Under the so-called “golden parachute” provisions of the Code, the accelerated vesting of stock options and benefits paid under other awards in connection with a change of control of a corporation may be required to be valued and taken into account in determining whether participants have received compensatory payments, contingent on the change of control, in excess of certain limits. If these limits are exceeded, a portion of the amounts payable to the participant may be subject to an additional 20% federal tax and may be nondeductible to the corporation.

 

Withholding

 

Awards under the LTIP may be subject to tax withholding. Where an award results in income subject to withholding, Patterson-UTI may require the participant to remit the withholding amount to Patterson-UTI or cause shares of Common Stock to be withheld or sold in order to satisfy the tax withholding obligations.

 

Section 409A

 

Awards of SARs, performance awards, or other stock unit awards under the LTIP may, in some cases, result in the deferral of compensation that is subject to the requirements of Section 409A of the Code. Generally, if deferrals of these awards fail to meet the requirements of Section 409A of the Code, the compensation payable under these awards will be subject to immediate taxation and tax penalties in the year in which the awards vest. It is the intent of

Patterson-UTI that awards under the LTIP will be structured and administered in a manner that complies with the requirements of Section 409A of the Code.

 

Summary Information Pertaining to all Equity Compensation Plans of Patterson-UTI

 

The following information summarizes as of December 31, 2010 certain information regarding Patterson-UTI’s equity compensation plans. For a more detailed description of the equity compensation plans, see Note 11 of Patterson-UTI’s audited financial statements contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

 

 

 

Additional Information Regarding the LTIP

 

As of April 13, 2011, the closing price of Patterson-UTI’s common stock on the Nasdaq Global Select Market was $28.04 per share. Except for receipt of the option exercise price when and if options are exercised, Patterson-UTI receives no consideration in connection with the award of options or restricted stock under the LTIP. Except with respect to annual grants of restricted stock and stock options awarded to non-employee directors on an annual basis as discussed in the Director Compensation section of this Proxy Statement, Patterson-UTI has not determined the type, number and other terms of awards under the LTIP that will be granted in the future to eligible directors and

nominees, executive officers, officers as a group, or non-officer employees as a group as that determination is subject to the discretion of the Compensation Committee.

 

The Board of Directors recommends a vote “FOR” the approval of the material terms of the performance goals that may apply to performance-based awards under the LTIP. Approval of the material terms of the performance goals that may apply to performance-based awards under the LTIP requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy, and entitled to vote at the Meeting. If you do not vote against or abstain from voting on the performance goals under the LTIP, your proxy will be voted “FOR” approval of the performance goals under the LTIP. Abstentions will be counted as shares entitled to vote on the proposal and will have the same effect as a vote “AGAINST” the proposal. A broker non-vote will be counted for purposes of establishing a quorum, but will not be treated as a share entitled to vote on the proposal. This will have the effect of reducing the absolute number of shares necessary to approve the proposal.

 

PROPOSAL NO. 3

 

ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

In accordance with the recently adopted Section 14A of the Exchange Act, the Board of Directors is asking stockholders to approve a non-binding, advisory resolution on the compensation of Patterson-UTI’s executive officers who are named in the Summary Compensation Table appearing in this proxy statement (the “Named Executive Officers”). The compensation of Patterson-UTI’s Named Executive Officers is described in the “Compensation Discussion and Analysis” section of this proxy statement.

 

The compensation program for the Named Executive Officers is designed to attract and retain highly qualified individuals and to motivate and reward them for performance that benefits Patterson-UTI and its stockholders. The Compensation Committee and the Board of Directors believe that the policies and procedures detailed in the “Compensation Discussion and Analysis” achieve these goals by:

 

 

As a matter of good corporate governance and in accordance with Section 14A of the Exchange Act, the Board of Directors is asking stockholders to approve the following non-binding, advisory resolution at the Meeting:

 

“RESOLVED, that the stockholders of Patterson-UTI Energy, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and other narrative discussion in the Proxy Statement for the 2011 Annual Meeting of Stockholders of the Company.”

 

This advisory resolution, commonly referred to as a “say-on-pay” resolution, is non-binding on the Board of Directors. Although non-binding, the Board of Directors and the Compensation Committee value the views of Patterson-UTI’s stockholders and will review and consider the voting results when (i) evaluating the effectiveness of Patterson-UTI’s compensation policies and practices and (ii) making future compensation decisions for the Named Executive Officers.

The Board of Directors recommends a vote “FOR” the approval of the advisory resolution on executive compensation. Approval of the resolution, on an advisory basis, requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy, and entitled to vote at the Meeting. If you do not vote against or abstain from voting on the advisory resolution, your proxy will be voted “FOR” approval of the advisory resolution. Abstentions will be counted as shares entitled to vote on the proposal and will have the same effect as a vote “AGAINST” the proposal. A broker non-vote will be counted for purposes of establishing a quorum, but will not be treated as a share entitled to vote on the proposal. This will have the effect of reducing the absolute number of shares necessary to approve the proposal.

 

PROPOSAL NO. 4

 

ADVISORY VOTE ON FREQUENCY OF
ADVISORY VOTES ON EXECUTIVE COMPENSATION

 

In accordance with Section 14A of the Exchange Act, the Board of Directors is asking stockholders to vote, on an advisory basis, on whether future advisory votes on the compensation of the Named Executive Officers should occur every year, every two years or every three years. Stockholders may also abstain from casting a vote on this proposal.

 

After careful review and consideration, the Board of Directors, on recommendation of the Compensation Committee, has determined that an advisory vote on the compensation of the Named Executive Officers should take place every year. In making its determination, the Board considered that an annual advisory vote on executive compensation will allow Patterson-UTI’s stockholders to provide their direct and timely feedback on Patterson-UTI’s compensation objectives, policies and practices.

 

This advisory vote on the frequency of future advisory votes on the compensation of the Named Executive Officers is non-binding on the Board. However, the Board of Directors and the Compensation Committee value the views of Patterson-UTI’s stockholders and will take into account the outcome of the voting when determining the frequency of such a vote. Stockholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years or abstain. Stockholders are not being asked to approve or disapprove the Board’s recommendation, but instead to indicate their choice among the frequency options (or to abstain).

 

The Board of Directors recommends a vote “FOR” approval, on an advisory basis, of a vote every year on executive compensation. Approval of the frequency of future advisory votes on executive compensation will be decided by the affirmative vote of a plurality of shares of the Common Stock present in person or by proxy, and entitled to vote at the Meeting. A “plurality” means that the frequency option that receives the greatest number of votes cast will be considered the preference of Patterson-UTI’s stockholders. If you do not vote against or abstain from voting, your proxy will be voted “FOR” approval of, on an advisory basis, a stockholder vote every year on executive compensation. Abstentions and broker non-votes will have no effect on the outcome of this vote.

 

PROPOSAL NO. 5

 

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements and internal control over financial reporting of Patterson-UTI for the fiscal year ending December 31, 2011, and directed that such engagement be submitted to the stockholders of Patterson-UTI for ratification. In recommending ratification by the stockholders of such engagement, the Board of Directors is acting upon the recommendation of the Audit Committee, which has satisfied itself as to PricewaterhouseCoopers LLP’s independence, professional competence and standing. Although ratification by stockholders of the engagement of PricewaterhouseCoopers LLP is not required by Delaware corporate law or Patterson-UTI’s restated certificate of incorporation or bylaws, the Audit Committee believes a decision of this nature should be made with the consideration of Patterson-UTI’s stockholders. If the stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain PricewaterhouseCoopers LLP and may retain that firm or another without re-submitting the matter to our stockholders. Even if the appointment is ratified, the Audit Committee may,

in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in the best interests of Patterson-UTI and its stockholders.

 

It is expected that one or more representatives of PricewaterhouseCoopers LLP will be present at the Meeting and will be given the opportunity to make a statement if they so desire. It also is expected that the representative(s) will be available to respond to appropriate questions from the stockholders.

 

The Board of Directors recommends a vote “FOR” the ratification of PricewaterhouseCoopers LLP as Patterson-UTI’s independent registered public accounting firm. Ratification of the selection of PricewaterhouseCoopers LLP requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy, and entitled to vote at the Meeting. Unless you give contrary instructions in your proxy, your proxy will be voted “FOR” such ratification. Abstentions will be counted as shares entitled to vote on the proposal and will have the same effect as a vote “AGAINST” the proposal. Because the ratification of an independent registered public accounting firm is considered a routine matter, if you do not give instructions to your brokerage firm, bank, broker-dealer, or other similar organization, the brokerage firm, bank, broker-dealer, or other similar organization will nevertheless be entitled to vote your shares in its discretion and may give or authorize the giving of a proxy to vote the shares in its discretion on this proposal.

 

EXECUTIVE OFFICERS

 

Set forth below is the name, age and position followed by a brief description of the business experience during at least the past five years for each executive officer of Patterson-UTI who is not also a member of the Board of Directors.

 

 

Douglas J. Wall — Mr. Wall has served as President and Chief Executive Officer of Patterson-UTI since October 2007. From April through September 2007 he served as Chief Operating Officer of Patterson-UTI. From 2005 to April 2007, Mr. Wall served as Group President, Completion and Production of Baker Hughes Incorporated, an oilfield service company. In that capacity, Mr. Wall was responsible for the combined activities of Baker Oil Tools, Baker Petrolite, Centrilift and ProductionQuest divisions. From 2003 to 2005 he served as President of Baker Oil Tools, a division of Baker Hughes, and from 1997 to 2003 he served as President of Hughes Christensen Company, a division of Baker Hughes. Mr. Wall holds a Bachelor Degree in Economics from the University of Calgary and a Masters of Business Administration in Finance and Marketing from the University of Alberta.

 

John E. Vollmer III — Mr. Vollmer has served as Chief Financial Officer and Treasurer of Patterson-UTI since November 2005 and Senior Vice President — Corporate Development of Patterson-UTI since May 2001. Mr. Vollmer also served as Secretary of Patterson-UTI from November 2005 to February 2007. Mr. Vollmer served as Senior Vice President, Chief Financial Officer, Secretary and Treasurer of UTI from 1998 to May 2001. From 1992 until 1997, Mr. Vollmer served in a variety of capacities at Blockbuster Entertainment, including Senior Vice President — Finance and Chief Financial Officer of Blockbuster Entertainment’s Music Division. Mr. Vollmer holds a Bachelor of Arts in Accounting from Michigan State University.

 

Seth D. Wexler — Mr. Wexler has served as General Counsel and Secretary of Patterson-UTI since August 2009. From March 1998 to August 2009, he specialized in securities law and mergers and acquisitions for the law firm of Fulbright & Jaworski L.L.P., including as a partner of such law firm since January 2007. Mr. Wexler holds a Bachelor of Business Administration in Finance from the University of Texas at Austin, a Juris Doctorate from the University of Houston Law Center and a Masters of Business Administration from the University of Houston.

 

Gregory W. Pipkin — Mr. Pipkin has served as Chief Accounting Officer and Assistant Secretary of Patterson-UTI since August 2007. From June 2006 to August 2007, Mr. Pipkin served as Director of Financial Reporting of

Patterson-UTI. From April 2001 through May 2006, Mr. Pipkin was Controller and Vice President of Accounting and Reporting for Alamosa Holdings, Inc., a publicly traded wireless telecommunications company. Prior to April 2001, Mr. Pipkin was in the practice of public accounting. Mr. Pipkin is a Certified Public Accountant and holds a Bachelor of Business Administration in Accounting from Texas Tech University.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Framework: Overview and Policies

 

Patterson-UTI’s executive compensation philosophy is to (i) link executive compensation with the operational and market performance of the Company and (ii) establish incentives that reward Patterson-UTI’s key executives for their efforts in achieving both short-term tactical and long-term strategic goals. The Compensation Committee (the “Committee”) seeks to offer to the Company’s key executives competitive compensation packages that will permit Patterson-UTI to attract and retain highly qualified individuals and to motivate and reward them for achieving the Company’s goals.

 

The Committee seeks to achieve a proper balance in its compensation program between current and long-term compensation by using a combination of fixed and variable cash for short-term incentives and time-vested equity awards for long-term incentives. In its program, the Committee emphasizes equity-based compensation over cash as a means of aligning the interests of management with the Company’s stockholders.

 

Our compensation policies are designed to take into account the cyclical and volatile nature of our industry, and in particular the impact on our results and operations of sometimes large and unpredictable swings in drilling activity as we experienced in 2009 and early 2010. The Committee believes that Patterson-UTI has a strong management team that works effectively and collaboratively. The Committee has designed our compensation program to foster this effective and collaborative management with shared compensation objectives and rewards.

 

We believe that our management and compensation policies have over the long run delivered superior returns to our stockholders, with total stockholder returns having been in the 67th and 90th percentiles over the past one and three years when measured against our peer group. We have delivered consistent strong returns on assets and equity over our history while maintaining a strong and low leveraged balance sheet.

 

Key Compensation Principles

 

Our compensation structure has historically emphasized the following three key principles:

 

The Use of Low Base Salaries and Higher Variable Cash Compensation Tied to Financial Results

 

The Committee has designed the cash compensation component of our program to be mostly variable by using comparatively low base salaries and higher cash bonuses tied to the Company’s annual earnings before interest, taxes, depreciation and amortization (“EBITDA”). The Committee adopted this program ten years ago and has allocated between 0.6111% and 1% of total EBITDA to an executive management pool that is then allocated among the top executive officers. Our current allocation is potentially 0.80%, which is allocated among Messrs. Siegel, Wall, Vollmer and Berns.

 

The use of lower market-based salaries with higher variable bonuses aligns our executives’ annual cash compensation with our actual financial results. During periods with low earnings, such as we had in 2009, total cash compensation will typically be in the lower quartiles against our peers but reflective of our results. During periods of higher earnings, cash compensation will typically be in the top quartiles and reflective of the Company’s higher cash generation. Accordingly, the Committee has designed our program as a multi-year program that is targeted to provide cash compensation to our top four Named Executive Officers that is in the 50-65th percentile as a group on a full cycle basis with an expectation that over the cycle, stockholder returns will also be within that range.

 

Although there will sometimes be periods where cash compensation is in the higher quartiles and relative stock performance is at a lower quartile or vice versa, this result generally occurs during a period of market change where there exists a difference between market outlook and current activity. A good example of this was the end of 2008

where activity and operating results were strong, but the public market value for land drillers was falling on the expectation of a severe downturn that did occur in 2009.

 

The Committee has generally not changed base compensation for the top Named Executive Officers from year to year to promote the idea that management should not focus on the fixed compensation, and management should expect that variable compensation — tied to the Company’s performance — will be the most significant part of compensation.

 

The Committee has considered in the past the use of more traditional bonus plans tied to annual budgets and performance against budgets and has concluded that with the extreme volatility in our industry those plans would not provide the incentives that the Committee is seeking to achieve and could in fact create incentives to focus only on the short-term. By tying a meaningful portion of the top four Named Executive Officers’ compensation to EBITDA, the Committee believes that their compensation and the stockholders’ interests are especially well aligned.

 

The Committee has for 2011 modified our annual cash compensation plan for our top four Named Executive Officers from 0.6111% of EBITDA to a maximum of 0.80% of EBITDA to allow for the potential for additional payments based on exceptional performance against our strategic objectives. The 2011 plan also provides for a downward adjustment in the EBITDA-based payout for relative underperformance against strategic measures.

 

Emphasis on Equity for Long-term Incentive Compensation

 

The Committee has historically targeted more than 60% of total compensation to be in the form of equity or equity-based compensation. This emphasis on equity-based compensation is aimed at aligning the financial interest of top Named Executive Officers with our stockholders and the total returns provided to stockholders. The Committee believes that by making a large portion of compensation tied to equity, our top Named Executive Officers will generally fully realize the potential benefits of the compensation only if our stockholders also benefit.

 

Over the years the Committee has adjusted the form of the equity incentives provided to our top Named Executive Officers from solely options to a current mix of options, restricted stock and performance units. The Committee believes that this mix allows it to tailor our program to encourage the building of long-term value and, in the case of performance units, achievement of stockholder returns in excess of a peer group.

 

Restricted Stock.  The Committee views restricted stock as additional basic compensation that will provide value only if the executive remains in the employment of the Company during the vesting period, with that value being subject to increases and decreases in value depending on the performance of Patterson-UTI’s stock. The Committee typically targets restricted stock to be approximately 30-40% of the equity compensation.

 

Stock Options.  The issuance of stock options is intended to offer equity incentives that provide value to the executive only if the Company’s stock appreciates. When the Committee grants options to our executives, it considers a number of different factors, including the stock value at the time of grant, the Black Scholes value of the option grant for accounting purposes and prior option grant amounts. In addition to considering the Black Scholes option value, the Committee may also consider other option valuation models and modifications to the Black Scholes model to address situations where historical volatility may not be representative of a normalized market. The high volatility that we have seen in our and other companies’ stock prices since the financial crisis in 2008 has created a situation where the impact of volatility on value needs to be considered as it can skew the calculated value and therefore the perceived value of an executive’s compensation package.

 

Ultimately, the Committee’s decision on the number of options granted in any year will be based on the circumstances at the time and consideration of a variety of factors, with the overriding objective being the expectation of the potential value the option may provide in light of current market prices, where Patterson-UTI is in the business cycle and Patterson-UTI’s long-term value creation objectives.

 

Performance Units.  The Committee added performance units to the mix of equity-based compensation in 2009. The Committee added the performance units in lieu of a portion of restricted stock and options that it would have granted. The use of performance units is intended to tie the top four Named Executive Officers’ compensation to the relative outperformance of Patterson-UTI as an investment relative to its peer group. This component assures

that the value provided to those Named Executive Officers will not be created solely by an increase in stock price due to market conditions, but also requires outperformance.

 

The Committee has considered the potential risks associated with providing a large portion of executive compensation tied to equity. For the following reasons the Committee does not believe that the use of such equity grants creates unreasonable risks. First, the long-term nature of the equity awards and the required vesting periods help minimize the potential of excessive risk taking and actions aimed at short-term stock gains. Second, the combination of different types of equity grants, in particular the use of restricted stock, help offset risks. Finally, the top four Named Executive Officers each have worked with the Company for at least four years and three of them have worked with the Company for more than ten years, and the Committee believes management to be highly ethical and focused on creating true long-term value for stockholders and not just short-term gains. The Board and the Committee monitor and consider risks associated with the Company’s compensation plans.

 

Team Compensation Structure

 

For more than the past ten years our senior executive management has had the philosophy that they operate as a team, with each member being an important part of the team. As a result, they have requested, and the Board and the Committee have agreed, that as a general proposition cash and equity incentive compensation be allocated and shared among the team. Although the allocations have changed over time as a result of changes to the executive management team, the allocations among the existing team have generally remained consistent.

 

When allocating the incentive compensation among the top Named Executive Officers, the Committee currently allocates 2/5.5th to Mr. Siegel, our Executive Chairman, 1.5/5.5th to Mr. Wall, our President and Chief Executive Officer, and 1/5.5th to each of Mr. Vollmer, our Senior Vice President-Corporate Development, Chief Financial Officer and Treasurer, and Mr. Berns, our Senior Vice President, respectively.

 

The Committee believes that the above approach for compensating our top four Named Executive Officers fosters effective decision-making and collaborative efforts in executing Patterson-UTI’s long-term strategic and short-term tactical objectives. This approach has worked well for Patterson-UTI for ten years. In addition, although the Committee will continue to monitor the team compensation approach to make sure the process works in practice, the Committee expects to continue to use this approach in the future.

 

Board and Committee Processes and Grant Policies

 

Committee Review Process

 

The Board of Directors has delegated the management of the Company’s executive compensation programs to the Committee. The Committee meets on a regular basis to consider compensation matters and to review how the Company’s plans and policies work in practice. The Committee currently consists of Messrs. Hunt (chairman), Buckner, Huff and Peak, each of whom is an independent director as defined by the Nasdaq listing standards.

 

Compensation determinations and equity awards by the Committee are conducted through a process that seeks the input from management through Mr. Siegel as well as from outside compensation consultants retained by the Committee. Consultants used by the Committee are independent and are paid on a basic fixed fee structure plus expenses. The Committee has retained Pearl Meyer & Partners as consultant and advisor for executive compensation matters for 2011. The Committee also considers internal budgets, historical data for the Company and its peers, strategic planning updates and other relevant information.

 

The Committee uses the outside consultant reports as a tool for obtaining information on historical compensation and stockholder returns, market trends and peer compensation practices. The Committee further seeks the advice of its consultants to confirm that the final compensation arrangements established by the Committee are reasonable.

 

When considering peer compensation data, the Committee considers data for both individual positions and for the top Named Executive Officers as a whole. The Committee has generally given greater weight to the peer data for the team as a whole versus the individual positions at its peers given the team management approach followed by the Company. The Committee has found that total compensation for its top Named Executive Officers as a group has

typically been around the 50-75th percentile range depending on the year and that under the Company’s team-based approach there has typically been a shift of compensation from the top two Named Executive Officers to the rest of the team.

 

The Company has in recent years used the following peer group for compensation matters: Cameron International Corporation, Diamond Offshore Drilling Inc., Ensco International Inc., FMC Technologies Inc., Helmerich & Payne Inc., Nabors Industries Ltd., National Oilwell Varco Inc., Noble Corp., Pride International, Inc., Rowan Companies Inc., Transocean Ltd. and Weatherford International Ltd. In 2010, the Committee added eight additional companies to the peer group in order to gain a broader perspective on the competitive market place and to include some smaller drilling and service companies in its peer group. The companies added were: Atwood Oceanics, Baker Hughes Incorporated, Basic Energy Services, Inc., Bronco Drilling Company, Inc., Key Energy Services, Inc., Parker Drilling Company, Pioneer Drilling Company, and Unit Corp. BJ Services Company and Smith International, Inc. have also been included in prior years, but will be eliminated from the peer group going forward due to their having been acquired in 2010.

 

Cash Compensation

 

The Committee generally sets base compensation and terms for bonus cash compensation for management in the fourth quarter of the preceding year or in the first quarter of the year in question. The Committee when reviewing cash compensation looks at the total cash compensation received by the executives over a multi-year period as well as the total cash compensation projected for the current year. This approach allows the Committee to look at the cash compensation paid over a full cycle in order to obtain comparable data for benchmarking purposes. The Committee also annually establishes the performance criteria for the cash bonus compensation paid to its executives in order to meet the requirements for the performance-based compensation exception to the limitation on deductions under Section 162(m) of the Internal Revenue Code (as further described elsewhere in this proxy statement). Although a wide range of criteria may be used, the criterion used has historically been the achievement of a threshold EBITDA amount.

 

Equity Compensation

 

The Committee’s practice has generally been to grant any stock options, restricted stock and performance units to executive management at a meeting following the conclusion of Patterson-UTI’s first quarter. This meeting is typically held in conjunction with regular quarterly Board meetings that are held prior to Patterson-UTI’s public release of quarterly earnings information. This timing also allows the Committee to have received market data for prior year grants.

 

The Committee considers a number of factors when determining equity grants, including competitive peer data, prior year grants and current and historical stock prices. The Committee also takes into consideration the advice of its consultants as to peer and market practices on the use and mix of restricted stock, options and performance units.

 

For restricted stock and stock options, these awards are subject to three-year vesting with one-third vesting after the first year and 1/36th of the grant vesting each month over the next two years. The performance units granted in 2010 are to be settled with shares of stock, with the number of shares to be issued based on the Company’s total stockholder return at the end of the third year following the grant relative to the total stockholder return for our peer group of companies. Subject to limited exceptions, no payout will be provided on performance units unless the Company’s relative total stockholder return against its peers is at least at the 25th percentile and the Company has a positive stockholder return.

 

The Company has also adopted the following additional practices regarding its equity grants:

 

 

 

Overview of 2010 Performance and Compensation

 

In 2009, the Patterson-UTI Board of Directors adopted a long-term strategic plan that included: (i) diversifying its customer base and increasing market share, upgrading its rig fleet and providing superior value to its customers in land drilling, (ii) expanding its pressure pumping business, (iii) being nimble both in operations and in strategic decisions, and (iv) providing superior returns to its stockholders.

 

From January 1, 2009 through December 31, 2010, the Company has:

 

 

2010 Accomplishments

 

The oil and gas industry went through significant challenges during 2010. Following the financial crisis in 2008, U.S. drilling activity plummeted in early 2009 by over 50% from its prior highs in October 2008. By 2010 the industry began to recover with the expansion of the natural gas shale plays in the U.S. and an increase in drilling for oil. Drilling processes also changed during this period from being predominately vertical to more than 60% horizontal today. With the change in drilling methods, came a need for higher technology rigs and higher drilling efficiencies.

 

Patterson-UTI’s efforts over the past few years positioned the Company and its rig fleet to take advantage of the change in drilling methods and the need for higher technology rigs. As a result, Patterson-UTI was able to nearly double its consolidated revenue base from $782 million in 2009 to $1.46 billion in 2010 and increase its consolidated EBITDA 124% to $536 million in 2010. During this period, the Company added 19 new rigs, entered into long-term contracts for over 70 rigs and grew its market share to number one in the combined U.S. market in which Patterson-UTI conducts business in terms of operating rigs as of the end of 2010.

 

The Company’s pressure pumping business similarly grew in 2010 to a record $351 million in revenue and $103 million in EBITDA from $161 million in revenues and $28.6 million in EBITDA in 2009. The well-timed acquisition of Key Energy’s pressure pumping business in the fourth quarter of 2010 at a net cost of less than $1,000 per horse power doubled the size of the Company’s second core business and further accelerated the growth of this business segment. This segment is expected to continue to grow and become a greater part of the Company’s overall business.

During 2010, the Company also divested its non-core drilling fluids business and certain oil and gas properties, the proceeds of which were used to grow the Company’s core businesses. The Company also expanded access to capital for expansion in 2010 by completing bank and private placement financings.

 

2010 Compensation

 

Cash Compensation

 

Under the terms of the Company’s cash compensation plan described above, the top four Named Executives Officers earned the following cash payments in respect of 2010. These payments were determined based on the salaries and incentive compensation percentages determined for the named individuals at the beginning of 2010 and were not adjusted. The incentive compensation was calculated by taking the Company’s $536 million in EBITDA and multiplying it by the EBITDA percentages noted below. The Committee had fixed a $200 million minimum EBITDA threshold for 2010, which was exceeded.

 

CASH COMPENSATION

 

 

The maximum amount that can be awarded to an individual under our cash-based incentive plan during a 12-month period is $5,000,000. In order to reach this maximum amount, EBITDA of $2.25 billion in the case of Mr. Siegel, $3.00 billion in the case of Mr. Wall and $4.50 billion in the case of Messrs. Vollmer and Berns would have been needed. The Committee did not establish a target bonus amount. The target bonus amount presented in the Grants of Plan-Based Awards table is calculated for the respective officer based on Patterson-UTI’s actual EBITDA for the fiscal year ended December 31, 2010 and the allocation formula applied to the bonus pool for distribution.

 

Equity-Based Compensation

 

The Company made the following equity-based grants to the top four Named Executive Officers. The grant of restricted stock, options and performance units to such officers were made following the vesting, term and other criteria described above.

 

EQUITY-BASED GRANTS

 

 

 

 

 

The performance units granted in 2010 to the top four Named Executive Officers provide for the issuance of 32,500 shares of Common Stock to Mr. Siegel, 24,375 shares of Common Stock to Mr. Wall and 16,250 shares of Common Stock to each of Messrs. Vollmer and Berns, respectively, if Patterson-UTI’s total stockholder return is at or above the 25th percentile but less than the 50th percentile, two times that number of shares if Patterson-UTI’s total stockholder return is at or above the 50th percentile but less than the 75th percentile and four times that amount if Patterson-UTI’s total stockholder return is 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.

 

Total stockholder return for Patterson-UTI for the 2010 performance unit grants is measured based on $100 invested in Common Stock on the first day of the performance period, with dividends reinvested. The performance period is the period from April 1, 2010 through March 31, 2013, subject to certain exceptions that could extend the performance period up to two additional years. No shares will be issued in respect of the performance units unless Patterson-UTI has positive total stockholder return as of the end of the performance period; except that if during the two-year period ending after the performance period, Patterson-UTI’s total stockholder return for any 30 consecutive day period equals or exceeds 18% on an annualized basis from the beginning of the performance period through the end of such 30 consecutive day period, then shares issued under the grant will be made as set forth above based on Patterson-UTI’s total stockholder return relative to the peer group as of end of the performance period.

 

Total Compensation and Relationship to Performance

 

The Committee considered the advice of Towers Watson when establishing its 2010 compensation program. In doing so, the Committee sought to offer a total compensation package (cash and long-term) for the top four Named Executive Officers as a group that would be between the 50th and 75th percentile. Based on early 2011 proxy data for Patterson-UTI’s peers, the Committee was able to confirm that the compensation provided in 2010 for Patterson-UTI’s top four Named Executive Officers was approximately 70th percentile against its peers. This compensation compares favorably to Patterson-UTI’s 67th percentile total stockholder return performance in 2010 and 90th percentile performance over the past three years.

 

The Committee believes that Patterson-UTI has a strong and cohesive management team and that the compensation policies that it has implemented provide the proper mix of current compensation and long-term incentives for building stockholder value. The Company’s above market performance has supported the use of these policies and align the interest of management with the Company’s stockholders.

 

With respect to the Company’s executive officers other than the top Named Executive Officers, the Committee has historically determined their compensation with a philosophy of using a combination of fixed and variable cash in the form of base salary and discretionary cash bonuses for short-term incentives and time-vested equity awards in the form of restricted stock and/or stock options for long-term incentives. With respect to Mr. Wexler’s compensation for 2010, his incentive compensation was determined at the discretion of the Committee. Mr. Wexler’s non-equity incentive compensation was determined based on the operating performance of Patterson-UTI and his individual performance, and his equity-based, long-term incentive compensation was awarded in the form of restricted stock.

 

Employment and Termination Agreements and Other Matters

 

Retirement Plans

 

Patterson-UTI offers a 401(k) plan to its employees, including its Named Executive Officers. Participants may contribute a portion of their base salary to the 401(k) plan, subject to federal limits. Patterson-UTI makes matching

contributions up to four percent of each participant’s eligible base salary. The Named Executive Officers of Patterson-UTI are eligible to participate in the 401(k) plan on the same basis as other employees. Patterson-UTI does not have any other retirement plan.

 

Perquisites and Personal Benefits

 

No Named Executive Officer received perquisites totaling more than $10,000. Accordingly, the perquisites do not meet the threshold that would require disclosure in the Summary Compensation Table below.

 

Share Ownership Guidelines

 

The Nominating and Corporate Governance Committee has enacted share ownership guidelines applicable to all executive officers and directors of Patterson-UTI. The guidelines require officers and directors to hold at all times, subject to a four year phase-in from the date first elected as an officer or director, at least the following number of shares of Common Stock:

 

 

Each of the Named Executive Officers and Directors was in compliance with these guidelines as of the date of this proxy statement.

 

Change in Control and Severance Agreements

 

Patterson-UTI has entered into change in control agreements with its Named Executive Officers as further described elsewhere in this proxy statement The Company, however, believes that such agreements may under certain circumstances protect the interest of the Company from leaving employment out of concern for the security of their jobs or being unable to concentrate on their work. The Committee believes that the change in control agreements may also help Patterson-UTI to attract and retain new key employees by reducing the personal uncertainty and anxiety that arises from the possibility of a future business combination. Any future change in control or severance agreements will be approved subject to the circumstances existing at the time.

 

Patterson-UTI has entered into written letter agreements with each of Messrs. Siegel, Berns and Vollmer pursuant to which Patterson-UTI has agreed to pay each such person within ten days of the termination of his employment with Patterson-UTI for any reason (including voluntary termination by him), an amount in cash equal to his annual base salary at the time of such termination. Any payment made by Patterson-UTI pursuant to these letter agreements will reduce dollar for dollar any payment owed to such person, if any, pursuant to the change in control agreements discussed above.

 

Section 162(m) Considerations

 

In considering compensation decisions for the executive management of Patterson-UTI, the Committee routinely considers the potential effect of Section 162(m) of the Internal Revenue Code. Section 162(m) imposes a limitation on corporate tax deductions for non-performance based compensation to certain officers that exceeds $1 million that can be taken by a publicly held corporation for compensation paid to certain of its executive officers. While Patterson-UTI does not design its compensation programs for tax purposes, Patterson-UTI does design its plans to be tax efficient for Patterson-UTI where possible. However, the Committee believes that tax deduction limitations should not compromise Patterson-UTI’s ability to establish and maintain appropriate executive compensation programs and reserves the right to award non-deductible compensation.

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee was, during the year ended December 31, 2010, an officer or employee of Patterson-UTI or any of its subsidiaries, or was formerly an officer of Patterson-UTI or any of its subsidiaries, or had any relationships requiring disclosure by Patterson-UTI under Item 404 of Regulation S-K.

 

During the year ended December 31, 2010, none of Patterson-UTI’s executive officers served as (i) a member of the compensation committee (or other Board committee performing equivalent functions) of another entity, one of whose executive officers served on the Compensation Committee, (ii) a director of another entity, one of whose executive officers served on the Compensation Committee, or (iii) a member of the compensation committee (or other Board committee performing equivalent functions) of another entity, one of whose executive officers served as a director of Patterson-UTI.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement required by Item 402(b) of Regulation S-K with management and, based upon such review and discussion, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

Terry H. Hunt, Chairman
Charles O. Buckner
Curtis W. Huff
Kenneth R. Peak

 

The following table sets forth information concerning compensation for the fiscal year ended December 31, 2010 with respect to the Principal Executive Officer, the Principal Financial Officer and the other Named Executive Officers of Patterson-UTI:

 

Summary Compensation Table

 

 

 

 

The following table sets forth information concerning grants of plan-based awards during the fiscal year ended December 31, 2010 to the Named Executive Officers:

 

Grants of Plan-Based Awards

 

 

 

The following table sets forth information concerning outstanding equity awards at December 31, 2010 for the Named Executive Officers:

 

Outstanding Equity Awards
at Fiscal Year-End

 

 

 

The following table sets forth information concerning option exercises and stock awards vested during the fiscal year ended December 31, 2010 for the Named Executive Officers:

 

Option Exercises
and Stock Vested

 

 

 

 

Patterson-UTI provides no pension benefits for any of the Named Executive Officers. None of the Named Executive Officers had any items of nonqualified deferred compensation during 2010. As a result, tables with respect to pension benefits and nonqualified deferred compensation have not been provided.

 

DIRECTOR COMPENSATION

 

The following table sets forth information concerning compensation for the fiscal year ended December 31, 2010 with respect to the directors of Patterson-UTI who are not executive officers:

 

Director Compensation Table

 

 

 

 

Directors who are also employees of Patterson-UTI do not receive compensation for serving as a director or as a member of a committee of the Board of Directors. All directors are reimbursed for reasonable out-of-pocket expenses incurred in connection with serving as a member of the Board of Directors. Each non-employee director receives annual cash compensation of $35,000 and (i) 3,000 shares of restricted stock subject to one-year vesting (subject to acceleration in certain limited situations, including a change of control) and (ii) an option to purchase 10,000 shares of Common Stock at an exercise price equal to the closing price of Common Stock on the grant date. The option has a 10-year term, vests after one-year (subject to acceleration in certain limited situations, including a change of control) and contains a right to exercise for three years following cessation of the holder as a director (but not beyond the 10-year term). Each non-employee director that serves on the Audit Committee or the Compensation Committee receives additional annual cash compensation of $10,000 per committee on which he serves, with the chairman of each such committee receiving $15,000. In March 2010, the Compensation Committee authorized additional annual cash compensation of $20,000 to the Lead Director.

 

CHANGE IN CONTROL ARRANGEMENTS;
INDEMNIFICATION AGREEMENTS; CERTAIN PAYMENTS

 

Patterson-UTI has entered into change in control agreements with Messrs. Siegel, Wall, Berns, Vollmer and Wexler (each agreement, an “Agreement” and collectively, the “Agreements”; and each individual, an “Employee and collectively, the “Employees”). The Agreements were entered into to protect the Employees should a change in control occur, thereby encouraging the Employee to remain in the employ of Patterson-UTI and not be distracted from the performance of his duties to Patterson-UTI by the possibility of a change in control.

 

In the event of a change in control of Patterson-UTI in which an Employee’s employment is terminated by Patterson-UTI other than for cause or by the Employee for good reason, the terms of the Agreements would entitle the Employee to, among other things:

 

 

Each Agreement provides the Employee with a full gross-up payment for any excise taxes imposed on payments and benefits received under the Agreements or otherwise, including other taxes that may be imposed as a result of the gross-up payment.

 

A “change in control” is principally defined by the Agreement as:

 

 

 

The Agreements terminate on the first to occur of:

 

 

All unvested stock options and restricted stock awards held by Named Executive Officers vest upon a change of control as defined by the underlying award agreements. Upon a change in control as defined in the underlying performance unit award grants, Messrs. Wall, Vollmer, Siegel and Berns would receive two times the base payment payable thereunder. All restricted stock and performance unit awards held by Named Executive Officers contain provisions that in the event of termination due to death or disability, the Named Executive Officer would vest in a portion of the award.

 

Patterson-UTI has entered into written letter agreements with each of Messrs. Siegel, Berns and Vollmer pursuant to which Patterson-UTI has agreed to pay each such person within ten days of the termination of his employment with Patterson-UTI for any reason (including voluntary termination by him), an amount in cash equal to his annual base salary at the time of such termination. Any payment made by Patterson-UTI pursuant to these letter agreements will reduce dollar for dollar any payment owed to such person, if any, pursuant to the change in control agreements discussed above.

 

Amounts that each of the Named Executive Officers would be entitled to under the existing Agreements if a change in control had occurred as of December 31, 2010 and the employee’s employment was terminated by Patterson-UTI other than for cause or by the employee for good reason (as defined in the Agreements) are reflected in the following table:

 

 

 

 

 

All restricted stock and performance unit awards held by Named Executive Officers provide that in the event of termination of employment due to death or disability, the Named Executive Officer would vest in a portion of the award. With respect to Mr. Wall, such a termination would have resulted in the accelerated vesting of 17,553 shares of restricted stock with a fair value of $378,267. With respect to Messrs. Vollmer and Berns, such a termination at December 31, 2010 would have resulted in the accelerated vesting of 11,703 shares of restricted stock with a fair value of $252,200. With respect to Mr. Siegel, such a termination at December 31, 2010 would have resulted in the accelerated vesting of 23,407 shares of restricted stock with a fair value of $504,421. With respect to Mr. Wexler, such a termination would have resulted in the accelerated vesting of 5,692 shares of restricted stock with a fair value of $122,663. In the event of termination of employment due to death or disability, the Named Executive Officer would vest in the portion of the performance unit award that was earned at the time of death or disability. This payment would be determined at the end of the performance period and would equal the amount that the Named Executive Officer would have received at that time, pro-rated for the amount of time from the date of grant through the date of death or disability.

 

Patterson-UTI has entered into an indemnification agreement with each of its Named Executive Officers and directors containing provisions that may require Patterson-UTI, among other things, to indemnify such executive officers and directors against liabilities that may arise by reason of their status or service as executive officers or directors (subject to certain exceptions) and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

CERTAIN TRANSACTIONS

 

In connection with the acquisition by REMY Capital Partners III, L.P. (“REMY Capital”) of an ownership interest in UTI Energy Corp. in March 1995, REMY Capital succeeded to a registration rights agreement with UTI. As the successor-in-interest to UTI, Patterson-UTI assumed this registration rights agreement pursuant to which REMY Capital has the right to require Patterson-UTI to use its reasonable efforts to register shares held by REMY Capital under the Securities Act of 1933, as amended. In the event that such rights are exercised in connection with a primary offering proposed by Patterson-UTI (or a secondary offering with which Patterson-UTI agrees to participate), REMY Capital would bear its pro rata share of the costs of the offering, other than legal, accounting and printing costs, all of which Patterson-UTI would bear. In the event that REMY Capital elects to exercise such

rights other than in connection with an offering in which Patterson-UTI participates, REMY Capital would bear all costs of the offering. These rights continue so long as REMY Capital continues to own the Common Stock that it acquired in March 1995. As of the date of this proxy statement, REMY Capital continues to hold 1,000,000 shares of such Common Stock.

 

Mr. Siegel, Chairman of the Board of Patterson-UTI, is President and sole stockholder of REMY Investors, which is the general partner of REMY Capital. Mr. Berns, a director and Senior Vice President of Patterson-UTI, is an executive of REMY Investors.

 

In connection with Mr. Vollmer’s appointment as Chief Financial Officer, Patterson-UTI delivered a letter to Mr. Vollmer dated February 6, 2006 (the “Letter Agreement”). Pursuant to the Letter Agreement, Patterson-UTI agreed, to the extent permitted by law and provided that the applicable accounting restatement pending at that time did not result from Patterson-UTI’s material non-compliance with financial reporting requirements under the federal securities laws as a result of knowing misconduct by Mr. Vollmer:

 

 

Notwithstanding court decisions that Patterson-UTI’s right to make any such claims appears doubtful, Patterson-UTI entered into this agreement because of the breadth of language of Section 304 and the uncertainty as to how the statute may be interpreted by the courts in the future and the importance at the time of Mr. Vollmer’s continued service as Chief Financial Officer.

 

In 2010, Patterson-UTI provided contract drilling services to a subsidiary of a publicly traded independent natural gas and oil company of which Mr. Peak is the Chairman, Chief Executive Officer and approximately fifteen percent owner. Patterson-UTI was paid approximately $1.1 million to perform the services, which were performed in the ordinary course of their businesses and consistent with customary terms in the industry. The Board determined that this transaction was not material to either company and did not affect the director’s independence under applicable rules and regulations. The transaction was pre-approved by the Board of Directors consistent with Patterson-UTI’s related person transaction policy described below.

 

Patterson-UTI has a written policy with respect to related person transactions. In accordance with this policy, related person transactions are reviewed by the Lead Director or the chair of the Audit Committee, each of whom has full delegated authority to approve, disapprove, ratify, amend, terminate or rescind any such transaction, or direct that such transaction be submitted to the Audit Committee or the full Board of Directors for consideration. In approving or disapproving related person transactions, the relevant facts and circumstances of the related person transaction are considered, including whether such transaction is in, or not inconsistent with, the best interest of Patterson-UTI and whether, in appropriate cases, such transaction is on commercial terms at least as favorable to Patterson-UTI as would otherwise be available to or from an unrelated third party or to Patterson-UTI’s employees generally. Related person transactions generally include transactions in an amount that exceeds $50,000 between Patterson-UTI or any of its subsidiaries and an executive officer, a director (or nominee to become director), an immediate family member of any of the foregoing or any entity in which any of the foregoing has a 10% or greater

beneficial ownership interest or in which they are an executive officer, general partner, principal or engaged in a similar position. Certain related person transactions have been pre-approved under the terms of the policy, including, subject to certain exceptions and limitations, the sale to or purchase from Patterson-UTI of goods and services by entities related to directors in the ordinary course of business that are immaterial to Patterson-UTI and with respect to which the director has no direct economic interest or decision making authority.

 

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of April 13, 2011, the stock ownership of (i) the Named Executive Officers, directors and Board nominees, individually, (ii) all directors, Board nominees and executive officers as a group and (iii) each person known by Patterson-UTI to be the beneficial owner of more than 5% of Common Stock.

 

 

 

 

 

 

Except as stated herein, each stockholder has sole voting and investment power with respect to Common Stock included in the above table. There are no arrangements known to Patterson-UTI which may result in a change in control.

 

AUDIT COMMITTEE REPORT

 

The following report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Patterson-UTI filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent Patterson-UTI specifically incorporates this report by reference therein.

 

The Audit Committee has reviewed and discussed the audited financial statements with management and Patterson-UTI’s independent registered public accounting firm.

 

The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard 380, The Auditor’s Communication with those Charged with Governance, as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

The Audit Committee has received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm their independence.

 

Taking the foregoing into consideration, the undersigned Audit Committee members recommended to the Board of Directors that the Board approve the inclusion of Patterson-UTI’s audited financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

 

Audit Committee of the Board of Directors:

 

Charles O. Buckner, Chairman
Curtis W. Huff
Terry H. Hunt

 

PricewaterhouseCoopers Fees for Fiscal Years 2010 and 2009

 

In 2010 and 2009, Patterson-UTI and its subsidiaries incurred fees for services provided relating to (i) professional services rendered for the audit of Patterson-UTI’s annual financial statements, review of quarterly financial statements, and assessment of Patterson-UTI’s internal controls over financial reporting, (ii) professional services rendered for tax compliance, advice and planning, and (iii) products and services provided by PricewaterhouseCoopers LLP.

 

 

The Audit Committee appoints the independent registered public accounting firm. The Audit Committee or Mr. Buckner, as Chairman of the Audit Committee, approves all other engagements of the independent registered public accounting firm in advance. In the event Mr. Buckner approves any such engagement, he discusses such approval with the Audit Committee at its next meeting.

 

“Audit fees” relate to audit services of PricewaterhouseCoopers LLP for fiscal 2010 and 2009 consisting of the examination of Patterson-UTI’s consolidated financial statements, quarterly reviews of Patterson-UTI’s interim financial statements and services to assess Patterson-UTI’s internal control over financial reporting. “Tax fees” include federal, state, local and foreign tax compliance and related matters. “All other fees” consists of an annual subscription fee to a software product. The Audit Committee or Mr. Buckner, as Chairman of the Audit Committee, approved in advance all of the services described above.

The Audit Committee has discussed the non-audit services provided by PricewaterhouseCoopers LLP and the related fees and has considered whether those services and fees are compatible with maintaining auditor independence. The Audit Committee determined that such non-audit services were consistent with the independence of PricewaterhouseCoopers LLP.

 

OTHER MATTERS

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires Patterson-UTI’s officers and directors and persons who own more than 10 percent of a registered class of Patterson-UTI’s equity securities, to file reports of ownership and changes in ownership with the SEC. Each of these persons is required by SEC regulation to furnish Patterson-UTI with copies of Section 16(a) filings. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to Patterson-UTI during 2010 and Forms 5 and amendments thereto furnished to Patterson-UTI with respect to 2010, or a written representation from the reporting person that no Form 5 is required, all filings required to be made by such officers, directors, and beneficial owners of more than 10 percent of a registered class of Patterson-UTI’s common stock were timely made.

 

Other Business

 

As of the date of this proxy statement, management of Patterson-UTI was not aware of any matter to be presented at the Meeting other than as set forth herein. If any other matters are properly brought before the Meeting, however, the shares represented by valid proxies will be voted with respect to such matters in accordance with the judgment of the persons voting them.

 

Stockholder Proposals for 2012 Annual Meeting

 

Proposals or Director Nominations for Inclusion in the Proxy Statement.  Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present proper proposals or director nominations for inclusion in Patterson-UTI’s proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals or director nominations to Patterson-UTI in a timely manner. In order to be included in Patterson-UTI’s proxy statement for the 2012 annual meeting of stockholders, proposals or director nominations from stockholders must be received by Patterson-UTI no later than December 20, 2011, and must otherwise comply with the requirements of Rule 14a-8.

 

Proposals or Director Nominations not Included in the Proxy Statement.  In addition, Patterson-UTI’s bylaws establish an advance notice procedure with regard to stockholder proposals and director nominations not included in Patterson-UTI’s proxy statement. For director nominations not included in Patterson-UTI’s proxy statement, please refer to “Election of Directors — Meetings and Committees of the Board of Directors.” For stockholder proposals to be properly brought before the 2012 annual meeting, by a stockholder, the stockholder must be a stockholder of record on the date of the giving of the notice provided for below and on the record date for the determination of stockholders entitled to vote at such annual meeting and must give timely notice of such business in writing to the Secretary of Patterson-UTI. To be timely with respect to the 2012 annual meeting, a stockholder’s notice must be delivered to or mailed and received at Patterson-UTI’s principal executive offices not earlier than February 9, 2012 and not later than March 10, 2012; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after June 8, 2012, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or public disclosure of the annual meeting date was made, whichever occurs first.

 

A stockholder’s notice to the Secretary of Patterson-UTI shall set forth: