(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2004 | ||
or | ||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Delaware
(State or other jurisdiction of incorporation or organization ) |
75-2504748
(I.R.S. Employer Identification No .) |
4510 Lamesa Highway, Snyder, Texas
(Address of principal executive offices) |
79549
(Zip Code) |
Items 1 and 2. | Business and Properties. |
| Texas, | |
| New Mexico, | |
| Oklahoma, | |
| Louisiana, | |
| Mississippi, | |
| Colorado, | |
| Utah, | |
| Wyoming, and | |
| Western Canada (Alberta, British Columbia and Saskatchewan). |
1
| contract drilling, | |
| pressure pumping services, | |
| drilling and completion fluids services, and | |
| oil and natural gas development, exploration, acquisition and production. |
| the contract drilling segment had operating profits in 2004, 2003 and 2002, | |
| the pressure pumping segment had operating profits in 2004, 2003 and 2002, | |
| the drilling and completion fluids segment had an operating profit in 2004 and operating losses in 2003 and 2002, and | |
| the oil and natural gas segment had operating profits in 2004, 2003 and 2002. |
| 149 in the Permian Basin region (West Texas and Southeastern New Mexico), | |
| 55 in South Texas, | |
| 42 in the Ark-La-Tex region and Mississippi, | |
| 77 in the Mid-Continent region (Oklahoma and North Central Texas), | |
| 21 in the Rocky Mountain region (Colorado, Utah and Wyoming), and | |
| 17 in Western Canada (Alberta, British Columbia and Saskatchewan). |
| engines, | |
| drawworks or hoists, | |
| derricks or masts, | |
| pumps to circulate the drilling fluid, | |
| blowout preventers, | |
| drill string (pipe), and | |
| other related equipment. |
2
| drill pipe, | |
| bits, | |
| replacement parts and other related rig equipment, | |
| fuel, and | |
| qualified personnel, |
| location, depth and anticipated complexity of the well, | |
| on-site drilling conditions, | |
| equipment to be used, | |
| estimated risks involved, | |
| estimated duration of the job, | |
| availability of drilling rigs, and | |
| other factors particular to each proposed well. |
3
Years Ended December 31, | ||||||||||||
Type of Revenues | 2004 | 2003 | 2002 | |||||||||
Daywork
|
88 | % | 83 | % | 82 | % | ||||||
Footage
|
6 | 7 | 11 | |||||||||
Turnkey
|
6 | 10 | 7 |
Years Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Average rigs owned
|
359 | 336 | 323 | |||||||||
Average rigs operating(1)
|
211 | 188 | 126 | |||||||||
Average rig utilization rate
|
59 | % | 56 | % | 39 | % | ||||||
Number of rigs operated
|
259 | 226 | 230 | |||||||||
Number of wells drilled
|
3,534 | 3,017 | 2,012 |
(1) | A rig is operating when it is drilling, being moved, assembled, dismantled or otherwise earning revenue under contract. |
Depth Rating (Ft.) | Mechanical | Electric | |||||||
4,000 to 9,999
|
63 | | |||||||
10,000 to 11,999
|
68 | 2 | |||||||
12,000 to 14,999
|
126 | 7 | |||||||
15,000 to 30,000
|
64 | 31 | |||||||
Totals
|
321 | 40 | |||||||
4
| 23 cement pumper trucks, | |
| 26 fracturing pumper trucks, | |
| 24 nitrogen pumper trucks, | |
| 13 blender trucks, | |
| 12 bulk acid trucks, | |
| 28 bulk cement trucks, | |
| 8 bulk nitrogen trucks, | |
| 35 bulk sand trucks, | |
| 11 connection trucks, and | |
| 3 acid pumper trucks. |
5
Drilling | Completion | |||
barite
|
calcium chloride | |||
bentonite
|
calcium bromide zinc bromide |
As of December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
(In thousands) | |||||||||||||
Proved Reserves:
|
|||||||||||||
Oil (Bbls)
|
1,714 | 1,147 | 1,227 | ||||||||||
Gas (Mcf)
|
8,246 | 5,267 | 6,240 | ||||||||||
Total (BOE)
|
3,088 | 2,025 | 2,267 | ||||||||||
Estimated future net revenues before income taxes
|
$ | 84,952 | $ | 47,873 | $ | 46,016 | |||||||
Present value of estimated future net revenues before income
taxes, discounted at 10%
|
$ | 59,519 | $ | 34,371 | $ | 32,308 | |||||||
Standardized measure of discounted future net cash flows(1)
|
$ | 37,542 | $ | 23,950 | $ | 21,100 |
(1) | For the calculation of standardized measure of discounted future net cash flows, see Note 20 of Notes to Consolidated Financial Statements included as a part of Item 8 of this Report. |
6
Years Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Average net daily production:
|
|||||||||||||
Oil (Bbls)
|
1,071 | 788 | 794 | ||||||||||
Gas (Mcf)
|
7,429 | 5,656 | 5,109 | ||||||||||
Total (BOE)
|
2,309 | 1,731 | 1,646 | ||||||||||
Average sales prices:
|
|||||||||||||
Oil (per Bbl)
|
$ | 39.12 | $ | 30.54 | $ | 25.02 | |||||||
Gas (per Mcf)
|
5.81 | 4.97 | 2.91 | ||||||||||
Average production costs (per BOE)
|
$ | 7.18 | $ | 5.51 | $ | 5.11 |
Productive | |||||||||
Wells | |||||||||
Gross | Net | ||||||||
Oil
|
266 | 53.26 | |||||||
Gas
|
174 | 24.65 | |||||||
Total
|
440 | 77.91 | |||||||
7
Developed | Undeveloped | ||||||||||||||||
Acreage | Acreage | ||||||||||||||||
Location | Gross | Net | Gross | Net | |||||||||||||
Texas | 74,379 | 14,027 | 40,484 | 10,551 | |||||||||||||
Kansas
|
320 | 45 | | | |||||||||||||
Louisiana
|
1,920 | 96 | | | |||||||||||||
New York
|
160 | 131 | | | |||||||||||||
New Mexico
|
19,959 | 3,943 | 23,693 | 3,943 | |||||||||||||
Mississippi
|
2,920 | 668 | 8,366 | 1,840 | |||||||||||||
Oklahoma
|
640 | 19 | | | |||||||||||||
Pennsylvania
|
880 | 129 | | | |||||||||||||
Utah
|
| | 13,292 | 1,994 | |||||||||||||
Total
|
101,178 | 19,058 | 85,835 | 18,328 | |||||||||||||
Lease Acres | |||||||||
Expiring | |||||||||
Gross | Net | ||||||||
Year ending:
|
|||||||||
December 31, 2005
|
29,865 | 5,711 | |||||||
December 31, 2006
|
16,281 | 3,693 | |||||||
December 31, 2007 and later
|
39,689 | 8,924 | |||||||
Total
|
85,835 | 18,328 | |||||||
Developmental Wells | Exploratory Wells | |||||||||||||||||||||||||||||||
Productive | Dry Holes | Productive | Dry Holes | |||||||||||||||||||||||||||||
Gross | Net | Gross | Net | Gross | Net | Gross | Net | |||||||||||||||||||||||||
Year ending:
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||||||||||||||||||||||||||||||||
December 31, 2004
|
22 | 4.55 | | | 10 | 2.01 | 6 | 1.71 | ||||||||||||||||||||||||
December 31, 2003
|
27 | 4.58 | 11 | 2.52 | 12 | 1.99 | 4 | 0.88 | ||||||||||||||||||||||||
December 31, 2002
|
24 | 4.17 | 11 | 2.67 | 6 | 0.56 | 1 | 0.25 |
8
| major integrated oil and natural gas operators, | |
| independent oil and natural gas operators, and | |
| drilling and production purchase programs. |
| drilling of oil and natural gas wells, | |
| containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, | |
| use of underground storage tanks, and | |
| use of underground injection wells. |
9
| owners and operators of sites, and | |
| persons who disposed of or arranged for the disposal of hazardous substances found at sites. |
| the prevention of discharges, including oil and produced water spills, and | |
| liability for drainage into waters. |
| accidents at the work location, | |
| blow-outs, | |
| cratering, |
10
| fires, and | |
| explosions. |
| personal injury or death, | |
| suspension of drilling operations, or | |
| serious damage or destruction of the equipment involved and, in addition to environmental damage, could cause substantial damage to producing formations and surrounding areas. |
| oil or produced water spillage, | |
| natural gas leaks, and | |
| fires. |
| all-risk physical damages, | |
| employers liability, | |
| commercial general liability, and | |
| workers compensation insurance. |
| personal injury, | |
| well disasters, | |
| extensive fire damage, | |
| damage to the environment, or | |
| other hazards. |
| we will be able to maintain the type and amount of coverage that we believe to be adequate at reasonable rates, or | |
| any particular types of coverage will be available. |
11
| office buildings with approximately 34,000 square feet of office space and storage, | |
| a shop facility with approximately 7,000 square feet used for drilling equipment repairs and metal fabrication, | |
| a truck shop facility with approximately 10,000 square feet used to maintain, overhaul and repair our truck fleet, | |
| an engine shop facility with approximately 20,000 square feet used to overhaul and repair the engines that power our drilling rigs, and | |
| an open-ended metal storage facility with approximately 10,000 square feet. |
| Texas, | |
| New Mexico, | |
| Oklahoma, |
12
| Colorado, | |
| Utah, | |
| Wyoming, and | |
| Western Canada. |
| Pennsylvania, | |
| Ohio, | |
| West Virginia, | |
| Kentucky, | |
| Wyoming, and | |
| Tennessee. |
| Texas, | |
| Louisiana, | |
| New Mexico, and | |
| Oklahoma. |
Item 3. | Legal Proceedings. |
Item 4. | Submission of Matters to a Vote of Security Holders. |
13
We are Dependent on the Oil and Natural Gas Industry and Market Prices for Oil and Natural Gas. Declines in Oil and Natural Gas Prices Have Adversely Affected Our Operations. |
| market supply and demand, | |
| international military, political and economic conditions, and | |
| the ability of the Organization of Petroleum Exporting Countries, commonly known as OPEC, to set and maintain production and price targets. |
A General Excess of Operable Land Drilling Rigs Adversely Affects Our Profit Margins Particularly in Times of Weaker Demand. |
14
| movement of drilling rigs from region to region, | |
| reactivation of land-based drilling rigs, or | |
| construction of new drilling rigs. |
Shortages of Drill Pipe, Replacement Parts and Other Related Rig Equipment Adversely Affects Our Operating Results. |
The Various Business Segments in Which We Operate Are Highly Competitive with Excess Capacity which may Adversely Affect Our Operating Results. |
Labor Shortages Adversely Affect Our Operating Results. |
Continued Growth Through Rig Acquisition is Not Assured. |
15
| have sufficient capital resources to complete additional acquisitions, | |
| successfully integrate acquired operations and assets, | |
| effectively manage the growth and increased size, | |
| successfully deploy idle or stacked rigs, | |
| maintain the crews and market share to operate drilling rigs acquired, or | |
| successfully improve our financial condition, results of operations, business or prospects in any material manner as a result of any completed acquisition. |
The Nature of our Business Operations Presents Inherent Risks of Loss that, if not Insured or Indemnified Against, Could Adversely Affect Our Operating Results. |
Violations of Environmental Laws and Regulations Could Materially Adversely Affect Our Operating Results. |
Some of Our Contract Drilling Services are Done Under Turnkey and Footage Contracts, Which are Financially Risky. |
16
Anti-takeover Measures in Our Charter Documents and Under State Law Could Discourage an Acquisition and Thereby Affect the Related Purchase Price. |
17
Item 5. | Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities. |
(a) | Market Information |
High | Low | |||||||
2004:
|
||||||||
First quarter
|
$ | 19.20 | $ | 15.75 | ||||
Second quarter
|
19.56 | 14.52 | ||||||
Third quarter
|
19.88 | 15.69 | ||||||
Fourth quarter
|
20.45 | 17.85 | ||||||
2003:
|
||||||||
First quarter
|
$ | 17.75 | $ | 13.55 | ||||
Second quarter
|
18.49 | 15.90 | ||||||
Third quarter
|
16.14 | 12.58 | ||||||
Fourth quarter
|
16.97 | 12.84 |
(b) | Holders |
(c) | Dividends and Buyback Program |
18
(d) | Securities Authorized for Issuance Under Equity Compensation Plans |
Equity Compensation Plan Information | |||||||||||||
Number of | |||||||||||||
Number of | Securities | ||||||||||||
Securities to | Weighted- | Remaining Available | |||||||||||
be Issued upon | Average Exercise | for Future Issuance | |||||||||||
Exercise of | Price of | under Equity | |||||||||||
Outstanding | Outstanding | Compensation Plans | |||||||||||
Options, | Options, | (Excluding | |||||||||||
Warrants and | Warrants and | Securities Reflected | |||||||||||
Plan Category | Rights | Rights | in Column(a)) | ||||||||||
(a) | (b) | (c) | |||||||||||
Equity compensation plans approved by security holders
|
8,635,720 | $ | 12.64 | 3,482,992 | (1) | ||||||||
Equity compensation plans not approved by security holders(2)
|
1,370,322 | $ | 9.74 | 78,161 | |||||||||
Total
|
10,006,042 | $ | 12.24 | 3,561,153 | |||||||||
(1) | The Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term Incentive Plan, as amended, allows for the grant of restricted shares and performance awards, in addition to stock options and stock appreciation rights, to key employees, officers and directors, which are subject to certain vesting and forfeiture provisions. Of the securities remaining available for future issuance under equity compensation plans approved by security holders in column (c), there are 2,997,992 securities available under this plan. |
(2) | The Amended and Restated Patterson-UTI Energy, Inc. 2001 Long-Term Incentive Plan was approved by the Board of Directors in July 2001. The terms of the Plan provide for grants of stock options, stock appreciation rights, shares of restricted stock and performance awards to eligible employees other than officers and directors. No Incentive Stock Options may be awarded under the Plan. All options are granted with an exercise price equal to or greater than the fair market value of the common stock at the time of grant. The vesting schedule and term are set by the Compensation Committee of the Board of Directors. |
In July 2001, the Board of Directors approved option grants, not included in any of the stock option plans, for two non-employee directors. Each of the two non-employee directors was granted an option to purchase 24,000 shares of our common stock at an exercise price greater than the fair market value of our common stock on the grant date. The options vested in November 2001 and expire in November 2005. As of December 31, 2004, one of these options to purchase 24,000 shares of our common stock was outstanding. |
19
Item 6. | Selected Financial Data. |
Years Ended December 31, | ||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||
(In thousands) | ||||||||||||||||||||||
Income Statement Data:
|
||||||||||||||||||||||
Operating revenues:
|
||||||||||||||||||||||
Contract drilling
|
$ | 809,691 | $ | 639,694 | $ | 410,295 | $ | 839,931 | $ | 512,998 | ||||||||||||
Pressure pumping
|
66,654 | 46,083 | 32,996 | 39,600 | 21,465 | |||||||||||||||||
Drilling and completion fluids
|
90,557 | 69,230 | 69,943 | 94,456 | 32,053 | |||||||||||||||||
Oil and natural gas
|
33,867 | 21,163 | 14,723 | 15,988 | 15,806 | |||||||||||||||||
Total
|
1,000,769 | 776,170 | 527,957 | 989,975 | 582,322 | |||||||||||||||||
Operating costs and expenses:
|
||||||||||||||||||||||
Contract drilling
|
556,869 | 475,224 | 318,201 | 487,343 | 384,840 | |||||||||||||||||
Pressure pumping
|
37,561 | 26,184 | 19,802 | 21,146 | 13,403 | |||||||||||||||||
Drilling and completion fluids
|
76,503 | 61,424 | 60,762 | 80,034 | 26,545 | |||||||||||||||||
Oil and natural gas
|
7,978 | 4,808 | 3,956 | 5,190 | 4,872 | |||||||||||||||||
Depreciation, depletion, amortization and impairment
|
119,395 | 97,998 | 91,216 | 86,159 | 61,464 | |||||||||||||||||
General and administrative
|
32,007 | 27,709 | 26,140 | 28,561 | 22,190 | |||||||||||||||||
Bad debt expense
|
897 | 259 | 320 | 2,045 | 570 | |||||||||||||||||
Merger costs
|
| | | 5,943 | | |||||||||||||||||
Restructuring and other charges
|
| (2,452 | ) | 4,700 | 7,202 | | ||||||||||||||||
Other
|
(1,655 | ) | (2,174 | ) | (538 | ) | (820 | ) | (147 | ) | ||||||||||||
Total
|
829,555 | 688,980 | 524,559 | 722,803 | 513,737 | |||||||||||||||||
Operating income
|
171,214 | 87,190 | 3,398 | 267,172 | 68,585 | |||||||||||||||||
Other income (expense)
|
680 | 2,694 | 803 | (677 | ) | (8,481 | ) | |||||||||||||||
Income before income taxes and cumulative effect of change in
accounting principle
|
171,894 | 89,884 | 4,201 | 266,495 | 60,104 | |||||||||||||||||
Income tax expense
|
63,161 | 32,996 | 1,827 | 102,333 | 22,878 | |||||||||||||||||
Income before cumulative effect of change in accounting principle
|
108,733 | 56,888 | 2,374 | 164,162 | 37,226 | |||||||||||||||||
Cumulative effect of change in accounting principle, net of
related income tax benefit of approximately $287
|
| (469 | ) | | | | ||||||||||||||||
Net income
|
$ | 108,733 | $ | 56,419 | $ | 2,374 | $ | 164,162 | $ | 37,226 | ||||||||||||
20
Years Ended December 31,
2004
2003
2002
2001
2000
(In thousands, except per share amounts)
$
0.65
$
0.35
$
0.02
$
1.07
$
0.26
$
$
$
$
$
$
0.65
$
0.35
$
0.02
$
1.07
$
0.26
$
0.64
$
0.35
$
0.01
$
1.04
$
0.25
$
$
$
$
$
$
0.64
$
0.34
$
0.01
$
1.04
$
0.25
$
0.06
$
$
$
$
166,258
161,272
157,410
152,814
142,414
169,211
164,572
162,504
158,394
149,682
$
1,322,911
$
1,084,114
$
942,823
$
869,642
$
739,898
79,416
1,007,539
819,749
737,731
687,142
481,299
236,957
199,613
167,863
110,172
127,299
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
2004 | 2003 | 2002 | ||||||||||||||||||||||
Contract drilling
|
$ | 809,691 | 81 | % | $ | 639,694 | 82 | % | $ | 410,295 | 78 | % | ||||||||||||
Pressure pumping
|
66,654 | 7 | 46,083 | 6 | 32,996 | 6 | ||||||||||||||||||
Drilling and completion fluids
|
90,557 | 9 | 69,230 | 9 | 69,943 | 13 | ||||||||||||||||||
Oil and natural gas
|
33,867 | 3 | 21,163 | 3 | 14,723 | 3 | ||||||||||||||||||
$ | 1,000,769 | 100 | % | $ | 776,170 | 100 | % | $ | 527,957 | 100 | % | |||||||||||||
21
22
| movement of drilling rigs from region to region, | |
| reactivation of land-based drilling rigs, and | |
| new construction of drilling rigs. |
23
| allowance for doubtful accounts, | |
| total expenses to be incurred on footage and turnkey drilling contracts, | |
| depreciation, depletion, and amortization, | |
| asset impairment, | |
| reserves for self-insured levels of insurance coverages, and | |
| fair values of assets and liabilities assumed. |
24
Year Ended | ||||||||||
December 31, 2004 | ||||||||||
Joint | ||||||||||
Production | Interest | |||||||||
Name | Revenues(1) | Costs(2) | ||||||||
Cloyce A. Talbott
|
$ | 186,971 | $ | 42,313 | ||||||
Anita Talbott(3)
|
76,423 | 22,591 | ||||||||
Jana Talbott, Executrix to the Estate of Steve Talbott(3)
|
11,655 | 2,940 | ||||||||
Stan Talbott(3)
|
9,320 | 4,366 | ||||||||
John Evan Talbott Trust(3)
|
3,124 | 668 | ||||||||
Lisa Beck and Stacy Talbott(3)
|
978,607 | 410,334 | ||||||||
SSI Oil & Gas, Inc.(4)
|
163,584 | 263,123 | ||||||||
IDC Enterprises, Ltd.(5)
|
12,019,230 | 6,462,580 | ||||||||
Subtotal
|
13,448,914 | 7,208,915 | ||||||||
A. Glenn Patterson
|
123,583 | 27,468 | ||||||||
Robert Patterson(6)
|
8,476 | 2,518 | ||||||||
Thomas M. Patterson(6)
|
8,476 | 2,518 | ||||||||
Subtotal
|
140,535 | 32,504 | ||||||||
Jonathan D. Nelson, Chief Financial Officer
|
248,297 | 263,549 | ||||||||
Total
|
$ | 13,837,746 | $ | 7,504,968 | ||||||
(1) | Revenues for production of oil and natural gas, net of state severance taxes. |
(2) | Includes leasehold costs, tangible equipment costs, intangible drilling costs and lease operating expense billed during that period. All joint interest costs have been paid on a timely basis. |
(3) | Anita Talbott is the wife of Cloyce A. Talbott. Stan Talbott, Lisa Beck and Stacy Talbott are Mr. Talbotts adult children. Steve Talbott is the deceased son of Mr. Talbott. John Evan Talbott is Mr. Talbotts grandson. |
(4) | SSI Oil & Gas, Inc. is beneficially owned 50% by Cloyce A. Talbott and directly owned 50% by A. Glenn Patterson. |
25
(5) | IDC Enterprises, Ltd. is 50% owned by Cloyce A. Talbott and 50% owned by A. Glenn Patterson. |
(6) | Robert and Thomas M. Patterson are A. Glenn Pattersons adult children. |
| $222.3 million from operations, | |
| $24.5 million from the exercise of stock options and warrants, and | |
| $3.3 million from the sale of property and equipment. |
| to make capital expenditures for the betterment and refurbishment of our drilling rigs, | |
| for the acquisition and procurement of drilling equipment, | |
| to fund capital expenditures for our pressure pumping and drilling and completion fluids divisions, and | |
| to fund leasehold acquisition and development and exploration of oil and natural gas properties. |
26
Comparison of the years ended December 31, 2004 and 2003 |
Years Ended December 31, | ||||||||||||
Contract Drilling | 2004 | 2003 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Revenues
|
$ | 809,691 | $ | 639,694 | 26.6 | % | ||||||
Direct operating costs
|
$ | 556,869 | $ | 475,224 | 17.2 | % | ||||||
Selling, general and administrative
|
$ | 4,441 | $ | 4,425 | 0.4 | % | ||||||
Depreciation
|
$ | 98,334 | $ | 84,379 | 16.5 | % | ||||||
Operating income
|
$ | 150,047 | $ | 75,666 | 98.3 | % | ||||||
Operating days
|
77,355 | 68,798 | 12.4 | % | ||||||||
Average revenue per operating day
|
$ | 10.47 | $ | 9.30 | 12.6 | % | ||||||
Average direct operating costs per operating day
|
$ | 7.20 | $ | 6.91 | 4.2 | % | ||||||
Number of owned rigs at end of period
|
361 | 343 | 5.2 | % | ||||||||
Average number of rigs owned during period
|
359 | 336 | 6.8 | % | ||||||||
Average rigs operating
|
211 | 188 | 12.2 | % | ||||||||
Rig utilization percentage
|
59 | % | 56 | % | 5.4 | % | ||||||
Capital expenditures
|
$ | 157,916 | $ | 95,175 | 65.9 | % |
1st | 2nd | 3rd | 4th | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
2004:
|
||||||||||||||||
Average natural gas price
|
$ | 5.64 | $ | 6.13 | $ | 5.62 | $ | 6.42 | ||||||||
Average rigs operating
|
197 | 203 | 216 | 229 | ||||||||||||
2003:
|
||||||||||||||||
Average natural gas price
|
$ | 5.91 | $ | 5.70 | $ | 4.88 | $ | 5.29 | ||||||||
Average rigs operating
|
176 | 195 | 192 | 191 |
27
Years Ended December 31, | ||||||||||||
Pressure Pumping | 2004 | 2003 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Revenues
|
$ | 66,654 | $ | 46,083 | 44.6 | % | ||||||
Direct operating costs
|
$ | 37,561 | $ | 26,184 | 43.5 | % | ||||||
Selling, general and administrative
|
$ | 7,234 | $ | 5,683 | 27.3 | % | ||||||
Depreciation
|
$ | 5,112 | $ | 3,774 | 35.5 | % | ||||||
Operating income
|
$ | 16,747 | $ | 10,442 | 60.4 | % | ||||||
Total jobs
|
7,444 | 5,667 | 31.4 | % | ||||||||
Average revenue per job
|
$ | 8.95 | $ | 8.13 | 10.1 | % | ||||||
Average direct operating costs per job
|
$ | 5.05 | $ | 4.62 | 9.3 | % | ||||||
Capital expenditures
|
$ | 17,705 | $ | 10,524 | 68.2 | % |
Years Ended December 31, | ||||||||||||
Drilling and Completion Fluids | 2004 | 2003 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Revenues
|
$ | 90,557 | $ | 69,230 | 30.8 | % | ||||||
Direct operating costs
|
$ | 76,503 | $ | 61,424 | 24.5 | % | ||||||
Selling, general and administrative
|
$ | 7,696 | $ | 7,447 | 3.3 | % | ||||||
Depreciation
|
$ | 2,196 | $ | 2,319 | (5.3 | )% | ||||||
Operating income (loss)
|
$ | 4,162 | $ | (1,960 | ) | N/A | ||||||
Total jobs
|
2,205 | 1,931 | 14.2 | % | ||||||||
Average revenue per job
|
$ | 41.07 | $ | 35.85 | 14.6 | % | ||||||
Average direct operating costs per job
|
$ | 34.70 | $ | 31.81 | 9.1 | % | ||||||
Capital expenditures
|
$ | 1,488 | $ | 912 | 63.2 | % |
28
Years Ended December 31, | ||||||||||||
Oil and Natural Gas Production and Exploration | 2004 | 2003 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Revenues
|
$ | 33,867 | $ | 21,163 | 60.0 | % | ||||||
Direct operating costs
|
$ | 7,978 | $ | 4,808 | 65.9 | % | ||||||
Selling, general and administrative
|
$ | 1,816 | $ | 1,489 | 22.0 | % | ||||||
Depreciation, depletion and impairment
|
$ | 13,309 | $ | 7,082 | 87.9 | % | ||||||
Operating income
|
$ | 10,764 | $ | 7,784 | 38.3 | % | ||||||
Capital expenditures
|
$ | 14,451 | $ | 10,015 | 44.3 | % | ||||||
Average net daily oil production (Bbls)
|
1,071 | 788 | 35.9 | % | ||||||||
Average net daily gas production (Mcf)
|
7,429 | 5,656 | 31.3 | % | ||||||||
Average oil sales price (per Bbl)
|
$ | 39.12 | $ | 30.54 | 28.1 | % | ||||||
Average gas sales price (per Mcf)
|
$ | 5.81 | $ | 4.97 | 16.9 | % |
Years Ended December 31, | ||||||||||||
Corporate and Other | 2004 | 2003 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Selling, general and administrative
|
$ | 10,820 | $ | 8,665 | 24.9 | % | ||||||
Bad debt expense
|
$ | 897 | $ | 259 | 246.3 | % | ||||||
Depreciation
|
$ | 444 | $ | 444 | | % | ||||||
Restructuring and other charges
|
$ | | $ | (2,452 | ) | N/A | ||||||
Other income from operations
|
$ | 1,655 | $ | 2,174 | (23.9 | )% | ||||||
Interest income
|
$ | 1,140 | $ | 1,116 | 2.2 | % | ||||||
Interest expense
|
$ | 695 | $ | 292 | 138.0 | % | ||||||
Other income
|
$ | 235 | $ | 1,870 | (87.4 | )% |
29
Comparison of the years ended December 31, 2003 and 2002 |
Years Ended December 31, | ||||||||||||
Contract Drilling | 2003 | 2002 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Revenues
|
$ | 639,694 | $ | 410,295 | 55.9 | % | ||||||
Direct operating costs
|
$ | 475,224 | $ | 318,201 | 49.3 | % | ||||||
Selling, general and administrative
|
$ | 4,425 | $ | 3,987 | 11.0 | % | ||||||
Depreciation and amortization
|
$ | 84,379 | $ | 80,500 | 4.8 | % | ||||||
Operating income
|
$ | 75,666 | $ | 7,607 | 894.7 | % | ||||||
Operating days
|
68,798 | 45,919 | 49.8 | % | ||||||||
Average revenue per operating day
|
$ | 9.30 | $ | 8.94 | 4.0 | % | ||||||
Average direct operating costs per operating day
|
$ | 6.91 | $ | 6.93 | (0.3 | )% | ||||||
Number of owned rigs at end of period
|
343 | 324 | 5.9 | % | ||||||||
Average number of rigs owned during period
|
336 | 323 | 4.0 | % | ||||||||
Average rigs operating
|
188 | 126 | 49.2 | % | ||||||||
Rig utilization percentage
|
56 | % | 39 | % | 43.6 | % | ||||||
Capital expenditures
|
$ | 95,175 | $ | 68,516 | 38.9 | % |
1st | 2nd | 3rd | 4th | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
2003:
|
||||||||||||||||
Average natural gas price
|
$ | 5.91 | $ | 5.70 | $ | 4.88 | $ | 5.29 | ||||||||
Average rigs operating
|
176 | 195 | 192 | 191 | ||||||||||||
2002:
|
||||||||||||||||
Average natural gas price
|
$ | 2.51 | $ | 3.41 | $ | 3.20 | $ | 4.31 | ||||||||
Average rigs operating
|
117 | 119 | 127 | 140 |
30
Years Ended December 31, | ||||||||||||
Pressure Pumping | 2003 | 2002 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Revenues
|
$ | 46,083 | $ | 32,996 | 39.7 | % | ||||||
Direct operating costs
|
$ | 26,184 | $ | 19,802 | 32.2 | % | ||||||
Selling, general and administrative
|
$ | 5,683 | $ | 4,301 | 32.1 | % | ||||||
Depreciation
|
$ | 3,774 | $ | 2,803 | 34.6 | % | ||||||
Operating income
|
$ | 10,442 | $ | 6,090 | 71.5 | % | ||||||
Total jobs
|
5,667 | 3,796 | 49.3 | % | ||||||||
Average revenue per job
|
$ | 8.13 | $ | 8.69 | (6.4 | )% | ||||||
Average direct operating costs per job
|
$ | 4.62 | $ | 5.22 | (11.5 | )% | ||||||
Capital expenditures
|
$ | 10,524 | $ | 7,399 | 42.2 | % |
Years Ended December 31, | ||||||||||||
Drilling and Completion Fluids | 2003 | 2002 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Revenues
|
$ | 69,230 | $ | 69,943 | (1.0 | )% | ||||||
Direct operating costs
|
$ | 61,424 | $ | 60,762 | 1.1 | % | ||||||
Selling, general and administrative
|
$ | 7,447 | $ | 7,243 | 2.8 | % | ||||||
Depreciation and amortization
|
$ | 2,319 | $ | 2,216 | 4.6 | % | ||||||
Operating loss
|
$ | (1,960 | ) | $ | (278 | ) | 605.0 | % | ||||
Total jobs
|
1,931 | 1,457 | 32.5 | % | ||||||||
Average revenue per job
|
$ | 35.85 | $ | 48.00 | (25.3 | )% | ||||||
Average direct operating costs per job
|
$ | 31.81 | $ | 41.70 | (23.7 | )% | ||||||
Capital expenditures
|
$ | 912 | $ | 1,571 | (41.9 | )% |
31
Years Ended December 31,
Oil and Natural Gas Production and Exploration
2003
2002
% Change
(Dollars in thousands)
$
21,163
$
14,723
43.7
%
$
4,808
$
3,956
21.5
%
$
1,489
$
1,571
(5.2
)%
$
7,082
$
5,251
34.9
%
$
7,784
$
3,945
97.3
%
$
10,015
$
6,357
57.5
%
788
794
(0.8
)%
5,656
5,109
10.7
%
$
30.54
$
25.02
22.1
%
$
4.97
$
2.91
70.8
%
Years Ended December 31, | ||||||||||||
Corporate and Other | 2003 | 2002 | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
Selling, general and administrative
|
$ | 8,665 | $ | 9,038 | (4.1 | )% | ||||||
Bad debt expense
|
$ | 259 | $ | 320 | (19.1 | )% | ||||||
Depreciation
|
$ | 444 | $ | 446 | (0.4 | )% | ||||||
Restructuring and other charges
|
$ | (2,452 | ) | $ | 4,700 | N/A | ||||||
Other income from operations
|
$ | 2,174 | $ | 538 | 304.1 | % | ||||||
Interest income
|
$ | 1,116 | $ | 1,110 | 0.5 | % | ||||||
Interest expense
|
$ | 292 | $ | 532 | (45.1 | )% |
Years Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(Dollars in thousands) | ||||||||||||
Income before income tax
|
$ | 171,894 | $ | 89,884 | $ | 4,201 | ||||||
Income tax expense
|
63,161 | 32,996 | 1,827 | |||||||||
Effective tax rate
|
36.7 | % | 36.7 | % | 43.5 | % |
32
33
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Item 8. | Financial Statements and Supplementary Data. |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
Item 9A. | Controls and Procedures. |
34
Item 9B. | Other Information |
35
Item 10. | Directors and Executive Officers of the Registrant. |
Item 11. | Executive Compensation. |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 13. | Certain Relationships and Related Transactions. |
Item 14. | Principal Accountant Fees and Services. |
36
Item 15. | Exhibits and Financial Statement Schedule. |
2 | .1 | Asset Purchase Agreement among Key Energy Drilling, Inc., Key Energy Drilling Beneficial, L.P., Key Rocky Mountain, Inc., Key Four Corners, Inc. and Key Energy Services, Inc. and Patterson-UTI Drilling Company LP, LLLP and Patterson-UTI Energy, Inc., dated as of December 7, 2004. | ||
3 | .1 | Restated Certificate of Incorporation, as amended (filed August 9, 2004 as Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and incorporated herein by reference). | ||
3 | .2 | Amendment to Restated Certificate of Incorporation, as amended (filed August 9, 2004 as Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and incorporated herein by reference). | ||
3 | .3 | Amended and Restated Bylaws (filed March 19, 2002 as Exhibit 3.2 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference). | ||
4 | .1 | Rights Agreement dated January 2, 1997, between Patterson Energy, Inc. and Continental Stock Transfer & Trust Company (filed January 14, 1997 as Exhibit 2 to the Companys Registration Statement on Form 8-A and incorporated herein by reference). | ||
4 | .2 | Amendment to Rights Agreement dated as of October 23, 2001 (filed October 31, 2001 as Exhibit 3.4 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001 and incorporated herein by reference). | ||
4 | .3 | Restated Certificate of Incorporation, as amended (See Exhibits 3.1 and 3.2). | ||
4 | .4 | Registration Rights Agreement with Bear, Stearns and Co. Inc., dated March 25, 1994, as assigned by REMY Capital Partners III, L.P.(filed March 19, 2002 as Exhibit 4.3 to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference). | ||
10 | .1 | For additional material contracts, see Exhibits 2.1, 4.1, 4.2 and 4.4. | ||
10 | .2 | Patterson-UTI Energy, Inc., 1993 Stock Incentive Plan, as amended (filed March 13, 1998 as Exhibit 10.1 to the Companys Registration Statement on Form S-8 (File No. 333-47917) and incorporated herein by reference).* | ||
10 | .3 | Patterson-UTI Energy, Inc. Non-Employee Directors Stock Option Plan, as amended (filed November 4, 1997 as Exhibit 10.1 to the Companys Registration Statement on Form S-8 (File No. 333-39471) and incorporated herein by reference).* | ||
10 | .4 | Amended and Restated Patterson-UTI Energy, Inc. 2001 Long-Term Incentive Plan (filed November 27, 2002 as Exhibit 4.4 to Post Effective Amendment No. 1 to the Companys Registration Statement on Form S-8 (File No. 333-60470) and incorporated herein by reference).* | ||
10 | .5 | Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term Incentive Plan (filed July 28, 2003 as Exhibit 4.7 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003 and incorporated herein by reference).* |
37
10
.6
Amendment to the Patterson-UTI Energy, Inc. Amended and Restated
1997 Long-Term Incentive Plan (filed August 9, 2004 as
Exhibit 10.7 to the Companys Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2004
and incorporated herein by reference).*
10
.7
Amended and Restated Patterson-UTI Energy, Inc. Non-Employee
Director Stock Option Plan(filed July 28, 2003 as
Exhibit 4.8 to the Companys Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2003
and incorporated herein by reference).*
10
.8
Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee
Stock Option Plan (filed July 25, 2001 as Exhibit 4.4
to Post-Effective Amendment No. 1 to the Companys
Registration Statement on Form S-8 (File
No. 333-60466) and incorporated herein by reference).*
10
.9
1997 Stock Option Plan of DSI Industries, Inc. (filed
July 25, 2001 as Exhibit 4.4 to Post-Effective
Amendment No. 1 to the Companys Registration
Statement on Form S-8 (File No. 333-60470) and
incorporated herein by reference).*
10
.10
Stock Option Agreement dated July 20, 2001 between
Patterson-UTI Energy, Inc. and Kenneth R. Peak (filed
March 19, 2002 as Exhibit 10.9 to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 and incorporated herein by reference).*
10
.11
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Mark S. Siegel (filed
August 9, 2004 as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.12
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Cloyce A. Talbott (filed
August 9, 2004 as Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.13
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and A. Glenn Patterson (filed
August 9, 2004 as Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.14
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Kenneth N. Berns (filed
August 9, 2004 as Exhibit 10.4 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.15
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Jonathan D. Nelson (filed
August 9, 2004 as Exhibit 10.5 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.16
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and John E. Vollmer III
(filed August 9, 2004 as Exhibit 10.6 to the
Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2004 and incorporated
herein by reference).*
10
.17
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Mark S. Siegel (filed on
February 4, 2004 as Exhibit 10.2 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.18
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and A. Glenn Patterson (filed on
February 4, 2004 as Exhibit 10.3 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.19
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Cloyce A. Talbott (filed on
February 4, 2004 as Exhibit 10.4 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.20
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Kenneth N. Berns (filed on
February 4, 2004 as Exhibit 10.5 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.21
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Jonathan D. Nelson (filed on
February 4, 2004 as Exhibit 10.6 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
38
10
.22
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and John E. Vollmer III (filed
on February 4, 2004 as Exhibit 10.7 to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2003 and incorporated herein by
reference).*
10
.23
Form of Letter Agreement regarding termination, effective as of
January 29, 2004, entered into by Patterson-UTI
Energy, Inc. with each of Mark S. Siegel, Kenneth N. Berns and
John E. Vollmer III.*
10
.24
Form of Indemnification Agreement entered into by Patterson-UTI
Energy, Inc. with each of Mark S. Siegel, Cloyce A. Talbott, A.
Glenn Patterson, Kenneth N. Berns, Robert C. Gist, Curtis W.
Huff, Terry H. Hunt, Kenneth R. Peak, Nadine C. Smith, Jonathan
D. Nelson and John E. Vollmer III (filed April 28,
2004 as Exhibit 10.11 to the Companys Annual Report
on Form 10-K, as amended, for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.25
Credit Agreement dated as of December 17, 2004 among
Patterson-UTI Energy, Inc., as the Borrower, Bank of America,
N.A., as administrative agent, L/ C Issuer and a Lender and the
other lenders and agents party thereto (filed on
December 23, 2004 as Exhibit 10.1 to the
Companys Current Report on Form 8-K and incorporated
herein by reference).
10
.26
Summary Description of 2003 Cash Bonus Plan.*
10
.27
Summary Description of Director Compensation.*
14
.1
Patterson-UTI Energy, Inc. Code of Business Conduct and Ethics
for Senior Financial Executives (filed as Exhibit 14.1 to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2003 and incorporated herein by
reference).
21
.1
Subsidiaries of the Registrant.
23
.1
Consent of Independent Registered Public Accounting Firm.
23
.2
Consent of Independent Petroleum Engineer M. Brian
Wallace, P.E.
31
.1
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
31
.2
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
32
.1
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 USC Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* | Management Contract or Compensatory Plan identified as required by Item 15(a)(3) of Form 10-K. |
39
Page | ||||
Report of Independent Registered Public Accounting Firm
|
F-2 | |||
Consolidated Financial Statements:
|
||||
Consolidated Balance Sheets as of December 31, 2004 and 2003
|
F-4 | |||
Consolidated Statements of Income for the years ended
December 31, 2004, 2003 and 2002
|
F-5 | |||
Consolidated Statements of Changes In Stockholders Equity
for the years ended December 31, 2004, 2003 and 2002
|
F-6 | |||
Consolidated Statements of Changes In Cash Flows for the years
ended December 31, 2004, 2003 and 2002
|
F-7 | |||
Notes to Consolidated Financial Statements
|
F-9 |
F-1
F-2
F-3
Table of Contents
PricewaterhouseCoopers LLP
Table of Contents
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
F-19
F-20
F-21
F-22
F-23
F-24
F-25
F-26
F-27
F-28
F-29
F-30
F-31
F-32
F-33
F-34
S-1
Table of Contents
Years Ended December 31,
2004
2003
2002
(In thousand, except per share data)
$
809,691
$
639,694
$
410,295
66,654
46,083
32,996
90,557
69,230
69,943
33,867
21,163
14,723
1,000,769
776,170
527,957
556,869
475,224
318,201
37,561
26,184
19,802
76,503
61,424
60,762
7,978
4,808
3,956
119,395
97,998
91,216
32,007
27,709
26,140
897
259
320
(2,452
)
4,700
(1,655
)
(2,174
)
(538
)
829,555
688,980
524,559
171,214
87,190
3,398
1,140
1,116
1,110
(695
)
(292
)
(532
)
235
1,870
225
680
2,694
803
171,894
89,884
4,201
39,688
15,088
(21,878
)
23,473
17,908
23,705
63,161
32,996
1,827
108,733
56,888
2,374
(469
)
$
108,733
$
56,419
$
2,374
$
0.65
$
0.35
$
0.02
$
$
$
$
0.65
$
0.35
$
0.02
$
0.64
$
0.35
$
0.01
$
$
$
$
0.64
$
0.34
$
0.01
166,258
161,272
157,410
169,211
164,572
162,504
Table of Contents
Common Stock
Accumulated
Other
Number
Additional
Comprehensive
of
Paid-In
Deferred
Retained
Income
Treasury
Shares
Amount
Capital
Compensation
Earnings
(Loss)
Stock
Total
(In thousands)
78,463
$
784
$
441,475
$
$
258,834
$
(2,296
)
$
(11,655
)
$
687,142
650
7
16,933
16,940
2,464
25
15,714
15,739
15,079
15,079
457
457
2,374
2,374
81,577
816
489,201
261,208
(1,839
)
(11,655
)
737,731
906
9
10,277
10,286
6,540
6,540
8,773
8,773
56,419
56,419
82,483
825
506,018
317,627
6,934
(11,655
)
819,749
1,388
14
49,462
49,476
189
2
6,640
(6,642
)
1,222
1,222
2,580
25
24,494
24,519
10,666
10,666
4,677
4,677
(1,482
)
(1,482
)
(10,021
)
(10,021
)
84,986
850
(850
)
108,733
108,733
171,626
$
1,716
$
597,280
$
(5,420
)
$
415,489
$
11,611
$
(13,137
)
$
1,007,539
Table of Contents
Years Ended December 31,
2004
2003
2002
(In thousands)
$
108,733
$
56,419
$
2,374
119,395
97,998
91,216
897
259
320
23,473
17,908
23,705
10,666
6,540
15,079
1,222
(1,655
)
(2,174
)
(538
)
(469
)
(50,682
)
(55,791
)
34,565
15,470
10,919
(23,216
)
(13,556
)
(8,984
)
(222
)
12,861
12,322
(11,079
)
1,555
22,814
(771
)
(6,090
)
5,015
362
222,289
162,776
131,795
(32,514
)
(40,832
)
(191,560
)
(116,626
)
(83,843
)
3,303
4,548
1,813
(17,659
)
(1,766
)
(1,693
)
735
(222,537
)
(154,603
)
(98,954
)
(1,482
)
(10,021
)
(780
)
24,519
10,286
15,739
12,236
10,286
15,739
(100
)
(130
)
(10
)
11,888
18,329
48,570
100,483
82,154
33,584
$
112,371
$
100,483
$
82,154
$
(245
)
$
(292
)
$
(532
)
(12,500
)
2,730
13,492
Table of Contents
Table of Contents
1.
Description of Business and Summary of Significant Accounting
Policies
A description of the business and basis of presentation
follows:
A summary of the significant accounting policies
follows:
Table of Contents
Useful Lives
2-15
3-10
5-20
2-7
3-7
Table of Contents
2004
2003
2002
$
106.0
$
90.9
$
85.8
10.1
5.6
4.4
0.1
0.1
0.3
3.2
1.4
0.7
$
119.4
$
98.0
$
91.2
Table of Contents
Years Ended December 31,
2004
2003
2002
$
108,733
$
56,419
$
2,374
773
(11,531
)
(10,506
)
(5,296
)
$
97,975
$
45,913
$
(2,922
)
$
0.65
$
0.35
$
0.02
$
0.59
$
0.28
$
(0.02
)
$
0.64
$
0.34
$
0.01
$
0.59
$
0.28
$
(0.02
)
$
6.25
$
5.59
$
7.60
(1)
See Note 12 for additional information regarding the
computations presented here.
Table of Contents
2.
Acquisitions
2004 Acquisition
Table of Contents
$
40,423
49,476
19,771
12,638
(7,909
)
$
114,399
$
7,181
60,784
172
13,080
50,147
(7,080
)
(1,090
)
(8,795
)
$
114,399
2004
2003
$
1,005,357
$
818,774
108,434
58,598
108,434
58,193
$
0.65
$
0.36
$
0.64
$
0.35
2003 Acquisitions
Table of Contents
2002 Acquisition
3.
Comprehensive Income
2004
2003
2002
$
108,733
$
56,419
$
2,374
4,677
8,773
457
$
113,410
$
65,192
$
2,831
Table of Contents
4.
Property and Equipment
2004
2003
$
1,217,497
$
1,022,795
83,683
65,659
82,711
57,625
13,008
11,773
3,949
3,684
1,400,848
1,161,536
(571,973
)
(467,905
)
$
828,875
$
693,631
5.
Goodwill
2004
2003
$
41,215
$
41,215
50,147
91,362
41,215
9,964
9,964
9,964
9,964
$
101,326
$
51,179
6.
Investment in Equity Securities
Table of Contents
Previously
Reported
Restated
$
20,274
$
19,771
8,554
6,934
143,490
143,309
316,329
317,627
Twelve Months Ended
Twelve Months Ended
December 31, 2003
December 31, 2002
Previously
Previously
Reported
Restated
Reported
Restated
$
65,689
$
65,192
$
2,656
$
2,831
143
1,870
(137
)
225
17,274
17,908
23,548
23,705
55,326
56,419
2,169
2,374
$
0.34
$
0.35
$
0.01
$
0.02
$
0.34
$
0.34
$
0.01
$
0.01
7.
Accrued Expenses
2004
2003
$
21,245
$
15,772
38,677
31,646
5,863
5,809
7,061
1,848
6,317
5,778
$
79,163
$
60,853
Table of Contents
8.
Asset Retirement Obligation
2004
2003
$
1,163
$
1,056
1,277
173
(153
)
(100
)
71
34
$
2,358
$
1,163
*
The 2004 amount includes $1,091 of liabilities assumed in the
acquisition of TMBR.
9.
Notes Payable
10.
Commitments, Contingencies and Other Matters
Table of Contents
bonus payment equal to the greater of the highest bonus paid
after the Change in Control Agreement was entered into and the
average of the two annual bonuses earned in the two fiscal years
immediately preceding a change in control (such bonus payment
prorated for the portion of the fiscal year preceding the
termination date);
a payment equal to 2.5 times (in the case of the Chairman of the
Board, Chief Executive Officer and President and Chief Operating
Officer) or 1.5 times (in the case of the Senior Vice Presidents
and the Chief Financial Officer) of the sum of (i) the
highest annual salary in effect for such Key Employee and
(ii) the average of the three annual bonuses earned by the
Key Employee for the three fiscal years preceding the
termination date; and
continued coverage under the Companys welfare plans for up
to three years (in the case of the Chairman of the Board, Chief
Executive Officer and President and Chief Operating Officer) or
two years (in the case of the Senior Vice Presidents and the
Chief Financial Officer).
11.
Stockholders Equity
Table of Contents
Table of Contents
12.
Stock Options and Warrants
Options
Options
Authorized
Options
Available
Plan Name
for Grant
Outstanding
for Grant
16,500,000
7,711,776
2,997,992
2,000,000
1,346,322
78,161
1,200,000
370,000
485,000
240,000
24,000
2,144
176,600
5,600,000
351,200
(1)
Plan is for the benefit of employees of the Company, including
officers and directors of the Company.
(2)
Plan is for the benefit of employees of the Company, other than
officers and directors of the Company.
1997 Plan
Administered by the Compensation Committee of the Board of
Directors.
All employees including officers and employee directors are
eligible for awards.
Vesting schedule is set by the Compensation Committee, however,
typically options vest over 3 or 5 years.
The Compensation Committee sets the term of the option except
that no Incentive Stock Option (ISO) can have a term
of longer than 10 years. Typically options granted under
the plan have a term of 10 years.
The options granted under the plan, unless otherwise stated in
the grant thereof, vest upon a change of control as defined in
the plan. Options granted to non-executive employees typically
do not vest upon a change of control.
All options granted under the plan are granted with an exercise
price equal to or greater than the fair market value of the
Companys common stock at the time the option is granted.
Table of Contents
The plan allows for awards of tandem and independent stock
appreciation rights, restricted stock and performance awards.
2001 Plan
Officers and directors of the Company are not eligible for
grants of options under the 2001 Plan.
No ISOs may be awarded under the 2001 Plan.
Unless the grant states otherwise, options granted under the
2001 Plan do not vest upon a change of control of the Company.
Non-Employee Director Plan
Administered by the Compensation Committee of the Board of
Directors.
All options vest upon the first anniversary of the option grant.
Each director receives options to
purchase 40,000 shares upon becoming a director of the
Company and options to purchase 20,000 shares on
December 31st of each subsequent year in which the director
serves as a director of the Company.
The exercise price of the options is the fair market value of
the Companys common stock on the date of grant.
Table of Contents
2004
2003
2002
No. of
Weighted
No. of
Weighted
No. of
Weighted
Shares of
Average
Shares of
Average
Shares of
Average
Underlying
Exercise
Underlying
Exercise
Underlying
Exercise
Options
Price
Options
Price
Options
Price
12,276
$
10.31
12,277
$
8.81
13,192
$
5.20
640
19.19
1,830
16.24
4,297
13.39
(2,852
)
5.55
(1,736
)
5.92
(4,914
)
3.21
(58
)
8.76
(95
)
9.99
(298
)
7.66
10,006
$
12.24
12,276
$
10.31
12,277
$
8.81
6,377
$
11.68
5,972
$
8.15
4,790
$
5.44
Options Outstanding
Options Exercisable
Weighted
Average
Weighted
Weighted
Remaining
Average
Average
Number
Contracted
Exercise
Number
Exercise
Range of Exercise Prices
Outstanding
Life
Price
Exercisable
Prices
416,668
4.23
$
2.31
416,668
$
2.31
98,000
3.16
$
4.94
98,000
$
4.94
156,344
2.70
$
7.32
156,344
$
7.32
2,576,227
6.45
$
8.02
1,365,617
$
8.08
95,000
2.88
$
11.44
95,000
$
11.44
4,103,803
7.50
$
13.35
3,085,833
$
13.28
2,560,000
7.98
$
16.95
1,159,998
$
16.19
10,006,042
7.06
$
12.24
6,377,460
$
11.68
Table of Contents
Weighted
Average
Shares
Exercise Price
640
$
19.19
1,830
16.24
4,297
13.39
3,502
$
7.00
1,941
6.46
4,963
3.28
58
$
8.76
95
9.99
298
7.66
10,006
$
12.24
12,926
10.47
13,132
9.07
6,377
$
11.68
6,622
8.66
5,645
6.56
13.
Leases
Table of Contents
14.
Income Taxes
2004
2003
2002
$
32,438
$
13,856
$
(18,064
)
20,375
15,143
21,844
52,813
28,999
3,780
2,015
1,214
(1,811
)
2,170
76
1,117
4,185
1,290
(694
)
5,235
18
(2,003
)
928
2,689
744
6,163
2,707
(1,259
)
39,688
15,088
(21,878
)
23,473
17,908
23,705
$
63,161
$
32,996
$
1,827
2004
2003
2002
35.0
%
35.0
%
35.0
%
1.6
1.5
2.8
0.4
0.8
5.7
(0.3
)
(0.6
)
36.7
%
36.7
%
43.5
%
Table of Contents
December 31,
Net
December 31,
Net
December 31,
Net
January 1,
2004
Change
2003
Change
2002
Change
2002
$
1,870
$
1,870
$
$
$
$
$
14,877
1,545
13,332
6,159
7,173
2,663
4,510
(602
)
602
602
602
6,978
1,238
5,740
(1,775
)
7,515
3,880
3,635
23,725
4,051
19,674
4,384
15,290
6,543
8,747
4,115
4,115
118
118
6,708
933
5,775
2,019
3,756
744
3,012
4,160
639
3,521
1,470
2,051
556
1,495
763
763
15,864
6,568
9,296
3,489
5,807
1,300
4,507
39,589
10,619
28,970
7,873
21,097
7,843
13,254
(7,734
)
(4,509
)
(3,225
)
(3,225
)
(177,637
)
(27,182
)
(150,455
)
(18,077
)
(132,378
)
(35,607
)
(96,771
)
(267
)
1,883
(2,150
)
(1,575
)
(575
)
20
(595
)
(177,904
)
(25,299
)
(152,605
)
(19,652
)
(132,953
)
(35,587
)
(97,366
)
(185,638
)
(29,808
)
(155,830
)
(22,877
)
(132,953
)
(35,587
)
(97,366
)
$
(146,049
)
$
(19,189
)
$
(126,860
)
$
(15,004
)
$
(111,856
)
$
(27,744
)
$
(84,112
)
Table of Contents
15.
Employee Benefits
16.
Business Segments
Table of Contents
Years Ended December 31,
2004
2003
2002
$
815,683
$
640,788
$
410,752
66,654
46,083
32,996
90,858
69,286
69,966
33,867
21,163
14,723
1,007,062
777,320
528,437
(6,293
)
(1,150
)
(480
)
$
1,000,769
$
776,170
$
527,957
$
150,047
$
75,666
$
7,607
16,747
10,442
6,090
4,162
(1,960
)
(278
)
10,764
7,784
3,945
181,720
91,932
17,364
(10,506
)
(7,194
)
(9,266
)
2,452
(4,700
)
1,140
1,116
1,110
(695
)
(292
)
(532
)
235
1,870
225
$
171,894
$
89,884
$
4,201
(a)
Includes contract drilling intercompany revenues of
approximately $6.0 million, $1.1 million and $457,000
for the years ended December 31, 2004, 2003 and 2002,
respectively.
(b)
Includes drilling and completion fluids intercompany revenues of
approximately $301,000, $56,000 and $23,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
(c)
Restructuring and other charges relate to decisions of the
executive management group regarding corporate strategy, credit
risk, loss contingencies and restructuring activities. Due to
the non-operating nature of these decisions, the related charges
have been separately presented and excluded from the results of
specific segments. These charges are primarily related to the
contract drilling segment.
Table of Contents
Years Ended December 31,
2004
2003
2002
$
1,044,147
$
809,896
$
694,020
62,866
46,763
35,084
38,196
30,860
34,687
66,734
33,494
20,854
1,211,943
921,013
784,645
110,968
163,101
158,178
$
1,322,911
$
1,084,114
$
942,823
$
98,334
$
84,379
$
80,500
5,112
3,774
2,803
2,196
2,319
2,216
13,309
7,082
5,251
118,951
97,554
90,770
444
444
446
$
119,395
$
97,998
$
91,216
$
157,916
$
95,175
$
68,516
17,705
10,524
7,399
1,488
912
1,571
14,451
10,015
6,357
$
191,560
$
116,626
$
83,843
(a)
Corporate assets primarily include cash on hand managed by the
parent corporation and certain deferred Federal income tax
assets.
Table of Contents
17.
Quarterly Financial Information (unaudited)
1st
2nd
3rd
4th
Quarter
Quarter
Quarter
Quarter
$
218,779
$
234,510
$
259,174
$
288,306
32,510
30,799
47,408
60,497
20,682
19,607
29,964
38,480
$
0.12
$
0.12
$
0.18
$
0.23
$
0.12
$
0.12
$
0.18
$
0.23
$
165,239
$
195,624
$
207,015
$
208,292
9,844
19,153
27,354
30,839
7,051
12,202
17,186
20,449
(469
)
6,582
12,202
17,186
20,449
$
0.04
$
0.08
$
0.11
$
0.13
$
0.04
$
0.08
$
0.11
$
0.13
$
0.04
$
0.07
$
0.10
$
0.12
$
0.04
$
0.07
$
0.10
$
0.12
18.
Concentrations of Credit Risk
Table of Contents
2004
2003
Deposits in FDIC and SIPC-insured institutions under $100,000
$
2,023
$
(3,326
)
Deposits in FDIC and SIPC-insured institutions over $100,000
131,427
112,226
133,450
108,900
Less outstanding checks and other reconciling items
(21,079
)
(8,417
)
Cash and cash equivalents
$
112,371
$
100,483
19.
Related Party Transactions
Table of Contents
20.
Supplementary Oil and Natural Gas Reserve Information and
Related Data (Unaudited)
Oil and Natural Gas Expenditures and Capitalized
Costs:
2004
2003
2002
$
2,491
$
1,120
$
905
10,242
7,572
6,267
1,855
1,531
845
$
14,588
$
10,223
$
8,017
2004
2003
2002
$
71,731
$
50,481
$
44,849
10,980
7,144
7,162
(45,506
)
(38,947
)
(35,684
)
$
37,205
$
18,678
$
16,327
Results of operations for oil and natural gas producing
activities:
2004
2003
2002
$
31,142
$
19,058
$
12,738
123
571
303
31,265
19,629
13,041
6,076
3,735
3,171
1,902
1,073
785
10,112
5,638
4,524
3,197
1,444
727
3,662
2,840
1,687
24,949
14,730
10,894
$
6,316
$
4,899
$
2,147
Table of Contents
Oil and natural gas reserve quantities:
Oil (Bbls)
Gas (Mcf)
1,047
4,634
145
2,103
331
1,420
(12
)
(110
)
(284
)
(1,807
)
1,227
6,240
87
(1,123
)
149
2,446
(27
)
(244
)
(289
)
(2,052
)
1,147
5,267
(122
)
(1,807
)
392
2,675
695
4,920
(6
)
(90
)
(392
)
(2,719
)
1,714
8,246
Table of Contents
Standardized measure of future net cash flows of proved
developed oil and natural gas reserves, discounted at
10% per annum (in thousands):
Years Ended December 31,
2004
2003
2002
$
123,201
$
70,894
$
68,165
(37,820
)
(23,021
)
(22,149
)
(30,995
)
(15,155
)
(15,964
)
54,386
32,718
30,052
(16,844
)
(8,768
)
(8,952
)
$
37,542
$
23,950
$
21,100
Changes in the standardized measure of net cash flows of
proved developed oil and natural gas reserves discounted at
10% per annum (in thousands):
Years Ended December 31,
2004
2003
2002
$
23,950
$
21,100
$
10,714
(15,257
)
(11,362
)
(8,342
)
6,619
4,718
4,888
8,259
10,052
6,017
(676
)
(2,017
)
(30
)
19,561
4,288
(2,976
)
4,315
3,759
3,547
1,531
(3,953
)
101
(9,358
)
(9,008
)
787
11,365
$
37,542
$
23,950
$
21,100
Table of Contents
Charged to
Beginning
Costs and
Ending
Description
Balance
Expenses(1)
Deductions(2)
Balance
(In thousands)
$
2,133
$
897
$
1,121
$
1,909
$
3,144
$
259
$
1,270
$
2,133
$
4,021
$
320
$
1,197
$
3,144
(1)
Net of recoveries.
(2)
Uncollectible accounts written off.
Table of Contents
PATTERSON-UTI ENERGY, INC.
By:
/s/
CLOYCE A. TALBOTT
Cloyce A. Talbott
Chief Executive Officer
Signature
Title
/s/ MARK S. SIEGEL
Chairman of the Board
/s/ CLOYCE A. TALBOTT
(Principal Executive Officer)
Chief Executive Officer and Director
/s/ A. GLENN PATTERSON
President, Chief Operating Officer and Director
/s/ KENNETH N. BERNS
Senior Vice President and Director
/s/ JONATHAN D. NELSON
(Principal Financial and Accounting Officer)
Vice President, Chief Financial Officer, Secretary and Treasurer
/s/ ROBERT C. GIST
Director
/s/ CURTIS W. HUFF
Director
/s/ TERRY H. HUNT
Director
/s/ KENNETH R. PEAK
Director
/s/ NADINE C. SMITH
Director
Table of Contents
2
.1
Asset Purchase Agreement among Key Energy Drilling, Inc., Key
Energy Drilling Beneficial, L.P., Key Rocky Mountain, Inc., Key
Four Corners, Inc. and Key Energy Services, Inc. and
Patterson-UTI Drilling Company LP, LLLP and Patterson-UTI
Energy, Inc., dated as of December 7, 2004.
3
.1
Restated Certificate of Incorporation, as amended (filed
August 9, 2004 as Exhibit 3.1 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).
3
.2
Amendment to Restated Certificate of Incorporation, as amended
(filed August 9, 2004 as Exhibit 3.2 to the
Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2004 and incorporated
herein by reference).
3
.3
Amended and Restated Bylaws (filed March 19, 2002 as
Exhibit 3.2 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2001
and incorporated herein by reference).
4
.1
Rights Agreement dated January 2, 1997, between Patterson
Energy, Inc. and Continental Stock Transfer &
Trust Company (filed January 14, 1997 as
Exhibit 2 to the Companys Registration Statement on
Form 8-A and incorporated herein by reference).
4
.2
Amendment to Rights Agreement dated as of October 23, 2001
(filed October 31, 2001 as Exhibit 3.4 to the
Companys Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2001 and incorporated
herein by reference).
4
.3
Restated Certificate of Incorporation, as amended (See
Exhibits 3.1 and 3.2).
4
.4
Registration Rights Agreement with Bear, Stearns and Co. Inc.,
dated March 25, 1994, as assigned by REMY Capital
Partners III, L.P.(filed March 19, 2002 as
Exhibit 4.3 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2001
and incorporated herein by reference).
10
.1
For additional material contracts, see Exhibits 2.1, 4.1,
4.2 and 4.4.
10
.2
Patterson-UTI Energy, Inc., 1993 Stock Incentive Plan, as
amended (filed March 13, 1998 as Exhibit 10.1 to the
Companys Registration Statement on Form S-8 (File
No. 333-47917) and incorporated herein by reference).*
10
.3
Patterson-UTI Energy, Inc. Non-Employee Directors Stock
Option Plan, as amended (filed November 4, 1997 as
Exhibit 10.1 to the Companys Registration Statement
on Form S-8 (File No. 333-39471) and incorporated
herein by reference).*
10
.4
Amended and Restated Patterson-UTI Energy, Inc. 2001 Long-Term
Incentive Plan (filed November 27, 2002 as Exhibit 4.4
to Post Effective Amendment No. 1 to the Companys
Registration Statement on Form S-8 (File
No. 333-60470) and incorporated herein by reference).*
10
.5
Patterson-UTI Energy, Inc. Amended and Restated 1997 Long-Term
Incentive Plan (filed July 28, 2003 as Exhibit 4.7 to
the Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2003 and incorporated
herein by reference).*
10
.6
Amendment to the Patterson-UTI Energy, Inc. Amended and Restated
1997 Long-Term Incentive Plan (filed August 9, 2004 as
Exhibit 10.7 to the Companys Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2004
and incorporated herein by reference).*
10
.7
Amended and Restated Patterson-UTI Energy, Inc. Non-Employee
Director Stock Option Plan(filed July 28, 2003 as
Exhibit 4.8 to the Companys Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2003
and incorporated herein by reference).*
10
.8
Amended and Restated Patterson-UTI Energy, Inc. 1996 Employee
Stock Option Plan (filed July 25, 2001 as Exhibit 4.4
to Post-Effective Amendment No. 1 to the Companys
Registration Statement on Form S-8 (File
No. 333-60466) and incorporated herein by reference).*
10
.9
1997 Stock Option Plan of DSI Industries, Inc. (filed
July 25, 2001 as Exhibit 4.4 to Post-Effective
Amendment No. 1 to the Companys Registration
Statement on Form S-8 (File No. 333-60470) and
incorporated herein by reference).*
10
.10
Stock Option Agreement dated July 20, 2001 between
Patterson-UTI Energy, Inc. and Kenneth R. Peak (filed
March 19, 2002 as Exhibit 10.9 to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 and incorporated herein by reference).*
Table of Contents
10
.11
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Mark S. Siegel (filed
August 9, 2004 as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.12
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Cloyce A. Talbott (filed
August 9, 2004 as Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.13
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and A. Glenn Patterson (filed
August 9, 2004 as Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.14
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Kenneth N. Berns (filed
August 9, 2004 as Exhibit 10.4 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.15
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and Jonathan D. Nelson (filed
August 9, 2004 as Exhibit 10.5 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004 and incorporated herein by reference).*
10
.16
Restricted Stock Award Agreement dated April 28, 2004
between Patterson-UTI Energy, Inc. and John E. Vollmer III
(filed August 9, 2004 as Exhibit 10.6 to the
Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2004 and incorporated
herein by reference).*
10
.17
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Mark S. Siegel (filed on
February 4, 2004 as Exhibit 10.2 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.18
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and A. Glenn Patterson (filed on
February 4, 2004 as Exhibit 10.3 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.19
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Cloyce A. Talbott (filed on
February 4, 2004 as Exhibit 10.4 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.20
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Kenneth N. Berns (filed on
February 4, 2004 as Exhibit 10.5 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.21
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and Jonathan D. Nelson (filed on
February 4, 2004 as Exhibit 10.6 to the Companys
Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.22
Patterson-UTI Energy, Inc. Change in Control Agreement,
effective as of January 29, 2004, by and between
Patterson-UTI Energy, Inc. and John E. Vollmer III (filed
on February 4, 2004 as Exhibit 10.7 to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2003 and incorporated herein by
reference).*
10
.23
Form of Letter Agreement regarding termination, effective as of
January 29, 2004, entered into by Patterson-UTI Energy,
Inc. with each of Mark S. Siegel, Kenneth N. Berns and John E.
Vollmer III.*
10
.24
Form of Indemnification Agreement entered into by Patterson-UTI
Energy, Inc. with each of Mark S. Siegel, Cloyce A. Talbott, A.
Glenn Patterson, Kenneth N. Berns, Robert C. Gist, Curtis W.
Huff, Terry H. Hunt, Kenneth R. Peak, Nadine C. Smith, Jonathan
D. Nelson and John E. Vollmer III (filed April 28,
2004 as Exhibit 10.11 to the Companys Annual Report
on Form 10-K, as amended, for the year ended
December 31, 2003 and incorporated herein by reference).*
10
.25
Credit Agreement dated as of December 17, 2004 among
Patterson-UTI Energy, Inc., as the Borrower, Bank of America,
N.A., as administrative agent, L/ C Issuer and a Lender and the
other lenders and agents party thereto (filed on
December 23, 2004 as Exhibit 10.1 to the
Companys Current Report on Form 8-K and incorporated
herein by reference).
10
.26
Summary Description of 2003 Cash Bonus Plan.*
Table of Contents
10
.27
Summary Description of Director Compensation.*
14
.1
Patterson-UTI Energy, Inc. Code of Business Conduct and Ethics
for Senior Financial Executives (filed as Exhibit 14.1 to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2003 and incorporated herein by
reference).
21
.1
Subsidiaries of the Registrant.
23
.1
Consent of Independent Registered Public Accounting Firm.
23
.2
Consent of Independent Petroleum Engineer M. Brian
Wallace, P.E.
31
.1
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
31
.2
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934, as amended.
32
.1
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 USC Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
Management Contract or Compensatory Plan identified as required
by Item 15(a)(3) of Form 10-K.
Exhibit 2.1
ASSET PURCHASE AGREEMENT | ||
among | ||
Key Energy Drilling, Inc. | ||
Key Energy Drilling beneficial, L.P. | ||
Key rocky mountain, inc. | ||
Key four corners, inc. | ||
and | ||
Key Energy Services, Inc. | ||
and | ||
Patterson-UTI Drilling Company LP, LLLP | ||
and | ||
Patterson-UTI Energy, Inc. | ||
Dated as of December 7, 2004 | ||
TABLE OF CONTENTS
Page | ||||||
|
||||||
ARTICLE 1 PURCHASE AND SALE OF ASSETS | 1 | |||||
|
||||||
|
1.1 Purchase and Sale of the Assets | 1 | ||||
|
1.2 Purchase Price | 2 | ||||
|
1.3 Liabilities | 2 | ||||
|
1.4 Assumption of Risk by Buyer/Dayrates | 2 | ||||
|
1.5 Closing | 2 | ||||
|
1.6 Closing Deliveries | 3 | ||||
|
1.7 Undelivered Certificates of Title | 3 | ||||
|
1.8 Purchase Price Adjustment | 4 | ||||
|
||||||
ARTICLE 2 REPRESENTATIONS AND WARRANTIES | 4 | |||||
|
||||||
|
2.1 Representations and Warranties of Parent and the Sellers | 4 | ||||
|
2.2 Representations and Warranties of Buyer and Patterson | 8 | ||||
|
||||||
ARTICLE 3 OBLIGATIONS PENDING CLOSING DATE | 9 | |||||
|
||||||
|
3.1 Agreements of Parent and Sellers | 9 | ||||
|
3.2 Supplemental Information | 10 | ||||
|
3.3 Regulatory and Other Authorizations | 10 | ||||
|
||||||
ARTICLE 4 CONDITIONS PRECEDENT TO OBLIGATIONS | 11 | |||||
|
||||||
|
4.1 Conditions Precedent to Obligations of Buyer | 11 | ||||
|
4.2 Conditions Precedent to Obligations of Sellers | 12 | ||||
|
||||||
ARTICLE 5 TERMINATION AND ABANDONMENT | 13 | |||||
|
||||||
|
5.1 Termination | 13 | ||||
|
5.2 Termination by Board of Directors | 13 | ||||
|
5.3 Effect of Termination | 13 | ||||
|
5.4 Waiver of Conditions | 13 | ||||
|
||||||
ARTICLE 6 ADDITIONAL AGREEMENTS | 14 | |||||
|
||||||
|
6.1 Employees | 14 | ||||
|
6.2 Trademarks | 14 | ||||
|
6.3 Further Assurances | 14 | ||||
|
6.4 Public Announcements | 14 | ||||
|
6.5 No Solicitation | 14 | ||||
|
6.6 Taking Possession of Certain Assets | 14 | ||||
|
6.7 Payment of Sales Taxes | 15 | ||||
|
6.8 Termination of Leases | 15 | ||||
|
6.9 Environmental Inspection | 15 | ||||
|
6.10 WARN Act | 15 | ||||
|
6.11 Closing in the Event of HSR Early Termination | 15 |
i
Page | ||||||
|
||||||
ARTICLE 7 INDEMNIFICATION | 15 | |||||
|
||||||
|
7.1 Indemnification by each of the Parent and Sellers | 15 | ||||
|
7.2 Indemnification by Patterson and Buyer | 16 | ||||
|
7.3 Indemnification Procedure | 16 | ||||
|
7.4 Limitation on Damages | 17 | ||||
|
7.5 Liability Exception | 17 | ||||
|
7.6 Exclusive Remedy | 17 | ||||
|
||||||
ARTICLE 8 MISCELLANEOUS | 17 | |||||
|
||||||
|
8.1 Materiality | 17 | ||||
|
8.2 Survival of Representations, Warranties and Covenants | 18 | ||||
|
8.3 Entirety | 18 | ||||
|
8.4 Counterparts | 18 | ||||
|
8.5 Notices and Waivers | 18 | ||||
|
8.6 Limitations on Assignment | 19 | ||||
|
8.7 No Negotiation | 19 | ||||
|
8.8 Convenience of Forum; Consent to Jurisdiction | 20 | ||||
|
8.9 Enforcement of the Agreement | 20 | ||||
|
8.10 Table of Contents and Captions | 20 | ||||
|
8.11 Successors and Assigns | 20 | ||||
|
8.12 Severability | 20 | ||||
|
8.13 Applicable Law | 20 |
ii
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this Agreement) is entered into as of December 7, 2004, among Key Energy Drilling, Inc., a Delaware corporation (Key Drilling), Key Energy Drilling Beneficial, L.P., a Texas limited partnership (Key Drilling L.P.), Key Four Corners, Inc., a Delaware corporation (Key Four Corners) and Key Rocky Mountain, Inc., a Delaware corporation (Key Rocky Mountain, and together with Key Drilling, Key Four Corners and Key Rocky Mountain, the Sellers), Key Energy Services, Inc., a Maryland corporation (Parent) and Patterson-UTI Drilling Company LP, LLLP, a Delaware limited liability limited partnership (Buyer) and Patterson-UTI Energy, Inc., a Delaware corporation (Patterson).
WHEREAS, Key Drilling, Key Four Corners and Key Rocky Mountain are the record owners of the Assets (defined below) being sold to the Buyer pursuant to this Agreement; and
WHEREAS, Key Drilling L.P. is the beneficial owner of the Assets owned by Key Drilling being sold to the Buyer pursuant to this Agreement; and
WHEREAS, Parent directly or indirectly owns all of the equity of the Sellers; and
WHEREAS, Patterson directly or indirectly owns all of the equity of Buyer; and
WHEREAS, the Sellers desire to sell to Buyer, and Buyer desires to purchase from the Sellers, the Assets.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of the Assets . Subject to the terms and conditions set forth in this Agreement, the Sellers agree to sell, convey, transfer, assign and deliver to the Buyer the following assets of the Sellers (all of such assets being sold hereunder are referred to collectively herein as the Assets):
(a) | the real property and real property leases described on Schedule 1.1(a) hereto (the Real Property); | |||
(b) | the tangible personal property of the Sellers (such as land drilling rigs, drilling components, engines, machinery, spare parts, trucks, transport trailers and equipment associated with any of the foregoing) described on Schedule 1.1(b) hereto; | |||
(c) | all supplies and other inventory of the Sellers used or held for use in connection with the operation of the property described in Section 1.1(b) ; |
1
(d) | those contracts, contract rights, obligations and agreements of the Sellers relating to the Assets listed on Schedule 1.1(d) hereto (collectively, the Purchased Contracts); |
1.2 Purchase Price. As consideration for the sale of the Assets and for the other covenants and agreements of the Sellers contained herein, the Buyer agrees to pay to the Sellers, on the Closing Date (defined below), an aggregate purchase price of $62,000,000, subject to adjustment as provided in Section 1.8 (the Purchase Price), in immediately available funds to accounts designated by the Sellers.
1.3 Liabilities . Effective on the Closing Date, the Buyer shall assume (i) those, and only those, liabilities and obligations of the Sellers to be performed by Sellers under the Purchased Contracts after the Closing Date; (ii) any liabilities or obligations asserted by any person relating to the condition or the operation of the Assets after the Closing Date; (iii) any liabilities or obligations asserted by any person after the Closing Date relating to the condition of the Real Property (the Assumed Liabilities); provided, however , that the Assumed Liabilities shall not include any liability or obligations of Sellers required to be performed after the Closing date arising out of any breach by Sellers of the terms of the Purchased Contracts or any defect, breach of warranty, negligence or other deficiency with respect to matters performed or required to be performed under the Purchased Contracts on or prior to the Closing Date. The Sellers shall be responsible for any and all liabilities and obligations of the Sellers other than the Assumed Liabilities. All of the Sellers liabilities other than the Assumed Liabilities are referred to herein as the Retained Liabilities and include, without limitation, (i) any obligations arising on or before Closing Date from the Sellers employment of any employee, independent contractor, consultant, agent or advisor, and any bonus (other than the Retention Bonuses referred to below), retirement, severance, job security or similar benefit related thereto; (ii) any failure to pay any Taxes (as defined in Section 2.1.3 ) owed by the Sellers that are applicable to the period ending with the Closing Date; and (iii) any liabilities or obligations relating to the condition or the operation of the Assets on or before the Closing Date (other than liabilities or obligations included in Assumed Liabilities pursuant to clause (iii) above). Notwithstanding clause (i) of the preceding sentence, the Buyer shall pay the retention bonuses (the Retention Bonuses) to those persons named on Schedule 1.3 who are hired by the Buyer in the amount set forth opposite such individuals name.
1.4 Assumption of Risk by Buyer/Dayrates . Buyer specifically assumes all risk of death, injury, loss or damage to Buyer or any other party arising from or relating to the use, condition or operation of the Assets after the Closing Date. Dayrates and other benefits earned as well as costs incurred on the Purchased Contracts on or before the Closing Date (whether or not invoiced or billed as of the Closing Date) shall be for the benefit and account of Sellers and dayrates and other benefits earned as well as costs incurred on the Purchased Contracts after the Closing Date shall be for the benefit and account of the Buyer; any payments or other consideration received on the Purchased Contracts by Sellers or Buyer shall be divided between Seller and Buyer according to these principles.
1.5 Closing . Consummation of the transactions contemplated by this Agreement (the Closing) shall take place at the offices of Porter & Hedges, L.L.P., 700 Louisiana Street,
2
Houston, Texas 77002, within three business days after all of the conditions at closing set forth in Article 4 have been satisfied or waived in accordance with Section 5.4 (the Closing Date).
1.6 Closing Deliveries .
1.6.1 Deliveries of the Seller. At the Closing, in addition to the conveyance of the Assets from the Sellers to the Buyer in exchange for the Purchase Price, the Sellers will deliver or cause to be delivered to the Buyer:
1.6.1.1 Any assignment and bill of sale or deed necessary to effectively transfer record and beneficial ownership of the Assets to the Buyer;
1.6.1.2 All required certificates and documents of title (other than the Undelivered Certificates of Title (defined below)) relating to the Assets being purchased by the Buyer duly executed and endorsed for transfer to the Buyer;
1.6.1.3 Releases of all liens to which any of the Assets were subject before the Closing;
1.6.1.4 All written consents required to be delivered pursuant to Section 2.1.9 or otherwise;
1.6.1.5 All other deliveries required to be delivered by the Sellers to the Buyer pursuant to Article 4 here;
1.6.1.6 Evidence reasonably satisfactory to Buyer as to the termination of the leases as required by Section 6.8 ; and
1.6.1.7 All other deliveries reasonably requested by the Buyer to be delivered by the Sellers.
1.6.2 Deliveries of the Buyer. At the Closing the Buyer will deliver or cause to be delivered to the Seller:
1.6.2.1 The Purchase Price;
1.6.2.2 All deliveries required to be delivered by the Buyer to the Sellers pursuant to Article 4 of this Agreement; and
1.6.2.3 All other deliveries reasonably requested by the Sellers to be delivered by the Buyer.
1.7 Undelivered Certificates of Title . The Buyer and the Sellers acknowledge that the Sellers may be unable to deliver to the Buyer those certificates of title (the Undelivered Certificates of Title) identified on Schedule 1.7 hereto. The Sellers hereby agree to deliver, or cause to be delivered, to the Buyer, within 120 days from the Closing Date, the Undelivered Certificates of Title, and all lien releases, if any, in connection therewith.
3
1.8 Purchase Price Adjustment . All amounts paid or payable for real estate and ad valorem taxes shall be prorated as of the Closing Date, Sellers being charged and credited for all of same up to and including the Closing Date and Buyer being charged and credited for all of same after such date. If the actual amounts to be prorated are not known as of the Closing Date, the prorations shall be made on the basis of the best evidence then available, and thereafter, when actual figures are received.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Parent and the Sellers . Each of the Parent and the Sellers, jointly and severally, as of the date hereof and as of the Closing Date, represents and warrants to Buyer and Patterson as follows:
2.1.1 Organization and Standing
2.1.1.1 Key Drilling . Key Drilling is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect (as defined in Section 8.1 ) on the Assets.
2.1.1.2 Key Drilling L.P. Key Drilling L.P. is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas, has full requisite limited partnership power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is dully qualified or licensed to do business and is in good standing as a foreign limited partnership authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect on the Assets.
2.1.1.3 Key Four Corners . Key Four Corners is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary,
4
except where the failure to be so qualified or licensed would not have a Material Adverse Effect on the Assets.
2.1.1.4 Key Rocky Mountain . Key Rocky Mountain is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect on the Assets.
2.1.2 Agreement Authorized and its Effect on Other Obligations . Each of the Parent and the Sellers has the legal capacity and requisite power and authority to enter into, and perform its obligations under this Agreement. The consummation of the transactions, contemplated by this Agreement have been duly and validly authorized by all necessary corporate action on the part of each of the Parent and the Sellers, and this Agreement is the valid and binding obligation of each of the Parent and the Sellers, enforceable against each of the Parent and the Sellers in accordance with its terms, except as enforceability may be limited by (a) equitable principles of general applicability, or (b) bankruptcy, insolvency, reorganization, fraudulent conveyance or similar laws affecting the rights of creditors generally. The execution, delivery and performance of this Agreement by the Parent and the Sellers will not conflict with or result in a violation or breach of any term or provision of, nor constitute a default under (i) the organizational documents of any of the Parent and the Sellers; (ii) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which any of them is a party or by which any of them or their properties are bound or (iii) any requirement of statute, law, regulation, judgment, decree or order of any governmental authority or judicial body.
2.1.3 Taxes . All federal, state and local income, sales, use, franchise, gross, revenue, payroll, excise, property, customs, duties and all other taxes (collectively, the Taxes) that apply to the ownership, use and operation of the Assets or that could in any way create a lien, charge or encumbrance on the Assets have been paid in full (other than liens, charges or encumbrances on the Assets as set forth on Schedule 2.1.3 , which are being contested in good faith by Sellers) and all tax returns or reports related thereto have been filed with appropriate governmental agencies, domestic and foreign, by each of the Sellers for each period for which any such returns, reports, or estimates were due (taking into account any extensions of time to file before the date hereof). Except as disclosed on Schedule 2.1.3 , no waivers of any statute of limitations executed by any of the Sellers with respect to federal income or other Taxes are in effect. Except as disclosed on Schedule 2.1.3 , no income or franchise tax return of any of the Sellers have been examined by the IRS or the taxing authorities of any other jurisdiction. There are no Tax liens on any assets of any of the Sellers except for Taxes not yet currently due and at the time of Closing all Taxes shall have been paid in full except for Taxes being contested in good faith by Sellers or Taxes not yet due and payable.
5
2.1.4 Title to Assets . Schedule 2.1.4 sets forth all Encumbrances on the Assets. As of the Closing Date, Sellers, collectively, will have good, indefeasible and marketable title to the Assets, free and clear of any Encumbrance. The Sellers have the absolute right to sell the Assets to the Buyer and upon consummation of the transactions contemplated hereby the Buyer will have good and marketable title to the Assets free and clear of any Encumbrances. For purposes of this Agreement the term Encumbrances means all liens, including tax liens, security interests, pledges, mortgages, deeds of trust, claims, rights of first refusal, options, charges, restrictions or conditions to transfer or assignment, liabilities, obligations, privileges, equities, easements, rights of way, limitations, reservations, restrictions and other encumbrances of any kind or nature.
2.1.5 Inspection; Limitation on Warranty . Buyer has advised Sellers that Buyer inspected the Assets to Buyers satisfaction during November 2004. As of the date of this Agreement and as of the Closing Date, the Assets are, and will be, in the same locations as inspected (or within 50 miles thereof) and in substantially the same condition as when inspected by Buyer, subject only to reasonable wear and tear. As a material part of the consideration for this Agreement, Sellers and Buyer agree that Buyer is taking the Assets AS IS with any and all faults, latent and patent defects and that there is no warranty by Sellers that the Assets are fit for a particular purpose. Buyer acknowledges that it is not relying upon any representation, statement or other assertion with respect to the condition of the Assets, but is relying upon its examination of the Assets. Buyer takes the Assets under the express understanding there are no express warranties or implied warranties (except as provided in this Article 2 ). Except as provided in this Article 2 , neither Parent nor Sellers make any guaranty, warranty or representation, express or implied, by operation of law or otherwise, as to the quality, serviceability, merchantability or condition of the Assets, or their fitness for any use or purpose.
2.1.6 Contracts . Sellers have delivered to Buyer true, correct and complete copies of the Purchased Contracts. All of the Purchased Contracts are in full force and effect, and constitute valid and binding obligations of the Sellers. Sellers are not in default under any Purchased Contracts and to Sellers knowledge no other parties thereto are in default.
2.1.7 Litigation . There is no claim, suit, action, or legal, administrative, arbitration, or other proceeding or governmental investigation pending, or to the knowledge of either Seller threatened, to which either of the Sellers is a party or, to the knowledge of either of the Sellers, might become a party, which affects the Assets or the transactions contemplated by this Agreement.
2.1.8 Investigations; Litigation . Except as required pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1978 and the rules and regulations promulgated thereunder (HSR), no investigation or review by any governmental entity with respect to any of the Parent or Sellers or any of the transactions contemplated by this Agreement is pending or, to the knowledge of any of the Parent or Sellers, threatened, nor has any governmental entity indicated to any of the Parent or Sellers an intention to conduct the same.
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2.1.9 Consents and Approvals . Except as required by HSR and set forth on Schedule 2.1.9 , and subject to Section 8.6 , no consent, approval or authorization of, or filing or registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by any of Parent or the Sellers in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby.
2.1.10 Finders Fee . Other than as set forth in Schedule 2.1.10 , all negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Sellers and their counsel directly with Buyer and its counsel, without the intervention of any other person in such manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finders fee or any similar payments.
2.1.11 Compliance With Laws . Sellers are in compliance in all material respects with all applicable laws and regulations relating to its ownership or operation of the Assets, and have not received notice of any violation (that is uncured or outstanding) of any law or regulation relating to its operation of the Assets.
2.1.12 Solvency . Each of Parent and the Sellers are now solvent, and neither the Parent nor Sellers will be rendered insolvent by the occurrence of the transactions contemplated by this Agreement. In addition, immediately after giving effect to the consummation of the transactions contemplated by this Agreement, (i) each of the Parent and Sellers will be able to pay its debts as they become due, (ii) the property of the Parent and Sellers does not and will not constitute unreasonably small capital, and neither the Parent nor Sellers will have unreasonably small capital, and Parent and Sellers will have sufficient capital with which to conduct its business and/or to wind up its affairs and dissolve, and (iii) there will be no pending or threatened litigation or final judgments against Parent or Sellers in any action for money damages that is reasonably anticipated to be rendered at a time when, or in amounts such that, Parent or Sellers will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum probable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered). The cash available to Parent and Sellers, after taking into account all other anticipated uses of the cash of Parent and Sellers, will be sufficient to pay all such judgments promptly in accordance with their terms to the extent such judgments, if any, are in excess of available insurance proceeds. As used in this Section, (x) insolvent means, for any person or entity, that the sum of the present fair saleable value of its assets does not and/or will not exceed its debts and other probable liabilities, and (y) the term debts includes any legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent, disputed or undisputed or secured or unsecured.
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2.1.13 Environmental Matters . (a) To the knowledge of any of Parent or Sellers:
2.1.13.1 There are no currently pending or threatened written notices of violations, noncompliance, or similar notifications relating to environmental or health or safety matters affecting the Real Property;
2.1.13.2 There are no underground storage tanks or other underground containers of any kind on the Real Property;
2.1.13.3 There are no claims, pending or threatened, by any person relating to or arising out of the environmental conditions of the Real Property and no such claims have been made or threatened in the last five years;
2.1.13.4 There are no judgments, decrees, orders, arrangements or other agreements in any way related to the investigation, cleanup, remediation or removal of any hazardous material related to the Real Property.
(b) Parent and Sellers have provided to Buyer copies of all environmental audits, assessments or other evaluations, if any, known to (and in the possession of) Parent or one or more Sellers and related to the Real Property.
2.1.14 All Material Contracts . To the knowledge of Parent and Sellers, the Purchased Contracts are all of the contracts material to the ownership, operation and use of the Assets except for the contracts listed on Schedule 4.1.6 .
2.2 Representations and Warranties of Buyer and Patterson . Buyer and Patterson, jointly and severally as of the date hereof and as of the Closing Date, represent and warrant to each of the Parent and Sellers as follows:
2.2.1 Organization and Good Standing . Buyer is a limited liability limited partnership duly organized, validly existing under the laws of the State of Delaware, has full requisite corporate power and authority to carry on its business as it is currently conducted, and to own and operate the properties currently owned and operated by it, and is duly qualified or licensed to do business and is in good standing as a foreign corporation authorized to do business in all jurisdictions in which the character of the properties owned or the nature of the business conducted by it would make such qualification or licensing necessary except where the failure to be so qualified or licensed would not have a Material Adverse Effect.
2.2.2 Agreement Authorized and its Effect on Other Obligations . Each of the Buyer and Patterson has the legal capacity and requisite power and authority to enter into and perform its obligations under this Agreement. The consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of each of the Buyer and Patterson, and this Agreement is a valid and binding obligation of each of the Buyer and Patterson enforceable against each of the Buyer and Patterson in accordance with its terms. The execution, delivery and performance of this Agreement by each of the Buyer and Patterson will not conflict with
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or result in a violation or breach of any term or provision of, or constitute a default under (a) the organizational documents of any of the Buyer and Patterson, (b) any obligation, indenture, mortgage, deed of trust, lease, contract or other agreement to which any of the Buyer and Patterson or any of their respective properties are bound; or (iii) any requirement of statute, law, regulation, judgment, decree or order of any governmental authority or judicial body.
2.2.3 Investigations; Litigation . Except as required by HSR, no investigation or review by any governmental entity with respect to Buyer in connection with any of the transactions contemplated by this Agreement is pending or, to the best of Buyers knowledge, threatened, nor has any governmental entity indicated to Buyer an intention to conduct the same.
2.2.4 Consents and Approvals . Except for written notification to Pattersons lenders and as required by HSR, no consent, approval or authorization of, or filing of a registration with, any governmental or regulatory authority, or any other person or entity is required to be made or obtained by Buyer in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby.
2.2.5 Finders Fee . All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by the Buyer and its counsel directly with the Sellers and their counsel without the intervention of any other person in such a manner as to give rise to any valid claim against any of the parties hereto for a brokerage commission, finders fee or any similar payments.
ARTICLE 3
OBLIGATIONS PENDING CLOSING DATE
3.1 Agreements of Parent and Sellers . Each of the Sellers agrees, unless it obtains the written consent of Buyer, that from the date hereof to the Closing Date, it will, and Parent agrees to cause the Sellers to:
3.1.1 Maintenance of Present Business . Operate its business only in the usual, regular, and ordinary manner so as to maintain the goodwill it now enjoys and, to the extent consistent with such operation, use all reasonable efforts to preserve intact its relationships with customers, suppliers, jobbers, distributors and others having business dealings with it;
3.1.2 No Sale . Not transfer, sell or otherwise convey or dispose of any Asset.
3.1.3 Maintenance of Assets . Make no material change in the Assets and at its expense, maintain all of the Assets in customary repair, order, and condition, reasonable wear and tear excepted;
3.1.4 Purchased Contracts . Comply with the Purchased Contracts and, other than in the ordinary course of business and consistent with past practices, not amend or
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modify any Purchased Contract; provided that no such amendment or modification shall extend a Purchased Contract for more than thirty days beyond the later of the Closing Date or the termination date specifically stated therein on the date hereof or change any provision thereof relating to termination or the right to terminate.
3.1.5 Compliance with Law . Duly comply in all material respects with all laws applicable to it and to the conduct of its business;
3.1.6 Inspection . Permit the Buyer and its officers and authorized representatives, during normal business hours, to inspect its records and to consult with its officers, employees, attorneys, and agents for the purpose of determining the accuracy of the representations and warranties hereinabove made and the compliance with covenants contained in this Agreement. Sellers will also furnish to Buyer copies of all manuals and maintenance and similar records in Sellers possession or control relating to the Assets. Buyer agrees that it and its officers and representatives shall hold all data and information obtained with respect to the Sellers in confidence in accordance with the terms of the Confidentiality Agreement previously entered into by Buyer and the Sellers, and Buyer further agrees that it will not use such data or information or disclose the same to others, except to the extent such data or information either are, or become, published or a matter of public knowledge.
3.1.7 No New Contracts . Not enter into any new contracts or agreements related to the Assets, except contracts to drill on a daywork basis entered into in the ordinary course of business, consistent with past practices and with terms not lasting more than 30 days.
3.1.8 Notice of Changes . Promptly notify Buyer of any change in circumstances that would make any representation or warranty untrue if such circumstances existed on the date of execution of this Agreement.
3.1.9 Maintenance of Insurance . Maintain the current insurance upon all the Assets.
3.2 Supplemental Information . The parties acknowledge and agree that Sellers shall have the continuing right until the Closing Date to provide Buyer promptly with such additional supplemental information of which Sellers become aware after the date of this Agreement (collectively, the Supplemental Information) in the form of (i) amendments to then existing schedules to this Agreement (Schedules) or (ii) additional Schedules, as would be necessary to make each of those representations and warranties true and correct as of the Closing Date; provided, however, that Buyer shall be entitled to use such Supplemental Information so provided to determine with respect to all representations and warranties if a Material Adverse Effect has occurred.
3.3 Regulatory and Other Authorizations . Each party hereto agrees to use its reasonable best efforts to obtain all authorizations, consents, orders and approvals of federal, state, local and foreign regulatory bodies and officials and non-governmental third parties that may be or become necessary for its execution and delivery of, and the performance of its
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obligations pursuant to, this Agreement, and each party will cooperate fully with the other parties in promptly seeking to obtain all such authorizations, consents, orders and approvals. Without limitation, each of the Sellers and the Buyer shall make an appropriate filing of a Notification and Report Form pursuant to HSR within five business days of the execution and delivery of this Agreement. Each such filing shall request early termination of the waiting period imposed by HSR. Nothing herein shall be construed to require any of Parent, Sellers, Buyers or Patterson to agree to any divestiture of assets or limitations on its operations.
ARTICLE 4
CONDITIONS PRECEDENT TO OBLIGATIONS
4.1 Conditions Precedent to Obligations of Buyer . The obligation of Buyer to consummate and effect the transactions hereunder shall be subject to the satisfaction of the following conditions, or to the waiver thereof by Buyer in the manner contemplated by Section 5.4 hereof before the Closing Date.
4.1.1 Representations and Warranties of each of the Parent and Sellers True at the Closing Date . The representations and warranties of each of the Parent and Sellers herein contained shall be true as of and at the Closing Date with the same effect as though made at such date, except (i) as affected by transactions permitted or contemplated by this Agreement, and (ii) for breaches of such representations and warranties which in the aggregate would not be reasonably likely to result in a Material Adverse Effect on the Assets; each of the Sellers shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by each of the Sellers before the Closing Date; and each of the Sellers shall have delivered to the Buyer a certificate dated the Closing Date and signed by its respective chief executive officer or its president and by its chief financial officer or accounting officer and its secretary to both such effects.
4.1.2 No Material Litigation . No suit, action or other proceeding shall be pending or, to any of the Parents or Sellers knowledge, threatened before any court or governmental agency in which it will be or it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby.
4.1.3 Consent of Certain Parties in Privity with the Sellers . The parties to any Purchased Contracts, the holders of any material indebtedness of either of the Sellers, the lessors of any material property leased by either of the Sellers and any other material agreements to which either of the Sellers as a party shall, to the extent necessary in the reasonable opinion of the Buyer, have consented to the transactions contemplated hereby.
4.1.4 HSR . All waiting periods required by HSR shall have expired with respect to the transactions contemplated by this Agreement or early termination with respect thereto shall have been obtained. In addition, any approvals required under any state laws comparable to HSR shall have been obtained.
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4.1.5 Secretarys Certificates . Each of the Sellers shall deliver a secretarys certificate, which certificate shall have all corporate, partnership and charter documents, as applicable, of such Seller attached thereto and attesting to: (i) the due organization of such Seller; (ii) the due authorization of the transactions contemplated by this Agreement; and (iii) all corporate, partnership or other resolutions adopted by such Seller in connection with the transactions contemplated by this Agreement.
4.1.6 Termination of Leases . The leases related to the Assets (all of which are described in Schedule 4.1.6 ) shall have been terminated in such a manner so that the Seller shall own the Assets subject thereto free and clear of the terms of such leases.
4.2 Conditions Precedent to Obligations of Sellers . The obligations of the Sellers to consummate and effect the transactions hereunder shall be subject to the satisfaction of the following conditions, or to the waiver thereof by the Sellers in the manner contemplated by Section 5.4 before the Closing Date.
4.2.1 Representations and Warranties of the Buyer True at the Closing Date . The representations and warranties of the Buyer herein contained shall be true as of and at the Closing Date with the same effect as though made at such date, except (i) as affected by transactions permitted or contemplated by this Agreement, and (ii) which breaches of such representations and warranties in the aggregate would not be reasonably likely to result in a Material Adverse Effect; the Buyer shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by the Buyer on or before the Closing Date; and the Buyer shall have delivered to each of the Sellers a certificate dated the Closing Date and signed by its chief executive officer or its president and by its chief financial officer or accounting officer and its secretary to both such effects.
4.2.2 No Material Litigation . No suit, action or other proceeding shall be pending or, to the Buyers knowledge, threatened before any court or governmental agency in which it will be or it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby.
4.2.3 HSR . All waiting periods required by HSR shall have expired with respect to the transactions contemplated by this Agreement or early termination with respect thereto shall have been obtained. In addition, any approvals required under any state laws comparable to HSR shall have been obtained
4.2.4 Secretarys Certificates . Buyer shall deliver a secretarys certificate, which certificate shall have all corporate and charter documents of Buyer attached thereto and attesting to: (i) the due organization of the Buyer; (ii) the due authorization of the transactions contemplated by this Agreement; and (iii) all corporate or other resolutions adopted by Buyer in connection with the transactions contemplated by this Agreement.
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ARTICLE 5
TERMINATION AND ABANDONMENT
5.1 Termination . Anything contained in this Agreement to the contrary notwithstanding, this Agreement may be terminated at any time before the Closing Date:
5.1.1 By Mutual Consent . By mutual written consent of Buyer and each of the Sellers.
5.1.2 By the Buyer Because of Conditions Precedent . By the Buyer, if any condition set forth in Section 4.1 hereof cannot be met and has not been waived, notwithstanding any investigation made by or on behalf of the Buyer.
5.1.3 By Sellers Because of Conditions Precedent . By Sellers, if any condition set forth in Section 4.2 hereof cannot be met and has not been waived, notwithstanding any investigation made by or on behalf of Sellers.
5.1.4 By Buyer Because of Material Adverse Effect . By Buyer, if there has been a Material Adverse Effect on the Assets since the date hereof.
5.1.5 By Buyer or the Sellers Because of Legal Proceedings . By Buyer or the Sellers if any suit, action, or other proceeding shall be pending or threatened by the federal or a state government before any court or governmental agency, in which it is sought to restrain, prohibit, or otherwise affect the consummation of the transactions contemplated hereby.
5.1.6 By Buyer or the Sellers if Transaction is not Effective . By Buyer or the Sellers if the transactions contemplated hereby shall not have become effective on or before the expiration of the 10 th business day following termination of the HSR review period.
5.2 Termination by Board of Directors . An election of Buyer or the Sellers to terminate this Agreement shall be exercised on behalf of Buyer or the Sellers by its board of directors or similar governing authority.
5.3 Effect of Termination . In the event of the termination and abandonment of this Agreement pursuant to and in accordance with the provisions of Section 5.1 hereof, this Agreement shall become void and have no force or effect, without any liability on the part of any party hereto (or the stockholders, partners or controlling persons or directors or officers of any party hereto); provided the foregoing shall not relieve any party hereto from any liability for damages incurred as a result of a breach by such party of its representations, warranties, covenants and agreements hereunder occurring before such termination.
5.4 Waiver of Conditions . Subject to the requirements of any applicable law, any of the terms or conditions of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, by action taken by its board of directors, its general partner, the executive
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committee of its board of directors or its chief executive officer. No waiver of a particular term or condition of this Agreement shall constitute a waiver of any other term or condition.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Employees . Schedule 6.1 hereto is a complete and accurate listing of all employees of each of the Sellers that devote their full time and effort in the operation of the Assets (the Employees). Each of the Sellers will use its reasonable efforts to make all of its Employees available for hire by the Buyer or its affiliates, and the Buyer agrees to hire all of such Employees (other than the Employees listed on Schedule 6.1(a) ) on the Closing Date, subject to such Employees meeting Buyers standard employment eligibility requirements and mutual agreement between such Employees and Buyer as to their compensation levels. All such Employees hired by the Buyer are herein referred to as the Transferred Employees. Buyer shall have no liability or obligation with respect to the compensation of any Employee or any employee benefits of any Employee, including without limitation, any bonuses, health benefits or IRA contributions, except for (i) the compensation and those benefits that accrue pursuant to such Employees employment with Buyer after the Closing Date and (ii) the Retention Bonuses. Each of the Sellers shall cooperate with the Buyer in connection with any offer of employment from the Buyer to the Employees and use their reasonable efforts to cause the acceptance of any and all such offers. Notwithstanding any other provisions of this Agreement, this Section 6.1 shall not be deemed to create any right or claim for the benefit of, and shall not be enforceable by, any person that is not a party to this Agreement.
6.2 Trademarks . The Buyer shall, within 30 days of the Closing Date, remove or cover over all trademarks, trade-names and other marks associated with the Sellers or their affiliates on the Assets and will refrain from using any of such intellectual property for any purpose.
6.3 Further Assurances . From time to time, as and when requested by any party hereto, any other party hereto shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to effect the transactions contemplated hereby.
6.4 Public Announcements . Except as mutually agreed or as may be required by applicable law, neither Buyer or the Sellers, nor any of their respective affiliates or agents shall issue any press release or public announcement regarding the execution of this Agreement or the transactions contemplated thereby.
6.5 No Solicitation . Parent and Sellers agree that for a period of one year after the Closing that they will not and will cause their affiliates not to solicit for hire any person employed by Buyer in connection with the ownership, use or operation of the Assets.
6.6 Taking Possession of Certain Assets . The Buyer and Sellers acknowledge that some of the Assets will be located on the Sellers premises on the Closing Date. The Sellers hereby grant the Buyer a noncancellable license to use the Sellers premises on which such
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Assets are located as of the Closing Date for the storage of such Assets for a period not to exceed 30 days from the Closing Date, during which time the Buyer will make arrangements for taking possession of such Assets and removing them from the Sellers premises. During such 30 day period, the Sellers will make the Assets stored on Sellers premises available to Buyer during normal business hours. The removal of such Assets from the Buyers premises shall be at the Buyers sole cost, expense and risk. The license granted hereunder is in consideration of the Purchase Price and the representations, warranties and covenants of the Buyer hereunder, and no separate compensation shall be paid to the Seller for the granting of such license.
6.7 Payment of Sales Taxes . Buyer shall pay any applicable sales or use taxes that apply to its purchase of the Assets directly to the appropriate taxing authority.
6.8 Termination of Leases . The Parent and Sellers shall take all action necessary to terminate all the leases related to the Assets including those identified on Schedule 4.1.6 , so as to satisfy the condition to Closing set forth in Section 4.1.6 .
6.9 Environmental Inspection . Parent and Sellers agree to give to Buyer, its employees and agents access to the Real Property and all records related thereto so that Buyer can conduct, itself or through its agents, a Phase I environmental study on the Real Property. Upon completion of the study and receipt of the report by Buyer, if Buyer determines in the exercise of its sole judgment that the acquisition of any or all of the Real Property creates a risk to Buyer of liability, cleanup costs or other obligations related to the condition of the Real Property, Buyer may exclude such Real Property from the Assets; provided however, that the Buyers election to exclude any or all of such Real Property shall not reduce the Purchase Price.
6.10 WARN Act . Buyer shall be liable for any liability and notice requirement, if any, under the Workers Adjustment Retraining and Notification Act (and the rules and regulations promulgated thereunder) with respect to any Transferred Employee from and after the Closing Date. During the six month period following the Closing Date, Sellers shall give notice of the termination, by the close of business on the date of such termination, of any Employee that is not a Transferred Employee who before the Closing Date worked at Yards 106 and 108 as identified on Schedule 6.1 . During the six month period following the Closing Date, Buyer shall give notice of the termination, by the close of business on the date of termination, of any Transferred Employee working at Yards 106 and 108 as identified on Schedule 6.1 .
6.11 Closing in the Event of HSR Early Termination . In the event that the parties receive notice of the early termination of the HSR waiting period on or before December 27, 2004, the parties will use reasonable commercial efforts to cause the Closing to occur on or before December 31, 2004.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by each of the Parent and Sellers . The Buyer and its affiliates, officers, directors, employees, agents, partners and stockholders (collectively, the Buyer Indemnified Parties), shall be indemnified by each of the Parent and Sellers jointly and
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severally against and with respect to any and all claims, costs, damages, losses, expenses, obligations, liabilities, recoveries, suits, causes of action and deficiencies, including interest, fines, penalties and reasonable fees and expenses of attorneys, consultants and experts (collectively, the Damages) that the Buyer Indemnified Parties shall incur or suffer, which arise, result from or relate to (i) any breach by Parent or any of the Sellers of their representations or warranties under or pursuant to this Agreement; (ii) any breach of any material covenant or agreement in this Agreement; (iii) the interference with the use and operation of the Assets as a result of the Ector County tax assessment referred to in Schedule 2.1.3 ; or (iii) the Retained Liabilities.
7.2 Indemnification by Patterson and Buyer . Each of the Sellers and their affiliates, officers, directors, employees, agents, partners and stockholders (collectively, the Sellers Indemnified Parties) shall be indemnified by Patterson and Buyer against any and all Damages that the Sellers Indemnified Parties shall incur or suffer, which arise, result from or relate to (i) any breach of any of Patterson and Buyers representations or warranties under or pursuant to of this Agreement; (ii) any breach of any material covenant or agreement in this Agreement; (iii) a failure of Buyer to pay any Taxes that Buyer is required to pay pursuant to Section 6.7 ; (iv) any liability arising pursuant to the Buyers obligations under Section 6.10 or (iv) the Assumed Liabilities.
7.3 Indemnification Procedure . If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under Sections 7.1 or 7.2 of this Agreement, such indemnified party shall give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however , that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to Sections 7.1 or 7.2 hereof, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party, give written notice to the latter of the commencement of such action; provided, however , that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. An indemnifying party who elects not to assume the defense of a claim shall not be liable for the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim or with respect to claims separate but similar or related in the same jurisdiction arising out of the same general allegations. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the
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defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld or delayed.
7.4 Limitation on Damages . Notwithstanding anything in this Agreement to the contrary, neither Parent nor Sellers shall be liable to any of the Buyer Indemnified Parties and neither Patterson nor Buyer shall be liable to any of the Seller Indemnified Parties for the cumulative costs of any Damages suffered or incurred by the Buyer Indemnified Parties or the Seller Indemnified Parties, as the case may be, as a result of a breach of a representation or warranty under or pursuant to this Agreement until the Liability Exception (hereinafter and defined) is exceeded; provided however , that to the extent there are Damages, suffered or incurred arising out of one or more events, equal to the Liability Exception, then the party entitled to indemnification shall be indemnified for the total amount of such Damages. The aggregate amount of any Damages owed by Parent or the Sellers, collectively, to the Buyer Indemnified Parties or by Patterson or Buyer, collectively, to the Seller Indemnified Parties, shall not exceed the Purchase Price.
7.5 Liability Exception . For purposes of this Section, the term Liability Exception means $100,000.
7.6 Exclusive Remedy . From and after the date hereof, the indemnification under Sections 7.1 and 7.2 shall be the exclusive remedies for monetary damages that may be asserted under this Agreement or in connection with the transactions contemplated herein. In addition, indemnification under Sections 7.1 and 7.2 in connection with a breach of a representation or warranty shall be available only if such representation or warranty was not true as of the Closing Date. Notwithstanding any provision of the contrary contained herein, each of the parties to this Agreement hereby waives any right to recover special, punitive or exemplary damages for any claim asserted against the other; provided that this shall not limit the right of an Indemnified Party to recover special, punitive or exemplary damages payable to a third party for which the Indemnified Party is entitled to indemnity hereunder. Nothing in this Section 7.6 shall limit the availability of equitable remedies, such as specific performance, to enforce the provisions of this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 Materiality . Material Adverse Effect when used in this Agreement, shall mean any material adverse effect on the business, operations, assets or financial condition, or results of
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operations of the party or parties at issue or on a parties ability to consummate its obligations as contemplated by this Agreement.
8.2 Survival of Representations, Warranties and Covenants . All representations, warranties, covenants and agreements made by the parties hereto shall terminate 18 months following the Closing Date, except as to the representations and warranties contained in (i) Section 2.1.3 (Taxes), which shall continue and survive for the full period of the applicable statute of limitations (giving effect to any waiver or extension thereof); (ii) Section 2.1.4 with respect to title to the Assets, which shall continue and survive indefinitely; and (iii) Section 2.1.5 with respect to inspection of the Assets and limitations on the Sellers warranties with respect thereto, which shall continue and survive indefinitely. All claims for indemnification by any party hereto with respect to a breach of a representation or warranty must be asserted in writing with specificity before the expiration of the applicable survival period.
8.3 Entirety . This Agreement embodies the entire agreement among the parties with respect to the subject matter hereof, and all prior agreements between the parties with respect thereto are hereby superseded in their entirety.
8.4 Counterparts . Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument.
8.5
Notices and Waivers
. Any notice or waiver to be given to any party hereto shall be in writing
and shall be delivered by courier, sent by facsimile transmission or first class registered or
certified mail, postage prepaid, return receipt requested:
If to Sellers:
With a copy to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77210-4744
Attn: Samuel N. Allen
Facsimile: (713) 226-0229
If to Buyer:
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, TX 77010-3095
Attention: Michael W. Conlon
Telephone: (713) 651-5427
Facsimile: (713) 651-5246
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Any communication so addressed and mailed by first-class registered or certified mail, postage prepaid, with return receipt requested, shall be deemed to be received on the third business day after so mailed, and if delivered by courier or facsimile to such address, upon delivery during normal business hours on any business day.
8.6 Limitations on Assignment . Notwithstanding any other provision hereof, this Agreement shall neither constitute nor require an assignment by Sellers of any Purchased Contract or other right if any attempted assignment of the same without the consent of any party would constitute a breach thereof or a violation of any law or any judgment, decree, order, writ, injunction, rule or regulation of any governmental entity unless and until such consent shall have been obtained. In the case of any such Purchased Contract that cannot be effectively transferred to Buyer without such consent (a Consent Required Contract), the Sellers agree that between the date hereof and the Closing Date they will use their reasonable commercial efforts to obtain or cause to be obtained the necessary consents to the transfer of Consent Required Contract. In the event that the Sellers shall have failed prior to the Closing Date to obtain consents to the transfer of Consent Required Contract and Buyer shall have waived the conditions set forth in Section 4.1.3 , the terms of this Section 8.6 shall govern the transfer of the benefits of each Consent Required Contract. The Sellers and Buyer shall use their reasonable commercial efforts after the Closing Date to obtain any required consent to the assignment to, and assumption by, Buyer of such Consent Required Contract that is not transferred to Buyer at the Closing (a Nonassigned Contract). With respect to the Nonassigned Contracts that are not assignable by the terms thereof or for which consents to the assignment thereof cannot be obtained as provided herein, such Nonassigned Contracts shall be held by Sellers in trust for Buyer and after the Closing Date shall be performed by Buyer in the name of Sellers, at Buyers sole cost, risk and expense, and all benefits and obligations derived thereunder shall be for the account of Buyer; provided, however, that where entitlement of Buyer to such Nonassigned Contracts hereunder is not recognized by any third party, such Sellers shall, at the request of Buyer, enforce in a reasonable manner, at the cost of and for the account of Buyer, any and all rights of the Sellers against such third party. Buyer shall indemnify Sellers in respect of Buyers performance or failure to perform any obligation, duty or liability in connection with such Nonassigned Contracts.
8.7 No Negotiation . Until such time, if any, as this Agreement is terminated pursuant to Article 5 , Parent and Sellers will not, nor will any of them permit any of their respective representatives to, directly or indirectly, solicit, initiate or encourage any inquiries, offers or proposals from, discuss or negotiate with or execute any agreement with or provide any information to, any person or entity (other than Purchaser) relating to any transaction involving the sale of the Assets or of any of the capital stock or any other equity securities of Sellers, or any merger, consolidation, business combination, liquidation, recapitalization, dissolution or similar transaction involving Sellers (collectively, Sale Proposals), or any other transaction the consummation of which would or could reasonably be expected to impede, interfere with, prevent or materially delay the transactions contemplated by this Agreement or that could reasonably be expected to materially dilute the benefits to Purchaser of the transactions contemplated by this Agreement. If any such inquiries or Sale Proposals are received by, or any such information is requested from or any such negotiations or discussions are sought to be initiated with, Parent or Sellers, then Parent and Sellers will promptly notify Purchaser of the
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nature, terms and status of the foregoing and the identity of the inquiring party and provide Purchaser with a copy of all written materials provided in connection with such Sale Proposal. Until such time, if any, as this Agreement is terminated pursuant to Article 5 , neither Parent nor Sellers will accept any Sale Proposal from any Person or entity other than Purchaser.
8.8 Convenience of Forum; Consent to Jurisdiction . The parties to this Agreement hereby consent to and subject themselves to the jurisdiction of the United States District Court for the Southern District of Texas, and in the event such court is not available to the parties, to the courts of the State of Texas located in Harris County, Texas, with respect to any matter arising under this Agreement. Service of process, notices and demands of such courts may be made upon any party to this Agreement by personal service at any place where it may be found or giving notice to such party as provided in this Agreement.
8.9 Enforcement of the Agreement . The parties hereto agree that irreparable damage would occur if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity.
8.10 Table of Contents and Captions . The table of contents and captions contained in this Agreement are solely for convenient reference and shall not be deemed to affect the meaning or interpretation of any article, section, or paragraph hereof.
8.11 Successors and Assigns . This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the successors and assigns of the parties hereto.
8.12 Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such which may be hereafter declared invalid, void or unenforceable.
8.13 Applicable Law . This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the State of Texas.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each of the Parent and Sellers has executed this Agreement, and the Buyer has caused this Agreement to be signed in its name by its duly authorized representative, all as of the day and year first above written.
BUYER: | ||||
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PATTERSON-UTI DRILLING COMPANY LP, LLLP | ||||
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By: | Patterson (GP) LLC | ||
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By: | /s/ Jonathan D. Nelson | ||
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Name: | Jonathan D. Nelson | ||
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Title: | VP CFO | ||
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PATTERSON | ||||
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PATTERSON-UTI ENERGY, INC. | ||||
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By: | /s/ John E. Vollmer III | ||
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Name: | John E. Vollmer III | ||
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Title: | Senior Vice President - Corp Development | ||
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SELLERS: | ||||
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KEY ENERGY DRILLING, INC. | ||||
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By: | /s/ Richard J. Alario | ||
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Richard J. Alario, Vice President | |||
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KEY ROCKY MOUNTAIN, INC. | ||||
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By: | /s/ Richard J. Alario | ||
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Richard J. Alario, Vice President | |||
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KEY FOUR CORNERS, INC. | ||||
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By: | /s/ Richard J. Alario | ||
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Richard J. Alario, Vice President |
KEY ENERGY DRILLING BENEFICIAL, L.P. | ||||
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By: | Key Energy Drilling, Inc., General Partner | ||
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By: | /s/ Richard J. Alario | ||
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Richard J. Alario, Vice President | |||
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PARENT | ||||
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KEY ENERGY SERVICES, INC. | ||||
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By: | /s/ Richard J. Alario | ||
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Richard J. Alario,
President and Chief
Executive Officer |
Schedules are omitted in accordance with Item 601(b)(2) of Regulation S-K.
Schedules will be provided by Patterson-UTI Energy, Inc. to the Securities and Exchange Commission upon request.
Exhibit 10.23
Patterson-UTI Energy, Inc.
Letterhead
October 22, 2004
Name
Address
Dear _____________:
This letter confirms and evidences the existing agreement between Patterson-UTI Energy, Inc. (the Company) and you pursuant to which the Company agrees to pay to you within ten (10) days of your termination of employment with the Company for any reason (including voluntary termination by you), an amount in cash equal to your annual base salary at the time of such termination. You agree that any payment made pursuant to the agreement evidenced in this letter will reduce dollar for dollar any payment owed to you, if any, pursuant to the Change in Control Agreement dated January 29, 2004 between the Company and you or any agreement in substitution therefore. You agree that this letter agreement evidences and supercedes any oral understanding between the Company and you with respect to the payment of a cash severance payment to you upon your termination.
Please acknowledge your agreement below.
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PATTERSON-UTI ENERGY, INC. | |
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By: | |
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Acknowledged and Agreed this
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___day of October, 2004
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Name
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Exhibit 10.26
Summary Description of 2003 Cash Bonus Plan
Patterson-UTIs Compensation Committee determined that Patterson-UTI should implement a formal cash
bonus program and created a cash bonus plan for 2003-related performance of a bonus pool for
certain employees, including the top executive officers, based on earnings before interest, income
taxes and depreciation, depletion and amortization. The Compensation Committee retained the right
to allocate the pool among the executive officers and other employees in its discretion. The
Compensation Committee determined that a total cash bonus pool of
approximately $3.4 million, of which $1.85 million was allocated for executive officers, be established and awarded cash
bonuses for fiscal 2003 in April 2004 under the Amended and Restated Patterson-UTI Energy, Inc.
1997 Long-Term Incentive Plan, as amended, to the following persons in the following amounts:
Name and Position
Cash Bonus
$
411,530
$
411,530
$
411,530
$
205,765
$
205,765
$
205,765
$
1,851,885
Exhibit 10.27
Summary Description of Director Compensation
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 attendance at Board of Directors meetings and committee meetings. Each non-employee director receives annual cash compensation of $35,000. Each non-employee director that serves on the Audit Committee or Compensation Committee receives additional annual cash compensation of $10,000 per committee on which he or she serves, with the chairman of each such committee receiving $15,000.
Patterson-UTI maintains a Non-Employee Director Stock Option Plan (the Director Plan). Under the Director Plan, each non-employee director is granted options to purchase 40,000 shares of common stock, $0.01 par value per share, of the Company (the Common Stock) upon becoming a director and is granted options to purchase 20,000 shares of Common Stock on the last business day of each subsequent year in which the director serves on the Board of Directors.
Exhibit 21.1
Subsidiaries of the Registrant
State of | ||
Incorporation or | ||
Name | organization | |
Ambar Drilling Fluids LP, LLLP
|
Delaware | |
Eastern Reservoir Services Company
|
Nova Scotia | |
International Petroleum Services Company
|
Pennsylvania | |
Lone Star Mud LP, LLLP
|
Delaware | |
Norton Drilling Company Mexico, Inc.
|
Delaware | |
Norton Drilling, L.P.
|
Delaware | |
Norton Drilling Services, Inc.
|
Delaware | |
Norton GP, L.L.C.
|
Delaware | |
Patterson (GP) LLC
|
Delaware | |
Patterson (GP2) LLC
|
Delaware | |
Patterson (LP) LLC
|
Delaware | |
Patterson Petroleum LP, LLLP
|
Delaware | |
Patterson Petroleum Trading Company LP, LLLP
|
Delaware | |
Patterson-UTI Aviation Services, LLC
|
Delaware | |
Patterson-UTI Drilling Company LP, LLLP
|
Delaware | |
Patterson-UTI Drilling Company South LP, LLLP
|
Delaware | |
Patterson-UTI Drilling Company West LP, LLLP
|
Delaware | |
Phelps Drilling Co.
|
Nova Scotia | |
Suits Drilling Company
|
Oklahoma | |
TMBR/Sharp Drilling, LLC
|
Delaware | |
Universal Well Services, Inc.
|
Delaware | |
UTI Drilling Canada, Inc.
|
Delaware | |
UTI Drilling, L.P.
|
Texas | |
UTI Management Services, L.P.
|
Texas | |
UTICO Hard Rock Boring, Inc.
|
Delaware | |
UTICO, Inc.
|
Delaware |
Effective as of January 1, 2005, Patterson-UTI Drilling Company West LP, LLLP was merged into Patterson-UTI Drilling Company South LP, LLLP which changed its name to Patterson-UTI Drilling Company LP, LLLP.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-47917, 333-39471, 333-67810, 333-60470, 333-60466,
333-101557, 333-97972 and 333-108311), and in the
Registration Statement on Form S-3 (No. 333-89885)
of Patterson-UTI Energy, Inc. and its subsidiaries of our report dated February 24, 2005 relating
to the financial statements, managements assessment of the effectiveness of internal control over
financial reporting and the effectiveness of internal control over financial reporting, which
appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report dated February 24, 2005
relating to the financial statement schedules, which appears in this
PricewaterhouseCoopers LLP
Form 10-K.
Houston, Texas
February 25, 2005
Exhibit 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
I hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-47917, 333-39471, 333-67810, 333-60470, 333-60466,
333-101557, 333-97972 and 333-108311) and in the Registration
Statement on Form S-3 (No. 333-89885) of Patterson-UTI Energy, Inc. and its
subsidiaries of information contained in my summary reserve reports relating to the oil and natural
gas reserves as of December 31, 2004, 2003, and 2002, which appears in this Form 10-K.
Dallas, Texas
/s/ M. Brian Wallace
M. BRIAN WALLACE, P.E.
February 24, 2005
EXHIBIT 31.1
CERTIFICATIONS
I, Cloyce A. Talbott, certify that,
1.
I have reviewed this annual report on Form 10-K of Patterson-UTI Energy, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
/s/ CLOYCE A. TALBOTT | ||||
Cloyce A. Talbott | ||||
Chief Executive Officer | ||||
Date: February 25, 2005
EXHIBIT 31.2
CERTIFICATIONS
I, Jonathan D. Nelson, certify that:
1.
I have reviewed this annual report on Form 10-K of Patterson-UTI Energy, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting.
Date: February 25, 2005
/s/ JONATHAN D. NELSON
Jonathan D. Nelson
Vice President-Finance, Chief Financial Officer,
Secretary and Treasurer
Exhibit 32.1
CERTIFICATION PURSUANT TO
NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
In connection with the Annual Report of Patterson-UTI Energy, Inc. (the Company) on Form 10-K for
the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the
date hereof (the Report), Cloyce A. Talbott, Chief Executive Officer, and Jonathan D. Nelson,
Chief Financial Officer, of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
upon request.
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Cloyce A. Talbott
Cloyce A. Talbott
Chief Executive Officer
February 25, 2005
/s/ Jonathan D. Nelson
Jonathan D. Nelson
Chief Financial Officer
February 25, 2005