PATTERSON UTI ENERGY INC (Form: 10-Q, Received: 08/06/2007 09:13:22)

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

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2007
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number 0-22664

Patterson-UTI Energy, Inc.

(Exact name of registrant as specified in its charter)


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

4510 LAMESA HIGHWAY, SNYDER, TEXAS		79549 (Zip Code)
(Address of principal executive offices)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

157,190,147 shares of common stock, $0.01 par value, as of August 2, 2007

PART I — FINANCIAL INFORMATION


ITEM 1.	*Financial Statements*

The following unaudited consolidated financial statements include all adjustments which, in the opinion of management, are necessary in order to make such financial statements not misleading.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)


	June 30,			December 31,
	2007			2006

ASSETS
Current assets:
Cash and cash equivalents	$	27,475		$	13,385
Accounts receivable, net of allowance for doubtful accounts of $8,438 at June 30, 2007 and $7,484 at December 31, 2006		393,448			484,106
Accrued federal and state income taxes receivable		—			5,448
Inventory		42,664			43,947
Deferred tax assets, net		36,504			48,868
Deposits on equipment purchase contracts		4,741			24,746
Embezzlement recovery receivable		42,500			—
Other		38,998			32,170

Total current assets		586,330			652,670
Property and equipment, net		1,688,868			1,435,804
Goodwill		96,198			99,056
Other		5,484			4,973

Total assets	$	2,376,880		$	2,192,503


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable:
Trade	$	190,129		$	138,372
Accrued revenue distributions		18,161			15,359
Other		13,099			18,424
Accrued federal and state income taxes payable		831			—
Accrued expenses		123,874			145,463

Total current liabilities		346,094			317,618
Borrowings under line of credit		15,000			120,000
Deferred tax liabilities, net		208,382			187,960
Other		4,560			4,459

Total liabilities		574,036			630,037

Commitments and contingencies (see Note 10)		—			—
Stockholders’ equity:
Preferred stock, par value $.01; authorized 1,000,000 shares, no shares issued		—			—
Common stock, par value $.01; authorized 300,000,000 shares with 177,312,704 and 176,656,401 issued and 157,182,797 and 156,542,512 outstanding at June 30, 2007 and December 31, 2006, respectively		1,773			1,766
Additional paid-in capital		691,472			681,069
Retained earnings		1,570,507			1,346,542
Accumulated other comprehensive income		14,808			8,390
Treasury stock, at cost, 20,129,907 and 20,113,889 shares at June 30, 2007 and December 31, 2006, respectively		(475,716	)		(475,301	)

Total stockholders’ equity		1,802,844			1,562,466

Total liabilities and stockholders’ equity	$	2,376,880		$	2,192,503

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

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in thousands, except per share amounts)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006

Operating revenues:
Contract drilling	$	419,191		$	530,349		$	886,689		$	1,039,053
Pressure pumping		51,592			36,010			90,176			67,338
Drilling and completion fluids		39,667			59,877			70,427			109,058
Oil and natural gas		12,108			10,577			22,367			19,097

		522,558			636,813			1,069,659			1,234,546

Operating costs and expenses:
Contract drilling		228,297			235,902			474,451			469,676
Pressure pumping		25,777			17,935			46,928			35,585
Drilling and completion fluids		32,628			46,049			58,019			84,235
Oil and natural gas		2,461			5,364			5,739			8,019
Depreciation, depletion and impairment		59,947			47,481			115,878			91,030
Selling, general and administrative		16,322			12,840			30,991			25,651
Embezzlement costs (recoveries)		(41,935	)		673			(41,935	)		4,453
(Gain) loss on disposal of assets		(16,475	)		870			(16,273	)		—
Other operating expenses		400			786			1,000			1,385

		307,422			367,900			674,798			720,034

Operating income		215,136			268,913			394,861			514,512

Other income (expense):
Interest income		457			2,280			826			4,631
Interest expense		(831	)		(55	)		(1,594	)		(113	)
Other		109			59			203			143

		(265	)		2,284			(565	)		4,661

Income before income taxes and cumulative effect of change in accounting principle		214,871			271,197			394,296			519,173

Income tax expense:
Current		56,350			98,394			109,783			182,325
Deferred		18,970			1,113			29,161			6,589

		75,320			99,507			138,944			188,914

Income before cumulative effect of change in accounting principle		139,551			171,690			255,352			330,259
Cumulative effect of change in accounting principle, net of related income tax expense of $398		—			—			—			687

Net income	$	139,551		$	171,690		$	255,352		$	330,946

Income before cumulative effect of change in accounting principle:
Basic	$	0.90		$	1.02		$	1.64		$	1.94

Diluted	$	0.88		$	1.00		$	1.62		$	1.91

Net income per common share:
Basic	$	0.90		$	1.02		$	1.64		$	1.94

Diluted	$	0.88		$	1.00		$	1.62		$	1.91

Weighted average number of common shares outstanding:
Basic		155,527			168,894			155,457			170,351

Diluted		157,912			171,522			157,580			172,949

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

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)


												Accumulated
	Common Stock					Additional						Other
	Number of					Paid-in			Retained			Comprehensive		Treasury
	Shares			Amount		Capital			Earnings			Income		Stock			Total

Balance, December 31, 2006		176,656		$	1,766	$	681,069		$	1,346,542		$	8,390	$	(475,301	)	$	1,562,466
Issuance of restricted stock		576			6		(6	)		—			—		—			—
Exercise of stock options		109			1		933			—			—		—			934
Stock based compensation		—			—		8,416			—			—		—			8,416
Tax benefit for stock based compensation		—			—		1,060			—			—		—			1,060
Forfeitures of restricted shares		(28	)		—		—			—			—		—			—
Foreign currency translation adjustment, net of tax of $3,625		—			—		—			—			6,418		—			6,418
Payment of cash dividends		—			—		—			(31,387	)		—		—			(31,387	)
Purchase of treasury stock		—			—		—			—			—		(415	)		(415	)
Net income		—			—		—			255,352			—		—			255,352

Balance, June 30, 2007		177,313		$	1,773	$	691,472		$	1,570,507		$	14,808	$	(475,716	)	$	1,802,844

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

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS

(unaudited, in thousands)


	Six Months Ended
	June 30,
	2007			2006

Cash flows from operating activities:
Net income	$	255,352		$	330,946
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and impairment		115,878			91,030
Dry holes and abandonments		786			3,101
Provision for bad debts		1,000			1,200
Deferred income tax expense		29,161			6,987
Stock based compensation expense		8,416			6,366
Gain on disposal of assets		(16,273	)		—
Changes in operating assets and liabilities:
Accounts receivable		90,703			(86,185	)
Embezzlement recovery receivable		(42,500	)		—
Inventory and other current assets		14,352			(13,655	)
Accounts payable		6,876			10,862
Income taxes payable/receivable		6,427			(12,561	)
Accrued expenses		(18,864	)		11,959
Other liabilities		(4,730	)		2,778

Net cash provided by operating activities		446,584			352,828

Cash flows from investing activities:
Purchases of property and equipment		(325,592	)		(256,747	)
Proceeds from disposal of property and equipment		26,803			4,264

Net cash used in investing activities		(298,789	)		(252,483	)

Cash flows from financing activities:
Purchases of treasury stock		(415	)		(199,998	)
Dividends paid		(31,387	)		(20,319	)
Proceeds from exercise of stock options		934			1,261
Tax benefit related to stock-based compensation		1,060			845
Proceeds from borrowings under line of credit		82,500			—
Repayment of borrowings under line of credit		(187,500	)		—

Net cash used in financing activities		(134,808	)		(218,211	)

Effect of foreign exchange rate changes on cash		1,103			460

Net increase (decrease) in cash and cash equivalents		14,090			(117,406	)
Cash and cash equivalents at beginning of period		13,385			136,398

Cash and cash equivalents at end of period	$	27,475		$	18,992

Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest expense	$	1,194		$	113
Income taxes	$	96,759		$	184,501

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

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1.	Basis of Consolidation and Presentation

The interim unaudited consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. (the “Company”) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company has no controlling financial interests in any entity that is not a wholly-owned subsidiary which would require consolidation.

The interim consolidated financial statements have been prepared by management of the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included herein are adequate to make the information presented not misleading. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for presentation of the information have been included. The Unaudited Consolidated Balance Sheet as of December 31, 2006, as presented herein, was derived from the audited balance sheet of the Company. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The U.S. dollar is the functional currency for all of the Company’s operations except for its Canadian operations, which use the Canadian dollar as their functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders’ equity (see Note 3 of these Notes to Unaudited Consolidated Financial Statements).

The Company provides a dual presentation of its net income per common share in its Unaudited Consolidated Statements of Income: Basic net income per common share (“Basic EPS”) and diluted net income per common share (“Diluted EPS”). Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of unrestricted common shares outstanding during the period. Diluted EPS is based on the weighted-average number of common shares outstanding plus the impact of dilutive instruments, including stock options, warrants and restricted shares using the treasury stock method. The following table presents information necessary to calculate net income per share for the three and six months ended June 30, 2007 and 2006 as well as cash dividends per share paid and potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding, as their inclusion would have been anti-dilutive during the three and six months ended June 30, 2007 and 2006 (in thousands, except per share amounts):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006

Net income	$	139,551	$	171,690	$	255,352	$	330,946
Weighted average number of unrestricted common shares outstanding		155,527		168,894		155,457		170,351

Basic net income per common share	$	0.90	$	1.02	$	1.64	$	1.94

Weighted average number of unrestricted common shares outstanding		155,527		168,894		155,457		170,351
Dilutive effect of stock options and restricted shares		2,385		2,628		2,123		2,598

Weighted average number of diluted common shares outstanding		157,912		171,522		157,580		172,949

Diluted net income per common share	$	0.88	$	1.00	$	1.62	$	1.91

Cash dividends paid per common share	$	0.12	$	0.08	$	0.20	$	0.12

Potentially dilutive securities excluded as anti-dilutive		1,785		—		2,435		—

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The results of operations for the six months ended June 30, 2007 are not necessarily indicative of the results to be expected for the full year.


2.	Stock-based Compensation

The Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”), on January 1, 2006 and recognizes the cost of share-based payments under the fair-value-based method. The Company uses share-based payments to compensate employees and non-employee directors. All awards have been equity instruments in the form of stock options or restricted stock awards. The Company issues shares of common stock when vested stock option awards are exercised and when restricted stock awards are granted. As a result of the initial adoption of FAS 123(R) in 2006, the Company recognized income due to the cumulative effect of this change in accounting principle of $687,000, net of taxes of $398,000, related to previously expensed amortization of unvested restricted stock grants.

Stock Options. The Company estimates grant date fair values of stock options using the Black-Scholes-Merton valuation model (“Black-Scholes”), except for stock options granted prior to 1996 that are not subject to FAS 123(R). Volatility assumptions are based on the historic volatility of the Company’s common stock over the most recent period equal to the expected term of the options as of the date the options were granted. The expected term assumptions are based on the Company’s experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options were granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. Weighted-average assumptions used to estimate grant date fair values for stock options granted in the three and six month periods ended June 30, 2007 and 2006 follow:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007			2006		2007			2006

Volatility		36.36	%		N/A		36.38	%		26.95	%
Expected term (in years)		4.00			N/A		4.00			4.00
Dividend yield		2.00	%		N/A		1.96	%		0.47	%
Risk-free interest rate		4.56	%		N/A		4.56	%		4.30	%

Stock option activity from January 1, 2007 to June 30, 2007 follows:


				Weighted-
				Average
	Underlying			Exercise
	Shares			Price

Outstanding at January 1, 2007		6,575,096		$	16.18
Granted		1,035,000		$	23.94
Exercised		(108,578	)	$	8.60
Forfeited		(1,333	)	$	14.64
Expired		—		$	—
Cancelled		—		$	—

Outstanding at June 30, 2007		7,500,185		$	17.36

Exercisable at June 30, 2007		5,547,051		$	14.48

Restricted Stock. Under all restricted stock awards to date, shares were issued when granted, nonvested shares are subject to forfeiture for failure to fulfill service conditions and nonforfeitable dividends are paid on

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

nonvested restricted shares. Additionally, certain restricted stock awards contain performance conditions related to the Company’s net income.

Restricted stock activity from January 1, 2007 to June 30, 2007 follows:


				Weighted
				Average
				Grant Date
	Shares			Fair Value

Nonvested at January 1, 2007		1,188,200		$	25.92
Granted		576,150		$	24.71
Vested		(181,925	)	$	19.00
Forfeited		(28,425	)	$	24.68

Nonvested at June 30, 2007		1,554,000		$	26.31


3.	Comprehensive Income

The following table illustrates the Company’s comprehensive income including the effects of foreign currency translation adjustments for the three and six months ended June 30, 2007 and 2006 (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006

Net income	$	139,551	$	171,690	$	255,352	$	330,946
Other comprehensive income:
Foreign currency translation adjustment related to Canadian operations, net of tax		5,770		2,703		6,418		2,538

Comprehensive income, net of tax	$	145,321	$	174,393	$	261,770	$	333,484


4.	Property and Equipment

Property and equipment consisted of the following at June 30, 2007 and December 31, 2006 (in thousands):


	June 30,			December 31,
	2007			2006

Equipment	$	2,485,203		$	2,135,567
Oil and natural gas properties		80,174			85,143
Buildings		37,217			30,987
Land		10,117			7,507

		2,612,711			2,259,204
Less accumulated depreciation and depletion		(923,843	)		(823,400	)

Property and equipment, net	$	1,688,868		$	1,435,804

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Business Segments

The Company’s revenues, operating profits and identifiable assets are primarily attributable to four business segments: (i) contract drilling of oil and natural gas wells, (ii) pressure pumping services, (iii) drilling and completion fluid services to operators in the oil and natural gas industry, and (iv) the exploration, development, acquisition and production of oil and natural gas. Each of these segments represents a distinct type of business based upon the type and nature of services and products offered. These segments have separate management teams which report to the Company’s chief operating decision maker and have distinct and identifiable revenues and expenses. Separate financial data for each of our four business segments is provided below (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006

Revenues:
Contract drilling(a)	$	420,285		$	531,904		$	888,624		$	1,041,668
Pressure pumping		51,592			36,010			90,176			67,338
Drilling and completion fluids(b)		39,702			60,098			70,583			109,322
Oil and natural gas		12,108			10,577			22,367			19,097

Total segment revenues		523,687			638,589			1,071,750			1,237,425
Elimination of intercompany revenues(a)(b)		1,129			1,776			2,091			2,879

Total revenues	$	522,558		$	636,813		$	1,069,659		$	1,234,546

Income before income taxes:
Contract drilling	$	137,712		$	252,446		$	309,417		$	487,053
Pressure pumping		17,599			12,593			27,840			21,099
Drilling and completion fluids		3,906			10,562			6,182			18,480
Oil and natural gas		5,116			472			7,729			3,701

		164,333			276,073			351,168			530,333
Corporate and other		(7,607	)		(5,617	)		(14,515	)		(11,368	)
Embezzlement (costs) recoveries(c)		41,935			(673	)		41,935			(4,453	)
Gain (loss) on disposal of assets(d)		16,475			(870	)		16,273			—
Interest income		457			2,280			826			4,631
Interest expense		(831	)		(55	)		(1,594	)		(113	)
Other		109			59			203			143

Income before income taxes and cumulative effect of change in accounting principle	$	214,871		$	271,197		$	394,296		$	519,173

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

June 30,
December 31,

2007 2006

Identifiable assets:

Contract drilling
$ 1,984,381 $ 1,849,923

Pressure pumping
147,581 111,787

Drilling and completion fluids
105,166 106,032

Oil and natural gas
62,856 65,443

2,299,984 2,133,185

Corporate and other(e)
76,896 59,318

Total assets
$ 2,376,880 $ 2,192,503


(a)		Includes contract drilling intercompany revenues of approximately $1.1 million and $1.6 million for the three months ended June 30, 2007 and 2006, respectively. Includes contract drilling intercompany revenues of approximately $1.9 million and $2.6 million for the six months ended June 30, 2007 and 2006, respectively.

(b)		Includes drilling and completion fluids intercompany revenues of approximately $35,000 and $221,000 for the three months ended June 30, 2007 and 2006, respectively. Includes drilling and completion fluids intercompany revenues of approximately $156,000 and $264,000 for the six months ended June 30, 2007 and 2006, respectively.

(c)		The Company’s former CFO has pleaded guilty to criminal charges and has been sentenced and is serving a term of imprisonment arising out of his embezzlement of funds from the Company. The Company expects to recover approximately $42.5 million in assets that have been seized from the former CFO and companies that he controlled by a court-appointed receiver. Embezzlement (costs) recoveries includes the recognition of this recovery, net of professional and other costs incurred as a result of the embezzlement.

(d)		Gains or losses associated with the disposal of assets relate to decisions of the executive management group regarding corporate strategy. Accordingly, the related gains or losses have been separately presented and excluded from the results of specific segments.

(e)		Corporate assets primarily include cash, embezzlement recovery receivable and certain deferred federal income tax assets.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6.	Goodwill

Goodwill is evaluated at least annually to determine if the fair value of recorded goodwill has decreased below its carrying value. At December 31, 2006 the Company performed its annual goodwill evaluation and determined no adjustment to impair goodwill was necessary. Goodwill as of June 30, 2007 is as follows (in thousands):


	June 30,
	2007

Contract Drilling:
Goodwill at beginning of year	$	89,092
Changes to goodwill		(2,858	)

Goodwill at end of period		86,234

Drilling and completion fluids:
Goodwill at beginning of year		9,964
Changes to goodwill		—

Goodwill at end of period		9,964

Total goodwill	$	96,198

In connection with the implementation of FIN 48 as of January 1, 2007 as discussed in Note 12 of these Unaudited Consolidated Financial Statements, the Company determined that a tax reserve which had been established in connection with a business acquisition should be reduced. This reserve had originally been established in connection with the allocation of the purchase price in the transaction and was reflected as an increase in goodwill. The $2.9 million reduction of this reserve was reflected as a reduction to goodwill upon the adoption of FIN 48.


7.	Accrued Expenses

Accrued expenses consisted of the following at June 30, 2007 and December 31, 2006 (in thousands):


	June 30,		December 31,
	2007		2006

Salaries, wages, payroll taxes and benefits	$	27,633	$	42,751
Workers’ compensation liability		65,281		67,615
Sales, use and other taxes		9,489		11,043
Insurance, other than workers’ compensation		15,927		13,328
Other		5,544		10,726

Accrued expenses	$	123,874	$	145,463

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Asset Retirement Obligation

Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” requires that the Company record a liability for the estimated costs to be incurred in connection with the abandonment of oil and natural gas properties in the future. The following table describes the changes to the Company’s asset retirement obligations during the six months ended June 30, 2007 and 2006 (in thousands):


	2007			2006

Balance at beginning of year	$	1,829		$	1,725
Liabilities incurred		151			63
Liabilities settled		(632	)		(45	)
Accretion expense		31			27
Revision in estimated cash flows		289			—

Asset retirement obligation at end of period	$	1,668		$	1,770


9.	Borrowings Under Line of Credit

The Company entered into a five-year unsecured revolving line of credit (“LOC”) in December 2004. On August 2, 2006, the Company amended the LOC and increased the borrowing capacity to $375 million. Interest is paid on outstanding LOC balances at a floating rate ranging from LIBOR plus 0.625% to 1.0% or the prime rate. Any outstanding borrowings must be repaid at maturity on December 16, 2009. This arrangement includes various fees, including a commitment fee on the average daily unused amount (0.15% at June 30, 2007). There are customary restrictions and covenants associated with the LOC. Financial covenants provide for a maximum debt to capitalization ratio and a minimum interest coverage ratio. The Company does not expect that the restrictions and covenants will impact its ability to operate or react to opportunities that might arise. As of June 30, 2007, the Company had $15.0 million in borrowings outstanding under the LOC and $60.3 million in letters of credit were outstanding. As a result, the Company had available borrowing capacity of approximately $300 million at June 30, 2007. The weighted average interest rate on outstanding borrowings at June 30, 2007 was 8.25%.


10.	Commitments, Contingencies and Other Matters

Commitments — The Company maintains letters of credit in the aggregate amount of $60.3 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. These letters of credit are typically renewed annually. No amounts have been drawn under the letters of credit.

As of June 30, 2007, the Company has signed non-cancelable commitments to purchase approximately $175 million of equipment. This amount excludes $4.7 million and $24.7 million at June 30, 2007 and December 31, 2006, respectively, related to deposits that have been paid pursuant to agreements that were entered into to purchase rig components to be used in the construction of 15 new land drilling rigs. These payments are presented as Deposits on equipment purchase contracts in the Company’s unaudited consolidated balance sheets.

Contingencies — A receiver was appointed to take control of and liquidate the assets of the Company’s former CFO in connection with his embezzlement of Company funds. In May 2007, the court approved a plan of distribution of the assets that had been recovered by the receiver. The Company expects to recover approximately $42.5 million pursuant to the approved plan and has recognized this recovery in the Company’s unaudited consolidated statement of income in the second quarter of 2007, net of additional professional fees associated with the embezzlement. Cash payments from the receiver of approximately $39.1 million were received in July 2007, with the remaining $3.4 million of the recovery consisting of notes receivable, investments and other assets that will be transferred to the Company.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company is party to various legal proceedings arising in the normal course of its business. The Company does not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations or cash flows.


11.	Stockholders’ Equity

Cash Dividends — The Company has paid cash dividends during the six months ended June 30, 2007 as follows:


	Per Share		Total
			(In thousands)

Paid on March 30, 2007 to shareholders of record as of March 15, 2007	$	0.08	$	12,527
Paid on June 29, 2007 to shareholders of record as of June 14, 2007		0.12		18,860

Total cash dividends	$	0.20	$	31,387

On August 1, 2007, the Company’s Board of Directors approved a cash dividend on its common stock in the amount of $0.12 per share to be paid on September 28, 2007 to holders of record as of September 12, 2007. The amount and timing of all future dividend payments is subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of the Company’s credit facilities and other factors.

The Company purchased 16,018 shares of treasury stock during the six months ended June 30, 2007. Shares were purchased from employees at fair market value upon the vesting of restricted stock to provide the respective employees with the funds necessary to satisfy their respective tax withholding obligations. The total purchase price for these shares was approximately $415,000.

On August 1, 2007, the Company’s Board of Directors approved a stock buyback program, authorizing purchases of up to $250 million of the Company’s common stock in open market or privately negotiated transactions.


12.	Income Taxes

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the adoption of FIN 48 the Company reduced a reserve for an uncertain tax position with respect to a business combination that had originally been recorded as goodwill (see Note 6). The impact of adjustments to reserves with respect to other uncertain tax positions was not material. In connection with the adoption of FIN 48, the Company established a policy to account for interest and penalties with respect to income taxes as operating expenses. As of June 30, 2007, the years ended December 31, 2003 through 2006 are open for examination by U.S. taxing authorities. As of June 30, 2007, the years ended December 31, 2000 through 2006 are open for examination by Canadian taxing authorities.


13.	Recently Issued Accounting Standards

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. FAS 157 will be effective for the Company beginning in the quarter ending March 31, 2008. The application of FAS 157 is not expected to have a material impact to the Company.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007 and will be effective for the Company beginning in the quarter ending March 31, 2008. The application of FAS 159 is not expected to have a material impact to the Company.


ITEM 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Management Overview — We are a leading provider of contract services to the North American oil and natural gas industry. Our services primarily involve the drilling, on a contract basis, of land-based oil and natural gas wells and, to a lesser extent, we provide pressure pumping services and drilling and completion fluid services. In addition to the aforementioned contract services, we also engage in the development, exploration, acquisition and production of oil and natural gas. For the three and six months ended June 30, 2007 and 2006, our operating revenues consisted of the following (dollars in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2007				2006				2007				2006

Contract drilling	$	419,191	80	%	$	530,349	83	%	$	886,689	83	%	$	1,039,053	84	%
Pressure pumping		51,592	10			36,010	6			90,176	8			67,338	5
Drilling and completion fluids		39,667	8			59,877	9			70,427	7			109,058	9
Oil and natural gas		12,108	2			10,577	2			22,367	2			19,097	2

	$	522,558	100	%	$	636,813	100	%	$	1,069,659	100	%	$	1,234,546	100	%

We provide our contract services to oil and natural gas operators in many of the oil and natural gas producing regions of North America. Our contract drilling operations are focused in various regions of Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Colorado, Utah, Wyoming, Montana, North Dakota, South Dakota, Pennsylvania and Western Canada, while our pressure pumping services are focused primarily in the Appalachian Basin. Our drilling and completion fluids services are provided to operators offshore in the Gulf of Mexico and on land in Texas, Southeastern New Mexico, Oklahoma and the Gulf Coast region of Louisiana. Our oil and natural gas operations are primarily focused in West and South Texas, Southeastern New Mexico, Utah and Mississippi.

The profitability of our business is most readily assessed by two primary indicators in our contract drilling segment: our average number of rigs operating and our average revenue per operating day. During the second quarter of 2007, our average number of rigs operating was 237 per day compared to 255 in the first quarter of 2007 and 295 in the second quarter of 2006. Our average revenue per operating day decreased to $19,410 in the second quarter of 2007 from $20,350 in the first quarter of 2007 and $19,780 in the second quarter of 2006. Our consolidated net income for the second quarter of 2007 decreased by $32.1 million or 19% as compared to the second quarter of 2006. Included in consolidated net income for the second quarter of 2007 was a pre-tax gain of approximately $41.9 million associated with the expected recovery of embezzled funds and approximately $16.4 million in net pre-tax gains from the sale of certain oil and natural gas properties and the disposal of certain other assets. Excluding the above-mentioned gains, our consolidated net income for the second quarter of 2007 would have been approximately $102 million, which is a decrease of approximately $70.1 million or 41% as compared to the second quarter of 2006. This decrease was primarily due to our contract drilling segment experiencing an increase in the average costs per operating day, a decrease in the average revenue per operating day and a decrease in the average number of rigs operating in the second quarter of 2007 as compared to the second quarter of 2006.

Our revenues, profitability and cash flows are highly dependent upon the market prices of oil and natural gas. During periods of improved commodity prices, the capital spending budgets of oil and natural gas operators tend to expand, which results in increased demand for our contract services. Conversely, in periods of time when these commodity prices deteriorate, the demand for our contract services generally weakens and we experience a decrease in the number of rigs operating and downward pressure on pricing for our services. In addition, our operations are highly impacted by competition, the availability of excess equipment, labor issues and various other factors which are more fully described as “Risk Factors” included as Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2006.

We believe that the liquidity presented in our balance sheet as of June 30, 2007, which includes approximately $240 million in working capital (including $27.5 million in cash) and $300 million available under a $375 million line of credit, provides us with the ability to pursue acquisition opportunities, expand into new regions, make improvements to our assets, pay cash dividends and survive downturns in our industry.

Commitments and Contingencies — The Company maintains letters of credit in the aggregate amount of $60.3 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. These letters of credit expire at various times during each calendar year. No amounts have been drawn under the letters of credit.

As of June 30, 2007, we have remaining non-cancelable commitments to purchase approximately $175 million of equipment.

A receiver has been appointed to take control of and liquidate the assets of our former CFO in connection with his embezzlement of Company funds. In May 2007, the court approved a plan of distribution of the assets that had been recovered by the receiver. We expect to recover approximately $42.5 million pursuant to the approved plan and have recognized this recovery in our unaudited consolidated statement of income in the second quarter of 2007, net of additional professional fees associated with the embezzlement. Cash payments from the receiver of approximately $39.1 million were received in July 2007, with the remaining $3.4 million of the recovery consisting of notes receivable, investments and other assets that are expected to be transferred to us.

Trading and Investing — We have not engaged in trading activities that include high-risk securities, such as derivatives and non-exchange traded contracts. We invest cash primarily in highly liquid, short-term investments such as overnight deposits, money markets, and highly rated municipal and commercial bonds.

Description of Business — We conduct our contract drilling operations in Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Colorado, Utah, Wyoming, Montana, North Dakota, South Dakota, Pennsylvania and Western Canada. We have approximately 345 currently marketable land-based drilling rigs. We provide pressure pumping services to oil and natural gas operators primarily in the Appalachian Basin. These services consist primarily of well stimulation and cementing for completion of new wells and remedial work on existing wells. We provide drilling fluids, completion fluids and related services to oil and natural gas operators offshore in the Gulf of Mexico and on land in Texas, Southeastern New Mexico, Oklahoma and the Gulf Coast region of Louisiana. Drilling and completion fluids are used by oil and natural gas operators during the drilling process to control pressure when drilling oil and natural gas wells. We are also engaged in the development, exploration, acquisition and production of oil and natural gas. Our oil and natural gas operations are focused primarily in producing regions in West and South Texas, Southeastern New Mexico, Utah and Mississippi.

The North American land drilling industry has experienced periods of downturn in demand over the last decade. During these periods, there have been substantially more drilling rigs available than necessary to meet demand. As a result, drilling contractors have had difficulty sustaining profit margins during the downturn periods.

In addition to adverse effects that future declines in demand could have on us, ongoing factors which could adversely affect utilization rates and pricing, even in an environment of high oil and natural gas prices and increased drilling activity, include:


	•	movement of drilling rigs from region to region,

	•	reactivation of land-based drilling rigs, or

	•	construction of new drilling rigs.

We cannot predict either the future level of demand for our contract drilling services or future conditions in the oil and natural gas contract drilling business.

Critical Accounting Policies

In addition to established accounting policies, our consolidated financial statements are impacted by certain estimates and assumptions made by management. No changes in our critical accounting policies have occurred since the filing of the Company’s Annual Report on Form 10-K for the period ended December 31, 2006.

Liquidity and Capital Resources

As of June 30, 2007, we had working capital of approximately $240 million including cash and cash equivalents of $27.5 million. For the six months ended June 30, 2007, our significant sources of cash flow included:


	•	$447 million provided by operations,

	•	$26.8 million in proceeds from disposal of property and equipment, and

	•	$2.0 million from the exercise of stock options and related tax benefits associated with stock-based compensation.

We used $31.4 million to pay dividends on the Company’s common stock, $105 million to repay borrowings under our line of credit and $326 million:


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

	•	to acquire and procure drilling equipment and facilities to support our drilling operations,

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

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

As of June 30, 2007, we had $15.0 million in borrowings outstanding under our $375 million revolving line of credit and $60.3 million in letters of credit were outstanding such that we had available borrowing capacity of approximately $300 million at June 30, 2007.

We paid cash dividends during the six months ended June 30, 2007 as follows:


	Per Share		Total
			(In thousands)

Paid on March 30, 2007 to shareholders of record as of March 15, 2007	$	0.08	$	12,527
Paid on June 29, 2007 to shareholders of record as of June 14, 2007		0.12		18,860

Total cash dividends	$	0.20	$	31,387

On August 1, 2007, our Board of Directors approved a cash dividend on our common stock in the amount of $0.12 per share to be paid on September 28, 2007 to holders of record as of September 12, 2007. The amount and timing of all future dividend payments is subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our credit facilities and other factors.

On August 1, 2007, our Board of Directors approved a stock buyback program, authorizing purchases of up to $250 million of our common stock in open market or privately negotiated transactions.

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

Results of Operations

The following tables summarize operations by business segment for the three months ended June 30, 2007 and 2006:


Contract Drilling	2007		2006		% Change
	(Dollars in thousands)

Revenues	$	419,191	$	530,349		(21.0	)%
Direct operating costs	$	228,297	$	235,902		(3.2	)%
Selling, general and administrative	$	1,400	$	1,733		(19.2	)%
Depreciation	$	51,782	$	40,268		28.6	%
Operating income	$	137,712	$	252,446		(45.4	)%
Operating days		21,597		26,810		(19.4	)%
Average revenue per operating day	$	19.41	$	19.78		(1.9	)%
Average direct operating costs per operating day	$	10.57	$	8.80		20.1	%
Average rigs operating		237		295		(19.7	)%
Capital expenditures	$	129,913	$	124,909		4.0	%

Demand for our contract drilling services is dependent upon the prevailing prices for natural gas. The average market price of natural gas fell from $8.98 per Mcf in 2005 to $6.94 per Mcf in 2006. This decrease resulted in our customers reducing their drilling activities beginning in the fourth quarter of 2006 and continuing into 2007. As a result of the decrease in drilling activities by our customers, our average rigs operating declined to 237 in the second quarter of 2007 compared to 255 in the first quarter of 2007 and 295 in the second quarter of 2006.

Revenues in the second quarter of 2007 decreased as compared to the second quarter of 2006 as a result of the decreased number of operating days in 2007 and a decrease of approximately $370 in the average revenue per operating day. The increase in average direct operating costs per day of approximately $1,770 resulted primarily from increased compensation costs and an increase in the cost of maintenance for our drilling rigs, partially caused by costs relating to the deactivating of drilling rigs. Selling, general and administrative expense decreased primarily as a result of the transfer of administrative staff to our corporate segment. Significant capital expenditures have been incurred to activate additional drilling rigs, to modify and upgrade our drilling rigs and to acquire additional related equipment such as drill pipe, drill collars, engines, fluid circulating systems, rig hoisting systems and safety enhancement equipment. The increase in depreciation expense was a result of the capital expenditures discussed above.


Pressure Pumping	2007		2006		% Change
	(Dollars in thousands)

Revenues	$	51,592	$	36,010		43.3	%
Direct operating costs	$	25,777	$	17,935		43.7	%
Selling, general and administrative	$	4,808	$	3,152		52.5	%
Depreciation	$	3,408	$	2,330		46.3	%
Operating income	$	17,599	$	12,593		39.8	%
Total jobs		3,573		3,017		18.4	%
Average revenue per job	$	14.44	$	11.94		20.9	%
Average direct operating costs per job	$	7.21	$	5.94		21.4	%
Capital expenditures	$	14,206	$	10,652		33.4	%

Revenues and direct operating costs increased as a result of the increased number of jobs, as well as an increase in the average revenue and average direct operating costs per job. The increase in jobs was attributable to increased demand for our services and increased operating capacity. Increased average revenue per job was due to increased pricing for our services and an increase in the number of larger jobs. Average direct operating costs per job increased as a result of increases in compensation and the cost of materials used in our operations, as well as an increase in the number of larger jobs. Selling, general and administrative expense increased primarily as a result of additional expenses to support the expanding operations of the pressure pumping segment. Significant capital expenditures

have been incurred to add capacity, expand our areas of operation and modify and upgrade existing equipment. The increase in depreciation expense was a result of the capital expenditures discussed above.


Drilling and Completion Fluids	2007		2006		% Change
	(Dollars in thousands)

Revenues	$	39,667	$	59,877		(33.8	)%
Direct operating costs	$	32,628	$	46,049		(29.1	)%
Selling, general and administrative	$	2,436	$	2,592		(6.0	)%
Depreciation	$	697	$	674		3.4	%
Operating income	$	3,906	$	10,562		(63.0	)%
Total jobs		434		532		(18.4	)%
Average revenue per job	$	91.40	$	112.55		(18.8	)%
Average direct operating costs per job	$	75.18	$	86.56		(13.1	)%
Capital expenditures	$	1,023	$	979		4.5	%

Revenues and direct operating costs decreased primarily as a result of decreases in the average revenue and direct operating costs per job and in the number of total jobs. Average revenue and direct operating costs per job decreased primarily as a result of a decrease in the number of large jobs offshore in the Gulf of Mexico.


Oil and Natural Gas Production and Exploration	2007		2006		% Change
	(Dollars in thousands, except sales prices)

Revenues	$	12,108	$	10,577		14.5	%
Direct operating costs	$	2,461	$	5,364		(54.1	)%
Selling, general and administrative	$	674	$	728		(7.4	)%
Depreciation, depletion and impairment	$	3,857	$	4,013		(3.9	)%
Operating income	$	5,116	$	472		983.9	%
Capital expenditures	$	4,619	$	5,856		(21.1	)%
Average net daily oil production (Bbls)		1,107		1,076		2.9	%
Average net daily gas production (Mcf)		6,444		5,109		26.1	%
Average oil sales price (per Bbl)	$	63.04	$	67.26		(6.3	)%
Average natural gas sales price (per Mcf)	$	7.84	$	6.78		15.6	%

Revenues increased primarily due to an increase in the net daily production of natural gas and an increase in the average sales price of natural gas. Average net daily oil and natural gas production increased primarily due to the completion of wells subsequent to the second quarter of 2006, partially offset by production declines in existing wells and by the sale of certain properties in 2007. The decrease in direct operating costs is primarily due to a decrease of approximately $3.0 million in costs associated with the abandonment of exploratory wells. Depreciation, depletion and impairment expense in the second quarter of 2007 includes approximately $534,000 incurred to impair certain oil and natural gas properties compared to approximately $1.3 million incurred to impair certain oil and natural gas properties in the second quarter of 2006.


Corporate and Other	2007			2006		% Change
	(Dollars in thousands)

Selling, general and administrative	$	7,004		$	4,635		51.1	%
Depreciation	$	203		$	196		3.6	%
Other operating expenses	$	400		$	786		(49.1	)%
(Gain) loss on disposal of assets	$	(16,475	)	$	870		N/A	%
Embezzlement costs (recoveries)	$	(41,935	)	$	673		N/A	%
Interest income	$	457		$	2,280		(80.0	)%
Interest expense	$	831		$	55		N/A	%
Other income	$	109		$	59		84.7	%
Capital expenditures	$	—		$	135		(100.0	)%

Selling, general and administrative expense increased primarily as a result of compensation expense related to transfers of administrative staff to our corporate segment as well as increases in stock-based compensation expense and professional fees. In the second quarter of 2007 we sold certain oil and natural gas properties resulting in a gain of $20.3 million. This gain was reduced by approximately $3.8 million in losses associated with the disposal of other assets. Gains and losses on the disposal of assets are considered as part of our corporate activities due to the fact that such transactions relate to decisions of the executive management group regarding corporate strategy. Embezzlement costs (recoveries) in the second quarter of 2007 includes an expected recovery of $42.5 million, reduced by approximately $600,000 in additional professional and other costs incurred as a result of the embezzlement. Embezzlement costs (recoveries) in the second quarter of 2006 include professional and other costs incurred as a result of the embezzlement. Interest income decreased due to the decrease in cash available to invest. During 2006, we repurchased $450 million of our common stock. Interest expense in 2007 increased primarily due to higher average borrowings that were outstanding under our line of credit during the second quarter of 2007.

The following tables summarize operations by business segment for the six months ended June 30, 2007 and 2006:


Contract Drilling	2007		2006		% Change
	(Dollars in thousands)

Revenues	$	886,689	$	1,039,053		(14.7	)%
Direct operating costs	$	474,451	$	469,676		1.0	%
Selling, general and administrative	$	2,851	$	3,521		(19.0	)%
Depreciation	$	99,970	$	78,803		26.9	%
Operating income	$	309,417	$	487,053		(36.5	)%
Operating days		44,569		53,810		(17.1	)%
Average revenue per operating day	$	19.89	$	19.31		3.0	%
Average direct operating costs per operating day	$	10.65	$	8.73		22.0	%
Average rigs operating		246		297		(17.2	)%
Capital expenditures	$	283,189	$	224,286		26.3	%

Revenues in the first six months of 2007 decreased as compared to the first six months of 2006 as a result of the decreased number of operating days in 2007, partially offset by an increase of approximately $580 in the average revenue per operating day. Although the number of operating days decreased in 2007, direct operating costs increased due to an increase in average direct operating costs per operating day of approximately $1,920. The increase in average direct operating costs per day primarily resulted from increased compensation costs and an increase in the cost of maintenance for our drilling rigs, partially caused by costs relating to the deactivating of drilling rigs. Selling, general and administrative expense decreased primarily as a result of the transfer of administrative staff to our corporate segment. Significant capital expenditures have been incurred to activate additional drilling rigs, to modify and upgrade our drilling rigs and to acquire additional related equipment such as drill pipe, drill collars, engines, fluid circulating systems, rig hoisting systems and safety enhancement equipment. The increase in depreciation expense was a result of the capital expenditures discussed above.


Pressure Pumping	2007		2006		% Change
	(Dollars in thousands)

Revenues	$	90,176	$	67,338		33.9	%
Direct operating costs	$	46,928	$	35,585		31.9	%
Selling, general and administrative	$	8,876	$	6,138		44.6	%
Depreciation	$	6,532	$	4,516		44.6	%
Operating income	$	27,840	$	21,099		31.9	%
Total jobs		6,412		5,728		11.9	%
Average revenue per job	$	14.06	$	11.76		19.6	%
Average direct operating costs per job	$	7.32	$	6.21		17.9	%
Capital expenditures	$	30,631	$	19,679		55.7	%


Drilling and Completion Fluids	2007		2006		% Change
	(Dollars in thousands)

Revenues	$	70,427	$	109,058		(35.4	)%
Direct operating costs	$	58,019	$	84,235		(31.1	)%
Selling, general and administrative	$	4,833	$	5,032		(4.0	)%
Depreciation	$	1,393	$	1,311		6.3	%
Operating income	$	6,182	$	18,480		(66.5	)%
Total jobs		869		1,019		(14.7	)%
Average revenue per job	$	81.04	$	107.02		(24.3	)%
Average direct operating costs per job	$	66.77	$	82.66		(19.2	)%
Capital expenditures	$	2,121	$	1,930		9.9	%


Oil and Natural Gas Production and Exploration	2007		2006		% Change
	(Dollars in thousands, except sales prices)

Revenues	$	22,367	$	19,097		17.1	%
Direct operating costs	$	5,739	$	8,019		(28.4	)%
Selling, general and administrative	$	1,322	$	1,366		(3.2	)%
Depreciation, depletion and impairment	$	7,577	$	6,011		26.1	%
Operating income	$	7,729	$	3,701		108.8	%
Capital expenditures	$	9,651	$	10,717		(9.9	)%
Average net daily oil production (Bbls)		1,104		935		18.1	%
Average net daily gas production (Mcf)		5,944		5,070		17.2	%
Average oil sales price (per Bbl)	$	59.69	$	64.98		(8.1	)%
Average natural gas sales price (per Mcf)	$	7.53	$	7.04		7.0	%

Revenues increased due to increases in the net daily production of oil and natural gas and an increase in the average sales price of natural gas which was partially offset by a reduction in the average sales price of oil. Average net daily oil and natural gas production increased primarily due to the completion of wells subsequent to the second quarter of 2006, partially offset by production declines in existing wells and by the sale of certain properties in 2007. Direct operating costs decreased due primarily to a decrease of approximately $2.3 million in costs associated with the abandonment of exploratory wells. Depreciation, depletion and impairment expense increased due to the increases in net daily production of oil and natural gas.


Corporate and Other	2007			2006		% Change
	(Dollars in thousands)

Selling, general and administrative	$	13,109		$	9,594		36.6	%
Depreciation	$	406		$	389		4.4	%
Other operating expenses	$	1,000		$	1,385		(27.8	)%
Gain on disposal of assets	$	(16,273	)	$	—		N/A	%
Embezzlement costs (recoveries)	$	(41,935	)	$	4,453		N/A	%
Interest income	$	826		$	4,631		(82.2	)%
Interest expense	$	1,594		$	113		N/A	%
Other income	$	203		$	143		42.0	%
Capital expenditures	$	—		$	135		(100.0	)%

Selling, general and administrative expense increased primarily as a result of compensation expense related to transfers of administrative staff to our corporate segment as well as increases in stock-based compensation expense and professional fees. In 2007 we sold certain oil and natural gas properties resulting in a gain of $20.3 million. This gain was reduced by approximately $4.1 million in losses associated with the disposal of other assets. Gains and losses on the disposal of assets are considered as part of our corporate activities due to the fact that such transactions relate to decisions of the executive management group regarding corporate strategy. Embezzlement costs (recoveries) in 2007 includes an expected recovery of $42.5 million reduced by approximately $600,000 in additional professional and other costs incurred as a result of the embezzlement. Embezzlement costs (recoveries) in 2006 include professional and other costs incurred as a result of the embezzlement. Interest income decreased due to the decrease in cash available to invest from 2006 to 2007. Interest expense in 2007 increased primarily due to higher average borrowings that were outstanding under our line of credit during 2007.

Recently Issued Accounting Standards

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurement. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. FAS 157 will be effective for us beginning in the quarter ending March 31, 2008. The application of FAS 157 is not expected to have a material impact to us.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007 and will be effective for us beginning in the quarter ending March 31, 2008. The application of FAS 159 is not expected to have a material impact to us.

Volatility of Oil and Natural Gas Prices and its Impact on Operations

Our revenue, profitability, and rate of growth are substantially dependent upon prevailing prices for oil and natural gas, with respect to all of our operating segments. For many years, oil and natural gas prices and markets have been volatile. Prices are affected by market supply and demand factors as well as international military, political and economic conditions, and the ability of OPEC to set and maintain production and price targets. All of these factors are beyond our control. During 2006, the average market price of natural gas retreated from record highs that were set in 2005. The price dropped to an average of $6.94 per Mcf for the full year of 2006 compared to $8.98 per Mcf for the full year of 2005. This decrease resulted in our customers reducing their drilling activities beginning in the fourth quarter of 2006 and continuing into 2007. As a result of this decrease in drilling activities by our customers, our average rigs operating have declined to 237 in the second quarter of 2007 compared to 255 in the first quarter of 2007 and 290 in the fourth quarter of 2006. We expect oil and natural gas prices to continue to be volatile and to affect our financial condition, operations and ability to access sources of capital. A significant

decrease in market prices for natural gas could result in a material decrease in demand for drilling rigs and reduction in our operation results.

Impact of Inflation

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


ITEM 3.	*Quantitative and Qualitative Disclosures About Market Risk*

We currently have exposure to interest rate market risk associated with borrowings under our credit facility. The revolving credit facility calls for periodic interest payments at a floating rate ranging from LIBOR plus 0.625% to 1.0% or at the prime rate. The applicable rate above LIBOR is based upon our debt to capitalization ratio. Our exposure to interest rate risk due to changes in the prime rate or LIBOR is not material.

We conduct some business in Canadian dollars through our Canadian land-based drilling operations. The exchange rate between Canadian dollars and U.S. dollars has fluctuated during the last several years. If the value of the Canadian dollar against the U.S. dollar weakens, revenues and earnings of our Canadian operations will be reduced and the value of our Canadian net assets will decline when they are translated to U.S. dollars. This currency rate risk is not material to our results of operations or financial condition.


ITEM 4.	*Controls and Procedures*

Disclosure Controls and Procedures — We maintain disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to ensure that the information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2007.

Changes in Internal Control Over Financial Reporting — There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

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

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


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

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

	•	Shortages of drill pipe and other drilling equipment;

	•	Labor shortages, primarily qualified drilling personnel;

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

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

	•	Environmental and other governmental regulation.

For a more complete explanation of these factors and others, see “Risk Factors” included as Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2006, beginning on page 10.

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

PART II — OTHER INFORMATION


ITEM 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

The table below sets forth the information with respect to purchases of our common stock made by us during the quarter ended June 30, 2007.


							Approximate Dollar
					Total Number of		Value of Shares
					Shares (or Units)		That May Yet Be
					Purchased as Part		Purchased Under the
	Total		Average Price		of Publicly		Plans or
	Number of Shares		Paid per		Announced Plans		Programs (in
Period Covered	Purchased(1)		Share		or Programs		thousands)(2)

April 1-30, 2007		—	$	—		—	$	—
May 1-31, 2007		—	$	—		—	$	—
June 1-30, 2007		16,018	$	25.95		—	$	—

Total		16,018	$	25.95		—	$	—


(1)		Represents shares purchased from employees on June 9, 2007 to provide the respective employees with the funds necessary to satisfy their tax withholding obligations with respect to the vesting of restricted shares on that date. The price paid per share represents the closing price of our common stock on June 8, 2007.

(2)		On August 1, 2007, our Board of Directors approved a stock buyback program authorizing purchases of up to $250 million of our common stock in open market or privately negotiated transactions.


ITEM 4.	*Submission of Matters to a Vote of Security Holders*

On June 7, 2007, the Company held its Annual Meeting of Stockholders. At the meeting, the stockholders voted on the following matters:

1. The election of seven persons to serve as directors of the Company.

2. Ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2007.

The seven nominees to the Board of Directors of the Company were elected at the meeting, and the other proposal received the affirmative vote required for approval. The voting results were as follows:


1. Election of Directors	Votes For		Votes Withheld

Mark S. Siegel		130,898,755		3,158,393
Cloyce A. Talbott		131,379,433		2,677,715
Kenneth N. Berns		126,257,416		7,799,732
Charles O. Buckner		133,306,445		750,703
Curtis W. Huff		133,273,715		783,433
Terry H. Hunt		128,661,402		5,395,746
Kenneth R. Peak		133,141,175		915,973

Votes

Broker

Votes For

Against

Abstentions

Non-votes

2. Ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm

133,664,121

276,006

117,021


ITEM 5.	*Other Information*

On August 1, 2007, the Board of Directors approved and adopted the Second Amended and Restated Bylaws of the Company, which amended the Amended and Restated Bylaws of the Company to provide that the Company may, in accordance with the General Corporation Law of the State of Delaware, issue both certificated and uncertificated shares of its stock. The Board of Directors approved the amendments in connection with recent rules promulgated by the Nasdaq Stock Market. A copy of the Second Amended and Restated Bylaws is attached hereto as Exhibit 3.3.


ITEM 6.	*Exhibits*

(a) Exhibits.

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


3	.1	Restated Certificate of Incorporation, as amended (filed August 9, 2004 as Exhibit 3.1 to the Company’s 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 Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and incorporated herein by reference).
3	.3	Second Amended and Restated Bylaws.
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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PATTERSON-UTI ENERGY, INC.


	By:	/s/ Cloyce A. Talbott

Cloyce A. Talbott

(Principal Executive Officer)

President & Chief Executive Officer


	By:	/s/ John E. Vollmer III

John E. Vollmer III

(Principal Financial and Accounting Officer)

Senior Vice President-Corporate Development,

Chief Financial Officer and Treasurer

DATED: August 6, 2007

Exhibit 3.3

SECOND AMENDED AND RESTATED BYLAWS

PATTERSON-UTI ENERGY, INC.
A DELAWARE CORPORATION

AUGUST 1, 2007

Table of Contents


		Page
ARTICLE I Meetings of Stockholders		1

Section 1.	Annual Meetings	1
Section 2.	Special Meetings	1
Section 3.	Notices of Meetings	1
Section 4.	Place of Meetings	1
Section 5.	Quorum	1
Section 6.	Record Date	2
Section 7.	Proxies	2
Section 8.	Stockholder Proposals at Annual Meetings	2
Section 9.	Notice of Stockholder Nominees	3

ARTICLE II Directors		5

Section 1.	Number of Directors	5
Section 2.	Election of Directors	5
Section 3.	Term of Office	5
Section 4.	Removal	5
Section 5.	Vacancies	5
Section 6.	Quorum and Transaction of Business	5
Section 7.	Annual Meeting	5
Section 8.	Regular Meetings	6
Section 9.	Special Meetings	6
Section 10.	Notice of Annual or Special Meetings	6
Section 11.	Action by Consent	6
Section 12.	Compensation	6

ARTICLE III Committees		7

Section 1.	Executive Committee	7
Section 2.	Meetings of Executive Committee	7
Section 3.	Other Committees	7

ARTICLE IV Officers		8

Section 1.	General Provisions	8
Section 2.	Term of Office	8

Table of Contents (continued)


		Page
ARTICLE V Duties of Officers			8

Section 1.	Chairman of the Board		8
Section 2.	Chief Executive Officer		8
Section 3.	President		9
Section 4.	Vice Presidents		9
Section 5.	Secretary		9
Section 6.	Treasurer		9
Section 7.	Assistant and Subordinate Officers		10
Section 8.	Duties of Officers May Be Delegated		10

ARTICLE VI Indemnification of Directors, Officers, Employees and Other Agents			10

Section 1.	Indemnification of Directors and Officers		10
Section 2.	Indemnification of Others		11
Section 3.	Insurance		11
Section 4.	Expenses		11
Section 5.	Non-Exclusivity of Rights		12
Section 6.	Survival of Rights		12
Section 7.	Amendments		12

ARTICLE VII Certificates for Shares			12

Section 1.	Form and Execution.		12
Section 2.	Registration of Transfer		12
Section 3.	Lost, Destroyed or Stolen Certificates		13
Section 4.	Registered Stockholders		13

ARTICLE VIII Fiscal Year			13

ARTICLE IX Seal			13

ARTICLE X Amendments			14

SECOND AMENDED AND RESTATED BYLAWS
OF
PATTERSON-UTI ENERGY, INC.
a Delaware corporation

ARTICLE I

Meetings of Stockholders

Section 1. Annual Meetings. The annual meeting of stockholders shall be held at such time and place and on such date in each year as may be fixed by the board of directors and stated in the notice of the meeting, for the election of directors, the consideration of reports to be laid before such meeting, and the transaction of such other business as may properly come before the meeting.

Section 2. Special Meetings. A special meeting of the stockholders for the transaction of any proper business may only be called in accordance with the provisions of the Certificate of Incorporation.

Section 3. Notices of Meetings. Unless waived, and except as provided in Section 230 of the General Corporation Law of the State of Delaware, written notice of each annual or special meeting stating the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by personal delivery or by mail to each stockholder of record entitled to vote at or entitled to notice of the meeting, not more than sixty (60) days nor less than ten (10) days before any such meeting. If mailed, such notice shall be directed to the stockholder at his address as the same appears upon the records of the Corporation. Any stockholder, either before or after any meeting, may waive any notice required to be given by law or under these Bylaws.

Section 4. Place of Meetings. Meetings of stockholders shall be held at the principal office of the Corporation unless the board of directors determines that a meeting shall be held at some other place within or without the State of Delaware and causes the notice thereof to so state.

Section 5. Quorum. The holders of shares entitling them to exercise a majority of the voting power of the Corporation entitled to vote at any meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business to be considered at such meeting; provided, however, that no action required by law or by the Certificate of Incorporation or these Bylaws to be authorized or taken by the holders of a designated proportion of the shares of any particular class or of each class may be authorized or taken by a lesser proportion; and provided, further, that, if a separate class vote is required with respect to any matter, the holders of a majority of the outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum of such class, and the affirmative vote of the majority of shares of such class so present shall be the act of such class. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time, until a quorum shall be present.

Section 6. Record Date. The board of directors may fix a record date for any lawful purpose, including, without limiting the generality of the foregoing, the determination of stockholders entitled to (a) receive notice of or to vote at any meeting of stockholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, (b) receive payment of any dividend or other distribution or allotment of any rights, or (c) exercise any rights in respect of any change, conversion, or exchange of stock. Such record date shall not precede the date on which the resolution fixing the record date is adopted by the board of directors. Such record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days before the date fixed for the payment of any dividend or distribution or the date fixed for the receipt or the exercise of rights, nor more than ten (10) days after the date on which the resolution fixing the record date for such written consent is adopted by the board of directors, as the case may be.

If a record date shall not be fixed in respect of any such matter, the record date shall be determined in accordance with the General Corporation Law of the State of Delaware.

Section 7. Proxies. A person who is entitled to attend a stockholders’ meeting, to vote thereat, or to execute consents, waivers, or releases, may be represented at such meeting or vote thereat, and execute consents, waivers, and releases, and exercise any of his other rights, by proxy or proxies appointed by a writing signed by such person.

Section 8. Stockholder Proposals at Annual Meetings.

(a) No business shall be conducted at an annual meeting of stockholders unless such business is properly brought before the meeting in accordance with the procedures hereinafter set forth in this Section 8; provided, however, nothing in this Section 8 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedures.

(b) To be properly brought before the meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise properly brought before the meeting by or at the direction of the board of directors or (iii) otherwise properly brought before the meeting by a stockholder who (A) is a stockholder of record on the date of the giving of the notice provided for below and on the record date for the determination of stockholders entitled to vote at such annual meeting and (B) gives timely notice of such business in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or public disclosure of the annual meeting date was made, whichever occurs first. A stockholder’s notice to the Secretary of the Corporation shall set forth (i) a brief

description of each matter desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation that are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

(c) Any adjournment or postponement of the original meeting whereby the meeting will reconvene within 30 days from the original date shall be deemed for purposes of notice to be a continuation of the original meeting and no business may be brought before any such reconvened meeting unless timely notice of such business was given to the Secretary of the Corporation for the meeting as originally scheduled.

(d) If the Chairman of an annual meeting of stockholders determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

(e) For purposes of this Section 8, the term “public disclosure” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.

(f) Notwithstanding anything contained in this Section 8 to the contrary, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 8. Nothing in this Section 8 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended.

Section 9. Notice of Stockholder Nominees.

(a) Only persons who are nominated in accordance with the procedures set forth in this Section 9 shall be eligible for election as directors of the Corporation.

(b) Nominations of persons for election to the board of directors of the Corporation may be made at a meeting of stockholders only (i) by or at the direction of the board of directors or (ii) by a stockholder who (A) is a stockholder of record on the date of the giving of the notice provided for below and on the record date for the determination of stockholders entitled to vote at such annual meeting and (B) gives timely notice in writing to the Secretary of the Corporation of such nomination. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the

stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or public disclosure of the annual meeting date was made, whichever occurs first. A stockholder’s notice to the Secretary of the Corporation shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, or any successor regulation thereto, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation that are beneficially owned by the stockholder, (iv) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination or nominations are to be made by such stockholder and (v) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in the notice. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

(c) Any adjournment or postponement of the original meeting whereby the meeting will reconvene within 30 days from the original date shall be deemed for purposes of notice to be a continuation of the original meeting and no nominations by a stockholder of persons to be elected as directors of the Corporation may be made at any such reconvened meeting unless timely notice of such nominations was given to the Secretary of the Corporation for the meeting as originally scheduled.

(d) If the Chairman of a meeting of stockholders determines that a nomination was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was not properly brought before the meeting and such nomination shall be disregarded.

(e) For purposes of this Section 9, the term “public disclosure” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended.

(f) Notwithstanding anything contained in this Section 9 to the contrary, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 9. Nothing in this Section 9 shall be deemed to affect any rights of the holders of any series of Preferred Stock to elect directors under specified circumstances.

ARTICLE II

Directors

Section 1. Number of Directors. Until changed in accordance with the provisions of this section, the number of directors of the Corporation, none of whom need be stockholders, shall be four (4). The number of directors may be fixed or changed by amendment of these Bylaws or by resolution of the board of directors.

Section 2. Election of Directors. Directors shall be elected at the annual meeting of stockholders, but when the annual meeting is not held or directors are not elected thereat, they may be elected at a special meeting called and held for that purpose. Such election shall be by ballot whenever requested by any stockholder entitled to vote at such election, but unless such request is made, the election may be conducted in any manner approved at such meeting.

At each meeting of stockholders for the election of directors, the persons receiving the greatest number of votes shall be directors.

Section 3. Term of Office. Each director shall hold office until the annual meeting next succeeding his election and until his successor is elected and qualified, or until his earlier resignation, removal from office, or death.

Section 4. Removal. All the directors, or all the directors of a particular class, or any individual director may be removed from office, with or without cause, by the vote of the holders of a majority of the shares then entitled to vote at an election of directors.

Section 5. Vacancies. Vacancies in the board of directors may be filled by a majority vote of the remaining directors until an election to fill such vacancies is held. Stockholders entitled to elect directors shall have the right to fill any vacancy in the board (whether the same has been temporarily filled by the remaining directors or not) at any meeting of the stockholders called for that purpose, and any directors elected at any such meeting of stockholders shall serve until the next annual election of directors and until their successors are elected and qualified, or until their earlier resignation, removal from office, or death.

Section 6. Quorum and Transaction of Business. A majority of the whole authorized number of directors shall constitute a quorum for the transaction of business, except that a majority of the directors in office shall constitute a quorum for filling a vacancy on the board. Whenever less than a quorum is present at the time and place appointed for any meeting of the board, a majority of those present may adjourn the meeting from time to time, until a quorum shall be present. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board.

Section 7. Annual Meeting. Annual meetings of the board of directors shall be held immediately following annual meetings of the stockholders, or as soon thereafter as is practicable. If no annual meeting of the stockholders is held, or if directors are not elected thereat, then the annual meeting of the board of directors shall be held immediately following any special meeting of the stockholders at which directors are elected, or as soon thereafter as is practicable. If such annual meeting of directors is held immediately following a meeting of the stockholders, it shall be held at the same place at which such stockholders’ meeting was held.

		Section 8. Regular Meetings. Regular meetings of the board of directors shall be held at such times and places, within or without the State of Delaware, as the board of directors may, by resolution, from time to time determine. The secretary shall give notice of each such resolution to any director who was not present at the time the same was adopted, but no further notice of such regular meeting need be given.

		Section 9. Special Meetings. Special meetings of the board of directors may be called by the chairman of the board, the chief executive officer, the president, or any two members of the board of directors, and shall be held at such times and places, within or without the State of Delaware, as may be specified in such call.

		Section 10. Notice of Annual or Special Meetings. Notice of the time and place of each annual or special meeting shall be given to each director by the secretary or by the person or persons calling such meeting. Such notice need not specify the purpose or purposes of the meeting and may be given in any manner or method and at such time so that the director receiving it may have reasonable opportunity to attend the meeting. Such notice shall, in all events, be deemed to have been properly and duly given if mailed at least forty-eight (48) hours prior to the meeting and directed to the residence of each director as shown upon the secretary’s records. The giving of notice shall be deemed to have been waived by any director who shall attend and participate in such meeting and may be waived, in a writing, by any director either before or after such meeting.

		Section 11. Action by Consent. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the board of directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board of directors or of such committee.

		Section 12. Compensation. The directors, as such, shall be entitled to receive such reasonable compensation, if any, for their services as may be fixed from time to time by resolution of the board, and expenses of attendance, if any, may be allowed for attendance at each annual, regular, or special meeting of the board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the executive committee or of any standing or special committee may by resolution of the board be allowed such compensation for their services as the board may deem reasonable, and additional compensation may be allowed to directors for special services rendered.

ARTICLE III

Committees

Section 1. Executive Committee. The board of directors may from time to time, by resolution passed by a majority of the whole board, create an executive committee of three (3) or more directors, the members of which shall be elected by the board of directors to serve during the pleasure of the board. If the board of directors does not designate a chairman of the executive committee, the executive committee shall elect a chairman from its own number. Except as otherwise provided herein and in the resolution creating an executive committee, such committee shall, during the intervals between the meetings of the board of directors, possess and may exercise all of the powers of the board of directors in the management of the business and affairs of the Corporation, other than that of filling vacancies among the directors or in any committee of the directors or except as provided by law. The executive committee shall keep full records and accounts of its proceedings and transactions. All action by the executive committee shall be reported to the board of directors at its meeting next succeeding such action and shall be subject to control, revision, and alteration by the board of directors, provided that no rights of third persons shall be prejudicially affected thereby. Vacancies in the executive committee shall be filled by the directors, and the directors may appoint one or more directors as alternate members of the committee who may take the place of any absent member or members at any meeting.

Section 2. Meetings of Executive Committee. Subject to the provisions of these Bylaws, the executive committee shall fix its own rules of procedure and shall meet as provided by such rules or by resolutions of the board of directors, and it shall also meet at the call of the chairman of the board, the chief executive officer, the president, the chairman of the executive committee or any two (2) members of the committee. Unless otherwise provided by such rules or by such resolutions, the provisions of Section 10 of Article II relating to the notice required to be given of meetings of the board of directors shall also apply to meetings of the members of the executive committee. A majority of the executive committee may act in a writing without a meeting, but no such action of the executive committee shall be effective unless concurred in by all members of the committee.

Section 3. Other Committees. The board of directors may by resolution provide for such other standing or special committees as it deems desirable, and discontinue the same at its pleasure. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be delegated to it by the board of directors. The provisions of Section 1 and Section 2 of this Article shall govern the appointment and action of such committees so far as consistent, unless otherwise provided by the board of directors. Vacancies in such committees shall be filled by the board of directors or as the board of directors may provide.

ARTICLE IV

Officers

Section 1. General Provisions. The board of directors shall elect a president, such number of vice presidents (if any), with such titles (if any), as the board may from time to time determine, a secretary and a treasurer. The board of directors may also elect a chairman of the board of directors, chief executive officer, chief operating officer, chief financial officer, and may from time to time create such offices and appoint such other officers, subordinate officers, and assistant officers as it may determine. The chairman of the board, if one be elected, shall be, but the other officers need not be, chosen from among the members of the board of directors. Any two or more of such offices, other than those of president and vice president, may be held by the same person, but no officer shall execute, acknowledge, or verify any instrument in more than one capacity.

Section 2. Term of Office. The officers of the Corporation shall hold office during the pleasure of the board of directors, and, unless sooner removed by the board of directors, until the annual meeting of the board of directors following the date of their election and until their successors are chosen and qualified. The board of directors may remove any officer at any time, with or without cause. Subject to the provisions of Section 7 of Article V of these Bylaws, a vacancy in any office, however created, shall be filled by the board of directors.

ARTICLE V

Duties of Officers

Section 1. Chairman of the Board. The chairman of the board, if one be elected, shall be the chief executive officer of the Corporation (unless a separate chief executive officer is elected), shall preside at all meetings of the board of directors and, unless the chairman of the board designates another officer of the Corporation to so preside, meetings of stockholders, and shall have such other powers and duties as may be prescribed by the board of directors.

Section 2. Chief Executive Officer. Unless and to the extent that such powers and duties are expressly delegated to the chairman of the board or the president by the board of directors, the chief executive officer shall be the chief executive officer of the Corporation, and, subject to the supervision of the board of directors, shall, together with the president (and each of them acting individually shall), have general management and control of the business and properties of the corporation in the ordinary course of its business with all such powers with respect to such general management and control as may be reasonably incident to such responsibilities, including, but not limited to, the power to employ, discharge, or suspend employees and agents of the Corporation, to fix the compensation of employees and agents, and to suspend, with or without cause, any officer of the Corporation pending final action by the board of directors with respect to continued suspension, removal, or reinstatement of such officer. In the absence of the chairman of the board, or if none be elected, the chief executive officer shall preside at meetings of stockholders. The chief executive officer shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes, and other instruments in the name of the Corporation and shall have such powers and duties as the board of directors may from time to time assign to him.

Section 3. President. Unless and to the extent that such powers and duties are expressly delegated to the chairman of the board or chief executive officer by the board of directors, the president shall, together with the chief executive officer (and each of them individually shall) have, subject to the supervision of the board of directors, general management and control of the business and properties of the Corporation in the ordinary course of its business with all such powers with respect to such general management and control as may be reasonably incident to such responsibilities, including, but not limited to, the power to employ, discharge, or suspend employees and agents of the Corporation, to fix the compensation of employees and agents, and to suspend, with or without cause, any officer of the Corporation pending final action by the board of directors with respect to continued suspension, removal, or reinstatement of such officer. In the absence of the chairman of the board, or if none be elected, the president shall preside at meetings of stockholders. The president shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes, and other instruments in the name of the Corporation and shall have such powers and duties prescribed by the General Corporation Law of the State of Delaware and such other powers and duties as the board of directors may from time to time assign to him.

Section 4. Vice Presidents. The vice presidents shall have such powers and duties as may from time to time be assigned to them by the board of directors, the chairman of the board, the chief executive officer, or the president. At the request of the president, in the case of his absence or disability, the vice president designated by the president (or in the absence of such designation, the vice president designated by the board) shall perform all the duties of the president and, when so acting, shall have all the powers of the president. The authority of vice presidents to sign in the name of the Corporation certificates for shares and deeds, mortgages, bonds, agreements, notes, and other instruments shall be coordinated with like authority of the president.

Section 5. Secretary. The secretary shall keep minutes of all the proceedings of the stockholders and the board of directors and shall make proper record of the same, which shall be attested by him; shall have authority to execute and deliver certificates as to any of such proceedings and any other records of the Corporation; shall have authority to sign all certificates for shares and all deeds, mortgages, bonds, agreements, notes, and other instruments to be executed by the Corporation which require his signature; shall give notice of meetings of stockholders and directors; shall produce on request at each meeting of stockholders a certified list of stockholders arranged in alphabetical order; shall keep such books and records as may be required by law or by the board of directors; and, in general, shall perform all duties incident to the office of the secretary and such other duties as may from time to time be assigned to him by the board of directors, the chairman of the board, the chief executive officer, or the president.

Section 6. Treasurer. The treasurer shall have the general supervision of all finances; he shall have in charge all money, bills, notes, deeds, leases, mortgages, and similar property belonging to the Corporation, and shall do with the same as may from time to time be required by the board of directors. He shall cause to be kept adequate and correct accounts of the business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, stated capital, and shares, together with such other accounts as may be required; and he shall have such other powers and duties as may from time to time be assigned to him by the board of directors, the chairman of the board, the chief executive officer, or the president.

Section 7. Assistant and Subordinate Officers. Each other officer shall perform such duties as the board of directors, the chairman of the board, the chief executive officer, or the president may prescribe. The board of directors may, from time to time, authorize any officer to appoint and remove subordinate officers, to prescribe their authority and duties, and to fix their compensation.

Section 8. Duties of Officers May Be Delegated. In the absence of any officer of the Corporation, or for any other reason the board of directors may deem sufficient, the board of directors may delegate, for the time being, the powers or duties, or any of them, of such officers to any other officer or to any director.

ARTICLE VI

Indemnification of Directors, Officers, Employees and Other Agents

Section 1. Indemnification of Directors and Officers. The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation, provided, however, that the Corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers and, provided, further, that the Corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized in advance by the board of directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the General Corporation Law of Delaware or (iv) such indemnification is required to be made pursuant to an individual contract. For purposes of this Section 1, a “director” or “officer” of the Corporation includes any person (i) who is or was a director or officer of the Corporation, (ii) who is or was serving at the request of the Corporation as a director, officer, manager or partner of another corporation, partnership, limited liability company, limited partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

Section 2. Indemnification of Others. The Corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 2, an “employee” or “agent” of the Corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the Corporation, (ii) who is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, limited liability company, limited partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.

Section 3. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, manager, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.

Section 4. Expenses. The Corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, manager or partner of another corporation, partnership, limited liability company, limited partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding, upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise; provided, however, that the Corporation shall not be required to advance expenses to any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was authorized in advance by the board of directors of the Corporation. Notwithstanding the foregoing, unless otherwise determined pursuant to Section 5, no advance shall be made by the Corporation to an officer of the Corporation (except by reason of the fact that such officer is or was a director of the Corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Corporation.

Section 5. Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The Corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the General Corporation Law of Delaware.

Section 6. Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 7. Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the Corporation.

ARTICLE VII

Certificates for Shares

Section 1. Form and Execution. The shares of the Corporation shall be represented by certificates or may be uncertificated, as provided under the General Corporation Law of the State of Delaware. Every holder of stock in the Corporation holding shares of the Corporation represented by certificates shall be entitled to have a certificate certifying the number of fully-paid shares owned in such form as shall be approved by the board of directors. Such certificates shall be signed by the chairman or vice-chairman of the board of directors, or the president or a vice president, and by the secretary or an assistant secretary, or the treasurer or an assistant treasurer; provided, however, that the signatures of any of such officers and the seal of the Corporation upon such certificates may be facsimiles, engraved, stamped, or printed. If any officer or officers who shall have signed, or whose facsimile signature shall have been used, printed, or stamped on any certificate or certificates for shares, shall cease to be such officer or officers, because of death, resignation, or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates shall nevertheless be as effective in all respects as though signed by a duly elected, qualified, and authorized officer or officers, and as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, had not ceased to be an officer or officers of the Corporation.

Section 2. Registration of Transfer. Any certificate for shares of the Corporation shall be transferable in person or by attorney upon the surrender thereof to the Corporation or any transfer agent therefor (for the class of shares represented by the certificate surrendered) properly endorsed for transfer and accompanied by such assurances as the Corporation or such transfer agent may require as to the genuineness and effectiveness of each necessary endorsement.

Section 3. Lost, Destroyed or Stolen Certificates. A new share certificate or certificates, or uncertificated shares, may be issued in place of any certificate theretofore issued by the Corporation which is alleged to have been lost, destroyed, or wrongfully taken upon (a) the execution and delivery to the Corporation by the person claiming the certificate to have been lost, destroyed, or wrongfully taken of an affidavit of that fact, specifying whether or not, at the time of such alleged loss, destruction, or taking, the certificate was endorsed, and (b) the furnishing to the Corporation of indemnity and other assurances, if any, satisfactory to the Corporation and to all transfer agents and registrars of the class of shares represented by the certificate against any and all losses, damages, costs, expenses, or liabilities to which they or any of them may be subjected by reason of the issue and delivery of such new certificate or certificates, or uncertificated shares, or in respect of the original certificate.

Section 4. Registered Stockholders. A person in whose name shares are of record on the books of the Corporation shall conclusively be deemed the unqualified owner and holder thereof for all purposes and to have capacity to exercise all rights of ownership. Neither the Corporation nor any transfer agent of the Corporation shall be bound to recognize any equitable interest in or claim to such shares on the part of any other person, whether disclosed upon such certificate or otherwise, nor shall they be obliged to see to the execution of any trust or obligation.

ARTICLE VIII

Fiscal Year

The fiscal year of the Corporation shall commence on such date in each year as shall be designated from time to time by the board of directors. In the absence of such designation, the fiscal year of the Corporation shall commence on January 1 in each year.

ARTICLE IX

Seal

The board of directors may provide a suitable seal containing the name of the Corporation. If deemed advisable by the board of directors, duplicate seals may be provided and kept for the purposes of the Corporation.

ARTICLE X

Amendments

These Bylaws shall be subject to alteration, amendment, repeal, or the adoption or new Bylaws either by the affirmative vote or written consent of a majority of the whole board of directors, or by the affirmative vote of a majority of the outstanding stock of the Corporation, present in person or represented by proxy and entitled to vote in respect thereof, given at an annual meeting or at any special meeting at which a quorum shall be present.

EXHIBIT 31.1

CERTIFICATIONS

I, Cloyce A. Talbott, certify that,

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

(2) Based on my knowledge, this 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.


		/s/ Cloyce A. Talbott

Cloyce A. Talbott

President & Chief Executive Officer

Date: August 6, 2007

EXHIBIT 31.2

CERTIFICATIONS

I, John E. Vollmer III, certify that:

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

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


		/s/ John E. Vollmer III

John E. Vollmer III

Senior Vice President — Corporate

Development, Chief Financial Officer

and Treasurer

Date: August 6, 2007

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

NOT FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934

In connection with the quarterly report of Patterson-UTI Energy, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Cloyce A. Talbott, Chief Executive Officer, and John E. Vollmer III, 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:

(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.

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.

/s/ Cloyce A. Talbott

Cloyce A. Talbott

Chief Executive Officer

August 6, 2007

/s/ John E. Vollmer III

John E. Vollmer III

Chief Financial Officer

August 6, 2007


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PART I — FINANCIAL INFORMATION
	ITEM 1.	Financial Statements
		Unaudited consolidated balance sheets		1
		Unaudited consolidated statements of income		2
		Unaudited consolidated statement of changes in stockholders’ equity		3
		Unaudited consolidated statements of changes in cash flows		4
		Notes to unaudited consolidated financial statements		5
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		21
	ITEM 4.	Controls and Procedures		21
Forward Looking Statements and Cautionary Statements for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995				22
PART II — OTHER INFORMATION
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
	ITEM 4.	Submission of Matters to a Vote of Security Holders		23
	ITEM 5.	Other Information		24
	ITEM 6.	Exhibits		24
Signatures				25
Second Amended and Restated Bylaws
Certification of CEO Pursuant to Rule 13a-14(a)/15d-14(a)
Certification of CFO Pursuant to Rule 13a-14(a)/15d-14(a)
Certification Pursuant to 18 U.S.C. Section 1350