PATTERSON UTI ENERGY INC (Form: 10-Q, Received: 11/05/2007 11:38:34)

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 September 30, 2007


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
(Address of principal executive offices)		(Zip Code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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.

154,944,887 shares of common stock, $0.01 par value, as of November 2, 2007

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
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		20
ITEM 4.	Controls and Procedures		20
Forward Looking Statements and Cautionary Statements for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995			20
PART II — OTHER INFORMATION
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22
ITEM 5.	Other Information		22
ITEM 6.	Exhibits		22
Signatures			24
Change in Control Agreement - William L. Moll, Jr.
First Amendment to Change in Control Agreement - Mark S. Siegel
First Amendment to Change in Control Agreement - Douglas J. Wall
First Amendment to Change in Control Agreement - John E. Vollmer, III
First Amendment to Change in Control Agreement - Kenneth N. Berns
First Amendment to Change in Control Agreement - William L. Moll, Jr.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906

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)


	September 30,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	20,516		$	13,385
Accounts receivable, net of allowance for doubtful accounts of $9,100 at September 30, 2007 and $7,484 at December 31, 2006		398,649			484,106
Accrued federal and state income taxes receivable		—			5,448
Inventory		43,941			43,947
Deferred tax assets, net		35,153			48,868
Deposits on equipment purchase contracts		2,133			24,746
Other		42,813			32,170

Total current assets		543,205			652,670
Property and equipment, net		1,782,576			1,435,804
Goodwill		96,198			99,056
Other		4,921			4,973

Total assets	$	2,426,900		$	2,192,503

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable:
Trade	$	193,454		$	138,372
Accrued revenue distributions		15,136			15,359
Other		12,242			18,424
Accrued federal and state income taxes payable		1,011			—
Accrued expenses		131,806			145,463

Total current liabilities		353,649			317,618
Borrowings under line of credit		10,000			120,000
Deferred tax liabilities, net		216,199			187,960
Other		4,459			4,459

Total liabilities		584,307			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 177,348,319 and 176,656,401 issued and 154,943,287 and 156,542,512 outstanding at September 30, 2007 and December 31, 2006, respectively		1,773			1,766
Additional paid-in capital		697,415			681,069
Retained earnings		1,649,998			1,346,542
Accumulated other comprehensive income		19,400			8,390
Treasury stock, at cost, 22,405,032 and 20,113,889 shares at September 30, 2007 and December 31, 2006, respectively		(525,993	)		(475,301	)

Total stockholders’ equity		1,842,593			1,562,466

Total liabilities and stockholders’ equity	$	2,426,900		$	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						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Operating revenues:
Contract drilling	$	428,316		$	577,047		$	1,315,005		$	1,616,100
Pressure pumping		58,498			40,462			148,674			107,800
Drilling and completion fluids		27,348			46,163			97,775			155,221
Oil and natural gas		9,840			9,986			32,207			29,083

		524,002			673,658			1,593,661			1,908,204

Operating costs and expenses:
Contract drilling		242,352			267,345			716,803			737,021
Pressure pumping		28,682			20,960			75,610			56,545
Drilling and completion fluids		24,153			36,183			82,172			120,418
Oil and natural gas		2,474			3,222			8,213			11,241
Depreciation, depletion and impairment		66,523			49,215			182,401			140,245
Selling, general and administrative		16,593			13,777			47,584			39,428
Embezzlement costs (recoveries)		(1,145	)		(1,512	)		(43,080	)		2,941
Gain on disposal of assets		(330	)		(437	)		(16,603	)		(437	)
Other operating expenses		600			3,000			1,600			4,385

		379,902			391,753			1,054,700			1,111,787

Operating income		144,100			281,905			538,961			796,417

Other income (expense):
Interest income		1,091			948			1,917			5,579
Interest expense		(357	)		(363	)		(1,951	)		(476	)
Other		42			88			245			231

		776			673			211			5,334

Income before income taxes and cumulative effect of change in accounting principle		144,876			282,578			539,172			801,751

Income tax expense:
Current		40,190			106,151			149,973			288,476
Deferred		6,505			(9,563	)		35,666			(2,974	)

		46,695			96,588			185,639			285,502

Income before cumulative effect of change in accounting principle		98,181			185,990			353,533			516,249
Cumulative effect of change in accounting principle, net of related income tax expense of $398		—			—			—			687

Net income	$	98,181		$	185,990		$	353,533		$	516,936

Income before cumulative effect of change in accounting principle:
Basic	$	0.63		$	1.14		$	2.28		$	3.07

Diluted	$	0.62		$	1.12		$	2.24		$	3.03

Net income per common share:
Basic	$	0.63		$	1.14		$	2.28		$	3.08

Diluted	$	0.62		$	1.12		$	2.24		$	3.03

Weighted average number of common shares outstanding:
Basic		154,934			163,412			155,281			168,036

Diluted		157,339			165,742			157,491			170,339


Cash dividends per common share	$	0.12		$	0.08		$	0.32		$	0.20

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		601			6			(6	)		—			—		—			—
Exercise of stock options		159			2			1,298			—			—		—			1,300
Stock based compensation		—			—			13,979			—			—		—			13,979
Tax benefit for stock based compensation		—			—			1,074			—			—		—			1,074
Forfeitures of restricted shares		(68	)		(1	)		1			—			—		—			—
Foreign currency translation adjustment, net of tax of $6,287		—			—			—			—			11,010		—			11,010
Payment of cash dividends		—			—			—			(50,077	)		—		—			(50,077	)
Purchase of treasury stock		—			—			—			—			—		(50,692	)		(50,692	)
Net income		—			—			—			353,533			—		—			353,533

Balance, September 30, 2007		177,348		$	1,773		$	697,415		$	1,649,998		$	19,400	$	(525,993	)	$	1,842,593

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)


	Nine Months Ended
	September 30,
	2007			2006
Cash flows from operating activities:
Net income	$	353,533		$	516,936
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and impairment		182,401			140,245
Dry holes and abandonments		831			3,709
Provision for bad debts		1,600			4,200
Deferred income tax expense (benefit)		35,666			(2,576	)
Stock based compensation expense		13,979			9,710
Gain on disposal of assets		(16,603	)		(437	)
Changes in operating assets and liabilities:
Accounts receivable		87,060			(92,069	)
Inventory and other current assets		12,559			(36,086	)
Accounts payable		(16,819	)		40,280
Income taxes payable/receivable		6,734			4,789
Accrued expenses		(11,096	)		23,798
Other liabilities		(5,651	)		1,613

Net cash provided by operating activities		644,194			614,112

Cash flows from investing activities:
Purchases of property and equipment		(461,444	)		(423,422	)
Proceeds from disposal of property and equipment		32,190			7,983

Net cash used in investing activities		(429,254	)		(415,439	)

Cash flows from financing activities:
Purchases of treasury stock		(50,692	)		(352,393	)
Dividends paid		(50,077	)		(33,305	)
Proceeds from exercise of stock options		1,300			1,414
Tax benefit related to stock-based compensation		1,074			922
Proceeds from borrowings under line of credit		92,500			65,000
Repayment of borrowings under line of credit		(202,500	)		—
Debt issuance costs		—			(341	)

Net cash used in financing activities		(208,395	)		(318,703	)

Effect of foreign exchange rate changes on cash		586			577

Net increase (decrease) in cash and cash equivalents		7,131			(119,453	)
Cash and cash equivalents at beginning of period		13,385			136,398

Cash and cash equivalents at end of period	$	20,516		$	16,945

Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest expense	$	1,761		$	476
Income taxes	$	133,806		$	272,541

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 a fair presentation of the information in conformity with accounting principles generally accepted in the United States have been included. The Unaudited Consolidated Balance Sheet as of December 31, 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 common shares outstanding during the period excluding nonvested restricted stock. 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 stock using the treasury stock method. The following table presents information necessary to calculate net income per share for the three and nine months ended September 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 nine months ended September 30, 2007 and 2006 (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Net income	$	98,181	$	185,990	$	353,533	$	516,936
Weighted average number of common shares outstanding excluding nonvested restricted stock		154,934		163,412		155,281		168,036

Basic net income per common share	$	0.63	$	1.14	$	2.28	$	3.08

Weighted average number of common shares outstanding excluding nonvested restricted stock		154,934		163,412		155,281		168,036
Dilutive effect of stock options and nonvested restricted stock		2,405		2,330		2,210		2,303

Weighted average number of diluted common shares outstanding		157,339		165,742		157,491		170,339

Diluted net income per common share	$	0.62	$	1.12	$	2.24	$	3.03

Potentially dilutive securities excluded as anti-dilutive		2,385		800		2,435		800

The results of operations for the three and nine months ended September 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”). Volatility assumptions are based on the historic volatility of the Company’s common stock. 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 nine month periods ended September 30, 2007 and 2006 follow:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007		2006			2007			2006
Volatility		N/A		33.59	%		36.38	%		33.18	%
Expected term (in years)		N/A		4.00			4.00			4.00
Dividend yield		N/A		1.14	%		1.96	%		1.09	%
Risk-free interest rate		N/A		4.91	%		4.56	%		4.87	%

Stock option activity from January 1, 2007 to September 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		(159,312	)	$	8.16
Forfeited		(2,083	)	$	14.64
Expired		(17	)	$	14.64
Cancelled		—		$	—

Outstanding at September 30, 2007		7,448,684		$	17.43

Exercisable at September 30, 2007		5,832,834		$	15.27

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 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 September 30, 2007 follows:


				Weighted
				Average
				Grant Date
	Shares			Fair Value
Nonvested at January 1, 2007		1,188,200		$	25.92
Granted		601,150		$	24.60
Vested		(182,306	)	$	19.02
Forfeited		(68,544	)	$	26.90

Nonvested at September 30, 2007		1,538,500		$	26.18

3. Comprehensive Income

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Net income	$	98,181	$	185,990	$	353,533	$	516,936
Other comprehensive income:
Foreign currency translation adjustment related to Canadian operations, net of tax		4,592		478		11,010		3,016

Comprehensive income, net of tax	$	102,773	$	186,468	$	364,543	$	519,952

4. Property and Equipment

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


	September 30,			December 31,
	2007			2006
Equipment	$	2,636,782		$	2,135,567
Oil and natural gas properties		73,334			85,143
Buildings		43,872			30,987
Land		10,001			7,507

		2,763,989			2,259,204
Less accumulated depreciation and depletion		(981,413	)		(823,400	)

Property and equipment, net	$	1,782,576		$	1,435,804

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						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Revenues:
Contract drilling(a)	$	429,002		$	578,653		$	1,317,626		$	1,620,322
Pressure pumping		58,498			40,462			148,674			107,800
Drilling and completion fluids(b)		27,528			46,317			98,111			155,639
Oil and natural gas		9,840			9,986			32,207			29,083

Total segment revenues		524,868			675,418			1,596,618			1,912,844
Elimination of intercompany revenues(a)(b)		(866	)		(1,760	)		(2,957	)		(4,640	)

Total revenues	$	524,002		$	673,658		$	1,593,661		$	1,908,204

Income (loss) before income taxes:
Contract drilling	$	128,243		$	264,924		$	437,660		$	751,977
Pressure pumping		21,232			13,493			49,072			34,592
Drilling and completion fluids		(19	)		6,558			6,163			25,038
Oil and natural gas		887			3,276			8,616			6,977

		150,343			288,251			501,511			818,584
Corporate and other		(7,718	)		(8,295	)		(22,233	)		(19,663	)
Embezzlement (costs) recoveries(c)		1,145			1,512			43,080			(2,941	)
Gain on disposal of assets(d)		330			437			16,603			437
Interest income		1,091			948			1,917			5,579
Interest expense		(357	)		(363	)		(1,951	)		(476	)
Other		42			88			245			231

Income before income taxes and cumulative effect of change in accounting principle	$	144,876		$	282,578		$	539,172		$	801,751


	September 30,		December 31,
	2007		2006
Identifiable assets:
Contract drilling	$	2,082,764	$	1,849,923
Pressure pumping		158,177		111,787
Drilling and completion fluids		90,043		106,032
Oil and natural gas		51,956		65,443

		2,382,940		2,133,185
Corporate and other(e)		43,960		59,318

Total assets	$	2,426,900	$	2,192,503


(a)		Includes contract drilling intercompany revenues of approximately $686,000 and $1.6 million for the three months ended September 30, 2007 and 2006, respectively. Includes contract drilling intercompany revenues of approximately $2.6 million and $4.2 million for the nine months ended September 30, 2007 and 2006, respectively.

(b)		Includes drilling and completion fluids intercompany revenues of approximately $180,000 and $154,000 for the three months ended September 30, 2007 and 2006, respectively. Includes drilling and completion fluids intercompany revenues of approximately $336,000 and $418,000 for the nine months ended September 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 a total of approximately $43.6 million in assets that were seized by a court-appointed receiver from the former CFO and companies that he controlled. Cash payments from the receiver of approximately $40.2 million have been received as of September 30, 2007, with the remaining $3.4 million of the expected recovery consisting of notes receivable, investments and other


		assets that have been or are expected to be transferred to the Company. 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 and certain deferred federal income tax assets.

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 September 30, 2007 is as follows (in thousands):


	September 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 September 30, 2007 and December 31, 2006 (in thousands):


	September 30,		December 31,
	2007		2006
Salaries, wages, payroll taxes and benefits	$	32,842	$	42,751
Workers’ compensation liability		63,970		69,330
Sales, use and other taxes		16,102		11,043
Insurance, other than workers’ compensation		15,124		13,328
Other		3,768		9,011

Accrued expenses	$	131,806	$	145,463

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 nine months ended September 30, 2007 and 2006 (in thousands):


	2007			2006
Balance at beginning of year	$	1,829		$	1,725
Liabilities incurred		207			83
Liabilities settled		(796	)		(48	)
Accretion expense		46			41
Revision in estimated cash flows		289			—

Asset retirement obligation at end of period	$	1,575		$	1,801

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 September 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 September 30, 2007, the Company had $10.0 million in borrowings outstanding under the LOC and $59.4 million in letters of credit outstanding. As a result, the Company had available borrowing capacity of approximately $306 million at September 30, 2007. The weighted average interest rate on outstanding borrowings at September 30, 2007 was 7.75%.

10. Commitments, Contingencies and Other Matters

Commitments — The Company maintains letters of credit in the aggregate amount of $59.4 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 September 30, 2007, the Company has signed non-cancelable commitments to purchase approximately $123 million of equipment. This amount excludes $2.1 million and $24.7 million at September 30, 2007 and December 31, 2006, respectively, related to deposits toward the purchase of drilling rig components. 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 a total of approximately $43.6 million pursuant to the approved plan and has recognized this recovery in the Company’s unaudited consolidated statement of income, net of additional professional fees associated with the embezzlement. Cash payments from the receiver of approximately $40.2 million have been received as of September 30, 2007, with the remaining $3.4 million of the expected recovery consisting of notes receivable, investments and other assets that have been or are expected to be transferred to the Company.

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 nine months ended September 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
Paid on September 28, 2007 to shareholders of record as of September 12, 2007		0.12		18,690

Total cash dividends	$	0.32	$	50,077

On October 31, 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 December 28, 2007 to holders of record as of December 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 from employees on June 8, 2007. These shares were purchased at fair market value upon the vesting of restricted stock to provide the 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 (“Program”), authorizing purchases of up to $250 million of the Company’s common stock in open market or privately negotiated transactions. During the three months ended September 30, 2007 the Company purchased 2,275,000 shares of its common stock under the Program at a cost of approximately $50.3 million. As of September 30, 2007, the Company is authorized to purchase approximately $200 million of the Company’s outstanding common stock under the Program. Shares purchased under the Program have been accounted for as treasury stock.

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 September 30, 2007, the years ended December 31, 2004 through 2006 are open for examination by U.S. taxing authorities. As of September 30, 2007, the years ended December 31, 2003 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.

14. Subsequent Events

On October 9, 2007, the Company completed the acquisition of three recently refurbished SCR electric land drilling rigs and spare drilling equipment for $29.0 million. The transaction was accounted for as an acquisition of assets and the purchase price was allocated among the assets acquired based on their estimated fair market values.

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 nine months ended September 30, 2007 and 2006, our operating revenues consisted of the following (dollars in thousands):


	Three Months Ended September 30,								Nine Months Ended September 30,
	2007				2006				2007				2006
Contract drilling	$	428,316	82	%	$	577,047	86	%	$	1,315,005	83	%	$	1,616,100	84	%
Pressure pumping		58,498	11			40,462	6			148,674	9			107,800	6
Drilling and completion fluids		27,348	5			46,163	7			97,775	6			155,221	8
Oil and natural gas		9,840	2			9,986	1			32,207	2			29,083	2

	$	524,002	100	%	$	673,658	100	%	$	1,593,661	100	%	$	1,908,204	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.

Typically, 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 third quarter of 2007, our average number of rigs operating was 243 per day compared to 237 in the second quarter of 2007 and 301 in the third quarter of 2006. Our average revenue per operating day decreased to $19,150 in the third quarter of 2007 from $19,410 in the second quarter of 2007 and $20,810 in the third quarter of 2006. Our consolidated net income for the third quarter of 2007 decreased by $87.8 million or 47% as compared to the third quarter of 2006. This decrease was primarily due to our contract drilling segment experiencing a decrease in the average number of rigs operating, an increase in the average costs per operating day and a decrease in the average revenue per operating day in the third quarter of 2007 as compared to the third 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 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 September 30, 2007, which includes approximately $190 million in working capital (including $20.5 million in cash) and approximately $306 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 $59.4 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 September 30, 2007, we have remaining non-cancelable commitments to purchase approximately $123 million of equipment.

A receiver was 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 a total of approximately $43.6 million pursuant to the approved plan and have recognized this recovery in our unaudited consolidated statement of income, net of additional professional fees associated with the embezzlement. Cash payments

from the receiver of approximately $40.2 million have been received as of September 30, 2007, with the remaining $3.4 million of the recovery consisting of notes receivable, investments and other assets that are being 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 350 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 September 30, 2007, we had working capital of approximately $190 million including cash and cash equivalents of $20.5 million. For the nine months ended September 30, 2007, our significant sources of cash flow included:

	•		$644 million provided by operations,

	•		$32.2 million in proceeds from disposal of property and equipment, and

	•		$2.4 million from the exercise of stock options and related tax benefits associated with stock-based compensation.

During the nine months ended September 30, 2007, we used $50.7 million to repurchase shares of our common stock, $50.1 million to pay dividends on our common stock, $110 million to repay borrowings under our line of credit and $461 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 September 30, 2007, we had $10.0 million in borrowings outstanding under our $375 million revolving line of credit and $59.4 million in letters of credit outstanding such that we had available borrowing capacity of approximately $306 million at September 30, 2007.

We paid cash dividends during the nine months ended September 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
Paid on September 28, 2007 to shareholders of record as of September 12, 2007		0.12		18,690

Total cash dividends	$	0.32	$	50,077

On October 31, 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 December 28, 2007 to holders of record as of December 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 (“Program”), authorizing purchases of up to $250 million of our common stock in open market or privately negotiated transactions. During the three months ended September 30, 2007, we purchased 2,275,000 shares of our common stock under the Program at a cost of approximately $50.3 million. As of September 30, 2007, we are authorized to purchase approximately $200 million of our outstanding common stock under the Program. Shares purchased under the Program have been accounted for as treasury stock.

On October 10, 2007, we completed the acquisition of three recently refurbished SCR electric land drilling rigs and spare drilling equipment for $29.0 million.

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 September 30, 2007 and 2006:


	2007		2006		% Change
Contract Drilling	(Dollars in thousands)
Revenues	$	428,316	$	577,047		(25.8	)%
Direct operating costs	$	242,352	$	267,345		(9.3	)%
Selling, general and administrative	$	1,616	$	1,817		(11.1	)%
Depreciation	$	56,105	$	42,961		30.6	%
Operating income	$	128,243	$	264,924		(51.6	)%
Operating days		22,362		27,725		(19.3	)%
Average revenue per operating day	$	19.15	$	20.81		(8.0	)%
Average direct operating costs per operating day	$	10.84	$	9.64		12.4	%
Average rigs operating		243		301		(19.3	)%
Capital expenditures	$	120,192	$	152,879		(21.4	)%

The reactivation and construction of new land drilling rigs in the United States has resulted in excess capacity compared to recent demand. As a result, our average rigs operating have declined to 243 in the third quarter of 2007 compared to 301 in the third quarter of 2006.

Revenues in the third quarter of 2007 decreased as compared to the third quarter of 2006 as a result of the decreased number of operating days in 2007 and a decrease of approximately $1,660 in the average revenue per operating day. Direct operating costs in the third quarter of 2007 decreased as compared to the third quarter of 2006 as a result of the decreased number of operating days partially offset by an approximately $1,200 increase in the average direct operating costs per operating day. This increase in average direct operating costs per day resulted primarily from increased compensation costs and an increase in the cost of maintenance for our drilling rigs. Selling, general and administrative expense decreased primarily as a result of the transfer of certain 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.


	2007		2006		% Change
Pressure Pumping	(Dollars in thousands)
Revenues	$	58,498	$	40,462		44.6	%
Direct operating costs	$	28,682	$	20,960		36.8	%
Selling, general and administrative	$	4,882	$	3,450		41.5	%
Depreciation	$	3,702	$	2,559		44.7	%
Operating income	$	21,232	$	13,493		57.4	%
Total jobs		4,065		3,116		30.5	%
Average revenue per job	$	14.39	$	12.99		10.8	%
Average direct operating costs per job	$	7.06	$	6.73		4.9	%
Capital expenditures	$	11,047	$	7,692		43.6	%

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 increased compensation cost and increases in other administrative 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.


	2007			2006		% Change
Drilling and Completion Fluids	(Dollars in thousands)
Revenues	$	27,348		$	46,163		(40.8	)%
Direct operating costs	$	24,153		$	36,183		(33.2	)%
Selling, general and administrative	$	2,486		$	2,733		(9.0	)%
Depreciation	$	728		$	689		5.7	%
Operating income (loss)	$	(19	)	$	6,558		N/A	%
Capital expenditures	$	460		$	1,122		(59.0	)%

Revenues and direct operating costs decreased primarily as a result of a decrease in the number of large jobs offshore in the Gulf of Mexico caused by a slowdown in drilling activity during the third quarter of 2007 in that area.


	2007		2006		% Change
Oil and Natural Gas Production and Exploration	(Dollars in thousands,
	except sales prices)
Revenues	$	9,840	$	9,986		(1.5	)%
Direct operating costs	$	2,474	$	3,222		(23.2	)%
Selling, general and administrative	$	695	$	684		1.6	%
Depreciation, depletion and impairment	$	5,784	$	2,804		106.3	%
Operating income	$	887	$	3,276		(72.9	)%
Capital expenditures	$	4,153	$	4,982		(16.6	)%
Average net daily oil production (Bbls)		920		961		(4.3	)%
Average net daily gas production (Mcf)		4,199		4,820		(12.9	)%
Average oil sales price (per Bbl)	$	73.57	$	68.66		7.2	%
Average natural gas sales price (per Mcf)	$	6.58	$	6.77		(2.8	)%

Revenues decreased primarily due to a decrease in the net daily production of oil and natural gas. Average net daily oil and natural gas production decreased primarily due to the sale of certain properties in the second quarter of 2007. The decrease in direct operating costs is primarily due to a decrease of approximately $564,000 in costs associated with the abandonment of exploratory wells. Depreciation, depletion and impairment expense in the third quarter of 2007 includes approximately $1.9 million incurred to impair certain oil and natural gas properties compared to approximately $889,000 incurred to impair certain oil and natural gas properties in the third quarter of 2006. Depletion expense increased approximately $2.0 million due to the completion of new wells in 2007.


	2007			2006			% Change
Corporate and Other	(Dollars in thousands)
Selling, general and administrative	$	6,914		$	5,093			35.8	%
Depreciation	$	204		$	202			1.0	%
Other operating expenses	$	600		$	3,000			(80.0	)%
(Gain) loss on disposal of assets	$	(330	)	$	(437	)		(24.5	)%
Embezzlement costs (recoveries)	$	(1,145	)	$	(1,512	)		(24.3	)%
Interest income	$	1,091		$	948			15.1	%
Interest expense	$	357		$	363			(1.7	)%
Other income	$	42		$	88			(52.3	)%

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


	2007		2006		% Change
Contract Drilling	(Dollars in thousands)
Revenues	$	1,315,005	$	1,616,100		(18.6	)%
Direct operating costs	$	716,803	$	737,021		(2.7	)%
Selling, general and administrative	$	4,467	$	5,338		(16.3	)%
Depreciation	$	156,075	$	121,764		28.2	%
Operating income	$	437,660	$	751,977		(41.8	)%
Operating days		66,931		81,489		(17.9	)%
Average revenue per operating day	$	19.65	$	19.83		(1.0	)%
Average direct operating costs per operating day	$	10.71	$	9.04		18.5	%
Average rigs operating		245		298		(17.8	)%
Capital expenditures	$	403,381	$	377,165		7.0	%

Demand for our contract drilling services is largely 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 resulted in our customers moderating their increase in drilling activities in 2007. This moderation combined with the reactivation and construction of new land drilling rigs in the United States has resulted in excess capacity compared to recent demand. As a result of these factors, our average rigs operating have declined to 245 for the first nine months of 2007 compared to 298 for the first nine months of 2006.

Revenues in the first nine months of 2007 decreased as compared to the first nine months of 2006 as a result of the decreased number of operating days in 2007 and a decrease of approximately $180 in the average revenue per operating day. Direct operating costs in the first nine months of 2007 decreased as compared to the first nine months of 2006 as a result of the decreased number of operating days partially offset by an approximately $1,670 increase in the average direct operating costs per operating day. This increase in average direct operating costs per day resulted primarily from increased compensation costs and an increase in the cost of maintenance for our drilling rigs. Selling, general and administrative expense decreased primarily as a result of the transfer of certain 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.


	2007		2006		% Change
Pressure Pumping	(Dollars in thousands)
Revenues	$	148,674	$	107,800		37.9	%
Direct operating costs	$	75,610	$	56,545		33.7	%
Selling, general and administrative	$	13,758	$	9,588		43.5	%
Depreciation	$	10,234	$	7,075		44.7	%
Operating income	$	49,072	$	34,592		41.9	%
Total jobs		10,477		8,844		18.5	%
Average revenue per job	$	14.19	$	12.19		16.4	%
Average direct operating costs per job	$	7.22	$	6.39		13.0	%
Capital expenditures	$	41,678	$	27,371		52.3	%


	2007		2006		% Change
Drilling and Completion Fluids	(Dollars in thousands)
Revenues	$	97,775	$	155,221		(37.0	)%
Direct operating costs	$	82,172	$	120,418		(31.8	)%
Selling, general and administrative	$	7,319	$	7,765		(5.7	)%
Depreciation	$	2,121	$	2,000		6.1	%
Operating income	$	6,163	$	25,038		(75.4	)%
Capital expenditures	$	2,581	$	3,052		(15.4	)%

Revenues and direct operating costs decreased primarily as a result of a decrease in the number of large jobs offshore in the Gulf of Mexico.


	2007		2006		% Change
	(Dollars in thousands,
Oil and Natural Gas Production and Exploration		except sales prices)
Revenues	$	32,207	$	29,083		10.7	%
Direct operating costs	$	8,213	$	11,241		(26.9	)%
Selling, general and administrative	$	2,017	$	2,050		(1.6	)%
Depreciation, depletion and impairment	$	13,361	$	8,815		51.6	%
Operating income	$	8,616	$	6,977		23.5	%
Capital expenditures	$	13,804	$	15,699		(12.1	)%
Average net daily oil production (Bbls)		1,042		944		10.4	%
Average net daily gas production (Mcf)		5,356		4,986		7.4	%
Average oil sales price (per Bbl)	$	63.82	$	66.24		(3.7	)%
Average natural gas sales price (per Mcf)	$	7.28	$	6.96		4.6	%

Revenues increased primarily due to increases in the net daily production of oil and natural gas. The increase in average net daily production of oil was partially offset by a decrease in the average oil sales price. Average net daily oil and natural gas production increased primarily due to the completion of wells subsequent to the third quarter of 2006, partially offset by the sale of certain properties in the second quarter of 2007. The decrease in direct operating costs is primarily due to a decrease of approximately $2.9 million in costs associated with the abandonment of exploratory wells. Depreciation, depletion and impairment expense in 2007 includes approximately $3.0 million incurred to impair certain oil and natural gas properties compared to approximately $2.2 million incurred to impair certain oil and natural gas properties in 2006. Depletion expense increased approximately $4.1 million due to the completion of new wells in 2007.


	2007			2006			% Change
Corporate and Other	(Dollars in thousands)
Selling, general and administrative	$	20,023		$	14,687			36.3	%
Depreciation	$	610		$	591			3.2	%
Other operating expenses	$	1,600		$	4,385			(63.5	)%
Gain on disposal of assets	$	(16,603	)	$	(437	)		N/A	%
Embezzlement costs (recoveries)	$	(43,080	)	$	2,941			N/A	%
Interest income	$	1,917		$	5,579			(65.6	)%
Interest expense	$	1,951		$	476			309.9	%
Other income	$	245		$	231			6.1	%
Capital expenditures	$	—		$	135			(100.0	)%

Selling, general and administrative expense increased primarily as a result of compensation expense related to transfers of certain administrative staff to our corporate segment as well as increases in stock-based compensation expense and professional fees. Other operating expenses decreased primarily due to a decrease in bad debt expense of $2.6 million. In 2007 we sold certain oil and natural gas properties resulting in a gain of $20.9 million. This gain was reduced by approximately $4.3 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 $43.6 million reduced by 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 reduced by insurance proceeds of $2.0 million. 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 natural gas and, to a lesser extent, oil. 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 and $7.18 per Mcf for the full year of 2006 and the first nine months of 2007, respectively, compared to $8.98 per Mcf for the full year of 2005. This resulted in our customers moderating their increase in drilling activities in 2007. This moderation combined with the reactivation and construction of new land drilling rigs in the United States has resulted in excess capacity compared to recent demand. As a result of these factors, our average rigs operating have declined to 245 for the nine months ended September 30, 2007 compared to 298 in the comparable period in 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 given our current level of outstanding borrowings.

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 September 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;

	•		Excess industry capacity of land drilling rigs resulting from the reactivation or construction of new land drilling rigs;

	•		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 September 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		Share		or Programs		thousands)(1)
July 1-31, 2007		—	$	—		—	$	—
August 1-31, 2007		1,195,125	$	21.80		1,195,000	$	223,948

September 1-30, 2007		1,080,000	$	22.43		1,080,000	$	199,726

Total		2,275,125	$	22.10		2,275,000	$	199,726


(1)		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 5. Other Information

On November 1, 2007, we entered into amendments to existing change in control agreements with Mark S. Siegel, Douglas J. Wall, John E. Vollmer, III, Kenneth N. Berns and William L. Moll, Jr.. The purpose of these amendments was to bring the agreements into compliance with certain requirements of Section 409(a) of the Internal Revenue Code. In the case of Messrs. Vollmer and Berns, the amendment provides that in the event of a change in control of Patterson-UTI in which such employee’s employment is terminated by Patterson-UTI other than for cause or by such employee for good reason, such employee would be entitled to a payment equal to 2 times (rather than 1.5 times as stated in the original change in control agreement) the sum of (1) the highest annual salary in effect for such person and (2) the average of the three annual bonuses earned by such person for the three fiscal years preceding the termination date. The amendments to the change in control agreements are filed as Exhibits 10.8, 10.9, 10.10, 10.11 and 10.12 to this report.

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 (filed August 6, 2007 as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 and incorporated herein by reference).

10.1		Indemnification Agreement between Douglas J. Wall and Patterson-UTI Energy, Inc. dated August 31, 2007 (form of which has been filed on April 28, 2004 as Exhibit 10.11 to the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2003 and incorporated herein by reference).

10.2		Indemnification Agreement between William L. Moll, Jr. and Patterson-UTI Energy, Inc. dated August 31, 2007 (form of which has been filed on April 28, 2004 as Exhibit 10.11 to the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2003 and incorporated herein by reference).

10.3		Indemnification Agreement between Gregory W. Pipkin and Patterson-UTI Energy, Inc. dated August 31, 2007 (form of which has been filed on April 28, 2004 as Exhibit 10.11 to the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2003 and incorporated herein by reference).

10.4		Indemnification Agreement between Charles O. Buckner and Patterson-UTI Energy, Inc. dated August 31, 2007 (form of which has been filed on April 28, 2004 as Exhibit 10.11 to the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2003 and incorporated herein by reference).

10.5		Severance Agreement between Patterson-UTI Energy, Inc. and Douglas J. Wall, effective as of August 31, 2007 (filed September 4, 2007 as Exhibit 10.3 to the Company’s Current Report on Form 8-K and incorporated herein by reference).

10.6		Patterson-UTI Energy, Inc. Change in Control Agreement, effective as of August 31, 2007, by and between Patterson-UTI and Douglas J. Wall (filed September 4, 2007 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference).

10.7		Patterson-UTI Energy, Inc. Change in Control Agreement, effective as of August 31, 2007, by and between Patterson-UTI Energy, Inc. and William L. Moll, Jr.

10.8		First Amendment to Change in Control Agreement Between Patterson-UTI Energy, Inc. and Mark S. Siegel, entered into November 1, 2007.

10.9		First Amendment to Change in Control Agreement Between Patterson-UTI Energy, Inc. and Douglas J. Wall, entered into November 1, 2007.

10.10		First Amendment to Change in Control Agreement Between Patterson-UTI Energy, Inc. and John E. Vollmer, III, entered into November 1, 2007.

10.11		First Amendment to Change in Control Agreement Between Patterson-UTI Energy, Inc. and Kenneth N. Berns, entered into November 1, 2007.

10.12		First Amendment to Change in Control Agreement Between Patterson-UTI Energy, Inc. and William L. Moll, Jr., entered into November 1, 2007.

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/ Douglas J. Wall
		Douglas J. Wall
		(Principal Executive Officer) President and Chief Executive Officer



	By:	/s/ John E. Vollmer III
		John E. Vollmer III
		(Principal Financial Officer) Senior Vice President-Corporate Development, Chief Financial Officer and Treasurer



	By:	/s/ Gregory W. Pipkin
		Gregory W. Pipkin
		(Principal Accounting Officer) Chief Accounting Officer and Assistant Secretary

DATED: November 5, 2007

Exhibit 10.7

PATTERSON-UTI ENERGY, INC.
CHANGE IN CONTROL AGREEMENT

This Agreement between Patterson-UTI Energy, Inc., a Delaware corporation (the “Company”), and William L. Moll, Jr. (the “Employee”) is effective as of August 31, 2007 (the “Effective Date”). Certain capitalized terms used herein are defined in Section 22.

W I T N E S S E T H :

Whereas , the Company considers it to be in the best interests of its stockholders to encourage the continued employment of certain key employees of the Company and its Wholly Owned Entities notwithstanding the possibility, threat or occurrence of a Change in Control of the Company (as that phrase is defined in Section 2);

Whereas , the Employee is a key employee of the Company and/or one or more of its Wholly Owned Entities;

Whereas , the Company believes that the possibility of the occurrence of a Change in Control of the Company may result in the termination of the Employee’s employment by the Company or in the distraction of the Employee from the performance of his duties to the Company, in either case to the detriment of the Company and its stockholders;

Whereas , the Company recognizes that the Employee could suffer adverse financial and professional consequences if a Change in Control of the Company were to occur; and

Whereas , the Company wishes to enter into this Agreement to protect the Employee if a Change in Control of the Company occurs, thereby encouraging the Employee to remain in the employ of the Company and not to be distracted from the performance of his duties to the Company by the possibility of a Change in Control of the Company;

Now , Therefore , the parties agree as follows:

Section 1. Other Employment Arrangements.

(a) This Agreement does not affect the Employee’s existing or future employment arrangements with the Company unless a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement. The Employee’s employment with the Company shall continue to be governed by the Employee’s existing or future employment agreements with the Company, if any, or, in the absence of any employment agreement, shall continue to be at the will of the Board of Directors or, if the Employee is not an officer of the Company at the time of the termination of the Employee’s employment with the Company, the will of the Chief Executive Officer of the Company, except that if (i) a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, and (ii) the Employee’s employment with the Company is terminated (whether by the Employee or the Company or automatically as provided in Section 3) after the occurrence of that

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Change in Control of the Company, then the Employee shall be entitled to receive certain benefits as provided in this Agreement.

(b) Notwithstanding anything contained in this Agreement to the contrary, if following the commencement of any discussion with a third person that ultimately results in a written agreement or agreements to which the Company is a party and which, if the transactions contemplated by such agreement or agreements were consummated, would result in a Change in Control of the Company, the Employee’s employment with the Company is terminated by the Company for any reason other than as a result of the occurrence of an event described in any of clauses (i) through (v) of Section 4, then for all purposes of this Agreement, a Change in Control of the Company shall be deemed to have occurred on the date immediately prior to the date of such termination, removal, or reduction regardless of whether any Change in Control of the Company actually occurs.

(c) Nothing in this Agreement shall prevent or limit the Employee’s continuing or future participation in any plan, program, policy or practice of or provided by the Company or any of its Affiliates and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its Affiliates. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, program, policy or practice of or provided by, or any contract or agreement with, the Company or any of its Affiliates at or subsequent to the date of termination of the Employee’s employment with the Company shall be payable or otherwise provided in accordance with such plan, program, policy or practice or contract or agreement except as explicitly modified by this Agreement.

Section 2. Change in Control of the Company . For purposes of this Agreement, a “Change in Control of the Company” shall mean the occurrence of any of the following after the Effective Date:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Covered Person”) of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (i) the then outstanding shares of the common stock of the Company (the “Outstanding Company Common Stock”), or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided , however , that for purposes of this subsection (a) of this Section 2, the following acquisitions shall not constitute a Change in Control of the Company: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or

(b) Individuals who, as of the Effective Date, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of

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the Board of Directors; provided , however , that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Covered Person other than the Board; or

(c) Consummation of (xx) a reorganization, merger or consolidation or sale of the Company or any subsidiary of the Company, or (yy) a disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, direct or indirectly, more than 65% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Covered Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination.

Section 3. Term of this Agreement . The term of this Agreement shall begin on the Effective Date and, unless automatically extended pursuant to the second sentence of this Section 3, shall expire on the first to occur of:

(i) the Employee’s death, the Employee’s Disability or the Employee’s Retirement, which events shall also be deemed automatically to terminate the Employee’s employment by the Company;

(ii) the termination by the Employee or the Company of the Employee’s employment by the Company; or

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(iii) the end of the last day (the “Expiration Date”) of:

(x) the period beginning on the Effective Date and ending on January 29, 2008 (or any period for which the term of this Agreement shall have been automatically extended pursuant to the second sentence of this Section 3) if no Change in Control of the Company shall have occurred during that period (or any period for which the term of this Agreement shall have been automatically extended pursuant to the second sentence of this Section 3); or

(y) if one or more Changes in Control of the Company shall have occurred during the period beginning on the Effective Date and ending on January 29, 2008 (or any period for which the term of this Agreement shall have been automatically extended pursuant to the second sentence of this Section 3), the two-year period beginning on the date on which the last Change in Control of the Company occurred.

If (i) the term of this Agreement shall not have expired as a result of the occurrence of one of the events described in clause (i) or (ii) of the immediately preceding sentence, and (ii) the Company shall not have given notice to the Employee at least ninety (90) days before the Expiration Date that the term of this Agreement will expire on the Expiration Date, then the term of this Agreement shall be automatically extended for successive one-year periods (the first such period to begin on the day immediately following the Expiration Date) unless the Company shall have given notice to the Employee at least ninety (90) days before the end of any one-year period for which the term of this Agreement shall have been automatically extended that such term will expire at the end of that one-year period. The expiration of the term of this Agreement shall not terminate this Agreement itself or affect the right of the Employee or the Employee’s legal representatives to enforce the payment of any amount or other benefit to which the Employee was entitled before the expiration of the term of this Agreement or to which the Employee became entitled as a result of the event (including the termination, whether by the Employee or the Company or automatically as provided in this Section 3, of the Employee’s employment by the Company) that caused the term of this Agreement to expire.

Section 4. Event of Termination for Cause . An “Event of Termination for Cause” shall have occurred if, after a Change in Control of the Company, the Employee shall have committed:

(i) gross negligence or willful misconduct in connection with his duties or in the course of his employment with the Company;

(ii) an act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company;

(iii) intentional wrongful damage to property of the Company;

(iv) intentional wrongful disclosure of secret processes or confidential information of the Company; or

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(v) an act leading to a conviction of a felony or a misdemeanor involving moral turpitude.

For purposes of this Agreement, no act, or failure to act, on the part of the Employee shall be deemed “intentional” if it was due primarily to an error in judgment or negligence, but shall be deemed “intentional” only if done, or omitted to be done, by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated as a result of an “Event of Termination for Cause” hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board of Directors then in office at a meeting of the Board of Directors called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel, to be heard before the Board of Directors), finding that, in the good faith opinion of the Board of Directors, the Employee had committed an act set forth above in this Section 4 and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Employee or his legal representatives to contest the validity or propriety of any such determination.

Section 5. An Event of Termination for Good Reason . An “Event of Termination for Good Reason” shall have occurred if, after a Change in Control of the Company, the Company shall:

(i) assign to the Employee any duties inconsistent with the Employee’s position (including offices, titles and reporting requirements), authority, duties, status or responsibilities with the Company in effect immediately before the occurrence of the first Change in Control of the Company or otherwise make any change in any such position, authority, duties or responsibilities;

(ii) remove the Employee from, or fail to re-elect or appoint the Employee to, any duties or position with the Company or any of its Affiliates that were assigned or held by the Employee immediately before the occurrence of the first Change in Control of the Company, except that a nominal change in the Employee’s title that is merely descriptive and does not affect rank or status shall not constitute such an event;

(iii) take any other action that results in a material diminution in such position, authority, duties or responsibilities or otherwise take any action that materially interferes therewith;

(iv) reduce the Employee’s annual base salary as in effect immediately before the occurrence of the first Change in Control of the Company or as the Employee’s annual base salary may be increased from time to time after that occurrence (the “Base Salary”);

(v) reduce the Employee’s annual bonus to an amount less than (x) $100,000, if the first Change in Control of the Company occurred prior to the

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Employee earning an annual bonus with respect to the fiscal year ended December 31, 2007, (y) the amount of the annual bonus earned by the Employee with respect to the fiscal year ended December 31, 2007, if the first Change in Control of the Company occurred after the Employee earned an annual bonus with respect to the fiscal year ended December 31, 2007, but prior to the Employee earning an annual bonus with respect to the fiscal year ended December 31, 2008 or (z) the average of the two annual bonuses earned by the Employee with respect to the two fiscal years of the Company immediately preceding the fiscal year of the Company in which the first Change in Control of the Company occurred (the applicable amount is referred to herein as the “Benchmark Bonus”);

(vi) relocate the Employee’s principal place of employment to a location outside of a 50-mile radius from the Employee’s principal place of employment immediately prior to the first Change in Control of the Company;

(vii) fail to (x) continue in effect any bonus, incentive, profit sharing, performance, savings, retirement or pension policy, plan, program or arrangement (such policies, plans, programs and arrangements collectively being referred to herein as “Basic Benefit Plans”), including, but not limited to, any deferred compensation, supplemental executive retirement or other retirement income, stock option, stock purchase, stock appreciation, or similar policy, plan, program or arrangement of the Company, in which the Employee was a participant immediately before the occurrence of the first Change in Control of the Company, or any substitute plan adopted by the Board of Directors and in which the Employee was a participant immediately before the occurrence of the last Change in Control of the Company, unless an equitable and reasonably comparable arrangement (embodied in a substitute or alternative benefit or plan) shall have been made with respect to such Basic Benefit Plan promptly following the occurrence of the last Change in Control of the Company, or (y) continue the Employee’s participation in any Basic Benefit Plan (or any substitute or alternative plan) on substantially the same basis, both in terms of the amount of benefits provided to the Employee (which are in any event always subject to the terms of any applicable Basic Benefit Plan) and the level of the Employee’s participation relative to other participants, as existed immediately before the occurrence of the first Change in Control of the Company;

(viii) fail to continue to provide the Employee with benefits substantially similar to those enjoyed by the Employee under any of the Company’s other employee benefit plans, policies, programs and arrangements (the “Other Benefit Plans”), including, but not limited to, life insurance, medical, dental, health, hospital, accident or disability plans, in which the Employee was a participant immediately before the occurrence of the first Change in Control of the Company;

(ix) fail to provide the Employee with the number of paid vacation days to which the Employee was entitled in accordance with the Company’s

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vacation policy in effect immediately before the occurrence of the first Change in Control of the Company;

(x) fail to continue to provide the Employee with office space, related facilities and support personnel (including, but not limited to, administrative and secretarial assistance) (y) that are both commensurate with the Employee’s responsibilities to and position with the Company immediately before the occurrence of the first Change in Control of the Company and not materially dissimilar to the office space, related facilities and support personnel provided to other employees of the Company having comparable responsibility to the Employee, or (z) that are physically located at the Company’s principal executive offices; or

(xi) purport to terminate the Employee’s employment by the Company unless notice of that termination shall have been given to the Employee pursuant to, and that notice shall meet the requirements of, Section 6.

Section 6. Notice of Termination . If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, any subsequent termination by the Employee or the Company of the Employee’s employment by the Company, or any determination of the Employee’s Disability, shall be communicated by notice to the other party that shall indicate the specific paragraph of Section 7 pursuant to which the Employee is to receive benefits as a result of the termination. If the notice states that the Employee’s employment by the Company has been automatically terminated as a result of the Employee’s Disability, the notice shall (i) specifically describe the basis for the determination of the Employee’s Disability, and (ii) state the date of the determination of the Employee’s Disability, which date shall be not more than ten (10) days before the date such notice is given. If the notice is from the Company and states that the Employee’s employment by the Company is terminated by the Company as a result of the occurrence of an Event of Termination for Cause, the notice shall specifically describe the action or inaction of the Employee that the Company believes constitutes an Event of Termination for Cause and shall be accompanied by a copy of the resolution satisfying Section 4. If the notice is from the Employee and states that the Employee’s employment by the Company is terminated by the Employee as a result of the occurrence of an Event of Termination for Good Reason, the notice shall specifically describe the action or inaction of the Company that the Employee believes constitutes an Event of Termination for Good Reason. Each notice given pursuant to this Section 6 (other than a notice stating that the Employee’s employment by the Company has been automatically terminated as a result of the Employee’s Disability) shall state a date, which shall be not fewer than thirty (30) days nor more than sixty (60) days after the date such notice is given, on which the termination of the Employee’s employment by the Company is effective. The date so stated in accordance with this Section 6 shall be the “Termination Date”. If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, any subsequent purported termination by the Company of the Employee’s employment by the Company, or any subsequent purported determination by the Company of the Employee’s Disability, shall be ineffective unless that termination or determination shall have been communicated by the Company to the Employee by notice that meets the requirements of the foregoing provisions of this Section 6 and the provisions of Section 9.

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Section 7. Benefits Payable on Change in Control of the Company and Termination .

(a) If (x) a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, and (y) the Employee’s employment by the Company is terminated (whether by the Employee or the Company or automatically as provided in Section 3) after the occurrence of that Change in Control of the Company, the Employee shall be entitled to the following benefits:

(i) If the Employee’s employment by the Company is terminated (x) by the Company as a result of the occurrence of an Event of Termination for Cause, or (y) by the Employee before the occurrence of an Event of Termination for Good Reason, then the Company shall pay to the Employee the Base Salary accrued through the Termination Date but not previously paid to the Employee, and the Employee shall be entitled to any other amounts or benefits provided under any plan, policy, practice, program, contract or arrangement of or with the Company, including, but not limited to, the Basic Benefit Plans and the Other Benefit Plans, which shall be governed by the terms thereof (except as explicitly modified by this Agreement).

(ii) If the Employee’s employment by the Company is automatically terminated as a result of the Employee’s death, the Employee’s Disability or the Employee’s Retirement, then (x) the Company shall pay to the Employee the Base Salary accrued through the date of the occurrence of that event but not previously paid to the Employee, and (y) the Employee shall be entitled to any other amounts or benefits provided under any plan, policy, practice, program, contract or arrangement of or with the Company, including, but not limited to, the Basic Benefit Plans and the Other Benefit Plans, which shall be governed by the terms thereof (except as explicitly modified by this Agreement).

(iii) If the Employee’s employment by the Company is terminated (x) by the Company otherwise than as a result of the occurrence of an Event of Termination for Cause, or (y) by the Employee after the occurrence of an Event of Termination for Good Reason, then the Employee shall be entitled to the following:

(1) the Company shall pay to the Employee the Base Salary and compensation for earned but unused vacation time accrued through the Termination Date but not previously paid to the Employee;

(2) the Company shall pay to the Employee an amount equal to the product of (A) the greater of (I) the highest aggregate annual bonus, incentive or other payment of cash compensation in addition to annual base salary pursuant to any bonus, incentive, profit-sharing, performance, discretionary pay or similar policy, plan, program or arrangement of the Company paid or payable to the Employee (including any deferred portion thereof) for any fiscal year (or portion thereof) of the Company paid after

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the Effective Date, and (II) the Benchmark Bonus, multiplied by (B) a fraction, the numerator of which is the number of days in the current fiscal year of the Company through the Termination Date and the denominator of which is 365;

(3) the Company shall pay to the Employee, as a lump sum, an amount (the “Severance Payment”) equal to one and one-half (1.5) times the sum of:

A. the amount (including any deferred portion thereof) of the Base Salary that would have been paid to the Employee during the fiscal year of the Company in which the Termination Date occurs based on the assumption that the Employee’s employment by the Company had continued throughout that fiscal year at the Base Salary at the highest rate in effect at any time during the term of this Agreement; plus

B. the amount equal to (I) $100,000, if the Termination Date occurs prior to the Employee earning an annual bonus with respect to the fiscal year ended December 31, 2007, (II) the amount of the annual bonus earned by the Employee with respect to the fiscal year ended December 31, 2007, if the Termination Date occurs after the Employee earned an annual bonus with respect to the fiscal year ended December 31, 2007, but prior to the Employee earning an annual bonus with respect to the fiscal year ended December 31, 2008, (III) the average of the two annual bonuses earned by the Employee with respect to the fiscal years ended December 31, 2007 and 2008 if the Termination Date occurs after the Employee earned an annual bonus with respect to the fiscal year ended December 31, 2008, but prior to the Employee earning an annual bonus with respect to the fiscal year ended December 31, 2009, or (IV) the average of the three annual bonuses earned by the Employee with respect to the three fiscal years preceding the year in which the Termination Date occurs;

(4) the Company (at its sole expense) shall take the following actions:

A. throughout the Relevant Period, the Company shall maintain in effect, and not materially reduce the benefits provided by, each of the Other Benefit Plans in which the Employee was a participant immediately before the Termination Date; and

B. the Company shall arrange for the Employee’s uninterrupted participation throughout the Relevant Period in each of such Other Benefit Plans,

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provided that if the Employee’s participation after the Termination Date in any such Other Benefit Plan is not permitted by the terms of that Other Benefit Plan, then throughout the Relevant Period, the Company (at its sole expense) shall provide the Employee with substantially the same benefits that were provided to the Employee by that Other Benefit Plan immediately before the Termination Date; and

(5) the Employee shall be entitled to any other amounts or benefits provided under any plan, policy, practice, program, contract or arrangement of or with the Company, including, but not limited to, the Basic Benefit Plans and the Other Benefit Plans, which shall be governed by the terms thereof (except as explicitly modified by this Agreement).

(b) Each payment required to be made to the Employee pursuant to the foregoing provisions of Section 7(a) above (i) shall be made by check drawn on an account of the Company at a bank located in the United States of America, and (ii) shall be paid (x) if the Employee’s employment by the Company was terminated as a result of the Employee’s death, the Employee’s Disability or the Employee’s Retirement, not more than thirty (30) days immediately following the date of the occurrence of that event, and (y) if the Employee’s employment by the Company was terminated for any other reason, not more than ten (10) days immediately following the Termination Date.

Section 8. Successors . If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement,

(i) the Company shall not, directly or indirectly, consolidate with, merge into or sell or otherwise transfer its assets as an entirety or substantially as an entirety to, any person, or permit any person to consolidate with or merge into the Company, unless immediately after such consolidation, merger, sale or transfer, the Successor shall have assumed in writing the Company’s obligations under this Agreement; and

(ii) not fewer than ten (10) days before the consummation of any consolidation of the Company with, merger by the Company into, or sale or other transfer by the Company of its assets as an entirety or substantially as an entirety to, any person, the Company shall give the Employee notice of that proposed transaction.

Section 9. Notice . Notices required or permitted to be given by either party pursuant to this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the other party or when deposited with the United States Postal Service as certified or registered mail with postage prepaid and addressed:

(a) if to the Employee, at the Employee’s address last shown on the Company’s records, and

(b) if to the Company, at 4510 Lamesa Highway, Snyder, Texas 79549, directed to the attention of the Chief Executive Officer.

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or, in either case, to such other address as the party to whom or which such notice is to be given shall have specified by notice given to the other party.

Section 10. Withholding Taxes . The Company may withhold from all payments to be paid to the Employee pursuant to this Agreement all taxes that, by applicable federal or state law, the Company is required to so withhold.

Section 11. Certain Additional Payments by the Company .

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by, or benefit from, the Company or any of its Affiliates to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (any such payments, distributions or benefits being individually referred to herein as a “Payment,” and any two or more of such payments, distributions or benefits being referred to herein as “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code (such excise tax, together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such excise tax, and any interest in respect of such penalties, additions to tax or additional amounts, being collectively referred to herein as the “Excise Tax”), then the Employee shall be entitled to receive an additional payment or payments (individually referred to herein as a “Gross-Up Payment” and any two or more of such additional payments being referred to herein as “Gross-Up Payments”) in an amount such that after payment by the Employee of all taxes (as defined in Section 11(k)) imposed upon the Gross-Up Payment, the Employee retains an amount of such Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) Subject to the provisions of Section 11(c) through (i), any determination (individually, a “Determination”) required to be made under this Section 11(b), including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall initially be made, at the Company’s expense, by nationally recognized tax counsel mutually acceptable to the Company and the Employee (“Tax Counsel”). Tax Counsel shall provide detailed supporting legal authorities, calculations, and documentation both to the Company and the Employee within 15 business days of the termination of the Employee’s employment, if applicable, or such other time or times as is reasonably requested by the Company or the Employee. If Tax Counsel makes the initial Determination that no Excise Tax is payable by the Employee with respect to a Payment or Payments, it shall furnish the Employee with an opinion reasonably acceptable to the Employee that no Excise Tax will be imposed with respect to any such Payment or Payments. The Employee shall have the right to dispute any Determination (a “Dispute”) within 15 business days after delivery of Tax Counsel’s opinion with respect to such Determination. The Gross-Up Payment, if any, as determined pursuant to such Determination shall, at the Company’s expense, be paid by the Company to the Employee within five business days of the Employee’s receipt of such Determination. The existence of a Dispute shall not in any way affect the Employee’s right to receive the Gross-Up Payment in accordance with such Determination. If there is no Dispute, such Determination shall be binding, final and conclusive upon the Company and the

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Employee, subject in all respects, however, to the provisions of Section 11(c) through (i) below. As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that Gross-Up Payments (or portions thereof) which will not have been made by the Company should have been made (“Underpayment”), and if upon any reasonable written request from the Employee or the Company to Tax Counsel, or upon Tax Counsel’s own initiative, Tax Counsel, at the Company’s expense, thereafter determines that the Employee is required to make a payment of any Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel shall, at the Company’s expense, determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to the Employee.

(c) The Company shall defend, hold harmless, and indemnify the Employee on a fully grossed-up after tax basis from and against any and all claims, losses, liabilities, obligations, damages, impositions, assessments, demands, judgements, settlements, costs and expenses (including reasonable attorneys’, accountants’, and experts’ fees and expenses) with respect to any tax liability of the Employee resulting from any Final Determination (as defined in Section 11(j)) that any Payment is subject to the Excise Tax.

(d) If a party hereto receives any written or oral communication with respect to any question, adjustment, assessment or pending or threatened audit, examination, investigation or administrative court or other proceeding which, if pursued successfully, could result in or give rise to a claim by the Employee against the Company under this Section 11 (“Claim”), including, but not limited to, a claim for indemnification of the Employee by the Company under Section 11(c), then such party shall promptly notify the other party hereto in writing of such Claim (“Tax Claim Notice”).

(e) If a Claim is asserted against the Employee (“Employee Claim”), the Employee shall take or cause to be taken such action in connection with contesting such Employee Claim as the Company shall reasonably request in writing from time to time, including the retention of counsel and experts as are reasonably designated by the Company (it being understood and agreed by the parties hereto that the terms of any such retention shall expressly provide that the Company shall be solely responsible for the payment of any and all fees and disbursements of such counsel and any experts) and the execution of powers of attorney provided that:

(i) within 30 calendar days after the Company receives or delivers, as the case may be, the Tax Claim Notice relating to such Employee Claim (or such earlier date that any payment of the taxes claimed is due from the Employee, but in no event sooner than five calendar days after the Company receives or delivers such Tax Claim Notice), the Company shall have notified the Employee in writing (“Election Notice”) that the Company does not dispute its obligations (including, but not limited to, its indemnity obligations) under this Agreement and that the Company elects to contest, and to control the defense or prosecution of, such Employee Claim at the Company’s sole risk and sole cost and expense; and

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(ii) the Company shall have advanced to the Employee on an interest-free basis, the total amount of the tax claimed in order for the Employee, at the Company’s request, to pay or cause to be paid the tax claimed, file a claim for refund of such tax and, subject to the provisions of the last sentence of Section 11(g), sue for a refund of such tax if such claim for refund is disallowed by the appropriate taxing authority (it being understood and agreed by the parties hereto that the Company shall only be entitled to sue for a refund and the Company shall not be entitled to initiate any proceeding in, for example, United States Tax Court) and shall indemnify and hold the Employee harmless, on a fully grossed-up after tax basis, from any tax imposed with respect to such advance or with respect to any imputed income with respect to such advance; and

(iii) the Company shall reimburse the Employee for any and all costs and expenses resulting from any such request by the Company and shall indemnify and hold the Employee harmless, on fully grossed-up after-tax basis, from any tax imposed as a result of such reimbursement.

(f) Subject to the provisions of Section 11(e) hereof, the Company shall have the right to defend or prosecute, at the sole cost, expense and risk of the Company, such Employee Claim by all appropriate proceedings, which proceedings shall be defended or prosecuted diligently by the Company to a Final Determination; provided , however , that (i) the Company shall not, without the Employee’s prior written consent, enter into any compromise or settlement of such Employee Claim that would adversely affect the Employee, (ii) any request from the Company to the Employee regarding any extension of the statute of limitations relating to assessment, payment, or collection of taxes for the taxable year of the Employee with respect to which the contested issues involved in, and amount of, the Employee Claim relate is limited solely to such contested issues and amount, and (iii) the Company’s control of any contest or proceeding shall be limited to issues with respect to the Employee Claim and the Employee shall be entitled to settle or contest, in his sole and absolute discretion, any other issue raised by the Internal Revenue Service or any other taxing authority. So long as the Company is diligently defending or prosecuting such Employee Claim, the Employee shall provide or cause to be provided to the Company any information reasonably requested by the Company that relates to such Employee Claim, and shall otherwise cooperate with the Company and its representatives in good faith in order to contest effectively such Employee Claim. The Company shall keep the Employee informed of all developments and events relating to any such Employee Claim (including, without limitation, providing to the Employee copies of all written materials pertaining to any such Employee Claim), and the Employee or his authorized representatives shall be entitled, at the Employee’s expense, to participate in all conferences, meetings and proceedings relating to any such Employee Claim.

(g) If, after actual receipt by the Employee of an amount of a tax claimed (pursuant to an Employee Claim) that has been advanced by the Company pursuant to Section 11(e)(ii) hereof, the extent of the liability of the Company hereunder with respect to such tax claimed has been established by a Final Determination, the Employee shall promptly pay or cause to be paid to the Company any refund actually received by, or actually credited to, the Employee with respect to such tax (together with any interest

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paid or credited thereon by the taxing authority and any recovery of legal fees from such taxing authority related thereto), except to the extent that any amounts are then due and payable by the Company to the Employee, whether under the provisions of this Agreement or otherwise. If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 11(e)(ii), a determination is made by the Internal Revenue Service or other appropriate taxing authority that the Employee shall not be entitled to any refund with respect to such tax claimed and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of any Gross-Up Payments and other payments required to be paid hereunder.

(h) With respect to any Employee Claim, if the Company fails to deliver an Election Notice to the Employee within the period provided in Section 11(e)(i) hereof or, after delivery of such Election Notice, the Company fails to comply with the provisions of Section 11(e)(ii) and (iii) and (f) hereof, then the Employee shall at any time thereafter have the right (but not the obligation), at his election and in his sole and absolute discretion, to defend or prosecute, at the sole cost, expense and risk of the Company, such Employee Claim. The Employee shall have full control of such defense or prosecution and such proceedings, including any settlement or compromise thereof. If requested by the Employee, the Company shall cooperate, and shall cause its Affiliates to cooperate, in good faith with the Employee and his authorized representatives in order to contest effectively such Employee Claim. The Company may attend, but not participate in or control, any defense, prosecution, settlement or compromise of any Employee Claim controlled by the Employee pursuant to this Section 11(h) and shall bear its own costs and expenses with respect thereto. In the case of any Employee Claim that is defended or prosecuted by the Employee, the Employee shall, from time to time, be entitled to current payment, on a fully grossed-up after tax basis, from the Company with respect to costs and expenses incurred by the Employee in connection with such defense or prosecution.

(i) In the case of any Employee Claim that is defended or prosecuted to a Final Determination pursuant to the terms of this Section 11(i), the Company shall pay, on a fully grossed-up after tax basis, to the Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim that have not theretofore been paid by the Company to the Employee, together with the costs and expenses, on a fully grossed-up after tax basis, incurred in connection therewith that have not theretofore been paid by the Company to the Employee, within ten calendar days after such Final Determination. In the case of any Employee Claim not covered by the preceding sentence, the Company shall pay, on a fully grossed-up after tax basis, to the Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim at least ten calendar days before the date payment of such taxes is due from the Employee, except where payment of such taxes is sooner required under the provisions of this Section 11(i), in which case payment of such taxes (and payment, on a fully grossed-up after tax basis, of any costs and expenses required to be paid under this

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Section 11(i)) shall be made within the time and in the manner otherwise provided in this Section 11(i).

(j) For purposes of this Agreement, the term “Final Determination” shall mean (A) a decision, judgment, decree or other order by a court or other tribunal with appropriate jurisdiction, which has become final and non-appealable; (B) a final and binding settlement or compromise with an administrative agency with appropriate jurisdiction, including, but not limited to, a closing agreement under Section 7121 of the Code; (C) any disallowance of a claim for refund or credit in respect to an overpayment of tax unless a suit is filed on a timely basis; or (D) any final disposition by reason of the expiration of all applicable statutes of limitations.

(k) For purposes of this Agreement, the terms “tax” and “taxes” mean any and all taxes of any kind whatsoever (including, but not limited to, any and all Excise Taxes, income taxes, and employment taxes), together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such taxes and any interest in respect of such penalties, additions to tax, or additional amounts.

Section 12. Section 409A Deferred Compensation. This Agreement is intended to meet the requirements of Section 409A of the Code and may be administered in a manner that is intended to meet those requirements and shall be construed and interpreted in accordance with such intent. To the extent that a payment, or the settlement or deferral thereof, is subject to Section 409A of the Code, except as the Board of Directors and Employee otherwise determine in writing, the payment shall be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A of the Code, including regulations or other guidance issued with respect thereto, such that the payment, settlement or deferral shall not be subject to the additional tax or interest applicable under Section 409A of the Code. Any provision of this Agreement that would cause the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended (in a manner that as closely as practicable achieves the original intent of this Agreement) to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code. In the event additional regulations or other guidance is issued under Section 409A of the Code or a court of competent jurisdiction provides additional authority concerning the application of Section 409A with respect to the payments described hereunder, then the provisions regarding such payments shall be amended to permit such payments to be made at the earliest time allowed under such additional regulations, guidance or authority that is practicable and achieves the original intent of this Agreement.

Section 13. Expenses of Enforcement . If a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, then, upon demand by the Employee made to the Company, the Company shall reimburse the Employee for the reasonable expenses (including attorneys’ fees and expenses) incurred by the Employee in enforcing or seeking to enforce the payment of any amount or other benefit to which the Employee shall have become entitled pursuant to this Agreement, including those incurred in connection with any arbitration initiated pursuant to Section 21. To the extent that any such reimbursement would be subject to the Excise Tax, then the Employee shall be entitled to receive Gross-Up Payments in an amount such that after payment by the Employee of all taxes imposed on such Gross-Up

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Payments, the Employee retains an amount equal to the Excise Tax imposed upon the reimbursement, and the other provisions of Section 11 hereof shall also apply to such circumstance unless the context thereof otherwise indicates.

Section 14. Employment by Wholly Owned Entities . If, at or after the Effective Date, the Employee is or becomes an employee of one or more corporations, partnerships, limited liability companies or other entities that are, directly or indirectly, wholly owned by the Company (“Wholly Owned Entities”), references in this Agreement to the Employee’s employment by the Company shall include the Employee’s employment by any such Wholly Owned Entity.

Section 15. No Obligation to Mitigate; No Rights of Offset .

(a) The Employee shall not be required to mitigate the amount of any payment or other benefit required to be paid or provided to the Employee pursuant to this Agreement, whether by seeking other employment or otherwise, nor shall the amount of any such payment or other benefit be reduced on account of any compensation earned by the Employee as a result of employment by another person.

(b) The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others.

Section 16. Amendment and Waiver . No provision of this Agreement may be amended or waived (whether by act or course of conduct or omission or otherwise) unless that amendment or waiver is by written instrument signed by the parties hereto. No waiver by either party of any breach of this Agreement shall be deemed a waiver of any other or subsequent breach.

Section 17. Governing Law . The validity, interpretation, construction and enforceability of this Agreement shall be governed by the laws of the State of Texas.

Section 18. Validity . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

Section 19. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute the same instrument.

Section 20. Assignment . This Agreement shall inure to the benefit of and be enforceable by the Employee’s legal representative. The Company may not assign any of its obligations under this Agreement unless (i) such assignment is to a Successor and (ii) the requirements of Section 8 are fulfilled.

Section 21. Arbitration . Except as otherwise explicitly provided in Section 11, any dispute between the parties arising out of this Agreement, whether as to this Agreement’s construction, interpretation or enforceability or as to any party’s breach or alleged breach of any

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provision of this Agreement, shall be submitted to arbitration in accordance with the following procedures:

(i) Either party may demand such arbitration by giving notice of that demand to the other party. The notice shall state (x) the matter in controversy, and (y) the name of the arbitrator selected by the party giving the notice.

(ii) Not more than 15 days after such notice is given, the other party shall give notice to the party who demanded arbitration of the name of the arbitrator selected by the other party. If the other party shall fail to timely give such notice, the arbitrator that the other party was entitled to select shall be named by the Arbitration Committee of the American Arbitration Association. Not more than 15 days after the second arbitrator is so named, the two arbitrators shall select a third arbitrator. If the two arbitrators shall fail to timely select a third arbitrator, the third arbitrator shall be named by the Arbitration Committee of the American Arbitration Association.

(iii) The dispute shall be arbitrated at a hearing that shall be concluded within ten days immediately following the date the dispute is submitted to arbitration unless a majority of the arbitrators shall elect to extend the period of arbitration. Any award made by a majority of the arbitrators (x) shall be made within ten days following the conclusion of the arbitration hearing, (y) shall be conclusive and binding on the parties, and (z) may be made the subject of a judgment of any court having jurisdiction.

(iv) All expenses of the arbitration shall be borne by the Company.

The agreement of the parties contained in the foregoing provisions of this Section 21 shall be a complete defense to any action, suit or other proceeding instituted in any court or before any administrative tribunal with respect to any dispute between the parties arising out of this Agreement.

Section 22. Interpretation .

(a) As used in this Agreement, the following terms and phrases have the indicated meanings:

(i) “Affiliate” and “Affiliates” mean, when used with respect to any entity, individual, or other person, any other entity, individual, or other person which, directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with such entity, individual or person.

(ii) “Base Salary” has the meaning assigned to that term in Section 5.

(iii) “Basic Benefit Plans” has the meaning assigned to that term in Section 5.

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(iv) “Benchmark Bonus” has the meaning assigned to that term in Section 5.

(v) “Board of Directors” means the Board of Directors of the Company.

(vi) “Business Combination” has the meaning assigned to that term in Section 2.

(vii) “Change in Control of the Company” has the meaning assigned to that phrase in Section 2.

(viii) “Claim” has the meaning assigned to such term in Section 11.

(ix) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

(x) “Company” has the meaning assigned to that term in the preamble to this Agreement. The term “Company” shall also include any Successor, whether the liability of such Successor under this Agreement is established by contract or occurs by operation of law.

(xi) “Covered Person” has the meaning assigned to that term in Section 2.

(xii) “Determination” has the meaning assigned to that term in Section 11.

(xiii) “Dispute” has the meaning assigned to that term in Section 11.

(xiv) “Effective Date” has the meaning assigned to that term in the preamble to this Agreement.

(xv) “Election Notice” has the meaning assigned to such term in Section 11.

(xvi) “Employee” has the meaning assigned to such term in the preamble to this Agreement.

(xvii) “Employee Claim” has the meaning assigned to such term in Section 11.

(xviii) “Employee’s Disability” means:

(1) if no Change in Control of the Company shall have occurred before the date of determination, the physical or mental disability of the Employee determined in accordance with the disability

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policy of the Company at the time in effect and generally applicable to its salaried employees; and

(2) if a Change in Control of the Company shall have occurred at that date, the physical or mental disability of the Employee determined in accordance with the disability policy of the Company in effect immediately before the occurrence of the first Change in Control of the Company and generally applicable to its salaried employees.

The Employee’s Disability, and the automatic termination of the Employee’s employment by the Company by reason of the Employee’s Disability, shall be deemed to have occurred on the date of determination, provided that if (1) a Change in Control of the Company shall have occurred before the expiration of the term of this Agreement, (2) the Company shall have subsequently given notice pursuant to Section 6 of the Company’s determination of the Employee’s Disability, and (3) the Employee shall have given notice to the Company that the Employee disagrees with that determination, then (A) whether the Employee’s Disability shall have occurred shall be submitted to arbitration pursuant to Section 21, and (B) if a majority of the arbitrators decide that the Employee’s Disability had not occurred, at the date of determination by the Company, then (I) the Employee’s Disability, and the automatic termination of the Employee’s employment by the Company by reason of the Employee’s Disability, shall be deemed not to have occurred, and (II) on demand by the Employee made to the Company, the Company shall reimburse the Employee for the reasonable expenses (including attorneys’ fees and expenses) incurred by the Employee in obtaining that decision.

(xix) “Employee’s Retirement” means (x) if no Change in Control of the Company shall have occurred before the date of the Employee’s proposed retirement, the retirement of the Employee in accordance with the retirement policy of the Company at the time in effect and generally applicable to its salaried employees, and (y) if a Change in Control of the Company shall have occurred at that date, the retirement of the Employee from the employ of the Company in accordance with the retirement policy of the Company in effect immediately before the occurrence of the first Change in Control of the Company and generally applicable to its salaried employees.

(xx) “Event of Termination for Cause” has the meaning assigned to that phrase in Section 4.

(xxi) “Event of Termination for Good Reason” has the meaning assigned to that phrase in Section 5.

(xxii) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

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(xxiii) “Excise Tax” has the meaning assigned to that term in Section 11.

(xxiv) “Expiration Date” has the meaning assigned to that term in Section 3.

(xxv) “Final Determination” has the meaning assigned to such term in Section 11.

(xxvi) “Gross-Up Payment” has the meaning assigned to that term in Section 11.

(xxvii) “Other Benefit Plans” has the meaning assigned to that term in Section 5.

(xxviii) “Outstanding Company Common Stock” has the meaning assigned to that term in Section 2.

(xxix) “Outstanding Company Voting Securities” has the meaning assigned to that term in Section 2.

(xxx) “Payment” has the meaning assigned to that term in Section 11.

(xxxi) “person” means any individual, corporation, partnership, joint venture, association, joint-stock company, limited partnership, limited liability company, trust, unincorporated organization, government, or agency or political subdivision of any government.

(xxxii) “Relevant Period” means a period beginning on the Termination Date and ending on the first to occur of (x) the second anniversary of the Termination Date, (y) the date on which the Employee becomes a full time employee of another person, and (z) the Employee’s normal retirement date, determined in accordance with the retirement policy of the Company in effect on the Termination Date.

(xxxiii) “Severance Payment” has the meaning assigned to that term in Section 7.

(xxxiv) “Successor” means a person with or into which the Company shall have been merged or consolidated or to which the Company shall have transferred its assets as an entirety or substantially as an entirety.

(xxxv) “tax” and “taxes” have the meaning assigned to those terms in Section 11.

(xxxvi) “Tax Claim Notice” has the meaning assigned to that term in Section 11.

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(xxxvii) “Tax Counsel” has the meaning assigned to that term in Section 11.

(xxxviii) “Termination Date” has the meaning assigned to that term in Section 6.

(xxxix) “this Agreement” means this Change in Control Agreement as it may be amended from time to time in accordance with Section 16.

(xl) “Underpayment” has the meaning assigned to that term in Section 11.

(xli) “Wholly Owned Entities” has the meaning assigned to that term in Section 14.

(b) In the event of the enactment of any successor provision to any statute or rule cited in this Agreement, references in this Agreement to such statute or rule shall be to such successor provision.

(d) References in this Agreement to any Section are to the corresponding Section of this Agreement unless the context otherwise indicates.

In Witness Whereof , the Company and the Employee have executed this Agreement as of the Effective Date.


	PATTERSON-UTI ENERGY, INC.
	/s/ John E. Vollmer III
	John E. Vollmer III
	Senior Vice President – Corporate Development and Chief Financial Officer



	/s/ William L. Moll, Jr.
	William L. Moll, Jr.

-21-

Exhibit 10.8

FIRST AMENDMENT
TO
CHANGE IN CONTROL AGREEMENT BETWEEN PATTERSON-UTI ENERGY, INC.
AND MARK S. SIEGEL

This First Amendment To Change In Control Agreement (this “ First Amendment ”) between Patterson-UTI Energy, Inc., a Delaware corporation (the “Company”), and Mark S. Siegel (the “Employee”) is executed on November 1, 2007, but is effective as set forth herein.

W I T N E S S E T H :

Whereas , the Company and the Employee entered into that certain Change in Control Agreement dated as of January 29, 2004 (the “Original Agreement”); and

Whereas , the Company and the Employee desire to amend the Original Agreement as hereinafter provided;

Now, Therefore , in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:

	1.		The reference to “Section 21” in the preamble of the Original Agreement shall be deleted and a reference to “Section 22” shall be substituted in its stead.

	2.		Paragraph b of Section 7 of the Original Agreement is hereby amended to read in its entirety as follows:

(b) Each payment required to be made to the Employee pursuant to the foregoing provisions of Section 7(a) above shall be subject to the following rules:

(i) such payments shall be made by check drawn on an account of the Company at a bank located in the United States of America;

(ii) such payments shall be paid (x) if the Employee’s employment by the Company was terminated as a result of the Employee’s death or Disability not more than thirty (30) days immediately following the date of the occurrence of that event or (y) if the Employee’s employment by the Company was terminated for any other reason, not more than ten (10) days immediately following the Termination Date; and

(iii) notwithstanding any provision of this Agreement to the contrary, in accordance with Section 409A of the Code, (x) any payments due with respect to Employee’s (or his dependents’) COBRA continuation coverage following the first 18 months of such coverage shall be paid on or before the last day of each month thereafter and (y) if the Employee is determined to be a “specified employee” (as defined in Section 409A of the Code) for the year in which such Termination Date occurs, any payments due under Section 7(a) above that are not permitted to be paid on such date without the imposition of additional taxes, interest and penalties under

- 1 -

Section 409A of the Code shall be paid on the first business day following the six-month anniversary of the Termination Date or, if earlier, Employee’s death; provided, however , that to the extent such six (6) month delay is imposed by Section 409A of the Code, such payments shall be irrevocably contributed into a rabbi trust established by the Company for the benefit of Employee with an independent bank trustee as selected by the Employee not more than ten (10) days immediately following the Termination Date and distributed to Employee as soon as permissible under Section 409A of the Code; and provided further , that to the extent any payments are paid into a rabbi trust such amounts shall be invested in a short-term oriented fund invested in U.S. government securities and repurchase agreements for those securities, as well as obligations of U.S. government agencies ( e.g. , a money market fund).

A new paragraph (l) shall be added to Section 11 of the Original Agreement immediately following Section 11(k) to read as follows:

(l) Notwithstanding anything in this Agreement to the contrary, in accordance with Section 409A of the Code, any additional payments due to the Employee under this Section 11 shall be paid by the Company no later than the end of the Employee’s taxable year next following the Employee’s taxable year in which the related taxes are remitted to the taxing authority.

Sections 12, 13, 14, 15, 16, 17, 18, 19, 20 and 21 of the Original Agreement shall be renumbered as Sections 13, 14, 15, 16, 17, 18, 19, 20, 21 and 22, respectively, and the following new Section 12 shall be added to the Original Agreement immediately following Section 11 to read as follows:

12. Deferred Compensation—Section 409A of the Code .

This Agreement is intended to meet the requirements of Section 409A of the Code and shall be administered in a manner that is intended to meet those requirements and shall be construed and interpreted in accordance with such intent. To the extent that a payment, or the settlement or deferral thereof, is subject to Section 409A of the Code, except as the Board of Directors and Employee otherwise determine in writing, the payment shall be paid, settled or deferred in a manner that will meet the requirements of Section 409A of the Code, including regulations or other guidance issued with respect thereto, such that the payment, settlement or deferral shall not be subject to the additional tax or interest applicable under Section 409A of the Code. Any provision of this Agreement that would cause the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended (in a manner that as closely as practicable achieves the original intent of this Agreement) to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, if permitted under the regulations and other guidance issued under Section 409A of the Code. In the event additional regulations or other guidance is issued under Section 409A of the Code or a court of competent jurisdiction provides additional authority concerning the application of Section 409A with respect to the payments described hereunder, then the provisions regarding such payments shall be amended to permit such payments to be made at the

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earliest time allowed under such additional regulations, guidance or authority that is practicable and achieves the original intent of this Agreement.

The references to “Section 20” in Sections 13, 21 and 22 of the Original Agreement, as renumbered in item 4 above, shall be deleted and a reference to “Section 21” shall be substituted in each stead. The reference to “Section 13” in Section 22 of the Original Agreement, as renumbered in item 4, above, shall be deleted and a reference to “Section 14” shall be substituted in its stead. The reference to “Section 15” in Section 22 of the Original Agreement, as renumbered in item 4, above, shall be deleted and a reference to “Section 16” shall be substituted in its stead.

Clause (x) of Section 22(a) of the Original Agreement, as renumbered in item 4 above, shall be deleted and clauses (xi) through (xlii) shall be renumbered accordingly as clauses (x) through (xli), respectively, with the term “Event of Termination for Cause” being realphabetized in the listing of defined terms under Section 22(a) and renumbered according to the foregoing.

Clause (xxxv) of Section 22(a) of the Original Agreement, as renumbered in items 4 and 6 above, shall be amended in its entirety to read as follows:

(xxxv) “tax” and “taxes” have the meaning assigned to those terms in Section 11.

This First Amendment shall be binding on each party hereto only when it has been executed by all of the parties hereto, but when so executed, shall, unless otherwise provided by a specific provision of this First Amendment, be and become effective as of January 1, 2005.

All references to “Agreement” contained in the Original Agreement shall be deemed to be a reference to the Original Agreement, as amended by this First Amendment. Certain capitalized terms used herein that are not otherwise defined are defined in Section 21 of the Original Agreement (Section 22 of the Original Agreement, as amended), and the terms defined in this First Amendment shall be incorporated in the Original Agreement with the same meanings as set forth herein.

10.

The validity, interpretation, construction and enforceability of this First Amendment shall be governed by the laws of the State of Texas.

11.

Except as amended by this First Amendment, the Original Agreement shall remain in full force and effect.

12.

This First Amendment may be executed in one or more counterparts, and by the parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement.

Signature Page to Follow

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In Witness Whereof , the Employee and the Company have executed this First Amendment on the date first written above, which is effective as set forth herein.


PATTERSON-UTI ENERGY, INC.

By:		/s/ John E. Vollmer III

	John E. Vollmer III Senior Vice President-Corporate Development and Chief Financial Officer

EMPLOYEE
/s/ Mark S. Siegel

Mark S. Siegel

- 4 -

Exhibit 10.9

FIRST AMENDMENT
TO

CHANGE IN CONTROL AGREEMENT BETWEEN PATTERSON-UTI ENERGY, INC.
AND DOUGLAS J. WALL

This First Amendment To Change In Control Agreement (this “ First Amendment ”) between Patterson-UTI Energy, Inc., a Delaware corporation (the “Company”), and Douglas J. Wall (the “Employee”) is executed on November 1, 2007, but is effective as set forth herein.

W I T N E S S E T H :

Whereas , the Company and the Employee entered into that certain Change in Control Agreement dated as of August 31, 2007 (the “Original Agreement”); and

Whereas , the Company and the Employee desire to amend the Original Agreement as hereinafter provided;

Now, Therefore , in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:

Paragraph b of Section 7 of the Original Agreement is hereby amended to read in its entirety as follows:

(b) Each payment required to be made to the Employee pursuant to the foregoing provisions of Section 7(a) above shall be subject to the following rules:

(i) such payments shall be made by check drawn on an account of the Company at a bank located in the United States of America;

- 1 -

imposed by Section 409A of the Code, such payments shall be irrevocably contributed into a rabbi trust established by the Company for the benefit of Employee with an independent bank trustee as selected by the Employee not more than ten (10) days immediately following the Termination Date and distributed to Employee as soon as permissible under Section 409A of the Code; and provided further , that to the extent any payments are paid into a rabbi trust such amounts shall be invested in a short-term oriented fund invested in U.S. government securities and repurchase agreements for those securities, as well as obligations of U.S. government agencies ( e.g. , a money market fund).

	2.		A new paragraph (l) shall be added to Section 11 of the Original Agreement immediately following Section 11(k) to read as follows:

			(l) Notwithstanding anything in this Agreement to the contrary, in accordance with Section 409A of the Code, any additional payments due to the Employee under this Section 11 shall be paid by the Company no later than the end of the Employee’s taxable year next following the Employee’s taxable year in which the related taxes are remitted to the taxing authority.

Section 12 of the Original Agreement is hereby amended to read in its entirety as follows:

12. Deferred Compensation—Section 409A of the Code .

This First Amendment shall be binding on each party hereto only when it has been executed by all of the parties hereto, but when so executed, shall, unless

- 2 -

			otherwise provided by a specific provision of this First Amendment, be and become effective as of August 31, 2007.

	5.		All references to “Agreement” contained in the Original Agreement shall be deemed to be a reference to the Original Agreement, as amended by this First Amendment. Certain capitalized terms used herein that are not otherwise defined are defined in Section 21 of the Original Agreement, and the terms defined in this First Amendment shall be incorporated in the Original Agreement with the same meanings as set forth herein.

	6.		The validity, interpretation, construction and enforceability of this First Amendment shall be governed by the laws of the State of Texas.

	7.		Except as amended by this First Amendment, the Original Agreement shall remain in full force and effect.

	8.		This First Amendment may be executed in one or more counterparts, and by the parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement.

Signature Page to Follow

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In Witness Whereof , the Employee and the Company have executed this First Amendment on the date first written above, which is effective as set forth herein.


PATTERSON-UTI ENERGY, INC.

By:		/s/ John E. Vollmer III

	John E. Vollmer III Senior Vice President-Corporate Development and Chief Financial Officer

EMPLOYEE
		/s/ Douglas J. Wall

Douglas J. Wall

- 4 -

Exhibit 10.10

FIRST AMENDMENT
TO

CHANGE IN CONTROL AGREEMENT BETWEEN PATTERSON-UTI ENERGY, INC.
AND JOHN E. VOLLMER III

This First Amendment To Change In Control Agreement (this “ First Amendment ”) between Patterson-UTI Energy, Inc., a Delaware corporation (the “Company”), and John E. Vollmer III (the “Employee”) is executed on November 1, 2007 (the “Execution Date”), but is effective as set forth herein.

W I T N E S S E T H :

Whereas , the Company and the Employee entered into that certain Change in Control Agreement dated as of January 29, 2004 (the “Original Agreement”); and

Whereas , the Company and the Employee desire to amend the Original Agreement as hereinafter provided;

Now, Therefore , in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:

	1.		The reference to “Section 21” in the preamble of the Original Agreement shall be deleted and a reference to “Section 22” shall be substituted in its stead.

	2.		Effective as of the Execution Date, the prefecatory language of Section 7(a)(iii)(3) of the Original Agreement is hereby amended to read in its entirety as follows:

(3) the Company shall pay to the Employee, as a lump sum, an amount (the “Severance Payment”) equal to two (2) times the sum of:

Paragraph b of Section 7 of the Original Agreement is hereby amended to read in its entirety as follows:

(b) Each payment required to be made to the Employee pursuant to the foregoing provisions of Section 7(a) above shall be subject to the following rules:

(i) such payments shall be made by check drawn on an account of the Company at a bank located in the United States of America;

- 1 -

coverage following the first 18 months of such coverage shall be paid on or before the last day of each month thereafter and (y) if the Employee is determined to be a “specified employee” (as defined in Section 409A of the Code) for the year in which such Termination Date occurs, any payments due under Section 7(a) above that are not permitted to be paid on such date without the imposition of additional taxes, interest and penalties under Section 409A of the Code shall be paid on the first business day following the six-month anniversary of the Termination Date or, if earlier, Employee’s death; provided, however , that to the extent such six (6) month delay is imposed by Section 409A of the Code, such payments shall be irrevocably contributed into a rabbi trust established by the Company for the benefit of Employee with an independent bank trustee as selected by the Employee not more than ten (10) days immediately following the Termination Date and distributed to Employee as soon as permissible under Section 409A of the Code; and provided further , that to the extent any payments are paid into a rabbi trust such amounts shall be invested in a short-term oriented fund invested in U.S. government securities and repurchase agreements for those securities, as well as obligations of U.S. government agencies ( e.g. , a money market fund).

A new paragraph (l) shall be added to Section 11 of the Original Agreement immediately following Section 11(k) to read as follows:

12. Deferred Compensation—Section 409A of the Code .

- 2 -

which may be made on a retroactive basis, if permitted under the regulations and other guidance issued under Section 409A of the Code. In the event additional regulations or other guidance is issued under Section 409A of the Code or a court of competent jurisdiction provides additional authority concerning the application of Section 409A with respect to the payments described hereunder, then the provisions regarding such payments shall be amended to permit such payments to be made at the earliest time allowed under such additional regulations, guidance or authority that is practicable and achieves the original intent of this Agreement.

	6.		The references to “Section 20” in Sections 13, 21 and 22 of the Original Agreement, as renumbered in item 5 above, shall be deleted and a reference to “Section 21” shall be substituted in each stead. The reference to “Section 13” in Section 22 of the Original Agreement, as renumbered in item 5, above, shall be deleted and a reference to “Section 14” shall be substituted in its stead. The reference to “Section 15” in Section 22 of the Original Agreement, as renumbered in item 5, above, shall be deleted and a reference to “Section 16” shall be substituted in its stead.

	7.		Clause (x) of Section 22(a) of the Original Agreement, as renumbered in item 5 above, shall be deleted and clauses (xi) through (xlii) shall be renumbered accordingly as clauses (x) through (xli), respectively, with the term “Event of Termination for Cause” being realphabetized in the listing of defined terms under Section 22(a) and renumbered according to the foregoing.

	8.		Clause (xxxv) of Section 22(a) of the Original Agreement, as renumbered in items 5 and 7 above, shall be amended in its entirety to read as follows:

(xxxv) “tax” and “taxes” have the meaning assigned to those terms in Section 11.

	9.		This First Amendment shall be binding on each party hereto only when it has been executed by all of the parties hereto, but when so executed, shall, unless otherwise provided by a specific provision of this First Amendment, be and become effective as of January 1, 2005.

	10.		All references to “Agreement” contained in the Original Agreement shall be deemed to be a reference to the Original Agreement, as amended by this First Amendment. Certain capitalized terms used herein that are not otherwise defined are defined in Section 21 of the Original Agreement (Section 22 of the Original Agreement, as amended), and the terms defined in this First Amendment shall be incorporated in the Original Agreement with the same meanings as set forth herein.

	11.		The validity, interpretation, construction and enforceability of this First Amendment shall be governed by the laws of the State of Texas.

	12.		Except as amended by this First Amendment, the Original Agreement shall remain in full force and effect.

- 3 -

13.

Signature Page to Follow

- 4 -

In Witness Whereof , the Employee and the Company have executed this First Amendment on the date first written above, which is effective as set forth herein.


		PATTERSON-UTI ENERGY, INC.

		By:	/s/ Douglas J. Wall

			Douglas J. Wall President and Chief Executive Officer

		EMPLOYEE

			/s/ John E. Vollmer III

			John E. Vollmer III

- 5 -

Exhibit 10.11

FIRST AMENDMENT
TO
CHANGE IN CONTROL AGREEMENT BETWEEN PATTERSON-UTI ENERGY, INC.
AND KENNETH N. BERNS

This First Amendment To Change In Control Agreement (this “ First Amendment ”) between Patterson-UTI Energy, Inc., a Delaware corporation (the “Company”), and Kenneth N. Berns (the “Employee”) is executed on November 1, 2007 (the “Execution Date”), but is effective as set forth herein.

W I T N E S S E T H :

Whereas , the Company and the Employee entered into that certain Change in Control Agreement dated as of January 29, 2004 (the “Original Agreement”); and

Whereas , the Company and the Employee desire to amend the Original Agreement as hereinafter provided;

Now, Therefore , in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:

	1.		The reference to “Section 21” in the preamble of the Original Agreement shall be deleted and a reference to “Section 22” shall be substituted in its stead.

	2.		Effective as of the Execution Date, the prefecatory language of Section 7(a)(iii)(3) of the Original Agreement is hereby amended to read in its entirety as follows:

(3) the Company shall pay to the Employee, as a lump sum, an amount (the “Severance Payment”) equal to two (2) times the sum of:

Paragraph b of Section 7 of the Original Agreement is hereby amended to read in its entirety as follows:

(b) Each payment required to be made to the Employee pursuant to the foregoing provisions of Section 7(a) above shall be subject to the following rules:

(i) such payments shall be made by check drawn on an account of the Company at a bank located in the United States of America;

- 1 -

A new paragraph (l) shall be added to Section 11 of the Original Agreement immediately following Section 11(k) to read as follows:

12. Deferred Compensation—Section 409A of the Code .

- 2 -

	6.		The references to “Section 20” in Sections 13, 21 and 22 of the Original Agreement, as renumbered in item 5 above, shall be deleted and a reference to “Section 21” shall be substituted in each stead. The reference to “Section 13” in Section 22 of the Original Agreement, as renumbered in item 5, above, shall be deleted and a reference to “Section 14” shall be substituted in its stead. The reference to “Section 15” in Section 22 of the Original Agreement, as renumbered in item 5, above, shall be deleted and a reference to “Section 16” shall be substituted in its stead.

	7.		Clause (x) of Section 22(a) of the Original Agreement, as renumbered in item 5 above, shall be deleted and clauses (xi) through (xlii) shall be renumbered accordingly as clauses (x) through (xli), respectively, with the term “Event of Termination for Cause” being realphabetized in the listing of defined terms under Section 22(a) and renumbered according to the foregoing.

	8.		Clause (xxxv) of Section 22(a) of the Original Agreement, as renumbered in items 5 and 7 above, shall be amended in its entirety to read as follows:

(xxxv) “tax” and “taxes” have the meaning assigned to those terms in Section 11.

	9.		This First Amendment shall be binding on each party hereto only when it has been executed by all of the parties hereto, but when so executed, shall, unless otherwise provided by a specific provision of this First Amendment, be and become effective as of January 1, 2005.

	10.		All references to “Agreement” contained in the Original Agreement shall be deemed to be a reference to the Original Agreement, as amended by this First Amendment. Certain capitalized terms used herein that are not otherwise defined are defined in Section 21 of the Original Agreement (Section 22 of the Original Agreement, as amended), and the terms defined in this First Amendment shall be incorporated in the Original Agreement with the same meanings as set forth herein.

	11.		The validity, interpretation, construction and enforceability of this First Amendment shall be governed by the laws of the State of Texas.

	12.		Except as amended by this First Amendment, the Original Agreement shall remain in full force and effect.

- 3 -

13.

Signature Page to Follow

- 4 -

In Witness Whereof , the Employee and the Company have executed this First Amendment on the date first written above, which is effective as set forth herein.


		PATTERSON-UTI ENERGY, INC.

		By:	/s/ John E. Vollmer III

			John E. Vollmer III Senior Vice President-Corporate Development and Chief Financial Officer

		EMPLOYEE

			/s/ Kenneth N. Berns

			Kenneth N. Berns

- 5 -

Exhibit 10.12

FIRST AMENDMENT
TO
CHANGE IN CONTROL AGREEMENT BETWEEN PATTERSON-UTI ENERGY, INC.
AND WILLIAM L. MOLL, JR.

This First Amendment To Change In Control Agreement (this “ First Amendment ”) between Patterson-UTI Energy, Inc., a Delaware corporation (the “Company”), and William L. Moll, Jr. (the “Employee”) is executed on November 1, 2007, but is effective as set forth herein.

W I T N E S S E T H :

Whereas , the Company and the Employee entered into that certain Change in Control Agreement dated as of August 31, 2007 (the “Original Agreement”); and

Whereas , the Company and the Employee desire to amend the Original Agreement as hereinafter provided;

Now, Therefore , in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows:

Paragraph b of Section 7 of the Original Agreement is hereby amended to read in its entirety as follows:

(b) Each payment required to be made to the Employee pursuant to the foregoing provisions of Section 7(a) above shall be subject to the following rules:

(i) such payments shall be made by check drawn on an account of the Company at a bank located in the United States of America;

- 1 -

A new paragraph (l) shall be added to Section 11 of the Original Agreement immediately following Section 11(k) to read as follows:

Section 12 of the Original Agreement is hereby amended to read in its entirety as follows:

12. Deferred Compensation—Section 409A of the Code .

This First Amendment shall be binding on each party hereto only when it has been executed by all of the parties hereto, but when so executed, shall, unless

- 2 -

			otherwise provided by a specific provision of this First Amendment, be and become effective as of August 31, 2007.

	5.		All references to “Agreement” contained in the Original Agreement shall be deemed to be a reference to the Original Agreement, as amended by this First Amendment. Certain capitalized terms used herein that are not otherwise defined are defined in Section 21 of the Original Agreement, and the terms defined in this First Amendment shall be incorporated in the Original Agreement with the same meanings as set forth herein.

	6.		The validity, interpretation, construction and enforceability of this First Amendment shall be governed by the laws of the State of Texas.

	7.		Except as amended by this First Amendment, the Original Agreement shall remain in full force and effect.

	8.		This First Amendment may be executed in one or more counterparts, and by the parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement.

Signature Page to Follow

- 3 -

In Witness Whereof , the Employee and the Company have executed this First Amendment on the date first written above, which is effective as set forth herein.


		PATTERSON-UTI ENERGY, INC.

		By:	/s/ John E. Vollmer, III

			John E. Vollmer III Senior Vice President-Corporate Development and Chief Financial Officer

		EMPLOYEE

			/s/ William L. Moll, Jr.

			William L. Moll, Jr.

- 4 -

EXHIBIT 31.1

CERTIFICATIONS

I, Douglas J. Wall, 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/ Douglas J. Wall
		Douglas J. Wall
		President and Chief Executive Officer

Date: November 5, 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: November 5, 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 September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Douglas J. Wall, 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/ Douglas J. Wall
Douglas J. Wall
Chief Executive Officer
November 5, 2007

/s/ John E. Vollmer III
John E. Vollmer III
Chief Financial Officer
November 5, 2007

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