May 1, 2007

 

Dear Stockholder:

 

We cordially invite you to attend Patterson-UTI Energy, Inc.’s annual stockholders’ meeting. The annual meeting will be held Thursday, June 7, 2007, at 10:00 a.m., local time, at the corporate offices of Patterson-UTI Energy, Inc., 4510 Lamesa Highway, Snyder, Texas 79549.

 

At the annual meeting, stockholders will vote to elect directors to the Board of Directors of Patterson-UTI Energy, Inc. and to ratify the appointment of the Company’s independent registered public accounting firm. Please take the time to carefully read the proposals described in the attached proxy statement.

 

 

Thank you for your support.

 

Sincerely,

 

 

 

 

 

This proxy statement and the accompanying proxy card are being

mailed to Patterson-UTI Energy, Inc. stockholders

beginning on or about May 1, 2007.

 

PATTERSON-UTI ENERGY, INC.
P. O. Box 1416
Snyder, Texas 79550

 

 

NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS

 

 

The 2007 annual meeting of the stockholders of Patterson-UTI Energy, Inc. (“Patterson-UTI”), a Delaware corporation, will be held Thursday, June 7, 2007, at 10:00 a.m., local time, at the corporate offices of Patterson-UTI Energy, Inc., 4510 Lamesa Highway, Snyder, Texas 79549 (the “Meeting”). At the Meeting, the stockholders will be asked to:

 

 

Stockholders of record at the close of business on April 10, 2007, are entitled to vote at the Meeting and any adjournment thereof.

 

It is important that your shares be represented at the Meeting. I urge you to sign, date and promptly return the enclosed proxy card in the enclosed postage paid envelope or vote by following the Internet or telephone instructions included on the proxy card.

 

By order of the Board of Directors

 

William L. Moll, Jr.

General Counsel and Secretary

 

May 1, 2007

 

PATTERSON-UTI ENERGY, INC.
P. O. Box 1416
Snyder, Texas 79550

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS

To Be Held June 7, 2007

 

The Board of Directors of Patterson-UTI Energy, Inc. (“Patterson-UTI”), a Delaware corporation, prepared this proxy statement for the purpose of soliciting proxies for Patterson-UTI’s 2007 annual meeting of stockholders (the “Meeting”) to be held Thursday, June 7, 2007, at 10:00 a.m., local time, at the corporate offices of Patterson-UTI Energy, Inc., 4510 Lamesa Highway, Snyder, Texas 79549, and at any adjournment thereof. This proxy statement and the accompanying proxy are being mailed to stockholders on or about May 1, 2007.

 

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

 

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

 

 

You may revoke your proxy at any time before the proxy is voted by either:

 

 

SHARES OUTSTANDING AND VOTING RIGHTS

 

Only stockholders of record of Patterson-UTI’s common stock, $.01 par value per share (the “Common Stock”), at the close of business on April 10, 2007 are entitled to notice of and to vote at the Meeting or any adjournment thereof. At the close of business on April 10, 2007, there were 156,718,214 shares of Common Stock issued and outstanding. Holders of record of Common Stock on April 10, 2007 will be entitled to one vote per share on all matters to come before the Meeting. A list of stockholders entitled to notice of and to vote at the Meeting will be made available during regular business hours at the offices of Patterson-UTI Energy, Inc., 4510 Lamesa Highway, Snyder, Texas 79549, from May 21, 2007 through June 6, 2007 and at the Meeting for inspection by any stockholder for any purpose regarding the Meeting.

 

A quorum is necessary to transact business at the Meeting. A majority of the shares of Common Stock outstanding on April 10, 2007 will constitute a quorum. The shares held by each stockholder who signs and returns

the enclosed form of proxy or properly votes using the Internet or telephone will be counted for purposes of determining the presence of a quorum at the Meeting.

 

PROPOSAL NO. 1

 

ELECTION OF DIRECTORS

 

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

 

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

 

 

The Board of Directors recommends that you vote “FOR” all of the nominees.  Unless you give contrary instructions in your proxy, your proxy will be voted “FOR” the election of all of the nominees to the Board of Directors. If any nominee should become unable or unwilling to accept nomination or election, the person acting under the proxy will vote for the election of such other person as the Board of Directors may recommend. The Board has no reason, however, to believe that any of the nominees will be unable or unwilling to serve if elected.

 

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

 

Set forth below is the name, age, position and a brief description of the business experience during at least the past five years of each of the members of Patterson-UTI’s Board of Directors. Each current member of Patterson-UTI’s Board of Directors is a nominee for election to the Board of Directors, except for Robert C. Gist and Nadine C. Smith. Mr. Gist and Ms. Smith have indicated their desire to retire effective at the Meeting and to not stand for re-election.

 

 

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

Incorporated. Mr. Siegel holds a Bachelor of Arts degree from Colgate University and a J.D. from the University of California, Berkeley (Boalt Hall) School of Law.

 

Cloyce A. Talbott — Mr. Talbott has served as a director of Patterson-UTI since its incorporation in 1978, as its Chief Executive Officer since 1983 and as its President since May 2006. Mr. Talbott co-founded Patterson-UTI, served as Vice President from 1978 to 1983, and served as Chairman of the Board from 1983 to May 2001. Mr. Talbott holds a Bachelor of Science degree in petroleum engineering from Texas Tech University.

 

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

 

Charles O. Buckner — Mr. Buckner has served as a director of Patterson-UTI since February 2007. Mr. Buckner, a private investor, retired from the public accounting firm of Ernst & Young LLP in 2002 after 35 years of service in a variety of client service and administrative roles, including chairmanship of Ernst & Young’s United States energy practice. He presently serves as a director of Horizon Offshore, Incorporated, a marine construction services company for the offshore oil and gas industry. Mr. Buckner is a CPA and holds a Bachelor of Business Administration from the University of Texas and a Masters of Business Administration from the University of Houston.

 

Robert C. Gist — Mr. Gist has served as a director of Patterson-UTI since 1985. He was general legal counsel and advisor to Patterson-UTI from 1987 to May 2001. Mr. Gist holds a Bachelor of Science degree in economics and a J.D. from Southern Methodist University. He has been self-employed as an attorney for more than five years and has over 20 years experience in the oil and gas industry.

 

Curtis W. Huff — Mr. Huff has served as a director of Patterson-UTI since May 2001 and served as a director of UTI from 1997 to May 2001. Mr. Huff is the President and Chief Executive Officer of Freebird Investments LLC, a private investment company, and has served in that capacity since October 2002. Mr. Huff is also a Managing Director of Intervale Capital, an oilfield service private equity firm that Mr. Huff co-founded in 2006. Mr. Huff served as the President and Chief Executive Officer of Grant Prideco, Inc., a provider of drill pipe and other drill stem products, from February 2001 to June 2002. From January 2000 to February 2001, Mr. Huff served as Executive Vice President, Chief Financial Officer and General Counsel of Weatherford International, Inc., an oilfield services company. He served as Senior Vice President and General Counsel of Weatherford from May 1998 to January 2000. Prior to that time, Mr. Huff was a partner with the law firm of Fulbright & Jaworski L.L.P. and held that position for more than five years. Mr. Huff holds a Bachelor of Arts degree and Juris Doctorate from the University of New Mexico and a Masters of Law from New York University School of Law.

 

Terry H. Hunt — Mr. Hunt has served as a director of Patterson-UTI since April 2003 and served as a director of UTI from 1994 to May 2001. Mr. Hunt is an energy consultant and investor. Mr. Hunt served as Senior Vice President — Strategic Planning of PPL Corporation, an international energy and utility holding company, from 1998 to 2000. Mr. Hunt served as the President and Chief Executive Officer of Penn Fuel Gas, Inc., a natural gas and propane distribution company, from 1992 to 1999. Previously, Mr. Hunt was President and Chairman of Carnegie Natural Gas Company, a gas distribution and transmission company, and of Apollo Gas Company, a natural gas distributor. Mr. Hunt holds a Bachelor of Engineering degree from the University of Saskatchewan, Canada and a Masters of Business Administration from Southern Methodist University.

 

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

 

Nadine C. Smith — Ms. Smith has served as a director of Patterson-UTI since May 2001 and served as a director of UTI from 1995 to May 2001. Ms. Smith is a private investor and business consultant. During the past ten years, Ms. Smith served as president of several companies, including, most recently, Final Arrangements, LLC, a

company providing software and web-based internet services to the funeral industry. Prior to that time, Ms. Smith was an investment banker with NC Smith & Co. and The First Boston Corporation and a management consultant with McKinsey & Co. Ms. Smith is a director of Gran Tierra, an independent international energy company involved in oil and natural gas exploration and exploitation. Ms. Smith holds a Bachelor of Science degree in economics from Smith College and a Masters of Business Administration from Yale University.

 

Meetings and Committees of the Board of Directors

 

The Board of Directors met eleven times during the year ended December 31, 2006. Each director attended, in person or by telephone, at least 75% of the aggregate of all meetings held by the Board and all meetings of each committee for which such director was eligible to attend. A majority of the members of the Board of Directors are independent within the meaning of the National Association of Securities Dealers’ (“NASD”) published listing standards. Specifically, the Board has determined that Messrs. Peak, Gist, Huff, Hunt, Buckner and Ms. Smith are independent within the meaning of the NASD published listing standards. In reaching this conclusion, the Board considered that Mr. Huff indirectly has an interest in, and has participated in the management of, a company which owns oilfield service companies including one that supplies parts and equipment to Patterson-UTI in the ordinary course of business consistent with customary terms in the industry. The Board has determined that these transactions are not material to Patterson-UTI, the company in which Mr. Huff has the indirect interest or Mr. Huff and that such transactions do not affect Mr. Huff’s independence under applicable rules and regulations.

 

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

 

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

 

The Audit Committee members are Messrs. Huff (chairman), Buckner, Hunt and Ms. Smith, each of whom is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and within the meaning of the NASD’s published listing standards. The Audit Committee oversees management’s conduct of Patterson-UTI’s accounting and financial reporting process including review of the financial reports and other financial information provided by Patterson-UTI to the public and government and regulatory bodies, Patterson-UTI’s system of internal accounting, Patterson-UTI’s financial controls, and the annual independent audit of Patterson-UTI’s financial statements. The Audit Committee also oversees compliance with Patterson-UTI’s codes of conduct and ethics and with legal and regulatory requirements. The Board has determined that Messrs. Huff and Buckner are “audit committee financial experts” within the meaning of applicable Securities and Exchange Commission (“SEC”) rules. The Audit Committee selects the independent registered public accounting firm to audit Patterson-UTI’s books and records and considers and acts upon accounting matters as they arise. The Board of Directors has adopted a written charter for the Audit Committee. The Audit Committee met sixteen times during the year ended December 31, 2006.

 

The Compensation Committee members are Mr. Peak (chairman) and Ms. Smith, each of whom is independent as defined in the NASD’s published listing standards. Among other things, the Compensation Committee administers the incentive compensation plans, including stock option plans of Patterson-UTI and determines the annual compensation of the executive officers and directors of Patterson-UTI. The Board of Directors has adopted a written charter for the Compensation Committee. The Compensation Committee held three meetings during the year ended December 31, 2006. Please see “Compensation, Discussion and Analysis” beginning on page 7 of this proxy statement and “Compensation Committee Report” on page 10 of this proxy statement for further information about the Compensation Committee.

 

The Nominating and Corporate Governance Committee members are Messrs. Hunt (chairman) and Huff, each of whom is independent as defined in the NASD’s published listing standards. The purpose of the Nominating and Corporate Governance Committee is to identify individuals qualified to become Board members, to recommend for selection by the Board director nominees for the next annual meeting of stockholders, to review Patterson-UTI’s Code of Business Conduct, to develop and continually make recommendations with respect to the best corporate

governance principles and to oversee the evaluation of the Board and management. The Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee held one meeting during the year ended December 31, 2006.

 

All of the director nominees are existing directors of Patterson-UTI standing for re-election to the Board of Directors except for Mr. Buckner who is standing for election for the first time. The Board of Directors determined during 2006 that the addition of a new director was beneficial to Patterson-UTI. Mr. Buckner was initially recommended as a director nominee to the Nominating and Governance Committee by management of Patterson-UTI. Mr. Buckner is a retired partner of a national accounting firm and has extensive experience in public accounting and the oil and gas industry. Based on his qualifications and following the recommendation of the Nominating and Governance Committee, the Board appointed Mr. Buckner as a director in February 2007.

 

On behalf of the Board, the Nominating and Governance Committee considers director nominees recommended by Patterson-UTI’s stockholders if the recommendations are made in accordance with all legal requirements, including applicable provisions of Patterson-UTI’s restated certificate of incorporation and bylaws. In accordance with Patterson-UTI’s bylaws, in addition to any other applicable requirements, any person recommending a nominee for Patterson-UTI’s Board must be a stockholder of record on the date of the giving of the notice provided for below and on the record date for the determination of stockholders entitled to vote at such annual meeting and must give timely notice of such nomination in writing to the Secretary of Patterson-UTI. To be timely with respect to the 2008 annual meeting, a stockholder’s notice must be delivered to or mailed and received at Patterson-UTI’s principal executive offices not earlier than February 8, 2008 and not later than March 9, 2008; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after June 7, 2008, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or public disclosure of the annual meeting date was made, whichever occurs first.

 

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

 

 

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

 

The Nominating and Corporate Governance Committee determines qualification criteria and procedures for the identification and recruitment of candidates for election to serve as directors of Patterson-UTI. The Nominating and Corporate Governance Committee relies on the knowledge and relationships of Patterson-UTI and its officers and directors, as well as third parties when it deems necessary, to identify and evaluate nominees for director, including nominees recommended by stockholders.

 

Communication with the Board and Its Independent Members

 

Persons may communicate with the Board, or directly with its Chairman, Mr. Siegel, by submitting such communication in writing in care of Chairman of the Board of Directors, Patterson-UTI Energy, Inc., P.O. Box 1416, Snyder, Texas 79550. Persons may communicate with the independent members of the Board by submitting such

communication in writing to the Nominating and Corporate Governance Committee of the Board of Directors of Patterson-UTI Energy, Inc., P.O. Box 1416, Snyder, Texas 79550.

 

Although Patterson-UTI does not have a formal policy regarding attendance by members of the Board at its annual meetings of stockholders, directors are invited to attend annual meetings of Patterson-UTI stockholders. Two directors attended the 2006 annual meeting of stockholders.

 

Corporate Governance Documents Available on Patterson-UTI’s Website

 

Copies of each of the following documents are available on the Patterson-UTI website at www.patenergy.com and in print to any stockholder who requests them from the Secretary of Patterson-UTI:

 

 

PROPOSAL NO. 2

 

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of Patterson-UTI for the fiscal year ending December 31, 2007, and directed that such engagement be submitted to the stockholders of Patterson-UTI for ratification. In recommending ratification by the stockholders of such engagement, the Board of Directors is acting upon the recommendation of the Audit Committee, which has satisfied itself as to the firm’s professional competence and standing. Although ratification by stockholders of the engagement of PricewaterhouseCoopers LLP is not required by Delaware corporate law or Patterson-UTI’s restated certificate of incorporation or bylaws, the Audit Committee believes a decision of this nature should be made with the consideration of Patterson-UTI’s stockholders. If the stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain PricewaterhouseCoopers LLP and may retain that firm or another without re-submitting the matter to our stockholders. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in Patterson-UTI’s best interests and in the best interests of Patterson-UTI’s stockholders.

 

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

 

The Board of Directors recommends a vote “FOR” the ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm.  Ratification of the selection of PricewaterhouseCoopers LLP requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy, and entitled to vote at the Meeting. Unless you give contrary instructions in your proxy, your proxy will be voted “FOR” such ratification. Abstentions will be counted as shares entitled to vote on the proposal and will have the same effect as a vote “AGAINST” the proposal. A broker non-vote will be counted for purposes of establishing a quorum, but will not be treated as a share entitled to vote on the proposal. This will have the effect of reducing the absolute number of shares necessary to approve the proposal.

 

EXECUTIVE OFFICERS

 

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

 

 

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

 

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

 

William L. Moll, Jr.  — Mr. Moll has served as General Counsel and Secretary of Patterson-UTI since February 2007. From July 2006 to February 2007, Mr. Moll served as Vice President and Counsel of Stewart & Stevenson LLC, an oilfield equipment manufacturing company. From January 1996 to July 2006, Mr. Moll served in a variety of capacities in the legal department of Stewart & Stevenson Services, Inc., an equipment manufacturing company, including Deputy General Counsel from March 2005 to July 2006 and Managing Attorney from September 2001 to March 2005. From September 1991 to January 1996, Mr. Moll was an associate with the law firm of Andrews & Kurth LLP. Mr. Moll holds Bachelor of Business Administration in Accounting from the University of Texas and a J.D. from the University of Houston Law Center.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview

 

Compensation Committee

 

The Compensation Committee (the “Committee”) sets and administers the policies that govern the compensation of executive officers and directors of Patterson-UTI. As part of its duties, the Committee determines the compensation of Patterson-UTI’s executive officers who are named in the Summary Compensation Table appearing elsewhere in this proxy statement (the “Named Executive Officers”) and grants all awards of restricted stock and stock options under Patterson-UTI’s long-term incentive plan.

 

The Committee currently consists of Mr. Peak (chairman) and Ms. Smith, each of whom is an independent director as defined by the NASD published listing standards.

 

Compensation Objectives

 

The Committee’s objectives are to provide to the Named Executive Officers competitive compensation packages that will permit Patterson-UTI to attract and retain highly qualified individuals and to motivate and reward the Named Executive Officers for performance that benefits Patterson-UTI and its stockholders.

 

Role of Management and Compensation Consultant

 

All compensation decisions with respect to the Named Executive Officers of Patterson-UTI are made solely by the Committee. The Committee is permitted under its charter to delegate any of its powers to a subcommittee of the Committee. In performing its duties, the Committee considers input from senior management on individual performance and compensation matters.

 

In determining compensation for the Named Executive Officers for 2006, the Committee considered a variety of information, including (i) compensation for executive officers at similarly situated oilfield service companies, (ii) historical and projected financial and operational results at Patterson-UTI, including margins achieved, rig activations, net income and earnings before interest, taxes, depreciation and amortization (“EBITDA”) and return on equity and capital, (iii) historical stock performance, (iv) operational and strategic objectives of Patterson-UTI and (v) individual performance.

 

In recent years, the Committee has engaged an independent compensation consultant who reports directly to the Committee. In 2006 the Committee retained Frederic W. Cook & Co., Inc. (“Cook”) to evaluate and make recommendations to the Committee regarding Patterson-UTI’s executive compensation philosophy and practices. Cook reviewed the executive salaries, non-equity incentive compensation and long-term incentives for competitiveness with similarly situated companies. Cook was provided a proposed representative peer group within the oilfield services industry based on various criteria and was provided information as to the responsibilities of the members of Patterson-UTI’s executive team in relationship to its peers. Cook also reviewed Patterson-UTI’s valuation analysis of stock options against its peers for purposes of valuing compensation under Patterson-UTI’s incentive plans. Cook was asked to provide its advice as to Patterson-UTI’s incentive plans and the Committee’s proposed compensation of the Named Executive Officers and the reasonableness of that compensation.

 

For 2006, the Committee reviewed compensation data from the following companies: BJ Services Company, Cameron International Corporation, Diamond Offshore Drilling Inc., Ensco International Inc., FMC Technologies Inc., Globalsantafe Corp., Grant Prideco Inc., Helmerich & Payne Inc., Nabors Industries Ltd., National Oilwell Varco Inc., Noble Corp., Rowan Companies Inc., Smith International Inc. and Weatherford International Ltd.

 

Elements of Compensation

 

Patterson-UTI’s compensation program for its Named Executive Officers includes three primary elements: (1) base salary, (2) non-equity incentive compensation in the form of cash bonuses and (3) long-term incentive opportunities in the form of restricted stock and stock options. Below is a summary of each element of compensation. The general intent of the base salary for the Named Executive Officers was for that compensation to be around the 50th percentile of the peer group and for incentive and equity based compensation to be above the 75th percentile. These objectives were established based on Patterson-UTI’s historical top tier performance on returns on assets and equity and long-term share value creation against peers.

 

Base Salary

 

Historically, the Committee has emphasized performance-based compensation in the form of non-equity and equity incentive compensation and has minimized salary adjustments. From 2004 through 2006 there were no increases to the base salaries of the Named Executive Officers. In February 2007, the base salary of Mr. Berns was increased to $265,000.

 

Although adjustments to the base salaries of the Named Executive Officers have been minimized in recent years, the base salaries of Named Executive Officers are reviewed and determined annually by the Committee based on (i) subjective evaluations of the officer’s functional position and specific performance, (ii) assessment of the relative importance of each position at Patterson-UTI, (iii) a comparison to salary ranges for executives of other companies in the oilfield service industry with market, financial and operational characteristics similar to those of Patterson-UTI, (iv) Patterson-UTI’s financial results and position and (v) Patterson-UTI’s performance compared to similar companies.

 

Non-Equity Incentive Compensation

 

The Named Executive Officers have historically received non-equity incentive compensation in the form of annual cash bonuses designed to put a meaningful portion of total compensation at risk. In recent years, non-equity incentive compensation for the Named Executive Officers has been tied to a bonus pool based upon Patterson-UTI’s EBITDA. For target bonus purposes, the bonus pool would then be allocated among the Named Executive Officers of Patterson-UTI pursuant to a pre-determined sharing percentage that reflected a team-based philosophy as well as the organizational structure of the top management team. The total bonus and target allocation is subject to modification by the Committee at its discretion. EBITDA has been chosen as the performance measure for the annual cash bonus because Patterson-UTI believes it is an important measure of current year financial performance.

 

In 2006, the target bonus pool for the Named Executive Officers, subject to a minimum threshold, was two-thirds of one percent of Patterson-UTI’s EBITDA adjusted within the discretion of the Committee. The target allocation of the bonus pool for each Named Executive Officer was as follows: one-third to Cloyce A. Talbott, one-third to Mark S. Siegel, one-sixth to John E. Vollmer III and one-sixth to Kenneth N. Berns.

 

The aggregate bonus pool paid to the Named Executive Officers for 2006 was $8,250,000, and the amount of individual cash bonuses paid to each Named Executive Officer is included in the “Summary Compensation Table” on page 11 of this proxy statement. Consistent with Patterson-UTI’s emphasis on performance-based compensation, non-equity incentive compensation for 2006 represented more than 80% of each Named Executive Officer’s total cash compensation from Patterson-UTI for the year.

 

Long-Term Incentive Compensation

 

Long-term incentive compensation for the Named Executive Officers consists of both awards of shares of restricted stock and options to purchase Common Stock, each of which typically vest over three or four years. Awards of such equity-based compensation reflect the Committee’s desire to provide the Named Executive Officers with additional incentives by increasing their proprietary interest in the success of Patterson-UTI. The Committee believes that there should be an emphasis on equity-based compensation in order to provide incentives and rewards that are closely aligned with stockholders. The Committee reviews equity-based compensation of the Named Executive Officers on an annual basis.

 

Patterson-UTI’s equity-based compensation has historically been given significant weight, along with non-equity incentive compensation, in the overall compensation package of the Named Executive Officers. The allocation of equity-based compensation among the Named Executive Officers is made by the Committee based on various factors, including the executive’s position and contribution to the overall goals and objectives of Patterson-UTI. The allocation and mix of equity-based compensation between restricted stock and options in 2006 followed this approach, with an emphasis on option-based compensation over restricted stock in order to ensure that the greatest awards would only be earned for increases in Patterson-UTI’s equity value.

 

The Committee’s practice has generally been to grant stock options and/or restricted stock to Named Executive Officers at a meeting following the conclusion of Patterson-UTI’s first or second quarter. Such meetings are typically held prior to regular quarterly Board meetings and Patterson-UTI’s public release of quarterly earnings information. Options have been granted at an exercise price equal to the closing price of Patterson-UTI’s stock on the date of grant.

 

Retirement Plans

 

Patterson-UTI offers a 401(k) plan to its employees, including its Named Executive Officers. In 2007, participants may contribute a portion of their base salary to the 401(k) plan, subject to federal limits. Patterson-UTI makes matching contributions up to four percent of each participant’s eligible base salary. The Named Executive Officers of Patterson-UTI are eligible to participate in the 401(k) plan on the same basis as other employees. Patterson-UTI does not have any other retirement plan.

 

Perquisites and Personal Benefits

 

Patterson-UTI provides limited perquisites to its Named Executive Officers. Mr. Talbott is given limited use of Patterson-UTI’s airplane for his personal travel. The incremental cost to Patterson-UTI of Mr. Talbott’s personal use of the airplane is included as “All Other Compensation” to him in the Summary Compensation Table on page 11 of this proxy statement. The lack of commercial airline service in Snyder, Texas is a substantial factor in the decision to provide this benefit to Mr. Talbott. Mr. Talbott is also provided with certain other limited perquisites, including occasional personal use of Patterson-UTI’s suite at a sporting venue, the use of a Company automobile and membership dues at a country club, each of which is included in “All Other Compensation” to him in the Summary Compensation Table on page 11 of this proxy statement.

 

Share Ownership Guidelines

 

The Committee in 2004, with the approval of the Board, enacted share ownership guidelines applicable to all executive officers and directors of Patterson-UTI. Under this policy and subject to a four-year phase-in, each of Patterson-UTI’s Chairman, Chief Executive Officer and President is required to hold shares of Common Stock having a value equal to at least five times the officer’s base salary and each of Patterson-UTI’s other executive officers is required to hold shares of Common Stock having a value equal to at least three times the officer’s base salary. The Committee also imposed share ownership guidelines for directors. Under those guidelines, subject to a four-year phase-in, each director of Patterson-UTI is required to hold shares of Common Stock having a value equal to at least four times the cash compensation provided to the director. Each of the Named Executive Officers is in compliance with the share ownership guidelines as of the date of this proxy statement.

 

Change in Control Agreements

 

Patterson-UTI has entered into change in control agreements with its Named Executive Officers as further described in this proxy statement under the heading “Change in Control Arrangements; Employment Contracts; Indemnification Agreements.” Further, Patterson-UTI has entered into written letter agreements with each of Messrs. Siegel, Berns and Vollmer confirming and evidencing the existing agreements between Patterson-UTI and each of them pursuant to which Patterson-UTI has agreed to pay each such person within ten days of the termination of his employment with Patterson-UTI for any reason (including voluntary termination by him), an amount in cash equal to his annual base salary at the time of such termination. Any such payment made by Patterson-UTI pursuant to the agreement evidenced in these letter agreements will reduce dollar for dollar any payment owed to such person, if any, pursuant to the change in control agreements discussed above.

 

Section 162(m) Considerations

 

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

 

COMPENSATION COMMITTEE REPORT

 

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

 

Kenneth R. Peak, Chairman
Nadine C. Smith

 

The following table sets forth information concerning compensation for 2006 with respect to the Principal Executive Officer, the Principal Financial Officer and the other Named Executive Officers of Patterson-UTI:

 

Summary Compensation Table

 

 

 

 

The following table sets forth information regarding grants of plan-based awards during 2006 to the Named Executive Officers listed in the Summary Compensation Table:

 

Grants of Plan-Based Awards

 

 

 

 

The following table sets forth information concerning outstanding equity awards at December 31, 2006 for the executive officers listed in the Summary Compensation Table:

 

Outstanding Equity Awards
at Fiscal Year-End

 

 

 

 

 

There were no options exercised or stock that vested with respect to any of the Named Executive Officers during 2006. Patterson-UTI provides no pension benefits for any of the Named Executive Officers. None of the Named Executive Officers had any items of nonqualified deferred compensation during 2006. As a result, tables with respect to options exercised and stock vested, pension benefits and nonqualified deferred compensation have not been provided.

 

DIRECTOR COMPENSATION

 

The following table sets forth information concerning compensation for 2006 with respect to non-employee directors of Patterson-UTI:

 

Director Compensation Table

 

 

 

 

Directors who are also employees of Patterson-UTI do not receive compensation for serving as a director or as a member of a committee of the Board of Directors. All directors are reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at Board of Directors meetings and committee meetings. Each non-employee director receives annual cash compensation of $35,000 and (i) 3,000 shares of restricted stock subject to one-year vesting (subject to acceleration in certain limited situations, including a change of control) and (ii) an option to purchase 10,000 shares of Common Stock at an exercise price equal to the closing price of Common

Stock on the grant date. The option has a 10-year term, vests after one-year (subject to acceleration in certain limited situations, including a change of control) and contains a right to exercise for three years following cessation of the holder as a director (but not beyond the 10-year term). Each non-employee director that serves on the Audit Committee or the Compensation Committee receives additional annual cash compensation of $10,000 per committee on which he or she serves, with the chairman of each such committee receiving $15,000. Additionally, each member of the Audit Committee received cash compensation of $500 per meeting attended, beginning with the first Audit Committee meeting following the identification of the embezzlement by Patterson-UTI’s former Chief Financial Officer, Jonathan D. Nelson in 2005 and continuing until the conclusion of the Audit Committee’s investigation in 2006. The Board of Directors formed a special litigation committee in 2005 to review the allegations in certain derivative actions that the Board of Directors breached their fiduciary duty to Patterson-UTI for failing to timely discover the embezzlement by Mr. Nelson. Each member of the Special Litigation Committee received cash compensation of $500 per meeting attended. The Special Litigation Committee completed its review in 2006.

 

CHANGE IN CONTROL ARRANGEMENTS; EMPLOYMENT CONTRACTS;
INDEMNIFICATION AGREEMENTS; CERTAIN PAYMENTS

 

On January 29, 2004, Patterson-UTI entered into change in control agreements with Messrs. Siegel, Talbott, Berns and Vollmer (each agreement, an “Agreement” and collectively, the “Agreements”; and each individual, an “Employee and collectively, the “Employees”). The Agreements were entered into to protect the Employees should a change in control occur, thereby encouraging the Employee to remain in the employ of Patterson-UTI and not be distracted from the performance of his duties to Patterson-UTI by the possibility of a change in control.

 

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

 

 

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

 

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

 

 

The Agreements terminate on the first to occur of:

 

 

All unvested stock options and restricted stock awards held by Named Executive Officers vest upon a change of control as defined by the underlying award agreements. All restricted stock awards held by Named Executive Officers contain provisions that in the event of termination due to death or disability, the Named Executive Officer would vest in a portion of the unvested restricted stock. See footnote 4 in the table below.

 

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

 

Amounts that each of the Named Executive Officers would be entitled to under the existing agreements if a change in control were to occur as of December 31, 2006 are reflected in the following table:

 

 

 

 

In May 2006, Patterson-UTI entered into an employment agreement with A. Glenn Patterson pursuant to which Patterson-UTI will employ Mr. Patterson for five years at an annual compensation of $250,000 per year.

 

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

 

CERTAIN TRANSACTIONS

 

In connection with the acquisition by REMY Capital Partners III, L.P. (“REMY Capital”) of an ownership interest in UTI in March 1995, REMY Capital succeeded to a registration rights agreement with UTI. As the successor-in-interest to UTI, Patterson-UTI assumed this registration rights agreement pursuant to which REMY Capital has the right to require Patterson-UTI to use its reasonable efforts to register shares held by REMY Capital under the Securities Act of 1933, as amended. In the event that such rights are exercised in connection with a primary offering proposed by Patterson-UTI (or a secondary offering with which Patterson-UTI agrees to participate), REMY Capital would bear its pro rata share of the costs of the offering, other than legal, accounting and printing costs, all of which Patterson-UTI would bear. In the event that REMY Capital elected to exercise such rights other than in connection with an offering in which Patterson-UTI participates, REMY Capital would bear all costs of the offering. These rights continue so long as REMY Capital continues to own the Common Stock that it acquired in March 1995. As of the date of this proxy statement, REMY Capital continues to hold 1,541,548 shares of Common Stock.

 

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

 

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

 

 

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

 

Patterson-UTI operates certain oil and natural gas properties in which certain of Patterson-UTI’s affiliated persons have participated, either individually or through entities they control. These participations have typically been through working interests in prospects or properties Patterson-UTI originated or acquired. At December 31, 2006, affiliated persons were working interest owners in 281 of the 330 total wells Patterson-UTI operated. Patterson-UTI makes sales of working interests to reduce its economic risk in the properties. Generally, it is more efficient for Patterson-UTI to sell the working interests to these affiliated persons than to market them to unrelated third parties. Sales of working interests to affiliated parties were made at cost, comprised of Patterson-UTI’s costs of acquiring and preparing the working interests for sale plus a promote fee in some cases. These costs were paid by the working interest owners on a pro rata basis based upon their working interest ownership percentage. The price at which working interests were sold to affiliated persons was the same price at which working interests were sold to unaffiliated persons, except that in some cases the affiliated persons also paid a promote fee.

 

Production revenues and joint interest costs of each of the affiliated persons during 2006 for all wells operated by Patterson-UTI in which the affiliated persons have working interests are presented in the table below. These amounts do not necessarily represent their profits or losses from these interests because the joint interest costs do not include the parties’ related drilling and leasehold acquisition costs incurred prior to January 1, 2006. These activities resulted in a payable to the affiliated persons of approximately $1.5 million at December 31, 2006 and a receivable from the affiliated persons of approximately $1.6 million at December 31, 2006.

 

 

 

 

 

Historically Patterson-UTI has had a policy, set forth in various resolutions and recorded actions of the Board of Directors, pursuant to which the Board reviewed, approved and in limited cases ratified related party transactions, including use of the Patterson-UTI airplane by executive officers and family members, co-investment in oil and gas properties by executive officers and other persons related to them, the sale to or purchase from Patterson-UTI of goods and services by entities related to executive officers or directors and similar matters. In approving or disapproving such matters the Board considered whether they were in, or not inconsistent with, the best interest of Patterson-UTI and whether, in appropriate cases, they were on commercial terms at least as favorable to Patterson-UTI as would otherwise be available from a third party. The related party transactions included transactions between Patterson-UTI or one of its subsidiaries and an executive officer, a director, an immediate family member of an executive officer or a director or any entity in which any of the foregoing had a 5% or greater interest or in which they were an executive officer or director.

 

Patterson-UTI is in the process of consolidating its policies and procedures with respect to related party transactions into a single written policy and including appropriate modifications in light of changing legal requirements.

 

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth, as of April 28, 2007, the stock ownership of (i) the Named Executive Officers, directors and Board nominees individually, (ii) all directors, Board nominees and executive officers as a group and (iii) each person known by Patterson-UTI to be the beneficial owner of more than 5% of Common Stock.

 

 

 

 

 

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

 

AUDIT COMMITTEE REPORT

 

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

 

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

 

The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended.

 

The Audit Committee has received and reviewed the written disclosures and the letter from the independent auditors required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, by the Independence Standards Board, and has discussed with the auditors the auditors’ independence.

 

Taking the foregoing into consideration, the undersigned Audit Committee members recommended to the Board of Directors that the Board approve the inclusion of the Patterson-UTI’s audited financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

 

Audit Committee of the Board of Directors:

 

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

 

PricewaterhouseCoopers Fees for Fiscal Years 2006 and 2005

 

In 2006 and 2005, Patterson-UTI and its subsidiaries incurred fees for services provided relating to (i) professional services rendered for the audit of Patterson-UTI’s annual financial statements, review of quarterly financial statements, and assessment of Patterson-UTI’s internal controls over financial reporting, (ii) professional services rendered for assurance and related services that are reasonably related to the performance of the audit or review of Patterson-UTI’s financial statements, (iii) professional services rendered for tax compliance, advice and planning, and (iv) products and services provided by PricewaterhouseCoopers LLP.

 

 

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

 

Fiscal 2006

 

“Audit fees” relate to audit services of PricewaterhouseCoopers LLP for fiscal 2006 consisting of the examination of Patterson-UTI’s consolidated financial statements, quarterly reviews of Patterson-UTI’s interim financial statements and services to assess Patterson-UTI’s internal control over financial reporting. “Tax fees” include federal, state, local and foreign tax compliance and related matters. “All other fees” includes other non-audit

related matters. The Audit Committee or Mr. Peak, as Chairman of the Audit Committee during fiscal 2006, approved all of the services described above.

 

Fiscal 2005

 

“Audit fees” relate to audit services of PricewaterhouseCoopers LLP for fiscal 2005 consisting of the examination of Patterson-UTI’s consolidated financial statements, quarterly reviews of Patterson-UTI’s interim financial statements, services to assess Patterson-UTI’s internal control over financial reporting and for the restatement of financial statements for prior years and the first three quarterly periods of 2005. “Tax fees” include federal, state, local and foreign tax compliance and related matters. “All other fees” includes other non-audit related matters. The Audit Committee or Mr. Peak, as Chairman of the Audit Committee during fiscal 2005, approved all of the services described above.

 

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

 

OTHER MATTERS

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires Patterson-UTI’s officers and directors and persons who own more than 10 percent of a registered class of Patterson-UTI’s equity securities, to file reports of ownership and changes in ownership with the SEC. Each of these persons is required by SEC regulation to furnish Patterson-UTI with copies of Section 16(a) filings.

 

Based solely on its review of copies of such forms received by it, Patterson-UTI believes that, during the year ended December 31, 2006, its officers, directors and beneficial owners of more than ten percent of a registered class of its equity securities complied with all applicable filing requirements.

 

Other Business

 

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

 

Stockholder Proposals for 2008 Annual Meeting

 

All proposals submitted by stockholders for presentation at the 2008 annual meeting must comply with the SEC’s rules regarding shareholder proposals. In addition, Patterson-UTI’s bylaws provide that for business to be properly brought before an annual meeting by a stockholder, the stockholder, in addition to any other applicable requirements, must be a stockholder of record on the date of the giving of the notice provided for below and on the record date for the determination of stockholders entitled to vote at such annual meeting and must give timely notice of such business in writing to the Secretary of Patterson-UTI. To be timely with respect to the 2008 annual meeting, a stockholder’s notice must be delivered to or mailed and received at Patterson-UTI’s principal executive offices not earlier than February 8, 2008 and not later than March 8, 2008; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after June 7, 2008, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or public disclosure of the annual meeting date was made, whichever occurs first.

 

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

 

 

The proxies will have discretionary authority to vote on any matter that properly comes before the meeting if the stockholder has not provided timely written notice as required by the Patterson-UTI bylaws.

 

Any proposal by a stockholder to be presented at Patterson-UTI’s 2008 annual meeting of stockholders must be received by Patterson-UTI no later than February 8, 2008, in order to be eligible for inclusion in Patterson-UTI’s proxy statement and proxy used in connection with the 2008 annual meeting.

 

Patterson-UTI reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal or nomination that does not comply with these and other applicable requirements.

 

Annual Report

 

You are referred to Patterson-UTI’s annual report to stockholders with a copy of its Annual Report on Form 10-K, for the year ended December 31, 2006, filed with the SEC, enclosed herewith for your information. The annual report to stockholders is not incorporated in this proxy statement and is not to be considered part of the soliciting material.

PATTERSON-UTI ENERGY, INC.

§		You can now vote your shares electronically through the Internet or the telephone.
§		This eliminates the need to return the proxy card.
§		Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card.

TO VOTE YOUR PROXY BY INTERNET
www.continentalstock.com

Have your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy number and account number to create an electronic ballot. Follow the prompts to vote your shares.

TO VOTE YOUR PROXY BY TELEPHONE
1-866-894-0537

Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be prompted to enter the company number, proxy number and account number. Follow the voting instructions to vote your shares.

TO VOTE YOUR PROXY BY MAIL

Mark, sign and date your proxy card below, detach it and return it in the postage-paid envelope provided.

PLEASE DO NOT RETURN THE CARD BELOW IF YOU VOTED
ELECTRONICALLY

6 FOLD AND DETACH HERE AND READ THE REVERSE SIDE 6

Signature				Signature				Date

NOTE: Please sign exactly as your name or names appear on this card. Joint owners should each sign personally. When signing as attorney, executor, administrator, personal representative, trustee or guardian, please give your full title as such. For a corporation, partnership or other entity, please sign in the full corporate name by the President or other authorized officer or the full partnership or other entity name by an authorized person, as the case may be. (Please mark, sign, date, and return this proxy in the enclosed envelope.)

Your Vote is Important!

Follow Instructions on The Reverse Side.

PLEASE VOTE

6 FOLD AND DETACH HERE 6

PROXY		PROXY

PATTERSON-UTI ENERGY, INC.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned stockholder of Patterson-UTI Energy, Inc. (the “Company”) hereby appoints Mark S. Siegel, Cloyce A. Talbott and John E. Vollmer III, and each of them, proxies of the undersigned, each with full power to act without the other and with full power of substitution, to vote all of the shares which the undersigned is entitled to vote at the annual meeting of stockholders of the Company to be held Thursday, June 7, 2007, at 10:00 a.m., local time, at the corporate offices of Patterson-UTI Energy, Inc., 4510 Lamesa Highway, Snyder, Texas, 79549, and at any and all adjournments thereof, with the same force and effect as if the undersigned were personally present. The undersigned hereby instructs the above-named proxies to vote the shares represented by this proxy in the manner as directed by the undersigned on the reverse side of this proxy card. If no directions are made, the Proxies will vote “FOR” the nominees for directors set forth on the reverse side.

Please mark, sign, date and return this proxy card promptly using the enclosed envelope, or follow the instructions on the reverse side to vote your shares by Internet or by telephone.

(continued on the reverse side)