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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000889900,PTEN,PATTERSON UTI ENERGY INC,10-K,2015-02-12,2014-12-31,2015-02-12T11:10:55.000Z,0001564590-15-000634,pten-10k_20141231.htm,FORM 10-K,23336415,1,0,https://www.sec.gov/Archives/edgar/data/889900/000156459015000634/pten-10k_20141231.htm,https://www.sec.gov/Archives/edgar/data/889900/000156459015000634/,2014,2014,1

raw/filings/0000889900/2014/0001564590-15-000634/item1.txt

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+Item 1. Business 
+Available Information 
+This Report, along with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our internet website ( www.patenergy.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report or other filings that we make with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 
+Overview 
+We own and operate in the United States one of the largest fleets of land-based drilling rigs and a large fleet of pressure pumping equipment. The Company was formed in 1978 and reincorporated in 1993 as a Delaware corporation. Patterson Energy, Inc. and UTI Energy Corp. merged in 2001 to form Patterson-UTI Energy, Inc. In 2008, the corporate headquarters was moved from Snyder, Texas to Houston, Texas. 
+Our contract drilling business operates in the continental United States, and western and northern Canada. As of December 31, 2014, we had a drilling fleet that consisted of 239 marketable land-based drilling rigs. A drilling rig includes the structure, power source and machinery necessary to cause a drill bit to penetrate the earth to a depth desired by the customer. A drilling rig is considered marketable at a point in time if it is operating or can be made ready to operate without significant capital expenditures. We also have a substantial inventory of drill pipe and drilling rig components that support our ongoing drilling operations. 
+We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Pressure pumping services consist primarily of well stimulation services (such as hydraulic fracturing) and cementing services for completion of new wells and remedial work on existing wells. As of December 31, 2014, we had approximately 1.0 million hydraulic horsepower to provide these services. Our pressure pumping operations are supported by a fleet of other equipment, including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+We also own and invest in oil and natural gas assets as a non-operating working interest owner. Our oil and natural gas working interests are located primarily in Texas and New Mexico. 
+Recent Developments 
+Oil prices declined significantly during the second half of 2014 and have continued to decline in 2015. The closing price of oil was as high as $105.68 per barrel during the third quarter of 2014, as low as $44.08 per barrel in late January 2015 and around $50 per barrel during the first week in February 2015 (WTI spot price as reported by the United States Energy Information Administration). As a result of the decline in oil prices, our industry is now experiencing a severe downturn. Market conditions remain very dynamic and are changing quickly. Although the magnitude as well as the duration of this downturn are not yet known, we believe that 2015 will be a challenging year for our industry. 
+We believe the vast majority of exploration and production companies, including our customers, have significantly reduced their 2015 capital spending plans. The initial impact of these spending reductions is evidenced by the published rig counts which have declined more 25% since their recent peak in October 2014. 
+Our rig count has also declined. During October 2014, the number of our drilling rigs operating in the United States was as high as 214, and as of February 10, 2015 we had 173 drilling rigs operating in the United States. We have received indications of customers’ intent to early terminate a number of term contracts and many of our drilling customers are seeking price reductions. We expect the number of our drilling rigs operating in the United States to decline at least another 20% during the next 90 days. 
+Our pressure pumping business is also beginning to see the effects of reduced spending by customers. Some previously scheduled pressure pumping jobs have been cancelled or deferred and many customers are also seeking price reductions. 
+2 
+In anticipation of this downturn, we began reducing our cost structure in the fourth quarter of 2014. In 2015, we have continued to reduce our cost structure and, to date, we have reduced our drilling headcount at a rate slightly higher than the reduction in our rig count. We have also reduced our capital expenditure plans for 2015. Along with other reductions, we now plan to only build new drilling rigs that are currently committed under term contracts. We plan to continue to adjust our cost structure in line with our level of operating activity. 
+We expect that our term contract coverage and scalability with respect to labor and other operating costs should position us to weather this downturn. In the event oil prices remain depressed for a sustained period, or decline further, however, we may experience further, significant declines on both drilling activity and spot dayrate pricing, and on pressure pumping activity and pricing, which could have a material adverse effect on our business, financial condition and results of operations. 
+Industry Segments 
+Our revenues, operating profits and identifiable assets are primarily attributable to three industry segments: 
+· 
+contract drilling services, 
+· 
+pressure pumping services, and 
+· 
+oil and natural gas exploration and production. 
+All of our industry segments had operating profits in 2012 and 2013. In 2014, our contract drilling services and our pressure pumping services segments had operating profits and our oil and natural gas exploration and production segment had an operating loss. Our oil and natural gas assets constituted approximately 1% of our consolidated assets as of December 31, 2014. 
+See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 14 of Notes to Consolidated Financial Statements included as a part of Items 7 and 8, respectively, of this Report for financial information pertaining to these industry segments. 
+Contract Drilling Operations 
+General — We market our contract drilling services to major and independent oil and natural gas operators. As of December 31, 2014, we had 239 marketable land-based drilling rigs based in the following regions: 
+· 
+55 in west Texas and southeastern New Mexico, 
+· 
+23 in north central and east Texas, northern Louisiana and eastern Oklahoma, 
+· 
+37 in the Rocky Mountain region (Colorado, Utah, Wyoming, Montana and North Dakota), 
+· 
+40 in south Texas, 
+· 
+34 in the Texas panhandle and western Oklahoma, 
+· 
+40 in the Appalachian region (Pennsylvania, Ohio and West Virginia), and 
+· 
+10 in western and northern Canada. 
+Our marketable drilling rigs have rated maximum depth capabilities ranging from 10,000 feet to 25,000 feet. Of these drilling rigs, 195 are electric rigs and 44 are mechanical rigs. An electric rig differs from a mechanical rig in that the electric rig converts the power from its diesel engines (the sole energy source for a mechanical rig) into electricity to power the rig. We also have a substantial inventory of drill pipe and drilling rig components, which may be used in the activation of additional drilling rigs or as replacement parts for marketable rigs. 
+Drilling rigs are typically equipped with engines, drawworks, masts, pumps to circulate the drilling fluid, blowout preventers, drill pipe and other related equipment. Over time, components on a drilling rig are replaced or rebuilt. We spend significant funds each year as part of a program to modify, upgrade and maintain our drilling rigs to ensure that our drilling equipment is competitive. We have spent over $2.0 billion during the last three years on capital expenditures to (1) build new land drilling rigs and (2) modify, upgrade and extend the lives of components of our drilling fleet. During fiscal years 2014, 2013 and 2012, we spent approximately $772 million, $505 million and $745 million, respectively, on these capital expenditures. 
+Depth and complexity of the well and drill site conditions are the principal factors in determining the specifications of the rig selected for a particular job. 
+3 
+Our contract drilling operations depend on the availability of drill pipe, drill bits, replacement parts and other related rig equipment, fuel and other materials and qualified personnel. Some of these have been in short supply from time to time. 
+Drilling Contracts — Most of our drilling contracts are with established customers on a competitive bid or negotiated basis. Our bid for each job depends upon location, equipment to be used, estimated risks involved, estimated duration of the job, availability of drilling rigs and other factors particular to each proposed contract. Our drilling contracts are either on a well-to-well basis or a term basis. Well-to-well contracts are generally short-term in nature and cover the drilling of a single well or a series of wells. Term contracts are entered into for a specified period of time (frequently six months to three years) and provide for the use of the drilling rig to drill multiple wells. During 2014, our average number of days to drill a well (which includes moving to the drill site, rigging up and rigging down) was approximately 20 days. 
+Our drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of our drilling personnel and necessary maintenance expenses. Most drilling contracts are subject to termination by the customer on short notice and may or may not contain provisions for an early termination payment to us in the event that the contract is terminated by the customer. We believe that our drilling contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations; however, each drilling contract contains the actual terms setting forth our rights and obligations and those of the customer, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer requirements or other factors. 
+Our drilling contracts provide for payment on a daywork basis. Under daywork contracts, we provide the drilling rig and crew to the customer. The customer supervises the drilling of the well. Our compensation is based on a contracted rate per day during the period the drilling rig is utilized. We often receive a lower rate when the drilling rig is moving or when drilling operations are interrupted or restricted by adverse weather conditions or other conditions beyond our control. Daywork contracts typically provide separately for mobilization of the drilling rig. All of the wells we drilled in 2014, 2013 and 2012 were under daywork contracts. 
+From time to time more than five years ago, we contracted to drill some wells to a certain depth under specified conditions for a fixed price per foot (on a footage basis) or for a fixed fee (on a turnkey basis). We generally assume greater operational and economic risk drilling on a turnkey basis than on a footage basis and greater operational and economic risk drilling on a footage basis than on a daywork basis. 
+Contract Drilling Activity — Information regarding our contract drilling activity for the last three years follows: 
+Year Ended December 31, 
+2014 
+2013 
+2012 
+Average rigs operating per day(1) 
+211 
+192 
+221 
+Number of rigs operated during the year 
+231 
+235 
+267 
+Number of wells drilled during the year 
+3,740 
+3,378 
+3,587 
+Number of operating days 
+77,000 
+69,918 
+80,833 
+(1) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Drilling Rigs and Related Equipment — We have made significant upgrades during the last several years to our drilling fleet to match the needs of our customers. While conventional wells remain an important source of oil and natural gas, our customers have expanded the development of shale and other unconventional wells to help supply the long-term demand for oil and natural gas in North America. 
+4 
+To address our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays, we have expanded our areas of operation and improved the capability of our drilling fleet. We have delivered new APEX ® rigs to the market and have made performance and safety improvements to existing high capacity rigs. APEX 1500 ® rigs are 1,500 horsepower electric rigs with advanced electronic drilling systems, 500 ton top drives, iron roughnecks, hydraulic catwalks, and other highly automated pipe handling equipment. APEX 1000 ® rigs are 1,000 horsepower electric rigs with advanced technology equipment similar to the APEX 1500 ® rigs, but with a more compact design to fit on smaller locations. APEX WALKING ® rigs are designed to efficiently drill multiple wells from a single pad, by “walking” between the wellbores without requiring time to lower the mast and lay down the drill pipe. Many APEX 1500 ® and APEX 1000 ® rigs have also been equipped with walking systems as noted below. As of December 31, 2014, our drilling fleet was comprised of the following: 
+Number of Rigs 
+Classification 
+U.S. 
+Canada 
+Total 
+With Walking Systems 
+APEX 1500 rigs 
+81 
+— 
+81 
+43 
+APEX 1000 rigs 
+15 
+— 
+15 
+9 
+APEX WALKING rigs 
+49 
+— 
+49 
+49 
+Other electric rigs 
+44 
+6 
+50 
+4 
+Total electric rigs 
+189 
+6 
+195 
+105 
+Mechanical rigs 
+40 
+4 
+44 
+— 
+Total 
+229 
+10 
+239 
+105 
+Number of Rigs 
+Horsepower 
+U.S. 
+Canada 
+Total 
+950 and less 
+13 
+5 
+18 
+1,000 to 1,400 
+81 
+5 
+86 
+1,500 
+122 
+— 
+122 
+1,700 and greater 
+13 
+— 
+13 
+Total 
+229 
+10 
+239 
+Average horsepower 
+1,327 
+1,025 
+1,314 
+Average depth rating 
+18,096 
+14,005 
+17,925 
+At December 31, 2014, we owned and operated 286 trucks and 323 trailers used to rig down, transport and rig up our drilling rigs. 
+We perform repair and/or overhaul work to our drilling rig equipment at our yard facilities located in Texas, Oklahoma, Wyoming, Colorado, North Dakota, Pennsylvania and western Canada. 
+Pressure Pumping Operations 
+General — We provide pressure pumping services to oil and natural gas operators primarily in Texas (Southwest Region) and the Appalachian region (Northeast Region). Pressure pumping services consist of well stimulation services (such as hydraulic fracturing) and cementing services for the completion of new wells and remedial work on existing wells. Wells drilled in shale formations and other unconventional plays require well stimulation through hydraulic fracturing to allow the flow of oil and natural gas. This is accomplished by pumping fluids under pressure into the well bore to fracture the formation. Many wells in conventional plays also receive well stimulation services. The cementing process inserts material between the wall of the well bore and the casing to support and stabilize the casing. 
+Pressure Pumping Contracts – Our pressure pumping operations are conducted pursuant to a work order for a specific job or pursuant to a term contract. The term contracts are generally entered into for a specified period of time and may include minimum revenue, usage or stage requirements. We are compensated based on a combination of charges for equipment, personnel, materials, mobilization and other items. We believe that our pressure pumping contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations; however, each pressure pumping contract contains the actual terms setting forth our rights and obligations and those of the customer, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer requirements or other factors. 
+5 
+Equipment — We have pressure pumping equipment used in providing hydraulic and nitrogen fracturing services as well as nitrogen, cementing and acid pumping services, with a total of approximately 1.0 million hydraulic horsepower as of December 31, 2014. Pressure pumping equipment at December 31, 2014 included: 
+Hydraulic 
+Other 
+Fracturing 
+Pumping 
+Equipment 
+Equipment 
+Total 
+Southwest Region: 
+Number of units 
+275 
+32 
+307 
+Approximate hydraulic horsepower 
+638,800 
+32,165 
+670,965 
+Northeast Region: 
+Number of units 
+149 
+94 
+243 
+Approximate hydraulic horsepower 
+303,800 
+54,700 
+358,500 
+Combined: 
+Number of units 
+424 
+126 
+550 
+Approximate hydraulic horsepower 
+942,600 
+86,865 
+1,029,465 
+Our pressure pumping operations are supported by a fleet of other equipment including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+Materials – Our pressure pumping operations require the use of acids, chemicals, proppants, fluid supplies and other materials, any of which can be in short supply, including severe shortages, from time to time. We purchase these materials from various suppliers. These purchases are made in the spot market or pursuant to other arrangements that do not cover all of our required supply and that sometimes require us to purchase the supply or pay liquidated damages if we do not purchase the material. Given the limited number of suppliers of certain of our materials, we may not always be able to make alternative arrangements if we are unable to reach an agreement with a supplier for delivery of any particular material or should one of our suppliers fail to timely deliver our materials. 
+Oil and Natural Gas Interests 
+We own and invest in oil and natural gas assets as a non-operating working interest owner. Our oil and natural gas working interests are located primarily in producing regions of Texas and New Mexico. Our oil and natural gas assets constituted approximately 1% of our consolidated assets as of December 31, 2014. 
+Customers 
+The customers of each of our contract drilling and pressure pumping business segments are oil and natural gas operators. Our customer base includes both major and independent oil and natural gas operators. With respect to our consolidated operating revenues in 2014, we received approximately 41% from our ten largest customers, 28% from our five largest customers and 16% from our two largest customers. The loss of, or reduction in business from, one or more of our larger customers could have a material adverse effect on our business, financial condition, cash flows and results of operations. During 2014, no single customer accounted for more than 10% of our consolidated operating revenues. 
+Competition 
+The contract drilling and pressure pumping businesses are highly competitive. Historically, available equipment used in these businesses has frequently exceeded demand. The price for our services is a key competitive factor, in part because equipment used in our businesses can be moved from one area to another in response to market conditions. In addition to price, we believe availability, condition and technical specifications of equipment, quality of personnel, service quality and safety record are key factors in determining which contractor is awarded a job. We expect that the market for land drilling and pressure pumping services will continue to be highly competitive. 
+Government and Environmental Regulation 
+All of our operations and facilities are subject to numerous federal, state, foreign, regional and local laws, rules and regulations related to various aspects of our business, including: 
+· 
+drilling of oil and natural gas wells, 
+6 
+· 
+hydraulic fracturing, cementing, nitrogen and acidizing and related well servicing activities, 
+· 
+containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, 
+· 
+use of underground storage tanks and injection wells, and 
+· 
+our employees. 
+To date, applicable environmental laws and regulations in the places in which we operate have not required the expenditure of significant resources outside the ordinary course of business. We do not anticipate any material capital expenditures for environmental control facilities or extraordinary expenditures to comply with environmental rules and regulations in the foreseeable future. However, compliance costs under existing laws or under any new requirements could become material, and we could incur liability in any instance of noncompliance. 
+Our business is generally affected by political developments and by federal, state, foreign, regional and local laws, rules and regulations that relate to the oil and natural gas industry. The adoption of laws, rules and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase costs relating to drilling, completion and production, and otherwise have an adverse effect on our operations. Federal, state, foreign, regional and local environmental laws, rules and regulations currently apply to our operations and may become more stringent in the future. Any suspension or moratorium of the services we or others provide, whether or not short-term in nature, by a federal, state, foreign, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operation. 
+We believe we use operating and disposal practices that are standard in the industry. However, hydrocarbons and other materials may have been disposed of, or released in or under properties currently or formerly owned or operated by us or our predecessors, which may have resulted, or may result, in soil and groundwater contamination in certain locations. Any contamination found on, under or originating from the properties may be subject to remediation requirements under federal, state, foreign, regional and local laws, rules and regulations. In addition, some of these properties have been operated by third parties over whom we have no control of their treatment of hydrocarbon and other materials or the manner in which they may have disposed of or released such materials. We could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, it is possible we could be held responsible for oil and natural gas properties in which we own an interest but are not the operator. 
+Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that govern our operations. 
+In the United States, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, commonly known as CERCLA, and comparable state statutes impose strict liability on: 
+· 
+owners and operators of sites, including prior owners and operators who are no longer active at a site; and 
+· 
+persons who disposed of or arranged for the disposal of “hazardous substances” found at sites. 
+The Federal Resource Conservation and Recovery Act (“RCRA”), as amended, and comparable state statutes and implementing regulations govern the disposal of “hazardous wastes.” Although CERCLA currently excludes petroleum from the definition of “hazardous substances,” and RCRA also excludes certain classes of exploration and production wastes from regulation, such exemptions by Congress under both CERCLA and RCRA may be deleted, limited, or modified in the future. If such changes are made to CERCLA and/or RCRA, we could be required to remove and remediate previously disposed of materials (including materials disposed of or released by prior owners or operators) from properties (including ground water contaminated with hydrocarbons) and to perform removal or remedial actions to prevent future contamination. 
+The Federal Water Pollution Control Act and the Oil Pollution Act of 1990, as amended, and implementing regulations govern: 
+· 
+the prevention of discharges, including oil and produced water spills, into jurisdictional waters; and 
+· 
+liability for drainage into such waters. 
+The Oil Pollution Act imposes strict liability for a comprehensive and expansive list of damages from an oil spill into jurisdictional waters from facilities. Liability may be imposed for oil removal costs and a variety of public and private damages. Penalties may also be imposed for violation of federal safety, construction and operating regulations, and for failure to report a spill or to cooperate fully in a clean-up. 
+The Oil Pollution Act also expands the authority and capability of the federal government to direct and manage oil spill clean-up and operations, and requires operators to prepare oil spill response plans in cases where it can reasonably be expected that substantial 
+7 
+harm will be done to the environment by discharges on or into navigable waters. Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party, such as us, to civil or criminal actions. Although the liability for owners and operators is the same under the Federal Water Pollution Act, the damages recoverable under the Oil Pollution Act are potentially much greater and can include natural resource damages. 
+The U.S. Occupational Safety and Health Administration (“OSHA”) promulgates and enforces laws and regulations governing the protection of the health and safety of employees. The OSHA hazard communication standard, U.S. Environmental Protection Agency (“EPA”) community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. Also, OSHA has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety. 
+Our activities include the performance of hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability, such as shale and other unconventional formations. Due to concerns raised relating to potential impacts of hydraulic fracturing on groundwater quality, legislative and regulatory efforts at the federal level and in some state and local jurisdictions have been initiated to render permitting and compliance requirements more stringent for hydraulic fracturing or prohibit the activity altogether. Such efforts could have an adverse effect on oil and natural gas production activities, which in turn could have an adverse effect on the hydraulic fracturing services that we render for our exploration and production customers. See “Item 1A. Risk Factors – Potential Legislation and Regulation Covering Hydraulic Fracturing Could Increase Our Costs and Limit or Delay Our Operations.” 
+In Canada, a variety of federal, provincial and municipal laws, rules and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and wastes and in connection with spills, releases and emissions of various substances to the environment. Other jurisdictions where we may conduct operations have similar environmental and regulatory regimes with which we would be required to comply. These laws, rules and regulations also require that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws, rules and regulations are subject to frequent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. 
+Our operations are also subject to federal, state, foreign, regional and local laws, rules and regulations for the control of air emissions, including those associated with the Federal Clean Air Act and the Canadian Environmental Protection Act. We and our customers may be required to make capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. For more information, please refer to our discussion under “Item 1A. Risk Factors – Environmental and Occupational Health and Safety Laws and Regulations, Including Violations Thereof, Could Materially Adversely Affect Our Operating Results.” 
+We are aware of the increasing focus of local, state, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. We are also aware of legislation proposed by United States lawmakers and the Canadian legislature to reduce GHG emissions, as well as GHG emissions regulations enacted by the EPA and the Canadian provinces of Alberta and British Columbia. We will continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary. Any direct and indirect costs of meeting these requirements may adversely affect our business, results of operations and financial condition. See “Item 1A. Risk Factors – Legislation and Regulation of Greenhouse Gases Could Adversely Affect Our Business.” 
+Risks and Insurance 
+Our operations are subject to many hazards inherent in the contract drilling and pressure pumping businesses, including inclement weather, blowouts, well fires, loss of well control, pollution and reservoir damage. These hazards could cause personal injury or death, work stoppage, and serious damage to equipment and other property, as well as significant environmental and reservoir damages. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages. 
+We have indemnification agreements with many of our customers, and we also maintain liability and other forms of insurance. In general, our drilling and pressure pumping contracts typically contain provisions requiring our customer to indemnify us for, among other things, reservoir and certain pollution damage. Our right to indemnification may, however, be unenforceable or limited due to negligent or willful acts or omissions by us, our subcontractors and/or suppliers. Our customers may dispute, or be unable to meet, their indemnification obligations to us due to financial, legal or other reasons. Accordingly, we may be unable to transfer these risks 
+8 
+to our customers by contract or indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+We maintain insurance coverage of types and amounts that we believe to be customary in the industry, but we are not fully insured against all risks, either because insurance is not available or because of the high premium costs. The insurance coverage that we maintain includes insurance for fire, windstorm and other risks of physical loss to our rigs and certain other assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. We cannot assure, however, that any insurance obtained by us will be adequate to cover any losses or liabilities, or that this insurance will continue to be available or available on terms that are acceptable to us. While we carry insurance to cover physical damage to, or loss of, our drilling rigs and certain other assets, such insurance does not cover the full replacement cost of the rigs or other assets. We have also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. For example, we generally maintain a $1.5 million per occurrence deductible on our workers’ compensation and equipment insurance coverage and a $2.0 million per occurrence self-insured retention on our general liability coverage and a $2.0 million per occurrence deductible on our automobile liability insurance coverage. We self-insure a number of other risks, including loss of earnings and business interruption, and do not carry a significant amount of insurance to cover risks of underground reservoir damage. 
+Our insurance will not in all situations provide sufficient funds to protect us from all liabilities that could result from our operations. Our coverage includes aggregate policy limits and exclusions. As a result, we retain the risk for any loss in excess of these limits or that is otherwise excluded from our coverage. There can be no assurance that insurance will be available to cover any or all of our operational risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive or that our coverage will cover a specific loss. Further, we may experience difficulties in collecting from insurers or such insurers may deny all or a portion of our claims for insurance coverage. 
+If a significant accident or other event occurs and is not fully covered by insurance or an enforceable or recoverable indemnity from a third party, it could have a material adverse effect on our business, financial condition, cash flows and results of operations. See “Item 1A. Risk Factors – Our Operations Are Subject to a Number of Operational Risks, Including Environmental and Weather Risks, Which Could Expose Us to Significant Losses and Damage Claims. We Are Not Fully Insured Against All of These Risks and Our Contractual Indemnity Provisions May Not Fully Protect Us.” 
+Employees 
+We had approximately 7,900 full-time employees as of February 10, 2015. The number of employees fluctuates depending on the current and expected demand for our services. We consider our employee relations to be satisfactory. None of our employees are represented by a union. 
+Seasonality 
+Seasonality has not significantly affected our overall operations. However, our drilling operations in Canada are subject to slow periods of activity during the annual spring thaw. Additionally, toward the end of some years, we experience slower activity in our pressure pumping operations in connection with the holidays and as customers’ capital expenditure budgets are depleted. Occasionally, our operations have been negatively impacted by severe weather conditions. 
+Raw Materials and Subcontractors 
+We use many suppliers of raw materials and services. Although these materials and services have historically been available, there is no assurance that such materials and services will continue to be available on favorable terms or at all. We also utilize numerous independent subcontractors from various trades.

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+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated herein by reference to the Proxy Statement.

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+Item 9A. Controls and Procedures. 
+Disclosure Controls and Procedures: 
+Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2014, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 
+Management’s Report on Internal Control over Financial Reporting: 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2014. 
+The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Report and which is incorporated by reference into Item 8 of this Report. 
+Changes in Internal Control over Financial Reporting: 
+There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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+0000889900,PTEN,PATTERSON UTI ENERGY INC,10-K,2016-02-10,2015-12-31,2016-02-10T21:53:13.000Z,0001564590-16-012604,pten-10k_20151231.htm,10-K,17981945,1,0,https://www.sec.gov/Archives/edgar/data/889900/000156459016012604/pten-10k_20151231.htm,https://www.sec.gov/Archives/edgar/data/889900/000156459016012604/,2015,2015,1

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+Item 1. Business 
+Available Information 
+This Report, along with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our internet website ( www.patenergy.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report or other filings that we make with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 
+Overview 
+We own and operate in the United States one of the largest fleets of land-based drilling rigs and a large fleet of pressure pumping equipment. We were formed in 1978 and reincorporated in 1993 as a Delaware corporation. Patterson Energy, Inc. and UTI Energy Corp. merged in 2001 to form Patterson-UTI Energy, Inc. Our corporate headquarters are in Houston, Texas. 
+Our contract drilling business operates in the continental United States and western Canada, and we are pursuing contract drilling opportunities outside of North America. As of December 31, 2015, we had a drilling fleet that consisted of 221 marketable land-based drilling rigs. A drilling rig includes the structure, power source and machinery necessary to cause a drill bit to penetrate the earth to a depth desired by the customer. A drilling rig is considered marketable at a point in time if it is operating or can be made ready to operate without significant capital expenditures. We also have a substantial inventory of drill pipe and drilling rig components that support our drilling operations. 
+We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Pressure pumping services consist primarily of well stimulation services (such as hydraulic fracturing) and cementing services for completion of new wells and remedial work on existing wells. As of December 31, 2015, we had approximately 1.1 million hydraulic horsepower to provide these services. Our pressure pumping operations are supported by a fleet of other equipment, including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+We also own and invest in oil and natural gas assets as a non-operating working interest owner. Our oil and natural gas working interests are located primarily in Texas and New Mexico. 
+Recent Developments 
+Oil prices have significantly declined since the second half of 2014. The closing price of oil, which was as high as $105.68 per barrel during the third quarter of 2014, reached a low price for 2015 of $34.55 in December 2015 and reached a twelve-year low of $26.68 in January 2016. As a result of the prolonged decline in oil prices, our industry continues to experience a severe decline in both contract drilling and pressure pumping activity levels. We do not expect this to change until commodity prices improve. 
+Low commodity prices are negatively impacting spending by exploration and production companies. The impact of these spending reductions is evidenced by published rig counts, which in the United States decreased more than 60% during 2015 and is now almost 70% lower than the peak in 2014. 
+Our rig count has also significantly declined. As of December 31, 2015, we had 80 drilling rigs operating in the United States, which was a decrease of 63% from the recent peak of 214 rigs in October 2014. Our operating rig count has continued to decline in 2016. On average, we operated 78 rigs in the United States during January 2016. Term contracts provided some support of our operating rig count during 2015. Based on contracts currently in place, we expect an average of 59 rigs operating under term contracts during the first quarter and an average of 46 rigs operating under term contracts during 2016. 
+Our pressure pumping business is continuing to experience the effects of reduced spending by customers and downward pressure on pricing. Due to market conditions, as of December 31, 2015, we had stacked approximately 38% of our fracturing horsepower. With the weakness in commodity prices since the beginning of 2016, we have seen a significant decrease in the amount of available work, and the profitability of available work has continued to deteriorate. In response, since the beginning of 2016, we have stacked approximately 140,000 fracturing horsepower. In total, we now have stacked slightly more than half of our fleet of more than 1 million hydraulic fracturing horsepower. 
+2 
+In anticipation of this downturn, we began reducing our cost structure in the fourth quarter of 2014. In 2015, we continued to reduce our cost structure and, to date, we have reduced our drilling headcount at a rate generally proportionate with the reduction in our rig count. In 2015, we significantly reduced our pressure pumping headcount and obtained lowe r prices on many products and services that we use. We also reduced our capital expenditures in 2015, and we expect our capital expenditures for 2016 to primarily consist of maintenance capital, inspections and potential upgrades, as we do not expect to b uild any new rigs or purchase any new fracturing horsepower in 2016. We plan to continue to adjust our cost structure in line with our level of operating activity. 
+We expect that our term contract coverage in contract drilling and scalability with respect to labor and other operating costs in contract drilling and pressure pumping should position us to weather this downturn. In the event oil prices remain depressed for a sustained period, or decline further, we may experience further significant declines in both drilling activity and spot dayrate pricing and in pressure pumping activity, which could have a material adverse effect on our business, financial condition and results of operations. 
+Industry Segments 
+Our revenues, operating profits and identifiable assets are primarily attributable to three industry segments: 
+· 
+contract drilling services, 
+· 
+pressure pumping services, and 
+· 
+oil and natural gas exploration and production. 
+All of our industry segments had operating profits in 2013. In 2014, our contract drilling services and our pressure pumping services segments had operating profits and our oil and natural gas exploration and production segment had an operating loss. Our oil and natural gas assets constituted approximately 1% of our consolidated assets as of December 31, 2014. All of our industry segments had operating losses in 2015. 
+See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 14 of Notes to Consolidated Financial Statements included as a part of Items 7 and 8, respectively, of this Report for financial information pertaining to these industry segments. 
+Contract Drilling Operations 
+General — We market our contract drilling services to major, independent and other oil and natural gas operators. As of December 31, 2015, we had 221 marketable land-based drilling rigs based in the following regions: 
+· 
+46 in west Texas and southeastern New Mexico, 
+· 
+17 in north central and east Texas and northern Louisiana 
+· 
+36 in the Rocky Mountain region (Colorado, Wyoming and North Dakota), 
+· 
+37 in south Texas, 
+· 
+29 in western Oklahoma, 
+· 
+45 in the Appalachian region (Pennsylvania, Ohio and West Virginia), and 
+· 
+11 in western Canada. 
+Our marketable drilling rigs have rated maximum depth capabilities ranging from approximately 10,000 feet to 25,000 feet. Of these drilling rigs, 202 are electric rigs and 19 are mechanical rigs. An electric rig differs from a mechanical rig in that the electric rig converts the power from its diesel engines (the sole energy source for a mechanical rig) into electricity to power the rig. We also have a substantial inventory of drill pipe and drilling rig components, which may be used in the activation of additional drilling rigs or as upgrades or replacement parts for marketable rigs. 
+Drilling rigs are typically equipped with engines, drawworks, top drives, masts, pumps to circulate the drilling fluid, blowout preventers, drill pipe and other related equipment. Over time, components on a drilling rig are replaced or rebuilt. We spend significant funds each year as part of a program to modify, upgrade and maintain our drilling rigs to ensure that our drilling equipment is competitive. We have spent over $1.8 billion during the last three years on capital expenditures to (1) build new land drilling rigs and (2) modify, upgrade and extend the lives of components of our drilling fleet. During fiscal years 2015, 2014 and 2013, we spent approximately $527 million, $772 million and $505 million, respectively, on these capital expenditures. 
+3 
+Depth and complexity of the well and drill site conditions are the principal factors in determining the specifications of the rig selected for a particular job. 
+Our contract drilling operations depend on the availability of drill pipe, drill bits, replacement parts and other related rig equipment, fuel and other materials and qualified personnel. Some of these have been in short supply from time to time. 
+Drilling Contracts — Most of our drilling contracts are with established customers on a competitive bid or negotiated basis. Our bid for each job depends upon location, equipment to be used, estimated risks involved, estimated duration of the job, availability of drilling rigs and other factors particular to each proposed contract. Our drilling contracts are either on a well-to-well basis or a term basis. Well-to-well contracts are generally short-term in nature and cover the drilling of a single well or a series of wells. Term contracts are entered into for a specified period of time (frequently six months to three years) and provide for the use of the drilling rig to drill multiple wells. During 2015, our average number of days to drill a well (which includes moving to the drill site, rigging up and rigging down) was approximately 17 days. 
+Our drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of our drilling personnel and necessary maintenance expenses. Most drilling contracts are subject to termination by the customer on short notice and may or may not contain provisions for an early termination payment to us in the event that the contract is terminated by the customer. We believe that our drilling contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each drilling contract contains the actual terms setting forth our rights and obligations and those of the customer, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer requirements or other factors. 
+Our drilling contracts provide for payment on a daywork basis. Under daywork contracts, we provide the drilling rig and crew to the customer. The customer provides the program for the drilling of the well. Our compensation is based on a contracted rate per day during the period the drilling rig is utilized. We often receive a lower rate when the drilling rig is moving or when drilling operations are interrupted or restricted by adverse weather conditions or other conditions beyond our control. Daywork contracts typically provide separately for mobilization of the drilling rig. All of the wells we drilled in 2015, 2014 and 2013 were under daywork contracts. 
+From time to time more than five years ago, we contracted to drill some wells to a certain depth under specified conditions for a fixed price per foot (on a footage basis) or for a fixed fee (on a turnkey basis). We generally assume greater operational and economic risk drilling on a turnkey basis than on a footage basis and greater operational and economic risk drilling on a footage basis than on a daywork basis. 
+Contract Drilling Activity — Information regarding our contract drilling activity for the last three years follows: 
+Year Ended December 31, 
+2015 
+2014 
+2013 
+Average rigs operating per day(1) 
+124 
+211 
+192 
+Number of rigs operated during the year 
+223 
+231 
+235 
+Number of wells drilled during the year 
+2,448 
+3,740 
+3,378 
+Number of operating days 
+45,142 
+77,000 
+69,918 
+(1) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Drilling Rigs and Related Equipment — We have made significant upgrades during the last several years to our drilling fleet to match the needs of our customers. While conventional wells remain a source of oil and natural gas, our customers have expanded the development of shale and other unconventional wells to help supply the long-term demand for oil and natural gas in North America. 
+4 
+To address our cust omers’ needs for drilling horizontal wells in shale and other unconventional resource plays, we have expanded our areas of operation and improved the capability of our drilling fleet. We have delivered new APEX ® rigs to the market and have made performanc e and safety improvements to existing high capacity rigs. APEX 1500 ® rigs are 1,500 horsepower electric rigs with advanced electronic drilling systems, 500 ton top drives, iron roughnecks, hydraulic catwalks, and other highly automated pipe handling equip ment. APEX 1000 ® rigs are 1,000 horsepower electric rigs with advanced technology equipment similar to the APEX 1500 ® rigs, but with a more compact design to fit on smaller locations. APEX WALKING ® rigs are designed to efficiently drill multiple wells fr om a single pad, by “walking” between the wellbores without requiring time to lower the mast and lay down the drill pipe. Many APEX 1500 ® and APEX 1000 ® rigs have also been equipped with walking systems as noted below. As of December 31, 2015, our drilli ng fleet was comprised of the following: 
+Number of Rigs 
+Classification 
+United States 
+Canada 
+Total 
+Percent With Walking Systems 
+APEX 1500 rigs 
+96 
+1 
+97 
+62 
+% 
+APEX 1000 rigs 
+15 
+— 
+15 
+60 
+% 
+APEX WALKING rigs 
+49 
+— 
+49 
+100 
+% 
+Other electric rigs 
+35 
+6 
+41 
+12 
+% 
+Total electric rigs 
+195 
+7 
+202 
+61 
+% 
+Mechanical rigs 
+15 
+4 
+19 
+Total 
+210 
+11 
+221 
+Number of Rigs 
+Horsepower 
+United States 
+Canada 
+Total 
+2,000 to 2,500 
+12 
+— 
+12 
+1,500 
+133 
+1 
+134 
+1,000 to 1,400 
+61 
+5 
+66 
+750 to 950 
+4 
+5 
+9 
+Total 
+210 
+11 
+221 
+Average horsepower 
+1,386 
+1,068 
+1,370 
+Average depth rating 
+18,700 
+14,550 
+18,493 
+We perform repair and/or overhaul work to our drilling rig equipment at our yard facilities located in Texas, Oklahoma, Wyoming, Colorado, North Dakota, Pennsylvania and western Canada. 
+Pressure Pumping Operations 
+General — We provide pressure pumping services to oil and natural gas operators primarily in Texas (Southwest Region) and the Appalachian region (Northeast Region). Pressure pumping services consist of well stimulation services (such as hydraulic fracturing) and cementing services for the completion of new wells and remedial work on existing wells. Wells drilled in shale formations and other unconventional plays require well stimulation through hydraulic fracturing to allow the flow of oil and natural gas. This is accomplished by pumping fluids under pressure into the well bore to fracture the formation. Many wells in conventional plays also receive well stimulation services. The cementing process inserts material between the wall of the well bore and the casing to support and stabilize the casing. 
+Pressure Pumping Contracts – Our pressure pumping operations are conducted pursuant to a work order for a specific job or pursuant to a term contract. The term contracts are generally entered into for a specified period of time and may include minimum revenue, usage or stage requirements. We are compensated based on a combination of charges for equipment, personnel, materials, mobilization and other items. We believe that our pressure pumping contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each pressure pumping contract contains the actual terms setting forth our rights and obligations and those of the customer, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer requirements or other factors. 
+5 
+Equipment — We have pressure pumping equipment used in providing hydraulic and nitrogen fracturing se rvices as well as nitrogen, cementing and acid pumping services, wi th a total of approximately 1.1 million hydraulic horsepower as of December 31, 2015. Pressure pumping equipment at December 31, 2015 included: 
+Hydraulic 
+Other 
+Fracturing 
+Pumping 
+Equipment 
+Equipment 
+Total 
+Southwest Region: 
+Number of units 
+285 
+32 
+317 
+Approximate hydraulic horsepower 
+663,800 
+32,165 
+695,965 
+Northeast Region: 
+Number of units 
+169 
+94 
+263 
+Approximate hydraulic horsepower 
+353,800 
+55,400 
+409,200 
+Combined: 
+Number of units 
+454 
+126 
+580 
+Approximate hydraulic horsepower 
+1,017,600 
+87,565 
+1,105,165 
+Our pressure pumping operations are supported by a fleet of other equipment including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+Materials – Our pressure pumping operations require the use of acids, chemicals, proppants, fluid supplies and other materials, any of which can be in short supply, including severe shortages, from time to time. We purchase these materials from various suppliers. These purchases are made in the spot market or pursuant to other arrangements that do not cover all of our required supply and that sometimes require us to purchase the supply or pay liquidated damages if we do not purchase the material. Given the limited number of suppliers of certain of our materials, we may not always be able to make alternative arrangements if we are unable to reach an agreement with a supplier for delivery of any particular material or should one of our suppliers fail to timely deliver our materials. 
+Oil and Natural Gas Interests 
+We own and invest in oil and natural gas assets as a non-operating working interest owner. Our oil and natural gas working interests are located primarily in producing regions of Texas and New Mexico. Our oil and natural gas assets constituted less than 1% of our consolidated assets as of December 31, 2015. 
+Customers 
+Our customer base includes major, independent and other oil and natural gas operators. With respect to our consolidated operating revenues in 2015, we received approximately 49% from our ten largest customers and approximately 33% from our five largest customers. During 2015, one customer accounted for approximately $244 million, or approximately 13%, of our consolidated operating revenues. These revenues were earned in both our contract drilling and pressure pumping businesses. The loss of, or reduction in business from, one or more of our larger customers could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+Competition 
+The contract drilling and pressure pumping businesses are highly competitive. Historically, available equipment used in these businesses has frequently exceeded demand, particularly in an industry downturn, such as the current market environment. The price for our services is a key competitive factor, in part because equipment used in our businesses can be moved from one area to another in response to market conditions. In addition to price, we believe availability, condition and technical specifications of equipment, quality of personnel, service quality and safety record are key factors in determining which contractor is awarded a job. We expect that the market for land drilling and pressure pumping services will continue to be highly competitive. 
+Government and Environmental Regulation 
+All of our operations and facilities are subject to numerous federal, state, foreign, regional and local laws, rules and regulations related to various aspects of our business, including: 
+· 
+drilling of oil and natural gas wells, 
+· 
+hydraulic fracturing, cementing, nitrogen and acidizing and related well servicing activities, 
+6 
+· 
+containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, 
+· 
+use of underground storage tanks and injection wells, and 
+· 
+our employees. 
+To date, applicable environmental laws and regulations in the places in which we operate have not required the expenditure of significant resources outside the ordinary course of business. We do not anticipate any material capital expenditures for environmental control facilities or extraordinary expenditures to comply with environmental rules and regulations in the foreseeable future. However, compliance costs under existing laws or under any new requirements could become material, and we could incur liability in any instance of noncompliance. 
+Our business is generally affected by political developments and by federal, state, foreign, regional and local laws, rules and regulations that relate to the oil and natural gas industry. The adoption of laws, rules and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase costs relating to drilling, completion and production, and otherwise have an adverse effect on our operations. Federal, state, foreign, regional and local environmental laws, rules and regulations currently apply to our operations and may become more stringent in the future. Any limitation, suspension or moratorium of the services we or others provide, whether or not short-term in nature, by a federal, state, foreign, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operation. 
+We believe we use operating and disposal practices that are standard in the industry. However, hydrocarbons and other materials may have been disposed of, or released in or under properties currently or formerly owned or operated by us or our predecessors, which may have resulted, or may result, in soil and groundwater contamination in certain locations. Any contamination found on, under or originating from the properties may be subject to remediation requirements under federal, state, foreign, regional and local laws, rules and regulations. In addition, some of these properties have been operated by third parties over whom we have no control of their treatment of hydrocarbon and other materials or the manner in which they may have disposed of or released such materials. We could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, it is possible we could be held responsible for oil and natural gas properties in which we own an interest but are not the operator. 
+Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that govern our operations. 
+In the United States, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, commonly known as CERCLA, and comparable state statutes impose strict liability on: 
+· 
+owners and operators of sites, including prior owners and operators who are no longer active at a site; and 
+· 
+persons who disposed of or arranged for the disposal of “hazardous substances” found at sites. 
+The Federal Resource Conservation and Recovery Act (“RCRA”), as amended, and comparable state statutes and implementing regulations govern the disposal of “hazardous wastes.” Although CERCLA currently excludes petroleum from the definition of “hazardous substances,” and RCRA also excludes certain classes of exploration and production wastes from regulation, such exemptions by Congress under both CERCLA and RCRA may be deleted, limited, or modified in the future. If such changes are made to CERCLA and/or RCRA, we could be required to remove and remediate previously disposed of materials (including materials disposed of or released by prior owners or operators) from properties (including ground water contaminated with hydrocarbons) and to perform removal or remedial actions to prevent future contamination. 
+The Federal Water Pollution Control Act and the Oil Pollution Act of 1990, each as amended, and implementing regulations govern: 
+· 
+the prevention of discharges, including oil and produced water spills, into jurisdictional waters; and 
+· 
+liability for drainage into such waters. 
+The Oil Pollution Act imposes strict liability for a comprehensive and expansive list of damages from an oil spill into jurisdictional waters from facilities. Liability may be imposed for oil removal costs and a variety of public and private damages. Penalties may also be imposed for violation of federal safety, construction and operating regulations, and for failure to report a spill or to cooperate fully in a clean-up. 
+The Oil Pollution Act also expands the authority and capability of the federal government to direct and manage oil spill clean-up and operations, and requires operators to prepare oil spill response plans in cases where it can reasonably be expected that substantial harm will be done to the environment by discharges on or into navigable waters. Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party, such as us, to civil or criminal actions. Although the 
+7 
+liability for owners and operators is the same under the Fe deral Water Pollution Act, the damages recoverable under the Oil Pollution Act are potentially much greater and can include natural resource damages . 
+The U.S. Occupational Safety and Health Administration (“OSHA”) promulgates and enforces laws and regulations governing the protection of the health and safety of employees. The OSHA hazard communication standard, U.S. Environmental Protection Agency (“EPA”) community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. Also, OSHA has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety. 
+Our activities include the performance of hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability, such as shale and other unconventional formations. Due to concerns raised relating to potential impacts of hydraulic fracturing, including on groundwater quality and seismic activity, legislative and regulatory efforts at the federal level and in some state and local jurisdictions have been initiated to render permitting and compliance requirements more stringent for hydraulic fracturing or prohibit the activity altogether. Such efforts could have an adverse effect on oil and natural gas production activities, which in turn could have an adverse effect on the hydraulic fracturing services that we render for our exploration and production customers. See “Item 1A. Risk Factors – Potential Legislation and Regulation Covering Hydraulic Fracturing or Other Aspects of the Oil and Gas Industry Could Increase Our Costs and Limit or Delay Our Operations.” 
+In Canada, a variety of federal, provincial and municipal laws, rules and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and wastes and in connection with spills, releases and emissions of various substances to the environment. Other jurisdictions where we may conduct operations have similar environmental and regulatory regimes with which we would be required to comply. These laws, rules and regulations also require that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws, rules and regulations are subject to frequent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. 
+Our operations are also subject to federal, state, foreign, regional and local laws, rules and regulations for the control of air emissions, including those associated with the Federal Clean Air Act and the Canadian Environmental Protection Act. We and our customers may be required to make capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. For more information, please refer to our discussion under “Item 1A. Risk Factors – Environmental and Occupational Health and Safety Laws and Regulations, Including Violations Thereof, Could Materially Adversely Affect Our Operating Results.” 
+We are aware of the increasing focus of local, state, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. We are also aware of legislation proposed by U.S. lawmakers and the Canadian legislature to reduce GHG emissions, as well as GHG emissions regulations enacted by the EPA and the Canadian provinces of Alberta and British Columbia. We will continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary. Any direct and indirect costs of meeting these requirements may adversely affect our business, results of operations and financial condition. See “Item 1A. Risk Factors – Legislation and Regulation of Greenhouse Gases Could Adversely Affect Our Business.” 
+Risks and Insurance 
+Our operations are subject to many hazards inherent in the contract drilling and pressure pumping businesses, including inclement weather, blowouts, well fires, loss of well control, pollution, exposure and reservoir damage. These hazards could cause personal injury or death, work stoppage, and serious damage to equipment and other property, as well as significant environmental and reservoir damages. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages. 
+We have indemnification agreements with many of our customers, and we also maintain liability and other forms of insurance. In general, our drilling and pressure pumping contracts typically contain provisions requiring our customers to indemnify us for, among other things, reservoir and certain pollution damage. Our right to indemnification may, however, be unenforceable or limited due to negligent or willful acts or omissions by us, our subcontractors and/or suppliers. Our customers and other third parties may dispute, or be unable to meet, their indemnification obligations to us due to financial, legal or other reasons. Accordingly, we may be unable to transfer these risks to our customers and other third parties by contract or indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+8 
+We maintain insurance coverage of types and amounts that we believe to be customary in the industry, but we are no t fully insured against all risks, either because insurance is not available or because of the high premium costs. The insurance coverage that we maintain includes insurance for fire, windstorm and other risks of physical loss to our drilling rigs , pressu re pumping equipment and certain other assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. We cannot assure, however, that any insurance obtained by us will be ade quate to cover any losses or liabilities, or that this insurance will continue to be available or available on terms that are acceptable to us. While we carry insurance to cover physical damage to, or loss of, a substantial portion of our drilling rigs an d pressure pumping equipment and certain other assets, such insurance does not cover the full replacement cost of such drilling rigs, pressure pumping equipment or other assets. We have also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. For example, we generally maintain a $1.5 million per occurrence deductible on our workers’ compensation insurance coverage, a $1.0 million per occurrence deductible on our equipment insurance coverage , a $2.0 million per occurrence self-insured retention on our general liability coverage and a $2.0 million per occurrence deductible on our automobile liability insurance coverage. We self-insure a number of other risks, including loss of earnings and bu siness interruption, and we do not carry a significant amount of insurance to cover risks of underground reservoir damage. 
+Our insurance will not in all situations provide sufficient funds to protect us from all liabilities that could result from our operations. Our coverage includes aggregate policy limits and exclusions. As a result, we retain the risk for any loss in excess of these limits or that is otherwise excluded from our coverage. There can be no assurance that insurance will be available to cover any or all of our operational risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive, or that our coverage will cover a specific loss. Further, we may experience difficulties in collecting from insurers or such insurers may deny all or a portion of our claims for insurance coverage. Incurring a liability for which we are not fully insured or indemnified could materially adversely affect our business, financial condition, cash flows and results of operations. 
+If a significant accident or other event occurs that is not fully covered by insurance or an enforceable and recoverable indemnity from a third party, it could have a material adverse effect on our business, financial condition, cash flows and results of operations. See “Item 1A. Risk Factors – Our Operations Are Subject to a Number of Operational Risks, Including Environmental and Weather Risks, Which Could Expose Us to Significant Losses and Damage Claims. We Are Not Fully Insured Against All of These Risks and Our Contractual Indemnity Provisions May Not Fully Protect Us.” 
+Employees 
+We had approximately 3,400 full-time employees as of February 4, 2016. The number of employees fluctuates depending on the current and expected demand for our services. We consider our employee relations to be satisfactory. None of our employees are represented by a union. 
+Seasonality 
+Seasonality has not significantly affected our overall operations. However, our drilling operations in Canada are subject to slow periods of activity during the annual spring thaw. Additionally, toward the end of some years, we experience slower activity in our pressure pumping operations in connection with the holidays and as customers’ capital expenditure budgets are depleted. Occasionally, our operations have been negatively impacted by severe weather conditions. 
+Raw Materials and Subcontractors 
+We use many suppliers of raw materials and services. Although these materials and services have historically been available, there is no assurance that such materials and services will continue to be available on favorable terms or at all. We also utilize numerous independent subcontractors from various trades.

raw/filings/0000889900/2015/0001564590-16-012604/item13.txt

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+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated herein by reference to the Proxy Statement.

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+Item 9A. Controls and Procedures. 
+Disclosure Controls and Procedures: 
+Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2015, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 
+Management’s Report on Internal Control over Financial Reporting: 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2015, based on the 
+39 
+Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 201 5 . 
+The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Report and which is incorporated by reference into Item 8 of this Report. 
+Changes in Internal Control over Financial Reporting: 
+There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

raw/filings/0000889900/2016/0001564590-17-001437/filing_metadata.csv

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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000889900,PTEN,PATTERSON UTI ENERGY INC,10-K,2017-02-13,2016-12-31,2017-02-13T21:02:23.000Z,0001564590-17-001437,pten-10k_20161231.htm,PTEN-10K-20161231,17061237,1,0,https://www.sec.gov/Archives/edgar/data/889900/000156459017001437/pten-10k_20161231.htm,https://www.sec.gov/Archives/edgar/data/889900/000156459017001437/,2016,2016,1

raw/filings/0000889900/2016/0001564590-17-001437/item1.txt

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+Item 1. Business 
+Available Information 
+This Report, along with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our internet website ( www.patenergy.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report or other filings that we make with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 
+Overview 
+We are a Houston, Texas-based oilfield services company that primarily owns and operates in the United States one of the largest fleets of land-based drilling rigs and a large fleet of pressure pumping equipment. We were formed in 1978 and reincorporated in 1993 as a Delaware corporation. 
+Our contract drilling business operates in the continental United States and western Canada, and we are pursuing contract drilling opportunities outside of North America. As of December 31, 2016, we had a drilling fleet that consisted of 202 marketed land-based drilling rigs. A drilling rig includes the structure, power source and machinery necessary to cause a drill bit to penetrate the earth to a depth desired by the customer. We also have a substantial inventory of drill pipe and drilling rig components that support our drilling operations. 
+We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Pressure pumping services consist primarily of well stimulation services (such as hydraulic fracturing) and cementing services for completion of new wells and remedial work on existing wells. As of December 31, 2016, we had approximately 1.1 million hydraulic horsepower (approximately 1.0 million of which was hydraulic fracturing horsepower) to provide these services. Our pressure pumping operations are supported by a fleet of other equipment, including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+We also manufacture and sell pipe handling components and related technology to drilling contractors in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+Recent Developments 
+Quarterly average oil prices and our quarterly average number of rigs operating in the United States for 2014, 2015 and 2016 are as follows: 
+1 st 
+2 nd 
+3 rd 
+4 th 
+Quarter 
+Quarter 
+Quarter 
+Quarter 
+2014: 
+Average oil price per Bbl (1) 
+$ 
+98.75 
+$ 
+103.35 
+$ 
+97.78 
+$ 
+73.16 
+Average rigs operating per day - U.S. (2) 
+193 
+201 
+209 
+210 
+2015: 
+Average oil price per Bbl (1) 
+$ 
+48.54 
+$ 
+57.85 
+$ 
+46.42 
+$ 
+41.96 
+Average rigs operating per day - U.S. (2) 
+165 
+122 
+105 
+88 
+2016: 
+Average oil price per Bbl (1) 
+$ 
+33.18 
+$ 
+45.41 
+$ 
+44.85 
+$ 
+49.15 
+Average rigs operating per day - U.S. (2) 
+71 
+55 
+60 
+66 
+(1) The average oil price represents the average monthly WTI spot price as reported by the United States Energy Information Administration. 
+(2) A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+3 
+The closing price of oil was as high as $10 7.95 per barrel in June 2014. Prices began to fall in the third quarter of 2014 and reached a twelve-year low of $26.19 in February 2016. Oil and natural gas prices have recovered substantially from the lows experienced in the first quarter of 2016. During the fourth quarter of 2016, the Organization of Petroleum Exporting Countries (“ OPEC ”) and certain non-OPEC countries, including Russia, a nnounced an agreement to cut oil production. The announcement resulted in an increase in oil prices, which averaged $51.97 per barrel in December 2016. In response to improved prices, U.S. rig counts have been increasing, and we believe they will conti nue to increase throughout 2017 if prices for these commodities remain at or above current levels. 
+Our rig count in the United States declined significantly during the industry downturn that began in late 2014, but has steadily improved on a monthly basis since May 2016. For the fourth quarter, our average rig count improved to 66 rigs in the United States, up from the third quarter average of 60 rigs. Our rig count in the United States at December 31, 2016 of 74 rigs was 42% greater than the low of 52 rigs in April 2016; however, it was 65% less than the high of 214 rigs in October 2014. Term contracts have supported our operating rig count during the last three years. Based on contracts currently in place, we expect an average of 44 rigs operating under term contracts during the first quarter of 2017 and an average of 37 rigs operating under term contracts throughout 2017. 
+Activity levels in our pressure pumping business have also improved. Looking forward, we expect to see further increases in activity across the industry, especially in the Permian Basin. We have reactivated two frac spreads since mid-December 2016 at a cost of approximately $2 million per spread, including both operating and capital expenditures. Approximately 45% of the more than one million hydraulic fracturing horsepower in our fleet remains stacked. We expect the cost to reactivate our remaining idle frac spreads would be approximately $3 million per frac spread, including both operating and capital expenditures. 
+On December 12, 2016, we entered into an Agreement and Plan of Merger (the “merger agreement”) with Seventy Seven Energy Inc. (“SSE”), pursuant to which a subsidiary of ours will be merged with and into SSE, with SSE continuing as the surviving entity and one of our wholly owned subsidiaries (the “SSE merger”). Under the merger agreement, we will acquire all of the issued and outstanding shares of common stock of SSE in exchange for approximately 49.6 million shares of our common stock, subject to certain downward adjustments set forth in the merger agreement. SSE provides contract drilling, pressure pumping and oilfield rental services in many of the most active oil and natural gas plays onshore in the United States. SSE owns a fleet of 40 AC drilling rigs, approximately 93% of which are pad capable, including 28 fit-for-purpose PeakeRigs™. The remainder of SSE’s rig fleet includes 51 SCR rigs. Additionally, SSE owns approximately 500,000 horsepower of modern, efficient fracturing equipment located in the Anadarko Basin and Eagle Ford Shale. The SSE oilfield rentals business has a modern, well-maintained fleet of premium rental tools, and provides specialized services for land-based oil and natural gas drilling, completion and workover activities. 
+The completion of the SSE merger is subject to satisfaction or waiver of certain closing conditions, including, but not limited to, approval by our and SSE’s respective stockholders and other closing conditions set forth in the merger agreement. Subject to closing conditions, the SSE merger is expected to be completed late in the first quarter or early in the second quarter of 2017. 
+Industry Segments 
+Our revenues, operating profits and identifiable assets are primarily attributable to two industry segments: 
+• 
+contract drilling services, and 
+• 
+pressure pumping services. 
+Both of these industry segments had operating losses in 2016 and 2015. In 2014, both of these industry segments had operating profits. 
+We changed our reporting segment presentation in 2016, as we no longer consider our oil and natural gas exploration and production activities to be significant to an understanding of our results. We now present the oil and natural gas exploration and production activities, drilling technology and international activities as “Other” and “Corporate” reflects only corporate activities. This change in segment presentation was applied retrospectively to all periods presented herein. 
+See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 15 of Notes to Consolidated Financial Statements included as a part of Items 7 and 8, respectively, of this Report for financial information pertaining to these industry segments. 
+Contract Drilling Operations 
+General — We market our contract drilling services to major, independent and other oil and natural gas operators. As of December 31, 2016, we had 202 marketed land-based drilling rigs based in the following regions: 
+• 
+42 in west Texas and southeastern New Mexico, 
+4 
+• 
+1 6 in north central and east Texas and northern Louisiana , 
+• 
+35 in the Rocky Mountain region (Colorado, Wyoming and North Dakota), 
+• 
+35 in south Texas, 
+• 
+24 in western Oklahoma, 
+• 
+43 in the Appalachian region (Pennsylvania, Ohio and West Virginia), and 
+• 
+7 in western Canada. 
+Our marketed drilling rigs have rated maximum depth capabilities ranging from approximately 13,000 feet to 25,000 feet. All of these drilling rigs are electric rigs. An electric rig converts the power from its diesel engines into electricity to power the rig. We also have a substantial inventory of drill pipe and drilling rig components, which may be used in the activation of additional drilling rigs or as upgrades or replacement parts for marketed rigs. 
+Drilling rigs are typically equipped with engines, drawworks, top drives, masts, pumps to circulate the drilling fluid, blowout preventers, drill pipe and other related equipment. Over time, components on a drilling rig are replaced or rebuilt. We spend significant funds each year as part of a program to modify, upgrade and maintain our drilling rigs. We have spent approximately $1.4 billion during the last three years on capital expenditures to (1) build new land drilling rigs and (2) modify, upgrade and extend the lives of components of our drilling fleet. During fiscal years 2016, 2015 and 2014, we spent approximately $73 million, $527 million and $772 million, respectively, on these capital expenditures. 
+Depth and complexity of the well, drill site conditions and the number of wells to be drilled on a pad are the principal factors in determining the specifications of the rig selected for a particular job. 
+Our contract drilling operations depend on the availability of drill pipe, drill bits, replacement parts and other related rig equipment, fuel and other materials and qualified personnel. Some of these have been in short supply from time to time. 
+Drilling Contracts — Most of our drilling contracts are with established customers on a competitive bid or negotiated basis. Our bid for each job depends upon location, equipment to be used, estimated risks involved, estimated duration of the job, availability of drilling rigs and other factors particular to each proposed contract. Our drilling contracts are either on a well-to-well basis or a term basis. Well-to-well contracts are generally short-term in nature and cover the drilling of a single well or a series of wells. Term contracts are entered into for a specified period of time (frequently six months to three years) and provide for the use of the drilling rig to drill multiple wells. During 2016, our average number of days to drill a well (which includes moving to the drill site, rigging up and rigging down) was approximately 14 days. 
+Our drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of our drilling personnel and necessary maintenance expenses. Most drilling contracts are subject to termination by the customer on short notice and may or may not contain provisions for an early termination payment to us in the event that the contract is terminated by the customer. We believe that our drilling contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each drilling contract contains the actual terms setting forth our rights and obligations and those of the customer, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer requirements, applicable law or other factors. 
+Our drilling contracts provide for payment on a daywork basis. Under daywork contracts, we provide the drilling rig and crew to the customer. The customer provides the program for the drilling of the well. Our compensation is based on a contracted rate per day during the period the drilling rig is utilized. We often receive a lower rate when the drilling rig is moving or when drilling operations are interrupted or restricted by adverse weather conditions or other conditions beyond our control. Daywork contracts typically provide separately for mobilization of the drilling rig. All of the wells we drilled in 2016, 2015 and 2014 were under daywork contracts. 
+From time to time more than five years ago, we contracted to drill some wells to a certain depth under specified conditions for a fixed price per foot (on a footage basis) or for a fixed fee (on a turnkey basis). We generally assume greater operational and economic risk drilling on a turnkey basis than on a footage basis and greater operational and economic risk drilling on a footage basis than on a daywork basis. 
+5 
+Contract Drilling Activity — Information regarding our contract drilling activity for the last three years follows: 
+Year Ended December 31, 
+2016 
+2015 
+2014 
+Average rigs operating per day - U.S.(1) 
+63 
+120 
+203 
+Average rigs operating per day - Canada(1) 
+2 
+4 
+8 
+Number of rigs operated during the year 
+100 
+223 
+231 
+Number of wells drilled during the year 
+1,470 
+2,448 
+3,740 
+Number of operating days 
+23,596 
+45,142 
+77,000 
+(1) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Drilling Rigs and Related Equipment — We have made significant upgrades during the last several years to our drilling fleet to match the needs of our customers. While conventional wells remain a source of oil and natural gas, our customers have expanded the development of shale and other unconventional wells to help supply the long-term demand for oil and natural gas in North America. 
+To address our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays, we have expanded our areas of operation and improved the capability of our drilling fleet. We have delivered new APEX ® rigs to the market and have made performance and safety improvements to existing high capacity rigs. APEX ® rigs are electric rigs with advanced electronic drilling systems, 500 ton top drives, iron roughnecks, hydraulic catwalks, and other automated pipe handling equipment. APEX ® rigs that are pad capable are designed to efficiently drill multiple wells from a single pad, by “walking” between the wellbores without requiring time to lower the mast and lay down the drill pipe. As of December 31, 2016, our marketed land-based drilling fleet was comprised of the following: 
+Number of Rigs 
+Classification 
+United States 
+Canada 
+Total 
+Percent Pad Capable 
+APEX ® 1500 HP rigs 
+126 
+1 
+127 
+70 
+% 
+APEX ® 1000 HP rigs 
+26 
+— 
+26 
+88 
+% 
+APEX ® 1400 HP rigs 
+5 
+— 
+5 
+100 
+% 
+APEX ® 2000 HP rigs 
+3 
+— 
+3 
+100 
+% 
+Other electric rigs 
+35 
+6 
+41 
+20 
+% 
+Total 
+195 
+7 
+202 
+63 
+% 
+Average horsepower 
+1,428 
+1,171 
+1,419 
+The U.S. land rig industry has recently begun referring to certain high specification rigs as “super-spec” rigs. We consider a super-spec rig to be a 1,500 horsepower, AC powered rig that has a 750,000 pound hookload, has a 7,500 psi circulating system and is pad capable. We currently estimate there are approximately 375 super-spec rigs in the United States, which includes 65 of our APEX® rigs. 
+We perform repair and/or overhaul work to our drilling rig equipment at our yard facilities located in Texas, Oklahoma, Wyoming, Colorado, North Dakota, Pennsylvania and western Canada. 
+Pressure Pumping Operations 
+General — We provide pressure pumping services to oil and natural gas operators primarily in Texas (Southwest Region) and the Appalachian region (Northeast Region). Pressure pumping services consist of well stimulation services (such as hydraulic fracturing) and cementing services for the completion of new wells and remedial work on existing wells. Wells drilled in shale formations and other unconventional plays require well stimulation through hydraulic fracturing to allow the flow of oil and natural gas. This is accomplished by pumping fluids under pressure into the well bore to fracture the formation. Many wells in conventional plays also receive well stimulation services. The cementing process inserts material between the wall of the well bore and the casing to support and stabilize the casing. 
+Pressure Pumping Contracts – Our pressure pumping operations are conducted pursuant to a work order for a specific job or pursuant to a term contract. The term contracts are generally entered into for a specified period of time and may include minimum revenue, usage or stage requirements. We are compensated based on a combination of charges for equipment, personnel, materials, mobilization and other items. We believe that our pressure pumping contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each pressure pumping contract contains the actual terms setting forth our rights and obligations and those of the customer, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer requirements, applicable law or other factors. 
+6 
+Equipment — We have pressure pumping equipment used in providing hydraulic and nitrog en fracturing services as well as nitrogen, cementing and acid pumping services, wi th a total of approximately 1.1 million hydraulic horsepower (approximately 1.0 million of which was hydraulic fracturing horsepower) as of December 31, 2016. Pressure pumping equipment at December 31, 2016 included: 
+Hydraulic 
+Other 
+Fracturing 
+Pumping 
+Equipment 
+Equipment 
+Total 
+Southwest Region: 
+Number of units 
+284 
+30 
+314 
+Approximate hydraulic horsepower 
+662,000 
+30,890 
+692,890 
+Northeast Region: 
+Number of units 
+169 
+94 
+263 
+Approximate hydraulic horsepower 
+353,800 
+55,400 
+409,200 
+Combined: 
+Number of units 
+453 
+124 
+577 
+Approximate hydraulic horsepower 
+1,015,800 
+86,290 
+1,102,090 
+Our pressure pumping operations are supported by a fleet of other equipment including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+Materials – Our pressure pumping operations require the use of acids, chemicals, proppants, fluid supplies and other materials, any of which can be in short supply, including severe shortages, from time to time. We purchase these materials from various suppliers. These purchases are made in the spot market or pursuant to other arrangements that do not cover all of our required supply and sometimes require us to purchase the supply or pay liquidated damages if we do not purchase the material. Given the limited number of suppliers of certain of our materials, we may not always be able to make alternative arrangements if we are unable to reach an agreement with a supplier for delivery of any particular material, or should one of our suppliers fail to timely deliver our materials. 
+Customers 
+Our customer base includes major, independent and other oil and natural gas operators. With respect to our consolidated operating revenues in 2016, we received approximately 51% from our ten largest customers and approximately 33% from our five largest customers. During 2016, one customer accounted for approximately $124 million, or approximately 14%, of our consolidated operating revenues. These revenues were earned in both our contract drilling and pressure pumping businesses. The loss of, or reduction in business from, one or more of our larger customers could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+Competition 
+The contract drilling and pressure pumping businesses are highly competitive. Historically, available equipment used in these businesses has frequently exceeded demand, particularly in an industry downturn, such as the current market environment. The price for our services is a key competitive factor, in part because equipment used in our businesses can be moved from one area to another in response to market conditions. In addition to price, we believe availability, condition and technical specifications of equipment, quality of personnel, service quality and safety record are key factors in determining which contractor is awarded a job. We expect that the market for land drilling and pressure pumping services will continue to be highly competitive. 
+Government and Environmental Regulation 
+All of our operations and facilities are subject to numerous federal, state, foreign, regional and local laws, rules and regulations related to various aspects of our business, including: 
+• 
+drilling of oil and natural gas wells, 
+• 
+hydraulic fracturing, cementing, nitrogen and acidizing and related well servicing activities, 
+• 
+containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, 
+• 
+use of underground storage tanks and injection wells, and 
+• 
+our employees. 
+7 
+To date, applicable environmental laws and regulations in the places in which we operate have not required the expenditure of significant resources outside the ordinary course of business . We do not anticipate any material capital expenditures for environmental control facilities or extraordinary expenditures to comply with environmental rules and regulations in the foreseeable future . However, compliance costs under existing laws or under any new requirements could become material , and we could incur liability in any instance of noncompliance . 
+Our business is generally affected by political developments and by federal, state, foreign, regional and local laws, rules and regulations that relate to the oil and natural gas industry. The adoption of laws, rules and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase costs relating to drilling, completion and production, and otherwise have an adverse effect on our operations. Federal, state, foreign, regional and local environmental laws, rules and regulations currently apply to our operations and may become more stringent in the future. Any limitation, suspension or moratorium of the services we or others provide, whether or not short-term in nature, by a federal, state, foreign, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operations. 
+We believe we use operating and disposal practices that are standard in the industry. However, hydrocarbons and other materials may have been disposed of, or released in or under properties currently or formerly owned or operated by us or our predecessors, which may have resulted, or may result, in soil and groundwater contamination in certain locations. Any contamination found on, under or originating from the properties may be subject to remediation requirements under federal, state, foreign, regional and local laws, rules and regulations. In addition, some of these properties have been operated by third parties over whom we have no control of their treatment of hydrocarbon and other materials or the manner in which they may have disposed of or released such materials. We could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, it is possible we could be held responsible for oil and natural gas properties in which we own an interest but are not the operator. 
+Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that govern our operations. 
+In the United States, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, commonly known as CERCLA, and comparable state statutes impose strict liability on: 
+• 
+owners and operators of sites, including prior owners and operators who are no longer active at a site; and 
+• 
+persons who disposed of or arranged for the disposal of “hazardous substances” found at sites. 
+The Federal Resource Conservation and Recovery Act (“RCRA”), as amended, and comparable state statutes and implementing regulations govern the disposal of “hazardous wastes.” Although CERCLA currently excludes petroleum from the definition of “hazardous substances,” and RCRA also excludes certain classes of exploration and production wastes from regulation, such exemptions by Congress under both CERCLA and RCRA may be deleted, limited, or modified in the future. For example, in December 2016, the U.S. Environmental Protection Agency (“EPA”) and environmental groups entered into a consent decree to address the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. The consent decree requires the EPA to propose a rulemaking by March 2019 for revision of certain Subtitle D criteria regulations pertaining to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. If changes are made to the classification of exploration and production wastes under CERCLA and/or RCRA, we could be required to remove and remediate previously disposed of materials (including materials disposed of or released by prior owners or operators) from properties (including ground water contaminated with hydrocarbons) and to perform removal or remedial actions to prevent future contamination. 
+The Federal Water Pollution Control Act and the Oil Pollution Act of 1990, each as amended, and implementing regulations govern: 
+• 
+the prevention of discharges, including oil and produced water spills, into jurisdictional waters; and 
+• 
+liability for drainage into such waters. 
+The Oil Pollution Act imposes strict liability for a comprehensive and expansive list of damages from an oil spill into jurisdictional waters from facilities. Liability may be imposed for oil removal costs and a variety of public and private damages. Penalties may also be imposed for violation of federal safety, construction and operating regulations, and for failure to report a spill or to cooperate fully in a clean-up. 
+8 
+The Oil Poll ution Act also expands the authority and capability of the federal government to direct and manage oil spill clean-up and operations, and requires operators to prepare oil spill response plans in cases where it can reasonably be expected that substantial h arm will be done to the environment by discharges on or into navigable waters . Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party, such as us, to civil or criminal actions . Although the liability for owners and operators is the same under the Federal Water Pollution Act, the damages recoverable under the Oil Pollution Act are potentially much greater and can include natural resource damages . 
+The U.S. Occupational Safety and Health Administration (“OSHA”) promulgates and enforces laws and regulations governing the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. Also, OSHA has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety. 
+Our activities include the performance of hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability, such as shale and other unconventional formations. Due to concerns raised relating to potential impacts of hydraulic fracturing, including on groundwater quality and seismic activity, legislative and regulatory efforts at the federal level and in some state and local jurisdictions have been initiated to render permitting and compliance requirements more stringent for hydraulic fracturing or prohibit the activity altogether. Such efforts could have an adverse effect on oil and natural gas production activities, which in turn could have an adverse effect on the hydraulic fracturing services that we render for our exploration and production customers. See “Item 1A. Risk Factors – Potential Legislation and Regulation Covering Hydraulic Fracturing or Other Aspects of the Oil and Gas Industry Could Increase Our Costs and Limit or Delay Our Operations.” 
+In Canada, a variety of federal, provincial and municipal laws, rules and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and wastes and in connection with spills, releases and emissions of various substances to the environment. Other jurisdictions where we may conduct operations have similar environmental and regulatory regimes with which we would be required to comply. These laws, rules and regulations also require that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws, rules and regulations are subject to frequent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. 
+Our operations are also subject to federal, state, foreign, regional and local laws, rules and regulations for the control of air emissions, including those associated with the Federal Clean Air Act and the Canadian Environmental Protection Act. We and our customers may be required to make capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. For more information, please refer to our discussion under “Item 1A. Risk Factors – Environmental and Occupational Health and Safety Laws and Regulations, Including Violations Thereof, Could Materially Adversely Affect Our Operating Results.” 
+We are aware of the increasing focus of local, state, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. We are also aware of legislation proposed by U.S. lawmakers and the Canadian legislature to reduce GHG emissions, as well as GHG emissions regulations enacted by the EPA and the Canadian provinces of Alberta and British Columbia. We will continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary. Any direct and indirect costs of meeting these requirements may adversely affect our business, results of operations and financial condition. See “Item 1A. Risk Factors – Legislation and Regulation of Greenhouse Gases Could Adversely Affect Our Business.” 
+Risks and Insurance 
+Our operations are subject to many hazards inherent in the contract drilling and pressure pumping businesses, including inclement weather, blowouts, well fires, loss of well control, pollution, exposure and reservoir damage. These hazards could cause personal injury or death, work stoppage, and serious damage to equipment and other property, as well as significant environmental and reservoir damages. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages. 
+9 
+We have indemnification agreements with many of our customers, and we also maintain liability and other forms of insurance. In general, our drilling and pressure pumping contracts typically contain provisions requiring our customers to indemnify us for, among other things, reservoir and certain pollution damage. Our right to indemnification may, however, be unenforceable or limited due to neg ligent or willful acts or omissions by us, our subcontractors and/or suppliers. Our customers and other third parties may dispute, or be unable to meet, their indemnification obligations to us due to financial, legal or other reasons. Accordingly, we may be unable to transfer these risks to our customers and other third parties by contract or indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+We maintain insurance coverage of types and amounts that we believe to be customary in the industry, but we are not fully insured against all risks, either because insurance is not available or because of the high premium costs. The insurance coverage that we maintain includes insurance for fire, windstorm and other risks of physical loss to our drilling rigs, pressure pumping equipment and certain other assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. We cannot assure, however, that any insurance obtained by us will be adequate to cover any losses or liabilities, or that this insurance will continue to be available or available on terms that are acceptable to us. While we carry insurance to cover physical damage to, or loss of, a substantial portion of our drilling rigs and pressure pumping equipment and certain other assets, such insurance does not cover the full replacement cost of such drilling rigs, pressure pumping equipment or other assets. We have also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. For example, we generally maintain a $1.5 million per occurrence deductible on our workers’ compensation insurance coverage, a $1.0 million per occurrence deductible on our equipment insurance coverage, a $2.0 million per occurrence deductible on our general liability coverage and a $2.0 million per occurrence deductible on our automobile liability insurance coverage. We also self-insure a number of other risks, including loss of earnings and business interruption and cyber risks, and we do not carry a significant amount of insurance to cover risks of underground reservoir damage. 
+Our insurance will not in all situations provide sufficient funds to protect us from all liabilities that could result from our operations. Our coverage includes aggregate policy limits and exclusions. As a result, we retain the risk for any loss in excess of these limits or that is otherwise excluded from our coverage. There can be no assurance that insurance will be available to cover any or all of our operational risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive, or that our coverage will cover a specific loss. Further, we may experience difficulties in collecting from insurers or such insurers may deny all or a portion of our claims for insurance coverage. Incurring a liability for which we are not fully insured or indemnified could materially adversely affect our business, financial condition, cash flows and results of operations. 
+If a significant accident or other event occurs that is not fully covered by insurance or an enforceable and recoverable indemnity from a third party, it could have a material adverse effect on our business, financial condition, cash flows and results of operations. See “Item 1A. Risk Factors – Our Operations Are Subject to a Number of Operational Risks, Including Environmental and Weather Risks, Which Could Expose Us to Significant Losses and Damage Claims. We Are Not Fully Insured Against All of These Risks and Our Contractual Indemnity Provisions May Not Fully Protect Us.” 
+Employees 
+We had approximately 3,600 full-time employees as of February 7, 2017. The number of employees fluctuates depending on the current and expected demand for our services. We consider our employee relations to be satisfactory. None of our employees are represented by a union. 
+Seasonality 
+Seasonality has not significantly affected our overall operations. However, our drilling operations in Canada are subject to slow periods of activity during the annual spring thaw. Additionally, toward the end of some years, we experience slower activity in our pressure pumping operations in connection with the holidays and as customers’ capital expenditure budgets are depleted. Occasionally, our operations have been negatively impacted by severe weather conditions. 
+Raw Materials and Subcontractors 
+We use many suppliers of raw materials and services. Although these materials and services have historically been available, there is no assurance that such materials and services will continue to be available on favorable terms or at all. We also utilize numerous independent subcontractors from various trades. 
+10

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+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated herein by reference to the Proxy Statement.

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+Item 9A. Controls and Procedures. 
+Disclosure Controls and Procedures: 
+Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2016, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 
+Management’s Report on Internal Control over Financial Reporting: 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2016. 
+The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Report and which is incorporated by reference into Item 8 of this Report. 
+Changes in Internal Control over Financial Reporting: 
+There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

raw/filings/0000889900/2017/0001564590-18-002481/filing_metadata.csv

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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000889900,PTEN,PATTERSON UTI ENERGY INC,10-K,2018-02-20,2017-12-31,2018-02-20T21:42:20.000Z,0001564590-18-002481,pten-10k_20171231.htm,10-K,18283330,1,0,https://www.sec.gov/Archives/edgar/data/889900/000156459018002481/pten-10k_20171231.htm,https://www.sec.gov/Archives/edgar/data/889900/000156459018002481/,2017,2017,1

raw/filings/0000889900/2017/0001564590-18-002481/item1.txt

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+Item 1. Business 
+Available Information 
+This Report, along with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our internet website ( www.patenergy.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report or other filings that we make with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 
+Overview 
+We are a Houston, Texas-based oilfield services company that primarily owns and operates in the United States one of the largest fleets of land-based drilling rigs and a large fleet of pressure pumping equipment. We were formed in 1978 and reincorporated in 1993 as a Delaware corporation. 
+Our contract drilling business operates in the continental United States and western Canada, and we are pursuing contract drilling opportunities outside of North America. As of December 31, 2017, we had a drilling fleet that consisted of 295 marketed land-based drilling rigs. A drilling rig includes the structure, power source and machinery necessary to cause a drill bit to penetrate the earth to a depth desired by the customer. We also have a substantial inventory of drill pipe and drilling rig components that support our drilling operations. 
+We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Mid-Continent and Appalachian regions. Pressure pumping services consist primarily of well stimulation services (such as hydraulic fracturing) and cementing services for completion of new wells and remedial work on existing wells. As of December 31, 2017, we had approximately 1.6 million fracturing horsepower to provide these services. Our pressure pumping operations are supported by a fleet of other equipment, including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, downhole performance motors, directional surveying, measurement-while-drilling, and wireline steering tools. 
+We have other operations where we provide oilfield rental equipment in many of the major producing onshore oil and gas basins in the United States, and we also manufacture and sell pipe handling components and related technology to drilling contractors in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+Recent Developments 
+On January 19, 2018, we completed an offering of $525 million aggregate principal amount of our 3.95% Senior Notes due 2028 (the “2028 Notes”) initially guaranteed on a senior unsecured basis by certain of our subsidiaries. The net proceeds before offering expenses were approximately $521 million, of which we used $239 million to repay amounts outstanding under our revolving credit facility. We intend to use the remainder of the net proceeds for general corporate purposes. 
+On October 11, 2017, we acquired all of the issued and outstanding limited liability company interests of MS Directional. The aggregate consideration paid by us consisted of $69.8 million in cash and approximately 8.8 million shares of our common stock. Based on the closing price of our common stock on the closing date of the transaction, the total fair value of the consideration transferred to effect the acquisition of MS Directional was approximately $257 million. 
+3 
+On December 12, 2016, we entered into an Agreement and Plan of Merger (the “merger agreement”) with SSE. On April 20, 2017, pursuant to the m erger agreement, a subsidiary of ours was merged with and into SSE, with SSE continuing as the surviving entity and one of our wholly - owned subsidiaries. Pursuant to the terms of the merger agreement, we acquired all of the issued and outstanding shares o f common stock of SSE, in exchange for approximately 46.3 million shares of our common stock. Concurrent with the closing of the merger, we repaid all of the outstanding debt of SSE totaling $472 million. Based on the closing price of our common stock on April 20, 2017, the total fair value of the consideration transferred to effect the acquisition of SSE was approximately $1.5 billion. On April 20, 2017, following the SSE merger, SSE was merged with and into our newly-formed subsidiary named Seventy Sev en Energy LLC (“SSE LLC”), with SSE LLC continuing as the surviving entity and one of our wholly - owned subsidiaries. 
+Through the SSE merger, we acquired a fleet of 91 drilling rigs, 36 of which we consider to be APEX® rigs. Additionally, through the SSE merger, we acquired approximately 500,000 horsepower of modern, efficient fracturing equipment located in Oklahoma and Texas. The oilfield rentals business acquired through the SSE merger has a modern, well-maintained fleet of premium oilfield rental tools, and provides specialized services for land-based oil and natural gas drilling, completion and workover activities. 
+Operational data in the discussion and analysis in this Report includes the results of operations of the MS Directional business since October 11, 2017 and the results of operations of the SSE businesses since April 20, 2017. 
+Quarterly average oil prices and our quarterly average number of rigs operating in the United States for 2015, 2016 and 2017 are as follows: 
+1 st 
+2 nd 
+3 rd 
+4 th 
+Quarter 
+Quarter 
+Quarter 
+Quarter 
+2015: 
+Average oil price per Bbl (1) 
+$ 
+48.54 
+$ 
+57.85 
+$ 
+46.42 
+$ 
+41.96 
+Average rigs operating per day - U.S. (2) 
+165 
+122 
+105 
+88 
+2016: 
+Average oil price per Bbl (1) 
+$ 
+33.18 
+$ 
+45.41 
+$ 
+44.85 
+$ 
+49.15 
+Average rigs operating per day - U.S. (2) 
+71 
+55 
+60 
+66 
+2017: 
+Average oil price per Bbl (1) 
+$ 
+51.77 
+$ 
+48.24 
+$ 
+48.16 
+$ 
+55.37 
+Average rigs operating per day - U.S. (2) 
+81 
+145 
+159 
+159 
+(1) The average oil price represents the average monthly WTI spot price as reported by the United States Energy Information Administration. 
+(2) A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+The closing price of oil was as high as $107.95 per barrel in June 2014. Prices began to fall in the third quarter of 2014 and reached a twelve-year low of $26.19 in February 2016. Oil and natural gas prices have modestly recovered from the lows experienced in the first quarter of 2016. Oil prices averaged $55.37 per barrel in the fourth quarter of 2017. 
+Our rig count in the United States declined significantly during the industry downturn that began in late 2014, but has improved since the second quarter of 2016. Our average rig count in the United States was 159 rigs for both the third and fourth quarter of 2017, with the third quarter of 2017 being the first quarter with a full quarter contribution from the rigs acquired in the SSE merger. Our rig count in the United States at December 31, 2017 was 163 rigs. Term contracts have supported our operating rig count during the last three years. Based on contracts currently in place, we expect an average of 96 rigs operating under term contracts during the first quarter of 2018 and an average of 67 rigs operating under term contracts throughout 2018. 
+Activity levels in our pressure pumping business also improved during 2017, especially in the Permian Basin. We reactivated two frac spreads during the third quarter and one additional frac spread during the fourth quarter. With the addition of these three frac spreads, we exited 2017 with 23 active frac spreads or approximately 1.25 million active fracturing horsepower. 
+Industry Segments 
+Our revenues, operating income (loss) and identifiable assets are primarily attributable to two industry segments: 
+• 
+contract drilling services, and 
+• 
+pressure pumping services. 
+Our contract drilling services industry segment had operating losses in 2017, 2016 and 2015. Our pressure pumping services industry segment had operating income in 2017 and operating losses in 2016 and 2015. Our third industry segment, directional drilling services, is a new segment for us as a result of the MS Directional acquisition and accounted for approximately two percent of our 2017 consolidated revenues. 
+4 
+See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 14 of Notes to Consolidat ed Financial Statements included as a part of Items 7 and 8, respectively, of this Report for financial information pertaining to these industry segments. 
+Contract Drilling Operations 
+General — We market our contract drilling services to major, independent and other oil and natural gas operators. As of December 31, 2017, we had 295 marketed land-based drilling rigs based in the following regions: 
+• 
+71 in west Texas and southeastern New Mexico, 
+• 
+32 in north central and east Texas and northern Louisiana, 
+• 
+42 in the Rocky Mountain region (Colorado, Wyoming and North Dakota), 
+• 
+40 in south Texas, 
+• 
+55 in western Oklahoma, 
+• 
+48 in the Appalachian region (Pennsylvania, Ohio and West Virginia), and 
+• 
+7 in western Canada. 
+Our marketed drilling rigs have rated maximum depth capabilities ranging from approximately 13,200 feet to 25,000 feet. All of these drilling rigs are electric rigs. An electric rig converts the power from its diesel engines into electricity to power the rig. We also have a substantial inventory of drill pipe and drilling rig components, which may be used in the activation of additional drilling rigs or as upgrades or replacement parts for marketed rigs. 
+Drilling rigs are typically equipped with engines, drawworks, top drives, masts, pumps to circulate the drilling fluid, blowout preventers, drill pipe and other related equipment. Over time, components on a drilling rig are replaced or rebuilt. We spend significant funds each year as part of a program to modify, upgrade and maintain our drilling rigs. We have spent approximately $954 million during the last three years on capital expenditures to (1) build new land drilling rigs and (2) modify, upgrade and extend the lives of components of our drilling fleet. During fiscal years 2017, 2016 and 2015, we spent approximately $354 million, $73 million and $527 million, respectively, on these capital expenditures. 
+Depth and complexity of the well, drill site conditions and the number of wells to be drilled on a pad are the principal factors in determining the specifications of the rig selected for a particular job. 
+Our contract drilling operations depend on the availability of drill pipe, drill bits, replacement parts and other related rig equipment, fuel and other materials and qualified personnel. Some of these have been in short supply from time to time. 
+Drilling Contracts — Most of our drilling contracts are with established customers on a competitive bid or negotiated basis. Our bid for each job depends upon location, equipment to be used, estimated risks involved, estimated duration of the job, availability of drilling rigs and other factors particular to each proposed contract. Our drilling contracts are either on a well-to-well basis or a term basis. Well-to-well contracts are generally short-term in nature and cover the drilling of a single well or a series of wells. Term contracts are entered into for a specified period of time (frequently six months to two years) and provide for the use of the drilling rig to drill multiple wells. During 2017, our average number of days to drill a well (which includes moving to the drill site, rigging up and rigging down) was approximately 15 days. 
+Our drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of our drilling personnel and necessary maintenance expenses. Most drilling contracts are subject to termination by the customer on short notice and may or may not contain provisions for an early termination payment to us in the event that the contract is terminated by the customer. 
+Our drilling contracts provide for payment on a daywork basis. Under daywork contracts, we provide the drilling rig and crew to the customer. The customer provides the program for the drilling of the well. Our compensation is based on a contracted rate per day during the period the drilling rig is utilized. We often receive a lower rate when the drilling rig is moving or when drilling operations are interrupted or restricted by adverse weather conditions or other conditions beyond our control. Daywork contracts typically provide separately for mobilization of the drilling rig. All of the wells we drilled in 2017, 2016 and 2015 were under daywork contracts. 
+5 
+From time to time more than five y ears ago, we contracted to drill some wells to a certain depth under specified conditions for a fixed price per foot (on a footage basis) or for a fixed fee (on a turnkey basis). We generally assume greater operational and economic risk drilling on a turn key basis than on a footage basis and greater operational and economic risk drilling on a footage basis than on a daywork basis. 
+Contract Drilling Activity — Information regarding our contract drilling activity for the last three years follows: 
+Year Ended December 31, 
+2017 
+2016 
+2015 
+Average rigs operating per day - U.S.(1) 
+136 
+63 
+120 
+Average rigs operating per day - Canada(1) 
+2 
+2 
+4 
+Number of rigs operated during the year 
+179 
+100 
+223 
+Number of wells drilled during the year 
+3,160 
+1,470 
+2,448 
+Number of operating days 
+50,427 
+23,596 
+45,142 
+(1) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Drilling Rigs and Related Equipment — We have made significant upgrades during the last several years to our drilling fleet to match the needs of our customers. While conventional wells remain a source of oil and natural gas, our customers have expanded the development of shale and other unconventional wells to help supply the long-term demand for oil and natural gas in North America. 
+To address our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays, we have expanded our areas of operation and improved the capability of our drilling fleet. We have delivered new APEX ® rigs to the market and have made performance and safety improvements to existing high capacity rigs. APEX ® rigs are electric rigs with advanced electronic drilling systems, 500 ton top drives, iron roughnecks, hydraulic catwalks, and other automated pipe handling equipment. APEX ® rigs that are pad capable are designed to efficiently drill multiple wells from a single pad, by “walking” between the wellbores without requiring time to lower the mast and lay down the drill pipe. As of December 31, 2017, our marketed land-based drilling fleet was comprised of the following: 
+Number of Rigs 
+Classification 
+United States 
+Canada 
+Total 
+Percent Pad Capable 
+APEX ® 1500 HP rigs 
+164 
+1 
+165 
+86 
+% 
+APEX ® 1000 HP rigs 
+20 
+— 
+20 
+100 
+% 
+APEX ® 1200 HP rigs 
+4 
+— 
+4 
+100 
+% 
+APEX ® 1400 HP rigs 
+5 
+— 
+5 
+100 
+% 
+APEX ® 2000 HP rigs 
+5 
+— 
+5 
+60 
+% 
+Other electric rigs 
+90 
+6 
+96 
+49 
+% 
+Total 
+288 
+7 
+295 
+75 
+% 
+Average horsepower 
+1,394 
+1,171 
+1,389 
+The U.S. land rig industry has recently begun referring to certain high specification rigs as “super-spec” rigs. We consider a super-spec rig to be a 1,500 horsepower, AC powered rig that has a 750,000 pound hookload, has a 7,500 psi circulating system and is pad capable. We currently estimate there are approximately 550 super-spec rigs in the United States, which includes 130 of our APEX® rigs. 
+We perform repair and/or overhaul work to our drilling rig equipment at our yard facilities located in Texas, Oklahoma, Wyoming, Colorado, North Dakota, Pennsylvania and western Canada. 
+Pressure Pumping Operations 
+General — We provide pressure pumping services to oil and natural gas operators primarily in Texas (West and South Regions) and the Mid-Continent (Mid-Con Region) and Appalachian regions (Northeast Region). Pressure pumping services consist of well stimulation services (such as hydraulic fracturing) and cementing services for the completion of new wells and remedial work on existing wells. Wells drilled in shale formations and other unconventional plays require well stimulation through hydraulic fracturing to allow the flow of oil and natural gas. This is accomplished by pumping fluids under pressure into the well bore to fracture the formation. Many wells in conventional plays also receive well stimulation services. The cementing process inserts material between the wall of the well bore and the casing to support and stabilize the casing. 
+6 
+Pressure Pumping Contracts – Our pressure pumping operations are conducted pursuant to a work order for a specific job or pursuant to a term contract. The term contracts are generally entered into for a specified period of time and may include minimum rev enue, usage or stage requirements. We are compensated based on a combination of charges for equipment, personnel, materials, mobilization and other items. 
+Equipment — We have pressure pumping equipment used in providing hydraulic fracturing services as well as nitrogen, cementing and acid pumping services, with a total of approximately 1.6 million horsepower as of December 31, 2017. Pressure pumping equipment at December 31, 2017 included: 
+Other 
+Fracturing 
+Pumping 
+Equipment 
+Equipment 
+Total 
+West Texas Region 
+Number of units 
+235 
+30 
+265 
+Approximate horsepower 
+537,950 
+30,890 
+568,840 
+South Texas Region 
+Number of units 
+147 
+— 
+147 
+Approximate horsepower 
+361,250 
+— 
+361,250 
+Mid-Con Region 
+Number of units 
+134 
+— 
+134 
+Approximate horsepower 
+305,500 
+— 
+305,500 
+Northeast Region 
+Number of units 
+169 
+95 
+264 
+Approximate horsepower 
+353,800 
+55,400 
+409,200 
+Combined: 
+Number of units 
+685 
+125 
+810 
+Approximate horsepower 
+1,558,500 
+86,290 
+1,644,790 
+Our pressure pumping operations are supported by a fleet of other equipment including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+Materials – Our pressure pumping operations require the use of acids, chemicals, proppants, fluid supplies and other materials, any of which can be in short supply, including severe shortages, from time to time. We purchase these materials from various suppliers. These purchases are made in the spot market or pursuant to other arrangements that do not cover all of our required supply and sometimes require us to purchase the supply or pay liquidated damages if we do not purchase the material. Given the limited number of suppliers of certain of our materials, we may not always be able to make alternative arrangements if we are unable to reach an agreement with a supplier for delivery of any particular material, or should one of our suppliers fail to timely deliver our materials. 
+Directional Drilling Operations 
+General – We generally utilize our own proprietary downhole motors and equipment to provide a comprehensive suite of directional drilling services, including directional drilling, downhole performance motors, directional surveying, measurement while drilling (“MWD”), and wireline steering tools, in most major onshore oil and natural gas basins in the United States. We generally design, manufacture and maintain our own fleet of downhole drilling motors and MWD equipment. We occasionally rent motors and equipment from third parties during periods in which we experience shortages from our vendors, which can occur during periods of increased industry activity. As a complement to our core directional drilling services, we provide downhole survey services and rent our proprietary drilling motors to both oil and natural gas operators and other oilfield service companies. Our customers primarily consist of major integrated energy companies and large North American independent oil and natural gas operators. We believe our customers use our services because of the quality of our specialized, technology-driven equipment and our well-trained and experienced workforce, which enable us to provide our customers with high-quality, reliable and safe directional drilling services. We utilize our fleet of directional drilling motors, MWD equipment and survey equipment to provide: (1) directional drilling services, (2) third-party motor rentals and (3) downhole survey services. 
+7 
+Directional Drilling Services – We provide our directional drilling services on a day-rate basis, typically under master service agreements. Revenue from directional drilling services is recognized as work progresses based on the numbe r of days of work completed. Our day rates and other charges generally vary by location and depend on the equipment and personnel required for the job and market conditions in the region in which the services are performed. In addition to rates that are charged during periods of active directional drilling, a stand-by rate is typically agreed upon in advance and charged on a daily basis during periods when drilling is temporarily suspended while other on-site activity is conducted at the direction of the operator or another service provider. 
+Third-Party Motor Rental – We rent our drilling motors on an hourly- or day-rate basis to complement our directional drilling services and optimize the utilization of our asset base. Our third-party motor rental revenue is recognized as work progresses based on the number of days or hours our motors are used or are on location. 
+Downhole Survey Services – We provide our downhole survey services on a day-rate, hourly-rate or completed-job basis. Revenue for our downhole survey services is recognized upon the completion of each day’s work. Our downhole survey services are typically non-contractual. We normally provide a quote to our customers in advance and then issue an invoice for the downhole survey services provided based on a completed field ticket. 
+Equipment – We generally design, manufacture, maintain and inspect our own equipment. We occasionally rent motors and equipment from third parties during periods in which we experience shortages from our vendors, which can occur during periods of increased industry activity. We have developed proprietary equipment for our drilling motors, mud pulse and electromagnetic data transfer MWD equipment and survey tools. We believe that our vertical integration strategy allows us to deliver better operational performance and higher equipment reliability to our customers. Vertical integration also allows us to build our tools more efficiently and at a lower cost than if purchased from third parties. In addition, we have th e ability to upgrade our tools in response to market conditions or our customers’ job requirements, which allows us to minimize the costs and delays associated with sending equipment to original manufacturers. Our internal maintenance capability also affords us enhanced control over our supply chain and increases the effective utilization of our assets. As of December 31, 2017, we had a comprehensive fleet of over 1,600 motors that serve both internal needs and external motor rental requirements. In addition to our motor fleet, we had 112 MWD systems as well as downhole surveying equipment to provide accurate wellbore surveys. 
+Oilfield Rentals 
+Our oilfield rentals business has a modern, well-maintained fleet of premium oilfield rental tools, and provides specialized services for land-based oil and natural gas drilling, completion and workover activities. We offer an extensive line of rental tools, including a full line of tubular products specifically designed for horizontal drilling and completion, with high-torque, premium-connection drill pipe, drill collars and tubing. Additionally, we offer surface rental equipment including blowout preventers, frac tanks, mud tanks and environmental containment that encompass all phases of the hydrocarbon extraction and production process. Our air drilling equipment and services enable extraction in select basins where certain segments of formations preclude the use of drilling fluid, permitting operators to drill through problematic zones without the risk of fluid absorption and damage to the wellbore. We also provide frac-support services, including delivery of on-site frac water through a water transfer operation using innovative lay-flat pipe, and monitoring and controlling of production returns. We offer oilfield rental services in many of the major producing onshore oil and gas basins in the United States. We price our rentals and services based on the type of equipment being rented and the services being performed. Substantially all rental revenue we earn is based upon a charge for the actual period of time the rental is provided to our customer on a market-based, fixed per-day or per-hour fee. 
+Contracts 
+We believe that our contract drilling, pressure pumping, directional drilling and oilfield rentals contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each contract contains the actual terms setting forth our rights and obligations and those of the customer, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer requirements, applicable law or other factors. 
+Customers 
+Our customer base includes major, independent and other oil and natural gas operators. With respect to our consolidated operating revenues in 2017, we received approximately 43% from our ten largest customers and approximately 29% from our five largest customers. During 2017, no customer accounted for more than 10% of our consolidated operating revenues. The loss of, or reduction in business from, one or more of our larger customers could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+8 
+Backlog 
+Our contract drilling backlog as of December 31, 2017 and 2016 was $544 million and $417 million, respectively. Approximately 19% of the total contract drilling backlog at December 31, 2017 is reasonably expected to remain after 2018. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as a part of Item 7 of this Report for information pertaining to backlog. 
+Competition 
+The businesses in which we operate are highly competitive. Historically, available equipment used in these businesses has frequently exceeded demand, particularly in an industry downturn, such as the current market environment. The price for our services is a key competitive factor, in part because equipment used in our businesses can be moved from one area to another in response to market conditions. In addition to price, we believe availability, condition and technical specifications of equipment, quality of personnel, service quality and safety record are key factors in determining which contractor is awarded a job. We expect that the market for our services will continue to be highly competitive. 
+Government and Environmental Regulation 
+All of our operations and facilities are subject to numerous federal, state, foreign, regional and local laws, rules and regulations related to various aspects of our business, including: 
+• 
+drilling of oil and natural gas wells, 
+• 
+hydraulic fracturing, cementing, nitrogen and acidizing and related well servicing activities, 
+• 
+directional drilling services, third-party motor rentals and downhole survey services, 
+• 
+containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, 
+• 
+use of underground storage tanks and injection wells, and 
+• 
+our employees. 
+To date, applicable environmental laws and regulations in the places in which we operate have not required the expenditure of significant resources outside the ordinary course of business. We do not anticipate any material capital expenditures for environmental control facilities or extraordinary expenditures to comply with environmental rules and regulations in the foreseeable future. However, compliance costs under existing laws or under any new requirements could become material, and we could incur liability in any instance of noncompliance. 
+Our business is generally affected by political developments and by federal, state, foreign, regional and local laws, rules and regulations that relate to the oil and natural gas industry. The adoption of laws, rules and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase costs relating to drilling, completion and production, and otherwise have an adverse effect on our operations. Federal, state, foreign, regional and local environmental laws, rules and regulations currently apply to our operations and may become more stringent in the future. Any limitation, suspension or moratorium of the services we or others provide, whether or not short-term in nature, by a federal, state, foreign, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operations. 
+We believe we use operating and disposal practices that are standard in the industry. However, hydrocarbons and other materials may have been disposed of, or released in or under properties currently or formerly owned or operated by us or our predecessors, which may have resulted, or may result, in soil and groundwater contamination in certain locations. Any contamination found on, under or originating from the properties may be subject to remediation requirements under federal, state, foreign, regional and local laws, rules and regulations. In addition, some of these properties have been operated by third parties over whom we have no control of their treatment of hydrocarbon and other materials or the manner in which they may have disposed of or released such materials. We could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, it is possible we could be held responsible for oil and natural gas properties in which we own an interest but are not the operator. 
+Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that govern our operations. 
+In the United States, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, commonly known as CERCLA, and comparable state statutes impose strict liability on: 
+• 
+owners and operators of sites, including prior owners and operators who are no longer active at a site; and 
+• 
+persons who disposed of or arranged for the disposal of “hazardous substances” found at sites. 
+9 
+The Federal Resource Conservation and Recovery Act (“RCRA”), as amended, and comparable state statutes and implementing regulations govern the disposal of “hazardous wastes.” Although CERCLA currently excludes petroleum from the definition of “hazardous substances,” and RCRA also excludes certain classes of exploration and production wastes from regulation, such exemptions by Congress under both CERCLA and RCRA may be deleted, limited, or modified in the future. For example, in December 2016, the U.S. Environmental Protection Agency (“EPA”) and environmental groups entered into a consent decree to address the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. The consent decree requires the EPA to propose a rulemaking by March 2019 for revision of certain Subtitle D crite ria regulations pertaining to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. If changes are made to the classification of exploration and production wastes under CERCLA and/or RCRA, we could be required to remove and remediate previously disposed of materials (including materials disposed of or released by prior owners or operators) from properties (including ground water contaminated with hydrocarbons) and to perform removal or remedial actions to prevent future contamination. 
+The Federal Water Pollution Control Act and the Oil Pollution Act of 1990, each as amended, and implementing regulations govern: 
+• 
+the prevention of discharges, including oil and produced water spills, into jurisdictional waters; and 
+• 
+liability for drainage into such waters. 
+The Oil Pollution Act imposes strict liability for a comprehensive and expansive list of damages from an oil spill into jurisdictional waters from facilities. Liability may be imposed for oil removal costs and a variety of public and private damages. Penalties may also be imposed for violation of federal safety, construction and operating regulations, and for failure to report a spill or to cooperate fully in a clean-up. 
+The Oil Pollution Act also expands the authority and capability of the federal government to direct and manage oil spill clean-up and operations, and requires operators to prepare oil spill response plans in cases where it can reasonably be expected that substantial harm will be done to the environment by discharges on or into navigable waters. Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party, such as us, to civil or criminal actions. Although the liability for owners and operators is the same under the Federal Water Pollution Act, the damages recoverable under the Oil Pollution Act are potentially much greater and can include natural resource damages. 
+The U.S. Occupational Safety and Health Administration (“OSHA”) promulgates and enforces laws and regulations governing the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. Also, OSHA has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety. 
+Our activities include the performance of hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability, such as shale and other unconventional formations. Due to concerns raised relating to potential impacts of hydraulic fracturing, including on groundwater quality and seismic activity, legislative and regulatory efforts at the federal level and in some state and local jurisdictions have been initiated to render permitting and compliance requirements more stringent for hydraulic fracturing or prohibit the activity altogether. Such efforts could have an adverse effect on oil and natural gas production activities, which in turn could have an adverse effect on the hydraulic fracturing services that we render for our exploration and production customers. See “Item 1A. Risk Factors – Potential Legislation and Regulation Covering Hydraulic Fracturing or Other Aspects of the Oil and Gas Industry Could Increase Our Costs and Limit or Delay Our Operations.” 
+In Canada, a variety of federal, provincial and municipal laws, rules and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and wastes and in connection with spills, releases and emissions of various substances to the environment. Other jurisdictions where we may conduct operations have similar environmental and regulatory regimes with which we would be required to comply. These laws, rules and regulations also require that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws, rules and regulations are subject to frequent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. 
+10 
+Our operations are also subject to federal, state, foreign, regional and local laws, rules and regulations for the control of air emissions, including those associated with the Federal Clean Air Act and the Canadian Environmental Protection Act. We and our customers may be required to make capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. For more information, please refer to our discussion under “Item 1A. Risk Factors – Environmental and Occupatio nal Health and Safety Laws and Regulations, Including Violations Thereof, Could Materially Adversely Affect Our Operating Results.” 
+We are aware of the increasing focus of local, state, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. We are also aware of legislation proposed by U.S. lawmakers and the Canadian legislature to reduce GHG emissions, as well as GHG emissions regulations enacted by the EPA and the Canadian provinces of Alberta and British Columbia. We will continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary. Any direct and indirect costs of meeting these requirements may adversely affect our business, results of operations and financial condition. See “Item 1A. Risk Factors – Legislation and Regulation of Greenhouse Gases Could Adversely Affect Our Business.” 
+Risks and Insurance 
+Our operations are subject to many hazards inherent in the businesses in which we operate, including inclement weather, blowouts, well fires, loss of well control, pollution, exposure and reservoir damage. These hazards could cause personal injury or death, work stoppage, and serious damage to equipment and other property, as well as significant environmental and reservoir damages. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages. 
+We have indemnification agreements with many of our customers, and we also maintain liability and other forms of insurance. In general, our contracts typically contain provisions requiring our customers to indemnify us for, among other things, reservoir and certain pollution damage. Our right to indemnification may, however, be unenforceable or limited due to negligent or willful acts or omissions by us, our subcontractors and/or suppliers. Our customers and other third parties may dispute, or be unable to meet, their indemnification obligations to us due to financial, legal or other reasons. Accordingly, we may be unable to transfer these risks to our customers and other third parties by contract or indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+We maintain insurance coverage of types and amounts that we believe to be customary in the industry, but we are not fully insured against all risks, either because insurance is not available or because of the high premium costs. The insurance coverage that we maintain includes insurance for fire, windstorm and other risks of physical loss to our equipment and certain other assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. We cannot assure, however, that any insurance obtained by us will be adequate to cover any losses or liabilities, or that this insurance will continue to be available or available on terms that are acceptable to us. While we carry insurance to cover physical damage to, or loss of, a substantial portion of our equipment and certain other assets, such insurance does not cover the full replacement cost of such equipment or other assets. We have also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. For example, we generally maintain a $1.5 million per occurrence deductible on our workers’ compensation insurance coverage, a $1.0 million per occurrence deductible on our equipment insurance coverage, a $2.0 million per occurrence deductible on our general liability coverage and a $2.0 million per occurrence deductible on our automobile liability insurance coverage. We also self-insure a number of other risks, including loss of earnings and business interruption and cybersecurity risks, and we do not carry a significant amount of insurance to cover risks of underground reservoir damage. 
+Our insurance will not in all situations provide sufficient funds to protect us from all liabilities that could result from our operations. Our coverage includes aggregate policy limits and exclusions. As a result, we retain the risk for any loss in excess of these limits or that is otherwise excluded from our coverage. There can be no assurance that insurance will be available to cover any or all of our operational risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive, or that our coverage will cover a specific loss. Further, we may experience difficulties in collecting from insurers or such insurers may deny all or a portion of our claims for insurance coverage. Incurring a liability for which we are not fully insured or indemnified could materially adversely affect our business, financial condition, cash flows and results of operations. 
+If a significant accident or other event occurs that is not fully covered by insurance or an enforceable and recoverable indemnity from a third party, it could have a material adverse effect on our business, financial condition, cash flows and results of operations. See “Item 1A. Risk Factors – Our Operations Are Subject to a Number of Operational Risks, Including Environmental and Weather Risks, Which Could Expose Us to Significant Losses and Damage Claims. We Are Not Fully Insured Against All of These Risks and Our Contractual Indemnity Provisions May Not Fully Protect Us.” 
+11 
+Employees 
+We had approximately 8,000 full-time employees as of February 16, 2018. The number of employees fluctuates depending on the current and expected demand for our services. We consider our employee relations to be satisfactory. None of our employees are represented by a union. 
+Seasonality 
+Seasonality has not significantly affected our overall operations. However, our drilling operations in Canada are subject to slow periods of activity during the annual spring thaw. Additionally, toward the end of some years, we experience slower activity in our pressure pumping operations in connection with the holidays and as customers’ capital expenditure budgets are depleted. Occasionally, our operations have been negatively impacted by severe weather conditions. 
+Raw Materials and Subcontractors 
+We use many suppliers of raw materials and services. Although these materials and services have historically been available, there is no assurance that such materials and services will continue to be available on favorable terms or at all. We also utilize numerous independent subcontractors from various trades.

raw/filings/0000889900/2017/0001564590-18-002481/item13.txt

@@ -0,0 +1,2 @@
+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated herein by reference to the Proxy Statement.

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+Item 9A. Controls and Procedures. 
+Disclosure Controls and Procedures: 
+Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2017, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 
+Management’s Report on Internal Control over Financial Reporting: 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2017. 
+Our wholly-owned subsidiary, MS Directional, LLC, was excluded from our evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017. We acquired MS Directional, LLC on October 11, 2017. This subsidiary was excluded from the scope of our review due to the fact that the acquisition closed in the fourth quarter of 2017, at which time we began integrating the acquired business into our existing internal controls over financial reporting. The acquired business represented approximately two percent of our consolidated revenues for the year ended December 31, 2017 and approximately five percent of our consolidated total assets as of December 31, 2017. 
+The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Report and which is incorporated by reference into Item 8 of this Report. 
+Changes in Internal Control over Financial Reporting: 
+There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

raw/filings/0000889900/2018/0001564590-19-002863/filing_metadata.csv

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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000889900,PTEN,PATTERSON UTI ENERGY INC,10-K,2019-02-13,2018-12-31,2019-02-13T22:12:39.000Z,0001564590-19-002863,pten-10k_20181231.htm,10-K,18216189,1,0,https://www.sec.gov/Archives/edgar/data/889900/000156459019002863/pten-10k_20181231.htm,https://www.sec.gov/Archives/edgar/data/889900/000156459019002863/,2018,2018,1

raw/filings/0000889900/2018/0001564590-19-002863/item1.txt

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+Item 1. Business 
+Available Information 
+This Report, along with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our internet website ( www.patenergy.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report or other filings that we make with the SEC. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 
+Overview 
+We are a Houston, Texas-based oilfield services company that primarily owns and operates in the United States one of the largest fleets of land-based drilling rigs and a large fleet of pressure pumping equipment. We were formed in 1978 and reincorporated in 1993 as a Delaware corporation. 
+Our contract drilling business operates in the continental United States and western Canada , and we are pursuing contract drilling opportunities outside of North America . As of December 31, 2018, we had a drilling fleet that consisted of 252 marketed land-based drilling rigs. A drilling rig includes the structure, power source and machinery necessary to cause a drill bit to penetrate the earth to a depth desired by the customer. We also have a substantial inventory of drill pipe and drilling rig components that support our drilling operations. 
+We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Mid-Continent and Appalachian regions. Substantially all of the revenue in the pressure pumping segment is from well stimulation services (such as hydraulic fracturing) for completion of new wells and remedial work on existing wells. Well stimulation involves processes inside a well designed to enhance the flow of oil, natural gas, or other desired substances from the well. We also provide cementing services through the pressure pumping segment. Cementing is the process of inserting material between the wall of the well bore and the casing to support and stabilize the casing. As of December 31, 2018, we had approximately 1.6 million fracturing horsepower to provide these services. Our pressure pumping operations are supported by a fleet of other equipment, including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, downhole performance motors, motor rentals, directional surveying, measurement-while-drilling, wireline steering tools and services that improve the accuracy of horizontal wellbore placement. 
+We have other operations through which we provide oilfield rental tools in select markets in the United States. We also manufacture and sell pipe handling components and related technology to drilling contractors, and provide electrical controls and automation to the energy, marine and mining industries, in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+Recent Developments 
+On October 25, 2018, we acquired all of the issued and outstanding shares of Current Power Solutions, Inc. (“Current Power”). Current Power is a provider of electrical controls and automation to the energy, marine and mining industries. 
+On March 27, 2018, we entered into an amended and restated credit agreement, which is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $150 million and a swing line facility that, at any time outstanding, is limited to $20 million. 
+On February 20, 2018, we acquired the business of Superior QC, LLC (“Superior QC”), including its assets and intellectual property. Superior QC is a provider of software and services used to improve the statistical accuracy of horizontal wellbore placement. Superior QC’s measurement-while-drilling (MWD) Survey FDIR (fault detection, isolation and recovery) service is a data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of a well. 
+On January 19, 2018, we completed an offering of $525 million aggregate principal amount of our 3.95% Senior Notes due 2028 (the “2028 Notes”) . The net proceeds before offering expenses were approximately $521 million, of which we used $239 million to repay amounts outstanding under our revolving credit facility. 
+3 
+On October 11, 2017, we acquired all of the issued and outstanding limited liability company interests of M S Directional , LLC (f/k/a Multi-Shot, LLC) (“MS Directional”) . MS Directional is a leading directional drilling services company in the Unit ed States, with operations in most major producing onshore oil and gas basins. MS Directional provides a comprehensive suite of directional drilling services, including directional drilling, downhole performance motors, motor rentals, directional surveyin g, measurement - while - drilling, and wireline steering tools. 
+On April 20, 2017, pursuant to an Agreement and Plan of Merger (the “merger agreement”) with Seventy Seven Energy Inc. (“SSE”), a subsidiary of ours was merged with and into SSE (the “SSE merger”), with SSE continuing as the surviving entity and one of our wholly-owned subsidiaries. On April 20, 2017, following the SSE merger, SSE was merged with and into our newly-formed subsidiary named Seventy Seven Energy LLC (“SSE LLC”), with SSE LLC continuing as the surviving entity and one of our wholly-owned subsidiaries. Through the SSE merger, we acquired a fleet of 91 drilling rigs, 36 of which we consider to be APEX® rigs. Additionally, through the SSE merger, we acquired approximately 500,000 horsepower of fracturing equipment located in Oklahoma and Texas. The oilfield rentals business acquired through the SSE merger has a fleet of premium oilfield rental tools and provides specialized services for land-based oil and natural gas drilling, completion and workover activities. 
+Operational data in the discussion and analysis in this Report includes the results of operations of Current Power since October 25, 2018, the results of operations of Superior QC since February 20, 2018, the results of operations of the MS Directional business since October 11, 2017 and the results of operations of the SSE businesses since April 20, 2017. 
+Quarterly average oil prices and our quarterly average number of rigs operating in the United States for 2016, 2017 and 2018 are as follows: 
+1 st 
+2 nd 
+3 rd 
+4 th 
+Quarter 
+Quarter 
+Quarter 
+Quarter 
+2016: 
+Average oil price per Bbl (1) 
+$ 
+33.18 
+$ 
+45.41 
+$ 
+44.85 
+$ 
+49.15 
+Average rigs operating per day - U.S. (2) 
+71 
+55 
+60 
+66 
+2017: 
+Average oil price per Bbl (1) 
+$ 
+51.77 
+$ 
+48.24 
+$ 
+48.16 
+$ 
+55.37 
+Average rigs operating per day - U.S. (2) 
+81 
+145 
+159 
+159 
+2018: 
+Average oil price per Bbl (1) 
+$ 
+62.88 
+$ 
+68.04 
+$ 
+69.76 
+$ 
+59.08 
+Average rigs operating per day - U.S. (2) 
+166 
+175 
+177 
+182 
+(1) 
+The average oil price represents the average monthly WTI spot price as reported by the United States Energy Information Administration. 
+(2) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+The closing price of oil was as high as $107.95 per barrel in June 2014. Prices began to fall in the third quarter of 2014 and reached a twelve-year low of $26.19 in February 2016. Oil prices have recovered from the lows experienced in the first quarter of 2016. Oil prices reached a high of $77.41 in June 2018. Oil prices remain volatile, as the closing price of oil reached a fourth quarter 2018 high of $76.40 per barrel on October 3, 2018, before declining by 42% over the course of three months to reach a low of $44.48 per barrel in late December 2018. Oil prices averaged $59.08 per barrel in the fourth quarter of 2018. 
+Our rig count declined significantly during the industry downturn that began in late 2014 but has improved since the second quarter of 2016. Our average rig count for the fourth quarter of 2018 was 183 rigs, which included 182 rigs in the United States and one rig in Canada. This was an increase from our average rig count for the third quarter of 2018 of 178 rigs, which included 177 rigs in the United States and one rig in Canada. Our rig count in the United States at December 31, 2018 of 183 rigs was greater than the rig count of 163 rigs at December 31, 2017. Term contracts have supported our operating rig count during the last three years. Based on contracts currently in place, we expect an average of 122 rigs operating under term contracts during the first quarter of 2019 and an average of 78 rigs operating under term contracts throughout 2019. 
+With the weakness in crude oil prices late in the fourth quarter, operators have been delaying starting new completion projects in the first quarter, and pricing remains extremely competitive. As such, we have made the decision to idle spreads rather than work at unreasonably low prices. We ended the fourth quarter with 20 active spreads and idled three spreads early in the first quarter of 2019 . 
+Industry Segments 
+Our revenues, operating income (loss) and identifiable assets are primarily attributable to three industry segments: 
+• 
+contract drilling services, 
+• 
+pressure pumping services, and 
+4 
+• 
+directional drilling services . 
+Our contract drilling services industry segment had operating losses in 2018, 2017 and 2016. Our pressure pumping services industry segment had operating losses in 2018 and 2016 and operating income in 2017. Our third industry segment, directional drilling services, was a new segment for us as a result of the MS Directional acquisition in 2017 and accounted for approximately six percent and two percent of our 2018 and 2017 consolidated revenues, respectively. Our directional drilling segment had operating losses in 2018 and 2017. 
+See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 16 of Notes to Consolidated Financial Statements included as a part of Items 7 and 8, respectively, of this Report for financial information pertaining to these industry segments. 
+Contract Drilling Operations 
+General — We market our contract drilling services to major, independent and other oil and natural gas operators. As of December 31, 2018, we had 252 marketed land-based drilling rigs based in the following regions: 
+• 
+74 in west Texas and southeastern New Mexico, 
+• 
+24 in north central and east Texas and northern Louisiana, 
+• 
+37 in the Rocky Mountain region (Colorado, Wyoming and North Dakota), 
+• 
+31 in south Texas, 
+• 
+38 in western Oklahoma, 
+• 
+42 in the Appalachian region (Pennsylvania, Ohio and West Virginia), and 
+• 
+6 in western Canada. 
+Our marketed drilling rigs have rated maximum depth capabilities ranging from approximately 13,200 feet to 25,000 feet. All of these drilling rigs are electric rigs. An electric rig converts the power from its diesel engines into electricity to power the rig. We also have a substantial inventory of drill pipe and drilling rig components, which may be used in the activation of additional drilling rigs, or as upgrades or replacement parts for marketed rigs. 
+Drilling rigs are typically equipped with engines, drawworks, top drives, masts, pumps to circulate the drilling fluid, blowout preventers, drill pipe and other related equipment. Over time, components on a drilling rig are replaced or rebuilt. We spend significant funds each year as part of a program to modify, upgrade and maintain our drilling rigs. We have spent approximately $822 million during the last three years on capital expenditures to (1) build new land drilling rigs and (2) modify, upgrade and extend the lives of components of our drilling fleet. During fiscal years 2018, 2017 and 2016, we spent approximately $395 million, $354 million and $72.5 million, respectively, on these capital expenditures. 
+Depth and complexity of the well, drill site conditions and the number of wells to be drilled on a pad are the principal factors in determining the specifications of the rig selected for a particular job. 
+Our contract drilling operations depend on the availability of drill pipe, drill bits, replacement parts and other related rig equipment, fuel and other materials and qualified personnel. Some of these have been in short supply from time to time. 
+Drilling Contracts — Most of our drilling contracts are with established customers on a competitive bid or negotiated basis. Our bid for each job depends upon location, equipment to be used, estimated risks involved, estimated duration of the job, availability of drilling rigs and other factors particular to each proposed contract. Our drilling contracts are either on a well-to-well basis or a term basis. Well-to-well contracts are generally short-term in nature and cover the drilling of a single well or a series of wells. Term contracts are entered into for a specified period of time (frequently six months to four years) or for a specified number of wells. During 2018, our average number of days to drill a well (which includes moving to the drill site, rigging up and rigging down) was approximately 21 days. 
+Our drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of our drilling personnel and necessary maintenance expenses. Most drilling contracts are subject to termination by the customer on short notice and may or may not contain provisions for an early termination payment to us in the event that the contract is terminated by the customer. 
+5 
+Our drilling contracts provide for payment on a daywork basis , pursuant to which we provide the drilling rig and crew to the customer. The customer provides the program for the drilling of the well. Our compensation is based on a contracted rate per day during the period the drilling rig is utilized. We often receive a lower rate wh en the drilling rig is moving or when drilling operations are interrupted or restricted by adverse weather conditions or other conditions beyond our control. Daywork contracts typically provide separately for mobilization of the drilling rig. 
+Contract Drilling Activity — Information regarding our contract drilling activity for the last three years follows: 
+Year Ended December 31, 
+2018 
+2017 
+2016 
+Average rigs operating per day - U.S. (1) 
+175 
+136 
+63 
+Average rigs operating per day - Canada (1) 
+1 
+2 
+2 
+Number of rigs operated during the year 
+193 
+179 
+100 
+Number of wells drilled during the year 
+3,088 
+2,553 
+1,164 
+Number of operating days 
+64,479 
+50,427 
+23,596 
+(1) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Drilling Rigs and Related Equipment — We have made significant upgrades during the last several years to our drilling fleet to match the needs of our customers. While conventional wells remain a source of oil and natural gas, our customers have expanded the development of shale and other unconventional wells to help supply the long-term demand for oil and natural gas in North America. 
+To address our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays, we have expanded our areas of operation and improved the capability of our drilling fleet. We have delivered new APEX ® rigs to the market and have made performance and safety improvements to existing high capacity rigs. APEX ® rigs are electric rigs with advanced electronic drilling systems, 500-ton top drives, iron roughnecks, hydraulic catwalks, and other automated pipe handling equipment. APEX ® rigs that are pad-capable are designed to efficiently drill multiple wells from a single pad, by “walking” between the wellbores without requiring time to lower the mast and lay down the drill pipe. As of December 31, 2018, our marketed land-based drilling fleet was comprised of the following: 
+Number of Rigs 
+Classification 
+United States 
+Canada 
+Total 
+Percent Pad-Capable 
+APEX ® 1500 HP rigs 
+169 
+— 
+169 
+94 
+% 
+APEX ® 1000 HP rigs 
+14 
+— 
+14 
+100 
+% 
+APEX ® 1200 HP rigs 
+4 
+— 
+4 
+100 
+% 
+APEX ® 1400 HP rigs 
+5 
+— 
+5 
+100 
+% 
+APEX ® 2000 HP rigs 
+6 
+— 
+6 
+67 
+% 
+Other electric rigs 
+48 
+6 
+54 
+59 
+% 
+Total 
+246 
+6 
+252 
+87 
+% 
+Average horsepower 
+1,465 
+1,117 
+1,457 
+The U.S. land rig industry refers to certain high specification rigs as “super-spec” rigs. We consider a super-spec rig to be at least a 1,500 horsepower, AC powered rig that has a 750,000-pound hookload, a 7,500-psi circulating system, and is pad-capable. We currently estimate there are approximately 650 super-spec rigs in the United States, which includes 149 of our APEX® rigs. 
+We perform repair and/or overhaul work to our drilling rig equipment at our yard facilities located in Texas, Oklahoma, Wyoming, Colorado, North Dakota, Pennsylvania, Ohio and western Canada. 
+Pressure Pumping Operations 
+General — We provide pressure pumping services to oil and natural gas operators, primarily in Texas (West and South Regions), the Mid-Continent region (Mid-Con Region) and the Appalachian region (Northeast Region). Pressure pumping services consist primarily of well stimulation services (such as hydraulic fracturing) for the completion of new wells and remedial work on existing wells. Wells drilled in shale formations and other unconventional plays require well stimulation through hydraulic fracturing to allow the flow of oil and natural gas. This is accomplished by pumping fluids and proppant under pressure into the well bore to fracture the formation. Many wells in conventional plays also receive well stimulation services. We also provide cementing services through the pressure pumping segment. The cementing process inserts material between the wall of the well bore and the casing to support and stabilize the casing. 
+6 
+Pressure Pumping Contracts – Our pressure pumping operations are conducted pursuant to a work order for a specific job or pursuant to a term contract. The term cont racts are generally entered into for a specified period of time and may include minimum revenue, usage or stage requirements. We are compensated based on a combination of charges for equipment, personnel, materials, mobilization and other items. 
+Equipment — We have pressure pumping equipment used in providing hydraulic fracturing services as well as cementing and acid pumping services, with a total of approximately 1.6 million horsepower as of December 31, 2018. Pressure pumping equipment at December 31, 2018 included: 
+Other 
+Fracturing 
+Pumping 
+Equipment 
+Equipment 
+Total 
+West Texas Region 
+Number of units 
+229 
+31 
+260 
+Approximate horsepower 
+524,450 
+32,340 
+556,790 
+South Texas Region 
+Number of units 
+138 
+1 
+139 
+Approximate horsepower 
+334,750 
+950 
+335,700 
+Mid-Con Region 
+Number of units 
+118 
+— 
+118 
+Approximate horsepower 
+269,250 
+— 
+269,250 
+Northeast Region 
+Number of units 
+200 
+78 
+278 
+Approximate horsepower 
+430,050 
+44,700 
+474,750 
+Combined: 
+Number of units 
+685 
+110 
+795 
+Approximate horsepower 
+1,558,500 
+77,990 
+1,636,490 
+Our pressure pumping operations are supported by a fleet of other equipment including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite, as well as bins for storage of materials at the worksite. 
+Materials – Our pressure pumping operations require the use of acids, chemicals, proppants, fluid supplies and other materials, any of which can be in short supply, including severe shortages, from time to time. We purchase these materials from various suppliers. These purchases are made in the spot market or pursuant to other arrangements that may not cover all of our required supply. These supply arrangements sometimes require us to purchase the supply or pay liquidated damages if we do not purchase the material. Given the limited number of suppliers of certain of our materials, we may not always be able to make alternative arrangements if we are unable to reach an agreement with a supplier for delivery of any particular material or should one of our suppliers fail to timely deliver our materials. 
+Directional Drilling Operations 
+General – We generally utilize our own proprietary downhole motors and equipment to provide a comprehensive suite of directional drilling services, including directional drilling, downhole performance motors, motor rentals, directional surveying, measurement-while-drilling (MWD), and wireline steering tools, in most major onshore oil and natural gas basins in the United States. We generally design, assemble and maintain our own fleet of downhole drilling motors and MWD equipment. We sometimes rent motors and equipment from third parties during periods in which we experience shortages from our vendors, which can occur during periods of increased industry activity. As a complement to our core directional drilling services, we provide downhole survey services and rent our proprietary drilling motors to both oil and natural gas operators and other oilfield service companies. Our customers primarily consist of major integrated energy companies and large North American independent oil and natural gas operators. We believe our customers use our services because of the quality of our specialized, technology-driven equipment and our well-trained and experienced workforce, which enable us to provide our customers with high-quality, reliable and safe directional drilling services. We utilize our fleet of directional drilling motors, MWD equipment and survey equipment to provide: (1) directional drilling services, (2) third-party motor rentals and (3) downhole survey services. 
+7 
+Directional Drilling Services – We provide our directional drilling services on a day-rate basis, typically under master service agree ments. Revenue from directional drilling services is recognized as work progresses based on the number of days of work completed. Our day rates and other charges generally vary by location and depend on the equipment and personnel required for the job an d market conditions in the region in which the services are performed. In addition to rates that are charged during periods of active directional drilling, a stand-by rate is typically agreed upon in advance and charged on a daily basis during periods whe n drilling is temporarily suspended while other on-site activity is conducted at the direction of the operator or another service provider. 
+Third-Party Motor Rental – We rent our drilling motors on an hourly- or day-rate basis to complement our direction al drilling services and optimize the utilization of our asset base. Our third-party motor rental revenue is recognized as work progresses based on the number of days or hours our motors are used or are on location. 
+Downhole Survey Services – We provide our downhole survey services on a day-rate, hourly-rate or completed-job basis. Revenue for our downhole survey services is recognized upon the completion of each day’s work. Our downhole survey services are typically non-contractual. We normally provide a quote to our customers in advance and then issue an invoice for the downhole survey services provided based on a completed field ticket. 
+Equipment – We generally design, assemble, maintain and inspect our own equipment. We sometimes rent motors and equipment from third parties during periods in which we experience shortages from our vendors, which can occur during periods of increased industry activity. We have developed proprietary equipment for our drilling motors, mud pulse and electromagnetic data transfer MWD equipment and survey tools. We believe that our vertical integration strategy allows us to deliver better operational performance and higher equipment reliability to our customers. Vertical integration also allows us to build our tools more efficiently and at a lower cost than if purchased from third parties. In addition, we have the ability to upgrade our tools in response to market conditions or our customers’ job requirements, which allows us to minimize the costs and delays associated with sending equipment to original manufacturers. Our internal maintenance capability also affords us enhanced control over our supply chain and increases the effective utilization of our assets. As of December 31, 2018, we had a comprehensive fleet of over 1,600 motors that serve both internal needs and external motor rental requirements. In addition to our motor fleet, we had 127 MWD systems as well as downhole surveying equipment to provide accurate wellbore surveys. 
+Horizontal Wellbore Placement – We provide software and services used to improve the statistical accuracy of horizontal wellbore placement. Our measurement-while-drilling (MWD) Survey FDIR (fault detection, isolation and recovery) service is a data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of a well. We provide these services to customers with onshore and offshore operations. 
+Oilfield Rentals 
+Our oilfield rentals business has a fleet of premium oilfield rental tools and provides specialized services for land-based oil and natural gas drilling, completion and workover activities. We offer an extensive line of rental tools, including a full line of tubular products specifically designed for horizontal drilling and completion, with high-torque, premium-connection drill pipe, drill collars and tubing. Additionally, we offer surface rental equipment including blowout preventers, frac tanks, mud tanks and environmental containment that encompass all phases of the hydrocarbon extraction and production process. Our air drilling equipment and services enable extraction in select basins where certain segments of formations preclude the use of drilling fluid, permitting operators to drill through problematic zones without the risk of fluid absorption and damage to the wellbore. We offer oilfield rental services in many of the major producing onshore oil and gas basins in the United States. We price our rentals and services based on the type of equipment being rented and the services being performed. Substantially all rental revenue we earn is based upon a charge for the actual period of time the rental is provided to our customer on a market-based, fixed per-day or per-hour fee. 
+Other Operations 
+We manufacture and sell pipe handling components and related technology for drilling contractors in North America and other select markets, and provide electrical controls and automation to the energy, marine and mining industries, in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+Contracts 
+We believe that our contract drilling, pressure pumping, directional drilling, oilfield rentals and other contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each contract contains the actual terms setting forth our rights and obligations and those of the customer or supplier, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer or supplier requirements, applicable law or other factors. 
+8 
+Customers 
+Our customer base includes major, independent and other oil and natural gas operators. With respect to our consolidated operating revenues in 2018, we received approximately 41% from our ten largest customers and approximately 26% from our five largest customers. During 2018, no customer accounted for more than 10% of our consolidated operating revenues. The loss of, or reduction in business from, one or more of our larger customers could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+Backlog 
+Our contract drilling backlog as of December 31, 2018 and 2017 was $770 million and $544 million, respectively. Approximately 23% of the total contract drilling backlog at December 31, 2018 is reasonably expected to remain after 2019. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as a part of Item 7 of this Report for information pertaining to backlog. 
+Competition 
+The businesses in which we operate are highly competitive. Historically, available equipment used in these businesses has frequently exceeded demand, particularly in an industry downturn. The price for our services is a key competitive factor, in part because equipment used in our businesses can be moved from one area to another in response to market conditions. In addition to price, we believe availability, condition and technical specifications of equipment, quality of personnel, service quality and safety record are key factors in determining which contractor is awarded a job. We expect that the market for our services will continue to be highly competitive. 
+Government and Environmental Regulation 
+All of our operations and facilities are subject to numerous federal, state, foreign, regional and local laws, rules and regulations related to various aspects of our business, including: 
+• 
+drilling of oil and natural gas wells, 
+• 
+hydraulic fracturing, cementing and acidizing and related well servicing activities, 
+• 
+directional drilling services, third-party motor rentals, and downhole survey services, 
+• 
+services that improve the statistical accuracy of horizontal wellbore placement, including for customers with offshore operations, 
+• 
+containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, 
+• 
+use of underground storage tanks and injection wells, 
+• 
+manufacture and sale of pipe handling components and related technology, 
+• 
+provision of electrical controls and automation, and 
+• 
+our employees. 
+To date, applicable environmental laws and regulations in the places in which we operate have not required the expenditure of significant resources outside the ordinary course of business. We do not anticipate any material capital expenditures for environmental control facilities or extraordinary expenditures to comply with environmental rules and regulations in the foreseeable future. However, compliance costs under existing laws or under any new requirements could become material, and we could incur liability in any instance of noncompliance. 
+Our business is generally affected by political developments and by federal, state, foreign, regional and local laws, rules and regulations that relate to the oil and natural gas industry. The adoption of laws, rules and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase costs relating to drilling, completion and production, and otherwise have an adverse effect on our operations. Federal, state, foreign, regional and local environmental laws, rules and regulations currently apply to our operations and may become more stringent in the future. Any limitation, suspension or moratorium of the services and products we or others provide, whether or not short-term in nature, by a federal, state, foreign, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operations. 
+We believe we use operating and disposal practices that are standard in the industry. However, hydrocarbons and other materials may have been disposed of, or released in or under properties currently or formerly owned or operated by us or our predecessors, which may have resulted, or may result, in soil and groundwater contamination in certain locations. Any contamination found on, under or originating from the properties may be subject to remediation requirements under federal, state, foreign, regional and local laws, rules and regulations. In addition, some of these properties have been operated by third parties over whom we have no control of their 
+9 
+treatment of hydrocarbon and other materials or the manner in which they may have disposed of or released such materials. We could be required to remove or remediate wastes disposed of or released by pri or owners or operators. In addition, it is possible we could be held responsible for oil and natural gas properties in which we own an interest but are not the operator. 
+Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that govern our operations. 
+In the United States, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, commonly known as CERCLA, and comparable state statutes impose strict liability on: 
+• 
+owners and operators of sites, including prior owners and operators who are no longer active at a site; and 
+• 
+persons who disposed of or arranged for the disposal of “hazardous substances” found at sites. 
+The Federal Resource Conservation and Recovery Act (“RCRA”), as amended, and comparable state statutes and implementing regulations govern the disposal of “hazardous wastes.” Although CERCLA currently excludes petroleum from the definition of “hazardous substances,” and RCRA also excludes certain classes of exploration and production wastes from regulation, such exemptions may be deleted, limited, or modified in the future. For example, in December 2016, the U.S. Environmental Protection Agency (“EPA”) and environmental groups entered into a consent decree to address the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. The consent decree requires the EPA to propose a rulemaking by March 2019 for revision of certain Subtitle D criteria regulations pertaining to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. The EPA has not yet proposed such a rule. If changes are made to the classification of exploration and production wastes under CERCLA and/or RCRA, we could be required to remove and remediate previously disposed of materials (including materials disposed of or released by prior owners or operators) from properties (including ground water contaminated with hydrocarbons) and to perform removal or remedial actions to prevent future contamination. 
+The Federal Water Pollution Control Act and the Oil Pollution Act of 1990, each as amended, and implementing regulations govern: 
+• 
+the prevention of discharges, including oil and produced water spills, into jurisdictional waters; and 
+• 
+liability for drainage into such waters. 
+The Oil Pollution Act imposes strict liability for a comprehensive and expansive list of damages from an oil spill into jurisdictional waters from facilities. Liability may be imposed for oil removal costs and a variety of public and private damages. Penalties may also be imposed for violation of federal safety, construction and operating regulations, and for failure to report a spill or to cooperate fully in a clean-up. 
+The Oil Pollution Act also expands the authority and capability of the federal government to direct and manage oil spill clean-up and operations, and requires operators to prepare oil spill response plans in cases where it can reasonably be expected that substantial harm will be done to the environment by discharges on or into navigable waters. Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party, such as us, to civil or criminal actions. Although the liability for owners and operators is the same under the Federal Water Pollution Act, the damages recoverable under the Oil Pollution Act are potentially much greater and can include natural resource damages. 
+The U.S. Occupational Safety and Health Administration (“OSHA”) promulgates and enforces laws and regulations governing the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. Also, OSHA has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety. 
+Our activities include the performance of hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability, such as shale and other unconventional formations. Due to concerns raised relating to potential impacts of hydraulic fracturing, including on groundwater quality and seismic activity, legislative and regulatory efforts at the federal level and in some state and local jurisdictions have been initiated to render permitting and compliance requirements more stringent for hydraulic fracturing or prohibit the activity altogether. Such efforts could have an adverse effect on oil and natural gas production activities, which in turn could have an adverse effect on the hydraulic fracturing services that we render for our exploration and production customers. See “Item 1A. Risk Factors – Potential Legislation and Regulation Covering Hydraulic Fracturing or Other Aspects of the Oil and Gas Industry Could Increase Our Costs and Limit or Delay Our Operations.” 
+10 
+In Canada, a variety of federal, provincial and municipal laws, rules and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handli ng, use, storage, transportation, treatment and disposal of hazardous substances and wastes and in connection with spills, releases and emissions of various substances to the environment. Other jurisdictions where we may conduct operations have similar en vironmental and regulatory regimes with which we would be required to comply. These laws, rules and regulations also require that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the sa tisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws, rules and regulations are subject to frequ ent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. 
+Our operations are also subject to federal, state, foreign, regional and local laws, rules and regulations for the control of air emissions, including those associated with the Federal Clean Air Act and the Canadian Environmental Protection Act. We and our customers may be required to make capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. For more information, please refer to our discussion under “Item 1A. Risk Factors – Environmental and Occupational Health and Safety Laws and Regulations, Including Violations Thereof, Could Materially Adversely Affect Our Operating Results.” 
+We are aware of the increasing focus of local, state, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. We are also aware of legislation proposed by U.S. lawmakers and the Canadian legislature to reduce GHG emissions, as well as GHG emissions regulations enacted by the EPA and the Canadian provinces of Alberta and British Columbia. We will continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary. Any direct and indirect costs of meeting these requirements may adversely affect our business, results of operations and financial condition. See “Item 1A. Risk Factors – Legislation and Regulation of Greenhouse Gases Could Adversely Affect Our Business.” 
+Risks and Insurance 
+Our operations are subject to many hazards inherent in the businesses in which we operate, including inclement weather, blowouts, explosions, fires, loss of well control, pollution, exposure and reservoir damage. These hazards could cause personal injury or death, work stoppage, and serious damage to equipment and other property, as well as significant environmental and reservoir damages. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages. An accident or other event resulting in significant environmental or property damage, or injuries or fatalities involving our employees or other persons could also trigger investigations by federal, state or local authorities. Such an accident or other event could cause us to incur substantial expenses in connection with the investigation, remediation and resolution, as well as cause lasting damage to our reputation, loss of customers and an inability to obtain insurance. 
+We have indemnification agreements with many of our customers, and we also maintain liability and other forms of insurance. In general, our contracts typically contain provisions requiring our customers to indemnify us for, among other things, reservoir and certain pollution damage. Our right to indemnification may, however, be unenforceable or limited due to negligent or willful acts or omissions by us, our subcontractors and/or suppliers. Our customers and other third parties may dispute, or be unable to meet, their indemnification obligations to us due to financial, legal or other reasons. Accordingly, we may be unable to transfer these risks to our customers and other third parties by contract or indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+We maintain insurance coverage of types and amounts that we believe to be customary in the industry, but we are not fully insured against all risks, either because insurance is not available or because of the high premium costs. The insurance coverage that we maintain includes insurance for fire, windstorm and other risks of physical loss to our equipment and certain other assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. We cannot assure, however, that any insurance obtained by us will be adequate to cover any losses or liabilities, or that this insurance will continue to be available, or available on terms that are acceptable to us. While we carry insurance to cover physical damage to, or loss of, a substantial portion of our equipment and certain other assets, such insurance does not cover the full replacement cost of such equipment or other assets. We have also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. For example, we generally maintain a $1.5 million per occurrence deductible on our workers’ compensation insurance coverage, a $1.0 million per occurrence deductible on our equipment insurance coverage, a $2.0 million per occurrence deductible on our general liability coverage and a $2.0 million per occurrence deductible on our automobile liability insurance coverage. We also self-insure a number of other risks, including loss of earnings and business interruption and cybersecurity risks, and we do not carry a significant amount of insurance to cover risks of underground reservoir damage. 
+11 
+Our insurance may not in all situations provide sufficient funds to protect us from all liabilities that could result from our operations. Our coverage includes aggregate policy limits and exclusions. As a result, we retain the risk for any loss in excess of these limits or that is otherwise excluded from our coverage. There can be no assurance that insurance will be available to cover any or all of our operational risks, or, even if available, that insurance premiums or other costs will not rise significantly in the fut ure, so as to make the cost of such insurance prohibitive, or that our coverage will cover a specific loss. Further, we may experience difficulties in collecting from insurers or such insurers may deny all or a portion of our claims for insurance coverage . Incurring a liability for which we are not fully insured or indemnified could materially adversely affect our business, financial condition, cash flows and results of operations. 
+If a significant accident or other event occurs that is not fully covered by insurance or an enforceable and recoverable indemnity from a third party, it could have a material adverse effect on our business, financial condition, cash flows and results of operations. See “Item 1A. Risk Factors – Our Operations Are Subject to a Number of Operational Risks, Including Environmental and Weather Risks, Which Could Expose Us to Significant Losses and Damage Claims. We Are Not Fully Insured Against All of These Risks and Our Contractual Indemnity Provisions May Not Fully Protect Us.” 
+Employees 
+We had approximately 8,000 full-time employees as of February 8, 2019. The number of employees fluctuates depending on the current and expected demand for our services. We consider our employee relations to be satisfactory. None of our employees are represented by a union. 
+Seasonality 
+Seasonality has not significantly affected our overall operations. However, our drilling operations in Canada are subject to slow periods of activity during the annual spring thaw. Additionally, toward the end of calendar years, we sometimes experience slower activity in our pressure pumping operations in connection with the holidays and as customers’ capital expenditure budgets are depleted. Occasionally, our operations have been negatively impacted by severe weather conditions. 
+Raw Materials and Subcontractors 
+We use many suppliers of raw materials and services. Although these materials and services have historically been available, there is no assurance that such materials and services will continue to be available on favorable terms or at all. We also utilize numerous independent subcontractors from various trades.

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+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated herein by reference to the Proxy Statement.

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+Item 9A. Controls and Procedures. 
+Disclosure Controls and Procedures: 
+Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2018, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 
+Management’s Report on Internal Control over Financial Reporting: 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2018. 
+The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Report and which is incorporated by reference into Item 8 of this Report. 
+Changes in Internal Control over Financial Reporting: 
+There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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+0000889900,PTEN,PATTERSON UTI ENERGY INC,10-K,2020-02-13,2019-12-31,2020-02-13T21:03:59.000Z,0001564590-20-004584,pten-10k_20191231.htm,10-K,20884298,1,1,https://www.sec.gov/Archives/edgar/data/889900/000156459020004584/pten-10k_20191231.htm,https://www.sec.gov/Archives/edgar/data/889900/000156459020004584/,2019,2019,1

raw/filings/0000889900/2019/0001564590-20-004584/item1.txt

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+Item 1. Business 
+Available Information 
+This Report, along with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our internet website ( www.patenergy.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report or other filings that we make with the SEC. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 
+Overview 
+We are a Houston, Texas-based oilfield services company that primarily owns and operates one of the largest fleets of land-based drilling rigs in the United States and a large fleet of pressure pumping equipment. We were formed in 1978 and reincorporated in 1993 as a Delaware corporation. 
+Our contract drilling business operates in the continental United States and western Canada , and, from time to time, we pursue contract drilling opportunities outside of North America . As of December 31, 2019, we had a drilling fleet that consisted of 216 marketed land-based drilling rigs. A drilling rig includes the structure, power source and machinery necessary to cause a drill bit to penetrate the earth to a depth desired by the customer. We also have a substantial inventory of drill pipe and drilling rig components that support our drilling operations. 
+We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Mid-Continent and Appalachian regions. Substantially all of the revenue in the pressure pumping segment is from well stimulation services (such as hydraulic fracturing) for completion of new wells and remedial work on existing wells. Well stimulation involves processes inside a well designed to enhance the flow of oil, natural gas, or other desired substances from the well. As of December 31, 2019, we had approximately 1.3 million fracturing horsepower to provide these services. We also provide wireline and cementing services through the pressure pumping segment. Our wireline services offering primarily consists of “plug-and-perf,” which involves the setting of plugs between hydraulic fracturing stages and the creation of perforations for each cluster within the fracturing stage itself. Cementing is the process of inserting material between the wall of the well bore and the casing to support and stabilize the casing. Our pressure pumping operations are supported by a fleet of other equipment, including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, downhole performance motors, measurement-while-drilling, wireline steering tools and services that improve the statistical accuracy of horizontal wellbore placement. 
+We have other operations through which we provide oilfield rental tools in select markets in the United States. We also service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+Recent Developments 
+Recent Developments in Financing and Merger and Acquisition Activity — On November 15, 2019, we completed an offering of $350 million in aggregate principal amount of our 5.15% Senior Notes due November 15, 2029 (the “2029 Notes”). The net proceeds before offering expenses were approximately $347 million. On December 16, 2019, we used a portion of the net proceeds from the offering to prepay our 4.27% Series B Senior Notes due June 14, 2022. The total amount of the prepayment, including the applicable “make-whole” premium, was approximately $315 million, plus accrued interest to the prepayment date. The remaining net proceeds and available cash on hand was used to repay $50 million of the borrowings under the Term Loan Agreement (as defined below). 
+On August 22, 2019, we entered into a term loan agreement (the “Term Loan Agreement”) that permits a single borrowing of up to $150 million, which we drew in full on September 23, 2019. Subject to customary conditions, we may request that the lenders’ aggregate commitments be increased by up to $75 million, not to exceed total commitments of $225 million. On September 25, 2019, we used $150 million of borrowings from the Term Loan Agreement and approximately $158 million of cash on hand to prepay our 4.97% Series A Senior Notes due October 5, 2020 . The total amount of the prepayment, including the applicable “make-whole” premium, was approximately $308 million, plus accrued interest to the prepayment date. We repaid $50 million of the borrowings 
+3 
+under the Term Loan Agreement on December 16, 2019, and we had $100 million in outstanding borrowings under the Term Loan Agreement as of December 31, 2019. 
+On October 25, 2018, we acquired all of the issued and outstanding shares of Current Power Solutions, Inc. (“Current Power”). Current Power is a provider of electrical controls and automation to the energy, marine and mining industries. 
+On March 27, 2018, we entered into an amended and restated credit agreement, which is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $150 million and a swing line facility that, at any time outstanding, is limited to $20 million. 
+On February 20, 2018, we acquired the business of Superior QC, LLC (“Superior QC”), including its assets and intellectual property. Superior QC is a provider of software and services used to improve the statistical accuracy of horizontal wellbore placement. Superior QC’s measurement-while-drilling (MWD) Survey FDIR (fault detection, isolation and recovery) service is a data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of a well. 
+On January 19, 2018, we completed an offering of $525 million in aggregate principal amount of our 3.95% Senior Notes due 2028 . The net proceeds before offering expenses were approximately $521 million, of which we used $239 million to repay amounts outstanding under our revolving credit facility. 
+On October 11, 2017, we acquired all of the issued and outstanding limited liability company interests of MS Directional, LLC (f/k/a Multi-Shot, LLC) (“MS Directional”). MS Directional is a leading directional drilling services company in the United States, with operations in most major producing onshore oil and gas basins. MS Directional provides a comprehensive suite of directional drilling services, including directional drilling, downhole performance motors, measurement-while-drilling, and wireline steering tools. 
+On April 20, 2017, pursuant to an Agreement and Plan of Merger with Seventy Seven Energy Inc. (“SSE”), a subsidiary of ours was merged with and into SSE (the “SSE merger”), with SSE continuing as the surviving entity and one of our wholly-owned subsidiaries. On April 20, 2017, following the SSE merger, SSE was merged with and into our newly-formed subsidiary named Seventy Seven Energy LLC (“SSE LLC”), with SSE LLC continuing as the surviving entity and one of our wholly-owned subsidiaries. Through the SSE merger, we acquired a fleet of 91 drilling rigs, 36 of which we consider to be APEX® rigs. Additionally, through the SSE merger, we acquired approximately 500,000 horsepower of fracturing equipment located in Oklahoma and Texas. The oilfield rentals business acquired through the SSE merger has a fleet of premium oilfield rental tools and provides specialized services for land-based oil and natural gas drilling, completion and workover activities. 
+Operational data in the discussion and analysis in this Report includes the results of operations of Current Power since October 25, 2018, the results of operations of Superior QC since February 20, 2018, the results of operations of the MS Directional business since October 11, 2017 and the results of operations of the SSE businesses since April 20, 2017. 
+4 
+Recent Developments in Market Conditions — Quarterly average oil prices and our quarterly average number of rigs operating in the United States for 201 7 , 201 8 and 201 9 are as follows: 
+1 st 
+2 nd 
+3 rd 
+4 th 
+Quarter 
+Quarter 
+Quarter 
+Quarter 
+2017: 
+Average oil price per Bbl (1) 
+$ 
+51.77 
+$ 
+48.24 
+$ 
+48.16 
+$ 
+55.37 
+Average rigs operating per day - U.S. (2) 
+81 
+145 
+159 
+159 
+2018: 
+Average oil price per Bbl (1) 
+$ 
+62.88 
+$ 
+68.04 
+$ 
+69.76 
+$ 
+59.08 
+Average rigs operating per day - U.S. (2) 
+166 
+175 
+177 
+182 
+2019: 
+Average oil price per Bbl (1) 
+$ 
+54.83 
+$ 
+59.78 
+$ 
+56.37 
+$ 
+56.94 
+Average rigs operating per day - U.S. (2) 
+174 
+157 
+142 
+122 
+(1) 
+The average oil price represents the average monthly West Texas Intermediate (WTI) spot price as reported by the United States Energy Information Administration. 
+(2) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Oil prices have recovered from a 12-year low of $26.19 in February 2016 and reached a high of $77.41 in June 2018. Oil prices remain volatile, as the closing price of oil began the year at a low of $46.31 per barrel on January 2, 2019, before increasing by 43% over the course of four months to reach a high of $66.24 per barrel in late April 2019. Since May 2019, oil prices have generally ranged between $50 and $60 per barrel . Oil prices averaged $56.94 per barrel in the fourth quarter of 2019 and closed at $50.06 per barrel on February 3, 2020 . 
+Our rig count declined significantly during the industry downturn that began in late 2014, improved following the second quarter of 2016, and has declined since the fourth quarter of 2018. Our average active rig count for the fourth quarter of 2019 was 123 rigs, which included 122 rigs in the United States and less than one rig operating in Canada. This was a decrease from our average active rig count for the third quarter of 2019 of 142 rigs, which included 142 rigs in the United States and less than one rig in Canada. Our rig count in the United States at December 31, 2019 of 121 rigs was less than the rig count of 183 rigs at December 31, 2018. Term contracts have supported our operating rig count during the last three years. Based on contracts currently in place, we expect an average of 77 rigs operating under term contracts during the first quarter of 2020 and an average of 58 rigs operating under term contracts throughout 2020. 
+The pressure pumping market showed signs of oversupply in the second half of 2018 and was oversupplied in 2019. In response to oversupplied market conditions, we reduced the number of active pressure pumping spreads to 11 as of the end of 2019. We expect to average ten active pressure pumping spreads during the first quarter of 2020. 
+Industry Segments 
+Our revenues, operating income (loss) and identifiable assets are primarily attributable to three industry segments: 
+• 
+contract drilling services, 
+• 
+pressure pumping services, and 
+• 
+directional drilling services. 
+Our contract drilling services industry segment had operating losses in 2019, 2018 and 2017. Our pressure pumping services industry segment had operating losses in 2019 and 2018 and operating income in 2017. Our directional drilling services industry segment was a new segment for us as a result of the MS Directional acquisition in 2017 and accounted for approximately 7.6% and 6.3% percent of our 2019 and 2018 consolidated revenues, respectively. Our directional drilling segment had operating losses in 2019, 2018 and 2017. 
+See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 16 of Notes to Consolidated Financial Statements included as a part of Items 7 and 8, respectively, of this Report for financial information pertaining to these industry segments. 
+5 
+Contract Drilling Operations 
+General — We market our contract drilling services to major, independent and other oil and natural gas operators. As of December 31, 2019, we had 216 marketed land-based drilling rigs based in the following regions: 
+• 
+64 in west Texas and southeastern New Mexico, 
+• 
+18 in north central and east Texas and northern Louisiana, 
+• 
+35 in the Rocky Mountain region (Colorado, Wyoming and North Dakota), 
+• 
+25 in south Texas, 
+• 
+31 in western Oklahoma, 
+• 
+37 in the Appalachian region (Pennsylvania, Ohio and West Virginia), and 
+• 
+6 in western Canada. 
+Our marketed drilling rigs have rated maximum depth capabilities ranging from approximately 13,200 feet to 24,000 feet. All of these drilling rigs are electric rigs. An electric rig converts the power from its diesel engines into electricity to power the rig. We also have a substantial inventory of drill pipe and drilling rig components, which may be used in the activation of additional drilling rigs or as upgrades or replacement parts for marketed rigs. 
+Drilling rigs are typically equipped with engines, drawworks, top drives, masts, pumps to circulate the drilling fluid, blowout preventers, drill pipe and other related equipment. Over time, components on a drilling rig are replaced or rebuilt. We spend significant funds each year as part of a program to modify, upgrade and maintain our drilling rigs. We have spent approximately $943 million during the last three years on capital expenditures to (1) build new land drilling rigs and (2) modify, upgrade and extend the lives of components of our drilling fleet. During fiscal years 2019, 2018 and 2017, we spent approximately $194 million, $395 million and $354 million, respectively, on these capital expenditures. 
+Depth and complexity of the well, drill site conditions and the number of wells to be drilled on a pad are the principal factors in determining the specifications of the rig selected for a particular job. 
+Our contract drilling operations depend on the availability of drill pipe, drill bits, replacement parts and other related rig equipment, fuel and other materials and qualified personnel. Some of these have been in short supply from time to time. 
+Drilling Contracts — Most of our drilling contracts are with established customers on a competitive bid or negotiated basis. Our bid for each job depends upon location, equipment to be used, estimated risks involved, estimated duration of the job, availability of drilling rigs and other factors particular to each proposed contract. Our drilling contracts are either on a well-to-well basis or a term basis. Well-to-well contracts are generally short-term in nature and cover the drilling of a single well or a series of wells. Term contracts are entered into for a specified period of time (we define term contracts as contracts with a duration of six months or more) or for a specified number of wells. During 2019, our average number of days to drill a well (which includes moving to the drill site, rigging up and rigging down) was approximately 20 days. 
+Our drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of our drilling personnel and necessary maintenance expenses. Most drilling contracts are subject to termination by the customer on short notice and may or may not contain provisions for an early termination payment to us in the event that the contract is terminated by the customer. 
+Our drilling contracts provide for payment on a daywork basis, pursuant to which we provide the drilling rig and crew to the customer. The customer provides the program for the drilling of the well. Our compensation is based on a contracted rate per day during the period the drilling rig is utilized. We often receive a lower rate when the drilling rig is moving or when drilling operations are interrupted or restricted by adverse weather conditions or other conditions beyond our control. Daywork contracts typically provide separately for mobilization of the drilling rig. 
+6 
+Contract Drilling Activity — Information regarding our contract drilling activity for the last three years follows: 
+Year Ended December 31, 
+2019 
+2018 
+2017 
+Average rigs operating per day - U.S. (1) 
+149 
+175 
+136 
+Average rigs operating per day - Canada (1) 
+1 
+1 
+2 
+Number of rigs operated during the year 
+189 
+193 
+179 
+Number of wells drilled during the year 
+2,703 
+3,088 
+2,553 
+Number of operating days 
+54,544 
+64,479 
+50,427 
+(1) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Drilling Rigs and Related Equipment — We have made significant upgrades during the last several years to our drilling fleet to match the needs of our customers. While conventional wells remain a source of oil and natural gas, our customers have expanded the development of shale and other unconventional wells to help supply the long-term demand for oil and natural gas in North America. 
+To address our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays, we have improved the capability of our drilling fleet during the last several years. We have delivered new APEX ® rigs to the market and have made performance and safety improvements to existing high capacity rigs. APEX ® rigs are electric rigs with advanced electronic drilling systems, 500-ton top drives, iron roughnecks, hydraulic catwalks, and other automated pipe handling equipment. APEX ® rigs that are pad-capable are designed to efficiently drill multiple wells from a single pad, by “walking” between the wellbores without requiring time to lower the mast and lay down the drill pipe. As of December 31, 2019, our marketed land-based drilling fleet was comprised of the following: 
+Number of Rigs 
+Classification 
+United States 
+Canada 
+Total 
+Percent Pad-Capable 
+APEX ® 1500 HP rigs 
+172 
+— 
+172 
+94 
+% 
+APEX ® 1000 HP rigs 
+12 
+— 
+12 
+100 
+% 
+APEX ® 2000 HP rigs 
+6 
+— 
+6 
+67 
+% 
+APEX ® 1400 HP rigs 
+5 
+— 
+5 
+100 
+% 
+APEX ® 1200 HP rigs 
+3 
+— 
+3 
+100 
+% 
+Other electric rigs 
+12 
+6 
+18 
+72 
+% 
+Total 
+210 
+6 
+216 
+Average horsepower 
+1,458 
+1,117 
+1,448 
+The U.S. land rig industry refers to certain high specification rigs as “super-spec” rigs. We consider a super-spec rig to be a 1,500 horsepower, AC powered rig that has at least a 750,000-pound hookload, a 7,500-psi circulating system, and is pad-capable. We currently estimate there are approximately 690 super-spec rigs in the United States, which includes 150 of our APEX® rigs. 
+We perform repair and/or overhaul work to our drilling rig equipment at our yard facilities located in Texas, Oklahoma, Wyoming, Colorado, North Dakota, Ohio, West Virginia and western Canada. 
+Pressure Pumping Operations 
+General — We provide pressure pumping services to oil and natural gas operators, primarily in Texas (West and South Regions), the Mid-Continent region (Mid-Con Region) and the Appalachian region (Northeast Region). Pressure pumping services consist primarily of well stimulation services (such as hydraulic fracturing) for the completion of new wells and remedial work on existing wells. Wells drilled in shale formations and other unconventional plays require well stimulation through hydraulic fracturing to allow the flow of oil and natural gas. This is accomplished by pumping fluids and proppant under pressure into the well bore to fracture the formation. Many wells in conventional plays also receive well stimulation services. We also provide cementing services through the pressure pumping segment. The cementing process inserts material between the wall of the well bore and the casing to support and stabilize the casing. 
+Pressure Pumping Contracts – Our pressure pumping operations are conducted pursuant to a work order for a specific job or pursuant to a term contract. The term contracts are generally entered into for a specified period of time and may include minimum revenue, usage or stage requirements. We are compensated based on a combination of charges for equipment, personnel, materials, mobilization and other items. 
+7 
+Equipment — We have pressure pumping equipment used in providing hydraulic fracturing services as well as cementing and acid pumping services, with a total of approximately 1.4 million horsepower as of December 31, 2019 . Pressure pumping equipment at December 31, 2019 included: 
+Other 
+Fracturing 
+Pumping 
+Equipment 
+Equipment 
+Total 
+West Texas Region 
+Number of units 
+207 
+17 
+224 
+Approximate horsepower 
+492,000 
+18,555 
+510,555 
+South Texas Region 
+Number of units 
+112 
+— 
+112 
+Approximate horsepower 
+270,750 
+— 
+270,750 
+Mid-Con Region 
+Number of units 
+68 
+— 
+68 
+Approximate horsepower 
+157,000 
+— 
+157,000 
+Northeast Region 
+Number of units 
+186 
+12 
+198 
+Approximate horsepower 
+416,900 
+8,000 
+424,900 
+Combined: 
+Number of units 
+573 
+29 
+602 
+Approximate horsepower 
+1,336,650 
+26,555 
+1,363,205 
+Our pressure pumping operations are supported by a fleet of other equipment including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite, as well as bins for storage of materials at the worksite. 
+Materials – Our pressure pumping operations require the use of acids, chemicals, proppants, fluid supplies and other materials, any of which can be in short supply, including severe shortages, from time to time. We purchase these materials from various suppliers. These purchases are made in the spot market or pursuant to other arrangements that may not cover all of our required supply. These supply arrangements sometimes require us to purchase the supply or pay liquidated damages if we do not purchase the material. Given the limited number of suppliers of certain of our materials, we may not always be able to make alternative arrangements if we are unable to reach an agreement with a supplier for delivery of any particular material or should one of our suppliers fail to timely deliver our materials. 
+Wireline – Our wireline services offering primarily consists of “plug-and-perf,” which involves the setting of plugs between hydraulic fracturing stages and the creation of perforations for each cluster within the fracturing stage itself. These wireline services are complementary to our pressure pumping services. As of December 31, 2019, we had not yet performed any wireline operations. 
+Directional Drilling Operations 
+General – We generally utilize our own proprietary downhole motors and equipment to provide a comprehensive suite of directional drilling services, including directional drilling, downhole performance motors, measurement-while-drilling (MWD), and wireline steering tools, in most major onshore oil and natural gas basins in the United States. We generally design, assemble and maintain our own fleet of downhole drilling motors and MWD equipment. Our customers primarily consist of major integrated energy companies and large North American independent oil and natural gas operators. We believe our customers use our services because of the quality of our specialized, technology-driven equipment and our well-trained and experienced workforce, which enable us to provide our customers with high-quality, reliable and safe directional drilling services. 
+Directional Drilling Services – We provide our directional drilling services on a day-rate basis, typically under master service agreements. Revenue from directional drilling services is recognized as work progresses based on the number of days of work completed. Our day rates and other charges generally vary by location and depend on the equipment and personnel required for the job and market conditions in the region in which the services are performed. In addition to rates that are charged during periods of active directional drilling, a stand-by rate is typically agreed upon in advance and charged on a daily basis during periods when drilling is temporarily suspended while other on-site activity is conducted at the direction of the operator or another service provider. 
+8 
+Equipment – We generally design, assemble , maintain and inspect our own equipment. We have developed proprietary equipment for our drilling motors, mud pulse and electromagnetic data transfer MWD equipment. We believe that our vertical integration strategy allows us to deliver better operational performance and higher equipment reliability to our customers. Vertical integration also allows us to build our tools more efficiently and at a lower cost than if purchased from third parties. In addition, we have the ability to upgrade our tools in response to market conditions or our customers’ job requirements, which allows us to minimize the costs and delays associated with sending equipment to original manufacturers. Our internal maintenance capability also affords us enhanced control over our supply chain and increases the effective utilization of our assets. As of December 31, 2019 , we had a comprehensive fleet of over 1,000 motors. In addition to our motor fleet, we had over 100 MWD systems. 
+Horizontal Wellbore Placement – We provide software and services used to improve the statistical accuracy of horizontal wellbore placement. Our measurement-while-drilling (MWD) Survey FDIR (fault detection, isolation and recovery) service is a data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of a well. We provide these services to customers with onshore and offshore operations. 
+Oilfield Rentals 
+Our oilfield rentals business has a fleet of premium oilfield rental tools and provides specialized services for land-based oil and natural gas drilling, completion and workover activities. We offer an extensive line of rental tools, including a full line of tubular products specifically designed for horizontal drilling and completion, with high-torque, premium-connection drill pipe, drill collars and tubing. Additionally, we offer surface rental equipment including blowout preventers, frac tanks, mud tanks and environmental containment that encompass all phases of the hydrocarbon extraction and production process. Our air drilling equipment and services enable extraction in select basins where certain segments of formations preclude the use of drilling fluid, permitting operators to drill through problematic zones without the risk of fluid absorption and damage to the wellbore. We offer oilfield rental services in many of the major producing onshore oil and gas basins in the United States. We price our rentals and services based on the type of equipment being rented and the services being performed. Substantially all rental revenue we earn is based upon a charge for the actual period of time the rental is provided to our customer on a market-based, fixed per-day or per-hour fee. 
+Other Operations 
+We service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+Contracts 
+We believe that our contract drilling, pressure pumping, directional drilling, oilfield rentals and other contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each contract contains the actual terms setting forth our rights and obligations and those of the customer or supplier, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer or supplier requirements, applicable law or other factors. 
+Customers 
+Our customer base includes major, independent and other oil and natural gas operators. With respect to our consolidated operating revenues in 2019, we received approximately 41% from our ten largest customers and approximately 26% from our five largest customers. During 2019, no customer accounted for more than 10% of our consolidated operating revenues. The loss of, or reduction in business from, one or more of our larger customers could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+Backlog 
+Our contract drilling backlog as of December 31, 2019 and 2018 was approximately $605 million and $770 million, respectively. Approximately 28% of the total contract drilling backlog at December 31, 2019 is reasonably expected to remain after 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as a part of Item 7 of this Report for information pertaining to backlog. 
+9 
+Competition 
+The businesses in which we operate are highly competitive. Historically, available equipment used in our contract drilling, pressure pumping and directional drilling businesses has frequently exceeded demand, particularly in an industry downturn. The price for our services is a key competitive factor, in part because equipment used in these businesses can be moved from one area to another in response to market conditions. In addition to price, we believe availability, condition and technical specifications of equipment, quality of personnel, service quality and safety record are key factors in determining which contractor is awarded a job. We expect that the market for our services will continue to be highly competitive. 
+Sustainability 
+We strive to be a leader in our industry in the area of environmental, social, governance and other sustainability-related issues, and we remain committed to managing these issues for the long-term benefit of our employees, communities and our business. We aim to minimize our environmental impact in the communities in which we work and live, while providing services for our customers in a safe and responsible manner. We invest extensively in the safety, health and well-being of our people, who are our most important asset and our greatest strength. Importantly, we maintain a rigorous focus on ethics and integrity at every level of our operations, a practice on which all of our success depends. 
+We continue to pursue initiatives to make improvements in air quality, water quality, land usage, use of energy and reducing waste materials. For example: 
+• 
+we utilize natural gas engines, dual-fuel equipment and other technologies that reduce our carbon and other greenhouse gas emissions; and 
+• 
+we employ spill prevention plans and use additional protective measures in environmentally sensitive areas. 
+Our goal is to provide an incident-free work environment. The safety of our employees and others is our highest priority, and we have robust safety training programs in place that are designed to comply with applicable laws and industry standards and to benefit our employees, communities and our business. All field-based employees are required to attend an Employee Safety Orientation, which includes classes on behavior-based safety, hazard awareness, safe systems of work, permission to work, time out for safety, energy isolation, hazard communication (HAZCOM), material handling and other topics. 
+We are committed to fostering a work environment where all people feel valued and respected. We offer our workforce the opportunity to advance in their professional careers through intensive, multi-day classroom training programs in numerous skills and competencies as well as management training programs. These programs are geared to providing our employees with opportunities to advance throughout our company. We embrace our diversity of people, thoughts and talents, and combine these strengths to pursue extraordinary results for our company, our employees and our stockholders. 
+In 2019, we trained over 4,000 employees on our Code of Business Conduct and Ethics, which addresses conflicts of interest, confidentiality, fair dealing with others, proper use of company assets, compliance with laws, insider trading, keeping of books and records, zero tolerance for discrimination and harassment in the work environment, as well as reporting of violations. 
+Government and Environmental Regulation 
+All of our operations and facilities are subject to numerous federal, state, foreign, regional and local laws, rules and regulations related to various aspects of our business, including: 
+• 
+drilling of oil and natural gas wells, 
+• 
+hydraulic fracturing, cementing and acidizing and related well servicing activities, including wireline services, 
+• 
+directional drilling services, 
+• 
+services that improve the statistical accuracy of horizontal wellbore placement, including for customers with offshore operations, 
+• 
+containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, 
+• 
+use of underground storage tanks and injection wells, 
+• 
+servicing of equipment for drilling contractors, 
+• 
+provision of electrical controls and automation, and 
+• 
+our employees. 
+10 
+To date, applicable environmental laws and regulations in the places in which we operate have not required the expenditure of significant resources outside the ordinary course of business. We do not anticipate any material capital expenditures for environmental control facilities or extraordinary expenditures to comply with environmental rules and regulations in the foreseeable future. However, compliance costs under existing laws or under any new requirements could become material, and we could incur liability in any instance of noncompliance. 
+Our business is generally affected by political developments and by federal, state, foreign, regional and local laws, rules and regulations that relate to the oil and natural gas industry. The adoption of laws, rules and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase costs relating to drilling, completion and production, and otherwise have an adverse effect on our operations. Federal, state, foreign, regional and local environmental laws, rules and regulations currently apply to our operations and may become more stringent in the future. Any limitation, suspension or moratorium of the services and products we or others provide, whether or not short-term in nature, by a federal, state, foreign, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operations. 
+We believe we use operating and disposal practices that are standard in the industry. However, hydrocarbons and other materials may have been disposed of, or released in or under properties currently or formerly owned or operated by us or our predecessors, which may have resulted, or may result, in soil and groundwater contamination in certain locations. Any contamination found on, under or originating from the properties may be subject to remediation requirements under federal, state, foreign, regional and local laws, rules and regulations. In addition, some of these properties have been operated by third parties over whom we have no control of their treatment of hydrocarbon and other materials or the manner in which they may have disposed of or released such materials. We could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, it is possible we could be held responsible for oil and natural gas properties in which we own an interest but are not the operator. 
+Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that govern our operations. 
+In the United States, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, commonly known as CERCLA, and comparable state statutes impose strict liability on: 
+• 
+owners and operators of sites, including prior owners and operators who are no longer active at a site; and 
+• 
+persons who disposed of or arranged for the disposal of “hazardous substances” found at sites. 
+The Federal Resource Conservation and Recovery Act (“RCRA”), as amended, and comparable state statutes and implementing regulations govern the disposal of “hazardous wastes.” Although CERCLA currently excludes petroleum from the definition of “hazardous substances,” and RCRA also excludes certain classes of exploration and production wastes from regulation, such exemptions may be deleted, limited, or modified in the future. For example, in December 2016, the U.S. Environmental Protection Agency (“EPA”) and environmental groups entered into a consent decree to address the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. The consent decree requires the EPA to propose a rulemaking by March 2019 for revision of certain Subtitle D criteria regulations pertaining to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. The EPA issued a report on April 23, 2019, determining that no revisions were necessary. However, if changes are made to the classification of exploration and production wastes under CERCLA and/or RCRA in the future, we could be required to remove and remediate previously disposed of materials (including materials disposed of or released by prior owners or operators) from properties (including ground water contaminated with hydrocarbons) and to perform removal or remedial actions to prevent future contamination. 
+The Federal Water Pollution Control Act and the Oil Pollution Act of 1990, each as amended, and implementing regulations govern: 
+• 
+the prevention of discharges, including oil and produced water spills, into jurisdictional waters; and 
+• 
+liability for drainage into such waters. 
+The Oil Pollution Act imposes strict liability for a comprehensive and expansive list of damages from an oil spill into jurisdictional waters from facilities. Liability may be imposed for oil removal costs and a variety of public and private damages. Penalties may also be imposed for violation of federal safety, construction and operating regulations, and for failure to report a spill or to cooperate fully in a clean-up. 
+11 
+The Oil Pollution Act also expands the authority and capability of the federal government to direct and manage oil spill clean-up and operations, and requires operators to prepare oil spill response plans in cases where it can reasonably be expected that substantial harm will be done to the environment by discharges on or into navigable waters. Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party, such as us, to civil or criminal actions. Although the liability for owners and operators is the same under the Federal Water Pollution Act, the damages recoverable under the Oil Pollution Act are potentially much greater and can include natural resource damages. 
+The U.S. Occupational Safety and Health Administration (“OSHA”) promulgates and enforces laws and regulations governing the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. Also, OSHA has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety. 
+Our activities include the performance of hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability, such as shale and other unconventional formations. Due to concerns raised relating to potential impacts of hydraulic fracturing, including on groundwater quality and seismic activity, legislative and regulatory efforts at the federal level and in some state and local jurisdictions have been initiated to render permitting and compliance requirements more stringent for hydraulic fracturing or prohibit the activity altogether. Such efforts could have an adverse effect on oil and natural gas production activities, which in turn could have an adverse effect on the hydraulic fracturing services that we render for our exploration and production customers. See “Item 1A. Risk Factors – Potential Legislation and Regulation Covering Hydraulic Fracturing or Other Aspects of the Oil and Gas Industry Could Increase Our Costs and Limit or Delay Our Operations.” 
+In Canada, a variety of federal, provincial and municipal laws, rules and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and wastes and in connection with spills, releases and emissions of various substances to the environment. Other jurisdictions where we may conduct operations have similar environmental and regulatory regimes with which we would be required to comply. These laws, rules and regulations also require that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws, rules and regulations are subject to frequent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. 
+Our operations are also subject to federal, state, foreign, regional and local laws, rules and regulations for the control of air emissions, including those associated with the Federal Clean Air Act and the Canadian Environmental Protection Act. We and our customers may be required to make capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. For more information, please refer to our discussion under “Item 1A. Risk Factors – Environmental and Occupational Health and Safety Laws and Regulations, Including Violations Thereof, Could Materially Adversely Affect Our Operating Results.” 
+We are aware of the increasing focus of local, state, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. We are also aware of legislation proposed by U.S. lawmakers and the Canadian legislature to reduce GHG emissions, as well as GHG emissions regulations enacted by the EPA and the Canadian provinces of Alberta and British Columbia. We will continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary. Any direct and indirect costs of meeting these requirements may adversely affect our business, results of operations and financial condition. See “Item 1A. Risk Factors – Legislation and Regulation of Greenhouse Gases and Related Divestment and Other Efforts Could Adversely Affect Our Business.” 
+Risks and Insurance 
+Our operations are subject to many hazards inherent in the businesses in which we operate, including inclement weather, blowouts, explosions, fires, loss of well control, pollution, exposure and reservoir damage. These hazards could cause personal injury or death, work stoppage, and serious damage to equipment and other property, as well as significant environmental and reservoir damages. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages. An accident or other event resulting in significant environmental or property damage, or injuries or fatalities involving our employees or other persons could also trigger investigations by federal, state or local authorities. Such an accident or other event could cause us to incur substantial expenses in connection with the investigation, remediation and resolution, as well as cause lasting damage to our reputation, loss of customers and an inability to obtain insurance. 
+12 
+We have indemnification agreements with many of our customers, and we also maintain liability and other forms of insurance. In general, our contracts typically contain provisions requiring our customers to indemnify us for, among other things, reservoir and certain pollution damage. Our right to indemnification may, however, be unenforceable or limited due to negligent or willful acts or omissions by us, our subcontractors and/or suppliers. Our customers and other third parties may dispute, or be unable to meet, their indemnification obligations to us due to financial, legal or other reasons. Accordingly, we may be unable to transfer these risks to our customers and other third parties by contract or indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+We maintain insurance coverage of types and amounts that we believe to be customary in the industry, but we are not fully insured against all risks, either because insurance is not available or because of the high premium costs. The insurance coverage that we maintain includes insurance for fire, windstorm and other risks of physical loss to our equipment and certain other assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. We cannot assure, however, that any insurance obtained by us will be adequate to cover any losses or liabilities, or that this insurance will continue to be available, or available on terms that are acceptable to us. While we carry insurance to cover physical damage to, or loss of, a substantial portion of our equipment and certain other assets, such insurance does not cover the full replacement cost of such equipment or other assets. We have also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. For example, we generally maintain a $1.5 million per occurrence deductible on our workers’ compensation insurance coverage, a $1.0 million per occurrence deductible on our equipment insurance coverage, a $10.0 million per occurrence deductible on our general liability coverage and a $2.0 million per occurrence deductible on our automobile liability insurance coverage. We also self-insure a number of other risks, including loss of earnings and business interruption and most cybersecurity risks, and we do not carry a significant amount of insurance to cover risks of underground reservoir damage. 
+Our insurance may not in all situations provide sufficient funds to protect us from all liabilities that could result from our operations. Our coverage includes aggregate policy limits and exclusions. As a result, we retain the risk for any loss in excess of these limits or that is otherwise excluded from our coverage. There can be no assurance that insurance will be available to cover any or all of our operational risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive, or that our coverage will cover a specific loss. Further, we may experience difficulties in collecting from insurers or such insurers may deny all or a portion of our claims for insurance coverage. Incurring a liability for which we are not fully insured or indemnified could materially adversely affect our business, financial condition, cash flows and results of operations. 
+If a significant accident or other event occurs that is not fully covered by insurance or an enforceable and recoverable indemnity from a third party, it could have a material adverse effect on our business, financial condition, cash flows and results of operations. See “Item 1A. Risk Factors – Our Operations Are Subject to a Number of Operational Risks, Including Environmental and Weather Risks, Which Could Expose Us to Significant Losses and Damage Claims. We Are Not Fully Insured Against All of These Risks and Our Contractual Indemnity Provisions May Not Fully Protect Us.” 
+Employees 
+We had approximately 5,800 full-time employees as of February 7, 2020. The number of employees fluctuates depending on the current and expected demand for our services. We consider our employee relations to be satisfactory. None of our employees are represented by a union. 
+Seasonality 
+Seasonality has not significantly affected our overall operations. However, our drilling operations in Canada are subject to slow periods of activity during the annual spring thaw. Additionally, toward the end of calendar years, we have recently experienced slower activity in connection with the holidays and as customers’ capital expenditure budgets are depleted. Occasionally, our operations have been negatively impacted by severe weather conditions. 
+Raw Materials and Subcontractors 
+We use many suppliers of raw materials and services. Although these materials and services have historically been available, there is no assurance that such materials and services will continue to be available on favorable terms or at all. We also utilize numerous independent subcontractors from various trades. 
+13

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+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated herein by reference to the Proxy Statement.

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+Item 9A. Controls and Procedures. 
+Disclosure Controls and Procedures: 
+Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 
+Management’s Report on Internal Control over Financial Reporting: 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2019. 
+The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Report and which is incorporated by reference into Item 8 of this Report. 
+49 
+Changes in Internal Control over Financial Reporting: 
+There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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+cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing
+0000889900,PTEN,PATTERSON UTI ENERGY INC,10-K,2021-02-09,2020-12-31,2021-02-09T22:08:06.000Z,0001564590-21-005045,pten-10k_20201231.htm,10-K,21151332,1,1,https://www.sec.gov/Archives/edgar/data/889900/000156459021005045/pten-10k_20201231.htm,https://www.sec.gov/Archives/edgar/data/889900/000156459021005045/,2020,2020,1

raw/filings/0000889900/2020/0001564590-21-005045/item1.txt

@@ -0,0 +1,367 @@
+Item 1. Business 
+Available Information 
+This Report, along with our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through our internet website ( www.patenergy.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on our website is not part of this Report or other filings that we make with the SEC. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 
+Overview 
+We are a Houston, Texas-based oilfield services company that primarily owns and operates one of the largest fleets of land-based drilling rigs in the United States and a large fleet of pressure pumping equipment. 
+Our contract drilling business operates in the continental United States and, from time to time, we pursue contract drilling opportunities in other select markets . As of December 31, 2020, we had a drilling fleet that consisted of 210 marketed land-based drilling rigs. A drilling rig includes the structure, power source and machinery necessary to cause a drill bit to penetrate the earth to a depth desired by the customer. We also have a substantial inventory of drill pipe and drilling rig components that support our drilling operations. 
+We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Substantially all of the revenue in the pressure pumping segment is from well stimulation services (such as hydraulic fracturing) for completion of new wells and remedial work on existing wells. Well stimulation involves processes inside a well designed to enhance the flow of oil, natural gas, or other desired substances from the well. As of December 31, 2020, we had approximately 1.3 million fracturing horsepower to provide these services. We also provide cementing services through the pressure pumping segment. Cementing is the process of inserting material between the wall of the well bore and the casing to support and stabilize the casing. Our pressure pumping operations are supported by a fleet of other equipment, including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite as well as bins for storage of materials at the worksite. 
+We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, measurement-while-drilling and supply and rental of downhole performance motors and wireline steering tools. We also provide services that improve the statistical accuracy of horizontal wellbore placement. 
+We have other operations through which we provide oilfield rental tools in select markets in the United States. We also service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+3 
+Recent Developments 
+Recent Developments in Market Conditions — Quarterly average oil prices and our quarterly average number of rigs operating in the United States for 2018, 2019 and 2020 are as follows: 
+1 st 
+2 nd 
+3 rd 
+4 th 
+Quarter 
+Quarter 
+Quarter 
+Quarter 
+2018: 
+Average oil price per Bbl (1) 
+$ 
+62.88 
+$ 
+68.04 
+$ 
+69.76 
+$ 
+59.08 
+Average rigs operating per day - U.S. (2) 
+166 
+175 
+177 
+182 
+2019: 
+Average oil price per Bbl (1) 
+$ 
+54.83 
+$ 
+59.78 
+$ 
+56.37 
+$ 
+56.94 
+Average rigs operating per day - U.S. (2) 
+174 
+157 
+142 
+122 
+2020: 
+Average oil price per Bbl (1) 
+$ 
+45.76 
+$ 
+27.81 
+$ 
+40.89 
+$ 
+42.45 
+Average rigs operating per day - U.S. (2) 
+123 
+82 
+60 
+62 
+(1) 
+The average oil price represents the average monthly West Texas Intermediate (WTI) spot price as reported by the United States Energy Information Administration. 
+(2) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Reduced demand for crude oil and refined products related to the COVID-19 pandemic led to a significant reduction in crude oil prices and demand for drilling and completion services in the United States. 
+Oil prices remain extremely volatile, as the closing price of oil (WTI-Cushing) reached a first quarter 2020 high of $63.27 per barrel on January 6, 2020, declined to negative $36.98 per barrel on April 20, 2020, and closed at $53.55 per barrel on February 1, 2021. In response to the rapid decline in commodity prices, E&P companies acted swiftly to reduce drilling and completion activity starting late in the first quarter of 2020. While oil prices have recovered from the lows experienced in the first half of 2020, our average number of rigs operating remains well below the number of our available rigs, and a significant portion of our pressure pumping horsepower remains stacked. Oil prices averaged $42.45 per barrel in the fourth quarter of 2020 . 
+Our active rig count has declined since the fourth quarter of 2018. Our average active rig count for the fourth quarter of 2020 was 62 rigs. This was an increase from our average active rig count for the third quarter of 2020 of 60 rigs. Our U.S. active rig count at December 31, 2020 of 65 rigs was less than the rig count of 121 rigs at December 31, 2019, due to the significantly reduced demand for drilling services in the United States. Term contracts help support our operating rig count. Based on contracts currently in place, we expect an average of 42 rigs operating under term contracts during the first quarter of 2021 and an average of 34 rigs operating under term contracts throughout 2021. 
+The pressure pumping market remains oversupplied. In response to oversupplied market conditions, we implemented changes during the second quarter of 2020 to further streamline our operations, improve our efficiencies, and reduce our overall cost structure, while maintaining our customer service levels. 
+Recent Developments in Financial Matters — During the fourth quarter of 2020, we elected to repurchase portions of our 2028 Notes and 2029 Notes (as defined below) in the open market. The principal amounts retired through these transactions totaled $15.5 million related to our 2028 Notes and $0.8 million related to our 2029 Notes, plus accrued interest. We recorded corresponding gains on the extinguishment of these amounts totaling $3.4 million and $0.2 million, respectively, net of the proportional write-off of associated deferred financing costs and original issuance discounts. These gains are included in “Interest expense, net of amount capitalized” in the consolidated statements of operations. 
+On December 24, 2020, we elected to repay $50 million of the borrowings under our Term Loan Agreement (as defined below). As of December 31, 2020, we had $50 million in borrowings remaining under the Term Loan Agreement at a LIBOR-based interest rate of 1.52%. The maturity date of the Term Loan Agreement is June 10, 2022. 
+On March 27, 2020, we entered into Amendment No. 2 to Amended and Restated Credit Agreement to, among other things, extend the maturity date for $550 million of revolving credit commitments of certain lenders under the Credit Agreement (as defined below) from March 27, 2024 to March 27, 2025. We have the option, subject to certain conditions, to exercise an additional one-year extension of the maturity date. 
+Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for additional detail regarding our 2028 Notes, 2029 Notes, Term Loan Agreement and Credit Agreement. 
+4 
+During the second quarter of 2020, we implemented a restructuring plan to improve operating margins, achieve operational efficiencies and reduce indirect support costs. The restructuring included workforce reductions, changes to management structure and facility consolidations and closures. We recorded $38.3 million of charges associated with this plan in the second quarter of 2020. In conjunction with our restructuring, we closed our Canadian drilling operations. We recorded an impairment of $8.3 million associated with that closure. We completed the restructuring plan during the third quarter of 2020 and did not incur additional expenses related to the plan. 
+The following table presents restructuring expenses by reportable segment f or the year ended December 31 , 2020 (in thousands) : 
+Contract Drilling 
+Pressure Pumping 
+Directional Drilling 
+Other Operations 
+Corporate 
+Total 
+Severance costs 
+$ 
+1,821 
+$ 
+3,460 
+$ 
+503 
+$ 
+501 
+$ 
+215 
+$ 
+6,500 
+Contract termination costs 
+— 
+20,373 
+— 
+— 
+— 
+20,373 
+Other exit costs 
+523 
+194 
+827 
+— 
+— 
+1,544 
+Right-of-use asset abandonments 
+86 
+7,304 
+1,845 
+— 
+686 
+9,921 
+Total 
+$ 
+2,430 
+$ 
+31,331 
+$ 
+3,175 
+$ 
+501 
+$ 
+901 
+$ 
+38,338 
+Industry Segments 
+Our revenues, operating loss and identifiable assets are primarily attributable to three industry segments: 
+• 
+contract drilling services, 
+• 
+pressure pumping services, and 
+• 
+directional drilling services. 
+Our contract drilling services, pressure pumping services, and directional drilling services industry segments had operating losses in 2020, 2019 and 2018. 
+See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 17 of Notes to Consolidated Financial Statements included as a part of Items 7 and 8, respectively, of this Report for financial information pertaining to these industry segments. 
+Contract Drilling Operations 
+General — We market our contract drilling services to major, independent and other oil and natural gas operators. As of December 31, 2020, we had 210 marketed land-based drilling rigs based in the following regions: 
+• 
+68 in west Texas and southeastern New Mexico, 
+• 
+19 in north central and east Texas and northern Louisiana, 
+• 
+35 in the Rocky Mountain region (Colorado, Wyoming and North Dakota), 
+• 
+23 in south Texas, 
+• 
+29 in western Oklahoma, and 
+• 
+36 in the Appalachian region (Pennsylvania, Ohio and West Virginia). 
+Our marketed drilling rigs have rated maximum depth capabilities ranging from approximately 13,200 feet to 24,000 feet. All of these drilling rigs are electric rigs. An electric rig converts the power from its diesel engines into electricity to power the rig. We also have a substantial inventory of drill pipe and drilling rig components, which may be used in the activation of additional drilling rigs or as upgrades or replacement parts for marketed rigs. 
+Drilling rigs are typically equipped with engines, drawworks, top drives, masts, pumps to circulate the drilling fluid, blowout preventers, drill pipe and other related equipment. Over time, components on a drilling rig are replaced or rebuilt. We spend significant funds each year as part of a program to modify, upgrade and maintain our drilling rigs. We have spent approximately $694 million during the last three years on capital expenditures to modify, upgrade and extend the lives of components of our drilling fleet. During fiscal years 2020, 2019 and 2018, we spent approximately $105 million, $194 million and $395 million, respectively, on these capital expenditures. 
+5 
+Depth and complexity of the well, drill site conditions and the number of wells to be drilled on a pad are the principal factors in determining the specifications of the rig selected for a particular job. 
+Our contract drilling operations depend on the availability of drill pipe, drill bits, replacement parts and other related rig equipment, fuel and other materials and qualified personnel. Some of these have been in short supply from time to time. 
+Drilling Contracts — Most of our drilling contracts are with established customers on a competitive bid or negotiated basis. Our bid for each job depends upon location, equipment to be used, estimated risks involved, estimated duration of the job, availability of drilling rigs and other factors particular to each proposed contract. Our drilling contracts are either on a well-to-well basis or a term basis. Well-to-well contracts are generally short-term in nature and cover the drilling of a single well or a series of wells. Term contracts are entered into for a specified period of time (we define term contracts as contracts with a duration of six months or more) or for a specified number of wells. During 2020, our average number of days to drill a well (which includes moving to the drill site, rigging up and rigging down) was approximately 19 days. 
+Our drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of our drilling personnel and necessary maintenance expenses. Most drilling contracts are subject to termination by the customer on short notice and may or may not contain provisions for an early termination payment to us in the event that the contract is terminated by the customer. 
+Our drilling contracts provide for payment on a daywork basis, pursuant to which we provide the drilling rig and crew to the customer. The customer provides the program for the drilling of the well. Our compensation is based on a contracted rate per day during the period the drilling rig is utilized. We often receive a lower rate when the drilling rig is moving or when drilling operations are interrupted or restricted by adverse weather conditions or other conditions beyond our control. Daywork contracts typically provide separately for mobilization of the drilling rig. 
+Contract Drilling Activity — Information regarding our contract drilling activity for the last three years follows: 
+Year Ended December 31, 
+2020 
+2019 
+2018 
+Average rigs operating per day (1) 
+82 
+149 
+177 
+Number of rigs operated during the year 
+132 
+189 
+193 
+Number of wells drilled during the year 
+1,327 
+2,703 
+3,088 
+Number of operating days 
+29,904 
+54,544 
+64,479 
+(1) 
+A rig is considered to be operating if it is earning revenue pursuant to a contract on a given day. 
+Drilling Rigs and Related Equipment — We have made significant upgrades during the last several years to our drilling fleet to match the needs of our customers. While conventional wells remain a source of oil and natural gas, our customers have expanded the development of shale and other unconventional wells to help supply the long-term demand for oil and natural gas in the United States. 
+To address our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays, we have improved the capability of our drilling fleet during the last several years. We have delivered new APEX ® rigs to the market and have made performance and safety improvements to existing high capacity rigs. APEX ® rigs are electric rigs with advanced electronic drilling systems, 500-ton top drives, iron roughnecks, hydraulic catwalks, and other automated pipe handling equipment. APEX ® rigs that are pad-capable are designed to efficiently drill multiple wells from a single pad, by “walking” between the wellbores without requiring time to lower the mast and lay down the drill pipe. As of December 31, 2020, our marketed land-based drilling fleet was comprised of the following: 
+Number of Rigs 
+Classification 
+Total 
+Percent Pad-Capable 
+APEX ® 1500 HP rigs 
+172 
+94 
+% 
+APEX ® 1000 HP rigs 
+12 
+100 
+% 
+APEX ® 2000 HP rigs 
+6 
+67 
+% 
+APEX ® 1400 HP rigs 
+5 
+100 
+% 
+APEX ® 1200 HP rigs 
+3 
+100 
+% 
+Other electric rigs 
+12 
+83 
+% 
+Total 
+210 
+Average horsepower 
+1,458 
+6 
+The U.S. land rig industry refers to certain high specification rigs as “super-spec” rigs. We consider a super-spec rig to be a 1,500 horsepower, AC powered rig that has at least a 750,000-pound hookload, a 7,500-psi circulating system, and is pad-capable. We currently estimate there are approximately 690 super-spec rigs in the United States, which includes 150 of our APEX® rigs. 
+We perform repair and/or overhaul work to our drilling rig equipment at our yard facilities located in Texas, Oklahoma, Wyoming, Colorado, North Dakota, Ohio and West Virginia. 
+Pressure Pumping Operations 
+General — We provide pressure pumping services to oil and natural gas operators, primarily in Texas and the Appalachian region (Northeast Region). Pressure pumping services consist primarily of well stimulation services (such as hydraulic fracturing) for the completion of new wells and remedial work on existing wells. Wells drilled in shale formations and other unconventional plays require well stimulation through hydraulic fracturing to allow the flow of oil and natural gas. This is accomplished by pumping fluids and proppant under pressure into the well bore to fracture the formation. Many wells in conventional plays also receive well stimulation services. We also provide cementing services through the pressure pumping segment. The cementing process inserts material between the wall of the well bore and the casing to support and stabilize the casing. The scope and impact of our cementing services were insignificant during the fiscal years 2020, 2019 and 2018. 
+Pressure Pumping Contracts — Our pressure pumping operations are conducted pursuant to a work order for a specific job or pursuant to a term contract. The term contracts are generally entered into for a specified period of time and may include minimum revenue, usage or stage requirements. We are compensated based on a combination of charges for equipment, personnel, materials, mobilization and other items. 
+Equipment — We have pressure pumping equipment used in providing hydraulic fracturing services as well as cementing and acid pumping services, with a total of approximately 1.4 million horsepower as of December 31, 2020. Pressure pumping equipment at December 31, 2020 included: 
+Other 
+Fracturing 
+Pumping 
+Equipment 
+Equipment 
+Total 
+Texas Region 
+Number of units 
+401 
+17 
+418 
+Approximate horsepower 
+953,250 
+18,555 
+971,805 
+Northeast Region 
+Number of units 
+167 
+11 
+178 
+Approximate horsepower 
+371,150 
+7,500 
+378,650 
+Other Regions 
+Number of units 
+5 
+— 
+5 
+Approximate horsepower 
+12,250 
+— 
+12,250 
+Combined: 
+Number of units 
+573 
+28 
+601 
+Approximate horsepower 
+1,336,650 
+26,055 
+1,362,705 
+Our pressure pumping operations are supported by a fleet of other equipment including blenders, tractors, manifold trailers and numerous trailers for transportation of materials to and from the worksite, as well as bins for storage of materials at the worksite. 
+Materials — Our pressure pumping operations require the use of acids, chemicals, proppants, fluid supplies and other materials, any of which can be in short supply, including severe shortages, from time to time. We purchase these materials from various suppliers. These purchases are made in the spot market or pursuant to other arrangements that may not cover all of our required supply. These supply arrangements sometimes require us to purchase the supply or pay liquidated damages if we do not purchase the material. Given the limited number of suppliers of certain of our materials, we may not always be able to make alternative arrangements if we are unable to reach an agreement with a supplier for delivery of any particular material or should one of our suppliers fail to timely deliver our materials. 
+7 
+Directional Drilling Operations 
+General — We generally utilize our own proprietary downhole motors and equipment to provide a comprehensive suite of directional drilling services, including directional drilling, measurement-while-drilling (MWD) and supply and rental of downhole performance motors and wireline steering tools, in most major onshore oil and natural gas basins in the United States. We generally design, assemble and maintain our own fleet of downhole drilling motors and MWD equipment. Our customers primarily consist of major integrated energy companies and large North American independent oil and natural gas operators. We believe our customers use our services because of the quality of our specialized, technology-driven equipment and our well-trained and experienced workforce, which enable us to provide our customers with high-quality, reliable and safe directional drilling services. 
+Directional Drilling Services — We provide our directional drilling services on a dayrate basis, typically under master service agreements. Revenue from directional drilling services is recognized as work progresses based on the number of days of work completed. Our dayrates and other charges generally vary by location and depend on the equipment and personnel required for the job and market conditions in the region in which the services are performed. In addition to rates that are charged during periods of active directional drilling, a standby rate is typically agreed upon in advance and charged on a daily basis during periods when drilling is temporarily suspended while other on-site activity is conducted at the direction of the operator or another service provider. 
+Equipment — We generally design, assemble, maintain and inspect our own equipment. We have developed proprietary equipment for our drilling motors, mud pulse and electromagnetic data transfer MWD equipment. We believe that our vertical integration strategy allows us to deliver better operational performance and higher equipment reliability to our customers. Vertical integration also allows us to build our tools more efficiently and at a lower cost than if purchased from third parties. In addition, we have the ability to upgrade our tools in response to market conditions or our customers’ job requirements, which allows us to minimize the costs and delays associated with sending equipment to original manufacturers. Our internal maintenance capability also affords us enhanced control over our supply chain and increases the effective utilization of our assets. As of December 31, 2020, we had a comprehensive fleet of over 1,000 motors. In addition to our motor fleet, we had over 100 MWD systems. 
+Wellbore Placement Data Analytics — We provide software and services used to improve the statistical accuracy of horizontal wellbore placement. Our measurement-while-drilling (MWD) Survey FDIR (fault detection, isolation and recovery) service is a data analytics technology to analyze MWD survey data in real-time and more accurately identify the position of a well. Our HiFi Nav™ offering enhances FDIR by targeting improved vertical placement of the directional well within the reservoir. We provide these services to customers with onshore and offshore operations. 
+Other Operations 
+Our oilfield rentals business has a fleet of premium rental tools and provides specialized services for land-based oil and natural gas drilling, completion and workover activities in many of the major producing onshore oil and gas basins in the United States. We service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico. 
+Contracts 
+We believe that our contract drilling, pressure pumping, directional drilling and other contracts generally provide for indemnification rights and obligations that are customary for the markets in which we conduct those operations. However, each contract contains the actual terms setting forth our rights and obligations and those of the customer or supplier, any of which rights and obligations may deviate from what is customary due to particular industry conditions, customer or supplier requirements, applicable law or other factors. 
+Customers 
+Our customer base includes major, independent and other oil and natural gas operators. With respect to our consolidated operating revenues in 2020, we received approximately 54% from our ten largest customers and approximately 35% from our five largest customers. During 2020, no customer accounted for more than 10% of our consolidated operating revenues. The loss of, or reduction in business from, one or more of our larger customers could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+8 
+Backlog 
+Our contract drilling backlog as of December 31, 2020 and 2019 was approximately $301 million and $605 million, respectively. Approximately 21% of the total contract drilling backlog at December 31, 2020 is reasonably expected to remain after 2021. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as a part of Item 7 of this Report for information pertaining to backlog. 
+Competition 
+The businesses in which we operate are highly competitive. Historically, available equipment used in our contract drilling, pressure pumping and directional drilling businesses has frequently exceeded demand, particularly in an industry downturn. The price for our services is a key competitive factor, in part because equipment used in these businesses can be moved from one area to another in response to market conditions. In addition to price, we believe availability, condition and technical specifications of equipment, quality of personnel, service quality and safety record are key factors in determining which contractor is awarded a job. We expect that the market for our services will continue to be highly competitive. 
+Human Capital and Sustainability 
+We strive to be a leader in our industry in the area of environmental, social, governance and other sustainability-related issues, and we remain committed to managing these issues for the long-term benefit of our employees, communities and our business. We aim to minimize our environmental impact in the communities in which we work and live, while providing services for our customers in a safe and responsible manner. We invest extensively in the safety, health and well-being of our people, who are our most important asset and our greatest strength. Importantly, we maintain a rigorous focus on ethics and integrity at every level of our operations, a practice on which all of our success depends. 
+We encourage you to review our latest Sustainability Report, located on our website, for more detailed information regarding our Sustainability and Human Capital programs and initiatives. Nothing on our website, including our Sustainability Report or sections thereof, shall be deemed incorporated by reference into this Report or other filings that we make with the SEC. 
+Environment – We continue to pursue initiatives to mitigate climate change risk and make improvements in air quality, water quality, land usage, use of energy and reducing waste materials. For example, we utilize natural gas engines, dual-fuel equipment and other technologies that reduce our carbon and other greenhouse gas emissions, and we employ spill prevention plans and use additional protective measures in environmentally sensitive areas. 
+We have strengthened our position as a leader in alternative fuel technology with the commercialization of our EcoCell™ lithium battery hybrid energy management system. EcoCell™ is capable of efficiently displacing one of the gensets on a drilling rig to reduce both fuel consumption and emissions. The value of this technology is enhanced when used in combination with our Cortex® power management system and our dual-fuel engines, as the natural gas substitution rate can be optimized. 
+Through our Current Power business, we provide in-house electrical engineering, control system automation and installation services to connect drilling rigs to utility electrical lines. This capability enables our customers to use utility power, instead of natural gas or diesel fuel, to power drilling operations. Using utility power is an optimal power solution for our drilling rigs as it minimizes emission impacts at the wellsite. 
+Some of our key human capital areas of focus include: 
+Employees – We had approximately 3,000 full-time employees as of January 31, 2021. The number of employees fluctuates depending on the current and expected demand for our services. We consider our employee relations to be satisfactory. None of our employees are represented by a union. 
+Training and Safety – Our training programs include opportunities for employees to advance in their professional careers through intensive, multi-day classroom training programs in numerous skills and competencies as well as management training programs. These programs are geared to providing our employees with opportunities to advance throughout our company. 
+The safety of our employees and others is our highest priority, as our goal is to provide an incident-free work environment. We have robust safety training programs in place that are designed to comply with applicable laws and industry standards and to benefit our employees, communities and our business. All field-based employees are required to attend an Employee Safety Orientation, which includes classes on behavior-based safety, hazard awareness, safe systems of work, permission to work, time out for safety, energy isolation, hazard communication (HAZCOM) and material handling. In response to the COVID-19 pandemic, we implemented, and continue to implement, safety protocols at our offices, facilities and worksites. These protocols include allowing many of our office-based employees to work from home, while implementing additional safety measures for employees continuing critical on-site work. 
+9 
+Diversity and Inclusion – We are committed to fostering a work environment where all people feel valued and respected. We embrace our diversity of people, thoughts and talents, and combine these strengths to pursue extraordinary results for our company, our employees and our stockholders. We are committed to recruiting, hiring and retaining the highest caliber talent for our business by utilizing outreach initiatives and partnerships with a diverse group of organizations, industry associations and networks. 
+We require our employees to complete training on an annual basis regarding our commitment to a respectful workplace for all. Supervisors and managers are required to complete respectful workplace training to ensure they understand our expectations for them regarding their obligations to promote a work environment where all employees feel valued and respected. 
+Maintaining our Core Values – In 2020, we trained over 4,000 employees on our Code of Business Conduct and Ethics, which addresses conflicts of interest, confidentiality, fair dealing with others, proper use of company assets, compliance with laws, insider trading, keeping of books and records, zero tolerance for discrimination and harassment in the work environment, as well as reporting of violations. 
+Health and Benefits – Our health and benefits program provides for extensive preventative care and is designed to improve our employees’ fitness for work, personal safety on the job and overall well-being. 
+Government and Environmental Regulation 
+All of our operations and facilities are subject to numerous federal, state, foreign, regional and local laws, rules and regulations related to various aspects of our business, including: 
+• 
+drilling of oil and natural gas wells, 
+• 
+hydraulic fracturing, cementing and acidizing and related well servicing activities, 
+• 
+directional drilling services, 
+• 
+services that improve the statistical accuracy of horizontal wellbore placement, including for customers with offshore operations, 
+• 
+containment and disposal of hazardous materials, oilfield waste, other waste materials and acids, 
+• 
+use of underground storage tanks and injection wells, 
+• 
+servicing of equipment for drilling contractors, 
+• 
+provision of electrical controls and automation, and 
+• 
+our employees. 
+To date, applicable environmental and other laws and regulations in the places in which we operate have not required the expenditure of significant resources outside the ordinary course of business. We do not anticipate any material capital expenditures for environmental control facilities or extraordinary expenditures to comply with environmental rules and regulations in the foreseeable future. However, compliance costs under existing laws or under any new requirements could become material, and we could incur liability in any instance of noncompliance. 
+Our business is generally affected by political developments and by federal, state, foreign, regional and local laws, rules and regulations that relate to the oil and natural gas industry. The adoption of laws, rules and regulations affecting the oil and natural gas industry for economic, environmental and other policy reasons could increase costs relating to drilling, completion and production, delay the permitting of, or related to, such operations, restrict or prohibit oil and gas development in certain areas, reduce the demand for oil and natural gas and otherwise have an adverse effect on our operations or business, and could have a material adverse effect on our business, financial condition, cash flows and results of operations. Federal, state, foreign, regional and local environmental laws, rules and regulations, including laws, rules, regulations and executive actions related to the mitigation of climate change or greenhouse gas emissions, currently apply to our operations and are likely to become more stringent in the future. Any limitation, suspension or moratorium of the services and products we or others provide, whether or not short-term in nature, by a federal, state, foreign, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operations. 
+We believe we use operating and disposal practices that are standard in the industry. However, hydrocarbons and other materials may have been disposed of, or released in or under properties currently or formerly owned or operated by us or our predecessors, which may have resulted, or may result, in soil and groundwater contamination in certain locations. Any contamination found on, under or originating from the properties may be subject to remediation requirements under federal, state, foreign, regional and local laws, rules and regulations. In addition, some of these properties have been operated by third parties over whom we have no control of their treatment of hydrocarbon and other materials or the manner in which they may have disposed of or released such materials. We 
+10 
+could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, it is possible we could be held responsible for oil and natural gas properties in which we own an interest but are not the operator. 
+Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that may govern our operations. 
+In the United States, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, commonly known as CERCLA, and comparable state statutes impose strict liability on: 
+• 
+owners and operators of sites, including prior owners and operators who are no longer active at a site; and 
+• 
+persons who disposed of or arranged for the disposal of “hazardous substances” found at sites. 
+The Federal Resource Conservation and Recovery Act (“RCRA”), as amended, and comparable state statutes and implementing regulations govern the disposal of “hazardous wastes.” Although CERCLA currently excludes petroleum from the definition of “hazardous substances,” and RCRA also excludes certain classes of exploration and production wastes from regulation, such exemptions may be deleted, limited, or modified in the future. For example, in December 2016, the U.S. Environmental Protection Agency (“EPA”) and environmental groups entered into a consent decree to address the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. The consent decree requires the EPA to propose a rulemaking by March 2019 for revision of certain Subtitle D criteria regulations pertaining to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. The EPA issued a report on April 23, 2019, determining that no revisions were necessary. However, if changes are made to the classification of exploration and production wastes under CERCLA and/or RCRA in the future, we could be required to remove and remediate previously disposed of materials (including materials disposed of or released by prior owners or operators) from properties (including ground water contaminated with hydrocarbons) and to perform removal or remedial actions to prevent future contamination. 
+The Federal Water Pollution Control Act (the “Clean Water Act”) and the Oil Pollution Act of 1990 (the “Oil Pollution Act”), each as amended, and implementing regulations govern: 
+• 
+the prevention and permitting of discharges, including oil and produced water spills, into jurisdictional waters; and 
+• 
+liability for drainage into such waters. 
+The Oil Pollution Act imposes strict liability for a comprehensive and expansive list of damages from an oil spill into jurisdictional waters from facilities. Liability may be imposed for oil removal costs and a variety of public and private damages. Penalties may also be imposed for violation of federal safety, construction and operating regulations, and for failure to report a spill or to cooperate fully in a clean-up. 
+The Oil Pollution Act also expands the authority and capability of the federal government to direct and manage oil spill clean-up and operations, and requires operators to prepare oil spill response plans in cases where it can reasonably be expected that substantial harm will be done to the environment by discharges on or into navigable waters. Failure to comply with ongoing requirements or inadequate cooperation during a spill event may subject a responsible party, such as us, to civil or criminal actions. Although the liability for owners and operators is the same under the Clean Water Act, the damages recoverable under the Oil Pollution Act are potentially much greater and can include natural resource damages. 
+The U.S. Occupational Safety and Health Administration (“OSHA”) promulgates and enforces laws and regulations governing the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. Also, OSHA has established a variety of standards related to workplace exposure to hazardous substances and employee health and safety. 
+11 
+Our activities include the performance of hydraulic fracturing services to enhance the production of oil and natural gas from formations with low permeability, such as shale and other unconventional formations. Due to concerns raised relating to potential impacts of hydraulic fracturing, including on groundwater quality and seismic activity, legislative and regulatory efforts at the federal level and in some state and local jurisdictions have been initiated to render permitting and compliance requirements more stringent for hydraulic fracturing or prohibit the activity altogether. Certain politicians have also vocalized support for a nationwide ban on hydraulic fracturing. Additional legislation or regulation could lead to operational delays or increased operating costs in the production of oil and natural gas or could make it more difficult to perform hydraulic fracturing. These developments could also lead to litigation challenging proposed or existing wells. Such efforts could have an adverse effect on oil and natural gas production activities, which in turn could have an adverse effect on the hydraulic fracturing services that we provide for our exploration and production customers , and such efforts could adversely affect our business, financial condition, cash flows and results of operations . See “Item 1A. Risk Factors – Potential Legislation and Regulation Covering Hydraulic Fracturing or Other Aspects of the Oil and Gas Industry Could Increase Our Costs and Limit or Delay Our Operations.” 
+Other jurisdictions where we may conduct operations have similar environmental and regulatory regimes with which we would be required to comply. These laws, rules and regulations also require that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws, rules and regulations are subject to frequent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. 
+Our operations are also subject to federal, state, foreign, regional and local laws, rules and regulations for the control of air emissions, including those associated with the Federal Clean Air Act and the Canadian Environmental Protection Act. We and our customers may be required to make capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. We are also subject to regulation by numerous other regulatory agencies, including, but not limited to, the U.S. Department of Labor, which oversees employment practice standards. 
+For more information, please refer to our discussion under “Item 1A. Risk Factors – Environmental and Occupational Health and Safety Laws and Regulations, Including Violations Thereof, Could Materially Adversely Affect Our Operating Results.” 
+There has been an increasing focus of local, state, national and international regulatory bodies on greenhouse gas (“GHG”) emissions and climate change issues. There has also been legislation proposed by U.S. lawmakers to reduce GHG emissions, as well as GHG emissions regulations enacted by the EPA, and future federal action to address climate change is likely. 
+President Biden and the Democratic Party, which now controls Congress, have identified climate change as a priority, and it is likely that new executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or prohibiting, delaying or restricting oil and gas development activities in certain areas, will be proposed and/or promulgated during the Biden Administration. For example, the acting Secretary of the Department of the Interior recently issued an order preventing staff from producing any new fossil fuel leases or permits without sign-off from a top political appointee, and President Biden recently announced a moratorium on new oil and gas leasing on federal lands and offshore waters pending completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices. President Biden’s order also established climate change as a primary foreign policy and national security consideration, affirms that achieving net-zero greenhouse gas emissions by or before midcentury is a critical priority, affirms the Biden Administration’s desire to establish the United States as a leader in addressing climate change, generally further integrates climate change and environmental justice considerations into government agencies’ decision-making, and eliminates fossil fuel subsidies, among other measures. President Biden also announced that the United States is taking steps to reenter the Paris Agreement. 
+Several states and geographic regions in the United States have also adopted legislation and regulations to reduce emissions of GHGs, including cap and trade regimes and commitments to contribute to meeting the goals of the Paris Agreement. 
+We will continue to monitor and assess any new policies, legislation or regulations in the areas where we operate to determine the impact of GHG emissions and climate change on our operations and take appropriate actions, where necessary. Any direct and indirect costs of meeting these requirements may adversely affect our business, results of operations and financial condition. See “Item 1A. Risk Factors – Our and Our Customers’ Operations are Subject to a Number of Risks Arising Out of the Threat of Climate Change That Could Result in Increased Operating and Capital Costs, Limit the Areas in Which Oil and Natural Gas Production May Occur and Reduce Demand for Our Services.” 
+Risks and Insurance 
+Our operations are subject to many hazards inherent in the businesses in which we operate, including inclement weather, blowouts, explosions, fires, loss of well control, motor vehicle accidents, pollution, exposure and reservoir damage. These hazards could cause personal injury or death, work stoppage, and serious damage to equipment and other property, as well as significant environmental and 
+12 
+reservoir damages. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages. An accident or other event resulting in significant environmental or property damage, or injuries or fatalities involving our employees or other persons could also trigger investigations by federal, state or local authorities. Such an accident or other event could cause us to incur substantial expenses in connection with the investigation, remediation and resolution, as well as cause lasting damage to our reputation, loss of customers and an inability to obtain insurance. 
+We have indemnification agreements with many of our customers, and we also maintain liability and other forms of insurance. In general, our contracts typically contain provisions requiring our customers to indemnify us for, among other things, reservoir and certain pollution damage. Our right to indemnification may, however, be unenforceable or limited due to negligent or willful acts or omissions by us, our subcontractors and/or suppliers. Our customers and other third parties may dispute, or be unable to meet, their indemnification obligations to us due to financial, legal or other reasons. Accordingly, we may be unable to transfer these risks to our customers and other third parties by contract or indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse effect on our business, financial condition, cash flows and results of operations. 
+We maintain insurance coverage of types and amounts that we believe to be customary in the industry, but we are not fully insured against all risks, either because insurance is not available or because of the high premium costs. The insurance coverage that we maintain includes insurance for fire, windstorm and other risks of physical loss to our equipment and certain other assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. We cannot assure, however, that any insurance obtained by us will be adequate to cover any losses or liabilities, or that this insurance will continue to be available, or available on terms that are acceptable to us. While we carry insurance to cover physical damage to, or loss of, a substantial portion of our equipment and certain other assets, such insurance does not cover the full replacement cost of such equipment or other assets. We have also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. For example, we generally maintain a $1.5 million per occurrence deductible on our workers’ compensation insurance coverage, a $1.0 million per occurrence deductible on our equipment insurance coverage, a $10.0 million per occurrence deductible on our general liability coverage, a $2.0 million per occurrence deductible on our primary automobile liability insurance coverage, and a $5.0 million per occurrence deductible on our excess automobile liability insurance coverage. We also self-insure a number of other risks, including loss of earnings and business interruption and most cybersecurity risks, and we do not carry a significant amount of insurance to cover risks of underground reservoir damage. 
+Our insurance may not in all situations provide sufficient funds to protect us from all liabilities that could result from our operations. Our coverage includes aggregate policy limits and exclusions. As a result, we retain the risk for any loss in excess of these limits or that is otherwise excluded from our coverage. There can be no assurance that insurance will be available to cover any or all of our operational risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive, or that our coverage will cover a specific loss. Further, we may experience difficulties in collecting from insurers or such insurers may deny all or a portion of our claims for insurance coverage. Incurring a liability for which we are not fully insured or indemnified could materially adversely affect our business, financial condition, cash flows and results of operations. 
+If a significant accident or other event occurs that is not fully covered by insurance or an enforceable and recoverable indemnity from a third party, it could have a material adverse effect on our business, financial condition, cash flows and results of operations. See “Item 1A. Risk Factors – Our Operations Are Subject to a Number of Operational Risks, Including Environmental and Weather Risks, Which Could Expose Us to Significant Losses and Damage Claims. We Are Not Fully Insured Against All of These Risks and Our Contractual Indemnity Provisions May Not Fully Protect Us.” 
+Seasonality 
+Seasonality has not significantly affected our overall operations. Toward the end of calendar years, we have recently experienced slower activity in connection with the holidays and as customers’ capital expenditure budgets are depleted. Occasionally, our operations have been negatively impacted by severe weather conditions. 
+Raw Materials and Subcontractors 
+We use many suppliers of raw materials and services. Although these materials and services have historically been available, there is no assurance that such materials and services will continue to be available on favorable terms or at all. We also utilize numerous independent subcontractors from various trades. 
+13

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+Item 13. Certain Relationships and Related Transactions, and Director Independence. 
+The information required by this Item is incorporated herein by reference to the Proxy Statement.

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+Item 9A. Controls and Procedures. 
+Disclosure Controls and Procedures: 
+Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Report. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2020, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 
+Management’s Report on Internal Control over Financial Reporting: 
+Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020. 
+The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-2 of this Report and which is incorporated by reference into Item 8 of this Report. 
+Changes in Internal Control over Financial Reporting: 
+There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.