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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number 0-22664

Patterson-UTI Energy, Inc.

Registrant’s telephone number, including area code:

Securities Registered Pursuant to 12(b) of the Act: None

(Title of class)

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ          No o

      The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter was $2,441,241,719, calculated by reference to the closing price of $32.37 for the common stock on the Nasdaq National Market on that date.

      As of February 2, 2004, the registrant had outstanding 81,055,467 shares of common stock, $.01 par value, its only class of voting stock.

      Documents incorporated by reference:

      Definitive Proxy Statement for the 2004 Annual Meeting of Stockholders (Part III)

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      This Report on Form 10-K (including documents incorporated by reference herein) contains statements with respect to our expectations and beliefs as to future events. These types of statements are “forward-looking” and subject to uncertainties. Readers are cautioned that such forward-looking statements should be read in conjunction with our disclosures under the heading: “Forward Looking Statements and Cautionary Statements for Purposes of the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of 1995” beginning on page 15.

      This Report on Form 10-K, 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 Securities Exchange Act of 1934, are available 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.

PART I

Items 1 and 2.     Business and Properties.

Overview

      Based on publicly available information, we believe we are the second largest owner of land-based drilling rigs in North America. The Company was formed in 1978 and reincorporated in 1993 as a Delaware corporation. Our contract drilling business operates primarily in:

	•	Texas,
	•	New Mexico,
	•	Oklahoma,
	•	Louisiana,
	•	Mississippi,
	•	Colorado,
	•	Utah,
	•	Wyoming, and
	•	Western Canada (Alberta, British Columbia and Saskatchewan).

      As of December 31, 2003, we had a drilling fleet of 343 drilling rigs. A drilling rig includes the structure, power source, and machinery necessary to cause a drill bit to penetrate earth to a depth desired by the customer.

      We provide pressure pumping services to oil and natural gas operators primarily in the Appalachian Basin. These services consist primarily of well stimulation and cementing for completion of new wells and remedial work on existing wells. We provide drilling fluids, completion fluids, and related services to oil and natural gas operators in West Texas, Southeast New Mexico, South Texas, East Texas, Oklahoma, the Gulf Coast regions of Texas and Louisiana, and the Gulf of Mexico. Drilling and completion fluids are used by oil and natural gas operators during the drilling process to control pressure when drilling oil and natural gas wells. We are also engaged in the development, exploration, acquisition and production of oil and natural gas. Our oil and natural gas operations are focused primarily in producing regions in West Texas, Southeast New Mexico, South Texas and Mississippi.

Patterson/UTI Merger

      Patterson Energy, Inc. and UTI Energy Corp. consummated a merger on May 8, 2001. The transaction was treated as a reorganization within the meaning of Section 368 (a) of the Internal Revenue Code of 1986, as amended, and accounted for as a pooling of interests for financial accounting purposes. Historical financial

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Industry Segments

      Our revenues, operating profits/(losses) and identifiable operating assets are attributable to four industry segments:

	•	contract drilling,
	•	pressure pumping services,
	•	drilling and completion fluids services, and
	•	oil and natural gas development, exploration, acquisition and production.

      With respect to these four segments:

	•	the contract drilling segment had operating profits in 2003, 2002 and 2001,
	•	the pressure pumping segment had operating profits in 2003, 2002 and 2001,
	•	the drilling and completion fluids segment had operating losses in 2003 and 2002 and an operating profit in 2001, and
	•	the oil and natural gas segment had operating profits in 2003, 2002 and 2001.

      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 and independent oil and natural gas operators. As of December 31, 2003, we owned 343 drilling rigs which are based in the following regions:

	•	143 in West Texas and New Mexico,
	•	56 in South Texas,
	•	42 in the Ark-La-Tex region and Mississippi,
	•	70 in the Mid-Continent region (Oklahoma and North Central Texas),
	•	16 in the Rocky Mountain region (Colorado, Utah and Wyoming), and
	•	16 in Western Canada (Alberta, British Columbia and Saskatchewan).

      Of our drilling rigs, 39 are SCR electric rigs and 304 are mechanical rigs. An electric rig differs from a mechanical rig in that the electric rig converts the diesel power (the sole energy source for a mechanical rig) into electricity to power the rig. Our drilling rigs have rated maximum depth capabilities ranging from 4,000 feet to 30,000 feet.

      Drilling rigs are typically equipped with:

	•	engines,
	•	drawworks or hoists,
	•	derricks or masts,
	•	pumps to circulate the drilling fluid,
	•	blowout preventers,

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	•	drill string (pipe), and
	•	other related equipment.

      Over time, many of the components on a drilling rig are replaced or rebuilt. We spend significant funds each year on an ongoing program of modifying and upgrading our drilling rigs to ensure that our drilling equipment is well maintained and competitive. During fiscal years 2003, 2002, and 2001, we spent approximately $95 million, $69 million, and $151 million, respectively, on capital improvements to modify and upgrade our drilling rigs.

      Depth of the well and drill site conditions are the principal factors in determining the size of drilling rig used for a particular job. Our drilling rigs are utilized for both developmental and exploratory drilling and can be used for either vertical or horizontal drilling.

      Our contract drilling operations depend on the availability of:

	•	drill pipe,
	•	bits,
	•	replacement parts and other related rig equipment,
	•	fuel, and
	•	qualified personnel,

some of which have been in short supply from time to time.

      Drilling Contracts — Most of our drilling contracts are with established customers and are obtained on a competitive bid or negotiated basis. Typically, the contracts are entered into for short-term periods and cover the drilling of a single well or a series of wells.

      The drilling contracts obligate us to provide and operate a drilling rig and to pay certain operating expenses, including wages of drilling personnel and necessary maintenance expenses. The contracts are subject to termination by the customer on short notice. We generally indemnify our customers against claims by our employees and claims arising from surface pollution caused by spills of fuel, lubricants, and other solvents within our control. The customers generally indemnify us against claims arising from other surface and subsurface pollution, except claims arising from our gross negligence.

      The contracts provide for payment on a daywork, footage, or turnkey basis, or a combination thereof. In each case we provide the rig and crews. Our bids for each contract depend upon:

	•	the location, depth, and anticipated complexity of the well,
	•	the on-site drilling conditions,
	•	the equipment to be used,
	•	our estimate of the risks involved,
	•	the estimated duration of the work to be performed,
	•	the availability of drilling rigs, and
	•	other factors particular to each proposed well.

Daywork Contracts

      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 generally receive a lower rate when the drilling rig is moving, or when drilling operations are interrupted or restricted by conditions beyond our control. In addition, daywork contracts typically provide separately for mobilization of the drilling rig.

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Footage Contracts

      Under footage contracts, we contract to drill a well to a certain depth under specified conditions for a fixed price per foot. The customer provides drilling fluids, casing, cementing, and well design expertise. These contracts require us to bear the cost of services and supplies that we provide until the well has been drilled to the agreed depth. If we drill the well in less time than estimated, we have the opportunity to improve our margins over those that would be attainable under a daywork contract. Margins are reduced and losses may be incurred if the well requires more days to drill to the contracted depth than estimated. Footage contracts generally contain greater risks for a drilling contractor than daywork contracts. Under footage contracts, the drilling contractor assumes certain risks associated with loss of the well from fire, blowouts, and other risks.

Turnkey Contracts

      Under turnkey contracts, we contract to drill a well to a certain depth under specified conditions for a fixed fee. In a turnkey arrangement, we are required to bear the costs of services, supplies, and equipment beyond those typically provided under a footage contract. In addition to the drilling rig and crew, we are required to provide the drilling and completion fluids, casing, cementing, and the technical well design and engineering services during the drilling process. We also assume certain risks associated with drilling the well such as fires, blowouts, cratering of the well bore, and other such risks. Compensation occurs only when the agreed scope of the work has been completed which requires us to make larger up-front working capital commitments prior to receiving payments under a turnkey drilling contract. Under a turnkey contract we have the opportunity to improve our margins if the drilling process goes as expected and there are no complications or time delays. However, given the increased exposure we have under a turnkey contract, margins can be significantly reduced and losses incurred if complications or delays occur during the drilling process. Turnkey contracts generally involve the highest degree of risk among the three different types of drilling contracts: daywork, footage, and turnkey.

      The following table sets forth the approximate percentage of our drilling revenues attributable to daywork, footage, and turnkey contracts for each of the last three years:

      Contract Drilling Activity — The following table sets forth certain information regarding our contract drilling activity for each of the last three years:

(1)	A rig is operating when it is drilling, being moved, assembled, or dismantled under contract.

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      Drilling Rigs and Related Equipment — The following table provides certain information about our drilling rigs as of December 31, 2003:

      At December 31, 2003, we owned 261 trucks and 316 trailers used to rig down, transport, and rig up our drilling rigs. This reduces our dependency upon third parties for these services and enhances the efficiency of our contract drilling operations particularly in periods of high drilling rig utilization.

      Most repair and overhaul work to our drilling rig equipment is performed at our yard facilities located in Texas, New Mexico, Oklahoma, and Western Canada.

Pressure Pumping Operations

      General — We provide pressure pumping services to oil and natural gas operators primarily in the Appalachian Basin. Pressure pumping services consist primarily of well stimulation and cementing for the completion of new wells and remedial work on existing wells. Most wells drilled in the Appalachian Basin require some form of fracturing or other stimulation to enhance the flow of oil and natural gas which is accomplished by pumping fluids under pressure into the well bore. Generally, Appalachian Basin wells require cementing services before production commences. Cementing is the process of inserting material between the wall of the well bore and the casing to center and stabilize the casing.

      Equipment — As of December 31, 2003, we operated the following pressure pumping equipment:

	•	21 cement pumper trucks,
	•	24 fracturing pumper trucks,
	•	20 nitrogen pumper trucks,
	•	11 blender trucks,
	•	11 bulk acid trucks,
	•	25 bulk cement trucks,
	•	6 bulk nitrogen trucks,
	•	31 bulk sand trucks, and
	•	11 connection trucks.

Drilling and Completion Fluids Operations

      General — We provide drilling fluids, completion fluids, and related services to oil and natural gas operators in West Texas, Southeast New Mexico, South Texas, East Texas, Oklahoma, the Gulf Coast regions of Texas and Louisiana, and the Gulf of Mexico. We serve our offshore customers through seven stockpoints located along the Gulf of Mexico in Texas and Louisiana and our land-based customers through seven stockpoints in Texas, Louisiana, Oklahoma, and New Mexico.

      Drilling Fluids — Drilling fluid products and systems are used to cool and lubricate the bit during drilling operations, contain formation pressures (thereby minimizing blowout risk), suspend and remove rock cuttings from the hole, and maintain the stability of the wellbore. Technical services are provided to ensure that the products and systems are applied effectively to optimize drilling operations.

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      Completion Fluids — After a well is drilled it undergoes the completion process wherein the well casing is set and cemented into place. At that point, the drilling fluid services are complete, and the drilling fluids are circulated out of the well and replaced with completion fluids. Completion fluids, also known as clear brine fluids, are solids-free, clear salt solutions that have high specific gravities. Combined with a range of specialty chemicals, these fluids are used by operators to control bottom-hole pressures and to meet a well’s specific corrosion, inhibition, viscosity, and fluid loss requirements during the completion and workover phases.

      Raw Materials — Our drilling and completion fluids operations depend on the availability of the following raw materials:

      We obtain these raw materials through purchases made on the spot market and supply contracts with producers of these raw materials.

      Barite Grinding Facility — We own and operate a barite grinding facility equipped with two barite grinding mills located in Houma, Louisiana. This facility allows us to grind raw barite into the powder additive used in drilling fluids. We believe the ability to process our own barite is critical to being competitive on the Gulf Coast and in the Gulf of Mexico.

      Other Equipment — We own 20 trucks and 75 trailers and lease another 22 trucks which are used to transport drilling and completion fluids and related equipment.

Oil and Natural Gas Operations

      General — We are engaged in the development, exploration, acquisition, and production of oil and natural gas. Our oil and natural gas business operates primarily in producing regions of West Texas, Southeast New Mexico, South Texas, and Mississippi. Our strategy for our oil and natural gas operations is to increase our reserve base primarily through developmental drilling, as well as selected acquisitions of leasehold acreage and producing properties.

      Oil and Natural Gas Reserves — The following table sets forth estimates, derived from reserve reports provided by M. Brian Wallace, an independent petroleum engineer, of our proved developed reserves and estimated future net revenues from our proved developed reserves as of December 31, 2003, 2002, and 2001. The estimates were based upon production histories, current market prices for oil and natural gas, and other geologic, ownership, and engineering data provided by us. The present values (discounted at 10% before income taxes) of estimated future net revenues shown in the table are not intended to represent the current market value of the estimated oil and natural gas reserves. For further information concerning the present value of estimated future net revenues from these proved developed reserves, see also Note 20 of Notes to Consolidated Financial Statements included as a part of Item 8 of this Report.

      Proved oil and natural gas reserves are the estimated quantities of oil and natural gas which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reserves are considered proved if economical productibility is supported by either actual production or conclusive formation tests. Proved developed oil and

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(1)	For the calculation of standardized measure of discounted future net cash flows, see Note 20 of Notes to Consolidated Financial Statements included as a part of Item 8 of this Report.

      A barrel (Bbl) of oil is 42 U.S. gallons and represents the basic unit for measuring production of crude oil and condensate.

      An Mcf of natural gas refers to a volume of 1,000 cubic feet under prescribed conditions of pressure and temperature and represents the basic unit for measuring volumes of produced natural gas. A barrel of equivalent (BOE) in reference to natural gas equivalents is determined using the rate of six Mcf of natural gas to one Bbl of crude oil or condensate.

      Production — At December 31, 2003, we held a working interest in 315 productive wells, of which 150 were considered oil and 165 were considered natural gas. A productive well is a well producing oil or natural gas in commercial quantities. A working interest is the operating interest under an oil or natural gas lease which gives the owner the right to explore for and produce oil or natural gas from the lease. We were the operator of 172 of these wells at December 31, 2003. The following table sets forth our net oil and natural gas production, average sales price, and average production costs. Production costs are costs incurred to operate and maintain our wells and related equipment and include costs of labor, well service and repair, utilities, field supervision, property taxes, production, and severance taxes and related charges.

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      Productive Wells — The following table sets forth information regarding the number of productive wells in which we held a working interest as of December 31, 2003. One or more completions in the same well bore are reflected as one well.

      Developed and Undeveloped Acreage — The following table sets forth the developed and undeveloped acreage in which we owned a working interest at December 31, 2003:

      Undeveloped acreage is leased acres on which wells have not been drilled to a point that would permit production of commercial quantities of oil and natural gas. Developed acreage is leased acres that have been assigned to productive wells. Our gross acreage is the total number of acres, developed or undeveloped, in which we own a working interest, regardless of the size of our working interest in the acreage. Our net acreage is the gross acreage proportionally reduced to our working interest in the acreage.

      Many of our leases summarized in the table above as undeveloped acreage will expire at the end of their respective primary terms unless production has been obtained from the acreage prior to that date. If production is obtained, the lease will remain in effect until the cessation of production. The following table sets forth the gross and net acreage subject to leases summarized in the table of undeveloped acreage that will expire:

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      Drilling Activities — The following table sets forth the results of our participation in the drilling of developmental and exploratory wells during 2003, 2002 and 2001:

      In addition, we were participating in six wells, 1.33 net, that were being drilled at December 31, 2003.

      Generally, a developmental well is a well that is drilled into an oil and natural gas reservoir that is known to be productive. An exploratory well is a well that is drilled to find oil and natural gas in an unproved area.

Customers

      The customers of each of our four business segments are oil and natural gas operators or purchasers of these commodities. Our customer base includes both major and independent oil and natural gas operators. During 2003, no single customer accounted for 10% or more of our consolidated operating revenues.

Competition

      Contract Drilling and Pressure Pumping Businesses — Our land drilling and pressure pumping businesses are intensely competitive due to the fact that the supply of available land drilling rigs and pressure pumping equipment exceeds the demand for those rigs and equipment. This excess capacity has resulted in substantial competition for drilling and pressure pumping contracts. The fact that drilling rigs and pressure pumping equipment are mobile and can be moved from one market to another in response to market conditions heightens the competition in the industry.

      We believe that price competition for drilling and pressure pumping contracts will continue for the foreseeable future due to the existence of available rigs and pressure pumping equipment.

      In recent years, many drilling and pressure pumping companies have consolidated or merged with other companies. Although this consolidation has decreased the total number of competitors, we believe the competition for drilling and pressure pumping services will continue to be intense.

      Drilling and Completion Fluids Business — The drilling and completion fluids services industry is highly competitive. Price is generally the most important competitive factor in the industry. Other competitive factors include the availability of chemicals and experienced personnel, the reputation of the fluids services provider in the drilling industry, and our relationship with customers. Some of our competitors have substantially greater resources and longer operating histories than we have. We believe that competition for drilling and completion fluids service contracts will continue to be intense.

      Oil and Natural Gas Business — There is substantial competition for the acquisition of oil and natural gas leases suitable for development and exploration and for the hiring of experienced personnel. Our competitors in this business include:

	•	major integrated oil and natural gas operators,
	•	independent oil and natural gas operators, and
	•	drilling and production purchase programs.

      Our ability to increase our oil and natural gas reserves in the future is directly dependent upon our ability to select, acquire, and develop suitable prospects. Many of our competitors have financial resources, staffs, and facilities greater than ours.

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Government and Environmental Regulation

      All of our operations and facilities are subject to numerous federal, state, foreign, and local laws, rules, and regulations related to various aspects of our business, including:

	•	drilling of oil and natural gas wells,
	•	containment and disposal of hazardous materials, oilfield waste, other waste materials, and acids,
	•	use of underground storage tanks, and
	•	use of underground injection wells.

      To date, we have not been required to expend significant resources in order to satisfy applicable environmental laws and regulations. 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 for noncompliance.

      Our business is generally affected by political developments and by federal, state, foreign, and local laws and regulations, which relate to the oil and natural gas industry. The adoption of laws and regulations affecting the oil and natural gas industry for economic, environmental, and other policy reasons could increase costs relating to drilling and production. They could have an adverse effect on our operations. Several state and federal environmental laws and regulations currently apply to our operations and may become more stringent in the future.

      We have utilized operating and disposal practices that were or are currently standard in the industry. Howe