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Index to Financial Statements

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from                      to                     

[Commission File Number 1-9260]

UNIT CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Registrant’s Telephone Number, Including Area Code (918) 493-7700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes  x    No  ¨

Aggregate Market Value of the Voting Stock Held By

Non-affiliates on June 30, 2004 – $1,262,168,792

Number of Shares of Common Stock

Outstanding on March 7, 2005 – 45,838,644

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of Registrant’s Proxy Statement with respect to the Annual Meeting of Stockholders to be held May 4, 2005, to be filed subsequently—Part III.

Exhibit Index - See Page 83

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FORM 10-K

UNIT CORPORATION

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UNIT CORPORATION

Annual Report

For The Year Ended December 31, 2004

PART I

Our executive offices are at 7130 South Lewis, Suite 1000, Tulsa, Oklahoma 74136; our telephone number is (918) 493-7700. In addition to our executive offices, we have offices in Houston, Humble, Borger, Booker and Midland, Texas; Casper, Wyoming; Oklahoma City and Woodward, Oklahoma; and Denver, Colorado.

The following table provides certain information regarding us as of March 1, 2005:

Our primary Internet address is www.unitcorp.com. We make our periodic SEC Reports (Forms 10-Q and Forms 10-K) and current reports (Form 8-K) available free of charge through our Web site as soon as reasonably practicable after they are filed electronically with the SEC. In addition, we post on our Web site copies of the various corporate governance documents that we have adopted. We may from time to time provide important disclosures to investors by posting them in the investor relations section of our Web site, as allowed by SEC rules.

Materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

When used in this report, the terms Corporation, Company, Unit, us, our, we and its refer to Unit Corporation and, as appropriate, Unit Corporation and/or one or more of its subsidiaries.

Item 1.    Business and Item 2.    Properties

OUR BUSINESS

We were founded in 1963 as a contract drilling company. Today, through our three principal wholly owned subsidiaries, Unit Drilling Company, Unit Petroleum Company and Superior Pipeline Company, L.L.C., we

At various times, and from time to time, each of these three principal subsidiaries may conduct their operations through subsidiaries of their own.

OUR LAND CONTRACT DRILLING BUSINESS

General.    Our wholly owned subsidiary, Unit Drilling Company, drills onshore natural gas and oil wells for our own account as well as for a wide range of other oil and gas companies. Its operations are mainly located in the Oklahoma and Texas areas of the Anadarko and Arkoma Basins, the Texas Gulf Coast and in the East Texas and Rocky Mountain regions.

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The table below identifies certain information concerning our contract drilling operations:

Description and location of our Drilling Rigs.    A land drilling rig consists, in part, of engines, drawworks or hoists, derrick or mast, substructure, pumps to circulate the drilling fluid, blowout preventers and drill pipe. Over the life of a typical drilling rig, due to the normal wear and tear of operating 24 hours a day, several of the major components, such as engines, mud pumps and drill pipe, must be replaced or rebuilt on a periodic basis. Other components, such as the substructure, mast and drawworks, can be used for extended periods of time with proper maintenance. We also own additional equipment used in the operation of our drilling rigs, including large air compressors, trucks and other support equipment.

Our drilling rigs have maximum depth capacities ranging from 5,000 to 40,000 feet.

The following table shows the distribution of our drilling rigs as of March 1, 2005:

At present, we do not have a shortage of drilling rig related equipment. However, at any given time, our ability to use all of our drilling rigs is dependent on a number of conditions, including the availability of qualified labor, drilling supplies and equipment as well as demand. As demand for our drilling rigs improved through 2004, it became increasingly difficult to find additional qualified labor to work on our drilling rigs. If demand for our drilling rigs remains at its current level or increases, we expect competition for qualified labor to continue which will result in higher operating costs.

Acquisitions.    On July 30, 2004, we completed our acquisition of Sauer Drilling Company, a Casper, Wyoming-based drilling company. We paid $40.3 million in this acquisition which included $5.3 million for working capital. This acquisition included nine drilling rigs, a fleet of trucks, and an equipment and repair yard with associated inventory located in Casper, Wyoming. The drilling rigs range from 500 horsepower to 1,000 horsepower with depth capacities rated from 5,000 feet to 16,000 feet. The fleet of trucks consists of four vacuum trucks, and 11 rig-up trucks which are used to move the drilling rigs to new locations. We also use the trucks to move other drilling contractors’ drilling rigs. This acquisition increased our share of the drilling rig market in the

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Rocky Mountains in the medium-to-smaller drilling rig depth ranges. The equipment yard will continue to provide service space for the nine newly acquired drilling rigs and trucks as well as for our other drilling rigs located in our Rocky Mountain Division.

On May 4, 2004, we acquired two drilling rigs and related equipment for $5.5 million. These drilling rigs are rated at 850 and 1,000 horsepower, respectively, with depth capacities from 12,000 to 15,000 feet. We refurbished the drilling rigs for approximately $4.0 million. One drilling rig was placed into service at the beginning of August 2004 and the other drilling rig was placed into service in the middle of September 2004. Both of these drilling rigs are working in our Rocky Mountain Division.

With these two acquisitions and the completion of construction of another 1,500 horsepower diesel electric drilling rig in June 2004, our total drilling rig fleet at December 31, 2004 was 100 drilling rigs.

On January 5, 2005, we acquired a subsidiary of Strata Drilling L.L.C. for $10.5 million. In this acquisition we acquired two drilling rigs as well as spare parts, inventory, drill pipe, and other major drilling rig components. These two drilling rigs are both 1,500 horsepower, diesel electric drilling rigs with the capacity to drill 12,000 to 20,000 feet. One drilling rig is currently operating and the other will require approximately $2.0 million in expenditures to complete. This latter drilling rig should be fully operational within 90 days. Both of these drilling rigs will ultimately be moved into our Rocky Mountain Division.

Also in January 2005, we completed the construction of a 1,500 horsepower diesel electric drilling rig which began operating in the Anadarko Basin. The addition of this drilling rig, when combined with the two we obtained in our acquisition from Strata Drilling L.L.C., brings our total drilling rig fleet to 103 drilling rigs as of March 1, 2005.

We plan to initiate construction of our 104th drilling rig in the first quarter of 2005. This drilling rig will be a 1,500 horsepower diesel electric drilling rig and is scheduled to be added to our Rocky Mountain Division.

Types of Drilling Contracts We Use.    Our drilling contracts are generally obtained through competitive bidding on a well by well basis. Contract terms and payment rates vary depending on the type of contract used, the duration of the work, the equipment and services supplied and other matters. We pay certain operating expenses, including the wages of our drilling personnel, maintenance expenses and incidental rig supplies and equipment. The contracts are usually subject to termination by the customer on short notice and on payment of a fee. Our contracts also contain provisions regarding indemnification against certain types of claims involving injury to persons, property and for acts of pollution. The specific terms of these indemnifications are subject to negotiation on a contract by contract basis.

The type of contract used determines our compensation. Contracts are generally one of three types: daywork; footage; or turnkey. Additional compensation may be acquired for special risks and unusual conditions. Under a daywork contract we provide the drilling rig with the required personnel and the operator supervises the drilling of the well. Our compensation is based on a negotiated rate to be paid for each day the drilling rig is used. Footage contracts usually require us to bear some of the drilling costs in addition to providing the drilling rig. We are paid on completion of the well at a negotiated rate for each foot drilled. Under turnkey contracts we drill the well to a specified depth for a set amount and provide most of the required equipment and services. We bear the risk of drilling the well to the contract depth and are paid when the contract provisions are completed.

Under turnkey contracts we may incur losses if we underestimate the costs to drill the well or if unforeseen events occur. To date, we have not experienced significant losses in performing turnkey contracts. In 2004, we did not drill any turnkey wells while in 2003 we drilled six turnkey wells, and turnkey revenue represented 1% of our 2003 contract drilling revenues. Because market conditions as well as the desires of our customers determine the use of turnkey contracts, we can’t predict whether the portion of drilling conducted on a turnkey basis will increase in the future.

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Customers.    During 2004, 10 customers accounted for approximately 44% of our contract drilling revenues. Chesapeake Operating, Inc. was our largest customer providing 11% of our total contract drilling revenues. Thirty-five of the wells we drilled in 2004 were operated by our exploration and production subsidiary. These latter wells also have working interests which are owned by limited partnerships for which we act as general partner. As required by the SEC, the profit received by our contract drilling subsidiary when we drill wells for our exploration and production subsidiary, which amounted to $3.7 million and $1.9 million during 2004 and 2003, respectively, was used to reduce the carrying value of our oil and natural gas properties rather than being included in our operating profit.

Additional Information.    Further information relating to our contract drilling operations can be found in Notes 1, 2, 10 and 12 of the Notes to Consolidated Financial Statements in Item 8 of this report.

OUR OIL AND NATURAL GAS BUSINESS

General.    In 1979 we began to develop our exploration and production operations to diversify our contract drilling revenues. Today, our wholly owned subsidiary, Unit Petroleum Company, conducts our exploration and production activities. Until it was merged into Unit Petroleum Company on March 3, 2005, we also conducted operations through our subsidiary PetroCorp Incorporated. Our producing oil and natural gas properties, undeveloped leaseholds and related assets are mainly in Oklahoma, Texas, Louisiana and New Mexico and, to a lesser extent, in Arkansas, North Dakota, Colorado, Wyoming, Montana, Alabama, Kansas, Mississippi, Michigan and Canada.

The following table presents certain information regarding our oil and gas operations as of December 31, 2004:

When we are the operator of a property, we generally use drilling rigs owned by our subsidiary Unit Drilling Company.

Acquisition.    On January 30, 2004, we acquired the outstanding common stock of PetroCorp Incorporated for $182.1 million in cash. PetroCorp explored and developed oil and natural gas properties primarily in Texas and Oklahoma. Approximately 84% of the oil and natural gas properties acquired in this acquisition are located in the Mid-Continent and Permian basins, while 6% are located in the Rocky Mountains and 10% are located in the Gulf Coast Basin. The acquired properties increased our oil and natural gas reserve base by approximately 56.7 billion equivalent cubic feet of natural gas and provide additional locations for our future development drilling.

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Well and Leasehold Data.    The tables below identify certain information regarding our oil and natural gas exploratory and development drilling operations:

As of March 1, 2005, we have participated in the drilling of 25 gross (7.3 net) wells during 2005.

Cost incurred for development drilling includes $16.0 million, $20.4 million and $10.8 million in 2004, 2003 and 2002, respectively, to develop booked proved undeveloped oil and natural gas reserves.

The following table summarizes our oil and natural gas leasehold acreage for each of the years indicated:

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The future estimated development costs necessary to develop our proved undeveloped oil and natural gas reserves in the United States for the years 2005, 2006 and 2007, as disclosed in our December 31, 2004 oil and natural gas reserve report are $42.5 million, $31.3 million and $7.9 million, respectively. No future development costs have been estimated for Canada.

Price and Production Data.    The following table identifies the average sales price, oil and natural gas production volumes and average production cost per equivalent Mcf [1 barrel (Bbl) of oil = 6 thousand cubic feet (Mcf) of natural gas] for our oil and natural gas production for the years indicated: