We use share-based payments to compensate employees and non-employee directors. We recognize the cost of share-based payments under the fair-value-based method. Share-based awards include equity instruments in the form of stock options, restricted stock, or restricted stock units that have included service conditions and, in certain cases, performance conditions. Our share-based awards also include share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. In 2020, we granted performance-based cash-settled phantom units, which are accounted for as a liability classified award. We issue shares of common stock when vested stock options are exercised, when restricted stock is granted and after restricted stock units and share-settled performance unit awards vest.

On June 3, 2021, our stockholders approved the 2021 Plan. No additional awards will be granted under any of our previously existing plans after such date. The aggregate number of shares of Common Stock authorized for grant under the 2021 Plan is approximately 13.5 million, which includes approximately 4.9 million shares previously authorized for issuance under our 2014 Plan.


	Shares		Shares Underlying		Shares
	Authorized		Awards		Available
Plan Name	for Grant		Outstanding		for Grant
2021 Plan		13,467,480		3,851,825		3,689,156
2014 Plan		—		3,588,486		—
Patterson-UTI Energy, Inc. 2005 Long-Term Incentive Plan, as amended		—		672,500		—

Options granted under the Patterson-UTI Energy, Inc. 2005 Long-Term Incentive Plan, as amended, and 2014 Plan typically vested over one year for non-employee directors and three years for employees. All options were granted with an exercise price equal to the fair market value of the related common stock at the time of grant.

Stock Options — We estimate the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of our common stock over the most recent period equal to the expected term of the options as of the date such options are granted. The expected term assumptions are based on our experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. No options were granted during the years ended December 31, 2022, 2021 and 2020.

Stock option activity for the year ended December 31, 2022 follows:


				Weighted Average
	Shares			Exercise Price Per Share
Outstanding at beginning of year		3,720,150		$	20.93
Exercised		(640,000	)	$	16.20
Expired		(175,000	)	$	17.37
Outstanding at end of year		2,905,150		$	22.19
Exercisable at end of year		2,905,150		$	22.19

Options outstanding and exercisable at December 31, 2022 have an intrinsic value of approximately $0.1 million and a weighted-average remaining contractual term of 2.04 years. Additional information with respect to options granted, vested and exercised during the years ended December 31, 2022, 2021 and 2020 follows (in thousands, except per share data):


	2022		2021		2020
Weighted-average grant date fair value of stock options granted (per share)	NA		NA		NA
Aggregate grant date fair value of stock options vested during the year	$	—	$	89	$	89
Aggregate intrinsic value of stock options exercised	$	410	$	—	$	—

As of December 31, 2022, no options to purchase shares were outstanding and unvested.

Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Forfeitable dividend equivalents are accrued on certain restricted stock units that will be paid upon vesting. We use the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock unit activity for the year ended December 31, 2022 follows:


						Weighted Average
	Time			Performance		Grant Date Fair
	Based			Based		Value Per Share
Non-vested restricted stock units outstanding at beginning of year		3,044,719			359,315	$	8.31
Granted		1,554,849			—	$	17.37
Vested		(1,437,286	)		—	$	7.32
Forfeited		(71,436	)		—	$	13.15
Non-vested restricted stock units outstanding at end of year		3,090,846			359,315	$	12.71

As of December 31, 2022, approximately 3.2 million non-vested restricted stock units outstanding are expected to vest. Additional information as of December 31, 2022 with respect to these non-vested restricted stock units follows (dollars in thousands):

Performance Unit Awards — We have granted share-settled performance unit awards to certain employees (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive a grant of shares of common stock upon the achievement of certain performance goals during a specified period established by the Compensation Committee. The performance period for the Performance Units is generally the three-year period commencing on April 1 of the year of grant.

The performance goals for the Performance Units are tied to our total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. For the performance units granted in April 2021 and April 2022, the peer group also includes three market indices and one market index, respectively. These goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the respective Performance Units. Under the Performance Units granted beginning in April 2019, the recipients will receive the target number of shares if our total shareholder return during the performance period, when compared to the peer group, is at the 55th percentile. If our total shareholder return during the performance period, when compared to the peer group, is at the 75th percentile or higher, then the recipients will receive two times the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is at the 25th percentile, then the recipients will only receive one-half of the target number of shares. If our total shareholder return during the performance period, when compared to the peer group, is between the 25th and 55th percentile, or the 55th and 75th percentile, then the shares to be received by the recipients will be determined using linear interpolation for levels of achievement between these points.

Under the Performance Units granted beginning in April 2019, the payout shall not exceed the target number of shares if our absolute total shareholder return is negative or zero. Additionally, the Performance Units granted in April 2020 will not pay out if our total shareholder return is not equal to or greater than the total stockholder return of the S&P 500 Index for the performance period.

The total target number of shares with respect to the Performance Units for the years 2017-2022 is set forth below:


	2022		2021		2020		2019		2018		2017
	Performance		Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Target number of shares		414,000		843,000		500,500		489,800		310,700		186,198

In May 2020, 332,773 shares were issued to settle the 2017 Performance Units. In April 2021, 621,400 shares were issued to settle the 2018 Performance Units. In April 2022, 979,600 shares were issued to settle the 2019 Performance Units. The Performance Units granted in 2020, 2021 and 2022 have not reached the end of their respective performance periods.

Because the Performance Units are share-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Performance Units is set forth below (in thousands):


	2022		2021		2020		2019		2018		2017
	Performance		Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Aggregate fair value at date of grant	$	10,743	$	7,225	$	826	$	9,958	$	8,004	$	5,780

The weighted-average fair value calculations for performance units granted during the years ended December 31, 2022, 2021 and 2020 were based on the following weighted-average assumptions set forth below:


	2022			2021			2020
Risk-free interest rate (1)		2.9	%		0.4	%		0.4	%
Expected stock volatility (2)		86.5	%		83.2	%		66.2	%
Expected dividend yield (3)		1.0	%		1.3	%		7.7	%
Expected term (in years)		3			3			3

(1)

The risk-free interest rate is based on U.S. Treasury securities for the expected term of the performance units.

(2)

Expected volatilities are based on the daily closing price of our stock based upon historical experience over a three-year period.

(3)

Expected dividend yield is based on the annualized dividend in effect on the measurement date and the stock price on the grant date.

These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Performance Units is set forth below (in thousands):


	2022		2021		2020		2019		2018		2017
	Performance		Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Year ended December 31, 2022	$	2,686	$	2,408	$	275	$	830	NA		NA
Year ended December 31, 2021	NA		$	1,806	$	275	$	3,319	$	667	NA
Year ended December 31, 2020	NA		NA		$	206	$	3,319	$	2,668	$	642

As of December 31, 2022, we had unrecognized compensation cost of $11.1 million related to our unvested Performance Units. The weighted-average remaining vesting period for these unvested Performance Units was 1.20 years as of December 31, 2022.

Dividends on Equity Awards – Dividend equivalents are paid or accrued on certain restricted stock units. These dividends are recognized as reductions of retained earnings for the portion of restricted stock units expected to vest.

Phantom Units — In May 2020, the Compensation Committee approved a grant of long-term performance-based phantom units to our Chief Executive Officer and President, William A. Hendricks, Jr (the “Phantom Units”). The Phantom Units were granted outside of the 2014 Plan. Pursuant to this phantom unit grant, Mr. Hendricks may earn from 0% to 200% of a target award of 298,500 phantom units based on our achievement of the same performance conditions over the same performance period that applies to the Performance Units granted in April 2020, as described above. Earned Phantom Units, if any, will be settled in 2023, following completion of the three-year performance period, in a cash payment equal to the number of earned phantom units multiplied by our average trading price per share over the twenty consecutive trading days ending March 31, 2023. Because the Phantom Units are cash-settled awards, they are accounted for as a liability classified award. The grant date fair value of the Phantom Units was $1.2 million. Compensation expense is recognized on a straight-line basis over the performance period, with the amount recognized fluctuating as a result of the Phantom Units being remeasured to fair value at the end of each reporting period due to their liability-award classification. We recognized $6.0

million, $1.8 million, and $0.6 million in compensation expense associated with the Phantom Units in 2022, 2021, and 2020, respectively.