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 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. We issue shares of common stock when vested stock options are exercised and after restricted stock units and share-settled performance unit awards vest.

The 2021 Plan was originally approved by our stockholders on June 3, 2021. Subject to stockholder approval, our Board of Directors approved an amendment to the 2021 Plan to increase the number of shares available for issuance under the 2021 Plan by 5.445 million shares (the “First Amendment”). On June 8, 2023, our stockholders approved the First Amendment. On September 1, 2023, in connection with the NexTier merger, our Board of Directors approved a second amendment to the 2021 Plan (the “Second Amendment,” and together with the First Amendment, the “2021 Plan Amendments”) to assume approximately 10 million shares previously reserved for issuance under the NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan (the “NexTier Plan”). Following the 2021 Plan Amendments, the aggregate number of shares of Common Stock authorized for grant under the 2021 Plan is approximately 29.0 million.

On September 1, 2023, the Board of Directors also approved amendments to the NexTier Plan and the NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan (the “Former C&J Energy Plan” and, together with the NexTier Plan, the “Assumed Plans”) to assume awards that were previously granted under the Assumed Plans (consisting of stock options, time- and performance-based restricted stock units and cash-settled performance unit awards), which, in connection with the NexTier merger, were converted into equity awards in respect of shares of Patterson-UTI Energy, Inc. common stock.

The aggregate number of shares of Common Stock authorized for grant under the 2021 Plan is approximately 29.0 million, which includes approximately 4.9 million shares previously authorized for issuance under our 2014 Plan and approximately 10 million shares assumed from the NexTier merger.


	Shares		Shares Underlying		Shares
	Authorized		Awards		Available
Plan Name	for Grant		Outstanding		for Grant
2021 Plan		28,963,412		5,004,289		13,910,294
NexTier Plan		—		2,660,633		—
Former C&J Energy Plan		—		789,337		—
2014 Plan		—		2,571,965		—

Options granted under the 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, 2023, 2022 and 2021.

Stock option activity for the year ended December 31, 2023 follows:


				Weighted Average
	Shares			Exercise Price Per Share
Outstanding at beginning of year		2,905,150		$	22.19
Assumed (1)		652,573		$	27.97
Exercised		—		$	—
Expired		(692,500	)	$	22.82
Outstanding at end of year		2,865,223		$	23.36
Exercisable at end of year		2,865,223		$	23.36

(1)

Awards assumed in connection with the NexTier merger. All of these assumed awards had been previously granted by NexTier under the NexTier Plan or the Former C&J Energy Plan, in periods prior to the NexTier merger.

Options outstanding and exercisable at December 31, 2023 have no intrinsic value and a weighted-average remaining contractual term of 1.69 years. Additional information with respect to options granted, vested and exercised during the years ended December 31, 2023, 2022 and 2021 follows (in thousands, except per share data):


	2023		2022		2021
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
Aggregate intrinsic value of stock options exercised	$	—	$	410	$	—

As of December 31, 2023, no options to purchase shares were outstanding and unvested.

Restricted Stock Units (Equity Based) — 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, 2023 follows:


							Weighted Average
	Time			Performance			Grant Date Fair
	Based			Based			Value Per Share
Non-vested restricted stock units outstanding at beginning of year		3,090,846			359,315		$	12.71
Granted		1,840,861			165,276		$	11.60
Assumed (1)		7,438,031			—		$	5.62
Vested		(6,379,970	)		—		$	5.95
Forfeited		(162,100	)		(3,058	)	$	13.78
Non-vested restricted stock units outstanding at end of year		5,827,668			521,533		$	10.60

(1)

As of December 31, 2023, approximately 6.1 million non-vested restricted stock units outstanding are expected to vest. Additional information as of December 31, 2023 with respect to these non-vested restricted stock units follows (dollars in thousands):

Restricted Stock Units (Liability Based) — We converted NexTier’s cash-settled performance based units into our cash-settled restricted stock units in connection with the NexTier merger. These awards are accounted for as liability classified awards and remeasured at fair value at each reporting period. Compensation expense is recorded over the vesting period and is initially based on the fair value at the award conversion date. Compensation expense is subsequently remeasured at each reporting date during the vesting period based on the change in our stock price. Dividend cash equivalents are not paid on cash-settled units. As of December 31, 2023, $2.4 and $6.2 million are included in “Accrued Liabilities” and “Other Liabilities” in our consolidated balance sheets, respectively. We recognized $5.0 million of compensation expense for these awards during the year ended December 31, 2023.

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 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 includes three market indices and one market index, respectively. The performance 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. 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. The payout under the Performance Units may not exceed the target number of shares if our absolute total shareholder return is negative or zero.

The total target number of shares granted with respect to the Performance Units for the years 2018-2023 is set forth below:


	2023		2022		2021		2020		2019		2018
	Performance		Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Target number of shares		631,700		414,000		843,000		500,500		489,800		310,700

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. In May 2023, 1,001,000 shares were issued to settle the 2020 Performance Units. The Performance Units granted in 2021, 2022 and 2023 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):


	2023		2022		2021		2020		2019		2018
	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	$	8,440	$	10,743	$	7,225	$	826	$	9,958	$	8,004

The weighted-average fair value calculations for performance units granted during the years ended December 31, 2023, 2022 and 2021 were based on the following weighted-average assumptions set forth below:


	2023			2022			2021
Risk-free interest rate (1)		3.6	%		2.9	%		0.4	%
Expected stock volatility (2)		72.1	%		86.5	%		83.2	%
Expected dividend yield (3)		3.0	%		1.0	%		1.3	%
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):


	2023		2022		2021		2020		2019		2018
	Performance		Performance		Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards		Unit Awards
Year ended December 31, 2023	$	2,248	$	3,749	$	2,426	$	69	NA		NA
Year ended December 31, 2022	NA		$	2,686	$	2,408	$	275	$	830	NA
Year ended December 31, 2021	NA		NA		$	1,806	$	275	$	3,319	$	667

As of December 31, 2023, 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 1.13 years as of December 31, 2023.

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 could 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 applied to the Performance Units granted in April 2020. The Phantom Units settled in May 2023, with a cash payment of $7.4 million.