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. Outstanding 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. 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 when restricted stock units and share-settled performance unit awards vest.

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 three months ended March 31, 2021 or 2020.

			Weighted
			Average
	Underlying		Exercise Price
	Shares		Per Share
Outstanding at January 1, 2021		4,026,150	$	21.63
Exercised		—	$	—
Expired		—	$	—
Outstanding at March 31, 2021		4,026,150	$	21.63
Exercisable at March 31, 2021		4,011,150	$	21.64

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.

						Weighted
						Average Grant
	Time			Performance		Date Fair Value
	Based			Based		Per Share
Non-vested restricted stock units outstanding at January 1, 2021		2,741,548			359,315	$	9.52
Granted		115,625			—	$	5.26
Vested		(163,505	)		—	$	14.27
Forfeited		(56,169	)		—	$	12.28
Non-vested restricted stock units outstanding at March 31, 2021		2,637,499			359,315	$	9.04

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 usually 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. 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. For the Performance Units granted in April 2018, the recipients would have received a target number of shares if our total shareholder return during the performance period, when compared to the peer group, was at the 50^th percentile. For the Performance Units granted in April 2019 and April 2020, 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 55^th percentile. If our total shareholder return during the performance period, when compared to the peer group, is at the 75^th 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 25^th 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 25^th and target percentile, or the target and 75^th percentile, then the shares to be received by the recipients will be determined using linear interpolation for levels of achievement between these points.

For the Performance Units granted in April 2018, the payout was based on relative performance and did not have an absolute performance requirement. For the Performance Units granted in April 2019 and April 2020, the payout shall not exceed the target number of shares if our 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 awards granted in 2017-2020 is set forth below:

	2020		2019		2018		2017
	Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards
Target number of shares		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. The Performance Units granted in 2019 and 2020 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):

	2020		2019		2018		2017
	Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards
Aggregate fair value at date of grant	$	826	$	9,958	$	8,004	$	5,780

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 shown below (in thousands):

	2020		2019		2018		2017
	Performance		Performance		Performance		Performance
	Unit Awards		Unit Awards		Unit Awards		Unit Awards
Three months ended March 31, 2021	$	69	$	830	$	667	NA
Three months ended March 31, 2020	NA		$	830	$	667	$	482

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 Patterson-UTI Energy, Inc. 2014 Long-Term Incentive 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 $0.5 million compensation expense associated with the Phantom Units during the three months ended March 31, 2021.