Risk Management

As discussed above, our senior-level management is responsible for identifying corporate risks, including climate-related risks and opportunities, assessing the potential level of impact to the business, and discussing this risk assessment with the Board on at least a quarterly basis.

Risk assessment communications with the Board involve senior-level management’s preparation and presentation to the Board of a risk mapping exercise, which categorizes identified risks, including climate change-related risks, according to their probability and severity. The purpose of these regular risk assessments is to identify those risks that have the potential to significantly affect our business over the short-, medium- and longer term and to discuss appropriate mitigation and oversight measures, including prioritization of risk management and allocation of responsibility for the management of a particular risk.

Management of Climate-Related Risks and Opportunities

We work to mitigate climate-related and other risks, to the extent we are reasonably able to do so. Mitigation of risk can take many forms, but we primarily mitigate and address these transition risks by providing, and continuing to develop, lower-emissions equipment, technology and software solutions. We prioritize management of climate risks, as with other corporate risks, based on the likelihood of occurrence weighted against severity. While we are subject to the climate-related risks listed above, we believe that we may benefit from certain climate-related opportunities.

We believe we currently have a leadership position in equipment, technology and software solutions that puts us at a competitive advantage as customer demand shifts to lower-emissions operations and services. For example, we have increased our usage of alternative fuel equipment (such as using rich-burn natural gas engines in place of traditional diesel-only equipment), are continuing our development of innovative, lower-emissions technology (such as battery power hybrid energy management systems and technology enabling the use of utility electrical power in our operations) and are redesigning our own equipment to maximize efficiency (such as through the development of emission-reducing automation, remote operations and control systems).

We will continue to invest capital in sustainable solutions and other emission reducing equipment such as the ongoing deployment of our EcoCell™ system and natural gas engines. We are also pursuing opportunities related to renewable energy sources, such as geothermal and other low carbon offerings. We utilize equipment that runs on a variety of fuels to improve efficiency and reduce environmental impact. Please see “Environmental – Air Quality, Greenhouse Gas Emissions and Energy Usage” above. We plan to continue our development of alternative fuels and lower-emissions solutions.

This strategy could result in increased capital expenditures or allocation of funds to research and development, as well as the formation of strategic partnerships with companies that can assist our customers in meeting their climate and ESG related goals.

Our internal policies and procedures, combined with our audit and training programs described above, also help us manage risks. For example, we have created a comprehensive Environmental Management System (EMS) including hundreds of proprietary environmental protection- and safety-related policies, as discussed above in “Environment – Environmental Management.”

Some benefits, if our strategy of managing these climate risks is successful, may include reduced exposure to greenhouse gas emissions, including potential taxes on such emissions; reduced operating expenses due to efficiency gains and cost reductions from new technology; and reputational benefits and an enhanced competitive position, which may increase demand for our goods and services. We may also see safety benefits, as our increased use of automation systems and remote monitoring can reduce the number of personnel at the wellsite.

Emerging Technology: Hydrogen

Patterson-UTI Drilling recently tested the use of hydrogen as a fuel source on an operating drilling rig, and we believe we were the first to do so. The hydrogen displaced natural gas in dual fuel engines, which helped reduce overall greenhouse gas emissions. We will continue to closely follow emerging technologies, including the use of hydrogen, as a fuel source in the future.

Metrics, Scenarios and Targets

We consider a variety of metrics to assess our performance with regard to climate risks and opportunities. For example, we track our diesel fuel savings from the use of our alternative fuels technologies in order to demonstrate to customers and other stakeholders the fuel savings and emissions reduction that result from using our services. We internally track the amount of research and development and capital expenditures spent on developing, building and deploying the technology and equipment behind our lower-emissions operations and services.

We continue to explore models for tracking and reporting of Scope 1 and Scope 2 greenhouse gas (GHG) emissions and participate in discussions regarding best methods for tracking and reporting of Scope 1 and Scope 2 GHG emissions with industry groups. Many of our customers have developed detailed scenario analyses, including under a 2°C or lower scenario, in connection with their own climate risk assessments and in developing their own climate-related strategies.

Because the methods in which we provide our operations and services are largely dictated by the needs of our customers, our best near-term opportunity to mitigate climate change risk is to primarily focus on working with our customers in the implementation of their climate-related strategies. Similarly, we aim to meet the needs of our customers in reaching their own climate targets.

In a scenario where global warming is limited to well below 2ºC, consistent with a global aspiration of net zero greenhouse gas emissions by 2050, there is a potential for significant adverse impacts to the oil and gas industry in the United States. To make our business compatible with this type of long-term scenario, as discussed above, we continue to develop lower-emissions operations and services. We also evaluate opportunities to expand beyond our core businesses of contract drilling and pressure pumping.

One example of this opportunity for expansion is through our electrical engineering business in such sectors such as marine and industrial micro-grid. Marine products are now growing to be the largest portion of this business, and Current Power is in the process of completing the delivery and installation of the full electrical controls for the propulsion system of a new cruise ship.

The Current Power team also has experience in products for micro-grid controls in various applications, and we expect demand in this sector to continue to grow alongside the expanding renewables and smart-grid electrical systems industry.

We also continue to evaluate opportunities from time to time to provide our services outside of the United States, as diversification of geographical opportunities, such as our entry into the Colombian drilling market through the acquisition of Pioneer Energy Services, may help to insulate our business from the risks associated with operating primarily in one geographic region.