##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
    DECEMBER 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
    FROM          TO   Commission file number 1-2199
  ALLIS-CHALMERS ENERGY
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

39-0126090(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)5075 WESTHEIMER, SUITE 890 
    HOUSTON, TEXAS

77056(Zip code)(Address of principal executive
    offices)   (713) 369-0550
 Registrants telephone
    number, including area code
  SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
    ACT:
  Title of Security:

Name of Exchange:Common Stock, par value $0.01 per share

New York Stock Exchange   SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
    ACT:
  NONE
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o
    Smaller
    reporting
    company o (Do not check if a smaller
    reporting
    company)
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE:
  Form 10-K




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##### 





TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


5Item 1A.


Risk Factors


14Item 1B.


Unresolved Staff Comments


26Item 2.


Properties


27Item 3.


Legal Proceedings


27Item 4.


Submission of Matters to a Vote of Security
    Holders


29PART IIItem 5.


Market for Registrants Common Equity and
    Related Stockholder Matters


29Item 6.


Selected Financial Data


32Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


32Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


48Item 8.


Financial Statements


49Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


93Item 9A.


Controls and Procedures


93Item 9B.


Other Information


94PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


94Item 11.


Executive Compensation


94Item 12.


Security Ownership of Certain Beneficial Owners
    and Management


94Item 13.


Certain Relationships and Related Transactions


94Item 14.


Principal Accountant Fees and Services


94PART IVItem 15.


Exhibits and Financial Statement Schedules


95Signatures and Certifications


96Subsidiaries of RegistrantConsent of UHY LLPCertification of the Chief Executive Officer Pursuant to Section 302Certification of the Chief Financial Officer Pursuant to Section 302Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906   2




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DEFINITIONS
  air drilling
    
    A technique in which oil, natural gas, or geothermal wells are
    drilled by creating a pressure within the well that is lower
    than the reservoir pressure. The result is increased rate of
    penetration, reduced formation damage and reduced drilling costs.blow out preventors
    
    A large safety device placed on the surface of an oil or natural
    gas well to maintain high pressure well bores.booster
    
    A machine that increases the pressure and/or volume of air when
    used in conjunction with a compressor or a group of compressors.capillary tubing
    
    A small diameter tubing installed in producing wells and through
    which chemicals are injected to enhance production and reduce
    corrosion and other problems.casing
    
    A pipe placed in a drilled well to secure the well bore and
    formation.choke manifolds
    
    An arrangement of pipes, valves and special valves on the rig
    floor that controls pressure during drilling by diverting
    pressure away from the blow-out preventors and the annulus of
    the well.coiled tubing
    
    A small diameter tubing used to service producing and
    problematic wells and to work in high pressure applications
    during drilling, production and workover operations.directional drilling
    
    The technique of drilling a well while varying the angle of
    direction of a well and changing the direction of a well to hit
    a specific target.double studded adapter
    
    A device that joins two dissimilar connections on certain
    equipment, including valves, piping and blow-out preventers.drill pipe
    
    A pipe that attaches to the drill bit to drill a well.foam unit
    
    A compressor, a booster, a mist pump and a fuel tank all mounted
    together on one flat bed trailer to be used for completion,
    workover and/or shallow drilling operations. Foam units are
    designed to provide a small footprint and easy transport.horizontal drilling
    
    The technique of drilling wells at a
    90-degree
    angle.laydown machines
    
    A truck mounted machine used to move drill pipe, casing and
    tubing onto a pipe rack (from which a derrick crane lifts the
    drill pipe, casing and tubing and inserts it into the well).land drilling rig
    
    Composed of a drawworks or hoist, a derrick, a power plant,
    rotating equipment and pumps to circulate the drilling fluid and
    the drill string.logging-while-drilling
    
    The technique of measuring, in real time, the formation pressure
    and the position of equipment inside of a well.measurement-while-drilling
    
    The technique used to measure direction and angle while drilling
    a well.mist pump
    
    A drilling pump that uses mist as the circulation medium for
    injecting small amounts of foaming agent, corrosion agent and
    other chemical solutions into the well.pulling rig
    
    A type of well-servicing rig used to pull downhole equipment,
    such as tubing, rods or the pumps from a well, and replace them
    when 3




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necessary. A pulling rig is also used to set downhole tools and
    perform lighter jobs.spacer spools
    
    High pressure connections or links which are stacked to elevate
    the blow out preventors to the drilling rig floor.spiral heavy weight drill pipe
    
    A heavy drill pipe used for special applications primarily in
    directional drilling. The spiral design increases
    flexibility and penetration of the pipe.straight-hole drilling
    
    The technique of drilling that allows very little or no vertical
    deviation.test plugs
    
    A device used to test the connections of well heads and the blow
    out preventors.torque turn service or torque turn
    equipment
    
    A monitoring device to insure proper makeup of the casing.tubing
    
    A pipe placed inside the casing to allow the well to produce.tubing work strings
    
    The tubing used on workover rigs through which high pressure
    liquids, gases or mixtures are pumped into a well to perform
    production operations.wear bushings
    
    A device placed inside a wellhead to protect the wellhead from
    wear.workover rigs
    
    Similar to a land drilling rig, however, they are smaller than
    the drilling rig for the same depth of well. These rigs are used
    to complete the drilled wells or to repair them whenever
    necessary. 4




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SPECIAL
    NOTE
    REGARDING FORWARD-LOOKING STATEMENTS
   PART I. ITEM 1.  BUSINESS        Form 10-K, Form 10-Q, Form 8-K www.alchenergy.com
    Form 10-K
   5




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Our
    History
  
    We were incorporated in 1913 under Delaware law.
    We reorganized in bankruptcy in 1988 and sold all of our major
    businesses. From 1988 to May 2001 we had only one operating
    company in the equipment repair business.
    In May 2001, under new management we consummated a merger in
    which we acquired Oil Quip Rentals, Inc., or Oil Quip, and its
    wholly-owned subsidiary, Mountain Compressed Air, Inc., or MCA.
    In December 2001, we sold Houston Dynamic Services, Inc., our
    last pre-bankruptcy business.
    In February 2002, we acquired approximately 81% of the capital
    stock of Allis-Chalmers Tubular Services Inc., or Tubular,
    formerly known as Jens Oilfield Service, Inc. and
    substantially all of the capital stock of Strata Directional
    Technology, Inc., or Strata.
    In July 2003, we entered into a limited liability company
    operating agreement with M-I L.L.C., or M-I, a joint venture
    between Smith International and Schlumberger N.V., to form a
    Delaware limited liability company named AirComp LLC, or
    AirComp. Pursuant to this agreement, we owned 55% and M-I owned
    45% of AirComp.
    In September 2004, we acquired the remaining 19% of the capital
    stock of Tubular.
    In September 2004, we acquired all of the outstanding stock of
    Safco-Oil Field Products, Inc., or Safco.
    In November 2004, AirComp acquired substantially all of the
    assets of Diamond Air Drilling Services, Inc. and Marquis Bit
    Co., LLC, which we refer to collectively as Diamond Air.
    In December 2004, we acquired Downhole Injection Services, LLC,
    or Downhole.
    In April 2005, we acquired all of the outstanding stock of Delta
    Rental Service, Inc., or Delta.
    In May 2005, we acquired all of the outstanding stock of Capcoil
    Tubing Services, Inc., or Capcoil.
    In July 2005, we acquired M-Is interest in AirComp, and
    acquired the compressed air drilling assets of W. T.
    Enterprises, Inc., or W.T.
    Effective August 2005, we acquired all of the outstanding stock
    of Target Energy Inc., or Target.
    In September 2005, we acquired the casing and tubing assets of
    IHS/Spindletop, a division of Patterson Services, Inc., a
    subsidiary of RPC, Inc.
    In January 2006, we acquired all of the outstanding stock of
    Specialty Rental Tools, Inc., or Specialty.
    In April 2006, we acquired all of the outstanding stock of
    Rogers Oil Tool Services, Inc., or Rogers.
    In August 2006, we acquired all of the outstanding stock of DLS
    Drilling, Logistics & Services Corporation, or DLS.
    In October 2006, we acquired all of the outstanding stock of
    Petro-Rentals, Incorporated, or Petro Rentals.
    In December 2006, we acquired all of the outstanding stock of
    Tanus Argentina S.A., or Tanus.
    In December 2006, we acquired substantially all of the assets of
    Oil & Gas Rental Services, Inc., or OGR.
    In June 2007, we acquired Coker Directional, Inc., or Coker and
    merged it with Strata.
    In July 2007, we acquired Diggar Tools, LLC, or Diggar and
    merged it with Strata.
    In October 2007, we acquired Rebel Rentals, Inc. or Rebel.
    In November 2007, we acquired substantially all the assets
    Diamondback Oilfield Services, Inc. or Diamondback.   6




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Industry
    Overview
        Competitive
    Strengths
    Strategic position in high growth markets.
  Strong relationships with diversified customer
    base.
 7




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Successful execution of growth strategy.
  Diversified and increased cash flow
    sources.
  Experienced management team.
  Business
    Strategy
    Mitigate cyclical risk through balanced
    operations.
  Expand geographically to provide greater access and service
    to key customer segments.
  Prudently pursue strategic acquisitions.
  Expand products and services provided in existing operating
    locations.
  Increase utilization of assets.
 8




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Business
    Segments
  Rental Services.
    International Drilling.
    Directional Drilling.
 9




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and/or
  
    improvement of total cumulative recoverable reserves;
    improved reservoir production performance beyond conventional
    vertical wells; and
    reduction of the number of field development wells.  Tubular Services.
          Underbalanced Drilling.
   10




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Production Services.
    Cyclical
    Nature Of Oilfield Services Industry
      Customers
   11




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Suppliers
    Competition
                Backlog
    Employees
   12




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Insurance
    Seasonality
    Federal
    Regulations and Environmental Matters
      Intellectual
    Property Rights
   13




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ITEM 1A.
    RISK
    FACTORS    Risks
    Associated With Our Company
  We may
    fail to acquire additional businesses, which will restrict our
    growth and may have a material adverse effect on our stock price
    or on our ability to meet our obligations under (and the price
    of) our securities.
    
    our ability to obtain financing;
    the competitive environment for acquisitions; and
    the integration and synergy issues described in the next risk
    factor.      Difficulties in integrating acquired businesses may result in
    reduced revenues and income.
      Our
    acquisition of DLS has substantially changed the nature of our
    operations and business.
   14




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Failure to maintain effective disclosure controls and procedures
    and/or internal controls over financial reporting could have a
    material adverse effect on our operations.
      and/or and/or
  
    we are not successful in improving our financial reporting
    process, our disclosure controls and procedures
    and/or our
    internal controls over financial reporting;
    we identify deficiencies
    and/or one
    or more material weaknesses in our internal controls over
    financial reporting; or
    we are not successful in integrating acquired businesses into
    our consolidated companys system of disclosure controls
    and procedures and internal controls over financial reporting,    and/or and/or and/or
 15




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Historically, we have been dependent on a few customers
    operating in a single industry; the loss of one or more
    customers could adversely affect our financial condition and
    results of operations.
    Our
    international operations may expose us to political and other
    uncertainties, including risks of:
  
    terrorist acts, war and civil disturbances;
    changes in laws or policies regarding the award of
    contracts; and
    the inability to collect or repatriate currency, income, capital
    or assets.    Environmental
    liabilities could result in substantial losses.
    Products
    liability claims relating to discontinued operations could
    result in substantial losses.
    We may
    be subject to claims for personal injury and property damage,
    which could materially adversely affect our financial condition
    and results of operations.
   16




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The
    loss of key executives would adversely affect our ability to
    effectively finance and manage our business, acquire new
    businesses, and obtain and retain customers.
      Risks
    Associated With Our Industry
  Cyclical
    declines in oil and natural gas prices may result in reduced use
    of our services, affecting our business, financial condition and
    results of operations and our ability to meet our capital
    expenditure obligations and financial commitments.
    
    economic conditions in the United States and elsewhere;
    changes in global supply and demand for oil and natural gas;
    the level of production of the Organization of Petroleum
    Exporting Countries, commonly called OPEC;
    the level of production of non-OPEC countries;
    the price and quantity of imports of foreign oil and natural gas;
    political conditions, including embargoes, in or affecting other
    oil and natural gas producing activities;
    the level of global oil and natural gas inventories; and
    advances in exploration, development and production technologies.    Our
    industry is highly competitive, with intense price
    competition.
   17




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We may
    experience increased labor costs or the unavailability of
    skilled workers and the failure to retain key personnel could
    hurt our operations.
    Severe
    weather could have a material adverse impact on our
    business.
    
    curtailment of services;
    weather-related damage to facilities and equipment resulting in
    suspension of operations;
    inability to deliver materials to job sites in accordance with
    contract schedules; and
    loss of productivity.    Our
    business may be affected by terrorist activity and by security
    measures taken in response to terrorism.
    We are
    subject to government regulations.
   18




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Risks
    Associated With Our International Drilling Business and
    Industry
  A
    material or extended decline in expenditures by oil and gas
    companies due to a decline or volatility in oil and gas prices,
    a decrease in demand for oil and gas or other factors may reduce
    demand for our International Drilling services and substantially
    reduce our revenues, profitability, cash flows and/or
    liquidity.
    
    oil and natural gas prices and expectations about future prices;
    the demand for oil and natural gas, both in Latin America and
    globally;
    the cost of producing and delivering oil and natural gas;
    advances in exploration, development and production technology;
    government regulations, including governmental imposed commodity
    price controls, export controls and renationalization of a
    countrys oil and natural gas industry;
    local and international political and economic conditions;
    the ability of OPEC to set and maintain production levels and
    prices;
    the level of production by non-OPEC countries; and
    the policies of various governments regarding exploration and
    development of their oil and natural gas reserves.  and/or
  A
    majority of our International Drilling segments revenues
    are derived from one customer. The termination of the contract
    with this customer could have a significant negative effect on
    the revenue and results of operations from our International
    Drilling segment.
      Our
    International Drillings operations and financial condition
    could be affected by union activity and general labor unrest.
    Additionally, our International Drillings labor expenses
    could increase as a result of governmental regulation of
    payments to employees.
   19




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Rig
    upgrade, refurbishment and construction projects are subject to
    risks, including delays and cost overruns, which could have an
    adverse effect on our International Drilling segments
    results of operations and cash flows.
    
    shortages of material or skilled labor;
    unforeseen engineering problems;
    unanticipated change orders;
    work stoppages;
    adverse weather conditions;
    long lead times for manufactured rig components;
    unanticipated cost increases; and
    inability to obtain the required permits or approvals.    An
    oversupply of comparable rigs in the geographic markets in which
    we compete could depress the utilization rates and dayrates for
    our rigs and materially reduce our revenues and
    profitability.
   20




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Worldwide
    political and economic developments may hurt our operations
    materially.
    
    expropriation of assets;
    nationalization of components of the energy industry in the
    geographic areas where we operate;
    foreign currency fluctuations and devaluation;
    new economic and tax policies;
    restrictions on currency, income, capital or asset repatriation;
    political instability, war and civil disturbances;
    uncertainty or instability resulting from armed hostilities or
    other crises in the Middle East or the geographic areas in which
    we operate; and
    acts of terrorism.        Devaluation
    of the Argentine peso will adversely affect our International
    Drilling segments results of operations.
    Argentina
    continues to face considerable political and economic
    uncertainty.
   21




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An
    increase in inflation could have a material adverse effect on
    our results of operations.
    Some
    of our customers may seek to cancel or renegotiate some of our
    International Drilling contracts during periods of depressed
    market conditions or if we experience operational
    difficulties.
    We are
    subject to numerous governmental laws and regulations, including
    those that may impose significant liability on us for
    environmental and natural resource damages.
   22




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We are
    subject to hazards customary for drilling operations, which
    could adversely affect our financial performance if we are not
    adequately indemnified or insured.
    Risks
    Associated With an Investment in Our Common Stock
  In
    connection with our acquisitions of DLS and substantially all
    the assets of OGR, the DLS sellers have the right to designate
    two nominees for election to our board of directors and OGR has
    the right to designate one nominee for election to our board of
    directors. The interests of the DLS sellers and OGR may be
    different from yours.
      and/or
  Our
    stock price may decrease in response to various factors, which
    could adversely affect our business and cause our stockholders
    to suffer significant losses. These factors
    include:
  
    decreases in prices for oil and natural gas resulting in
    decreased demand for our services;
    variations in our operating results and failure to meet
    expectations of investors and analysts;
    increases in interest rates; 23




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
    the loss of customers;
    failure of customers to pay for our services;
    competition;
    illiquidity of the market for our common stock;
    developments specifically affecting the Argentine economy;
    sales of common stock by existing stockholders; and
    other developments affecting us or the financial markets.    Existing
    stockholders interest in us may be diluted by additional
    issuances of equity securities.
    We do
    not expect to pay dividends on our common stock, and investors
    will be able to receive cash in respect of the shares of common
    stock only upon the sale of the shares.
    Substantial
    sales of our common stock could adversely affect our stock
    price.
         24




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Risks
    Associated With Our Indebtedness
  We
    have a substantial amount of debt, which could adversely affect
    our financial health and prevent us from making principal and
    interest payments on our outstanding senior notes and our other
    debt.
      
    make it more difficult for us to satisfy our obligations with
    respect to our outstanding senior notes, any other debt
    securities we may offer and our other debt;
    increase our vulnerability to general adverse economic and
    industry conditions, including declines in oil and natural gas
    prices and declines in drilling activities;
    limit our ability to obtain additional financing for future
    working capital, capital expenditures, mergers and other general
    corporate purposes;
    require us to dedicate a substantial portion of our cash flow
    from operations to payments on our debt, thereby reducing the
    availability of our cash flow for operations and other purposes;
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate;
    make us more vulnerable to increases in interest rates;
    place us at a competitive disadvantage compared to our
    competitors that have less debt; and
    have a material adverse effect on us if we fail to comply with
    the covenants in the indentures relating to our outstanding
    senior notes, and any other debt securities we may offer or in
    the instruments governing our other debt.        If we
    fail to obtain additional financing, we may be unable to
    refinance our existing debt, expand our current operations or
    acquire new businesses, which could result in a failure to grow
    or result in defaults in our obligations under our credit
    agreement, our outstanding senior notes or our other debt
    securities.
   25




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The
    indentures governing our outstanding senior notes and our credit
    agreement impose (and we anticipate that the indentures
    governing any other debt securities we may offer will also
    impose) restrictions on us that may limit the discretion of
    management in operating our business and that, in turn, could
    impair our ability to meet our obligations.
    
    incur additional debt;
    make certain investments or pay dividends or distributions on
    our capital stock or purchase or redeem or retire capital stock;
    sell assets, including capital stock of our restricted
    subsidiaries;
    restrict dividends or other payments by restricted subsidiaries;
    create liens;
    enter into transactions with affiliates; and
    merge or consolidate with another company.    and/or and/or
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   26




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ITEM 2.
    PROPERTIES    Business Segment

Location

Owned/LeasedRental Services

Houston, Texas

Leased  2 locationsVictoria, Texas

OwnedBroussard, Louisiana

LeasedLafayette, Louisiana

LeasedMorgan City, Louisiana

OwnedInternational Drilling

Buenos Aires, Argentina

LeasedComodoro Rivadavia, Argentina

OwnedNeuquen, Argentina

OwnedRincon de los Sauces, Argentina

OwnedTartagal, Argentina

OwnedSanta Cruz, Bolivia

LeasedDirectional Drilling

Conroe, Texas

LeasedHouston, Texas

Leased  2 locationsOklahoma City, Oklahoma

LeasedDenver, Colorado

LeasedCasper, Wyoming

LeasedTubular Services

Corpus Christi, Texas

LeasedEdinburg, Texas

OwnedKilgore, Texas

LeasedPearsall, Texas

LeasedBroussard, Louisiana

Leased  2 locationsHouma, Louisiana

LeasedYoungsville, Louisiana

OwnedElk City, Oklahoma

LeasedUnderbalanced Drilling

Fort Stockton, Texas

LeasedGrandbury, Texas

LeasedHouston, Texas

LeasedMidland, Texas

LeasedSan Angelo, Texas

LeasedSonora, Texas

LeasedCarlsbad, New Mexico

LeasedFarmington, New Mexico

LeasedMt Morris, Pennsylvania

LeasedGrand Junction, Colorado

LeasedWilburton, Oklahoma

LeasedProduction Services

Searcy, Arkansas

LeasedAlvin, Texas

LeasedCorpus Christi, Texas

LeasedLongview, Texas

LeasedBroussard, Louisiana

1 Owned & 1 LeasedHouma, Louisiana

Leased   ITEM 3.
    LEGAL
    PROCEEDINGS   27




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28




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ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS.  MARKET
    PRICE INFORMATION
    Calendar Quarter

High


Low2006First Quarter

$
18.50


$
12.46Second Quarter


17.62



10.85Third Quarter


19.33



9.80Fourth Quarter


25.55



12.152007First Quarter

$
23.61


$
14.10Second Quarter


24.39



15.83Third Quarter


28.10



18.35Fourth Quarter


19.49



14.09   Holders
    Dividends
   29




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EQUITY
    COMPENSATION PLAN INFORMATION
    Number ofSecurities to be


WeightedIssued Upon


Average Exercise


Number of SecuritiesExercise of


Price of


Remaining AvailableOutstanding


Outstanding


for Future IssuanceOptions, Warrants


Options, Warrants


Under EquityPlan Category

And Rights


and Rights


Compensation PlansEquity compensation plans approved by security holders


1,696,763


$
10.76



527,131Equity compensation plans not approved by security holders


4,000


$
13.75



Total


1,700,763


$
10.77



527,131   Equity
    Compensation Plans Not Approved By Security Holders
       30




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PERFORMANCE
    GRAPH
      
  COMPARISON
    OF CUMULATIVE TOTAL RETURN
    OF ONE OR MORE COMPANIES, PEER GROUPS, INDUSTRY INDEXES
    AND/OR BROAD MARKETS
  Fiscal Year EndingCompany/Index/Market

12/31/2002

12/31/2003

12/31/2004

12/30/2005

12/29/2006

12/31/2007Allis-Chalmers Energy Inc.


100.00



101.96



192.16



489.02



903.53



578.43Oil & Gas Equipment/Svcs


100.00



121.99



167.42



253.03



298.70



425.38Russell 2000 Index


100.00



145.37



170.81



176.48



206.61



196.40  31




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ITEM 6.
    SELECTED
    FINANCIAL DATA.    Years Ended December 31,2007


2006


2005


2004


2003Statement of Operations DataRevenues

$
570,967


$
310,964


$
108,022


$
49,307


$
33,278Income from operations

$
124,782


$
67,730


$
13,518


$
4,291


$
2,981Net income from continuing operations

$
50,440


$
35,626


$
7,175


$
888


$
2,927Net income attributed to common stockholders

$
50,440


$
35,626


$
7,175


$
764


$
2,271Per Share Data:Net income from continuing operations per common share:Basic

$
1.48


$
1.73


$
0.48


$
0.10


$
0.58Diluted

$
1.45


$
1.66


$
0.44


$
0.09


$
0.50Weighted average number of common shares outstanding:Basic


34,158



20,548



14,832



7,930



3,927Diluted


34,701



21,410



16,238



9,510



5,850   As of December 31,2007


2006


2005


2004


2003Balance Sheet DataTotal assets

$
1,053,585


$
908,326


$
137,355


$
80,192


$
53,662Long-term debt classified as:Current

$
6,434


$
6,999


$
5,632


$
5,541


$
3,992Long-term

$
508,300


$
561,446


$
54,937


$
24,932


$
28,241Redeemable convertible Preferred stock

$



$



$



$



$
4,171Stockholders equity

$
414,329


$
253,933


$
60,875


$
35,109


$
4,541Book value per share

$
11.80


$
8.99


$
3.61


$
2.58


$
1.30   ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis should be read in
    conjunction with our selected historical financial data and our
    accompanying financial statements and the notes to those
    financial statements included elsewhere in this document. The
    following discussion contains forward-looking statements within
    the meaning of the Private Securities Litigation Reform Act of
    1995 that reflect our plans, estimates and beliefs. Our actual
    results could differ materially from those anticipated in these
    forward-looking statements as a result of risks and
    uncertainties, including, but not limited to, those discussed
    under Item 1A. Risk Factors.
 32




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##### Table of Contents



Overview
    of Our Business
          Results
    of Operations
       33




---



##### Table of Contents



Comparison
    of Years Ended December 31, 2007 and December 31,
    2006
               34




---



##### Table of Contents



Revenues


Income (Loss) from Operations2007


2006


Change


2007


2006


Change(In thousands)Rental Services

$
121,186


$
51,521


$
69,665


$
49,139


$
26,293


$
22,846International Drilling


215,795



69,490



146,305



38,839



12,233



26,606Directional Drilling


96,080



76,471



19,609



18,848



17,666



1,182Tubular Services


53,524



50,887



2,637



10,744



12,544



(1,800
)Underbalanced Drilling


50,959



43,045



7,914



13,091



10,810



2,281Production Services


33,423



19,550



13,873



10,535



2,137



8,398General Corporate














(16,414
)


(13,953
)


(2,461
)Total

$
570,967


$
310,964


$
260,003


$
124,782


$
67,730


$
57,052   Rental Services.
  International Drilling.
  Directional Drilling.
 35




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##### Table of Contents



Tubular Services.
  Underbalanced Drilling.
  Production Services Segment.
  Comparison
    of Years Ended December 31, 2006 and December 31,
    2005
   36




---



##### Table of Contents



Share-Based Payment,
       37




---



##### Table of Contents



Revenues


Income (Loss) from Operations2006


2005


Change


2006


2005


Change(In thousands)Rental Services

$
51,521


$
5,059


$
46,462


$
26,293


$
1,300


$
24,993International Drilling


69,490







69,490



12,233







12,233Directional Drilling


76,471



46,579



29,892



17,666



7,389



10,277Tubular Services


50,887



20,932



29,955



12,544



4,994



7,550Underbalanced Drilling


43,045



25,662



17,383



10,810



5,612



5,198Production Services


19,550



9,790



9,760



2,137



(99
)


2,236General Corporate














(13,953
)


(5,678
)


(8,275
)Total

$
310,964


$
108,022


$
202,942


$
67,730


$
13,518


$
54,212   Rental Services Segment.
  International Drilling Segment.
  Directional Drilling Segment.
 38




---



##### Table of Contents



Tubular Services Segment.
  Underbalanced Drilling Segment.
  Production Services Segment.
  Liquidity
    and Capital Resources
    Operating
    Activities
     39




---



##### Table of Contents



Investing
    Activities
    
    In June 2007, we acquired Coker for a purchase price of
    approximately $3.6 million in cash and a promissory note
    for $350,000.
    In July 2007, we acquired Diggar for a purchase price of
    approximately $6.7 million in cash, the payment of
    approximately $2.8 million of debt and a promissory note
    for $750,000.
    In October 2007, we acquired Rebel for a purchase price of
    approximately $5.0 million in cash, the payment of
    approximately $1.8 million of debt and escrow and
    promissory notes for an aggregate of $500,000.
    In November 2007, we acquired substantially all of the assets of
    Diamondback for a purchase price of approximately
    $23.1 million in cash. 40




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##### Table of Contents



lost-in-hole lost-in-hole
    
    Effective January 1, 2006, we acquired Specialty for a
    purchase price of approximately $95.3 million in cash.
    Effective April 1, 2006, we acquired Rogers for a purchase
    price of approximately $11.3 million in cash,
    125,285 shares of our common stock and a promissory note
    for $750,000.
    On August 14, 2006, we acquired DLS for a purchase price of
    approximately $93.7 million in cash, 2.5 million
    shares of our common stock and the assumption of
    $9.1 million of indebtedness.
    On October 16, 2006, we acquired Petro Rentals for a
    purchase price of approximately $20.2 million in cash,
    246,761 shares of our common stock and the payment of
    approximately $9.6 million of debt.
    Effective December 1, 2006, we acquired Tanus for a
    purchase price of $2.5 million in cash.
    On December 18, 2006, we acquired substantially all of the
    assets of OGR for a purchase price of approximately
    $291.0 million in cash and 3.2 million shares of our
    common stock.  lost-in-hole lost-in-hole
    
    On April 1, 2005 we acquired Delta for a purchase price of
    approximately $4.6 million in cash, 223,114 shares of
    our common stock and two promissory notes totaling $350,000.
    On May 1, 2005, we acquired Capcoil for a purchase price of
    approximately $2.7 million in cash, 168,161 shares of
    our common stock and the payment or assumption of approximately
    $1.3 million of debt.
    On July 11, 2005, we acquired the compressed air drilling
    assets of W.T. for a purchase price of $6.0 million in cash.
    On July 11, 2005, we acquired from M-I its 45%
    interest in AirComp and subordinated note in the principal
    amount of $4.8 million issued by AirComp, for which we paid
    M-I $7.1 million in cash and reissued a $4.0 million
    subordinated note. 41




---



##### Table of Contents




    Effective August 1, 2005, we acquired Target for a purchase
    price of approximately $1.3 million in cash and forgiveness
    of a lease receivable of $592,000.
    On September 1, 2005, we acquired the casing and tubing
    service assets of Patterson Services, Inc. for a purchase price
    of approximately $15.6 million.    Financing
    Activities
             42




---



##### Table of Contents



43




---



##### Table of Contents



Payments by PeriodLess ThanTotal


1 Year


1-3 Years


3-5 Years


After 5 Years(In thousands)Contractual ObligationsLong-term debt

$
514,720


$
6,420


$
2,950


$
350


$
505,000Capital leases


14



14











Interest payments on long-term debt


334,018



44,588



88,577



88,406



112,447Operating leases


5,941



2,618



2,354



593



376Employment contracts


7,511



3,543



3,968







Total contractual cash obligations

$
862,204


$
57,183


$
97,849


$
89,349


$
617,823       Recent
    Developments
   44




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##### Table of Contents



Critical
    Accounting Policies
    Allowance For Doubtful Accounts.
 45




---



##### Table of Contents



Revenue Recognition. Revenue Recognition in Financial Statements
  Impairment Of Long-Lived Assets.
  Goodwill And Other Intangibles. Business Combinations Goodwill
    and Other Intangible Assets.
  Income Taxes.
 46




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##### Table of Contents



Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109
  non-U.S. subsidiaries non-U.S. subsidiaries.
  Recently
    Issued Accounting Standards
  Fair Value Measurements.
  Business Combinations
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Non-controlling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
 47




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##### Table of Contents



Off-Balance
    Sheet Arrangements
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.    Interest
    Rate Risk
        Foreign
    Currency Exchange Rate Risk
   48




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS.  INDEX TO
    FINANCIAL STATEMENTS
  ALLIS-CHALMERS
    ENERGY INC. AND SUBSIDIARIES
  PageManagements Report to the Stockholders of
    Allis-Chalmers Energy Inc.


50Reports of Independent Registered Public
    Accounting Firm


51Consolidated Balance Sheet


53Consolidated Statement of Operations


54Consolidated Statement of Stockholders
    Equity


55Consolidated Statement of Cash Flows


56Notes to Consolidated Financial Statements


57Supplemental Information to Consolidated
    Financial Statements  Summarized Quarterly Financial
    Data


92  49




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##### Table of Contents



MANAGEMENTS
    REPORT TO THE STOCKHOLDERS OF ALLIS-CHALMERS ENERGY
    INC.  Managements
    Report on Internal Control Over Financial Reporting
  Internal Control-Integral Framework
  Internal
    Control-Integrated Framework
  Managements
    Certifications
  Form 10-K.
  ALLIS-CHALMERS
    ENERGY INC.
  By:

/s/ Munawar H. Hidayatallah



By:

/s/ Victor M. PerezMunawar H. Hidayatallah





Victor PerezChief Executive Officer





Chief Financial Officer  50




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
 
         Accounting for Uncertainty
    in Income Taxes an Interpretation of FASB Statement
    No. 109 Share Based
    Payment
  Internal Control-Integrated Framework
    
  51




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
   Internal Control-Integrated
    Framework
              
  52




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(In thousands, exceptfor share and per shareamounts)ASSETSCash and cash equivalents

$
43,693


$
39,745Trade receivables, net of allowance for doubtful accounts of
    $1,924 and$826 at December 31, 2007 and 2006, respectively


130,094



95,766Inventories


32,209



28,615Prepaid expenses and other


11,898



16,636Total current assets


217,894



180,762Property and equipment, at cost net of accumulated depreciation
    of $77,008 and $29,743 at December 31, 2007 and 2006,
    respectively


626,668



554,258Goodwill


138,398



125,835Other intangible assets, net of accumulated amortization of
    $6,218 and $4,475 at December 31, 2007 and 2006,
    respectively


35,180



32,840Debt issuance costs, net of accumulated amortization of $2,718
    and $1,501 at December 31, 2007 and 2006, respectively


14,228



9,633Other assets


21,217



4,998Total assets

$
1,053,585


$
908,326LIABILITIES AND STOCKHOLDERS EQUITYCurrent maturities of long-term debt

$
6,434


$
6,999Trade accounts payable


37,464



25,666Accrued salaries, benefits and payroll taxes


15,283



10,888Accrued interest


17,817



11,867Accrued expenses


20,545



16,951Total current liabilities


97,543



72,371Deferred income tax liability


30,090



19,953Long-term debt, net of current maturities


508,300



561,446Other long-term liabilities


3,323



623Total liabilities


639,256



654,393Commitments and ContingenciesStockholders EquityPreferred stock, $0.01 par value (25,000,000 shares
    authorized, none issued)






Common stock, $0.01 par value (100,000,000 shares
    authorized; 35,116,035 issued and outstanding at
    December 31, 2007 and 28,233,411 issued and outstanding at
    December 31, 2006)


351



282Capital in excess of par value


326,095



216,208Retained earnings


87,883



37,443Total stockholders equity


414,329



253,933Total liabilities and stockholders equity

$
1,053,585


$
908,326    53




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Years Ended December 31,2007


2006


2005(In thousands, except pershare amounts)Revenues

$
570,967


$
310,964


$
108,022Cost of revenuesDirect costs


341,450



185,579



72,567Depreciation


50,914



20,261



4,874Gross margin


178,603



105,124



30,581General and administrative expenses


58,622



35,536



15,576Gain on capillary asset sale


(8,868
)






Amortization


4,067



1,858



1,487Income from operations


124,782



67,730



13,518Other income (expense):Interest expense


(49,534
)


(21,309
)


(4,746
)Interest income


3,259



972



49Other


776



(347
)


186Total other expense


(45,499
)


(20,684
)


(4,511
)Income before minority interest and income taxes


79,283



47,046



9,007Minority interest in income of subsidiaries










(488
)Provision for income taxes


(28,843
)


(11,420
)


(1,344
)Net income

$
50,440


$
35,626


$
7,175Income per common share:Basic

$
1.48


$
1.73


$
0.48Diluted

$
1.45


$
1.66


$
0.44Weighted average number of common shares outstanding:Basic


34,158



20,548



14,832Diluted


34,701



21,410



16,238    54




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENT OF STOCKHOLDERS EQUITY  Capital in


Retained


TotalCommon Stock


Excess of


Earnings


StockholdersShares


Amount


Par Value


(Deficit)


Equity(In thousands, except share amounts)Balances, December 31, 2004


13,611,525


$
136


$
40,331


$
(5,358
)

$
35,109Net income














7,175



7,175Issuance of common stock:Acquisitions


411,275



4



1,746







1,750Secondary public offering, net of offering costs


1,761,034



18



15,441







15,459Stock options and warrants exercised


1,076,154



11



1,371







1,382Balances, December 31, 2005


16,859,988



169



58,889



1,817



60,875Net income














35,626



35,626Issuance of common stock:Acquisitions


6,072,046



61



94,919







94,980Secondary public offering, net of offering costs


3,450,000



34



46,263







46,297Issuance under stock plans


1,851,377



18



6,303







6,321Stock-based compensation










3,394







3,394Tax benefits on stock plans










6,440







6,440Balances, December 31, 2006


28,233,411



282



216,208



37,443



253,933Net income














50,440



50,440Issuance of common stock:Secondary public offering, net of offering costs


6,000,000



60



99,995







100,055Issuance under stock plans


882,624



9



3,310







3,319Stock-based compensation










4,863







4,863Tax benefits on stock plans










1,719







1,719Balances, December 31, 2007


35,116,035


$
351


$
326,095


$
87,883


$
414,329    55




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years Ended December 31,2007


2006


2005(In thousands)Cash Flows from Operating Activities:Net income

$
50,440


$
35,626


$
7,175Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


54,981



22,119



6,361Amortization and write-off of deferred financing fees


3,197



1,527



962Stock-based compensation


4,863



3,394



Allowance for bad debts


730



781



219Imputed interest






355



Deferred taxes


8,017



2,215



Minority interest in income of subsidiaries










488Gain on sale of property and equipment


(2,323
)


(2,444
)


(669
)Gain on capillary asset sale


(8,868
)






Changes in operating assets and liabilities, net of acquisitions:Increase in accounts receivable


(30,825
)


(23,175
)


(10,656
)Increase in inventories


(5,375
)


(2,637
)


(3,072
)Decrease in prepaid expenses and other assets


8,202



2,505



929Increase (decrease) in other assets


(4,492
)


308



(936
)Increase (decrease) in trade accounts payable


10,732



(2,337
)


2,373Increase in accrued interest


5,950



11,382



324Increase (decrease) in accrued expenses


1,508



872



(97
)Increase (decrease) in other liabilities


2,700



(224
)


(266
)Increase in accrued salaries, benefits and payroll taxes


4,031



3,392



443Net cash provided by operating activities


103,468



53,659



3,578Cash Flows from Investing Activities:Acquisitions, net of cash acquired


(41,000
)


(526,572
)


(36,888
)Purchase of investment interests


(498
)






Purchase of property and equipment


(113,151
)


(39,697
)


(17,767
)Deposits on asset commitments


(11,488
)






Proceeds from sale of capillary assets


16,250







Proceeds from sale of property and equipment


12,811



6,881



1,579Net cash used in investing activities


(137,076
)


(559,388
)


(53,076
)Cash Flows from Financing Activities:Proceeds from issuance of long-term debt


250,000



557,820



56,251Payments on long-term debt


(309,745
)


(54,030
)


(28,202
)Payments on related party debt






(3,031
)


(1,522
)Net (repayments) borrowings on lines of credit






(6,400
)


2,527Proceeds from issuance of common stock, net of offering costs


100,055



46,297



15,459Proceeds from exercise of options and warrants


3,319



6,321



1,382Tax benefit on stock plans


1,719



6,440



Debt issuance costs


(7,792
)


(9,863
)


(1,821
)Net cash provided by financing activities


37,556



543,554



44,074Net increase (decrease) in cash and cash equivalents


3,948



37,825



(5,424
)Cash and cash equivalents at beginning of year


39,745



1,920



7,344Cash and cash equivalents at end of year

$
43,693


$
39,745


$
1,920    56




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



Notes to
    Consolidated Financial Statements  NOTE 1 
    NATURE OF
    BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES  Organization
    of Business
      Use of
    Estimates
    Principles
    of Consolidation
    Revenue
    Recognition
  lost-in-hole lost-in-hole Revenue
    Recognition In Financial Statements
 57




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Allowance
    for Doubtful Accounts
      Cash
    Equivalents
    Inventories
    Property
    and Equipment
        Goodwill,
    Intangible Assets and Amortization
   58




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Impairment
    of Long-Lived Assets
    Financial
    Instruments
    Concentration
    of Credit and Customer Risk
      Debt
    Issuance Costs
    Income
    Taxes
   59




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109
  non-U.S. subsidiaries non-U.S. subsidiaries.
  Stock-Based
    Compensation
  Share-Based Payment Accounting for Stock-Based
    Compensation
   60




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      For the Year EndedDecember 31, 2005Net income attributed to common stockholders as reported:





$
7,175Less total stock based employee compensation expense determined
    under fair value based method for all awards net of tax related
    effects






(4,284
)Pro-forma net income attributed to common stockholders





$
2,891Net income per common share:Basic


As reported


$
0.48Pro forma


$
0.19Diluted


As reported


$
0.44Pro forma


$
0.18     For the Years Ended December 31,2007


2006


2005Expected dividend yield










Expected price volatility


66.21
%


72.28
%


84.28
%Risk-free interest rate


4.8
%


5.1
%


5.6
%Expected life of options


5 years



7 years



7 yearsWeighted average fair value of options granted at market value

$
12.86


$
10.58


$
5.02   Segments
    of an Enterprise and Related Information
  Disclosures About Segments Of An
    Enterprise And Related Information
  Income
    Per Common Share
  Earnings Per Share
 61




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      For the Years Ended December 31,2007


2006


2005Numerator:Net income

$
50,440


$
35,626


$
7,175Denominator:Weighted average common shares outstanding excluding nonvested
    restricted stock


34,158



20,548



14,832Effect of potentially dilutive common shares:Warrants and employee and director stock options and restricted
    shares


543



862



1,406Weighted average common shares outstanding and assumed
    conversions


34,701



21,410



16,238Income per common share:Basic

$
1.48


$
1.73


$
0.48Diluted

$
1.45


$
1.66


$
0.44Potentially dilutive securities excluded as anti-dilutive


1,108



53



599   Reclassification
    New
    Accounting Pronouncements
  Fair Value Measurements
  Business Combinations
 62




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Non-controlling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  NOTE 2 
    POST
    RETIREMENT BENEFIT OBLIGATIONS  Medical
    And Life
    401(k)
    Savings Plan
   63




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    NOTE 3 
    ACQUISITIONS
    AND SALE OF CAPILLARY ASSETS               64




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Current assets

$
7,645Property and equipment


90,622Total assets acquired


98,267Current liabilities


2,193Long-term debt


74Total liabilities assumed


2,267Net assets acquired

$
96,000       Current assets

$
4,520Property and equipment


9,866Intangible assets, including goodwill


4,941Total assets acquired


19,327Current liabilities


1,376Deferred income tax liabilities


3,760Other long-term liabilities


150Total liabilities assumed


5,286Net assets acquired

$
14,041      65




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Current assets

$
52,033Property and equipment


130,389Other long-term assets


21Total assets acquired


182,443Current liabilities


34,386Long-term debt, less current portion


5,921Intercompany note


17,256Deferred tax liabilities


6,948Total liabilities assumed


64,511Net assets acquired

$
117,932       Current assets

$
8,175Property and equipment


28,792Intangible assets, including goodwill


5,811Other long-term assets


2Total assets acquired


42,780Current liabilities


2,135Deferred tax liabilities


6,954Total liabilities assumed


9,089Net assets acquired

$
33,691      66




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Current assets

$
2,254Property and equipment


2Goodwill


1,504Total assets acquired


3,760Current liabilities


1,243Net assets acquired

$
2,517       Current assets

$
12,735Property and equipment


199,015Investments


4,618Intangible assets, including goodwill


128,976Total assets acquired

$
345,344       Property and equipment


3Intangible assets, including goodwill


3,902Net assets acquired

$
3,905      67




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Current assets

$
1,113Property and equipment


7,204Intangible assets, including goodwill


2,675Total assets acquired


10,992Current liabilities


622Net assets acquired

$
10,370       Current assets

$
944Land, Property and equipment


8,736Intangible assets, including goodwill


1,144Total assets acquired


10,824Current liabilities


218Deferred tax liabilities


3,095Total liabilities assumed


3,313Net assets acquired

$
7,511      68




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Current assets

$
3,350Property and equipment


8,701Intangible assets, including goodwill


12,232Other noncurrent assets


10Total assets acquired


24,293Current liabilities


1,160Net assets acquired

$
23,133           Years Ended December 31,2006


2005Revenues

$
502,418


$
346,230Operating income

$
93,082


$
49,868Net income

$
32,358


$
1,264Net income per common shareBasic

$
0.96


$
0.04Diluted

$
0.94


$
0.04  69




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 4 
    INVENTORIES    2007


2006ManufacturedFinished goods

$
2,198


$
1,476Work in process


1,781



2,266Raw materials


4,464



2,638Total manufactured


8,443



6,380Hammers


1,434



1,016Drive pipe


420



716Rental supplies


2,261



1,845Chemicals and drilling fluids


3,236



2,673Rig parts and related inventory


9,985



9,762Coiled tubing and related inventory


1,014



1,627Shop supplies and related inventory


5,416



4,596Total inventories

$
32,209


$
28,615   NOTE 5 
    PROPERTY
    AND OTHER INTANGIBLE ASSETS    DepreciationPeriod

2007


2006Land



$
2,040


$
1,810Building and improvements

15-20 years


6,986



5,392Transportation equipment

3-10 years


26,132



22,744Drill pipe and rental equipment

3-20 years


350,202



321,821Drilling, workover and pulling rigs

20 years


127,725



120,517Machinery and equipment

3-20 years


157,626



105,926Furniture, computers, software and leasehold improvements

3-10 years


5,817



3,522Construction in progress  equipment

N/A


27,148



2,269Total




703,676



584,001Less: accumulated depreciation




(77,008
)


(29,743
)Property and equipment, net



$
626,668


$
554,258    70




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    AmortizationPeriod

2007


2006Intellectual property

10-20 years

$
1,629


$
1,009Non-compete agreements

3-5 years


2,852



4,580Customer relationships

10-15 years


33,528



27,552Patents

12-15 years


2,560



3,327Other intangible assets

2-10 years


829



847Total




41,398



37,315Less: accumulated amortization




(6,218
)


(4,475
)Other intangibles assets, net



$
35,180


$
32,840   2007


2006Gross


Accumulated


Gross


AccumulatedValue


Amortization


Value


AmortizationIntellectual property

$
1,629


$
410


$
1,009


$
349Non-compete agreements


2,852



1,367



4,580



2,707Customer relationships


33,528



3,497



27,552



789Patents


2,560



423



3,327



203Other intangible assets


829



521



847



427Total

$
41,398


$
6,218


$
37,315


$
4,475     Intangible Amortization by PeriodYears Ended December 31,2012 and2008


2009


2010


2011


ThereafterIntellectual property

$
96


$
96


$
96


$
96


$
835Non-compete agreements


627



494



291



48



25Customer relationships


3,227



3,227



3,227



3,227



17,123Patents


202



202



202



202



1,329Other intangible assets


107



90



79



30



2Total Intangible Amortization

$
4,259


$
4,109


$
3,895


$
3,603


$
19,314   NOTE 6 
    INCOME
    TAXES  non-U.S. countries
 71




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2007


2006


2005Current income tax expense:Federal

$
6,814


$
5,865


$
123State


1,053



898



595Foreign


12,959



2,442



62620,826



9,205



1,344Deferred income tax expense (benefit):Federal


7,081



(946
)


State


349



573



Foreign


587



2,588



8,017



2,215



$
28,843


$
11,420


$
1,344       Years Ended December 31,2007


2006


2005Statutory income tax rate


35.0
%


35.0
%


34.0
%State taxes, net of federal benefit


1.8



2.1



6.1Valuation allowances






(57.7
)


(98.7
)Nondeductible items, permanent differences and other


(0.4
)


44.9



74.4Effective tax rate


36.4
%


24.3
%


15.8
%     2007


2006Deferred income tax assets:Net future (taxable) deductible items

$
874


$
899Share-based compensation


1,898



578Net operating loss carryforwards


2,681



1,698Foreign tax credits






2,420A-C Reorganization Trust and Product Liability Trust


4,099



5,500Total deferred income tax assets


9,552



11,095Deferred income tax liabilitiesDepreciation and amortization


(37,795
)


(28,226
)Net deferred income tax liabilities

$
(28,243
)

$
(17,131
)Net current deferred income tax asset

$
1,847


$
2,822Net noncurrent deferred income tax liability


(30,090
)


(19,953
)Net deferred income tax liabilities

$
(28,243
)

$
(17,131
)  72




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
               73




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 7 
    DEBT    2007


2006Senior notes

$
505,000


$
255,000Bridge loan






300,000Bank term loans


4,926



7,302Revolving line of credit






Seller notes


2,350



900Notes payable to former directors


32



32Equipment & vehicle installment notes


595



3,502Insurance premium financing notes


1,707



1,025Obligations under non-compete agreements


110



270Capital lease obligations


14



414Total debt


514,734



568,445Less: current maturities of long-term debt


6,434



6,999Long-term debt

$
508,300


$
561,446       Debt


Capital Leases


TotalYear Ending:December 31, 2008

$
6,420


$
14


$
6,434December 31, 2009


2,250







2,250December 31, 2010


700







700December 31, 2011


350







350December 31, 2012










Thereafter


505,000







505,000Total

$
514,720


$
14


$
514,734   Senior
    notes, bank loans and line of credit agreements
     74




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2 3
    Notes
    payable
         75




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Other
    debt
      NOTE 8 
    COMMITMENTS
    AND CONTINGENCIES        Years Ending:December 31, 2008

$
2,618December 31, 2009


1,633December 31, 2010


721December 31, 2011


437December 31, 2012


156Thereafter


376Total

$
5,941   NOTE 9 
    STOCKHOLDERS
    EQUITY   76




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                    NOTE 10 
    STOCK
    OPTIONS     77




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        December 31, 2007


December 31, 2006


December 31, 2005Shares


Weighted Ave.


Shares


Weighted Ave.


Shares


Weighted Avg.Under


Exercise


Under


Exercise


Under


ExerciseOption


Price


Option


Price


Option


PriceBeginning balance


1,350,365


$
6.88



2,860,867


$
5.10



1,215,000


$
3.20Granted


220,000



21.83



15,000



14.74



1,695,000



6.44Canceled


(17,334
)


8.45



(54,567
)


5.97



(15,300
)


3.33Exercised


(566,268
)


5.86



(1,470,935
)


3.54



(33,833
)


2.80Ending balance


986,763


$
10.77



1,350,365


$
6.88



2,860,867


$
5.10       Options Outstanding


Options ExercisableWeighted Average


Weighted





Weighted Average


WeightedRange of





Remaining


Average





Remaining


AverageExercise


Number of


Contractual Life


Exercise


Number of


Contractual Life


ExercisePrices


options


(in Years)


Price


options


(in Years)


Price$
2.75-4.87



380,699



7.02


$
4.14



380,699



7.02


$
4.1410.85-14.74



386,064



7.92



11.01



381,069



7.92



10.9616.50-21.95



220,000



9.59



21.83











2.75-21.95



986,763



7.95


$
10.77



761,768



7.47


$
7.55  78




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Restricted
    Stock Awards
      December 31, 2007


December 31, 2006Number


Weighted Ave.


Number


Weighted Ave.of


Grant Date Fair


of


Grant Date FairShares


Value Per Share


Shares


Value Per ShareBeginning balance


27,000


$
18.30






$
Granted


996,203



17.44



27,000



18.30Vested


(30,000
)


18.01







Forfeited














Ending balance


993,203


$
17.45



27,000


$
18.30     NOTE 11 
    STOCK
    PURCHASE WARRANTS         79




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          NOTE 12 
    CONDENSED
    CONSOLIDATED FINANCIAL INFORMATION   80




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
    December 31, 2007
  Allis-Chalmers





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalAssetsCash and cash equivalents

$



$
41,176


$
2,517


$



$
43,693Trade receivables, net






83,126



46,973



(5
)


130,094Inventories






15,699



16,510







32,209Intercompany receivables


76,583











(76,583
)


Note receivable from affiliate


8,270











(8,270
)


Prepaid expenses and other


7,731



2,564



1,603







11,898Total current assets


92,584



142,565



67,603



(84,858
)


217,894Property and equipment, net






477,055



149,613







626,668Goodwill






136,875



1,523







138,398Other intangible assets, net


552



34,572



56







35,180Debt issuance costs, net


14,228















14,228Note receivable from affiliates


16,380











(16,380
)


Investments in affiliates


824,410











(824,410
)


Other assets


15



4,977



16,225







21,217Total assets

$
948,169


$
796,044


$
235,020


$
(925,648
)

$
1,053,585Liabilities and Stockholders EquityCurrent maturities of long-term debt

$
32


$
4,026


$
2,376


$



$
6,434Trade accounts payable






16,815



20,654



(5
)


37,464Accrued salaries, benefits and payroll taxes






3,712



11,571







15,283Accrued interest


17,709



33



75







17,817Accrued expenses


1,660



7,127



11,758







20,545Intercompany payables






433,116



1,185



(434,301
)


Note payable to affiliate










8,270



(8,270
)


Total current liabilities


19,401



464,829



55,889



(442,576
)


97,543Long-term debt, net of current maturities


505,750







2,550







508,300Note payable to affiliate










16,380



(16,380
)


Deferred income tax liability


8,658



13,809



7,623







30,090Other long-term liabilities


31



242



3,050







3,323Total liabilities


533,840



478,880



85,492



(458,956
)


639,256Commitments and contingenciesStockholders EquityCommon stock


351



3,526



42,963



(46,489
)


351Capital in excess of par value


326,095



167,508



74,969



(242,477
)


326,095Retained earnings


87,883



146,130



31,596



(177,726
)


87,883Total stockholders equity


414,329



317,164



149,528



(466,692
)


414,329Total liabilities and stock holders equity

$
948,169


$
796,044


$
235,020


$
(925,648
)

$
1,053,585  81




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  CONDENSED
    CONSOLIDATING INCOME STATEMENTS
    For the Year Ended December 31, 2007
  Allis-Chalmers





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalRevenues

$



$
355,172


$
215,795


$



$
570,967Cost of revenuesDirect costs






185,617



155,833







341,450Depreciation






39,659



11,255







50,914Gross margin






129,896



48,707







178,603General and administrative


4,349



44,439



9,834







58,622Gain on capillary asset sale






(8,868
)










(8,868
)Amortization


46



3,988



33







4,067Income (loss) from operations


(4,395
)


90,337



38,840







124,782Other income (expense):Equity earnings in affiliates, net of tax


102,208











(102,208
)


Interest, net


(47,677
)


2,796



(1,394
)






(46,275
)Other


304



336



136







776Total other income (expense)


54,835



3,132



(1,258
)


(102,208
)


(45,499
)Income before income taxes


50,440



93,469



37,582



(102,208
)


79,283Provision for income taxes






(16,085
)


(12,758
)






(28,843
)Net income (loss)

$
50,440


$
77,384


$
24,824


$
(102,208
)

$
50,440  82




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOW
    For the Year Ended December 31, 2007
  Allis-





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Operating Activities:Net income (loss)

$
50,440


$
77,384


$
24,824


$
(102,208
)

$
50,440Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation & amortization


46



43,647



11,288







54,981Amortization and write-off of deferred financing fees


3,197















3,197Stock based compensation


4,863















4,863Allowance for bad debts






730











730Equity earnings in affiliates


(102,208
)










102,208



Deferred taxes


7,430







587







8,017Gain on sale of equipment






(2,182
)


(141
)






(2,323
)Gain on capillary asset sale






(8,868
)










(8,868
)Changes in operating assets and liabilities, net of acquisitions:Increase in accounts receivables






(17,823
)


(13,002
)






(30,825
)Increase in inventories






(4,286
)


(1,089
)






(5,375
)(Increase) Decrease in other current assets


(3,003
)


12,075



(870
)






8,202(Increase) decrease in other assets


242







(4,734
)






(4,492
)(Decrease) increase in accounts payable


(31
)


2,234



8,529







10,732(Decrease) increase in accrued interest


5,954



33



(37
)






5,950(Decrease) increase in accrued expenses


1,525



(3,912
)


3,895







1,508(Decrease) increase in other liabilities


(273
)


(77
)


3,050







2,700Increase in accrued salaries, benefits and payroll taxes






355



3,676







4,031Net cash provided (used) by operating activities


(31,818
)


99,310



35,976







103,468Cash Flows from Investing Activities:Acquisitions, net of cash acquired






(41,000
)










(41,000
) 83




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Allis-





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalPurchase of investment interests






(498
)










(498
)Purchase of property and equipment






(84,240
)


(28,911
)






(113,151
)Deposits on asset commitments










(11,488
)






(11,488
)Notes receivable from affiliates


(6,809
)










6,809



Proceeds from sale of capillary assets






16,250











16,250Proceeds from sale of property and equipment






12,666



145







12,811Net cash provided (used) in investing activities


(6,809
)


(96,822
)


(40,254
)


6,809



(137,076
)Cash Flows from Financing Activities:Proceeds from issuance of long-term debt


250,000















250,000Payments on long-term debt


(300,000
)


(6,587
)


(3,158
)






(309,745
)Accounts receivable from affiliates


(8,674
)










8,674



Accounts payable to affiliates






7,506



1,168



(8,674
)


Note payable to affiliate










6,809



(6,809
)


Proceeds from issuance of common stock, net of offering costs


100,055















100,055Proceeds from exercise of options and warrants


3,319















3,319Tax benefit on stock plans


1,719















1,719Debt issuance costs


(7,792
)














(7,792
)Net cash provided (used) by financing activities


38,627



919



4,819



(6,809
)


37,556Net change in cash and cash equivalents






3,407



541







3,948Cash and cash equivalents at beginning of year






37,769



1,976







39,745Cash and cash equivalents at end of period

$



$
41,176


$
2,517


$



$
43,693  84




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  CONDENSED
    CONSOLIDATING BALANCE SHEETS
    December 31, 2006
  Allis-Chalmers





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalAssetsCash and cash equivalents

$



$
37,769


$
1,976


$



$
39,745Trade receivables, net






62,089



33,971



(294
)


95,766Inventories






13,194



15,421







28,615Intercompany receivables


67,909











(67,909
)


Note receivable from affiliate


5,502











(5,502
)


Prepaid expenses and other


5,703



10,200



733







16,636Total current assets


79,114



123,252



52,101



(73,705
)


180,762Property and equipment, net






422,297



131,961







554,258Goodwill






124,331



1,504







125,835Other intangible assets, net


598



32,153



89







32,840Debt issuance costs, net


9,633















9,633Note receivable from affiliates


12,339











(12,339
)


Investments in affiliates


722,202











(722,202
)


Other assets


257



4,719



22







4,998Total assets

$
824,143


$
706,752


$
185,677


$
(808,246
)

$
908,326Liabilities and Stockholders EquityCurrent maturities of long-term debt

$
32


$
3,809


$
3,158


$



$
6,999Trade accounts payable


31



13,510



12,125







25,666Accrued salaries, benefits and payroll taxes






2,993



7,895







10,888Accrued interest


11,755







112







11,867Accrued expenses


135



9,247



7,863



(294
)


16,951Intercompany payables






425,610



17



(425,627
)


Note payable to affiliate










5,502



(5,502
)


Total current liabilities


11,953



455,169



36,672



(431,423
)


72,371Long-term debt, net of current maturities


555,750



770



4,926







561,446Note payable to affiliate










12,339



(12,339
)


Deferred income tax liability


2,203



10,714



7,036







19,953Other long-term liabilities


304



319











623Total liabilities


570,210



466,972



60,973



(443,762
)


654,393Commitments and contingenciesStockholders EquityCommon stock


282



3,526



42,963



(46,489
)


282Capital in excess of par value


216,208



167,508



74,969



(242,477
)


216,208Retained earnings


37,443



68,746



6,772



(75,518
)


37,443Total stockholders equity


253,933



239,780



124,704



(364,484
)


253,933Total liabilities and stock holders equity

$
824,143


$
706,752


$
185,677


$
(808,246
)

$
908,326  85




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  CONDENSED
    CONSOLIDATING INCOME STATEMENTS
    For the Year Ended December 31, 2006
  Allis-Chalmers





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalRevenues

$



$
241,474


$
69,490


$



$
310,964Cost of revenuesDirect costs






134,638



50,941







185,579Depreciation






16,198



4,063







20,261Gross margin






90,638



14,486







105,124General and administrative


2,643



30,651



2,242







35,536Amortization


46



1,801



11







1,858Income (loss) from operations


(2,689
)


58,186



12,233







67,730Other income (expense):Equity earnings in affiliates, net of tax


58,077











(58,077
)


Interest, net


(19,807
)


67



(597
)






(20,337
)Other


45



97



(489
)






(347
)Total other income (expense)


38,315



164



(1,086
)


(58,077
)


(20,684
)Income (loss) before income taxes


35,626



58,350



11,147



(58,077
)


47,046Provision for income taxes






(7,045
)


(4,375
)






(11,420
)Net income (loss)

$
35,626


$
51,305


$
6,772


$
(58,077
)

$
35,626  86




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOW
    For the Year Ended December 31, 2006 (unaudited)
  Allis-





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Operating Activities:Net income (loss)

$
35,626


$
51,305


$
6,772


$
(58,077
)

$
35,626Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation & amortization


46



17,999



4,074







22,119Amortization & write-off of deferred financing fees


1,527















1,527Stock based compensation


3,394















3,394Provision for bad debts






781











781Imputed interest






355











355Equity earnings in affiliates


(58,077
)










58,077



Deferred taxes


(619
)


247



2,587







2,215Gain on sale of equipment






(2,428
)


(16
)






(2,444
)Changes in operating assets and liabilities, net of acquisitions:Increase in accounts receivables






(23,144
)


(31
)






(23,175
)(Increase) decrease in inventories






(2,989
)


352







(2,637
)(Increase) decrease in other current assets


(2,482
)


4,120



867







2,505(Increase) decrease in other assets


296



101



(89
)






308(Decrease) increase in accounts payable


(82
)


3,587



(5,842
)






(2,337
)(Decrease) increase in accrued interest


11,508



(45
)


(81
)






11,382(Decrease) increase in accrued expenses


(390
)


1,633



(371
)






872(Decrease) in other liabilities


(31
)


(193
)










(224
)(Decrease) increase in accrued salaries, benefits and payroll
    taxes


(1,951
)


2,780



2,563







3,392Net cash provided (used) by operating activities


(11,235
)


54,109



10,785







53,659Cash Flows from Investing Activities:Acquisitions, net of cash acquired


(528,167
)


3,649



(2,054
)






(526,572
)Notes receivable from affiliates


(585
)










585



Purchase of property and equipment






(33,930
)


(5,767
)






(39,697
) 87




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Allis-





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalProceeds from sale of property and equipment






6,730



151







6,881Net cash provided (used) in investing activities


(528,752
)


(23,551
)


(7,670
)


585



(559,388
)Cash Flows from Financing Activities:Proceeds from long-term debt


555,000



2,820











557,820Payments on long-term debt


(42,414
)


(9,875
)


(1,741
)






(54,030
)Payments on related party debt






(3,031
)










(3,031
)Net (payments) borrowings on lines of credit


(6,400
)














(6,400
)Accounts receivable from affiliates


(16,444
)










16,444



Accounts payable to affiliates






16,427



17



(16,444
)


Note payable to affiliate










585



(585
)


Proceeds from issuance of common stock, net of offering costs


46,297















46,297Proceeds from exercise of options and warrants


6,321















6,321Tax benefit on stock plans


6,440















6,440Debt issuance costs


(9,863
)














(9,863
)Net cash provided (used) by financing activities


538,937



6,341



(1,139
)


(585
)


543,554Net change in cash and cash equivalents


(1,050
)


36,899



1,976







37,825Cash and cash equivalents at beginning of year


1,050



870











1,920Cash and cash equivalents at end of period

$



$
37,769


$
1,976


$



$
39,745   NOTE 13 
    RELATED
    PARTY TRANSACTIONS     88




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 14 
    SEGMENT
    INFORMATION    Years Ended December 31,2007


2006


2005Revenues:Rental Services

$
121,186


$
51,521


$
5,059International Drilling


215,795



69,490



Directional Drilling


96,080



76,471



46,579Tubular Services


53,524



50,887



20,932Underbalanced Drilling


50,959



43,045



25,662Production Services


33,423



19,550



9,790Total revenues

$
570,967


$
310,964


$
108,022Operating Income (Loss):Rental Services

$
49,139


$
26,293


$
1,300International Drilling


38,839



12,233



Directional Drilling


18,848



17,666



7,389Tubular Services


10,744



12,544



4,994Underbalanced Drilling


13,091



10,810



5,612Production Services


10,535



2,137



(99
)General corporate


(16,414
)


(13,953
)


(5,678
)Total income from operations

$
124,782


$
67,730


$
13,518Depreciation and Amortization Expense:Rental Services

$
26,353


$
7,268


$
492International Drilling


11,288



4,074



Directional Drilling


3,063



1,464



887Tubular Services


5,164



3,908



2,006Underbalanced Drilling


3,692



3,057



1,946Production Services


4,919



2,005



912General corporate


502



343



118Total depreciation and amortization expense

$
54,981


$
22,119


$
6,361Capital Expenditures:Rental Services

$
34,883


$
4,538


$
435International Drilling


28,911



5,770



Directional Drilling


11,177



5,128



2,922Tubular Services


9,250



10,980



5,207Underbalanced Drilling


17,443



7,716



7,008Production Services


10,740



5,253



1,514General corporate


747



312



681Total capital expenditures

$
113,151


$
39,697


$
17,767   89




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  As of December 31,2007


2006


2005Goodwill:Rental Services

$
106,382


$
106,132


$
International Drilling


1,523



1,504



Directional Drilling


16,300



4,168



4,168Tubular Services


6,564



6,464



3,673Underbalanced Drilling


3,950



3,950



3,950Production Services


3,679



3,617



626General corporate










Total goodwill

$
138,398


$
125,835


$
12,417Assets:Rental Services

$
454,216


$
453,802


$
8,034International Drilling


235,020



185,677



Directional Drilling


82,532



28,585



20,960Tubular Services


88,014



74,372



45,351Underbalanced Drilling


72,401



54,288



46,045Production Services


56,353



57,954



12,282General corporate


65,049



53,648



4,683Total assets

$
1,053,585


$
908,326


$
137,355   Years Ended December 31,2007


2006


2005Revenues:United States

$
339,476


$
231,852


$
101,261International


231,491



79,112



6,761Total revenues

$
570,967


$
310,964


$
108,022   As of December 31,2007


2006


2005Long Lived Assets:United States

$
655,513


$
574,302


$
97,390International


180,178



153,262



4,313Total long lived assets

$
835,691


$
727,564


$
101,703  90




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 15 
    SUPPLEMENTAL
    CASH FLOWS INFORMATION (in thousands)  Years Ended December 31,2007


2006


2005Interest paid

$
40,363


$
8,571


$
3,924Income taxes paid

$
17,272


$
5,796


$
676Other non-cash investing and financing transactions:Insurance premiums financed


4,434



2,871



Purchase of equipment financed through assumption of debt or
    accounts payable










592Non-cash investing and financing transactions in connection
    with acquisitions:Fair value of Property and equipment

$
4,345


$
109,632


$
1,750Fair value of goodwill and other intangibles


350



4,010



$
4,695


$
113,642


$
1,750Value of common stock, issued

$



$
94,980


$
1,750Seller financed note


1,600



750



Deferred tax liability


3,095



17,662



Accrued expenses






250



$
4,695


$
113,642


$
1,750   NOTE 16 
    LEGAL
    MATTERS      NOTE 17 
    SUBSEQUENT
    EVENTS     91




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          NOTE 18 
    SUMMARIZED
    QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per
    share amounts)  First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterYear 2007Revenues

$
135,900


$
143,362


$
147,881


$
143,824Operating income


31,470



41,474



31,148



20,690Net income

$
12,165


$
19,504


$
12,987


$
5,784Income per common share:Basic

$
0.38


$
0.56


$
0.37


$
0.17Diluted

$
0.37


$
0.55


$
0.37


$
0.16   First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterYear 2006Revenues

$
47,911


$
61,383


$
86,772


$
114,898Operating income


8,856



16,108



19,336



23,430Net income

$
4,423


$
9,594


$
11,253


$
10,356Income per common share:Basic

$
0.26


$
0.53


$
0.52


$
0.41Diluted

$
0.23


$
0.50


$
0.50


$
0.40  92




---



##### Table of Contents



ITEM 9.
    CHANGES
    AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  (a)
    Evaluation
    Of Disclosure Controls And Procedures  Rules 13a-15(e) 15d-15(e)),
  (b)
    Managements
    Report on Internal Control Over Financial Reporting  Rule 13a-15(f).
      Management
    Report on Internal Control Over Financial
    Reporting.
   93




---



##### Table of Contents



(c)
    Change in
    Internal Control Over Financial Reporting.    ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Form 10-K
  ITEM 11.
    EXECUTIVE
    COMPENSATION  Form 10-K
  ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTER  Form 10-K
  ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE  Form 10-K
  ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES  Form 10-K
 94




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##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements
  
 
 
 
   Financial Statement Schedules
    Exhibits
  Form 10-K.
  (2)
    Financial
    Statement Schedule:  Schedule II 
    Valuation and Qualifying Accounts
  Allis-Chalmers
    Energy Inc.
    Valuation and Qualifying Accounts
  AdditionsBalance at


Charged to





Balance atBeginning


Costs and





End ofDescription

of Period


Expense


Deductions


Period(In thousands)Year Ended December 31, 2007:Allowance for doubtful accounts


826



1,309



(211
)


1,924Deferred tax assets valuation allowance














Year Ended December 31, 2006:Allowance for doubtful accounts


383



781



(338
)


826Deferred tax assets valuation allowance


27,131







(27,131
)


Year Ended December 31, 2005:Allowance for doubtful accounts


265



219



(101
)


383Deferred tax assets valuation allowance


30,367







(3,236
)


27,131  95




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##### Table of Contents



SIGNATURES
    MUNAWAR
    H. HIDAYATALLAH
  Munawar H. Hidayatallah
 Chief Executive Officer and Chairman
    Name

Title

Date/s/  MUNAWAR
    H. HIDAYATALLAHMunawar
    H. Hidayatalla

Chairman and Chief Executive Officer (Principal Executive
    Officer)

March 6, 2008/s/  VICTOR
    M. PEREZVictor
    M. Perez

Chief Financial Officer
    (Principal Financial Officer)

March 6, 2008/s/  BRUCE
    SAUERSBruce
    Sauers

Chief Accounting Officer
    (Principal Accounting Officer)

March 6, 2008/s/  BURT
    A. ADAMSBurt
    A. Adams

Director

March 6, 2008Ali
    H. M. Afdhal

Director

March 6, 2008/s/  ALEJANDRO
    P. BULGHERONIAlejandro
    P. Bulgheroni

Director

March 6, 2008Carlos
    A. Bulgheroni

Director

March 6, 2008/s/  VICTOR
    F. GERMACKVictor
    F. Germack

Director

March 6, 2008/s/  JAMES
    M. HENNESSYJames
    M. Hennessy

Director

March 6, 2008/s/  JOHN
    E. MCCONNAUGHY, JR.John
    E. McConnaughy, Jr.

Director

March 6, 2008/s/  ROBERT
    E. NEDERLANDERRobert
    E. Nederlander

Director

March 6, 2008Zane
    Tankel

Director

March 6, 2008/s/  LEONARD
    TOBOROFFLeonard
    Toboroff

Director

March 6, 2008  96




---



##### Table of Contents



EXHIBIT INDEX
  Exhibit

Description2
.1

First Amended Disclosure Statement pursuant to Section 1125
    of the Bankruptcy Code, dated September 14, 1988, which
    includes the First Amended and Restated Joint Plan of
    Reorganization dated September 14, 1988 (incorporated by
    reference to Registrants Current Report on
    Form 8-K
    dated December 1, 1988).2
.2

Reorganization Trust Agreement dated September 14,
    1988 by and between Registrant and John T. Grigsby, Jr.,
    Trustee (incorporated by reference to Exhibit D of the
    First Amended and Restated Joint Plan of Reorganization dated
    September 14, 1988 included in Registrants Current
    Report on
    Form 8-K
    dated December 1, 1988).2
.3

Agreement and Plan of Merger dated as of May 9, 2001 by and
    among Registrant, Allis-Chalmers Acquisition Corp. and Oil Quip
    Rentals, Inc. (incorporated by reference to Exhibit 2.1 to
    the Registrants Current Report on
    Form 8-K
    filed May 15, 2001).2
.4

Stock Purchase Agreement dated February 1, 2002 by and
    between Registrant and Jens H. Mortensen, Jr. (incorporated by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K
    filed February 21, 2002).2
.5

Stock Purchase Agreement dated February 1, 2002 by and
    among Registrant, Energy Spectrum Partners LP, and Strata
    Directional Technology, Inc. (incorporated by reference to
    Exhibit 2.10 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001).2
.6

Stock Purchase Agreement dated August 10, 2004 by and among
    Allis-Chalmers Corporation and the investors named thereto
    (incorporated by reference to Exhibit 10.37 to the
    Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).2
.7

Amendment to Stock Purchase Agreement dated August 10, 2004
    (incorporated by reference to Exhibit 10.38 to the
    Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).2
.8

Addendum to Stock Purchase Agreement dated September 24,
    2004 (incorporated by reference to Exhibit 10.55 to
    Registrants Current Report on
    Form 8-K
    filed on September 30, 2004).2
.9

Asset Purchase Agreement dated November 10, 2004 by and
    among AirComp LLC, a Delaware limited liability company, Diamond
    Air Drilling Services, Inc., a Texas corporation, and Marquis
    Bit Co., L.L.C., a New Mexico limited liability company, Greg
    Hawley and Tammy Hawley, residents of Texas and Clay Wilson and
    Linda Wilson, residents of New Mexico (incorporated by reference
    to the Current Report on
    Form 8-K
    filed on November 15, 2004).2
.10

Purchase Agreement and related Agreements by and among
    Allis-Chalmers Corporation, Chevron USA, Inc., Dale Redman and
    others dated December 10, 2004 (incorporated by reference
    to Exhibit 10.63 to the Registrants Current Report on
    Form 8-K
    filed on December 16, 2004).2
.11

Stock Purchase Agreement dated April 1, 2005, by and among
    Allis-Chalmers Energy Inc., Thomas Whittington, Sr., Werlyn R.
    Bourgeois and SAM and D, LLC. (incorporated by reference to
    Exhibit 10.51 to the Registrants Current Report on
    Form 8-K
    filed on April 5, 2005).2
.12

Stock Purchase Agreement effective May 1, 2005, by and
    among Allis-Chalmers Energy Inc., Wesley J. Mahone, Mike T.
    Wilhite, Andrew D. Mills and Tim Williams (incorporated by
    reference to Exhibit 10.51 to the Registrants Current
    Report on
    Form 8-K
    filed on May 6, 2005).2
.13

Purchase Agreement dated July 11, 2005 among Allis-Chalmers
    Energy Inc., Mountain Compressed Air, Inc. and M-I, L.L.C.
    (incorporated by reference to Exhibit 10.42 to the
    Registrants Current Report on
    Form 8-K
    filed on July 15, 2005).2
.14

Asset Purchase Agreement dated July 11, 2005 between
    AirComp LLC, W.T. Enterprises, Inc. and William M. Watts
    (incorporated by reference to Exhibit 10.43 to the
    Registrants Current Report on
    Form 8-K
    filed on July 15, 2005).2
.15

Asset Purchase Agreement by and between Patterson Services, Inc.
    and Allis-Chalmers Tubular Services, Inc. (incorporated by
    reference to Exhibit 10.44 to the Registrants Current
    Report on
    Form 8-K
    filed on September 8, 2005). 97




---



##### Table of Contents



Exhibit

Description2
.16

Stock Purchase Agreement dated as of December 20, 2005
    between the Registrant and Joe Van Matre (incorporated by
    reference to Exhibit 10.33 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005).2
.17

Stock Purchase Agreement, dated as of April 27, 2006, by
    and among Bridas International Holdings Ltd., Bridas Central
    Company Ltd., Associated Petroleum Investors Limited, and the
    Registrant. (incorporated by reference to Exhibit 2.3 to
    the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2006).2
.18

Stock Purchase Agreement, dated as of October 17, 2006, by
    and between Allis-Chalmers Production Services, Inc. and
    Randolph J. Hebert (incorporated by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on October 19, 2006).2
.19

Asset Purchase Agreement, dated as of October 25, 2006, by
    and between Allis-Chalmers Energy Inc. and Oil & Gas
    Rental Services, Inc. (incorporated by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on October 26, 2006).2
.20

Agreement and Plan of Merger by and among the Registrant, Bronco
    Drilling Company, Inc. and Elway Merger Sub, Inc., dated as of
    January 23, 2008 (incorporated by reference to
    Exhibit 2.1 to the Registrants
    Form 8-K
    filed on January 24, 2008).3
.1

Amended and Restated Certificate of Incorporation of Registrant
    (incorporated by reference to Exhibit 3.1 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001).3
.2

Certificate of Designation, Preferences and Rights of the
    Series A 10% Cumulative Convertible Preferred Stock($.01 Par Value) of Registrant (incorporated by
    reference to Exhibit 3.1 to the Registrants Current
    Report on
    Form 8-K
    filed February 21, 2002).3
.3

Amended and Restated By-laws of Registrant (incorporated by
    reference to Exhibit 3.3. to the Registrants Annual
    Report of
    Form 10-K
    for the year ended December 31, 2001).3
.4

Certificate of Amendment of Certificate of Incorporation filed
    with the Delaware Secretary of State on June 9, 2004
    (incorporated by reference to Exhibit 3.3 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).3
.5

Certificate of Amendment of Certificate of Incorporation filed
    with the Delaware Secretary of State on January 5, 2005
    (incorporated by reference to Exhibit 3.5 to the
    Registrants Current Report on
    Form 8-K
    filed January 11, 2005).3
.6

Certificate of Amendment of Certificate of Incorporation filed
    with the Delaware Secretary of State on August 16, 2005
    (incorporated by reference to Exhibit 3.5 to the
    Registrants Current Report on
    Form 8-K
    filed August 17, 2005).4
.1

Specimen Stock Certificate of Common Stock of Registrant
    (incorporated by reference to Exhibit 4.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).4
.2

Registration Rights Agreement dated as of March 31, 1999,
    by and between Allis-Chalmers Corporation and the Pension
    Benefit Guaranty Corporation (incorporated by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 1999).4
.3

Registration Rights Agreement dated April 2, 2004 by and
    between Registrant and the Stockholder signatories thereto
    (incorporated by reference to Exhibit 10.43 to Amendment
    No. 1 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003).4
.4

Registration Rights Agreement dated as of January 29, 2007
    by and among Allis-Chalmers Energy Inc., the Guarantors named
    therein and the Initial Purchasers named therein (incorporated
    by reference to Exhibit 10.2 to the Registrants
    Current Report on
    Form 8-K
    filed on January 29, 2007).4
.5

Registration Rights Agreement dated as of January 18, 2006
    by and among Allis-Chalmers Energy Inc., the Guarantors named
    therein and the Initial Purchasers named therein (incorporated
    by reference to Exhibit 10.2 to the Registrants
    Current Report on
    Form 8-K
    filed on January 24, 2006).4
.6

Registration Rights Agreement dated as of August 14, 2006
    by and among the Registrant, the guarantors listed on
    Schedule A thereto and RBC Capital Markets Corporation
    (incorporated by reference to Exhibit 10.1 to the
    Registrants
    Form 8-K
    filed on August 14, 2006). 98




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##### Table of Contents



Exhibit

Description4
.7

Indenture dated as of January 18, 2006 by and among the
    Registrant, the Guarantors named therein and Wells Fargo Bank,
    N.A., as trustee (incorporated by reference to Exhibit 4.1
    to the Registrants Current Report on
    Form 8-K
    filed on January 24, 2006).4
.8

First Supplemental Indenture dated as of August 11, 2006 by
    and among Allis-Chalmers GP, LLC, Allis-Chalmers LP, LLC,
    Allis-Chalmers Management, LP, Rogers Oil Tool Services, Inc.,
    the Registrant, the other Guarantors (as defined in the
    Indenture referred to therein) and Wells Fargo Bank, N.A
    (incorporated by reference to Exhibit 4.2 to the
    Registrants
    Form 8-K
    filed on August 14, 2006).4
.9

Second Supplemental Indenture dated as of January 23, 2007
    by and among Petro-Rentals, Incorporated, the Registrant, the
    other Guarantor parties thereto and Wells Fargo Bank, N.A., as
    trustee (incorporated by reference to Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    filed on January 24, 2007).4
.10

Indenture, dated as of January 29, 2007, by and among the
    Registrant, the Guarantors named therein and Wells Fargo Bank,
    N.A. (incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on
    Form 8-K
    filed on January 29, 2007).4
.11

Form of 9.0% Senior Note due 2014 (incorporated by
    reference to Exhibit A to Exhibit 4.1 to the
    Registrants Current Report on
    Form 8-K
    filed on January 24, 2006).4
.12

Form of 8.5% Senior Note due 2017 (incorporated by
    reference to Exhibit A to Exhibit 4.1 to the
    Registrants Current Report on
    Form 8-K
    filed on January 29, 2007).10
.1

Amended and Restated Retiree Health Trust Agreement dated
    September 14, 1988 by and between Registrant and Wells
    Fargo Bank (incorporated by reference to
    Exhibit C-1
    of the First Amended and Restated Joint Plan of Reorganization
    dated September 14, 1988 included in Registrants
    Current Report on
    Form 8-K
    dated December 1, 1988).10
.2

Amended and Restated Retiree Health Trust Agreement dated
    September 18, 1988 by and between Registrant and Firstar
    Trust Company (incorporated by reference to
    Exhibit C-2
    of the First Amended and Restated Joint Plan of Reorganization
    dated September 14, 1988 included in Registrants
    Current Report on
    Form 8-K
    dated December 1, 1988).10
.3

Product Liability Trust Agreement dated September 14,
    1988 by and between Registrant and Bruce W. Strausberg, Trustee
    (incorporated by reference to Exhibit E of the First
    Amended and Restated Joint Plan of Reorganization dated
    September 14, 1988 included in Registrants Current
    Report on
    Form 8-K
    dated December 1, 1988).10
.4*

Allis-Chalmers Savings Plan (incorporated by reference to
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 1988).10
.5*

Allis-Chalmers Consolidated Pension Plan (incorporated by
    reference to Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 1988).10
.6

Agreement dated as of March 31, 1999 by and between
    Registrant and the Pension Benefit Guaranty Corporation
    (incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 1999).10
.7

Letter Agreement dated May 9, 2001 by and between
    Registrant and the Pension Benefit Guarantee Corporation
    (incorporated by reference to Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended March 31, 2002).10
.8

Termination Agreement dated May 9, 2001 by and between
    Registrant, the Pension Benefit Guarantee Corporation and others
    (incorporated by reference to Registrants Current Report
    on
    Form 8-K
    filed on May 15, 2002).10
.9*

Executive Employment Agreement, dated April 1, 2007, by and
    between the Registrant and Munawar H. Hidayatallah (incorporated
    by reference to Exhibit 10.3 to the Registrants
    Form 8-K
    filed on November 6, 2007).10
.10*

Executive Employment Agreement, effective April 3, 2007, by
    and between the Registrant and Victor M. Perez (incorporated by
    reference to Exhibit 10.4 to the Registrants
    Form 8-K
    filed on November 6, 2007). 99




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Exhibit

Description10
.11*

Executive Employment Agreement, effective July 1, 2007, by
    and between the Registrant and Terrence P. Keane (incorporated
    by reference to Exhibit 10.1 to the Registrants
    Form 8-K
    filed on July 24, 2007).10
.12*

Executive Employment Agreement, dated December 3, 2007, by
    and between the Registrant and Theodore F. Pound III
    (incorporated by reference to Exhibit 10.2 to the
    Registrants
    Form 8-K
    filed on December 6, 2007).10
.13*

Executive Employment Agreement, effective July 1, 2007, by
    and between the Registrant and David K. Bryan (incorporated by
    reference to Exhibit 10.1 to the Registrants
    Form 8-K
    filed on July 13, 2007).10
.14*

Employment Agreement, dated December 18, 2006, by and
    between the Registrant and Burt A. Adams (incorporated by
    reference to Exhibit 10.3 to the Registrants Current
    Report on
    Form 8-K
    filed on December 19, 2006).10
.15*

Executive Employment Agreement, effective January 1, 2008,
    by and between the Registrant and Mark C. Patterson
    (incorporated by reference to Exhibit 10.1 to the
    Registrants
    Form 8-K
    filed on February 25, 2008).10
.16

Purchase Agreement dated as of January 12, 2006 by and
    among Allis-Chalmers Energy Inc, the Guarantors named therein
    and the Initial Purchasers named therein (incorporated by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K
    filed on January 24, 2006).10
.17

Purchase Agreement dated as of August 8, 2006 by and
    between the Registrant, the guarantors listed on Schedule B
    thereto and RBC Capital Markets Corporation (incorporated by
    reference to Exhibit 10.4 to the Registrants
    Form 8-K
    filed on August 14, 2006).10
.18

Purchase Agreement dated as of January 24, 2007 by and
    among Allis-Chalmers Energy Inc., the Guarantors named therein
    and the Initial Purchasers named therein (incorporated by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K
    filed on January 29, 2007).10
.19

Amended and Restated Credit Agreement dated as of
    January 18, 2006 by and among Allis-Chalmers Energy Inc.,
    as borrower, Royal bank of Canada, as administrative agent and
    Collateral Agent, RBC Capital Markets, as lead arranger and sole
    bookrunner, and the lenders party thereto (incorporated by
    reference to Exhibit 10.3 to the Registrants Current
    Report on
    Form 8-K
    filed on January 24, 2006).10
.20

First Amendment to Amended and Restated Credit Agreement dated
    as of August 8, 2006, by and among the Registrant, the
    guarantors named thereto and Royal Bank of Canada (incorporated
    by reference to Exhibit 10.3 to the Registrants
    Form 8-K
    filed on August 14, 2006).10
.21

Senior Unsecured Bridge Loan Agreement, dated December 18,
    2006, by and among the Registrant, Royal Bank of Canada, as
    administrative agent, RBC Capital Markets Corporation, as
    exclusive lead arranger and sole bookrunner, and the guarantors
    and institutional lenders named thereto (incorporated by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K
    filed on December 19, 2006).10
.22

Strategic Agreement dated July 1, 2003 between Pan American
    Energy LLC Sucursal Argentina and DLS Argentina Limited Sucursal
    Argentina (incorporated by reference to Exhibit 10.13 to
    the Registrants Quarterly Report on
    Form 10-Q
    filed on December 29, 2006).10
.23

Amendment No. 1 dated May 18, 2005 to Strategic
    Agreement between Pan American Energy LLC Sucursal Argentina and
    DLS Argentina Limited Sucursal Argentina (incorporated by
    reference to Exhibit 10.14 to the Registrants
    Quarterly Report on
    Form 10-Q
    filed on December 29, 2006).10
.24

Amendment No. 2 dated January 1, 2006 between Pan
    American Energy LLC Sucursal Argentina and DLS Argentina Limited
    Sucursal Argentina (incorporated by reference to
    Exhibit 10.15 to the Registrants Quarterly Report on
    Form 10-Q
    filed on December 29, 2006).10
.25

Investor Rights Agreement, dated December 18, 2006, by and
    between the Registrant and Oil & Gas Rental Services,
    Inc. (incorporated by reference to Exhibit 10.2 to the
    Registrants Current Report on
    Form 8-K
    filed on December 19, 2006). 100




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Exhibit

Description10
.26

Investors Rights Agreement dated as of August 18, 2006 by
    and among the Registrant and the investors named on
    Exhibit A thereto (incorporated by reference to
    Exhibit 10.1 to the Registrants
    Form 8-K
    filed on August 14, 2006).10
.27*

2003 Incentive Stock Plan (incorporated by reference to
    Exhibit 4.12 to the Registrants Current Report on
    Form 8-K
    filed August 17, 2005).10
.28*

Form of Option Certificate issued pursuant to 2003 Incentive
    Stock Plan (incorporated by reference to Exhibit 10.41 to
    the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003).10
.29*

2006 Incentive Plan (incorporated by reference to
    Exhibit 10.1 to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.30*

Form of Employee Restricted Stock Agreement pursuant to the
    Registrants 2006 Incentive Plan (incorporated by reference
    to Exhibit 10.2 to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.31*

Form of Employee Nonqualified Stock Option Agreement pursuant to
    the Registrants 2006 Incentive Plan (incorporated by
    reference to Exhibit 10.3 to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.32*

Form of Employee Incentive Stock Option Agreement pursuant to
    the Registrants 2006 Incentive Plan (incorporated by
    reference to Exhibit 10.4 to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.33*

Form of Non-Employee Director Restricted Stock Agreement
    pursuant to the Registrants 2006 Incentive Plan
    (incorporated by reference to Exhibit 10.5 to the
    Registrants
    Form 8-K
    filed on September 18, 2006).10
.34*

Form of Non-Employee Director Nonqualified Stock Option
    Agreement pursuant to the Registrants 2006 Incentive Plan
    (incorporated by reference to Exhibit 10.6 to the
    Registrants
    Form 8-K
    filed on September 18, 2006).10
.35*

Form of Performance Award Agreement pursuant to the
    Registrants 2006 Incentive Plan (incorporated by reference
    to Exhibit 10.5 to the Registrants
    Form 8-K
    filed on November 6, 2007).10
.36

Second Amended and Restated Credit Agreement, dated as of
    April 26, 2007, by and among the Registrant, as borrower,
    Royal Bank of Canada, as administrative agent and collateral
    agent, RBC Capital Markets, as lead arranger and sole
    bookrunner, and the lenders party thereto (incorporated by
    reference to Exhibit 10.1 to the Registrants
    Form 8-K
    filed on May 10, 2007).10
.37

First Amendment to Second Amended and Restated Credit Agreement,
    dated as of December 3, 2007, by and among the Registrant,
    the guarantors named thereto, Royal Bank of Canada and the
    lenders named thereto (incorporated by reference to
    Exhibit 10.1 to the Registrants
    Form 8-K
    filed on December 6, 2007).10
.38

Amended and Restated Guaranty, dated April 26, 2007, by
    each of the guarantors named thereto in favor of Royal Bank of
    Canada, as administrative agent and collateral agent
    (incorporated by reference to Exhibit 10.2 to the
    Registrants
    Form 8-K
    filed on May 10, 2007).10
.39

Amended and Restated Pledge and Security Agreement, dated
    April 26, 2007, by the Registrant in favor of Royal Bank of
    Canada, as administrative agent and collateral agent
    (incorporated by reference to Exhibit 10.3 to the
    Registrants
    Form 8-K
    filed on May 10, 2007).10
.40

Credit Agreement, dated January 31, 2008, among the
    Registrant, as lender, BCH Ltd., as borrower, and BCH Energy do
    Brasil Servicos de Petroleo Ltda., as guarantor (incorporated by
    reference to Exhibit 10.1 to the Registrants
    Form 8-K
    filed on February 6, 2008).10
.41

Option to Purchase and Governance Agreement, dated
    January 31, 2008, among the Registrant, BrazAlta Resources
    Corp. and BCH Ltd. (incorporated by reference to
    Exhibit 10.2 to the Registrants
    Form 8-K
    filed on February 6, 2008).10
.42

Subordination Agreement, dated January 31, 2008, among the
    Registrant, Standard Bank PLC, BCH Ltd., BCH Energy do Brasil
    Servicos de Petroleo Ltda. and BrazAlta Resources Corp.
    (incorporated by reference to Exhibit 10.3 to the
    Registrants
    Form 8-K
    filed on February 6, 2008). 101




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##### Table of Contents



Exhibit

Description10
.43

Form of Convertible Subordinated Secured Debenture (incorporate
    by reference to Schedule E to Exhibit 10.1 to the
    Registrants
    Form 8-K
    filed on February 6, 2008).10
.44*

Agreement, dated April 1, 2007, by and between the
    Registrant and David Wilde (incorporated by reference to
    Exhibit 99.1 to the Registrants
    Form 8-K
    filed on April 3, 2007).21
.1

Subsidiaries of Registrant.23
.1

Consent of UHY LLP.31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1

Certification of the Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Compensation Plan or Agreement 102