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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, 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, 2008ORo

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(Address of principal
    executive offices)

77056(Zip
    code)   (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


13Item 1B.


Unresolved Staff Comments


25Item 2.


Properties


26Item 3.


Legal Proceedings


26Item 4.


Submission of Matters to a Vote of Security
    Holders


28PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


28Item 6.


Selected Financial Data


31Item 7.


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


31Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


49Item 8.


Financial Statements and Supplementary Data


50Item 9.


Changes and Disagreements with Accountants on
    Accounting and Financial Disclosure


97Item 9A.


Controls and Procedures


97Item 9B.


Other Information


98PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


98Item 11.


Executive Compensation


98Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


98Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


98Item 14.


Principal Accounting Fees and Services


98PART IVItem 15.


Exhibits and Financial Statement Schedules


99Signatures and Certifications


100EX-2.22EX-10.14EX-10.17EX-10.27EX-10.33EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1   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.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.service rig
    
    A type of well-servicing rig which can function as either a
    workover or as a pulling rig.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
    
    the impact of the weak economic conditions and the future impact
    of such conditions on the oil and gas industry and demand for
    our services;
    unexpected future capital expenditures (including the amount and
    nature thereof);
    unexpected difficulties in integrating our operations as a
    result of any significant acquisitions;
    adverse weather conditions in certain regions;
    the impact of political disturbances, war, or terrorist attacks
    and changes in global trade policies;
    the availability (or lack thereof) of capital to fund our
    business strategy
    and/or
    operations;
    the potential impact of the loss of one or more key employees;
    the effect of environmental liabilities that are not covered by
    an effective indemnity or insurance;
    the impact of current and future laws;
    the effects of competition; and
    the effects of our indebtedness, which could adversely restrict
    our ability to operate, could make us vulnerable to general
    adverse economic and industry conditions, could place us at a
    competitive disadvantage compared to our competitors that have
    less debt, and could have other adverse consequences   PART I.  ITEM 1.
    BUSINESS     5




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Form 10-K, Form 10-Q, Form 8-K www.alchenergy.com
  Form 10-K.
  Form 10-K
    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. 6




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
    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 all of the outstanding stock of Coker
    Directional, Inc., or Coker and merged it with Strata.
    In June 2007, we sold our capillary assets that were acquired in
    the Downhole and Capcoil acquisitions
    In July 2007, we acquired all of the outstanding stock of Diggar
    Tools, LLC, or Diggar and merged it with Strata.
    In October 2007, we acquired all of the outstanding stock of
    Rebel Rentals, Inc., or Rebel.
    In November 2007, we acquired substantially all the assets
    Diamondback Oilfield Services, Inc. or Diamondback.
    In August 2008, we sold our drill pipe tong manufacturing assets
    that we acquired in the acquisition of Rogers.
    In December 2008, we acquired all of the outstanding stock of
    BCH Ltd., or BCH.    Our
    Industry
     7




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Business
    Segments
  Oilfield Services. state-of-the-art
  and/or
           8




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Drilling and Completion.
    Rental Services.
   9




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Competitive
    Strengths
    Strategic position in high growth markets.
  Strong relationships with diversified customer
    base.
  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.
 10




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Prudently pursue strategic acquisitions.
  Expand products and services provided in existing operating
    locations.
  Increase utilization of assets.
  Customers
    Suppliers
    Competition
     11




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Backlog
    Employees
    Insurance
    Seasonality
   12




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Federal
    Regulations and Environmental Matters
      Intellectual
    Property Rights
    ITEM 1A.
    RISK
    FACTORS    Risks
    Associated With Our Industry
  Global
    political, economic and market conditions could negatively
    impact our business.
      Our
    industry is highly competitive, with intense price
    competition.
   13




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Risks
    Associated With Our Company
  Our
    business depends on spending by the oil and natural gas
    industry, and this spending and our business may be adversely
    affected by industry and financial market conditions that are
    beyond our control.
      
    economic conditions in the U.S. 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;
    advances in exploration, development and production
    technologies; and
    the availability of capital for exploration and production
    companies.    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.
     14




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Our
    customers may seek to cancel or renegotiate some of our Drilling
    and Completion contracts during periods of depressed market
    conditions or if we experience operational
    difficulties.
    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.
    We may
    experience increased labor costs or the unavailability of
    skilled workers and the failure to retain key personnel could
    hurt our operations.
   15




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The
    operations and financial condition of our Drilling and
    Completion business could be affected by union activity and
    general labor unrest. Additionally, the labor expenses of our
    Drilling and Completion business could increase as a result of
    governmental regulation of payments to employees.
    and/or
  Rig
    upgrade, refurbishment and construction projects are subject to
    risks, including delays and cost overruns, which could have an
    adverse effect on our results of operations and cash
    flows.
        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.   16




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We
    have recorded substantial goodwill as the result of our
    acquisitive nature and as such goodwill is subject to periodic
    reviews of impairment.
  Goodwill and Other Intangible Assets,
    We may
    fail to acquire additional businesses, which will restrict our
    growth and may have a material adverse effect on our ability to
    meet our obligations under the notes.
    
    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.
   17




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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 and/or
  
    could harm our business and operating results,
    cause investors to lose confidence in the accuracy and
    completeness of our financial reports,
    have a material adverse effect on the trading price of our
    common stock or
    adversely affect our ability to timely file our periodic reports
    with the SEC.    We do
    business in international jurisdictions whose political and
    regulatory environments and compliance regimes differ from those
    in the U.S:
    
    political instability, terrorist acts, war and civil
    disturbances;
    changes in laws or policies regarding the award of contracts; 18




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
    the inability to collect or repatriate currency, income, capital
    or assets;
    expropriation of assets;
    nationalization of components of the energy industry in the
    geographic areas where we operate;
    foreign currency fluctuations and devaluation; and
    new economic and tax policies.        non-U.S. competitors
    Devaluation
    of the Argentine Peso, the Mexican Peso or the Brazilian Real
    could adversely affect our results of operations.
    Argentina
    continues to face considerable political and economic
    uncertainty.
   19




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An
    increase in inflation in Argentina could have a material adverse
    effect on our results of operations.
    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.
      We are
    subject to numerous governmental laws and regulations, including
    those that may impose significant liability on us for
    environmental and natural resource damages.
   20




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Environmental
    liabilities relating to discontinued operations 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.
     21




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Risks
    Associated With an Investment in Our Common Stock
  Our
    common stock price has been volatile, which could adversely
    affect our business and cause our stockholders to suffer
    significant losses
    
    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;
    illiquidity of the market for our common stock;
    developments specifically affecting the economies in Latin
    America;
    sales of common stock by existing stockholders;
    our substantial indebtedness; and
    other developments affecting us or the financial markets.    Substantial
    sales of our common stock could adversely affect our stock
    price.
          In
    connection with our acquisitions of DLS, the DLS sellers have
    the right to designate two nominees for election to our board of
    directors. The interests of the DLS sellers may be different
    from yours.
   22




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and/or
  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.
    Risks
    Associated With Our Indebtedness
  We are
    a holding company, and as a result we are dependent on dividends
    from our subsidiaries to meet our obligations, including with
    respect to the notes.
   23




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We
    have a substantial amount of debt, which could adversely affect
    our financial health and prevent us from making principal and
    interest payments on the notes and our other debt.
      
    make it more difficult for us to satisfy our obligations with
    respect to our 9.0% senior notes, our 8.5% senior
    notes and 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 9.0% senior
    notes, our 8.5% 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 9.0% senior notes, our 8.5% senior
    notes or our other debt securities.
   24




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The
    indenture governing our 9.0% senior notes, the indenture
    governing our 8.5% senior notes and our credit agreement
    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
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   25




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ITEM 2.
    PROPERTIES    Business Segment

Location

Owned/LeasedOilfield Services

Searcy, Arkansas

LeasedBroussard, Louisiana

1 Owned & 3 LeasedYoungsville, Louisiana

OwnedCarlsbad, New Mexico

LeasedFarmington, New Mexico

LeasedElk City, Oklahoma

LeasedMcAlester, Oklahoma

LeasedOklahoma City, Oklahoma

LeasedWashington, Oklahoma

LeasedMt Morris, Pennsylvania

LeasedConroe, Texas

LeasedCorpus Christi, Texas

Leased  2 locationsFort Stockton, Texas

LeasedHouston, Texas

Leased  2 locationsKilgore, Texas

LeasedSan Angelo, Texas

LeasedSonora, Texas

LeasedCasper, Wyoming

LeasedDrilling and Completion

Buenos Aires, Argentina

LeasedComodoro Rivadavia, Argentina

OwnedNeuquen, Argentina

OwnedRincon de los Sauces, Argentina

OwnedTartagal, Argentina

OwnedSanta Cruz, Bolivia

LeasedCatu, Bahia, Brazil

1 OwnedAracuja, Sergipe, Brazil

LeasedMossoro, Rio Grande de Norte, Brazil

LeasedRio de Janeiro, Rio de Janeiro, Brazil

LeasedSao Mateus, Espirito Santo, Brazil

LeasedRental Services

Victoria, Texas

OwnedBroussard, Louisiana

LeasedMorgan City, Louisiana

Owned   ITEM 3.
    LEGAL
    PROCEEDINGS     26




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27




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ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS          Against orFor


Withheld


Abstentions1.


Election of DirectorsAli H. Afdhal


30,884,749



1,046,735



Munir Akram


31,712,686



218,798



Alejandro P. Bulgheroni


31,015,872



915,612



Carlos A. Bulgheroni


24,323,218



7,608,266



Victor F. Germack


31,713,089



218,395



James M. Hennessy


31,709,189



222,295



Munawar H. Hidayatallah


31,540,548



390,936



John E. McConnaughy, Jr.


31,552,284



379,200



Robert E. Nederlander


31,633,737



297,747



Leonard Toboroff


29,278,023



2,653,461



Zane Tankel


31,502,086



429,398



2.


Ratification of UHY LLP as our independent accountants


31,657,507



230,628



43,347  PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES.  MARKET
    PRICE INFORMATION
    Calendar Quarter

High


Low2007First Quarter

$
23.61


$
14.10Second Quarter


24.39



15.83Third Quarter


28.10



18.35Fourth Quarter


19.49



14.092008First Quarter

$
15.21


$
9.56Second Quarter


18.50



13.01Third Quarter


18.00



9.76Fourth Quarter


12.68



3.69  28




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Holders
    Dividends
    EQUITY
    COMPENSATION PLAN INFORMATION
    Number of SecuritiesRemaining AvailableNumber of





for Future IssuanceSecurities to be


Weighted


Under EquityIssued Upon


Average Exercise


Compensation PlansExercise of


Price of


(ExcludingOutstanding


Outstanding


SecuritiesOptions, Warrants


Options, Warrants


Reflected in FirstPlan Category

And Rights


and Rights


Column)Equity compensation plans approved by security holders


1,379,398


$
10.94



281,789Equity compensation plans not approved by security holders


4,000


$
13.75



Total


1,383,398


$
10.95



281,789   Equity
    Compensation Plans Not Approved By Security Holders
     29




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PERFORMANCE
    GRAPH
      
   Fiscal Year Ending December 31,Company/Index/Market

2003

2004

2005

2006

2007

2008Allis-Chalmers Energy Inc.


100.00



188.46



479.62



886.15



567.31



211.54Oil & Gas Equipment/Svcs


100.00



137.25



207.42



244.86



348.71



140.65Russell 2000 Index


100.00



117.49



121.40



142.12



135.10



88.09  30




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ITEM 6.
    SELECTED
    FINANCIAL DATA.    Years Ended December 31,2008


2007


2006


2005


2004Statement of Operations DataRevenues

$
675,948


$
570,967


$
310,964


$
108,022


$
49,307Impairment of goodwill

$
115,774


$



$



$



$
Income (loss) from operations

$
(13,520
)

$
124,782


$
67,730


$
13,518


$
4,291Net income (loss) from continuing operations

$
(39,464
)

$
50,440


$
35,626


$
7,175


$
888Net income (loss) attributed to common stockholders

$
(39,464
)

$
50,440


$
35,626


$
7,175


$
764Per Share Data:Net income (loss) from continuing operations per common share:Basic

$
(1.13
)

$
1.48


$
1.73


$
0.48


$
0.10Diluted

$
(1.13
)

$
1.45


$
1.66


$
0.44


$
0.09Weighted average number of common shares outstanding:Basic


35,052



34,158



20,548



14,832



7,930Diluted


35,052



34,701



21,410



16,238



9,510   As of December 31,2008


2007


2006


2005


2004Balance Sheet DataTotal assets

$
1,111,058


$
1,053,585


$
908,326


$
137,355


$
80,192Long-term debt classified as:Current

$
14,617


$
6,434


$
6,999


$
5,632


$
5,541Long-term

$
579,044


$
508,300


$
561,446


$
54,937


$
24,932Redeemable convertible Preferred stock

$



$



$



$



$
Stockholders equity

$
383,409


$
414,329


$
253,933


$
60,875


$
35,109Book value per share

$
10.75


$
11.80


$
8.99


$
3.61


$
2.58   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
 31




---



##### Table of Contents



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.
  Overview
    of Our Business
          Company
    Outlook
   32




---



##### Table of Contents



Results
    of Operations
         33




---



##### Table of Contents



Comparison
    of Years Ended December 31, 2008 and December 31,
    2007
       34




---



##### Table of Contents



35




---



##### Table of Contents



Revenues


Income (Loss) from Operations2008


2007


Change


2008


2007


Change(In thousands)Oilfield Services

$
280,835


$
233,986


$
46,849


$
38,643


$
53,218


$
(14,575
)Drilling & Completion


291,335



215,795



75,540



40,226



38,839



1,387Rental Services


103,778



121,186



(17,408
)


(74,361
)


49,139



(123,500
)General Corporate














(18,028
)


(16,414
)


(1,614
)Total

$
675,948


$
570,967


$
104,981


$
(13,520
)

$
124,782


$
(138,302
)   Oilfield Services.
  Drilling and Completion.
  Rental Services.
 36




---



##### Table of Contents



Comparison
    of Years Ended December 31, 2007 and December 31,
    2006
         37




---



##### Table of Contents



Revenues


Income (Loss) from Operations2007


2006


Change


2007


2006


Change(In thousands)Oilfield Services

$
233,986


$
189,953


$
44,033


$
53,218


$
43,157


$
10,061Drilling & Completion


215,795



69,490



146,305



38,839



12,233



26,606Rental Services


121,186



51,521



69,665



49,139



26,293



22,846General Corporate














(16,414
)


(13,953
)


(2,461
)Total

$
570,967


$
310,964


$
260,003


$
124,782


$
67,730


$
57,052   Oilfield Services.
 38




---



##### Table of Contents



Drilling and Completion.
  Rental Services.
  Liquidity
    and Capital Resources
     39




---



##### Table of Contents



Operating
    Activities
         40




---



##### Table of Contents



Investing
    Activities
  lost-in-hole lost-in-hole
    
    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.  lost-in-hole
 41




---



##### Table of Contents



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
  Financing
    Activities
       42




---



##### Table of Contents



43




---



##### Table of Contents



44




---



##### Table of Contents



Payments by PeriodLess ThanTotal


1 Year


1-3 Years


3-5 Years


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

$
592,882


$
14,026


$
24,318


$
49,538


$
505,000Capital leases(a)


779



591



188







Interest payments on long-term debt


301,497



48,687



95,026



89,536



68,248Operating leases


9,486



2,888



3,843



1,720



1,035Purchase obligations


41,400



41,400











Employment contracts


4,853



2,800



2,053







Total contractual cash obligations

$
950,897


$
110,392


$
125,428


$
140,794


$
574,283     (a)
    
    These amounts represent our minimum capital lease obligations,
    net of interest payments totaling $86,000.  Recent
    Developments
          Critical
    Accounting Policies
   45




---



##### Table of Contents



Allowance For Doubtful Accounts.
  Revenue Recognition.
  Impairment Of Long-Lived Assets.
  Goodwill And Other Intangibles.
  .
  Purchase Price Allocation of Acquired
    Businesses.
 46




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##### Table of Contents



Income Taxes. 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
  The Fair Value Option for
    Financial Assets and Financial Liabilities
 47




---



##### Table of Contents



Business
    Combinations
  Non-controlling Interests
    in Consolidated Financial Statements  an amendment of
    ARB No. 51
  Disclosures about Derivative
    Instruments and Hedging Activities  an amendment of
    FASB Statement No. 133
  SFAS 142-3, Determination of the Useful Life of Intangible Assets SFAS 142-3. SFAS 142-3 SFAS 142-3 SFAS 142-3 SFAS 142-3
  Off-Balance
    Sheet Arrangements
   48




---



##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.    Interest
    Rate Risk
        Foreign
    Currency Exchange Rate Risk
   49




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##### Table of Contents



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


51Reports of Independent Registered Public
    Accounting Firm


52Consolidated Balance Sheet


54Consolidated Statement of Operations


55Consolidated Statement of Stockholders
    Equity


56Consolidated Statement of Cash Flows


57Notes to Consolidated Financial Statements


58Supplemental Information to Consolidated
    Financial Statements  Summarized Quarterly Financial
    Data


96  50




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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  51




---



##### Table of Contents



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




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control-Integrated
    Framework
              
  53




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2008


2007(In thousands, exceptfor share and per shareamounts)ASSETSCash and cash equivalents

$
6,866


$
43,693Trade receivables, net of allowance for doubtful accounts of
    $4,205 and $1,924 at December 31, 2008 and 2007,
    respectively


157,871



130,094Inventories


39,087



32,209Deferred income tax asset


6,176



1,847Prepaid expenses and other


15,238



10,051Total current assets


225,238



217,894Property and equipment, at cost net of accumulated depreciation
    of $137,180 and $77,008 at December 31, 2008 and 2007,
    respectively


760,990



626,668Goodwill


43,273



138,398Other intangible assets, net of accumulated amortization of
    $9,251 and $6,218 at December 31, 2008 and 2007,
    respectively


37,371



35,180Debt issuance costs, net of accumulated amortization of $4,806
    and $2,718 at December 31, 2008 and 2007, respectively


12,664



14,228Other assets


31,522



21,217Total assets

$
1,111,058


$
1,053,585LIABILITIES AND STOCKHOLDERS EQUITYCurrent maturities of long-term debt

$
14,617


$
6,434Trade accounts payable


62,078



37,464Accrued salaries, benefits and payroll taxes


20,192



15,283Accrued interest


18,623



17,817Accrued expenses


26,642



20,545Total current liabilities


142,152



97,543Deferred income tax liability


4,260



30,090Long-term debt, net of current maturities


579,044



508,300Other long-term liabilities


2,193



3,323Total liabilities


727,649



639,256Commitments 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; 35,674,742 issued and outstanding at
    December 31, 2008 and 35,116,035 issued and outstanding at
    December 31, 2007)


357



351Capital in excess of par value


334,633



326,095Retained earnings


48,419



87,883Total stockholders equity


383,409



414,329Total liabilities and stockholders equity

$
1,111,058


$
1,053,585    54




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Years Ended December 31,2008


2007


2006(In thousands, except pershare amounts)Revenues

$
675,948


$
570,967


$
310,964Operating costs and expensesDirect costs


446,235



341,450



185,579Depreciation


63,460



50,914



20,261General and administrative


59,953



58,622



35,536Gain on asset dispositions


(166
)


(8,868
)


Impairment of goodwill


115,774







Amortization


4,212



4,067



1,858Total operating costs and expenses


689,468



446,185



243,234Income (loss) from operations


(13,520
)


124,782



67,730Other income (expense):Interest expense


(48,411
)


(49,534
)


(21,309
)Interest income


5,617



3,259



972Other


(563
)


776



(347
)Total other expense


(43,357
)


(45,499
)


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


(56,877
)


79,283



47,046Income tax benefit (expense)


17,413



(28,843
)


(11,420
)Net income (loss)

$
(39,464
)

$
50,440


$
35,626Income (loss) per common share:Basic

$
(1.13
)

$
1.48


$
1.73Diluted

$
(1.13
)

$
1.45


$
1.66Weighted average number of common shares outstanding:Basic


35,052



34,158



20,548Diluted


35,052



34,701



21,410    55




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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, 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



414,329Net loss














(39,464
)


(39,464
)Issuance of common stock:Issuance under stock plans


558,707



6



627







633Stock-based compensation










7,902







7,902Tax benefits on stock plans










9







9Balances, December 31, 2008


35,674,742


$
357


$
334,633


$
48,419


$
383,409    56




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years Ended December 31,2008


2007


2006(In thousands)Cash Flows from Operating Activities:Net income (loss)

$
(39,464
)

$
50,440


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


67,672



54,981



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


2,089



3,197



1,527Impairment of goodwill


115,774







Stock-based compensation


7,902



4,863



3,394Bad debt expense


3,283



1,309



781Imputed interest










355Deferred taxes


(29,949
)


8,017



2,215Gain on sale of property and equipment


(1,762
)


(2,323
)


(2,444
)Gain on asset dispositions


(166
)


(8,868
)


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


(27,499
)


(31,404
)


(23,175
)Increase in inventories


(9,719
)


(5,375
)


(2,637
)(Increase) decrease in prepaid expenses and other assets


(1,623
)


8,202



2,505(Increase) decrease in other assets


1,224



(4,492
)


308Increase (decrease) in trade accounts payable


21,903



10,732



(2,337
)Increase in accrued interest


567



5,950



11,382Increase in accrued expenses


1,131



1,508



872Increase (decrease) in other liabilities


(1,130
)


2,700



(224
)Increase in accrued salaries, benefits and payroll taxes


3,452



4,031



3,392Net cash provided by operating activities


113,685



103,468



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


(53,709
)


(41,000
)


(526,572
)Net sales (purchases) of investment interests


1,374



(498
)


Purchases of property and equipment


(154,468
)


(113,151
)


(39,697
)Deposits on asset commitments


(9,901
)


(11,488
)


Proceeds from sale of asset dispositions


3,000



16,250



Proceeds from sale of property and equipment


11,480



12,811



6,881Net cash used in investing activities


(202,224
)


(137,076
)


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


25,000



250,000



557,820Payments on long-term debt


(9,905
)


(309,745
)


(54,030
)Payments on related party debt










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


36,500







(6,400
)Proceeds from issuance of common stock, net of offering costs






100,055



46,297Proceeds from exercise of options and warrants


633



3,319



6,321Tax benefit on stock plans


9



1,719



6,440Debt issuance costs


(525
)


(7,792
)


(9,863
)Net cash provided by financing activities


51,712



37,556



543,554Net increase (decrease) in cash and cash equivalents


(36,827
)


3,948



37,825Cash and cash equivalents at beginning of year


43,693



39,745



1,920Cash and cash equivalents at end of year

$
6,866


$
43,693


$
39,745    57




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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
 58




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  lost-in-hole
  Allowance
    for Doubtful Accounts
      Cash
    Equivalents
    Inventories
    Property
    and Equipment
       59




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Goodwill,
    Intangible Assets and Amortization
      Impairment
    of Long-Lived Assets
    Financial
    Instruments
   60




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Concentration
    of Credit and Customer Risk
      Debt
    Issuance Costs
    Income
    Taxes
      Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109
 61




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    non-U.S. subsidiaries non-U.S. subsidiaries
  Stock-Based
    Compensation
  Share-Based Payment
        For the Years Ended December 31,2007


2006Expected dividend yield






Expected price volatility


66.21
%


72.28
%Risk-free interest rate


4.8
%


5.1
%Expected life of options


5 years



7 yearsWeighted average fair value of options granted at market value

$
12.86


$
10.58  62




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Income
    (Loss) Per Common Share
  Earnings Per Share
    For the Years Ended December 31,2008


2007


2006Numerator:Net income (loss)

$
(39,464
)

$
50,440


$
35,626Denominator:Weighted average common shares outstanding excluding nonvested
    restricted stock


35,052



34,158



20,548Effect of potentially dilutive common shares:Warrants and share based compensation shares






543



862Weighted average common shares outstanding and assumed
    conversions


35,052



34,701



21,410Income (loss) per common share:Basic

$
(1.13
)

$
1.48


$
1.73Diluted

$
(1.13
)

$
1.45


$
1.66Potentially dilutive securities excluded as anti-dilutive


1,041



1,108



53     Segments
    of an Enterprise and Related Information
  Disclosures About Segments Of An Enterprise And Related
    Information
  Reclassification
   63




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  New
    Accounting Pronouncements
  Fair Value Measurements,
  The Fair Value Option for
    Financial Assets and Financial Liabilities
  Business
    Combinations
  Non-controlling Interests
    in Consolidated Financial Statements  an amendment of
    ARB No. 51
  Disclosures about Derivative
    Instruments and Hedging Activities  an amendment of
    FASB Statement No. 133
 64




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    SFAS 142-3, Determination of the Useful Life of Intangible Assets SFAS 142-3. SFAS 142-3 Goodwill and
    Other Intangible Assets SFAS 142-3 Business
    Combinations SFAS 142-3 SFAS 142-3
    NOTE 2 
    POST
    RETIREMENT BENEFIT OBLIGATIONS  Medical
    and Life
    401(k)
    Savings Plan
   65




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 3 
    ACQUISITIONS
    AND ASSET DISPOSITIONS    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    66




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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    67




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##### 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  68




---



##### 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      69




---



##### 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       Current assets

$
7,622Property and equipment


53,369Intangible assets, including goodwill


26,199Total assets acquired


87,190Current liabilities


14,456Long-term debt, less current portion


16,364Total liabilities assumed


30,820Net assets acquired

$
56,370        70




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  90-day 10-year 10-year
    Revenues

$
502,418Operating income

$
93,082Net income

$
32,358Net income per common shareBasic

$
0.96Diluted

$
0.94   NOTE 4 
    INVENTORIES    2008


2007ManufacturedFinished goods

$
2,821


$
2,198Work in process


1,654



1,781Raw materials


2,499



4,464Total manufactured


6,974



8,443Hammers


2,257



1,434Drive pipe


443



420Rental supplies


3,023



2,261Chemicals and drilling fluids


3,698



3,236Rig parts and related inventory


13,097



9,985Coiled tubing and related inventory


1,817



1,014Shop supplies and related inventory


7,778



5,416Total inventories

$
39,087


$
32,209  71




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 5 
    PROPERTY
    AND OTHER INTANGIBLE ASSETS    DepreciationPeriod


2008


2007Land





$
2,214


$
2,040Building and improvements


15-20 years



8,387



6,986Transportation equipment


3-10 years



34,493



26,132Drill pipe and rental equipment


3-20 years



373,064



350,202Drilling, workover and pulling rigs


20 years



228,857



127,725Machinery and equipment


3-20 years



212,594



157,626Furniture, computers, software and leasehold improvements


3-10 years



8,711



5,817Construction in progress  equipment


N/A



29,850



27,148Total






898,170



703,676Less: accumulated depreciation






(137,180
)


(77,008
)Property and equipment, net





$
760,990


$
626,668       AmortizationPeriod


2008


2007Trade name


10-20 years


$
3,829


$
1,629Non-compete agreements


3-5 years



2,640



2,852Customer relationships


10-15 years



38,033



33,528Patents


12-15 years



1,327



2,560Other intangible assets


2-10 years



793



829Total






46,622



41,398Less: accumulated amortization






(9,251
)


(6,218
)Other intangibles assets, net





$
37,371


$
35,180   2008


2007Gross


Accumulated


Gross


AccumulatedValue


Amortization


Value


AmortizationIntellectual property

$
3,829


$
507


$
1,629


$
410Non-compete agreements


2,640



1,198



2,852



1,367Customer relationships


38,033



6,676



33,528



3,497Patents


1,327



279



2,560



423Other intangible assets


793



591



829



521Total

$
46,622


$
9,251


$
41,398


$
6,218  72




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Intangible Amortization by PeriodYears Ended December 31,2013 and2009


2010


2011


2012


ThereafterIntellectual property

$
316


$
316


$
316


$
316


$
2,058Non-compete agreements


681



489



248



24



Customer relationships


3,532



3,532



3,532



3,532



17,229Patents


102



102



102



102



640Other intangible assets


89



83



28



2



Total Intangible Amortization

$
4,720


$
4,522


$
4,226


$
3,976


$
19,927   NOTE 6 
    INCOME
    TAXES  non-U.S. countries
    Years Ended December 31,2008


2007


2006Current income tax expense (benefit):Federal

$
(1,525
)

$
6,814


$
5,865State


471



1,053



898Foreign


13,590



12,959



2,44212,536



20,826



9,205Deferred income tax expense (benefit):Federal


(28,462
)


7,081



(946
)State


(1,149
)


349



573Foreign


(338
)


587



2,588(29,949
)


8,017



2,215$
(17,413
)

$
28,843


$
11,420    73




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Years Ended December 31,2008


2007


2006Statutory income tax rate


34.0
%


35.0
%


35.0
%State taxes, net of federal benefit


0.4



1.8



2.1Valuation allowances










(57.7
)Foreign currency remeasurement


2.1







Nondeductible goodwill, permanent differences and other


(5.9
)


(0.4
)


44.9Effective tax rate


30.6
%


36.4
%


24.3
%     2008


2007Deferred income tax assets:Net future deductible items

$
35,384


$
874Share-based compensation


2,691



1,898Net operating loss carryforwards


2,287



2,681Foreign tax credits


760



A-C Reorganization Trust and Product Liability Trust


2,448



4,099Total deferred income tax assets


43,570



9,552Deferred income tax liabilitiesNet future taxable items


(1,130
)


Depreciation and amortization


(40,524
)


(37,795
)(41,654
)


(37,795
)Net deferred income tax assets (liabilities)

$
1,916


$
(28,243
)Net current deferred income tax asset

$
6,176


$
1,847Net noncurrent deferred income tax liability


(4,260
)


(30,090
)Net deferred income tax assets (liabilities)

$
1,916


$
(28,243
)        74




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          NOTE 7 
    DEBT    2008


2007Senior notes

$
505,000


$
505,000Bank term loans


49,609



4,926Revolving line of credit


36,500



Seller notes


750



2,350Notes payable to former directors


32



32Equipment & vehicle installment notes






595Insurance premium financing notes


991



1,707Obligations under non-compete agreements






110Capital lease obligations


779



14Total debt


593,661



514,734Less: current maturities of long-term debt


14,617



6,434Long-term debt

$
579,044


$
508,300    75




---



##### Table of Contents



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


Capital Leases


TotalYear Ending:December 31, 2009

$
14,026


$
591


$
14,617December 31, 2010


12,333



188



12,521December 31, 2011


11,984







11,984December 31, 2012


46,663







46,663December 31, 2013


2,876







2,876Thereafter


505,000







505,000Total

$
592,882


$
779


$
593,661   Senior
    notes, bank loans and line of credit agreements
           76




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Notes
    payable
          Other
    debt
   77




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      NOTE 8 
    COMMITMENTS
    AND CONTINGENCIES        Years Ending:December 31, 2009

$
2,888December 31, 2010


2,113December 31, 2011


1,730December 31, 2012


981December 31, 2013


739Thereafter


1,035Total

$
9,486   NOTE 9 
    STOCKHOLDERS
    EQUITY         78




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      NOTE 10 
    STOCK
    OPTIONS         79




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31, 2008


December 31, 2007


December 31, 2006Shares


Weighted Ave.


Shares


Weighted Ave.


Shares


Weighted Avg.Under


Exercise


Under


Exercise


Under


ExerciseOption


Price


Option


Price


Option


PriceBeginning balance


986,763


$
10.77



1,350,365


$
6.88



2,860,867


$
5.10Granted










220,000



21.83



15,000



14.74Canceled


(13,328
)


8.87



(17,334
)


8.45



(54,567
)


5.97Exercised


(71,703
)


8.83



(566,268
)


5.86



(1,470,935
)


3.54Ending balance


901,732


$
10.95



986,763


$
10.77



1,350,365


$
6.88       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



343,800



6.00


$
4.07



343,800



6.00


$
4.0710.85-14.74



338,932



6.89



10.89



338,932



6.89



10.8916.50-21.95



219,000



8.59



21.85



43,000



8.59



21.952.75-21.95



901,732



6.96


$
10.95



725,732



6.57


$
8.32     Restricted
    Stock Awards
   80




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    December 31, 2008


December 31, 2007


December 31, 2006Number


Weighted Ave.


Number


Weighted Ave.


Number


Weighted Ave.of


Grant Date Fair


of


Grant Date Fair


of


Grant Date FairShares


Value Per Share


Shares


Value Per Share


Shares


Value Per ShareBeginning balance


993,203


$
17.45



27,000


$
18.30






$
Granted


258,670



9.47



996,203



17.44



27,000



18.30Vested


(298,771
)


17.26



(30,000
)


18.01







Forfeited






















Ending balance


953,102


$
15.34



993,203


$
17.45



27,000


$
18.30     NOTE 11 
    STOCK
    PURCHASE WARRANTS         81




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 12 
    CONDENSED
    CONSOLIDATED FINANCIAL INFORMATION    CONDENSED
    CONSOLIDATING BALANCE SHEETS
    December 31, 2008
  Allis-Chalmers





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalAssetsCash and cash equivalents

$



$
2,923


$
3,943


$



$
6,866Trade receivables, net






88,528



70,865



(1,522
)


157,871Inventories






19,382



19,705







39,087Intercompany receivables






51,038







(51,038
)


Note receivable from affiliate


20,680











(20,680
)


Prepaid expenses and other


8,798



8,074



4,542







21,414Total current assets


29,478



169,945



99,055



(73,240
)


225,238Property and equipment, net






499,704



261,286







760,990Goodwill






23,251



20,022







43,273Other intangible assets, net


506



29,143



7,722







37,371Debt issuance costs, net


12,664















12,664Note receivable from affiliates


10,045











(10,045
)


Investments in affiliates


937,227











(937,227
)


Other assets


3,837



27,663



4,015



(3,993
)


31,522Total assets

$
993,757


$
749,706


$
392,100


$
(1,024,505
)

$
1,111,058Liabilities and Stockholders EquityCurrent maturities of long-term debt

$
782


$
992


$
12,843


$



$
14,617Trade accounts payable






27,759



35,841



(1,522
)


62,078Accrued salaries, benefits and payroll taxes






3,933



16,259







20,192Accrued interest


17,932







691







18,623Accrued expenses


281



13,841



12,520







26,642Intercompany payables


49,853







1,185



(51,038
)


Note payable to affiliate










20,680



(20,680
)


Total current liabilities


68,848



46,525



100,019



(73,240
)


142,152Long-term debt, net of current maturities


541,500







37,544







579,044Note payable to affiliate










10,045



(10,045
)


Deferred income tax liability










8,253



(3,993
)


4,260Other long-term liabilities






64



2,129







2,193Total liabilities


610,348



46,589



157,990



(87,278
)


727,649Commitments and contingenciesStockholders EquityCommon stock


357



3,526



42,963



(46,489
)


357Capital in excess of par value


334,633



570,512



133,339



(703,851
)


334,633Retained earnings


48,419



129,079



57,808



(186,887
)


48,419Total stockholders equity


383,409



703,117



234,110



(937,227
)


383,409Total liabilities and stock holders equity

$
993,757


$
749,706


$
392,100


$
(1,024,505
)

$
1,111,058  82




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  CONDENSED
    CONSOLIDATING INCOME STATEMENTS
    For the Year Ended December 31, 2008
  Allis-Chalmers





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalRevenues

$



$
384,649


$
291,335


$
(36
)

$
675,948Operating costs and expensesDirect costs






220,181



226,090



(36
)


446,235Depreciation






49,177



14,283







63,460General and administrative


6,924



42,326



10,703







59,953Gain on asset dispositions






(166
)










(166
)Impairment of goodwill






115,774











115,774Amortization


46



4,133



33







4,212Total operating costs and expenses


6,970



431,425



251,109



(36
)


689,468Income (loss) from operations


(6,970
)


(46,776
)


40,226







(13,520
)Other income (expense):Equity earnings in affiliates, net of tax


9,161











(9,161
)


Interest, net


(41,727
)


57



(1,124
)






(42,794
)Other


72



88



(723
)






(563
)Total other income (expense)


(32,494
)


145



(1,847
)


(9,161
)


(43,357
)Income (loss) before income taxes


(39,464
)


(46,631
)


38,379



(9,161
)


(56,877
)Income tax benefit (expense)






29,580



(12,167
)






17,413Net income (loss)

$
(39,464
)

$
(17,051
)

$
26,212


$
(9,161
)

$
(39,464
)  83




---



##### 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, 2008
  Allis-





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Operating Activities:Net income (loss)

$
(39,464
)

$
(17,051
)

$
26,212


$
(9,161
)

$
(39,464
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation & amortization


46



53,310



14,316







67,672Amortization and write-off of deferred financing fees


2,089















2,089Impairment of goodwill






115,774











115,774Stock based compensation


7,902















7,902Allowance for bad debts






3,283











3,283Equity earnings in affiliates


(9,161
)










9,161



Deferred taxes


(13,620
)


(16,959
)


630







(29,949
)Gain on sale of equipment






(1,485
)


(277
)






(1,762
)Gain on asset dispositions






(166
)










(166
)Changes in operating assets and liabilities, net of acquisitions:Increase in accounts receivables






(7,168
)


(20,331
)






(27,499
)Increase in inventories






(7,037
)


(2,682
)






(9,719
)(Increase) Decrease in other current assets


211



219



(2,053
)






(1,623
)(Increase) decrease in other assets


(138
)


(83
)


1,445







1,224Increase in accounts payable






9,427



12,476







21,903(Decrease) increase in accrued interest


223



(33
)


377







567(Decrease) increase in accrued expenses


(1,379
)


3,823



(1,313
)






1,131(Decrease) in other liabilities


(31
)


(178
)


(921
)






(1,130
)Increase in accrued salaries, benefits and payroll taxes






221



3,231







3,452Net cash provided (used) by operating activities


(53,322
)


135,897



31,110







113,685 84




---



##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Investing Activities:Acquisitions, net of cash acquired










(53,709
)






(53,709
)Net sales (purchases) of investment interests






1,374











1,374Purchase of property and equipment






(81,724
)


(72,744
)






(154,468
)Deposits on asset commitments






(20,667
)


10,766







(9,901
)Investment in affiliates


(58,370
)










58,370



Notes receivable from affiliates


(6,075
)










6,075



Proceeds from asset dispositions






3,000











3,000Proceeds from sale of equipment






11,046



434







11,480Net cash provided (used) in investing activities


(64,445
)


(86,971
)


(115,253
)


64,445



(202,224
)Cash Flows from Financing Activities:Proceeds from issuance of long-term debt










25,000







25,000Payments on long-term debt






(6,029
)


(3,876
)






(9,905
)Net borrowings on lines of credit


36,500















36,500Proceeds from parent contributions










58,370



(58,370
)


Accounts receivable from affiliates


81,150











(81,150
)


Accounts payable to affiliates






(81,150
)






81,150



Note payable to affiliate










6,075



(6,075
)


Proceeds from exercise of options


633















633Tax benefit on stock plans


9















9Debt issuance costs


(525
)














(525
)Net cash provided (used) by financing activities


117,767



(87,179
)


85,569



(64,445
)


51,712Net change in cash and cash equivalents






(38,253
)


1,426







(36,827
)Cash and cash equivalents at beginning of year






41,176



2,517







43,693Cash and cash equivalents at end of period

$



$
2,923


$
3,943


$



$
6,866  85




---



##### 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


31,297











(31,297
)


Note receivable from affiliate


8,270











(8,270
)


Prepaid expenses and other


7,731



2,564



1,603







11,898Total current assets


47,298



142,565



67,603



(39,572
)


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


869,696











(869,696
)


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






30,112



1,185



(31,297
)


Note payable to affiliate










8,270



(8,270
)


Total current liabilities


19,401



61,825



55,889



(39,572
)


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



75,876



85,492



(55,952
)


639,256Commitments and contingenciesStockholders EquityCommon stock


351



3,526



42,963



(46,489
)


351Capital in excess of par value


326,095



570,512



74,969



(645,481
)


326,095Retained earnings


87,883



146,130



31,596



(177,726
)


87,883Total stockholders equity


414,329



720,168



149,528



(869,696
)


414,329Total liabilities and stock holders equity

$
948,169


$
796,044


$
235,020


$
(925,648
)

$
1,053,585  86




---



##### 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


$



$
570,967Operating costs and expensesDirect costs






185,617



155,833







341,450Depreciation






39,659



11,255







50,914General and administrative


4,349



44,439



9,834







58,622Gain on asset disposition






(8,868
)










(8,868
)Amortization


46



3,988



33







4,067Total operating costs and expenses


4,395



264,835



176,955







446,185Income (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  87




---



##### 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















4,863Bad debt expense






1,309











1,309Equity 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






(18,402
)


(13,002
)






(31,404
)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







103,468 88




---



##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Investing Activities:Acquisitions, net of cash acquired






(41,000
)










(41,000
)Purchase of investment interests






(498
)










(498
)Purchase of property and equipment






(84,240
)


(28,911
)






(113,151
)Deposits on asset commitments










(11,488
)






(11,488
)Investment in affiliates


(44,919
)










44,919



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


(51,728
)


(96,822
)


(40,254
)


51,728



(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
)Proceeds from parent contributions






44,919







(44,919
)


Accounts receivable from affiliates


36,245











(36,245
)


Accounts payable to affiliates






(37,413
)


1,168



36,245



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


83,546



919



4,819



(51,728
)


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  89




---



##### 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


$



$
310,964Operating costs and expensesDirect costs






134,638



50,941







185,579Depreciation






16,198



4,063







20,261General and administrative


2,643



30,651



2,242







35,536Amortization


46



1,801



11







1,858Total operating costs and expenses


2,689



183,288



57,257







243,234Income (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  90




---



##### 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
  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















3,394Bad debt expense






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



Investment in affiliates


(367
)










367



Purchase of property and equipment






(33,930
)


(5,767
)






(39,697
)Proceeds from sale of property and equipment






6,730



151







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


(529,119
)


(23,551
)


(7,670
)


952



(559,388
) 91




---



##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash 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
)Proceeds from parent contributions






367







(367
)


Accounts receivable from affiliates


(16,077
)










16,077



Accounts payable to affiliates






16,060



17



(16,077
)


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


539,304



6,341



(1,139
)


(952
)


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       92




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 14 
    SEGMENT
    INFORMATION      Years Ended December 31,2008


2007


2006Revenues:Oilfield Services

$
280,835


$
233,986


$
189,953Drilling & Completion


291,335



215,795



69,490Rental Services


103,778



121,186



51,521Total revenues

$
675,948


$
570,967


$
310,964Operating Income (Loss):Oilfield Services

$
38,643


$
53,218


$
43,157Drilling & Completion


40,226



38,839



12,233Rental Services


(74,361
)


49,139



26,293General corporate


(18,028
)


(16,414
)


(13,953
)Total income (loss) from operations

$
(13,520
)

$
124,782


$
67,730Depreciation and Amortization Expense:Oilfield Services

$
24,725


$
16,838


$
10,434Drilling & Completion


14,316



11,288



4,074Rental Services


28,131



26,353



7,268General corporate


500



502



343Total depreciation and amortization expense

$
67,672


$
54,981


$
22,119Capital Expenditures:Oilfield Services

$
58,400


$
48,610


$
29,077Drilling & Completion


73,362



28,911



5,770Rental Services


22,550



34,883



4,538General corporate


156



747



312Total capital expenditures

$
154,468


$
113,151


$
39,697   93




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  As of December 31,2008


2007


2006Goodwill:Oilfield Services

$
23,250


$
30,493


$
18,199Drilling & Completion


20,023



1,523



1,504Rental Services






106,382



106,132General corporate










Total goodwill

$
43,273


$
138,398


$
125,835Assets:Oilfield Services

$
338,121


$
299,300


$
215,199Drilling & Completion


411,486



235,020



185,677Rental Services


333,894



454,216



453,802General corporate


27,557



65,049



53,648Total assets

$
1,111,058


$
1,053,585


$
908,326   Years Ended December 31,2008


2007


2006Revenues:United States

$
365,529


$
339,476


$
231,852Argentina


288,792



207,491



66,516Brazil










Other international


21,627



24,000



12,596Total revenues

$
675,948


$
570,967


$
310,964   As of December 31,2008


2007


2006Long Lived Assets:United States

$
569,982


$
655,513


$
574,302Argentina


212,456



166,972



132,955Brazil


79,568







Other international


23,814



13,206



20,307Total long lived assets

$
885,820


$
835,691


$
727,564  94




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  NOTE 15 
    SUPPLEMENTAL
    CASH FLOWS INFORMATION (in thousands)  Years Ended December 31,2008


2007


2006Interest paid

$
46,541


$
40,363


$
8,571Income taxes paid

$
20,670


$
17,272


$
5,796Other non-cash investing and financing transactions:Insurance premiums financed

$
2,995


$
4,434


$
2,871Non-cash investing and financing transactions in connection
    with acquisitions:Fair value of Property and equipment

$



$
4,345


$
109,632Fair value of goodwill and other intangibles


3,000



350



4,010$
3,000


$
4,695


$
113,642Value of common stock, issued

$



$



$
94,980Seller financed note






1,600



750Deferred tax liability






3,095



17,662Accrued expenses


3,000







250$
3,000


$
4,695


$
113,642Non-cash investing and financing transactions in connection
    with asset disposition:Value of goodwill and other intangibles disposed

$
2,246


$



$
Value of inventory financed


509







Value of property and equipment disposed


337







Accrued expenses


10







Fair value of note receivable

$
3,102


$



$
   NOTE 16 
    LEGAL
    MATTERS        NOTE 17 
    SUBSEQUENT
    EVENTS   95




---



##### 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 2008Revenues

$
153,182


$
163,135


$
178,265


$
181,366Operating income (loss)


23,582



27,668



29,033



(93,803
)Net income (loss)

$
8,050


$
10,558


$
12,312


$
(70,384
)Income (loss) per common share:Basic

$
0.23


$
0.30


$
0.35


$
(2.00
)Diluted

$
0.23


$
0.30


$
0.35


$
(2.00
)   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  96




---



##### 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).
     97




---



##### Table of Contents



Management
    Report on Internal Control Over Financial
    Reporting.
    (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 MATTERS  Form 10-K
  ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE  Form 10-K
  ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES  Form 10-K
 98




---



##### 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, 2008:Allowance for doubtful accounts


1,924



3,283



(1,002
)


4,205Deferred tax assets valuation allowance














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
)


  99




---



##### Table of Contents



SIGNATURES    ALLIS-CHALMERS ENERGY INC.
  MUNAWAR
    H. HIDAYATALLAH
  Munawar H. Hidayatallah
 Chief Executive Officer and Chairman
    Name

Title

Date/s/  MUNAWAR
    H. HIDAYATALLAHMunawar
    H. Hidayatallah

Chairman and Chief Executive Officer (Principal Executive
    Officer)

March 9, 2009/s/  VICTOR
    M. PEREZVictor
    M. Perez

Chief Financial Officer 
    (Principal Financial Officer)

March 9, 2009/s/  BRUCE
    SAUERSBruce
    Sauers

Chief Accounting Officer 
    (Principal Accounting Officer)

March 9, 2009Ali
    H. M. Afdhal

Director

March 9, 2009/s/  MUNIR
    AKRAMMunir
    Akram

Director

March 9, 2009Alejandro
    P. Bulgheroni

Director

March 9, 2009Carlos
    A. Bulgheroni

Director

March 9, 2009/s/  VICTOR
    F. GERMACKVictor
    F. Germack

Director

March 9, 2009/s/  JAMES
    M. HENNESSYJames
    M. Hennessy

Director

March 9, 2009John
    E. McConnaughy, Jr.

Director

March 9, 2009/s/  ROBERT
    E. NEDERLANDERRobert
    E. Nederlander

Director

March 9, 2009Zane
    Tankel

Director

March 9, 2009/s/  LEONARD
    TOBOROFFLeonard
    Toboroff

Director

March 9, 2009  100




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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 Exhibit 10.61 to the Registrants Current Report on
    Form 8-K
    filed on November 16, 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).2
.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). 101




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##### Table of Contents



Exhibit

Description2
.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 Current Report on
    Form 8-K
    filed on January 24, 2008).2
.21

First Amendment, dated as of June 1, 2008, to the Agreement
    and Plan of Merger, by and among Allis-Chalmers Energy Inc.,
    Elway Merger Sub, Inc. and Bronco Drilling Company, Inc.
    (incorporated by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    filed on June 2, 2008).2
.22

Stock Purchase Agreement, dated December 19, 2008, by and
    between the Registrant and BrazAlta Resources Corp.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

Second Amended and Restated By-laws of Registrant (incorporated
    by reference to Exhibit 3.1. to the Registrants
    Current Report of
    Form 8-K
    filed April 3, 2008).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 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
.4

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). 102




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##### Table of Contents



Exhibit

Description4
.5

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).4
.6

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
.7

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 Current Report on
    Form 8-K
    filed on August 14, 2006).4
.8

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
.9

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
.10

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
.11

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 Exhibit 99.1 to the
    Registrants Current Report on
    Form 8-K
    filed May 15, 2001).10
.8

Termination Agreement dated May 9, 2001 by and between
    Registrant, the Pension Benefit Guarantee Corporation and others
    (incorporated by reference to Exhibit 99.2 to the
    Registrants Current Report on
    Form 8-K
    filed on May 15, 2001).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
    Current Report on
    Form 8-K
    filed on November 6, 2007). 103




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##### Table of Contents



Exhibit

Description10
.10*

Amendment to Executive Employment Agreement, dated as of
    December 31, 2008, by and between the Registrant and
    Munawar H. Hidayatallah (incorporated by reference to
    Exhibit 10.2 to the Registrants Current Report on
    Form 8-K
    filed on January 7, 2009).10
.11*

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
    Quarterly Report on
    Form 10-Q
    filed on November 6, 2007).10
.12*

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
    Current Report on
    Form 8-K
    filed on July 24, 2007).10
.13*

Amendment to Employment Agreement among the Registrant, AirComp
    LLC and Terrence P. Keane, effective April 1, 2008
    (incorporated by reference to Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    filed on May 1, 2008).10
.14*

Second Amendment to Executive Employment Agreement, dated
    December 31, 2008, by and between the Registrant and
    Terrence P. Keane.10
.15*

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 Current Report on
    Form 8-K
    filed on December 6, 2007).10
.16*

Executive Employment Agreement, effective July 1, 2007, by
    and between Strata Directional Technology LLC and David K. Bryan
    (incorporated by reference to Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    filed on July 13, 2007).10
.17*

Amendment to Executive Employment Agreement, dated
    December 31, 2008, by and between Strata Directional
    Technology LLC and David K. Bryan.10
.18*

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 Current Report on
    Form 8-K
    filed on February 25, 2008).10
.19

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
.20

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
.21

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
.22

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).10
.23

First Amendment to Investor Rights Agreement, by and among
    Allis-Chalmers Energy Inc. and the holders named thereto, dated
    June 23, 2008 (incorporated by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on June 26, 2008).10
.24

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 Current Report on
    Form 8-K
    filed on August 14, 2006).10
.25*

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
.26*

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
.27*

2006 Incentive Plan, as amended and restated. 104




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Exhibit

Description10
.28*

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 Current Report on
    Form 8-K
    filed on September 18, 2006).10
.29*

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 Current
    Report on
    Form 8-K
    filed on September 18, 2006).10
.30*

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 Current
    Report on
    Form 8-K
    filed on September 18, 2006).10
.31*

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 Current Report on
    Form 8-K
    filed on September 18, 2006).10
.32*

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 Current Report on
    Form 8-K
    filed on September 18, 2006).10
.33*

Form of Performance Award Agreement, as amended and restated
    effective December 31, 2008, pursuant to the
    Registrants 2006 Incentive Plan.10
.34

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
    Quarterly Report
    Form 10-Q
    filed on May 10, 2007).10
.35

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 Current Report on
    Form 8-K
    filed on December 6, 2007).10
.36

Second Amendment to Second Amended and Restated Credit
    Agreement, dated as of December 29, 2008, by and among the
    Registrant, as borrower, Royal Bank of Canada, as administrative
    agent, and the lenders named thereto (incorporated by reference
    to Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on January 7, 2009).10
.37

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 Quarterly Report on
    Form 10-Q
    filed on May 10, 2007).10
.38

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 Quarterly Report on
    Form 10-Q
    filed on May 10, 2007).10
.39

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 Current
    Report on
    Form 8-K
    filed on February 6, 2008).10
.40

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 Current Report on
    Form 8-K
    filed on February 6, 2008).10
.41

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 Current Report on
    Form 8-K
    filed on February 6, 2008).10
.42

Form of Convertible Subordinated Secured Debenture (incorporate
    by reference to Schedule E to Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    filed on February 6, 2008).10
.43*

Agreement, dated April 1, 2007, by and between the
    Registrant and David Wilde (incorporated by reference to
    Exhibit 99.1 to the Registrants Current Report on
    Form 8-K
    filed on April 3, 2007). 105




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Exhibit

Description10
.44

Mutual Termination and Release Agreement, dated August 8,
    2008, by and among Allis-Chalmers Energy Inc., Bronco Drilling
    Company, Inc. and Elway Merger Sub LLC (incorporated by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K
    filed on August 8, 2008).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
    
    Filed herewith. 106