##### Table of Contents



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, 2005ORo

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

(I.R.S. Employerincorporation or
    organization)

Identification No.)5075 WESTHEIMER, SUITE 890,
    HOUSTON, TEXAS

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

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

American 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. þ
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE:




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##### 



2005
    FORM 10-K
    CONTENTS
  Item



PagePART I1.


Business


52.


Properties


153.


Legal
    Proceedings


15PART II5.


Market for
    Registrants Common Equity and Related Stockholder
    Matters


176.


Selected Financial
    Data


197.


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


207A.


Quantitative and
    Qualitative Disclosures about Market Risk


448.


Financial
    Statements


459.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


869A.


Controls and
    Procedures


86PART III10.


Directors and
    Executive Officers of the Registrant


8711.


Executive
    Compensation


8712.


Security Ownership
    of Certain Beneficial Owners and Management


8713.


Certain
    Relationships and Related Transactions


8814.


Principal
    Accountant Fees and Services


88PART IV15.


Exhibits and
    Financial Statement Schedules


8816.


Signatures and
    Certifications


89Stock Purchase AgreementSubsidiaries of RegistrantCertification of CEO pursuant to Section 302Certification of CFO pursuant to Section 302Certification of CEO and CFO pursuant to Section 906   2




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DEFINITIONS
  blow out preventors
    
    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 volume of air when used in
    conjunction with a compressor or a group of compressors.capillary tubing
    
    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
    
    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 flange that adapts a valve or blow-out preventor to another
    non-compatible valve.downhole drilling
    
    The technique of directional drilling used to deviate a well
    away from surface locations to reach a specified target.drill pipe
    
    A pipe that attaches to the drill bit to drill a well.heavy weight spiral drill pipe
    
    Heavy drill pipe used for special applications primarily in
    directional drilling. The spiral design increases
    flexibility and penetration of the pipe.horizontal drilling
    
    The technique of drilling wells at a
    90-degree
    angle.laydown machines
    
    A truck mounted machine used to move pipe and 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).links
    
    Adaptors that fit on the blocks to attach handling tools.logging-while-drilling or LWD
    
    The technique of measuring, in real time, the formation pressure
    and the position of equipment inside of a well.measurement-while-drilling or MWD
    
    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. 3




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##### Table of Contents



spacer spools or adapter spools
    
    High pressure connections or links which are stacked to elevate
    the blow out preventors to the drilling rig floor.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
    
    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
    
    Tubing used on workover rigs through which high pressure
    liquids, gases or mixtures are pumped into a well to perform
    production operations.under balanced drilling or 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.wear bushings
    
    A device placed inside a wellhead to protect the wellhead from
    wear. 4




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PART I.  This document contains forward-looking statements that
    involve risks and uncertainties. Our actual results may differ
    materially from the results discussed in such forward-looking
    statements. Factors that might cause such differences include,
    but are not limited to, the general condition of the oil and
    natural gas drilling industry, demand for our oil and natural
    gas service and rental products, and competition. Other factors
    are identified in our Securities and Exchange Commission filings
    and elsewhere in this
    Form 10-K
    under the heading Risk Factors located at the end of
    Item 7, Managements Discussion and Analysis of
    Financial Condition and Results of Operations.
  ITEM 1.
    BUSINESS        form 10-K, Form 10-Q, Form 8-K www.alchenergy.com
    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 OilQuip Rentals, Inc., or OilQuip, and its
    wholly-owned subsidiary, Mountain Compressed Air, Inc.
    In December 2001, we sold Houston Dynamic Services, Inc., our
    last pre-bankruptcy business. 5




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##### Table of Contents




    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., which we refer to as 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., which we refer to as 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 January 2005, we changed our name from Allis-Chalmers
    Corporation to Allis-Chalmers Energy Inc.
    In April 2005, we acquired Delta Rental Service, Inc., or Delta,
    and, in May 2005, we acquired Capcoil Tubing Services, Inc. or
    Capcoil
    In July 2005, we acquired M-Is interest in AirComp, and
    acquired the compressed air drilling assets of
    W. T. Enterprises, Inc., which we refer to as W.T.
    Effective August 2005, we acquired all of the outstanding stock
    of Target Energy Inc., or Target.
    In September of 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.    Industry
    Overview
     6




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##### Table of Contents




    producers are more heavily favoring integrated suppliers that
    can provide a broad, comprehensive offering of products and
    services in many geographic locations; in addition, many
    businesses in the highly fragmented oilfield services industry
    lack sufficient size, depth or management (many businesses are
    family-owned and managed) and sophisticated service and control
    capabilities;
    consolidation among larger oilfield services providers has
    created an opportunity for us to compete effectively in markets
    that are underserved by the large oilfield services and
    equipment companies; and
    based on technological advancements in drilling for oil and
    natural gas, producers are demanding higher quality service and
    equipment from their suppliers.  Competitive
    Strengths
    Strategic position in high growth markets.
  Strong relationships with diversified customer
    base.
  Successful execution of growth strategy.
  Experienced and dedicated management team.
 7




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##### Table of Contents



Business
    Strategy
    Expand products and services provided in existing operating
    locations.
  Prudently pursue strategic acquisitions.
  Expand geographically to provide greater access and service
    to key customer segments.
  Increase utilization of assets.
  Target services in which we have a competitive
    advantage.
  Description
    Of Businesses
  Directional Drilling Services. state-of-the-art and/or
  
    improvement of total cumulative recoverable reserves;
    improved reservoir production performance beyond conventional
    vertical wells; and
    reduction of the number of field development wells.    Compressed Air Drilling Services.
 8




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Casing and Tubing Services.
        Rental Tools.
 9




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Production Services. build-up
  1 4 2 1 4 2 1 4 2 3 4 2
  Cyclical
    Nature Of Equipment Rental And Services Industry
     10




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Customers
    Suppliers
    Competition
              Backlog
    Employees
   11




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Executive
    Officers
    Name

Age

PositionMunawar H. Hidayatallah


61


Chairman and Chief Executive
    OfficerDavid Wilde


50


President and Chief Operating
    OfficerVictor M. Perez


53


Chief Financial OfficerTheodore F. Pound III


51


General Counsel and SecretaryBruce Sauers


42


Vice President and Corporate
    ControllerAlya H. Hidayatallah


30


Vice
    President  Planning and DevelopmentDavid K. Bryan


48


President and Chief Executive
    Officer of Strata
    Directional Technology, Inc.Steve Collins


54


President and Chief Executive
    Officer of
    Allis-Chalmers
    Production Services, Inc.James Davey


52


President and Chief Executive
    Officer of
    Allis-Chalmers
    Rental Tools Inc.Gary Edwards


54


President and Chief Executive
    Officer of
    Allis-Chalmers
    Tubular Services Inc.Terrence P. Keane


53


President and Chief Executive
    Officer of AirComp LLC   Munawar H. Hidayatallah
  David Wilde
  Victor M. Perez
  Theodore F. Pound III
 12




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##### Table of Contents



Bruce Sauers
  Alya H. Hidayatallah
  David K. Bryan
  Steven Collins
  James Davey
  Gary Edwards
  Terrence P. Keane
 13




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Insurance
    Federal
    Regulations and Environmental Matters
      Intellectual
    Property Rights
   14




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##### Table of Contents



ITEM 2.
    PROPERTIES    Business Segment

Location

PropertyDirectional Drilling Services

Houston, Texas

Operating LocationCorpus Christi, Texas

Operating LocationOklahoma City, Oklahoma

Operating LocationLafayette, Louisiana

Operating LocationCompressed Air Drilling Services

Houston, Texas

Operating LocationSan Angelo, Texas

Operating LocationFort Stockton, Texas

Operating LocationFarmington, New Mexico

Operating LocationGrand Junction, Colorado

Operating LocationWilburton, Oklahoma

Operating LocationSonora, Texas

Operating LocationGrandbury, Texas

Operating LocationDenver, Colorado

Operating LocationCarlsbad, New Mexico

Operating LocationCasing and Tubing Services

Edinburg, Texas

Operating LocationPearsall, Texas

Operating LocationCorpus Christi, Texas

Operating LocationKilgore, Texas

Operating LocationLafayette, Louisiana

Operating LocationHouma, Louisiana

Operating LocationCasing and Tubing Services (cont)

Buffalo, Texas

Operating LocationRental Tools

Houston, Texas

Operating LocationBroussard, Louisiana

Operating LocationLafayette, Louisiana

Operating LocationProduction Services

Midland, Texas

Operating LocationCorpus Christi, Texas

Operating LocationKilgore, Texas

Operating LocationCarthage, Texas

Operating LocationCordell, Oklahoma

Operating LocationGeneral Corporate

Houston, Texas

Principal Executive Offices     ITEM 3.
    LEGAL
    PROCEEDINGS     15




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A-C Reorganization
         16




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS.  MARKET
    PRICE INFORMATION
  one-to-five
  Calendar Quarter

High


Low2003First Quarter


4.50



.55Second Quarter


5.00



2.25Third Quarter


4.50



2.60Fourth Quarter


6.00



2.602004First Quarter


10.05



2.55Second Quarter


10.25



4.25Third Quarter


9.75



4.75Fourth Quarter


5.40



3.252005First Quarter


7.25



3.64Second Quarter


6.00



4.38Third Quarter


14.70



5.65Fourth Quarter


13.75



8.61   Holders
    Dividends
   17




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EQUITY
    COMPENSATION PLAN INFORMATION
    Number ofSecurities to be


WeightedIssued Upon


Average Exercise


Number of SecuritiesExercise of


Price of


Remaining AvailableOutstanding


Outstanding


for Future IssuanceOptions, Warrants


Options, Warrants


Under EquityPlan Category

and Rights


and Rights


Compensation PlansEquity compensation plans approved
    by security holders


2,756,067


$
5.18



210,100Equity compensation plans not
    approved by security holders


489,243


$
2.97



Total


3,245,310


$
4.85



210,100   Equity
    Compensation Plans Not Approved By Security
    Holders
           18




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ITEM 6.
    SELECTED
    FINANCIAL DATA.  SELECTED
    HISTORICAL FINANCIAL INFORMATION
    Years Ended
    December 31,2005


2004


2003


2002


2001(Restated)


(Restated)Statement of Operations
    DataRevenues

$
105,344


$
47,726


$
32,724


$
17,990


$
4,796Income (loss) from operations

$
13,218


$
4,227


$
2,625


$
(1,072
)

$
(1,433
)Net income (loss) from continuing
    operations

$
7,175


$
888


$
2,927


$
(3,969
)

$
(2,273
)Net income (loss) attributed to
    common stockholders

$
7,175


$
764


$
2,271


$
(4,290
)

$
(4,577
)Per Share Data:Net Income (loss) from continuing
    operations per common share:Basic

$
0.48


$
0.10


$
0.58


$
(1.14
)

$
(2.88
)Diluted

$
0.44


$
0.09


$
0.50


$
(1.14
)

$
(2.88
)Weighted average number of common
    shares outstanding:Basic


14,832



7,930



3,927



3,766



790Diluted


16,238



9,510



5,850



3,766



790   Consolidated Balance Sheet
    DataAs of
    December 31,2005


2004


2003


2002


2001(Restated)Total Assets

$
137,355


$
80,192


$
53,662


$
34,778


$
12,465Long-term debt classified as:Current

$
5,632


$
5,541


$
3,992


$
13,890


$
1,023Long-term

$
54,937


$
24,932


$
28,241


$
7,331


$
6,833Redeemable convertiblePreferred stock

$



$



$
4,171


$
3,821


$
Stockholders equity

$
60,875


$
35,109


$
4,541


$
1,009


$
1,250Book value per share (basic)

$
4.10


$
4.43


$
1.16


$
0.27


$
1.58  19




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ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis should be read in
    conjunction with our selected historical financial data and our
    accompanying financial statements and the notes to those
    financial statements included elsewhere in this document. The
    following discussion contains forward-looking statements within
    the meaning of the Private Securities Litigation Reform Act of
    1995 that reflect our plans, estimates and beliefs. Our actual
    results could differ materially from those anticipated in these
    forward-looking statements as a result of risks and
    uncertainties, including, but not limited to, those discussed
    below under Risk Factors.
  Overview
    of Our Business
          Cyclical
    Nature of Equipment Rental and Services Industry
     20




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Restatement
  , Earnings Per Share,
  Business
    Combinations Accounting for Sales of Stock
    by a Subsidiary.
      
    The addition of experienced accounting personnel with
    appropriate experience and qualifications to perform quality
    review procedures and to satisfy our financial reporting
    obligations. During August 2004, we hired a new chief financial
    officer and in October of 2004 we hired a full-time in-house
    general counsel. In March 2005, we hired a certified public
    accountant as our financial reporting manager and in July 2005
    we hired as chief accounting officer, a certified public
    accountant who has significant prior experience as a chief
    accounting officer of a publicly traded company. In 2006, we
    have added three additional certified public accountants in
    connection with the growth of our business and to implement and
    monitor compliance with internal control processes. 21




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
    In the fourth quarter of 2004, we engaged an independent
    internal controls consulting firm which is in the process of
    documenting, analyzing, identifying and correcting deficiencies
    and testing our internal controls and procedures, including our
    controls over internal financial reporting.
    We are in the final stages of completing the implementation of a
    new accounting software to facilitate timely and accurate
    reporting.    Results
    of Operations
            Comparison
    of Years Ended December 31, 2005 and December 31,
    2004
     22




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form Allis-Chalmers form Allis-Chalmers
               23




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Revenues


Income (Loss) from
    Operations2005


2004


Change


2005


2004


Change(In thousands)Directional drilling services

$
43,901


$
24,787


$
19,114


$
7,389


$
3,061


$
4,328Compressed air drilling services


25,662



11,561



14,101



5,612



1,169



4,443Casing and tubing services


20,932



10,391



10,541



4,994



3,217



1,777Rental tools


5,059



611



4,448



1,300



(71
)


1,371Production services


9,790



376



9,414



(99
)


4



(103
)General corporate














(5,978
)


(3,153
)


(2,825
)Total

$
105,344


$
47,726


$
57,618


$
13,218


$
4,227


$
8,991   Directional Drilling Services
    Segment.
  Compressed Air Drilling Services Segment.
  Casing and Tubing Services Segment.
  Rental Tools Segment.
  Production Services Segment.
 24




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##### Table of Contents



Comparison
    of Years Ended December 31, 2004 and December 31,
    2003
             25




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##### Table of Contents



Revenues


Income (Loss) from
    Operations2004


2003


Change


2004


2003


Change(In thousands)Directional drilling services

$
24,787


$
16,008


$
8,779


$
3,061


$
1,103


$
1,958Compressed air drilling services


11,561



6,679



4,882



1,169



17



1,152Casing and tubing services


10,391



10,037



354



3,217



3,628



(411
)Other services


987







987



(67
)






(67
)General corporate














(3,153
)


(2,123
)


(1,030
)Total

$
47,726


$
32,724


$
15,002


$
4,227


$
2,625


$
1,602   Directional Drilling Services
    Segment.
  Compressed Air Drilling Services Segment.
  Casing and Tubing Services Segment.
 26




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Other Services Segment.
  Liquidity
    and Capital Resources
    Operating
    Activities
       27




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Investing
    Activities
    
    On April 1, 2005 we acquired Delta for $4.6 million in
    cash, 223,114 shares of our common stock and two promissory
    notes totaling $350,000.
    On May 1, 2005, we acquired Capcoil for $2.7 million
    in cash, 168,161 shares of our common stock and the payment
    or assumption of approximately $1.3 million of debt.
    On July 11, 2005, we acquired the compressed air drilling
    assets of W.T. for $6.0 million in cash.
    On July 11, 2005, we acquired from M-I its 45%
    interest in AirComp and subordinated note in the principal
    amount of $4.8 million issued by AirComp, for which we paid
    M-I $7.1 million in cash and reissued a $4.0 million
    subordinated note.
    Effective August 1, 2005, we acquired Target for
    $1.3 million in cash and forgiveness of a lease receivable
    of $592,000.
    On September 1, 2005, we acquired the casing and tubing
    service assets of Patterson Services, Inc. for approximately
    $15.6 million.      
    As of September 1, 2004 we completed, for
    $1.0 million, the acquisition of 100% of the outstanding
    stock of Safco.
    As of November 1, 2004, AirComp acquired substantially all
    the assets of Diamond Air for $4.6 million in cash and the
    assumption of approximately $450,000 of debt. We contributed our
    share of the purchase price, or $2.5 million, to AirComp in
    order to fund the purchase.
    Effective December 1, 2004, we acquired Downhole for
    approximately $1.1 million in cash, 568,466 shares of
    our common stock and payment or assumption of $950,000 of debt. 28




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Financing
    Activities
          
    A $13.0 million revolving line of credit. Borrowings were
    limited to 85% of eligible accounts receivable plus 50% of
    eligible inventory (up to a maximum of $2.0 million of
    borrowings based on inventory). This line of credit was to be
    used to finance working capital requirements and other general
    corporate purposes, including the issuance of standby letters of
    credit. Outstanding borrowings under this line of credit were
    $6.4 million at a margin above prime and LIBOR rates plus
    margin averaging approximately 8.1% as of December 31, 2005.
    Two term loans totaling $42.0 million. Outstanding
    borrowings under these term loans were $42.0 million as of
    December 31, 2005. These loans were at LIBOR rates plus a
    margin which averages approximately 7.8% at December 31,
    2005.     29




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
    A $10.0 million revolving line of credit. Borrowings were
    limited to 85% of eligible accounts receivables, as defined.
    Outstanding borrowings under this line of credit were
    $2.4 million as of December 31, 2004.
    A term loan in the amount of $6.3 million to be repaid in
    monthly payments of principal of $105,583 per month. We
    were also required to prepay this term loan by an amount equal
    to 20% of receipts from our largest customer in Mexico. Proceeds
    of the term loan were used to prepay the term loan owed by
    Tubular and to prepay the 12% $2.4 million subordinated
    note and retire its related warrants. The outstanding balance
    was $6.3 million as of December 31, 2004.
    A $6.0 million capital expenditure and acquisition line of
    credit. Borrowings under this facility were payable monthly over
    four years beginning in January 2006. Availability of this
    capital expenditure term loan facility was subject to security
    acceptable to the lender in the form of equipment or other
    acquired collateral. There were no outstanding borrowings as of
    December 31, 2004.        
    A $3.5 million bank line of credit. Interest accrued at an
    adjustable rate based on the prime rate. We paid a 0.5% per
    annum fee on the undrawn portion. Borrowings under the line of
    credit were subject to a borrowing base consisting of 80% of
    eligible accounts receivable. The balance at December 31,
    2004 was $1.5 million.
    A $7.1 million term loan that accrued interest at an
    adjustable rate based on either LIBOR or the prime rate.
    Principal payments of $286,000 plus interest were due quarterly,
    with a final maturity date of June 27, 2007. The balance at
    December 31, 2004 was $6.8 million.
    A delayed draw term loan facility in the amount of
    $1.5 million to be used for capital expenditures. Interest
    accrued at an adjustable rate based on either the LIBOR or the
    prime rate. Quarterly principal payments were to commence on
    March 31, 2006 in an amount equal to 5.0% of the
    outstanding balance as of December 31, 2005, with a final
    maturity of June  27, 2007. There were no borrowings
    outstanding under this facility as of December 31, 2004. 30




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31




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##### Table of Contents



Payments by PeriodLess ThanTotal


1 Year


2-3 Years


4-5 Years


After 5 Years(In thousands)Contractual
    ObligationsNotes Payable

$
59,652


$
5,158


$
53,887


$
607


$
Capital leases(a)


917



474



443







Interest Payments on notes payable


7,076



4,186



2,839



51



Operating Lease


2,878



926



1,462



490



Employment Contracts


4,016



2,512



1,504







Total Contractual Cash Obligations

$
74,539


$
13,256


$
60,135


$
1,148


$
     (a)
    
    These amounts represent our minimum capital lease payments, net
    of interest payments totaling $69,000.   32




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##### Table of Contents



Recent
    Developments
             33




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##### Table of Contents



Critical
    Accounting Policies
    Allowance For Doubtful Accounts.
  Revenue Recognition. Revenue Recognition in Financial Statements
  Impairment Of Long-Lived Assets.
  Goodwill And Other Intangibles. Business Combinations Goodwill
    and Other Intangible Assets.
 34




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##### Table of Contents



Recently
    Issued Accounting Standards
  Accounting Changes and Error Corrections.
  Share-Based Payment. Accounting for Stock-Based
    Compensation
  Inventory Costs
  Risk
    Factors
  Form 10-K Form 10-K.
 35




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##### Table of Contents



Form 10-K Form 10-K Form 10-K. Form 10-K.
  Risks
    Associated With an Investment in Our Common Stock
  Our
    stock price may decrease in response to various factors, which
    could adversely affect our business and cause our stockholders
    to suffer significant losses. These factors
    include:
  
    decreases in prices for oil and natural gas resulting in
    decreased demand for our services;
    variations in our operating results and failure to meet
    expectations of investors and analysts;
    increases in interest rates;
    the loss of customers;
    failure of customers to pay for our services;
    competition;
    illiquidity of the market for our common stock;
    sales of common stock by existing stockholders; and
    other developments affecting us or the financial markets.    Existing
    stockholders interest in us may be diluted by additional
    issuances of equity securities.
    We do
    not expect to pay dividends on our common stock and investors
    will be able to receive cash in respect of the shares of common
    stock only upon the sale of the shares.
   36




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##### Table of Contents



Risks
    Associated With Our Indebtedness
  We
    have a substantial amount of debt which could adversely affect
    our financial health and prevent us from making principal and
    interest payments on our senior notes and our other
    debt.
      
    make it more difficult for us to satisfy our obligations with
    respect to our senior notes 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 indenture relating to our senior notes 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 new credit
    agreement or our senior notes.
   37




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##### Table of Contents



The
    indenture governing our senior notes and our new 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 under the
    senior notes.
    
    incur additional debt;
    make certain investments or pay dividends or distributions on
    our capital stock or purchase or redeem or retire capital stock;
    sell assets, including capital stock of our restricted
    subsidiaries;
    restrict dividends or other payments by restricted subsidiaries;
    create liens;
    enter into transactions with affiliates; and
    merge or consolidate with another company.    and/or and/or
  Risks
    Associated With Our Company
  We may
    fail to acquire additional businesses, which will restrict our
    growth and may result in a decrease in our stock
    price.
    
    our ability to obtain financing;
    the competitive environment for acquisitions; and
    the integration and synergy issues described in the next risk
    factor. 38




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##### Table of Contents



Difficulties
    in integrating acquired businesses may result in reduced
    revenues and income.
        Failure
    to maintain effective disclosure controls and procedures
    and/or
    internal controls over financial reporting could have a material
    adverse effect on our operations.
  Earnings Per Share
   39




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##### Table of Contents



Form 8-K
    and/or and/or and/or and/or and/or and/or and/or
  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.    
    Chief Executive Officer and Chairman Munawar H.
    Hidayatallah; and
    President and Chief Operating Officer David Wilde. 40




---



##### Table of Contents



Historically,
    we have been dependent on a few customers operating in a single
    industry, the loss of one or more could adversely affect our
    financial condition and results of operations.
    Our
    international operations may expose us to political and other
    uncertainties, including risks of:
  
    terrorist acts, war and civil disturbances;
    changes in laws or policies regarding the award of
    contracts; and
    the inability to collect or repatriate income or capital.    Environmental
    liabilities could result in substantial losses.
    Products
    liability claims relating to discontinued operations could
    result in substantial losses.
   41




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##### Table of Contents



We may
    be subject to claims for personal injury and property damage,
    which could materially adversely affect our financial condition
    and results of operations.
    Risks
    Associated with Our Industry
  Cyclical
    declines in oil and natural gas prices may result in reduced use
    of our services, affecting our business, financial condition and
    results of operation and our ability to meet our capital
    expenditure obligations and financial commitments.
    
    economic conditions in the United States and elsewhere;
    changes in global supply and demand for oil and natural gas;
    the level of production of the Organization of Petroleum
    Exporting Countries, commonly called OPEC;
    the level of production of non-OPEC countries;
    the price and quantity of imports of foreign oil and natural gas;
    political conditions, including embargoes, in or affecting other
    oil and natural gas producing activities;
    the level of global oil and natural gas inventories; and
    advances in exploration, development and production technologies.    Our
    industry is highly competitive, with intense price
    competition.
   42




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##### Table of Contents



We may
    experience increased labor costs or the unavailability of
    skilled workers and the failure to retain key personnel could
    hurt our operations.
    Severe
    weather could have a material adverse impact on our
    business.
    
    curtailment of services;
    weather-related damage to facilities and equipment resulting in
    suspension of operations;
    inability to deliver materials to job sites in accordance with
    contract schedules; and
    loss of productivity.    Our
    business may be affected by terrorist activity and by security
    measures taken in response to terrorism.
    We are
    subject to government regulations.
   43




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##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.    Interest
    Rate Risk
        Foreign
    Currency Exchange Rate Risk
   44




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS.  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                45




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              GORDON, HUGHES & BANKS, LLP
       46




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2005


2004(In thousands, except for share
    amounts)ASSETSCash and cash equivalents

$
1,920


$
7,344Trade receivables, net of
    allowance for doubtful accounts of $383 and $265 at
    December 31, 2005 and 2004, respectively


26,964



12,986Inventory


5,945



2,373Lease receivable, current






180Prepaid expenses and other


823



1,495Total current assets


35,652



24,378Property and equipment, at costs
    net of accumulated depreciation of $9,996 and $5,251 at
    December 31, 2005 and 2004, respectively


80,574



37,679Goodwill


12,417



11,776Other intangible assets, net of
    accumulated amortization of $3,163 and $2,036 at
    December 31, 2005 and 2004, respectively


6,783



5,057Debt issuance costs, net of
    accumulated amortization of $299 and $828 at December 31,
    2005 and 2004, respectively


1,298



685Lease receivable, less current
    portion






558Other assets


631



59Total assets

$
137,355


$
80,192LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent maturities of long-term
    debt

$
5,632


$
5,541Trade accounts payable


9,018



5,694Accrued salaries, benefits and
    payroll taxes


1,271



615Accrued interest


289



470Accrued expenses


4,350



1,852Accounts payable, related parties


60



740Total current liabilities


20,620



14,912Accrued postretirement benefit
    obligations


335



687Long-term debt, net of current
    maturities


54,937



24,932Other long-term liabilities


588



129Total liabilities


76,480



40,660Commitments and ContingenciesMinority interest






4,423Stockholders
    EquityPreferred stock, $0.01 par
    value (25,000,000 shares authorized, none issued)






Common stock, $0.01 par value
    (100,000,000 shares authorized;16,859,988 issued and
    outstanding at December 31, 2005 and 20,000,000 shares
    authorized and 13,611,525 issued and outstanding at
    December 31, 2004)


169



136Capital in excess of par value


58,889



40,331Retained earnings (deficit)


1,817



(5,358
)Total stockholders equity


60,875



35,109Total liabilities and
    stockholders equity

$
137,355


$
80,192     47




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended
    December 31,2005


2004


2003(Restated)


(Restated)(In thousands, except pershare amounts)Revenues

$
105,344


$
47,726


$
32,724Cost of revenuesDirect costs


69,889



32,598



21,977Depreciation


4,874



2,702



2,052Gross margin


30,581



12,426



8,695General and administrative expense


15,928



7,135



5,285Amortization


1,787



876



884Post-retirement medical costs


(352
)


188



(99
)Income from operations


13,218



4,227



2,625Other income (expense):Interest expense


(4,397
)


(2,808
)


(2,467
)Settlement on lawsuit










1,034Gain on sale of interest in AirComp










2,433Other


186



304



15Total other income (expense)


(4,211
)


(2,504
)


1,015Income before minority interest
    and income taxes


9,007



1,723



3,640Minority interest in income of
    subsidiaries


(488
)


(321
)


(343
)Provision for income taxes


(1,344
)


(514
)


(370
)Net income


7,175



888



2,927Preferred stock dividend






(124
)


(656
)Net income attributed to common
    stockholders

$
7,175


$
764


$
2,271Income per common
    share  basic

$
0.48


$
0.10


$
0.58Income per common
    share  diluted

$
0.44


$
0.09


$
0.50Weighted average number of common
    shares outstanding:Basic


14,832



7,930



3,927Diluted


16,238



9,510



5,850     48




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENT OF STOCKHOLDERS EQUITY
  Capital in


RetainedCommon Stock


Excess of


EarningsShares


Amount


Par Value


(Deficit)


Total(In thousands, except share
    amounts)Balances, December 31, 2002


3,926,668


$
39


$
10,143


$
(9,173
)

$
1,009Net income (restated)














2,927



2,927Effect of consolidation of AirComp










955







955Accrual of preferred dividends










(350
)






(350
)Balances, December 31, 2003,
    as restated


3,926,668



39



10,748



(6,246
)


4,541Net income














888



888Issuance of common stock:Acquisitions


1,868,466



19



8,592







8,611Private placement


6,081,301



61



15,600







15,661Services


17,000







99







99Conversion of preferred stock


1,718,090



17



4,278







4,295Issuance of stock purchase warrants










1,138







1,138Accrual of preferred dividends










(124
)






(124
)Balances, December 31, 2004


13,611,525



136



40,331



(5,358
)


35,109Net income














7,175



7,175Issuance of common stock:Acquisitions


411,275



4



1,746







1,750Secondary public offering


1,761,034



18



15,441







15,459Stock options and warrants
    exercised


1,076,154



11



1,371







1,382Balances, December 31, 2005


16,859,988


$
169


$
58,889


$
1,817


$
60,875    49




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended
    December 31,2005


2004


2003(Restated)(In thousands)Cash Flows from Operating
    Activities:Net income

$
7,175


$
888


$
2,927Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation


4,874



2,702



2,052Amortization


1,787



876



884Write-off of deferred financing
    fees due to refinancing


653







Issuance of stock options for
    services






14



Amortization of discount on debt


9



350



516(Gain) on change in PBO liability


(352
)






(125
)(Gain) on settlement of lawsuit










(1,034
)(Gain) on sale of interest in
    AirComp










(2,433
)Minority interest in income of
    subsidiaries


488



321



343(Gain) loss on sale of property


(669
)






82Changes in working capital:(Increase) in accounts receivable


(10,437
)


(2,292
)


(4,414
)(Increase) in due from related
    party






(7
)


(Increase) in other current assets


(2,143
)


(612
)


(1,260
)Decrease (increase) in other assets


(936
)


(19
)


1Decrease in lease deposit










525Increase in accounts payable


2,373



1,140



2,251(Decrease) increase in accrued
    interest


324



299



(126
)(Decrease) increase in accrued
    expenses


(97
)


(276
)


397(Decrease) increase in other
    long-term liabilities


86



(141
)


Increase in accrued
    salaries,benefits and payroll taxes


443



19



1,293Net cash provided by operating
    activities


3,578



3,262



1,879Cash Flows from Investing
    Activities:Acquisitions, net of cash acquired


(36,888
)


(4,459
)


Purchase of property and equipment


(17,767
)


(4,603
)


(5,354
)Proceeds from sale of property and
    equipment


1,579







843Net cash used in investing
    activities


(53,076
)


(9,062
)


(4,511
)Cash Flows from Financing
    Activities:Proceeds from issuance of
    long-term debt


56,251



8,169



14,127Payments on long-term debt


(28,202
)


(13,259
)


(10,826
)Payments on related party debt


(1,522
)


(246
)


(246
)Net borrowings on lines of credit


2,527



689



1,138Proceeds from issuance of common
    stock


15,459



16,883



Proceeds from exercise of options
    and warrants


1,382







Debt issuance costs


(1,821
)


(391
)


(408
)Net cash provided by financing
    activities


44,074



11,845



3,785Net increase (decrease) in cash
    and cash equivalents


(5,424
)


6,045



1,153Cash and cash equivalents at
    beginning of year


7,344



1,299



146Cash and cash equivalents at end
    of year

$
1,920


$
7,344


$
1,299    50




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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
                 51




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
               Vulnerabilities
    and Concentrations
    Use
    of Estimates
   52




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Principles
    of Consolidation
    Revenue
    Recognition
  Revenue Recognition In Financial Statements
  Allowance
    for Doubtful Accounts
      Cash
    Equivalents
    Inventories
    Property
    and Equipment
     53




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##### 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
    Concentration
    of Credit and Customer Risk
     54




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Debt
    Issuance Costs
    Income
    Taxes
      Stock-Based
    Compensation
  Accounting For Stock-Based
    Compensation
  For the Years Ended
    December 31,2005


2004


2003(Restated)


(Restated)Net income attributed to common
    stockholders as reported:



$
7,175


$
764


$
2,271Less total stock based employee
    compensation expense determined under fair value based method
    for all awards net of tax related effects




(4,284
)


(1,072
)


(2,314
)Pro-forma net income (loss)
    attributed to common stockholders



$
2,891


$
(308
)

$
(43
)Net income/(loss) per common share:Basic

As reported

$
0.48


$
0.10


$
0.58Pro forma

$
0.19


$
(0.04
)

$
(0.01
)Diluted

As reported

$
0.44


$
0.09


$
0.50Pro forma

$
0.18


$
(0.04
)

$
(0.01
)  55




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     For the Years Ended
    December 31,2005


2004


2003Expected dividend yield










Expected price volatility


84.28%



89.76%



265.08%Risk-free interest rate


5.6%



7.00%



6.25%Expected life of options


7 years



7 years



7 yearsWeighted average fair value of
    optionsgranted at market value

$
5.02


$
3.19


$
2.78   Segments
    of an Enterprise and Related Information
  Disclosures About Segments Of An
    Enterprise And Related Information
  Pension
    and Other Post Retirement Benefits
  Employers Disclosures About
    Pension And Other Post Retirement Benefits
  Income
    Per Common Share
  Earnings Per Share
 56




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     For the Years Ended
    December 31,2005


2004


2003(Restated)


(Restated)Numerator:Net income available for common
    stockholders

$
7,175


$
764


$
2,271Plus income impact of assumed
    conversions:Preferred stock dividends/interest






124



656Net income applicable to common
    stockholders plus assumed conversions

$
7,175


$
888


$
2,927Denominator:Denominator for basic earnings per
    share  weighted average shares outstanding


14,832



7,930



3,927Effect of potentially dilutive
    common shares:Convertible preferred stock and
    employee and director stock options


1,406



1,580



1,923Weighted average shares
    outstanding and assumed conversions


16,238



9,510



5,850Basic earnings per share

$
0.48


$
0.10


$
0.58Diluted earnings per share

$
0.44


$
0.09


$
0.50   Reclassification
    New
    Accounting Pronouncements
  Accounting Changes and Error Corrections.
  Share-Based Payment. Accounting for Stock-Based
    Compensation
 57




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Inventory Costs
  NOTE 2 
    RESTATEMENT  Earnings
    Per Share
      Three Months Ended
    March 31, 2005AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.09


$
0.02


$
0.11Weighted average number of common
    shares outstanding:Diluted


17,789



(3,094
)


14,695   Year Ended December 31,
    2004AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.07


$
0.02


$
0.09Weighted average number of common
    shares outstanding:Diluted


11,959



(2,449
)


9,510   58




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Three Months Ended
    September 30, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common
    share  basic

$
0.04


$
0.02


$
0.06Income per common share- diluted

$
0.04


$
0.01


$
0.05Weighted average number of common
    shares outstanding:Basic


11,599



(3,301
)


8,298Diluted


14,407



(4,579
)


9,828   Three Months Ended June 30,
    2004AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.04


$
0.01


$
0.05Weighted average number of common
    shares outstanding:Diluted


10,237



(2,618
)


7,619   Three Months Ended
    March 31, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.05


$
0.03


$
0.08Weighted average number of common
    shares outstanding:Diluted


5,762



478



6,240   Year Ended December 31,
    2003AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.39


$
0.11


$
0.50Weighted average number of common
    shares outstanding:Diluted


5,761



89



5,850   Three Months Ended
    September 30, 2003AsPreviously





AsReported


Adjustments


RestatedIncome per common share- diluted

$
0.60


$
(0.01
)

$
0.59Weighted average number of common
    shares outstanding:Diluted


5,761



208



5,969   AirComp
    Acquisition
   59




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Business Combinations Accounting for Sales of Stock by a Subsidiary.
  Increase
    in Book Value of Fixed Assets.
    Increase
    in Minority Interest and Capital in Excess of Par
    Value.
   60




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     At December 31,
    2003AsPreviously


Restatement


AsReported


Adjustments


RestatedAssetsCash and cash equivalents

$
1,299


$



$
1,299Trade receivables, net


8,823







8,823Lease receivable, current


180







180Prepaid expenses and other


887







887Total current assets


11,189







11,189Property and equipment, net


26,339



4,789



31,128Goodwill


7,661







7,661Other intangible assets, net


2,290







2,290Debt issuance costs, net


567







567Lease receivable, less current
    portion


787







787Other


40







40Total Assets

$
48,873


$
4,789


$
53,662Liabilities and
    Stockholders EquityCurrent maturities of long-term
    debt

$
3,992


$



$
3,992Trade accounts payable


3,133







3,133Accrued salaries, benefits and
    payroll taxes


591







591Accrued interest


152







152Accrued expenses


1,761







1,761Accounts payable, related parties


787







787Total current liabilities


10,416







10,416Accrued postretirement benefit
    obligations


545







545Long-term debt, net of current
    maturities


28,241







28,241Other long-term liabilities


270







270Redeemable warrants


1,500







1,500Redeemable convertible preferred
    stock and dividends


4,171







4,171Total Liabilities


45,143







45,143Commitments and contingenciesMinority interests


2,523



1,455



3,978Stockholders
    EquityCommon stock


39







39Capital in excess of par value


9,793



955



10,748Accumulated (deficit)


(8,625
)


2,379



(6,246
)Total Stockholders Equity


1,207



3,334



4,541Total Liabilities and
    Stockholders Equity

$
48,873


$
4,789


$
53,662  61




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Increase
    in Net Income.
        Year Ended December 31,
    2003AsPreviously


Restatement


AsReported


Adjustments


RestatedRevenue

$
32,724


$



$
32,724Cost of revenuesDirect costs


21,977







21,977Depreciation


1,954



98



2,052Gross margin


8,793



(98
)


8,695General and administrative expense


5,285







5,285Amortization


884







884Income (loss) from operations


2,624



(98
)


2,526Other income (expense):Interest, net


(2,464
)






(2,464
)Settlement on lawsuit


1,034







1,034Gain on sale of stock in a
    subsidiary






2,433



2,433Other


111







111Total other income (expense)


(1,319
)


2,433



1,114Net income before minority
    interest and income taxes


1,305



2,335



3,640Minority interest in income of
    subsidiaries


(387
)


44



(343
)Provision for foreign income tax


(370
)






(370
)Net income


548



2,379



2,927Preferred stock dividend


(656
)






(656
)Net income (loss) attributed to
    common stockholders

$
(108
)

$
2,379


$
2,271Net income per common
    share  basic

$
(0.03
)





$
0.58Net income per common
    share  diluted

$
(0.03
)





$
0.39Weighted average number of common
    shares outstanding:Basic


3,927







3,927Diluted


5,761







5,761  62




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     Year Ended December 31,
    2003AsPreviously


Restatement


AsReported


Adjustments


RestatedCash Flows From Operating
    Activities:Net income

$
548


$
2,379


$
2,927Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization
    expense


2,838



98



2,936Amortization of discount on debt


516







516(Gain) on change PBO liability


(125
)






(125
)(Gain) on settlement of lawsuit


(1,034
)






(1,034
)(Gain) on sale of interest in
    AirComp






(2,433
)


(2,433
)Minority interest in income of
    subsidiaries


387



(44
)


343Loss on sale of property


82







82Changes in operating assets and
    liabilities:(Increase) in accounts receivable


(4,414
)






(4,414
)(Increase) in other current assets


(1,260
)






(1,260
)Decrease in other assets


1







1Decrease in lease deposit


525







525Increase in accounts payable


2,251







2,251(Decrease) in accrued interest


(126
)






(126
)Increase in accrued expenses


397







397Increase in accrued employee
    benefits and payroll taxes


1,293







1,293Net cash provided by operating
    activities


1,879







1,879Cash Flows From Investing
    Activities:Purchase of equipment


(5,354
)






(5,354
)Proceeds from sale of equipment


843







843Net cash used by investing
    activities


(4,511
)






(4,511
)Cash Flows From Financing
    Activities:Proceeds from issuance of
    long-term debt


14,127







14,127Repayments of long-term debt


(10,826
)






(10,826
)Repayments on related party debt


(246
)






(246
)Borrowing on lines of credit


30,537







30,537Repayments on lines of credit


(29,399
)






(29,399
)Debt issuance costs


(408
)






(408
)Net cash provided by financing
    activities


3,785







3,785Net decrease in cash and cash
    equivalents


1,153







1,153Cash and cash equivalents at
    beginning of the year


146







146Cash and cash equivalents at end
    of the period

$
1,299


$



$
1,299Supplemental
    information:Interest paid

$
2,341


$



$
2,341  63




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   Form 10-Q
  Three Months


Three Months


Three MonthsEnded


Ended


EndedMarch 31,


June 30,


September 30,2004


2004


2004Net income (loss) attributed to
    common stockholdersPreviously reported

$
501


$
434


$
576Adjustment  depreciation
    expense


(139
)


(79
)


(79
)Adjustment  minority
    interest expense


22



22



22Restated

$
384


$
377


$
519Net income (loss) per share, basicPreviously reported

$
0.13


$
0.07


$
0.05Total adjustments


(0.03
)


(0.01
)


(0.01
)Restated

$
0.10


$
0.06


$
0.04   Form 10-Q
  Three Months


Three Months


Three MonthsEnded


Ended


EndedMarch 31,


June 30,


September 30,2003


2003


2003Net income (loss) attributed to
    common stockholdersPreviously reported

$
(183
)

$
(330
)

$
1,136Adjustment  gain
    on sale of stock in a subsidiary










2,433Adjustment  depreciation
    expense










(49
)Adjustment  minority
    interest expense










22Adjustment  foreign
    tax expense


(158
)


(92
)


(93
)Restated

$
(341
)

$
(422
)

$
3,449Net income (loss) per share, basic
    and dilutedPreviously reported

$
(0.05
)

$
(0.08
)

$
0.29Total adjustments


(0.04
)


(0.03
)


0.58Restated

$
(0.09
)

$
(0.11
)

$
0.87   NOTE 3 
    POST
    RETIREMENT BENEFIT OBLIGATIONS  Medical
    And Life
   64




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    401(k)
    Savings Plan
    NOTE 4 
    ACQUISITIONS        M-I L.L.C.
 65




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                    66




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Years Ended
    December 31,2005


2004


2003Revenues

$
110,383


$
70,988


$
52,588Operating income

$
14,143


$
8,233


$
4,276Net income

$
8,180


$
4,000


$
2,459Net income per common shareBasic

$
0.55


$
0.46


$
0.53Diluted

$
0.50


$
0.48


$
0.48   NOTE 5 
    INVENTORIES    December 31,


December 31,2005


2004Hammer bitsFinished goods

$
1,402


$
857Work in process


787



385Raw materials


233



151Total hammer bits


2,422



1,393Hammers


584



417Drive pipe


666



Rental supplies


64



Chemicals


201



254Coiled tubing and related inventory


1,145



309Shop supplies and related inventory


863



Total inventory

$
5,945


$
2,373   NOTE 6 
    PROPERTY
    AND OTHER INTANGIBLE ASSETS    DepreciationPeriod

2005


2004Land



$
27


$
27Building and improvements

15-20 years


637



633Transportation equipment

3-7 years


7,772



4,854Machinery and equipment

3-20 years


77,002



36,411Furniture, computers, software and
    leasehold improvements

3-7 years


2,073



1,005Construction in
    progress  equipment

N/A


3,059



Total




90,570



42,930Less: accumulated depreciation




(9,996
)


(5,251
)Property and equipment, net



$
80,574


$
37,679  67




---



##### Table of Contents



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

2005


2004Intellectual property

20 years

$
1,009


$
1,009Non-compete agreements

3-5 years


4,630



2,856Patent

15 years


496



496Other intangible assets

3-10
    years


3,811



2,732Total



$
9,946


$
7,093Less: accumulated amortization




(3,163
)


(2,036
)Intangibles assets, net



$
6,783


$
5,057   2005


2004Gross


Accumulated


Current Year


Gross


Accumulated


Current YearValue


Amortization


Amortization


Value


Amortization


AmortizationIntellectual property

$
1,009


$
293


$
54


$
1,009


$
239


$
56Non-compete agreements


4,630



1,916



884



2,856



1,032



300Patent


496



39



33



496



6



6Other intangible assets


3,811



915



277



2,732



759



420Total

$
9,946


$
3,163


$
1,248


$
7,093


$
2,036


$
782     Intangible Amortization by
    PeriodYears Ended
    December 31,2010 and2006


2007


2008


2009


ThereafterIntellectual property

$
55


$
55


$
55


$
55


$
496Non-compete agreements


1,043



804



480



327



60Patent


33



33



33



33



325Other intangible assets


395



370



359



359



1,413Total Intangible Amortization

$
1,526


$
1,262


$
927


$
774


$
2,294  68




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 7 
    INCOME
    TAXES    Years Ended
    December 31,2005


2004


2003Current ProvisionFederal

$
123


$



$
State


595







Foreign


626



514



370$
1,344


$
514


$
370       Years Ended
    December 31,2005


2004


2003Income tax expense based on the
    U.S. statutory tax rate


34.0
%


34.0
%


34.0
%State taxes, net of federal benefit


6.1







Foreign income at other than
    U.S. rate


7.3



36.6



11.2Valuation allowances


(98.7
)


(209.4
)


28.6Nondeductible items, permanent
    differences and other


67.1



175.4



(62.6
)Effective tax rate


15.8
%


36.6
%


11.2
%      69




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     2005


2004Deferred non-current income tax
    assets:Net future (taxable) deductible
    items

$
384


$
533Net operating loss carry forwards


5,656



4,894A-C Reorganization Trust claims


29,098



30,112Total deferred non-current income
    tax assets


35,138



35,539Valuation allowance


(27,131
)


(30,367
)Net deferred non-current income
    taxes

$
8,007


$
5,172Deferred non-current income tax
    liabilitiesDepreciation

$
(8,007
)

$
(5,172
)Net deferred income tax assets

$



$
          70




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 8 
    DEBT    December 31,2005


2004Bank term loans

$
42,090


$
13,373Revolving line of credit


6,400



3,873Subordinated note payable to M-I
    LLC


4,000



4,818Subordinated seller note


3,031



4,000Seller note


850



1,600Notes payable under non-compete
    agreements


698



664Notes payable to former directors


96



402Notes payable to former
    shareholders






49Real estate loan


548



Vendor financing






1,164Equipment & vehicle
    installment notes


1,939



530Capital lease obligations


917



Total debt


60,569



30,473Less: short-term debt and current
    maturities


5,632



5,541Long-term debt obligations

$
54,937


$
24,932       Debt


Capital Leases


TotalYear Ending:December 31, 2006

$
5,158


$
474


$
5,632December 31, 2007


49,620



443



50,063December 31, 2008


4,267







4,267December 31, 2009


69







69December 31, 2010


538







538Thereafter










Total

$
59,652


$
917


$
60,569   Bank
    loans and line of credit agreements
    
    A $13.0 million revolving line of credit. Borrowings were
    limited to 85% of eligible accounts receivable plus 50% of
    eligible inventory (up to a maximum of $2.0 million of
    borrowings based on inventory). This line of credit was used to
    finance working capital requirements and other general corporate
    purposes, including the issuance of standby letters of credit.
    Outstanding borrowings under 71




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    
    Two term loans totaling $42.0 million. Outstanding
    borrowings under these term loans were $42.0 million as of
    December 31, 2005. These loans were at LIBOR rates plus a
    margin which averages approximately 7.8%.          
    A $10.0 million revolving line of credit. Borrowings were
    limited to 85% of eligible accounts receivables, as defined.
    Outstanding borrowings under this line of credit were
    $2.4 million as of December 31, 2004.
    A term loan in the amount of $6.3 million to be repaid in
    monthly payments of principal of $105,583 per month. We
    were also required to prepay this term loan by an amount equal
    to 20% of receipts from our largest customer in Mexico. Proceeds
    of the term loan were used to prepay the term loan owed by
    Tubular Services and to prepay the 12% $2.4 million
    subordinated note and retire its related warrants. The
    outstanding balance was $6.3 million as of
    December 31, 2004.
    A $6.0 million capital expenditure and acquisition line of
    credit. Borrowings under this facility were payable monthly over
    four years beginning in January 2006. Availability of this
    capital expenditure term loan facility was subject to security
    acceptable to the lender in the form of equipment or other
    acquired collateral. There were no outstanding borrowings as of
    December 31, 2004.   72




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
       
    A $3.5 million bank line of credit. Interest accrued at an
    adjustable rate based on the prime rate. We paid a 0.5% per
    annum fee on the undrawn portion. Borrowings under the line of
    credit were subject to a borrowing base consisting of 80% of
    eligible accounts receivable. The balance at December 31,
    2004 was $1.5 million.
    A $7.1 million term loan that accrued interest at an
    adjustable rate based on either LIBOR or the prime rate.
    Principal payments of $286,000 plus interest were due quarterly,
    with a final maturity date of June 27, 2007. The balance at
    December 31, 2004 was $6.8 million.
    A delayed draw term loan facility in the amount of
    $1.5 million to be used for capital expenditures. Interest
    accrued at an adjustable rate based on either the LIBOR or the
    prime rate. Quarterly principal payments were to commence on
    March 31, 2006 in an amount equal to 5.0% of the
    outstanding balance as of December 31, 2005, with a final
    maturity of June 27, 2007. There were no borrowings
    outstanding under this facility as of December 31, 2004.      Notes
    payable and real estate loan
   73




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                  Other
    debt
   74




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     NOTE 9 
    COMMITMENTS
    AND CONTINGENCIES        Years Ending:December 31, 2006

$
926December 31, 2007


833December 31, 2008


629December 31, 2009


446December 31, 2010


44Thereafter


Total

$
2,878   NOTE 10 
    STOCKHOLDERS
    EQUITY       75




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      
    In exchange for an investment of $2.0 million, we issued
    620,000 shares of our common stock for a purchase price
    equal to $2.50 per share, and issued warrants to purchase
    800,000 shares of our common stock at an exercise price of
    $2.50 per share, expiring on April 1, 2006, to an
    investor group (the Investor Group) consisting of
    entities affiliated with Donald and Christopher Engel and
    directors Robert Nederlander and Leonard Toboroff. The aggregate
    purchase price for the common stock was $1.55 million and
    the fair value for the warrants was $450,000.
    Energy Spectrum converted its 3,500,000 shares of
    Series A 10% Cumulative Convertible Preferred Stock,
    including accrued dividend rights, into 1,718,090 shares of
    common stock. Energy Spectrum was granted the preferred stock in
    connection with the Strata acquisition.             76




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
         NOTE 11  REVERSE
    STOCK SPLIT
    NOTE 12  STOCK
    OPTIONS
       77




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
     December 31, 2005


December 31, 2004


December 31, 2003Shares


Weighted Ave.


Shares


Weighted Avg.


Shares


Weighted Avg.Under


Exercise


Under


Exercise


Under


ExerciseOption


Price


Option


Price


Option


PriceBeginning balance


1,215,000


$
3.20



973,300


$
2.78



104,800


$
3.00Granted


1,695,000



6.44



248,000



4.85



868,500



2.75Canceled


(15,300
)


3.33



(6,300
)


2.78







Exercised


(33,833
)


2.80















Ending balance


2,860,867


$
5.10



1,215,000


$
3.20



973,300


$
2.78     Weighted AverageShares Under


RemainingExercise Price


Option


Contractual Life

Options Exercisable


Exercise Price$
2.50



100,000


5.79 years


100,000


$
2.50$
2.75



829,067


7.96 years


829,067


$
2.75$
3.86



920,000


9.09 years


306,667


$
3.86$
4.85



259,000


8.73 years


172,667


$
4.85$
4.87



154,000


9.40 years


51,333


$
4.87$
10.85



594,000


9.96 years


198,000


$
10.85$
13.75



4,800


4.24 years


4,800


$
13.75$
5.11



2,860,867


8.82 years


1,662,534


$
4.22   NOTE 13  STOCK
    PURCHASE WARRANTS
         78




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
             NOTE 14  LEASE
    RECEIVABLE
    NOTE 15  RELATED
    PARTY TRANSACTIONS
         79




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          NOTE 16  SETTLEMENT
    OF LAWSUIT
    NOTE 17  GAIN
    ON SALE OF INTEREST IN A SUBSIDIARY
  M-I
 80




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    NOTE 18  SEGMENT
    INFORMATION
    Years Ended
    December 31,2005


2004


2003(Restated)Revenues:Directional drilling services

$
43,901


$
24,787


$
16,008Compressed air drilling services


25,662



11,561



6,679Casing and tubing services


20,932



10,391



10,037Rental tools


5,059



611



Production services


9,790



376



Total revenues

$
105,344


$
47,726


$
32,724Operating Income
    (Loss):Directional drilling services

$
7,389


$
3,061


$
1,103Compressed air drilling services


5,612



1,169



17Casing and tubing services


4,994



3,217



3,628Rental tools


1,300



(71
)


Production services


(99
)


4



General corporate


(5,978
)


(3,153
)


(2,123
)Total income from operations

$
13,218


$
4,227


$
2,625Depreciation and Amortization
    Expense:Directional drilling services

$
887


$
466


$
275Compressed air drilling services


1,946



1,329



1,139Casing and tubing services


2,006



1,597



1,413Rental tools


492



40



Production services


912



26



General corporate


418



120



109Total depreciation and
    amortization expense

$
6,661


$
3,578


$
2,936   81




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Years Ended
    December 31,2005


2004


2003(Restated)Capital Expenditures:Directional drilling services

$
2,922


$
1,552


$
1,066Compressed air drilling services


7,008



1,399



2,093Casing and tubing services


5,207



1,285



2,176Rental tools


435



232



Production services


1,514



106



General corporate


681



29



19Total capital expenditures

$
17,767


$
4,603


$
5,354Goodwill:Directional drilling services

$
4,168


$
4,168


$
4,168Compressed air drilling services


3,950



3,510



3,493Casing and tubing services


3,673



3,673



Rental tools










Production services


626



425



General corporate










Total goodwill

$
12,417


$
11,776


$
7,661   As of
    December 31,2005


2004


2003Assets:Directional drilling services

$
20,960


$
14,166


$
11,529Compressed air drilling services


46,045



29,147



22,735Casing and tubing services


45,351



21,197



18,191Rental tools


8,034



1,291



Production services


12,282



5,806



General corporate


4,683



8,585



1,207Total assets

$
137,355


$
80,192


$
53,662   Years Ended
    December 31,2005


2004


2003Revenues:United States

$
98,583


$
42,466


$
28,995International


6,761



5,260



3,729Total

$
105,344


$
47,726


$
32,724  82




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 19  SUPPLEMENTAL
    CASH FLOWS INFORMATION (in thousands)
  Years Ended
    December 31,2005


2004


2003(Restated)Interest paid

$
3,924


$
2,159


$
2,341Income taxes paid

$
676


$
514


$
370Other non-cash investing and
    financing transactions:Sale of property &
    equipment in connection with direct financing lease
    (Note 14)(Gain) on settlement of debt

$



$



$
(1,034
)Amortization of discount on debt










442Purchase of equipment financed
    through assumption of debt or accounts payable


592







906$
592


$



$
314AirComp formation:Issuance of debt to joint venture
    by M-I

$



$



$
(4,818
)Contribution of property, plant
    and equipment by M-I to joint venture










10,268Increase in minority interest










(2,063
)(Gain) on sale of stock in a
    subsidiary










(2,433
)Difference of our investment cost
    basis in AirComp and their share of underlying equity of net
    assets of AirComp










(954
)Net cash paid in connection with
    the joint venture

$



$



$
Non-cash investing and financing
    transactions in connection with acquisitions:Fair value of net assets acquired

$



$
(4,867
)

$
Goodwill and other intangibles






(3,839
)


Value of common stock, issued


1,750



2,177



Value of minority interest
    contribution






2,070



$
1,750


$
(4,459
)

$
Acquisition of the remaining 19%
    of Jens:Fair value of net assets acquired

$



$
(813
)

$
Goodwill and other intangibles






(3,676
)


Value of common stock issued






6,434



Value of minority interest
    retirement






(1,945
)


$



$



$
  83




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   NOTE 20  QUARTERLY
    RESULTS (UNAUDITED) (in thousands, except per share
    amounts)
  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)Year 2005Revenues

$
19,334


$
23,588


$
28,908


$
33,514Operating income


2,247



2,914



3,524



4,533Net income


1,567



1,769



1,293



2,546Preferred stock dividend














Net income attributed to common
    shares

$
1,567


$
1,769


$
1,293


$
2,546Income per common share:Basic

$
0.12


$
0.13


$
0.09


$
0.15Diluted

$
0.11


$
0.12


$
0.08


$
0.14   First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)Year 2004Revenues

$
9,661


$
11,422


$
11,906


$
14,737Operating income


1,030



1,150



1,237



810Net income (loss)


472



413



515



(512
)Preferred stock dividend


(88
)


(36
)






Net income (loss) attributed to
    common shares

$
384


$
377


$
515


$
(512
)Income (loss) per common share:Basic

$
0.10


$
0.06


$
0.06


$
(0.04
)Diluted

$
0.08


$
0.05


$
0.05


$
(0.04
)   NOTE 21 
    LEGAL
    MATTERS      NOTE 22 
    SUBSEQUENT
    EVENTS   84




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
            85




---



##### Table of Contents



ITEM 9.
    CHANGES
    AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE      Regulation S-K
    Regulation S-K Regulation S-K
  ITEM 9A.
    CONTROLS
    AND PROCEDURES  (a).  Evaluation
    Of Disclosure Controls And Procedures
    Rules 13a-15(e) 15d-15(e))
   86




---



##### Table of Contents



Form 8-K
    (b).  Change
    in Internal Control Over Financial Reporting.
  Rules 13a-15(f) 15d-15(f)
  
    We continued the engagement of an independent internal controls
    consulting firm which is in the process of documenting,
    analyzing, identifying and testing internal controls.
    In March 2005, we hired a certified public accountant as our
    financial reporting manager.
    In July 2005, we hired a certified public accountant who has
    prior experience as a chief accounting officer of a publicly
    traded company to be our chief accounting officer.
    During the year we started the implementation of new accounting
    software and as of December 31, 2005, all but one of our
    segments was utilizing the software. PART III  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT   87




---



##### Table of Contents



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Form 10-K.
        10-K.
 88




---



##### Table of Contents



SIGNATURES    /s/  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 (Principle Executive Officer)

March 22, 2006/s/  VICTOR
    M. PEREZVictor
    M. Perez

Chief Financial Officer
    (Principal Financial Officer)

March 22, 2006/s/  BRUCE
    SAUERSBruce
    Sauers

Chief Accounting Officer
    (Principal Accounting Officer)

March 22, 2006/s/  JENS
    H. MORTENSENJens
    H. Mortensen

Director

March 22, 2006/s/  VICTOR
    F. GERMACKVictor
    F. Germack

Director

March 22, 2006/s/  LEONARD
    TOBOROFFLeonard
    Toboroff

Director

March 22, 2006/s/  JOHN
    E. MCCONNAUGHY, JR.John
    E. McConnaughy, Jr.

Director

March 22, 2006/s/  ROBERT
    E. NEDERLANDERRobert
    E. Nederlander

Director

March 22, 2006/s/  JEFFREY
    R. FREEDMANJeffrey
    R. Freedman

Director

March 22, 2006/s/  THOMAS
    E. KELLEYThomas
    E. Kelley

Director

March 22, 2006/s/  THOMAS
    O. WHITENER, JR.Thomas
    O. Whitener, Jr.

Director

March 22, 2006  89




---



##### Table of Contents





|    |                                  
|--- | ---------------------------------
|(2) | Financial
    Statement Schedule:



Schedule II  Valuation
    and Qualifying Accounts




Allis-Chalmers
    Energy Inc.
    Valuation and Qualifying Accounts




|                                            |  |                |        |  |            |  |     |            |  |  |            |   |  |  |        | 
|------------------------------------------- |  | -------------- | ------ |  | ---------- |  | --- | ---------- |  |  | ---------- | - |  |  | ------ | 
|                                            |  |                |        |  | Additions  |  |     |            |  |  |            |  
|                                            |  | Balance at     |        |  | Charged to |  |     |            |  |  | Balance at |  
|                                            |  | Beginning      |        |  | Costs and  |  |     |            |  |  | End of     |  
|Description                                 |  | of Period      |        |  | Expense    |  |     | Deductions |  |  | Period     |  
|                                            |  | (In thousands) |       
|                                           
|Year Ended December 31,
    2005:           |  |                |        |  |            |  |     |            |  |  |            |   |  |  |        | 
|Allowance for doubtful accounts             |  |                | 265    |  |            |  | 219 |            |  |  | (101       | ) |  |  | 383    | 
|Deferred tax assets valuation
    allowance |  |                | 30,367 |  |            |  |    |            |  |  | (3,236     | ) |  |  | 27,131 | 
|Year Ended December 31,
    2004:           |  |                |        |  |            |  |     |            |  |  |            |   |  |  |        | 
|Allowance for doubtful accounts             |  |                | 168    |  |            |  | 104 |            |  |  | (7         | ) |  |  | 265    | 
|Deferred tax assets valuation
    allowance |  |                | 38,475 |  |            |  |    |            |  |  | (8,108     | ) |  |  | 30,367 | 
|Year Ended December 31,
    2003:           |  |                |        |  |            |  |     |            |  |  |            |   |  |  |        | 
|Allowance for doubtful accounts             |  |                | 32     |  |            |  | 136 |            |  |  |           |   |  |  | 168    | 
|Deferred tax assets valuation
    allowance |  |                | 37,533 |  |            |  | 942 |            |  |  |           |   |  |  | 38,475 | 



90



---



##### Table of Contents



EXHIBIT INDEX




|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|------- | - | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   | Description
|       
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 2 | .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          |  | Agreement and Plan of Merger dated
    as of May 9, 2001 by and among Registrant, Allis-Chalmers
    Acquisition Corp. and OilQuip Rentals, Inc. (incorporated by
    reference to Registrants Current Report on
    Form 8-K
    filed May  15, 2001).                                                                                    
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 2 | .3          |  | Stock Purchase Agreement dated
    February 1, 2002 by and between Registrant and Jens H.
    Mortensen, Jr. (incorporated by reference to
    Registrants Current Report on
    Form 8-K
    filed February 21, 2002).                                                                                                                    
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 2 | .4          |  | Shareholders Agreement dated
    February 1, 2002 by and among Jens Oilfield Service,
    Inc., a Texas corporation, Jens H. Mortensen, Jr., and
    Registrant (incorporated by reference to Registrants
    Annual Report on
    Form 10-K
    for the year ended December 31, 2001).                                                   
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 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 Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001).                                                              
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 2 | .6          |  | Joint Venture Agreement dated
    June 27, 2003 by and between Mountain Compressed Air, Inc.
    and M-I L.L.C. (incorporated by reference to Registrants
    Current Report on
    Form 8-K
    filed July 16, 2003).                                                                                                                     
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 3 | .1          |  | Amended and Restated Certificate
    of Incorporation of Registrant (incorporated by reference to
    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 Registrants
    Current Report on
    Form 8-K
    filed February 21, 2002).                                                                         
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 3 | .3          |  | Amended and Restated By-laws of
    Registrant (incorporated by reference to Registrants
    Annual Report of
    Form 10-K
    for the year ended December 31, 2001).                                                                                                                                                                     
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 3 | .4          |  | Certificate of Amendment of
    Certificate of Incorporation filed with the Delaware Secretary
    of State on June 9, 2004 (incorporated by reference to 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
    the Registrants Current Report on
    Form 8-K
    filed January 11, 2005).                                                                                               
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 4 | .1          |  | Specimen Stock Certificate of
    Common Stock of Registrant (incorporated by reference 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 the Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 1999).                                                 
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 4 | .3          |  | Option Agreement dated
    October 15, 2001 by and between Registrant and Leonard
    Toboroff (incorporated by reference to Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001).                                                                                                              
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 4 | .4          |  | Warrant Purchase Agreement dated
    February 1, 2002 by and between Allis-Chalmers Corporation
    and Wells Fargo Energy Capital, Inc., including form of warrant
    (incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    filed February 21, 2002).                                                     
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 4 | .5*         |  | 2003 Incentive Stock Plan
    (incorporated by reference to Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2002).                                                                                                                                                                                          
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             
|        | 4 | .6*         |  | Form of Option Certificate issued
    pursuant to 2003 Incentive Stock Plan (incorporated by reference
    to Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2002).                                                                                                                                        
|        |   |             |  |                                                                                                                                                                                                                                                                                                                                             

91



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|       
|        | 4  | .7          |  | Form of warrant issued to
    Investors pursuant to Stock and Warrant Purchase Agreement dated
    April 2, 2004 by and among Registrant and Donald Engel,
    Christopher Engel The Engel Defined Benefit plan, RER Corp. and
    Leonard Toboroff (incorporated by reference to Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).     
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4  | .8          |  | Registration Rights Agreement
    dated April 2, 2004 by and between Registrant and the
    Stockholder signatories thereto (incorporated by reference to
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                             
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4  | .9          |  | Warrant dated May 19, 2004,
    issued to Jeffrey R. Freedman (incorporated by reference to the
    Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4  | .10         |  | Amendment to 2003 Stock Option
    Plan (incorporated by reference to Quarterly Report of
    Form 10-Q
    for the quarter ended September 30, 2005).                                                                                                                                                                                                                             
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4  | .11         |  | Indenture dated as of
    January 18, 2006 by and among Allis-Chalmers Energy Inc.,
    the Guarantors named therein and Wells Fargo Bank, N.A., as
    trustee (incorporated by reference to the Registrants
    Current Report on
    Form 8-K
    filed on January 13, 2006).                                                                                                  
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 4  | .12         |  | Form of 9.0% Senior Note due
    2014 (incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    dated January 13, 2006).                                                                                                                                                                                                                               
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 9  | .1          |  | Shareholders Agreement dated
    February 1, 2002 by and among Registrant and the
    stockholder and warrant holder signatories thereto (incorporated
    by reference to Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001).                                                                                                                  
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 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          |  | 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).                   
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .4          |  | 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 | .5*         |  | Allis-Chalmers Savings Plan
    (incorporated by reference to Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 1988).                                                                                                                                                                                                                               
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .6*         |  | 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 | .7          |  | Agreement dated as of
    March 31, 1999 by and between Registrant and the Pension
    Benefit Guaranty Corporation (incorporated by reference to
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 1999).                                                                                                                                     
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .8          |  | Letter Agreement dated May 9,
    2001 by and between Registrant and the Pension Benefit Guarantee
    Corporation (incorporated by reference to Registrants
    Quarterly Report on
    Form 10-Q
    filed on May 15, 2002).                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .9          |  | Termination Agreement dated
    May 9, 2001 by and between Registrant, the Pension Benefit
    Guarantee Corporation and others (incorporated by reference to
    Registrants Current Report on
    Form 8-K
    filed on May 15, 2002).                                                                                                                                          
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .10*        |  | Option Agreement dated
    October 15, 2001 by and between Registrant and Leonard
    Toboroff (incorporated by reference to Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2001).                                                                                                                                                     
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                    

92



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|       
|        | 10 | .11*        |  | Employment Agreement dated
    July 1, 2003 by and between AirComp LLC and Terry Keane
    (incorporated by reference to Registrants Current Report
    on
    Form 8-K
    filed July 16, 2003).                                                                                                                                                                                                                                                                                      
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .12         |  | Letter Agreement dated
    February 13, 2004 by and between Registrant and Morgan
    Joseph & Co., Inc. (incorporated by reference to the
    Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).                                                                                                                                                                                                                                   
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .13*        |  | Employment Agreement dated as of
    April 1, 2004 between Registrant and Munawar H.
    Hidayatallah (incorporated by reference to Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                        
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .14*        |  | Employment Agreement dated as of
    April 1, 2004 between Registrant and David Wilde
    (incorporated by reference to Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .15         |  | Fifth Amendment to Credit
    Agreement dated as of April 6, 2004 by and between Strata
    Directional Technology, Inc., and Wells Fargo Credit Inc.
    (incorporated by reference to Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .16         |  | Third Amendment to Credit
    Agreement dated as of April 6, 2004 by and between
    Jens Oilfield Service, Inc. and Wells Fargo Credit Inc.
    (incorporated by reference to Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended June 30, 2004).                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .17         |  | Letter Agreement dated
    June 8, 2004 by and between the Registrant and Morgan
    Keegan & Company, Inc. (incorporated by reference to
    the Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).                                                                                                                                                                                                                                
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .18*        |  | Employment Agreement dated
    July 26, 2004 by and between the Registrant and Victor M.
    Perez (incorporated by reference to the Registration Statement
    on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .19         |  | Stock Purchase Agreement dated
    August 10, 2004 (incorporated by reference to the
    Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .20         |  | Amendment to Stock Purchase
    Agreement dated August 10, 2004 (incorporated by reference
    to the Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10, 2004).                                                                                                                                                                                                                                                                                
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .21         |  | Letter Agreement relating to Stock
    Purchase Agreement dated August 5, 2004 (incorporated by
    reference to the Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).                                                                                                                                                                                                                                                             
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .22         |  | Addendum to Stock Purchase
    Agreement dated September 24, 2004 (incorporated by
    reference to Registrants Current Report on
    Form 8-K
    filed on September 30, 2004).                                                                                                                                                                                                                                                                                                       
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .23*        |  | Employment Agreement dated
    October 11, 2004, between the Registrant and Theodore F.
    Pound III (incorporated by reference to Registrants
    Current Report on
    Form 8-K
    filed on October 15, 2004).                                                                                                                                                                                                                                                                     
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .24         |  | Asset Purchase Agreement dated
    November 10, 2004 by and among AirComp LLC, a Delaware
    limited liability company, Diamond Air Drilling Services, Inc.,
    a Texas corporation, and Marquis Bit Co., L.L.C., a New Mexico
    limited liability company, Greg Hawley and Tammy Hawley,
    residents of Texas and Clay Wilson and Linda Wilson, residents
    of New Mexico (incorporated by reference to the Current Report
    on
    Form 8-K
    filed on November 15, 2004).
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .25         |  | Amended and Restated Credit
    Agreement dated as of December 7, 2004, between AirComp LLC
    and Wells Fargo Bank, NA (incorporated by reference to
    Registrants Current Report on
    Form 8-K
    filed on December 13, 2004).                                                                                                                                                                                                                                                 
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .26         |  | 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 the Registrants Current
    Report on
    Form 8-K
    filed on December 16, 2004).                                                                                                                                                                                                     
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .27         |  | 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 the Registrants Current
    Report on
    Form 8-K
    filed on April 5, 2005).                                                                                                                                                                                                      
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .28         |  | 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 the Registrants
    Current Report on
    Form 8-K
    filed on May 6, 2005).                                                                                                                                                                                                   
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    | Description
|       
|        | 10 | .29         |  | 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 the Registrants Current Report on
    Form 8-K
    filed on July 15, 2005).                                                                                                                                                                              
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .30         |  | Asset Purchase Agreement dated
    July 11, 2005 between AirComp LLC, W.T. Enterprises, Inc.
    and William M. Watts (incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    filed on July 15, 2005).                                                                                                                                                                                       
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .31         |  | First Amendment to Stockholder
    Agreement by and among Allis-Chalmers Energy Inc. and the
    Stockholders named therein (incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    filed on August 5, 2005).                                                                                                                                                                                
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .32         |  | Asset Purchase Agreement by and
    between Patterson Services, Inc. and Allis-Chalmers Tubular
    Services, Inc. (incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    filed on September 8, 2005).                                                                                                                                                                                      
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .33         |  | Stock Purchase Agreement dated as
    of December 20, 2005 between Allis-Chalmers Energy Inc. and
    Joe Van Matre.                                                                                                                                                                                                                                                                                                       
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .34         |  | Purchase Agreement dated as of
    January 12, 2006 by and among Allis-Chalmers Energy Inc,
    the Guarantors named therein and the Initial Purchasers named
    therein (incorporated by reference to the Registrants
    Current Report on
    Form 8-K
    filed on January 24, 2006).                                                                                                                                
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .35         |  | 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 the
    Registrants Current Report on
    Form 8-K
    filed on January 24, 2006).                                                                                                                    
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10 | .36         |  | Amended and Restated Credit
    Agreement dated as of January 18, 2006 by and among
    Allis-Chalmers Energy Inc., as borrower, Royal bank of Canada,
    as administrative agent and Collateral Agent, RBC Capital
    Markets, as lead arranger and sole bookrunner, and the lenders
    party thereto (incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    filed on January 24, 2006).
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 14 | .1          |  | Code of Ethics (incorporated by
    reference to the
    Form 8-K
    filed on December 1, 2004).                                                                                                                                                                                                                                                                                                                          
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 16 | .1          |  | Letter from Gordon
    Hughes & Banks LLP dated October 5, 2004, to the
    Securities and Exchange Commission (incorporated by reference to
    Registrants Current Report on
    Form 8-K
    filed on October 6, 2004).                                                                                                                                                                                                
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 21 | .1          |  | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                                                                                                                                                
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 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.                                                                                                                                                                                                                                     









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|- |  | ------------------------------
|* |  | Compensation Plan or Agreement

94