##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 Form 10-K/A
 Amendment
No. 2
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM            TO
 Commission file number 1-2199
 ALLIS-CHALMERS ENERGY INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    39-0126090(I.R.S. Employer
Identification No.)5075 WESTHEIMER, SUITE 890
HOUSTON, TEXAS(Address of principal executive offices)
    
    77056(Zip code)
 (713) 369-0550  Registrants telephone number, including area code
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 Title of Security:
    
    Name of Exchange:Common Stock, par value $0.01 per share
    
    New York Stock Exchange
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated
filer þ
    
    Non-accelerated filer o
    
    Smaller reporting
company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



Explanatory Note
  Form 10-K
    
    Item 7.  Managements Discussion and Analysis of
Financial Condition and Results of Operation, revised to expand
our consolidated and segment results of operations discussion to
provide greater insight into the underlying reasons for variances,
and guidance on whether or not the results of operations are
indicative of expected results beginning on page 3; and
    
Item 8.  Financial Statements,
  revised to remove the label (unaudited) from the
condensed consolidating statements of cash flow for the year ended
December 31, 2006 on page 59 and to correct a label on the
consolidated statements of cash flows for the years ended
December 31, 2006 and 2005 on page 26;Form 10-K/A
    
Item 11.  Executive Compensation, revised to include the financial and non-financial goals or targets established for fiscal 2007 that were used to determine our named executive
officers incentive compensation on pages 67-69.
    SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS
  TABLE OF CONTENTS
 PagePART IIIItem 7.
    
    Managements
Discussion and Analysis of Financial Condition and Results of
Operations
    
    - 2 -Item 8.
    
    Financial Statements
    
    - 19 -Item 11.
    
    Executive Compensation
    
    - 63 -PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    - 82 -Signatures
    
    - 83 -Consent of UHY LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 1350




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##### Table of Contents



PART
    II
  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 included
    in our Original Form 10-K and our financial statements and the
    notes to those financial statements included elsewhere in this
    document. The following discussion contains forward-looking
    statements within the meaning of the Private Securities
    Litigation Reform Act of 1995 that reflect our plans, estimates
    and beliefs. Our actual results could differ materially from
    those anticipated in these forward-looking statements as a
    result of risks and uncertainties, including, but not limited
    to, those discussed under Item 1A. Risk Factors
    included in our Original Form
    10-K.
  Overview
    of Our Business
          Results
    of Operations
   -2-




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##### Table of Contents



Comparison
    of Years Ended December 31, 2007 and December 31,
    2006
     -3-




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##### Table of Contents



-4-




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##### Table of Contents



Revenues


Income (Loss) from Operations2007


2006


Change


2007


2006


Change(In thousands)Rental Services

$
121,186


$
51,521


$
69,665


$
49,139


$
26,293


$
22,846International Drilling


215,795



69,490



146,305



38,839



12,233



26,606Directional Drilling


96,080



76,471



19,609



18,848



17,666



1,182Tubular Services


53,524



50,887



2,637



10,744



12,544



(1,800
)Underbalanced Drilling


50,959



43,045



7,914



13,091



10,810



2,281Production Services


33,423



19,550



13,873



10,535



2,137



8,398General Corporate














(16,414
)


(13,953
)


(2,461
)Total

$
570,967


$
310,964


$
260,003


$
124,782


$
67,730


$
57,052   Rental Services.
  International Drilling.
 -5-




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##### Table of Contents



Directional Drilling.
  Tubular Services.
  Underbalanced Drilling.
  Production Services Segment.
 -6-




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##### Table of Contents



Comparison
    of Years Ended December 31, 2006 and December 31,
    2005
       -7-




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##### Table of Contents



Share-Based Payment,
             -8-




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##### Table of Contents



Revenues


Income (Loss) from Operations2006


2005


Change


2006


2005


Change(In thousands)Rental Services

$
51,521


$
5,059


$
46,462


$
26,293


$
1,300


$
24,993International Drilling


69,490







69,490



12,233







12,233Directional Drilling


76,471



46,579



29,892



17,666



7,389



10,277Tubular Services


50,887



20,932



29,955



12,544



4,994



7,550Underbalanced Drilling


43,045



25,662



17,383



10,810



5,612



5,198Production Services


19,550



9,790



9,760



2,137



(99
)


2,236General Corporate














(13,953
)


(5,678
)


(8,275
)Total

$
310,964


$
108,022


$
202,942


$
67,730


$
13,518


$
54,212   Rental Services Segment.
  International Drilling Segment.
  Directional Drilling Segment.
  Tubular Services Segment.
  Underbalanced Drilling Segment.
 -9-




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##### Table of Contents



Production Services Segment.
  Liquidity
    and Capital Resources
    Operating
    Activities
         -10-




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##### Table of Contents



Investing
    Activities
    
    In June 2007, we acquired Coker for a purchase price of
    approximately $3.6 million in cash and a promissory note
    for $350,000.
    In July 2007, we acquired Diggar for a purchase price of
    approximately $6.7 million in cash, the payment of
    approximately $2.8 million of debt and a promissory note
    for $750,000.
    In October 2007, we acquired Rebel for a purchase price of
    approximately $5.0 million in cash, the payment of
    approximately $1.8 million of debt and escrow and
    promissory notes for an aggregate of $500,000.
    In November 2007, we acquired substantially all of the assets of
    Diamondback for a purchase price of approximately
    $23.1 million in cash.  lost-in-hole lost-in-hole
   -11-




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##### Table of Contents




    Effective January 1, 2006, we acquired Specialty for a
    purchase price of approximately $95.3 million in cash.
    Effective April 1, 2006, we acquired Rogers for a purchase
    price of approximately $11.3 million in cash,
    125,285 shares of our common stock and a promissory note
    for $750,000.
    On August 14, 2006, we acquired DLS for a purchase price of
    approximately $93.7 million in cash, 2.5 million
    shares of our common stock and the assumption of
    $9.1 million of indebtedness.
    On October 16, 2006, we acquired Petro Rentals for a
    purchase price of approximately $20.2 million in cash,
    246,761 shares of our common stock and the payment of
    approximately $9.6 million of debt.
    Effective December 1, 2006, we acquired Tanus for a
    purchase price of $2.5 million in cash.
    On December 18, 2006, we acquired substantially all of the
    assets of OGR for a purchase price of approximately
    $291.0 million in cash and 3.2 million shares of our
    common stock.  lost-in-hole lost-in-hole
    
    On April 1, 2005 we acquired Delta for a purchase price of
    approximately $4.6 million in cash, 223,114 shares of
    our common stock and two promissory notes totaling $350,000.
    On May 1, 2005, we acquired Capcoil for a purchase price of
    approximately $2.7 million in cash, 168,161 shares of
    our common stock and the payment or assumption of approximately
    $1.3 million of debt.
    On July 11, 2005, we acquired the compressed air drilling
    assets of W.T. for a purchase price of $6.0 million in cash.
    On July 11, 2005, we acquired from M-I its 45%
    interest in AirComp and subordinated note in the principal
    amount of $4.8 million issued by AirComp, for which we paid
    M-I $7.1 million in cash and reissued a $4.0 million
    subordinated note.
    Effective August 1, 2005, we acquired Target for a purchase
    price of approximately $1.3 million in cash and forgiveness
    of a lease receivable of $592,000.
    On September 1, 2005, we acquired the casing and tubing
    service assets of Patterson Services, Inc. for a purchase price
    of approximately $15.6 million.   -12-




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Financing
    Activities
               -13-




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##### Table of Contents



-14-




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##### Table of Contents



Payments by PeriodLess ThanTotal


1 Year


1-3 Years


3-5 Years


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

$
514,720


$
6,420


$
2,950


$
350


$
505,000Capital leases


14



14











Interest payments on long-term debt


334,018



44,588



88,577



88,406



112,447Operating leases


5,941



2,618



2,354



593



376Employment contracts


7,511



3,543



3,968







Total contractual cash obligations

$
862,204


$
57,183


$
97,849


$
89,349


$
617,823       Recent
    Developments
     -15-




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##### Table of Contents



Critical
    Accounting Policies
    Allowance For Doubtful Accounts.
  Revenue Recognition. Revenue Recognition in Financial Statements
 -16-




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##### Table of Contents



Impairment Of Long-Lived Assets.
  Goodwill And Other Intangibles. Business Combinations Goodwill
    and Other Intangible Assets.
  Income Taxes. Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109
  non-U.S. subsidiaries non-U.S. subsidiaries.
 -17-




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##### Table of Contents



Recently
    Issued Accounting Standards
  Fair Value Measurements.
  Business Combinations
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Non-controlling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  Off-Balance
    Sheet Arrangements
   -18-




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##### Table of Contents



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


20Reports of Independent Registered Public
    Accounting Firm


21Consolidated Balance Sheet


23Consolidated Statement of Operations


24Consolidated Statement of Stockholders
    Equity


25Consolidated Statement of Cash Flows


26Notes to Consolidated Financial Statements


27Supplemental Information to Consolidated
    Financial Statements  Summarized Quarterly Financial
    Data  -19-




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##### Table of Contents



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

/s/ Munawar H. Hidayatallah



By:

/s/ Victor M. PerezMunawar H. Hidayatallah





Victor PerezChief Executive Officer





Chief Financial Officer  -20-




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  
 
         Accounting for Uncertainty
    in Income Taxes an Interpretation of FASB Statement
    No. 109 Share Based
    Payment
  Internal Control-Integrated Framework
    
  -21-




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
   Internal Control-Integrated
    Framework
              
  -22-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2007


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

$
43,693


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


130,094



95,766Inventories


32,209



28,615Prepaid expenses and other


11,898



16,636Total current assets


217,894



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


626,668



554,258Goodwill


138,398



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


35,180



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


14,228



9,633Other assets


21,217



4,998Total assets

$
1,053,585


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

$
6,434


$
6,999Trade accounts payable


37,464



25,666Accrued salaries, benefits and payroll taxes


15,283



10,888Accrued interest


17,817



11,867Accrued expenses


20,545



16,951Total current liabilities


97,543



72,371Deferred income tax liability


30,090



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


508,300



561,446Other long-term liabilities


3,323



623Total liabilities


639,256



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






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


351



282Capital in excess of par value


326,095



216,208Retained earnings


87,883



37,443Total stockholders equity


414,329



253,933Total liabilities and stockholders equity

$
1,053,585


$
908,326    -23-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Years Ended December 31,2007


2006


2005(In thousands, except pershare amounts)Revenues

$
570,967


$
310,964


$
108,022Cost of revenuesDirect costs


341,450



185,579



72,567Depreciation


50,914



20,261



4,874Gross margin


178,603



105,124



30,581General and administrative expenses


58,622



35,536



15,576Gain on capillary asset sale


(8,868
)






Amortization


4,067



1,858



1,487Income from operations


124,782



67,730



13,518Other income (expense):Interest expense


(49,534
)


(21,309
)


(4,746
)Interest income


3,259



972



49Other


776



(347
)


186Total other expense


(45,499
)


(20,684
)


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


79,283



47,046



9,007Minority interest in income of subsidiaries










(488
)Provision for income taxes


(28,843
)


(11,420
)


(1,344
)Net income

$
50,440


$
35,626


$
7,175Income per common share:Basic

$
1.48


$
1.73


$
0.48Diluted

$
1.45


$
1.66


$
0.44Weighted average number of common shares outstanding:Basic


34,158



20,548



14,832Diluted


34,701



21,410



16,238    -24-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENT OF STOCKHOLDERS EQUITY  Capital in


Retained


TotalCommon Stock


Excess of


Earnings


StockholdersShares


Amount


Par Value


(Deficit)


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


13,611,525


$
136


$
40,331


$
(5,358
)

$
35,109Net income














7,175



7,175Issuance of common stock:Acquisitions


411,275



4



1,746







1,750Secondary public offering, net of offering costs


1,761,034



18



15,441







15,459Stock options and warrants exercised


1,076,154



11



1,371







1,382Balances, December 31, 2005


16,859,988



169



58,889



1,817



60,875Net income














35,626



35,626Issuance of common stock:Acquisitions


6,072,046



61



94,919







94,980Secondary public offering, net of offering costs


3,450,000



34



46,263







46,297Issuance under stock plans


1,851,377



18



6,303







6,321Stock-based compensation










3,394







3,394Tax benefits on stock plans










6,440







6,440Balances, December 31, 2006


28,233,411



282



216,208



37,443



253,933Net income














50,440



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


6,000,000



60



99,995







100,055Issuance under stock plans


882,624



9



3,310







3,319Stock-based compensation










4,863







4,863Tax benefits on stock plans










1,719







1,719Balances, December 31, 2007


35,116,035


$
351


$
326,095


$
87,883


$
414,329    -25-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years Ended December 31,2007


2006


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

$
50,440


$
35,626


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


54,981



22,119



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


3,197



1,527



962Stock-based compensation


4,863



3,394



Allowance for bad debts


730



781



219Imputed interest






355



Deferred taxes


8,017



2,215



Minority interest in income of subsidiaries










488Gain on sale of property and equipment


(2,323
)


(2,444
)


(669
)Gain on capillary asset sale


(8,868
)






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


(30,825
)


(23,175
)


(10,656
)Increase in inventories


(5,375
)


(2,637
)


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


8,202



2,505



929(Increase) decrease in other assets


(4,492
)


308



(936
)Increase (decrease) in trade accounts payable


10,732



(2,337
)


2,373Increase in accrued interest


5,950



11,382



324Increase (decrease) in accrued expenses


1,508



872



(97
)Increase (decrease) in other liabilities


2,700



(224
)


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


4,031



3,392



443Net cash provided by operating activities


103,468



53,659



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


(41,000
)


(526,572
)


(36,888
)Purchase of investment interests


(498
)






Purchase of property and equipment


(113,151
)


(39,697
)


(17,767
)Deposits on asset commitments


(11,488
)






Proceeds from sale of capillary assets


16,250







Proceeds from sale of property and equipment


12,811



6,881



1,579Net cash used in investing activities


(137,076
)


(559,388
)


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


250,000



557,820



56,251Payments on long-term debt


(309,745
)


(54,030
)


(28,202
)Payments on related party debt






(3,031
)


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






(6,400
)


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


100,055



46,297



15,459Proceeds from exercise of options and warrants


3,319



6,321



1,382Tax benefit on stock plans


1,719



6,440



Debt issuance costs


(7,792
)


(9,863
)


(1,821
)Net cash provided by financing activities


37,556



543,554



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


3,948



37,825



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


39,745



1,920



7,344Cash and cash equivalents at end of year

$
43,693


$
39,745


$
1,920    -26-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.



Notes to
    Consolidated Financial Statements  NOTE 1 
    NATURE OF
    BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES  Organization
    of Business
      Use of
    Estimates
    Principles
    of Consolidation
    Revenue
    Recognition
  lost-in-hole lost-in-hole Revenue
    Recognition
 -27-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  In Financial Statements
  Allowance
    for Doubtful Accounts
      Cash
    Equivalents
    Inventories
    Property
    and Equipment
        Goodwill,
    Intangible Assets and Amortization
   -28-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Impairment
    of Long-Lived Assets
    Financial
    Instruments
    Concentration
    of Credit and Customer Risk
      Debt
    Issuance Costs
   -29-




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Income
    Taxes
      Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109
  non-U.S. subsidiaries non-U.S. subsidiaries.
  Stock-Based
    Compensation
  Share-Based Payment Accounting for Stock-Based
    Compensation
   -30-




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##### Table of Contents



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





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






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





$
2,891Net income per common share:Basic


As reported


$
0.48Pro forma


$
0.19Diluted


As reported


$
0.44Pro forma


$
0.18     For the Years Ended December 31,2007


2006


2005Expected dividend yield










Expected price volatility


66.21
%


72.28
%


84.28
%Risk-free interest rate


4.8
%


5.1
%


5.6
%Expected life of options


5 years



7 years



7 yearsWeighted average fair value of options granted at market value

$
12.86


$
10.58


$
5.02   Segments
    of an Enterprise and Related Information
  Disclosures About Segments Of An
    Enterprise And Related Information
 -31-




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##### Table of Contents



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


2006


2005Numerator:Net income

$
50,440


$
35,626


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


34,158



20,548



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


543



862



1,406Weighted average common shares outstanding and assumed
    conversions


34,701



21,410



16,238Income per common share:Basic

$
1.48


$
1.73


$
0.48Diluted

$
1.45


$
1.66


$
0.44Potentially dilutive securities excluded as anti-dilutive


1,108



53



599   Reclassification
    New
    Accounting Pronouncements
  Fair Value Measurements
 -32-




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Business Combinations
    Non-controlling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  NOTE 2 
    POST
    RETIREMENT BENEFIT OBLIGATIONS  Medical
    And Life
   -33-




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  401(k)
    Savings Plan
    NOTE 3 
    ACQUISITIONS
    AND SALE OF CAPILLARY ASSETS             -34-




---



##### Table of Contents



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

$
7,645Property and equipment


90,622Total assets acquired


98,267Current liabilities


2,193Long-term debt


74Total liabilities assumed


2,267Net assets acquired

$
96,000       Current assets

$
4,520Property and equipment


9,866Intangible assets, including goodwill


4,941Total assets acquired


19,327Current liabilities


1,376Deferred income tax liabilities


3,760Other long-term liabilities


150Total liabilities assumed


5,286Net assets acquired

$
14,041    -35-




---



##### Table of Contents



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

$
52,033Property and equipment


130,389Other long-term assets


21Total assets acquired


182,443Current liabilities


34,386Long-term debt, less current portion


5,921Intercompany note


17,256Deferred tax liabilities


6,948Total liabilities assumed


64,511Net assets acquired

$
117,932       Current assets

$
8,175Property and equipment


28,792Intangible assets, including goodwill


5,811Other long-term assets


2Total assets acquired


42,780Current liabilities


2,135Deferred tax liabilities


6,954Total liabilities assumed


9,089Net assets acquired

$
33,691    -36-




---



##### Table of Contents



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

$
2,254Property and equipment


2Goodwill


1,504Total assets acquired


3,760Current liabilities


1,243Net assets acquired

$
2,517       Current assets

$
12,735Property and equipment


199,015Investments


4,618Intangible assets, including goodwill


128,976Total assets acquired

$
345,344       Property and equipment


3Intangible assets, including goodwill


3,902Net assets acquired

$
3,905    -37-




---



##### Table of Contents



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

$
1,113Property and equipment


7,204Intangible assets, including goodwill


2,675Total assets acquired


10,992Current liabilities


622Net assets acquired

$
10,370       Current assets

$
944Land, Property and equipment


8,736Intangible assets, including goodwill


1,144Total assets acquired


10,824Current liabilities


218Deferred tax liabilities


3,095Total liabilities assumed


3,313Net assets acquired

$
7,511    -38-




---



##### Table of Contents



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

$
3,350Property and equipment


8,701Intangible assets, including goodwill


12,232Other noncurrent assets


10Total assets acquired


24,293Current liabilities


1,160Net assets acquired

$
23,133           Years Ended December 31,2006


2005Revenues

$
502,418


$
346,230Operating income

$
93,082


$
49,868Net income

$
32,358


$
1,264Net income per common shareBasic

$
0.96


$
0.04Diluted

$
0.94


$
0.04  -39-




---



##### Table of Contents



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


2006ManufacturedFinished goods

$
2,198


$
1,476Work in process


1,781



2,266Raw materials


4,464



2,638Total manufactured


8,443



6,380Hammers


1,434



1,016Drive pipe


420



716Rental supplies


2,261



1,845Chemicals and drilling fluids


3,236



2,673Rig parts and related inventory


9,985



9,762Coiled tubing and related inventory


1,014



1,627Shop supplies and related inventory


5,416



4,596Total inventories

$
32,209


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

2007


2006Land



$
2,040


$
1,810Building and improvements

15-20 years


6,986



5,392Transportation equipment

3-10 years


26,132



22,744Drill pipe and rental equipment

3-20 years


350,202



321,821Drilling, workover and pulling rigs

20 years


127,725



120,517Machinery and equipment

3-20 years


157,626



105,926Furniture, computers, software and leasehold improvements

3-10 years


5,817



3,522Construction in progress  equipment

N/A


27,148



2,269Total




703,676



584,001Less: accumulated depreciation




(77,008
)


(29,743
)Property and equipment, net



$
626,668


$
554,258    -40-




---



##### Table of Contents



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

2007


2006Intellectual property

10-20 years

$
1,629


$
1,009Non-compete agreements

3-5 years


2,852



4,580Customer relationships

10-15 years


33,528



27,552Patents

12-15 years


2,560



3,327Other intangible assets

2-10 years


829



847Total




41,398



37,315Less: accumulated amortization




(6,218
)


(4,475
)Other intangibles assets, net



$
35,180


$
32,840   2007


2006Gross


Accumulated


Gross


AccumulatedValue


Amortization


Value


AmortizationIntellectual property

$
1,629


$
410


$
1,009


$
349Non-compete agreements


2,852



1,367



4,580



2,707Customer relationships


33,528



3,497



27,552



789Patents


2,560



423



3,327



203Other intangible assets


829



521



847



427Total

$
41,398


$
6,218


$
37,315


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


2009


2010


2011


ThereafterIntellectual property

$
96


$
96


$
96


$
96


$
835Non-compete agreements


627



494



291



48



25Customer relationships


3,227



3,227



3,227



3,227



17,123Patents


202



202



202



202



1,329Other intangible assets


107



90



79



30



2Total Intangible Amortization

$
4,259


$
4,109


$
3,895


$
3,603


$
19,314   NOTE 6 
    INCOME
    TAXES  non-U.S. countries
 -41-




---



##### Table of Contents



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


2006


2005Current income tax expense:Federal

$
6,814


$
5,865


$
123State


1,053



898



595Foreign


12,959



2,442



62620,826



9,205



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


7,081



(946
)


State


349



573



Foreign


587



2,588



8,017



2,215



$
28,843


$
11,420


$
1,344       Years Ended December 31,2007


2006


2005Statutory income tax rate


35.0
%


35.0
%


34.0
%State taxes, net of federal benefit


1.8



2.1



6.1Valuation allowances






(57.7
)


(98.7
)Nondeductible items, permanent differences and other


(0.4
)


44.9



74.4Effective tax rate


36.4
%


24.3
%


15.8
%     2007


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

$
874


$
899Share-based compensation


1,898



578Net operating loss carryforwards


2,681



1,698Foreign tax credits






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


4,099



5,500Total deferred income tax assets


9,552



11,095Deferred income tax liabilitiesDepreciation and amortization


(37,795
)


(28,226
)Net deferred income tax liabilities

$
(28,243
)

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

$
1,847


$
2,822Net noncurrent deferred income tax liability


(30,090
)


(19,953
)Net deferred income tax liabilities

$
(28,243
)

$
(17,131
)  -42-




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
               -43-




---



##### Table of Contents



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


2006Senior notes

$
505,000


$
255,000Bridge loan






300,000Bank term loans


4,926



7,302Revolving line of credit






Seller notes


2,350



900Notes payable to former directors


32



32Equipment & vehicle installment notes


595



3,502Insurance premium financing notes


1,707



1,025Obligations under non-compete agreements


110



270Capital lease obligations


14



414Total debt


514,734



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


6,434



6,999Long-term debt

$
508,300


$
561,446       Debt


Capital Leases


TotalYear Ending:December 31, 2008

$
6,420


$
14


$
6,434December 31, 2009


2,250







2,250December 31, 2010


700







700December 31, 2011


350







350December 31, 2012










Thereafter


505,000







505,000Total

$
514,720


$
14


$
514,734   Senior
    notes, bank loans and line of credit agreements
     -44-




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2 3
    Notes
    payable
           -45-




---



##### Table of Contents



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

$
2,618December 31, 2009


1,633December 31, 2010


721December 31, 2011


437December 31, 2012


156Thereafter


376Total

$
5,941   NOTE 9 
    STOCKHOLDERS
    EQUITY   -46-




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
                    NOTE 10 
    STOCK
    OPTIONS     -47-




---



##### Table of Contents



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


December 31, 2006


December 31, 2005Shares


Weighted Ave.


Shares


Weighted Ave.


Shares


Weighted Avg.Under


Exercise


Under


Exercise


Under


ExerciseOption


Price


Option


Price


Option


PriceBeginning balance


1,350,365


$
6.88



2,860,867


$
5.10



1,215,000


$
3.20Granted


220,000



21.83



15,000



14.74



1,695,000



6.44Canceled


(17,334
)


8.45



(54,567
)


5.97



(15,300
)


3.33Exercised


(566,268
)


5.86



(1,470,935
)


3.54



(33,833
)


2.80Ending balance


986,763


$
10.77



1,350,365


$
6.88



2,860,867


$
5.10       Options Outstanding


Options ExercisableWeighted Average


Weighted





Weighted Average


WeightedRange of





Remaining


Average





Remaining


AverageExercise


Number of


Contractual Life


Exercise


Number of


Contractual Life


ExercisePrices


options


(in Years)


Price


options


(in Years)


Price$
2.75-4.87



380,699



7.02


$
4.14



380,699



7.02


$
4.1410.85-14.74



386,064



7.92



11.01



381,069



7.92



10.9616.50-21.95



220,000



9.59



21.83











2.75-21.95



986,763



7.95


$
10.77



761,768



7.47


$
7.55  -48-




---



##### Table of Contents



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


December 31, 2006Number


Weighted Ave.


Number


Weighted Ave.of


Grant Date Fair


of


Grant Date FairShares


Value Per Share


Shares


Value Per ShareBeginning balance


27,000


$
18.30






$
Granted


996,203



17.44



27,000



18.30Vested


(30,000
)


18.01







Forfeited














Ending balance


993,203


$
17.45



27,000


$
18.30     NOTE 11 
    STOCK
    PURCHASE WARRANTS         -49-




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          NOTE 12 
    CONDENSED
    CONSOLIDATED FINANCIAL INFORMATION   -50-




---



##### Table of Contents



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





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalAssetsCash and cash equivalents

$



$
41,176


$
2,517


$



$
43,693Trade receivables, net






83,126



46,973



(5
)


130,094Inventories






15,699



16,510







32,209Intercompany receivables


76,583











(76,583
)


Note receivable from affiliate


8,270











(8,270
)


Prepaid expenses and other


7,731



2,564



1,603







11,898Total current assets


92,584



142,565



67,603



(84,858
)


217,894Property and equipment, net






477,055



149,613







626,668Goodwill






136,875



1,523







138,398Other intangible assets, net


552



34,572



56







35,180Debt issuance costs, net


14,228















14,228Note receivable from affiliates


16,380











(16,380
)


Investments in affiliates


824,410











(824,410
)


Other assets


15



4,977



16,225







21,217Total assets

$
948,169


$
796,044


$
235,020


$
(925,648
)

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

$
32


$
4,026


$
2,376


$



$
6,434Trade accounts payable






16,815



20,654



(5
)


37,464Accrued salaries, benefits and payroll taxes






3,712



11,571







15,283Accrued interest


17,709



33



75







17,817Accrued expenses


1,660



7,127



11,758







20,545Intercompany payables






433,116



1,185



(434,301
)


Note payable to affiliate










8,270



(8,270
)


Total current liabilities


19,401



464,829



55,889



(442,576
)


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


505,750







2,550







508,300Note payable to affiliate










16,380



(16,380
)


Deferred income tax liability


8,658



13,809



7,623







30,090Other long-term liabilities


31



242



3,050







3,323Total liabilities


533,840



478,880



85,492



(458,956
)


639,256Commitments and contingenciesStockholders EquityCommon stock


351



3,526



42,963



(46,489
)


351Capital in excess of par value


326,095



167,508



74,969



(242,477
)


326,095Retained earnings


87,883



146,130



31,596



(177,726
)


87,883Total stockholders equity


414,329



317,164



149,528



(466,692
)


414,329Total liabilities and stock holders equity

$
948,169


$
796,044


$
235,020


$
(925,648
)

$
1,053,585  -51-




---



##### Table of Contents



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





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalRevenues

$



$
355,172


$
215,795


$



$
570,967Cost of revenuesDirect costs






185,617



155,833







341,450Depreciation






39,659



11,255







50,914Gross margin






129,896



48,707







178,603General and administrative


4,349



44,439



9,834







58,622Gain on capillary asset sale






(8,868
)










(8,868
)Amortization


46



3,988



33







4,067Income (loss) from operations


(4,395
)


90,337



38,840







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


102,208











(102,208
)


Interest, net


(47,677
)


2,796



(1,394
)






(46,275
)Other


304



336



136







776Total other income (expense)


54,835



3,132



(1,258
)


(102,208
)


(45,499
)Income before income taxes


50,440



93,469



37,582



(102,208
)


79,283Provision for income taxes






(16,085
)


(12,758
)






(28,843
)Net income (loss)

$
50,440


$
77,384


$
24,824


$
(102,208
)

$
50,440  -52-




---



##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Operating Activities:Net income (loss)

$
50,440


$
77,384


$
24,824


$
(102,208
)

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


46



43,647



11,288







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


3,197















3,197Stock based compensation


4,863















4,863Allowance for bad debts






730











730Equity earnings in affiliates


(102,208
)










102,208



Deferred taxes


7,430







587







8,017Gain on sale of equipment






(2,182
)


(141
)






(2,323
)Gain on capillary asset sale






(8,868
)










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






(17,823
)


(13,002
)






(30,825
)Increase in inventories






(4,286
)


(1,089
)






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


(3,003
)


12,075



(870
)






8,202(Increase) decrease in other assets


242







(4,734
)






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


(31
)


2,234



8,529







10,732(Decrease) increase in accrued interest


5,954



33



(37
)






5,950(Decrease) increase in accrued expenses


1,525



(3,912
)


3,895







1,508(Decrease) increase in other liabilities


(273
)


(77
)


3,050







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






355



3,676







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


(31,818
)


99,310



35,976







103,468 -53-




---



##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


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






(41,000
)










(41,000
)Purchase of investment interests






(498
)










(498
)Purchase of property and equipment






(84,240
)


(28,911
)






(113,151
)Deposits on asset commitments










(11,488
)






(11,488
)Notes receivable from affiliates


(6,809
)










6,809



Proceeds from sale of capillary assets






16,250











16,250Proceeds from sale of property and equipment






12,666



145







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


(6,809
)


(96,822
)


(40,254
)


6,809



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


250,000















250,000Payments on long-term debt


(300,000
)


(6,587
)


(3,158
)






(309,745
)Accounts receivable from affiliates


(8,674
)










8,674



Accounts payable to affiliates






7,506



1,168



(8,674
)


Note payable to affiliate










6,809



(6,809
)


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


100,055















100,055Proceeds from exercise of options and warrants


3,319















3,319Tax benefit on stock plans


1,719















1,719Debt issuance costs


(7,792
)














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


38,627



919



4,819



(6,809
)


37,556Net change in cash and cash equivalents






3,407



541







3,948Cash and cash equivalents at beginning of year






37,769



1,976







39,745Cash and cash equivalents at end of period

$



$
41,176


$
2,517


$



$
43,693  -54-




---



##### Table of Contents



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





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalAssetsCash and cash equivalents

$



$
37,769


$
1,976


$



$
39,745Trade receivables, net






62,089



33,971



(294
)


95,766Inventories






13,194



15,421







28,615Intercompany receivables


67,909











(67,909
)


Note receivable from affiliate


5,502











(5,502
)


Prepaid expenses and other


5,703



10,200



733







16,636Total current assets


79,114



123,252



52,101



(73,705
)


180,762Property and equipment, net






422,297



131,961







554,258Goodwill






124,331



1,504







125,835Other intangible assets, net


598



32,153



89







32,840Debt issuance costs, net


9,633















9,633Note receivable from affiliates


12,339











(12,339
)


Investments in affiliates


722,202











(722,202
)


Other assets


257



4,719



22







4,998Total assets

$
824,143


$
706,752


$
185,677


$
(808,246
)

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

$
32


$
3,809


$
3,158


$



$
6,999Trade accounts payable


31



13,510



12,125







25,666Accrued salaries, benefits and payroll taxes






2,993



7,895







10,888Accrued interest


11,755







112







11,867Accrued expenses


135



9,247



7,863



(294
)


16,951Intercompany payables






425,610



17



(425,627
)


Note payable to affiliate










5,502



(5,502
)


Total current liabilities


11,953



455,169



36,672



(431,423
)


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


555,750



770



4,926







561,446Note payable to affiliate










12,339



(12,339
)


Deferred income tax liability


2,203



10,714



7,036







19,953Other long-term liabilities


304



319











623Total liabilities


570,210



466,972



60,973



(443,762
)


654,393Commitments and contingenciesStockholders EquityCommon stock


282



3,526



42,963



(46,489
)


282Capital in excess of par value


216,208



167,508



74,969



(242,477
)


216,208Retained earnings


37,443



68,746



6,772



(75,518
)


37,443Total stockholders equity


253,933



239,780



124,704



(364,484
)


253,933Total liabilities and stock holders equity

$
824,143


$
706,752


$
185,677


$
(808,246
)

$
908,326  -55-




---



##### Table of Contents



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





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalRevenues

$



$
241,474


$
69,490


$



$
310,964Cost of revenuesDirect costs






134,638



50,941







185,579Depreciation






16,198



4,063







20,261Gross margin






90,638



14,486







105,124General and administrative


2,643



30,651



2,242







35,536Amortization


46



1,801



11







1,858Income (loss) from operations


(2,689
)


58,186



12,233







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


58,077











(58,077
)


Interest, net


(19,807
)


67



(597
)






(20,337
)Other


45



97



(489
)






(347
)Total other income (expense)


38,315



164



(1,086
)


(58,077
)


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


35,626



58,350



11,147



(58,077
)


47,046Provision for income taxes






(7,045
)


(4,375
)






(11,420
)Net income (loss)

$
35,626


$
51,305


$
6,772


$
(58,077
)

$
35,626  -56-




---



##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Operating Activities:Net income (loss)

$
35,626


$
51,305


$
6,772


$
(58,077
)

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


46



17,999



4,074







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


1,527















1,527Stock based compensation


3,394















3,394Provision for bad debts






781











781Imputed interest






355











355Equity earnings in affiliates


(58,077
)










58,077



Deferred taxes


(619
)


247



2,587







2,215Gain on sale of equipment






(2,428
)


(16
)






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






(23,144
)


(31
)






(23,175
)(Increase) decrease in inventories






(2,989
)


352







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


(2,482
)


4,120



867







2,505(Increase) decrease in other assets


296



101



(89
)






308(Decrease) increase in accounts payable


(82
)


3,587



(5,842
)






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


11,508



(45
)


(81
)






11,382(Decrease) increase in accrued expenses


(390
)


1,633



(371
)






872(Decrease) in other liabilities


(31
)


(193
)










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


(1,951
)


2,780



2,563







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


(11,235
)


54,109



10,785







53,659 -57-




---



##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


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


(528,167
)


3,649



(2,054
)






(526,572
)Notes receivable from affiliates


(585
)










585



Purchase of property and equipment






(33,930
)


(5,767
)






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






6,730



151







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


(528,752
)


(23,551
)


(7,670
)


585



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


555,000



2,820











557,820Payments on long-term debt


(42,414
)


(9,875
)


(1,741
)






(54,030
)Payments on related party debt






(3,031
)










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


(6,400
)














(6,400
)Accounts receivable from affiliates


(16,444
)










16,444



Accounts payable to affiliates






16,427



17



(16,444
)


Note payable to affiliate










585



(585
)


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


46,297















46,297Proceeds from exercise of options and warrants


6,321















6,321Tax benefit on stock plans


6,440















6,440Debt issuance costs


(9,863
)














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


538,937



6,341



(1,139
)


(585
)


543,554Net change in cash and cash equivalents


(1,050
)


36,899



1,976







37,825Cash and cash equivalents at beginning of year


1,050



870











1,920Cash and cash equivalents at end of period

$



$
37,769


$
1,976


$



$
39,745   NOTE 13 
    RELATED
    PARTY TRANSACTIONS     -58-




---



##### Table of Contents



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


2006


2005Revenues:Rental Services

$
121,186


$
51,521


$
5,059International Drilling


215,795



69,490



Directional Drilling


96,080



76,471



46,579Tubular Services


53,524



50,887



20,932Underbalanced Drilling


50,959



43,045



25,662Production Services


33,423



19,550



9,790Total revenues

$
570,967


$
310,964


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

$
49,139


$
26,293


$
1,300International Drilling


38,839



12,233



Directional Drilling


18,848



17,666



7,389Tubular Services


10,744



12,544



4,994Underbalanced Drilling


13,091



10,810



5,612Production Services


10,535



2,137



(99
)General corporate


(16,414
)


(13,953
)


(5,678
)Total income from operations

$
124,782


$
67,730


$
13,518Depreciation and Amortization Expense:Rental Services

$
26,353


$
7,268


$
492International Drilling


11,288



4,074



Directional Drilling


3,063



1,464



887Tubular Services


5,164



3,908



2,006Underbalanced Drilling


3,692



3,057



1,946Production Services


4,919



2,005



912General corporate


502



343



118Total depreciation and amortization expense

$
54,981


$
22,119


$
6,361Capital Expenditures:Rental Services

$
34,883


$
4,538


$
435International Drilling


28,911



5,770



Directional Drilling


11,177



5,128



2,922Tubular Services


9,250



10,980



5,207Underbalanced Drilling


17,443



7,716



7,008Production Services


10,740



5,253



1,514General corporate


747



312



681Total capital expenditures

$
113,151


$
39,697


$
17,767  -59-




---



##### Table of Contents



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


2006


2005Goodwill:Rental Services

$
106,382


$
106,132


$
International Drilling


1,523



1,504



Directional Drilling


16,300



4,168



4,168Tubular Services


6,564



6,464



3,673Underbalanced Drilling


3,950



3,950



3,950Production Services


3,679



3,617



626General corporate










Total goodwill

$
138,398


$
125,835


$
12,417Assets:Rental Services

$
454,216


$
453,802


$
8,034International Drilling


235,020



185,677



Directional Drilling


82,532



28,585



20,960Tubular Services


88,014



74,372



45,351Underbalanced Drilling


72,401



54,288



46,045Production Services


56,353



57,954



12,282General corporate


65,049



53,648



4,683Total assets

$
1,053,585


$
908,326


$
137,355   Years Ended December 31,2007


2006


2005Revenues:United States

$
339,476


$
231,852


$
101,261International


231,491



79,112



6,761Total revenues

$
570,967


$
310,964


$
108,022   As of December 31,2007


2006


2005Long Lived Assets:United States

$
655,513


$
574,302


$
97,390International


180,178



153,262



4,313Total long lived assets

$
835,691


$
727,564


$
101,703  -60-




---



##### Table of Contents



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


2006


2005Interest paid

$
40,363


$
8,571


$
3,924Income taxes paid

$
17,272


$
5,796


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


4,434



2,871



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










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

$
4,345


$
109,632


$
1,750Fair value of goodwill and other intangibles


350



4,010



$
4,695


$
113,642


$
1,750Value of common stock, issued

$



$
94,980


$
1,750Seller financed note


1,600



750



Deferred tax liability


3,095



17,662



Accrued expenses






250



$
4,695


$
113,642


$
1,750   NOTE 16 
    LEGAL
    MATTERS      NOTE 17 
    SUBSEQUENT
    EVENTS     -61-




---



##### Table of Contents



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


Second


Third


FourthQuarter


Quarter


Quarter


QuarterYear 2007Revenues

$
135,900


$
143,362


$
147,881


$
143,824Operating income


31,470



41,474



31,148



20,690Net income

$
12,165


$
19,504


$
12,987


$
5,784Income per common share:Basic

$
0.38


$
0.56


$
0.37


$
0.17Diluted

$
0.37


$
0.55


$
0.37


$
0.16   First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterYear 2006Revenues

$
47,911


$
61,383


$
86,772


$
114,898Operating income


8,856



16,108



19,336



23,430Net income

$
4,423


$
9,594


$
11,253


$
10,356Income per common share:Basic

$
0.26


$
0.53


$
0.52


$
0.41Diluted

$
0.23


$
0.50


$
0.50


$
0.40  -62-




---



##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
 Compensation Discussion and Analysis
  Executive Compensation Philosophy and Objectives
  
    
    Compensation decisions should reflect our strategy We have experienced rapid growth
in recent years. As we have grown, we have made compensation decisions that reflect our
size and growth.
    
    Total compensation should reflect performanceOur compensation program provides
incentives that reward executives for achieving short-term as well as long-term financial
and operational goals. Our total compensation program is managed so that a significant
amount of executive compensation is considered at risk, and conditioned on performance.
    
    Compensation levels must be competitiveDemand for qualified executive talent in our
industry is high, while the supply for this talent is limited. The level of base salaries,
short-term incentive opportunities, and long-term incentive opportunities established for
our named executive officers are intended to provide a total target compensation
opportunity in the range of the market median for executives in comparable positions and
markets in which we compete for talent.
    
    Executive interests should be aligned with those of our stockholdersThe value of our
executive compensation programs should generally vary as our stockholders experience
increase or decrease in value. Through the use of performance related annual incentives,
stock option grants, and restricted stock grants, we attempt to align the long-term
interests of our executives with those of our stockholders by linking a portion of
executive compensation to our long-term financial performance.
 -63-




---



##### Table of Contents




    
    Compensation programs should motivate executives to stay with us over the long-termIn
addition to providing compensation that is competitive with the market, we attempt to
provide incentive for our executives to stay with the company. We use time vested option
and restricted stock awards in our compensation program, providing retention incentives for
our executives to stay with us. In the last year, we entered into an employment agreement
with each of our named executive officers. Each of these high performing executives have
been retained for three year terms. The Compensation Committee believes that retaining
each of these individuals will play a critical role in our future success.
 Role of Compensation Committee
  
    
    evaluating and approving our overall compensation programs;
    
    annually reviewing the performance of and setting the compensation (i.e., salary,
incentive awards, and all other elements) for our chief executive officer;
    
    annually reviewing the performance of and recommending the compensation for the other
executive officers; and
    
    reviewing and approving annual goals and mechanics along with administering our annual
incentive and equity compensation plans and programs.
 Compensation Governance
   Reviewed andCompensation Element
    
    Plan/Governance
    
    Recommended By:
    
    Approved By:Base Salary
    
    Employment AgreementCEO
    
    Annual Bonus
    
    Employment Agreement
    
    Compensation
    
    CompensationLong-Term Incentives
    
    2006 Incentive Plan
    
    Committee
    
    CommitteeBase Salary
    
    Employment AgreementsNEOs
    
    Annual Bonus
    
    Employment Agreements
    
    CEO & CompensationLong-Term Incentives
    
    2006 Incentive Plan
    
    Committee
    
    Board of Directors
 Role of Compensation Consultants
  -64-




---



##### Table of Contents



Role of Our Executive Officers in Establishing Compensation
  Benchmarking
   
    
    Core Laboratories
    
    Gulfmark Offshore Inc.
    
    NATCO Group Inc.
    
    Newpark Resources
    
    Oil States Intl. Inc.
    
    RPC Inc.
    
    Superior Energy Services Inc.
    
    Superior Well Services Inc.
    
    Tesco Corp.
    
    Tetra Technologies Inc.
    
    W-H Energy Services Inc.
  Components of Executive Compensation
  Base Salary
  -65-




---



##### Table of Contents




    
    the executives individual performance;
    
    the performance of the executives business unit within Allis-Chalmers;
    
    company-wide performance;
    
    the executives experience and expertise;
    
    the executives position and job responsibilities;
    
    the executives years of service with us; and
    
    the competitive pay levels for similar positions.
  Annual Incentive Compensation
  Long-Term Incentive Compensation
  Stock Options
 -66-




---



##### Table of Contents



Restricted Stock
  Perquisites
    Employee Benefits
  Compensation of the Named Executive Officers
 Chairman & Chief Executive Officer
   -67-




---



##### Table of Contents



Chief Financial Officer
   General Counsel & Secretary
   President and CEO of Strata Directional Technology LLC
  -68-




---



##### Table of Contents



Senior Vice PresidentOilfield Services
    Executive Compensation Policies and Processes
 Equity Award Grant Practices
  Policy Regarding Section 162(m) of the Internal Revenue Code
  -69-




---



##### Table of Contents




    
    Base salaries for all named executive officers were fully deductible in 2007 as each
of those salaries were under $1 million.
    
    Stock options awards were granted under the stockholder approved 2006 Incentive Plan
and are deductible as performance-based compensation under Section 162(m).
  Executive Stock Ownership Guidelines
  Compensation Committee Report
  The Compensation Committee of the Board of DirectorsAli H. M. AfdhalZane Tankel -70-




---



##### Table of Contents



Summary Compensation Table
  Non-EquityStock
    
    Option
    
    Incentive Plan
    
    All OtherSalary
    
    Bonus
    
    Awards(1)
    
    Awards(2)
    
    Compensation
    
    Compensation(5)
    
    TotalName and Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)(3)
    
    ($)
    
    ($)Munawar H. Hidayatallah
    
    
    2007
    
    
    
    475,000
    
    
    
    100,000
    
    
    
    2,013,444
    
    
    
    547,115
    
    
    
    
    
    
    
    139,034
    
    
    
    3,274,593Chairman & Chief Executive
    
    
    2006
    
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    845,694
    
    
    
    400,000
    
    
    
    88,240
    
    
    
    1,733,934OfficerVictor M. Perez
    
    
    2007
    
    
    
    270,833
    
    
    
    
    
    
    
    63,608
    
    
    
    81,912
    
    
    
    
    
    
    
    43,000
    
    
    
    459,353Chief Financial Officer
    
    
    2006
    
    
    
    248,833
    
    
    
    100,000
    
    
    
    
    
    
    
    212,551
    
    
    
    120,000
    
    
    
    21,801
    
    
    
    703,185Theodore F. Pound
    
    
    2007
    
    
    
    240,833
    
    
    
    
    
    
    
    6,346
    
    
    
    65,852
    
    
    
    
    
    
    
    29,751
    
    
    
    342,782General Counsel and Secretary
    
    
    2006
    
    
    
    205,500
    
    
    
    100,000
    
    
    
    
    
    
    
    230,142
    
    
    
    90,000
    
    
    
    15,923
    
    
    
    641,565David K. Bryan
    
    
    2007
    
    
    
    250,000
    
    
    
    
    
    
    
    309,877
    
    
    
    5,284
    
    
    
    231,250
    
    
    
    21,148
    
    
    
    817,559President and Chief
    
    
    2006
    
    
    
    187,000
    
    
    
    
    
    
    
    
    
    
    
    33,038
    
    
    
    174,996
    
    
    
    12,941
    
    
    
    407,975Executive Officer of Strata
Directional Technology LLCTerrence P. Keane(4)
    
    
    2007
    
    
    
    202,404
    
    
    
    
    
    
    
    287,653
    
    
    
    38,399
    
    
    
    156,250
    
    
    
    40,393
    
    
    
    725,099Senior Vice
PresidentOilfield Services
    
    
    2006
    
    
    
    172,038
    
    
    
    
    
    
    
    
    
    
    
    128,957
    
    
    
    87,500
    
    
    
    16,062
    
    
    
    404,557
 
 (1)
    
    The amounts indicated represent the aggregate dollar amount of compensation expense, excluding the
reduction for risk of forfeiture, related to restricted stock awards recognized in our financial
statements during fiscal year 2007. The expense was determined in accordance with FAS 123(R) as
disclosed in Notes 1 and 10 to our financial statements included in our annual report on Form 10-K for
the year ended December 31, 2007.(2)
    
    The amounts indicated represent the aggregate dollar amount of compensation expense, excluding the
reduction for risk of forfeiture, related to stock option awards recognized in our financial statements
during fiscal year 2007 and includes amounts from awards granted prior to 2007. The expense was
determined in accordance with FAS 123(R) as disclosed in Notes 1 and 10 to our financial statements
included in our annual report on Form 10-K for the year ended December 31, 2007.(3)
    
    The amounts indicated represent annual incentive compensation paid pursuant to each executives
employment agreement.(4)
    
    Mr. Keanes promotion to Senior Vice PresidentOilfield Services was effective January 29, 2008.
During 2007, Mr. Keane served as President and Chief Executive Officer of AirComp LLC.(5)
    
    The following table provides a summary of the All Other Compensation column and includes all perquisites: -71-




---



##### Table of Contents



Summary of All Other Compensation
 401(k) plan
    
    
    
    
    
    Allis-ChalmersHealth
    
    Matching
    
    Car
    
    Provided
    
    Other PersonalBenefits (1)
    
    Contributions
    
    Allowance
    
    Car (2)
    
    Benefits (3)
    
    TotalName
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Munawar H. Hidayatallah
    
    
    2007
    
    
    
    62,788
    
    
    
    7,500
    
    
    
    
    
    
    
    12,302
    
    
    
    56,444
    
    
    
    139,0342006
    
    
    
    27,832
    
    
    
    3,750
    
    
    
    
    
    
    
    7,023
    
    
    
    49,635
    
    
    
    88,240Victor M. Perez
    
    
    2007
    
    
    
    23,513
    
    
    
    7,488
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    43,0012006
    
    
    
    10,723
    
    
    
    4,578
    
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    21,801Theodore F. Pound
    
    
    2007
    
    
    
    10,001
    
    
    
    7,750
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    29,7512006
    
    
    
    9,623
    
    
    
    4,800
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    15,923David K. Bryan
    
    
    2007
    
    
    
    10,801
    
    
    
    4,347
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    21,1482006
    
    
    
    6,941
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    12,941Terrence P. Keane
    
    
    2007
    
    
    
    22,418
    
    
    
    5,975
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    40,3932006
    
    
    
    5,751
    
    
    
    2,311
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    16,062
 
 (1)
    
    The amounts indicated represent actual health benefit premiums and expenses paid by Allis-Chalmers.(2)
    
    We provide a company car and driver to Mr. Hidayatallah for business reasons and for commuting to
and from the office. The cost of the driver was determined by allocating a portion of the total
actual employment costs of the administrative employee based on amount of driving time per
employee. The cost of the company car was determined by allocating a portion of the car purchase
price (total cost divided by three for the expected usage of the car in years), annual cost of
insurance, maintenance and other costs based on mileage incurred for commuting and personal use by
each employee.(3)
    
    Other personal benefits for Mr. Hidayatallah include $23,415 in Allis-Chalmers-paid airline
flights and $33,029 in apartment and utility costs for the corporate apartment in Houston, Texas
for the fiscal year 2007. -72-




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##### Table of Contents



Grant of Plan-Based Awards
  All other stock awards:
    
    All other option awards:
    
    
    
    
    
    Grant Date FairEstimated Future Payouts Under
    
    Estimated Future Payouts Under
    
    Number of shares
    
    Number of Securities
    
    Exercise or
    
    Value of StockNon-Equity Incentive Plan Awards (1)
    
    Equity Incentive Plan Awards (2)
    
    of stock
    
    Underlying
    
    Base Price of
    
    and OptionThreshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    or Units
    
    Options
    
    Option Awards
    
    AwardsName
    
    Grant Date
    
    $
    
    $
    
    $
    
    #
    
    #
    
    #
    
    #(3)
    
    #(4)
    
    $/sh
    
    $(5)Munawar H.
Hidayatallah
    
    
    
    
    
    
    
    
    
    
    475,000
    
    
    
    8/3/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    21.95
    
    
    
    2,607,8249/17/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    685,000
    
    
    
    685,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,390,358Victor M. Perez
    
    
    
    
    
    
    
    
    
    
    139,7508/3/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    21..95
    
    
    
    165,0568/3/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    462,946Theodore F. Pound
    
    
    
    
    
    
    
    
    
    
    120,00012/3/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    231,150David K. Bryan
    
    
    
    
    
    
    
    
    
    
    218,500
    
    
    
    6/14/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,500
    
    
    
    
    
    
    
    
    
    
    
    830,25010/14/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    1,440,750Terrence P. Keane
    
    
    
    
    
    
    
    
    
    
    212,500
    
    
    
    6/14/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    996,300
 
 (1)
    
    Reflects each named executive officers target amount of the annual
cash incentive bonus under our non-equity incentive compensation plan
for 2007. The amounts of the performance bonus awards made to the
named executive officers pursuant to the incentive compensation plan
for 2007 are set forth in the Non-Equity Incentive Plan Compensation
column of the Summary Compensation Table above.(2)
    
    The amounts indicated represent performance based restricted stock
awards and options granted during fiscal year 2007. The vesting
schedules, upon satisfying performance criteria, for the awards
granted during the fiscal year 2007 are disclosed in footnotes 2, 6
and 7 in the following Outstanding Equity Awards table.(3)
    
    The amounts indicated represent restricted stock awards granted during
fiscal year 2007. The vesting schedules for restricted stock awards
granted during the fiscal year 2007 are disclosed in the footnotes in
the following Outstanding Equity Awards table.(4)
    
    The amounts indicated represent options granted during fiscal year
2007. The vesting schedules for option awards granted during the
fiscal year 2007 are disclosed in the footnotes in the following
Outstanding Equity Awards table.(5)
    
    The valuation of restricted stock awards and stock options were
determined in accordance with FAS 123(R) as disclosed in Notes 1 and
10 to our financial statements included in our annual report on Form
10-K for the year ended December 31, 2007. -73-




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##### Table of Contents



Outstanding Equity Awards at Fiscal Year-End 2007
  Options Awards
    
    Stock AwardsEquity IncentiveEquity Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity Incentive
    
    Plan Awards:Plan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan Awards:
    
    Market orNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number
    
    Payout ValueSecurities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Number of
    
    Market Value
    
    of Unearned
    
    of UnearnedUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Shares or
    
    of Shares or
    
    Shares, Units
    
    Shares, UnitsUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    
    
    
    
    Units of Stock
    
    Units of Stock
    
    or Other Rights
    
    or Other RightsOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option
    
    That Have
    
    That Have
    
    That Have
    
    That Have#
    
    #
    
    Options
    
    Price
    
    Expiration
    
    Not Vested
    
    Not Vested
    
    Not Vested
    
    Not VestedName
    
    Exercisable
    
    Unexercisable
    
    #
    
    $
    
    Date
    
    #
    
    $(1)
    
    #
    
    $(1)Munawar H.
Hidayatallah
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    3.86
    
    
    
    2/2/201583,333
    
    
    
    
    
    
    
    
    
    
    
    10.85
    
    
    
    12/15/2015200,000
    
    
    
    
    
    
    
    21.95
    
    
    
    8/3/2017685,000
    (6)
    
    
    10,103,750Victor M. Perez
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    4.85
    
    
    
    11/13/201445,000
    
    
    
    
    
    
    
    
    
    
    
    10.85
    
    
    
    12/15/201515,000
    (2)
    
    
    21.95
    
    
    
    8/3/201725,000
    (7)
    
    
    368,750Theodore F. Pound
III
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    4.85
    
    
    
    11/13/201450,000
    
    
    
    
    
    
    
    
    
    
    
    10.85
    
    
    
    12/15/201515,000
    (3)
    
    
    221,250David K. Bryan
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    4.87
    
    
    
    5/24/201537,500
    (4)
    
    
    553,12575,000
    (5)
    
    
    1,106,250Terrence P. Keane
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    4.87
    
    
    
    5/24/201525,000
    
    
    
    
    
    
    
    
    
    
    
    10.85
    
    
    
    12/15/201545,000
    (4)
    
    
    663,750
 
 (1)
    
    The values represented have been calculated by multiplying $14.75, the
closing price of our common stock on December 31, 2007, by the number
of shares of restricted stock.(2)
    
    The performance-based stock options were granted on August 3, 2007 and
vest 20% on August 3, 2008, 20% on August 3, 2009 and 60% on August 3,
2010. Alternatively, the award vests 100% on August 3, 2010 if
certain performance goals are met. Vesting is also contingent on
continued employment.(3)
    
    The restricted stock awards were granted on December 3, 2007 and vest
20% on December 3, 2008, 20% on December 3, 2009 and 60% on December
3, 2010.(4)
    
    The restricted stock awards were granted on June 14, 2007 and vest 20%
on June 14, 2008, 20% on June 14, 2009 and 60% on June 14, 2010.(5)
    
    The restricted stock awards were granted on October 4, 2007 and vest
20% on October 4, 2008, 20% on October 4, 2009 and 60% on October 4,
2010.(6)
    
    The performance-based restricted stock awards were granted on
September 17, 2007 and vest one-third each on April 1, 2008, 2009 and
2010 if certain performance goals are met. Alternatively, the award
vests 100% on April 1, 2010 if certain performance goals are met.
Vesting is also contingent on continued employment, except in the case
of death or disability.(7)
    
    The performance-based restricted stock awards were granted on August
3, 2007 and vest 20% on August 3, 2008, 20% on August 3, 2009 and 60%
on August 3, 2010. Alternatively, the award vests 100% on the third
anniversary date if certain performance goals are met. Vesting is
also contingent on continued employment. -74-




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##### Table of Contents



Option Exercises and Stock Vested During Fiscal Year 2007
  Option AwardsNumber of Shares
    
    Value RealizedAcquired on Exercise
    
    on ExerciseName
    
    (#)
    
    ($)Munawar H. Hidayatallah
    
    
    
    
    
    
    Victor M. Perez
    
    
    18,000
    
    
    $
    271,616Theodore F. Pound III
    
    
    10,000
    
    
    $
    161,538David K. Bryan
    
    
    35,000
    
    
    $
    536,099Terrence P. Keane
    
    
    10,000
    
    
    $
    146,315
 Director Compensation for Fiscal Year 2007
   Fees Earned or
    
    Stock
    
    Option
    
    All OtherPaid in Cash
    
    Awards(1)
    
    Awards
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Burt A.
Adams(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ali H.M. Afdhal
    
    
    50,000
    
    
    
    63,104
    (4)
    
    
    
    
    
    
    
    
    
    
    113,104Alejandro Bulgheroni
    
    
    35,000
    
    
    
    63,104
    (4)
    
    
    
    
    
    
    
    
    
    
    98,104Carlos Bulgheroni
    
    
    35,000
    
    
    
    63,104
    (4)
    
    
    
    
    
    
    
    
    
    
    98,104Victor F. Germack
    
    
    90,000
    
    
    
    63,104
    (4)
    
    
    
    
    
    
    
    
    
    
    153,104James M. Hennessy
    
    
    26,250
    
    
    
    37,655
    (5)
    
    
    
    
    
    
    
    
    
    
    63,905Munawar H.
Hidayatallah(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 -75-




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##### Table of Contents



Fees Earned or
    
    Stock
    
    Option
    
    All OtherPaid in Cash
    
    Awards(1)
    
    Awards
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)John E. McConnaughy Jr.
    
    
    50,000
    
    
    
    63,104
    (4)
    
    
    
    
    
    
    
    
    
    
    113,104Robert E. Nederlander
    
    
    55,000
    
    
    
    63,104
    (4)
    
    
    
    
    
    
    
    
    
    
    118,104Zane Tankel
    
    
    38,913
    
    
    
    46,888
    (6)
    
    
    
    
    
    
    
    
    
    
    85,801Leonard
Toboroff(2)
    
    
    156,250
    (3)
    
    
    64,934
    (4)
    
    
    
    
    
    
    23,683
    (7)
    
    
    244,867
 
 (1)
    
    The amounts indicated represent the aggregate dollar amount of
compensation expense, excluding the reduction for risk of forfeiture,
related to restricted stock awards recognized in our financial
statements during fiscal year 2007 and includes amounts from awards
granted prior to 2007. The expense was determined in accordance with
FAS 123(R) as disclosed in Notes 1 and 10 to our financial statements
included in our annual report on Form 10-K for the year ended December
31, 2007. As of December 31, 2007, each of our directors, except for
Messrs. Adams and Hidayatallah, owned 4,000 shares of restricted stock
that vests on October 4, 2008.(2)
    
    Employee directors do not receive any additional compensation
for serving on the board of directors.(3)
    
    This amount includes consulting fees paid to Mr. Toboroff of $12,500
per month from January 2007 through September 2007 and $15,000 per
month beginning October 2007, pursuant to an oral consulting agreement
with Mr. Toboroff.(4)
    
    Directors were granted 4,000 restricted stock awards on October 4,
2007 with a grant date fair value of $76,840. The valuation of
restricted stock awards were determined in accordance with FAS 123(R)
as disclosed in Notes 1 and 10 to our financial statements included in
our annual report on Form 10-K for the year ended December 31, 2007.(5)
    
    Mr. Hennessy was granted 4,000 shares of restricted stock on October
4, 2007 with a grant date fair value of $76,840 and 1,200 shares of
restricted stock on December 20, 2007 with a grant date fair value of
$18,468. The valuation of restricted stock awards were determined in
accordance with FAS 123(R) as disclosed in Notes 1 and 10 to our
financial statements included in our annual report on Form 10-K for
the year ended December 31, 2007.(6)
    
    Mr. Tankel was granted 4,000 shares of restricted stock on October 4,
2007 with a grant date fair value of $76,840 and 1,800 shares of
restricted stock on December 20, 2007 with a grant date fair value of
$27,702. The valuation of restricted stock awards were determined in
accordance with FAS 123(R) as disclosed in Notes 1 and 10 to our
financial statements included in our annual report on Form 10-K for
the year ended December 31, 2007.(7)
    
    This amount includes actual health benefit premiums paid by
Allis-Chalmers. Employment Agreements and Change-in-Control Arrangements with Management
  Employment Agreements
 Munawar H. Hidayatallah
 -76-




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##### Table of Contents



Victor M. Perez
 Theodore F. Pound III
 David K.
Bryan
 Terrence P. Keane
 Severance and Change in Control Arrangements
   -77-




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##### Table of Contents




    
    the commission of any act of dishonesty, fraud, misrepresentation,
misappropriation, or embezzlement involving Allis-Chalmers;
    
    the unauthorized use or disclosure of any confidential information or trade
secrets of Allis-Chalmers;
    
    any violation of a law or regulation applicable to our business, which violation
does or is reasonably like to cause material injury to Allis-Chalmers;
    
    executives conviction of, or plea of nolo contendereor guilty to (a) a felony
or (b) any other crime which involves moral turpitude;
    
    executives continued failure, in the sole discretion of the board, to perform
the principal duties, functions and responsibilities of his position (other than any
such failure resulting from executives disability) or to follow the directives of
the board after written notice from Allis-Chalmers identifying the deficiencies in
performance and a reasonable cure period of not less than thirty (30) days of any
breach capable of cure;
    
    gross negligence or willful misconduct in the performance of executives duties;
or
    
    a material and willful breach of executives fiduciary duties to Allis-Chalmers.
  
    
    demote the executive to a lesser position, either in title or responsibility;,
    
    decrease the executives salary or benefits below the highest level in effect at
anytime during his employment;,
    
    require the executive to relocate to a principal place of business more than 50
miles from our current principal place of business, with certain exceptions;,
    
    are subject to a change in control (as defined below), unless executive accepts
employment with the successor; or
    
    breach any other material term of the employment agreement which is not cured
within 30 days after receiving notice of such breach.
  -78-




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##### Table of Contents




    
    the acquisition by any individual, entity or group, or person of ownership of
more than 50% of either (1) the then outstanding shares of common stock or (2) the
combined voting power of our then outstanding voting securities entitled to vote,
with certain exceptions;
    
    individuals who currently constitute the board of directors cease for any reason
to constitute at least a majority of the board, with several exceptions;
    
    a complete liquidation or dissolution of Allis-Chalmers; or
    
    (a) the consummation of a reorganization, merger or consolidation or (b) the sale
or other disposition of all or substantially all of our assets unless, in each case,
immediately following the event
 
    
    Our stockholders immediately before the event own, directly or indirectly,
at least 50% of the combined voting power of our then outstanding voting
securities in substantially the same proportion as their ownership of us, or
    
    At least a majority of the members of the board of directors of the entity
resulting from the transaction were members of the incumbent board at the time
of the execution of the agreement providing for the transaction.
 -79-




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##### Table of Contents



Value of Unvested
    
    Value of UnvestedEquity Awards if
    
    Equity Awards if
    
    
    
    
    
    Total ifSalary
    
    Change of
    
    Terminated Without
    
    Total if Change
    
    TerminatedName
    
    Continuation
    
    Control(1)
    
    Cause
    
    of Control
    
    Without CauseVictor M. Perez,
    
    $
    286,000
    
    
    $
    368,750
    
    
    
    
    
    
    $
    654,750
    
    
    $
    286,000Chief Financial
OfficerTheodore F. Pound
    
    $
    250,000
    
    
    $
    221,250
    (2)
    
    
    
    
    
    $
    471,250
    
    
    $
    250,000III, General
Counsel and
SecretaryDavid Bryan,
    
    $
    625,000
    
    
    $
    1,659,375
    (2)
    
    
    
    
    
    $
    2,284,375
    
    
    $
    625,000President and Chief
Executive Officer
of Strata
Directional
Technology LLCTerrence P. Keane,
    
    $
    562,500
    
    
    $
    663,750
    (2)
    
    
    
    
    
    $
    1,226,250
    
    
    $
    562,500Senior Vice
PresidentOilfield
Services
 
 (1)
    
    The amounts in this column represent unvested restricted
stock that have been valued by multiplying $14.75, the
closing price of a share of our common stock on December 31, 2007, by the number of shares
of restricted stock held by each named executive officer that would vest.(2)
    
    The equity awards represented by this column would vest only if there was a change of
control of Allis-Chalmers and the successor company refused to assume or continue the
agreement covering these shares. -80-




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##### Table of Contents



Salary
    
    Value of UnvestedEvent
    
    Continuation
    
    Equity Awards (1)
    
    TotalDeath
    
    
    
    
    
    $
    10,103,750
    
    
    $
    10,103,750Disability
    
    
    
    
    
    $
    10,103,750
    
    
    $
    10,103,750For Cause
    
    
    
    
    
    
    
    
    
    
    Without Cause
    
    $
    1,500,000
    
    
    $
    10,103,750
    
    
    $
    11,603,750Change of Control
    
    $
    1,500,000
    
    
    $
    10,103,750
    
    
    $
    11,603,750
 
 (1)
    
    This amount represents 685,000 shares of performance-based restricted stock
multiplied by $14.75, the closing price of a share of our common stock on December 31,
2007. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    (1)Financial StatementsNone.
 (2)
    
    Financial Statement SchedulesNone.
 (3)
    
    Exhibits
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SIGNATURES
  /s/ Munawar H. HidayatallahMunawar H. HidayatallahChief Executive Officer and Chairman  Name
    
    Title
    
    Date/s/ Munawar H. Hidayatallah
    
    Chairman and Chief Executive Officer
    
    July 9, 2008Munawar H. Hidayatallah
    
    (Principle Executive Officer)/s/ Victor M. Perez
    
    Chief Financial Officer
    
    July 9, 2008Victor M. Perez
    
    (Principal Financial Officer)/s/ Bruce Sauers
    
    Chief Accounting Officer
    
    July 9, 2008Bruce Sauers
    
    (Principal Accounting Officer)/s/ Ali H. M. Afdhal
    
    Director
    
    July 9, 2008Ali H. M. AfdhalDirectorAlejandro P. BulgheroniDirectorCarlos A. Bulgheroni/s/ Victor F. Germack
    
    Director
    
    July 9, 2008Victor F. Germack/s/ James M. Hennessy
    
    Director
    
    July 9, 2008James M. Hennessy/s/ John E. McConnaughy, Jr.
    
    Director
    
    July 9, 2008John E. McConnaughy, Jr./s/ Robert E. Nederlander
    
    Director
    
    July 9, 2008Robert E. Nederlander/s/
Zane Tankel
    
    Director
    
    July 9, 2008Zane Tankel/s/ Leonard Toboroff
    
    Director
    
    July 9, 2008Leonard Toboroff
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EXHIBIT INDEX
 Exhibit
    
    Description2.1
    
    
    First Amended Disclosure Statement pursuant to Section 1125 of
the Bankruptcy Code, dated September 14, 1988, which includes the
First Amended and Restated Joint Plan of Reorganization dated
September 14, 1988 (incorporated by reference to Registrants
Current Report on Form 8-K dated December 1, 1988).2.2
    
    
    Reorganization Trust Agreement dated September 14, 1988 by and
between Registrant and John T. Grigsby, Jr., Trustee
(incorporated by reference to Exhibit D of the First Amended and
Restated Joint Plan of Reorganization dated September 14, 1988
included in Registrants Current Report on Form 8-K dated
December 1, 1988).2.3
    
    
    Agreement and Plan of Merger dated as of May 9, 2001 by and among
Registrant, Allis-Chalmers Acquisition Corp. and Oil Quip
Rentals, Inc. (incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K filed May 15, 2001).2.4
    
    
    Stock Purchase Agreement dated February 1, 2002 by and between
Registrant and Jens H. Mortensen, Jr. (incorporated by reference
to Exhibit 10.1 to the Registrants Current Report on Form 8-K
filed February 21, 2002).2.5
    
    
    Stock Purchase Agreement dated February 1, 2002 by and among
Registrant, Energy Spectrum Partners LP, and Strata Directional
Technology, Inc. (incorporated by reference to Exhibit 2.10 to
the Registrants Annual Report on Form 10-K for the year ended
December 31, 2001).2.6
    
    
    Stock Purchase Agreement dated August 10, 2004 by and among
Allis-Chalmers Corporation and the investors named thereto
(incorporated by reference to Exhibit 10.37 to the Registration
Statement on Form S-1 (Registration No. 118916) filed on
September 10, 2004).2.7
    
    
    Amendment to Stock Purchase Agreement dated August 10, 2004
(incorporated by reference to Exhibit 10.38 to the Registration
Statement on Form S-1 (Registration No. 118916) filed on
September 10, 2004).2.8
    
    
    Addendum to Stock Purchase Agreement dated September 24, 2004
(incorporated by reference to Exhibit 10.55 to Registrants
Current Report on Form 8-K filed on September 30, 2004).2.9
    
    
    Asset Purchase Agreement dated November 10, 2004 by and among
AirComp LLC, a Delaware limited liability company, Diamond Air
Drilling Services, Inc., a Texas corporation, and Marquis Bit
Co., L.L.C., a New Mexico limited liability company, Greg Hawley
and Tammy Hawley, residents of Texas and Clay Wilson and Linda
Wilson, residents of New Mexico (incorporated by reference to the
Current Report on Form 8-K filed on November 15, 2004).2.10
    
    
    Purchase Agreement and related Agreements by and among
Allis-Chalmers Corporation, Chevron USA, Inc., Dale Redman and
others dated December 10, 2004 (incorporated by reference to
Exhibit 10.63 to the Registrants Current Report on Form 8-K
filed on December 16, 2004).2.11
    
    
    Stock Purchase Agreement dated April 1, 2005, by and among
Allis-Chalmers Energy Inc., Thomas Whittington, Sr., Werlyn R.
Bourgeois and SAM and D, LLC. (incorporated by reference to
Exhibit 10.51 to the Registrants Current Report on Form 8-K
filed on April 5, 2005).2.12
    
    
    Stock Purchase Agreement effective May 1, 2005, by and among
Allis-Chalmers Energy Inc., Wesley J. Mahone, Mike T. Wilhite,
Andrew D. Mills and Tim Williams (incorporated by reference to
Exhibit 10.51 to the Registrants Current Report on Form 8-K
filed on May 6, 2005).2.13
    
    
    Purchase Agreement dated July 11, 2005 among Allis-Chalmers
Energy Inc., Mountain Compressed Air, Inc. and M-I, L.L.C.
(incorporated by reference to Exhibit 10.42 to the Registrants
Current Report on Form 8-K filed on July 15, 2005).2.14
    
    
    Asset Purchase Agreement dated July 11, 2005 between AirComp LLC,
W.T. Enterprises, Inc. and William M. Watts (incorporated by
reference to Exhibit 10.43 to the Registrants Current Report on
Form 8-K filed on July 15, 2005).2.15
    
    
    Asset Purchase Agreement by and between Patterson Services, Inc.
and Allis-Chalmers Tubular Services, Inc. (incorporated by
reference to Exhibit 10.44 to the Registrants Current Report on
Form 8-K filed on September 8, 2005).
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Exhibit
    
    Description2.16
    
    
    Stock Purchase Agreement dated as of December 20, 2005 between
the Registrant and Joe Van Matre (incorporated by reference to
Exhibit 10.33 to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2005).2.17
    
    
    Stock Purchase Agreement, dated as of April 27, 2006, by and
among Bridas International Holdings Ltd., Bridas Central Company
Ltd., Associated Petroleum Investors Limited, and the Registrant.
(incorporated by reference to Exhibit 2.3 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31,
2006)2.18
    
    
    Stock Purchase Agreement, dated as of October 17, 2006, by and
between Allis-Chalmers Production Services, Inc. and Randolph J.
Hebert (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on October 19,
2006).2.19
    
    
    Asset Purchase Agreement, dated as of October 25, 2006, by and
between Allis-Chalmers Energy Inc. and Oil & Gas Rental Services,
Inc. (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on October 26,
2006).2.20
    
    
    Agreement and Plan of Merger by and among the Registrant, Bronco
Drilling Company, Inc. and Elway Merger Sub, Inc., dated as of
January 23, 2008 (incorporated by reference to Exhibit 2.1 to the
Registrants Form 8-K filed on January 24, 2008).3.1
    
    
    Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 to the Registrants
Annual Report on Form 10-K for the year ended December 31, 2001).3.2
    
    
    Certificate of Designation, Preferences and Rights of the Series
A 10% Cumulative Convertible Preferred Stock($.01 Par Value) of
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K filed February 21, 2002).3.3
    
    
    Amended and Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.3. to the Registrants Annual Report of
Form 10-K for the year ended December 31, 2001).3.4
    
    
    Certificate of Amendment of Certificate of Incorporation filed
with the Delaware Secretary of State on June 9, 2004
(incorporated by reference to Exhibit 3.3 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004).3.5
    
    
    Certificate of Amendment of Certificate of Incorporation filed
with the Delaware Secretary of State on January 5, 2005
(incorporated by reference to Exhibit 3.5 to the Registrants
Current Report on Form 8-K filed January 11, 2005).3.6
    
    
    Certificate of Amendment of Certificate of Incorporation filed
with the Delaware Secretary of State on August 16, 2005
(incorporated by reference to Exhibit 3.5 to the Registrants
Current Report on Form 8-K filed August 17, 2005).4.1
    
    
    Specimen Stock Certificate of Common Stock of Registrant
(incorporated by reference to Exhibit 4.1 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004).4.2
    
    
    Registration Rights Agreement dated as of March 31, 1999, by and
between Allis-Chalmers Corporation and the Pension Benefit
Guaranty Corporation (incorporated by reference to Exhibit 10.3
to the Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).4.3
    
    
    Registration Rights Agreement dated April 2, 2004 by and between
Registrant and the Stockholder signatories thereto (incorporated
by reference to Exhibit 10.43 to Amendment No. 1 to the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2003).4.4
    
    
    Registration Rights Agreement dated as of January 29, 2007 by and
among Allis-Chalmers Energy Inc., the Guarantors named therein
and the Initial Purchasers named therein (incorporated by
reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K filed on January 29, 2007).4.5
    
    
    Registration Rights Agreement dated as of January 18, 2006 by and
among Allis-Chalmers Energy Inc., the Guarantors named therein
and the Initial Purchasers named therein (incorporated by
reference to Exhibit 10.2 to the Registrants Current Report on
Form 8-K filed on January 24, 2006).
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Exhibit
    
    Description4.6
    
    
    Registration Rights Agreement dated as of August 14, 2006 by and
among the Registrant, the guarantors listed on Schedule A thereto
and RBC Capital Markets Corporation (incorporated by reference to
Exhibit 10.1 to the Registrants Form 8-K filed on August 14,
2006).4.7
    
    
    Indenture dated as of January 18, 2006 by and among the
Registrant, the Guarantors named therein and Wells Fargo Bank,
N.A., as trustee (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K filed on January 24,
2006).4.8
    
    
    First Supplemental Indenture dated as of August 11, 2006 by and
among Allis-Chalmers GP, LLC, Allis-Chalmers LP, LLC,
Allis-Chalmers Management, LP, Rogers Oil Tool Services, Inc.,
the Registrant, the other Guarantors (as defined in the Indenture
referred to therein) and Wells Fargo Bank, N.A (incorporated by
reference to Exhibit 4.2 to the Registrants Form 8-K filed on
August 14, 2006).4.9
    
    
    Second Supplemental Indenture dated as of January 23, 2007 by and
among Petro-Rentals, Incorporated, the Registrant, the other
Guarantor parties thereto and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K filed on January 24, 2007).4.10
    
    
    Indenture, dated as of January 29, 2007, by and among the
Registrant, the Guarantors named therein and Wells Fargo Bank,
N.A. (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K filed on January 29,
2007).4.11
    
    
    Form of 9.0% Senior Note due 2014 (incorporated by reference to
Exhibit A to Exhibit 4.1 to the Registrants Current Report on
Form 8-K filed on January 24, 2006).4.12
    
    
    Form of 8.5% Senior Note due 2017 (incorporated by reference to
Exhibit A to Exhibit 4.1 to the Registrants Current Report on
Form 8-K filed on January 29, 2007).10.1
    
    
    Amended and Restated Retiree Health Trust Agreement dated
September 14, 1988 by and between Registrant and Wells Fargo Bank
(incorporated by reference to Exhibit C-1 of the First Amended
and Restated Joint Plan of Reorganization dated September 14,
1988 included in Registrants Current Report on Form 8-K dated
December 1, 1988).10.2
    
    
    Amended and Restated Retiree Health Trust Agreement dated
September 18, 1988 by and between Registrant and Firstar Trust
Company (incorporated by reference to Exhibit C-2 of the First
Amended and Restated Joint Plan of Reorganization dated September
14, 1988 included in Registrants Current Report on Form 8-K
dated December 1, 1988).10.3
    
    
    Product Liability Trust Agreement dated September 14, 1988 by and
between Registrant and Bruce W. Strausberg, Trustee (incorporated
by reference to Exhibit E of the First Amended and Restated Joint
Plan of Reorganization dated September 14, 1988 included in
Registrants Current Report on Form 8-K dated December 1, 1988).10.4*
    
    
    Allis-Chalmers Savings Plan (incorporated by reference to
Registrants Annual Report on Form 10-K for the year ended
December 31, 1988).10.5*
    
    
    Allis-Chalmers Consolidated Pension Plan (incorporated by
reference to Registrants Annual Report on Form 10-K for the year
ended December 31, 1988).10.6
    
    
    Agreement dated as of March 31, 1999 by and between Registrant
and the Pension Benefit Guaranty Corporation (incorporated by
reference to Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
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Exhibit
    
    Description10.7
    
    
    Letter Agreement dated May 9, 2001 by and between Registrant and the Pension Benefit Guarantee
Corporation (incorporated by reference to Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).10.8
    
    
    Termination Agreement dated May 9, 2001 by and between Registrant, the Pension Benefit Guarantee
Corporation and others (incorporated by reference to Registrants Current Report on Form 8-K filed on
May 15, 2002).10.9*
    
    
    Executive Employment Agreement, dated April 1, 2007, by and between the Registrant and Munawar H.
Hidayatallah (incorporated by reference to Exhibit 10.3 to the Registrants Form 8-K filed on November
6, 2007).10.10*
    
    
    Executive Employment Agreement, effective April 3, 2007, by and between the Registrant and Victor M.
Perez (incorporated by reference to Exhibit 10.4 to the Registrants Form 8-K filed on November 6,
2007).10.11*
    
    
    Executive Employment Agreement, effective July 1, 2007, by and between the Registrant and Terrence P.
Keane (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on July 24, 2007).10.12*
    
    
    Executive Employment Agreement, dated December 3, 2007, by and between the Registrant and Theodore F.
Pound III (incorporated by reference to Exhibit 10.2 to the Registrants Form 8-K filed on December 6,
2007).10.13*
    
    
    Executive Employment Agreement, effective July 1, 2007, by and between the Registrant and David K.
Bryan (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on July 13, 2007).10.14*
    
    
    Employment Agreement, dated December 18, 2006, by and between the Registrant and Burt A. Adams
(incorporated by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K filed on
December 19, 2006).10.15
    
    
    Executive Employment Agreement, effective January 1, 2008, by and between the Registrant and Mark C.
Patterson (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on February 25,
2008).10.16
    
    
    Purchase Agreement dated as of January 12, 2006 by and among Allis-Chalmers Energy Inc, the Guarantors
named therein and the Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on Form 8-K filed on January 24, 2006).10.17
    
    
    Purchase Agreement dated as of August 8, 2006 by and between the Registrant, the guarantors listed on
Schedule B thereto and RBC Capital Markets Corporation (incorporated by reference to Exhibit 10.4 to
the Registrants Form 8-K filed on August 14, 2006).10.18
    
    
    Purchase Agreement dated as of January 24, 2007 by and among Allis-Chalmers Energy Inc., the Guarantors
named therein and the Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on Form 8-K filed on January 29, 2007).10.19
    
    
    Amended and Restated Credit Agreement dated as of January 18, 2006 by and among Allis-Chalmers Energy
Inc., as borrower, Royal bank of Canada, as administrative agent and Collateral Agent, RBC Capital
Markets, as lead arranger and sole bookrunner, and the lenders party thereto (incorporated by reference
to Exhibit 10.3 to the Registrants Current Report on Form 8-K filed on January 24, 2006).10.20
    
    
    First Amendment to Amended and Restated Credit Agreement dated as of August 8, 2006, by and among the
Registrant, the guarantors named thereto and Royal Bank of Canada (incorporated by reference to Exhibit
10.3 to the Registrants Form 8-K filed on August 14, 2006).10.21
    
    
    Senior Unsecured Bridge Loan Agreement, dated December 18, 2006, by and among the Registrant, Royal
Bank of Canada, as administrative agent, RBC Capital Markets Corporation, as exclusive lead arranger
and sole bookrunner, and the guarantors and institutional lenders named thereto (incorporated by
reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on December 19, 2006).10.22
    
    
    Strategic Agreement dated July 1, 2003 between Pan American Energy LLC Sucursal Argentina and DLS
Argentina Limited Sucursal Argentina (incorporated by reference to Exhibit 10.13 to the Registrants
Quarterly Report on Form 10-Q filed on December 29, 2006).
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Exhibit
    
    Description10.23
    
    
    Amendment No. 1 dated May 18, 2005 to Strategic Agreement between Pan American Energy LLC Sucursal
Argentina and DLS Argentina Limited Sucursal Argentina (incorporated by reference to Exhibit 10.14 to
the Registrants Quarterly Report on Form 10-Q filed on December 29, 2006).10.24
    
    
    Amendment No. 2 dated January 1, 2006 between Pan American Energy LLC Sucursal Argentina and DLS
Argentina Limited Sucursal Argentina (incorporated by reference to Exhibit 10.15 to the Registrants
Quarterly Report on Form 10-Q filed on December 29, 2006).10.25
    
    
    Investor Rights Agreement, dated December 18, 2006, by and between the Registrant and Oil & Gas Rental
Services, Inc. (incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form
8-K filed on December 19, 2006).10.26
    
    
    Investors Rights Agreement dated as of August 18, 2006 by and among the Registrant and the investors
named on Exhibit A thereto (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K
filed on August 14, 2006).10.27*
    
    
    2003 Incentive Stock Plan (incorporated by reference to Exhibit 4.12 to the Registrants Current Report
on Form 8-K filed August 17, 2005).10.28*
    
    
    Form of Option Certificate issued pursuant to 2003 Incentive Stock Plan (incorporated by reference to
Exhibit 10.41 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2003).10.29*
    
    
    2006 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on
September 18, 2006).10.30*
    
    
    Form of Employee Restricted Stock Agreement pursuant to the Registrants 2006 Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Registrants Form 8-K filed on September 18, 2006).10.31*
    
    
    Form of Employee Nonqualified Stock Option Agreement pursuant to the Registrants 2006 Incentive Plan
(incorporated by reference to Exhibit 10.3 to the Registrants Form 8-K filed on September 18, 2006).10.32*
    
    
    Form of Employee Incentive Stock Option Agreement pursuant to the Registrants 2006 Incentive Plan
(incorporated by reference to Exhibit 10.4 to the Registrants Form 8-K filed on September 18, 2006).10.33
    
    
    Form of Non-Employee Director Restricted Stock Agreement pursuant to the Registrants 2006 Incentive
Plan (incorporated by reference to Exhibit 10.5 to the Registrants Form 8-K filed on September 18,
2006).10.34*
    
    
    Form of Non-Employee Director Nonqualified Stock Option Agreement pursuant to the Registrants 2006
Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrants Form 8-K filed on
September 18, 2006).10.35
    
    
    Form of Performance Award Agreement pursuant to the Registrants 2006 Incentive Plan (incorporated by
reference to Exhibit 10.5 to the Registrants Form 8-K filed on November 6, 2007).10.36
    
    
    Second Amended and Restated Credit Agreement, dated as of April 26, 2007, by and among the Registrant,
as borrower, Royal Bank of Canada, as administrative agent and collateral agent, RBC Capital Markets,
as lead arranger and sole bookrunner, and the lenders party thereto (incorporated by reference to
Exhibit 10.1 to the Registrants Form 8-K filed on May 10, 2007).10.37
    
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 3, 2007, by and
among the Registrant, the guarantors named thereto, Royal Bank of Canada and the lenders named thereto
(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K filed on December 6, 2007).10.38
    
    
    Amended and Restated Guaranty, dated April 26, 2007, by each of the guarantors named thereto in favor
of Royal Bank of Canada, as administrative agent and collateral agent (incorporated by reference to
Exhibit 10.2 to the Registrants Form 8-K filed on May 10, 2007).10.39
    
    
    Amended and Restated Pledge and Security Agreement, dated April 26, 2007, by the Registrant in favor of
Royal Bank of Canada, as administrative agent and collateral agent (incorporated by reference to
Exhibit 10.3 to the Registrants Form 8-K filed on May 10, 2007).
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Exhibit
    
    Description10.40
    
    
    Credit Agreement, dated January 31, 2008, among the Registrant, as lender, BCH Ltd., as borrower, and
BCH Energy do Brasil Servicos de Petroleo Ltda., as guarantor (incorporated by reference to Exhibit
10.1 to the Registrants Form 8-K filed on February 6, 2008).10.41
    
    
    Option to Purchase and Governance Agreement, dated January 31, 2008, among the Registrant, BrazAlta
Resources Corp. and BCH Ltd. (incorporated by reference to Exhibit 10.2 to the Registrants Form 8-K
filed on February 6, 2008).10.42
    
    
    Subordination Agreement, dated January 31, 2008, among the Registrant, Standard Bank PLC, BCH Ltd., BCH
Energy do Brasil Servicos de Petroleo Ltda. and BrazAlta Resources Corp. (incorporated by reference to
Exhibit 10.3 to the Registrants Form 8-K filed on February 6, 2008).10.43
    
    
    Form of Convertible Subordinated Secured
Debenture (incorporated by reference to Schedule E to Exhibit
10.1 to the Registrants Form 8-K filed on February 6, 2008).10.44
    
    
    Agreement, dated April 1, 2007, by and between the Registrant and David Wilde (incorporated by
reference to Exhibit 99.1 to the Registrants Form 8-K filed on April 3, 2007).21.1
    
    
    Subsidiaries of Registrant (filed as Exhibit 21.1 to the Registrants Form 10-K filed on March 7, 2008).23.1
    
    

Consent of UHY LLP.31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Compensation Plan or Agreement -89-