##### Table of Contents



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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
    DECEMBER 31, 2006ORo

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

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

(I.R.S. Employer
    Identification No.)5075 WESTHEIMER,
    SUITE 890
    HOUSTON, TEXAS(Address of principal
    executive offices)

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

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

American Stock Exchange   SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
    ACT:
  NONE
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  o þ o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE:
  Form 10-K




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##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.

Business


5Item 1A.

Risk
    Factors


13Item 1B.

Unresolved Staff
    Comments


26Item 2.

Properties


27Item 3.

Legal
    Proceedings


27Item 4.

Submission of
    Matters to a Vote of Security Holders


29PART IIItem 5.

Market for
    Registrants Common Equity and Related Stockholder
    Matters


29Item 6.

Selected Financial
    Data


32Item 7.

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


32Item 7A.

Quantitative and
    Qualitative Disclosures about Market Risk


47Item 8.

Financial
    Statements


48Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


92Item 9A.

Controls and
    Procedures


92Item 9B.

Other
    Information


92PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


93Item 11.

Executive
    Compensation


93Item 12.

Security Ownership
    of Certain Beneficial Owners and Management


93Item 13.

Certain
    Relationships and Related Transactions


93Item 14.

Principal
    Accountant Fees and Services


93PART IVItem 15.

Exhibits and
    Financial Statement Schedules


93Signatures and
    Certifications


95SubsidiariesConsent of UHY LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 302   2




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




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




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




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




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




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




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International Drilling.
      Directional Drilling Services. state-of-the-art and/or
  
    improvement of total cumulative recoverable reserves;
    improved reservoir production performance beyond conventional
    vertical wells; and
    reduction of the number of field development wells.   9




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Casing and Tubing Services.
          Compressed Air Drilling Services.
      Production Services.
 10




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build-up
  1 4 1 4 1 4 3 4
  Cyclical
    Nature Of Oilfield Services Industry
      Customers
    Suppliers
   11




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Competition
                Backlog
    Employees
    Insurance
   12




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Seasonality
    Federal
    Regulations and Environmental Matters
      Intellectual
    Property Rights
    ITEM 1A.
    RISK
    FACTORS    Risks
    Associated With Our Company
  We may
    fail to acquire additional businesses, which will restrict our
    growth and may have a material adverse effect on our stock price
    or on our ability to meet our obligations under (and the price
    of) our securities.
    
    our ability to obtain financing;
    the competitive environment for acquisitions; and
    the integration and synergy issues described in the next risk
    factor.    Difficulties
    in integrating acquired businesses may result in reduced
    revenues and income.
   13




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Our
    acquisition of DLS has substantially changed the nature of our
    operations and business.
    Failure
    to maintain effective disclosure controls and procedures
    and/or
    internal controls over financial reporting could have a material
    adverse effect on our operations.
     14




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and/or and/or
  
    we are not successful in improving our financial reporting
    process, our disclosure controls and procedures
    and/or our
    internal controls over financial reporting;
    we identify deficiencies
    and/or one
    or more material weaknesses in our internal controls over
    financial reporting; or
    we are not successful in integrating acquired businesses (such
    as DLS and OGR) into our consolidated companys system of
    disclosure controls and procedures and internal controls over
    financial reporting,    and/or and/or and/or
  Historically,
    we have been dependent on a few customers operating in a single
    industry; the loss of one or more customers could adversely
    affect our financial condition and results of
    operations.
    Our
    international operations may expose us to political and other
    uncertainties, including risks of:
  
    terrorist acts, war and civil disturbances;
    changes in laws or policies regarding the award of contracts; and
    the inability to collect or repatriate currency, income, capital
    or assets.   15




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Environmental
    liabilities could result in substantial losses.
    Products
    liability claims relating to discontinued operations could
    result in substantial losses.
    We may
    be subject to claims for personal injury and property damage,
    which could materially adversely affect our financial condition
    and results of operations.
    The
    loss of key executives would adversely affect our ability to
    effectively finance and manage our business, acquire new
    businesses, and obtain and retain customers.
    
    Chief Executive Officer and Chairman Munawar H.
    Hidayatallah; and
    Vice Chairman, President and Chief Operating Officer Burt A.
    Adams.   16




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Risks
    Associated With Our Industry
  Cyclical
    declines in oil and natural gas prices may result in reduced use
    of our services, affecting our business, financial condition and
    results of operations and our ability to meet our capital
    expenditure obligations and financial commitments.
    
    economic conditions in the United States and elsewhere;
    changes in global supply and demand for oil and natural gas;
    the level of production of the Organization of Petroleum
    Exporting Countries, commonly called OPEC;
    the level of production of non-OPEC countries;
    the price and quantity of imports of foreign oil and natural gas;
    political conditions, including embargoes, in or affecting other
    oil and natural gas producing activities;
    the level of global oil and natural gas inventories; and
    advances in exploration, development and production technologies.    Our
    industry is highly competitive, with intense price
    competition.
    We may
    experience increased labor costs or the unavailability of
    skilled workers and the failure to retain key personnel could
    hurt our operations.
   17




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Severe
    weather could have a material adverse impact on our
    business.
    
    curtailment of services;
    weather-related damage to facilities and equipment resulting in
    suspension of operations;
    inability to deliver materials to job sites in accordance with
    contract schedules; and
    loss of productivity.    Our
    business may be affected by terrorist activity and by security
    measures taken in response to terrorism.
    We are
    subject to government regulations.
    Risks
    Associated With DLS Business and Industry
  A
    material or extended decline in expenditures by oil and gas
    companies due to a decline or volatility in oil and gas prices,
    a decrease in demand for oil and gas or other factors may reduce
    demand for DLS services and substantially reduce DLS
    revenues, profitability, cash flows
    and/or
    liquidity.
    
    oil and gas prices and expectations about future prices;
    the demand for oil and gas, both in Latin America and globally;
    the cost of producing and delivering oil and natural gas;
    advances in exploration, development and production technology;
    government regulations, including governmental imposed commodity
    price controls, export controls and renationalization of a
    countrys oil and natural gas industry; 18




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
    local and international political and economic conditions;
    the ability of OPEC to set and maintain production levels and
    prices;
    the level of production by non-OPEC countries; and
    the policies of various governments regarding exploration and
    development of their oil and gas reserves.  and/or
  A
    majority of DLS revenues are derived from one customer.
    The termination of the contract with this customer could have a
    significant negative effect on the revenues, results of
    operations and financial condition of DLS.
      DLS
    operations and financial condition could be affected by union
    activity and general labor unrest. Additionally, DLS labor
    expenses could increase as a result of governmental regulation
    of payments to employees.
    and/or
  Rig
    upgrade, refurbishment and construction projects are subject to
    risks, including delays and cost overruns, which could have an
    adverse effect on DLS results of operations and cash
    flows.
   19




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
    shortages of material or skilled labor;
    unforeseen engineering problems;
    unanticipated change orders;
    work stoppages;
    adverse weather conditions;
    long lead times for manufactured rig components;
    unanticipated cost increases; and
    inability to obtain the required permits or approvals.    An
    oversupply of comparable rigs in the geographic markets in which
    DLS competes could depress the utilization rates and dayrates
    for DLS rigs and materially reduce DLS revenues and
    profitability.
    Worldwide
    political and economic developments may hurt DLS
    operations materially.
    
    expropriation of assets;
    nationalization of components of the energy industry in the
    geographic areas where DLS operates;
    foreign currency fluctuations and devaluation;
    new economic and tax policies;
    restrictions on currency, income, capital or asset repatriation;
    political instability, war and civil disturbances;
    uncertainty or instability resulting from armed hostilities or
    other crises in the Middle East or the geographic areas in which
    DLS operates; and
    acts of terrorism.   20




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Devaluation
    of the Argentine peso will adversely affect DLS results of
    operations.
    Argentina
    continues to face considerable political and economic
    uncertainty.
       21




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An
    increase in inflation could have a material adverse effect on
    DLS results of operations.
    DLS
    customers may seek to cancel or renegotiate some of DLS
    drilling contracts during periods of depressed market conditions
    or if DLS experiences operational difficulties.
    DLS is
    subject to numerous governmental laws and regulations, including
    those that may impose significant liability on DLS for
    environmental and natural resource damages.
    DLS is
    subject to hazards customary for drilling operations, which
    could adversely affect its financial
    performance if DLS is not adequately indemnified or
    insured.
   22




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Risks
    Associated With an Investment in Our Common Stock
  In
    connection with our recent acquisitions of DLS and substantially
    all the assets of OGR, the DLS
    sellers have the right to designate two nominees for election to
    our board of directors and OGR has the right to designate one
    nominee for election to our board of directors. The interests of
    the DLS sellers and OGR may be different from
    yours.
      and/or
  We may
    have a contingent liability arising out of a possible violation
    of Section 5 of the Securities Act in connection with
    electronic communications sent to potential investors in our
    common stock.
  e-mails and/or
 23




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Our
    stock price may decrease in response to various factors, which
    could adversely affect our business and cause our stockholders
    to suffer significant losses. These factors
    include:
  
    decreases in prices for oil and natural gas resulting in
    decreased demand for our services;
    variations in our operating results and failure to meet
    expectations of investors and analysts;
    increases in interest rates;
    the loss of customers;
    failure of customers to pay for our services;
    competition;
    illiquidity of the market for our common stock;
    developments specifically affecting the Argentine economy;
    sales of common stock by existing stockholders; and
    other developments affecting us or the financial markets.    Existing
    stockholders interest in us may be diluted by additional
    issuances of equity securities.
    We do
    not expect to pay dividends on our common stock, and investors
    will be able to receive cash in respect of the shares of common
    stock only upon the sale of the shares.
    Substantial
    sales of our common stock could adversely affect our stock
    price.
       24




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




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




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ITEM 2.
    PROPERTIES    Business Segment

Location

Owned/LeasedRental Tools

Houston, Texas

Leased  2 locationsVictoria, Texas

OwnedBroussard, Louisiana

LeasedMorgan City, Louisiana

OwnedNew Orleans, Louisiana

LeasedInternational Drilling

Buenos Aires, Argentina

LeasedComodoro Rivadavia, Argentina

OwnedNeuquén, Argentina

OwnedRincon de los Sauces, Argentina

OwnedTartagal, Argentina

OwnedSanta Cruz, Bolivia

LeasedDirectional Drilling Services

Corpus Christi, Texas

LeasedHouston, Texas

Leased  2 locationsOklahoma City, Oklahoma

LeasedLafayette, Louisiana

LeasedCasing and Tubing Services

Corpus Christi, Texas

LeasedEdinburg, Texas

OwnedKilgore, Texas

LeasedPearsall, Texas

LeasedBroussard, Louisiana

Leased  2 locationsHouma, Louisiana

LeasedCompressed Air Drilling Services

Fort Stockton, Texas

LeasedGrandbury, Texas

LeasedHouston, Texas

LeasedSan Angelo, Texas

LeasedSonora, Texas

LeasedCarlsbad, New Mexico

LeasedFarmington, New Mexico

LeasedDenver, Colorado

LeasedGrand Junction, Colorado

LeasedWilburton, Oklahoma

LeasedProduction Services

Alvin, Texas

LeasedCarthage, Texas

LeasedCorpus Christi, Texas

LeasedKilgore, Texas

Leased  2 locationsMidland, Texas

LeasedArcadia, Louisiana

LeasedBroussard, Louisiana

1 Owned & 1 LeasedCordell, Oklahoma

LeasedHouma, Louisiana

Leased   ITEM 3.
    LEGAL
    PROCEEDINGS     27




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28




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


Abstentions andFor


Withheld


Broker Non-votes1.


Election of
    DirectorsAli H. M. Afdhal


18,981,441



339,698Alejandro P. Bulgheroni


18,791,812



529,327Carlos A. Bulgheroni


18,791,762



529,377Jeffrey R. Freedman


17,759,199



1,561,940Victor F. Germack


19,170,055



151,084Munawar H. Hidayatallah


19,096,922



224,217John E. McConnaughy, Jr.


18,353,294



967,845Robert E. Nederlander


19,009,582



311,557Leonard Toboroff


18,791,812



529,3272.


Ratification of UHY LLP as our
    independent accountants


19,269,608



42,267



9,2643.


Adoption of 2006 Incentive Stock
    Plan


7,811,990



3,618,967



7,863,905  PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS.  MARKET
    PRICE INFORMATION
    Calendar Quarter

High


Low2005First Quarter

$
7.25


$
3.64Second Quarter


6.00



4.38Third Quarter


14.70



5.65Fourth Quarter


13.75



8.612006First Quarter

$
18.50


$
12.46Second Quarter


17.62



10.85Third Quarter


19.33



9.80Fourth Quarter


25.55



12.15  29




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Holders
    Dividends
    EQUITY
    COMPENSATION PLAN INFORMATION
    Number ofSecurities to be


WeightedIssued Upon


Average Exercise


Number of SecuritiesExercise of


Price of


Remaining AvailableOutstanding


Outstanding


for Future IssuanceOptions, Warrants


Options, Warrants


Under EquityPlan Category

and Rights


and Rights


Compensation PlansEquity compensation plans approved
    by security holders


1,346,365


$
6.86



1,726,000Equity compensation plans not
    approved by security holders


8,000


$
9.20



Total


1,354,365


$
6.87



1,726,000   Equity
    Compensation Plans Not Approved By Security Holders
       30




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PERFORMANCE
    GRAPH
      COMPARISON
    OF 5-YEAR CUMULATIVE TOTAL RETURN
 AMONG ALLIS-CHALMERS ENERGY INC.
 NASDAQ MARKET INDEX AND OIL & GAS EQUIPMENT/SERVICES
  
  ASSUMES $100
    INVESTED ON JAN. 1, 2001
    COMPARISON
    OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
    COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD
    MARKETS
  Fiscal Year EndingCompany/Index/Market

12/31/2001

12/31/2002

12/31/2003

12/31/2004

12/30/2005

12/29/2006Allis-Chalmers Energy
    Inc.


100.00



53.68



54.74



103.16



262.53



485.05Oil & Gas
    Equipment/Services


100.00



93.04



113.49



155.77



235.41



277.90NASDAQ Market Index


100.00



69.75



104.88



113.70



116.19



128.12  31




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA.    Years Ended December 31,2006

2005

2004

2003

2002(Restated)

(Restated)Statement of Operations
    DataRevenues

$
307,304


$
105,344


$
47,726


$
32,724


$
17,990Income (loss) from operations

$
66,656


$
13,218


$
4,227


$
2,625


$
(1,072
)Net income (loss) from continuing
    operations

$
35,626


$
7,175


$
888


$
2,927


$
(3,969
)Net income (loss) attributed to
    common stockholders

$
35,626


$
7,175


$
764


$
2,271


$
(4,290
)Per Share Data:Net Income (loss) from continuing
    operations per common share:Basic

$
1.73


$
0.48


$
0.10


$
0.58


$
(1.14
)Diluted

$
1.66


$
0.44


$
0.09


$
0.50


$
(1.14
)Weighted average number of common
    shares outstanding:Basic


20,548



14,832



7,930



3,927



3,766Diluted


21,410



16,238



9,510



5,850



3,766   Consolidated Balance Sheet DataAs of December 31,2006

2005

2004

2003

2002(Restated)Total assets

$
908,326


$
137,355


$
80,192


$
53,662


$
34,778Long-term debt classified as:Current

$
6,999


$
5,632


$
5,541


$
3,992


$
13,890Long-term

$
561,446


$
54,937


$
24,932


$
28,241


$
7,331Redeemable convertible Preferred
    stock

$



$



$



$
4,171


$
3,821Stockholders equity

$
253,933


$
60,875


$
35,109


$
4,541


$
1,009Book value per share (basic)

$
12.36


$
4.10


$
4.43


$
1.16


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




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##### Table of Contents



Overview
    of Our Business
          Cyclical
    Nature of Equipment Rental and Services Industry
      Restatement
  , Earnings
    Per Share,
 33




---



##### Table of Contents



M-I Business Combinations Accounting for Sales of Stock by a Subsidiary.
  Results
    of Operations
    M-I
      Comparison
    of Years Ended December 31, 2006 and December 31,
    2005
   34




---



##### Table of Contents



Share-Based Payment,
       35




---



##### Table of Contents



Revenues


Income (Loss) from Operations2006


2005


Change


2006


2005


Change(In thousands)Rental tools

$
51,521


$
5,059


$
46,462


$
26,293


$
1,300


$
24,993International drilling


69,490







69,490



12,233







12,233Directional drilling services


72,811



43,901



28,910



17,666



7,389



10,277Casing and tubing services


50,887



20,932



29,955



12,544



4,994



7,550Compressed air drilling services


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














(15,027
)


(5,978
)


(9,049
)Total

$
307,304


$
105,344


$
201,960


$
66,656


$
13,218


$
53,438   Rental Tools Segment.
  International Drilling Segment. ten-day
  Directional Drilling Services
    Segment.
 36




---



##### Table of Contents



Casing and Tubing Services Segment.
  Compressed Air Drilling Services Segment.
  Production Services Segment.
  Comparison
    of Years Ended December 31, 2005 and December 31,
    2004
       37




---



##### Table of Contents



38




---



##### Table of Contents



Revenues


Income (Loss) from Operations2005


2004


Change


2005


2004


Change(In thousands)Rental tools

$
5,059


$
611


$
4,448


$
1,300


$
(71
)

$
1,371Directional drilling services


43,901



24,787



19,114



7,389



3,061



4,328Casing and tubing services


20,932



10,391



10,541



4,994



3,217



1,777Compressed air drilling services


25,662



11,561



14,101



5,612



1,169



4,443Production services


9,790



376



9,414



(99
)


4



(103
)General corporate














(5,978
)


(3,153
)


(2,825
)Total

$
105,344


$
47,726


$
57,618


$
13,218


$
4,227


$
8,991   Rental Tools Segment.
  Directional Drilling Services
    Segment.
  Casing and Tubing Services Segment.
  Compressed Air Drilling Services Segment.
  Production Services Segment.
 39




---



##### Table of Contents



Liquidity
    and Capital Resources
    Operating
    Activities
             40




---



##### Table of Contents



Investing
    Activities
    
    Effective January 1, 2006, we acquired Specialty for a
    purchase price of $96.0 million in cash.
    Effective April 1, 2006, we acquired Rogers for a purchase
    price of $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
    $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 $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
    $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
    $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 $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.   41




---



##### Table of Contents




    As of September 1, 2004 we completed, for
    $1.0 million, the acquisition of 100% of the outstanding
    stock of Safco.
    As of November 1, 2004, AirComp acquired substantially all
    the assets of Diamond Air for $4.6 million in cash and the
    assumption of approximately $450,000 of debt. We contributed our
    share of the purchase price, or $2.5 million, to AirComp in
    order to fund the purchase.
    Effective December 1, 2004, we acquired Downhole for
    approximately $1.1 million in cash, 568,466 shares of
    our common stock and payment or assumption of $950,000 of debt.  Financing
    Activities
           42




---



##### Table of Contents



43




---



##### Table of Contents



Payments by PeriodLess ThanTotal


1 Year


2-3 Years


4-5 Years


After 5 Years(In thousands)Contractual
    ObligationsNotes payable(a)

$
518,032


$
6,586


$
4,646


$
1,800


$
505,000Capital leases(b)


413



413











Interest payments on notes
    payable(a)


379,759



45,797



88,858



88,456



156,648Operating leases


5,418



2,013



2,658



277



470Employment contracts


5,394



3,064



2,330







Total contractual cash obligations

$
909,016


$
57,873


$
98,492


$
90,533


$
662,118     (a)
    
    Includes obligations on our $255 million 8.5% senior
    notes closed in January 2007. The proceeds from the
    8.5% senior notes and our January 2007 common stock
    offering were used to repay the $300 million bridge loan
    facility that was outstanding at December 31, 2006.(b)
    
    These amounts represent our minimum capital lease payments, net
    of interest payments totaling $15,000.      Recent
    Developments
        Critical
    Accounting Policies
   44




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##### Table of Contents



Allowance For Doubtful Accounts.
  Revenue Recognition. Revenue Recognition in Financial Statements
  Impairment Of Long-Lived Assets.
  Goodwill And Other Intangibles. Business Combinations Goodwill
    and Other Intangible Assets.
 45




---



##### Table of Contents



Income Taxes.
    Recently
    Issued Accounting Standards
  Accounting for Certain Hybrid Financial
    Instruments. Accounting for Derivative
    Instruments and Hedging Activities.
  Servicing of Financial
    Assets  An Amendment to FASB Statement
    No. 140.
  Accounting for Uncertainty in Income
    Taxes   An Interpretation of FASB Statement
    No. 109. Accounting for Income Taxes. likely-than-not
 46




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##### Table of Contents



Value Measurements.
  Accounting for Planned Major Maintenance Activities. accrued-in-advance
  Considering the Effects
    of Prior Year Misstatements when Quantifying Misstatements in
    Current Year Financial Statements
  Off-Balance
    Sheet Arrangements
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.    Interest
    Rate Risk
       47




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##### Table of Contents



Foreign
    Currency Exchange Rate Risk
    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.


49Reports of
    Independent Registered Public Accounting Firm


50Consolidated
    Balance Sheet


52Consolidated
    Statement of Operations


53Consolidated
    Statement of Stockholders Equity


54Consolidated
    Statement of Cash Flows


55Notes to
    Consolidated Financial Statements


56Supplemental Information to
    Consolidated Financial Statements  Summarized
    Quarterly Financial Data


91  48




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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 PerezMunawar H. Hidayatallah





Victor PerezChief Executive Officer





Chief Financial Officer  49




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Internal Control-Integrated Framework
      
    50




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control-Integrated Framework
        Internal Control-Integrated Framework Internal Control-Integrated Framework
     
    51




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands, exceptfor share and per share amounts)ASSETSCash and cash equivalents

$
39,745


$
1,920Trade receivables, net of
    allowance for doubtful accounts of $826 and $383 at
    December 31, 2006 and 2005, respectively


95,766



26,964Inventories


28,615



5,945Prepaid expenses and other


16,636



823Total current assets


180,762



35,652Property and equipment, at costs
    net of accumulated depreciation of $29,743 and $9,996 at
    December 31, 2006 and 2005, respectively


554,258



80,574Goodwill


125,835



12,417Other intangible assets, net of
    accumulated amortization of $4,475 and $3,163 at
    December 31, 2006 and 2005, respectively


32,840



6,783Debt issuance costs, net of
    accumulated amortization of $1,501 and $299 at December 31,
    2006 and 2005, respectively


9,633



1,298Other assets


4,998



631Total assets

$
908,326


$
137,355LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent maturities of long-term
    debt

$
6,999


$
5,632Trade accounts payable


25,666



9,018Accrued salaries, benefits and
    payroll taxes


10,888



1,271Accrued interest


11,867



289Accrued expenses


16,951



4,350Accounts payable, related parties






60Total current liabilities


72,371



20,620Deferred income tax liability


19,953



Long-term debt, net of current
    maturities


561,446



54,937Other long-term liabilities


623



923Total liabilities


654,393



76,480Commitments 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; 28,233,411 issued and
    outstanding at December 31, 2006 and 16,859,988 issued and
    outstanding at December 31, 2005)


282



169Capital in excess of par value


216,208



58,889Retained earnings


37,443



1,817Total stockholders equity


253,933



60,875Total liabilities and
    stockholders equity

$
908,326


$
137,355    52




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2006


2005


2004(Restated)(In thousands, except pershare amounts)Revenues

$
307,304


$
105,344


$
47,726Cost of revenuesDirect costs


181,919



69,889



32,598Depreciation


20,261



4,874



2,702Gross margin


105,124



30,581



12,426General and administrative expense


35,536



15,576



7,323Amortization


2,932



1,787



876Income from operations


66,656



13,218



4,227Other income (expense):Interest expense


(20,235
)


(4,446
)


(2,808
)Interest income


972



49



32Other


(347
)


186



272Total other income (expense)


(19,610
)


(4,211
)


(2,504
)Income before minority interest
    and income taxes


47,046



9,007



1,723Minority interest in income of
    subsidiaries






(488
)


(321
)Provision for income taxes


(11,420
)


(1,344
)


(514
)Net income


35,626



7,175



888Preferred stock dividend










(124
)Net income attributed to common
    stockholders

$
35,626


$
7,175


$
764Income per common
    share  basic

$
1.73


$
0.48


$
0.10Income per common
    share  diluted

$
1.66


$
0.44


$
0.09Weighted average number of common
    shares outstanding:Basic


20,548



14,832



7,930Diluted


21,410



16,238



9,510    53




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##### Table of Contents



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


RetainedCommon Stock


Excess of


EarningsShares


Amount


Par Value


(Deficit)


Total(In thousands, except share amounts)Balances, December 31, 2003,
    as restated


3,926,668



39



10,748



(6,246
)


4,541Net income














888



888Issuance of common stock:Acquisitions


1,868,466



19



8,592







8,611Private placement


6,081,301



61



15,600







15,661Services


17,000







99







99Conversion of preferred stock


1,718,090



17



4,278







4,295Issuance of stock purchase warrants










1,138







1,138Accrual of preferred dividends










(124
)






(124
)Balances, December 31, 2004


13,611,525



136



40,331



(5,358
)


35,109Net income














7,175



7,175Issuance of common stock:Acquisitions


411,275



4



1,746







1,750Secondary public offering, 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







46,297Stock options and warrants
    exercised


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


$
253,933    54




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006


2005


2004(In thousands)Cash Flows from Operating
    Activities:Net income

$
35,626


$
7,175


$
888Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation


20,261



4,874



2,702Amortization


2,932



1,787



876Write-off of deferred financing
    fees due to refinancing


453



653



Issuance of stock options for
    services










14Stock based compensation


3,394







Provision for bad debts


781



219



104Amortization of discount on debt






9



350Imputed interest


355







Deferred taxes


2,215







Minority interest in income of
    subsidiaries






488



321(Gain) on sale of property


(2,444
)


(669
)


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


(23,175
)


(10,656
)


(2,396
)(Increase) in due from related
    party










(7
)(Increase) in other current assets


(132
)


(2,143
)


(612
)Decrease (increase) in other assets


308



(936
)


(19
)(Decrease) increase in accounts
    payable


(2,337
)


2,373



1,140Increase in accrued interest


11,382



324



299Increase (Decrease) in accrued
    expenses


872



(97
)


(276
)(Decrease) in other liabilities


(224
)


(266
)


(141
)Increase in accrued salaries,
    benefits and payroll taxes


3,392



443



19Net cash provided by operating
    activities


53,659



3,578



3,262Cash Flows from Investing
    Activities:Acquisitions, net of cash acquired


(526,572
)


(36,888
)


(4,459
)Purchase of property and equipment


(39,697
)


(17,767
)


(4,603
)Proceeds from sale of property and
    equipment


6,881



1,579



Net cash used in investing
    activities


(559,388
)


(53,076
)


(9,062
)Cash Flows from Financing
    Activities:Proceeds from issuance of
    long-term debt


557,820



56,251



8,169Payments on long-term debt


(54,030
)


(28,202
)


(13,259
)Payments on related party debt


(3,031
)


(1,522
)


(246
)Net (repayments) borrowings on
    lines of credit


(6,400
)


2,527



689Proceeds from issuance of common
    stock, net of offering costs


46,297



15,459



16,883Proceeds from exercise of options
    and warrants


6,321



1,382



Tax benefit on options


6,440







Debt issuance costs


(9,863
)


(1,821
)


(391
)Net cash provided by financing
    activities


543,554



44,074



11,845Net increase (decrease) in cash
    and cash equivalents


37,825



(5,424
)


6,045Cash and cash equivalents at
    beginning of year


1,920



7,344



1,299Cash and cash equivalents at end
    of year

$
39,745


$
1,920


$
7,344    55




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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
  Revenue Recognition In Financial Statements
 56




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
   Allowance
    for Doubtful Accounts
      Cash
    Equivalents
    Inventories
    Property
    and Equipment
        Goodwill,
    Intangible Assets and Amortization
   57




---



##### 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
   58




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
   Income
    Taxes
        non-U.S. subsidiaries non-U.S. subsidiaries.
  Stock-Based
    Compensation
  Share-Based Payment Accounting for Stock-Based
    Compensation
     59




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##### Table of Contents



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


2004(Restated)Net income attributed to common
    stockholders as reported:





$
7,175


$
764Less total stock based employee
    compensation expense determined under fair value based method
    for all awards net of tax related effects






(4,284
)


(1,072
)Pro-forma net income (loss)
    attributed to common stockholders





$
2,891


$
(308
)Net income/(loss) per common share:Basic


As reported


$
0.48


$
0.10Pro forma


$
0.19


$
(0.04
)Diluted


As reported


$
0.44


$
0.09Pro forma


$
0.18


$
(0.04
)     For the Years Ended December 31,2006


2005


2004Expected dividend yield










Expected price volatility


72.28
%


84.28
%


89.76
%Risk-free interest rate


5.1
%


5.6
%


7.00
%Expected life of options


7 years



7 years



7 yearsWeighted average fair value of
    options granted at market value


$10.58



$5.02



$3.19   Segments
    of an Enterprise and Related Information
  Disclosures About Segments Of An
    Enterprise And Related Information
 60




---



##### 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 31,2006


2005


2004(Restated)Numerator:Net income available for common
    stockholders

$
35,626


$
7,175


$
764Plus income impact of assumed
    conversions:Preferred stock dividends/interest










124Net income applicable to common
    stockholders plus assumed conversions

$
35,626


$
7,175


$
888Denominator:Denominator for basic earnings per
    share  weighted average shares outstanding


20,548



14,832



7,930Effect of potentially dilutive
    common shares:Convertible preferred stock and
    employee and director stock options


862



1,406



1,580Weighted average shares
    outstanding and assumed conversions


21,410



16,238



9,510Basic earnings per share

$
1.73


$
0.48


$
0.10Diluted earnings per share

$
1.66


$
0.44


$
0.09   Reclassification
    New
    Accounting Pronouncements
  Accounting for Certain Hybrid Financial Instruments Accounting for
    Derivative Instruments and Hedging Activities.
 61




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
    Servicing of Financial Assets  An
    Amendment to FASB Statement No. 140 .
  Accounting for Uncertainty in Income
    Taxes  An Interpretation of FASB Statement
    No. 109 Accounting for Income Taxes. likely-than-not
  Value Measurements
  Accounting for Planned Major Maintenance Activities accrued-in-advance
  Considering the Effects
    of Prior Year Misstatements when Quantifying Misstatements in
    Current Year Financial Statements
 62




---



##### Table of Contents



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





AsReported


Adjustments


RestatedIncome per common
    share  diluted

$
0.09


$
0.02


$
0.11Weighted average number of common
    shares outstanding:Diluted


17,789



(3,094
)


14,695   Year Ended December 31, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common
    share  diluted

$
0.07


$
0.02


$
0.09Weighted average number of common
    shares outstanding:Diluted


11,959



(2,449
)


9,510   Three Months Ended September 30, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common
    share  basic

$
0.04


$
0.02


$
0.06Income per common
    share  diluted

$
0.04


$
0.01


$
0.05Weighted average number of common
    shares outstanding:Basic


11,599



(3,301
)


8,298Diluted


14,407



(4,579
)


9,828   Three Months Ended June 30, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common
    share  diluted

$
0.04


$
0.01


$
0.05Weighted average number of common
    shares outstanding:Diluted


10,237



(2,618
)


7,619   63




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  Three Months Ended March 31, 2004AsPreviously





AsReported


Adjustments


RestatedIncome per common
    share  diluted

$
0.05


$
0.03


$
0.08Weighted average number of common
    shares outstanding:Diluted


5,762



478



6,240   AirComp
    Acquisition
  Business
    Combinations Accounting for Sales of Stock by a
    Subsidiary.
  Increase
    in Book Value of Fixed Assets.
    Form 10-Q
  Three Months


Three Months


Three MonthsEnded


Ended


EndedMarch 31,


June 30,


September 30,2004


2004


2004Net income (loss) attributed to
    common stockholdersPreviously reported

$
501


$
434


$
576Adjustment 
    depreciation expense


(139
)


(79
)


(79
)Adjustment  minority
    interest expense


22



22



22Restated

$
384


$
377


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

$
0.13


$
0.07


$
0.05Total adjustments


(0.03
)


(0.01
)


(0.01
)Restated

$
0.10


$
0.06


$
0.04  64




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  NOTE 3 
    POST RETIREMENT BENEFIT OBLIGATIONS
  Medical
    And Life
    401(k)
    Savings Plan
    NOTE 4 
    ACQUISITIONS
       65




---



##### Table of Contents



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




---



##### Table of Contents



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


4,941Total assets acquired


19,327Current liabilities


1,717Deferred income tax liabilities


3,760Other long-term liabilities


150Total liabilities assumed


5,627Net assets acquired

$
13,700      67




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##### Table of Contents



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

$
52,033Property and equipment


130,389Other long-term assets


21Total assets acquired


182,443Current liabilities


34,386Long-term debt, less current
    portion


5,921Intercompany note


17,256Deferred tax liabilities


6,948Total liabilities assumed


64,511Net assets acquired

$
117,932       Current assets

$
8,175Property and equipment


28,792Intangible assets


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      68




---



##### 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


128,976Total assets acquired

$
345,344      69




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
     Years Ended December 31,2006


2005


2004Revenues

$
502,418


$
346,230


$
273,825Operating income

$
93,082


$
49,868


$
38,308Net income (loss)

$
32,358


$
1,264


$
(7,849
)Net income (loss) per common shareBasic

$
0.96


$
0.04


$
(0.33
)Diluted

$
0.94


$
0.04


$
(0.33
)   NOTE 5 
    INVENTORIES
    December 31,


December 31,2006


2005ManufacturedFinished goods

$
1,476


$
1,402Work in process


2,266



787Raw materials


2,638



233Total manufactured


6,380



2,422Hammers


1,016



584Drive pipe


716



666Rental supplies


1,845



64Chemicals and drilling fluids


2,673



201Rig parts and related inventory


9,762



Coiled tubing and related inventory


1,627



1,145Shop supplies and related inventory


4,596



863Total inventory

$
28,615


$
5,945  70




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  NOTE 6 
    PROPERTY AND OTHER INTANGIBLE ASSETS
    DepreciationPeriod


2006


2005Land





$
1,810


$
27Building and improvements


15-20 years



5,392



637Transportation equipment


3-10 years



22,744



7,772Drill pipe and rental equipment


3-20 years



321,821



6,813Drilling, workover and pulling rigs


20 years



120,517



Machinery and equipment


3-20 years



105,926



70,189Furniture, computers, software and
    leasehold improvements


3-7 years



3,522



2,073Construction in
    progress  equipment


N/A



2,269



3,059Total






584,001



90,570Less: accumulated depreciation






(29,743
)


(9,996
)Property and equipment, net





$
554,258


$
80,574       AmortizationPeriod


2006


2005Intellectual property


20 years


$
1,009


$
1,009Non-compete agreements


3-5 years



4,580



4,630Customer relationships


10 years



27,552



2,954Patent


12-15 years



3,327



496Other intangible assets


2-10 years



847



857Total






37,315



9,946Less: accumulated amortization






(4,475
)


(3,163
)Intangibles assets, net





$
32,840


$
6,783   2006


2005Gross


Accumulated


Current Year


Gross


Accumulated


Current YearValue


Amortization


Amortization


Value


Amortization


AmortizationIntellectual property

$
1,009


$
349


$
55


$
1,009


$
293


$
54Non-compete agreements


4,580



2,707



1,091



4,630



1,916



884Customer relationships


27,552



789



449



2,954



540



274Patent


3,327



203



165



496



39



33Other intangible assets


847



427



97



857



375



3Total

$
37,315


$
4,475


$
1,857


$
9,946


$
3,163


$
1,248  71




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
    Intangible Amortization by PeriodYears Ended December 31,2011 and2007


2008


2009


2010


ThereafterIntellectual property

$
55


$
55


$
55


$
55


$
440Non-compete agreements


887



564



362



60



Customer relationships


2,743



2,740



2,740



2,740



15,800Patent


274



274



274



274



2,028Other intangible assets


112



107



90



80



31Total Intangible Amortization

$
4,071


$
3,740


$
3,521


$
3,209


$
18,299   NOTE 7 
    INCOME
    TAXES  non-U.S. countries.
    Years Ended December 31,2006


2005


2004Current income tax expense:Federal

$
5,865


$
123


$
State


898



595



Foreign


2,442



626



5149,205



1,344



514Deferred income tax expense
    (benefit):Federal


(946
)






State


573







Foreign


2,588







2,215







$
11,420


$
1,344


$
514    72




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
     Years Ended December 31,2006


2005


2004Statutory income tax rate


35.0
%


34.0
%


34.0
%State taxes, net of federal benefit


2.1



6.1



Valuation allowances


(57.7
)


(98.7
)


(209.4
)Nondeductible items, permanent
    differences and other


44.9



74.4



212.0Effective tax rate


24.3
%


15.8
%


36.6
%     2006


2005Deferred income tax assets:Net future (taxable) deductible
    items

$
899


$
384Share based compensation


578



Net operating loss carry forwards


1,698



5,656Foreign tax credit


2,420



A-C Reorganization Trust and
    Product Liability Trust claims


5,500



29,098Total deferred income tax assets


11,095



35,138Valuation allowance






(27,131
)Net deferred income tax assets


11,095



8,007Deferred income tax liabilitiesDepreciation


(28,226
)


(8,007
)Net deferred income tax assets
    (liabilities)

$
(17,131
)

$
Net current deferred income tax
    asset

$
2,822


$
Net noncurrent deferred income tax
    liability


(19,953
)


Net deferred income tax assets
    (liabilities)

$
(17,131
)

$
        73




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
       NOTE 8 
    DEBT    December 31,2006


2005Senior notes

$
255,000


$
Bridge loan


300,000



Bank term loans


7,302



42,090Revolving line of credit






6,400Subordinated note payable to M-I
    LLC






4,000Subordinated seller note






3,031Seller note


900



850Obligations under non-compete
    agreements


270



698Notes payable to former directors


32



96Real estate loan






548Equipment & vehicle
    installment notes


3,502



1,939Insurance premium financing


1,025



Capital lease obligations


414



917Total debt


568,445



60,569Less: short-term debt and current
    maturities


6,999



5,632Long-term debt obligations

$
561,446


$
54,937    74




---



##### Table of Contents



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


Capital Leases


TotalYear Ending:December 31, 2007

$
6,585


$
414


$
6,999December 31, 2008


53,146







53,146December 31, 2009


1,500







1,500December 31, 2010


1,450







1,450December 31, 2011


350







350Thereafter


505,000







505,000Total

$
568,031


$
414


$
568,445   Senior
    notes, bank loans and line of credit agreements
        
    A $13.0 million revolving line of credit. Borrowings were
    limited to 85% of eligible accounts receivable plus 50% of
    eligible inventory (up to a maximum of $2.0 million of
    borrowings based on inventory). This line of credit was to be
    used to finance working capital requirements and other general
    corporate purposes, including the issuance of standby letters of
    credit. Outstanding borrowings under this line of credit were
    $6.4 million at a margin above prime and LIBOR rates plus
    margin averaging approximately 8.1% as of December 31, 2005.
    Two term loans totaling $42.0 million. Outstanding
    borrowings under these term loans were $42.0 million as of
    December 31, 2005. These loans were at LIBOR rates plus a
    margin which averages approximately 7.8% at December 31,
    2005.     75




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  2 3
      Notes
    payable and real estate loan
           76




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
        Other
    debt
    NOTE 9 
    COMMITMENTS
    AND CONTINGENCIES        Years Ending:December 31, 2007

$
2,013December 31, 2008


1,716December 31, 2009


942December 31, 2010


160December 31, 2011


117Thereafter


470Total

$
5,418  77




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  NOTE 10 
    STOCKHOLDERS
    EQUITY        
    In exchange for an investment of $2.0 million, we issued
    620,000 shares of our common stock for a purchase price
    equal to $2.50 per share, and issued warrants to purchase
    800,000 shares of our common stock at an exercise price of
    $2.50 per share, expiring on April 1, 2006, to an
    investor group (the Investor Group) consisting of
    entities affiliated with Donald and Christopher Engel and
    directors Robert Nederlander and Leonard Toboroff. The aggregate
    purchase price for the common stock was $1.55 million and
    the fair value for the warrants was $450,000.
    Energy Spectrum converted its 3,500,000 shares of
    Series A 10% Cumulative Convertible Preferred Stock,
    including accrued dividend rights, into 1,718,090 shares of
    common stock. Energy Spectrum was granted the preferred stock in
    connection with the Strata acquisition.         78




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
                    NOTE 11 
    REVERSE STOCK SPLIT
    NOTE 12 
    STOCK OPTIONS
   79




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
            December 31, 2006


December 31, 2005


December 31, 2004Shares


Weighted Ave.


Shares


Weighted Ave.


Shares


Weighted Avg.Under


Exercise


Under


Exercise


Under


ExerciseOption


Price


Option


Price


Option


PriceBeginning balance


2,860,867


$
5.10



1,215,000


$
3.20



973,300


$
2.78Granted


15,000



14.74



1,695,000



6.44



248,000



4.85Canceled


(54,567
)


5.97



(15,300
)


3.33



(6,300
)


2.78Exercised


(1,470,935
)


3.54



(33,833
)


2.80







Ending balance


1,350,365


$
6.88



2,860,867


$
5.10



1,215,000


$
3.20  80




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
    Weighted AverageShares Under


RemainingExercise Price


Option


Contractual Life


Options Exercisable


Exercise Price$
2.75



56,300



6.96 years



56,300


$
2.75$
3.86



429,900



8.09 years



129,899


$
3.86$
4.85



227,000



7.87 years



227,000


$
4.85$
4.87



101,165



8.40 years



62,822


$
4.87$
10.85



517,667



8.96 years



325,988


$
10.85$
13.75



4,000



3.24 years



4,000


$
13.75$
14.74



14,333



9.57 years



4,336


$
14.74$
6.88



1,350,365



8.36 years



810,345


$
7.06     Restricted
    Stock Awards
      Weighted AverageGrant-Date Fair ValueNumber of Shares


per ShareNonvested at December 31, 2005





$
Granted






Vested


27,000



18.30Forfeited






Nonvested at December 31, 2006


27,000


$
18.30     NOTE 13 
    STOCK PURCHASE WARRANTS
   81




---



##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
                   NOTE 14 
    CONDENSED CONSOLIDATED FINANCIAL INFORMATION
   82




---



##### 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 contingencies 83




---



##### Table of Contents



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





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalStockholders 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   CONDENSED
    CONSOLIDATING INCOME STATEMENTS
    For the Year Ended December 31, 2006
  Allis-Chalmers





Subsidiary(Parent/


Subsidiary


Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors


Adjustments


TotalRevenues

$



$
237,814


$
69,490


$



$
307,304Cost of revenuesDirect costs






130,978



50,941







181,919Depreciation






16,198



4,063







20,261Total cost of revenues






147,176



55,004







202,180Gross margin






90,638



14,486







105,124General and administrative


2,643



30,651



2,242







35,536Amortization


1,120



1,801



11







2,932Income from operations


(3,763
)


58,186



12,233







66,656Other income (expense):Equity earnings in affiliates, net
    of tax


58,077











(58,077
)


Interest, net


(18,733
)


67



(597
)






(19,263
)Other


45



97



(489
)






(347
)Total other income (expense)


39,389



164



(1,086
)


(58,077
)


(19,610
)Income before income taxes


35,626



58,350



11,147



(58,077
)


47,046Provision for income taxes






(7,045
)


(4,375
)






(11,420
)Net income

$
35,626


$
51,305


$
6,772


$
(58,077
)

$
35,626  84




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##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalCash Flows from Operating
    Activities:Net income

$
35,626


$
51,305


$
6,772


$
(58,077
)

$
35,626Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation






16,198



4,063







20,261Amortization


1,121



1,811











2,932Write-off of deferred financing
    fees


453















453Stock 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







2,215(Gain) 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 other
    current assets


(2,483
)


1,121



1,230







(132
)(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) increase in accrued
    salaries, benefits and payroll taxes


(1,951
)


2,780



2,563







3,392(Decrease) increase in other
    liabilities


(31
)


(193
)










(224
)Net cash provided (used) by
    operating activities


(11,235
)


54,109



10,785







53,659Cash Flows from Investing
    Activities:Acquisition of businesses, net of
    cash


(528,167
)


3,649



(2,054
)






(526,572
)Notes receivable from affiliates


(585
)










585



 85




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##### Table of Contents



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





OtherChalmers





Subsidiaries(Parent/


Subsidiary


(Non-


Consolidating


ConsolidatedGuarantor)


Guarantors


Guarantors)


Adjustments


TotalPurchase of property and equipment






(33,930
)


(5,767
)






(39,697
)Proceeds from sale of 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


46,297















46,297Proceeds from exercise of options
    and warrants


6,321















6,321Tax benefit on options


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 15 
    RELATED
    PARTY TRANSACTIONS     86




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
           NOTE 16 
    SEGMENT
    INFORMATION    Years Ended December 31,2006


2005


2004Revenues:Rental tools

$
51,521


$
5,059


$
611International drilling


69,490







Directional drilling services


72,811



43,901



24,787Casing and tubing services


50,887



20,932



10,391Compressed air drilling services


43,045



25,662



11,561Production services


19,550



9,790



376Total revenues

$
307,304


$
105,344


$
47,726 87




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  Years Ended December 31,2006


2005


2004Operating Income
    (Loss):Rental tools

$
26,293


$
1,300


$
(71
)International drilling


12,233







Directional drilling services


17,666



7,389



3,061Casing and tubing services


12,544



4,994



3,217Compressed air drilling services


10,810



5,612



1,169Production services


2,137



(99
)


4General corporate


(15,027
)


(5,978
)


(3,153
)Total income from operations

$
66,656


$
13,218


$
4,227Depreciation and Amortization
    Expense:Rental tools

$
7,268


$
492


$
40International drilling


4,074







Directional drilling services


1,464



887



466Casing and tubing services


3,908



2,006



1,597Compressed air drilling services


3,057



1,946



1,329Production services


2,005



912



26General corporate


1,417



418



120Total depreciation and
    amortization expense

$
23,193


$
6,661


$
3,578Capital Expenditures:Rental tools

$
4,538


$
435


$
232International drilling


5,770







Directional drilling services


5,128



2,922



1,552Casing and tubing services


10,980



5,207



1,285Compressed air drilling services


7,716



7,008



1,399Production services


5,253



1,514



106General corporate


312



681



29Total capital expenditures

$
39,697


$
17,767


$
4,603Goodwill:Rental tools

$
106,132


$



$
International drilling


1,504







Directional drilling services


4,168



4,168



4,168Casing and tubing services


6,464



3,673



3,673Compressed air drilling services


3,950



3,950



3,510Production services


3,617



626



425General corporate










Total goodwill

$
125,835


$
12,417


$
11,776  88




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  As of December 31,2006


2005


2004Assets:Rental tools

$
453,802


$
8,034


$
1,291International drilling


185,677







Directional drilling services


28,585



20,960



14,166Casing and tubing services


74,372



45,351



21,197Compressed air drilling services


54,288



46,045



29,147Production services


57,954



12,282



5,806General corporate


53,648



4,683



8,585Total assets

$
908,326


$
137,355


$
80,192   Years Ended December 31,2006


2005


2004Revenues:United States

$
228,192


$
98,583


$
42,466International


79,112



6,761



5,260Total revenues

$
307,304


$
105,344


$
47,726   As of  December 31,2006


2005


2004Long Lived Assets:United States

$
574,302


$
97,390


$
55,340International


153,262



4,313



474Total long lived assets

$
727,564


$
101,703


$
55,814  89




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##### Table of Contents



ALLIS-CHALMERS
    ENERGY INC.
  Notes to Consolidated Financial
    Statements  (Continued)
  NOTE 17 
    SUPPLEMENTAL CASH FLOWS INFORMATION (in thousands)
  Years Ended December 31,2006


2005


2004(Restated)Interest paid

$
8,571


$
3,924


$
2,159Income taxes paid

$
5,796


$
676


$
514Other non-cash investing and
    financing transactions:Insurance premiums financed


2,871







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






592



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

$



$



$
(4,867
)Goodwill and other intangibles


(4,010
)






(3,839
)Value of common stock, issued


94,980



1,750



2,177Seller financed note


750







Deferred tax liability


17,662







Accrued expenses


250







Value of minority interest
    contribution










2,070$
109,632


$
1,750


$
(4,459
)Acquisition of the remaining
    19% of Jens:Fair value of net assets acquired

$



$



$
(813
)Goodwill and other intangibles










(3,676
)Value of common stock issued










6,434Value of minority interest
    retirement










(1,945
)$



$



$
   NOTE 18 
    LEGAL MATTERS
      NOTE 19 
    SUBSEQUENT EVENTS
   90




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##### Table of Contents



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


Second


Third


FourthQuarter


Quarter


Quarter


QuarterYear 2006Revenues

$
47,028


$
60,470


$
85,738


$
114,068Operating income


8,633



15,871



19,054



23,098Net income

$
4,423


$
9,594


$
11,252


$
10,356Income per common share:Basic

$
0.26


$
0.53


$
0.52


$
0.41Diluted

$
0.23


$
0.50


$
0.50


$
0.40   First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(Restated)Year 2005Revenues

$
19,334


$
23,588


$
28,908


$
33,514Operating income


2,247



2,914



3,524



4,533Net income

$
1,567


$
1,769


$
1,293


$
2,546Income per common share:Basic

$
0.12


$
0.13


$
0.09


$
0.15Diluted

$
0.11


$
0.12


$
0.08


$
0.14  91




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##### Table of Contents



ITEM 9.
    CHANGES
    AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  (a)
    Evaluation
    Of Disclosure Controls And Procedures  Rule 13a-15(f).
      (b)
    Change in
    Internal Control Over Financial Reporting.    Management
    Report on Internal Control Over Financial
    Reporting.
    ITEM 9B.
    OTHER
    INFORMATION   92




---



##### Table of Contents



PART III  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT  Form 10-K
  ITEM 11.
    EXECUTIVE
    COMPENSATION  Form 10-K
  ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT  Form 10-K
  ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS  Form 10-K
  ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES  Form 10-K
 PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements
  Form 10-K.
  Financial Statement Schedules
    Exhibits
  10-K.
 93




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##### Table of Contents



(2) Financial
    Statement Schedule:
  Schedule II 
    Valuation and Qualifying Accounts
  Allis-Chalmers
    Energy Inc.
 Valuation
    and Qualifying Accounts
  AdditionsBalance at

Charged to



Balance atBeginning

Costs and



End ofDescription

of Period

Expense

Deductions

Period(In thousands)Year Ended December 31,
    2006:Allowance for doubtful accounts


383



781



(338
)


826Deferred tax assets valuation
    allowance


27,131







(27,131
)


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


265



219



(101
)


383Deferred tax assets valuation
    allowance


30,367







(3,236
)


27,131Year Ended December 31,
    2004:Allowance for doubtful accounts


168



104



(7
)


265Deferred tax assets valuation
    allowance


38,475







(8,108
)


30,367  94




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##### Table of Contents



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

Title

Date/s/  MUNAWAR
    H. HIDAYATALLAHMunawar
    H. Hidayatallah

Chairman and Chief Executive
    Officer (Principle Executive Officer)

March 14, 2007/s/  VICTOR
    M. PEREZVictor
    M. Perez

Chief Financial Officer
    (Principal Financial Officer)

March 14, 2007/s/  BRUCE
    SAUERSBruce
    Sauers

Chief Accounting Officer
    (Principal Accounting Officer)

March 14, 2007/s/  BURT
    A. ADAMSBurt
    A. Adams

Vice Chairman, President and Chief
    Operating Officer

March 14, 2007/s/  ALI
    H. M. AFDHALAli
    H. M. Afdhal

Director

March 14, 2007Alejandro
    P. Bulgheroni

Director

March 14, 2007Carlos
    A. Bulgheroni

Director

March 14, 2007/s/  JEFFREY
    R. FREEDMANJeffrey
    R. Freedman

Director

March 14, 2007/s/  VICTOR
    F. GERMACKVictor
    F. Germack

Director

March 14, 2007/s/  JOHN
    E. MCCONNAUGHY,
    JR.John
    E. McConnaughy, Jr.

Director

March 14, 2007/s/  ROBERT
    E. NEDERLANDERRobert
    E. Nederlander

Director

March 14, 2007/s/  ZANE
    TANKELZane
    Tankel

Director

March 14, 2007/s/  LEONARD
    TOBOROFFLeonard
    Toboroff

Director

March 14, 2007  95




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##### Table of Contents



EXHIBIT INDEX
  Exhibit

Description2
.1

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

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

Agreement and Plan of Merger dated
    as of May 9, 2001 by and among Registrant, Allis-Chalmers
    Acquisition Corp. and OilQuip 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). 96




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##### Table of Contents



Exhibit

Description2
.16

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

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

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

Asset Purchase Agreement, dated as
    of October 25, 2006, by and between Allis-Chalmers Energy
    Inc. and Oil & Gas Rental Services, Inc. (incorporated
    by reference to Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    filed on October 26, 2006).3
.1

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

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

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

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

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

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

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

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

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

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

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

Registration Rights Agreement
    dated as of August 14, 2006 by and among the Registrant,
    the guarantors listed on Schedule A thereto and RBC Capital
    Markets Corporation (incorporated by reference to
    Exhibit 10.1 to the Registrants
    Form 8-K
    filed on August 14, 2006).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). 97




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##### Table of Contents



Exhibit

Description4
.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).9
.1

Shareholders Agreement dated
    February 1, 2002 by and among Registrant and the
    stockholder and warrant holder signatories thereto (incorporated
    by reference to Exhibit 2.12 to the Registrants
    Annual Report on
    Form 10-K
    for the year ended December 31, 2001).10
.1

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

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

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

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

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

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

Shareholders Agreement dated
    February 1, 2002 by and among Jens Oilfield Service,
    Inc., a Texas corporation, Jens H. Mortensen, Jr., and
    Registrant (incorporated by reference to Exhibit 2.9 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2001).10
.8

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

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

Employment Agreement dated
    July 1, 2003 by and between AirComp LLC and Terry Keane
    (incorporated by reference to Exhibit 10.37 to the
    Registrants Current Report on
    Form 8-K
    filed July 16, 2003). 98




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##### Table of Contents



Exhibit

Description10
.11*

Employment Agreement dated as of
    April 1, 2004 between Registrant and Munawar H.
    Hidayatallah (incorporated by reference to Exhibit 10.47 to
    the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).10
.12*

Employment Agreement dated as of
    April 1, 2004 between Registrant and David Wilde
    (incorporated by reference to Exhibit 10.48 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).10
.13*

Employment Agreement dated
    July 26, 2004 by and between the Registrant and Victor M.
    Perez (incorporated by reference to Exhibit 10.36 to the
    Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).10
.14*

Employment Agreement dated
    October 11, 2004, between the Registrant and Theodore F.
    Pound III (incorporated by reference to Exhibit 10.60
    to the Registrants Current Report on
    Form 8-K
    filed on October 15, 2004).10
.15*

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
.16

Fifth Amendment to Credit
    Agreement dated as of April 6, 2004 by and between Strata
    Directional Technology, Inc., and Wells Fargo Credit Inc.
    (incorporated by reference to Exhibit 10.53 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).10
.17

Third Amendment to Credit
    Agreement dated as of April 6, 2004 by and between
    Jens Oilfield Service, Inc. and Wells Fargo Credit Inc.
    (incorporated by reference to Exhibit 10.54 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004).10
.18

Letter Agreement dated
    February 13, 2004 by and between Registrant and Morgan
    Joseph & Co., Inc. (incorporated by reference to
    Exhibit 10.26 to the Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).10
.19

Letter Agreement dated
    June 8, 2004 by and between the Registrant and Morgan
    Keegan & Company, Inc. (incorporated by reference to
    Exhibit 10.35 to the Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).10
.20

Letter Agreement relating to Stock
    Purchase Agreement dated August 5, 2004 (incorporated by
    reference to Exhibit 10.39 to the Registration Statement on
    Form S-1
    (Registration No. 118916) filed on September 10,
    2004).10
.21

Amended and Restated Credit
    Agreement dated as of December 7, 2004, between AirComp LLC
    and Wells Fargo Bank, NA (incorporated by reference to
    Exhibit 10.62 to the Registrants Current Report on
    Form 8-K
    filed on December 13, 2004).10
.22

First Amendment to Stockholder
    Agreement by and among Allis-Chalmers Energy Inc. and the
    Stockholders named therein (incorporated by reference to
    Exhibit 10.44 to the Registrants Current Report on
    Form 8-K
    filed on August 5, 2005).10
.23

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
.24

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
.25

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
.26

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
.27

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). 99




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##### Table of Contents



Exhibit

Description10
.28

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
.29

Strategic Agreement dated
    July 1, 2003 between Pan American Energy LLC Sucursal
    Argentina and DLS Argentina Limited Sucursal Argentina
    (incorporated by reference to Exhibit 10.13 to the
    Registrants Quarterly Report on
    Form 10-Q
    filed on December 29, 2006).10
.30

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
.31

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
.32

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
.33

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
.34*

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
.35*

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
.36*

2006 Incentive Plan (incorporated
    by reference to Exhibit 10.1 to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.37*

Form of Employee Restricted Stock
    Agreement (incorporated by reference to Exhibit 10.2 to the
    Registrants
    Form 8-K
    filed on September 18, 2006).10
.38*

Form of Employee Nonqualified
    Stock Option Agreement (incorporated by reference to
    Exhibit 10.3 to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.39*

Form of Employee Incentive Stock
    Option Agreement (incorporated by reference to Exhibit 10.4
    to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.40*

Form of Non-Employee Director
    Restricted Stock Agreement (incorporated by reference to
    Exhibit 10.5 to the Registrants
    Form 8-K
    filed on September 18, 2006).10
.41*

Form of Non-Employee Director
    Nonqualified Stock Option Agreement (incorporated by reference
    to Exhibit 10.6 to the Registrants
    Form 8-K
    filed on September 18, 2006).14
.1

Code of Ethics (incorporated by
    reference to the
    Form 8-K
    filed on December 1, 2004).16
.1

Letter from Gordon
    Hughes & Banks LLP dated October 5, 2004, to the
    Securities and Exchange Commission (incorporated by reference to
    Registrants Current Report on
    Form 8-K
    filed on October 6, 2004).21
.1

Subsidiaries of Registrant.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 100