Allis Ex10.46


    
      
        	 	
                EXHIBIT
                  10.46

              
	
                 

              	
                ALLIS-CHALMERS
                  ENERGY INC.

              
	 	 


      

    

    


    


    
      	PRESS RELEASE 	
              Contact:

            	
              Victor
                M. Perez, CFO

            
	 	 	
              Allis-Chalmers
                Energy

            
	 	 	
              713-369-0550

            
	
              FOR
                IMMEDIATE RELEASE

            	 	 
	 	 	
              Lisa
                Elliott, Sr. VP

            
	 	 	
              DRG&E/
                713-529-6600

            
	 	 	 


    

    ALLIS-CHALMERS
      ENERGY REPORTS RECORD

    THIRD
      QUARTER 2005 RESULTS

    


    3rd
      quarter revenues were up 143% to $28.9 million

    3rd
      quarter diluted EPS grew 60% to $0.08 including debt retirement charge


    3rd
      quarter diluted EPS grew 180% to $0.14 excluding debt retirement charge


    


    2005
      EPS guidance increased to between $0.41 and $0.47, and $0.47 and
      $0.53

    excluding
      debt retirement charge 

    


     

    HOUSTON,
      TEXAS,
      November 8, 2005 - Allis-Chalmers Energy Inc. (AMEX: ALY) today announced its
      record results for the third quarter and nine months ended September 30, 2005.
      

     

    Revenue
      for the third quarter 2005 rose 143.2% to $28.9 million compared to $11.9
      million for the third quarter of 2004. Driving the company’s triple digit
      revenue gains were the successful integration of strategic acquisitions
      completed over the last twelve months, the increase in service offerings and
      expanded customer base resulting in increased market share, and the expanding
      revenue generated from the further investment in equipment and new operating
      locations. These results were achieved despite the significant impact of recent
      hurricanes and tropical storms on the Company’s Southeast Louisiana and Mexican
      operations, resulting in an estimated revenue loss of approximately $2.0
      million. 

     

    Income
      from operations grew 184.4%, outpacing the growth in sales, to $3.5 million
      for
      third quarter 2005 from $1.2 million in last year’s third quarter due to
      increased market share, improved pricing and the Company’s strong customer base.
      Adjusted EBITDA increased 164.6% to $5.4
      million
      for the 2005 third quarter from $2.0 million in the third quarter of 2004.
      As
      Adjusted EBITDA is a non-GAAP item, additional information and discussion
      regarding Adjusted EBITDA is provided later in this release. 

     

    Net
      income for the third quarter of 2005 attributed to common shares increased
      149.1% to $1.3 million, or $0.08 per diluted share, compared to net income
      attributed to common shares of $519,000 or $0.05 per diluted share in the same
      quarter of 2004. The third quarter 2005 results include $1.1 million, or $0.06
      per diluted share, in debt retirement expenses associated with refinancing
      the
      Company’s debt and prepaying its previous financing. Excluding these charges,
      earnings per share would have been $0.14, a 180% increase compared to last
      year’s third quarter results. Weighted average shares of common stock
      outstanding on a diluted basis increased 68.9% to 16.6 million shares for the
      three month period of 2005 from 9.8 million shares for same period last
      year.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Micki
      Hidayatallah, the Company’s Chairman and Chief Executive Officer stated, “We
      made significant strides to continue to grow this company and expand our market
      share by offering our customers more services from an expanding list of
      locations. I could not be more proud of our entire team led by David Wilde,
      our
      President and Chief Operating Officer. It is under his leadership and direction
      that we have succeeded in rapidly integrating our acquisitions and expanding
      our
      customer base. The team worked diligently to re-deploy our assets after
      hurricane(s) Rita (and Katrina) allowing us to continue to generate strong
      results.”

     

    Revenue
      for the first nine months of 2005 rose 117.7% to $71.8 million compared to
      $33.0
      million for the first nine months of 2004. Operating income grew at a faster
      pace than revenue to $8.7 million in 2005 from $3.4 million during the
      comparable nine months in 2004, representing a 154.2% increase. Net income
      for
      the first nine months of 2005 attributed to common shares rose 262.8% to $4.6
      million, or $0.30 per diluted share, from net income of $1.3 million, or $0.18
      per diluted share in the first nine months of 2004. Weighted average shares
      of
      common stock outstanding on a diluted basis increased to 15.6 million shares
      for
      the nine month period of 2005 from 7.9 million shares for same period last
      year.

     

    Segment
      Results:

    


    
      	·    	
              Directional
                Drilling.
                Operating income for the directional drilling services segment increased
                61.8% to $1.7 million from $1.0 in the third quarter of 2004. This
                significant growth is a direct result of the Company’s additional capacity
                and strong market presence, as well as the Company’s expansion into West
                Texas and Oklahoma. This segment continues to reap the benefit of
                its
                investments in its skilled operators, an expanded sales organization
                and
                down-hole motor technology. 

            


    

     

    
      	·    	
              Casing
                & Tubing:
                Operating income for the casing and tubing services segment increased
                40.8% to $1.3 million in the third quarter of 2005 from $949,000
                in the
                comparable quarter last year. The rise was due to geographic expansion,
                expanded service offerings at new locations and improved market
                conditions; offsetting a slight downturn in revenues and operating
                income
                from the Company’s operations in Mexico, which were impacted in September
                by the hurricanes and tropical storms. The segment was also positively
                impacted for one month from the acquisition of casing and tubing
                assets on
                September 1, 2005.

            


    

     

    
      	·    	
              Compressed
                Air Drilling. Operating
                income attributed to compressed air drilling increased to $1.8 million
                in
                the 2005 third quarter from $130,000 in the comparable 2004 period
                due to
                investments in additional equipment and increased market share as
                a result
                of a wider geographic footprint and expanded customer base.
                

            


    

     

    
      	·    	
              Rental
                Tools.
                Operating income was $454,000 from this business segment which was
                recently formed through the acquisition of Safco Oilfield Products
                in
                September 2004 and of Delta Rental Service in April 2005. The segment
                benefited from the successful integration of Safco’s operations based in
                Houston, with those of Delta based in Lafayette, Louisiana, as well
                as by
                investments made in additional equipment. Sequentially, operating
                income
                in the third quarter of 2005 grew 12.1% over operating income in
                the
                second quarter of 2005.

            


    

     

    
      	·    	
              Production
                services.
                 During
                the third quarter the Company invested in this newly established
                segment
                to position itself to expand its international operations, resulting
                in an
                operating loss of $128,000 during the 2005 third
                quarter.

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Outlook
      & Guidance:

     

    The
      following statements are based on Allis-Chalmers’ current expectations. These
      statements are forward-looking and actual results may differ materially. These
      statements do not include the potential impact of any future capital
      transactions, such as business combinations, divestitures and financings, that
      may be completed after the date of this news release. 

    In
      addition, the Company’s guidance ranges are based on the assumption that current
      market conditions in the Company’s business segments will last through at least
      2005. Any material change in market conditions in any of the Company’s business
      segments could affect its guidance.

    


    
      	
              Financial
                Guidance 

            	 
	
               

            	 	
              Fourth
                Quarter

              2005
                Estimate

            	 	
              Revised
                Full Year

              2005
                Estimate

            	 	
              Previous
                Full Year

              2005
                Estimate

            	 
	
              Revenues:

            	 	
               

            	
              
                $28
                  mm to $32 mm

              

            	 	
               

            	
              
                $100
                  mm to $104 mm

              

            	 	
               

            	
              
                $80
                  mm to $95 mm

              

            	 
	
              EBITDA:

            	 	
               

            	
              
                $5.5
                  mm to $6.5 mm

              

            	 	
               

            	
              
                $18.8
                  mm to $20.0 mm

              

            	 	
               

            	
              
                $14.2
                  mm to $17.5 mm

              

            	 
	
              Diluted
                EPS:

            	 	
               

            	
              
                $0.11
                  to $0.17

              

            	 	
               

            	
              
                $0.41
                  to $0.47

              

            	 	
               

            	
              
                $0.28
                  to $0.45

              

            	 
	
              Diluted
                EPS: 

               excluding
                the impact

              of
                refinance charges

            	 	 	
              NA

            	 	
               

            	
              
                $0.47
                  to $0.53

              

            	 	 	
              NA

            	 


    

     

    “Our
      results this quarter reflected the inherent strength of our operations in spite
      of hurricanes Katrina and Rita. We are looking forward to a strong fourth
      quarter and we will continue in 2006 to expand services, diversify our
      geographic footprint, increase market share and make acquisitions at accretive
      multiples,” added Mr. Hidayatallah.

     

    Conference
      Call:

     

    The
      Company will host a conference call to discuss its 2005 third quarter financial
      results and recent developments at 10:30 a.m. Eastern (9:30 a.m. Central) today,
      November 8, 2005. To participate in the call, please log on to www.alchenergy.com
      or dial
      (303) 262-2143 and ask for the Allis-Chalmers call at least 10 minutes prior
      to
      the start time. For those who cannot listen to the live call, a telephonic
      replay will be available through November 15, 2005, and may be accessed by
      calling (303) 590-3000 and using the pass code 11043354. A web cast archive
      will
      also be available at www.alchenergy.com
      shortly
      after the call is concluded.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    About
      Allis-Chalmers Energy

     

    Allis-Chalmers
      Energy Inc. provides a variety of products and services to the oil and natural
      gas industry. Through its subsidiaries, Allis-Chalmers is engaged in providing
      specialized equipment and operations to install casing and production
      tubing  required to drill and complete oil and gas wells,  directional
      and horizontal drilling services, the rental of heavy weight spiral drill pipe
      and related oilfield services, services to enhance production through the
      installation of small diameter coiled tubing and chemicals into producing oil
      and gas wells and air drilling services to natural gas exploration and
      development  operators.  

     

    Forward-
      Looking Statements

     

    This
      Press Release contains forward-looking statements (within the meaning of Section
      27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of
      the
      Securities Exchange Act of 1934) regarding Allis-Chalmers Energy’s business,
      financial condition, results of operations and prospects. Words such as expects,
      anticipates, intends, plans, believes, seeks, estimates and similar expressions
      or variations of such words are intended to identify forward-looking statements,
      but are not the exclusive means of identifying forward-looking statements in
      this Press Release.

     

    Although
      forward-looking statements in this Press Release reflect the good faith judgment
      of management, such statements can only be based on facts and factors currently
      known to management. Consequently, forward-looking statements are inherently
      subject to risks and uncertainties, and actual results and outcomes may differ
      materially from the results and outcomes discussed in the forward-looking
      statements. Factors that could cause or contribute to such differences in
      results and outcomes include, but are not limited to, demand for oil and natural
      gas drilling services in the areas and markets in which the Company operates,
      competition, obsolescence of products and services, the Company’s ability to
      obtain financing to support its operations, environmental and other casualty
      risks, and the impact of government regulation. Further information about the
      risks and uncertainties that may impact the Company are set forth in the
      Company’s most recent filings on Form 10K (including without limitation in the
“Risk Factors” Section) and Form 10-Q, and in the Company’s other SEC filings
      and publicly available documents. Readers are urged not to place undue reliance
      on these forward-looking statements, which speak only as of the date of this
      Press Release. The Company undertakes no obligation to revise or update any
      forward-looking statements in order to reflect any event or circumstance that
      may arise after the date of this Press Release.

     

    -
      Tables to Follow - 

    


    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ALLIS-CHALMERS
      ENERGY INC.

    CONSOLIDATED
      CONDENSED INCOME STATEMENTS

    (in
      thousands, except per share amounts)

    (unaudited)

    
      
        	 	 	 	 	 	 
	 	 	
                For
                  the Three Months Ended

              	 	
                For
                  the Nine Months Ended

              	 
	 	 	
                September
                  30,

              	 	
                September
                  30,

              	 
	 	 	
                2005

              	 	
                2004

              	 	
                2005

              	 	
                2004

              	 
	 	 	 	 	
                (Restated)

              	 	 	 	
                (Restated)

              	 
	 	 	 	 	 	 	 	 	 	 
	
                Revenues

              	 	
                $

              	
                28,908

              	 	
                $

              	
                11,888

              	 	
                $

              	
                71,830

              	 	
                $

              	
                32,989

              	 
	
                Cost
                  of revenues

              	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Direct
                  costs

              	 	 	
                19,280

              	 	 	
                7,633

              	 	 	
                47,756

              	 	 	
                22,395

              	 
	
                Depreciation

              	 	 	
                1,391

              	 	 	
                591
                  

              	 	 	
                3,397
                  

              	 	 	
                1,796

              	 
	
                Total
                  cost of revenues

              	 	 	
                
                

                20,671

              	 	 	
                
                

                8,224
                  

              	 	 	
                
                

                51,153

              	 	 	
                
                

                24,191

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Gross
                  margin

              	 	 	
                
                

                8,237

              	 	 	
                
                

                3,664

              	 	 	
                
                

                20,677

              	 	 	
                
                

                8,798

              	 
	
                General
                  and administrative

              	 	 	
                
                

                4,261

              	 	 	
                
                

                2,227

              	 	 	
                
                

                10,720

              	 	 	
                
                

                4,781

              	 
	
                Amortization

              	 	 	
                452

              	 	 	
                198
                  

              	 	 	
                1,272
                  

              	 	 	
                600

              	 
	
                Income
                  from operations

              	 	 	
                
                

                3,524

              	 	 	
                
                

                1,239

              	 	 	
                
                

                8,685

              	 	 	
                
                

                3,417

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Other
                  income (expense):

              	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Interest

              	 	 	
                (977

              	
                )

              	 	
                (566

              	
                )

              	 	
                (2,143

              	
                )

              	 	
                (1,634

              	
                )

              
	
                Debt
                  retirement

              	 	 	
                (1,087

              	
                )

              	 	
                –

              	 	 	
                (1,087

              	
                )

              	 	
                
                  –

                

              	 
	
                Other

              	 	 	
                63

              	 	 	
                19

              	 	 	
                221

              	 	 	
                224

              	 
	
                Total
                  other income (expense)

              	 	 	
                
                

                (2,001

              	
                
                

                )

              	 	
                
                

                (547

              	
                
                

                )

              	 	
                
                

                (3,009

              	
                
                

                )

              	 	
                
                

                (1,410

              	
                
                

                )

              
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Net
                  income before minority interest and income taxes

              	 	 	
                
                

                1,523

              	 	 	
                
                

                692

              	 	 	
                
                

                5,676

              	 	 	
                
                

                2,007

              	 
	
                Minority
                  interest in income of subsidiaries

              	 	 	
                
                

                
                  –

                

              	 	 	
                
                

                (34

              	
                
                

                )

              	 	
                
                

                (488

              	
                
                

                )

              	 	
                
                

                (248

              	
                
                

                )

              
	
                Provision
                  for taxes

              	 	 	
                (230

              	
                )

              	 	
                (139

              	
                )

              	 	
                (559

              	
                )

              	 	
                (359

              	
                )

              
	
                Net
                  income

              	 	 	
                
                

                1,293

              	 	 	
                
                

                519

              	 	 	
                
                

                4,629

              	 	 	
                
                

                1,400

              	 
	
                Preferred
                  stock dividend

              	 	 	
                
                

                
                  –

                

              	 	 	
                
                

                
                  –

                

              	 	 	
                
                

                
                  –

                

              	 	 	
                
                

                (124

              	
                
                

                )

              
	
                Net
                  income attributed to common shareholders

              	 	
                $

              	
                1,293

              	 	
                $

              	
                519

              	 	
                $

              	
                4,629

              	 	
                $

              	
                1,276

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Net
                  income per common share:

              	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Basic

              	 	
                $

              	
                0.09

              	 	
                $

              	
                0.06

              	 	
                $

              	
                0.33

              	 	
                $

              	
                0.21

              	 
	
                Diluted

              	 	
                $

              	
                0.08

              	 	
                $

              	
                0.05

              	 	
                $

              	
                0.30

              	 	
                $

              	
                0.18

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Weighted
                  average shares outstanding:

              	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Basic

              	 	 	
                14,985

              	 	 	
                8,298

              	 	 	
                14,197

              	 	 	
                6,168

              	 
	
                Diluted

              	 	 	
                16,601

              	 	 	
                9,828

              	 	 	
                15,589

              	 	 	
                7,890

              	 


      



    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ALLIS-CHALMERS
      ENERGY INC.

    CONSOLIDATED
      CONDENSED BALANCE SHEETS

    (in
      thousands, except for share amounts)

    
      
        	 	 	
                September
                  30,

              	 	
                December
                  31,

              	 
	 	 	
                2005

              	 	
                2004

              	 
	 	 	
                (unaudited)

              	 	 	 
	
                Assets

              	 	 	 	 	 
	
                Cash
                  and cash equivalents

              	 	
                $

              	
                3,909

              	 	
                $

              	
                7,344

              	 
	
                Trade
                  receivables, net

              	 	 	
                23,777

              	 	 	
                12,986

              	 
	
                Inventory

              	 	 	
                5,217

              	 	 	
                2,373

              	 
	
                Lease
                  receivable, current

              	 	 	
                –

              	 	 	
                180

              	 
	
                Prepaid
                  expenses and other

              	 	 	
                1,014

              	 	 	
                1,495

              	 
	
                Total
                  current assets

              	 	 	
                33,917

              	 	 	
                24,378

              	 
	 	 	 	 	 	 	 	 
	
                Property
                  and equipment, net 

              	 	 	
                75,516

              	 	 	
                37,67

              	 
	
                Goodwill

              	 	 	
                12,042

              	 	 	
                11,776

              	 
	
                Other
                  intangible assets, net 

              	 	 	
                7,264

              	 	 	
                5,057

              	 
	
                Debt
                  issuance costs, net

              	 	 	
                783

              	 	 	
                685

              	 
	
                Lease
                  receivable, less current portion

              	 	 	
                –

              	 	 	
                558

              	 
	
                Other
                  assets

              	 	 	
                40

              	 	 	
                59

              	 
	
                Total
                  assets

              	 	
                $

              	
                129,562

              	 	
                $

              	
                80,192

              	 
	 	 	 	 	 	 	 	 
	
                Liabilities
                  and Stockholders' Equity

              	 	 	 	 	 	 	 
	
                Current
                  maturities of long-term debt

              	 	
                $

              	
                4,636

              	 	
                $

              	
                5,541

              	 
	
                Trade
                  accounts payable

              	 	 	
                8,703

              	 	 	
                5,694

              	 
	
                Accrued
                  salaries, benefits and payroll taxes

              	 	 	
                701

              	 	 	
                615

              	 
	
                Accrued
                  interest

              	 	 	
                462

              	 	 	
                470

              	 
	
                Accrued
                  expenses

              	 	 	
                4,688

              	 	 	
                1,852

              	 
	
                Accounts
                  payable, related parties

              	 	 	
                78

              	 	 	
                740

              	 
	
                Total
                  current liabilities

              	 	 	
                19,268

              	 	 	
                14,912

              	 
	 	 	 	 	 	 	 	 
	
                Accrued
                  postretirement benefit obligations

              	 	 	
                335

              	 	 	
                687

              	 
	
                Long-term
                  debt, net of current maturities

              	 	 	
                51,491

              	 	 	
                24,932

              	 
	
                Other
                  long-term liabilities

              	 	 	
                1,092

              	 	 	
                129

              	 
	
                Total
                  liabilities

              	 	 	
                72,186

              	 	 	
                40,660

              	 
	 	 	 	 	 	 	 	 
	
                Commitments
                  and contingencies 

              	 	 	 	 	 	 	 
	
                Minority
                  interests

              	 	 	
                
                  –

                

              	 	 	
                4,423

              	 
	 	 	 	 	 	 	 	 
	
                Stockholders'
                  Equity 

              	 	 	 	 	 	 	 
	
                Preferred
                  stock, $0.01 par value (25,000,000 shares authorized, no shares
                  issued)

              	 	 	
                
                  –

                

              	 	 	
                
                  –

                

              	 
	
                Common
                  stock, $0.01 par value (100,000,000 shares authorized; 16,453,714
                  issued
                  and outstanding at September 30, 2005 and 20,000,000 shares authorized
                  and
                  13,611,525 issued and outstanding at December 31, 2004)

              	 	 	
                165

              	 	 	
                136

              	 
	
                Capital
                  in excess of par value

              	 	 	
                57,940

              	 	 	
                40,331

              	 
	
                Accumulated
                  deficit

              	 	 	
                (729

              	
                )

              	 	
                (5,358

              	
                )

              
	
                Total
                  stockholders' equity

              	 	 	
                57,376

              	 	 	
                35,109

              	 
	
                Total
                  liabilities and stockholders' equity

              	 	
                $

              	
                129,562

              	 	
                $

              	
                80,192

              	 


      




    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              ALLIS-CHALMERS
                ENERGY INC.

            
	
              SEGMENT
                INFORMATION

            
	
              (in
                thousands, except per share)

            


    

     

    
      
        	 	 	
                For
                  the Three Months Ended

              	 	
                For
                  the Nine Months Ended

              	 
	 	 	
                September
                  30,

              	 	
                September
                  30,

              	 
	 	 	
                2005

              	 	
                2004

              	 	
                2005

              	 	
                2004

              	 
	 	 	 	 	
                (Restated)

              	 	 	 	
                (Restated)

              	 
	
                Revenues

              	 	 	 	 	 	 	 	 	 
	
                Directional
                  drilling services

              	 	
                $

              	
                11,383

              	 	
                $

              	
                6,677

              	 	
                $

              	
                32,218

              	 	
                $

              	
                18,352

              	 
	
                Casing
                  and tubing services

              	 	 	
                5,103

              	 	 	
                2,831

              	 	 	
                12,596

              	 	 	
                7,218

              	 
	
                Compressed
                  air drilling services

              	 	 	
                7,637

              	 	 	
                2,380

              	 	 	
                16,684

              	 	 	
                7,419

              	 
	
                Production
                  services

              	 	 	
                3,226

              	 	 	
                –

              	 	 	
                6,833

              	 	 	
                
                  –

                

              	 
	
                Rental
                  tools

              	 	 	
                1,559

              	 	 	
                
                  –

                

              	 	 	
                3,499

              	 	 	
                
                  –

                

              	 
	 	 	
                
                

                $

              	
                
                

                28,908

              	 	
                
                

                $

              	
                
                

                11,888

              	 	
                
                

                $

              	
                
                

                71,830

              	 	
                
                

                $

              	
                
                

                32,989

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Operating
                  Income (Loss):

              	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Directional
                  drilling services

              	 	
                $

              	
                1,696

              	 	
                $

              	
                1,048

              	 	
                $

              	
                5,069

              	 	
                $

              	
                2,435

              	 
	
                Casing
                  and tubing services

              	 	 	
                1,336

              	 	 	
                949

              	 	 	
                4,015

              	 	 	
                2,174

              	 
	
                Compressed
                  air drilling services

              	 	 	
                1,802

              	 	 	
                130

              	 	 	
                3,331

              	 	 	
                723

              	 
	
                Production
                  services

              	 	 	
                (128

              	
                )

              	 	
                
                  –

                

              	 	 	
                (130

              	
                )

              	 	
                
                  –

                

              	 
	
                Rental
                  tools

              	 	 	
                454

              	 	 	
                
                  –

                

              	 	 	
                780

              	 	 	
                
                  –

                

              	 
	
                General
                  corporate

              	 	 	
                (1,636

              	
                )

              	 	
                (888

              	
                )

              	 	
                (4,380

              	
                )

              	 	
                (1,915

              	
                )

              
	 	 	
                
                

                $

              	
                
                

                3,524

              	 	
                
                

                $

              	
                
                

                1,239

              	 	
                
                

                $

              	
                
                

                8,685

              	 	
                
                

                $

              	
                
                

                3,417

              	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Depreciation
                  and Amortization:

              	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Directional
                  drilling services

              	 	
                $

              	
                295

              	 	
                $

              	
                117

              	 	
                $

              	
                652

              	 	
                $

              	
                331

              	 
	
                Casing
                  and Tubing services

              	 	 	
                510

              	 	 	
                358

              	 	 	
                1,418

              	 	 	
                1,075

              	 
	
                Compressed
                  air drilling services

              	 	 	
                536

              	 	 	
                288

              	 	 	
                1,406

              	 	 	
                914

              	 
	
                Production
                  services

              	 	 	
                279

              	 	 	
                
                  –

                

              	 	 	
                604

              	 	 	
                
                  –

                

              	 
	
                Rental
                  tools

              	 	 	
                121

              	 	 	
                
                  –

                

              	 	 	
                386

              	 	 	
                
                  –

                

              	 
	
                General
                  corporate

              	 	 	
                102

              	 	 	
                26

              	 	 	
                203

              	 	 	
                76

              	 
	 	 	
                
                

                $

              	
                
                

                1,843

              	 	
                
                

                $

              	
                
                

                789

              	 	
                
                

                $

              	
                
                

                4,669

              	 	
                
                

                $

              	
                
                

                2,396

              	 
	
                Capital
                  Expenditures:

              	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                Directional
                  drilling services

              	 	
                $

              	
                945

              	 	
                $

              	
                94

              	 	
                $

              	
                2,145

              	 	
                $

              	
                882

              	 
	
                Casing
                  and tubing services

              	 	 	
                1,373

              	 	 	
                32

              	 	 	
                3,230

              	 	 	
                457

              	 
	
                Compressed
                  air drilling services

              	 	 	
                915

              	 	 	
                107

              	 	 	
                2,841

              	 	 	
                771

              	 
	
                Production
                  services

              	 	 	
                606

              	 	 	
                
                  –

                

              	 	 	
                896

              	 	 	
                
                  –

                

              	 
	
                Rental
                  tools

              	 	 	
                271

              	 	 	
                
                  –

                

              	 	 	
                278

              	 	 	
                
                  –

                

              	 
	
                General
                  corporate

              	 	 	
                12

              	 	 	
                8

              	 	 	
                195

              	 	 	
                10

              	 
	 	 	
                
                

                $

              	
                
                

                4,122

              	 	
                
                

                $

              	
                
                

                241

              	 	
                
                

                $

              	
                
                

                9,585

              	 	
                
                

                $

              	
                
                

                2,120

              	 


      

    

    


    


     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ALLIS-CHALMERS
      ENERGY INC.

    REGULATION
      G RECONCILIATION    

    


    Use
      of Adjusted EBITDA & Regulation G Reconciliation

     

    This
      earnings release contains references to the non-GAAP financial measure of
      earnings (net income) before interest, taxes, depreciation, and amortization,
      gain on asset sales and litigation settlements, minority interest and other
      income and expense or Adjusted EBITDA. This term, as used and defined by
      Allis-Chalmers, may not be comparable to similarly titled measures employed
      by
      other companies and is not a measure of performance calculated in accordance
      with GAAP. Adjusted EBITDA should not be considered in isolation or as a
      substitute for operating income, net income or loss, cash flows provided by
      operating, investing and financing activities, or other income or cash flow
      statement data prepared in accordance with GAAP. However, the Company believes
      Adjusted EBITDA is useful to an investor in evaluating ALY’s operating
      performance because:

     

    ·  It
      is
      widely used by investors in the energy industry to measure a company’s operating
      performance without regard to the items excluded from Adjusted EBITDA, which
      can
      vary substantially from company to company depending upon accounting methods
      and
      book value of assets, capital structure and the method by which assets were
      acquired; and

     

    ·  It
      helps
      investors more meaningfully evaluate and compare the results of the Company’s
      operations from period to period by removing the impact of the Company’s capital
      structure and asset base from Allis-Chalmers’ operating results.

     

    ·  It
      is
      used by Allis-Chalmers’ management as a measure of operating performance, in
      presentations to its board of directors, as a basis for strategic planning
      and
      forecasting, as a component for setting incentive compensation and to assess
      compliance in financial ratios, among others.

     

    There
      are
      material limitations to using Adjusted EBITDA as a measure of performance,
      including the inability to analyze the impact of recurring and non-recurring
      items that are excluded from Adjusted EBITDA and materially impact results
      of
      operations, and the lack of compatibility of the results of operations of
      different companies. 

     

    Reconciliations
      of this financial measure to the most directly comparable GAAP financial measure
      are provided in the table below. 

     

    Reconciliation
      of Adjusted EBITDA to GAAP Net Income 

    ($
      in
      millions)

    
      	 	 	 	 
	 	 	
               For
                the Three Months Ended

            	 
	 	 	
              September
                30,

            	 	
              September
                30,

            	 
	 	 	
              2005

            	 	
              2004

            	 
	
              Consolidated
                Adjusted EBITDA

            	 	
              $

            	
              5.37

            	 	
              $

            	
              2.03

            	 
	
              Depreciation
                and amortization

            	 	 	
              1.85

            	 	 	
              0.79

            	 
	
              GAAP
                Income from operations

            	 	
              $

            	
              3.52

            	 	
              $

            	
              1.24

            	 
	
              Interest
                expense

            	 	 	
              0.98

            	 	 	
              0.57

            	 
	
              Taxes

            	 	 	
              0.23

            	 	 	
              0.14

            	 
	
              Debt
                retirement expense

            	 	 	
              1.08
                

            	 	 	
              –

            	 
	
              Minority
                Interest & other expense (income)

            	 	 	
              (0.06

            	
              )

            	 	
              0.01

            	 
	
              Net
                income 

            	 	
              $

            	
              1.29

            	 	
              $

            	
              0.52

            	 


    

     

     

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