10-K

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 1934
	FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM          TO

Commission file number 1-2199

ALLIS-CHALMERS ENERGY INC.

(Exact name of registrant as specified in its charter)

Delaware	39-0126090
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5075 WESTHEIMER, SUITE 890 HOUSTON, TEXAS (Address of principal executive offices)	77056 (Zip code)

(713) 369-0550

Registrant’s telephone number, including area code

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Security:	Name of Exchange:
Common Stock, par value $0.01 per share	New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d).  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)                      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The aggregate market value of the common equity held by non-affiliates of the registrant, computed using the closing price of the common stock of $17.80 per share on June 30, 2008, as reported on the New York Stock Exchange, was approximately $372,126,700 (affiliates included for this computation only: directors, executive officers and holders of more than 5% of the registrant’s common stock).

As of February 23, 2009 there were 35,674,742 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Certain information called for by Items 10, 11, 12, 13 and 14 of Part III will be included in an amendment to this annual report on Form 10-K or incorporated by reference from the registrant’s definitive proxy statement for its 2009 annual meeting of stockholders.

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		5
	Item 1A.	Risk Factors		13
	Item 1B.	Unresolved Staff Comments		25
	Item 2.	Properties		26
	Item 3.	Legal Proceedings		26
	Item 4.	Submission of Matters to a Vote of Security Holders		28
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		28
	Item 6.	Selected Financial Data		31
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		49
	Item 8.	Financial Statements and Supplementary Data		50
	Item 9.	Changes and Disagreements with Accountants on Accounting and Financial Disclosure		97
	Item 9A.	Controls and Procedures		97
	Item 9B.	Other Information		98
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		98
	Item 11.	Executive Compensation		98
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		98
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		98
	Item 14.	Principal Accounting Fees and Services		98
PART IV
	Item 15.	Exhibits and Financial Statement Schedules		99
		Signatures and Certifications		100
EX-2.22
EX-10.14
EX-10.17
EX-10.27
EX-10.33
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

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DEFINITIONS

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

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

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SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, regarding our 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. However, these are not the exclusive means of identifying forward-looking statements. Although such forward-looking statements reflect our good faith judgment, such statements can only be based on facts and factors currently known to us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. These factors include, but are not limited to, the following:

•  the impact of the weak economic conditions and the future impact of such conditions on the oil and gas industry and demand for our services;

•  unexpected future capital expenditures (including the amount and nature thereof);

•  unexpected difficulties in integrating our operations as a result of any significant acquisitions;

•  adverse weather conditions in certain regions;

•  the impact of political disturbances, war, or terrorist attacks and changes in global trade policies;

•  the availability (or lack thereof) of capital to fund our business strategy and/or operations;

•  the potential impact of the loss of one or more key employees;

•  the effect of environmental liabilities that are not covered by an effective indemnity or insurance;

•  the impact of current and future laws;

•  the effects of competition; and

•  the effects of our indebtedness, which could adversely restrict our ability to operate, could make us vulnerable to general adverse economic and industry conditions, could place us at a competitive disadvantage compared to our competitors that have less debt, and could have other adverse consequences

Further information about the risks and uncertainties that may impact us are described in “Risk Factors” beginning on page — 13 — of this annual report. You should read those sections carefully. You should not place undue reliance on forward-looking statements, which speak only as of the date of this annual report. We undertake no obligation to update publicly any forward-looking statements in order to reflect any event or circumstance occurring after the date of this annual report or currently unknown facts or conditions or the occurrence of unanticipated events.

PART I.

ITEM 1.   BUSINESS

We provide services and equipment to oil and natural gas exploration and production companies throughout the U.S. including Texas, Oklahoma, Louisiana, Arkansas, Pennsylvania, New Mexico, Colorado, offshore in the Gulf of Mexico, and internationally primarily in Argentina, Mexico and Brazil. We operate in three sectors of the oil and natural gas service industry: Oilfield Services; Drilling and Completion and Rental Services. Our central operating strategy is to provide high-quality, technologically advanced services and equipment. As a result of our commitment to customer service, we have developed strong relationships with many of the leading oil and natural gas companies, including both independents and majors.

Our growth strategy is focused on identifying and pursuing opportunities in markets we believe are growing faster than the overall oilfield services industry and opportunities which we believe help us to

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mitigate cyclical risk by diversifying our cash flow. Over the past several years, we have significantly expanded the geographic scope of our operations and the range of services we provide through strategic acquisitions and organic growth. Our organic growth has primarily been achieved by expanding our geographic scope, acquiring complementary property and equipment, hiring personnel to service new regions and cross-selling our products and services. Since 2001, we have completed 24 acquisitions, including six in 2005, six in 2006, four in 2007 and one in 2008.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are made available free of charge on our website at www.alchenergy.com as soon as reasonably practicable after we electronically file or furnish them to the Securities and Exchange Commission, or SEC.

Our Board of Directors has documented its governance practices by adopting several corporate governance policies. These governance policies, including our corporate governance principles and our code of business ethics and conduct, as well as the charters for the committees of our Board (Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee) may be viewed on the investor relations section of our website. Copies of such documents will be sent to stockholders free of charge upon written request of the corporate secretary at the address shown on the cover page of this Form 10-K.

Information contained on or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report or any other filing we make with the SEC.

Divisional and geographic financial information appears in “Item 8. Financial Information — Notes to Consolidated Financial Statements — Note 14.”

Our History

•  We were incorporated in 1913 under Delaware law.

•  We reorganized in bankruptcy in 1988 and sold all of our major businesses. From 1988 to May 2001 we had only one operating company in the equipment repair business.

•  In May 2001, under new management we consummated a merger in which we acquired Oil Quip Rentals, Inc., or Oil Quip, and its wholly-owned subsidiary, Mountain Compressed Air, Inc., or MCA.

•  In December 2001, we sold Houston Dynamic Services, Inc., our last pre-bankruptcy business.

•  In February 2002, we acquired approximately 81% of the capital stock of Allis-Chalmers Tubular Services Inc., or Tubular, formerly known as Jens’ Oilfield Service, Inc. and substantially all of the capital stock of Strata Directional Technology, Inc., or Strata.

•  In July 2003, we entered into a limited liability company operating agreement with M-I L.L.C., or M-I, a joint venture between Smith International and Schlumberger N.V., to form a Delaware limited liability company named AirComp LLC, or AirComp. Pursuant to this agreement, we owned 55% and M-I owned 45% of AirComp.

•  In September 2004, we acquired the remaining 19% of the capital stock of Tubular.

•  In September 2004, we acquired all of the outstanding stock of Safco-Oil Field Products, Inc., or Safco.

•  In November 2004, AirComp acquired substantially all of the assets of Diamond Air Drilling Services, Inc. and Marquis Bit Co., LLC, which we refer to collectively as Diamond Air.

•  In December 2004, we acquired Downhole Injection Services, LLC, or Downhole.

•  In April 2005, we acquired all of the outstanding stock of Delta Rental Service, Inc., or Delta.

•  In May 2005, we acquired all of the outstanding stock of Capcoil Tubing Services, Inc., or Capcoil.

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•  In July 2005, we acquired M-I’s interest in AirComp, and acquired the compressed air drilling assets of W. T. Enterprises, Inc., or W.T.

•  Effective August 2005, we acquired all of the outstanding stock of Target Energy Inc., or Target.

•  In September 2005, we acquired the casing and tubing assets of IHS/Spindletop, a division of Patterson Services, Inc., a subsidiary of RPC, Inc.

•  In January 2006, we acquired all of the outstanding stock of Specialty Rental Tools, Inc., or Specialty.

•  In April 2006, we acquired all of the outstanding stock of Rogers Oil Tool Services, Inc., or Rogers.

•  In August 2006, we acquired all of the outstanding stock of DLS Drilling, Logistics & Services Corporation, or DLS.

•  In October 2006, we acquired all of the outstanding stock of Petro-Rentals, Incorporated, or Petro Rentals.

•  In December 2006, we acquired all of the outstanding stock of Tanus Argentina S.A., or Tanus.

•  In December 2006, we acquired substantially all of the assets of Oil & Gas Rental Services, Inc., or OGR.

•  In June 2007, we acquired all of the outstanding stock of Coker Directional, Inc., or Coker and merged it with Strata.

•  In June 2007, we sold our capillary assets that were acquired in the Downhole and Capcoil acquisitions

•  In July 2007, we acquired all of the outstanding stock of Diggar Tools, LLC, or Diggar and merged it with Strata.

•  In October 2007, we acquired all of the outstanding stock of Rebel Rentals, Inc., or Rebel.

•  In November 2007, we acquired substantially all the assets Diamondback Oilfield Services, Inc. or Diamondback.

•  In August 2008, we sold our drill pipe tong manufacturing assets that we acquired in the acquisition of Rogers.

•  In December 2008, we acquired all of the outstanding stock of BCH Ltd., or BCH.

As a result of these transactions, our prior results may not be indicative of current or future operations of those sectors.

Our Industry

The oilfield industry is highly cyclical. The most critical factor in assessing the outlook for the industry is the worldwide supply and demand for oil and the domestic supply and demand for natural gas. The industry is driven by commodity demand and corresponding price increases. As demand increases, producers raise their prices. The price escalation enables producers to increase their capital expenditures. The increased capital expenditures ultimately result in greater revenues and profits for services and equipment companies. The increased capital expenditures also ultimately result in greater production which historically has resulted in increased supplies and reduced prices.

Demand for our services generally increased from 2004 through 2007. Activity in the U.S. Gulf of Mexico, however decreased in the second half of 2007 due to the hurricane season and relocation of rigs to more attractive international markets. Demand for our services for most of 2008 was generally stable due to high oil and natural gas prices and the capital expenditures of the exploration and production companies. As a result, the number of active rigs drilling, or rig count, in the U.S. peaked at 2,031 in August of 2008 compared to 1,782 at the end of 2007. In the last quarter of 2008, the rig count in the U.S. began to drop due to the weakening U.S. economy, the decrease in oil and natural gas prices and the turmoil in the financial markets which affected the availability of capital for our customers. As of February 27, 2009, the U.S. rig count stood at 1,243.

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Business Segments

Oilfield Services.  We utilize state-of-the-art equipment to provide well planning and engineering services, directional drilling packages, downhole motor technology, well site directional supervision, exploratory and development re-entry drilling, downhole guidance services and other drilling services to our customers, including measurement-while-drilling (MWD) services. We provide compressed air equipment, chemicals and other specialized products for underbalanced drilling and production applications. We also provide specialized equipment and trained operators to perform a variety of pipe handling services, including installing casing and tubing, changing out drill pipe and retrieving production tubing for both onshore and offshore drilling and workover operations, which we refer to as tubular services. In addition, we provide a variety of quality production-related rental tools and equipment and services, including wire line services, land and offshore pumping services and coiled tubing.

According to Baker Hughes, as of February 27, 2009, 56% of all wells in the U.S. are drilled directionally and/or horizontally. We believe directional drilling offers several advantages over conventional drilling including: 1) improvement of total cumulative recoverable reserves; 2) improved reservoir production performance beyond conventional vertical wells; and 3) reduction of the number of field development wells.

All wells drilled for oil and natural gas require casing to be installed for drilling, and if the well is producing, tubing will be required in the completion phase. We currently provide tubular services primarily in Texas, Louisiana, Oklahoma and both onshore and offshore in the Gulf of Mexico and Mexico.

Underbalanced drilling shortens the time required to drill a well and enhances production by minimizing formation damage. There is a trend in the industry to drill, complete and workover wells with underbalanced operations. We currently have a combined fleet of approximately 260 compressors, boosters and foam units and we believe we are one of the largest providers of underbalanced drilling services in the United States. We also provide premium air hammers and bits to oil and natural gas companies for use in underbalanced drilling. Our broad and diversified product line enables us to compete in the underbalanced market with equipment and services packages engineered and customized to specifically meet customer requirements.

In 2007, we expanded our directional drilling capability by completing three acquisitions for approximately $37.3 million in total. These were Coker (June 2007), Diggar (July 2007) and Diamondback (November 2007). These acquisitions provided additional directional drillers, downhole motors, and MWD tools and enabled us to expand our presence in the Northern Rockies and the Mid-Continent areas. We currently maintain an inventory of approximately 330 drilling motors. Our straight-hole motors offer an opportunity to capture additional market share. We currently provide our directional drilling services in Texas, Oklahoma, Pennsylvania, Louisiana, North Dakota and offshore in the Gulf of Mexico.

We expanded our tubular services in September 2005 by acquiring the casing and tubing assets of IHS/Spindletop, a division of Patterson Services, Inc., a subsidiary of RPC, Inc. We paid $15.7 million for RPC, Inc.’s casing and tubing assets, which consisted of casing and tubing installation equipment, including hammers, elevators, trucks, pickups, power units, laydown machines, casing tools and torque turn equipment. The acquisition of RPC, Inc.’s casing and tubing assets increased our capability in tubular services and expanded our geographic capability. We opened new field offices in Corpus Christi, Texas, Kilgore, Texas, Lafayette, Louisiana and Houma, Louisiana. The acquisition allowed us to enter the East Texas and Louisiana market for casing and tubing services as well as offshore in the Gulf of Mexico. Additionally, the acquisition greatly expanded our premium tubing services. In April 2006 we acquired Rogers for a purchase price of approximately $13.7 million. Historically, Rogers rented, sold and serviced power drill pipe tongs and accessories and rental tongs for snubbing and well control applications and provided specialized tong operators for rental jobs. In August 2008, we sold the drill pipe tong manufacturing assets we acquired in the Rogers acquisition for approximately $7.5 million. In October 2007 we acquired Rebel Rentals, Inc. for a purchase price of approximately $7.3 million. Rebel owns an inventory of equipment used primarily for tubing installation services in the South Louisiana and Gulf Coast regions.

In July 2005, we purchased the compressed air drilling assets of W. T., operating in West Texas for $6.0 million. The acquired assets included air compressors, boosters, mist pumps, rolling stock and other equipment. We also acquired the remaining 45% equity interest in AirComp from M-I in July 2005. We

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currently provide underbalanced drilling services in Texas, Arkansas, Oklahoma, New Mexico, Colorado, Utah and Pennsylvania.

We started offering production related services with the acquisition of Downhole, in December 2004, and the acquisition of Capcoil, in May 2005. In October 2006, we expanded our production services with the acquisition of Petro Rentals for a purchase price of approximately $33.6 million. Petro Rentals served both the onshore and offshore markets, providing a variety of quality rental tools and equipment and services, with an emphasis on production-related equipment and services, including wire line services and equipment, land and offshore pumping services and coiled tubing. On June 29, 2007, we sold our capillary tubing units and related equipment for approximately $16.3 million. We reported a gain of approximately $8.9 million. The assets sold represented a small portion of our Oilfield Services segment. We currently provide production services in Texas, Louisiana and Arkansas.

Drilling and Completion.  We provide drilling, completion, workover and related services for oil and natural gas wells. We operate out of the San Jorge, Cuyan, Neuquen, Austral and Noroeste basins of Argentina and the Espirito Santo, Potiguar, Reconcavo and Sergipe basins of Brazil and in Bolivia. We also offer a wide variety of other oilfield services such as drilling fluids and completion fluids and engineering and logistics to complement our customers’ field organization.

Our Drilling and Completion segment was established with the acquisition of DLS in August 2006 for a purchase price of approximately $114.5 million. We expanded our Drilling and Completion segment with the acquisition of BCH, which operates in Brazil. In 2008, we invested $40.0 million into BCH via a 15% convertible subordinated secured debenture and we acquired the common stock of BCH for a total purchase price of $56.1 million. We currently operate a fleet of 74 land rigs, including 18 drilling rigs and 46 service rigs (workover and pulling units) in Argentina, seven drilling rigs and one service rig in Brazil and two drilling rigs in Bolivia. Argentine rig operations are generally conducted in remote regions of the country and require substantial infrastructure and support. In 2007, we placed orders for four drilling rigs and 16 service rigs. All of the service rigs and one of the drilling rigs were placed into service at various dates in 2008. A second drilling rig will be activated in March 2009 and the remaining two drilling rigs are expected to be delivered in the second quarter of 2009 for use in the U.S. for a customer operating in the Haynesville Shale. As of February 28, 2009, all of our rig fleet was actively marketed, except for one drilling rig that is presently inactive and is being refurbished and upgraded.

Rental Services.  We provide specialized oilfield rental equipment, including premium drill pipe, spiral heavy weight drill pipe, tubing work strings, blow out preventors, choke manifolds and various valves and handling tools, for both onshore and offshore well drilling, completion and workover operations. Most wells drilled for oil and natural gas require some form of rental equipment in both the drilling and completion of a well. We have an inventory of specialized equipment, which includes double studded adapters, test plugs, wear bushings, adaptor spools, baskets, spacer spools and other assorted handling tools in various sizes to meet our customers’ demands. We charge customers for rental equipment on a daily basis. Our customers are liable for the cost of inspection, repairs and lost or damaged equipment. We currently provide rental equipment in Texas, Louisiana, Oklahoma, offshore in the Gulf of Mexico and internationally in Mexico, Columbia, Libya and Malaysia.

Our Rental Services segment was established with the acquisition of Safco in September 2004 and Delta in April 2005. We significantly expanded our Rental Services segment in January 2006 with the acquisition of Specialty for a purchase price of approximately $95.3 million. Specialty had been in the rental business for over 25 years, providing oil and natural gas operators and oilfield services companies with rental equipment. We further expanded this segment with the acquisition of substantially all the assets of OGR in December 2006 for a purchase price of approximately $342.4 million. The assets we acquired included an extensive inventory of premium rental equipment, including drill pipe, spiral heavy weight drill pipe, tubing work strings, landing strings, blow out preventors, choke manifolds and various valves and handling tools for oil and natural gas drilling. Included in the acquisition were OGR’s facilities in Morgan City, Louisiana and Victoria, Texas.

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Competitive Strengths

We believe the following competitive strengths will enable us to capitalize on future opportunities:

Strategic position in high growth markets.  We focus on markets we believe are growing faster than the overall oilfield services industry and in which we can capitalize on our competitive strengths. Pursuant to this strategy, we have become a significant provider of products and services in directional drilling, casing and tubing, underbalanced drilling, drilling and completion and rental services.

Strong relationships with diversified customer base.  We have strong relationships with many of the major and independent oil and natural gas producers and service companies in Texas, Oklahoma, Louisiana, Arkansas, Pennsylvania, New Mexico, Colorado, offshore in the Gulf of Mexico, Argentina, Brazil and Mexico. Our largest customers include Pan American Energy, Apache Corporation, Repsol-YPF, Chesapeake Energy, Oxy, BP, ConocoPhilips, Anadarko Petroleum, Devon Energy, Materiales y Equipo Petroleo, or Matyep, TXCO Resources, Pioneer Natural Resources, North American Petroleum, Jones Energy Ltd, Drilex SA DE CV, Mariner Energy, El Paso Corporation, and Petroleo Brasileiro S.A, or Petrobras. Since 2002, we have broadened our customer base as a result of our acquisitions, technical expertise and reputation for quality customer service and by providing customers with technologically advanced equipment and highly skilled operating personnel.

Successful execution of growth strategy.  Over the past seven years, we have grown both organically and through successful acquisitions of competing businesses. Since 2001, we have completed 24 acquisitions. We strive to improve the operating performance of our acquired businesses by increasing their asset utilization and operating efficiency. These acquisitions and organic growth, through our capital expenditures program, have expanded our geographic presence and customer base and, in turn, have enabled us to cross-sell various products and services.

Diversified and increased cash flow sources.  We operate as a diversified oilfield service company through our three business segments. We believe that our product and service offerings and geographical presence through our three business segments provide us with diverse sources of cash flow. Our acquisition of DLS in Argentina in August 2006 and our acquisition of BCH in Brazil at the end of 2008, increased our international presence and we believe, provides more stable long-term contracts when compared to the volatility in the U.S. domestic market. Our acquisition of Petro Rentals in October 2006 significantly enhanced our production-related services and equipment provided by our Oilfield Services segment, and our acquisition of substantially all the assets of OGR in December 2006 expanded our Rental Services segment and increased our offshore and international operations.

Experienced management team.  Our executive management team has extensive experience in the energy sector, and consequently has developed strong and longstanding relationships with many of the major and independent exploration and production companies.

Business Strategy

The key elements of our long-term strategy include:

Mitigate cyclical risk through balanced operations.  We strive to mitigate cyclical risk across our lines of business by balancing our operations between onshore versus offshore; drilling versus production; rental tools versus service; domestic versus international; and natural gas versus crude oil. We will continue to shape our organic and acquisition growth efforts to provide further balance across these five categories. A key part of our strategy has been to increase our international operations because they increase our exposure to crude oil and provide opportunities for long-term contracts.

Expand geographically to provide greater access and service to key customer segments.  We have locations in Texas, New Mexico, Colorado, Wyoming, Arkansas, Oklahoma, Louisiana and Pennsylvania in order to enhance our proximity to customers and more efficiently serve their needs. Our acquisition of DLS expanded our geographic footprint into Argentina and our acquisition of BCH expanded our geographic footprint into Brazil. While we will continue to evaluate locations to conveniently serve our

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customers, due to the decrease in the rig count in late 2008 and 2009 in the U.S., we have begun to consolidate overlapping domestic operating yard locations in order to reduce costs.

Prudently pursue strategic acquisitions.  To complement our organic growth, we have historically pursued strategic acquisitions which we believe are accretive to earnings, complement our products and services, provide new equipment and technology, expand our geographic footprint and market presence, and further diversify our customer base. As part of our long-term growth strategy, we continue to review complementary acquisitions, as well as capital expenditures to enhance our ability to increase cash flows from our existing assets. Future acquisitions will be subject to an improved outlook for our products and services and improved availability of capital on reasonable terms.

Expand products and services provided in existing operating locations.  Since the beginning of 2004, we have invested approximately $329.7 million in capital expenditures to grow our business organically by investing in new, technologically advanced equipment and by expanding our product and service offerings. This strategy is consistent with our belief that our customers favor modern equipment emphasizing efficiency and safety and integrated suppliers that can provide a broad range of products and services in many geographic locations. Current economic conditions have led us to reduce our capital spending and operating expenses consistent with the decline in demand for our services as producers curtail their drilling activity.

Increase utilization of assets.  We seek to increase revenues and enhance margins by increasing the utilization of our assets with new and existing customers. We expect to accomplish this through leveraging longstanding relationships with our customers and cross-selling our suite of services and equipment. Currently, our focus has shifted to how to limit the reduction of utilization due to decreased drilling activity as a result of current economic conditions.

Customers

In 2008 and 2007, one of our customers, Pan American Energy LLC Sucursal Argentina, or Pan American Energy, represented approximately 28.5% and 20.7% of our consolidated revenues, respectively. Pan America Energy is a joint venture that is owned 60% by British Petroleum and 40% by Bridas Corporation. Alejandro P. Bulgheroni and Carlos A. Bulgheroni, two of our directors, may be deemed to indirectly beneficially own all of the outstanding capital stock of Bridas Corporation and are members of the Management Committee of Pan American Energy. The loss without replacement of our larger existing customers could have a material adverse effect on our results of operations.

Suppliers

The equipment utilized in our business is generally available new from manufacturers or at auction. However, the cost of acquiring new equipment to expand our business could increase as demand for equipment in the industry increases.

Competition

We experience significant competition in all areas of our business. In general, the markets in which we compete are highly fragmented, and a large number of companies offer services that overlap and are competitive with our services and products. We believe that the principal competitive factors are technical and mechanical capabilities, management experience, past performance and price. While we have considerable experience, there are many other companies that have comparable skills. Many of our competitors are larger and have greater financial resources than we do.

We believe that there are five major directional drilling companies, Schlumberger, Halliburton, Baker Hughes, Smith International (Pathfinder) and Weatherford, that market both worldwide and in the U.S. as well as numerous small regional players. Significant competitors in the tubular markets we serve include Frank’s Casing Crew and Rental Tools, Weatherford, BJ Services, Tesco and Premier. These markets remain highly competitive and fragmented with numerous casing and tubing crew companies working in the U.S. Our

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primary competitors in Mexico are South American Enterprises and Weatherford, both of which provide similar products and services. Our largest competitor for underbalanced drilling services is Weatherford. Weatherford focuses on large projects, but also competes in the more common compressed air, mist, foam and aerated mud drilling applications. Other competition comes from smaller regional companies. In the production services market there are numerous competitors, most of which have larger coiled tubing services operations than us.

Our five largest competitors in the Drilling and Completion segment, which operate primarily in Argentina, are Pride International, Servicios WellTech, Ensign Energy Services, Nabors and Helmerich & Payne, and San Antonio Global Ltd in Brazil.

The Rental Services business is highly fragmented with hundreds of companies offering various rental tool services. Our largest competitors include Weatherford, Quail Rental Tools, Knight Rental Tools and Smith International (Thomas Tools).

Backlog

We do not view backlog of orders as a significant measure for our business because our jobs are short-term in nature, typically one to 30 days, without significant on-going commitments.

Employees

Our strategy includes acquiring companies with strong management and entering into long-term employment contracts with key employees in order to preserve customer relationships and assure continuity following acquisition. In general, we believe we have good relations with our employees. None of our employees, other than our Drilling and Completion employees, are represented by a union. We actively train employees across various functions, which we believe is crucial to motivate our workforce and maximize efficiency. Employees showing a higher level of skill are trained on more technologically complex equipment and given greater responsibility. All employees are responsible for on-going quality assurance. At February 20, 2009, we had approximately 3,580 employees. Almost all of our Drilling and Completion operations located in Argentina and Brazil are subject to collective bargaining agreements. We believe that we maintain a satisfactory relationship with the unions to which our Drilling and Completion employees belong.

Insurance

We carry a variety of insurance coverages for our operations, and we are partially self-insured for certain claims in amounts that we believe to be customary and reasonable. However, there is a risk that our insurance may not be sufficient to cover any particular loss or that insurance may not cover all losses. We are responsible for the first $250,000 of claims under our workers compensation policy and the first $100,000 of claims under our general liability and medical insurance policies. Insurance rates have in the past been subject to wide fluctuation and changes in coverage could result in less coverage, increases in cost or higher deductibles and retentions.

Seasonality

Oil and natural gas operations of our customers located offshore and onshore in the U.S. Gulf of Mexico and in Mexico may be adversely affected by hurricanes and tropical storms, resulting in reduced demand for our services. For example, from August to October of 2007 we witnessed a decline in offshore drilling rig operations in the Gulf of Mexico in anticipation of the hurricane season. Many of those rigs have not returned to the U.S. Gulf and have been relocated to the international markets. In 2008, Hurricanes Gustav and Ike disrupted our operations along the Texas and Louisiana Gulf Coast and the East Texas/West Louisiana corridor. In addition, our customers’ operations in the Mid-Continent and Rocky Mountain regions of the U.S. are also adversely affected by seasonal weather conditions. These weather conditions limit our access to these job sites and our ability to service wells in these areas. These constraints decrease drilling activity and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs.

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Federal Regulations and Environmental Matters

Our operations are subject to federal, state and local laws and regulations relating to the energy industry in general and the environment in particular. Environmental laws have in recent years become more stringent and have generally sought to impose greater liability on a larger number of potentially responsible parties. Because we provide services to companies producing oil and natural gas, which are toxic substances, we may become subject to claims relating to the release of such substances into the environment. While we are not currently aware of any situation involving an environmental claim that would likely have a material adverse effect on us, it is possible that an environmental claim could arise that could cause our business to suffer. We do not anticipate any material expenditures to comply with environmental regulations affecting our operations.

In addition to claims based on our current operations, we are from time to time named in environmental claims relating to our activities prior to our reorganization in 1988 (See “Item 3. Legal Proceedings”).

Intellectual Property Rights

Except for our relationships with our customers and suppliers described above, we do not own any patents, trademarks, licenses, franchises or concessions which we believe are material to the success of our business.

ITEM 1A.   RISK FACTORS

Our business, financial condition, results of operations and the trading price of our securities can be materially and adversely affected by many events and conditions, including the following:

Risks Associated With Our Industry

Global political, economic and market conditions could negatively impact our business.

Our operations are affected by global political, economic and market conditions and the condition of the oil and natural gas industry. During recent months, there has been a substantial downturn in business activity and in the worldwide credit and capital markets that has led to a worldwide economic recession. Our operating results and the forward-looking information we provide are based on our current assumptions about oil and natural gas supply and demand, oil and natural gas prices, rig count and other market trends. Our assumptions on these matters are in turn based on currently available information, which is subject to change. The oil and natural gas industry is extremely volatile and subject to change based on political and economic factors outside our control. This volatility causes oil and natural gas companies and drilling contractors to change their strategies and expenditure levels. We have experienced in the past, and expect to experience in 2009, significant fluctuations in operating results based on these changes.

The current sustained declines in oil and natural gas prices, particularly in combination with the constrained capital markets and overall economic downturn, has resulted in a decline in activity by customers in our Oilfield Services and Rental Services segments during the first quarter of 2009. We cannot predict the timing or the duration of this or any other economic downturn in the economy and if the current conditions continue, our operating results and financial conditions could be materially adversely affected.

Our industry is highly competitive, with intense price competition.

The markets in which we operate are highly competitive. Contracts are traditionally awarded on a competitive bid basis. Pricing is often the primary factor in determining which qualified contractor is awarded a job. The competitive environment has intensified as mergers among oil and natural gas companies have reduced the number of available customers. The competitive environment has also intensified, late in 2008 and 2009, due to the decrease in the U.S. rig count and the demand for our services. Many other oilfield services companies are larger than we are and have resources that are significantly greater than our resources. These competitors are better able to withstand industry downturns, compete on the basis of price and acquire new equipment and technologies, all of which could affect our revenues and profitability. These competitors compete with us both for customers and for acquisitions of other businesses. This competition may cause our

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business to suffer. We believe that competition for contracts will continue to be intense in the foreseeable future.

Risks Associated With Our Company

Our business depends on spending by the oil and natural gas industry, and this spending and our business may be adversely affected by industry and financial market conditions that are beyond our control.

Demand for our products and services is dependent upon the level of oil and natural gas exploration and development activities of, and the corresponding capital spending by, oil and natural gas companies. The industry’s willingness to explore, develop and produce depends largely upon the availability of attractive drilling prospects, the price of oil and natural gas, and the prevailing view of future product prices. Oil and natural gas prices have been extremely volatile in recent months, and have declined significantly from their historic highs in mid-2008. Any prolonged reduction in oil and natural gas prices will depress levels of exploration, development, and production activity. Such price declines can be expected to reduce drilling activity and demand for our services, which could lead to lower pricing for our products and services. Accordingly, prolonged periods of lower drilling activity and the reduction in our customers’ expenditures could have a materially adverse effect on our financial condition, results of operations and cash flows.

Oil and natural gas prices depend on many factors beyond our control, including the following:

•  economic conditions in the U.S. and elsewhere;

•  changes in global supply and demand for oil and natural gas;

•  the level of production of the Organization of Petroleum Exporting Countries, commonly called OPEC;

•  the level of production of non-OPEC countries;

•  the price and quantity of imports of foreign oil and natural gas;

•  political conditions, including embargoes, in or affecting other oil and natural gas producing activities;

•  the level of global oil and natural gas inventories;

•  advances in exploration, development and production technologies; and

•  the availability of capital for exploration and production companies.

Recent adverse changes in the capital markets have also caused a number of oil and natural gas producers to announce reductions in capital budgets for future periods. Limitations on the availability of capital, or higher costs of capital, for financing expenditures may cause these and other oil and natural gas producers to make additional reductions to capital budgets in the future even if commodity prices remain at historically high levels.

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 customers are engaged in the oil and natural gas exploration business in the U.S., Argentina, Mexico and elsewhere. Historically, we have been dependent upon a few customers for a significant portion of our revenues. In 2008, 2007 and 2006, one of our customers, Pan American Energy represented 28.5%, 20.7% and 11.7% of our consolidated revenues, respectively. Pan American Energy also contributes a majority of the revenue derived from our Drilling and Completion operations. In 2008, 2007 and 2006, Pan American Energy represented 66.0%, 51.0% and 45.6% of our Drilling and Completion revenues, respectively.

Additionally, in 2007, we placed orders for 16 new service rigs and four drilling rigs pursuant to our strategic agreement with Pan American Energy. The 16 service rigs and one of the drilling rigs were delivered and placed in service in 2008 and an additional drilling rig will be activated in March 2009. The agreement with Pan American Energy currently has an expiration date of June 30, 2011. However, Pan American Energy

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may terminate the agreement (i) without cause at any time with 60 days’ notice, or (ii) in the event of a breach of the agreement by us if such breach is not cured within 20 days of notice of the breach. Because a majority of the revenues of our Drilling and Completion operations are currently generated under this agreement, the revenues and earnings of our Drilling and Completion operations will be materially adversely affected if this agreement is terminated unless we are able to enter into a satisfactory substitute arrangement. We cannot assure you that in the event of such a termination we would be able to enter into a substitute arrangement on terms similar to those contained in the current agreement with Pan American Energy.

This concentration of customers may increase our overall exposure to credit risk, and customers will likely be similarly affected by changes in economic and industry conditions. Our financial condition and results of operations will be materially adversely affected if one or more of our significant customers fails to pay us or ceases to contract with us for our services on terms that are favorable to us or at all.

Our customers may seek to cancel or renegotiate some of our Drilling and Completion contracts during periods of depressed market conditions or if we experience operational difficulties.

Substantially all of our Drilling and Completion business’ contracts with major customers are dayrate contracts, where we charge a fixed charge per day regardless of the number of days needed to drill the well. During depressed market conditions, a customer may no longer need a rig that is currently under contract or may be able to obtain a comparable rig at a lower daily rate. As a result, customers may seek to renegotiate the terms of their existing drilling contracts or avoid their obligations under those contracts. In addition, our customers may have the right to terminate existing contracts if we experience operational problems. The likelihood that a customer may seek to terminate a contract for operational difficulties is increased during periods of market weakness. The cancellation of a number of our drilling contracts could materially reduce our revenues and profitability.

An oversupply of comparable rigs in the geographic markets in which we compete could depress the utilization rates and dayrates for our rigs and materially reduce our revenues and profitability.

Utilization rates, which are the number of days a rig actually works divided by the number of days the rig is available for work, and dayrates, which are the contract prices customers pay for rigs per day, are also affected by the total supply of comparable rigs available for service in the geographic markets in which we compete. Improvements in demand in a geographic market may cause our competitors to respond by moving competing rigs into the market, thus intensifying price competition. Significant new rig construction could also intensify price competition. In the past, there have been prolonged periods of rig oversupply with correspondingly depressed utilization rates and dayrates largely due to earlier, speculative construction of new rigs. Improvements in dayrates and expectations of longer-term, sustained improvements in utilization rates and dayrates for drilling rigs may lead to construction of new rigs. These increases in the supply of rigs could depress the utilization rates and dayrates for our rigs and materially reduce our revenues and profitability.

We may experience increased labor costs or the unavailability of skilled workers and the failure to retain key personnel could hurt our operations.

Companies in our industry, including us, are dependent upon the available labor pool of skilled employees. We compete with other oilfield services businesses and other employers to attract and retain qualified personnel with the technical skills and experience required to provide our customers with the highest quality service. We are also subject to the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions. A shortage in the labor pool of skilled workers or other general inflationary pressures or changes in applicable laws and regulations could make it more difficult for us to attract and retain personnel and could require us to enhance our wage and benefits packages. There can be no assurance that labor costs will not increase. Any increase in our operating costs could cause our business to suffer.

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The operations and financial condition of our Drilling and Completion business could be affected by union activity and general labor unrest. Additionally, the labor expenses of our Drilling and Completion business could increase as a result of governmental regulation of payments to employees.

In Argentina and Brazil, labor organizations have substantial support and have considerable political influence. The demands of labor organizations in Argentina have increased in recent years as a result of the general labor unrest and dissatisfaction resulting from the disparity between the cost of living and salaries in Argentina as a result of the devaluation of the Argentine Peso. There can be no assurance that our Drilling and Completion business will not face labor disruptions in the future or that any such disruptions will not have a material adverse effect on our financial condition or results of operations.

The Argentine government has in the past and may in the future promulgate laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees, including significant mandatory severance payments. In the aftermath of the Argentine economic crisis of 2001 and 2002, both the government and private sector companies have experienced significant pressure from employees and labor organizations relating to wage levels and employee benefits. In early 2005, the Argentine government promised not to order salary increases by decree. However, there has been no abatement of pressure to mandate salary increases, and it is possible the government will adopt measures that will increase salaries or require our Drilling and Completion business to provide additional benefits, which would increase our costs and potentially reduce our profitability, cash flow and/or liquidity.

Rig upgrade, refurbishment and construction projects are subject to risks, including delays and cost overruns, which could have an adverse effect on our results of operations and cash flows.

Our Drilling and Completion business often has to make upgrade and refurbishment expenditures for its rig fleet to comply with our quality management and preventive maintenance system or contractual requirements or when repairs are required in response to an inspection by a governmental authority. We may also make significant expenditures when rigs are moved from one location to another. Additionally, we may make substantial expenditures for the construction of new rigs. Rig upgrade, refurbishment and construction projects are subject to the risks of delay or cost overruns inherent in any large construction project.

Significant cost overruns or delays could adversely affect our financial condition and results of operations. Additionally, capital expenditures for rig upgrade, refurbishment or construction projects could exceed our planned capital expenditures, impairing our ability to service our debt obligations.

Currently, we have two land drilling rigs under construction that are to be completed in the second quarter of 2009. If these rigs are not completed on time, our financing commitment will expire. The turmoil in the financial markets in 2008 and its impact on the financial condition of the banking sector and other lenders, has increased the uncertainty that capital will be available to us, or available at a reasonable cost. As such, we may be unable to complete the acquisition of these two rigs. In addition, we have halted construction on two other land drilling rigs because of the drop in the U.S. rig count and the feasibility of utilizing the rigs when completed.

Severe weather could have a material adverse impact on our business.

Our business could be materially and adversely affected by severe weather. Repercussions of severe weather conditions may include:

•  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.

For example, oil and natural gas operations of our customers located offshore and onshore in the Gulf of Mexico and in Mexico have from time to time been adversely affected by floods, hurricanes and tropical

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storms, resulting in reduced demand for our services. In 2008, Hurricanes Gustav and Ike disrupted our operations along the Texas and Louisiana Gulf Coast and the East Texas/West Louisiana corridor. Further, our customers’ operations in the Mid-Continent and Rocky Mountain regions of the U.S. are also adversely affected by seasonal weather conditions. This limits our access to these job sites and our ability to service wells in these areas. These constraints decrease drilling activity and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs.

We have recorded substantial goodwill as the result of our acquisitive nature and as such goodwill is subject to periodic reviews of impairment.

We perform purchase price allocations to intangible assets when we make a business combination. Business combinations and purchase price allocations have been consummated for acquisitions in all of our reportable segments. The excess of the purchase price after allocation of fair values to tangible assets is allocated to identifiable intangibles and thereafter to goodwill. In accordance with Financial Accounting Standards Board No. 142, Goodwill and Other Intangible Assets, or FASB No. 142, we conduct periodic reviews of goodwill for impairment in value. Any impairments would result in a non-cash charge against earnings in the period reviewed, which may or may not create a tax benefit, and would have a corresponding decrease in stockholders’ equity.

We reviewed goodwill at December 31, 2008 and recorded an impairment of $115.8 million, which was all of our goodwill for the Rental Services segment as well as the impairment of goodwill associated with our Tubular Services and Production Services businesses within our Oilfield Services segment. In the event that market conditions continue to deteriorate or we have a prolonged downturn, we may be required to record an additional impairment of goodwill and such impairment could be material.

We may fail to acquire additional businesses, which will restrict our growth and may have a material adverse effect on our ability to meet our obligations under the notes.

Part of our long term business strategy has been to acquire companies operating in the oilfield services industry. However, there can be no assurance that we will be successful in acquiring any additional companies. Successful acquisition of new companies will depend on various factors, including but not limited to:

•  our ability to obtain financing;

•  the competitive environment for acquisitions; and

•  the integration and synergy issues described in the next risk factor.

There can be no assurance that we will be able to acquire and successfully operate any particular business or that we will be able to expand into areas that we have targeted. If we fail to acquire additional businesses or are unable to finance such acquisitions, our financial condition, our results of operations and our ability to meet our debt obligations may be materially adversely affected.

Difficulties in integrating acquired businesses may result in reduced revenues and income.

We may not be able to successfully integrate any business we acquire in the future. The integration of a business could be complex and time consuming and place a significant strain on management and our information systems, and this strain could disrupt our businesses. Furthermore, if our combined businesses continue to grow rapidly, we may be required to replace our current information and accounting systems with systems designed for companies that are larger than ours. We may encounter substantial difficulties, costs and delays involved in integrating common accounting, information and communication systems, operating procedures, internal controls and human resources practices, including incompatibility of business cultures and the loss of key employees and customers. These difficulties may reduce our ability to gain customers or retain existing customers, and may increase operating expenses, resulting in reduced revenues and income and a failure to realize the anticipated benefits of acquisitions.

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We have made numerous acquisitions during the past five years. As a result of these transactions, our past performance is not indicative of future performance, and investors should not base their expectations as to our future performance on our historical results.

Failure to maintain effective disclosure controls and procedures and/or internal controls over financial reporting could have a material adverse effect on our operations.

As part of our growth strategy, we may make additional strategic acquisitions of privately held businesses. It is likely that our future acquired businesses will not have been required to maintain such disclosure controls and procedures or internal controls prior to their acquisition. Likewise, upon the completion of any future acquisition, we will be required to integrate the acquired business into our consolidated company’s system of disclosure controls and procedures and internal controls over financial reporting, but we cannot assure you as to how long the integration process may take for any business that we may acquire. Furthermore, during the integration process, we may not be able to fully implement our consolidated disclosure controls and internal controls over financial reporting.

Likewise, during the course of our integration of any acquired business, we may identify needed improvements to our or such acquired business’ internal controls and may be required to design enhanced processes and controls in order to make such improvements. This could result in significant delays and costs to us and could require us to divert substantial resources, including management time, from other activities.

If we fail to maintain the adequacy of our disclosure controls and procedures and our internal controls, we may not be able to conclude that we have effective disclosure controls and procedures and/or effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Also, our independent registered public accounting firm may be unable to express an opinion on our management’s evaluation of, or on the effectiveness of, our internal controls.

If it is determined that our disclosure controls and procedures and/or our internal controls over financial reporting are not effective and/or we fail to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act on a timely basis, we may not be able to provide reliable financial and other reports or prevent fraud, which, in turn:

•  could harm our business and operating results,

•  cause investors to lose confidence in the accuracy and completeness of our financial reports,

•  have a material adverse effect on the trading price of our common stock or

•  adversely affect our ability to timely file our periodic reports with the SEC.

Any failure to timely file our periodic reports with the SEC may give rise to a default under the indentures governing our outstanding 9.0% senior notes due 2014, which we refer to as our 9.0% senior notes, our outstanding 8.5% senior notes due 2017, which we refer to as our 8.5% senior notes and any other debt securities we may offer and, ultimately, an acceleration of amounts due thereunder. In addition, a default under the indentures generally will also give rise to a default under our credit agreement and could cause the acceleration of amounts due under the credit agreement. If an acceleration of our 9.0% senior notes, our 8.5% senior notes or our other debt were to occur, we cannot assure you that we would have sufficient funds to repay such obligations.

We do business in international jurisdictions whose political and regulatory environments and compliance regimes differ from those in the U.S:

A significant amount of our revenue is attributable to operations in foreign countries. These activities accounted for approximately 45.9% of our consolidated revenue in the year ended December 31, 2008. Risks associated with our operations in foreign areas include, but are not limited to:

•  political instability, terrorist acts, war and civil disturbances;

•  changes in laws or policies regarding the award of contracts;

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•  the inability to collect or repatriate currency, income, capital or assets;

•  expropriation of assets;

•  nationalization of components of the energy industry in the geographic areas where we operate;

•  foreign currency fluctuations and devaluation; and

•  new economic and tax policies.

Part of our strategy is to prudently and opportunistically acquire businesses and assets that complement our existing products and services, and to expand our geographic footprint. If we make acquisitions in other countries, we may increase our exposure to the risks discussed above.

We attempt to limit the risks of currency fluctuation and restrictions on currency repatriation where possible by obtaining contracts providing for payment of a percentage of the contract indexed to the U.S. dollar exchange rate. To the extent possible, we seek to limit our exposure to local currencies by matching the acceptance of local currencies to our local expense requirements in those currencies. Although we have done this in the past, we may not be able to take these actions in the future, thereby exposing us to foreign currency fluctuations that could cause our results of operations, financial condition and cash flows to deteriorate materially.

Additionally, in some jurisdictions we are subject to foreign governmental regulations favoring or requiring the awarding of contracts to local contractors or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These regulations may adversely affect our ability to compete.

Our international business operations also include projects in countries where governmental corruption has been known to exist and where our competitors who are not subject to U.S. laws and regulations, such as the Foreign Corrupt Practices Act, can gain competitive advantages over us by securing business awards, licenses or other preferential treatment in those jurisdictions using methods that U.S. law and regulations prohibit us from using. For example, our non-U.S. competitors are not subject to the anti-bribery restrictions of the Foreign Corrupt Practices Act, which make it illegal to give anything of value to foreign officials or employees or agents of nationally owned oil companies in order to obtain or retain any business or other advantage. We may be subject to competitive disadvantages to the extent that our competitors are able to secure business, licenses or other preferential treatment by making payments to government officials and others in positions of influence.

Violations of these laws could result in monetary and criminal penalties against us or our subsidiaries and could damage our reputation and, therefore, our ability to do business.

Devaluation of the Argentine Peso, the Mexican Peso or the Brazilian Real could adversely affect our results of operations.

These currencies have been subject to significant devaluation in the past and may be subject to significant fluctuations in the future. Given the economic and political uncertainties which have historically existed in Argentina, it is impossible to predict whether, and to what extent, the value of the Argentine Peso may depreciate or appreciate against the U.S. dollar. We cannot predict how these uncertainties will affect our financial results, but there is a risk that our financial performance could be adversely affected. Moreover, we cannot predict whether the Argentine government will further modify its monetary policy and, if so, what effect any of these changes could have on the value of the Argentine Peso. Such changes could have an adverse effect on our financial condition and results of operations.

Argentina continues to face considerable political and economic uncertainty.

Although general economic conditions have shown improvement and political protests and social disturbances have diminished considerably since the economic crisis of 2001 and 2002, the rapid and radical nature of the changes in the Argentine social, political, economic and legal environment over the past several

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years and the absence of a clear political consensus in favor of any particular set of economic policies have given rise to significant uncertainties about the country’s economic and political future. It is currently unclear whether the economic and political instability experienced over the past several years will continue and it is possible that, despite recent economic growth, Argentina may return to a deeper recession, higher inflation and unemployment and greater social unrest. If instability persists, there could be a material adverse effect on our results of operations and financial condition.

In the event of further social or political crisis, companies in Argentina may also face the risk of further civil and social unrest, strikes, expropriation, nationalization, forced renegotiation or modification of existing contracts and changes in taxation policies, including royalty and tax increases and retroactive tax claims.

In addition, investments in Argentine companies may be further affected by changes in laws and policies of the U.S. affecting foreign trade, taxation and investment.

An increase in inflation in Argentina could have a material adverse effect on our results of operations.

Historically, the devaluation of the Argentine Peso has created pressures on the domestic price system that generated high rates of inflation in 2002 before substantially stabilizing in 2003 and remaining stable in 2004. In 2005, however, inflation rates began to increase. In addition, in response to the economic crisis in 2002, the federal government granted the Central Bank greater control over monetary policy than was available to it under the previous monetary regime, known as the “Convertibility” regime, including the ability to print currency, to make advances to the federal government to cover its anticipated budget deficit and to provide financial assistance to financial institutions with liquidity problems. We cannot assure you that inflation rates will remain stable in the future. Significant inflation in Argentina could have a material adverse effect on our results of operations and financial condition.

The loss of key executives would adversely affect our ability to effectively finance and manage our business, acquire new businesses, and obtain and retain customers.

We are dependent upon the efforts and skills of our executives to finance and manage our business, identify and consummate additional acquisitions and obtain and retain customers. These executives include our Chief Executive Officer and Chairman of the Board, Munawar H. Hidayatallah.

In addition, our development and expansion will require additional experienced management and operations personnel. No assurance can be given that we will be able to identify and retain these employees. Also, the loss of the services of one or more of our key executives could increase our exposure to the other risks described in this “Risk Factors” section. We do not maintain key man insurance on any of our personnel.

We are subject to numerous governmental laws and regulations, including those that may impose significant liability on us for environmental and natural resource damages.

We are subject to various federal, state, local and foreign laws and regulations relating to the energy industry in general and the environment in particular. For example, many aspects of our Drilling and Completion operations are subject to laws and regulations that may relate directly or indirectly to the contract drilling and well servicing industries, including those requiring us to control the discharge of oil and other contaminants into the environment or otherwise relating to environmental protection. The countries where our Drilling and Completion business operates have environmental laws and regulations covering the discharge of oil and other contaminants and protection of the environment in connection with operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and even criminal penalties, the imposition of remedial obligations, and the issuance of injunctions that may limit or prohibit our operations. Laws and regulations protecting the environment have become more stringent in recent years and may in certain circumstances impose strict liability, rendering us liable for environmental and natural resource damages without regard to negligence or fault on our part. These laws and regulations may expose us to liability for the conduct of, or conditions caused by, others or for acts that were in compliance with all applicable laws at the time the acts were performed. The application of these requirements, the modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or

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development drilling for oil and gas could materially limit future contract drilling opportunities or materially increase our costs or both.

Environmental liabilities relating to discontinued operations could result in substantial losses.

Since our reorganization under the U.S. federal bankruptcy laws in 1988, a number of parties, including the Environmental Protection Agency, or EPA, have asserted that we are responsible for the cleanup of hazardous waste sites with respect to our pre-bankruptcy activities. We believe that such claims are barred by applicable bankruptcy law, and we have not experienced any material expense in relation to any such claims. However, if we do not prevail with respect to these claims in the future, or if additional environmental claims are asserted against us relating to our current or future activities in the oil and natural gas industry, we could become subject to material environmental liabilities that could have a material adverse effect on our financial condition and results of operations.

Products liability claims relating to discontinued operations could result in substantial losses.

Since our reorganization under the U.S. federal bankruptcy laws in 1988, we have been regularly named in products liability lawsuits primarily resulting from the manufacture of products containing asbestos. In connection with our bankruptcy, a special products liability trust was established and funded to address products liability claims. We believe that claims against us are barred by applicable bankruptcy law, and that the products liability trust will continue to be responsible for products liability claims. Since 1988, no court has ruled that we are responsible for products liability claims. However, if we are held responsible for product liability claims, we could suffer substantial losses that could have a material adverse effect on our financial condition and results of operations. We have not manufactured products containing asbestos since our reorganization in 1988.

We may be subject to claims for personal injury and property damage, which could materially adversely affect our financial condition and results of operations.

Our products and services are used for the exploration and production of oil and natural gas. These operations are subject to inherent hazards that can cause personal injury or loss of life, damage to or destruction of property, equipment, the environment and marine life, and suspension of operations. Litigation arising from an accident at a location where our products or services are used or provided may cause us to be named as a defendant in lawsuits asserting potentially large claims. We maintain customary insurance to protect our business against these potential losses. Our insurance has deductibles or self-insured retentions and contains certain coverage exclusions. However, we could become subject to material uninsured liabilities that could have a material adverse effect on our financial condition and results of operations.

Substantially all of our Drilling and Completion operations are subject to hazards that are customary for oil and natural gas drilling operations, including blowouts, reservoir damage, loss of well control, cratering, oil and gas well fires and explosions, natural disasters, pollution and mechanical failure. Any of these risks could result in damage to or destruction of drilling equipment, personal injury and property damage, suspension of operations or environmental damage. Generally, drilling contracts provide for the division of responsibilities between a drilling company and its customer, and we generally obtain indemnification from customers by contract for some of these risks. However, there may be limitations on the enforceability of indemnification provisions that allow a contractor to be indemnified for damages resulting from the contractor’s fault. To the extent that we are unable to transfer such risks to customers by contract or indemnification agreements, we generally seek protection through insurance. However, we have a significant amount of self-insured retention or deductible for certain losses relating to workers’ compensation, employers’ liability, general liability and property damage. There is no assurance that such insurance or indemnification agreements will adequately protect us against liability from all of the consequences of the hazards and risks described above. The occurrence of an event not fully insured or for which we are not indemnified against, or the failure of a customer or insurer to meet its indemnification or insurance obligations, could result in substantial losses. In addition, there can be no assurance that insurance will continue to be available to cover any or all of these

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risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as to make the cost of such insurance prohibitive.

Risks Associated With an Investment in Our Common Stock

Our common stock price has been volatile, which could adversely affect our business and cause our stockholders to suffer significant losses

The volatility of our stock price depends upon many factors including:

•  decreases in prices for oil and natural gas resulting in decreased demand for our services;

•  variations in our operating results and failure to meet expectations of investors and analysts;

•  increases in interest rates;

•  illiquidity of the market for our common stock;

•  developments specifically affecting the economies in Latin America;

•  sales of common stock by existing stockholders;

•  our substantial indebtedness; and

•  other developments affecting us or the financial markets.

A reduced stock price will result in a loss to investors and will adversely affect our ability to issue stock to fund our activities.

Substantial sales of our common stock could adversely affect our stock price.

Sales of a substantial number of shares of common stock, or the perception that such sales could occur, could adversely affect the market price of our common stock by introducing a large number of sellers to the market. Such sales could cause the market price of our common stock to decline.

We have 35,674,742 shares outstanding as of February 23, 2009. At December 31, 2008, we had reserved an additional 1,661,187 shares of common stock for issuance under our equity compensation plans, of which 901,732 shares were issuable upon the exercise of outstanding options with a weighted average exercise price of $10.95 per share and 481,666 shares were issuable under restricted stock award grants subject to performance based vesting. In addition, we have reserved 4,000 shares of common stock for issuance upon the exercise of outstanding options (with an exercise price of $13.75 per share) granted to board members in 1999 and 2000.

In connection with our acquisition of DLS, we entered into an investors rights agreement with the seller parties to the DLS stock purchase agreement, who collectively hold 4,867,000 shares of our common stock as of February 23, 2009. Under that agreement, the DLS sellers are entitled to certain rights with respect to the registration of the sale of such shares under the Securities Act. By exercising their registration rights and causing a large number of shares to be sold in the public market, these holders could cause the market price of our common stock to decline.

We cannot predict whether future sales of our common stock, or the availability of our common stock for sale, will adversely affect the market price for our common stock or our ability to raise capital by offering equity securities.

In connection with our acquisitions of DLS, the DLS sellers have the right to designate two nominees for election to our board of directors. The interests of the DLS sellers may be different from yours.

The DLS sellers collectively hold 4,867,000 shares of our common stock, representing approximately 13.6% of our issued and outstanding shares as of February 23, 2009. Under the investors rights agreement that we entered into in connection with the DLS acquisition, the DLS sellers have the right to designate two nominees for election to our board of directors. As a result, the DLS sellers have a greater ability to determine the composition of our

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board of directors and to control our future operations and strategy as compared to the voting power and control that could be exercised by a stockholder owning the same number of shares and not benefiting from board designation rights.

Conflicts of interest between the DLS sellers, on the one hand, and other holders of our securities, on the other hand, may arise with respect to sales of shares of capital stock owned by the DLS sellers or other matters. In addition, the interests of the DLS sellers regarding any proposed merger or sale may differ from the interests of other holders of our securities.

The board designation rights described above could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the market price of our securities and/or our ability to meet our obligations thereunder.

Existing stockholders’ interest in us may be diluted by additional issuances of equity securities.

We expect to issue additional equity securities to fund the acquisition of additional businesses and pursuant to employee benefit plans. We may also issue additional equity securities for other purposes. These securities may have the same rights as our common stock or, alternatively, may have dividend, liquidation, or other preferences to our common stock. The issuance of additional equity securities will dilute the holdings of existing stockholders and may reduce the share price of our common stock.

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.

We have not paid any cash dividends on our common stock within the last ten years, and we have no intention in the foreseeable future to pay any cash dividends on our common stock. Furthermore, our credit agreement and the indentures governing our outstanding senior notes restrict our ability to pay dividends on our common stock. Therefore, an investor in our common stock will obtain an economic benefit from the common stock only after an increase in its trading price and only by selling the common stock.

Risks Associated With Our Indebtedness

We are a holding company, and as a result we are dependent on dividends from our subsidiaries to meet our obligations, including with respect to the notes.

We are a holding company and do not conduct any business operations of our own. Our principal assets are the equity interests we own in our operating subsidiaries, either directly or indirectly. As a result, we are dependent upon cash dividends, distributions or other transfers we receive from our subsidiaries to repay any debt we may incur, and to meet our other obligations. The ability of our subsidiaries to pay dividends and make payments to us will depend on their operating results and may be restricted by, among other things, applicable corporate, tax and other laws and regulations and agreements of those subsidiaries, as well as by the terms of our credit agreement and the indentures governing our 9.0% senior notes, our 8.5% senior notes and any other debt securities we may offer. For example, the corporate laws of some jurisdictions prohibit the payment of dividends by any subsidiary unless the subsidiary has a capital surplus or net profits in the current or immediately preceding fiscal year. Payments or distributions from our subsidiaries also could be subject to restrictions on dividends or repatriation of earnings under applicable local law, and monetary transfer restrictions in the jurisdictions in which our subsidiaries operate. Our subsidiaries are separate and distinct legal entities. Any right that we have to receive any assets of/or distributions from any subsidiary upon its bankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of the assets of any subsidiary, will be junior to the claims of that subsidiary’s creditors, including trade creditors.

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We have a substantial amount of debt, which could adversely affect our financial health and prevent us from making principal and interest payments on the notes and our other debt.

At December 31, 2008, we have approximately $593.7 million of consolidated total indebtedness outstanding and approximately $47.7 million of additional secured borrowing capacity available under our credit agreement.

Our substantial debt could have important consequences for you. For example, it could:

•  make it more difficult for us to satisfy our obligations with respect to our 9.0% senior notes, our 8.5% senior notes and any other debt securities we may offer and our other debt;

•  increase our vulnerability to general adverse economic and industry conditions, including declines in oil and natural gas prices and declines in drilling activities;

•  limit our ability to obtain additional financing for future working capital, capital expenditures, mergers and other general corporate purposes;

•  require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes;

•  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•  make us more vulnerable to increases in interest rates;

•  place us at a competitive disadvantage compared to our competitors that have less debt; and

•  have a material adverse effect on us if we fail to comply with the covenants in the indentures relating to our 9.0% senior notes, our 8.5% senior notes and any other debt securities we may offer or in the instruments governing our other debt.

In addition, we may incur substantial additional debt in the future. Each of the indentures governing our 9.0% senior notes and our 8.5% senior notes permits (and we anticipate that the indentures governing any other debt securities we may offer will also permit) us to incur additional debt, and our credit agreement permits additional borrowings. If new debt is added to our current debt levels, these related risks could increase.

We may not maintain sufficient revenues to sustain profitability or to meet our capital expenditure requirements and our financial obligations. Also, we may not be able to generate a sufficient amount of cash flow to meet our debt service obligations.

Our ability to make scheduled payments or to refinance our obligations with respect to our debt will depend on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and to certain financial, business and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay scheduled expansion and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. We cannot assure you that our operating performance, cash flow and capital resources will be sufficient for payment of our debt in the future. In the event that we are required to dispose of material assets or operations or restructure our debt to meet our debt service and other obligations, we cannot assure you that the terms of any such transaction would be satisfactory to us or if or how soon any such transaction could be completed.

If we fail to obtain additional financing, we may be unable to refinance our existing debt, expand our current operations or acquire new businesses, which could result in a failure to grow or result in defaults in our obligations under our credit agreement, our 9.0% senior notes, our 8.5% senior notes or our other debt securities.

In order to refinance indebtedness, expand existing operations and acquire additional businesses, we will require substantial amounts of capital. There can be no assurance that financing, whether from equity or debt

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financings or other sources, will be available or, if available, will be on terms satisfactory to us. The turmoil in the financial markets in 2008 and its impact on the financial condition of the banking sector and other lenders, has increased the uncertainty that capital will be available to us, or available at a reasonable cost. If we are unable to obtain financing, we will be unable to acquire additional businesses and may be unable to meet our obligations under our credit agreement, our 9.0% senior notes, our 8.5% senior notes or any other debt securities we may offer.

The indenture governing our 9.0% senior notes, the indenture governing our 8.5% senior notes and our credit agreement impose restrictions on us that may limit the discretion of management in operating our business and that, in turn, could impair our ability to meet our obligations.

The indenture governing our 9.0% senior notes, the indenture governing our 8.5% senior notes and our credit agreement contain various restrictive covenants that limit management’s discretion in operating our business. In particular, these covenants limit our ability to, among other things:

•  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.

Our revolving credit agreement requires us to maintain specified financial ratios. If we fail to comply with the financial ratio covenants, it could limit or eliminate the availability under our revolving credit agreement. Our ability to maintain such financial ratios may be affected by events beyond our control, including changes in general economic and business conditions, and we cannot assure you that we will maintain or meet such ratios and tests or that the lenders under the credit agreement will waive any failure to meet such ratios or tests. The decrease in the U.S. rig count experienced late in 2008 and early 2009, the expectation of additional decreases in the U.S. rig count, and the resulting decrease in demand for our services adversely impacts our ability to maintain or meet such financial ratios.

These covenants could materially and adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand, to pursue our business strategies and otherwise to conduct our business. A breach of these covenants could result in a default under the indentures governing our 9.0% senior notes, our 8.5% senior notes and any other debt securities we may offer and/or the credit agreement. If there were an event of default under any of the indentures or the credit agreement, the affected creditors could cause all amounts borrowed under these instruments to be due and payable immediately. Additionally, if we fail to repay indebtedness under our credit agreement when it becomes due, the lenders under the credit agreement could proceed against the assets which we have pledged to them as security. Our assets and cash flow might not be sufficient to repay our outstanding debt in the event of a default.

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.   PROPERTIES

The following table describes the location and general character of the principal physical properties used in each of our company’s businesses as of March 2, 2009. Our principal executive office is rented and located in Houston, Texas and the table below presents all of our operating locations and whether the property is owned or leased.

Business Segment	Location	Owned/Leased
Oilfield Services	Searcy, Arkansas	Leased
	Broussard, Louisiana	1 Owned & 3 Leased
	Youngsville, Louisiana	Owned
	Carlsbad, New Mexico	Leased
	Farmington, New Mexico	Leased
	Elk City, Oklahoma	Leased
	McAlester, Oklahoma	Leased
	Oklahoma City, Oklahoma	Leased
	Washington, Oklahoma	Leased
	Mt Morris, Pennsylvania	Leased
	Conroe, Texas	Leased
	Corpus Christi, Texas	Leased — 2 locations
	Fort Stockton, Texas	Leased
	Houston, Texas	Leased — 2 locations
	Kilgore, Texas	Leased
	San Angelo, Texas	Leased
	Sonora, Texas	Leased
	Casper, Wyoming	Leased
Drilling and Completion	Buenos Aires, Argentina	Leased
	Comodoro Rivadavia, Argentina	Owned
	Neuquen, Argentina	Owned
	Rincon de los Sauces, Argentina	Owned
	Tartagal, Argentina	Owned
	Santa Cruz, Bolivia	Leased
	Catu, Bahia, Brazil	1 Owned
	Aracuja, Sergipe, Brazil	Leased
	Mossoro, Rio Grande de Norte, Brazil	Leased
	Rio de Janeiro, Rio de Janeiro, Brazil	Leased
	Sao Mateus, Espirito Santo, Brazil	Leased
Rental Services	Victoria, Texas	Owned
	Broussard, Louisiana	Leased
	Morgan City, Louisiana	Owned

ITEM 3.   LEGAL PROCEEDINGS

On June 29, 1987, we filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Our plan of reorganization was confirmed by the Bankruptcy Court after acceptance by our creditors and stockholders, and was consummated on December 2, 1988.

At confirmation of our plan of reorganization, the U.S. Bankruptcy Court approved the establishment of the A-C Reorganization Trust as the primary vehicle for distributions and the administration of claims under our plan of reorganization, two trust funds to service health care and life insurance programs for retired employees and a trust fund to process and liquidate future product liability claims. The trusts assumed responsibility for substantially all remaining cash distributions to be made to holders of claims and interests pursuant to our plan of reorganization. We were thereby discharged of all debts that arose before confirmation of our plan of reorganization.

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We do not administer any of the aforementioned trusts and retain no responsibility for the assets transferred to or distributions to be made by such trusts pursuant to our plan of reorganization.

As part of our plan of reorganization, we settled with the EPA on claims for cleanup costs at all known sites where we were alleged to have disposed of hazardous waste. The EPA settlement included both past and future cleanup costs at these sites and released us of liability to other potentially responsible parties in connection with these specific sites. In addition, we negotiated settlements of various environmental claims asserted by certain state environmental protection agencies.

Subsequent to our bankruptcy reorganization, the EPA and state environmental protection agencies have in a few cases asserted that we are liable for cleanup costs or fines in connection with several hazardous waste disposal sites containing products manufactured by us prior to consummation of our plan of reorganization. In each instance, we have taken the position that the cleanup costs and all other liabilities related to these sites were discharged in the bankruptcy, and the cases have been disposed of without material cost. A number of Federal Courts of Appeal have issued rulings consistent with this position, and based on such rulings, we believe that we will continue to prevail in our position that our liability to the EPA and third parties for claims for environmental cleanup costs that had pre-petition triggers have been discharged. A number of claimants have asserted claims for environmental cleanup costs that had pre-petition triggers, and in each event, the A-C Reorganization Trust, under its mandate to provide plan of reorganization implementation services to us, has responded to such claims, generally, by informing claimants that our liabilities were discharged in the bankruptcy. Each of such claims has been disposed of without material cost. However, there can be no assurance that we will not be subject to environmental claims relating to pre-bankruptcy activities that would have a material adverse effect on us.

The EPA and certain state agencies continue from time to time to request information in connection with various waste disposal sites containing products manufactured by us before consummation of the plan of reorganization that were disposed of by other parties. Although we have been discharged of liabilities with respect to hazardous waste sites, we are under a continuing obligation to provide information with respect to our products to federal and state agencies. The A-C Reorganization Trust, under its mandate to provide plan of reorganization implementation services to us, has responded to these informational requests because pre-bankruptcy activities are involved.

The A-C Reorganization Trust has been dissolved, and as a result, we have assumed the responsibility of responding to claimants and to the EPA and state agencies previously undertaken by the A-C Reorganization Trust. However, we have been advised by the A-C Reorganization Trust that its cost of providing these services has not been material in the past, and therefore we do not expect to incur material expenses as a result of responding to such requests. However, there can be no assurance that we will not be subject to environmental claims relating to pre-bankruptcy activities that would have a material adverse effect on us.

We are named as a defendant from time to time in product liability lawsuits alleging personal injuries resulting from our activities prior to our reorganization involving asbestos. These claims are referred to and handled by a special products liability trust formed to be responsible for such claims in connection with our reorganization. As with environmental claims, we do not believe we are liable for product liability claims relating to our business prior to our bankruptcy; moreover, the products liability trust continues to defend all such claims. However, there can be no assurance that we will not be subject to material product liability claims in the future or that the products liability trust will continue to have funds to pay any such claims.

We have been named as a defendant in two lawsuits in connection with our proposed merger with Bronco Drilling, Inc., which was terminated August 2008. We do not believe that the suits have any merit.

We are involved in various other legal proceedings, including labor contract litigation, in the ordinary course of business. The legal proceedings are at different stages; however, we believe that the likelihood of material loss relating to any such legal proceedings is remote.

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

On December 4, 2008, we held our Annual Meeting of Stockholders. At the meeting, the stockholders voted on the following matters:

1. The election of eleven directors to serve a one-year term expiring at the 2009 annual meeting of stockholders.

2. The ratification of the appointment of UHY LLP as our independent auditor for the fiscal year ending December 31, 2008.

The eleven nominees to our Board of Directors were elected at the meeting, and the other proposals received the affirmative vote required for approval. The following sets forth the results of the voting with respect to each such matter:

				Against or
		For		Withheld		Abstentions
1.	Election of Directors
	Ali H. Afdhal		30,884,749		1,046,735		—
	Munir Akram		31,712,686		218,798		—
	Alejandro P. Bulgheroni		31,015,872		915,612		—
	Carlos A. Bulgheroni		24,323,218		7,608,266		—
	Victor F. Germack		31,713,089		218,395		—
	James M. Hennessy		31,709,189		222,295		—
	Munawar H. Hidayatallah		31,540,548		390,936		—
	John E. McConnaughy, Jr.		31,552,284		379,200		—
	Robert E. Nederlander		31,633,737		297,747		—
	Leonard Toboroff		29,278,023		2,653,461		—
	Zane Tankel		31,502,086		429,398		—
2.	Ratification of UHY LLP as our independent accountants		31,657,507		230,628		43,347

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET PRICE INFORMATION

Our common stock is traded on the New York Stock Exchange under the symbol “ALY”. Prior to March 22, 2007, our common stock was traded on the American Stock Exchange. The following table sets forth, for periods prior to March 22, 2007, high and low sales prices of our common stock, as reported on the American Stock Exchange and for periods since March 22, 2007, high and low sale prices of our common stock reported on the New York Stock Exchange.

Calendar Quarter	High		Low
2007
First Quarter	$	23.61	$	14.10
Second Quarter		24.39		15.83
Third Quarter		28.10		18.35
Fourth Quarter		19.49		14.09
2008
First Quarter	$	15.21	$	9.56
Second Quarter		18.50		13.01
Third Quarter		18.00		9.76
Fourth Quarter		12.68		3.69

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Holders

As of February 23, 2009, there were approximately 1,309 holders of record of our common stock. On February 23, 2009, the closing price for our common stock reported on the New York Stock Exchange was $1.83 per share.

Dividends

No dividends were declared or paid during the past three years, and no dividends are anticipated to be declared or paid in the foreseeable future. Our credit facilities and the indentures governing our senior notes restrict our ability to pay dividends on our common stock.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2008 with respect to the shares of our common stock that may be issued under our existing equity compensation plans.

					Number of Securities
					Remaining Available
	Number of				for Future Issuance
	Securities to be		Weighted		Under Equity
	Issued Upon		Average Exercise		Compensation Plans
	Exercise of		Price of		(Excluding
	Outstanding		Outstanding		Securities
	Options, Warrants		Options, Warrants		Reflected in First
Plan Category	And Rights		and Rights		Column)
Equity compensation plans approved by security holders		1,379,398	$	10.94		281,789
Equity compensation plans not approved by security holders		4,000	$	13.75		—
Total		1,383,398	$	10.95		281,789

Equity Compensation Plans Not Approved By Security Holders

These plans comprise the following:

In 1999 and 2000, the Board compensated Board members who had served from 1989 to March 31, 1999 without compensation by issuing promissory notes totaling $325,000 and by granting stock options to these same individuals. Options to purchase 4,800 shares of common stock were granted with an exercise price of $13.75. These options vested immediately and expire in March 2010. As of December 31, 2008, 4,000 of these options remain outstanding.

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PERFORMANCE GRAPH

Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of our common stock with the cumulative return of the Russell 2000 and the CoreData Services Oil and Gas Equipment and Services Index for the last five years. Our common stock was a component of the Russell 2000 during the year ended December 31, 2008. The CoreData Services Oil and Gas Equipment and Services Index is an index of approximately 75 oil and gas equipment and services providers. The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

The graph assumes that $100 was invested on December 31, 2003 in our common stock and in each index, and that all dividends were reinvested. No dividends have been declared or paid on our common stock. Stockholder returns over the indicated period should not be considered indicative of future shareholder returns.

	Fiscal Year Ending December 31,
Company/Index/Market	2003		2004		2005		2006		2007		2008
Allis-Chalmers Energy Inc.		100.00		188.46		479.62		886.15		567.31		211.54
Oil & Gas Equipment/Svcs		100.00		137.25		207.42		244.86		348.71		140.65
Russell 2000 Index		100.00		117.49		121.40		142.12		135.10		88.09

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ITEM 6.   SELECTED FINANCIAL DATA.

The following selected historical financial information for each of the five years ended December 31, 2008, has been derived from our audited consolidated financial statements and related notes. Certain reclassifications have been made to the prior year’s selected financial data to conform with the current period presentation. This information is only a summary and should be read in conjunction with material contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which includes a discussion of factors materially affecting the comparability of the information presented, and in conjunction with our financial statements included elsewhere herein. As discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have during the past five years effected a number of business combinations and other transactions that materially affect the comparability of the information set forth below (in thousands, except per share amounts):

	Years Ended December 31,
	2008			2007		2006		2005		2004
Statement of Operations Data
Revenues	$	675,948		$	570,967	$	310,964	$	108,022	$	49,307
Impairment of goodwill	$	115,774		$	—	$	—	$	—	$	—
Income (loss) from operations	$	(13,520	)	$	124,782	$	67,730	$	13,518	$	4,291
Net income (loss) from continuing operations	$	(39,464	)	$	50,440	$	35,626	$	7,175	$	888
Net income (loss) attributed to common stockholders	$	(39,464	)	$	50,440	$	35,626	$	7,175	$	764
Per Share Data:
Net income (loss) from continuing operations per common share:
Basic	$	(1.13	)	$	1.48	$	1.73	$	0.48	$	0.10
Diluted	$	(1.13	)	$	1.45	$	1.66	$	0.44	$	0.09
Weighted average number of common shares outstanding:
Basic		35,052			34,158		20,548		14,832		7,930
Diluted		35,052			34,701		21,410		16,238		9,510

	As of December 31,
	2008		2007		2006		2005		2004
Balance Sheet Data
Total assets	$	1,111,058	$	1,053,585	$	908,326	$	137,355	$	80,192
Long-term debt classified as:
Current	$	14,617	$	6,434	$	6,999	$	5,632	$	5,541
Long-term	$	579,044	$	508,300	$	561,446	$	54,937	$	24,932
Redeemable convertible Preferred stock	$	—	$	—	$	—	$	—	$	—
Stockholders’ equity	$	383,409	$	414,329	$	253,933	$	60,875	$	35,109
Book value per share	$	10.75	$	11.80	$	8.99	$	3.61	$	2.58

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our selected historical financial data and our accompanying financial statements and the notes to those financial statements included elsewhere in this document. The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our plans, estimates and beliefs. Our actual

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results could differ materially from those anticipated in these forward-looking statements as a result of risks and uncertainties, including, but not limited to, those discussed under “Item 1A. Risk Factors.”

Overview of Our Business

We are a multi-faceted oilfield services company that provides services and equipment to oil and natural gas exploration and production companies throughout the U.S., including Texas, Oklahoma, Louisiana, Arkansas, Pennsylvania, New Mexico, Colorado, offshore in the Gulf of Mexico, and internationally, primarily in Argentina, Mexico and Brazil. We operate in three sectors of the oil and natural gas service industry: Oilfield Services; Drilling and Completion and Rental Services.

We derive operating revenues from rates per job that we charge for the labor and equipment required to provide a service and rates per day for equipment and tools that we rent to our customers. The price we charge for our services depends upon several factors, including the level of oil and natural gas drilling activity and the competitive environment in the particular geographic regions in which we operate. Contracts are awarded based on the price, quality of service and equipment, and the general reputation and experience of our personnel. The demand for drilling services has historically been volatile and is affected by the capital expenditures of oil and natural gas exploration and development companies, which can fluctuate based upon the prices of oil and natural gas or the expectation for the prices of oil and natural gas.

The rig count is an important indicator of activity levels in the oil and natural gas industry. The rig count in the U.S. increased from 862 as of December 27, 2002 to 1,721 as of December 26, 2008, according to the Baker Hughes rig count. However the rig count in 2008 reached a peak of 2,031 in August 2008 and began to decline in the fourth quarter of 2008 and has continued to decline to 1,243 as of February 27, 2009. The rapid decline in the U.S. rig count is due to the economic slowdown in the U.S. and the decrease in natural gas and oil prices which has impacted the capital expenditures of our customers. The turmoil in the financial markets and its impact on the availability of capital for our customers has also affected drilling activity in the U.S. Directional and horizontal rig counts increased from 283 as of December 27, 2002 to 912 as of December 26, 2008, which accounted for 33% and 53% of the total U.S. rig count, respectively. The directional and horizontal rig count also decreased to 692 as of February 27, 2009. The offshore Gulf of Mexico rig count was 51 rigs at February 27, 2009 from 58 at February 28, 2008.

While our revenue can be correlated to the rig count, our operating costs do not fluctuate in direct proportion to changes in revenues. Our operating expenses consist principally of our labor costs and benefits, equipment rentals, maintenance and repairs of our equipment, depreciation, insurance and fuel. Because many of our costs are fixed, our operating income as a percentage of revenues is generally affected by our level of revenues.

Company Outlook

We believe that our revenue and operating income for our Oilfield Service and Rental Services segment will suffer significantly in 2009, due to the drop in U.S. rig count and the reduction of our customers’ spending. We have already taken steps in 2009 to reduce costs, including laying off employees and closing unprofitable operating locations. Even with these steps, our Oilfield Services segment may still generate negative operating income in 2009 due to its focus in the U.S. market. Although we expect our Rental Services segment to be negatively impacted in a material fashion by the industry wide reduction in drilling and completion activity, we believe that our Rental Services segment will still generate positive operating income, albeit on lower revenue and at reduced margins. We anticipate our Drilling and Completion segment will exceed 2008 results for both revenue and operating income as we benefit from a full year of operations on rigs acquired during 2008 and from the acquisition of BCH at the end of 2008. Our Drilling and Completion segment primarily operates in Argentina and Brazil, but we have two rigs coming into service in 2009 in the U.S. market. Currently, we have no firm commitments of work for our U.S. rigs, so the impact of revenue and operating income from these rigs may be insignificant. BCH is a relatively new company and has not yet attained the levels of profitability we have forecasted.

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We expect to incur less general and administrative expenses in 2009 as we reduce our administrative staffs to reflect the decline in activity. Our net interest expense is dependent upon our level of debt and cash on hand, which are principally dependent on acquisitions we complete, our capital expenditures and our cash flows from operations. Due to the shortage of liquidity and credit in the U.S. financial markets, we may see an increase in our effective interest rate in 2009. In addition, the interest rate on our credit facilities may increase if we violate any of our financial covenants in 2009. We anticipate that our effective tax rate will increase in 2009 due to a lower taxable income to spread the negative effects of non-deductible items and state income taxes. This rate could exceed 50.0% for U.S. tax purposes in 2009. In addition, the favorable tax rates we realized in 2008 from our international operations due to foreign currency fluctuations, may not be realized in 2009.

The sustainability and future growth in our operating income is principally dependent on our level of revenues and the pricing environment of our services. In addition, our sustainability and the demand for our services is dependent upon our customers’ capital spending plans, which are largely driven by current commodity prices and their expectations of future commodity prices. Recent declines in both natural gas and oil prices have caused our customers to delay or curtail capital spending plans. In addition to the impact of the decline in natural gas prices on our customers’ capital expenditures and overall liquidity, the recent credit crisis has limited the availability of funds, which lead to decreased capital expenditures for our customers. The shortage of liquidity and credit combined with recent substantial losses in worldwide equity markets could lead to an extended global recession. The slowdown in economic activity caused by the recession has reduced demand for energy and resulted in lower oil and natural gas prices. Such a continued slowdown in economic activity could have a material adverse effect on our revenue and profitability. We are monitoring the credit worthiness of our customers, as well as outstanding receivables, in light of the current credit crisis and as such increased our reserve for doubtful accounts significantly at December 31, 2008, but further reserves may be necessary in 2009.

We continue to monitor the effect of the global financial crisis on our industry, and the resulting impact on the capital spending budgets of our customers in order to estimate the effect on our company. We have already reduced our planned capital spending significantly in 2009 compared to 2008. We currently expect that 2009 capital expenditures will total approximately $75.0 million compared to 2008 capital expenditures of $154.5 million. We believe that 2009 will be an extremely challenging year for our operations but we are optimistic that our cost saving cuts, coupled with our strategy of striving to mitigate cyclical risk through our international growth, by offering new equipment and technology to our customers and our focus on the U.S. land shale plays, will carry us through the current recession.

Results of Operations

In April 2006, we acquired all of the outstanding stock of Rogers and in October 2006, we acquired all of the outstanding stock of Petro Rentals, and the results for the operations of both acquired companies are included in our Oilfield Services segment. In August 2006, we acquired all of the outstanding stock of DLS and in December 2006, we acquired all of the outstanding stock of Tanus. We report the operations of DLS and Tanus in our Drilling and Completion segment. In January 2006, we acquired all of the outstanding stock of Specialty and in December 2006, we acquired substantially all of the assets of OGR. We report the operations of Specialty and OGR in our Rental Services segment.

In June 2007, we acquired all of the outstanding stock of Coker, in July 2007, we acquired all of the outstanding stock of Diggar and in November 2007, we acquired substantially all of the assets of Diamondback. In October 2007, we acquired all of the outstanding stock of Rebel. In June 2007, we sold our capillary assets. We report the operations of these four acquisitions and one disposition in our Oilfield Services segment.

In December 2008, we acquired all of the outstanding stock of BCH, which will be reported as part of our Drilling and Completion segment. In August 2008, we sold our drill pipe tong manufacturing assets, which were reported in our Oilfield Services segment.

We consolidated the results of all of these acquisitions from the day they were acquired.

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The foregoing acquisitions and dispositions affect the comparability from period to period of our historical results, and our historical results may not be indicative of our future results.

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

Our revenues for the year ended December 31, 2008 were $675.9 million, an increase of 18.4% compared to $571.0 million for the year ended December 31, 2007. The increase in revenues is due to the increase in revenues in our Drilling and Completion and our Oilfield Services segments, offset in part by a decrease in revenues in our Rental Services segment. The most significant increase in revenues was in our Drilling and Completion segment due to additional drilling and service rigs placed in service in 2008 and price increases. The Drilling and Completion segment generated $291.3 million in revenues for the year ended December 31, 2008 compared to $215.8 million for the year ended December 31, 2007. Our Oilfield Services segment revenues increased to $280.8 million in 2008 compared to $234.0 million in 2007 due to acquisitions completed in the third and fourth quarters of 2007 which added downhole motors, measurement-while-drilling, or MWD, tools, and directional drilling personnel resulting in increased capacity and increased market penetration. Revenues also increased at our Oilfield Services segment due to the purchase of additional equipment, principally new compressor packages for our underbalanced operations, coiled tubing equipment and expansion of operations into new geographic regions. The impact of the additional MWD tools, downhole motors and the acquisitions of Diggar and Coker completed in the last half of 2007 are not easily identifiable as they were quickly integrated with our pre-existing operations. The acquisition of the Diamondback assets provided $30.3 million in revenues for the year ended December 31, 2008 compared to $3.1 million in revenues from the date of acquisition to December 31, 2007. The additional coiled tubing equipment provided an additional $11.8 million in revenues for the year ended December 31, 2008 compared to 2007. These increases in revenue were partially offset by a significant decrease in revenues at our Rental Services segment due to the reduction of drilling activity in the U.S. Gulf of Mexico beginning in the last half of 2007, as rigs departed the U.S. Gulf in favor of the international markets and the impact of hurricanes in 2008. These factors also caused the pricing for our Rental Services segment to become more competitive. Also impacting revenues was a $5.5 million decrease in revenues from our capillary tubing assets compared to 2007 as those assets were sold on June 29, 2007.

Our direct costs for the year ended December 31, 2008 increased 30.7% to $446.2 million, or 66.0% of revenues, compared to $341.5 million, or 59.8%, of revenues for the year ended December 31, 2007. On a percentage basis, direct costs in our Oilfield Services segment outpaced the growth in revenue for that segment. Oilfield Services revenue for the year ended December 31, 2008 increased 20.0% from revenue in the Oilfield Services segment for the year ended December 31, 2007, while the direct costs increased 24.4% over that same period. This unfavorable variance was primarily associated with costs incurred in the deployment of our new coiled tubing rigs. On a percentage basis, direct costs in our Drilling and Completion segment outpaced the growth in our revenue for that segment. Drilling and Completion revenue for the year ended December 31, 2008 increased 35.0% from revenue in the Drilling and Completion segment for the year ended December 31, 2007, while the direct costs increased 45.1% over that same period. This unfavorable variance is primarily attributed to higher labor costs in our Drilling and Completion segment relating to labor concessions in Argentina granted by the oil industry in the last half of 2007 and a significant increase in our labor force and labor-related expenses in connection with the delivery of new rigs prior to their activation. Our direct costs in our Rental Services segment did not decrease on the same percentage as the drop in our revenue for that segment. Rental Services revenue for the year ended December 31, 2008 decreased 14.4% from revenue in the Rental Services segment for the year ended December 31, 2007, while the direct costs decreased 5.9% over that same period. Our direct costs for the Rental Services segment are largely fixed because they primarily relate to yard expenses to maintain the rental inventory. In addition, the change in the service mix from the longer-term Gulf of Mexico rentals that we benefited from in 2007 to the shorter term land-drilling rental work in 2008, requires more handling on our part which increases costs.

Depreciation expense increased 24.6% to $63.5 million for the year ended December 31, 2008 from $50.9 million for the year ended December 31, 2007. The primary increase in depreciation expense is due to

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the acquisitions completed in the second half of 2007 and our capital expenditures, principally the addition of new service rigs and one drilling rig in Argentina.

General and administrative expense was $60.0 million for the year ended December 31, 2008 compared to $58.6 million for the year ended December 31, 2007. General and administrative expense increased primarily due to the amortization of share-based compensation arrangements. General and administrative expense includes share-based compensation expense of $7.9 million in 2008 and $4.7 million in 2007. As a percentage of revenues, general and administrative expenses were 8.9% in 2008 compared to 10.3% in 2007.

Effective August 1, 2008, we sold our drill pipe tong manufacturing assets that were part of our Oilfield Services segment. The total consideration was approximately $7.5 million. We recognized a gain of $166,000 related to the transaction. On June 29, 2007, we sold our capillary tubing assets that were part of our Oilfield Services segment. The total consideration was approximately $16.3 million in cash. We recognized a gain of $8.9 million related to the sale of these assets.

In accordance with FASB No. 142, we recorded an impairment of goodwill of $115.8 million as of December 31, 2008. In light of adverse market conditions affecting our stock price and market conditions, we determined that impairment was necessary on all of our goodwill associated with our Rental Services segment as well as on our Tubular Services and Production Services reporting units included in our Oilfield Services segment. We performed the same annual impairment test as of December 31, 2007 and recorded no impairment.

Amortization expense was $4.2 million for the year ended December 31, 2008 compared to $4.1 million for the year ended December 31, 2007.

Our loss from operations for the year ended December 31, 2008 totaled $13.5 million, compared to $124.8 million in income from operations for the year ended December 31, 2007, for a total decrease of $138.3 million. The decrease is primarily related to the $115.8 million goodwill impairment, increased depreciation and amortization expense of $12.7 million from the year ended December 31, 2008 compared to year ended December 31, 2007 and the $8.9 million gain related to the sale of our capillary tubing assets in 2007.

Our interest expense was $48.4 million for the year ended December 31, 2008, compared to $49.5 million for the year ended December 31, 2007. During 2008, we borrowed against our revolving credit facility and as of December 31, 2008, we had an outstanding balance of $36.5 million. In 2008, through our DLS subsidiary in Argentina, we also entered into a new $25.0 million import finance facility with a bank to fund a portion of the purchase price of new drilling and service rigs. In January 2007 we issued $250.0 million of senior notes bearing interest at 8.5% to pay off, in part, the $300.0 million bridge loan utilized to complete the acquisition of substantially all of the assets of OGR and for working capital. This bridge loan was repaid on January 29, 2007. The average interest rate on the bridge loan was approximately 10.6%. Interest expense for 2007 includes the write-off of deferred financing fees of $1.2 million related to the repayment of the bridge loan. Interest expense also includes amortization expense of deferred financing costs of $2.1 million and $1.9 million for 2008 and 2007, respectively.

Our interest income was $5.6 million for the year ended December 31, 2008, compared to $3.3 million for the year ended December 31, 2007. In January 2008, we invested $40.0 million into a 15% convertible subordinated secured debenture with BCH. We earned interest on this note up until December 28, 2008, when we acquired all of the outstanding stock of BCH. In 2007, we had excess cash as the result of a senior note financing and an equity offering and we were able to generate interest income during this period.

Our benefit for income taxes for the year ended December 31, 2008 was $17.4 million, or 30.6% of our net loss before income taxes, compared to a income tax expense of $28.8 million, or 36.4% of our net income before income taxes for 2007. The income tax benefit recorded in 2008 was the result of net loss before income taxes compared to net income before income taxes in the previous year and a lower effective tax rate. The lower effective tax rate in 2008 is attributable to the impact of foreign currency losses on the

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foreign income tax as well a lower benefit from the loss generated on our U.S. operations due to nondeductible expenses and state income taxes.

We had a net loss of $39.5 million for the year ended December 31, 2008, compared to net income of $50.4 million for the year ended December 31, 2007.

The following table compares revenues and income (loss) from operations for each of our business segments for the years ended December 31, 2008 and December 31, 2007. Income (loss) from operations consists of our revenues and the gain on asset dispositions less direct costs, general and administrative expenses, goodwill impairment, depreciation and amortization:

	Revenues							Income (Loss) from Operations
	2008		2007		Change			2008			2007			Change
	(In thousands)
Oilfield Services	$	280,835	$	233,986	$	46,849		$	38,643		$	53,218		$	(14,575	)
Drilling & Completion		291,335		215,795		75,540			40,226			38,839			1,387
Rental Services		103,778		121,186		(17,408	)		(74,361	)		49,139			(123,500	)
General Corporate		—		—		—			(18,028	)		(16,414	)		(1,614	)
Total	$	675,948	$	570,967	$	104,981		$	(13,520	)	$	124,782		$	(138,302	)

Oilfield Services.  Revenues for the year ended December 31, 2008 for our Oilfield Services segment were $280.8 million, an increase of 20.0% from the $234.0 million in revenues for the year ended December 31, 2007. The increase in revenues is due to the purchase of additional MWD tools, new compressors and new “foam” units for our underbalanced drilling operations, new coiled tubing units and the benefit of acquisitions completed in the last half of 2007 which added downhole motors, MWDs, and directional drillers. The additional equipment and personnel enabled us to strengthen our presence in new geographic markets and increase our market penetration. The impact of the acquisitions of Diggar and Coker completed in the last half of 2007 and of the additional MWD tools are not easily identifiable as they were quickly integrated with our pre-existing operations. The acquisition of Diamondback provided $30.3 million in 2008 compared to $3.1 million of revenues from the date of acquisition to December 31, 2007. Income from operations decreased 27.4% to $38.6 million for 2008 from $53.2 million for 2007 because income from operations for the year ended December 31, 2008 includes a goodwill impairment charge of $9.4 million while the year ended December 31, 2007 included an $8.9 million gain on sale of our capillary tubing assets. Depreciation and amortization expense increased 46.8% to $24.7 million for the year ended December 31, 2008 compared to $16.8 million in 2007. The increase is depreciation expense was due to our capital expenditures, principally the new coiled tubing units which were delivered in the second half of 2008.

Drilling and Completion.  Our Drilling and Completion revenues were $291.3 million for the year ended December 31, 2008, an increase of 35.0% from the $215.8 million in revenues for the year ended December 31, 2007. Our Drilling and Completion revenues increased in 2008 primarily due to 16 new service rigs and one drilling rig which were placed in service at various dates in 2008 and increased prices for our services. Income from operations increased to $40.2 million in 2008 compared to $38.8 million for the year ended December 31, 2007. Income from operations as percentage of revenue decreased to 13.8% for 2008 compared to 18.0% for 2007. This was due primarily to higher wages, which included other payroll expenses, and the increase in administrative costs all relating to labor concessions in Argentina granted by the oil industry in the last half of 2007 and a significant increase in our labor force and labor-related expenses in connection with the delivery of new rigs prior to their activation. Depreciation expense increased $3.0 million for the year ended December 31, 2008 compared to the prior year due to capital expenditures for the Drilling and Completion segment in 2008 and 2007.

Rental Services.  Our Rental Services revenues were $103.8 million for the year ended December 31, 2008, a decrease of 14.4% from the $121.2 million in revenues for the year ended December 31, 2007. The decrease in revenue is primarily attributable to a more competitive market environment due to the decreased U.S. Gulf of Mexico drilling activity beginning in the last half of 2007 stemming from the departure of drilling rigs in favor of the international markets and the impact of hurricanes in the U.S. Gulf of Mexico in

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2008. Income from operations decreased $123.5 million to a loss of $74.4 million in 2008 compared to income of $49.1 million in 2007. The decrease in operating income is primarily attributable to a $106.4 million non-cash charge for impairment of goodwill recorded in the year ending December 31, 2008 and due to the decrease in revenue.

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

Our revenues for the year ended December 31, 2007 were $571.0 million, an increase of 83.6% compared to $311.0 million for the year ended December 31, 2006. Revenues increased in all of our business segments due principally to the acquisitions completed during the two year period ended December 31, 2007, the investment in new equipment and the opening of new operating locations. The most significant increase in revenues was due to the acquisition of DLS on August 14, 2006 which established our Drilling and Completion segment. The Drilling and Completion segment generated $215.8 million in revenues for the twelve months ended December 31, 2007 compared to $69.5 million for the period from the date of the DLS acquisition to December 31, 2006. Revenues also increased significantly at our Rental Services segment due to the acquisition of the OGR assets on December 18, 2006. The OGR assets, including its two rental yards, expanded our assets available for rent. The OGR assets generated revenues of $82.2 million for the twelve months ended December 31, 2007 compared to $2.1 million for the period from the date of acquisition of the OGR assets to December 31, 2006. We experienced a decline in demand at our Rental Services segment in the last half of 2007 due to a reduction of drilling activity in the U.S. Gulf of Mexico as rigs departed the U.S. Gulf in favor of the international markets. Our Oilfield Services segment revenues increased in the 2007 period compared to the 2006 period due to acquisitions completed in the third and fourth quarters of 2007 which added downhole motors, MWD tools, and directional drilling personnel resulting in increased capacity and increased market penetration. Revenues also increased at our Oilfield Services segment due to the acquisition of Petro-Rentals in October 2006 and the purchase of additional equipment, principally new compressor packages for our underbalanced operations, and expansion of operations into new geographic regions. The impact of the additional MWD tools, downhole motors and the acquisitions of Diggar and Coker completed in the last half of 2007 are not easily identifiable as they were quickly integrated with our pre-existing operations. The acquisition of the Diamondback assets provided $3.1 million in revenues from the date of acquisition to December 31, 2007. The Petro-Rentals acquisition and additional coil tubing equipment provided an additional $20.6 million in revenues for the year ended December 31, 2007 compared to 2006. These gains in revenues were partly offset by a reduction of $6.7 million in revenues from our capillary assets compared to 2006 as the assets were sold on June 29, 2007.

Our direct costs for the year ended December 31, 2007 increased 84.0% to $341.5 million, or 59.8% of revenues, compared to $185.6 million, or 59.7%, of revenues for the year ended December 31, 2006. The increase in direct costs is due to the increase in revenues in all of our business segments.

Depreciation expense increased 151.3% to $50.9 million for the year ended December 31, 2007 from $20.3 million for the year ended December 31, 2006. The primary increase in depreciation expense is due to the acquisitions of the OGR assets, DLS and Petro-Rentals and our capital expenditures. The increase in our depreciation expense related to the OGR assets was $15.9 million to $16.6 million for the year ended December 31, 2007 compared to $650,000 for the period from the date of the acquisition of the OGR assets to December 31, 2006. Depreciation expense for DLS increased $7.2 million to $11.3 million for the year ended December 31, 2007 from $4.1 million for the period from the date of acquisition of DLS to December 31, 2006. Depreciation expense for Petro-Rentals for the year ended December 31, 2007 was $3.6 million compared to $688,000 for the period from the date of acquisition of Petro-Rentals to December 31, 2006.

General and administrative expense was $58.6 million for the year ended December 31, 2007 compared to $35.5 million for the year ended December 31, 2006. General and administrative expense increased due to the acquisitions, and the hiring of additional sales, operations, accounting and administrative personnel. As a percentage of revenues, general and administrative expenses were 10.3% in 2007 compared to 11.4% in 2006. General and administrative expense includes share-based compensation expense of $4.7 million in 2007 and $3.0 million in 2006.

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On June 29, 2007, we sold our capillary tubing assets that were part of our Oilfield Services segment. The total consideration was approximately $16.3 million in cash. We recognized a gain of $8.9 million related to the sale of these assets.

Amortization expense was $4.1 million for the year ended December 31, 2007 compared to $1.9 million for the year ended December 31, 2006. The increase in amortization expense is primarily due to the amortization of intangible assets in connection with our acquisition of the OGR assets, which increased $2.2 million to $2.3 million for the year ended December 31, 2007 compared to $96,000 for the period from the date of the acquisition of the OGR assets to December 31, 2006.

Income from operations for the year ended December 31, 2007 totaled $124.8 million, an 84.2% increase over the $67.7 million in income from operations for the year ended December 31, 2006, reflecting the increase in our revenues of $260.0 million, offset in part by increased direct costs of $155.9 million, increased general and administrative expense of $23.1 million and increased amortization expense of $2.2 million. Our income from operations as a percentage of revenues increased slightly to 21.9% in 2007 from 21.8% in 2006. Income from operations in the 2007 period includes an $8.9 million gain from the sale of our capillary tubing assets in the second quarter of 2007.

Our net interest expense was $46.3 million for the year ended December 31, 2007, compared to $20.3 million for the year ended December 31, 2006. Interest expense increased in 2007 due to our increased debt. In August 2006 we issued $95.0 million of senior notes bearing interest at 9.0% to fund a portion of the acquisition of DLS. In January 2007 we issued $250.0 million of senior notes bearing interest at 8.5% to pay off, in part, the $300.0 million bridge loan utilized to complete the OGR acquisition and for working capital. This bridge loan was repaid on January 29, 2007. The average interest rate on the bridge loan was approximately 10.6%. Interest expense for 2007 includes the write-off of deferred financing fees of $1.2 million related to the repayment of the bridge loan. Interest expense includes amortization expense of deferred financing costs of $1.9 million and $1.5 million for 2007 and 2006, respectively.

Our income tax expense for the year ended December 31, 2007 was $28.8 million, or 36.4% of our net income before income taxes, compared to $11.4 million, or 24.3% of our net income before income taxes for 2006. The increase in our income tax expense is attributable to the increase in our operating income and a higher effective tax rate. The effective tax rate in 2006 was favorably impacted by the reversal of our valuation allowance on our deferred tax assets. The valuation allowance was reversed due to operating results that allowed for the realization of our deferred tax assets.

We had net income of $50.4 million for the year ended December 31, 2007, an increase of 41.6%, compared to net income of $35.6 million for the year ended December 31, 2006.

The following table compares revenues and income from operations for each of our business segments for the years ended December 31, 2007 and December 31, 2006. Income from operations consists of our revenues and gain on asset disposition less direct costs, general and administrative expenses, depreciation and amortization:

	Revenues						Income (Loss) from Operations
	2007		2006		Change		2007			2006			Change
	(In thousands)
Oilfield Services	$	233,986	$	189,953	$	44,033	$	53,218		$	43,157		$	10,061
Drilling & Completion		215,795		69,490		146,305		38,839			12,233			26,606
Rental Services		121,186		51,521		69,665		49,139			26,293			22,846
General Corporate		—		—		—		(16,414	)		(13,953	)		(2,461	)
Total	$	570,967	$	310,964	$	260,003	$	124,782		$	67,730		$	57,052

Oilfield Services.  Revenues for the year ended December 31, 2007 for our Oilfield Services segment were $234.0 million, an increase of 23.2% from the $190.0 million in revenues for the year ended December 31, 2006. The increase in revenues is due to the purchase of additional MWD tools, new compressors and new “foam” units for our underbalanced drilling operations and the benefit of acquisitions

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completed in the last half of 2007 which added downhole motors, MWDs, and directional drillers and the acquisition of Petro-Rentals completed in the last half of 2006. The additional equipment and personnel enabled us to strengthen our presence in new geographic markets and increase our market penetration. The impact of the acquisitions of Diggar and Coker completed in the last half of 2007 and of the additional MWD tools are not easily identifiable as they were quickly integrated with our pre-existing operations. The acquisition of Diamondback provided $3.1 million of revenues from the date of acquisition to December 31, 2007. Income from operations increased 23.3% to $53.2 million for 2007 from $43.2 million for 2006. Income from operations as a percentage of revenues remained constant at 22.7%. Income from operations in the 2007 period includes an $8.9 million gain on sale of our capillary tubing assets.

Drilling and Completion.  On August 14, 2006, we acquired DLS which established our Drilling and Completion segment. Our Drilling and Completion revenues were $215.8 million for the year ended December 31, 2007, an increase from the $69.5 million in revenues for the period from the date of the DLS acquisition until December 31, 2006. Income from operations increased to $38.8 million in 2007 compared to $12.2 million from the date of the DLS acquisition until December 31, 2006. Income from operations as percentage of revenue increased to 18.0% for 2007 compared to 17.6% for 2006. We believe the increase in the percentage was primarily due to the price increases implemented in 2007. During 2007 we placed orders for 16 service rigs (workover rigs and pulling rigs) and four drilling rigs. Four of the service rigs were delivered in the fourth quarter of 2007.

Rental Services.  Our Rental Services revenues were $121.2 million for the year ended December 31, 2007, an increase of 135.2% from the $51.5 million in revenues for the year ended December 31, 2006. Income from operations increased 86.9% to $49.1 million in 2007 compared to $26.3 million in 2006. The increase in revenue and operating income is primarily attributable to the acquisition of the OGR assets in December 2006. The OGR assets, including its two rental yards, expanded our assets available for rent. We generated $82.2 million for the twelve months ended December 31, 2007 compared to $2.1 million for the period from the date of acquisition of the OGR assets to December 31, 2006. Income from operations as a percentage of revenues decreased to 40.5% for 2007 compared to 51.0% for the prior year as a result of higher depreciation expense associated with the OGR acquisition and capital expenditures. Our depreciation expense for the OGR assets increased $15.9 million to $16.6 million for the year ended December 31, 2007 compared to $650,000 for the period from the date of acquisition of the OGR assets to December 31, 2006. Rental Services revenues and operating income was impacted by a more competitive market environment due to the decreased U.S. Gulf of Mexico drilling activity in the last half of 2007 attributed to the hurricane season and the departure of drilling rigs in favor of the international markets.

Liquidity and Capital Resources

Our on-going capital requirements arise primarily from our need to service our debt, to acquire and maintain equipment, to fund our working capital requirements and to complete acquisitions. Our primary sources of liquidity are proceeds from the issuance of debt and equity securities and cash flows from operations. Our amended and restated revolving credit facility permits borrowings of up to $90.0 million in principal amount. As of December 31, 2008, we had $47.7 million available for borrowing under our amended and restated revolving credit facility. We also have up to $29.0 million available under a new credit agreement which we executed in February 2009 to fund a portion of the purchase price of two drilling rigs. Cash flows from operations are expected to be our primary source of liquidity in fiscal 2009. We had cash and cash equivalents of $6.9 million at December 31, 2008 compared to $43.7 million at December 31, 2007.

Our revolving credit agreement requires us to maintain specified financial ratios. If we fail to comply with the financial ratio covenants, it could limit or eliminate the availability under our revolving credit agreement. Our ability to maintain such financial ratios may be affected by events beyond our control, including changes in general economic and business conditions, and we cannot assure you that we will maintain or meet such ratios and tests or that the lenders under the credit agreement will waive any failure to meet such ratios or tests. The decrease in the U.S. rig count experienced late in 2008 and early 2009, the expectation of additional decreases in the U.S. rig count, and the resulting decrease in demand for our services adversely impacts our ability to maintain or meet such financial ratios.

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We have reduced our planned capital spending for 2009 compared to 2008. Exclusive of any opportunistic acquisitions, we currently expect to spend a total of approximately $66.0 million in 2009, which is net of equipment deposits paid in 2008. As of December 31, 2008, we had commitments covering $41.4 million of the $66.0 million. We believe that our cash generated from operations, cash on hand and cash available under our credit facilities will provide sufficient funds for our identified projects. Our ability to obtain capital for opportunistic acquisitions or additional projects to implement our growth strategy over the longer term will depend upon our future operating performance and financial condition, which will be dependent upon the prevailing conditions in our industry and the global market, including the availability of equity and debt financing, many of which are beyond our control.

Operating Activities

In the year ended December 31, 2008, we generated $113.7 million in cash from operating activities. Our net loss for the year ended December 31, 2008 was $39.5 million. Non-cash additions to net loss totaled $164.8 million in the 2008 period consisting primarily of $115.8 million of impairment of goodwill, $67.7 million of depreciation and amortization, $7.9 million related to the expensing of stock options as required under SFAS No. 123R, $3.3 million for bad debts and $2.1 million of amortization and write-off of deferred financing fees, partially offset by $29.9 million in deferred tax and $1.9 million of gains from the dispositions of equipment.

During the year ended December 31, 2008, changes in working capital used $11.7 million in cash, principally due to an increase of $27.5 million in accounts receivable, an increase of $9.7 million in inventories and an increase in other current assets of $1.6 million, offset by an increase of $21.9 million in accounts payable, an increase of $3.5 million in accrued employee benefits and payroll taxes, an increase of $1.2 million in accrued expenses and an increase in accrued interest of $567,000. Our accounts receivables increased at December 31, 2008 primarily due to the increase in our revenues in 2008. Inventories increased at December 31, 2008 primarily due to our larger rig fleet in our Drilling and Completion segment. Other current assets increased primarily due to estimated tax payments exceeding the estimated tax liability as of December 31, 2008. Our accounts payable, accrued employee benefits and payroll taxes and other accrued expenses increased primarily due to the increase in costs due to our growth in revenues.

In the year ended December 31, 2007, we generated $103.5 million in cash from operating activities. Our net income for the year ended December 31, 2007 was $50.4 million. Non-cash additions to net income totaled $61.2 million in the 2007 period consisting primarily of $55.0 million of depreciation and amortization, $4.9 million related to the expensing of stock options as required under SFAS No. 123R, $8.0 million of deferred income tax, $1.3 million for bad debts and $3.2 million of amortization and write-off of deferred financing fees, partially offset by $2.3 million of gain from the disposition of equipment and a $8.9 million gain from the sale of capillary assets.

During the year ended December 31, 2007, changes in working capital used $8.1 million in cash, principally due to an increase of $31.4 million in accounts receivable, an increase of $4.5 million in other assets and an increase in inventories of $5.4 million, offset by a decrease of $8.2 million in other current assets, an increase of $10.7 million in accounts payable, an increase of $6.0 million in accrued interest, an increase of $4.0 million in accrued employee benefits and payroll taxes, an increase of $1.5 million in accrued expenses and an increase in other long-term liabilities of $2.7 million. Our accounts receivables increased at December 31, 2007 primarily due to the increase in our revenues in 2007. Other assets increase primarily due to the contract costs related to the deployment of new rigs for our Drilling and Completion segment. The decrease in other current assets is principally due to the collection of the working capital adjustment from the OGR acquisition for approximately $7.1 million in the first quarter of 2007. Accrued interest increased at December 31, 2007 due principally to interest accrued on our 8.5% senior notes issued in January 2007 and our 9.0% senior notes issued in August 2006 which are both payable semi-annually. Our accounts payable, accrued employee benefits and payroll taxes and other accrued expenses increased primarily due to the increase in costs due to our growth in revenues and acquisition completed in 2007. Other long-term liabilities increased primarily due to the deferral of contract revenue related to our new rigs being constructed in the Drilling and Completion segment.

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In the year ended December 31, 2006, we generated $53.7 million in cash from operating activities. Our net income for the year ended December 31, 2006 was $35.6 million. Non-cash additions to net income totaled $27.6 million in the 2006 period consisting primarily of $22.1 million of depreciation and amortization, $3.4 million related to the expensing of stock options as required under SFAS No. 123R, $2.2 million of deferred income tax, $781,000 for bad debts and $1.5 million for amortization of finance fees, including the bridge loan fees, partially offset by $2.4 million of gain from the disposition of equipment.

During the year ended December 31, 2006, changes in working capital used $9.9 million in cash, principally due to an increase of $23.2 million in accounts receivable, an increase of $2.6 million in inventories, a decrease of $2.3 million in accounts payable, offset in part by a decrease in other current assets of $2.5 million, an increase of $11.4 million in accrued interest, an increase of $3.4 million in accrued employee benefits and payroll taxes and an increase of $872,000 in accrued expenses. Our accounts receivables increased at December 31, 2006 primarily due to the increase in our revenues in 2006. Accrued interest increased at December 31, 2006 due principally to interest accrued on our 9.0% senior notes, which are payable semi-annually. Our accrued employee benefits and payroll taxes and other accrued expenses increased primarily due to the increase in costs due to our growth in revenues and acquisition completed in 2006.

Investing Activities

During the year ended December 31, 2008, we used $202.2 million in investing activities. During the year ended December 31, 2008, we acquired BCH for a total net cash outlay of $53.7 million, consisting of the purchase price and acquisition costs less cash acquired. In addition we made capital expenditures of approximately $154.5 million during the year ended December 31, 2008, including $73.4 million to expand our drilling fleet and to purchase, improve and replace other equipment in our Drilling and Completion segment, $58.4 million to purchase and upgrade our equipment for our Oilfield Services segment and $22.6 million to increase our inventory of equipment and replace “lost-in-hole” equipment in the Rental Services segment. We received proceeds of $3.0 million from the sale of our drill pipe tong manufacturing assets. We also received $11.5 million from the sale of assets during the year ended December 31, 2008, comprised mostly from equipment “lost-in-hole” from our Rental Services segment ($8.3 million) and our Oilfield Services segment ($2.3 million). We also made net advance payments of $8.8 million on the purchase of new drilling and service rigs to be delivered in 2009 for our Drilling and Completion segment and advance payments of $1.1 million on the purchase of new directional drilling tools for our Oilfield Services segment.

During the year ended December 31, 2007, we used $137.1 million in investing activities consisting of four acquisitions and our capital expenditures. During the year ended December 31, 2007, we completed the following acquisitions for a total net cash outlay of $41.0 million, consisting of the purchase price and acquisition costs less cash acquired:

•  In June 2007, we acquired Coker for a purchase price of approximately $3.6 million in cash and a promissory note for $350,000.

•  In July 2007, we acquired Diggar for a purchase price of approximately $6.7 million in cash, the payment of approximately $2.8 million of debt and a promissory note for $750,000.

•  In October 2007, we acquired Rebel for a purchase price of approximately $5.0 million in cash, the payment of approximately $1.8 million of debt and escrow, and promissory notes for an aggregate of $500,000.

•  In November 2007, we acquired substantially all of the assets of Diamondback for a purchase price of approximately $23.1 million in cash.

In addition we made capital expenditures of approximately $113.2 million during the year ended December 31, 2007, including $48.6 million to purchase and upgrade our equipment for our Oilfield Services segment, $34.9 million to increase our inventory of equipment and replace “lost-in-hole” equipment in the Rental Services segment and $28.9 million to purchase, improve and replace equipment in our Drilling and Completion segment. We received proceeds of $16.3 million from the sale of our capillary assets. We also

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received $12.8 million from the sale of assets during the year ended December 31, 2007, comprised mostly from equipment “lost-in-hole” from our Rental Services segment ($11.0 million) and our Oilfield Services segment ($1.4 million). We also made advance payments of $11.5 million on the purchase of new drilling and service rigs to be delivered in 2008 for our Drilling and Completion segment.

During the year ended December 31, 2006, we used $559.4 million in investing activities consisting of six acquisitions and our capital expenditures. During the year ended December 31, 2006, we completed the following acquisitions for a total net cash outlay of $526.6 million, consisting of the purchase price and acquisition costs less cash acquired:

•  Effective January 1, 2006, we acquired Specialty for a purchase price of approximately $95.3 million in cash.

•  Effective April 1, 2006, we acquired Rogers for a purchase price of approximately $11.3 million in cash, 125,285 shares of our common stock and a promissory note for $750,000.

•  On August 14, 2006, we acquired DLS for a purchase price of approximately $93.7 million in cash, 2.5 million shares of our common stock and the assumption of $9.1 million of indebtedness.

•  On October 16, 2006, we acquired Petro Rentals for a purchase price of approximately $20.2 million in cash, 246,761 shares of our common stock and the payment of approximately $9.6 million of debt.

•  Effective December 1, 2006, we acquired Tanus for a purchase price of $2.5 million in cash.

•  On December 18, 2006, we acquired substantially all of the assets of OGR for a purchase price of approximately $291.0 million in cash and 3.2 million shares of our common stock.

In addition we made capital expenditures of approximately $39.7 million during the year ended December 31, 2006, including $29.1 million to purchase and upgrade equipment for our Oilfield Services segment, $5.8 million to purchase, improve and replace equipment in our Drilling and Completion segment and $4.5 million to replace “lost-in-hole” equipment and to increase our inventory of equipment in the Rental Services segment. We also received $6.9 million from the sale of assets during the year ended December 31, 2006, comprised mostly from equipment “lost-in-hole” from our Rental Services segment ($3.8 million) and our Oilfield Services segment ($1.8 million).

Financing Activities

During the year ended December 31, 2008, financing activities provided a net of $51.7 million in cash. We received $25.0 million of proceeds of long-term debt which was used to finance the expansion of our Drilling and Completion segment’s rig fleet. During the year ended December 31, 2008, we had a net draw on our revolving credit facility of $36.5 million which was necessary due to our investment in BCH and our capital expenditures. We also received $633,000 from the proceeds of option exercises with 558,707 shares of our common stock being issued under our equity compensation plans. Financing uses during the year ended December 31, 2008 were the repayment of $9.9 million of long-term debt and $525,000 in debt issuance costs.

During the year ended December 31, 2007, financing activities provided a net of $37.6 million in cash. We received $250.0 million in borrowings from the issuance of our 8.5% senior notes due 2017. We also received $100.1 million in net proceeds from the issuance of 6,000,000 shares of our common stock, $1.7 million on the tax benefit of stock compensation plans and $3.3 million from the proceeds of warrant and option exercises with 882,624 shares of our common stock being issued under our equity compensation plans. The proceeds were used to repay long-term debt totaling $309.7 million and to pay $7.8 million in debt issuance costs. The repayment of long-term debt consisted primarily of the repayment of our $300.0 million bridge loan which was used to fund the acquisition of substantially all the assets of OGR.

During the year ended December 31, 2006, financing activities provided a net of $543.6 million in cash. We received $557.8 million in borrowings under long-term debt facilities, consisting primarily of the issuance of $255.0 million of our 9.0% senior notes due 2014 and a $300.0 million senior unsecured bridge loan. The bridge loan, which was repaid on January 29, 2007, was used to fund the acquisition of substantially all the

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assets of OGR. We also received $46.3 million in net proceeds from the issuance of 3,450,000 shares of our common stock, $6.4 million on the tax benefit of options and $6.3 million from the proceeds of warrant and option exercises with 1,851,377 shares of our common stock being issued under our equity compensation plans. The proceeds were used to repay long-term debt totaling $54.0 million, repay $6.4 million in net borrowings under our revolving credit facility, repay related party debt of $3.0 million and to pay $9.9 million in debt issuance costs.

On January 18, 2006 and August 14, 2006, we closed on private offerings, to qualified institutional buyers pursuant to Rule 144A under the Securities Act, of $160.0 million and $95.0 million aggregate principal amount of our senior notes, respectively. The senior notes are due January 15, 2014 and bear interest at 9.0%. The proceeds were used to fund the acquisitions of Specialty and DLS, to repay existing debt and for general corporate purposes. Debt repaid included all outstanding balances under our credit agreement, including a $42.1 million term loan and $6.4 million in working capital advances, a $4.0 million subordinated note issued in connection with acquisition of AirComp, approximately $3.0 million subordinated note issued in connection with the acquisition of Tubular, approximately $548,000 on a real estate loan and approximately $350,000 on outstanding equipment financing.

On December 18, 2006, we closed on a $300.0 million senior unsecured bridge loan. The bridge loan was due 18 months after closing and had a weighted average interest rate of 10.6%. The bridge loan, which was repaid on January 29, 2007, was used to fund the acquisition of substantially all the assets of OGR.

In January 2007, we closed on a private offering, to qualified institutional buyers pursuant to Rule 144A under the Securities Act, of $250.0 million principal amount of 8.5% senior notes due 2017. The proceeds of the senior notes offering, together with a portion of the proceeds of our concurrent common stock offering, were used to repay the debt outstanding under our $300.0 million bridge loan facility which we incurred to finance our acquisition of substantially all the assets of OGR.

On January 18, 2006, we also executed an amended and restated credit agreement which provides for a $25.0 million revolving line of credit with a maturity of January 2010. On April 26, 2007, we entered into a Second Amended and Restated Credit Agreement, which increased our revolving line of credit to $62.0 million, and has a final maturity date of April 26, 2012. On December 3, 2007, we entered into a First Amendment to Second Amended and Restated Credit Agreement, which increased our revolving line of credit to $90.0 million. The amended and restated credit agreement contains customary events of default and financial covenants and limits our ability to incur additional indebtedness, make capital expenditures, pay dividends or make other distributions, create liens and sell assets. Our obligations under the amended and restated credit agreement are secured by substantially all of our assets located in the U.S. The credit agreement loan rates are based on prime or LIBOR plus a margin. We were in compliance with all debt covenants as of December 31, 2008 and 2007. The weighted average interest rate was 4.6% at December 31, 2008. As of December 31, 2008 and 2007, amounts borrowed under the facility were $36.5 million and $0 and availability was reduced by outstanding letters of credit of $5.8 million and $8.4 million, respectively.

As part of our acquisition of DLS, we assumed various bank loans with floating interest rates based on LIBOR plus a margin and terms ranging from two to five years. The weighted average interest rates on these loans was 5.1% and 6.7% at December 31, 2008 and 2007, respectively. The bank loans are denominated in U.S. dollars and the outstanding amount due as of December 31, 2008 and 2007 was $2.5 million and $4.9 million, respectively.

On February 15, 2008, through our DLS subsidiary in Argentina, we entered into a $25.0 million import finance facility with a bank. Borrowings under this facility were used to fund a portion of the purchase price of the new drilling and service rigs ordered for our Drilling and Completion segment. The facility was available for borrowings until December 31, 2008. Each drawdown shall be repaid over four years in equal semi-annual installments beginning one year after each disbursement with the final principal payment due not later than March 15, 2013. The import finance facility is unsecured and contains customary events of default and financial covenants and limits DLS’ ability to incur additional indebtedness, make capital expenditures, create liens and sell assets. We were in compliance with all debt covenants as of December 31, 2008. The bank loan rates are based on LIBOR plus a margin. The weighted average interest rate was 6.9% at

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December 31, 2008. The bank loans are denominated in U.S. dollars and the outstanding amount as of December 31, 2008 was $25.0 million.

As part of our acquisition of BCH, we assumed a $23.6 million term loan credit facility with a bank. The credit agreement is dated June 2007 and contains customary events of default and financial covenants. Obligations under the facility are secured by substantially all of the BCH assets. The facility is repayable in quarterly principal installments plus interest with the final payment due not later than August 2012. We were in compliance with all debt covenants as of December 31, 2008. The credit facility loan is denominated in U.S. dollars and interest rates are based on LIBOR plus a margin. At December 31, 2008, the outstanding balance was $22.1 million and the interest rate was 6.0%.

In connection with the acquisition of Rogers, we issued to the seller a note in the amount of $750,000. The note bears interest at 5.0% and is due April 3, 2009. In connection with the purchase of Coker, we issued to the seller a note in the amount of $350,000. The note bore interest at 8.25% and was repaid in June 2008. In connection with the purchase of Diggar, we issued to the seller a note in the amount of $750,000. The note bore interest at 6.0% and was repaid in July 2008. In connection with the purchase of Rebel, we issued to the sellers notes in the amount of $500,000. The notes bore interest at 5.0% and were repaid in October 2008.

In connection with the purchase of Capcoil, we agreed to pay a total of $500,000 to two management employees in exchange for non-compete agreements. We were required to make annual payments of $110,000 through May 2008. Total amounts due under these non-compete agreements at December 31, 2008 and 2007 were $0 and $110,000, respectively.

In 2000 we compensated directors, including current directors Nederlander and Toboroff, who served on the board of directors from 1989 to March 31, 1999 without compensation, by issuing promissory notes totaling $325,000. The notes bear interest at the rate of 5.0%. At December 31, 2008 and 2007, the principal and accrued interest on these notes totaled approximately $32,000.

We have various rig and equipment financing loans with interest rates ranging from 8.3% to 8.7% and terms of 2 to 5 years. As of December 31, 2008 and 2007, the outstanding balances for rig and equipment financing loans were $0 and $595,000, respectively.

In April 2007 and August 2007, we obtained insurance premium financings in the aggregate amount of $4.4 million with a fixed weighted average interest rate of 5.9%. Under terms of the agreements, amounts outstanding are paid over 10 and 11 month repayment schedules. The outstanding balance of these notes was approximately $0 and $1.7 million as of December 31, 2008 and 2007, respectively. In April 2008 and August 2008, we obtained insurance premium financings in the aggregate amount of $3.0 million with a fixed average weighted interest rate of 4.9%. Under terms of the agreements, amounts outstanding are paid over 10 and 11 month repayment schedules. The outstanding balance of these notes was approximately $991,000 at December 31, 2008.

As part of our acquisition of BCH, we assumed various capital leases with terms of two to three years. The outstanding balance under these capital leases was $779,000 at December 31, 2008. We also had other capital leases with terms that expired in 2008. As of December 31, 2007, amounts outstanding under capital leases were $14,000.

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The following table summarizes our obligations and commitments to make future payments under our notes payable, operating leases, employment contracts and consulting agreements for the periods specified as of December 31, 2008.

	Payments by Period
			Less Than
	Total		1 Year		1-3 Years		3-5 Years		After 5 Years
	(In thousands)
Contractual Obligations
Long-term debt	$	592,882	$	14,026	$	24,318	$	49,538	$	505,000
Capital leases(a)		779		591		188		—		—
Interest payments on long-term debt		301,497		48,687		95,026		89,536		68,248
Operating leases		9,486		2,888		3,843		1,720		1,035
Purchase obligations		41,400		41,400		—		—		—
Employment contracts		4,853		2,800		2,053		—		—
Total contractual cash obligations	$	950,897	$	110,392	$	125,428	$	140,794	$	574,283

(a) These amounts represent our minimum capital lease obligations, net of interest payments totaling $86,000.

Recent Developments

In February 2009, we entered into a new credit agreement in an amount up to $29.0 million. The credit agreement is subject to customary closing conditions, with the proceeds being used to fund 80% of the purchase price of two land drilling rigs and related equipment that are scheduled for delivery in the second quarter of 2009. The loan will be secured by the equipment and will be repaid in quarterly installments over six years from the funding date.

We expect to utilize the two land drilling rigs for an existing client operating in the Haynesville Shale under a long-term alliance which would include other services that we would provide. We have suspended the construction of two other land drilling rigs which were ordered in the summer of 2008.

In February 2009, we executed a joint venture agreement with Rawabi Holding Company Ltd., or Rawabi, under the laws of the Kingdom of Saudi Arabia. The purpose of the joint venture is to provide oilfield services and rental equipment in the Kingdom of Saudi Arabia. We will own 50% of the joint venture.

As a result of the economic environment and the decrease in the U.S. rig count in 2009, in February of 2009 we announced cost reduction steps which include a reduction in the U.S. workforce of approximately 235 people, reduction of certain day rates paid to personnel, reduction or consolidation of certain operating yards and reduction of employee benefits. Additional workforce reductions and other cost saving measures are anticipated. Capital expenditures for 2009 will be limited to required maintenance levels and those related to firm commitments made in 2008.

Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements included elsewhere in this document. Our preparation of this report requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

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Allowance For Doubtful Accounts.  The determination of the collectibility of amounts due from our customers requires us to use estimates and make judgments regarding future events and trends, including monitoring our customer payment history and current credit worthiness to determine that collectibility is reasonably assured, as well as consideration of the overall business climate in which our customers operate. Those uncertainties require us to make frequent judgments and estimates regarding our customers’ ability to pay amounts due us in order to determine the appropriate amount of valuation allowances required for doubtful accounts. Provisions for doubtful accounts are recorded when it becomes evident that the customers will not be able to make the required payments at either contractual due dates or in the future.

Revenue Recognition.  We provide rental equipment and drilling services to our customers at per day, or daywork, and per job contractual rates and recognize the drilling related revenue as the work progresses and when collectibility is reasonably assured. Revenue from daywork contracts is recognized when it is realized or realizable and earned. On daywork contracts, revenue is recognized based on the number of days completed at fixed rates stipulated by the contract. For certain contracts, we receive lump-sum and other fees for equipment and other mobilization costs. Mobilization fees and the related costs are deferred and amortized over the contract terms when material.

Impairment Of Long-Lived Assets.  Long-lived assets, principally property, plant and equipment, comprise a significant amount of our total assets. We make judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized, depreciation and amortization methods and useful lives. Additionally, the carrying values of these assets are reviewed for impairment or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. This requires us to make long-term forecasts of our future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for our products and services, future market conditions and technological developments. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period.

Goodwill And Other Intangibles.  As of December 31, 2008, we have recorded approximately $43.3 million of goodwill and $37.4 million of other identifiable intangible assets. We perform purchase price allocations to intangible assets when we make a business combination. Business combinations and purchase price allocations have been consummated for acquisitions in all of our reportable segments. The excess of the purchase price after allocation of fair values to tangible assets is allocated to identifiable intangibles and thereafter to goodwill. We make judgments and estimates in conjunction with the carrying value of these assets, including amounts to be capitalized and whether the asset has finite live for amortization purposes.

We perform our annual impairment test in accordance with FASB No. 142. Our tests included two approaches to determine the carrying amount of the individual reporting units. The first approach is the Discounted Cash Flow Method, which focuses on our expected cash flow. In applying this approach, the cash flow available for distribution is projected for a finite period of years. Cash flow available for distribution is defined as the amount of cash that could be distributed as a dividend without impairing our future profitability or operations. The cash flow available for distribution and the terminal value (our value at the end of the estimation period) are then discounted to present value to derive an indication of value of the business enterprise. This valuation method is dependent upon the assumptions made regarding future cash flow and cash requirements. The second approach is the Guideline Company Method which focuses on comparing us to selected reasonably similar publicly traded companies. Under this method, valuation multiples are: (i) derived from operating data of selected similar companies; (ii) evaluated and adjusted based on our strengths and weaknesses relative to the selected guideline companies; and (iii) applied to our operating data to arrive at an indication of value. This valuation method is dependent upon the assumption that our value can be evaluated by analysis of our earnings and our strengths and weaknesses relative to the selected similar companies. We recorded an impairment charge of $115.8 million in 2008 as a result of our test. Significant and unanticipated changes to these assumptions could require an additional provision for impairment in a future period.

Purchase Price Allocation of Acquired Businesses.  We allocate the purchase price of acquired businesses to the identifiable assets and liabilities of the businesses, post acquisition, based on estimated fair values. The

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excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. We engage third-party appraisal firms and valuation experts to assist in the determination of identifiable assets and liabilities. Our judgments and estimates for the allocation of purchase price are based on information available during the measurement period, these judgments and estimates can materially impact our financial position as well as our results of operations.

Income Taxes.  The determination and evaluation of our annual income tax provision involves the interpretation of tax laws in various jurisdictions in which we operate and requires significant judgment and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations and our level of operations or profitability in each jurisdiction may impact our tax liability in any given year. While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined. Current income tax expense (benefit) reflects an estimate of our income tax liability for the current year, withholding taxes, changes in tax rates and changes in prior year tax estimates as returns are filed. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the enacted tax rates in effect at year end. A valuation allowance for deferred tax assets is recorded when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. We provide for uncertain tax positions pursuant to FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.

It is our intention to permanently reinvest all of the undistributed earnings of our non-U.S. subsidiaries in such subsidiaries. Accordingly, we have not provided for U.S. deferred taxes on the undistributed earnings of our non-U.S. subsidiaries. If a distribution is made to us from the undistributed earnings of these subsidiaries, we could be required to record additional taxes. Because we cannot predict when, if at all, we will make a distribution of these undistributed earnings, we are unable to make a determination of the amount of unrecognized deferred tax liability.

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. Subsequently, the FASB provided for a one-year deferral of the provisions of SFAS No. 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis. As allowed under SFAS No. 157, we adopted all requirements of SFAS No. 157 on January 1, 2008, except as they relate to nonfinancial assets and liabilities, which were adopted on January 1, 2009 and neither adoption had any impact on our financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159, which permits entities to elect to measure many financial instruments and certain other items at fair value. Upon adoption of SFAS No. 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at the initial recognition of the asset or liability or upon a re-measurement event that gives rise to the new-basis of accounting. All subsequent changes in fair value for that instrument are reported in earnings. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be recorded at fair value nor does it eliminate disclosure requirements included in other accounting standards. SFAS No. 159 is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and there was no impact on our financial statements.

47

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, or SFAS No. 141(R). SFAS No. 141(R) changes the requirements for an acquirer’s recognition and measurement of the assets acquired and the liabilities assumed in a business combination. Additionally, SFAS No. 141(R) requires that acquisition-related costs, including restructuring costs, be recognized as expense separately from the acquisition. We adopted SFAS No. 141(R) on January 1, 2009 and there was no impact on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51, or SFAS No. 160. SFAS No. 160 requires (i) that non-controlling (minority) interests be reported as a component of shareholders’ equity, (ii) that net income attributable to the parent and to the non-controlling interest be separately identified in the consolidated statement of operations, (iii) that changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, (iv) that any retained non-controlling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value, and (v) that sufficient disclosures are provided that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for annual periods beginning after December 15, 2008 and should be applied prospectively. The presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. We adopted SFAS No. 160 on January 1, 2009 and there was no impact on our financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133, or SFAS No. 161. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in hedged positions. The statement also requires enhanced disclosures regarding how and why entities use derivative instruments, how derivative instruments and related hedged items are accounted and how derivative instruments and related hedged items affect entities’ financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We adopted SFAS No. 161 on January 1, 2009 and there was no impact on our financial statements.

In April 2008, the FASB issued FASB Staff Position SFAS 142-3, Determination of the Useful Life of Intangible Assets, or FSP SFAS 142-3. FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. The objective of FSP SFAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, and other U.S. GAAP principles. FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008. We adopted FSP SFAS 142-3 on January 1, 2009 and there was no impact on our financial statements.

Off-Balance Sheet Arrangements

We have no off balance sheet arrangements, other than normal operating leases and employee contracts, that have or are likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. We have a $90.0 million revolving credit facility with a maturity of April 2012. At December 31, 2008, $36.5 million was borrowed on the facility and availability is further reduced by outstanding letters of credit of $5.8 million. We do not guarantee obligations of any unconsolidated entities.

48

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

We are exposed to market risk primarily from changes in interest rates and foreign currency exchange risks.

Interest Rate Risk

Fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations expose us to market risk. We are vulnerable to significant fluctuations in interest rates on our variable rate debt and on any future refinancing of our fixed rate debt and on future debt.

At December 31, 2008, we were exposed to interest rate fluctuations on approximately $86.1 million of bank loans carrying variable interest rates. A hypothetical one hundred basis point increase in interest rates for these notes payable would increase our annual interest expense by approximately $861,000. Due to the uncertainty of fluctuations in interest rates and the specific actions that might be taken by us to mitigate the impact of such fluctuations and their possible effects, the foregoing sensitivity analysis assumes no changes in our financial structure.

We have also been subject to interest rate market risk for short-term invested cash and cash equivalents. The principal of such invested funds would not be subject to fluctuating value because of their highly liquid short-term nature. As of December 31, 2008, we had no short-term maturing investments.

Foreign Currency Exchange Rate Risk

We have designated the U.S. dollar as the functional currency for our operations in international locations as we contract with customers, purchase equipment and finance capital using the U.S. dollar. Local currency transaction gains and losses, arising from remeasurement of certain assets and liabilities denominated in local currency, are included in our consolidated statements of income. For the years ended December 31, 2008, 2007 and 2006, we had a net foreign exchange loss of $1.2 million, $128,000 and $515,000, respectively relating to our Drilling and Completion operations. We also conduct international business through our Rental Services and Oilfield Services segments and to control the foreign exchange risk, we provide for payment in U.S. dollars.

49

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

ALLIS-CHALMERS ENERGY INC. AND SUBSIDIARIES

	Page
Management’s Report to the Stockholders of Allis-Chalmers Energy Inc.		51
Reports of Independent Registered Public Accounting Firm		52
Consolidated Balance Sheet		54
Consolidated Statement of Operations		55
Consolidated Statement of Stockholders’ Equity		56
Consolidated Statement of Cash Flows		57
Notes to Consolidated Financial Statements		58
Supplemental Information to Consolidated Financial Statements — Summarized Quarterly Financial Data		96

50

MANAGEMENT’S REPORT TO THE STOCKHOLDERS OF ALLIS-CHALMERS ENERGY INC.

Management’s Report on Internal Control Over Financial Reporting

As management, we are responsible for establishing and maintaining adequate internal control over financial reporting for Allis-Chalmers Energy Inc. and its subsidiaries, or Allis-Chalmers. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, we have conducted an assessment, including testing, using the criteria in Internal Control-Integral Framework issued by the Committee of Sponsoring Organization of the Treadway Commission (COSO). Allis-Chalmers’ system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements.

Based on our assessment, we have concluded that Allis-Chalmers maintained effective internal control over financial reporting as of December 31, 2008, based on criteria in Internal Control-Integrated Framework issued by the COSO. The effectiveness of Allis-Chalmers internal control over financial reporting as of December 31, 2008 has been audited by UHY LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

Management’s Certifications

The certifications of Allis-Chalmers’ Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act of 2002 have been included as Exhibits 31 and 32 in Allis-Chalmers’ Form 10-K.

ALLIS-CHALMERS ENERGY INC.

By:	/s/ Munawar H. Hidayatallah	By:	/s/ Victor M. Perez
	Munawar H. Hidayatallah		Victor Perez
	Chief Executive Officer		Chief Financial Officer

51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Allis-Chalmers Energy Inc.:

We have audited the accompanying consolidated balance sheets of Allis-Chalmers Energy Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Allis-Chalmers Energy Inc. and subsidiaries as of December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Allis-Chalmers Energy Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2009 expressed an unqualified opinion thereon.

/s/ UHY LLP

Houston, Texas

March 9, 2009

52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Allis-Chalmers Energy Inc.:

We have audited Allis-Chalmers Energy Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Allis-Chalmers Energy Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting of Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Allis-Chalmers Energy Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Allis-Chalmers Energy Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008, and our report dated March 9, 2009 expressed an unqualified opinion thereon.

/s/ UHY LLP

Houston, Texas

March 9, 2009

53

ALLIS-CHALMERS ENERGY INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2008		2007
	(In thousands, except
	for share and per share
	amounts)
ASSETS
Cash and cash equivalents	$	6,866	$	43,693
Trade receivables, net of allowance for doubtful accounts of $4,205 and $1,924 at December 31, 2008 and 2007, respectively		157,871		130,094
Inventories		39,087		32,209
Deferred income tax asset		6,176		1,847
Prepaid expenses and other		15,238		10,051
Total current assets		225,238		217,894
Property and equipment, at cost net of accumulated depreciation of $137,180 and $77,008 at December 31, 2008 and 2007, respectively		760,990		626,668
Goodwill		43,273		138,398
Other intangible assets, net of accumulated amortization of $9,251 and $6,218 at December 31, 2008 and 2007, respectively		37,371		35,180
Debt issuance costs, net of accumulated amortization of $4,806 and $2,718 at December 31, 2008 and 2007, respectively		12,664		14,228
Other assets		31,522		21,217
Total assets	$	1,111,058	$	1,053,585
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt	$	14,617	$	6,434
Trade accounts payable		62,078		37,464
Accrued salaries, benefits and payroll taxes		20,192		15,283
Accrued interest		18,623		17,817
Accrued expenses		26,642		20,545
Total current liabilities		142,152		97,543
Deferred income tax liability		4,260		30,090
Long-term debt, net of current maturities		579,044		508,300
Other long-term liabilities		2,193		3,323
Total liabilities		727,649		639,256
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value (25,000,000 shares authorized, none issued)		—		—
Common stock, $0.01 par value (100,000,000 shares authorized; 35,674,742 issued and outstanding at December 31, 2008 and 35,116,035 issued and outstanding at December 31, 2007)		357		351
Capital in excess of par value		334,633		326,095
Retained earnings		48,419		87,883
Total stockholders’ equity		383,409		414,329
Total liabilities and stockholders’ equity	$	1,111,058	$	1,053,585

The accompanying Notes are an integral part of the Consolidated Financial Statements.

54

ALLIS-CHALMERS ENERGY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2008			2007			2006
	(In thousands, except per
	share amounts)
Revenues	$	675,948		$	570,967		$	310,964
Operating costs and expenses
Direct costs		446,235			341,450			185,579
Depreciation		63,460			50,914			20,261
General and administrative		59,953			58,622			35,536
Gain on asset dispositions		(166	)		(8,868	)		—
Impairment of goodwill		115,774			—			—
Amortization		4,212			4,067			1,858
Total operating costs and expenses		689,468			446,185			243,234
Income (loss) from operations		(13,520	)		124,782			67,730
Other income (expense):
Interest expense		(48,411	)		(49,534	)		(21,309	)
Interest income		5,617			3,259			972
Other		(563	)		776			(347	)
Total other expense		(43,357	)		(45,499	)		(20,684	)
Income (loss) before income taxes		(56,877	)		79,283			47,046
Income tax benefit (expense)		17,413			(28,843	)		(11,420	)
Net income (loss)	$	(39,464	)	$	50,440		$	35,626
Income (loss) per common share:
Basic	$	(1.13	)	$	1.48		$	1.73
Diluted	$	(1.13	)	$	1.45		$	1.66
Weighted average number of common shares outstanding:
Basic		35,052			34,158			20,548
Diluted		35,052			34,701			21,410

The accompanying Notes are an integral part of the Consolidated Financial Statements.

55

ALLIS-CHALMERS ENERGY INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

					Capital in		Retained			Total
	Common Stock				Excess of		Earnings			Stockholders’
	Shares		Amount		Par Value		(Deficit)			Equity
	(In thousands, except share amounts)
Balances, December 31, 2005		16,859,988	$	169	$	58,889	$	1,817		$	60,875
Net income		—		—		—		35,626			35,626
Issuance of common stock:
Acquisitions		6,072,046		61		94,919		—			94,980
Secondary public offering, net of offering costs		3,450,000		34		46,263		—			46,297
Issuance under stock plans		1,851,377		18		6,303		—			6,321
Stock-based compensation		—		—		3,394		—			3,394
Tax benefits on stock plans		—		—		6,440		—			6,440
Balances, December 31, 2006		28,233,411		282		216,208		37,443			253,933
Net income		—		—		—		50,440			50,440
Issuance of common stock:
Secondary public offering, net of offering costs		6,000,000		60		99,995		—			100,055
Issuance under stock plans		882,624		9		3,310		—			3,319
Stock-based compensation		—		—		4,863		—			4,863
Tax benefits on stock plans		—		—		1,719		—			1,719
Balances, December 31, 2007		35,116,035		351		326,095		87,883			414,329
Net loss		—		—		—		(39,464	)		(39,464	)
Issuance of common stock:
Issuance under stock plans		558,707		6		627		—			633
Stock-based compensation		—		—		7,902		—			7,902
Tax benefits on stock plans		—		—		9		—			9
Balances, December 31, 2008		35,674,742	$	357	$	334,633	$	48,419		$	383,409

The accompanying Notes are an integral part of the Consolidated Financial Statements.

56

ALLIS-CHALMERS ENERGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2008			2007			2006
	(In thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	(39,464	)	$	50,440		$	35,626
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		67,672			54,981			22,119
Amortization and write-off of deferred financing fees		2,089			3,197			1,527
Impairment of goodwill		115,774			—			—
Stock-based compensation		7,902			4,863			3,394
Bad debt expense		3,283			1,309			781
Imputed interest		—			—			355
Deferred taxes		(29,949	)		8,017			2,215
Gain on sale of property and equipment		(1,762	)		(2,323	)		(2,444	)
Gain on asset dispositions		(166	)		(8,868	)		—
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable		(27,499	)		(31,404	)		(23,175	)
Increase in inventories		(9,719	)		(5,375	)		(2,637	)
(Increase) decrease in prepaid expenses and other assets		(1,623	)		8,202			2,505
(Increase) decrease in other assets		1,224			(4,492	)		308
Increase (decrease) in trade accounts payable		21,903			10,732			(2,337	)
Increase in accrued interest		567			5,950			11,382
Increase in accrued expenses		1,131			1,508			872
Increase (decrease) in other liabilities		(1,130	)		2,700			(224	)
Increase in accrued salaries, benefits and payroll taxes		3,452			4,031			3,392
Net cash provided by operating activities		113,685			103,468			53,659
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		(53,709	)		(41,000	)		(526,572	)
Net sales (purchases) of investment interests		1,374			(498	)		—
Purchases of property and equipment		(154,468	)		(113,151	)		(39,697	)
Deposits on asset commitments		(9,901	)		(11,488	)		—
Proceeds from sale of asset dispositions		3,000			16,250			—
Proceeds from sale of property and equipment		11,480			12,811			6,881
Net cash used in investing activities		(202,224	)		(137,076	)		(559,388	)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		25,000			250,000			557,820
Payments on long-term debt		(9,905	)		(309,745	)		(54,030	)
Payments on related party debt		—			—			(3,031	)
Net (repayments) borrowings on lines of credit		36,500			—			(6,400	)
Proceeds from issuance of common stock, net of offering costs		—			100,055			46,297
Proceeds from exercise of options and warrants		633			3,319			6,321
Tax benefit on stock plans		9			1,719			6,440
Debt issuance costs		(525	)		(7,792	)		(9,863	)
Net cash provided by financing activities		51,712			37,556			543,554
Net increase (decrease) in cash and cash equivalents		(36,827	)		3,948			37,825
Cash and cash equivalents at beginning of year		43,693			39,745			1,920
Cash and cash equivalents at end of year	$	6,866		$	43,693		$	39,745

The accompanying Notes are an integral part of the Consolidated Financial Statements.

57

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements

NOTE 1 — NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization of Business

Allis-Chalmers Energy Inc. (“Allis-Chalmers”, “we”, “our” or “us”) was incorporated in Delaware in 1913. We provide services and equipment to oil and natural gas exploration and production companies throughout the U.S. including Texas, Louisiana, Oklahoma, New Mexico, Colorado, Pennsylvania, Arkansas, offshore in the Gulf of Mexico, and internationally, primarily in Argentina, Brazil and Mexico. We operate in three sectors of the oil and natural gas service industry: Oilfield Services; Drilling and Completion and Rental Services.

The nature of our operations and the many regions in which we operate subject us to changing economic, regulatory and political conditions. We are vulnerable to near-term and long-term changes in the demand for and prices of oil and natural gas and the related demand for oilfield service operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be perceived with certainty. Accordingly, our accounting estimates require the exercise of judgment. While management believes that the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates. Estimates are used for, but are not limited to, determining the following: allowance for doubtful accounts, recoverability of long-lived assets and intangibles, useful lives used in depreciation and amortization, income taxes and valuation allowances. The accounting estimates used in the preparation of the consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.

Principles of Consolidation

The consolidated financial statements include the accounts of Allis-Chalmers and its subsidiaries. Our subsidiaries at December 31, 2008 are AirComp LLC (“AirComp”), Allis-Chalmers Tubular Services LLC (“Tubular”), Strata Directional Technology LLC (“Strata”), Allis-Chalmers Rental Services LLC (“Rental”), Allis-Chalmers Production Services LLC (“Production”), Allis-Chalmers Management LLC, Allis-Chalmers Holdings Inc., DLS Drilling, Logistics & Services Company (“DLS”), DLS Argentina Limited, Tanus Argentina S.A. (“Tanus”), Petro-Rentals LLC (“Petro-Rental”), Rebel Rentals LLC (“Rebel”), Allis-Chalmers Drilling LLC, BCH Ltd. (“BCH”) and BCH Energy do Brasil Servicos de Petroleo Ltda. All significant inter-company transactions have been eliminated.

Revenue Recognition

We provide rental equipment and drilling services to our customers at per day, or daywork, and per job contractual rates and recognize the drilling related revenue as the work progresses and when collectibility is reasonably assured. Revenue from daywork contracts is recognized when it is realized or realizable and earned. On daywork contracts, revenue is recognized based on the number of days completed at fixed rates stipulated by the contract. For certain contracts, we receive lump-sum and other fees for equipment and other mobilization costs. Mobilization fees and the related costs are deferred and amortized over the contract terms when material. We recognize reimbursements received for out-of-pocket expenses incurred as revenues and account for out-of-pocket expenses as direct costs. Payments from customers for the cost of oilfield rental equipment that is damaged or lost-in-hole are reflected as revenues. We recognized revenue from damaged or

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lost-in-hole equipment of $10.6 million, $12.6 million and $2.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. We sell our services to oil and natural gas exploration and production companies. We perform continuing credit evaluations of its customers’ financial condition and although we generally do not require collateral, letters of credit may be required from customers in certain circumstances.

The allowance for doubtful accounts represents our estimate of the amount of probable credit losses existing in our accounts receivable. Significant individual accounts receivable balances which have been outstanding greater than 90 days are reviewed individually for collectibility. We have a limited number of customers with individually large amounts due at any given date. Any unanticipated change in any one of these customer’s credit worthiness or other matters affecting the collectibility of amounts due from such customers could have a material effect on the results of operations in the period in which such changes or events occur. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. As of December 31, 2008 and 2007, we had recorded an allowance for doubtful accounts of $4.2 million and $1.9 million respectively. Bad debt expense was $3.3 million, $1.3 million and $781,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first — in, first — out (“FIFO”) method or the average cost method, which approximates FIFO, and includes the cost of materials, labor and manufacturing overhead.

Property and Equipment

Property and equipment is recorded at cost less accumulated depreciation. Certain equipment held under capital leases are classified as equipment and the related obligations are recorded as liabilities.

Maintenance and repairs, which do not improve or extend the life of the related assets, are charged to operations when incurred. Refurbishments and renewals are capitalized when the value of the equipment is enhanced for an extended period. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Interest is capitalized on construction in progress at the weighted average cost of debt outstanding during the construction period or at the interest rate on debt incurred for construction.

The cost of property and equipment currently in service is depreciated over the estimated useful lives of the related assets, which range from three to twenty years. Depreciation is computed on the straight-line method for financial reporting purposes. Capital leases are amortized using the straight-line method over the estimated useful lives of the assets and lease amortization is included in depreciation expense. Depreciation expense charged to operations was $63.5 million, $50.9 million and $20.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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Notes to Consolidated Financial Statements — (Continued)

Goodwill, Intangible Assets and Amortization

Goodwill and other intangible assets with infinite lives are not amortized, but tested for impairment annually or more frequently if circumstances indicate that impairment may exist. Intangible assets with finite useful lives are amortized either on a straight-line basis over the asset’s estimated useful life or on a basis that reflects the pattern in which the economic benefits of the intangible assets are realized.

The impairment test requires the allocation of goodwill and all other assets and liabilities to reporting units. Reporting units are at a business unit level and is one level below our operating segments. If the fair value of the reporting unit is less than the book value (including goodwill) then goodwill is reduced to its implied fair value and the amount of the write-down is charged against earnings. We perform impairment tests on the carrying value of our goodwill on an annual basis as of December 31st for each of our reportable segments. Historically, we have used the Discounted Cash Flow method, which focuses on our expected cash flow. In applying this approach, the cash flow available for distribution is projected for a finite period of years, we use five years. The cash flow available for distribution and the terminal value, which is an estimate of the value at the end of the five years, are then discounted to present value to derive an indication of value of the business unit. For our annual assessment of impairment for 2008, due to the economic conditions affecting our industry, we also utilized the Guideline Company Method. Under this method we make a comparison of our projections to reasonably similar publicly traded companies. As a result we recorded an impairment of $115.8 million at December 31, 2008. At December 31, 2007, no impairment was deemed necessary. Increases in estimated future costs or decreases in projected revenues could lead to an impairment of all or a portion of our goodwill in future period.

Impairment of Long-Lived Assets

Long-lived assets, which include property, plant and equipment, and other intangible assets, and certain other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense. The impairment loss is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related assets.

Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable and payable, and debt. The carrying value of cash and cash equivalents and accounts receivable and payable approximate fair value due to their short-term nature. We believe the fair values and the carrying value of our debt, excluding the senior notes, would not be materially different due to the instruments’ interest rates approximating market rates for similar borrowings at December 31, 2008 and 2007. Our senior notes, in the aggregate amount of $505 million, trade “over the counter” in limited amounts and on an infrequent basis. Based on those trades we estimate the fair value of our senior notes to be approximately $284 million and $490 million at December 31, 2008 and 2007, respectively. The price at which our senior notes trade is based on many factors such as the level of interest rates, the economic environment, the outlook for the oilfield services industry and the perceived credit risk. Additionally, due to the turmoil in the financial markets of 2008 and 2009, and its impact on investors of our senior notes, the price at which our senior notes trade may be affected by the investors’ financial distress and need for liquidity.

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Notes to Consolidated Financial Statements — (Continued)

Concentration of Credit and Customer Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. As of December 31, 2008, we have approximately $782,000 and $3.2 million of cash and cash equivalents residing in Argentina and Brazil, respectively. Cash and cash equivalents of $1.8 million are restricted in conjunction with financial institution obligations in Brazil. We transact our business with several financial institutions. However, the amount on deposit in two financial institutions exceeded the $250,000 federally insured limit at December 31, 2008 by a total of $7.0 million. Management believes that the financial institutions are financially sound and the risk of loss is minimal.

We sell our services to major and independent domestic and international oil and natural gas companies. We perform ongoing credit valuations of our customers and provide allowances for probable credit losses where appropriate. In 2008, 2007 and 2006, one of our customers, Pan American Energy LLC Sucursal Argentina, or Pan American Energy, represented 28.5%, 20.7% and 11.7% of our consolidated revenues, respectively. Revenues from Pan American Energy represented 62.0%, 51.0% and 45.6% of our international revenues in 2008, 2007 and 2006, respectively (see Note 13).

Debt Issuance Costs

The costs related to the issuance of debt are capitalized and amortized to interest expense using the straight-line method, which approximates the interest method, over the maturity periods of the related debt. Interest expense related to debt issuance costs were $2.1 million, $1.9 million and $1.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Income Taxes

Our income tax expense is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which operations are conducted and income is earned. Our income tax expense is expected to fluctuate from year to year as our operations are conducted in different taxing jurisdictions and the amount of pre-tax income fluctuates.

The determination and evaluation of our annual income tax provision involves the interpretation of tax laws in various jurisdictions in which we operate and requires significant judgment and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations and our level of operations or profitability in each jurisdiction may impact our tax liability in any given year. While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined.

Current income tax expense reflects an estimate of our income tax liability for the current year, withholding taxes, changes in tax rates and changes in prior year tax estimates as returns are filed. Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our assets and liabilities using the enacted tax rates in effect at year end. A valuation allowance for deferred tax assets is recorded when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. We provide for uncertain tax positions pursuant to Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”). Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, we did not have any accrued interest or penalties associated with any unrecognized tax benefits. For U.S. federal tax purposes, our tax returns for the tax years 2001 through 2007 remain open for

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Notes to Consolidated Financial Statements — (Continued)

examination by the tax authorities. Our foreign tax returns remain open for examination for the tax years 2001 through 2007. Generally, for state tax purposes, our 2003 through 2007 tax years remain open for examination by the tax authorities under a four year statute of limitations, however, certain states may keep their statute open for six to ten years.

It is our intention to permanently reinvest all of the undistributed earnings of our non-U.S. subsidiaries in such subsidiaries. Accordingly, we have not provided for U.S. deferred taxes on the $57.8 million of undistributed earnings of our non-U.S. subsidiaries as of December 31, 2008. If a distribution is made to us from the undistributed earnings of these subsidiaries, we could be required to record additional taxes. Because we cannot predict when, if at all, we will make a distribution of these undistributed earnings, we are unable to make a determination of the amount of unrecognized deferred tax liability.

Stock-Based Compensation

We adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS No. 123R”), effective January 1, 2006. This statement requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their grant-date fair values. We adopted SFAS No. 123R using the modified prospective transition method, utilizing the Black-Scholes option pricing model for the calculation of the fair value of our employee stock options. Under the modified prospective method, we record compensation cost related to unvested stock awards as of December 31, 2005 by recognizing the unamortized grant date fair value of these awards over the remaining vesting periods of those awards with no change in historical reported earnings. We estimated forfeiture rates for 2008, 2007 and 2006 based on our historical experience.

The Black-Scholes model incorporates assumptions to value stock-based awards. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is assumed to be zero as we have historically not paid dividends and have no current plans to do so in the future. The expected volatility is based on historical volatility of our common stock.

Our net income (loss) for the years ended December 31, 2008, 2007 and 2006 includes approximately $7.9 million, $4.9 million and $3.4 million of compensation costs related to share-based payments, respectively. The tax benefit recorded in association with the share-based payments was $9,000, $1.7 million and $6.4 million for the years-ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008 there is $10.8 million of unrecognized compensation expense related to non-vested stock based compensation grants.

No options were granted in 2008. See Note 10 for further disclosures regarding stock options. The following assumptions were applied in determining the compensation costs for options granted in 2007 and 2006:

	For the Years Ended December 31,
	2007			2006
Expected dividend yield		—			—
Expected price volatility		66.21	%		72.28	%
Risk-free interest rate		4.8	%		5.1	%
Expected life of options		5 years			7 years
Weighted average fair value of options granted at market value	$	12.86		$	10.58

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Notes to Consolidated Financial Statements — (Continued)

Income (Loss) Per Common Share

We compute income (loss) per common share in accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share (“SFAS No. 128”). SFAS No. 128 requires companies with complex capital structures to present basic and diluted earnings per share. Basic earnings per share are computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is similar to basic earnings per share, but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible preferred stock, stock options, etc.) as if they had been converted. Restricted stock grants are legally considered issued and outstanding, but are included in basic and diluted earnings per share only to the extent that they are vested. Unvested restricted stock is included in the computation of diluted earnings per share using the treasury stock method. Potential dilutive common shares that have an anti-dilutive effect (e.g., those that increase income per share) are excluded from diluted earnings per share.

The components of basic and diluted earnings (deficit) per share are as follows (in thousands, except per share amounts):

	For the Years Ended December 31,
	2008			2007		2006
Numerator:
Net income (loss)	$	(39,464	)	$	50,440	$	35,626
Denominator:
Weighted average common shares outstanding excluding nonvested restricted stock		35,052			34,158		20,548
Effect of potentially dilutive common shares:
Warrants and share based compensation shares		—			543		862
Weighted average common shares outstanding and assumed conversions		35,052			34,701		21,410
Income (loss) per common share:
Basic	$	(1.13	)	$	1.48	$	1.73
Diluted	$	(1.13	)	$	1.45	$	1.66
Potentially dilutive securities excluded as anti-dilutive		1,041			1,108		53

Warrants and share based compensation shares of approximately 332,000 were excluded in the computation of diluted earnings per share for 2008 as the effect would have been anti-dilutive due to the net loss for the year.

Segments of an Enterprise and Related Information

We disclose the results of our segments in accordance with Statement of Financial Accounting Standards No. 131, Disclosures About Segments Of An Enterprise And Related Information (“SFAS No. 131”). We designate the internal organization that is used by management for allocating resources and assessing performance as the source of our reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas and major customers. Please see Note 14 for further disclosure of segment information in accordance with SFAS No. 131.

Reclassification

Certain prior period balances have been reclassified to conform to current year presentation.

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Notes to Consolidated Financial Statements — (Continued)

New Accounting Pronouncements

In September 2006, the FASB, issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. Subsequently, the FASB provided for a one-year deferral of the provisions of SFAS No. 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a non-recurring basis. As allowed under SFAS No. 157, we adopted all requirements of SFAS No. 157 on January 1, 2008, except as they relate to nonfinancial assets and liabilities, which were adopted on January 1, 2009 and neither adoption had any impact on our financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159, which permits entities to elect to measure many financial instruments and certain other items at fair value. Upon adoption of SFAS No. 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at the initial recognition of the asset or liability or upon a re-measurement event that gives rise to the new-basis of accounting. All subsequent changes in fair value for that instrument are reported in earnings. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be recorded at fair value nor does it eliminate disclosure requirements included in other accounting standards. SFAS No. 159 is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. We adopted SFAS No. 159 on January 1, 2008 and there was no impact on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, or SFAS No. 141(R). SFAS No. 141(R) changes the requirements for an acquirer’s recognition and measurement of the assets acquired and the liabilities assumed in a business combination. Additionally, SFAS No. 141(R) requires that acquisition-related costs, including restructuring costs, be recognized as expense separately from the acquisition. We adopted SFAS No. 141(R) on January 1, 2009 and there was no impact on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51, or SFAS No. 160. SFAS No. 160 requires (i) that non-controlling (minority) interests be reported as a component of shareholders’ equity, (ii) that net income attributable to the parent and to the non-controlling interest be separately identified in the consolidated statement of operations, (iii) that changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, (iv) that any retained non-controlling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value, and (v) that sufficient disclosures are provided that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for annual periods beginning after December 15, 2008 and should be applied prospectively. The presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. We adopted SFAS No. 160 on January 1, 2009 and there was no impact on our financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133, or SFAS No. 161. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in hedged positions. The statement also requires enhanced disclosures

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Notes to Consolidated Financial Statements — (Continued)

regarding how and why entities use derivative instruments, how derivative instruments and related hedged items are accounted and how derivative instruments and related hedged items affect entities’ financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We adopted SFAS No. 161 on January 1, 2009 and there was no material impact on our financial statements.

In April 2008, the FASB issued FASB Staff Position SFAS 142-3, Determination of the Useful Life of Intangible Assets, or FSP SFAS 142-3. FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, or SFAS No. 142. The objective of FSP SFAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, Business Combinations, and other U.S. GAAP principles. FSP SFAS 142-3 is effective for fiscal years beginning after December 15, 2008. We adopted FSP SFAS 142-3 on January 1, 2009 and there was no impact on our financial statements.

See also Note 6 — Income Taxes for a discussion of the FASB’s Interpretation No. 48 — Accounting for Uncertainty in Income Taxes.

NOTE 2 — POST RETIREMENT BENEFIT OBLIGATIONS

Medical and Life

Pursuant to the Plan of Reorganization that was confirmed by the Bankruptcy Court after acceptances by our creditors and stockholders and was consummated on December 2, 1988, we assumed the contractual obligation to Simplicity Manufacturing, Inc. (SMI) to reimburse SMI for 50% of the actual cost of medical and life insurance claims for a select group of retirees (SMI Retirees) of the prior Simplicity Manufacturing Division of Allis-Chalmers. The actuarial present value of the expected retiree benefit obligation is determined by an actuary and is the amount that results from applying actuarial assumptions to (1) historical claims-cost data, (2) estimates for the time value of money (through discounts for interest) and (3) the probability of payment (including decrements for death, disability, withdrawal, or retirement) between today and expected date of benefit payments. As of December 31, 2008 and 2007, we have post-retirement benefit obligations of $0 and $31,000, respectively.

401(k) Savings Plan

On June 30, 2003, we adopted the 401(k) Profit Sharing Plan (the “Plan”). The Plan is a defined contribution savings plan designed to provide retirement income to our eligible employees. The Plan is intended to be qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-tax contributions from eligible employees who may contribute a percentage of their eligible compensation, limited and subject to statutory limits. The Plan is also funded by discretionary matching employer contributions. Eligible employees cannot participate in the Plan until they have attained the age of 21 and completed three-months of service with us. Each participant is 100% vested with respect to the participants’ contributions while our matching contributions are vested over a three-year period in accordance with the Plan document. Contributions are invested, as directed by the participant, in investment funds available under the Plan. Matching contributions of approximately $1.5 million, $1.8 million and $735,000 were paid in 2008, 2007 and 2006, respectively.

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Notes to Consolidated Financial Statements — (Continued)

NOTE 3 — ACQUISITIONS AND ASSET DISPOSITIONS

Effective January 1, 2006, we acquired 100% of the outstanding stock of Specialty Rental Tools, Inc., or Specialty, for approximately $95.3 million in cash. In addition, approximately $588,000 of costs were incurred in relation to the Specialty acquisition. Specialty, located in Lafayette, Louisiana, was engaged in the rental of high quality drill pipe, heavy weight spiral drill pipe, tubing work strings, blow-out preventors, choke manifolds and various valves and handling tools for oil and natural gas drilling. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets	$	7,645
Property and equipment		90,622
Total assets acquired		98,267
Current liabilities		2,193
Long-term debt		74
Total liabilities assumed		2,267
Net assets acquired	$	96,000

Specialty’s historical property and equipment values were increased by approximately $71.6 million based on third-party valuations. The results of Specialty since the acquisition are included in our Rental Services segment.

Effective April 1, 2006, we acquired 100% of the outstanding stock of Rogers Oil Tools, Inc., or Rogers, based in Lafayette, Louisiana, for a total consideration of approximately $13.7 million, which includes approximately $11.3 million in cash, $1.6 million in our common stock and a $750,000 three-year promissory note. In addition, approximately $380,000 of costs were incurred in relation to the Rogers acquisition. Rogers sells, services and rents power drill pipe tongs and accessories and rental tongs for snubbing and well control applications. Rogers also provides specialized tong operators for rental jobs. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets	$	4,520
Property and equipment		9,866
Intangible assets, including goodwill		4,941
Total assets acquired		19,327
Current liabilities		1,376
Deferred income tax liabilities		3,760
Other long-term liabilities		150
Total liabilities assumed		5,286
Net assets acquired	$	14,041

Rogers’ historical property and equipment values were increased by approximately $8.4 million based on third-party valuations. Intangible assets include approximately $2.4 million assigned to goodwill, $1.2 million assigned to patents, $1.1 million assigned to customer list and $150,000 assigned to non-compete based on third-party valuations and employment contracts. The amortizable intangibles have a weighted-average useful life of 10.5 years. The results of Rogers since the acquisition are included in our Oilfield Services segment.

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Notes to Consolidated Financial Statements — (Continued)

Effective August 14, 2006, we acquired 100% of the outstanding stock of DLS, based in Argentina, for a total consideration of approximately $114.5 million, which includes approximately $93.7 million in cash, $38.1 million in our common stock, less approximately $17.3 million of debt assigned to us. In addition, approximately $3.4 million of costs were incurred in relation to the DLS acquisition. DLS operated a fleet of 51 rigs, including 20 drilling rigs, 18 workover rigs and 12 pulling rigs in Argentina and one drilling rig in Bolivia. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets	$	52,033
Property and equipment		130,389
Other long-term assets		21
Total assets acquired		182,443
Current liabilities		34,386
Long-term debt, less current portion		5,921
Intercompany note		17,256
Deferred tax liabilities		6,948
Total liabilities assumed		64,511
Net assets acquired	$	117,932

DLS’ historical property and equipment values were increased by approximately $22.7 million based on third-party valuations. The results of DLS since the acquisition are included in our Drilling and Completion segment.

On October 16, 2006, we acquired 100% of the outstanding stock of Petro Rental, based in Lafayette, Louisiana, for a total consideration of approximately $33.6 million, which includes approximately $20.2 million in cash, $3.8 million in our common stock and repaid $9.6 million of existing Petro Rental debt. In addition, approximately $82,000 of costs were incurred in relation to the Petro-Rental acquisition. Petro-Rental provides a variety of production-related rental tools and equipment and services, including wire line services and equipment, land and offshore pumping services and coiled tubing. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets	$	8,175
Property and equipment		28,792
Intangible assets, including goodwill		5,811
Other long-term assets		2
Total assets acquired		42,780
Current liabilities		2,135
Deferred tax liabilities		6,954
Total liabilities assumed		9,089
Net assets acquired	$	33,691

Petro Rental’s historical property and equipment values were increased by approximately $13.4 million based on third-party valuations. Intangible assets include approximately $3.6 million assigned to goodwill and $2.2 million assigned to customer relationships based on third-party valuations. The amortizable intangibles

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Notes to Consolidated Financial Statements — (Continued)

have a weighted-average useful life of 10 years. The results of Petro-Rental since the acquisition are included in our Oilfield Services segment.

Effective December 1, 2006, we acquired 100% of the outstanding stock of Tanus, based in Argentina, for a total consideration of $2.5 million. In addition, approximately $17,000 of costs were incurred in relation to the Tanus acquisition. Tanus is engaged in the research and manufacturing of additives for the oil, natural gas and water well drilling and completion fluids in Argentina. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition (in thousands).

Current assets	$	2,254
Property and equipment		2
Goodwill		1,504
Total assets acquired		3,760
Current liabilities		1,243
Net assets acquired	$	2,517

The results of Tanus since the acquisition are included in our Drilling and Completion segment.

On December 18, 2006, we acquired substantially all of the assets of Oil & Gas Rental Services, Inc, or OGR, based in Morgan City, Louisiana, for a total consideration of approximately $342.4 million, which includes approximately $291.0 million in cash, and $51.4 million in our common stock. In addition, approximately $3.0 million of costs were incurred in relation to the acquisition of the assets of OGR The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired at the date of acquisition (in thousands):

Current assets	$	12,735
Property and equipment		199,015
Investments		4,618
Intangible assets, including goodwill		128,976
Total assets acquired	$	345,344

OGR’s historical property and equipment values were increased by approximately $168.9 million based on third-party valuations. Intangible assets include approximately $106.1 million assigned to goodwill, $22.0 million to customer relations, $831,000 to patents and $35,000 assigned to employment agreements based on third-party valuations. The amortizable intangibles have a weighted-average useful life of 10.1 years. The results of the OGR assets since their acquisition are included in our Rental Services segment.

On June 29 2007, we acquired Coker Directional, Inc., or Coker, for a total consideration of approximately $3.9 million, which includes approximately $3.6 million in cash and a promissory note for $350,000. In addition, approximately $5,000 of costs were incurred in relation to the Coker acquisition. Coker was a directional drilling company operating in the Gulf coast and Central Texas regions. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition (in thousands):

Property and equipment	$	3
Intangible assets, including goodwill		3,902
Net assets acquired	$	3,905

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

Intangible assets include approximately $1.8 million assigned to goodwill and $2.1 million assigned to customer relationships and non-compete. The amortizable intangibles have a weighted-average useful life of 9.4 years. The results of Coker since the acquisition are included in our Oilfield Services segment.

On July 26, 2007, we acquired Diggar Tools, LLC, or Diggar, for a total consideration of approximately $10.3 million, which includes approximately $6.7 million in cash, a promissory note for $750,000 and payment of approximately $2.8 million of existing Diggar debt. In addition, approximately $29,000 of costs were incurred in relation to the Diggar acquisition. Diggar was a directional drilling company operating in the Rocky Mountains with an inventory of 115 downhole motors. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired at the date of acquisition (in thousands):

Current assets	$	1,113
Property and equipment		7,204
Intangible assets, including goodwill		2,675
Total assets acquired		10,992
Current liabilities		622
Net assets acquired	$	10,370

Diggar’s historical property and equipment values were increased by approximately $3.4 million based on third-party valuations. Intangible assets include approximately $2.7 million assigned to goodwill. The results of Diggar since the acquisition are included in our Oilfield Services segment.

On October 23, 2007, we acquired Rebel for a total consideration of approximately $7.3 million, which includes approximately $5.0 million in cash, promissory notes for an aggregate of $500,000, payment of approximately $1.5 million of existing Rebel debt and the deposit of $305,000 in escrow to cover distributions owed under the Rebel Defined Benefit Pension Plan & Trust. In addition, approximately $214,000 of costs were incurred in relation to the Rebel acquisition. Rebel is based in Lafayette, Louisiana and had an extensive inventory of tubular services equipment and primarily provided tubing installation services. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired at the date of acquisition (in thousands):

Current assets	$	944
Land, Property and equipment		8,736
Intangible assets, including goodwill		1,144
Total assets acquired		10,824
Current liabilities		218
Deferred tax liabilities		3,095
Total liabilities assumed		3,313
Net assets acquired	$	7,511

Rebel’s historical property and equipment values were increased by approximately $8.5 million based on third-party valuations. Intangible assets include approximately $461,000 assigned to goodwill and $683,000 assigned to customer relations. The amortizable intangibles have a useful life of 15 years. The results of Rebel since the acquisition are included in our Oilfield Services segment.

On November 1, 2007, we acquired substantially all the assets Diamondback Oilfield Services, Inc. or Diamondback, for a total consideration of approximately $23.1 million in cash. Approximately $89,000 of costs were incurred in relation to the Diamondback acquisition. Diamondback was a directional drilling

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

company based in Conroe, Texas with operations focused in the Texas Panhandle and Oklahoma. Diamondback assets included 30 downhole motors, five measurement while drilling kits and eight wireline steering vehicles. The following table summarizes the allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired at the date of acquisition (in thousands):

Current assets	$	3,350
Property and equipment		8,701
Intangible assets, including goodwill		12,232
Other noncurrent assets		10
Total assets acquired		24,293
Current liabilities		1,160
Net assets acquired	$	23,133

Diamondback’s historical property and equipment values were increased by approximately $2.0 million based on third-party valuations. Intangible assets include approximately $7.6 million assigned to goodwill, $650,000 assigned to non-compete, $620,000 assigned to trade name and $3.4 million assigned to customer relations based on third-party valuations. The amortizable intangibles have a weighted-average useful life of 13.3 years. Subsequent to the date of acquisition, the sellers earned an additional $3.0 million cash earn-out payment as the business achieved certain earning objectives. The earn-out increased goodwill and was accrued at December 31, 2008 and will be paid in 2009. The results of the Diamondback assets since their acquisition are included in our Oilfield Services segment.

On December 31 2008, we completed the acquisition of all of the outstanding stock of BCH for a total consideration of approximately $56.1 million. Approximately $251,000 of costs were incurred in relation to the BCH acquisition. BCH is a land drilling contractor operating in Brazil. The following table summarizes the preliminary allocation of the purchase price and related acquisition costs to the estimated fair value of the assets acquired at the date of acquisition (in thousands):

Current assets	$	7,622
Property and equipment		53,369
Intangible assets, including goodwill		26,199
Total assets acquired		87,190
Current liabilities		14,456
Long-term debt, less current portion		16,364
Total liabilities assumed		30,820
Net assets acquired	$	56,370

BCH’s historical property and equipment values were decreased by approximately $2.8 million based on third-party valuations. Intangible assets include approximately $18.5 million assigned to goodwill, $4.9 million to customer contracts, $2.2 million assigned to trade name and $600,000 to non-competes based on third-party valuations. The amortizable intangibles have a weighted-average useful life of 12.6 years. We do not expect any material differences from the preliminary allocation of the purchase price and the final purchase price allocations.

The acquisitions were accounted for using the purchase method of accounting.

On June 29, 2007, we sold our capillary tubing units and related equipment for approximately $16.3 million. We reported a gain of approximately $8.9 million. The assets sold represented a small portion of our Oilfield Services segment.

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

Effective August 1, 2008, we sold our drill pipe tong manufacturing assets for approximately $7.5 million. We received cash of approximately $2.0 million at the time of sale, a 90-day note for $1.0 million and a 10-year non-interest bearing note for $4.5 million. Repayment on the 10-year note is tied to various performance targets and we have assigned a fair value of approximately $3.1 million to this note. We reported a gain of approximately $166,000 on this transaction. The assets sold represented a small portion of our Oilfield Services segment.

The following unaudited pro forma consolidated summary financial information for the year ended December 31, 2006 illustrates the effects of the acquisitions and the related public offerings of debt and equity for Rogers, DLS, Petro-Rental and OGR as if the acquisitions occurred as of January 1, 2006, based on the historical results of the acquisitions. The historical results for OGR are based on their historical year end of October 31 (in thousands, except per share amounts):

Revenues	$	502,418
Operating income	$	93,082
Net income	$	32,358
Net income per common share
Basic	$	0.96
Diluted	$	0.94

NOTE 4 — INVENTORIES

Inventories are comprised of the following as of December 31 (in thousands):

	2008		2007
Manufactured
Finished goods	$	2,821	$	2,198
Work in process		1,654		1,781
Raw materials		2,499		4,464
Total manufactured		6,974		8,443
Hammers		2,257		1,434
Drive pipe		443		420
Rental supplies		3,023		2,261
Chemicals and drilling fluids		3,698		3,236
Rig parts and related inventory		13,097		9,985
Coiled tubing and related inventory		1,817		1,014
Shop supplies and related inventory		7,778		5,416
Total inventories	$	39,087	$	32,209

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

NOTE 5 — PROPERTY AND OTHER INTANGIBLE ASSETS

Property and equipment is comprised of the following as of December 31 (in thousands):

	Depreciation
	Period		2008			2007
Land		—	$	2,214		$	2,040
Building and improvements		15-20 years		8,387			6,986
Transportation equipment		3-10 years		34,493			26,132
Drill pipe and rental equipment		3-20 years		373,064			350,202
Drilling, workover and pulling rigs		20 years		228,857			127,725
Machinery and equipment		3-20 years		212,594			157,626
Furniture, computers, software and leasehold improvements		3-10 years		8,711			5,817
Construction in progress — equipment		N/A		29,850			27,148
Total				898,170			703,676
Less: accumulated depreciation				(137,180	)		(77,008	)
Property and equipment, net			$	760,990		$	626,668

The net book value of equipment recorded under capital leases was $1.7 million and $285,000 as of December 31, 2008 and 2007, respectively. Interest expense capitalized to property and equipment was $1.9 million and $0 for the years ended December 31, 2008 and 2007, respectively.

Other intangible assets are as follows as of December 31 (in thousands):

	Amortization
	Period		2008			2007
Trade name		10-20 years	$	3,829		$	1,629
Non-compete agreements		3-5 years		2,640			2,852
Customer relationships		10-15 years		38,033			33,528
Patents		12-15 years		1,327			2,560
Other intangible assets		2-10 years		793			829
Total				46,622			41,398
Less: accumulated amortization				(9,251	)		(6,218	)
Other intangibles assets, net			$	37,371		$	35,180

	2008				2007
	Gross		Accumulated		Gross		Accumulated
	Value		Amortization		Value		Amortization
Intellectual property	$	3,829	$	507	$	1,629	$	410
Non-compete agreements		2,640		1,198		2,852		1,367
Customer relationships		38,033		6,676		33,528		3,497
Patents		1,327		279		2,560		423
Other intangible assets		793		591		829		521
Total	$	46,622	$	9,251	$	41,398	$	6,218

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

Amortization expense related to other intangibles was $4.2 million, $4.1 million and $1.9 million for the years ended December 31, 2008, 2007 and 2006, respectively. Future amortization of intangible assets at December 31, 2008 is as follows (in thousands):

	Intangible Amortization by Period
	Years Ended December 31,
									2013 and
	2009		2010		2011		2012		Thereafter
Intellectual property	$	316	$	316	$	316	$	316	$	2,058
Non-compete agreements		681		489		248		24		—
Customer relationships		3,532		3,532		3,532		3,532		17,229
Patents		102		102		102		102		640
Other intangible assets		89		83		28		2		—
Total Intangible Amortization	$	4,720	$	4,522	$	4,226	$	3,976	$	19,927

NOTE 6 — INCOME TAXES

We had a loss before income taxes of $95.3 million for U.S. tax purposes for the year ended December 31, 2008. We had income before income taxes of $41.7 million and $35.9 million for U.S. tax purposes for the years ended December 31, 2007 and 2006, respectively. We also had income before income taxes of $38.4 million, $37.6 million and $11.1 million reported in non-U.S. countries for the years ended December 31, 2008, 2007 and 2006, respectively. We treat the withholding taxes incurred by our U.S. subsidiaries in foreign countries as foreign tax, and we anticipate using those tax payments to offset U.S. tax.

The income tax provision consists of the following (in thousands):

	Years Ended December 31,
	2008			2007		2006
Current income tax expense (benefit):
Federal	$	(1,525	)	$	6,814	$	5,865
State		471			1,053		898
Foreign		13,590			12,959		2,442
		12,536			20,826		9,205
Deferred income tax expense (benefit):
Federal		(28,462	)		7,081		(946	)
State		(1,149	)		349		573
Foreign		(338	)		587		2,588
		(29,949	)		8,017		2,215
	$	(17,413	)	$	28,843	$	11,420

We are required to file a consolidated U.S. federal income tax return. We pay foreign income taxes in Argentina related to our Drilling and Completion operations and in Mexico related to Oilfield Services’ revenues from Matyep.

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

The following table reconciles the statutory tax rates to our actual tax rate:

	Years Ended December 31,
	2008			2007			2006
Statutory income tax rate		34.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		0.4			1.8			2.1
Valuation allowances		—			—			(57.7	)
Foreign currency remeasurement		2.1			—			—
Nondeductible goodwill, permanent differences and other		(5.9	)		(0.4	)		44.9
Effective tax rate		30.6	%		36.4	%		24.3	%

Significant components of deferred income tax assets as of December 31, were as follows (in thousands):

	2008			2007
Deferred income tax assets:
Net future deductible items	$	35,384		$	874
Share-based compensation		2,691			1,898
Net operating loss carryforwards		2,287			2,681
Foreign tax credits		760			—
A-C Reorganization Trust and Product Liability Trust		2,448			4,099
Total deferred income tax assets		43,570			9,552
Deferred income tax liabilities
Net future taxable items		(1,130	)		—
Depreciation and amortization		(40,524	)		(37,795	)
		(41,654	)		(37,795	)
Net deferred income tax assets (liabilities)	$	1,916		$	(28,243	)
Net current deferred income tax asset	$	6,176		$	1,847
Net noncurrent deferred income tax liability		(4,260	)		(30,090	)
Net deferred income tax assets (liabilities)	$	1,916		$	(28,243	)

Net future tax-deductible items relate primarily to timing differences. Timing differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in differences between income for tax purposes and income for financial statement purposes in future years. For example, the goodwill impairment that we recorded in 2008 for financial statement purposes related to our Rental Services segment has created a deferred tax asset that will be realized over the next 13 years.

The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carry forwards if there has been a “change of ownership” as described in Section 382 of the Internal Revenue Code. Such a change of ownership may limit our utilization of our net operating loss and tax credit carryforwards, and could be triggered by a public offering or by subsequent sales of securities by us or our stockholders. This provision has limited the amount of net operating losses available to us currently. Net operating loss carryforwards for tax purposes at December 31, 2008 and 2007 were $6.7 million and $7.7 million, respectively, expiring through 2024.

Our 1988 Plan of Reorganization established the A-C Reorganization Trust to settle claims and to make distributions to creditors and certain stockholders. We transferred cash and certain other property to the A-C Reorganization Trust on December 2, 1988. Payments made by us to the A-C Reorganization Trust did not

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

generate tax deductions for us upon the transfer but generate deductions for us as the A-C Reorganization Trust makes payments to holders of claims and for administrative expenses. The Plan of Reorganization also created a trust to process and liquidate product liability claims. Payments made by the A-C Reorganization Trust to the Product Liability Trust did not generate current tax deductions for us upon the payment but generates deductions for us as the Product Liability Trust makes payments to liquidate claims or incurs administrative expenses. We believe the aforementioned trusts are grantor trusts and therefore we include the income or loss of these trusts in our income or loss for tax purposes. The income or loss of these trusts is not included in our results of operations for financial reporting purposes.

A valuation allowance is established for deferred tax assets when management, based upon available information, considers it more likely than not that a benefit from such assets will not be realized. As of December 31, 2008 and 2007, the valuation allowance was zero.

Approximately $4.7 million and $9.7 million of ad valorem, franchise, income, sales and other tax accruals are included in our accrued expense balances of $26.6 million and $20.5 million as of December 31, 2008 and 2007, respectively.

We adopted the provisions of FIN 48 on January 1, 2007. This interpretation clarifies the accounting for uncertain tax positions and requires companies to recognize the impact of a tax position in their financial statements, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The adoption of FIN 48 did not have any impact on the total liabilities or stockholders’ equity.

NOTE 7 — DEBT

Our long-term debt consists of the following as of December 31 (in thousands):

	2008		2007
Senior notes	$	505,000	$	505,000
Bank term loans		49,609		4,926
Revolving line of credit		36,500		—
Seller notes		750		2,350
Notes payable to former directors		32		32
Equipment & vehicle installment notes		—		595
Insurance premium financing notes		991		1,707
Obligations under non-compete agreements		—		110
Capital lease obligations		779		14
Total debt		593,661		514,734
Less: current maturities of long-term debt		14,617		6,434
Long-term debt	$	579,044	$	508,300

Our weighted average interest rate for current and total debt was approximately 6.4% and 8.3% as of December 31, 2008 and 6.3% and 8.7% as of December 31, 2007, respectively.

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

Maturities of debt obligations as of December 31, 2008 are as follows (in thousands):

	Debt		Capital Leases		Total
Year Ending:
December 31, 2009	$	14,026	$	591	$	14,617
December 31, 2010		12,333		188		12,521
December 31, 2011		11,984		—		11,984
December 31, 2012		46,663		—		46,663
December 31, 2013		2,876		—		2,876
Thereafter		505,000		—		505,000
Total	$	592,882	$	779	$	593,661

Senior notes, bank loans and line of credit agreements

On January 18, 2006 and August 14, 2006, we closed on private offerings, to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, of $160.0 and $95.0 million aggregate principal amount of our senior notes, respectively. The senior notes are due January 15, 2014 and bear interest at 9.0%. The proceeds were used to fund the acquisitions of Specialty and DLS, to repay existing debt and for general corporate purposes.

On December 18, 2006, we closed on a $300.0 million senior unsecured bridge loan. The bridge loan was due 18 months after closing and had a weighted average interest rate of 10.6%. The bridge loan, which was repaid on January 29, 2007, was used to fund the acquisition of substantially all the assets of OGR.

In January 2007, we closed on a private offering, to qualified institutional buyers pursuant to Rule 144A under the Securities Act, of $250.0 million principal amount of 8.5% senior notes due 2017. The proceeds of the senior notes offering, together with a portion of the proceeds of our concurrent common stock offering, were used to repay the debt outstanding under our $300.0 million bridge loan facility which we incurred to finance our acquisition of substantially all the assets of OGR.

On January 18, 2006, we also executed an amended and restated credit agreement which provided for a $25.0 million revolving line of credit with a maturity of January 2010. On April 26, 2007, we entered into a Second Amended and Restated Credit Agreement, which increased our revolving line of credit to $62.0 million, and had a final maturity date of April 26, 2012. On December 3, 2007, we entered into a First Amendment to Second Amended and Restated Credit Agreement, which increased our revolving line of credit to $90.0 million. The amended and restated credit agreement contains customary events of default and financial covenants and limits our ability to incur additional indebtedness, make capital expenditures, pay dividends or make other distributions, create liens and sell assets. Our obligations under the amended and restated credit agreement are secured by substantially all of our assets located in the U.S. We were in compliance with all debt covenants as of December 31, 2008 and 2007. The credit agreement loan rates are based on prime or LIBOR plus a margin. The weighted average interest rate was 4.6% at December 31, 2008. As of December 31, 2008 and 2007, amounts borrowed under the facility were $36.5 million and $0 and availability was reduced by outstanding letters of credit of $5.8 million and $8.4 million, respectively.

As part of our acquisition of DLS, we assumed various bank loans with floating interest rates based on LIBOR plus a margin and terms ranging from 2 to 5 years. The weighted average interest rates on these loans was 5.1% and 6.7% as of December 31, 2008 and 2007, respectively. The bank loans are denominated in U.S. dollars and the outstanding amount due as of December 31, 2008 and 2007 was $2.5 million and $4.9 million, respectively.

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

On February 15, 2008, through our DLS subsidiary in Argentina, we entered into a $25.0 million import finance facility with a bank. Borrowings under this facility were used to fund a portion of the purchase price of the new drilling and service rigs ordered for our Drilling and Completion segment. The facility was available for borrowings until December 31, 2008. Each drawdown shall be repaid over four years in equal semi-annual installments beginning one year after each disbursement with the final principal payment due not later than March 15, 2013. The import finance facility is unsecured and contains customary events of default and financial covenants and limits DLS’ ability to incur additional indebtedness, make capital expenditures, create liens and sell assets. We were in compliance with all debt covenants as of December 31, 2008. The bank loan rates are based on LIBOR plus a margin. The weighted average interest rate was 6.9% at December 31, 2008. The bank loans are denominated in U.S. dollars and the outstanding amount as of December 31, 2008 was $25.0 million.

As part of our acquisition of BCH, we assumed a $23.6 million term loan credit facility with a bank. The credit agreement is dated June 2007 and contains customary events of default and financial covenants. Obligations under the facility are secured by substantially all of the BCH assets. The facility is repayable in quarterly principal installments plus interest with the final payment due not later than August 2012. We were in compliance with all debt covenants as of December 31, 2008. The credit facility loan is denominated in U.S. dollars and interest rates are based on LIBOR plus a margin. At December 31, 2008, the outstanding amount of the loan was $22.1 million and the interest rate was 6.0%.

Notes payable

In connection with the acquisition of Rogers, we issued to the seller a note in the amount of $750,000. The note bears interest at 5.0% and is due April 2009. In connection with the purchase of Coker, we issued to the seller a note in the amount of $350,000. The note bore interest at 8.25% and was repaid in June 2008. In connection with the purchase of Diggar, we issued to the seller a note in the amount of $750,000. The note bore interest at 6.0% and was repaid in July 2008. In connection with the purchase of Rebel, we issued to the sellers notes in the amount of $500,000. The notes bore interest at 5.0% and were repaid in October 2008.

In 2000 we compensated directors, including current directors Nederlander and Toboroff, who served on the board of directors from 1989 to March 31, 1999 without compensation, by issuing promissory notes totaling $325,000. The notes bear interest at the rate of 5.0%. As of December 31, 2008 and 2007, the principal and accrued interest on these notes totaled approximately $32,000.

We have various rig and equipment financing loans with interest rates ranging from 8.3% to 8.7% and terms of 2 to 5 years. As of December 31, 2008 and 2007, the outstanding balances for rig and equipment financing loans were $0 and $595,000, respectively.

In April 2007 and August 2007, we obtained insurance premium financings in the aggregate amount of $4.4 million with a fixed weighted average interest rate of 5.9%. Under terms of the agreements, amounts outstanding are paid over 10 and 11 month repayment schedules. The outstanding balance of these notes was approximately $0 and $1.7 million as of December 31, 2008 and 2007, respectively. In April 2008 and August 2008, we obtained insurance premium financings in the aggregate amount of $3.0 million with a fixed average weighted interest rate of 4.9%. Under terms of the agreements, amounts outstanding are paid over 10 and 11 month repayment schedules. The outstanding balance of these notes was approximately $991,000 at December 31, 2008.

Other debt

In connection with the purchase of Capcoil Tubing Services, Inc., we agreed to pay a total of $500,000 to two management employees in exchange for non-compete agreements. We were required to make annual

77

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

payments of $110,000 through May 2008. Total amounts due under these non-compete agreements as of December 31, 2008 and 2007 were $0 and $110,000, respectively.

As part of our acquisition of BCH, we assumed various capital leases with terms of two to three years. The outstanding balance under these capital leases was $779,000 at December 31, 2008. We also had other capital leases with terms that expired in 2008. As of December 31, 2007, amounts outstanding under capital leases were $14,000.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

We have placed orders for capital equipment totaling $41.4 million to be received and paid for through 2009. Approximately $22.6 million is for drilling and service rigs for our Drilling and Completion segment, $10.0 million is for other drilling equipment for our Drilling and Completion segment, $5.5 million is for rental equipment, principally drill pipe, for our Rental Services segment and $3.3 million is for various equipment to be utilized by our Oilfield Services segment.

We rent office space and certain other facilities and shop yards for equipment storage and maintenance. Facility rent expense for the years ended December 31, 2008, 2007 and 2006 was $2.8 million, $2.7 million and $1.6 million, respectively.

At December 31, 2008, future minimum rental commitments for all operating leases are as follows (in thousands):

Years Ending:
December 31, 2009	$	2,888
December 31, 2010		2,113
December 31, 2011		1,730
December 31, 2012		981
December 31, 2013		739
Thereafter		1,035
Total	$	9,486

NOTE 9 — STOCKHOLDERS’ EQUITY

During 2006, we issued 125,285 shares, 2.5 million shares, 246,761 shares and 3.2 million shares of our common stock in relation to the Rogers, DLS, Petro Rental and OGR asset acquisitions, respectively (see Note 3).

On August 14, 2006 we closed on a public offering of 3,450,000 shares of our common stock at a public offering price of $14.50 per share. Net proceeds from the public offering of approximately $46.3 million were used to fund a portion of our acquisition of DLS.

During 2006, we had options and warrants exercised, which resulted in 1,851,377 shares of our common stock being issued for approximately $6.3 million. We recognized approximately $3.4 million of compensation expense related to stock options in 2006 that was recorded as capital in excess of par value (see Note 1). We also recorded approximately $6.4 million of tax benefit related to our stock compensation plans.

In January 2007 we closed on a public offering of 6.0 million shares of our common stock at a public offering price of $17.65 per share. Net proceeds from the public offering, together with the proceeds of our concurrent senior notes offering, were used to repay the debt outstanding under our $300.0 million bridge loan facility, which we incurred to finance the OGR acquisition and for general corporate purposes.

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ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

During 2007, we also had restricted stock award grants, and options and warrants exercised, which resulted in 882,624 shares of our common stock being issued for approximately $3.3 million. We recognized approximately $4.9 million of compensation expense related to share based payments that was recorded as capital in excess of par value (see Note 1). We also recorded approximately $1.7 million of tax benefit related to our stock compensation plans.

During 2008, we had restricted stock award grants, and options exercised, which resulted in 558,707 shares of our common stock being issued for approximately $633,000. We recognized approximately $7.9 million of compensation expense related to share based payments that was recorded as capital in excess of par value (see Note 1). We also recorded approximately $9,000 of tax benefit related to our stock compensation plans.

NOTE 10 — STOCK OPTIONS

In 2000, we issued stock options and promissory notes to certain directors as compensation for services as directors (See Note 7), and our Board of Directors granted stock options to these same individuals. Options to purchase 4,800 shares of our common stock were granted with an exercise price of $13.75 per share. These options vested immediately and may be exercised any time prior to March 28, 2010. As of December 31, 2008, 4,000 of the stock options remain outstanding. No compensation expense has been recorded for these options as they were issued with an exercise price equal to the fair value of the common stock at the date of grant.

On May 31, 2001, the Board granted to Leonard Toboroff, one of our directors, an option to purchase 100,000 shares of our common stock at $2.50 per share, exercisable for 10 years from October 15, 2001. The option was granted for services provided by Mr. Toboroff to Oil Quip Rentals, Inc., or Oil Quip, prior to the merger, including providing financial advisory services, assisting in Oil Quip’s capital structure and assisting Oil Quip in finding strategic acquisition opportunities. We recorded compensation expense of $500,000 for the issuance of the option for the year ended December 31, 2001. All of the stock options were exercised in May 2006.

The 2003 Incentive Stock Plan (“2003 Plan”), as amended, permits us to grant to our key employees and outside directors various forms of stock incentives, including, among others, incentive and non-qualified stock options and restricted stock. The 2003 Plan is administered by the Compensation Committee of the Board, which consists of two or more directors appointed by the Board. The following benefits may be granted under the 2003 Plan: (a) stock appreciation rights; (b) restricted stock; (c) performance awards; (d) incentive stock options; (e) nonqualified stock options; and (f) other stock-based awards. Stock incentive terms are not to be in excess of ten years. The maximum number of shares of our common stock that may be issued under the 2003 Plan shall be the lesser of 3,000,000 shares and 15% of the total number of shares of common stock outstanding.

The 2006 Incentive Plan (“2006 Plan”), was approved by our stockholders in November 2006. The 2006 Plan is administered by the Compensation Committee of the Board. The maximum number of shares of our common stock that may be issued under the 2006 Plan is equal to 1,500,000 shares, subject to adjustment in the event of stock splits and certain other corporate events. The 2006 Plan provides for the grant of any or all of the following types of awards: (i) stock options, including incentive stock options and non-qualified stock options; (ii) bonus stock; (iii) restricted stock awards; (iv) performance awards; and (v) other stock-based awards. Except with respect to awards of incentive stock options, all of our employees, consultants and non-employee directors are eligible to participate in the 2006 Plan. The term of each Award shall be for such period as may be determined by the Committee; provided, that in no event shall the term of any Award exceed a period of ten years from the date of its grant.

79

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

A summary of our stock option activity and related information is as follows:

	December 31, 2008					December 31, 2007					December 31, 2006
	Shares			Weighted Ave.		Shares			Weighted Ave.		Shares			Weighted Avg.
	Under			Exercise		Under			Exercise		Under			Exercise
	Option			Price		Option			Price		Option			Price
Beginning balance		986,763		$	10.77		1,350,365		$	6.88		2,860,867		$	5.10
Granted		—			—		220,000			21.83		15,000			14.74
Canceled		(13,328	)		8.87		(17,334	)		8.45		(54,567	)		5.97
Exercised		(71,703	)		8.83		(566,268	)		5.86		(1,470,935	)		3.54
Ending balance		901,732		$	10.95		986,763		$	10.77		1,350,365		$	6.88

The total intrinsic value of stock options (the amount by which the market price of the underlying stock on the date of exercise exceeds the exercise price of the option) exercised was approximately $542,000, $6.6 million and $18.8 million during the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008, there was approximately $1.5 million of total unrecognized compensation cost related to stock options, with $918,000 and $532,000 to be recognized during the years ended December 31, 2009 and 2010, respectively.

The following table summarizes additional information about our stock options outstanding as of December 31, 2008:

		Options Outstanding						Options Exercisable
				Weighted Average		Weighted				Weighted Average		Weighted
Range of				Remaining		Average				Remaining		Average
Exercise		Number of		Contractual Life		Exercise		Number of		Contractual Life		Exercise
Prices		options		(in Years)		Price		options		(in Years)		Price
$	2.75-4.87		343,800		6.00	$	4.07		343,800		6.00	$	4.07
	10.85-14.74		338,932		6.89		10.89		338,932		6.89		10.89
	16.50-21.95		219,000		8.59		21.85		43,000		8.59		21.95
	2.75-21.95		901,732		6.96	$	10.95		725,732		6.57	$	8.32

The aggregate pretax intrinsic value of stock options outstanding and exercisable was approximately $490,000 at December 31, 2008. The amount represents the value that would have been received by the option holders had the respective options been exercised on December 31, 2008.

Restricted Stock Awards

In addition to stock options, our 2003 and 2006 Plans allow for the grant of restricted stock awards (“RSA”). A time-lapse RSA is an award of common stock, where each unit represents the right to receive at the end of a stipulated period one unrestricted share of stock with no exercise price. The time-lapse RSA restrictions lapse periodically over an extended period of time not exceeding 10 years. We determine the fair value of RSAs based on the market price of our common stock on the date of grant. Compensation cost for RSAs is primarily recognized on a straight-line basis over the vesting or service period and is net of forfeitures. A performance-based RSA is an award of common stock, where each unit represents the right to receive one unrestricted share of stock with no exercise price at the attainment of established performance criteria. During 2007, we granted 710,000 performance based RSAs with market conditions. The performance-based RSAs are granted, but not earned and issued until certain annual total shareholder return criteria are attained over the next 3 years. The fair value of the performance-based RSAs were based on third-party valuations.

80

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

The following table summarizes activity in our nonvested restricted stock awards:

	December 31, 2008					December 31, 2007					December 31, 2006
	Number			Weighted Ave.		Number			Weighted Ave.		Number		Weighted Ave.
	of			Grant Date Fair		of			Grant Date Fair		of		Grant Date Fair
	Shares			Value Per Share		Shares			Value Per Share		Shares		Value Per Share
Beginning balance		993,203		$	17.45		27,000		$	18.30		—	$	—
Granted		258,670			9.47		996,203			17.44		27,000		18.30
Vested		(298,771	)		17.26		(30,000	)		18.01		—		—
Forfeited		—			—		—			—		—		—
Ending balance		953,102		$	15.34		993,203		$	17.45		27,000	$	18.30

The total fair value of RSA shares that vested during 2008 was approximately $4.7 million. As of December 31, 2008, there was approximately $9.4 million of total unrecognized compensation cost related to nonvested RSAs, with $6.0 million, $2.5 million, $709,000 and $208,000 to be recognized during the years ended December 31, 2009, 2010, 2011 and 2012, respectively.

NOTE 11 — STOCK PURCHASE WARRANTS

In conjunction with Oil Quip’s purchase of Mountain Compressed Air, Inc., or MCA, in February of 2001, MCA issued a common stock warrant for 620,000 shares to a third-party investment firm that assisted us in its initial identification and purchase of the MCA assets. The warrant entitles the holder to acquire up to 620,000 shares of common stock of MCA at an exercise price of $.01 per share over a nine-year period commencing on February 7, 2001.

We issued two warrants (“Warrants A and B”) for the purchase of 233,000 total shares of our common stock at an exercise price of $0.75 per share and one warrant for the purchase of 67,000 shares of our common stock at an exercise price of $5.00 per share (“Warrant C”) in connection with our subordinated debt financing for MCA in 2001. Warrants A and B were paid off on December 7, 2004. Warrant C was exercised during November 2006.

In May 2004, we issued a warrant to purchase 3,000 shares of our common stock at an exercise price of $4.75 per share to a consultant in consideration of financial advisory services to be provided pursuant to a consulting agreement. The warrants were exercised in May 2004. This consultant was also granted 16,000 warrants in May of 2004 exercisable at $4.65 per share. These warrants were exercised in November of 2005. Warrants for 4,000 shares of our common stock at an exercise price of $4.65 were also issued to this consultant in May 2004 and were exercised in January 2007.

In conjunction with BCH debt financing in January of 2007, BCH issued a common stock warrant for 250,000 shares to a financial institution. The warrant entitles the holder to acquire up to 250,000 shares of common stock of BCH at an exercise price of $10.00 per share over a five-year period.

81

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

NOTE 12 — CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Set forth on the following pages are the condensed consolidating financial statements of (i) Allis-Chalmers Energy Inc., (ii) its subsidiaries that are guarantors of the senior notes and revolving credit facility and (iii) the subsidiaries that are not guarantors of the senior notes and revolving credit facility (in thousands):

CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2008

	Allis-Chalmers				Subsidiary
	(Parent/		Subsidiary		Non-		Consolidating			Consolidated
	Guarantor)		Guarantors		Guarantors		Adjustments			Total
Assets
Cash and cash equivalents	$	—	$	2,923	$	3,943	$	—		$	6,866
Trade receivables, net		—		88,528		70,865		(1,522	)		157,871
Inventories		—		19,382		19,705		—			39,087
Intercompany receivables		—		51,038		—		(51,038	)		—
Note receivable from affiliate		20,680		—		—		(20,680	)		—
Prepaid expenses and other		8,798		8,074		4,542		—			21,414
Total current assets		29,478		169,945		99,055		(73,240	)		225,238
Property and equipment, net		—		499,704		261,286		—			760,990
Goodwill		—		23,251		20,022		—			43,273
Other intangible assets, net		506		29,143		7,722		—			37,371
Debt issuance costs, net		12,664		—		—		—			12,664
Note receivable from affiliates		10,045		—		—		(10,045	)		—
Investments in affiliates		937,227		—		—		(937,227	)		—
Other assets		3,837		27,663		4,015		(3,993	)		31,522
Total assets	$	993,757	$	749,706	$	392,100	$	(1,024,505	)	$	1,111,058
Liabilities and Stockholders’ Equity
Current maturities of long-term debt	$	782	$	992	$	12,843	$	—		$	14,617
Trade accounts payable		—		27,759		35,841		(1,522	)		62,078
Accrued salaries, benefits and payroll taxes		—		3,933		16,259		—			20,192
Accrued interest		17,932		—		691		—			18,623
Accrued expenses		281		13,841		12,520		—			26,642
Intercompany payables		49,853		—		1,185		(51,038	)		—
Note payable to affiliate		—		—		20,680		(20,680	)		—
Total current liabilities		68,848		46,525		100,019		(73,240	)		142,152
Long-term debt, net of current maturities		541,500		—		37,544		—			579,044
Note payable to affiliate		—		—		10,045		(10,045	)		—
Deferred income tax liability		—		—		8,253		(3,993	)		4,260
Other long-term liabilities		—		64		2,129		—			2,193
Total liabilities		610,348		46,589		157,990		(87,278	)		727,649
Commitments and contingencies
Stockholders’ Equity
Common stock		357		3,526		42,963		(46,489	)		357
Capital in excess of par value		334,633		570,512		133,339		(703,851	)		334,633
Retained earnings		48,419		129,079		57,808		(186,887	)		48,419
Total stockholders’ equity		383,409		703,117		234,110		(937,227	)		383,409
Total liabilities and stock holders’ equity	$	993,757	$	749,706	$	392,100	$	(1,024,505	)	$	1,111,058

82

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Year Ended December 31, 2008

	Allis-Chalmers						Subsidiary
	(Parent/			Subsidiary			Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors			Adjustments			Total
Revenues	$	—		$	384,649		$	291,335		$	(36	)	$	675,948
Operating costs and expenses
Direct costs		—			220,181			226,090			(36	)		446,235
Depreciation		—			49,177			14,283			—			63,460
General and administrative		6,924			42,326			10,703			—			59,953
Gain on asset dispositions		—			(166	)		—			—			(166	)
Impairment of goodwill		—			115,774			—			—			115,774
Amortization		46			4,133			33						4,212
Total operating costs and expenses		6,970			431,425			251,109			(36	)		689,468
Income (loss) from operations		(6,970	)		(46,776	)		40,226			—			(13,520	)
Other income (expense):
Equity earnings in affiliates, net of tax		9,161			—			—			(9,161	)		—
Interest, net		(41,727	)		57			(1,124	)		—			(42,794	)
Other		72			88			(723	)		—			(563	)
Total other income (expense)		(32,494	)		145			(1,847	)		(9,161	)		(43,357	)
Income (loss) before income taxes		(39,464	)		(46,631	)		38,379			(9,161	)		(56,877	)
Income tax benefit (expense)		—			29,580			(12,167	)		—			17,413
Net income (loss)	$	(39,464	)	$	(17,051	)	$	26,212		$	(9,161	)	$	(39,464	)

83

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Year Ended December 31, 2008

	Allis-						Other
	Chalmers						Subsidiaries
	(Parent/			Subsidiary			(Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors)			Adjustments			Total
Cash Flows from Operating Activities:
Net income (loss)	$	(39,464	)	$	(17,051	)	$	26,212		$	(9,161	)	$	(39,464	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation & amortization		46			53,310			14,316			—			67,672
Amortization and write-off of deferred financing fees		2,089			—			—			—			2,089
Impairment of goodwill		—			115,774			—			—			115,774
Stock based compensation		7,902			—			—			—			7,902
Allowance for bad debts		—			3,283			—			—			3,283
Equity earnings in affiliates		(9,161	)		—			—			9,161			—
Deferred taxes		(13,620	)		(16,959	)		630			—			(29,949	)
Gain on sale of equipment		—			(1,485	)		(277	)		—			(1,762	)
Gain on asset dispositions		—			(166	)		—			—			(166	)
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivables		—			(7,168	)		(20,331	)		—			(27,499	)
Increase in inventories		—			(7,037	)		(2,682	)		—			(9,719	)
(Increase) Decrease in other current assets		211			219			(2,053	)		—			(1,623	)
(Increase) decrease in other assets		(138	)		(83	)		1,445			—			1,224
Increase in accounts payable		—			9,427			12,476			—			21,903
(Decrease) increase in accrued interest		223			(33	)		377			—			567
(Decrease) increase in accrued expenses		(1,379	)		3,823			(1,313	)		—			1,131
(Decrease) in other liabilities		(31	)		(178	)		(921	)		—			(1,130	)
Increase in accrued salaries, benefits and payroll taxes		—			221			3,231			—			3,452
Net cash provided (used) by operating activities		(53,322	)		135,897			31,110			—			113,685

84

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

	Allis-						Other
	Chalmers						Subsidiaries
	(Parent/			Subsidiary			(Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors)			Adjustments			Total
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		—			—			(53,709	)		—			(53,709	)
Net sales (purchases) of investment interests		—			1,374			—			—			1,374
Purchase of property and equipment		—			(81,724	)		(72,744	)		—			(154,468	)
Deposits on asset commitments		—			(20,667	)		10,766			—			(9,901	)
Investment in affiliates		(58,370	)		—			—			58,370			—
Notes receivable from affiliates		(6,075	)		—			—			6,075			—
Proceeds from asset dispositions		—			3,000			—			—			3,000
Proceeds from sale of equipment		—			11,046			434			—			11,480
Net cash provided (used) in investing activities		(64,445	)		(86,971	)		(115,253	)		64,445			(202,224	)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		—			—			25,000			—			25,000
Payments on long-term debt		—			(6,029	)		(3,876	)		—			(9,905	)
Net borrowings on lines of credit		36,500			—			—			—			36,500
Proceeds from parent contributions		—			—			58,370			(58,370	)		—
Accounts receivable from affiliates		81,150			—			—			(81,150	)		—
Accounts payable to affiliates		—			(81,150	)		—			81,150			—
Note payable to affiliate		—			—			6,075			(6,075	)		—
Proceeds from exercise of options		633			—			—			—			633
Tax benefit on stock plans		9			—			—			—			9
Debt issuance costs		(525	)		—						—			(525	)
Net cash provided (used) by financing activities		117,767			(87,179	)		85,569			(64,445	)		51,712
Net change in cash and cash equivalents		—			(38,253	)		1,426			—			(36,827	)
Cash and cash equivalents at beginning of year		—			41,176			2,517			—			43,693
Cash and cash equivalents at end of period	$	—		$	2,923		$	3,943		$	—		$	6,866

85

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2007

	Allis-
	Chalmers				Subsidiary
	(Parent/		Subsidiary		Non-		Consolidating			Consolidated
	Guarantor)		Guarantors		Guarantors		Adjustments			Total
Assets
Cash and cash equivalents	$	—	$	41,176	$	2,517	$	—		$	43,693
Trade receivables, net		—		83,126		46,973		(5	)		130,094
Inventories		—		15,699		16,510		—			32,209
Intercompany receivables		31,297		—		—		(31,297	)		—
Note receivable from affiliate		8,270		—		—		(8,270	)		—
Prepaid expenses and other		7,731		2,564		1,603		—			11,898
Total current assets		47,298		142,565		67,603		(39,572	)		217,894
Property and equipment, net		—		477,055		149,613		—			626,668
Goodwill		—		136,875		1,523		—			138,398
Other intangible assets, net		552		34,572		56		—			35,180
Debt issuance costs, net		14,228		—		—		—			14,228
Note receivable from affiliates		16,380		—		—		(16,380	)		—
Investments in affiliates		869,696		—		—		(869,696	)		—
Other assets		15		4,977		16,225		—			21,217
Total assets	$	948,169	$	796,044	$	235,020	$	(925,648	)	$	1,053,585
Liabilities and Stockholders’ Equity
Current maturities of long-term debt	$	32	$	4,026	$	2,376	$	—		$	6,434
Trade accounts payable		—		16,815		20,654		(5	)		37,464
Accrued salaries, benefits and payroll taxes		—		3,712		11,571		—			15,283
Accrued interest		17,709		33		75		—			17,817
Accrued expenses		1,660		7,127		11,758		—			20,545
Intercompany payables		—		30,112		1,185		(31,297	)		—
Note payable to affiliate		—		—		8,270		(8,270	)		—
Total current liabilities		19,401		61,825		55,889		(39,572	)		97,543
Long-term debt, net of current maturities		505,750		—		2,550		—			508,300
Note payable to affiliate		—		—		16,380		(16,380	)		—
Deferred income tax liability		8,658		13,809		7,623		—			30,090
Other long-term liabilities		31		242		3,050		—			3,323
Total liabilities		533,840		75,876		85,492		(55,952	)		639,256
Commitments and contingencies
Stockholders’ Equity
Common stock		351		3,526		42,963		(46,489	)		351
Capital in excess of par value		326,095		570,512		74,969		(645,481	)		326,095
Retained earnings		87,883		146,130		31,596		(177,726	)		87,883
Total stockholders’ equity		414,329		720,168		149,528		(869,696	)		414,329
Total liabilities and stock holders’ equity	$	948,169	$	796,044	$	235,020	$	(925,648	)	$	1,053,585

86

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Year Ended December 31, 2007

	Allis-Chalmers						Subsidiary
	(Parent/			Subsidiary			Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors			Adjustments			Total
Revenues	$	—		$	355,172		$	215,795		$	—		$	570,967
Operating costs and expenses
Direct costs		—			185,617			155,833			—			341,450
Depreciation		—			39,659			11,255			—			50,914
General and administrative		4,349			44,439			9,834			—			58,622
Gain on asset disposition		—			(8,868	)		—			—			(8,868	)
Amortization		46			3,988			33			—			4,067
Total operating costs and expenses		4,395			264,835			176,955			—			446,185
Income (loss) from operations		(4,395	)		90,337			38,840			—			124,782
Other income (expense):
Equity earnings in affiliates, net of tax		102,208			—			—			(102,208	)		—
Interest, net		(47,677	)		2,796			(1,394	)		—			(46,275	)
Other		304			336			136			—			776
Total other income (expense)		54,835			3,132			(1,258	)		(102,208	)		(45,499	)
Income before income taxes		50,440			93,469			37,582			(102,208	)		79,283
Provision for income taxes		—			(16,085	)		(12,758	)		—			(28,843	)
Net income (loss)	$	50,440		$	77,384		$	24,824		$	(102,208	)	$	50,440

87

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Year Ended December 31, 2007

	Allis-						Other
	Chalmers						Subsidiaries
	(Parent/			Subsidiary			(Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors)			Adjustments			Total
Cash Flows from Operating Activities:
Net income (loss)	$	50,440		$	77,384		$	24,824		$	(102,208	)	$	50,440
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation & amortization		46			43,647			11,288			—			54,981
Amortization and write-off of deferred financing fees		3,197			—			—			—			3,197
Stock based compensation		4,863			—			—			—			4,863
Bad debt expense		—			1,309			—			—			1,309
Equity earnings in affiliates		(102,208	)		—			—			102,208			—
Deferred taxes		7,430			—			587			—			8,017
Gain on sale of equipment		—			(2,182	)		(141	)		—			(2,323	)
Gain on capillary asset sale		—			(8,868	)		—			—			(8,868	)
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivables		—			(18,402	)		(13,002	)		—			(31,404	)
Increase in inventories		—			(4,286	)		(1,089	)		—			(5,375	)
(Increase) Decrease in other current assets		(3,003	)		12,075			(870	)		—			8,202
(Increase) decrease in other assets		242			—			(4,734	)		—			(4,492	)
(Decrease) increase in accounts payable		(31	)		2,234			8,529			—			10,732
(Decrease) increase in accrued interest		5,954			33			(37	)		—			5,950
(Decrease) increase in accrued expenses		1,525			(3,912	)		3,895			—			1,508
(Decrease) increase in other liabilities		(273	)		(77	)		3,050			—			2,700
Increase in accrued salaries, benefits and payroll taxes		—			355			3,676			—			4,031
Net cash provided (used) by operating activities		(31,818	)		99,310			35,976			—			103,468

88

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

	Allis-						Other
	Chalmers						Subsidiaries
	(Parent/			Subsidiary			(Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors)			Adjustments			Total
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		—			(41,000	)		—			—			(41,000	)
Purchase of investment interests		—			(498	)		—			—			(498	)
Purchase of property and equipment		—			(84,240	)		(28,911	)		—			(113,151	)
Deposits on asset commitments		—			—			(11,488	)		—			(11,488	)
Investment in affiliates		(44,919	)		—			—			44,919			—
Notes receivable from affiliates		(6,809	)		—			—			6,809			—
Proceeds from sale of capillary assets		—			16,250			—			—			16,250
Proceeds from sale of property and equipment		—			12,666			145			—			12,811
Net cash provided (used) in investing activities		(51,728	)		(96,822	)		(40,254	)		51,728			(137,076	)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		250,000			—			—			—			250,000
Payments on long-term debt		(300,000	)		(6,587	)		(3,158	)		—			(309,745	)
Proceeds from parent contributions		—			44,919			—			(44,919	)		—
Accounts receivable from affiliates		36,245			—			—			(36,245	)		—
Accounts payable to affiliates		—			(37,413	)		1,168			36,245			—
Note payable to affiliate		—			—			6,809			(6,809	)		—
Proceeds from issuance of common stock, net of offering costs		100,055			—			—			—			100,055
Proceeds from exercise of options and warrants		3,319			—			—			—			3,319
Tax benefit on stock plans		1,719			—			—			—			1,719
Debt issuance costs		(7,792	)		—						—			(7,792	)
Net cash provided (used) by financing activities		83,546			919			4,819			(51,728	)		37,556
Net change in cash and cash equivalents		—			3,407			541			—			3,948
Cash and cash equivalents at beginning of year		—			37,769			1,976			—			39,745
Cash and cash equivalents at end of period	$	—		$	41,176		$	2,517		$	—		$	43,693

89

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING INCOME STATEMENTS
For the Year Ended December 31, 2006

	Allis-Chalmers						Subsidiary
	(Parent/			Subsidiary			Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors			Adjustments			Total
Revenues	$	—		$	241,474		$	69,490		$	—		$	310,964
Operating costs and expenses
Direct costs		—			134,638			50,941			—			185,579
Depreciation		—			16,198			4,063			—			20,261
General and administrative		2,643			30,651			2,242			—			35,536
Amortization		46			1,801			11			—			1,858
Total operating costs and expenses		2,689			183,288			57,257			—			243,234
Income (loss) from operations		(2,689	)		58,186			12,233			—			67,730
Other income (expense):
Equity earnings in affiliates, net of tax		58,077			—			—			(58,077	)		—
Interest, net		(19,807	)		67			(597	)		—			(20,337	)
Other		45			97			(489	)		—			(347	)
Total other income (expense)		38,315			164			(1,086	)		(58,077	)		(20,684	)
Income (loss) before income taxes		35,626			58,350			11,147			(58,077	)		47,046
Provision for income taxes		—			(7,045	)		(4,375	)		—			(11,420	)
Net income (loss)	$	35,626		$	51,305		$	6,772		$	(58,077	)	$	35,626

90

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
For the Year Ended December 31, 2006

	Allis-						Other
	Chalmers						Subsidiaries
	(Parent/			Subsidiary			(Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors)			Adjustments			Total
Cash Flows from Operating Activities:
Net income (loss)	$	35,626		$	51,305		$	6,772		$	(58,077	)	$	35,626
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation & amortization		46			17,999			4,074			—			22,119
Amortization & write-off of deferred financing fees		1,527			—			—			—			1,527
Stock based compensation		3,394			—			—			—			3,394
Bad debt expense		—			781			—			—			781
Imputed interest		—			355			—			—			355
Equity 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 inventories		—			(2,989	)		352			—			(2,637	)
(Increase) decrease in other current assets		(2,482	)		4,120			867			—			2,505
(Increase) decrease in other assets		296			101			(89	)		—			308
(Decrease) increase in accounts payable		(82	)		3,587			(5,842	)		—			(2,337	)
(Decrease) increase in accrued interest		11,508			(45	)		(81	)		—			11,382
(Decrease) increase in accrued expenses		(390	)		1,633			(371	)		—			872
(Decrease) in other liabilities		(31	)		(193	)		—			—			(224	)
(Decrease) increase in accrued salaries, benefits and payroll taxes		(1,951	)		2,780			2,563			—			3,392
Net cash provided (used) by operating activities		(11,235	)		54,109			10,785			—			53,659
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		(528,167	)		3,649			(2,054	)		—			(526,572	)
Notes receivable from affiliates		(585	)		—			—			585			—
Investment in affiliates		(367	)		—			—			367			—
Purchase of property and equipment		—			(33,930	)		(5,767	)		—			(39,697	)
Proceeds from sale of property and equipment		—			6,730			151			—			6,881
Net cash provided (used) in investing activities		(529,119	)		(23,551	)		(7,670	)		952			(559,388	)

91

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

	Allis-						Other
	Chalmers						Subsidiaries
	(Parent/			Subsidiary			(Non-			Consolidating			Consolidated
	Guarantor)			Guarantors			Guarantors)			Adjustments			Total
Cash Flows from Financing Activities:
Proceeds from long-term debt		555,000			2,820			—			—			557,820
Payments on long-term debt		(42,414	)		(9,875	)		(1,741	)		—			(54,030	)
Payments on related party debt		—			(3,031	)		—			—			(3,031	)
Net (payments) borrowings on lines of credit		(6,400	)		—			—			—			(6,400	)
Proceeds from parent contributions		—			367			—			(367	)		—
Accounts receivable from affiliates		(16,077	)		—			—			16,077			—
Accounts payable to affiliates		—			16,060			17			(16,077	)		—
Note payable to affiliate		—			—			585			(585	)		—
Proceeds from issuance of common stock, net of offering costs		46,297			—			—			—			46,297
Proceeds from exercise of options and warrants		6,321			—			—			—			6,321
Tax benefit on stock plans		6,440			—			—			—			6,440
Debt issuance costs		(9,863	)		—						—			(9,863	)
Net cash provided (used) by financing activities		539,304			6,341			(1,139	)		(952	)		543,554
Net change in cash and cash equivalents		(1,050	)		36,899			1,976			—			37,825
Cash and cash equivalents at beginning of year		1,050			870			—			—			1,920
Cash and cash equivalents at end of period	$	—		$	37,769		$	1,976		$	—		$	39,745

NOTE 13 — RELATED PARTY TRANSACTIONS

DLS’ largest customer is Pan American Energy which is a joint venture by British Petroleum and Bridas Corporation. Two of our Directors, Alejandro P. Bulgheroni and Carlos A. Bulgheroni, indirectly beneficially own substantially all of the shares of the Bridas Corporation. In 2008, 2007 and 2006, Pan American Energy represented 28.5%, 20.7%, and 11.7% of our consolidated revenues, respectively. At December 31, 2008 and 2007, we had trade receivables with Pan American Energy of $40.0 million and $23.1 million, respectively.

In 2008 and 2007, we derived revenue of approximately $1.0 million and $1.7 million from BEUSA Energy, Inc., or BEUSA, a company controlled by Alejandro P. Bulgheroni. At December 31, 2008 and 2007, we had trade receivables from BEUSA of approximately $558,000 and $1.6 million, respectively.

We purchase general oilfield supplies and materials from Ralow Services, Inc., or Ralow. Ralow is owned by Brad A. Adams and Bruce A. Adams who are brothers of Burt A. Adams, a former member of our board of directors and our former President and Chief Operating Officer. We purchased supplies and materials from Ralow in an aggregate amount of approximately $747,000 and $3.5 million for the years ended December 31, 2008 and 2007, respectively.

92

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

NOTE 14 — SEGMENT INFORMATION

On January 31, 2008, we created the positions of Senior Vice President — Oilfield Services and Senior Vice President — Rental Services. In conjunction with this organizational change, we reviewed the presentation of our reporting segments during the first quarter of 2008. Based on this review, we determined that our operational performance would be segmented and reviewed by the Oilfield Services, Drilling and Completion and Rental Services segments. The Oilfield Services segment includes our underbalanced drilling, directional drilling, tubular services and production services operations. The Drilling and Completion segment includes our international drilling operations. As a result, we realigned our financial reporting segments and now report the following operations as separate, distinct reporting segments: (1) Oilfield Services, (2) Drilling and Completion and (3) Rental Services. Our historical segment data previously reported for the years ended December 31, 2007 and 2006 have been restated to conform to the new presentation.

All of our segments provide services to the energy industry. The revenues, operating income (loss), depreciation and amortization, capital expenditures and assets of each of the reporting segments plus the corporate function are reported below (in thousands):

	Years Ended December 31,
	2008			2007			2006
Revenues:
Oilfield Services	$	280,835		$	233,986		$	189,953
Drilling & Completion		291,335			215,795			69,490
Rental Services		103,778			121,186			51,521
Total revenues	$	675,948		$	570,967		$	310,964
Operating Income (Loss):
Oilfield Services	$	38,643		$	53,218		$	43,157
Drilling & Completion		40,226			38,839			12,233
Rental Services		(74,361	)		49,139			26,293
General corporate		(18,028	)		(16,414	)		(13,953	)
Total income (loss) from operations	$	(13,520	)	$	124,782		$	67,730
Depreciation and Amortization Expense:
Oilfield Services	$	24,725		$	16,838		$	10,434
Drilling & Completion		14,316			11,288			4,074
Rental Services		28,131			26,353			7,268
General corporate		500			502			343
Total depreciation and amortization expense	$	67,672		$	54,981		$	22,119
Capital Expenditures:
Oilfield Services	$	58,400		$	48,610		$	29,077
Drilling & Completion		73,362			28,911			5,770
Rental Services		22,550			34,883			4,538
General corporate		156			747			312
Total capital expenditures	$	154,468		$	113,151		$	39,697

93

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

	As of December 31,
	2008		2007		2006
Goodwill:
Oilfield Services	$	23,250	$	30,493	$	18,199
Drilling & Completion		20,023		1,523		1,504
Rental Services		—		106,382		106,132
General corporate		—		—		—
Total goodwill	$	43,273	$	138,398	$	125,835
Assets:
Oilfield Services	$	338,121	$	299,300	$	215,199
Drilling & Completion		411,486		235,020		185,677
Rental Services		333,894		454,216		453,802
General corporate		27,557		65,049		53,648
Total assets	$	1,111,058	$	1,053,585	$	908,326

	Years Ended December 31,
	2008		2007		2006
Revenues:
United States	$	365,529	$	339,476	$	231,852
Argentina		288,792		207,491		66,516
Brazil		—		—		—
Other international		21,627		24,000		12,596
Total revenues	$	675,948	$	570,967	$	310,964

	As of December 31,
	2008		2007		2006
Long Lived Assets:
United States	$	569,982	$	655,513	$	574,302
Argentina		212,456		166,972		132,955
Brazil		79,568		—		—
Other international		23,814		13,206		20,307
Total long lived assets	$	885,820	$	835,691	$	727,564

94

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

NOTE 15 — SUPPLEMENTAL CASH FLOWS INFORMATION (in thousands)

	Years Ended December 31,
	2008		2007		2006
Interest paid	$	46,541	$	40,363	$	8,571
Income taxes paid	$	20,670	$	17,272	$	5,796
Other non-cash investing and financing transactions:
Insurance premiums financed	$	2,995	$	4,434	$	2,871
Non-cash investing and financing transactions in connection with acquisitions:
Fair value of Property and equipment	$	—	$	4,345	$	109,632
Fair value of goodwill and other intangibles		3,000		350		4,010
	$	3,000	$	4,695	$	113,642
Value of common stock, issued	$	—	$	—	$	94,980
Seller financed note		—		1,600		750
Deferred tax liability		—		3,095		17,662
Accrued expenses		3,000		—		250
	$	3,000	$	4,695	$	113,642
Non-cash investing and financing transactions in connection with asset disposition:
Value of goodwill and other intangibles disposed	$	2,246	$	—	$	—
Value of inventory financed		509		—		—
Value of property and equipment disposed		337		—		—
Accrued expenses		10		—		—
Fair value of note receivable	$	3,102	$	—	$	—

NOTE 16 — LEGAL MATTERS

We are named from time to time in legal proceedings related to our activities prior to our bankruptcy in 1988; however, we believe that we were discharged from liability for all such claims in the bankruptcy and believe the likelihood of a material loss relating to any such legal proceeding is remote.

We have been named as a defendant in two lawsuits in connection with our proposed merger with Bronco Drilling, Inc., which was terminated August 2008. We do not believe that the suits have any merit.

We are involved in various other legal proceedings in the ordinary course of business. The legal proceedings are at different stages; however, we believe that the likelihood of material loss relating to any such legal proceeding is remote.

NOTE 17 — SUBSEQUENT EVENTS

In February 2009, we entered into a new credit agreement in an amount up to $29.0 million. The credit agreement is subject to customary closing conditions, with the proceeds being used to fund 80% of the purchase price of two land drilling rigs and related equipment that scheduled for delivery in the second quarter of 2009. The loan will be secured by the equipment and will be repaid in quarterly installments over six years from the funding date.

95

ALLIS-CHALMERS ENERGY INC.

Notes to Consolidated Financial Statements — (Continued)

In February 2009, we executed a joint venture agreement with Rawabi Holding Company Ltd., or Rawabi, under the laws of the Kingdom of Saudi Arabia. The purpose of the joint venture is to provide oilfield services and rental equipment in the Kingdom of Saudi Arabia. We will own 50% of the joint venture.

NOTE 18 — SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share amounts)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Year 2008
Revenues	$	153,182	$	163,135	$	178,265	$	181,366
Operating income (loss)		23,582		27,668		29,033		(93,803	)
Net income (loss)	$	8,050	$	10,558	$	12,312	$	(70,384	)
Income (loss) per common share:
Basic	$	0.23	$	0.30	$	0.35	$	(2.00	)
Diluted	$	0.23	$	0.30	$	0.35	$	(2.00	)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Year 2007
Revenues	$	135,900	$	143,362	$	147,881	$	143,824
Operating income		31,470		41,474		31,148		20,690
Net income	$	12,165	$	19,504	$	12,987	$	5,784
Income per common share:
Basic	$	0.38	$	0.56	$	0.37	$	0.17
Diluted	$	0.37	$	0.55	$	0.37	$	0.16

96

ITEM 9.   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.   CONTROLS AND PROCEDURES

(a)  Evaluation Of Disclosure Controls And Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of December 31, 2008. Based on their evaluation, they have concluded that our disclosure controls and procedures as of the end of the period covered by this report were adequate to ensure that (1) information required to be disclosed by us in the reports filed or furnished by us under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (2) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of December 31, 2008 were effective at reaching a reasonable level of assurance of achieving the desired objective.

(b)  Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our control environment is the foundation for our system of internal control over financial reporting and is an integral part of our Code of Business Ethics and Conduct for the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, which sets the tone of our company. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Our evaluation did not include companies which were acquired during fiscal year 2008, since, under SEC guidelines, acquisitions do not have to be evaluated until twelve months after the acquisition date.

In order to evaluate the effectiveness of our internal control over financial reporting as of December 31, 2008, as required by Section 404 of the Sarbanes-Oxley Act of 2002, our management conducted an assessment, including testing, based on the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting and, based on that assessment, concluded that, as of December 31, 2008, our internal controls over financial reporting are effective based on these criteria.

97

Management Report on Internal Control Over Financial Reporting.

Our Management Report on Internal Controls Over Financial Reporting can be found in Item 8 of this report. UHY LLP, an independent registered public accounting firm, has issued a report on our internal control over financial reporting as of December 31, 2008, which can be found in Item 8 of this report.

(c)  Change in Internal Control Over Financial Reporting.

During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.   OTHER INFORMATION

None.

PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Pursuant to General Instructions G(3), information on directors and executive officers of Allis-Chalmers will be filed in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Definitive Proxy Statement for the 2009 annual meeting of stockholders filed within 120 days of the end of our fiscal year ending December 31, 2008.

ITEM 11.   EXECUTIVE COMPENSATION

Pursuant to General Instructions G(3), information on executive compensation will be filed in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Definitive Proxy Statement for the 2009 annual meeting of stockholders filed within 120 days of the end of our fiscal year ending December 31, 2008.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Pursuant to General Instruction G(3), information on security ownership of certain beneficial owners and management will be filed in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Definitive Proxy Statement for the 2009 annual meeting of stockholders filed within 120 days of the end of our fiscal year ending December 31, 2008.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Pursuant to General Instruction G(3), information on security ownership of certain beneficial owners and management will be filed in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Definitive Proxy Statement for the 2009 annual meeting of stockholders filed within 120 days of the end of our fiscal year ending December 31, 2008.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

Pursuant to General Instruction G(3), information on principal accountant fees and services will be filed in an amendment to this Annual Report on Form 10-K or incorporated by reference from our Definitive Proxy Statement for the 2009 annual meeting of stockholders filed within 120 days of the end of our fiscal year ending December 31, 2008.

98

PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements:  The following financial statements for Allis-Chalmers Energy Inc. and Subsidiaries are included in Item 8. “Financial Statements and Supplementary Data”

Consolidated Balance Sheets as of December 31, 2008 and 2007.

Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006.

Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2008, 2007 and 2006.

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006.

Notes to Consolidated Financial Statements.

(2) Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable, not required, or the information is included in the financial statements or the notes thereto.

(3) Exhibits

The exhibits listed on the accompanying Exhibit Index are incorporated by reference into this annual report on Form 10-K.

(2)  Financial Statement Schedule:

Schedule II — Valuation and Qualifying Accounts
Allis-Chalmers Energy Inc.
Valuation and Qualifying Accounts

			Additions
	Balance at		Charged to					Balance at
	Beginning		Costs and					End of
Description	of Period		Expense		Deductions			Period
			(In thousands)
Year Ended December 31, 2008:
Allowance for doubtful accounts		1,924		3,283		(1,002	)		4,205
Deferred tax assets valuation allowance		—		—		—			—
Year Ended December 31, 2007:
Allowance for doubtful accounts		826		1,309		(211	)		1,924
Deferred tax assets valuation allowance		—		—		—			—
Year Ended December 31, 2006:
Allowance for doubtful accounts		383		781		(338	)		826
Deferred tax assets valuation allowance		27,131		—		(27,131	)		—

99

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 9, 2009.

ALLIS-CHALMERS ENERGY INC.

/s/  MUNAWAR H. HIDAYATALLAH

Munawar H. Hidayatallah

Chief Executive Officer and Chairman

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed on the date indicated by the following persons on behalf of the registrant and in the capacities indicated.

Name	Title	Date
/s/  MUNAWAR H. HIDAYATALLAH Munawar H. Hidayatallah	Chairman and Chief Executive Officer (Principal Executive Officer)	March 9, 2009
/s/  VICTOR M. PEREZ Victor M. Perez	Chief Financial Officer (Principal Financial Officer)	March 9, 2009
/s/  BRUCE SAUERS Bruce Sauers	Chief Accounting Officer (Principal Accounting Officer)	March 9, 2009
Ali H. M. Afdhal	Director	March 9, 2009
/s/  MUNIR AKRAM Munir Akram	Director	March 9, 2009
Alejandro P. Bulgheroni	Director	March 9, 2009
Carlos A. Bulgheroni	Director	March 9, 2009
/s/  VICTOR F. GERMACK Victor F. Germack	Director	March 9, 2009
/s/  JAMES M. HENNESSY James M. Hennessy	Director	March 9, 2009
John E. McConnaughy, Jr.	Director	March 9, 2009
/s/  ROBERT E. NEDERLANDER Robert E. Nederlander	Director	March 9, 2009
Zane Tankel	Director	March 9, 2009
/s/  LEONARD TOBOROFF Leonard Toboroff	Director	March 9, 2009

100

EXHIBIT INDEX

Exhibit			Description
	2	.1	First Amended Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code, dated September 14, 1988, which includes the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 (incorporated by reference to Registrant’s Current Report on Form 8-K dated December 1, 1988).
	2	.2	Reorganization Trust Agreement dated September 14, 1988 by and between Registrant and John T. Grigsby, Jr., Trustee (incorporated by reference to Exhibit D of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	2	.3	Agreement and Plan of Merger dated as of May 9, 2001 by and among Registrant, Allis-Chalmers Acquisition Corp. and Oil Quip Rentals, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed May 15, 2001).
	2	.4	Stock Purchase Agreement dated February 1, 2002 by and between Registrant and Jens H. Mortensen, Jr. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 21, 2002).
	2	.5	Stock Purchase Agreement dated February 1, 2002 by and among Registrant, Energy Spectrum Partners LP, and Strata Directional Technology, Inc. (incorporated by reference to Exhibit 2.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
	2	.6	Stock Purchase Agreement dated August 10, 2004 by and among Allis-Chalmers Corporation and the investors named thereto (incorporated by reference to Exhibit 10.37 to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	2	.7	Amendment to Stock Purchase Agreement dated August 10, 2004 (incorporated by reference to Exhibit 10.38 to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	2	.8	Addendum to Stock Purchase Agreement dated September 24, 2004 (incorporated by reference to Exhibit 10.55 to Registrant’s Current Report on Form 8-K filed on September 30, 2004).
	2	.9	Asset Purchase Agreement dated November 10, 2004 by and among AirComp LLC, a Delaware limited liability company, Diamond Air Drilling Services, Inc., a Texas corporation, and Marquis Bit Co., L.L.C., a New Mexico limited liability company, Greg Hawley and Tammy Hawley, residents of Texas and Clay Wilson and Linda Wilson, residents of New Mexico (incorporated by reference to Exhibit 10.61 to the Registrant’s Current Report on Form 8-K filed on November 16, 2004).
	2	.10	Purchase Agreement and related Agreements by and among Allis-Chalmers Corporation, Chevron USA, Inc., Dale Redman and others dated December 10, 2004 (incorporated by reference to Exhibit 10.63 to the Registrant’s Current Report on Form 8-K filed on December 16, 2004).
	2	.11	Stock Purchase Agreement dated April 1, 2005, by and among Allis-Chalmers Energy Inc., Thomas Whittington, Sr., Werlyn R. Bourgeois and SAM and D, LLC. (incorporated by reference to Exhibit 10.51 to the Registrant’s Current Report on Form 8-K filed on April 5, 2005).
	2	.12	Stock Purchase Agreement effective May 1, 2005, by and among Allis-Chalmers Energy Inc., Wesley J. Mahone, Mike T. Wilhite, Andrew D. Mills and Tim Williams (incorporated by reference to Exhibit 10.51 to the Registrant’s Current Report on Form 8-K filed on May 6, 2005).
	2	.13	Purchase Agreement dated July 11, 2005 among Allis-Chalmers Energy Inc., Mountain Compressed Air, Inc. and M-I, L.L.C. (incorporated by reference to Exhibit 10.42 to the Registrant’s Current Report on Form 8-K filed on July 15, 2005).
	2	.14	Asset Purchase Agreement dated July 11, 2005 between AirComp LLC, W.T. Enterprises, Inc. and William M. Watts (incorporated by reference to Exhibit 10.43 to the Registrant’s Current Report on Form 8-K filed on July 15, 2005).
	2	.15	Asset Purchase Agreement by and between Patterson Services, Inc. and Allis-Chalmers Tubular Services, Inc. (incorporated by reference to Exhibit 10.44 to the Registrant’s Current Report on Form 8-K filed on September 8, 2005).
	2	.16	Stock Purchase Agreement dated as of December 20, 2005 between the Registrant and Joe Van Matre (incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005).

101

Exhibit			Description
	2	.17	Stock Purchase Agreement, dated as of April 27, 2006, by and among Bridas International Holdings Ltd., Bridas Central Company Ltd., Associated Petroleum Investors Limited, and the Registrant. (incorporated by reference to Exhibit 2.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006)
	2	.18	Stock Purchase Agreement, dated as of October 17, 2006, by and between Allis-Chalmers Production Services, Inc. and Randolph J. Hebert (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 19, 2006).
	2	.19	Asset Purchase Agreement, dated as of October 25, 2006, by and between Allis-Chalmers Energy Inc. and Oil & Gas Rental Services, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 26, 2006).
	2	.20	Agreement and Plan of Merger by and among the Registrant, Bronco Drilling Company, Inc. and Elway Merger Sub, Inc., dated as of January 23, 2008 (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on January 24, 2008).
	2	.21	First Amendment, dated as of June 1, 2008, to the Agreement and Plan of Merger, by and among Allis-Chalmers Energy Inc., Elway Merger Sub, Inc. and Bronco Drilling Company, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on June 2, 2008).
	2	.22†	Stock Purchase Agreement, dated December 19, 2008, by and between the Registrant and BrazAlta Resources Corp.
	3	.1	Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
	3	.2	Certificate of Designation, Preferences and Rights of the Series A 10% Cumulative Convertible Preferred Stock ($.01 Par Value) of Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed February 21, 2002).
	3	.3	Second Amended and Restated By-laws of Registrant (incorporated by reference to Exhibit 3.1. to the Registrant’s Current Report of Form 8-K filed April 3, 2008).
	3	.4	Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on June 9, 2004 (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	3	.5	Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on January 5, 2005 (incorporated by reference to Exhibit 3.5 to the Registrant’s Current Report on Form 8-K filed January 11, 2005).
	3	.6	Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on August 16, 2005 (incorporated by reference to Exhibit 3.5 to the Registrant’s Current Report on Form 8-K filed August 17, 2005).
	4	.1	Specimen Stock Certificate of Common Stock of Registrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	4	.2	Registration Rights Agreement dated as of March 31, 1999, by and between Allis-Chalmers Corporation and the Pension Benefit Guaranty Corporation (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
	4	.3	Registration Rights Agreement dated as of January 29, 2007 by and among Allis-Chalmers Energy Inc., the Guarantors named therein and the Initial Purchasers named therein (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 29, 2007).
	4	.4	Registration Rights Agreement dated as of January 18, 2006 by and among Allis-Chalmers Energy Inc., the Guarantors named therein and the Initial Purchasers named therein (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).

102

Exhibit			Description
	4	.5	Registration Rights Agreement dated as of August 14, 2006 by and among the Registrant, the guarantors listed on Schedule A thereto and RBC Capital Markets Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on August 14, 2006).
	4	.6	Indenture dated as of January 18, 2006 by and among the Registrant, the Guarantors named therein and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).
	4	.7	First Supplemental Indenture dated as of August 11, 2006 by and among Allis-Chalmers GP, LLC, Allis-Chalmers LP, LLC, Allis-Chalmers Management, LP, Rogers Oil Tool Services, Inc., the Registrant, the other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, N.A (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on August 14, 2006).
	4	.8	Second Supplemental Indenture dated as of January 23, 2007 by and among Petro-Rentals, Incorporated, the Registrant, the other Guarantor parties thereto and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 24, 2007).
	4	.9	Indenture, dated as of January 29, 2007, by and among the Registrant, the Guarantors named therein and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 29, 2007).
	4	.10	Form of 9.0% Senior Note due 2014 (incorporated by reference to Exhibit A to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).
	4	.11	Form of 8.5% Senior Note due 2017 (incorporated by reference to Exhibit A to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on January 29, 2007).
	10	.1	Amended and Restated Retiree Health Trust Agreement dated September 14, 1988 by and between Registrant and Wells Fargo Bank (incorporated by reference to Exhibit C-1 of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	10	.2	Amended and Restated Retiree Health Trust Agreement dated September 18, 1988 by and between Registrant and Firstar Trust Company (incorporated by reference to Exhibit C-2 of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	10	.3	Product Liability Trust Agreement dated September 14, 1988 by and between Registrant and Bruce W. Strausberg, Trustee (incorporated by reference to Exhibit E of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	10	.4*	Allis-Chalmers Savings Plan (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1988).
	10	.5*	Allis-Chalmers Consolidated Pension Plan (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1988).
	10	.6	Agreement dated as of March 31, 1999 by and between Registrant and the Pension Benefit Guaranty Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
	10	.7	Letter Agreement dated May 9, 2001 by and between Registrant and the Pension Benefit Guarantee Corporation (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed May 15, 2001).
	10	.8	Termination Agreement dated May 9, 2001 by and between Registrant, the Pension Benefit Guarantee Corporation and others (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on May 15, 2001).
	10	.9*	Executive Employment Agreement, dated April 1, 2007, by and between the Registrant and Munawar H. Hidayatallah (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on November 6, 2007).

103

Exhibit			Description
	10	.10*	Amendment to Executive Employment Agreement, dated as of December 31, 2008, by and between the Registrant and Munawar H. Hidayatallah (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 7, 2009).
	10	.11*	Executive Employment Agreement, effective April 3, 2007, by and between the Registrant and Victor M. Perez (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on November 6, 2007).
	10	.12*	Executive Employment Agreement, effective July 1, 2007, by and between the Registrant and Terrence P. Keane (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 24, 2007).
	10	.13*	Amendment to Employment Agreement among the Registrant, AirComp LLC and Terrence P. Keane, effective April 1, 2008 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 1, 2008).
	10	.14*†	Second Amendment to Executive Employment Agreement, dated December 31, 2008, by and between the Registrant and Terrence P. Keane.
	10	.15*	Executive Employment Agreement, dated December 3, 2007, by and between the Registrant and Theodore F. Pound III (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 6, 2007).
	10	.16*	Executive Employment Agreement, effective July 1, 2007, by and between Strata Directional Technology LLC and David K. Bryan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 13, 2007).
	10	.17*†	Amendment to Executive Employment Agreement, dated December 31, 2008, by and between Strata Directional Technology LLC and David K. Bryan.
	10	.18*	Executive Employment Agreement, effective January 1, 2008, by and between the Registrant and Mark C. Patterson (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 25, 2008).
	10	.19	Strategic Agreement dated July 1, 2003 between Pan American Energy LLC Sucursal Argentina and DLS Argentina Limited Sucursal Argentina (incorporated by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q filed on December 29, 2006).
	10	.20	Amendment No. 1 dated May 18, 2005 to Strategic Agreement between Pan American Energy LLC Sucursal Argentina and DLS Argentina Limited Sucursal Argentina (incorporated by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q filed on December 29, 2006).
	10	.21	Amendment No. 2 dated January 1, 2006 between Pan American Energy LLC Sucursal Argentina and DLS Argentina Limited Sucursal Argentina (incorporated by reference to Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q filed on December 29, 2006).
	10	.22	Investor Rights Agreement, dated December 18, 2006, by and between the Registrant and Oil & Gas Rental Services, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 19, 2006).
	10	.23	First Amendment to Investor Rights Agreement, by and among Allis-Chalmers Energy Inc. and the holders named thereto, dated June 23, 2008 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 26, 2008).
	10	.24	Investors Rights Agreement dated as of August 18, 2006 by and among the Registrant and the investors named on Exhibit A thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 14, 2006).
	10	.25*	2003 Incentive Stock Plan (incorporated by reference to Exhibit 4.12 to the Registrant’s Current Report on Form 8-K filed August 17, 2005).
	10	.26*	Form of Option Certificate issued pursuant to 2003 Incentive Stock Plan (incorporated by reference to Exhibit 10.41 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003).
	10	.27*†	2006 Incentive Plan, as amended and restated.

104

Exhibit			Description
	10	.28*	Form of Employee Restricted Stock Agreement pursuant to the Registrant’s 2006 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 18, 2006).
	10	.29*	Form of Employee Nonqualified Stock Option Agreement pursuant to the Registrant’s 2006 Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 18, 2006).
	10	.30*	Form of Employee Incentive Stock Option Agreement pursuant to the Registrant’s 2006 Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on September 18, 2006).
	10	.31*	Form of Non-Employee Director Restricted Stock Agreement pursuant to the Registrant’s 2006 Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on September 18, 2006).
	10	.32*	Form of Non-Employee Director Nonqualified Stock Option Agreement pursuant to the Registrant’s 2006 Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on September 18, 2006).
	10	.33*†	Form of Performance Award Agreement, as amended and restated effective December 31, 2008, pursuant to the Registrants’ 2006 Incentive Plan.
	10	.34	Second Amended and Restated Credit Agreement, dated as of April 26, 2007, by and among the Registrant, as borrower, Royal Bank of Canada, as administrative agent and collateral agent, RBC Capital Markets, as lead arranger and sole bookrunner, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report Form 10-Q filed on May 10, 2007).
	10	.35	First Amendment to Second Amended and Restated Credit Agreement, dated as of December 3, 2007, by and among the Registrant, the guarantors named thereto, Royal Bank of Canada and the lenders named thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 6, 2007).
	10	.36	Second Amendment to Second Amended and Restated Credit Agreement, dated as of December 29, 2008, by and among the Registrant, as borrower, Royal Bank of Canada, as administrative agent, and the lenders named thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 7, 2009).
	10	.37	Amended and Restated Guaranty, dated April 26, 2007, by each of the guarantors named thereto in favor of Royal Bank of Canada, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 10, 2007).
	10	.38	Amended and Restated Pledge and Security Agreement, dated April 26, 2007, by the Registrant in favor of Royal Bank of Canada, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 10, 2007).
	10	.39	Credit Agreement, dated January 31, 2008, among the Registrant, as lender, BCH Ltd., as borrower, and BCH Energy do Brasil Servicos de Petroleo Ltda. as guarantor (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 6, 2008).
	10	.40	Option to Purchase and Governance Agreement, dated January 31, 2008, among the Registrant, BrazAlta Resources Corp. and BCH Ltd. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on February 6, 2008).
	10	.41	Subordination Agreement, dated January 31, 2008, among the Registrant, Standard Bank PLC, BCH Ltd., BCH Energy do Brasil Servicos de Petroleo Ltda. and BrazAlta Resources Corp. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on February 6, 2008).
	10	.42	Form of Convertible Subordinated Secured Debenture (incorporate by reference to Schedule E to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 6, 2008).
	10	.43*	Agreement, dated April 1, 2007, by and between the Registrant and David Wilde (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on April 3, 2007).

105

Exhibit			Description
	10	.44	Mutual Termination and Release Agreement, dated August 8, 2008, by and among Allis-Chalmers Energy Inc., Bronco Drilling Company, Inc. and Elway Merger Sub LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 8, 2008).
	21	.1†	Subsidiaries of Registrant.
	23	.1 †	Consent of UHY LLP.
	31	.1 †	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2 †	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1 †	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Compensation Plan or Agreement
†	Filed herewith.

106

EX-2.22

Exhibit 2.22

Execution Copy

SHARE PURCHASE AGREEMENT

Between

BRAZALTA RESOURCES CORP.

and

ALLIS-CHALMERS ENERGY INC.

Dated as of
December 19, 2008

TABLE OF CONTENTS

	Page
ARTICLE 1 PURCHASE AND SALE		1
1.1 Sale of Shares		1
1.2 Closing		1
1.3 Effective Time		1
1.4 Purchase Price		2
1.5 Liabilities Assumed by the Shareholder		2
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER		2
2.1 Organizational Matters and Shares		2
2.2 Validity of Agreement and Conflict with Other Instruments		3
2.3 Approvals, Licenses and Authorizations		4
2.4 Title to and Condition of Assets and Properties		4
2.5 Intellectual Property		5
2.6 Contracts and Commitments		5
2.7 Financial Statements		6
2.8 No Litigation		6
2.9 No Adverse Changes or Events		6
2.10 Environmental Matters		7
2.11 Warranties and Product Liability		8
2.12 Employee Matters		8
2.13 Taxes and Governmental Returns and Reports		11
2.14 Finder’s Fees		13
2.15 Insurance		13
2.16 Debt Obligations		13
2.17 Compliance with Certain Laws		14
2.18 Sales into Canada		15
2.19 Residency		15
2.20 GST Registration		15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BUYER		15
3.1 Organizational Matters		15
3.2 Finder’s Fees		16
ARTICLE 4 ADDITIONAL AGREEMENTS		16
4.1 Access to Information and Cooperation		16
4.2 Conduct of the Business		17
4.3 Regulatory Approvals		19
4.4 Exclusivity		19
4.5 Information		19
4.6 Delivery of Documents		19
4.7 Further Assurances		20
4.8 Nondisclosure of Proprietary Information		20
4.9 Use of Corporate Name		21
4.10 Continuation of Business by the Buyer		21
4.11 Repayment of Obligations and Liabilities		21
4.12 Public Announcements and Disclosure		22
4.13 Non Solicitation		22
4.14 Compliance with Privacy Laws		23
4.15 Tax Returns		23

ii

	Page
4.16 Environmental Matters		23
4.17 Standard Bank		24
4.18 Repetro Regime Guarantee		24
4.19 Brazil Capital Leases		24
4.20 Transferred Employees		24
4.21 Brazil Sublease		25
ARTICLE 5 BUYER’S CONDITIONS		25
5.1 Representations, Warranties and Covenants		25
5.2 Due Diligence		25
5.3 Good Standing		25
5.4 Certificates, Notes and Instruments of Transfer		25
5.5 No Litigation		26
5.6 No Material Adverse Event		26
5.7 Other Legal Matters		26
5.8 Licenses, Consents and Approvals		26
5.9 Consents of Third Persons		26
5.10 Resignations		26
5.11 Repayment of Obligations and Liabilities		27
5.12 Assumed Indebtedness Excess Amount		27
5.13 Key Employees		27
5.14 Standard Bank		27
5.15 Legal Opinion		27
5.16 Termination or Cancellation of Options, Warrants and Convertible Securities		27
5.17 OPGA Termination Agreement		28
5.18 Mutual Releases		28
ARTICLE 6 SHAREHOLDER’S CONDITIONS		28
6.1 Representations, Warranties and Covenants		28
6.2 Purchase Price		28
6.3 Licenses, Consents and Approvals		28
6.4 No Litigation		29
6.5 Other Legal Matters		29
6.6 Standard Bank		29
6.7 Legal Opinion		29
6.8 OPGA Termination Agreement		29
6.9 Mutual Releases		29
ARTICLE 7 INDEMNIFICATION		30
7.1 Indemnification by the Shareholder		30
7.2 Indemnification by the Buyer		30
7.3 Procedure		31
7.4 Indemnification Basket; Effect of Materiality Qualifiers		31
7.5 Waiver of Contribution		32
7.6 Payment		32
7.7 Failure to Pay Indemnification		32
ARTICLE 8 NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS, REPRESENTATIONS, WARRANTIES AND AGREEMENTS		33
ARTICLE 9 TERMINATION		34
9.1 Termination		34
9.2 Liability Upon Termination		34
9.3 Notice of Termination		34
ARTICLE 10 DEFINITIONS OF CERTAIN TERMS		35

iii

	Page
10.1 Definitions		35
10.2 Additional Definitions		43
ARTICLE 11 MISCELLANEOUS		44
11.1 Expenses		44
11.2 Notices		45
11.3 Specific Performance		46
11.4 Assignment and Successors		46
11.5 Entire Agreement		46
11.6 Governing Law and Attornment		46
11.7 Waiver		46
11.8 Severability		47
11.9 No Third Party Beneficiaries		47
11.10 Counterparts		47
11.11 Headings		47
11.12 Negotiated Transaction		47
11.13 Acknowledgement of Legal Advice		47
11.14 Time of Essence		47
11.15 Currency		47

 iv 

LIST OF DISCLOSURE SCHEDULE SECTIONS

Section 1.1	Shares
Section 2.1(a)	Jurisdictions in Which the Companies Do Business
Section 2.1(c)	Articles and Bylaws of the Companies
Section 2.1(d)	Authorized and Issued Share Capital of the Companies
Section 2.1(e)	Options, Warrants, Convertible Securities, Etc.
Section 2.2	Validity of Agreement and Conflict with Other Instruments
Section 2.3	Licenses, Permits, etc.
Section 2.4(a)	Specific Permitted Liens
Section 2.4(b)	Owned Real Property
Section 2.4(d)	Leased Real Property and Leased Personal Property
Section 2.5	Intellectual Property
Section 2.6(a)	Contracts and Commitments
Section 2.6(b)	Breaches and Defaults
Section 2.6(c)	Enforceability of Contracts
Section 2.7	Financial Statements
Section 2.8	Litigation
Section 2.9	Adverse Changes or Events
Section 2.10	Environmental Matters
Section 2.11	Product Warranties
Section 2.12	Employee Benefits and Matters
Section 2.13	Taxes
Section 2.14	Finder's Fees
Section 2.15	Insurance

v

Section 2.16	Debt Obligations
Section 2.17	Compliance with Certain Laws

 vi 

LIST OF EXHIBITS

Exhibit A	Capital Leases
Exhibit B	Drilling Rigs
Exhibit C	Mutual Releases
Exhibit D	Assumed Indebtedness Maximum Amount

SHARE PURCHASE AGREEMENT

     This Share Purchase Agreement (this “Agreement”) is entered into as of December 19, 2008 and is made between BrazAlta Resources Corp. (the “Shareholder”), as the majority shareholder of BCH Ltd. (“BCH”), and Allis-Chalmers Energy Inc. (the “Buyer”).

WITNESSETH:

     WHEREAS the Shareholder desires to transfer, sell and assign to the Buyer all of the issued and outstanding shares (the “Shares”) in the share capital of BCH owned by the Shareholder, upon the terms and subject to the conditions set forth herein;

     AND WHEREAS the Parties desire to set forth certain representations, warranties, covenants and agreements, all as more fully set forth below;

     AND WHEREAS the defined terms used in this Agreement shall have the meanings set forth in Sections 10.1 and 10.2 hereof;

     NOW THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, the Parties agree as follows:

ARTICLE 1
PURCHASE AND SALE

1.1 Sale of Shares.

On the Closing Date, upon the terms and subject to the conditions contained herein, the Shareholder shall transfer, sell, assign and convey to the Buyer, and the Buyer shall purchase from the Shareholder, effective as of the Effective Time, the Shares free and clear of all Liens (other than those Liens created or suffered by the Buyer and other than restrictions on sales or transfers of securities under applicable securities laws).

1.2 Closing.

Subject to the conditions set forth in this Agreement, the Closing shall take place at the offices of Fraser Milner Casgrain LLP, located at 2900, 10180 — 101 Street, Edmonton, Alberta, Canada at 9:00 a.m. on December 31, 2008, or at such other time, date and place as the Parties shall mutually agree upon in writing (the “Closing Date”). Failure to consummate the transactions contemplated hereby on such date shall not, in and of itself, result in a termination of this Agreement or relieve any Party of any obligation hereunder and such matters shall be governed by Article 9 hereof. Title to, ownership of and control over the Shares shall pass to the Buyer at the Closing but effective as of the Effective Time.

1.3 Effective Time.

The Parties acknowledge and agree that the sale of the Shares by the Shareholder and the purchase of the Shares by the Buyer shall be effective as of 12:01 a.m. on the Closing Date (the “Effective Time”) notwithstanding the actual time of the Closing. For greater certainty, (a) from and after the

 2 

Effective Time, the business of the Companies will be conducted for the account of the Buyer, (b) the Buyer will be entitled to include in its consolidated earnings the earnings of the Companies from and after the Effective Time, and (c) the Assumed Indebtedness Excess Amount (if any) will be assumed by the Shareholder effective as of the Effective Time.

1.4 Purchase Price.

In consideration of the transfer of the Shares to the Buyer, the Buyer shall pay the sum of $5,000,000 (the “Purchase Price”) to the Shareholder. The Purchase Price shall be paid by the Buyer to the Shareholder or to Davis LLP in trust for the Shareholder, as directed by the Shareholder, on the Closing Date by wire transfer.

1.5 Liabilities Assumed by the Shareholder.

At the Closing and effective as of the Effective Time, the Shareholder shall assume the Assumed Indebtedness Excess Amount (if any).

ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER

The Shareholder hereby represents and warrants to the Buyer as follows:

2.1 Organizational Matters and Shares.

     (a) Each of the Companies is a corporation duly organized, validly existing and in good standing under the laws of Alberta or Brazil, as applicable. Each of the Companies is duly authorized, qualified and licensed and has all requisite power and authority under all Applicable Laws, ordinances and orders of public authorities to own, operate and lease its properties and assets and to carry on its business in the places and in the manner currently conducted. Each of the Companies is in good standing in the jurisdictions specified in Section 2.1(a) of the Disclosure Schedule and there is no other jurisdiction in which the nature and extent of the business conducted by the Companies or the character of their assets makes such qualification necessary. The Companies do not do business in any province, territory, state, country or commonwealth under any name other than their corporate names. Other than BCH Brazil and the Shareholder, BCH does not have any Subsidiaries or Affiliates.

     (b) BCH is a “private issuer” within the meaning of that term as defined in National Instrument 45-106 — Prospectus and Registration Exemptions.

     (c) Set forth in Section 2.1(c) of the Disclosure Schedule is a true, correct and complete description of the Articles and Bylaws of each of the Companies, as amended, copies of which have been provided by the Shareholder to the Buyer, and which are in full force and effect.

     (d) Set forth in Section 2.1(d) of the Disclosure Schedule is a true, correct and complete description of the authorized and issued share capital of each of the Companies.

     (e) The Shares are owned legally and beneficially by the Shareholder, free and clear of all Liens (other than the SB Pledge, those Liens created or suffered by the Buyer and other than

 3 

restrictions on sales or transfers of securities under applicable securities laws). The Shares have been duly authorized and validly issued and are fully paid and non assessable shares and were not issued in violation of any pre-emptive, preferential purchase or other similar rights of any Person. Other than the ESOP Options, the SB Warrant and the AC Debenture, and except as set forth in Section 2.1(e) of the Disclosure Schedule, there are no outstanding options, warrants, convertible securities, calls, rights, commitments, pre-emptive rights, agreements, arrangements or understandings of any character obligating the Companies or any of them (i) to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares in the capital of the Companies or any of them or any securities or obligations convertible into or exchangeable for such shares or (ii) to grant, extend or enter into any such option, warrant, convertible security, call, right, commitment, pre-emptive right, agreement, arrangement or understanding.

     (f) The Shareholder has the absolute right to transfer the Shares to the Buyer. Upon the purchase of the Shares as contemplated by this Agreement and subject to the release and discharge of the SB Pledge in accordance with Section 5.14(b) hereof, the Buyer will obtain legal and beneficial title to the Shares, free and clear of all Liens (other than those Liens created or suffered by the Buyer and other than restrictions on sales or transfers of securities under applicable securities laws).

     (g) On the Closing Date, the ESOP Options will terminate in accordance with their terms.

2.2 Validity of Agreement and Conflict with Other Instruments.

     (a) The Shareholder has the requisite legal capacity, power and authority to enter into this Agreement, to consummate the transactions contemplated hereunder and to perform its obligations under this Agreement. This Agreement has been duly authorized, executed and delivered by the Shareholder and is a legal, valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors’ rights generally and by legal and equitable limitations on the availability of specific remedies. The Shareholder has not entered into any other agreement whereby any of the Shares will be sold, assigned or otherwise transferred to another Person.

     (b) Except as set forth in Section 2.2 of the Disclosure Schedule, the execution, delivery and performance of this Agreement by the Shareholder and the consummation of the transactions contemplated hereby (i) do not violate any provision of the Articles or Bylaws of the Shareholder, any of the Companies, or any law, statute, ordinance, regulation, judgment, writ, injunction, rule, decree, order or any other restriction of any kind or character applicable to the Shareholder or the Companies or any of their respective properties or assets, (ii) do not conflict with, or result in any breach of, or default or loss of any right under (or an event or circumstance that, with notice or the lapse of time, or both, may result in a default), or the creation of a Lien pursuant to, or cause or permit the acceleration prior to maturity of any amounts owing under, any indenture, mortgage, deed of trust, lease or other agreement to which the Shareholder or any of the Companies is a party or to which any of their respective assets are subject, (iii) do not require the consent, approval, clearance, waiver, order or authorization of any Person or Governmental Entity that has not been obtained, and (iv) do not conflict with, constitute a breach, violation or termination of any provision of any

 4 

agreement or contract, whether written or otherwise, to which the Shareholder or any of the Companies is a party or by which any of them is bound.

     (c) Except as set forth in Section 2.2 of the Disclosure Schedule, the execution, delivery and performance of this Agreement by the Shareholder will not result in the loss of any license, franchise or permit possessed by any of the Companies or give a right of acceleration or termination to any party to any agreement or other instrument to which any of the Companies is a party or by which any of its assets are bound, or the loss of any right or benefit under such agreement or instrument.

2.3 Approvals, Licenses and Authorizations.

     (a) No order, license, consent, waiver, authorization or approval of, or exemption by, or the giving of notice to, or the registration with, or the taking of any other action in respect of, any Person not a party to this Agreement, including any Governmental Entity, and no filing, recording, publication or registration in any public office or any other place is now, or under existing law in the future will be, necessary on behalf of the Shareholder or any of the Companies to authorize the execution, delivery and performance of this Agreement or any other agreement contemplated hereby to be executed and delivered by the Shareholder or any of the Companies and the consummation of the transactions contemplated hereby or thereby (including, but not limited to, the transfer of the Shares), or to effect the legality, validity, binding effect or enforceability thereof.

     (b) All licenses, permits, concessions, warrants, franchises and other governmental authorizations and approvals of all Governmental Entities required or necessary for each of the Companies to carry on its business in the places and in the manner currently conducted have been duly obtained and are in full force and effect and are set forth in Section 2.3 of the Disclosure Schedule. No Material violations are in existence or have been recorded with respect to such licenses, permits or other authorizations and, to the Knowledge of the Shareholder, no proceeding is pending or threatened with respect to the revocation or limitation of any of such licenses, permits or other authorizations. Each of the Companies has complied in all Material respects with all laws, rules, regulations and orders applicable to its business, and all rules, regulations and orders respecting the provision of services by it.

2.4 Title to and Condition of Assets and Properties.

     (a) Each of the Companies has legal and beneficial title to, or valid and subsisting leasehold interests in, all of the real and personal property reflected on the Financial Statements or used or useful in the Companies’ business, free and clear of all Liens (other than the Permitted Liens and the Liens set forth in Section 2.4(a) of the Disclosure Schedule). Since the Reference Date, none of the Companies has sold, transferred or otherwise conveyed any of the real or personal property reflected on the Financial Statements, except for Inventory sold, consumed or otherwise disposed of in the ordinary course of business. All of the real and personal property reflected on the Financial Statements is in the Companies’ Possession or Control.

     (b) Except as set forth in Section 2.4(b) of the Disclosure Schedule, none of the Companies owns any real property.

 5 

     (c) All of the personal property owned by the Companies (i) is free and clear of any Liens (other than the Permitted Liens), and (ii) in the case of the Equipment (including, without limitation, the Drilling Rigs), is in Good Working Order.

     (d) All real property and personal property leased by the Companies is set forth in Section 2.4(d) of the Disclosure Schedule. True, correct and complete copies of the Leases have been provided by the Shareholder to the Buyer. None of the Companies is in breach of any Material provision of, or in default under, the Material terms of any of the Leases. All of the Leases are in full force and effect. The Shareholder has no Knowledge of any pending or threatened disputes with respect to any of the Leases, other than as described in Section 2.4(d) of the Disclosure Schedule. Except as set forth in Section 2.2 of the Disclosure Schedule, the enforceability of the Leases will not be affected in any manner by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

     (e) The Assets constitute all of the assets and properties used for the conduct of the businesses currently conducted by the Companies as of the date hereof.

2.5 Intellectual Property.

Except as set forth in Section 2.5 of the Disclosure Schedule, no Intellectual Property is owned by or licensed to the Companies or used by the Companies in carrying on the business of the Companies.

2.6 Contracts and Commitments.

     (a) Except as set forth in Section 2.6(a) of the Disclosure Schedule, none of the Companies is a party to or is bound by: (i) any agreement, contract or commitment requiring the expenditure or series of related expenditures of funds in excess of $50,000 (other than purchase orders in the ordinary course of business for materials necessary for the Companies to complete then existing contracts or purchase orders); (ii) any agreement, contract or commitment requiring the payment for goods or services whether or not such goods or services are actually provided or the provision of goods or services at a price less than cost to the Companies of producing or purchasing such goods or providing such services; (iii) any loan or advance to, or investment in, any Person or any agreement, contract, commitment or understanding relating to the making of any such loan, advance or investment; (iv) any agreement or obligation with the Shareholder or any of its Affiliates; (v) any Debt Obligations; (vi) any labor union, management service, employment, consulting or other similar type contract or agreement; (vii) any agreement, contract or commitment that would limit the freedom of the Companies or its successors following the Closing Date to engage in any line of business, to own, operate, sell, transfer, pledge or otherwise dispose of or encumber any of the Assets or to compete with any Person or to engage in any business or activity in any geographic area; (viii) any agreement, lease, contract or commitment or series of related agreements, leases, contracts or commitments not entered into in the ordinary course of business or, except for agreements to purchase or sell goods and services entered into in the ordinary course of business of the Companies, not cancellable by the Companies, without penalty to the Companies, within 30 days; (ix) any agreement or contract obligating any of the Companies or that would obligate or require any subsequent owner of any of the Companies to provide for indemnification or contribution with respect to any matter; (x) any sales, distributorship, agency or similar agreement relating to the products sold or services provided by any of the Companies; (xi) any license, royalty

 6 

or similar agreement; or (xii) any other agreement, contract or commitment that might reasonably be expected to be Material to the Companies or the business of the Companies taken as a whole.

     (b) Except as set forth in Section 2.6(b) of the Disclosure Schedule, none of the Companies is in breach of, or in default (and the Shareholder has no Knowledge of any event or circumstance that with notice, or lapse of time or both, would constitute an event of default) under, any Material provision of any of the contracts or agreements listed in Section 2.6 of the Disclosure Schedule including, without limitation, the SB Credit Agreement. All of the contracts and agreements listed in Section 2.6 of the Disclosure Schedule are in full force and effect. To the Knowledge of the Shareholder, there are no pending or threatened disputes with respect to any of the contracts or agreements listed in Section 2.6 of the Disclosure Schedule.

     (c) Except as set forth in Section 2.6(c) of the Disclosure Schedule, the enforceability of the contracts and agreements listed in Section 2.6 of the Disclosure Schedule will not be affected in any manner by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

2.7 Financial Statements.

Attached to Section 2.7 of the Disclosure Schedule are true, correct and complete copies of (a) the audited balance sheets and statements of income of the Companies as of and for the year ended June 30, 2008, (b) the unaudited balance sheets and statements of income of the Companies as of and for the year ended June 30, 2007, and (c) the unaudited balance sheets and statements of income of the Companies as of and for the three months ended September 30, 2008 (collectively, the “Financial Statements”). The Financial Statements (a) fairly present the financial position of the Companies as of their respective dates and the results of operations of the Companies for the periods indicated therein, (b) have been prepared in accordance with GAAP, and (c) have not been rendered untrue, incomplete or unfair as representations of the financial condition of the Companies as at and for the periods covered by events subsequent to the date of the Financial Statements. As of the date of the Financial Statements, none of the Companies has any liability of any kind or matter, either direct, accrued, absolute or otherwise, that is not reflected or disclosed in the Financial Statements. All accounts receivable represented in the Financial Statements were generated in the ordinary course of business and, to the Knowledge of the Shareholder, are fully collectible after deducting reserves for doubtful accounts described in the Financial Statements.

2.8 No Litigation.

Except as set forth in Section 2.8 of the Disclosure Schedule, there is no action, suit, claim, judgment, investigation or legal, administrative, arbitration or other proceeding, or governmental investigation or examination, or any change in any zoning or building ordinance affecting or, to the Knowledge of the Shareholder, pending or threatened against the Shareholder or any of the Companies, at law or in equity, before or by any Governmental Entity and, to the Knowledge of the Shareholder, no basis exists for any such action, suit, claim, investigation or proceeding.

2.9 No Adverse Changes or Events.

 7 

Since the Reference Date, each of the Companies has been consistently operated only in the ordinary course and, except as set forth in Section 2.9 of the Disclosure Schedule, there has not been: (a) any adverse change in the financial condition, assets, liabilities (contingent or otherwise), results of operations or business of any of the Companies (or any occurrence, circumstance or combination thereof) that might reasonably be expected to have a Material Adverse Effect on any of the Companies before or after the Closing; (b) any damage, destruction or loss, whether or not covered by insurance, adversely affecting any of the Companies; (c) any increase in the compensation or rate of compensation or commissions or bonuses payable or to become payable by any of the Companies to any of its employees that is not consistent with past practice, any payment or accrual of, or commitment with respect to, any bonus plan or severance arrangement that is not consistent with past practice or any change or modification to any severance arrangement; (d) any sale, assignment, transfer or other disposition or lapse of any Intellectual Property or disclosure to any Person (other than employees of the Companies in the scope of their employment) of any Intellectual Property; (e) any cancellation or compromise of any claims, or any waiver of any other rights relating to any of the Companies, or any sale, transfer or other disposition of any properties or assets, real, personal or mixed, tangible or intangible, of any of the Companies (other than sales of inventory in the ordinary course of business); (f) any change in any Companies’ method of accounting for financial, Tax or other purposes or any increase in the carrying value of the Assets; or (g) any action taken or omitted to be taken that would be prohibited under any of Sections 4.2, 4.4, 4.5 or 4.13 hereof if such action was taken or omitted to be taken between the date of this Agreement and the Closing Date.

2.10 Environmental Matters.

     (a) Each of the Companies has at all times operated in compliance with all applicable limitations, restrictions, conditions, standards, prohibitions, requirements and obligations of Environmental Laws and related orders of any court or other Governmental Entity, except where the failure to so operate in compliance would not result in any Material liability, contingent or otherwise, to any of the Companies or any of its successors.

     (b) There are no existing or, to the Knowledge of the Shareholder, pending or threatened actions, suits, claims, investigations, inquiries or proceedings by or before any court or any other Governmental Entity directed against any of the Companies or any of its assets or properties that pertain or relate to (i) any obligations or liabilities, contingent or otherwise, under any applicable Environmental Law, (ii) violations of any Environmental Law or (iii) personal injury or property damage claims relating to the use, release or disposal of Hazardous Materials.

     (c) All Environmental Permits required to be obtained or filed by any of the Companies under all applicable Environmental Laws in connection with its operations or use of its assets or properties or the conduct of its business have been duly obtained or filed and are in full force and effect and will remain in full force and effect following the transfer of the Shares to the Buyer, except where the failure to do so would not result in any Material liability, contingent or otherwise, to any of the Companies or any of its successors. Particulars of such Environmental Permits are set forth in Section 2.10 of the Disclosure Schedule.

     (d) Neither the Shareholder nor any of the Companies has received notice that any Environmental Permit is to be revoked or suspended by any Governmental Entity and none of the Companies is currently operating or required to be operating under any compliance order, schedule,

 8 

decree or agreement, any consent decree, order or agreement, or corrective action decree, order or agreement issued or entered into under, or pertaining to matters regulated by, any Environmental Law.

     (e) Except as set forth in Section 2.10 of the Disclosure Schedule, none of the Companies owns or operates any underground storage tanks and none of the Companies has polluted with any Hazardous Materials the soil or groundwater of any past or present properties or premises of the Companies.

     (f) Except as set forth in Section 2.10 of the Disclosure Schedule, neither the Shareholder nor any of the Companies nor any of their directors, officers, employees, representatives, agents or contractors has disposed or released any Hazardous Materials on or under any assets or properties currently or, to the Knowledge of the Shareholder, previously leased or owned by any of the Companies and none of the Companies has disposed or released Hazardous Materials on or under the assets or properties currently or, to the Knowledge of the Shareholder, previously leased or owned by any of the Companies.

     (g) The Companies have provided to the Buyer copies of all environmental audits, assessments or other evaluations applicable to any of the Companies or any of their assets or properties.

     (h) Except as set forth in Section 2.10 of the Disclosure Schedule, no facts or circumstances exist that could reasonably be expected to result in any liability to any Person with respect to the current or past business and operations of the Companies or the assets or properties currently or previously leased or owned by the Companies in connection with (i) any release, transportation or disposal of any Hazardous Materials or (ii) action taken or omitted that was not in full compliance with or was in violation of any applicable Environmental Law, except for such matters that would not result in any liability, contingent or otherwise, to any of the Companies or any of its successors.

2.11 Warranties and Product Liability.

Except for (a) warranties implied by law, and (b) the warranties set forth in Section 2.11 of the Disclosure Schedule, none of the Companies has given or made any warranties in connection with the rental of goods or the performance of services on or prior to the Closing including, without limitation, warranties covering the customer’s consequential damages. The Shareholder has no Knowledge of any state of facts or the occurrence of any event forming the basis of any present claim against any of the Companies with respect to warranties relating to goods rented or services performed by or on behalf of it on or prior to the Closing. The Companies have provided to the Buyer all Material information relating to any known or alleged design or other defect with respect to the rental of goods or the performance of services by any of the Companies and set forth in Section 2.11 of the Disclosure Schedule is a list and brief description of each such design or other defect.

2.12 Employee Matters.

 9 

     (a) Section 2.12 of the Disclosure Schedule contains a true, complete and accurate list of each director, each officer and each person employed by each of the Companies, together with such individual’s title or job description and date of hire by such Company and, for each employee who is compensated on a salaried basis, such individual’s salary, the last date of increase of his or her salary, and his or her incentive compensation arrangements with such Company. Except as set forth in Section 2.12 of the Disclosure Schedule, as of the date immediately prior to the date hereof, neither the Shareholder nor any of the Companies has received notification that any of the current employees of any of the Companies presently plans to terminate his or her employment during the six month period following the Closing, whether by reason of the transactions contemplated by this Agreement or otherwise.

     (b) Except as set forth in Section 2.12 of the Disclosure Schedule: (i) there is no labor strike, work stoppage, lockout or Material dispute or Material slowdown existing or, to the Knowledge of the Shareholder, pending or threatened against any of the Companies, and there has not been any such action during the last three years; (ii) none of the Companies is a party to or bound by any (A) collective bargaining or similar agreement with any labor organization or (B) written work rules or practices agreed to with any labor organization or employee association applicable to employees of any of the Companies; (iii) no employee of any of the Companies is represented by any labor organization and, to the Knowledge of the Shareholder, there are no current union organizing activities among the employees of any of the Companies; and (iv) there are no Material written personnel policies, rules or procedures applicable to employees of any of the Companies.

     (c) Except as set forth in Section 2.12 of the Disclosure Schedule: (i) each of the Companies is, and during the last three years has been, in Material compliance with all applicable laws in respect of employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and has not engaged in any unfair labor practices; (ii) there is no unfair labor practice charge or complaint against any of the Companies existing or, to the Knowledge of the Shareholder, pending or threatened before any Governmental Entity responsible for the enforcement of labor or employment laws; (iii) no charges with respect to or relating to any of the Companies are existing or, to the Knowledge of the Shareholder, pending or threatened before any agency responsible for the prevention of unlawful employment practices; (iv) neither the Shareholder nor any of the Companies has received notice of the intent of any Governmental Entity responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to any of the Companies and no such investigation is in progress; and (v) there are no complaints, lawsuits, or other proceedings existing or, to the Knowledge of the Shareholder, pending or threatened in any forum against any of the Companies by or on behalf of any present or former employee of any of the Companies, any applicant for employment or classes of the foregoing, alleging breach of any express or implied contract of employment, any law governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship.

     (d) Section 2.12 of the Disclosure Schedule contains a true, complete and accurate list and brief description of all Company Benefit Plans. The Shareholder has provided to the Buyer true, complete and correct copies of all plan documents, summary plan descriptions, financial statements, funding vehicles, agreements pursuant to which any of the Companies may be obligated to

 10 

indemnify any Person and filings with all applicable governmental agencies for the past three years relating to the foregoing Company Benefit Plans.

     (e) Each Company Benefit Plan (i) has been operated and administered in all Material respects in accordance with its terms and Applicable Laws, (ii) is in Material compliance with all registration, reporting and disclosure requirements of all Applicable Laws, (iii) has had all appropriate Material filings filed timely for each year of its existence, if required, (iv) has been properly funded, and (v) to the Knowledge of the Shareholder, has no proceeding pending with or threatened by any Governmental Entity, nor any proceeding resolved adversely to any of the Companies, that may subject any of the Companies or any of its successors to the payment of any penalty, interest, Tax or other obligation.

     (f) Except as set forth in Section 2.12 of the Disclosure Schedule, neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will (i) entitle any current or former employee of any of the Companies to severance pay from any of the Companies, or any other payment under a Company Benefit Plan, (ii) accelerate the time of payment or vesting of benefits under a Company Benefit Plan, or (iii) increase the amount of compensation due any such employee by any of the Companies.

     (g) None of the Companies provides employee post-retirement medical or health coverage for any employee of any of the Companies or contributes to or maintains any employee benefit plan that provides for health benefit coverage following termination of employment of any employee of any of the Companies, nor has it made any representation, agreements, covenants or commitments to provide that coverage.

     (h) None of the Companies nor any officer, director or shareholder of the Companies nor, to the Knowledge of the Shareholder, any of the Company Benefit Plans, including pension plans, nor any trusts created thereunder, nor any trustee or administrator thereof, has engaged in any prohibited transaction or act or any other breach of fiduciary responsibility that could subject any of the Companies or any of its successors to any Tax or penalty or to any liability under any applicable law or regulation.

     (i) Except as set forth in Section 2.12 of the Disclosure Schedule, each Company Benefit Plan may be unilaterally amended or terminated by the Companies or the Buyer without liability to the Companies or the Buyer on or at any time after the Closing.

     (j) With respect to each Company Benefit Plan that is a welfare benefit plan, all claims incurred (including claims incurred but not reported) by employees thereunder as of the Closing for which any of the Companies is, or will become, liable are (i) insured pursuant to a contract of insurance whereby the insurance company bears any risk of loss with respect to such claims, (ii) covered under a contract with a health maintenance organization pursuant to which such organization bears the liability for such claims, or (iii) are reflected as a liability or accrued for on the Financial Statements.

     (k) All contributions required to have been made as of the Closing to the Company Benefit Plans pursuant to their terms and applicable law have been timely made.

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     (l) There is no litigation, action, proceeding, audit, examination or claim existing , or to the Knowledge of the Shareholder, pending, threatened or contemplated relating to any Company Benefit Plan (other than routine claims for benefits).

     (m) There has been no partial termination of any Company Benefit Plan.

     (n) No employee of any of the Companies will be entitled to claim “change of control compensation” or similar compensation from any of the Companies, the Buyer or any Affiliate of the Buyer (as successor to the Companies) by reason of the change of control of any of the Companies as contemplated by this Agreement.

2.13 Taxes and Governmental Returns and Reports.

     (a) All Tax Returns of or relating to any Tax that are required to be filed on or before the Closing Date for, by, on behalf of or with respect to any of the Companies including, but not limited to, those relating to the income, business, operations or property of any of the Companies and those which include or should include any of the Companies (whether on a separate, consolidated, affiliated, combined, unitary or any other basis), have been filed with the appropriate foreign, federal, provincial, state and local authorities, and all Taxes shown to be due and payable on such Tax Returns or related to such Tax Returns have been paid in full on or before the Closing Date.

     (b) All such Tax Returns and the information and data contained therein have been properly and accurately compiled and completed, fairly present the information purported to be shown therein, and reflect all liabilities for Taxes for the periods covered by such Tax Returns.

     (c) None of such Tax Returns are under audit or, to the Knowledge of the Shareholder, examination by any foreign, federal, provincial, state or local authority and there are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment or collection of any Tax or deficiency of any nature against any of the Companies or with respect to any such Tax Return, or any suits or other actions, proceedings, investigations or claims now existing or, to the Knowledge of the Shareholder, pending or threatened against any of the Companies with respect to any Tax, or any matters under discussion with any foreign, federal, provincial, state or local authority relating to any Tax, or any claims for any additional Tax asserted by any such authority.

     (d) Except as set forth in Section 2.13 of the Disclosure Schedule, all Taxes assessed and due and owing from or against each of the Companies on or before the Closing Date (including, but not limited to, ad valorem Taxes relating to any property of the Companies) have been, or will be, timely paid in full on or before the Closing Date.

     (e) All withholding Tax and Tax deposit requirements imposed on any of the Companies for any and all periods ending on or before the Closing Date, or through and including the Closing Date for periods that have not ended on or before the Closing Date, have been satisfied in full on or before the Closing Date.

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     (f) The Financial Statements reflect and include adequate charges, accruals, reserves and provisions for the payment in full of any and all Taxes payable with respect to any and all periods ending on or before the respective dates thereof.

     (g) To the Knowledge of the Shareholder, there is no basis any reassessment of Tax and there have been no special assessments on any assets of any of the Companies.

     (h) None of the Companies is a party to any Tax allocation or Tax sharing agreement.

     (i) None of the Companies is or has been a member of any affiliated, consolidated, combined, unitary or similar group for Tax purposes.

     (j) All consolidated groups or fiscal entities of which any of the Companies is or has been a party have duly fulfilled, in a timely and accurate manner, all Material obligations to any foreign, federal, provincial, state or local authority for the period up to the Closing Date. Adequate provisions for payment of all Taxes, including all Material obligations regarding the termination of any consolidated groups or fiscal entities of which any of the Companies is or has been a party, have been made.

     (k) During the current fiscal year and for the five previous fiscal years, none of the Companies has claimed or been granted exemptions from, or deferrals of, Taxes in connection with any reorganization or merger. Any reorganizations or mergers involving any of the Companies and were consummated before the Closing Date, will not give rise to the assessment or payment of Taxes after the Closing Date.

     (l) No special agreements, rulings or compromises have been entered into between any of the Companies and any foreign, federal, provincial, state or local authority regarding the assessment or payment of Taxes.

     (m) All research and development investment tax credits (“ITCs”) were claimed by each of the Companies in accordance with the ITA and relevant provincial legislation and each of the Companies satisfied at all times relevant criteria and conditions entitling it to such ITCs. All refunds of ITCs received or receivable by each of the Companies in any financial year were claimed in accordance with the ITA and the relevant provincial legislation and each of the Companies satisfied at all times the relevant criteria and conditions entitling it to claim a refund of such ITCs.

     (n) None of the Companies has filed nor been party to any election pursuant to Sections 83 or 85 of the ITA or the corresponding provisions of any provincial statute.

     (o) None of the Companies has at any time benefited from a forgiveness of debt nor entered into any transaction or arrangement (including conversation of debt into shares of its share capital) which could have resulted in the application of Section 80 to 80.04 of the ITA.

     (p) Each of the Companies’ cost amount, as defined in the ITA, in respect of its assets is accurately reflected on such Companies’ Tax Returns and records.

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     (q) The paid-up capital for Tax purposes of each of the Shares is no less than its stated capital for corporate purposes as of the Closing Date.

     (r) Section 2.13(r) of the Disclosure Schedule sets forth a description of the Companies’ Tax Returns and true, complete and correct copies thereof have been provided by the Shareholder to the Buyer.

2.14 Finder’s Fees.

Except as set forth in Section 2.14 of the Disclosure Schedule, neither the Shareholder nor any of the Companies has employed or retained any investment banker, broker, agent, finder or other party, or incurred any obligation for brokerage fees, finder’s fees or commissions, with respect to the sale of the Shares by the Shareholder or with respect to the transactions contemplated by this Agreement, or otherwise dealt with anyone purporting to act in the capacity of a finder or broker with respect thereto whereby any party hereto may be obligated to pay such a fee or commission.

2.15 Insurance.

     (a) Section 2.15 of the Disclosure Schedule sets forth a brief description of all existing insurance policies held by the Companies relating to the business, assets, employees or agents of the Companies and the Shareholder has provided to the Buyer true, correct and complete copies of such policies. Each such policy is in full force and effect and is with responsible insurance carriers. There is no dispute with respect to such policies and all claims arising from events or circumstances occurring prior to the date hereof have been paid in full or adequate reserves therefor are recorded in the Financial Statements. All retroactive premium adjustments for any period ended on or before the Closing Date under any worker’s compensation policy or any other insurance policies of the Companies, for which any of the Companies has received notice, have been recorded in accordance with GAAP and are reflected in the Financial Statements. None of such policies will terminate as a result of the transactions contemplated by this Agreement.

     (b) The Shareholder has prepared and filed, or has caused BCH to prepare and file, with the applicable insurer within the applicable time limits all notices, claims and other documents required in order to allow BCH to seek and obtain payment from such insurer for damages, costs and expenses in an aggregate amount of not less than $1,300,000 with respect to the Drilling Rig which is identified as BCH-05 and which was damaged on July 8, 2008. Such insurer has paid to BCH a portion of such claim in the amount of $200,000. Neither the Shareholder nor any of the Companies has received any notice or other advice from such insurer that the balance of such claim in the amount of $1,100,000 has been denied or otherwise rejected by such insurer or that such insurer refuses to pay such claim to BCH in accordance with the applicable insurance policy.

2.16 Debt Obligations.

Except as set forth in Section 2.16 of the Disclosure Schedule, no Debt Obligations are owing by any of the Companies to the Shareholder or any Affiliates of the Shareholder.

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2.17 Compliance with Certain Laws.

     (a) The Companies are aware of applicable United States, Canadian, Brazilian and local laws, including anticorruption laws, the Foreign Corrupt Practices Act (the “FCPA”), export controls and economic sanctions laws, customs laws, and other trade-related laws. The Companies are currently in Material compliance with such applicable laws and none of their past acts or omissions would subject the Buyer or any of its Affiliates to any liability or loss. None of the Companies, nor any of their respective officers, directors, employees or agents has directly or indirectly through a third-party intermediary (i) paid, offered, given, promised to pay, or authorized the payment of any funds or other things of value (including any fee, gift, sample, travel expense, entertainment, service, equipment, loan, debt forgiveness, donation, grant or other payment or support in cash or in kind, however characterized) to any (A) Governmental Entity, (B) any Person acting for or on behalf of any Governmental Entity, (C) any candidate for political office, or (D) any agent or other Person engaging in any of the above-described activities at the suggestion, request, direction or for the benefit of any of the above-described Persons, or (ii) made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment or made any other payment of a similar or comparable nature, to any Person, regardless of the form, whether in money, property or services, to obtain favorable treatment in securing business or to obtain special concessions or to pay for favorable treatment for business secured or for special concessions already obtained.

     (b) To the Knowledge of the Shareholder, none of the Companies is currently under actual or threatened investigation, or being audited, by the United States, Canada, Brazil or other Governmental Entity. The Companies have disclosed to the Buyer all information, including internal and external memoranda and reports, on any investigation, audit, enforcement action, settlement, or review conducted of the Companies related to its compliance with United States, Canadian, Brazilian and local laws, including anticorruption laws, the FCPA, and laws related to export controls and economic sanctions, customs, anti-boycott, and other trade-related laws.

     (c) The Shareholder and the Companies have provided the Buyer with complete and accurate information about their import and export activities, anticorruption and anti-boycott compliance, including all policies and procedures, manuals, copies of export licenses, permits, and authorizations; and other materials related to their internal compliance programs and systems.

     (d) None of the Companies (or any Person acting on behalf of any of the Companies) has, directly or indirectly through a third-party intermediary, entered into contracts or other commitments that remain in effect, in part or in whole, as of the date of this Agreement and that contain provisions reflecting participation in or cooperation with the Arab League boycott of Israel.

     (e) Except as set forth in Section 2.17 of the Disclosure Schedule, none of the Companies are engaged in the sale, purchase, import, export, re-export or transfer of products or services, either directly or indirectly, to or from Cuba, Iran, Sudan, Syria, or North Korea (the “Certain Countries”) or are a party to, or have any interest in, any franchise, license or management agreement with any Person, either public or private, in the Certain Countries or are a party to any investment, deposit, loan, borrowing or credit arrangement or involved in any other financial dealings, with any Person, either public or private, in the Certain Countries.

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     (f) The Companies have at all times kept books and records that accurately reflect their transactions and assets, and the Companies have at all times maintained a system of internal accounting controls and policies and procedures that ensures that all expenditures are captured and accurately reflected on their books and records.

     (g) None of the Companies, nor, to the Knowledge of the Shareholder, any of their respective directors, officers, employees, auditors, accountants or representatives, has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of any of the Companies or their respective internal accounting controls, including any complaint, allegation, assertion or claim that any of the Companies has engaged in questionable accounting or auditing practices.

     (h) To the Knowledge of the Shareholder, during the last five years, all exports, reexports, sales, or transfers of products or services of the Companies have been effected in accordance with all applicable laws, including anti-corruption, customs, export control, trade sanctions, anti-terrorism, and anti-boycott laws of Canada or any other relevant jurisdiction. All products shipped by the Companies have been accurately marked, labeled, and transported in all material respects in accordance with Applicable Laws.

2.18 Sales into Canada.

Based on the Financial Statements, which include the latest available audited financial statements of the Companies, the total sales in or from Canada of the Companies and any Person that controls the Companies for the year ended June 30, 2008 were not more than C$50,000,000. Based on the Financial Statements, which include the latest available audited financial statements of the Companies, the total assets of the Companies in Canada at June 30, 2008, were not more than C$50,000,000.

2.19 Residency.

The Shareholder is not a non-resident of Canada within the meaning of the ITA.

2.20 GST Registration.

BCH is a GST registrant and has a subsisting GST registration number under the Excise Tax Act (Canada).

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer hereby represents and warrants to the Shareholder as follows:

3.1 Organizational Matters.

The Buyer is a corporation, validly existing and in good standing under the laws of Texas. The Buyer has all requisite power and authority to enter into this Agreement and to perform its obligations under this Agreement. This Agreement has been duly authorized, executed and

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delivered by the Buyer and is a legal, valid and binding obligation of the Buyer, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors’ rights generally and by legal and equitable limitations on the availability of specific remedies. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Buyer will not violate any provision of, or constitute a default under, any contract or other agreement to which the Buyer is a party or by which it is bound, or conflict with its organizational documents, other than violations, defaults or conflicts that would not Materially and adversely affect the ability of the Buyer to consummate the transactions provided for in this Agreement.

3.2 Finder’s Fees.

Neither the Buyer nor any Affiliate of the Buyer has employed or retained any investment banker, broker, agent, finder or other party, or incurred any obligation for brokerage fees, finder’s fees or commissions, with respect to the transactions contemplated by this Agreement, or otherwise dealt with anyone purporting to act in the capacity of a finder or broker with respect thereto whereby any Party may be obligated to pay such a fee or a commission.

ARTICLE 4
ADDITIONAL AGREEMENTS

4.1 Access to Information and Cooperation.

     (a) Until the Closing, the Shareholder will furnish, and will cause the Companies to furnish, to the Buyer and its employees, officers, accountants, attorneys, agents, investment bankers and other authorized representatives all financial, operating and other data and information concerning the assets, commitments and properties of the Companies as the Buyer shall from time to time reasonably request and the Shareholder will afford to the Buyer and its employees, officers, accountants, attorneys, agents, investment bankers and other authorized representatives reasonable access to the offices, properties, books, records, contracts and documents of the Companies and such Persons will be given a reasonable opportunity to ask questions of, and receive answers from, representatives of the Companies. As part of its investigation, the Buyer will have the right to conduct reasonable environmental assessments, including soil and groundwater sampling, as it deems appropriate. No investigations by the Buyer or its employees, representatives or agents shall reduce or otherwise affect the obligation or liability of the Shareholder with respect to any representations, warranties, covenants or agreements made herein or in any exhibit, schedule or other certificate, instrument, agreement or document, including the Disclosure Schedule, executed and delivered in connection with this Agreement. The Shareholder will reasonably cooperate with the Buyer and its employees, officers, accountants, attorneys, agents and other authorized representatives in the preparation of any documents or other materials that may be required by any Governmental Entity.

     (b) The Shareholder agrees to cooperate with the Buyer, and cause the Companies’ external accountants to assist the Buyer, in the preparation of any financial statements relating to the Companies that may be reasonably requested by the Buyer for filing with the United States Securities and Exchange Commission in connection with any filings that may be made by the Buyer

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or its Affiliates under the Securities Act or the Exchange Act. All costs with respect to the preparation of the foregoing financial statements shall be borne by the Buyer.

4.2 Conduct of the Business.

The Shareholder covenants and agrees with the Buyer that from and after the date of this Agreement until the Closing, except as expressly authorized by this Agreement or as expressly consented to in writing by the Buyer, the Shareholder shall, and shall cause each of the Companies to:

     (a) operate the Companies only in the usual, regular and ordinary manner with a view to maintaining the goodwill that the Companies now enjoy and, to the extent consistent with such operation, will use all reasonable efforts to preserve intact their present business organizations, keep available the services of their employees and preserve their relationship with their customers, suppliers, jobbers, distributors and other Persons having business relations with them;

     (b) use all reasonable efforts to maintain the assets and properties of the Companies in a state of repair, order and condition consistent with their usual practice;

     (c) maintain the books of account and records relating to the Companies in the usual, regular and ordinary manner, in accordance with the usual accounting practices of the Companies applied on a consistent basis and not increase the carrying value of any assets or properties above their historical costs;

     (d) comply in all Material respects with all statutes, laws, orders and regulations applicable to the Companies and to the conduct of the Companies;

     (e) not sell, assign, transfer, lease or otherwise dispose of any assets or properties of any of the Companies except for dispositions of the inventories of the Companies for value in the usual and ordinary course of business;

     (f) not move any of the Assets to a new geographic location other than in the usual and ordinary course of business;

     (g) preserve and maintain all rights that the Companies now enjoy in and to the Intellectual Property and not sell, assign, transfer, lease or otherwise dispose of any Intellectual Property;

     (h) not mortgage, pledge or otherwise create a security interest or permit there to be created or exist any Liens on the assets or properties of any of the Companies other than the Permitted Liens;

     (i) not incur any obligation for borrowed money or purchase money indebtedness whether or not evidenced by a note, bond, debenture or similar instrument, except in the ordinary course of business;

     (j) not enter into any contract, commitment or lease in relation to any of the Companies that is out of the ordinary course of the Companies or that is with an Affiliate of any of the Companies or that would be binding on the Buyer;

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     (k) not amend or modify any of the contracts or agreements disclosed in Section 2.6 of the Disclosure Schedule;

     (l) not consent to the termination of any of the contracts and agreements disclosed in Section 2.6 of the Disclosure Schedule or waive any of the rights of any of the Companies with respect thereto;

     (m) not permit any insurance policy naming the Shareholder or any of the Companies as a beneficiary or a loss payee relating to any of the Companies to be cancelled or terminated or any of the coverage thereunder to lapse unless simultaneously with such termination or cancellation replacement policies providing substantially the same coverage are in full force and effect and, further, not settle or permit any of the Companies to settle any claim under any such insurance policy in an amount in excess of $50,000;

     (n) pay all accounts payable in a manner consistent with past practice, all payments required by any of the contracts and agreements set forth in Section 2.6 of the Disclosure Schedule, and all Taxes other than Taxes that are being contested in good faith and for which adequate reserves exist in the Financial Statements and that would not result in a Lien being imposed on any assets or properties of any of the Companies;

     (o) not make any Tax elections that would affect any of the Companies or change any method of accounting or application of any principles under GAAP;

     (p) not change the terms of employment of any officer or senior employee or increase the compensation or rate of compensation or commissions or bonuses payable by any of the Companies to any of its employees that is not consistent with past practice;

     (q) not declare or pay any dividend on or make any other distribution in respect of any of the shares in the capital of any of the Companies or purchase, redeem or otherwise acquire any of such shares;

     (r) not authorize or issue, sell, pledge, dispose of or encumber any shares in the share capital of any of the Companies, including the Shares;

     (s) not grant any stock options or rights to acquire shares in the capital of the Companies including the Shares;

     (t) not amend or otherwise modify the organizational documents or Bylaws of any of the Companies;

     (u) not amend any Company Benefit Plan except as required by law or this Agreement; and

     (v) promptly notify the Buyer in writing if the Shareholder becomes aware of any change that shall have occurred or that shall have been threatened (or any development that shall have occurred or that shall have been threatened involving a prospective change) in any of the Companies

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that would reasonably be expected to have a Material Adverse Effect on any of the Companies whether or not occurring in the ordinary course of business.

4.3 Regulatory Approvals.

Each of the Parties shall promptly execute and file or join in the execution and filing of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any Governmental Entity which may be reasonably required, or which the other Party may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement. Each of the Parties shall use its commercially reasonable efforts to promptly obtain such authorizations, approvals and consents.

4.4 Exclusivity.

The Shareholder covenants and agrees that from the date of this Agreement until the Closing Date or the termination of this Agreement pursuant to Article 9 hereof, the Shareholder will not, directly or indirectly, through its Affiliates (including the Companies), its representatives or otherwise:

     (a) solicit, facilitate, initiate, entertain or encourage or take any action to solicit, facilitate, entertain or encourage any inquiry or communication or the making of any Acquisition Proposal; or

     (b) enter into or participate in any negotiations or initiate any discussions regarding an Acquisition Proposal, or furnish to any Person any information with respect to its business, properties, operations, prospects or conditions (financial or otherwise) in connection with an Acquisition Proposal or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt of any other Person to do or seek to do any of the foregoing.

During such period, the Shareholder will immediately notify the Buyer regarding any such contact between the Shareholder, any of its Affiliates (including the Companies) or any of its representatives and any Person regarding any Acquisition Proposal or any related inquiry and shall return without discussion all Acquisition Proposals.

4.5 Information.

During the period from the date of this Agreement to the Closing Date, the Parties will promptly inform each other in writing of any claim, action or any proceeding commenced against such Party with respect to the transactions contemplated by this Agreement or any assets or properties of any of the Companies.

4.6 Delivery of Documents.

The Shareholder shall deliver to the Buyer at or before the Closing all Documents and Other Papers relating to each of the Companies that are in the Possession or Control of the Companies or the Shareholder including, without limitation, all files relating to the Financial Statements, computer disks reflecting any books or records, documents or other papers, or other information or data relating to the operation of each of the Companies stored on any electronic media, including

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computers. For a reasonable time period after the Closing Date (which time period shall be determined by the Buyer in its discretion acting reasonably and having regard to the Buyer’s practices and procedures in effect at the relevant time with respect to retention of Documents and Other Papers), the Buyer agrees to provide the Shareholder with access to such Documents and Other Papers to the extent required for Tax, financial accounting or legal purposes on a reasonable basis during normal business hours and to permit copies to be made of such Documents and Other Papers as may be reasonably needed at the Shareholder’s expense. All such Documents and Other Papers shall be maintained by the Shareholder in confidence except to the extent required to be disclosed under law or in furtherance of any defense by the Shareholder or any Affiliate of the Shareholder to any action, suit or proceeding against the Shareholder or any Affiliate of the Shareholder; provided, however, the Buyer shall be advised of any such proposed disclosure in advance and be entitled to seek a limitation on the use of such information and scope of such disclosure.

4.7 Further Assurances.

The Shareholder shall execute, acknowledge and deliver or cause to be executed, acknowledged and delivered to the Buyer such transfer, assignments and other instruments of transfer, assignment and conveyance, in form and substance satisfactory to counsel for the Buyer, as shall be necessary to vest in the Buyer legal and beneficial title in and to the Shares free and clear of all Liens (other than the SB Pledge, those Liens created or suffered by the Buyer and other than restrictions on sales or transfers of securities under applicable securities laws) and shall use its reasonable best efforts to cause to be taken such other action as the Buyer reasonably may require to more effectively implement and carry into effect the transactions contemplated by this Agreement.

4.8 Nondisclosure of Proprietary Information.

     (a) The Shareholder agrees that, from and after the Closing, the Shareholder and its Affiliates shall hold in confidence and will not directly or indirectly at any time reveal, report, publish, disclose or transfer to any Person other than the Buyer any of the Proprietary Information that is not generally known to the public or utilize any of the Proprietary Information for any purpose.

     (b) The Shareholder acknowledges that all documents and objects containing or reflecting any Proprietary Information, whether developed by the Companies, or by another Person for the Companies or any of their Affiliates, will after the Closing Date be the property of the Companies and be delivered to the Companies.

     (c) Because of the unique nature of the Proprietary Information, the Shareholder agrees that the breach or anticipated breach of the obligations under this Section 4.8 will result in immediate and irreparable harm and injury to the Buyer and its Affiliates, for which it will not have an adequate remedy at law, and that the Buyer and its Affiliates and their successors and assigns shall be entitled to relief in equity to enjoin such breach or anticipated breach and to seek any and all other legal and equitable remedies to which they may be entitled.

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4.9 Use of Corporate Name.

The Shareholder agrees not to take any action that could reasonably be expected to adversely affect the Companies’ or their successors’ right to the names “BCH Ltd.” or “BCH Energy do Brasil Servicos de Petroleo Ltda.” or cause confusion with respect to the Companies’ or the Buyer’s use of such names. All goodwill with respect to the use of the names “BCH Ltd.” or “BCH Energy do Brasil Servicos de Petroleo Ltda.” will enure to the benefit of the Companies and the Buyer, and the Shareholder will not have any rights to sue or recover against any Person with respect to the use of such names.

4.10 Continuation of Business by the Buyer.

Nothing in this Agreement, in any Exhibit or Schedule hereto or in any agreement, instrument or other document executed or delivered in connection with this Agreement shall (a) require the Buyer to continue the business or operations of any of the Companies or the Buyer or to manage and operate the business conducted by any of the Companies or the Buyer with any duty or standard of care to the Shareholder, or (b) be deemed to constitute any fiduciary or special relationship between the Parties and each Party may take actions hereunder that are for its own self interest without any duty or, subject to the expressed terms of this Agreement, liability to the other Party. The Shareholder acknowledges and agrees that the Buyer in its sole discretion may continue, manage, modify or discontinue the operations of any of the Companies or the Buyer, liquidate or otherwise change or cease the operations of any of the Companies or the Buyer including, without limitation, amending the terms of employment applicable to any employees of any of the Companies so that such terms are consistent with terms of employment and practices applicable to employees of the Buyer and its Affiliates. The Shareholder further acknowledges and agrees that the Buyer may discontinue the use of the technology owned by, licensed to or otherwise utilized by any of the Companies or the Buyer at any time without any obligation or liability to the Shareholder.

4.11 Repayment of Obligations and Liabilities.

On or before the Closing Date:

     (a) the Shareholder shall repay or cause to be repaid all indebtedness and other obligations owing by the Shareholder or any of its Affiliates to the Companies or any of them including, without limitation, all rent and other payments payable under the Brazil Sublease up to and including the Closing Date but, for greater certainty, excluding the indebtedness in the sum of $2,086,266.64 which was payable by the Shareholder to BCH with respect to the concurrent cash capital contributions to be made by the Shareholder and the Buyer on or about September 30, 2008 in accordance with the OPGA and which will be deemed to have been forgiven by BCH as of the Closing Date;

     (b) the Shareholder shall pay, or cause to be paid, all of the Assumed Indebtedness Excess Amount (if any) and, in addition, the Shareholder shall deliver to the Buyer on the Closing Date evidence, in a form satisfactory to the Buyer acting reasonably, that all Liens (other than the Permitted Liens) registered or otherwise affecting the Assets or any of the Companies have been fully released and discharged; and

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     (c) the Shareholder shall be responsible and liable for the payment of all fees and expenses of any investment bankers, attorneys, accountants or other professionals retained by the Shareholder or the Companies or any of their Affiliates in connection with this Agreement and the transactions contemplated hereby.

4.12 Public Announcements and Disclosure.

     (a) Neither Party shall make any public statement or issue any press release concerning this Agreement or the transactions contemplated by this Agreement except as agreed by the Parties acting reasonably or as may be necessary, in the opinion of legal counsel to the Party making that disclosure, to comply with the requirements of Applicable Laws. If any public statement or release is so required, then the Party making the disclosure shall consult with the other Party before making that statement or release, and the Parties shall use all reasonable efforts, acting in good faith, to agree on a text for the statement or release that is satisfactory to the Parties. The Parties agree that, subject to this Section 4.12, either Party may make a public statement or issue a press release concerning this Agreement upon or following the execution of this Agreement.

     (b) Each Party agrees to hold in confidence all, and not to disclose to other Persons for any reason whatsoever any, non-public information received by it or its representatives from any other Party in connection with the transactions contemplated by this Agreement except: (i) as required by Applicable Laws; (ii) for disclosure to officers, directors, employees and representatives of such Party as necessary in connection with the transactions contemplated hereby; and (iii) for information that becomes publicly available other than through such Party. If the transactions contemplated by this Agreement are not consummated, each Party (i) will return to the other Party all non-public documents and other material obtained from such other Party, and all copies, summaries and extracts thereof, or certify to such other Party that such information has been destroyed and (ii) agrees not to use for its own benefit or for the benefit of any other Person any non-public information received by it or its representatives or Affiliates from the other Party in connection with the transactions contemplated by this Agreement.

4.13 Non-Solicitation.

The Shareholder covenants and agrees with the Buyer that, during the time period commencing on the date of this Agreement and concluding on the last day of the third year following the Closing Date, neither the Shareholder nor any of its Affiliates shall, directly or indirectly:

     (a) solicit or recruit or attempt to solicit or recruit any present or former employee or consultant of the Companies or encourage any such employees or consultants to terminate his, her or its employment or consulting arrangement with the Companies;

     (b) solicit or attempt to solicit any present or former customer, client or supplier of the business of the Companies to remove his, her or its business from, or reduce his, her or its business with, the Companies or otherwise solicit or gain the business of any such customer or supplier for the benefit of the Shareholder or any of it Affiliates; or

     (c) take any action that impairs or could reasonably be expected to impair the relations between the Companies and the customers, clients or suppliers of the business of the Companies or

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exploit for its own benefit or the benefit of other Persons, its knowledge, influence or relationships with any such customers or suppliers.

4.14 Compliance with Privacy Laws.

     (a) Prior to the Closing Date, neither of the Parties shall use the Disclosed Personal Information for any purposes other than those related to the performance of this Agreement and the completion of the transactions contemplated by this Agreement.

     (b) Each of the Parties acknowledges and confirms that the disclosure of Personal Information is necessary for the purposes of determining if the Parties shall proceed with the transactions contemplated by this Agreement and that the disclosure of Personal Information relates solely to the carrying on of the businesses of the Companies or the completion of the transactions contemplated by this Agreement.

     (c) The Buyer shall at all times keep strictly confidential all Disclosed Personal Information provided to it by the Shareholder or the Companies.

     (d) If the Closing does not occur, then the Buyer shall cease its use of the Disclosed Personal Information provided to it in connection with this Agreement and, at the Shareholder’s request, will return to the Shareholder or destroy in a secure manner, the Disclosed Personal Information.

4.15 Tax Returns.

All Tax Returns applicable to the fiscal year of the Companies ended June 30, 2007 and for the fiscal period ending on or immediately before the Closing Date shall be prepared by the Shareholder in accordance with previous fiscal years and provided to the Buyer for its review no later than 30 days prior to the filing deadline and the Buyer shall complete such review without unreasonable delay. As soon as such Tax Returns are in form and substance satisfactory to the Parties, the Shareholder shall file such Tax Returns with the appropriate federal, provincial and foreign authorities no later than the applicable due date.

4.16 Environmental Matters.

The Shareholder acknowledges and agrees that certain environmental site assessments (the “Initial Site Assessments”) may be conducted on behalf of the Buyer for the Companies’ facilities described in Section 2.4(b) of the Disclosure Schedule (the “Facilities”), and that within 90 days after the Closing, the Buyer or one of its Affiliates may have additional environmental site assessments conducted at the Facilities (the “Additional Site Assessments” and together with the Initial Site Assessments, the “Site Assessments”). The Buyer agrees to promptly provide the Shareholder with a copy of any Site Assessments. In the event that any corrective action, further testing, assessment, remediation, removal or cleanup is reasonably recommended in the Site Assessments (the “Corrective Actions”), the Buyer will provide the Shareholder with a copy of the Corrective Actions and the Buyer will implement and complete the Corrective Actions in a commercially reasonable manner. The Shareholder agrees to pay and be responsible for all reasonable costs, expenses and

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liabilities associated with the Corrective Actions and to reimburse the Buyer for any of such costs, expenses and liabilities that are paid or incurred by the Buyer.

4.17 Standard Bank.

The Buyer shall negotiate in good faith with Standard Bank with respect to the matters set out in Section 5.14 hereof and, from time to time, the Buyer shall provide to the Shareholder updates as to the status of such negotiations.

4.18 Repetro Regime Guarantee.

During the time period commencing on the Closing Date and concluding on the date of release and/or replacement of the Repetro Regime Guarantee:

     (a) the Shareholder shall allow the Buyer to receive the ongoing benefit of the Repetro Regime Guarantee;

     (b) as soon as is reasonably possible following the Closing, the Buyer shall replace the Repetro Regime Guarantee with a similar guarantee to be provided by an Affiliate of the Buyer or with any other type of guarantee acceptable by the Brazilian tax authorities;

     (c) the Buyer shall use its commercially reasonable efforts to obtain a release of the Repetro Regime Guarantee; and

     (d) the Buyer shall indemnify the Shareholder on behalf of BrazAlta Brazil in accordance with Section 7.2 hereof with respect to its obligations and liabilities which arise under the Repetro Regime Guarantee during such time period.

As soon as is reasonably possible following the date of release and/or replacement of the Repetro Regime Guarantee, the Buyer shall provide to the Shareholder evidence of such release and/or replacement.

4.19 Brazil Capital Leases.

From and after the Closing Date, the Shareholder shall pay all lease payments and other payments payable under the Brazil Capital Leases in accordance therewith and, upon making the final payment payable under the Brazil Capital Leases, the Shareholder shall sell and transfer, or cause to be sold and transferred to BCH Brazil, legal and beneficial title to the motor vehicles described in the Brazil Capital Leases, free and clear of all Liens, in consideration of the payment by the Buyer to the Shareholder of a purchase price equal to the depreciated book value of such motor vehicles as at the date of such sale and transfer.

4.20 Transferred Employees.

As of the Closing Date, BCH or BCH Brazil, as applicable, shall cease to employ the Transferred Employees. From and after the Closing Date, the Shareholder or its Affiliate, as applicable, shall employ the Transferred Employees and, to the extent that the Transferred Employees or any of them make a claim or otherwise seek payment of any severance pay or termination pay from the

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Companies or any of them by reason of such cessation of employment, the Shareholder shall indemnify the Companies and the Buyer and their Affiliates in accordance with Section 7.2 hereof with respect to any such severance pay or termination pay.

4.21 Brazil Sublease.

As soon as is reasonably possible following the Closing Date, the Shareholder shall deliver, or cause to be delivered to the Buyer confirmation, in form and substance satisfactory to the Buyer, that the Shareholder or its Affiliate, as applicable, has surrendered possession of the subleased premises described in the Brazil Sublease.

ARTICLE 5
BUYER’S CONDITIONS

The obligation of the Buyer to purchase the Shares as contemplated hereby is subject to the satisfaction on or before the Closing Date of the conditions set forth below, any of which may be waived by the Buyer in writing; provided, however, the Buyer’s election to proceed with the Closing shall not be deemed a waiver of any breach of any representation, warranty or covenant herein and such action shall not prejudice the Buyer’s right to recover Damages for any such breach.

5.1 Representations, Warranties and Covenants.

The representations and warranties of the Shareholder contained in this Agreement shall be true, correct and complete in all respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made or given on and as of such date; each and all of the agreements and covenants of the Shareholder to be performed or complied with by it on or before the Closing Date pursuant to this Agreement shall have been performed or complied with in all respects; and the Shareholder shall have delivered to the Buyer a certificate, dated the Closing Date, regarding the matters set forth in this Section 5.1.

5.2 Due Diligence.

The Buyer shall have completed its due diligence with respect to the Companies and the Assets and the Buyer shall be satisfied with the results of such due diligence including, without limitation, the ownership, condition and state of repair of the Drilling Rigs.

5.3 Good Standing.

The Shareholder shall have delivered to the Buyer certificates issued by appropriate Governmental Entities evidencing the status of the Companies, as of a date not more than five days prior to the Closing Date, in each jurisdiction specified in Section 2.1(a) of the Disclosure Schedule.

5.4 Certificates, Notes and Instruments of Transfer.

The Shareholder shall have delivered to the Buyer all share certificates representing the Shares and the Shareholder shall have executed, acknowledged and delivered to the Buyer such instruments of transfer of the Shares as shall be reasonably requested by the Buyer to vest in the Buyer legal and beneficial title in and to the Shares free and clear of all Liens (other than the SB Pledge, those Liens

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created or suffered by the Buyer and other than restrictions on sales or transfers of securities under applicable securities laws).

5.5 No Litigation.

No preliminary or permanent injunction or other order of any court or other Governmental Entity shall be in effect or threatened nor shall there be in effect any statute, rule, regulation or executive order promulgated or enacted by any Governmental Entity that, in any such case, prevents the consummation of the transactions contemplated by this Agreement. No suit, action, claim, proceeding or investigation before any Governmental Entity shall have been commenced or threatened by any Person (other than the Buyer or its Affiliates) seeking to prevent the sale of the Shares or asserting that the sale of all or a portion of the Shares would be unlawful.

5.6 No Material Adverse Event.

The business and properties of the Companies shall not be affected or threatened to be affected by any loss or damage, whether or not covered by insurance, except to the extent that the same would not have a Material Adverse Effect on the Companies.

5.7 Other Legal Matters.

All Exhibits, Schedules, certificates, documents and legal matters in connection with this Agreement and the transactions contemplated hereby shall be in substantially the forms required by this Agreement.

5.8 Licenses, Consents and Approvals.

All licenses, consents and approvals of Governmental Entities required for the Shareholder to consummate the transactions contemplated by this Agreement (including, without limitation, any consents or approvals described in Section 4.3 hereof) shall have been obtained. The Shareholder shall have delivered to the Buyer a copy of each of the licenses, consents, approvals and other authorizations from Governmental Entities necessary or appropriate for the Shareholder to consummate the transactions contemplated by this Agreement.

5.9 Consents of Third Persons.

All consents from third Persons necessary for the consummation of the transactions contemplated by this Agreement shall have been obtained on terms satisfactory to the Buyer and delivered to the Buyer including, without limitation, the consents of (a) Standard Bank, and (b) TSX Venture Exchange Inc.

5.10 Resignations.

The Buyer shall have received written resignations from all of the directors and officers of the Companies who are nominees of the Shareholder or who have identified by the Buyer as nominees of the Shareholder.

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5.11 Repayment of Obligations and Liabilities.

The Shareholder shall have provided to the Buyer evidence, in form and substance satisfactory to the Buyer, that the Shareholder has performed, or will perform, its obligations under Section 4.11 hereof.

5.12 Assumed Indebtedness Excess Amount.

The Shareholder shall have provided to the Buyer evidence, in form and substance satisfactory to the Buyer, of the assumption of the Assumed Indebtedness Excess Amount (if any) by the Shareholder effective as of the Effective Time.

5.13 Key Employees.

Each of the Key Employees shall have executed, or the Buyer shall be satisfied that the Key Employees will execute, or continue to be bound by, employment agreements with the Companies or the Buyer or a nominee designated by the Buyer and such employment agreements shall be in form and substance satisfactory to the Buyer and the Key Employees.

5.14 Standard Bank.

The Buyer shall have received from Standard Bank (a) an amended and restated SB Credit Agreement or a new credit agreement replacing the SB Credit Agreement executed by Standard Bank, (b) a release and discharge executed by Standard Bank whereby Standard Bank releases and discharges the SB Pledge, and (c) a release and discharge executed by Standard Bank whereby Standard Bank releases and discharges the Shareholder Guarantee and, in each case, the Buyer shall be satisfied with the form and content of such documents.

5.15 Legal Opinion.

The Buyer shall have received from the Shareholder an opinion executed by Davis LLP, legal counsel to the Shareholder, opining that, among other things (a) this Agreement and the transactions contemplated by this Agreement has been duly and validly authorized, executed and delivered by the Shareholder, and (b) this Agreement and the documents executed by the Shareholder in accordance with this Agreement constitute legal, valid and binding obligations of the Shareholder enforceable against the Shareholder in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors’ rights generally and by legal and equitable limitations on the availability of specific remedies.

5.16 Termination or Cancellation of Options, Warrants and Convertible Securities.

The Shareholder shall have delivered, or caused each applicable holder of options to deliver, to the Buyer evidence, in form and substance satisfactory to the Buyer, that, other than the SB Warrant, the AC Debenture and the OPGA, all outstanding options, warrants, convertible securities, calls, rights, commitments, pre-emptive rights, agreements, arrangements or understandings of any character (including, without limitation, the ESOP Options) obligating the Companies or any of

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them to issue, deliver or sell, or cause to be issued, delivered or sold, shares or securities in the capital of the Companies or any of them or any securities or obligations convertible into or exchangeable for such shares or securities have been cancelled without liability or obligation of the Companies, the Buyer or its Affiliates or any compensation payable by or on behalf of the Companies, the Buyer or its Affiliates.

5.17 OPGA Termination Agreement.

The Buyer shall have received from the Shareholder the OPGA Termination Agreement executed by the Shareholder and BCH.

5.18 Mutual Releases.

The Buyer shall have received from the Shareholder the Mutual Release executed by the Shareholder and the Mutual Release executed by the Departing Nominees.

ARTICLE 6
SHAREHOLDER’S CONDITIONS

The obligation of the Shareholder to transfer the Shares as contemplated hereby is subject to the satisfaction on or before the Closing Date of the conditions set forth below, any of which may be waived by the Shareholder in writing; provided, however, the Shareholder’s election to proceed with the Closing shall not be deemed a waiver of any breach of any representation, warranty or covenant herein and such action shall not prejudice the Shareholder’s rights to recover Damages for any breach.

6.1 Representations, Warranties and Covenants.

The representations and warranties of the Buyer contained in this Agreement shall be true, correct and complete in all respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made or given on and as of such date; each and all of the agreements and covenants of the Buyer to be performed or complied with by it on or before the Closing Date pursuant to this Agreement shall have been performed or complied with in all respects; and the Buyer shall have delivered to the Shareholder a certificate signed by one of its duly authorized officers, dated the Closing Date, regarding the matters set forth in this Section 6.1.

6.2 Purchase Price

The Buyer shall have paid the Purchase Price in the manner described in Section 1.4 hereof.

6.3 Licenses, Consents and Approvals.

All licenses, consents and approvals of Governmental Entities required for the Buyer to consummate the transactions contemplated by this Agreement (including, without limitation, any consents or approvals described in Section 4.3 hereof) shall have been obtained. The Buyer shall have delivered to the Shareholder a copy of each of the licenses, consents, approvals and other authorizations from Governmental Entities necessary or appropriate for the Buyer to consummate the transactions contemplated by this Agreement.

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6.4 No Litigation.

No preliminary or permanent injunction or other order of any Governmental Entity shall be in effect or threatened nor shall there be any statute, rule, regulation or executive order promulgated or enacted by any Governmental Entity that, in any such case, prevents the consummation of the transactions contemplated by this Agreement. No suit, action, claim, proceeding or investigation before any court or other Governmental Entity shall have been commenced or threatened by any Person (other than the Shareholder or any of its Affiliates) seeking to prevent the sale of the Shares or asserting that the sale of all or a portion of the Shares would be unlawful.

6.5 Other Legal Matters.

All Exhibits, Schedules, certificates, documents and legal matters in connection with this Agreement and the transactions contemplated hereby shall be in substantially the forms required by this Agreement.

6.6 Standard Bank.

The Shareholder shall have received from Standard Bank the release and discharge described in Section 5.14(c) hereof.

6.7 Legal Opinion.

The Shareholder shall have received from the Buyer an opinion executed by Theodore F. Pound III, as U.S. legal counsel to the Buyer, opining that, among other things (a) this Agreement and the transactions contemplated by this Agreement has been duly and validly authorized, executed and delivered by the Buyer, and (b) this Agreement and the documents executed by the Buyer in accordance with this Agreement constitute legal, valid and binding obligations of the Buyer enforceable against the Buyer in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect that affect creditors’ rights generally and by legal and equitable limitations on the availability of specific remedies.

6.8 OPGA Termination Agreement.

The Shareholder shall have received from the Buyer the OPGA Termination Agreement executed by the Buyer.

6.9 Mutual Releases.

The Shareholder shall have received from the Buyer the Mutual Releases executed by the Buyer and the Companies.

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ARTICLE 7
INDEMNIFICATION

7.1 Indemnification by the Shareholder.

Except as otherwise limited by this Article 7 and Article 8 hereof, the Shareholder agrees to indemnify, defend and hold the Buyer, each of its Affiliates and each of their respective officers, directors, partners, employees, agents, shareholders and controlling Persons and their respective successors and assigns, harmless from and against and in respect of Damages actually suffered, incurred or realized by such party (collectively, “Buyer Losses”), arising out of or resulting from or relating to:

     (a) any misrepresentation or breach of representation or warranty made by the Shareholder in this Agreement or any misrepresentation or omission from any other agreement, certificate, exhibit or writing delivered to the Buyer pursuant to this Agreement, including the Disclosure Schedule;

     (b) any breach of a covenant or agreement in this Agreement by the Shareholder;

     (c) the Assumed Indebtedness Excess Amount (if any); and

     (d) any fees, commissions or expenses asserted by any Person on the basis of any act, statement, agreement or commitment alleged to have been made by the Shareholder, any of the Companies or any of their Affiliates with respect to any fee, commission or expense described in Section 2.14 hereof.

7.2 Indemnification by the Buyer.

Except as otherwise limited by this Article 7 and Article 8 hereof, the Buyer agrees to indemnify, defend and hold the Shareholder and its successors and assigns harmless from and against and in respect of Damages actually suffered, incurred or realized by such party (collectively, “Shareholder Losses”), arising out of or resulting from or relating to:

     (a) any misrepresentation, breach of warranty or breach of any covenant or agreement made or undertaken by the Buyer in this Agreement or any misrepresentation in or omission from any other agreement, certificate, exhibit or writing delivered to the Shareholder pursuant to this Agreement;

     (b) any breach of a covenant or agreement in this Agreement by the Buyer; and

     (c) any fees, commissions or expenses asserted by any Person on the basis of any act, statement, agreement or commitment alleged to have been made by the Buyer or its Affiliates with respect to any such fee, commission or expense described in Section 3.2 hereof.

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7.3 Procedure.

All claims for indemnification under this Article 7 shall be asserted and resolved as follows:

     (a) An Indemnitee shall promptly give the Indemnitor notice of any matter that an Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement, stating the amount of the Loss, if known, and method of computation thereof, all with reasonable particularity, and stating with particularity the nature of such matter. Failure to provide such notice shall not affect the right of the Indemnitee to indemnification except to the extent such failure shall have resulted in liability to the Indemnitor that could have been actually avoided had such notice been provided within such required time period.

     (b) The obligations and liabilities of an Indemnitor under this Article 7 with respect to Losses arising from claims of any third party that are subject to the indemnification provided for in this Article 7 (“Third Party Claims”) shall be governed by and contingent upon the following additional terms and conditions. If an Indemnitee shall receive notice of any Third Party Claim, then the Indemnitee shall give the Indemnitor prompt notice of such Third Party Claim and the Indemnitor may, at its option, assume and control the defense of such Third Party Claim at the Indemnitor’s expense and through counsel of the Indemnitor’s choice reasonably acceptable to the Indemnitee. In the event the Indemnitor assumes the defense against any such Third Party Claim as provided above, the Indemnitee shall have the right to participate at its own expense in the defense of such asserted liability, shall cooperate with the Indemnitor in such defense and will attempt to make available on a reasonable basis to the Indemnitor all witnesses, pertinent records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitor. In the event the Indemnitor does not elect to conduct the defense against any such Third Party Claim, the Indemnitor shall pay all reasonable costs and expenses of such defense as incurred and shall cooperate with the Indemnitee (and be entitled to participate) in such defense and attempt to make available to it on a reasonable basis all such witnesses, records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitee. Except for the settlement of a Third Party Claim that involves the payment of money only and for which the Indemnitee is totally indemnified by the Indemnitor, no Third Party Claim may be settled without the written consent of the Indemnitee, such consent not to be unreasonably withheld or delayed.

7.4 Indemnification Basket; Effect of Materiality Qualifiers.

Notwithstanding any other provisions set out in this Article 7:

     (a) Except for any Buyer Losses arising out of or resulting from or relating to a misrepresentation or breach of a representation of warranty set out in Sections 2.1, 2.2, 2.4, 2.13, 2.15 and 2.16 hereof, there shall be no indemnification by the Shareholders for Buyer Losses described in Section 7.1(a) hereof until such Buyer Losses exceed $100,000 in the aggregate (the “Shareholder Basket Amount”) and, once all such Buyer Losses exceed the Shareholder Basket Amount, the Shareholder shall be obligated to indemnify the Buyer for all of such Buyer Losses including, for greater certainty, Buyer Losses up to and in excess of the Shareholder Basket Amount. Any Buyer Losses arising out of or resulting from or relating to a misrepresentation or breach of a representation or warranty set out in Sections 2.1, 2.2, 2.4, 2.13, 2.15 and 2.16 hereof, and any Buyer

32

Losses described in Sections 7.1(b), (c) and (d) hereof shall not be subject to the Shareholder Basket Amount. The maximum liability of the Shareholder for Buyer Losses shall in no event exceed $5,000,000.

     (b) There shall be no indemnification by the Buyer for Shareholder Losses described in Section 7.2(a) hereof until such Shareholder Losses exceed $100,000 in aggregate (the “Buyer Basket Amount”) and, once all such Shareholder Losses exceed the Buyer Basket Amount, the Buyer shall be obligated to indemnify the Shareholder for all of such Shareholder Losses including, for greater certainty, Shareholder Losses up to and in excess of the Buyer Basket Amount The maximum liability of the Buyer for Shareholder Losses shall in no event exceed $5,000,000.

     (c) For purposes of determining the right of a Party to make a claim for indemnification for a breach of representation or warranty under Sections 7.1 and 7.2 hereof, all representations and warranties that have been made subject to a materiality or dollar qualification (including any Material Adverse Effect) shall be deemed to have been made without that qualification, it being understood and agreed that the thresholds provided for under Sections 7.4(a) and (b) hereof are intended to be the only materiality qualification for such matters for purposes of indemnification.

7.5 Waiver of Contribution.

The Shareholder hereby expressly acknowledges and agrees that the indemnity obligations under Section 7.1 hereof shall apply notwithstanding the matter subject to indemnification involves an act or omission by any of the Companies and that the Shareholder shall not seek or receive indemnification or contribution from any of the Companies with respect to such claim for indemnification.

7.6 Payment.

Payment of any amounts due pursuant to this Article 7 shall be made within 10 Business Days after notice is sent by the Indemnitee.

7.7 Failure to Pay Indemnification.

If and to the extent the Indemnitee shall make written demand upon the Indemnitor for indemnification pursuant to this Article 7 and the Indemnitor shall refuse or fail to pay in full within 10 Business Days of such written demand the amounts demanded and due pursuant hereto and in accordance herewith, then the Indemnitee may utilize any legal or equitable remedy to collect from the Indemnitor the amount of its Losses. Nothing contained herein is intended to limit or constrain the Indemnitee’s rights against the Indemnitor for indemnity, the remedies herein being cumulative and in addition to all other rights and remedies of the Indemnitee.

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ARTICLE 8
NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS,
REPRESENTATIONS, WARRANTIES AND AGREEMENTS

The representations and warranties of the Parties shall survive the Closing Date and shall remain in full force and effect for a period of two years following the Closing Date except that:

     (a) the representations and warranties set forth in Sections 2.1, 2.2, 2.4, 2.14, 3.1 and 3.4 hereof shall survive the Closing Date without limitation;

     (b) the representations and warranties set forth in Section 2.10 and 2.12 hereof shall survive until the 90^th day following the expiration of the time period during which the applicable plaintiff or claimant may commence legal proceedings or otherwise pursue a claim with respect to the matters set forth in Section 2.10 or 2.12 hereof, as the case may be; and

     (c) the representations and warranties set forth in Section 2.13 hereof shall survive until (i) with respect to Taxes assessed or payable in Canada, the 90^th day following the expiration of the time period during which the Minister of National Revenue may assess Taxes for the taxation year in question, as such time period may be extended by the Minister of National Revenue from time to time, and (ii) with respect to Taxes assessed or payable in a jurisdiction other than Canada, the 90^th day following the expiration of the time period during which the applicable official of the applicable Governmental Entity may assess Taxes for the taxation year in question, as such time period may be extended by such official from time to time;

(the period during which the representations and warranties shall survive being referred to herein with respect to such representations and warranties as the “Survival Period”), and shall be effective with respect to any inaccuracy therein or breach thereof (and a claim for indemnification under Article 7 hereof may be made thereon) if a written notice asserting the claim shall have been duly given in accordance with Article 7 hereof within the Survival Period with respect to such matter. Any claim for indemnification made during the Survival Period shall be valid and the representations and warranties relating thereto shall remain in effect for purposes of such indemnification notwithstanding such claim may not be resolved within the Survival Period. The agreements and covenants of the Parties shall survive the Closing Date. To the extent that the Survival Period exceeds a limitation period provided by the Limitations Act (Alberta), this Agreement shall be deemed to constitute an agreement within the meaning of Section 7 of the Limitations Acts (Alberta) expressly providing for the extension of a limitation period provided by the Limitations Act (Alberta). All representations, warranties, covenants and agreements made by the Parties shall not be affected by any investigation heretofore or hereafter made by and on behalf of any of them and shall not be deemed merged into any instruments or agreements delivered in connection with this Agreement or otherwise in connection with the transactions contemplated hereby.

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ARTICLE 9
TERMINATION

9.1 Termination.

The obligation of the Parties to close the transactions contemplated by this Agreement may be terminated by:

     (a) mutual agreement of the Parties;

     (b) the Buyer, if a Material default shall be made by the Shareholder in the observance or in the due and timely performance by any of the Shareholder of any agreements and covenants of the Shareholder herein contained, or if there shall have been a Material breach by the Shareholder of any of the warranties and representations of the Shareholder herein contained, and such default or breach has not been cured or has not been waived;

     (c) the Shareholder, if a Material default shall be made by the Buyer in the observance or in the due and timely performance by the Buyer of any agreements and covenants of the Buyer herein contained, or if there shall have been a Material breach by the Buyer of any of the warranties and representations of the Buyer herein contained, and such default or breach has not been cured or has not been waived; or

     (d) the Buyer or the Shareholder (provided the terminating party has not Materially breached any of its agreements, covenants or representations and warranties) if the Closing shall not have occurred on or before (i) December 31, 2008, in circumstance where the condition set out in Section 5.14 hereof was satisfied on or before December 31, 2008, or (ii) January 15, 2009 in circumstances where the condition set out in Section 5.14 hereof was not satisfied on or before December 31, 2008.

9.2 Liability Upon Termination.

If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 9.1 hereof, then this Agreement shall forthwith become void and there shall not be any liability or obligation with respect to the terminated provisions of this Agreement on the part of the Shareholder or the Buyer except and to the extent such termination results from the willful breach by a Party of any of its representations, warranties or agreements hereunder. The termination of this Agreement shall not relieve any Party of its obligations under this Section 9.2.

9.3 Notice of Termination.

The Parties may exercise their respective rights of termination under this Article 9 only by delivering written notice to that effect to the other Party or Parties, and such notice is received on or before the Closing Date.

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ARTICLE 10
DEFINITIONS OF CERTAIN TERMS

10.1 Definitions.

In addition to terms defined elsewhere in this Agreement, the following terms shall have the meanings assigned to them herein, unless the context otherwise indicates, both for purposes of this Agreement and all Exhibits hereto and the Disclosure Schedule:

     (a) “AC Debenture” shall mean the $40,000,000 convertible subordinated secured debenture dated as of January 31, 2008, executed by BCH in favour of the Buyer.

     (b) “Acquisition Proposal” shall mean any form of agreement, arrangement or understanding or any inquiry or communication or the making of any proposal or offer to any of the Companies, any of its shareholders or any of its representatives from any Person which constitutes, or may reasonably be expected to lead to (in either case whether in one transaction or a series of transactions) (i) an acquisition from any of the Companies or its shareholders of any of its shares or securities, (ii) any acquisition of a significant portion of the assets of any of the Companies, (iii) an amalgamation, plan of arrangement, arrangement, merger or consolidation involving any of the Companies, (iv) any take-over bid, issuer bid, exchange offer or similar transaction, (v) any recapitalization, liquidation, dissolution, reorganization or similar transaction involving any of the Companies, or (vi) any other transaction, the consummation of which would or could reasonably be expected to impede, interfere with, prevent or delay the transactions contemplated by this Agreement or which would or could reasonably be expected to materially reduce the benefits of the transactions contemplated by this Agreement to the Buyer.

     (c) “Affiliate” shall mean, with respect to any specified Person, any officer, director, partner, shareholder or any other Person that directly or indirectly controls, is controlled by or is under common control with such specified Person.

     (d) “Agreement” shall mean this Share Purchase Agreement made between the Parties, as amended from time to time by the Parties.

     (e) “Applicable Laws” shall mean, in relation to any Person, transaction or event, all applicable provisions of laws, statutes, rules, regulations, official directives and orders of and the terms of all judgments, orders and decrees issued by any Governmental Entity by which such Person is bound or having application to the transaction or event in question.

     (f) “Assets” shall mean all of the assets and properties of the Companies disclosed in the Financial Statements other than Inventory sold for value in the usual and ordinary course of business.

     (g) “Assumed Indebtedness” shall mean the following indebtedness of the Companies: (i) trade accounts payable as at the Closing Date, (ii) fiscal liabilities payable in respect of the time period ending on the Closing Date, (iii) GST payables payable in respect of the time period ending on the Closing Date, (iv) future income taxes accrued with respect to the time period ending on the Closing Date, (v) accrued wages, holiday pay or vacation pay payable in respect of the time period

36

ending on the Closing Date, (vi) indebtedness owing to Standard Bank under the SB Credit Agreement as at the Closing Date, (vii) indebtedness (if any) owing with respect to foreign exchange financial derivatives outstanding as at the Closing Date, (viii) indebtedness owing by BCH to the Buyer pursuant to the AC Debenture, (ix) indebtedness owing by BCH Brazil to HSBC Banco de Brasil pursuant to the Capital Leases, and (x) indebtedness owing by BCH Brazil to HSBC Banco de Brasil and guaranteed by BCH pursuant to the BCH Guarantee.

     (h) “Assumed Indebtedness Excess Amount” shall mean the amount, if any, by which the aggregate outstanding balance of the Assumed Indebtedness as at the Closing Date exceeds the Assumed Indebtedness Maximum Amount.

     (i) “Assumed Indebtedness Maximum Amount” shall mean the sum of $71,900,000, being the maximum aggregate outstanding balance of the Assumed Indebtedness as at the Closing Date, the calculation of such sum being set out in Exhibit D hereto.

     (j) “BCH Brazil” shall mean BCH Energy do Brasil Servicos de Petroleo Ltda.

     (k) “BCH Guarantee” shall mean the guarantee dated January 23, 2008 executed by BCH in favour of HSBC Banco de Brasil with respect to the indebtedness owing by BCH Brazil to HSBC Banco de Brasil.

     (l) “BrazAlta Brazil” shall mean BrazAlta Brasil Norte Comercializacao de Petroleo Ltda.

     (m) “Brazil Capital Leases” shall mean those of the Capital Leases which name BrazAlta Brazil as lessee and which pertain to certain motor vehicles used by BCH Brazil.

     (n) “Brazil Sublease” shall mean the verbal sublease pursuant to which BrazAlta Brazil sublets a portion of the office space in Rio de Janeiro, Brazil under the applicable lease agreement described in section 2.4(d) of the Disclosure Schedule.

     (o) “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in Edmonton, Alberta are authorized by law to close.

     (p) “Buyer” shall mean Allis-Chalmers Energy Inc.

     (q) “C$” shall mean Canadian dollars.

     (r) “Capital Leases” shall mean the motor vehicle leases applicable to the Companies or any of them and described in Exhibit A hereto.

     (s) “Closing” shall mean the transfer of the Shares by the Shareholder to the Buyer and the delivery of the Purchase Price by the Buyer to the Shareholder in the manner described in Section 1.4 hereof.

     (t) “Companies” shall mean BCH and BCH Brazil, and “Company” shall mean either of them.

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     (u) “Company Benefit Plan” shall mean (i) any employee welfare benefit plan or employee pension benefit plan including, but not limited to, a plan that provides retirement income or results in deferrals of income by employees for periods extending to their terminations of employment or beyond, and a plan that provides medical, surgical, or hospital care benefits or benefits in the event of sickness, accident, disability, death or unemployment, and (ii) any other employee benefit agreement or arrangement including, without limitation, any deferred compensation plan, incentive plan, bonus plan or arrangement, stock option plan, stock purchase plan, stock award plan, golden parachute agreement, severance pay plan, dependent care plan, cafeteria plan, employee assistance program, scholarship program, employment contract, retention incentive agreement, non-competition agreement, consulting agreement, confidentiality agreement, vacation policy, or other similar plan or agreement or arrangement that has been sponsored, maintained or adopted by any of the Companies, or has been approved by any of the Companies before the date of this Agreement but is not yet effective, for the benefit of directors, officers, employees or former employees (or their beneficiaries ) of any of the Companies, or with respect to which any of the Companies may have any liability.

     (v) “Damages” shall mean any and all liabilities, losses, damages, demands, assessments, claims, costs and expenses (including interest, awards, judgments, penalties, settlements, fines, costs of remediation, costs and expenses incurred in connection with investigating and defending any claims or causes of action (including, without limitation, legal fees and expenses calculated on a solicitor and his own client basis and all fees and expenses of consultants and other professionals)). For the avoidance of doubt, “Damages” (i) shall not include diminution in value, special damages, loss of profit or consequential damages, and (ii) shall include compound interest at the prime rate of Royal Bank of Canada plus 2% per annum from the date of the relevant loss until the date payment for such losses is made or otherwise satisfied.

     (w) “Debt Obligations” shall mean any contract, agreement, indenture, note or other instrument relating to the borrowing of money, any capitalized lease obligation, any obligation properly classified as indebtedness or debt under GAAP, any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person (other than the endorsement of negotiable instruments for deposit or collection in the ordinary course of business) and any and all fees, costs or expenses incurred in connection with the repayment, termination or acceleration any of the forgoing.

     (x) “Departing Nominees” shall mean David Mears, Lyle Dunkley, Louis MacEachern, Craig Nieboer, Luiz Azevedo and Brendan Nelson, being the nominees of the Shareholder who are or were directors or officers of the Companies or who have been identified by the Buyer as nominees of the Shareholder.

     (y) “Disclosed Personal Information” shall mean any Personal Information disclosed to the Buyer pursuant to this Agreement.

     (z) “Disclosure Schedule” shall mean the disclosure schedule of even date delivered to the Buyer by the Shareholder.

     (aa) “Documents and Other Papers” shall mean and include any document, agreement, instrument, certificate, writing, notice, consent, affidavit, letter, telegram, telex, statement, file,

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computer disk, microfiche or other document in electronic format, schedule, exhibit or any other paper or record whatsoever.

     (bb) “Drilling Rigs” shall mean, collectively, the drilling rigs, the service rigs and the related equipment and assets described in Exhibit B hereto.

     (cc) “Environmental Laws” shall mean all national, federal, state, provincial, municipal or local laws, rules, regulations, statutes, ordinances or orders of any Governmental Entity relating to (i) the control of any potential pollutant or protection of the air, water or land, (ii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation and (iii) the regulation of or exposure to hazardous, toxic or other substances alleged to be harmful. The term “Environmental Laws” shall also include all federal, state, provincial, local and municipal laws, rules, regulations, statutes, ordinances and orders dealing with the same subject matter or promulgated by any governmental or quasi-governmental agency thereunder or to carry out the purposes of any federal, state, provincial, local and municipal law and shall also include any and all guidelines published or recommended from time to time by entities or organizations such as the Canadian Council of Ministers of Environment and Alberta Environmental Protection.

     (dd) “Environmental Permit” shall mean any permit, license, approval, registration, identification number or other authorization with respect to the Companies under any Environmental Law.

     (ee) “Equipment” shall mean all machinery, motor vehicles, transportation equipment, tools, equipment, furniture, furnishings and fixtures owned, leased or subject to a contract of purchase and sale, or lease commitment that is used in the business of the Companies including, without limitation, the Drilling Rigs.

     (ff) “ESOP” shall mean the employee share option plan of BCH dated January 1, 2008, pursuant to which up to 10% of the issued and outstanding common shares in the capital of BCH, on a non-diluted basis, may be reserved for acquisition by the directors, officers, employees, consultants and other personnel of BCH or a Subsidiary of BCH upon the exercise of options granted by BCH to such Persons and pursuant to which 800,000 common shares have been reserved as at the date hereof.

     (gg) “ESOP Options” shall mean the options to purchase 800,000 common shares in the capital of BCH outstanding under the ESOP as at the date hereof.

     (hh) “Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended.

     (ii) “GAAP” shall mean Canadian generally accepted accounting principles applied on a consistent basis.

     (jj) “Good Working Order” shall mean, with respect to any Equipment, that the Equipment is undamaged, useable, in good repair, and fit for its intended purpose, except for normal wear in the normal course of business.

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     (kk) “Governmental Entity” shall mean any federal, national, state, provincial or local government or any subdivision thereof or any arbitrator, court, administrative or regulatory agency, commission, department, board or bureau or body or other government or authority or instrumentality or any officer or employee of any agency, instrumentality, subdivision or other body of any federal, regional, or municipal government, any commercial or similar entities that the government controls or owns, including any state-owned and state-operated companies or enterprises, any international organizations such as the United Nations or the World Bank, or any political party.

     (ll) “Hazardous Materials” shall mean (i) any substance or material that is listed, defined or otherwise designated as a hazardous substance under any Environmental Law, (ii) any petroleum or petroleum products, (iii) radioactive materials, urea formaldehyde, asbestos and PCBs, and (iv) any other chemical, substance or waste that is regulated by any Governmental Entity under any Environmental Law including, without limitation, guidelines published or recommended from time to time by entities or organizations such as the Canadian Council of Ministers of Environment and Alberta Environmental Protection.

     (mm) “Indemnitee” shall mean the Person or Persons indemnified, or entitled or claiming to be entitled to be indemnified, pursuant to the provisions of Section 7.1 or Section 7.2 hereof, as the case may be.

     (nn) “Indemnitor” shall mean the Person or Persons having the obligation to indemnify pursuant to the provisions of Section 7.1 or Section 7.2 hereof, as the case may be.

     (oo) “Intellectual Property” shall mean (i) inventions, whether or not patentable, reduced to practice or made the subject of one or more pending patent applications, (ii) national and multinational statutory invention registrations, patents and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and re-examinations thereof) registered or applied for in Canada, the United States or Brazil and all other nations throughout the world, all improvements to the inventions disclosed in each such registration, patent or patent application, (iii) trademarks, service marks, trade dress, logos, domain names, trade names and corporate names (whether or not registered) in Canada, the United States or Brazil and all other nations throughout the world, including all variations, derivations, combinations, registrations and applications for registration of the foregoing and all goodwill associated therewith, (iv) copyrights (whether or not registered) and registrations and applications for registration thereof in Canada, the United States or Brazil and all other nations throughout the world, including all derivative works, moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or hereafter provided by law, regardless of the medium of fixation or means of expression, (v) all Software, (including source code, object code, firmware, operating systems and specifications), (vi) trade secrets and, whether or not confidential, business information (including pricing and cost information, business and marketing plans and customer and supplier lists) and know-how (including manufacturing and production processes and techniques and research and development information), (vii) industrial designs (whether or not registered), (viii) databases and data collections, (ix) copies and tangible embodiments of any of the foregoing, in whatever form or medium, (x) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, (xi) all rights in all of the foregoing provided by treaties, conventions and common law,

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and (xii) all rights to sue or recover and retain Damages and costs and reasonable legal fees and costs (calculated on a solicitor and client basis) for past, present and future infringement or misappropriation of any of the foregoing.

     (pp) “Inventory” shall mean all inventory, finished goods, tooling inventory, work in progress and raw materials relating to the business of the Companies, wherever situated.

     (qq) “ITA” shall mean the Income Tax Act (Canada), as amended or replaced from time to time.

     (rr) “Key Employees” shall mean Brendan Nelson, Luiz Azevedo and Renato Alves.

     (ss) “Knowledge” shall mean the actual knowledge of the Shareholder, David Mears, Craig Nieboer, the Key Employees and each of them provided that if the Shareholder, David Mears, Craig Nieboer, the Key Employees or any of them does not have actual knowledge, then “Knowledge” of such party shall include the constructive knowledge of such party based upon reasonable and diligent inquiries with respect to the matters at hand.

     (tt) “Leases” shall mean the real property lease agreements and the personal property lease agreements described in Section 2.4 of the Disclosure Schedule.

     (uu) “Lien” shall mean any lien, pledge, claim, charge, security interest or other encumbrance, option, defect or other rights of any third person of any nature whatsoever (including, without limitation, lessor ownership rights).

     (vv) “Losses” shall mean Shareholder Losses or Buyer Losses, as the case may be.

     (ww) “Material Adverse Effect” shall mean, with respect to any Person, any event, change or effect that is Materially adverse to the condition (financial or otherwise), assets, properties, or business of such Person and its Affiliates, taken as a whole, provided that a “Material Adverse Effect” shall not include any Material adverse effect resulting from changes in general economic conditions or conditions generally affecting the industries in which the Parties and the Companies operate including, without limitation, fluctuations in the prices of petroleum, natural gas and related hydrocarbons and fluctuations in the demand for such Person’s products and services that result from fluctuations in such prices.

     (xx) “Material” or “Materially” shall mean (i) when used in relation to a fact, circumstance, matter, obligation, change, event or non-compliance, that the existence, absence, occurrence or non-occurrence of such fact, circumstance, matter, obligation, change, event or non-compliance adversely affects the Assets or the rights, liabilities, financial condition, results of operation, cash flows, business operations or value of the business of the Companies taken as a whole by an amount in excess of $100,000, and (ii) when used in relation to a breach of this Agreement, that the breach will result in Losses in an amount in excess of $100,000.

     (yy) “Mutual Releases” shall mean, collectively, (i) the release to be executed by the Shareholder, the Buyer and the Companies, and (ii) the release to be executed by the Departing Nominees, the Buyer and the Companies whereby, in each case, subject to certain limitations, such

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parties release and discharge each other from certain indebtedness, liabilities and obligations, it being acknowledged that such releases shall be in the forms attached as Exhibit C hereto.

     (zz) “OPGA” shall mean the option to purchase and governance agreement dated as of January 31, 2008 executed by the Shareholder, BCH and the Buyer.

     (aaa) “OPGA Termination Agreement” shall mean the agreement pursuant to which the OPGA shall be terminated as of the Closing Date.

     (bbb) “Parties” shall mean, collectively, the Shareholder and the Buyer and “Party” shall mean either one of them.

     (ccc) “Permitted Liens” shall mean (i) statutory Liens for Taxes which are not yet due and payable; (ii) statutory Liens which can be (but have not yet been) filed by builders, mechanics, repairers or similar Persons in respect of services performed or goods provided in the ordinary course of business; (iii) minor title defects or irregularities consisting of minor survey exceptions, minor unregistered easements or rights-of-way, restrictions in the original grant from the Crown, restrictions implied by applicable law and other minor unregistered restrictions as to the use of property, which title defects, irregularities or restrictions do not, in the aggregate, Materially impair the operation of the business of the Companies or the continued use of the real property to which they relate after the Closing on substantially the same basis as such real property is currently being used and the business of the Companies as currently being operated; (iv) easements, covenants, rights-of-way and other restrictions which are registered, provided they do not, in the aggregate, Materially impair the operation of the business of the Companies or the continued use of the real property to which they relate after the Closing on substantially the same basis as the business of the Companies as currently being operated and such real property is currently being used; (v) registered agreements with municipalities provided that they have been complied with or adequate security has been furnished to secure compliance and provided that they do not, in the aggregate, Materially impair the operation of the business of the Companies or the continued use of the real property to which they relate after the Closing on substantially the same basis as the business of the Companies is being operated and such real property is currently being used, (vi) the Liens granted by the Companies in favour of Standard Bank in accordance with the SB Credit Agreement, and (vii) the Capital Leases (other than the Brazil Capital Leases).

     (ddd) “Person” shall mean a corporation, an association, a partnership, an organization, a business, an individual or a Governmental Entity.

     (eee) “Personal Information” shall mean information about an identifiable individual, but does not include an individual’s name, position name or title, business telephone number, business address, business e-mail address or business fax number.

     (fff) “Possession or Control” shall mean such possession or control as is customary in the oilfield services industry for items of drilling equipment that are on long or short term lease to Persons conducting oilfield drilling and servicing operations.

     (ggg) “Proprietary Information” shall mean collectively (i) Proprietary Rights and (ii) any and all other information and material proprietary to the Companies, owned, possessed or used by

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any of the Companies, whether or not such information is embodied in writing or other physical form, and which is not generally known to the public, that (A) relates to financial information regarding the Companies including, without limitation, (x) business plans and (y) sales, financing, pricing and marketing procedures or methods of any of the Companies or (B) relates to specific business matters concerning any of the Companies including, without limitation, the identity of or other information regarding sales personnel or customers of any of the Companies.

     (hhh) “Proprietary Rights” shall mean all rights to the names “BCH Ltd.” and “BCH Energy do Brasil Servicos de Petroleo Ltda.” and all patents, inventions, shop rights, know how, trade secrets, designs, drawings, art work, plans, prints, manuals, computer files, computer software, hard copy files, catalogues, specifications, confidentiality agreements, confidential information and other proprietary technology and similar information; all registered and unregistered trademarks, service marks, logos, names, trade names and all other trademark rights; all registered and unregistered copyrights; and all registrations for, and applications for registration of, any of the foregoing, that are used in the conduct of the business of the Companies.

     (iii) “Reference Date” shall mean October 1, 2008.

     (jjj) “Repetro Regime” shall mean the special customs regime which includes temporary admission, export and import customs tax regime for goods to be used in the research and production of oil and natural gas fields introduced by Brazilian Decree 4.543, dated December 23, 2002, as amended.

     (kkk) “Repetro Regime Guarantee” shall mean, collectively, the series of guarantees (“Termos de Responsabilidade”) executed before the Brazilian tax authorities by BrazAlta Brazil with respect to the Repetro Regime and on behalf of BCH Brazil.

     (lll) “SB Credit Agreement” shall mean the credit agreement dated as of June 26, 2007 made among BCH and BCH Brazil, as borrowers, the Shareholder, as parent and guarantor, the lenders named therein, as lenders, and Standard Bank, as administrative agent and arranger, as amended from time to time.

     (mmm) “SB Pledge” shall mean the pledge agreement dated as of June 26, 2007, executed by the Shareholder in favour of Standard Bank whereby the Shareholder pledged all of its shares and securities in the capital of BCH.

     (nnn) “SB Warrant” shall mean collectively (i) the warrant initially issued in the name of Standard Bank dated July 31, 2007, to acquire 250,000 common shares in the capital of BCH at an exercise price of $10 per common share, and (ii) any replacement warrant issued by BCH, whether a replacement in whole or in part.

     (ooo) “Securities Act” shall mean the United States Securities Act of 1933, as amended.

     (ppp) “Shareholder Guarantee” shall mean the guarantee dated as of June 26, 2007, executed by the Shareholder in favour of Standard Bank whereby the Shareholder guaranteed the payment and performance of the indebtedness, liabilities and obligations of BCH to Standard Bank.

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     (qqq) “Shares” shall mean the issued and outstanding shares in the share capital of BCH owned by the Shareholder, particulars of which are described in Section 1.1 of the Disclosure Schedule.

     (rrr) “Software” shall mean computer software and programs (both source code and object code form), all proprietary rights in the computer software and programs and all documentation and other materials related to the computer software and programs.

     (sss) “Standard Bank” shall mean Standard Bank plc, in its capacity as lender and agent of the senior lenders to BCH.

     (ttt) “Subsidiary” shall mean, as to a Person, any corporation, partnership, joint venture, association or other entity or organization in which such Person owns (directly or indirectly) any equity or other similar ownership interest.

     (uuu) “Taxes” shall mean all federal, state, provincial, local, foreign and other taxes, charges, fees, duties, levies, imposts, customs or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, GST, use, ad valorem, transfer, franchise, profits, profit share, license, lease, service, service use, value added, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, premium, property, windfall profits, or other taxes, fees, assessments, customs, duties, levies, imposts or charges of any kind whatsoever, together with any interest, penalties, additions to tax, fines or other additional amounts imposed thereon or related thereto, and the term “Tax” shall mean any one of the foregoing Taxes.

     (vvv) “Tax Returns” shall mean all returns, declarations, reports, statements and other documents of, relating to, or required to be filed in respect of, any and all Taxes.

     (www) “Transferred Employees” shall mean Kristy Philion, an employee of BCH, and Erica Figallo, an employee of BCH Brazil.

     (xxx)“United States” or “U.S.” shall mean the United States of America.

     (yyy)“$” shall mean United States dollars.

10.2 Additional Definitions.

The terms defined elsewhere in this Agreement are as follows:

Term or Definition	Location in Agreement
Additional Site Assessments	Section 4.16
BCH	Preamble
Buyer	Preamble
Buyer Basket Amount	Section 7.4

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Term or Definition	Location in Agreement
Buyer Losses	Section 7.1
Certain Countries	Section 2.17
Closing Date	Section 1.2
Corrective Actions	Section 4.16
Effective Time	Section 1.3
Facilities	Section 4.16
FCPA	Section 2.17
Financial Statements	Section 2.7
Initial Site Assessments	Section 4.16
ITCs	Section 2.13
Purchase Price	Section 1.4
Shareholder Basket Amount	Section 7.4
Shareholder Losses	Section 7.2
Shareholder	Preamble
Site Assessments	Section 4.16
Survival Period	Article 8
Third Party Claims	Section 7.3(b)

ARTICLE 11
MISCELLANEOUS

11.1 Expenses.

     Except as otherwise set forth herein, and whether or not the transactions contemplated by this Agreement shall be consummated, each Party agrees to pay, without right of reimbursement from any other Party, the costs incurred by such Party incident to the preparation and execution of this Agreement and performance of such Party’s obligations hereunder including, without limitation, the

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fees and disbursements of legal counsel, accountants and consultants employed by such Party in connection with the transactions contemplated by this Agreement.

11.2 Notices.

All notices, requests, consents, directions and other instruments and communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered in person, by courier, by overnight delivery service with proof of delivery or by prepaid registered or certified first-class mail, return receipt requested, addressed to the respective party at the address set forth below, or if sent by facsimile or other similar form of communication (with receipt confirmed) to the respective party at the facsimile number set forth below:

(a) If to the Shareholder, to:
      Brazalta Resources Corp.
      Suite 500, 816 — 7th Avenue SW
      Calgary, Alberta T2P 1A1
      Attention: Charle Gamba, Chief Executive Officer
      Facsimile: (403) 265-4160
      Confirm: (281) 210-8456

      Copies to:
      Davis llp
      Barristers and Solicitors
      Suite 1000, 250 — 2nd Street SW
      Calgary, Alberta T2P 0C1
      Attention: Trevor Wong-Chor
      Facsimile: (403) 296-4474
      Confirm: (403) 296-5333

(b) If to the Buyer, to:
      Allis-Chalmers Energy Inc.
      5075 Westheimer, Suite 890
      Houston, Texas, 77056
      Attention: Theodore F. Pound III
      Facsimile: (713) 369-0555
      Confirm: (713) 369-0550

      Copies to:
      Fraser Milner Casgrain llp
      2900, 10180 — 101 Street
      Edmonton, Alberta, T5J 3V5
      Attention: Richard Miller
      Facsimile: (780) 423-7276
      Confirm: (780) 423-7242

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or to such other address or facsimile number and to the attention of such other Person as either Party may designate by written notice. Any notice mailed shall be deemed to have been given and received on the third Business Day following the day of mailing.

11.3 Specific Performance.

It is specifically understood and agreed that any breach by a Party of the provisions of this Agreement is likely to result in irreparable harm to the other Party and that an action at law for Damages alone will be an inadequate remedy for such breach. Accordingly, in addition to any other remedy that may be available to it, in the event of breach or threatened breach by a Party of the provisions of this Agreement, the other Party shall be entitled to enforce the specific performance of this Agreement by the breaching Party and to seek both temporary and permanent injunctive relief (to the extent permitted by law), without the necessity of providing actual Damages, and such other relief as the court may allow.

11.4 Assignment and Successors.

Except as specifically contemplated by this Agreement, no Party shall assign this Agreement or any part hereof without the prior written consent of the other Party; provided, however, the Buyer may assign its rights and obligations in this Agreement to an Affiliate of the Buyer provided that the Buyer and its successors and assigns shall remain liable for any breach of this Agreement by such Affiliate. This Agreement shall inure to the benefit of, be binding upon and be enforceable by the Parties and their respective successors and assigns.

11.5 Entire Agreement.

This Agreement, the Exhibits hereto and the Disclosure Schedule constitute the entire agreement and understanding between the Parties relating to the subject matter hereof and thereof and supersede all prior representations, endorsements, premises, agreements, memoranda, communications, negotiations, discussions, understandings and arrangements, whether oral, written or inferred, between the Parties relating to the subject matter hereof. This Agreement may not be modified, amended, rescinded, cancelled, altered or supplemented, in whole or in part, except upon the execution and delivery of a written instrument executed by a duly authorized representative of each of the Parties.

11.6 Governing Law and Attornment.

This Agreement shall be governed by and construed and enforced in accordance with the laws of the Province of Alberta and federal laws of Canada applicable therein without giving effect to choice of law principles. The Parties agree to attorn to the jurisdiction of the courts of the Province of Alberta with respect to any disputes concerning the matters set out in this Agreement.

11.7 Waiver.

The waiver of any breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition.

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11.8 Severability.

Any provision hereof that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

11.9 No Third Party Beneficiaries.

Any agreement contained, expressed or implied in this Agreement shall be only for the benefit of the Parties and their respective legal representatives, successors and assigns, and such agreements shall not inure to the benefit of the obligees of any indebtedness of any Party, it being the intention of the Parties that no Person shall be deemed a third party beneficiary of this Agreement, except to the extent a third party is expressly given rights herein.

11.10 Counterparts.

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

11.11 Headings.

Each statement set forth in the Disclosure Schedule with respect to a particular section herein shall be deemed made solely with respect to such section and not with respect to any other section hereof unless specifically set forth in the Disclosure Schedule as also being made with respect to such other section. The headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or otherwise modify any of the terms or provisions hereof or affect in any way the meaning or interpretation of this Agreement.

11.12 Negotiated Transaction.

The provisions of this Agreement were negotiated by the Parties, and this Agreement shall be deemed to have been drafted by all of the Parties.

11.13 Acknowledgement of Legal Advice.

Each of the Parties has read and understands the representations and warranties it is making in this Agreement and has been advised by legal counsel of the meaning and effect of those representations and warranties.

11.14 Time of Essence.

Time shall be of the essence of this Agreement.

11.15 Currency.

Unless otherwise indicated in this Agreement, all dollar amounts in this Agreement are expressed in United States dollars.

48

     THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.

IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date first above written.

SHAREHOLDER: BRAZALTA RESOURCES CORP.
By:	/s/ Charle Gamba
Name:   Charle Gamba
Title:   President and CEO
BUYER: ALLIS-CHALMERS ENERGY INC.
By:	/s/ Theodore F. Pound III
	Theodore F. Pound III
	General Counsel and Secretary

EXHIBIT A

Capital Leases

The motor vehicle leases described by contract number below made between HSBC Bank Brasil S.A. — Banco Multiplo, as lessor, and BrazAlta Brasil Norte Commercializacao de Petroleo Ltda., as lessee, with respect to the motor vehicles described below:

Contract No.	Vehicle Make/Model	Year	VIN
18520227201	Mitsubishi — Pajero TR4	2007	93XLRH77W7C620183
18520227201	Mitsubishi — L200 Sport	2007	93XPRK7407C628238

EXHIBIT B

Drilling Rigs

See attached.

DRILLING RIG JR MACMILLAN (BCH-01)
Former: RIG-26

MANUFACTURER: KREMCO CANADA
MODEL: SUPERIOR 400 TRAILER MOUNTED RIG

DEPTH RATING

101.6 (mm), 4 (in.) drill pipe:	1500 (m), 4921 (ft)
DRAWWORKS
Make:	Superior
Model:	400
Drilling line:	25.4 (mm), 1 (in.) (EIPS)
Main brake:	Band
Auxiliary brake:	Parmac Hydromatic
Power:	Caterpillar 3412 (630 hp)
Drive:	Alison Torque Converter
Crown saver:	Hitec Cathead
MAST
Type:	Box telescope (free standing) (cable raise)
Height:	34.14 (m) 112 (ft)
Make:	Kremco
Gross nominal Capacity:	146,780, (daN), 330 000 (lbs)
Static hook load rating:	88,960 (daN), 200 000 (lbs)
Racking capacity (doubles):	153 x 101 mm, (4”)pipe (doubles)
SUBSTRUCTURE
Make:	Kremco
Type:	One piece box
Casing capacity:	88,960 (daN), 200 000 (lbs)
Set back capacity:	66,720 (daN), 150 000 (lbs)
TRAVELLING EQUIPMENT
Block (ton):	BJ 150
Hook (ton):	BJ Unimatic 150
Block and hook model:	BJ 6150
Swivel (ton):	National 200
Model:	P 200

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — sala 11/12	Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro — RJ	Catu, Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012
Fax: 21 — 2588-8116

ROTARY TABLE
Make:	National
Model:	C-175
Opening size:	444.5 (mm), 17-1/2 (in.)
Static load rating:	226,796 (kg), 250 (ton)
Drive:	Caterpillar 3406 (420 hp)
MUD PUMP NO. 1
Make:	BPMMP — Baoji, China (to Continental Emsco design)
Model:	F500
Type:	Triplex
Displacement:	0.5 — 2.2 (m3/min) (gpm)135-575 @ 165 SPM
Pressures:	9.2 — 26.3 (mPa), 1340 to 3820 (psi)
Charge pump:	Mission Magnum 5 in x 6 in centrifugal
Power:	Caterpillar 3412 (600 hp)
Transmission:	5-speed Allison 5960
MUD PUMP NO. 2
Make:	BPMMP — Baoji, China (to Continental Emsco design)
Model:	F500
Type:	Triplex
Displacement:	0.5 — 2.2 (m3/min), 135 — 575 (gpm) @ 165 spm
Pressures:	9.2 — 26.3 (mPa), 1340 to 3820 (psi) spm
Charge pump:	Demco 5 in x 4 in centrifugal
Power:	Caterpillar 3412 (600 hp)
Transmission:	5-speed Allison 5960
GENERATORS
Engines:	Caterpillar D3406 DIT
Number:	Three
Generators:	210 KW (2x) / 300 KW (1x) — 460/220 V 60 Hz
MUD SYSTEM
Tank volume:	64 (m3), 370 (bbl), (two tanks)
Shakers:	Sweco LM 3
Degasser:	Poorboy

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — sala 11/12	Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro — RJ	Catu, Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012
Fax: 21 — 2588-8116

BOP SYSTEM
BOP stack:	11 in Hydril GK 3M annular
	11 in Shaffer 3M double gate
Accumulator:	Hydril K8 454 (ltr), 120 (gal)
Choke manifold:	Oilmaster 3M
Adjustable choke:	Willis
Test pump:	Hydratron
INSTRUMENTATION
Drilling recorder:	3-pen Totco
Driller console:	Hitec Cathead mini console
Inclinometer:	Totco
Weight Indicator:	MD Totco
HANDLING EQUIPMENT
Winch:	Gearmatic hydraulic 2720 (kg), 3 (ton)
Manriding winch:	IR46RJ Pneumatic
Kelly spinner:	Foster hydraulic
Wireline winch:	Gearmatic
Hydraulic Power Tongs:	White Bear — 25,000 foot — pounds (3” — 5” in.)
FUEL TANK
Capacity:	21 800 (ltr), 5760 (gal)
WATER TANK
Capacity:	400 (ltr), 105 (gal)
BUILDINGS:
Change shack:	20 ft container (modified)
Doghouse a/c (large):	20 ft container
Trailers:	2x 40ft (offices, mess room)
	2x 20ft (living quarters)
Geologist Lab:	20 ft container
TUBULARS
Drill pipe:	300 ea — 101.6 (mm), 4” (in.) Grade E (H90 tool joints)
Drill collars:	20 ea — 171.5 (mm), 6-3/4” (in.) spiral
	20 ea — 120.6 (mm), 4-3/4” (in.)
	03 ea — 196.9 (mm), 7.3/4” (in.)
	07 ea — 171.5 (mm), 6.3/4"(in.)

Heavy Weight Drill pipe: 14 ea — 127 (mm) — 5” (in.)

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — sala 11/12	Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro — RJ	Catu, Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012
Fax: 21 — 2588-8116

DRILLING RIG BCH-02
BCH Energy Services

ITEM	DESCRIPTION
DRAWWORKS:	- IRI Cabot 2550
Horsepower Rating:	- 1200 H.P.
Maximum Hoisting Capacity:	- 337.5 T with 10 lines of 1-1/4”
Auxiliary Brake:	- Parmac V-80 Hydromatic
Crown Block Protection:	- Stewart — Stevenson
PRIME MOVER (DRAWWORKS):	- 2 Cat 3412 DITA
Output Horsepower rating:	- 600 H.P. each
Emergency Shut-down:	- Barber Type
(Pumps):	- 2 Cat D-399 TA
Output Horsepower:	- 1150 H.P. with Barber Type Shutdown
AIR COMPRESSORS:
Type:	- 1 — Quincy 350-21 (E) — Electric Powered
	- 1 — Quincy 350-22 (E) — Electric Powered
Automatic:	-Yes -1 — Primary / 1 — Backup
ROTARY TABLE:	- Gardner Denver RT 27-1/2
Maximum Table Opening:	- 700 mm
Maximum Static Load:	- (222,500 daN)
Torque Gauge:	- Totco
RPM Gauge:	- Totco
DERRICK:	- IRI Telescoping
Static Hook Load w/ Lines of:	- 322 T with 10 lines (318,000 daN)
Racking Capacity:	- 145 STD with 5”
Clear Working Height:	- 38.7m (127 feet)
Wind Capacity (Bare Mast):      Wind Capacity (Full Set-back):	- 106 MPH - - 80 MPH
SUBSTRUCTURE:	- IRI Telescoping
Casing Load:	- 460 Ton (409,400 daN)
Minimum Clear Working Height:	- 4.15m (13.8 ft)
Set Back Capacity:	- 162 Ton (360,000 lbs) (162,200 daN)
TRAVELLING EQUIPMENT:
Crown Block:	- IRI 6 — 42” Sheaves
Hook Block:	- Emsco 350 T / 5 Sheaves (311,500 daN)
Links:	- BJ 350 T / 96” (311,500 daN, 2743 mm)
Swivel:	- Emsco LB 400 (Static Ratio mg 800,000 lb)
	(356,000 daN)
TOP DRIVE:
Manufacturer:	- TESCO
Model:	- 250 HMIS
Capacity:	- 250 Tons
Specs:	- Hydraulic Power Pack (475 HP)

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — salas 11/12	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012	Tel.: 71 — 3641-9909
Fax: 21 — 2588-8116	Fax: 71 — 3641-9459

ITEM		DESCRIPTION
DRILLING LINE:
	Drilling Line Diameter:	- 31.5 mm (1-1/4”)
	Type:	- IWRC — IPS
	Strength Capacity:	- 71,000 daN (79.9T)
DEAD LINE ANCHOR:
	Weight Indicator:	- Martin Decker
	Hydraulic Sensor:	- Martin Decker
	Line Scale Weight Indicator	- Cameron C
HYDRAULIC WINCH:
	Type:	- Pull master PL8 (Hydraulic)
	Load:	- 7000 Lbs: 3115 daN
	No:	- Two
MUD PUMP:
	No/Make/Model/Type — Pumps:	- 2 — Gardner Denver PZ9 Triplex
	Power Rating:	- Pump- 750 kw (1000 H.P.) Each Engine Rating Caterpillar
		D-399c/w torque converter (1150 H.P.)
	Maximum Strokes / Minute:	- 120
	Maximum Working Pressure:	- Lesser of 80% of Liner Rating or Published Pressure
	Liner Size Available:	- 6”, 6-1/2”
	Suction Pulsation Dampener:	- No
	Discharge Pulsation Dampener:	- Continental Emsco 10 Gallon Lower Case
		5000 psi on each Pump
	Charge Pump (Centrifugal):	- Mission 5 x 6
MUD TANKS:
	Active Tank Volume:	- 180 m3 (1110 bbl)
	Premix Tank:	- 48 m3 (400 bbl)
	Trip Tank:	- 3.5 m3 (22 bbl)
	Agitators:	- 5 — Norgear Model 800SW- 20 H.P.
	Mud Guns:	- Low Pressure for each Compartment
	Desilter:	- Swaco 12- 4” Cones
	Degasser:	- Roll’n Atmospheric 20” (500 mm Dia.)
	Centrifuge Machine:	- Swaco Model 1828
	Shale Shakers:	- 3 — Swaco Linear
	Centrifugal Pumps:	- Mission Style
	Type:	- 6” x 8” and 2”x3”
	Capacity:	- Various as per application
	Number:	- Seven

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — salas 11/12	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012	Tel.: 71 — 3641-9909
Fax: 21 — 2588-8116	Fax: 71 — 3641-9459

ITEM		DESCRIPTION
LIGHT PLANTS:
	Generators Available, (Rating-KW)	- 2-CAT-3412 DITA 680 KW
	Lighting available for:	- Location Lighting and Wellsite Module
	Both for rig :	- For Rig and Wellsite Accommodation
	Voltage:	- 480 Volts w/ Transformer to 220v / 110v
TUBULARS:
	Drill Pipe:
		- 288 Joints of 5 inch 19.5 Ib per ft Grade S135 c/w 4 1/2 inch IF tool joints
		- 144 Joints of 5 inch 19.5 Ib. per ft Grade E c/w 4 1/2 inch IF tool joints
		- 360 Joints of 3 1/2 inch 13.3 Ib per ft. Grade G105 c/w 3 1/2 inch IF tool joints
		- 8- 5 inch pup Joints of assorted lengths c/w 4 1/2 inch IF tool joints
		- 15 Joints of 5 inch HEVI- WATE drill pipe c/w 4 1/2 inch IF connections
	Drill Collars:
		- 3- 9 inch Spiral drill collars with 7 5/8 REG connections
		- 9-8 inch Spiral drill collars with 6 5/8 inch REG connections
		-11-7 inch Spiral drill collars with 4 1/2 inch IF connections
		-12-6 1/2 inch Spiral drill collars with 4 1/2 inch IF connections
		-30 – 6 1/4 inch Spiral drill collars with 4 1/2 inch IF connections
		- 21- 4 3/4 inch Spiral drill collars with 3 1/2 inch IF Connections

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — salas 11/12	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012	Tel.: 71 — 3641-9909
Fax: 21 — 2588-8116	Fax: 71 — 3641-9459

ITEM	DESCRIPTION
BLOW OUT PREVENTION EQUIPMENT:
Annular Preventer:	- 1 -11 inch 5000 psi Hydril Annular Preventer
Ram Preventers:	- 1 -11inch 5000 psi Shaffer double Ram Preventer
	- 1 - 11 inch 5000 psi Shaffer single Ram Preventer:
Drilling Spool:	- 1- 11 inch 5000 psi drilling spool c/w 2- 4 1/16
	5000 psi outlets
Choke Manifold:	- 1 - 5000 psi choke manifold c/w one manual and one auto choke with console
Accumulator:	- Valvcon 130 Gallon 6 station

AUXILIARY TOOLS & INSTRUMENTS:
1. Automatic Drill Recorder	- Martin Decker 5 Pen
2. Single shot Drift Recorder	- Totco 7°
3. Wire-line Unit (Hydraulic):	- 0.092 Line Rated for4570m / (15,000 ft)
4. High Pressure Wash Gun (Pump):	- CAT w/ 3 H.P. Electric Motor
5. Sump Pump:	- FLYGT 4" (Electric)
6. Kelly Spinner:	- Foster 77 (Mckinney)
Kelly Bushing:	- Varco HDP Hex
7. Drill Pipe Spinner:	- Varco SSW 10
8. Rotary Hose:	- Goodall 55’ x 3’ ID x min 5000PSI Working Pressure
9. Kelly:	- 5-1/4” Hex — 40 ft long
Kelly Drive Bushing:	- Pin Drive
10. Fuel Tanks, One tank at rig	- 40,000 liter / Tank
11. Fuel Pumps:	- 2 — Electric Powered
12. Water Tanks, (Drilling Water Rig Storage):	- 1 Hydormatic Tank
	- 2-Water Storage Tanks
	- 1-Rig Water Tank
Water Pumps:	- 2 — 3” Jacuzzi (Electric Powered)
	- 2- 120 Barrel water transport tanks skid mounted
13. Hand Tools:	- Complete set for rig, mechanic and electrician
14. One (1) Derrick Bunk
15. One wellsite unit for Rig Manager

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — salas 11/12	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012	Tel.: 71 — 3641-9909
Fax: 21 — 2588-8116	Fax: 71 — 3641-9459

Suite 500, 816 -7th Ave SW Calgary, AB, Canada T2P 1A1

Schedule A

Rig Name & Number	Quintera #1
Depth Rating	1400 m with 102 mm drill pipe
KB to Ground	3.5 m
Bottom of table beam to ground	2.8 m
Approximate Loads	Rig — 9 loads, DP & DC — 1 load

Equipment

Drawworks	Make	Rostel 300
	Auxiliary Brake	Eaton 124 WCB
Rig Power & Distribution		Detroit Series 60
Mast	Make	Rostel Stiff Mast
	Height	20.4 m
	Maximum Hook Load	88,900 daN w/6 lines
	Certified	Dec. 2003
Substructure	Length	Hydraulic High Back
	Height	3 m
	Casing Capacity	66,700 daN setback
Crown Block	Make	Rostel
	Maximum Load	88,900 daN with 3 sheaves
	Certified	Yes
Travelling Block / Hook	Make	Ideco UTB 110
	Maximum Load	97,000 daN
	Certified	Jan. 2004
Swivel	Make	Oilwell PC-100
	Maximum Load	88,900 daN
	Certified	Nov. 2005

SchleAQntraJl1707

Equipment Cont’d

Drilling Line		Size		25 mm
Rotary Table		Make		Ideco 175
		Opening Size		444 mm
		Maximum Load		66,700 daN
Pump #1 F500		Input Power		Series 60 Detroit
		Max. Allowable
Operating Limits		SPM		Max. Allowable Operating Press
Linear Size	140 mm	165		14,000 kPa
	152 mm	165		12,000 kPa
Mud System		# of Tanks		1
		# of Compartments		4
		Total Active
		Volume		34 m3
		Trip Tank Volume		3.46 m3
		Pill Tank Volume		5.4 m3
		Pre-Mix Tank Volume		30 m3
		Transfer Pumps - Make		5 x 6 - 50 HP
		Desilter - Make		Swaco
		Cone Size		10 Cones
		Shaker - Make		Swaco ALS
		Screen Sizes Available		Up to 170 Mesh
Well Control System
Accumulator		Type		Valvcon 4 Station
		Capacity		80 Gal.
		Pressure		21,000 kPa
		Remote Control Stn. — # of functions		4
		Master Controls at Accumulator		Yes
Choke Manifold		Installed in Heated Enclosure		Yes
		Max. Working Pressure		21,000 kPa
		Gut Line	Size	76 mm #2
			Wing Lines	52 mm
		Manual Choke	Make	National
			Size	72 mm
		HCR Valve	Make	National
			Rating	21,000 kPa
		Lower Kelly Cock	Make	API
			Rating	21,000 kPa

SchleAQntraJl1707

Equipment Cont’d

	Stabbing Valve	Make		API
		Rating		21,000 kPa
Mud Gas Separator		Size		762 mm
		Height		2.14 m
	Inlet Line	Size		76 mm
		Outlet		152 mm
B.O.Ps	Annular	Make		Townsend
		Size		228 mm
		Rating		21,000 kPa
		Last
		Inspection		Mar. 2006
	Pipe Ram	Make		Townsend
		Size		228 mm
		Rating		21,000 kPa
		Last
		Inspection		Mar. 2006
	Blind Ram	Make		Townsend
		Size		228 mm
		Rating		21,000 kPa
		Last
		Inspection		Mar. 2006
Instrumentation
Weight Indicator		Make		Martin Decker
Crown-o-matic		Make		Control Drilling
Recorder		Make		Pason Electronic Drilling Recorder
Survey Instrument		Make		Totco
		Model		Degree 21
Drill Pipe				API Grade
		Length		150 joints
		Size		102 mm
		Classification		Premium
Drill Collars			O.D	14 — 121 mm (4 3/4)
		Length		128 m
			O.D.	6 — 159 mm (6 1/4)
Tankage		Fuel		11,000 ltrs
Light Plant				Series 60
		Type		Detroit

SchleAQntraJl1707

Equipment Cont’d

	Output	350 kw
	Voltage	480
Miscellaneous Equipment		Hydraulic Pipe Tub
Rig Managers Shack	Size	12’ x 12’
	Type	Alta-Fab
	Manufactured	Sept. 2004
	Serial #	041242F4770

SchleAQntraJl1707

Drilling Rig BCH-04 (IRI 750)
General Specification

ITEM	DESCRIPTION
MODEL:	IRI 750 TRAILER MOUNTED DRILLING RIG
DRAWWORKS:	IRI 750 model 2042/160 750 hp, 1 1/8” grooving, trailer mounted
MAST:	117’ 350,000# IRI double 10 line 365,000#
RIG MOTOR:	series 60 Detroit, model #6063HK33, 750 hp
TRANSMISSION:	Allison CTL-6061-4
AUXILIARY BRAKE:	Eaton 24” x 3” disc
SUBSTRUCTURE:	IRI hydraulic box scoping 350,000# set back, 22’
BLOCK:	Ideco 160 ton shorty
SWIVEL:	TSM 150
KELLY:	5 1/2” square
KELLY BUSHING:	Varco
ROTARY TABLE:	Ideco 20-1/2”
BAILS:	Joy 350 ton
MUD PUMP UNIT #1:	Gardner Denver PZ-8 stroke 8”, P/B Cat. 3508, (705 hp), in house.
MUD PUMP UNIT #2:	Gardner Denver PZ-8 stroke 8”, p/b cat. 3508, (705 hp), in house.
COMBINATION HOUSE:	Koomey 6 station 5 bottle w/30 hp union triplex pump, (1) generator marathon 350 kw, p/b Detroit series 60, (1) generator magnamax 200kw, p/b cat. 3306
BLOWOUT PREVENTION EQUIPMENT:	13 5/8” X 5000 Hydril Annular Preventer, 5/8” X 5000 Shaffer Double Ram Preventer.
CHOKE MANIFOLD:	5000 PSI Choke manifold c/w one manual and one auto choke complete with console. (located at end of catwalk).
Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — salas 11/12	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012
Fax: 21 — 2588-8116

ITEM	DESCRIPTION
MUD SYSTEM:	(2) tank 600 bbl. w/(2) shale shakers linear motion dfts, percharge and mixing pumps mission magnums, 8 x 6 w/12” impellers, (5) sew-eurodrive type RF87 c/w 5 hp motor and 1 1/8” shaft, (1) pill tank agitator sew-eurodrive type KF47 c/w 5 hp motor and 1 1/8” shaft, degasser
DOGHOUSE WATER TANK:	Drillers controls and brake handle in glass dome inside of doghouse cantilevers down
TOOL PUSHER HOUSE:	40” Office / Living quarters
MISC. TOOLS:	Foster Kelly spinner, auto driller, folley type “B” tongs, catwalk, katch kan recovery system for oil based drilling fluids. Pipe racks, 45 foot catwalk w/manifold.
TUBULARS:	- 250 Joints of 5” 19.5 S-135 Drill pipe c/w 4 1/2” IF connections
	- 15 Joints of 5” Hevi-Wate drill pipe c/w 4 1/2" IF connections
DRILL COLLARS:	- 20 x 6 1/2” Spiral drill collars
	- 4 x 8” Spiral drill collars

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 12° andar — salas 11/12	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 2588-8011 / 2588-8012
Fax: 21 — 2588-8116

Drilling Rig BCH-05E
General Specification

Substructure	Substructure Type: Single Box
	Manufacturer: Mastco
	Floor Height: 4.7 meters
	K.B. to Ground: 5.1 meters
	Clear Working Height: 4.11 meters
	Rotary Capacity: 166,800 daN
	Maximum Rated Pipe Setback: 133,500 daN
Mast	Mast Type: Telescoping double
	Manufacturer: Rigmaster
	Static Hook Load: 166,800 daN
	Number of Lines: 8 Lines
	Drill Line Size: 28.5mm (11/8 in.)
	Racking Capacity: 3200m x 127mm D.P.
Drawworks	Drawworks: Rig Master 750
	Drawworks Capacity: 180,000 daN w/ 8 Lines
	Rated Power kW (hp): 520kW (750hp)
	Drawworks Drive: GE-752 745KW
Mud Pumps	Mud Pump #1
	Manufacturer & Model: Gardner Denver PZ-9
	Rated Power: 745 kW (1000 hp)
	Stroke (mm): 228.6mm (9”)
	Mud Pump Drive: GE 752 745kW (1000hp)
	Mud Pump #2
	Manufacturer & Model: Gardner Denver PZ-9
	Rated Power: 745 kW (1000 hp)
	Stroke (mm): 228.6mm (9”)
	Mud Pump Drive: GE 752 745kW (1000hp)
Mud Tanks	Mud System
	Mud Tank Capacity: 105m3
	Number of Tanks: 2
	Trip Tank Capacity: 5.50 m3
	Precharge & Mix Pumps: 3 x HALCO Supreme 5x6 w/ 11” Impeller’s
	Agitators: 6 x Sew — Eurodrive Type RF87 c/w 7.5hp motors & 1 1/8” shaft
	Pill Tank Agitator: 1 x Sew — Eurodrive Type KF47 c/w 5hp motor & 1” shaft
	Degasser: 762mm Vessel w/ 76mm Inlet & 203mm Outlet
Shale Shakers	Shale Shaker: 2 x Swaco Mongoose
Generators	Generator Drive: 2 x 12V2000 Detroits
	Generator Size: 2 x Marathon 630 kW
	Generator Drive: 1x Series 60 14 litre
	Generator Size: 1 x Stanford
B.O.P	BOP Stack Diameter: 228.6mm
	BOP Pres. Rating: 21,000 kPa.
	EUB Class: Class 3 Nace Trim c/w One Shaffer Annular with two Shaffer
	single gates
Accumulator	Accum. Manufacturer: Control Tech 6 station
	Accum.Volume 654 litres 120 gallon
	Accum. Pump: 30hp Omni Triplex

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 8° andar — sala 804	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 3213-8050	Tel.: 71 — 3641-9909
Fax: 21 — 3213-8051	Tel.: 71 — 3641-9459

Drill Pipe	Drillpipe: 3500m x 23.35 kg/m, 101.6mm X-95 Premium D.P. w/ 31/2” Tough Torque Threads 355 jnts Drill Pipe / 25 jnts Hevi-wate Drill Pipe 31/2 IF Conn
Drill Collars	2 x 228mm D.C.’s w/ 6 5/8 “ Reg. Threads
	20 x 165mm D.C.’s w/ 4.5” XH Threads
Doghouse/Water/Fuel Comb.	Water Tank Capacity: 84 m3
	Fuel Tank: 25,000 Litres
Block	Block Model: 250T
	Block Capacity: 250 Ton
Top Drive	Top Drive Model: Tesco HMI
	Top Drive Capacity: 250 Ton

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 8° andar — sala 804	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 3213-8050	Tel.: 71 — 3641-9909
Fax: 21 — 3213-8051	Fax.: 71 — 3641-9459

Drilling Rig — BCH-06 (telescopic double)
General Specification

DEPTH RATING:	2800m with 4” in drill pipe
APPROXIMATE LOADS:	14 loads

ITEM	DESCRIPTION
DERRICK:
	Model JJ1351D 105’ telescopic double
	Effective height 31m
	Max hook load 1350 KN
	Hyd lift mechanical telescope
	Racking board height above floor 17.4m (57’)
	Set back capacity 4 1/2” DP (2800m) (9200’)
	+ 6 1/4 DC (20 jts)
	Crown block model TC 135C
	Rated 1350 KN (297,500 lbs.)
	5 x 760 mm (30”) 11/8” grooved sheaves
	Fold up racking board
	Easy rider assembly
	Escape buggy with deadline anchor weight
	Derrick will be Painted White with a Red Crown.
	Hydraulic Rams for Make up and Breakout.
	One crown mounted fall arrest
	One monkeyboard mounted fall arrest on slope line
	4” standpipe with Kelly hose and valves and fig 602 fittings
	2” casing standpipe with valve, fittings and hose
SUBSTRUCTURE:
	Model DZ 160/ 4.5
	Max set back 1350 kN (348,000 lbs)
	Floor height 4.5m (14.7’)
	Ground to bottom of rotary beam 3.52m ( 11.5
	Pipe bottom bird baths
	BOP hydraulic lift system
	BOP tie down
	Folding handrails on top area
	ZP175 17 1/2 Rotary table rated 1600 KN (352,640 lbs.)
BOPs:
	9” 3000 psi 21 mpa
	Annular FH23-21 9” 3000 (Annular Shaffer Element.)
	2-9” 3000 ram block c/w Pipe Rams and Blind Rams.
	FZ23-21
	9” 3000 x 9” 3000 working spool with 3” 3000 outlets
	HCR & Manual valves
	2-Kill line valves
	3 1/8 1-HCR Hydraulic, 1- Manual
	9 Valve Manifold c/w 2 Chokes.

Sede:	Escritório Brasil:
Suite 500, 816 — 7th Avenue SW	Av. Rio Branco, 01 — 8° andar — sala 804
Calgary, AB, Canada	Rio de Janeiro — RJ
T2P 1A1	20090-003
Tel.: +1(403) 539-9488	Tel.: 21 — 3213-8050
Fax +1(403) 265-4160	Fax: 21 — 3213-8051

ITEM	DESCRIPTION
DRAWWORKS:
	Model JC20 rated 550hp
	15 L Cummins 600hp engine
	Allison 6061 transmission
	JFD 130 right angle drive box
	Drum 450mm x 912mm (17.7“x36”) 11/8 “lebus grooved
	Circulating drum with closed loop glycol
	310mm x 1070mm (12“x42”) break hubs
	224 ETN auxiliary brakes with closed loop glycol system shared with circulating drum
	Rotary table brake
	50 hp electric two stage hydraulic system
	PTO hyd system
	3 T (6600lb) boom line winch on mud tank side
	5 T (11000lb) tugger winch on doghouse side Survey Winch
PIPE SYSTEM:
	Catwalk with manifold shack with two 3” lines and one 8” de-gasser lin
	YJG 21 21 mpa (3000 psi) rated choke manifold line
	V door installed on catwalk
	Folding pipe rack arms installed on shack side
	Three of forklift accessible pipetubs
	240 Jts. 4” FH X95 drill pipe hardbanded and internal coated
	15 Jts. 6 1/4 4 1/2 X H drill collars (zipped for slips and hardbanded on pin end) 20 each 4 1/2” HWDP

MUD TANKS:
	60m3 usable 5 compartments including trip tank, shaker tank, settling tank, suction tank and pil tank
		Sand trap
		4- 7.5 hp agitators in tank
		2 — 50 HP 5x6 Victory mud mixers (or 6 x 8)
		2 — Winch poles
		De-gasser unit
		Mixing hopper

PUMP HOUSE:

12’ 6” wide Building

F1000 mud pump

23 L Cummins with Icona clutch conventional mount with belt drive

Allison 6061 transmission

Electric 5 x 6 precharge or mechanical (please advise if electric or

mech preferred and if mechanical whether conventional belt driven or

R/A with polychain drive preferred)

Sede:	Escritório Brasil:
Suite 500, 816 — 7th Avenue SW	Av. Rio Branco, 01 — 8° andar — sala 804
Calgary, AB, Canada	Rio de Janeiro — RJ
T2P 1A1	20090-003
Tel.: +1(403) 539-9488	Tel.: 21 — 3213-8050
Fax +1(403) 265-4160	Fax: 21 — 3213-8051

ITEM	DESCRIPTION
LIGHT PLANT:
	2x 450 KW generators
	Powered by 15 L Cummins
	Louvered panels for both generators
	1 accumulator with air back up
	Plumbing for nitrogen ( nitrogen bottles not included)
	Koomey cord and remote (doghouse installed)
	Please advised if PLC needed approximately 30000.00 extra
	Tool room with work bench, storage shelves and storage cupboard
	Electric air compressor
	Change shack with 12 lockers and bench
	Electric heater in change shack
DOGHOUSE & WATER TANK:
	65m3 water storage
	Two water supply pumps
	18,000L fuel tank
	Two fuel pumps
	3 oil storage bins
	Doghouse with junk room
	Knowledge box
	Storage cupboards
	Winch trolley bar in junk room
TRAVELLING EQUIPMENT:
	Swivel SL135
	Hydraulic Kelly spinner
	Travelling blocks YG135C 1350 KN
	41/4 square Kelly bar/ c/w Drive Bushing or 3 1/2 bar and bushings
	Slips (Drill Pipe and Drill Collar)
	Elevators DH 150
	1000m spool 1 1/8 drill line
	108” x 250 Ton Bale Links
	Choke Hose, 2’ Kill Hose ,Shock Hose

Note:
Mast and sub will be Canadian certified as will all other overhead equipment.

Sede:	Escritório Brasil:
Suite 500, 816 — 7th Avenue SW	Av. Rio Branco, 01 — 8° andar — sala 804
Calgary, AB, Canada	Rio de Janeiro — RJ
T2P 1A1	20090-003
Tel.: +1(403) 539-9488	Tel.: 21 — 3213-8050
Fax +1(403) 265-4160	Fax: 21 — 3213-8051

WORKOVER RIG BCH-101

General Specification

MANUFACTURER: COOPER
MODEL: 500 — 5 AXLE — TRAILER MOUNTED

Rig

Pimco Derrick
60 series motor set at 475 HP
Sandline-About 9000 ft
6 line Sowa Blocks (150 Ton)
6ft Bails (Brand New)

Tubing Supplies

Carter tongs, open face (Backups included)
2 3/8, 2 7/8, 3 1/2 Heads for tongs
Cavins slips (New)
BJ, 2 3/8 elevators (New)
2 7/8 elevators, 2 7/8 sliptype elevators

Rod Supplies

BJ Rod tongs
3/4-7/8 Back ups
1” Back ups
3/4-7/8 rod transfer
2-3/4 7/8 rod elevators (obannon)
Cavins Rod Hook
Various rod subs
Toadstool
Rod Table
Raddgan Style Rod Table

Tools

Aluminum 36” Pipe wrenches (2x)
Steel 36” pipe wrenches (2x)
Aluminum 24” pipe wrenches (2x)
Steel 24” pipe wrenches (2x)
12” cresent wrenches (2x)
18” cresent wrenches
socket sets 1/2 inch (2x)
Bop plate
Misc wrenches, screw drivers, etc.
Various chains
Various fittings, swedges, and nipples

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 8° andar — sala 804	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 3213-8050	Tel.: 71 — 3641-9909
Fax: 21 — 3213-8051	Fax: 71 — 3641-9459

Swab Supplies

Lubricator and swab T.

Packoff head & Packoff pump (Dual Rubber)
All hardware needed to hookup swab

Other

Stand pipe attached to Derrick
50’ Kelly hose
Tulsa winch & Brand new winch line

Escritório Central:	Base de Operações:
Av. Rio Branco, 01 — 8° andar — sala 804	Rua dos Jasmins, 01 — Bairro Planalto II
Rio de Janeiro — RJ	Catu — Bahia
20090-003	48110-000
Tel.: 21 — 3213-8050	Tel.: 71 — 3641-9909
Fax: 21 — 3213-8051	Fax: 71 — 3641-9459

EXHIBIT C

Mutual Releases

See attached.

MUTUAL RELEASE FOR ALLIS-CHALMERS/DEPARTING NOMINEES

     WHEREAS pursuant to a share purchase agreement (the “Share Purchase Agreement”) dated as of December 19, 2008 and made between BrazAlta Resources Corp. and Allis-Chalmers Energy Inc. (“Allis-Chalmers”), it was agreed, among other things, that this mutual release would be executed as one of the closing documents required under the Share Purchase Agreement;

     AND WHEREAS, unless otherwise defined or provided in this mutual release, the defined terms used in this mutual release shall have the same meanings attributed to such defined terms in the Share Purchase Agreement;

     AND WHEREAS each of the parties hereto will benefit, directly or indirectly, from the completion of the transactions contemplated by the Share Purchase Agreement;

     NOW THEREFORE in consideration of the execution and performance of the Share Purchase Agreement, and in further consideration of the sum of $10, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and agree as follows:

1. In this mutual release, the following terms shall have the following meanings:

     (a) “Allis-Chalmers Parties” means, collectively, Allis-Chalmers and the Companies together with (i) the Subsidiaries and Affiliates of Allis-Chalmers, (ii) the directors, officers, shareholders, employees and representatives of Allis-Chalmers and the Companies, and (iii) the successors and assigns of each of them but, for greater certainty, excluding the Departing Nominees;

     (b) “Claims” means, collectively, any and all actions, causes of action, suits, proceedings, demands and claims for Damages of every nature whatsoever and whether based on or resulting or arising out of or from breach of contract, breach of duty, negligence (gross or ordinary), misconduct (wilful or unintentional), other legal theory or otherwise, or out of any cause, matter or thing whatsoever done or omitted to be done, and whether known or unknown as at the date hereof;

     (c) “Departing Nominees” means, collectively, David Mears, Lyle Dunkley, Louis MacEachern, Craig Nieboer, Luiz Azevedo and Brendan Nelson together with the successors and assigns of each of them;

     (d) “Excluded Claims” means, collectively, (i) any Claims by the Departing Nominees against the Companies or either of them arising out of or in connection with the failure of the Companies or either of them to indemnify the Departing Nominees in the manner described in section 1(e) hereof, and (ii) any Claims of entitlement by the Departing Nominees to any insurance maintained for the benefit or protection of the directors and officers of the Companies including, without limitation, directors’ and officers’ liability insurance;

- 2 -

     (e) “Excluded Obligations” means, collectively, any obligations of the Companies or either of them to indemnify the Departing Nominees or any of them by reason of the Departing Nominees or any of them being a director, officer, former director or former officer of the Companies or either of them but, for greater certainty, such obligations to indemnify shall be applicable only to the extent that the Departing Nominees (i) acted honestly and in good faith with a view to the best interests of the Companies, (ii) had reasonable grounds for believing that his or her conduct was lawful (in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty), and (iii) did not receive an improper personal benefit; and

     (f) “Obligations” means, collectively, any and all indebtedness, liabilities and obligations of every nature whatsoever and whether liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent, statutory or common law or otherwise and, for greater certainty, with respect to the Departing Nominees, such indebtedness, liabilities and obligations shall include severance pay, termination pay, performance bonuses, incentive payments, change of control payments and similar payments.

2. The Departing Nominees and each of them hereby release and forever discharge the Allis-Chalmers Parties and each of them from and against:

     (a) any and all Obligations of the Allis-Chalmers Parties or any of them to the Departing Nominees or any of them up to and including the Closing Date but, for greater certainty, such released and discharged Obligations shall not include any Excluded Obligations; and

     (b) any and all Claims that the Departing Nominees or any of them may have against the Allis-Chalmers Parties or any of them up to and including the Closing Date but, for greater certainty, such released and discharged Claims shall not include any Excluded Claims.

3. The Allis-Chalmers Parties and each of them hereby release and forever discharge the Departing Nominees and each of them from and against:

     (a) any and all Obligations of the Departing Nominees or any of them to the Allis-Chalmers Parties or any of them up to and including the Closing Date; and

     (b) any and all Claims that the Allis-Chalmers Parties or any of them may have against the Departing Nominees or any of them up to and including the Closing Date.

4. Each of the Departing Nominees represents and warrants to the Allis-Chalmers Parties that he has not previously assigned or transferred, or purported to assign or transfer, to any Person whatsoever all or any part of the Obligations or the Claims released and discharged by the Departing Nominees pursuant to this mutual release.

- 3 -

5. Each of the Allis-Chalmers Parties represents and warrants to the Departing Nominees that it has not previously assigned or transferred, or purported to assign or transfer, to any Person whatsoever all or any part of the Obligations or the Claims released and discharged by the Allis-Chalmers Parties pursuant to this mutual release.

6. Unless otherwise agreed to in writing, the Departing Nominees and the Allis-Chalmers Parties shall not make any claim or take any proceedings against any Person who claims or might be entitled to claim, pursuant to the provisions of the Tortfeasors Act (Alberta) or any other applicable statute of law or otherwise, contribution or indemnity from any of the Departing Nominees or any of the Allis-Chalmers Parties, as applicable, in respect of any of the Obligations or of the Claims which have been released pursuant to section 2 or section 3 hereof, as applicable.

7. Each of the Departing Nominees acknowledges and agrees that he has read and understands all of the provisions of this mutual release and that he has been represented by legal counsel of his own choosing in connection with the negotiation, execution and delivery of this mutual release.

8. Each of the Allis-Chalmers Parties acknowledges and agrees that it has read and understands all of the provisions of this mutual release and that it has been represented by legal counsel of its own choosing in connection with the negotiation, execution and delivery of this mutual release.

9. This mutual release shall be governed by the laws of the Province of Alberta.

10. This mutual release shall enure to the benefit of and be binding upon the Departing Nominees and the Allis-Chalmers Parties.

11. The Departing Nominees shall, at the request and expense of the Allis-Chalmers Parties, execute and deliver any further documents and do all acts and things that the Allis-Chalmers Parties may reasonably require to carry out the true intent and meaning of this mutual release.

12. The Allis-Chalmers Parties shall, at the request and expense of the Departing Nominees, execute and deliver any further documents and do all acts and things that the Departing Nominees may reasonably require to carry out the true intent and meaning of this mutual release.

13. This mutual release may not be amended except by an amending agreement or other document signed by the parties hereto.

14. This mutual release may be executed in several counterparts, each of which when so executed shall be deemed to be an original and shall have the same force and effect as an original but such counterparts together shall constitute but one and the same mutual release.

- 4 -

15. A fax copy or a pdf copy of an executed copy of this mutual release shall have the same force and effect as an originally executed copy of this mutual release.

16. This mutual release has been executed by the parties hereto as of the 31^st day of December, 2008.

ALLIS-CHALMERS ENERGY INC.

Per:

Name:

Title:

BCH LTD.

Per:

Name:

Title:

BCH ENERGY DO BRASIL SERVICOS
DE PETROLCO LTDA.

Per:

Name:

Title:

Witness	David Mears
Witness	Lyle Dunkley
Witness	Louis MacEachern

- 5 -

Witness	Craig Nieboer
Witness	Luiz Azevedo
Witness	Brendan Nelson

AFFIDAVIT OF EXECUTION

CANADA	)	I,
	)	of the City of
PROVINCE OF ALBERTA	)	in the                      of
	)	MAKE OATH AND SAY:
TO WIT:	)

1. THAT I was personally present and did see David Mears, who is personally known to me to be the person named therein, duly sign and execute the annexed instrument for the purpose named therein.

2. THAT the same was executed at the City of                     , in the                      of                      and that I am the subscribing witness thereto.

3. THAT I know the said David Mears and he is in my belief of the full age of eighteen years.

SWORN BEFORE ME at the City of	)
, in the	)
of                     ,	)
this                      day of December, 2008.	)
A NOTARY PUBLIC IN AND FOR
THE                      OF

AFFIDAVIT OF EXECUTION

CANADA	)	I,
	)	of the City of
PROVINCE OF ALBERTA	)	in the                      of
	)	MAKE OATH AND SAY:
TO WIT:	)

1. THAT I was personally present and did see Lyle Dunkley, who is personally known to me to be the person named therein, duly sign and execute the annexed instrument for the purpose named therein.

2. THAT the same was executed at the City of                     , in the                      of                      and that I am the subscribing witness thereto.

3. THAT I know the said Lyle Dunkley and he is in my belief of the full age of eighteen years.

SWORN BEFORE ME at the City of	)
, in the	)
of                     ,	)
this                      day of December, 2008.	)
A NOTARY PUBLIC IN AND FOR
THE                      OF

AFFIDAVIT OF EXECUTION

CANADA	)	I,
	)	of the City of
PROVINCE OF ALBERTA	)	in the                      of
	)	MAKE OATH AND SAY:
TO WIT:	)

1. THAT I was personally present and did see Louis MacEachern, who is personally known to me to be the person named therein, duly sign and execute the annexed instrument for the purpose named therein.

2. THAT the same was executed at the City of                     , in the                      of                      and that I am the subscribing witness thereto.

3. THAT I know the said Louis MacEachern and he is in my belief of the full age of eighteen years.

SWORN BEFORE ME at the City of	)
, in the	)
of                     ,	)
this                      day of December, 2008.	)
A NOTARY PUBLIC IN AND FOR
THE                      OF

AFFIDAVIT OF EXECUTION

CANADA	)	I,
	)	of the City of
PROVINCE OF ALBERTA	)	in the                      of
	)	MAKE OATH AND SAY:
TO WIT:	)

1. THAT I was personally present and did see Craig Nieboer, who is personally known to me to be the person named therein, duly sign and execute the annexed instrument for the purpose named therein.

2. THAT the same was executed at the City of                     , in the                      of                     and that I am the subscribing witness thereto.

3. THAT I know the said Craig Nieboer and he is in my belief of the full age of eighteen years.

SWORN BEFORE ME at the City of	)
, in the	)
of                     ,	)
this                      day of December, 2008.	)
A NOTARY PUBLIC IN AND FOR
THE                      OF

AFFIDAVIT OF EXECUTION

CANADA	)	I,
	)	of the City of
PROVINCE OF ALBERTA	)	in the                      of
	)	MAKE OATH AND SAY:
TO WIT:	)

1. THAT I was personally present and did see Luiz Azevedo, who is personally known to me to be the person named therein, duly sign and execute the annexed instrument for the purpose named therein.

2. THAT the same was executed at the City of                     , in the                      of                      and that I am the subscribing witness thereto.

3. THAT I know the said Luiz Azevedo and he is in my belief of the full age of eighteen years.

SWORN BEFORE ME at the City of	)
, in the	)
of                     ,	)
this                      day of December, 2008.	)
A NOTARY PUBLIC IN AND FOR
THE                      OF

AFFIDAVIT OF EXECUTION

CANADA	)	I,
	)	of the City of
PROVINCE OF ALBERTA	)	in the                     of
	)	MAKE OATH AND SAY:
TO WIT:	)

1. THAT I was personally present and did see Brendan Nelson, who is personally known to me to be the person named therein, duly sign and execute the annexed instrument for the purpose named therein.

2. THAT the same was executed at the City of                                         , in the                                         of                                          and that I am the subscribing witness thereto.

3. THAT I know the said Brendan Nelson and he is in my belief of the full age of eighteen years.

SWORN BEFORE ME at the City of	)
, in the	)
of                                          ,	)
this                      day of December, 2008.	)
A NOTARY PUBLIC IN AND FOR
THE                       OF

MUTUAL RELEASE FOR ALLIS-CHALMERS/BRAZALTA

     WHEREAS pursuant to a share purchase agreement (the “Share Purchase Agreement”) dated as of December 19, 2008 and made between BrazAlta Resources Corp. (“BrazAlta”) and Allis-Chalmers Energy Inc. (“Allis-Chalmers”), it was agreed, among other things, that this mutual release would be executed as one of the closing documents required under the Share Purchase Agreement;

     AND WHEREAS, unless otherwise defined or provided in this mutual release, the defined terms used in this mutual release shall have the same meanings attributed to such defined terms in the Share Purchase Agreement;

     AND WHEREAS each of the parties hereto will benefit, directly or indirectly, from the completion of the transactions contemplated by the Share Purchase Agreement;

     NOW THEREFORE in consideration of the execution and performance of the Share Purchase Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and agree as follows:

1. In this mutual release, the following terms shall have the following meanings:

     (a) “Allis-Chalmers Parties” means, collectively, Allis-Chalmers and the Companies together with (i) the Subsidiaries and Affiliates of Allis-Chalmers, (ii) the directors, officers, shareholders, employees and representatives of Allis-Chalmers and the Companies, and (iii) the successors and assigns of each of them but, for greater certainty, excluding the Departing Nominees;

     (b) “BrazAlta Parties” means, collectively, BrazAlta together with (i) its Subsidiaries and Affiliates, (ii) its directors, officers, shareholders, employees and representatives, and (iii) the successors and assigns of each of them but, for greater certainty, excluding the Companies and the Departing Nominees (each of whom is executing a separate mutual release in favour of the Allis-Chalmers Parties);

     (c) “Claims” means, collectively, any and all actions, causes of action, suits, proceedings, demands and claims for Damages of every nature whatsoever and whether based on or resulting or arising out of or from breach of contract, breach of duty, negligence (gross or ordinary), misconduct (wilful or unintentional), other legal theory or otherwise, or out of any cause, matter or thing whatsoever done or omitted to be done, and whether known or unknown as at the date hereof;

     (d) “Departing Nominees” means, collectively, David Mears, Lyle Dunkley, Louis MacEachern, Craig Nieboer, Luiz Azevedo and Brendan Nelson together with the successors and assigns of each of them;

     (e) “Excluded Claims” means, collectively, (i) any Claims by BrazAlta against the Buyer arising out of or in connection with the failure by the Buyer to perform

- 2 -

or observe the Obligations described in section 1(f)(ii) hereof; and (ii) any Claims by the Buyer against BrazAlta arising out of or in connection with the failure by BrazAlta to observe or perform the Obligations described in section 1(f)(i) hereof;

     (f) “Excluded Obligations” means, collectively, (i) any Obligations of BrazAlta to the Buyer under, in respect of or arising in connection with the Share Purchase Agreement or any document executed by BrazAlta in connection with the Share Purchase Agreement, including, without limitation, the obligation of BrazAlta to indemnify the Buyer and its Affiliates pursuant to section 7.1 of the Share Purchase Agreement, and (ii) any Obligations of the Buyer to BrazAlta under, in respect of or arising in connection with the Share Purchase Agreement or any document executed by the Buyer in connection with the Share Purchase Agreement including, without limitation, the obligation of the Buyer to indemnify BrazAlta and its Affiliates pursuant to section 7.2 of the Share Purchase Agreement; and

     (g) “Obligations” means, collectively, any and all indebtedness, liabilities and obligations of every nature whatsoever and whether liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent, statutory or common law or otherwise.

2. The BrazAlta Parties and each of them hereby release and forever discharge the Allis-Chalmers Parties and each of them from and against:

     (a) any and all Obligations of the Allis-Chalmers Parties or any of them to the BrazAlta Parties or any of them up to and including the Closing Date but, for greater certainty, such released and discharged Obligations shall not include any Excluded Obligations; and

     (b) any and all Claims that the BrazAlta Parties or any of them may have against the Allis-Chalmers Parties or any of them up to and including the Closing Date but, for greater certainty, such released and discharged Claims shall not include any Excluded Claims.

3. The Allis-Chalmers Parties and each of them hereby release and forever discharge the BrazAlta Parties and each of them from and against:

     (a) any and all Obligations of the BrazAlta Parties or any of them to the Allis-Chalmers Parties or any of them up to and including the Closing Date, but, for greater certainty, such released and discharged Obligations shall not include any Excluded Obligations; and

     (b) any and all Claims that the Allis-Chalmers Parties or any of them may have against the BrazAlta Parties or any of them up to and including the Closing Date but, for greater certainty, such released and discharged Claims shall not include any Excluded Claims.

- 3 -

4. Each of the BrazAlta Parties represents and warrants to the Allis-Chalmers Parties that it has not previously assigned or transferred, or purported to assign or transfer, to any Person whatsoever all or any part of the Obligations or the Claims released and discharged by the BrazAlta Parties pursuant to this mutual release.

5. Each of the Allis-Chalmers Parties represents and warrants to the BrazAlta Parties that it has not previously assigned or transferred, or purported to assign or transfer, to any Person whatsoever all or any part of the Obligations or the Claims released and discharged by the Allis-Chalmers Parties pursuant to this mutual release.

6. Unless otherwise agreed to in writing, the BrazAlta Parties and the Allis-Chalmers Parties shall not make any claim or take any proceedings against any Person who claims or might be entitled to claim, pursuant to the provisions of the Tortfeasors Act (Alberta) or any other applicable statute of law or otherwise, contribution or indemnity from any of the BrazAlta Parties or any of the Allis-Chalmers Parties, as applicable, in respect of any of the Obligations or of the Claims which have been released pursuant to section 2 or section 3 hereof, as applicable.

7. Each of the BrazAlta Parties acknowledges and agrees that it has read and understands all of the provisions of this mutual release and that it has been represented by legal counsel of its own choosing in connection with the negotiation, execution and delivery of this mutual release.

8. Each of the Allis-Chalmers Parties acknowledges and agrees that it has read and understands all of the provisions of this mutual release and that it has been represented by legal counsel of its own choosing in connection with the negotiation, execution and delivery of this mutual release.

9. This mutual release shall be governed by the laws of the Province of Alberta.

10. This mutual release shall enure to the benefit of and be binding upon the BrazAlta Parties and the Allis-Chalmers Parties.

11. The BrazAlta Parties shall, at the request and expense of the Allis-Chalmers Parties, execute and deliver any further documents and do all acts and things that the Allis-Chalmers Parties may reasonably require to carry out the true intent and meaning of this mutual release.

12. The Allis-Chalmers Parties shall, at the request and expense of the BrazAlta Parties, execute and deliver any further documents and do all acts and things that the BrazAlta Parties may reasonably require to carry out the true intent and meaning of this mutual release.

13. This mutual release may not be amended except by an amending agreement or other document signed by the parties hereto.

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14. This mutual release may be executed in several counterparts, each of which when so executed shall be deemed to be an original and shall have the same force and effect as an original but such counterparts together shall constitute but one and the same mutual release.

15. A fax copy or a pdf copy of an executed copy of this mutual release shall have the same force and effect as an originally executed copy of this mutual release.

16. This mutual release has been executed by the parties hereto as of the 31^st day of December, 2008.

BRAZALTA RESOURCES CORP.

Per:

Name:

Title:

ALLIS-CHALMERS ENERGY INC.

Per:

Name:

Title:

BCH LTD.

Per:

Name:

Title:

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BCH ENERGY DO BRASIL SERVICOS
DE PETROLCO LTDA.

Per:

Name:

Title:

EXHIBIT D

Assumed Indebtedness Excess Amount

See attached.

BCH Energy Services
Proforma Indebtedness — December 31, 2008
Prepared: December 18, 2008
(in thousands)

	BRL		USD
Allis-Chalmers Convertible Debenture				40,000
Accrued Interest				2,000
Standard Bank Term Debt				23,529
Accrued Interest				275
HSBC Brazil Line of Credit		3,000		1,304
HSBC Brazil Capital Leases		759		330
ABN Brazil Capital Leases		700		304
BCH Ltd. Accounts Payable				250
Accounts Payable & Accrued Liabilities		3,600		1,565
Fiscal Liabilities		750		326
Payroll Related Liabilities		2,800		1,217
Fair Value of FX Financial Derivatives				765
				71,866

subject to significant preliminary estimate
subject to year end FX rate fluctuation

Assumed Foreign Exchange Rate 0.43 2.30

EX-10.14

Exhibit 10.14

SECOND AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT

     WHEREAS, AirComp LLC (the “Company”) and Terrence P. Keane (the “Executive”) entered into that certain Executive Employment Agreement dated as of July 1, 2007, as amended by the Company, the Executive and Allis-Chalmers Energy Inc. (“Allis-Chalmers”) effective as of April 1, 2008 (the “Agreement”); and

     WHEREAS, Allis-Chalmers and the Executive desire to amend the Agreement to comply with Code Section 409A and regulations issued thereunder;

     NOW, THEREFORE, the Agreement is hereby amended, effective as of the original effective date of the Agreement, as follows:

1. The fourth sentence in Section 5(b) of the Agreement is hereby amended and restated as follows:

     “Such bonus shall be paid annually within 30 days following Allis-Chalmers’ release of its audited financial statements for each year during the term hereof, but in no event earlier than January 1 of, and no later than December 31 of, the calendar year following the calendar year with respect to which such bonus is earned.”

2. Section 7(b)(ii) of the Agreement is hereby amended to add the following sentence to the end thereof:

     “Allis-Chalmer’s obligation to provide continued medical insurance shall be intended to be an obligation to reimburse the Executive the amount of the premium paid by the Executive for such medical insurance, and to the extent that any such reimbursement is received or to be received by Executive, such reimbursements shall be administered consistent with the following requirements set forth in Treas. Reg. §1.409A-3(i)(1)(iv): (i) Executive’s eligibility for reimbursements in one year will not affect Executive’s eligibility for reimbursements in any other year, (ii) any reimbursement of eligible expenses will be made on or before the last day of the year following the year in which the expense was incurred, and (iii) Executive’s right to reimbursement is not subject to liquidation or exchange for another benefit.”

3. A new Section 7(c) is hereby added to the Agreement as follows:

     “(c) Section 409A Limits on Payments to Specified Employees. Notwithstanding any other provision of the Agreement to the contrary, if Executive is a “specified employee,” as defined in Section 409A of the Code, except to the extent permitted under Section 409A of the Code, no benefit or payment that is subject to Section 409A of the Code (after taking into account all applicable exceptions to Section 409A of the Code, including but not limited to the exceptions for short-term deferrals and for “separation pay only upon an

1

involuntary separation from service”) shall be made under this Agreement on account of Executive’s “separation from service,” as defined in Section 409A of the Code, until the later of the date prescribed for payment in this Agreement and the 1st day of the 7th calendar month that begins after the date of Executive’s separation from service (or, if earlier, the date of death of Executive). Any such benefit or payment payable pursuant to this Agreement within the period described in the immediately preceding sentence will accrue and will be payable in a lump sum cash payment, without interest, on the payment date set forth in the immediately preceding sentence.”

4. Except as modified herein, the Agreement is specifically ratified and affirmed.

     IN WITNESS WHEREOF, Allis-Chalmers and the Executive have executed this Amendment to the Agreement as of this 31st day of December, 2008, to be effective as herein provided.

ALLIS-CHALMERS ENERGY INC.:
By:	/s/ Theodore F. Pound III
Printed Name: Theodore F. Pound III
Title: General Counsel and Secretary
EXECUTIVE:
By:	/s/ Terrence P. Keane
	Terrence P. Keane

2

EX-10.17

Exhibit 10.17

AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT

     WHEREAS, Strata Directional Technology LLC (the “Company”) and David K. Bryan (the “Executive”) entered into that certain Executive Employment Agreement dated as of July 1, 2007, (the “Agreement”); and

     WHEREAS, the Company and the Executive desire to amend the Agreement to comply with Internal Revenue Code (“Code”) Section 409A and regulations issued thereunder;

     NOW, THEREFORE, the Agreement is hereby amended, effective as of the original effective date of the Agreement, as follows:

1. The second sentence in Section 5(b) of the Agreement is hereby amended and restated as follows:

     “Such bonus shall be paid annually within 30 days following Allis-Chalmers’ release of its audited financial statements for each year during the term hereof, but in no event earlier than January 1 of, and no later than December 31 of, the calendar year following the calendar year with respect to which such bonus is earned.”

2. A new Section 7(c) is hereby added to the Agreement as follows:

     “(c) Section 409A Limits on Payments to Specified Employees. Notwithstanding any other provision of the Agreement to the contrary, if Executive is a “specified employee,” as defined in Section 409A of the Code, except to the extent permitted under Section 409A of the Code, no benefit or payment that is subject to Section 409A of the Code (after taking into account all applicable exceptions to Section 409A of the Code, including but not limited to the exceptions for short-term deferrals and for “separation pay only upon an involuntary separation from service”) shall be made under this Agreement on account of Executive’s “separation from service,” as defined in Section 409A of the Code, until the later of the date prescribed for payment in this Agreement and the 1st day of the 7th calendar month that begins after the date of Executive’s separation from service (or, if earlier, the date of death of Executive). Any such benefit or payment payable pursuant to this Agreement within the period described in the immediately preceding sentence will accrue and will be payable in a lump sum cash payment, without interest, on the payment date set forth in the immediately preceding sentence.”

3. Except as modified herein, the Agreement is specifically ratified and affirmed.

1

     IN WITNESS WHEREOF, the Company and the Executive have executed this Amendment to the Agreement as of this 31st day of December, 2008, to be effective as herein provided.

STRATA DIRECTIONAL TECHONOLOGY LLC:
By:	/s/ Theodore F. Pound III
Printed Name: Theodore F. Pound III
Title: Vice President and Secretary
EXECUTIVE:
By:	/s/ David K. Bryan
	David K. Bryan

2

EX-10.27

Exhibit 10.27

AMENDED AND RESTATED
ALLIS-CHALMERS ENERGY INC.
2006 INCENTIVE PLAN

     SECTION 1. Purpose of the Plan.

     This Amended and Restated Allis-Chalmers Energy Inc. 2006 Incentive Plan (the “Plan”) amends and restates the Allis-Chalmers Energy Inc. 2006 Incentive Plan (the “Prior Plan”) and is intended to promote the interests of Allis-Chalmers Energy Inc., a Delaware corporation (the “Company”), and its stockholders by encouraging officers, employees, non-employee directors and consultants of the Company and its Affiliates to acquire or increase their equity interests in the Company and to provide a means whereby they may develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to remain with and devote their best efforts to the business of the Company thereby advancing the interests of the Company and its stockholders. The Board of Directors of the Company also contemplates that through the Plan, the Company and its Affiliates will be better able to attract and retain the services of individuals who are essential for the growth and profitability of the Company. The Plan provides for payment of various forms of incentive compensation and accordingly is not intended to be a plan that is subject to the Employee Retirement Income Security Act of 1974, as amended, and shall be administered accordingly.

     SECTION 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

     “Affiliate” shall mean (i) any “parent corporation” of the Company (as defined in Section 424(e) of the Code), (ii) any “subsidiary corporation” of any such parent corporation (as defined in Section 424(f) of the Code) of the Company and (iii) any trades or businesses, whether or not incorporated, which are members of a controlled group or are under common control (as defined in Sections 414(b) or (c) of the Code) with the Company; provided, that, for the purpose of issuing Options or Stock Appreciation Rights, “Affiliate” means any corporation or other entity in a chain of corporations and/or other entities in which the Company has a “controlling interest” within the meaning of Treas. Reg. § 1.414(c)-2(b)(2)(i), but using the threshold of 50% ownership wherever 80% appears.

     “Award” shall mean any Option, Restricted Stock, Performance Award, Bonus Shares or Other Stock-Based Award.

     “Award Agreement” shall mean any written agreement, contract, or other instrument or document evidencing any Award, which may, but need not, be executed or acknowledged by a Participant.

     “Board” shall mean the Board of Directors of the Company.

     “Bonus Shares” shall mean an award of Shares granted pursuant to Section 6(d) of the Plan.

     “Change in Control” shall mean, subject to the last paragraph of this definition, the occurrence of any one (1) of the following events:

(a)	any “person” (as defined in Section 3(a)(9) of the Exchange Act, and as modified in Section 13(d) and 14(d) of the Exchange Act) other than (i) the Company or any of its subsidiaries; (ii) any employee benefit plan of the Company or any of its subsidiaries; (iii) or any Affiliate; (iv) a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company; or (v) an underwriter temporarily holding securities pursuant to an offering of such securities (a “Person”), becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the shares of voting stock of the Company then outstanding;
(b)	the consummation of any merger, organization, business combination or consolidation of the Company or one (1) of its subsidiaries with or into any other company, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than fifty percent (50%) of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(c)	the consummation of a sale, lease, transfer, conveyance or other disposition (including by merger or consolidation) by the Company in one (1) or a series of related transactions, of all or substantially all of the Company’s assets, other than any such transaction if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately thereafter which represent more than fifty percent (50%) of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets;
(d)	the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(e)	individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election by the Board, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but

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excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either (i) an actual or threatened election contest (as such terms are used in Rule 14A-11 of Regulation 14A promulgated under the Exchange Act) with respect to the election or removal of directors or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) a plan or agreement to replace a majority of the members of the Board then comprising the Incumbent Board.

Except as otherwise expressly provided in an Award, solely with respect to any Award that constitutes deferred compensation that is subject to Section 409A of the Code and payment of such Award is contingent upon the occurrence of a Change in Control, the above definition of Change in Control shall be inoperative with respect to such Award and is hereby replaced by the definition of such term set forth in Treas. Reg. §1.409A-3(i)(5) or any successor thereto, but using 50% wherever 30% appears in Treas. Reg. §1.409A-3(i)(5)(vi) or any successor thereto and 50% wherever 40% appears in Treas. Reg. §1.409A-3(i)(5)(vii) or any successor thereto, which regulation, as modified herein, is hereby incorporated by reference into and shall form part of this Plan solely for the limited purpose of this sentence, and the Plan, solely as it relates to such Award, and such Award shall be operated in accordance with such modified definition of Change in Control.

     “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations thereunder.

     “Committee” shall mean the compensation committee of the Board which, for any period in which the Company is subject to the reporting requirements of the Exchange Act, shall consist of not less than two (2) members of the Board, each of whom shall qualify as a “non-employee director” (as that term is defined in Rule 16b-3 of the General Rules and Regulations under the Exchange Act) appointed by and serving at the pleasure of the Board to administer the Plan or, if none, the Board; provided however, that with respect to any Award granted to a Covered Employee which is intended to be “performance-based compensation” as described in Section 162(m)(4)(C) of the Code, the Committee shall consist solely of two (2) or more “outside directors” as described in Section 162(m)(4)(C)(i) of the Code.

     “Company” shall mean the corporation described in Section 1 of the Plan or any successor thereto that assumes and continues the Plan.

     “Consultant” shall mean any individual, other than a Director or an Employee, who renders consulting services to the Company or an Affiliate for a fee.

     “Covered Employee” shall mean for fiscal years ending on or after December 15, 2006, any of the Chief Executive Officer of the Company and each other officer of the Company other than the Chief Executive Officer who is treated as a “covered employee” for purposes of applying Section 162(m) of the Code to Awards or any individual Consultant, Director or other Employee, or class of Consultants, Directors or Employees, who the Committee specifies in an Award shall be treated as a Covered Employee.

     “Director” shall mean a member of the Board who is not an Employee of the Company.

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     “Effective Date” means the date that the Prior Plan was initially (i) adopted by the Board; and (ii) approved by stockholders of the Company not more than one (1) year prior to or after the date of such adoption. The provisions of the Prior Plan are applicable to all Awards granted on or after the Effective Date. The Plan, as adopted by the Board, shall be effective as of December 31, 2008.

     “Employee” shall mean any employee of the Company or an Affiliate.

     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     “Fair Market Value” shall mean, with respect to Shares, the closing sales price of a Share on the applicable date (or if there is no trading in the Shares on such date, on the next preceding date on which there was trading) as reported in The Wall Street Journal (or other reporting service approved by the Committee). In the event the Shares are not publicly traded at the time a determination of its fair market value is required to be made hereunder, the determination of fair market value shall be made in good faith by the Committee.

     “Option” shall mean an option granted under Section 6(a) of the Plan. Options granted under the Plan may constitute “incentive stock options” for purposes of Section 422 of the Code or nonqualified stock options.

     “Other Stock-Based Award” shall mean an award granted pursuant to Section 6(e) of the Plan that is not otherwise specifically provided for, the value of which is based in whole or in part upon the value of a Share.

     “Participant” shall mean any Director, Employee or Consultant granted an Award under the Plan.

     “Performance Award” shall mean any right granted under Section 6(c) of the Plan.

     “Performance Objectives” means the objectives, if any, established by the Committee that are to be achieved with respect to an Award granted under this Plan, which may be described in terms of Company-wide objectives, in terms of objectives that are related to performance of a business, division, subsidiary, department, unit or function within the Company or an Affiliate in which the Participant receiving the Award is employed or in individual or other terms, and which will relate to the period of time determined by the Committee. Which objectives to use with respect to an Award, the weighting of the objectives if more than one (1) is used, and whether the objective is to be measured against a Company-established budget or target, an index or a peer group of companies, shall be determined by the Committee in its discretion at the time of grant of the Award. One or more of the following business criteria for the Company shall be used by the Committee in establishing Performance Objectives for Performance Awards granted to a Participant: (i) earnings per share; (ii) increase in price per share, (iii) increase in revenues; (iv) increase in cash flow; (v) return on net assets; (vi) return on assets; (vii) return on investment; (viii) return on equity; (ix) economic value added; (x) gross margin; (xi) net income; (xii) pretax earnings; (xiii) pretax earnings before interest, depreciation, depletion and amortization; (xiv) pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (xv) operating income; (xvi) total stockholder return;

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(xvii) debt reduction; and (xviii) any of the above goals determined on the absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or components thereof or a group of comparable companies. A Performance Objective need not be based on an increase or a positive result and may include, for example, maintaining the status quo or limiting economic losses.

     “Person” shall mean an individual or a corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity.

     “Plan” means the plan described in Section 1 of the Plan and set forth in this document, as amended from time to time.

     “Restricted Period” shall mean the period established by the Committee with respect to an Award during which the Award remains subject to forfeiture and/or is not exercisable by the Participant.

     “Restricted Stock” shall mean any Share, prior to the lapse of restrictions thereon, granted under Sections 6(b) of the Plan.

     “Rule 16b-3” shall mean Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time.

     “SEC” shall mean the Securities and Exchange Commission, or any successor thereto.

     “Shares” or “Common Shares” or “Common Stock” shall mean the common stock of the Company, $0.01 par value, and such other securities or property as may become the subject of Awards under the Plan.

     SECTION 3. Administration.

     The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of the members of the Committee who are present at any meeting thereof at which a quorum is present, or acts unanimously approved by the members of the Committee in writing, shall be the acts of the Committee. No member of the Committee shall vote or act upon any matter relating solely to himself. Grants of Awards to members of the Committee must be ratified by the Board. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what

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circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to an Award made under the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any stockholder and any Employee, Consultant or Director. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted hereunder and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company and its Affiliates in respect of any claim, loss, damage or expense (including legal fees) arising therefrom to the full extent permitted by law.

     SECTION 4. Shares Available for Awards.

(a)	Shares Available. Subject to adjustment as provided in Section 4(c), the number of Shares with respect to which Awards may be granted under the Plan shall be 1,500,000 Shares. In addition, during any calendar year in which Section 162(m) of the Code shall apply to the Company, the number of Shares reserved for issuance under the Plan which are subject to Options that may be granted to any one (1) Participant shall not exceed 200,000 Shares. If any Award is exercised, paid, forfeited, terminated or canceled without the delivery of Shares, then the Shares covered by such Award, to the extent of such exercise, payment, forfeiture, termination or cancellation, shall again be Shares with respect to which Awards may be granted; provided, however, that Shares not delivered due to withholding or payment of taxes or payment of exercise price shall not again be Shares with respect to which Awards may be granted.
(b)	Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. No fractional Shares shall be issued under the Plan; payment for any fractional Shares shall be made in cash.
(c)	Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall,

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in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) with respect to which Awards may be granted; (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards; and (iii) the grant or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award.

     SECTION 5. Eligibility.

     Any Employee, Director or Consultant shall be eligible to be designated a Participant and receive an Award under the Plan.

     SECTION 6. Awards.

(a) Options. Subject to the provisions of the Plan, the Committee shall have the authority to determine the Participants to whom Options shall be granted, the number of Shares to be covered by each Option, the purchase price therefor and the conditions and limitations applicable to the exercise of the Option, including the following terms and conditions and such additional terms and conditions, as the Committee shall determine, that are not inconsistent with the provisions of the Plan.

(i)

Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee at the time the Option is granted, but shall not be less than one hundred percent (100%) of the Fair Market Value per Share on such grant date if the Option is not an incentive stock option, and not less than one hundred percent (100%) of the Fair Market Value per Share on such date if the Option is an incentive stock option. If any Employee to whom an Option that is an incentive stock option is granted owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent corporation, within the meaning of Section 424(e) of the Code, or any subsidiary corporation of the Company, within the meaning of Section 424(f) of the Code, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant and the option term shall not exceed five (5) years measured from the date of grant. For purposes of the immediately preceding sentence, the attribution rules under Section 424(d) of the Code shall apply for purposes of determining an Employee’s ownership.

(ii)

Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part (which may include the achievement of one (1) or more Performance Objectives), and the method or methods by which, and the form or forms in which payment of the exercise price with respect thereto may be made. In that connection, in order to exercise an Option, the person or persons entitled to exercise it shall deliver to the Company payment in full for (i) the

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	shares being purchased and (ii) unless other arrangements have been made with the Committee, any required withholding taxes. The payment of the exercise price for each Option shall either be (i) in cash or by check payable and acceptable to the Company (ii) with the consent of the Committee, by tendering to the Company shares of Common Stock owned by the person for more than six (6) months having an aggregate Fair Market Value as of the date of exercise that is not greater than the full exercise price for the shares with respect to which the Option is being exercised and by paying any remaining amount of the exercise price as provided in (i) above, or (iii) with the consent of the Committee and compliance with such instructions as the Committee may specify, by delivering to the Company and to a broker a properly executed exercise notice and irrevocable instructions to such broker to deliver to the Company cash or a check payable and acceptable to the Company to pay the exercise price and any applicable withholding taxes. Upon receipt of the cash or check from the broker, the Company will deliver to the broker the shares for which the Option is exercised. In the event that the person elects to make payment as allowed under clause (ii) above, the Committee may, upon confirming that the optionee owns the number of additional shares being tendered, authorize the issuance of a new certificate for the number of shares being acquired pursuant to the exercise of the Option less the number of shares being tendered upon the exercise and return to the person (or not require surrender of) the certificate for the shares being tendered upon the exercise. The date of sale of the shares by the broker pursuant to a cashless exercise under (iii) above shall be the date of exercise of the Option.
(iii)	Option Repricing. With stockholder approval, the Committee, in its absolute discretion, may grant to holders of outstanding Options that are not incentive stock options, in exchange for the surrender and cancellation of such Options that are not incentive stock options, new Options that are not incentive stock options having exercise prices lower (or higher with any required consent) than the exercise price provided in the Options so surrendered and canceled and containing such other terms and conditions as the Committee may deem appropriate.
(iv)	Incentive Stock Options. The terms of any Option granted under the Plan intended to be an incentive stock option shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision, and any regulations promulgated thereunder. Incentive stock options may be granted only to employees of the Company, while it is a “corporation” described in Section 7701(a)(3) of the Code and Treas. Reg. Section 1.421-1(i)(l), and its parent corporation and subsidiary corporations, within the meaning of Section 424 of the Code. To the extent the aggregate Fair Market Value of the Shares (determined as of the date of grant) of an Option to the extent exercisable for the first time during any calendar year (under all plans of the Company and its parent and

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subsidiary corporations) exceeds $100,000, such Option Shares in excess of $100,000 shall not be incentive stock options. No Option that is an incentive stock option shall be issued under the Plan after the date that occurs one (1) day before the tenth (10th) anniversary of the date the Prior Plan was adopted by the Board or approved by the stockholders of the Company, whichever was earlier. No Option that is an incentive stock option shall be exercisable more than ten (10) years measured from the date of grant (five (5) years in the case of an Employee described in Section 6(a)(i) hereof) or three (3) months after the Participant ceases to be an Employee for any reason other than death or disability, or more than one (1) year after the Participant ceases to be an Employee due to death or disability.

(b) Restricted Stock. Subject to the provisions of the Plan, the Committee shall have the authority to determine the Participants to whom Restricted Stock shall be granted, the number of Shares of Restricted Stock to be granted to each such Participant, the duration of the Restricted Period during which, and the conditions, including Performance Objectives, if any, under which if not achieved, the Restricted Stock may be forfeited to the Company, and the other terms and conditions of such Awards.

(i)	Dividends. Dividends paid on Restricted Stock may be paid directly to the Participant or may be subject to risk of forfeiture and/or transfer restrictions during any period established by the Committee in its discretion.
(ii)	Registration. Any Restricted Stock may be evidenced in such manner as the Committee shall deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Restricted Stock granted under the Plan, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.
(iii)	Forfeiture and Restrictions Lapse. Except as otherwise determined by the Committee or the terms of the Award that granted the Restricted Stock, upon termination of a Participant’s employment (as determined under criteria established by the Committee) for any reason during the applicable Restricted Period, all Restricted Stock shall be forfeited by the Participant and reacquired by the Company. Unrestricted Shares, evidenced in such manner as the Committee shall deem appropriate, shall be issued to the holder of Restricted Stock promptly after the applicable restrictions have lapsed or otherwise been satisfied.
(iv)	Transfer Restrictions. During the Restricted Period, Restricted Stock will be subject to the limitations on transfer as provided in Section 6(f)(iii).

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(c) Performance Awards. The Committee shall have the authority to determine the Participants who shall receive a Performance Award, which shall confer on the Participant the right to receive payment of such Award, in whole or in part, upon the achievement of such Performance Objectives during such performance periods as the Committee shall establish with respect to the Award.

(i)	Terms and Conditions. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the Performance Objectives to be achieved during any performance period, the length of any performance period, the amount of any Performance Award and the amount of any payment or transfer to be made pursuant to any Performance Award.
(ii)	General. In the case of any Award granted to a Covered Employee, Performance Objectives shall be designed to be objective and shall otherwise meet the requirements of Section 162(m) of the Code and regulations thereunder (including Treasury Regulations sec. 1.162-27 and successor regulations thereto), including the requirement that the level or levels of performance targeted by the Committee are such that the achievement of performance goals is “substantially uncertain” at the time of grant. The Committee may determine that such Performance Awards shall be granted and/or settled upon achievement of any one (1) performance goal or that two (2) or more of the performance goals must be achieved as a condition to the grant and/or settlement of such Performance Awards. Performance Objectives may differ among Performance Awards granted to any one (1) Participant or for Performance Awards granted to different Participants.
(iii)	Performance Period; Timing for Establishing Performance Goals. Achievement of Performance Objectives in respect of Performance Awards that are granted to a Covered Employee and intended to meet the requirements of Section 162(m) of the Code shall be measured over a performance period of not less than six (6) months and not more than ten (10) years, as specified by the Committee. Performance Objectives in the case of any Award granted to a Participant shall be established not later than ninety (90) days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for “performance-based compensation” under Section 162(m) of the Code.
(iv)	Settlement of Performance Awards; Other Terms. After the end of each performance period, the Committee shall determine the amount, if any, of Performance Awards payable to each Participant based upon achievement of business criteria over a performance period. Except as may otherwise be required under Section 409A of the Code, payment described in the immediately preceding sentence shall be made by the later of (i) the date that is 21/2 months after the end of the Participant’s first taxable year in

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	which the Performance Award is earned and payable under the Plan and (ii) the date that is 21/2 months after the end of the Company’s first taxable year in which the Performance Award is earned and payable under the Plan, and such payment shall not be subject to any election by the Participant to defer the payment to a later period. The Committee may not exercise discretion to increase any such amount payable in respect of a Performance Award which is intended to comply with Section 162(m) of the Code. The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a performance period or settlement of Performance Awards.
(v)	Written Determinations. All determinations by the Committee as to the establishment of Performance Objectives, the amount of any Performance Award, and the achievement of Performance Objectives relating to Performance Awards shall be made in a written agreement or other document covering the Performance Award. The Committee may not delegate any responsibility relating to such Performance Awards that are granted to a Covered Employee and intended to meet the requirements of Section 162(m) of the Code.
(vi)	Status of Performance Awards under Section 162(m) of the Code. It is the intent of the Company that Performance Awards granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Section 162(m) of the Code and regulations thereunder (including Treasury Regulations sec. 1.162-27 and successor regulations thereto) shall constitute “performance-based compensation” within the meaning of Section 162(m) of the Code and regulations thereunder. Accordingly, the terms of this Section shall be interpreted in a manner consistent with Section 162(m) of the Code and regulations thereunder. Notwithstanding the foregoing, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean any person designated by the Committee, at the time of grant of a Performance Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan as in effect on the date of adoption or any agreements relating to Performance Awards that are intended to comply with Section 162(m) of the Code does not comply or is inconsistent with the requirements of Section 162(m) of the Code or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

(d) Bonus Shares. The Committee shall have the authority, in its discretion, to grant Bonus Shares to Participants. Each Bonus Share shall constitute a transfer of an unrestricted Share to the Participant, without other payment therefor, as additional compensation for the Participant’s services to the Company.

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(e)

Other Stock-Based Awards. The Committee may also grant to Participants an Other Stock-Based Award, which shall consist of a right which is an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares as is deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of the Plan, including the Performance Objectives, if any, applicable to such Award, the Committee shall determine the terms and conditions of any such Other Stock-Based Award. Notwithstanding any other provision of the Plan to the contrary, any Other Stock-Based Award shall contain terms that (i) are designed to avoid application of Section 409A of the Code or (ii) are designed to avoid adverse tax consequences under Section 409A should that Code section apply to such Award.

(f)

General Provisions Applicable to all Awards.

(i)	Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award granted under the Plan or any award granted under any other plan of the Company or any Affiliate. No Award shall be issued in tandem with another Award if the tandem Awards would result in adverse tax consequences under Section 409A of the Code. Awards granted in addition to or in tandem with other Awards or awards granted under any other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(ii)	Forms of Payment by Company Under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments.
(iii)	Limits on Transfer of Awards.

A. Except as provided in (C) below, each Award, and each right under any Award, shall be exercisable only by the Participant during the Participant’s lifetime, or by the person to whom the Participant’s rights shall pass by will or the laws of descent and distribution. Notwithstanding anything in the Plan to the contrary, a nonqualified stock option shall be transferable pursuant to a domestic relations order.

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B.

Except as provided in (C) below, no Award and no right under any such Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate.

C.

Notwithstanding anything in the Plan to the contrary, to the extent specifically provided by the Committee with respect to a grant, a nonqualified stock option may be transferred to immediate family members or related family trusts, or similar entities on such terms and conditions as the Committee may establish. In addition, Awards may be transferred by will or the laws of descent and distribution.

(iv)	Term of Awards. The term of each Award shall be for such period as may be determined by the Committee; provided, that in no event shall the term of any Award exceed a period of ten (10) years from the date of its grant (or such shorter term as may be required in respect of an Option that is an incentive stock option under Section 422 of the Code).
(v)	Share Certificates. All certificates for Shares or other securities of the Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, and any applicable federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(vi)	Delivery of Shares or other Securities and Payment by Participant of Consideration. No Shares or other securities shall be delivered pursuant to any Award until payment in full of any amount required to be paid pursuant to the Plan or the applicable Award Agreement (including, without limitation, any exercise price, tax payment or tax withholding) is received by the Company. Such payment may be made by such method or methods and in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards or other property, withholding of Shares, cashless exercise with simultaneous sale, or any combination thereof; provided that the combined value, as determined by the Committee, of all cash and cash equivalents and the Fair Market Value of any such Shares or other property so tendered to the Company, as of the date of such tender, is at least equal to the full amount required to be paid pursuant to the Plan or the applicable Award Agreement to the Company.

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(vii)

Code Section 409A. Notwithstanding any other provision of the Plan to the contrary, any Award granted after December 31, 2004 shall contain terms that (i) are designed to avoid application of Section 409A of the Code to the Award or (ii) are designed to avoid adverse tax consequences under Section 409A of the Code should that Code Section apply to the Award.

(viii)

Section 409A Limits on Payments to Specified Employees. Notwith-standing any other provision of the Plan or an Award to the contrary, if a Participant is a “key employee,” as defined in Section 416(i) of the Code (without regard to paragraph 5 thereof), except to the extent permitted under Section 409A of the Code, no benefit or payment that is subject to Section 409A of the Code (after taking into account all applicable exceptions to Section 409A of the Code, including but not limited to the exceptions for short-term deferrals and for “separation pay only upon an involuntary separation from service”) shall be made under this Plan or the affected Award granted thereunder on account of the Participant’s “separation from service,” as defined in Section 409A of the Code, with the Company and its Affiliates until the later of the date prescribed for payment in this Plan or the affected Award granted thereunder and the first (1st) day of the seventh (7th) calendar month that begins after the date of the Participant’s separation from service (or, if earlier, the date of death of the Participant). Unless otherwise provided in the Award, any amount that is otherwise payable within the delay period described in the immediately preceding sentence will be aggregated and paid in a lump sum without interest.

     SECTION 7. Amendment and Termination.

     Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:

(a)

Amendments to the Plan. The Board or the Committee may amend, alter, suspend, discontinue, or terminate the Plan without the consent of any stockholder, Participant, other holder or beneficiary of an Award, or other Person; provided, however, no such amendment may be made without stockholder approval to the extent that such approval is required by (i) applicable legal requirements or (ii) the requirements of any securities exchange or market on which the Shares are listed. Notwithstanding the foregoing, the Board or the Committee may amend the Plan in such manner as it deems necessary in order to permit Awards to meet the requirements of the Code or other applicable laws, or to prevent adverse tax consequences.

(b)

Amendments to Awards. The Committee may waive any conditions or rights under, amend any terms of, or alter any Award theretofore granted, provided no change, other than pursuant to Section 7(c), in any Award shall materially reduce the benefit to Participant without the consent of such Participant.

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(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) of the Plan) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

     SECTION 8. Adjustments Upon Changes in Stock/Change in Control.

(a)

Adjustments Upon Changes in Stock. If any change is made in the Shares subject to the Plan, or subject to any Award, without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to Section 4(c) and the outstanding Awards will be appropriately adjusted in the class(es) and number of shares and exercise price per share of stock subject to such outstanding Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a “transaction not involving the receipt of consideration by the Company”.)

(b)

Change in Control. Unless otherwise provided in the Award, in the event of a Change in Control described in clauses (b), (c) or (d) of the definition of Change in Control under Section 2 of the Plan, (i) if the Company does not survive as an independent corporation (excluding as a subsidiary), the surviving corporation or an affiliate of such surviving corporation shall assume the Awards outstanding under the Plan or substitute similar awards (including an award to acquire the same consideration paid to the stockholders of the Company in the transaction effecting the Change in Control) for those outstanding under the Plan, or (ii) if the Company continues as an independent corporation (excluding as a subsidiary), such Awards shall continue in full force and effect. In the event of a Change in Control in which the Company does not survive as an independent corporation (excluding as a subsidiary), if any surviving corporation and its affiliates refuse to assume or continue the Awards, or to substitute similar awards for those outstanding under the Plan, then unless otherwise provided in the Award:

(i) All Options then outstanding shall become immediately vested and fully exercisable immediately prior to the Change in Control, notwithstanding any provision therein for exercise in installments;

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(ii)

All restrictions and conditions of all Restricted Stock then outstanding shall be deemed satisfied, and the Restricted Period or other limitations on payment in full with respect thereto shall be deemed to have expired immediately prior to the date of the Change in Control; and

(iii)

All outstanding Performance Awards and any Other Stock or Performance-Based Awards shall become fully vested, deemed earned in full immediately prior to the date of the Change in Control and promptly paid to the Participants as of the date of the Change of Control, without regard to payment schedules and notwithstanding that the applicable performance cycle, retention cycle or other restrictions and conditions shall not have been completed or satisfied.

     Notwithstanding the foregoing, the preceding provisions shall not apply to any Award to the extent that such provisions would result in any impermissible acceleration or substitution under Section 409A of the Code or any other violation of Section 409A of the Code that would result in adverse tax consequences to the Participant under Section 409A of the Code

(c) Right of Cash-Out. If approved by the Board prior to or within thirty (30) days after such time as a Change in Control shall be deemed to have occurred, the Board shall have the right for a forty-five (45) day period immediately following the date that the Change in Control is deemed to have occurred to require all, but not less than all, Participants to transfer and deliver to the Company all Awards previously granted to the Participants in exchange for an amount equal to the “cash value” (defined below) of the Awards. Such right shall be exercised by written notice to all Participants. For purposes of this Section, the cash value of an Award shall equal the sum of (i) all cash to which the Participant would be entitled upon settlement or exercise of any Award which is not an Option and (ii) in the case of any Award that is an Option, the excess of the “market value” (defined below) per share over the option price, if any, multiplied by the number of shares subject to such Award. For purposes of the preceding sentence, “market value” per share shall mean the higher of (i) the average of the Fair Market Value per share of Common Stock on each of the five (5) trading days immediately following the date a Change in Control is deemed to have occurred or (ii) the highest price, if any, offered in connection with the Change in Control. The amount payable to each Participant by the Company pursuant to this Section shall be in cash or by certified check and shall be reduced by any taxes required to be withheld. Notwithstanding the foregoing, neither the Board, the Company nor the Committee shall have the right to cash-out any Award, if the existence or exercise of such right would result in any impermissible acceleration or substitution under Section 409A of the Code or any other violation of Section 409A of the Code that would result in adverse tax consequences to the Participant pursuant to Section 409A of the Code.

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     SECTION 9. General Provisions.

(a)	No Rights to Awards. No Director, Employee, Consultant or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Employees, Consultants, or holders or beneficiaries of Awards. The terms and conditions of Awards need not be the same with respect to each recipient.
(b)	Withholding. The Company or any Affiliate is authorized to withhold at the minimum statutory rate from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, Shares that would otherwise be issued pursuant to such Award, other Awards or other property) of any applicable taxes payable in respect of an Award, its exercise, the lapse of restrictions thereon, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. In addition, the Committee may provide, in an Award Agreement, that the Participant may direct the Company to satisfy such Participant’s tax obligation through the “constructive” tender of already-owned Shares or the withholding of Shares otherwise to be acquired upon the exercise or payment of such Award.
(c)	No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(d)	Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware and applicable federal law.
(e)	Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(f)	Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under an Award if, acting in its sole discretion, it determines that the issuance of transfer or such Shares or such other consideration might violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by

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a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder or beneficiary.

(g)	No Trust or Fund Created. Neither the Plan nor the Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any general unsecured creditor of the Company or any Affiliate.
(h)	No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(i)	Securities Laws Compliance. Unless the Shares have been registered under the Securities Act of 1933 (and, in the case of any Participant who may be deemed an affiliate of the Company for securities law purposes, such Shares have been registered under such Act for resale by such Participant), or the Company has determined that an exemption from registration is available, the Company may require prior to and as a condition of the exercise or payment of any Award that (i) the Participant desiring to exercise or receive payment such Award give the Company written notice thereof and that such notice may not be given by the Participant until forty-five (45) days thereafter (which time period may be waived by the Committee in its sole discretion) in order to allow the Company the opportunity to provide to such Participant any disclosure materials, or to make such filings, as may be required under federal and state securities laws and (ii) the Participant desiring to exercise or be paid such Award furnish the Company with a written representation in a form prescribed by the Committee to the effect that such person is acquiring said Shares solely with a view to investment for his or her own account and not with a view to the resale or distribution of all or any part thereof, and that such person will not dispose of any of such Shares otherwise than in accordance with the provisions of Rule 144 under the Act unless and until either the Shares are registered under the Act or the Company is satisfied that an exemption from such registration is available.
(j)	Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
(k)	Code Section 409A. Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an applicable tax under Code Section 409A and related regulations and Treasury pronouncements (“Section 409A”), that Plan provision or Award may be

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reformed to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Participant’s rights to an Award.

(l) No Guarantee of Tax Consequences. None of the Board, the Company nor the Committee makes any commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person participating or eligible to participate hereunder.

     SECTION 10. Term of the Plan.

     No Award shall be granted under the Plan after the tenth (10^th) anniversary of the date the Prior Plan was adopted by the Board, as the Plan shall expire on that date unless earlier terminated pursuant to Section 7. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted prior to such expiration or termination, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award, shall extend beyond such expiration or termination date.

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EX-10.33

Exhibit 10.33

ALLIS-CHALMERS ENERGY INC.

EMPLOYEE PERFORMANCE AWARD AGREEMENT
as amended and restated, effective December 31, 2008
Pursuant to the terms of the Allis-Chalmers Energy Inc. 2006 Incentive Plan

     1. Grant of Performance Award. Allis-Chalmers Energy Inc., a Delaware corporation (“Company”), hereby grants to ___(“Participant”) performance awards in the form of [xx,xxx] shares (the “Performance Award”) of common stock, $0.01 par value per share, of the Company (“Common Stock”), subject to meeting the Performance Objectives as described in Section 4 hereof, and in accordance with the terms and conditions of this document. This Performance Award Agreement is dated as of [xx/xx/xx]. The Performance Award in the form of Common Stock is awarded pursuant to and to implement in part the Allis-Chalmers Energy Inc. 2006 Incentive Plan (as amended and in effect from time to time, the “Plan”) and is subject to the restrictions, forfeiture provisions and other terms and conditions of the Plan, which is hereby incorporated herein and is made a part hereof, and this Performance Award Agreement. By execution of this Performance Award Agreement, Participant agrees to be bound by all of the terms, provisions, conditions and limitations of the Plan as implemented by the Performance Award Agreement, together with all rules and determinations from time to time issued by the Committee pursuant to the Plan. All capitalized terms have the meanings set forth in the Plan unless otherwise specifically provided. All references to specified paragraphs pertain to paragraphs of this Performance Award Agreement unless otherwise provided.

     2. Settlement of Performance Award. The stock certificate(s) evidencing the Performance Award shall not be issued or registered on the Company’s books and records until the Performance Objectives set forth in paragraph 4 below have been met by the Participant and approved by the Committee and all other restrictions contained in this Performance Award Agreement have lapsed. Upon resolution by the Committee that the Participant has achieved the Performance Objectives, and subject to the other terms and conditions of this Performance Award Agreement, the Company will promptly issue a stock certificate with respect to the vested portion of the shares of the Performance Award for which the Performance Objectives have been met. However, in no event shall such stock certificate be issued to the Participant later than 90 days after such shares have vested.

     3. Risk of Forfeiture. Participant shall immediately forfeit all rights to any Performance Award which have not vested and with respect to which the Performance Objectives have not been met or in the event of termination, resignation, or removal of Participant from employment with the Company or any Affiliate under circumstances that do not cause Participant to become fully vested, under the terms of the Plan.

     4. Performance Objectives. Subject to the provisions of this Performance Award Agreement including, without limitation, the following provisions of this Paragraph 4, the Performance Award shall vest upon Participant meeting performance criteria based on any one or more of the Performance Objectives described below, as more specifically determined by the Compensation Committee and approved by the Board of Directors of the Company:

(i) increase in earnings per share; (ii) increase in price per share, (iii) increase in revenues; (iv) increase in cash flow; (v) return on net assets; (vi) return on assets; (vii) return on investment; (viii) return on equity; (ix) economic value

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added; (x) gross margin; (xi) net income; (xii) pretax earnings; (xiii) pretax earnings before interest, depreciation, depletion and amortization; (xiv) pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (xv) operating income; (xvi) total stockholder return; (xvii) debt reduction

Any of the above goals may be determined on an absolute or relative basis or as compared to the performance of a published or special index of companies as determined by the Compensation Committee.

The period from the date hereof until Performance Awards have become one hundred percent (100%) vested and the Committee has determined that such Performance Objectives have been met shall be referred to as the “Restricted Period.”

     5. Transferability. During the Restricted Period, the Participant shall not sell, assign, transfer, pledge, exchange, hypothecate, or otherwise dispose of any right, title or interest in the Performance Award prior to vesting in accordance with this Performance Award Agreement. Upon receipt by the Participant of stock certificate(s) representing the vested shares pursuant to Paragraph 2 above, the Participant may hold or dispose of the shares represented by such certificate(s), subject to compliance with (i) the terms and conditions of the Plan and this Performance Award Agreement, (ii) applicable federal or state securities laws or other applicable law, (iii) applicable rules of any exchange on which the Company’s securities are traded or listed, and (iv) the Company’s rules or policies as established by the Company in its sole discretion.

     6. No Ownership Rights. Prior to the vesting of the Performance Award, the Participant shall not have any rights with respect to the shares of Common Stock represented by the Performance Award hereunder including the right to vote the shares of Common Stock and the right to receive any dividends.

     7. Termination of Employment. If employment of Participant by the Company or any Affiliate is terminated for any reason, including death, disability or retirement, all Performance Awards outstanding at the time of such termination and all rights thereunder shall be forfeited and no further vesting shall occur.

     8. Change in Control.

     (a) Change in Control. Upon the occurrence of a Change in Control (as defined in the Plan), all restrictions and conditions of the Performance Award shall automatically be waived without any required action by the Company, Committee or the Board with the result that the Performance Award shall be fully vested and the restrictions thereon shall have lapsed.

     (b) Right of Cash-Out. If approved by the Board prior to or within thirty (30) days after such time as a Change in Control shall be deemed to have occurred, the Board shall have the right for a forty-five (45) day period immediately following the date that the Change in Control is deemed to have occurred to require Participant to transfer and deliver to Company all unvested shares of the Performance Award hereunder with respect to which the restrictions have not lapsed in exchange for an amount equal to the “cash value” (defined below) of such shares of the Performance Award. Such right shall be exercised by written notice to Participant. The cash value of such shares of the

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Performance Award shall equal the “market value” (defined below) per share, multiplied by the number of unvested shares of the Performance Award hereunder with respect to which the restrictions have not lapsed. For purposes of the preceding sentence, “market value” per share shall mean the higher of (i) the average of the Fair Market Value per share of Common Stock on each of the five trading days immediately following the date a Change in Control is deemed to have occurred or (ii) the highest price, if any, offered in connection with the Change in Control. The amount payable to Participant by Company pursuant to this Section 8(b) shall be paid in cash or by certified check and shall be reduced by any taxes required to be withheld.

     9. Reorganization of Company and Subsidiaries. The existence of the Performance Awards shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Performance Award or the rights thereof, or the dissolution or liquidation of Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

     10. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers, consolidations, reorganizations, liquidations, issuances of rights or warrants and similar transactions or events involving Company, the Committee shall, in such manner as it may deem equitable, make adjustments to the terms and provisions of this Performance Award Agreement.

     11. Certain Restrictions. By executing this Performance Award Agreement, Participant agrees that if at the time of delivery of certificates representing the Performance Award is not covered by an effective registration statement filed under the Securities Act of 1933 (“Act”), the certificates so delivered may contain such legends as the Company shall require and the Participant will acquire the shares of the Performance Award for Participant’s own account and without a view to resale or distribution in violation of the Act or any other securities law, and upon any such acquisition Participant will enter into such written representations, warranties and agreements as Company may reasonably request in order to comply with the Act or any other securities law or with this Performance Award Agreement. Participant agrees that the Company shall not be obligated to take any affirmative action in order to cause the issuance or transfer of shares of the Performance Award hereunder to comply with any law, rule or regulation that applies to the shares of Common Stock subject to this Performance Award Agreement.

     12. Amendment and Termination. The Performance Award Agreement may not be terminated by the Board or the Committee at any time without the written consent of Participant. This Performance Award Agreement may be amended in writing by the Company and Participant, provided the Company may amend this Performance Award Agreement unilaterally (i) if the amendment does not adversely affect the Participant’s rights hereunder in any material respect, (ii) if the Company determines that an amendment is necessary to comply with Rule 16b-3 under the Exchange Act or other applicable law, or (iii) if the Company determines that an amendment is necessary to meet the requirements of the Code or to prevent adverse tax consequences to the Participant. No amendment or termination of the Plan will adversely affect the rights and privileges of Participant under this Performance Award Agreement or to the Common Stock granted hereunder without the written consent of Participant.

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     13. No Guarantee of Employment. Neither this Performance Award Agreement nor the Performance Award evidenced hereby shall confer upon Participant any right with respect to continuance of employment or other service with the Company or any Affiliate, nor shall it interfere in any way with any right Company or any Affiliate would otherwise have to terminate such Participant’s employment or other service at any time.

     14. Tax Matters.

     (a) Company shall have the right to (i) make deductions from the number of shares of Common Stock otherwise deliverable upon vesting of the Performance Award and satisfaction of the conditions precedent under this Performance Award Agreement in an amount sufficient to satisfy withholding of any federal, state or local taxes required by law, or (ii) take such other action as may be necessary or appropriate to satisfy any such tax withholding obligations.

     (b) Under Section 83 of the Code, the difference between the purchase price paid, if any, for the shares of Performance ``Award and their fair market value on the date of vesting when any forfeiture restrictions applicable to such shares lapse will be reportable as ordinary income at that time. Participant may elect to be taxed at the effective time of this award when the shares are acquired rather than when such shares vest and cease to be subject to such forfeiture restrictions by filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty (30) days after the date hereof. If such an election is made, Participant will have to make a tax payment to the extent the purchase price, if any, is less than the fair market value of the shares on the date hereof. No tax payment will have to be made to the extent the purchase price, if any, is at least equal to the fair market value of the shares on the date hereof. Failure to make this filing within the thirty (30) day period will result in the recognition of ordinary income by you as the shares of Restricted Stock vest and the forfeiture restrictions lapse.

     PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b) IF PARTICIPANT ELECTS TO DO SO, EVEN IF PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON PARTICIPANT’S BEHALF. PARTICIPANT MUST AND IS RELYING SOLELY ON PARTICIPANT’S OWN ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE ANY SECTION 83(b) ELECTION.

     (c) Neither Company nor the Board or Committee makes any commitment or guarantee that any federal or state tax treatment will apply or be available to any person eligible for the benefits under this Performance Award Agreement.

     15. Community Interest of Spouse. The community interest, if any, of any spouse of Participant in any Performance Award shall be subject to all of the terms, conditions and restrictions of this Performance Award Agreement and the Plan.

     16. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in paper format, Participant agrees, to the fullest extent permitted by law, to accept electronic delivery of any documents that the Company may be required to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and

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agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered by the Company. Electronic delivery may be via a Company electronic mail system or by reference to a location on a Company intranet to which Participant has access. Participant hereby consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may be required to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature.

     17. Severability. In the event that any provision of this Performance Award Agreement shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of this Performance Award Agreement, and this Performance Award Agreement shall be construed and enforced as of the illegal, invalid, or unenforceable provision had never been included herein.

     18. Governing Law. This Performance Award Agreement shall be construed in accordance with the laws of the State of Delaware to the extent federal law does not supersede and preempt Delaware law.

COMPANY:
ALLIS-CHALMERS ENERGY INC.
By:
Printed Name:
Title:
PARTICIPANT:
By:
	(signature)

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EX-21.1

Exhibit 21.1

SUBSIDIARIES

Name	Jurisdiction of Organization
Allis-Chalmers Drilling LLC	Delaware
Allis-Chalmers Holdings Inc.	Delaware
Allis-Chalmers Management LLC	Texas
Allis-Chalmers Production Services LLC	Texas
Allis-Chalmers Rental Services LLC	Texas
Allis-Chalmers Tubular Services LLC	Texas
AirComp LLC	Delaware
BCH Energy do Brasil Serviços de Petróleo Ltda	Brazil
BCH Ltd.	Alberta
DLS Argentina Limited	British Virgin Islands
DLS Drilling, Logistics and Services Company	British Virgin Islands
Petro-Rentals LLC	Louisiana
Rebel Rentals LLC	Louisiana
Strata Directional Technology LLC	Texas
Tanus Argentina S.A.	Argentina

EX-23.1

Exhibit 23.1

CONSENT OF UHY LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-146638 and 333-139058), the Registration Statements on From S-4 (Nos. 333-149326, 333-140302, and 333-136978) and the Registration Statements on Form S-8 (Nos. 333-139957 and 333-127092) of Allis-Chalmers Energy Inc. of our reports dated March 9, 2009, with respect to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appear in this Annual Report on Form 10-K for the year ended December 31, 2008.

/s/ UHY LLP
Houston, Texas
March 9, 2009

EX-31.1

EXHIBIT 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

I, Munawar Hidayatallah, certify that:

     1. I have reviewed this Annual Report on Form 10-K of Allis-Chalmers Energy Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

          (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 9, 2009 By

/s/ MUNAWAR H. HIDAYATALLAH  

Munawar H. Hidayatallah 

Chief Executive Officer and Chairman 

EX-31.2

EXHIBIT 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

I, Victor M. Perez, certify that:

     1. I have reviewed this Annual Report on Form 10-K of Allis-Chalmers Energy Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 9, 2009 By

/s/ VICTOR M. PEREZ  

Victor M. Perez 

Chief Financial Officer 

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Allis-Chalmers Energy Inc. (the “Company”), for the period ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.

Date: March 9, 2009 By:

/s/ MUNAWAR H. HIDAYATALLAH Munawar H. Hidayatallah

Chief Executive Officer

Date: March 9, 2009 By:

/s/ VICTOR M. PEREZ Victor M. Perez

Chief Financial Officer