UNITEDIndex STATESto SECURITIESFinancial AND EXCHANGE COMMISSION Washington, D. C. 20549 Statements

~~Form 10-K~~ UNITED STATES

(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, 2009
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM TO

SECURITIES AND EXCHANGE COMMISSION

~~Commission~~Washington, ~~file~~D. ~~number~~C. ~~1-2199~~ 20549

~~ALLIS~~Form 10-~~CHALMERS ENERGY~~K ~~INC.~~

(~~Exact~~Mark ~~name of registrant as specified in its charter~~One)

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

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~(713)~~FOR THE FISCAL YEAR ENDED DECEMBER ~~369-0550~~ 31, 2010

~~Registrant’s~~OR ~~telephone number, including area code~~

~~SECURITIES~~¨ ~~REGISTERED~~TRANSITION REPORT PURSUANT TO SECTION 12 13 OR 15(bd) OF THE SECURITIES EXCHANGE ACT: OF 1934

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

FOR THE TRANSITION PERIOD FROM TO

~~SECURITIES~~Commission ~~REGISTERED~~file ~~PURSUANT~~number TO1-2199 ~~SECTION 12(g) OF THE ACT:~~

~~NONE~~ ALLIS-CHALMERS ENERGY INC.

~~Indicate~~(Exact byname ~~check~~of ~~mark if the~~ registrant ~~is a well-known seasoned issuer,~~ as ~~defined~~specified in ~~Rule 405~~its ofcharter) ~~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) of the Act. Yes o No þ


Delaware		27-3321250
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11125 EQUITY DRIVE, SUITE 200, HOUSTON, TEXAS		77041
(Address of principal executive offices)		(Zip code)

~~Indicate by check mark whether the registrant~~ (1713) ~~has filed~~ ~~all~~856-4222 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~~Registrant’s bytelephone ~~check mark whether the registrant has submitted electronically and posted on it corporate Website~~number, ifincluding ~~any,~~area ~~every Interactive~~code Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

~~Indicate~~SECURITIES byREGISTERED ~~check~~PURSUANT ~~mark~~TO ~~if disclosure of delinquent filers pursuant to Item~~SECTION ~~405 of Regulation S-K~~ 12(~~§ 229.405 of this chapter~~b) isOF ~~not~~THE ~~contained~~ACT: ~~herein, and~~None 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~~SECURITIES byREGISTERED ~~check~~PURSUANT ~~mark~~TO ~~whether~~SECTION 12(g) ~~the~~OF ~~registrant~~THE isACT: aNONE 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~~Indicate ~~accelerated~~by ~~filer~~check omark ~~Accelerated~~if ~~filer~~the þregistrant ~~Non~~is a well-~~accelerated~~known ~~filer~~seasoned oissuer, ~~Smaller~~as ~~reporting~~defined ~~company~~in oRule 405 of the Securities Act. Yes ¨ No þ

~~(Do~~Indicate ~~not~~by check mark if athe ~~smaller~~registrant ~~reporting~~is ~~company~~not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant is(1) has afiled ~~shell~~all ~~company (as~~reports ~~defined~~required ~~in Rule~~to be filed by Section ~~12b-2~~ 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)~~. Yes~~, and (2) ~~o No~~has been subject to such filing requirements for the past 90 days. Yes þ No ¨

~~The~~Indicate ~~aggregate~~by ~~market~~check ~~value~~mark ofwhether the ~~common~~registrant ~~equity~~has ~~held~~submitted ~~by non-affiliates~~electronically ofand ~~the~~posted ~~registrant~~on it corporate Website, ~~computed~~if ~~using~~any, ~~the~~every ~~closing~~Interactive ~~price~~Data ofFile ~~the~~required ~~common~~to ~~stock~~be submitted and posted pursuant to Rule 405 of $2Regulation S-T (§ 232.31405 ~~per~~of ~~share~~this onchapter) ~~June~~during the preceding 12 ~~30, 2009,~~months as(or ~~reported~~for onsuch ~~the~~shorter ~~New~~period ~~York~~that ~~Stock~~the ~~Exchange,~~registrant was required to submit and post ~~approximately~~such ~~$94,383,251~~files). Yes ¨ No ¨

AsIndicate by check mark if disclosure of ~~February~~delinquent filers pursuant to Item 26405 of Regulation S-K (§229.405 of this chapter) is not contained herein, ~~2010~~and ~~there~~will ~~were~~not 71be contained,~~459~~ to the best of registrant’s knowledge,~~876~~ in definitive proxy or information statements incorporated by reference in Part ~~shares~~ III of ~~common~~this ~~stock~~Form 10-K ~~issued~~or ~~and~~any ~~outstanding.~~amendment to this Form 10-K. ¨

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

~~Certain~~Large ~~information~~accelerated ~~called~~filer ~~for~~¨ byAccelerated ~~Items 10,~~filer ~~11,~~þ ~~12, 13 and 14 of Part III will be included in an amendment to this annual report on Form 10~~Non-~~K or~~accelerated ~~incorporated~~filer by¨ ~~reference~~(Do ~~from~~not ~~the~~check ~~registrant’s definitive~~if ~~proxy~~a ~~statement~~smaller ~~for~~reporting ~~its~~company) ~~2010~~Smaller ~~annual~~reporting ~~meeting~~company ~~of stockholders.~~ ¨

~~TABLE~~Indicate OFby check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ~~CONTENTS~~ Act). Yes ¨ No þ

			Page
PART I
	Item 1.	Business		5
	Item 1A.	Risk Factors		12
	Item 1B.	Unresolved Staff Comments		24
	Item 2.	Properties		24
	Item 3.	Legal Proceedings		25
	Item 4.	[Reserved]		26
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
	Item 6.	Selected Financial Data		29
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		45
	Item 8.	Financial Statements and Supplementary Data		47
	Item 9.	Changes and Disagreements with Accountants on Accounting and Financial Disclosure		91
	Item 9A.	Controls and Procedures		91
	Item 9B.	Other Information		92
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		93
	Item 11.	Executive Compensation		93
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		93
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		93
	Item 14.	Principal Accounting Fees and Services		93
PART IV
	Item 15.	Exhibits and Financial Statement Schedules		93
		Signatures and Certifications		95
EX-3.7
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1

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 $2.06 per share on June 30, 2010, as reported on the New York Stock Exchange, was approximately $73,905,369.

As 2 of March 1, 2011 there were 1,000 shares of common stock issued and outstanding.

Allis-Chalmers Energy Inc. meets the conditions set forth in general instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.

DEFINITIONS Index to Financial Statements

“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.
“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 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.

TABLE OF CONTENTS


		Page
	PART I

Item 1.	Business	- 5 -
Item 1A.	Risk Factors	- 10 -
Item 1B.	Unresolved Staff Comments	- 19 -
Item 2.	Properties	- 20 -
Item 3.	Legal Proceedings	- 20 -
Item 4.	[Reserved]	- 22 -

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	- 22 -
Item 6.	Selected Financial Data	- 24 -
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	- 24 -
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	- 33 -
Item 8.	Financial Statements and Supplementary Data	- 34 -
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	- 72 -
Item 9A.	Controls and Procedures	- 72 -
Item 9B.	Other Information	- 73 -

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	- 73 -
Item 11.	Executive Compensation	- 73 -
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	- 73 -
Item 13.	Certain Relationships and Related Transactions, and Director Independence	- 73 -
Item 14.	Principal Accounting Fees and Services	- 73 -

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	- 74 -
	Signatures and Certifications	- 75 -

- 2 -

“spiralIndex 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 testFinancial the connections of well heads and the blow out preventors. “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. “underbalanced drilling” A technique in which oil, natural gas, or geothermal wells are drilled by creating a pressure within the well that is lower than the reservoir pressure. The result is increased rate of penetration, reduced formation damage and reduced drilling costs. “wear bushings” A device placed inside a wellhead to protect the wellhead from wear. “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.Statements

4 DEFINITIONS



“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.

“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 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.

“tubing”		A pipe placed inside the casing to allow the well to produce.

- 3 -

SPECIAL NOTE REGARDINGIndex FORWARD-LOOKINGto STATEMENTS Financial Statements

~~This~~“tubing ~~annual~~work ~~report~~strings” ~~contains~~The ~~forward-looking~~tubing ~~statements~~used ~~within the~~on ~~meaning~~workover ofrigs ~~Section 27A~~through ofwhich ~~the~~high ~~Securities~~pressure ~~Act of 1933~~liquids, as ~~amended,~~gases or ~~the~~mixtures ~~Securities~~are ~~Act,~~pumped ~~regarding~~into ~~our~~a ~~business, financial~~well ~~condition,~~to ~~results~~perform ofproduction operations. ~~and~~“underbalanced ~~prospects.~~drilling” ~~Words such~~A astechnique ~~expects,~~in ~~anticipates,~~which ~~intends~~oil, ~~plans,~~natural ~~believes~~gas, ~~seeks, estimates~~or ~~and~~geothermal ~~similar~~wells ~~expressions~~are ordrilled ~~variations~~by ofcreating ~~such~~a ~~words are~~pressure ~~intended~~within tothe ~~identify~~well ~~forward-looking~~that ~~statements.~~is ~~However, these~~lower ~~are~~than ~~not~~ the ~~exclusive~~reservoir ~~means~~pressure. ofThe ~~identifying~~result ~~forward-looking statements.~~is ~~Although~~increased ~~such~~rate ~~forward-looking~~of ~~statements~~penetration, ~~reflect~~reduced ~~our good~~formation ~~faith~~damage ~~judgment,~~and ~~such~~reduced ~~statements~~drilling ~~can~~costs. ~~only~~“wear bebushings” ~~based~~A ondevice ~~facts and~~placed ~~factors~~inside ~~currently~~a ~~known~~wellhead to ~~us.~~protect ~~Consequently,~~the ~~forward-looking statements~~wellhead ~~are~~from ~~inherently~~wear. ~~subject~~“workover rigs” Similar to ~~risks~~a ~~and~~land ~~uncertainties~~drilling rig, ~~and~~ ~~actual~~however, ~~outcomes~~they ~~may~~are ~~differ~~smaller ~~materially~~than ~~from~~ the ~~results~~drilling ~~and outcomes~~rig ~~discussed~~for in the ~~forward-looking~~same ~~statements~~depth of well. These ~~factors~~ ~~include,~~rigs ~~but~~ are ~~not~~used ~~limited~~ to, complete the ~~following:~~ drilled wells or to repair them whenever necessary.

•- ~~the~~4 impact of the weak economic conditions and the future impact of such conditions on the oil and natural 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 impact of customer defaults and related bad debt expense; • the potential impairment in the carrying value of goodwill and other acquired intangible assets; • the risks associated with doing business outside the U.S., including currency exchange rates; • 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 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 — 12 — 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, Louisiana, Arkansas, Pennsylvania, Oklahoma, New Mexico, offshore in the Gulf of Mexico, and internationally primarily in Argentina, Brazil, Bolivia and Mexico. 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.

OurIndex growth strategy is focused on identifying and pursuing opportunities in markets, products and services we believe will grow faster than the overall oilfield services industry and opportunities which we believe help us to mitigateFinancial cyclical risk by diversifying our cash flow, both domestically and internationally. 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. Currently, as part of our strategic plan, we are focusing on international growth opportunities. We also continually assess the strategic fit of our existing businesses and may divest businesses that are deemed not to fit with our strategic plan or are not achieving the desired return on investment. Statements

~~Our History~~ SPECIAL NOTE

WeREGARDING ~~were~~FORWARD-LOOKING ~~incorporated~~STATEMENTS 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, which was sold in December 2001.

InThis ~~May~~annual ~~2001,~~report ~~under~~contains forward-looking ~~new~~statements ~~management,~~within wethe ~~embarked~~meaning onof aSection 27A ~~new course~~ of ~~direction into~~ the ~~oilfield~~Securities ~~service~~Act ~~industry.~~of ~~Since~~1933, ~~2001~~as amended, ~~we have~~or ~~completed~~the 24Securities ~~acquisitions~~Act, ~~including~~regarding ~~six~~our ~~in 2005~~business, ~~six~~financial ~~in 2006~~condition, ~~four~~results inof ~~2007~~operations and ~~one in 2008~~prospects. ~~Our~~Words ~~first~~such ~~series~~as ofexpects, anticipates, ~~acquisitions~~intends, ~~became~~plans, ~~the~~believes, ~~backbone~~seeks, ofestimates ~~our~~and ~~Oilfield~~similar ~~Services segment.~~expressions Inor ~~May~~variations ~~2001~~of wesuch ~~entered~~words ~~the~~are ~~underbalanced~~intended ~~drilling market~~to ~~and~~identify ~~then~~forward-looking instatements. ~~February~~However, ofthese ~~2002~~are wenot ~~entered~~ the ~~directional drilling~~exclusive ~~business~~means ~~and~~of ~~the~~identifying ~~tubular~~forward-looking ~~services business~~statements. InAlthough ~~December~~such ~~2004,~~forward-looking westatements ~~entered~~reflect ~~the~~our ~~production~~good ~~services~~faith ~~business.~~judgment, Wesuch ~~have improved~~statements ~~our~~can ~~product~~only ~~line~~be ~~offerings~~based byon ~~completing~~facts ~~additional acquisitions~~and ~~for~~factors ~~all~~currently ~~product~~known ~~lines~~to us. WeConsequently, ~~also~~forward-looking ~~disposed~~statements ofare ~~some nonstrategic~~inherently ~~assets~~subject into ~~our~~risks ~~production~~and ~~services~~uncertainties, ~~business~~and inactual ~~June~~outcomes ~~2007~~may ~~and~~differ inmaterially ~~our~~from ~~tubular~~the ~~services~~results ~~business~~and outcomes discussed in ~~August~~the ~~2008~~forward-looking statements. These factors include, but are not limited to, the following:

In• ~~September~~the ~~2004,~~impact weof ~~entered~~ the ~~Rental~~weak ~~Services~~economic ~~market~~conditions ~~which we subsequently expanded with acquisitions in April 2005~~ and ~~January~~ ~~and~~the ~~December~~future ~~2006.~~impact ~~As a result~~ of ~~these~~such ~~acquisitions,~~conditions ~~we are~~on ~~now~~the aoil ~~major~~and ~~provider~~natural ofgas ~~oilfield~~industry ~~rental~~and ~~tools~~demand ~~primarily~~for ~~in the~~our ~~Gulf Coast region of the U.S.~~ services;

In• ~~August~~unexpected ~~2006,~~future wecapital ~~entered~~expenditures (including the ~~Drilling~~amount and ~~Completion~~nature business with the acquisition of DLS Drilling, Logistics & Services Corporation, or DLS, in Argentina. Subsequently, in December 2008 we increased our business in this segment with the acquisition of BCH Ltd, or BCH, in Brazil. In addition, we are building a drilling presence in the U.S. by building new drilling rigs. thereof);

As• aunexpected ~~result~~difficulties ofin ~~these~~integrating ~~transactions,~~ our ~~prior~~operations ~~results~~as ~~may~~a ~~not~~result ~~be indicative~~ of ~~current~~any orsignificant ~~future operations. Segment and geographic financial information appears in “Item 8. Financial Information — Notes to Consolidated Financial Statements — Note 15.”~~ acquisitions;

~~Our Industry~~ • adverse weather conditions in certain regions;

~~The~~• ~~oilfield industry is highly cyclical. The most critical factor in assessing~~ the ~~outlook~~impact ~~for~~of ~~the~~political ~~industry~~disturbances, 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 increaseswar, ~~producers~~ ~~raise~~or ~~their~~terrorist ~~prices.~~attacks ~~The price escalation enables producers to increase their capital expenditures. The increased capital expenditures ultimately result in greater revenues~~ and ~~profits~~ ~~for~~changes ~~services and equipment companies. The increased capital expenditures also ultimately result~~ in ~~greater production~~global ~~which~~trade ~~historically has resulted in increased supplies and reduced prices.~~ policies;

~~Demand~~• ~~for our services generally increased from 2004 through 2007. Activity in~~ the ~~U.S. Gulf~~availability of(or ~~Mexico,~~lack ~~however decreased~~thereof) ~~in the second half~~ of ~~2007~~capital ~~due~~ to ~~the~~fund ~~hurricane season and relocation of offshore rigs to more attractive international markets. Demand for~~ our ~~services~~business ~~for~~strategy ~~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., according to Baker Hughes, 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 operations;

6 • 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 impact of customer defaults and related bad debt expense;

•

the potential impairment in the carrying value of goodwill and other acquired intangible assets;

•

the risks associated with doing business outside the United States, including currency exchange rates;

•

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 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 - 10 - 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 United States including Texas, Louisiana, Pennsylvania, West Virginia, Wyoming, Oklahoma, offshore in the Gulf of Mexico, and internationally primarily in Argentina, Brazil, Bolivia and Mexico. 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, products and services we believe will grow faster than the overall oilfield services industry and opportunities which we believe help us to mitigate cyclical risk by diversifying our cash flow, both domestically and internationally. 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.

- 5 -

pricesIndex and the turmoil in the financial markets which affected the availability of capital for our customers. The Baker Hughes U.S. rig count decreased to 876Financial in June 2009 and then gradually began to improve in response to increased prices and more stable natural gas prices. As of February 26, 2010, the Baker Hughes U.S. rig count stood at 1,373. Statements

~~Business Segments~~ Our History

We ~~conduct~~were incorporated in 1913 under Delaware law. We reorganized in bankruptcy in 1988 and sold all of our ~~operations~~major ~~through~~businesses. ~~three~~From ~~principal~~1988 ~~segments:~~to May 2001, we had only one operating company in the equipment repair business, which was sold in December 2001.

•In ~~Oilfield~~May ~~Services.~~2001, ~~This~~under ~~segment~~new ~~includes~~management, ~~the~~we ~~following~~embarked on a new course of direction into the oilfield service ~~divisions:~~industry. ~~directional~~Since ~~drilling~~2001, ~~services~~we have completed 25 acquisitions, ~~casing~~including ~~and~~six ~~tubular~~in ~~services~~2005, ~~underbalanced~~six ~~drilling~~in ~~services~~2006, ~~and~~four ~~production~~in ~~services.~~2007, •one ~~Drilling~~in 2008 and ~~Completion~~one in 2010. ~~This~~Our first series of acquisitions became the backbone of our Oilfield Services segment. ~~includes~~In May ~~drilling~~2001, ~~completion,~~we ~~workover~~entered the underbalanced drilling market and ~~related~~then in February of 2002 we entered the directional drilling business and the tubular services business. •In ~~Rental~~December ~~Services~~2004, we entered the production services business. ~~This~~We ~~segment~~have ~~includes~~improved ~~the~~our product ~~rental~~line offerings by completing additional acquisitions for all product lines. We also disposed of ~~specialized~~some ~~oilfield~~nonstrategic ~~equipment~~assets in our production services business in June 2007 and in our tubular services business in August 2008.

~~Oilfield~~In ~~Services. We~~September ~~utilize state-of-the-art equipment to provide well planning and engineering services~~2004, ~~directional~~ ~~drilling~~we ~~packages,~~entered ~~downhole~~the ~~motor~~Rental ~~technology,~~Services ~~well site~~market ~~directional~~which ~~supervision,~~we ~~exploratory~~subsequently ~~and~~expanded ~~development re-entry~~with ~~drilling,~~acquisitions ~~downhole~~in ~~guidance~~April ~~services~~2005 and ~~other~~January ~~drilling~~and ~~services~~December ~~to our customers, including measurement-while-drilling (MWD) services~~2006. WeIn ~~provide~~July ~~compressed air equipment~~2010, ~~chemicals and~~we ~~other~~acquired ~~specialized~~American ~~products~~Well ~~for~~Control, ~~underbalanced drilling and production applications~~Inc., Weor ~~also~~AWC, ~~provide~~as ~~specialized~~an ~~equipment and~~expansion ~~trained~~of ~~operators~~our toportfolio ~~perform a variety~~ of ~~pipe handling~~ services, ~~including~~in ~~installing~~our ~~casing~~Rental ~~and~~Services ~~tubing,~~segment. ~~changing~~AWC ~~out drill~~is ~~pipe~~a ~~and~~leading ~~retrieving~~manufacturer ~~production~~of ~~tubing~~premium ~~for~~high-pressure ~~both~~valves ~~onshore~~used ~~and offshore~~in ~~drilling~~hydraulic ~~and~~fracturing ~~workover~~in the ~~operations,~~unconventional ~~which~~gas weshale ~~refer~~plays. toAs ~~as tubular~~a ~~services.~~result Inof ~~addition~~these acquisitions, we ~~provide~~are now a ~~variety~~major provider of ~~quality production-related~~oilfield rental tools ~~and~~primarily ~~equipment~~in ~~and~~the ~~services, including~~Gulf ~~wire~~Coast ~~line~~region ~~support~~of ~~services~~the ~~and~~United ~~coiled tubing~~States.

~~According~~In toAugust ~~Baker Hughes~~2006, aswe ofentered ~~February 26, 2010, 67% of~~ the ~~active~~Drilling ~~drilling~~and ~~rigs~~Completion inbusiness with the ~~U.S. were~~acquisition ~~drilling directionally and/or horizontally.~~of WeDLS ~~believe~~Drilling, ~~directional~~Logistics & ~~drilling offers several~~Services ~~advantages~~Corporation, ~~over~~or ~~conventional~~DLS, ~~drilling~~in ~~including: 1) improvement~~Argentina. ofSubsequently, ~~total~~in ~~cumulative~~December ~~recoverable~~2008, ~~reserves; 2) improved~~we ~~reservoir~~increased ~~production~~our ~~performance~~business ~~beyond conventional~~in ~~vertical~~this ~~wells;~~segment ~~and~~with ~~3) reduction~~the acquisition of ~~the~~BCH ~~number of~~Ltd, ~~field~~or ~~development~~BCH, ~~wells~~in Brazil.

InOn ~~2007~~August 12, 2010, we ~~expanded~~entered ~~our~~into ~~directional drilling capability by completing three acquisitions for~~ a ~~total~~merger ofagreement ~~approximately $37.3 million.~~with ~~These~~Seawell ~~were~~Limited, ~~Coker~~or ~~Directional~~Seawell, ~~Inc.~~and ~~(June 2007),~~Wellco ~~Diggar~~Sub ~~Tools~~Company, ~~LLC~~a ~~(July~~wholly ~~2007) and~~owned ~~substantially~~subsidiary ~~all~~ of ~~the~~Seawell. ~~assets~~On ofFebruary 23, ~~Diamondback Oilfield Services~~2011, ~~Inc.~~the ~~(November~~merger ~~2007).~~transactions ~~These~~closed ~~acquisitions~~and ~~provided~~we ~~additional~~merged ~~directional drillers,~~with ~~downhole motors,~~ and ~~MWD~~into ~~tools~~Wellco ~~and~~Sub ~~enabled~~Company, usbecoming ~~to expand~~a ~~our~~wholly ~~presence~~owned insubsidiary ~~the~~of ~~Northern~~Seawell ~~Rockies~~under ~~and~~ the ~~Mid-Continent~~ ~~areas.~~name We“Allis-Chalmers ~~currently~~Energy ~~maintain an inventory of approximately 315 drilling motors~~Inc.” ~~Our~~Following ~~straight-hole~~the ~~motors offer~~merger, anSeawell ~~opportunity~~and toits ~~capture~~subsidiaries, ~~additional~~including ~~market~~us, ~~share.~~have Webegun ~~currently~~operating ~~provide~~under ~~directional~~the ~~drilling~~name ~~services~~Archer; ~~primarily in Texas~~however, ~~Pennsylvania,~~our ~~Louisiana,~~legal ~~Oklahoma~~name ~~and~~will ~~offshore~~remain in“Allis-Chalmers ~~the Gulf~~Energy ofInc.” ~~Mexico~~until further notice.

~~All~~As ~~wells~~a ~~drilled~~result ~~for~~of ~~oil~~these ~~and~~transactions, ~~natural~~our ~~gas~~prior ~~require~~results ~~casing~~may tonot be ~~installed~~ ~~for~~indicative ~~drilling,~~of ~~and~~current ifor ~~the~~future ~~well~~operations. isSegment ~~producing,~~and ~~tubing will~~geographic befinancial ~~required~~information appears in ~~the~~“Item ~~completion phase~~8. WeFinancial ~~currently provide~~Information ~~tubular~~– ~~services~~Notes ~~primarily~~to inConsolidated ~~Texas,~~Financial ~~Louisiana~~Statements ~~and~~– ~~both~~Note ~~onshore and offshore in the Gulf of Mexico and Mexico~~15. ”

WeOur ~~expanded~~Industry our tubular services in October 2007 by acquiring Rebel Rentals, Inc., or Rebel, 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 August 2008, we sold our drill pipe tong manufacturing assets for approximately $7.5 million.

~~Underbalanced~~The ~~drilling~~oilfield ~~shortens~~industry ~~the~~is ~~time~~highly ~~required~~cyclical. toThe ~~drill~~most ~~a well~~critical ~~and~~factor ~~enhances~~in ~~production~~assessing bythe ~~minimizing~~outlook ~~formation~~for ~~damage. There~~the industry is athe ~~trend~~worldwide insupply ~~the~~and demand ~~industry~~for tooil ~~drill,~~and ~~complete~~the domestic supply and ~~workover wells~~demand ~~with~~for ~~underbalanced~~natural ~~operations~~gas. WeThe ~~currently~~industry ~~have~~is ~~a combined~~driven ~~fleet~~by ofcommodity ~~approximately~~demand ~~185 compressors, boosters~~ and ~~foam~~corresponding ~~units~~price ~~and~~increases. weAs ~~believe~~demand weincreases, ~~are~~producers ~~one~~raise oftheir ~~the~~prices. ~~largest providers~~The ofprice ~~underbalanced~~escalation ~~drilling~~enables ~~services~~producers into ~~the United~~increase ~~States.~~their Wecapital ~~also~~expenditures. ~~provide~~The ~~premium~~increased ~~air~~capital ~~hammers~~expenditures ~~and~~ultimately ~~bits~~result toin ~~oil~~greater revenues and ~~natural~~ ~~gas~~profits ~~companies~~ for ~~use~~services inand ~~underbalanced~~equipment ~~drilling~~companies. ~~Our broad~~The ~~and~~increased ~~diversified~~capital ~~product~~expenditures ~~line~~also ~~enables~~ultimately usresult ~~to compete~~ in ~~the underbalanced~~greater ~~market~~production ~~with~~which ~~equipment and services packages~~historically ~~engineered~~has ~~and~~resulted ~~customized~~in toincreased ~~specifically~~supplies ~~meet~~and ~~customer requirements~~reduced prices. ~~We currently~~

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 United States, according to Baker Hughes, peaked at 2,031 in August of 72008. In the last quarter of 2008, the rig count in the United States began to drop due to the weakening United States 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. The Baker Hughes United States rig count decreased to 876 in June 2009 and then gradually began to improve in response to increased prices and more stable natural gas prices. As of March 4, 2011, the Baker Hughes United States rig count stood at 1,707.

Business Segments

We conduct our operations through three principal segments:

•

Oilfield Services. This segment includes the following oilfield service divisions: directional drilling services, casing and tubular services, underbalanced drilling services and production services.

•

Drilling and Completion. This segment includes drilling, completion, workover and related services.

•

Rental Services. This segment includes the rental of specialized oilfield equipment.

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provideIndex underbalancedto drillingFinancial services primarily in Arkansas, Pennsylvania, New Mexico, Texas, Oklahoma and California. Statements

Oilfield Services. We utilize state-of-the-art equipment to provide well ~~Our~~planning ~~production~~and engineering services, ~~product~~directional ~~line~~drilling ispackages, ~~focused~~downhole onmotor ~~coiled~~technology, ~~tubing services~~well site directional supervision, exploratory and ~~rental~~development ofre-entry ~~various~~drilling, ~~tools~~downhole ~~used~~guidance inservices ~~the~~and ~~production~~other drilling services to our customers, ~~process~~including measurement-while-drilling (MWD) services. We ~~sold~~provide ~~our~~compressed ~~capillary~~air ~~tubing~~equipment, ~~units~~chemicals and ~~related equipment~~other specialized products for ~~approximately~~underbalanced ~~$16~~drilling and production applications.~~3 million~~ We also provide specialized equipment and ~~reported~~trained aoperators to ~~gain~~perform a variety of ~~approximately~~pipe ~~$8.9 million~~handling inservices, ~~June~~including ~~2007.~~installing ~~The~~casing ~~assets sold~~and ~~represented~~tubing, achanging ~~small~~out ~~portion~~drill ofpipe ~~our~~and ~~Oilfield~~retrieving ~~Services segment.~~production Wetubing ~~currently~~for ~~provide~~both ~~production~~onshore ~~services~~and ~~primarily~~offshore indrilling and workover operations, which we refer to as tubular services. In ~~Texas~~addition, we ~~Arkansas~~provide a variety of quality production-related rental tools and equipment and services, ~~Louisiana~~including wire line support services and ~~West~~coiled ~~Virginia~~tubing.

~~Drilling~~According ~~and~~to ~~Completion. We~~Baker ~~provide drilling~~Hughes, ~~completion,~~ ~~workover~~as ~~and related services for oil and natural gas wells. We operate out~~ of ~~the San~~March ~~Jorge~~4, ~~Cuyan~~2011, ~~Neuquen, Austral~~71% ~~and~~of ~~Noroeste~~the ~~basins~~active ofdrilling ~~Argentina~~rigs ~~and~~in the ~~Espirito~~United ~~Santo, Potiguar,~~States ~~Reconcavo~~were ~~and~~drilling ~~Sergipe~~directionally ~~basins of Brazil~~ and/or ~~in Bolivia~~horizontally. We ~~also~~believe ~~offer~~directional adrilling ~~wide~~offers ~~variety~~several advantages ofover ~~other~~conventional ~~oilfield services such as~~ drilling ~~fluids~~including: ~~and~~1) ~~completion~~improvement ~~fluids~~of ~~and~~total ~~engineering~~cumulative ~~and logistics~~recoverable toreserves; ~~complement~~2) ~~our~~improved ~~customers’~~reservoir ~~field~~production ~~organization. We~~performance ~~provide~~beyond ~~the~~conventional ~~rigs~~vertical wells; and ~~drilling~~3) ~~crews~~reduction ~~and we also provide rig management services on a variety~~ of ~~rigs,~~the ~~consisting~~number of ~~technical~~ ~~drilling~~field ~~assistance, personnel, repair and maintenance~~development ~~services and drilling operation management services~~wells.

~~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~~maintain aan ~~fleet~~inventory of ~~76 land rigs,~~approximately ~~including~~338 17 drilling ~~rigs~~motors ~~and~~which 47are ~~service~~utilized ~~rigs (workover and pulling units)~~ in ~~Argentina,~~our ~~eight~~directional drilling ~~rigs and one~~ ~~service rig in Brazil and three drilling rigs in Bolivia~~services. ~~In 2007,~~Our westraight-hole ~~placed~~motors ~~orders~~offer ~~for~~an ~~four~~opportunity ~~drilling~~to ~~rigs~~capture ~~and~~additional 16market ~~service rigs~~share. ~~All~~We ofcurrently ~~the~~provide ~~service~~directional ~~rigs and one of the~~ drilling ~~rigs~~services ~~were placed~~primarily ~~into service~~ in ~~Argentina~~Texas, ~~at various dates in 2008. A second drilling rig was activated in Argentina in March 2009. The remaining two drilling rigs were substantially completed during 2009. However~~Wyoming, currently both of the drilling rigs are at the original manufacturer’s facility for modification or improvements and we are uncertain as to when these rigs will be available for service. Additionally in 2008 we placed orders for two 1600 horsepower drilling rigs for the U.S. market from a different manufacturer. As a result of industry market conditions in late 2008 and 2009Pennsylvania, ~~completion~~Louisiana and ~~delivery of these rigs was suspended~~Oklahoma. ~~It is currently expected that these rigs will be delivered in the second and fourth quarters of 2010.~~

~~Rental~~All 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~~casing ~~form~~to ofbe ~~rental~~installed ~~equipment~~for ~~in both the~~ drilling , and ~~completion~~if ofthe a well. Weis ~~have an inventory of specialized equipment~~producing, ~~which~~tubing ~~includes~~will ~~double studded adapters, test plugs,~~be ~~wear~~required ~~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~~ ofcompletion ~~inspection, repairs and lost or damaged equipment~~phase. We currently provide ~~rental~~tubular ~~equipment~~services primarily in Texas, Louisiana, ~~Oklahoma,~~and both onshore and offshore in the Gulf of Mexico and ~~internationally~~ in Mexico~~, Columbia and Egypt~~.

Underbalanced drilling shortens the time required to drill a well and enhances production by minimizing formation damage. We currently have a combined fleet of approximately 233 compressors, boosters and foam units which are utilized in our underbalanced services. 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 ~~Competitive~~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. We currently provide ~~Strengths~~ underbalanced drilling services primarily in Pennsylvania, Arkansas, West Virginia, New Mexico and Texas.

Our production Weservices ~~believe~~product line is focused on coiled tubing services and rental of various tools used in the ~~following~~production ~~competitive~~process. ~~strengths~~We ~~will~~currently ~~enable~~provide usproduction ~~to capitalize~~services onprimarily ~~future~~in ~~opportunities:~~ Texas, Louisiana, West Virginia and Pennsylvania.

~~Strategic~~Drilling ~~position~~and ~~in high growth markets~~Completion. We ~~focus~~ onprovide ~~markets~~drilling, ~~products~~completion, workover and related services wefor ~~believe~~oil ~~are~~and ~~growing faster~~natural ~~than~~gas wells. We service the ~~overall~~San ~~oilfield~~Jorge, ~~services~~Cuyan, ~~industry~~Neuquen, Austral and inNoroeste ~~which we~~basins ~~can~~of ~~capitalize~~Argentina onand ~~our~~the ~~competitive~~Espirito ~~strengths.~~Santo, ~~Pursuant~~Potiguar, toReconcavo, ~~this strategy~~Sergipe/Alagoas, weSao ~~have~~Francisco ~~become~~and aCampos ~~significant~~basins ~~provider~~ of ~~products~~Brazil and ~~services~~ in ~~directional~~Bolivia. ~~drilling,~~We ~~casing~~also ~~and~~offer ~~tubing,~~a wide variety of other oilfield services ~~underbalanced~~such ~~drilling,~~as drilling fluids and completion fluids and ~~rental services~~engineering and logistics to complement our customers’ field organization. We ~~also~~provide ~~have~~the anrigs ~~established~~and ~~presence~~drilling increws ~~certain international~~and ~~markets~~we ~~which~~also provide ~~additional~~rig ~~opportunities~~management ~~for~~services on a variety of rigs, consisting of ~~growth~~technical drilling assistance, personnel, repair and ~~diversification~~maintenance ofservices ~~cash~~and ~~flow~~drilling operation management services.

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. 8In 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 77 land rigs, including 18 drilling rigs and 48 service rigs (workover and pulling units) in Argentina, seven drilling rigs and one service rig in Brazil and three drilling rigs in Bolivia. 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 in Argentina at various dates in 2008. A second drilling rig was activated in Argentina in March 2009. The remaining two drilling rigs were sold to the manufacturer due to an operational problem and we realized a $10.6 million loss on the transaction in 2010. Additionally in 2008, we placed orders for two 1600 horsepower drilling rigs from a different manufacturer and both of those rigs were completed in the fourth quarter of 2010. One of those rigs was placed in service in Texas in January 2011, while the remaining rig has been awarded a two year contract in Argentina and it will be mobilized there.

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StrongIndex relationshipsto withFinancial diversified customer base. We have strong relationships with many of the major and independent oil and natural gas producers and service companies in Texas, Louisiana, Arkansas, Pennsylvania, Oklahoma, New Mexico, offshore in the Gulf of Mexico, Argentina, Brazil, Bolivia and Mexico. Our largest customers include Pan American Energy LLC Sucursal Argentina, or Pan American Energy, Petroleo Brasileiro S.A, or Petrobras, Repsol-YPF, Chesapeake Energy, Apache Corporation, Anadarko Petroleum, Occidental Petroleum, BP, Devon Energy, and Materiales y Equipo Petroleo. 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. Statements

~~Successful~~Rental ~~execution~~Services. We ofprovide ~~growth~~specialized ~~strategy. Over~~oilfield rental equipment, including ~~the~~premium ~~past~~drill ~~seven~~pipe, ~~years~~spiral heavy weight drill pipe, wetubing ~~have~~work ~~grown~~strings, blow out preventors, choke manifolds and various valves and handling tools, for both ~~organically~~onshore and ~~through successful~~offshore ~~acquisitions~~well ofdrilling, ~~competing~~completion ~~businesses~~and workover operations. ~~Since~~Most ~~2001,~~wells wedrilled ~~have~~for ~~completed~~oil 24and ~~acquisitions.~~natural Wegas ~~strive~~require tosome ~~improve~~form of rental equipment in both the ~~operating~~ ~~performance~~drilling and completion of ~~our~~a ~~acquired~~well. ~~businesses~~We byhave ~~increasing their~~an ~~asset~~inventory ~~utilization~~of ~~and~~specialized ~~operating~~equipment, ~~efficiency.~~which ~~These acquisitions~~includes ~~and~~double ~~organic~~studded ~~growth~~adapters, ~~through~~test ~~our~~plugs, ~~capital expenditures~~wear ~~program~~bushings, ~~have~~adaptor ~~expanded~~spools, baskets, spacer spools and other assorted handling tools in various sizes to meet our ~~geographic~~customers’ ~~presence~~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 ~~customer~~equipment. ~~base~~We ~~and,~~currently provide rental equipment primarily in ~~turn~~Texas, ~~have~~Louisiana, ~~enabled~~Pennsylvania, usoffshore toin ~~cross-sell various~~the ~~products~~Gulf of Mexico and ~~services~~internationally in Mexico, Columbia and Egypt.

~~Diversified~~Customers 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 and revenue streams when compared to the volatility in the U.S. domestic market. Additionally, the international markets are primarily driven by oil prices compared to the natural gas focus of the U.S. domestic market.

In 2010, 2009 and 2008, one of our customers, Pan American Energy, or PAE, ~~Experienced~~represented ~~management~~approximately ~~team~~31. ~~Our~~1%, ~~executive management~~35.5% ~~team~~and ~~has~~28.5% ~~extensive~~of ~~experience~~our inconsolidated ~~the~~revenues, ~~energy~~respectively. ~~sector~~PAE is now wholly owned by Bridas Corporation, and ~~consequently~~Bridas ~~has~~Corporation ~~developed~~is ~~strong~~owned 50% by Bridas Energy Holdings Ltd and ~~longstanding~~50% by CNOOC International ~~relationships~~Limited. Alejandro ~~with~~P. ~~many~~Bulgheroni, one of the ~~major~~directors ~~and~~of ~~independent~~our ~~exploration~~ parent company, may be deemed to indirectly beneficially own 50% of the outstanding capital stock of Bridas Energy Holdings Ltd and ~~production~~is ~~companies~~a member of the Management Committee of PAE. The loss without replacement of any of our larger existing customers could have a material adverse effect on our results of operations.

~~Business Strategy~~ Suppliers

The ~~key~~equipment utilized ~~elements~~in our business is generally available new from manufacturers or at auction. However, the cost of acquiring new equipment to expand our ~~long-term~~business ~~strategy~~could ~~include:~~ increase as demand for equipment in the industry increases.

~~Mitigate~~Competition 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.

We ~~Expand~~experience ~~geographically~~significant tocompetition ~~provide~~in ~~greater~~all ~~access~~areas ~~and~~of ~~service to~~our ~~key customer segments~~business. We ~~have~~In ~~locations in Texas~~general, ~~New~~the ~~Mexico,~~markets ~~Arkansas, Louisiana and Pennsylvania~~ in ~~order to~~which ~~enhance~~we ~~our~~compete ~~proximity~~are tohighly ~~customers~~fragmented, and ~~more~~a ~~efficiently~~large ~~serve their~~number ~~needs.~~of Wecompanies ~~have~~offer ~~redeployed~~services ~~our~~that ~~assets~~overlap toand ~~the~~are ~~growing~~competitive ~~land shale~~with ~~plays~~our ~~such~~services asand ~~the~~products. ~~Marcellus~~We believe ~~(principally~~that ~~in Pennsylvania),~~ the ~~Haynesville~~principal ~~(Louisiana),~~competitive ~~the~~factors ~~Bakken~~are ~~(North~~technical ~~Dakota)~~ and ~~the Eagleford~~mechanical incapabilities, ~~South~~management ~~Texas. Internationally~~experience, ~~our~~past ~~acquisition~~performance ~~of DLS~~and ~~expanded~~price. ~~our~~While ~~geographic~~we ~~footprint~~have ~~into~~considerable ~~Argentina~~experience, ~~and~~there ~~Bolivia and~~are ~~our~~many ~~acquisition~~other ofcompanies ~~BCH~~that ~~expanded~~have ~~our~~comparable ~~geographic footprint into Brazil~~skills. WeMany ~~expect to increase~~ of our ~~international~~competitors ~~presence principally~~are inlarger ~~South America, Mexico, the Middle East~~ and ~~North Africa.~~have Wegreater ~~will~~financial ~~continue~~resources tothan ~~evaluate~~we ~~locations to conveniently serve our customers and exploit emerging markets~~do.

~~Prudently~~We ~~pursue~~believe ~~strategic~~that ~~acquisitions. To~~there are four major directional ~~complement~~drilling ~~our~~companies, ~~organic~~Schlumberger, ~~growth~~Halliburton, Baker Hughes and Weatherford, that market worldwide, as well as numerous smaller regional players. Significant competitors in the tubular markets we ~~have~~serve ~~historically~~include ~~pursued~~Frank’s Casing Crew and Rental ~~strategic~~Tools, ~~acquisitions~~Weatherford, ~~which~~Baker weHughes, ~~believe~~Tesco and Premier. These markets remain highly competitive and fragmented with numerous casing and tubing crew companies working in the United States. Our primary competitors in Mexico are ~~accretive~~South toAmerican Enterprises ~~earnings~~and Weatherford, ~~complement~~both ~~our~~of which provide similar products and services,. ~~provide~~Our ~~new equipment~~largest ~~and~~competitor ~~technology~~for underbalanced drilling services is Weatherford. Weatherford focuses on large projects, ~~expand~~but ~~our~~also ~~geographic~~competes ~~footprint~~in ~~and market~~the ~~presence~~more common compressed air, mist, foam and ~~further~~aerated ~~diversify~~mud ~~our~~drilling ~~customer~~applications. ~~base~~Other competition comes from smaller regional companies. ~~As part~~In ofthe ~~our~~production ~~long-term~~services ~~growth~~market ~~strategy~~there are numerous competitors, wemost ~~continue~~of towhich ~~review complementary~~have ~~acquisitions,~~larger ascoiled ~~well~~tubing asservices ~~capital~~operations ~~expenditures~~than tous including ~~enhance~~Schlumberger, ~~our~~Halliburton, ~~ability~~Baker toHughes, ~~increase~~Weatherford ~~cash~~and ~~flows~~ Premier.

Our five largest competitors in the Drilling and Completion 9 segment, which operate primarily in Argentina, are Servicios WellTech, Ensign Energy Services, Nabors and Helmerich & Payne, and San Antonia 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, Superior Energy Services (Workstrings) and Schlumberger (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.

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fromIndex our existing assets. Future acquisitions will be subject to an improvedFinancial outlook for our products and services and improved availability of capital on reasonable terms. Statements

~~Expand~~Employees products and services provided in existing operating locations. Since the beginning of 2005, we have invested approximately $403.2 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. Recent economic conditions have led us to reduce our capital spending and operating expenses consistent with the decline in demand for our services as producers curtailed their drilling activity in 2009.

~~Increase~~In ~~utilization~~general, we believe we have good relations with our employees. None of ~~assets~~our employees, other than our Drilling and Completion employees, are represented by a union. We ~~seek~~actively totrain employees across ~~increase~~various ~~revenues~~functions, which we believe is crucial to motivate our workforce and ~~enhance~~maximize ~~margins~~efficiency. byEmployees ~~increasing~~showing ~~the utilization~~a higher level of ~~our~~skill ~~assets~~are ~~with~~trained ~~new~~on more technologically complex equipment and ~~existing~~given ~~customers~~greater responsibility. WeAll employees are ~~expect~~responsible tofor ~~accomplish~~on-going ~~this~~quality ~~through~~assurance. ~~leveraging~~At ~~longstanding relationships~~March 1, ~~with~~2011, we had approximately 3,750 employees. Almost all of our ~~customers~~Drilling and ~~cross-selling~~Completion ~~our~~operations ~~suite~~located ~~of services~~in Argentina and ~~equipment~~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 ~~Customers~~

InWe ~~2009,~~carry ~~2008~~a ~~and~~variety ~~2007,~~of ~~one~~insurance ofcoverages for our ~~customers~~operations, ~~Pan~~and ~~American~~we are partially self-insured for certain claims in ~~Energy,~~amounts ~~represented~~that ~~approximately~~we ~~35.5%,~~believe ~~28.5%~~to be customary and 20reasonable.7% ofHowever, there is a risk that our ~~consolidated~~ ~~revenues,~~insurance ~~respectively.~~may ~~Pan~~not ~~America~~be ~~Energy~~sufficient isto ~~a joint~~cover ~~venture~~any particular loss or that isinsurance ~~owned~~may ~~60%~~not bycover ~~British~~all ~~Petroleum~~losses. ~~and~~We ~~40%~~are ~~by Bridas~~responsible ~~Corporation.~~for ~~Alejandro~~the P.first ~~Bulgheroni~~$250,000 ~~one~~ of ~~our~~claims ~~directors,~~under ~~may~~our beworkers ~~deemed~~compensation topolicy ~~indirectly~~and ~~beneficially~~the ~~own~~first ~~50%~~$100,000 of ~~the~~ ~~outstanding~~claims ~~capital~~under ~~stock~~our ofgeneral ~~Bridas~~liability ~~Corporation~~ and ismedical ~~a member~~insurance ofpolicies. ~~the~~Insurance ~~Management~~rates ~~Committee~~have ofin ~~Pan~~the ~~American~~past ~~Energy.~~been ~~The loss~~subject ~~without~~to ~~replacement~~wide offluctuation ~~our~~and ~~larger~~changes ~~existing~~in ~~customers~~coverage could result in less ~~have~~coverage, aincreases ~~material~~in ~~adverse~~cost ~~effect~~or onhigher ~~our~~deductibles ~~results~~and ofretentions ~~operations~~(See “Item 1A. Risk Factors – Risks Associated with Our Company”).

~~Suppliers~~ Seasonality

Oil and natural gas operations of our customers located ~~The~~offshore ~~equipment~~and ~~utilized~~onshore in the United States Gulf of Mexico and in Mexico may be adversely affected by hurricanes and tropical storms, resulting in reduced demand for our ~~business~~services. isFor ~~generally~~example, ~~available~~from August to October of 2007 we witnessed a decline in ~~new~~offshore ~~from~~drilling ~~manufacturers~~rig oroperations atin ~~auction~~the Gulf of Mexico in anticipation of the hurricane season. ~~However~~Many of those rigs have not returned to the United States Gulf and have been relocated to the international markets. In 2008, Hurricanes Gustav and Ike disrupted our operations along the ~~cost~~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 United States are also adversely ~~acquiring~~affected ~~new~~by ~~equipment~~seasonal toweather ~~expand~~conditions. These weather conditions limit our ~~business~~access ~~could~~to ~~increase~~these ~~as demand~~job ~~for~~sites ~~equipment~~and our ability to service wells in these areas. These constraints decrease drilling activity and the ~~industry~~resulting ~~increases.~~shortages or high costs could delay our operations and materially increase our operating and capital costs.

~~Competition~~ Federal Regulations and Environmental Matters

WeOur ~~experience~~operations ~~significant~~are ~~competition~~subject into ~~all~~federal, ~~areas~~state ofand ~~our business.~~local Inlaws and regulations relating to the energy industry in general, and the ~~markets~~environment in particular. Environmental laws have in ~~which~~recent weyears ~~compete~~become ~~are~~more ~~highly fragmented,~~stringent and have generally sought to impose greater liability on a ~~large~~larger number of ~~companies~~potentially ~~offer~~responsible parties. Because we provide services ~~that overlap~~to companies producing oil and natural gas, which are ~~competitive~~toxic ~~with~~substances, ~~our~~we ~~services~~may ~~and~~become ~~products.~~subject ~~We believe~~to ~~that~~claims relating to the ~~principal~~release ~~competitive~~of ~~factors~~such substances into the environment. While we are ~~technical~~not ~~and mechanical~~currently ~~capabilities,~~aware ~~management~~of ~~experience,~~any ~~past~~situation ~~performance and~~involving ~~price.~~an ~~While~~environmental weclaim that would likely have ~~considerable~~a material ~~experience~~adverse effect on us, ~~there~~it ~~are~~is ~~many other~~possible ~~companies~~that an environmental claim could arise that ~~have~~could ~~comparable~~cause ~~skills~~our business to suffer. ~~Many~~We ofdo ~~our competitors~~not ~~are~~anticipate ~~larger~~any ~~and~~material ~~have~~expenditures ~~greater~~to ~~financial~~comply ~~resources~~with ~~than we~~environmental doregulations affecting our operations.

WeIn ~~believe~~addition ~~that~~to ~~there~~claims ~~are~~based ~~five~~on ~~major~~our ~~directional~~current ~~drilling companies~~operations, 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~~are ~~include~~from ~~Frank’s~~time ~~Casing~~to ~~Crew~~time ~~and~~named ~~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~~environmental ~~U.S. Our~~claims ~~primary competitors~~relating into ~~Mexico are South American Enterprises and~~our ~~Weatherford,~~activities ~~both~~prior ofto ~~which~~our ~~provide~~reorganization ~~similar products and services. Our largest competitor for underbalanced drilling services is Weatherford. Weatherford focuses on large projects, but also competes~~ in ~~the~~1988 ~~more~~(See ~~common compressed air, mist, foam and aerated mud drilling applications~~“Item 3. ~~Other~~Legal ~~competition comes from smaller regional companies~~Proceedings”). ~~In the production services market there are numerous competitors, most of which have larger coiled tubing services operations than us.~~

~~Our~~Intellectual ~~five~~Property ~~largest competitors in the Drilling and Completion~~Rights ~~segment, which operate primarily in Argentina, are Servicios WellTech, Ensign Energy Services, Nabors and Helmerich & Payne, and San Antonia Global Ltd in Brazil.~~

Except for our relationships with our customers and suppliers described above, we do not own any patents, trademarks, 10 licenses, franchises or concessions which we believe are material to the success of our business.

Available Information

We have publicly traded, registered debt securities, which require us to file reports with the Securities and Exchange Commission, or SEC. All of our SEC filings, which include 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 web site at www.alchenergy.com as soon as reasonably practicable after we electronically file or furnish them to the SEC.

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TheIndex Rentalto ServicesFinancial business is highly fragmented with hundreds of companies offering various rental tool services. Our largest competitors include Weatherford, Quail Rental Tools, Knight Rental Tools, Superior Energy Services (Workstrings) and Smith International (Thomas Tools). Statements

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

~~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~~ITEM ~~days, without significant on-going commitments~~1A. RISK FACTORS

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

~~Our~~Risks ~~strategy~~Associated ~~includes~~With ~~acquiring companies with strong management~~Our ~~and~~Industry 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 26, 2010, we had approximately 3,174 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~~ Global political, economic and market conditions could negatively impact our business.

WeOur ~~carry~~operations aare ~~variety~~affected ofby ~~insurance~~global ~~coverages~~political, ~~for~~economic ~~our operations,~~ and wemarket ~~are~~conditions ~~partially~~and ~~self-insured~~the ~~for~~condition ~~certain~~of ~~claims~~the inoil ~~amounts that~~and wenatural ~~believe~~gas industry. Our tooperating beresults ~~customary~~ and ~~reasonable.~~the ~~However,~~forward-looking ~~there is~~information awe ~~risk~~provide ~~that~~are based on our ~~insurance~~current ~~may~~assumptions ~~not~~about beoil ~~sufficient~~and tonatural ~~cover~~gas ~~any particular~~supply ~~loss~~and ordemand, ~~that~~oil ~~insurance~~and ~~may~~natural ~~not~~gas ~~cover~~prices, ~~all~~rig ~~losses~~count and other market trends. WeOur assumptions on these matters are ~~responsible~~in ~~for~~turn ~~the~~based ~~first~~on ~~$250~~currently available information,~~000~~ ofwhich ~~claims~~is ~~under~~subject ~~our workers~~to ~~compensation~~change. ~~policy~~The oil and ~~the~~natural ~~first~~gas ~~$100,000~~industry ofis ~~claims under~~extremely ~~our~~volatile ~~general~~and ~~liability~~subject to change based on political and ~~medical~~economic ~~insurance~~factors ~~policies~~outside our control. This volatility ~~Insurance~~caused ~~rates~~oil ~~have~~and innatural ~~the~~gas ~~past~~companies ~~been~~and ~~subject~~drilling contractors to ~~wide fluctuation~~change their strategies and ~~changes~~expenditure levels late in ~~coverage~~2008 ~~could~~and ~~result~~in 2009. We have experienced in ~~less coverage~~the past, ~~increases~~and expect to experience in ~~cost~~the orfuture, ~~higher~~significant ~~deductibles~~fluctuations ~~and~~in ~~retentions.~~operating results based on these changes.

The Deepwater Horizon incident in the United States Gulf of Mexico and its consequences, ~~Seasonality~~ including the potential enactment of further restrictions or regulations on offshore drilling, could have a material adverse effect on our business.

~~Oil~~On ~~and~~April 20, ~~natural~~2010, ~~gas~~a ~~operations~~fire ~~of our customers located offshore~~ and ~~onshore~~explosion inoccurred onboard the ~~U.S. Gulf~~semisubmersible ofdrilling ~~Mexico~~rig ~~and~~Deepwater inHorizon, ~~Mexico~~which ~~may~~was ~~be adversely~~owned ~~affected~~ by ~~hurricanes~~Transocean ~~and tropical storms, resulting in reduced demand for our services~~Ltd. ~~For~~and ~~example,~~under ~~from~~contract ~~August~~ to ~~October~~ ~~of 2007 we witnessed~~ a ~~decline~~subsidiary inof ~~offshore~~BP ~~drilling rig~~plc. The ~~operations~~accident inresulted ~~the Gulf of Mexico~~ in ~~anticipation of~~ the ~~hurricane~~ ~~season.~~loss ~~Many~~ of ~~those~~life ~~rigs~~and ~~have~~a ~~not~~significant ~~returned~~oil ~~to the U~~spill.S. ~~Gulf~~In ~~and~~response ~~have been relocated~~ to ~~the~~this ~~international markets. In 2008~~incident, ~~Hurricanes~~the ~~Gustav~~Minerals ~~and~~Management ~~Ike~~Service ~~disrupted~~of ~~our operations along~~ the ~~Texas~~United ~~and~~States ~~Louisiana~~Department ~~Gulf~~of ~~Coast~~Interior, ~~and~~or the ~~East Texas/West~~MMS, ~~Louisiana~~issued ~~corridor.~~a Innotice ~~addition~~on May 30, ~~our~~2010 ~~customers’~~implementing a ~~operations~~six-month inmoratorium ~~the~~on ~~Mid-Continent~~certain ~~and~~drilling ~~Rocky~~activities ~~Mountain~~in ~~regions of~~ the ~~U.S. are~~United ~~also~~States ~~adversely~~Gulf ~~affected~~of ~~by seasonal weather conditions~~Mexico. ~~These~~The ~~weather~~notice ~~conditions~~also ~~limit~~stated ~~our~~that ~~access~~the toMMS ~~these job~~would ~~sites~~not ~~and~~consider ~~our~~drilling ~~ability~~permits tofor ~~service~~new wells inand ~~these~~related ~~areas.~~activities ~~These constraints~~for ~~decrease~~specified ~~drilling~~water ~~activity~~depths ~~and~~during the ~~resulting~~six-month ~~shortages~~moratorium ~~or high costs could delay our operations and materially increase our operating and capital costs~~period.

On October 12, 2010, the moratorium was lifted, and deepwater oil and natural gas drilling in the ~~Federal Regulations~~United States Gulf of Mexico has been allowed to resume, provided that operators certify compliance with all existing rules and ~~Environmental~~requirements, ~~Matters~~including those that recently went into effect, and demonstrate the availability of adequate blowout containment resources. The first drilling permit was not issued until March 2011.

Our ~~operations~~business ~~are~~has ~~subject~~historically tobeen ~~federal,~~very dependent ~~state~~on ~~and~~drilling ~~local~~activity ~~laws~~in ~~and regulations~~the ~~relating~~United toStates ~~the~~Gulf ~~energy~~of ~~industry~~Mexico. inAlthough ~~general~~the moratorium on oil and ~~the environment~~natural gas drilling in ~~particular.~~the ~~Environmental~~United ~~laws~~States ~~have~~Gulf inof ~~recent years~~Mexico ~~become~~has ~~more~~been ~~stringent~~lifted, new guidelines, regulations and ~~have~~restrictions ~~generally~~could ~~sought~~increase tothe ~~impose~~costs of ~~greater~~exploration ~~liability~~and onproduction, areduce ~~larger~~the ~~number~~area of ~~potentially~~operations ~~responsible parties~~and result in further permitting delays. ~~Because~~These wemay ~~provide~~include ~~services~~new toor ~~companies~~additional ~~producing~~bonding ~~oil~~ and ~~natural~~safety ~~gas,~~requirements ~~which~~and ~~are~~other ~~toxic~~requirements ~~substances,~~regarding wecertification ~~may~~of ~~become~~equipment. There is no assurance ~~subject~~that operations related to ~~claims~~drilling ~~relating~~offshore toin the ~~release~~United ofStates ~~such~~will ~~substances into~~reach the ~~environment~~same levels that existed prior to the moratorium. ~~While~~The wedelay ~~are~~in ~~not~~resuming ~~currently~~these ~~aware~~activities or the failure of ~~any situation~~these ~~involving~~activities anto ~~environmental~~reach ~~claim~~levels that ~~would~~existed ~~likely~~prior to the ~~have~~moratorium ahas ~~material~~and ~~adverse~~could continue to adversely impact our operating results. The enactment of stricter restrictions on offshore drilling or further regulation of offshore drilling or contracting services operations could materially affect our business, financial condition and results of operations.

Our industry is highly competitive, with intense price 11 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. 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 business to suffer. We believe that competition for contracts will continue to be intense in the foreseeable future.

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effectIndex on us, it is possible that an environmental claim could arise that could cause our business to suffer.Financial We do not anticipate any material expenditures to comply with environmental regulations affecting our operations. Statements

InRisks ~~addition~~Associated toWith ~~claims~~Our ~~based~~Company ~~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~~Our ~~Rights~~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.

~~Except~~Demand for our ~~relationships~~products ~~with~~and ~~our~~services ~~customers~~is dependent upon the level of oil and ~~suppliers described~~natural ~~above~~gas exploration and development activities of, weand dothe ~~not~~corresponding ~~own~~capital ~~any~~spending ~~patents~~by, ~~trademarks~~oil and natural gas companies. The industry’s willingness to explore, develop and produce depends largely upon ~~licenses~~the availability of attractive drilling prospects, ~~franchises~~the orprice ~~concessions~~of ~~which~~oil weand ~~believe~~natural ~~are material~~gas, toand the ~~success~~prevailing view of future product prices. Oil and natural gas prices have been extremely volatile. Any prolonged reduction in oil and natural gas prices will depress levels of exploration, development, and production activity. Such price declines reduce drilling activity and demand for our ~~business~~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.

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

~~Our~~• ~~annual~~economic ~~reports~~conditions ~~on Form 10-K, quarterly~~in ~~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~~United ~~Exchange~~States Act of 1934, as amended, or the Exchange Act, are made available free of charge on our web site at www.alchenergy.com as soon as reasonably practicable after we electronically file or furnish them to the Securities and ~~Exchange Commission, or SEC.~~ elsewhere;

~~Our~~• ~~Board~~changes ofin ~~Directors~~global ~~has~~supply ~~documented its governance practices by adopting several corporate governance policies. These governance policies, including our corporate governance principles~~ and ~~our~~demand ~~code of business ethics and conduct, as well as the charters~~ for ~~the~~oil ~~committees of our Board (Audit Committee, Compensation Committee, Corporate Governance~~ and ~~Nominating~~ ~~and~~natural Finance 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. gas;

~~Information~~• ~~contained~~the onlevel orof ~~connected~~production toof ~~our~~the ~~website~~Organization ~~is not incorporated by reference into this annual report on Form 10-K and should not be considered part~~ of ~~this~~Petroleum ~~report~~Exporting orCountries, ~~any~~commonly ~~other filing~~called ~~we make with the SEC.~~ OPEC;

~~ITEM~~• ~~1A.~~the ~~RISK~~level ~~FACTORS~~of production of non-OPEC countries;

~~Our~~• ~~business,~~the ~~financial~~price ~~condition,~~and ~~results~~quantity of ~~operations~~imports ~~and the trading price~~ of ~~our~~foreign ~~securities~~oil ~~can be materially~~ and ~~adversely affected~~natural ~~by many events and conditions, including the following:~~ gas;

~~Risks Associated~~• ~~With~~political ~~Our~~conditions, ~~Industry~~ including embargoes, in or affecting other oil and natural gas producing activities;

~~Global political,~~• ~~economic~~the ~~and~~level ~~market~~of ~~conditions~~global ~~could~~oil ~~negatively impact~~and ~~our~~natural ~~business.~~ gas inventories;

~~Our~~• ~~operations~~advances are affected by global political, economic and market conditions and the condition of the oil and natural gas industry. 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~~exploration, ~~which~~development ~~is subject to change. The oil~~ and ~~natural~~production ~~gas industry~~technologies; ~~is extremely volatile~~ and subject to change based on political and economic factors outside our control. This volatility caused oil and natural gas companies and drilling contractors to change their strategies and expenditure levels late in 2008 and in 2009. We have experienced in the past, and expect to experience in 2010, significant fluctuations in operating results based on these changes.

~~Our industry~~• isthe ~~highly~~availability ~~competitive,~~of ~~with~~capital ~~intense~~for ~~price competition~~exploration and production companies.

~~The~~Limitations ~~markets in which we operate are highly competitive. Contracts are traditionally awarded~~ on ~~a competitive bid basis. Pricing is often~~ the ~~primary~~availability ~~factor~~of incapital, ~~determining~~or ~~which qualified~~higher ~~contractor~~costs isof ~~awarded~~capital, afor ~~job.~~financing ~~The~~expenditures ~~competitive environment~~may ~~has~~cause ~~intensified as mergers among~~ oil and natural gas ~~companies~~producers to ~~have~~make ~~reduced~~additional ~~the~~reductions ~~number~~to capital ofbudgets ~~available~~in ~~customers.~~the ~~The competitive~~future ~~environment~~even ~~has~~if ~~also~~commodity ~~intensified,~~prices ~~late~~remain inat ~~2008~~historically ~~and~~ 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. 12

Our customers are engaged in the oil and natural gas exploration business in the United States, Argentina, Brazil, Mexico and elsewhere. Historically, we have been dependent upon a few customers for a significant portion of our revenues. In 2010, 2009 and 2008, one of our customers, PAE represented 31.1%, 35.5% and 28.5% of our consolidated revenues, respectively. PAE also contributes a majority of the revenue derived from our Drilling and Completion operations. In 2010, 2009 and 2008, PAE represented 54.2%, 59.2% and 66.0% of our Drilling and Completion revenues, respectively.

The strategic agreement with PAE currently has an expiration date of June 30, 2011. However, PAE 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 PAE. In addition, our results of operations could be materially adversely affected if any of our major customers terminates its contracts with us, fails to renew its existing contracts or refuses to award new contracts to us and we are unable to enter into contracts with new customers at comparable rates.

This concentration of customers may increase our overall exposure to credit risk. Our customers could similarly be affected by changes in economic and industry conditions. Our financial condition and results of operations could 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.

- 11 -

2009,Index due to theFinancial 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 business to suffer. We believe that competition for contracts will continue to be intense in the foreseeable future. Statements

~~Risks Associated~~Our ~~With~~customers ~~Our~~may ~~Company~~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 ~~Our~~ of our Drilling and Completion business’ ~~depends~~contracts onwith ~~spending~~major bycustomers are dayrate contracts, where we charge a fixed charge per day regardless of the ~~oil~~number ~~and~~of ~~natural~~days ~~gas industry~~needed to drill the well. During depressed market conditions, ~~and~~a ~~this~~customer ~~spending~~may no ~~and~~longer ~~our~~need ~~business~~a rig that is currently under contract or may be ~~adversely~~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 ~~affected~~those bycontracts. ~~industry~~In ~~and~~addition, ~~financial~~our ~~market~~customers ~~conditions~~may have the right to terminate existing contracts if we experience operational problems. The likelihood that ~~are~~a customer may seek to terminate a contract for operational difficulties is increased during ~~beyond~~periods of market weakness. The cancellation of a number of our ~~control~~drilling contracts could materially reduce our revenues and profitability.

~~Demand~~If ~~for~~we ~~our~~are ~~products~~unable 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~~renew ~~and~~or ~~produce~~obtain ~~depends~~new ~~largely upon the availability of attractive drilling prospects, the price of oil~~ and ~~natural~~favorable ~~gas, and~~contracts ~~the~~for ~~prevailing~~rigs ~~view~~whose ofcontracts ~~future~~are ~~product~~expiring ~~prices.~~or ~~Oil~~are and natural gas prices have been extremely volatile and have declined significantly from their historic highs in mid-2008. Any prolonged reduction in oil and natural gas prices will depress levels of explorationterminated, ~~development, and production activity. Such price declines reduce drilling activity and demand for~~ our ~~services,~~revenues ~~which could lead to lower pricing for our products~~ and ~~services.~~profitability ~~Accordingly, prolonged periods of lower drilling activity and the reduction in our customers’ expenditures~~ could ~~have~~be a materially ~~adverse effect on our financial condition, results of operations and cash flows~~reduced.

~~Oil~~We have a number of contracts that will expire in 2011. Our ability to renew these contracts or obtain new contracts and ~~natural~~the ~~gas~~terms of ~~prices~~any such contracts will depend on ~~many~~market ~~factors~~conditions. We ~~beyond~~may be unable to renew our ~~control~~ expiring contracts or obtain new contracts for the rigs under contracts that have expired or been terminated, ~~including~~and the ~~following:~~dayrates under any new contracts may be substantially below the existing dayrates, which could materially reduce our revenues and profitability.

•An ~~economic~~oversupply ~~conditions~~of comparable inrigs ~~the U.S. and elsewhere; • changes~~ in ~~global supply and demand for oil and natural gas; •~~ the ~~level~~geographic ofmarkets 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 orwhich ~~affecting~~we ~~other~~compete ~~oil~~could ~~and~~depress ~~natural gas producing activities; •~~ the ~~level~~utilization ofrates ~~global oil~~ and ~~natural~~dayrates ~~gas~~for ~~inventories;~~our •rigs ~~advances in exploration, development~~ and ~~production~~materially ~~technologies;~~reduce ~~and~~our •revenues ~~the availability of capital for exploration~~ and ~~production companies~~profitability.

~~Limitations~~Utilization onrates, which are the ~~availability~~number of ~~capital,~~days ora ~~higher~~rig ~~costs~~actually works divided by the number of days the rig is available for work, and ~~capital~~dayrates, which are the contract prices customers pay for ~~financing~~rigs ~~expenditures~~per ~~may~~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 ~~these~~our ~~and~~competitors ~~other~~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 ~~oil~~with correspondingly depressed utilization rates and ~~natural~~dayrates ~~gas~~largely ~~producers~~due to ~~make~~earlier, ~~additional~~speculative ~~reductions~~construction toof new rigs. Improvements in dayrates and expectations of longer-term, sustained improvements in utilization rates and dayrates for ~~capital~~drilling ~~budgets~~rigs may lead to construction of new rigs. These increases in the ~~future~~supply ~~even~~of ifrigs ~~commodity~~could ~~prices~~depress ~~remain~~the ~~at historically~~utilization ~~high~~rates ~~levels~~and dayrates for our rigs and materially reduce our revenues and profitability.

~~Historically, we~~The ~~have~~loss ~~been~~of ~~dependent~~the onservices aof ~~few~~key ~~customers~~executives ~~operating~~or inour afailure ~~single industry;~~to ~~the~~attract ~~loss~~and ofretain ~~one~~skilled orworkers ~~more~~and ~~customers~~key personnel could ~~adversely affect~~hurt our ~~financial condition and results of~~ operations.

~~Our~~We ~~customers~~ are ~~engaged in the oil and natural gas exploration business in the U.S., Argentina, Brazil, Mexico and elsewhere. Historically, we have been~~ dependent upon athe ~~few~~efforts ~~customers for a significant portion of our revenues. In 2009, 2008~~ and ~~2007,~~skills ~~one~~ of our ~~customers,~~executives ~~Pan~~to ~~American~~manage ~~Energy represented 35.5%, 28.5% and 20.7% of~~ our ~~consolidated revenues~~business, ~~respectively.~~identify ~~Pan~~and ~~American~~consummate ~~Energy~~additional ~~also~~acquisitions ~~contributes~~and aobtain ~~majority of the revenue derived from our Drilling~~ and ~~Completion~~retain ~~operations~~customers. InWe ~~2009, 2008~~do ~~and~~not ~~2007,~~maintain ~~Pan~~key ~~American~~man ~~Energy~~insurance ~~represented~~on ~~59.2%,~~any ~~66.0% and 51.0%~~ of our ~~Drilling and Completion revenues, respectively~~personnel.

In addition, companies in our industry, including us, are dependent upon the available labor pool of skilled employees. 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. We compete with other oilfield services businesses and other employers to attract and retain qualified personnel with the technical skills 13and 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, increases in wage rates 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.

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.

- 12 -

TheIndex strategic agreement with Pan American Energy currently has an expiration date of June 30, 2011. However, Pan American Energy 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 enterFinancial 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. In addition, our results of operations could be materially adversely affected if any of our major customers terminates its contracts with us, fails to renew its existing contracts or refuses to award new contracts to us and we are unable to enter into contracts with new customers at comparable rates. Statements

~~This~~The ~~concentration~~Argentine ofgovernment ~~customers~~has in the past and may ~~increase~~in ~~our~~the ~~overall~~future promulgate laws, regulations ~~exposure~~and decrees requiring companies in the private sector to ~~credit~~maintain ~~risk~~minimum wage levels and provide specified benefits to employees, including significant mandatory severance payments. ~~Our~~It ~~customers~~is possible the government will ~~likely~~adopt bemeasures ~~similarly~~that will ~~affected~~increase bysalaries ~~changes~~or inrequire ~~economic~~our Drilling and ~~industry~~Completion ~~conditions.~~business ~~Our financial~~to ~~condition~~provide additional benefits, which would increase our costs and ~~results~~potentially reduce our profitability, cash flow and/or liquidity. In addition, in many of ~~operations~~the ~~will~~countries bein ~~materially~~which we ~~adversely~~operate, ~~affected~~our ifworkforce ~~one~~has orcertain ~~more~~compensation ofand other rights arising from our ~~significant~~various ~~customers fails~~collective bargaining agreements and from statutory requirements of those countries relating to ~~pay~~involuntary usterminations. If orwe ~~ceases~~choose to ~~contract~~cease ~~with~~operations in usone of those countries or if market conditions reduce the demand for our drilling services on ~~terms~~in ~~that~~such ~~are~~a ~~favorable~~country, towe uscould orincur atcosts, ~~all~~which may be material, associated with workforce reductions.

~~Our customers~~Rig ~~may~~upgrade, ~~seek~~refurbishment toand ~~cancel~~construction orprojects ~~renegotiate~~are ~~some~~subject ofto ~~our~~risks, ~~Drilling and~~including ~~Completion~~delays ~~contracts~~and ~~during~~cost ~~periods~~overruns, ofwhich ~~depressed~~could ~~market~~have an ~~conditions~~adverse oreffect ifon weour ~~experience~~results ~~operational difficulties~~of operations and cash flows.

~~Substantially~~Our ~~all of our~~ Drilling and Completion business~~’ contracts~~ ~~with~~often ~~major~~has ~~customers~~to ~~are dayrate contracts, where we~~make ~~charge~~upgrade aand ~~fixed~~refurbishment ~~charge~~expenditures ~~per~~for ~~day~~its ~~regardless~~rig offleet ~~the number of days needed~~ to ~~drill~~comply ~~the~~with ~~well.~~our ~~During~~quality ~~depressed~~management ~~market~~and ~~conditions,~~preventive ~~a customer~~maintenance ~~may~~system noor ~~longer~~contractual ~~need~~requirements aor ~~rig~~when ~~that~~repairs isare ~~currently~~required ~~under contract~~in orresponse ~~may be able~~ to ~~obtain~~an ainspection ~~comparable~~by ~~rig at~~ a ~~lower daily~~governmental ~~rate~~authority. ~~As a result, customers~~ We may ~~seek~~also tomake ~~renegotiate~~significant ~~the terms~~expenditures ofwhen ~~their~~rigs ~~existing~~are ~~drilling~~moved ~~contracts~~from orone ~~avoid~~location ~~their obligations~~to ~~under those contracts~~another. ~~In addition~~Additionally, ~~our~~we ~~customers~~ may ~~have~~make ~~the~~substantial ~~right~~expenditures tofor ~~terminate~~the ~~existing~~construction ~~contracts~~of ifnew ~~we experience~~rigs. ~~operational~~Rig ~~problems.~~upgrade, ~~The~~refurbishment ~~likelihood~~and ~~that~~construction aprojects ~~customer may~~are ~~seek~~subject to ~~terminate a contract for operational difficulties is~~the ~~increased~~risks ~~during periods~~ of ~~market~~delay ~~weakness.~~or ~~The~~cost ~~cancellation~~overruns ~~of a~~inherent ~~number~~in ofany ~~our~~large ~~drilling~~construction ~~contracts could materially reduce our revenues and profitability~~project.

IfSignificant ~~we are~~cost ~~unable~~overruns toor ~~renew~~delays orcould adversely ~~obtain~~affect ~~new~~our financial condition and ~~favorable~~results ~~contracts~~of ~~for rigs~~operations. ~~whose~~Additionally, ~~contracts~~capital ~~are~~expenditures ~~expiring~~for rig upgrade, refurbishment or ~~are~~construction ~~terminated~~projects could exceed our planned capital expenditures, impairing our ~~revenues~~ ~~and~~ability ~~profitability~~to ~~could~~service beour ~~materially~~debt ~~reduced~~obligations.

WeSevere weather could have a ~~number~~material ofadverse ~~contracts~~impact ~~that will expire in 2010 and 2011. Our ability to renew these contracts or obtain new contracts and the terms of any such contracts will depend~~ on ~~market conditions. We may be unable to renew~~ our expiring contracts or obtain new contracts for the rigs under contracts that have expired or been terminated, and the dayrates under any new contracts may be substantially below the existing dayrates, which could materially reduce our revenues and profitabilitybusiness.

~~Failure to~~Our ~~secure~~business acould ~~drilling~~be ~~contract~~materially ~~prior~~and toadversely ~~deployment~~affected ofby asevere ~~rig~~weather. ~~under construction~~Repercussions orof ~~any~~severe ~~other~~weather ~~rigs~~conditions we may ~~construct in the future~~include: ~~prior to their deployment could adversely affect our future results of operations.~~

We• ~~have~~curtailment ~~two rigs being constructed that are scheduled for delivery in second and fourth quarters~~ of 2010. We have not yet obtained a drilling contract for these rigs. Our failure to secure a drilling contract for any rig under construction prior to its deployment could adversely affect our results of operations and financial condition. services;

~~An oversupply~~• ofweather-related ~~comparable~~damage ~~rigs~~to infacilities ~~the~~and ~~geographic~~equipment ~~markets~~resulting in ~~which we~~suspension ~~compete~~of ~~could depress the utilization rates and dayrates for our rigs and materially reduce our revenues and profitability.~~ operations;

~~Utilization~~• ~~rates,~~inability ~~which~~to ~~are~~deliver ~~the~~materials ~~number~~to ofjob ~~days~~sites ain ~~rig~~accordance ~~actually works~~with ~~divided by the number of days the rig is available for work, and dayrates, which are the~~ contract ~~prices~~schedules; 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 and

14 • 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 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 United States 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. 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, 2010 and 2009 and recorded no impairment but based on our review of goodwill at December 31, 2008 we 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 deteriorate or we have a prolonged downturn, we may be required to record an additional impairment of goodwill and such impairment could be material.

- 13 -

competingIndex 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, speculativeFinancial 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. Statements

~~The loss~~Failure ofto ~~the~~maintain ~~services~~effective ofdisclosure ~~key~~controls ~~executives~~and procedures and/or ~~our~~internal ~~failure to attract~~controls ~~and~~over ~~retain~~financial ~~skilled~~reporting ~~workers~~could ~~and~~have ~~key~~a ~~personnel~~material ~~could~~adverse ~~hurt~~effect on our operations.

WeAs ~~are~~part ~~dependent~~of ~~upon~~our ~~the~~growth ~~efforts~~strategy, ~~and~~we ~~skills~~may make additional strategic acquisitions of privately held businesses. It is likely that our ~~executives~~ future acquired businesses will not have been required to ~~finance~~maintain such disclosure controls and ~~manage~~procedures ~~our~~or ~~business,~~internal ~~identify~~controls ~~and~~prior ~~consummate~~to their acquisition. ~~additional~~Likewise, ~~acquisitions~~upon ~~and~~the ~~obtain~~completion ~~and~~of ~~retain~~any ~~customers.~~future ~~These executives~~acquisition, ~~include~~we will be required to integrate the acquired business into our ~~Chief~~consolidated ~~Executive~~company’s ~~Officer~~system of disclosure controls and ~~Chairman~~procedures ofand internal controls over financial reporting, but we cannot assure you as to how long the ~~Board,~~integration ~~Munawar~~process H.may ~~Hidayatallah~~take for any business that we may acquire. WeFurthermore, doduring the integration process, we may not ~~maintain~~be ~~key~~able ~~man~~to fully implement our consolidated disclosure controls and internal controls ~~insurance~~over onfinancial ~~any~~reporting. ofThis ~~our~~could ~~personnel~~result in significant delays and costs to us and could require us to divert substantial resources, including management time, from other activities.

InIf ~~addition,~~it ~~companies~~is indetermined that our ~~industry,~~disclosure ~~including~~controls ~~us, are dependent upon the available labor pool of skilled employees. Our development~~ and ~~expansion~~procedures ~~will require additional experienced management~~ and/or ~~operations~~our ~~personnel.~~internal Nocontrols ~~assurance can~~over befinancial ~~given~~reporting ~~that~~are wenot ~~will be able to identify and retain these~~effective ~~employees. We compete with other oilfield services businesses~~ and/or ~~other~~we ~~employers~~fail to ~~attract~~satisfy ~~and retain qualified personnel with~~ the ~~technical~~requirements ~~skills~~of ~~and~~Section 404 ~~experience~~of ~~required to provide our customers with~~ the ~~highest~~Sarbanes-Oxley ~~quality service. We are also subject to the Fair Labor Standards~~ Act, ~~which~~on ~~governs~~a ~~such~~timely ~~matters as minimum wage~~basis, ~~overtime~~we ~~and~~may ~~other~~not ~~working~~be ~~conditions.~~able ~~A shortage in the labor pool of skilled workers, increases in wage rates or changes in applicable laws and regulations could make it more difficult for us~~ to ~~attract~~provide ~~and~~reliable ~~retain~~financial ~~personnel~~ and ~~could require~~other usreports toor ~~enhance~~prevent ~~our~~fraud, ~~wage~~which, ~~and benefits packages. There can be no assurance that labor costs will not increase. Any increase~~ in ~~our~~turn: ~~operating costs could cause our business to suffer.~~

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

In• ~~Argentina~~cause ~~and~~investors ~~Brazil,~~to ~~labor~~lose ~~organizations~~confidence ~~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~~accuracy ~~labor unrest~~ and ~~dissatisfaction~~ ~~resulting~~completeness ~~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.~~ reports,

~~The~~• ~~Argentine~~have ~~government~~a ~~has~~material inadverse ~~the~~effect ~~past~~on ~~and may in~~ the ~~future promulgate~~trading ~~laws,~~price 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. 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. In addition, in many of ~~the countries in which we operate,~~ our ~~workforce~~common ~~has~~stock certain compensation and other rights arising from our various collective bargaining agreements and from statutory requirements of those countries relating to involuntary terminations. If we choose to cease operations in one of those countries or ~~if market conditions reduce the demand for our drilling services in such a country, we could incur costs, which may be material, associated with workforce reductions.~~

~~Rig upgrade,~~• ~~refurbishment~~adversely ~~and~~affect ~~construction~~our ~~projects~~ability ~~are subject~~ to ~~risks,~~ ~~including~~timely ~~delays~~file ~~and cost overruns, which could have an adverse effect on~~ our ~~results~~periodic ofreports ~~operations~~with ~~and~~the ~~cash flows~~SEC.

~~Our~~Any ~~Drilling~~failure ~~and~~to ~~Completion~~timely ~~business~~file ~~often~~our ~~has~~periodic reports with the SEC may give rise to ~~make~~a ~~upgrade~~default under the indentures governing our outstanding ~~and~~9.0% ~~refurbishment~~senior ~~expenditures~~notes ~~for~~due ~~its~~2014, ~~rig~~which ~~fleet~~we refer to ~~comply~~as ~~with~~ our ~~quality~~9.0% ~~management~~senior ~~and~~notes, ~~preventive~~our ~~maintenance~~outstanding ~~system~~8.5% ~~or contractual~~senior ~~requirements~~notes ordue ~~when~~2017, ~~repairs~~which ~~are~~we ~~required~~refer ~~in response~~ to as our 8.5% senior notes and, ultimately, an ~~inspection~~acceleration byof aamounts ~~governmental~~due ~~authority~~thereunder. WeIn ~~may~~addition, a default under the indentures generally will also ~~make~~give ~~significant~~rise ~~expenditures~~to ~~when~~a ~~rigs~~default ~~are~~under ~~moved~~our ~~from~~credit ~~one location~~agreement toand ~~another~~could cause the acceleration of amounts due under other credit agreements. ~~Additionally~~If an acceleration of our 9.0% senior notes, weour ~~may~~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 15 international jurisdictions whose political and regulatory environments and compliance regimes differ from those in the United States.

A significant amount of our revenue is attributable to operations in foreign countries. These activities accounted for approximately 59.2% of our consolidated revenue in the year ended December 31, 2010. 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;

•

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 United States 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.

- 14 -

makeIndex substantial expenditures for the construction of new rigs. Rig upgrade, refurbishment and construction projects are subject to theFinancial risks of delay or cost overruns inherent in any large construction project. Statements

WeOur ~~have~~international ~~two~~business ~~land~~operations ~~drilling~~also ~~rigs~~include ~~that~~projects ~~were substantially completed~~ in ~~2009.~~countries ~~One~~where ofgovernmental corruption ~~these~~has ~~rigs~~been ~~worked~~known ~~for~~to ~~a limited period before encountering certain operational malfunctions~~exist. ~~Currently~~We ~~both rigs~~ are atsubject to the ~~original~~anti-bribery ~~manufacturer’s~~restrictions ~~facility~~of ~~undergoing modifications~~the orForeign ~~improvements.~~Corrupt AtPractices ~~this~~Act, ~~time~~which wemake ~~cannot~~it beillegal ~~assured that~~to ~~these~~give ~~rigs~~anything ~~will~~of ~~not~~value ~~require~~to ~~significant~~foreign ~~expenditures~~officials ~~to bring~~or ~~them~~employees toor ~~satisfactory~~agents ~~operational~~of ~~standards~~nationally ~~and~~owned weoil ~~are~~companies ~~uncertain~~in asorder to ~~when~~obtain ~~these~~or ~~rigs~~retain ~~will~~any bebusiness ~~available~~or ~~for~~other ~~service~~advantage. We ~~have two additional drilling rigs scheduled to be delivered in 2010 by a different manufacturer.~~

~~Significant~~Violations ~~cost~~of ~~overruns~~these orlaws ~~delays~~ could ~~adversely~~result ~~affect~~in ~~our financial~~monetary ~~condition~~ and ~~results of operations. Additionally,~~criminal ~~capital~~penalties ~~expenditures~~against ~~for~~us ~~rig~~or ~~upgrade,~~our ~~refurbishment~~subsidiaries ~~or construction~~and ~~projects~~ could ~~exceed~~damage our ~~planned~~reputation ~~capital expenditures~~and, ~~impairing~~therefore, our ability to ~~service~~do ~~our debt obligations~~business.

~~Severe weather~~Devaluation ~~could~~of ~~have~~the aArgentine ~~material~~Peso, ~~adverse~~the ~~impact~~Mexican onPeso or the Brazilian Real could adversely affect our ~~business~~ results of operations.

~~Our~~These ~~business~~currencies ~~could~~have been subject to significant devaluation in the past and may be ~~materially~~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 United States 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. byMoreover, we cannot predict whether the Argentine government will further ~~severe~~modify ~~weather~~its monetary policy and, if so, what effect any of these changes could have on the value of the Argentine Peso. ~~Repercussions~~Such changes could have an adverse effect on our financial condition and results of ~~severe~~operations. ~~weather~~Similar ~~conditions~~economic ~~may~~and political ~~include:~~ turmoil in Mexico and Brazil could also expose us to unpredictable currency exchange rates in these countries that may result in an adverse effect on our financial condition and results of operations.

•Argentina ~~curtailment~~continues ~~of services; • weather-related damage~~ to ~~facilities~~face ~~and~~considerable ~~equipment~~political ~~resulting in suspension of operations; • inability to deliver materials to job sites in accordance with contract schedules;~~ and •economic ~~loss of productivity~~uncertainty.

~~For~~Although ~~example,~~general ~~oil~~economic ~~and~~conditions ~~natural~~have ~~gas~~shown ~~operations~~improvement ofand ~~our~~political ~~customers located~~protests ~~offshore~~ and ~~onshore~~social indisturbances have diminished considerably since the ~~Gulf~~economic crisis of ~~Mexico~~2001 and in2002, ~~Mexico have~~the ~~from~~rapid ~~time~~and toradical ~~time~~nature ~~been~~of ~~adversely~~the ~~affected~~changes byin ~~floods~~the Argentine social, ~~hurricanes~~ political, economic and ~~tropical~~legal ~~storms,~~environment ~~resulting~~over inthe ~~reduced~~past ~~demand~~several ~~for our~~years ~~services.~~and Inthe ~~2008,~~absence ~~Hurricanes~~of ~~Gustav~~a ~~and~~clear ~~Ike~~political ~~disrupted~~consensus ~~our~~in favor of any ~~operations~~particular ~~along~~set ~~the~~of ~~Texas~~economic ~~and~~policies ~~Louisiana~~have ~~Gulf~~given ~~Coast~~rise ~~and~~to significant uncertainties about the ~~East Texas/West~~country’s ~~Louisiana~~economic ~~corridor~~and political future. ~~Further,~~It ~~our~~is ~~customers’ operations~~currently inunclear whether the ~~Mid-Continent~~economic and ~~Rocky~~political ~~Mountain~~instability ~~regions~~experienced of over the ~~U.S. are~~past ~~also~~several ~~adversely~~years will ~~affected~~continue byand ~~seasonal~~it ~~weather conditions.~~is ~~This~~possible ~~limits~~that, ~~our~~despite ~~access~~recent toeconomic ~~these~~growth, ~~job~~Argentina ~~sites~~may ~~and~~return ~~our ability~~ to ~~service~~a ~~wells~~deeper inrecession, ~~these~~higher ~~areas.~~inflation ~~These~~and ~~constraints decrease~~unemployment ~~drilling~~and ~~activity~~greater ~~and~~social ~~the~~unrest. ~~resulting~~If ~~shortages~~instability orpersists, ~~high costs~~there could ~~delay~~be ~~our~~a ~~operations~~material ~~and~~adverse ~~materially~~effect ~~increase~~on our ~~operating~~results of operations and ~~capital~~financial ~~costs~~condition.

~~We have~~In ~~recorded~~the ~~substantial~~event ~~goodwill~~of asfurther social or political crisis, companies in Argentina may also face the ~~result~~risk of ~~our acquisitive~~further ~~nature~~civil and associal ~~such~~unrest, ~~goodwill~~strikes, isexpropriation, ~~subject~~nationalization, toforced ~~periodic reviews~~renegotiation or modification of ~~impairment.~~existing contracts and changes in taxation policies, including royalty and tax increases and retroactive tax claims.

WeAn ~~perform~~increase ~~purchase~~in ~~price~~inflation ~~allocations~~in toArgentina ~~intangible~~could ~~assets~~have ~~when we make~~ a ~~business~~material ~~combination.~~adverse ~~Business~~effect ~~combinations~~on ~~and purchase price allocations have been consummated for acquisitions in all of~~ our ~~reportable~~results ~~segments. The excess~~ of ~~the~~ ~~purchase price after allocation of fair values to tangible assets is allocated to identifiable intangibles and thereafter to goodwill~~operations. ~~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~~Historically, ~~2009~~the ~~and~~devaluation ~~recorded no impairment but based on our review~~ of ~~goodwill~~the ~~at December 31,~~Argentine ~~2008~~Peso wehas ~~recorded~~created anpressures ~~impairment~~on ~~of $115.8 million,~~the ~~which~~domestic ~~was~~price ~~all~~system ofthat ~~our goodwill for the~~generated ~~Rental~~high ~~Services~~rates ~~segment as well as the impairment~~ of ~~goodwill associated~~inflation. ~~with~~We ~~our~~cannot ~~Tubular~~assure ~~Services~~you ~~and~~that ~~Production~~inflation ~~Services businesses~~rates ~~within~~will ~~our~~remain ~~Oilfield~~stable ~~Services~~in ~~segment. In~~ the ~~event that~~future. ~~market~~Significant ~~conditions~~inflation ~~deteriorate~~in orArgentina wecould have a ~~prolonged downturn,~~material weadverse ~~may~~effect beon ~~required~~our toresults ~~record an additional impairment~~ of ~~goodwill~~operations and ~~such~~financial ~~impairment could be material~~condition.

We are subject to numerous governmental laws and regulations, including those that may impose significant liability on us for 16 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 development drilling for oil and gas could materially limit future contract drilling opportunities or materially increase our costs or both.

- 15 -

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

AsExisting ~~part~~or offuture ~~our~~laws, ~~growth strategy~~regulations, wetreaties ~~may~~or ~~make~~international ~~additional~~agreements ~~strategic acquisitions~~related ~~of privately held businesses. It is likely that our future acquired businesses will not have been required~~ to ~~maintain~~greenhouse ~~such~~gases ~~disclosure controls~~ and ~~procedures~~climate orchange ~~internal controls~~could ~~prior~~have toa ~~their~~negative ~~acquisition.~~impact ~~Likewise,~~on ~~upon~~our ~~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~~may ~~and internal~~result ~~controls~~in ~~over~~additional ~~financial~~compliance ~~reporting,~~obligations ~~but~~with werespect ~~cannot assure you as~~ to ~~how long~~ the ~~integration process may take for any business that we may acquire. Furthermore~~release, ~~during the integration process~~capture, ~~we may not be able to fully implement our consolidated disclosure controls~~ and ~~internal~~use ~~controls~~of ~~over financial~~carbon ~~reporting.~~dioxide ~~This~~that could ~~result~~have ina ~~significant~~material ~~delays~~adverse ~~and costs~~effect toon ~~us and could require us to divert substantial~~our ~~resources~~liquidity, ~~including~~consolidated ~~management~~results ~~time~~of operations, ~~from~~and ~~other~~consolidated ~~activities~~financial condition.

International, national, and state Ifgovernments itand isagencies ~~determined~~are ~~that~~currently ~~our~~evaluating ~~disclosure~~and ~~controls~~promulgating climate-related legislation and ~~procedures~~regulations that are focused on restricting greenhouse gas (“GHG”) emissions. In the United States, the Environmental Protection Agency (“EPA”) is taking steps to require monitoring and~~/or~~ ~~our~~reporting of GHG emissions and to regulate GHGs as pollutants under the Clean Air Act (“CAA”). The EPA’s “Mandatory Reporting of Greenhouse Gases” rule established ~~internal~~a ~~controls~~comprehensive ~~over~~scheme ~~financial~~of regulations that require monitoring and reporting ~~are~~of ~~not~~GHG ~~effective~~emissions that began in 2010. Furthermore, the EPA recently proposed additional GHG reporting rules specifically for the oil and gas industry. The EPA has also published a final rule, the “Endangerment Finding,” finding that GHGs in the atmosphere endanger public health and/ welfare, and that emissions of GHGs from mobile sources cause or ~~we fail~~contribute to ~~satisfy~~ the ~~requirements~~GHG pollution. Following issuance of ~~Section~~the Endangerment Finding, the EPA promulgated final motor vehicle GHG emission standards on April ~~404~~1, 2010. The EPA has asserted that the final motor vehicle GHG emission standards will trigger construction and operating permit requirements for stationary sources. In addition, climate change legislation is pending in the United States Congress. These developments may curtail production and demand for fossil fuels such as oil and gas in areas of the world where our customers operate and ~~Sarbanes-Oxley~~thus ~~Act~~adversely onaffect afuture ~~timely~~demand ~~basis~~for our services, wewhich may ~~not~~in beturn ~~able~~adversely affect future results of operations. Additionally, legislation to reduce greenhouse gases may have an adverse effect on our operations, including payment of additional ~~provide~~costs ~~reliable~~due ~~financial~~to carbon emissions. Higher carbon emission activities include transportation, including marine vessels, cement production (by third party suppliers), and electricity generation (by third party suppliers) as well as other ~~reports~~activities. Finally, our business could be negatively affected by climate change related physical changes or ~~prevent~~changes ~~fraud~~in weather patterns, which, could result in ~~turn:~~damages to or loss of our physical assets, impacts to our ability to conduct operations and/or disruption of our customers’ operations.

•Legislation ~~could~~may ~~harm~~be ~~our~~introduced ~~business~~in ~~and~~the ~~operating~~United ~~results,~~States •Congress ~~cause~~that ~~investors~~would authorize the EPA to ~~lose~~regulate ~~confidence~~hydraulic infracturing. ~~the~~In ~~accuracy~~addition, ~~and~~a ~~completeness~~number of ~~our~~states ~~financial~~are ~~reports,~~evaluating •the ~~have~~adoption aof ~~material~~legislation ~~adverse~~or ~~effect~~regulations ongoverning ~~the~~hydraulic ~~trading~~fracturing. ~~price~~Such oflegislation ~~our~~or ~~common~~regulations ~~stock~~could reduce demand for pressure pumping services. If federal and/or •state legislation or regulations were enacted, it could adversely affect our ~~ability~~financial tocondition, ~~timely~~results ~~file~~of ~~our~~operations ~~periodic~~and ~~reports~~cash ~~with~~flows. We are unable to predict whether the ~~SEC~~proposed legislation, regulations, or any other proposals will ultimately be enacted.

~~Any~~Environmental ~~failure~~liabilities torelating ~~timely file our periodic reports with the SEC may give rise~~ to adiscontinued ~~default~~operations 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~~result ~~the acceleration of~~in ~~amounts~~substantial ~~due under the credit agreement~~losses. ~~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.~~

Since our reorganization under the United States 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 ~~Our strategic~~bankruptcy ~~plan~~law, ~~may~~and we have not ~~achieve~~experienced any material expense in relation to any such claims. However, if we do not prevail with respect to these claims in the ~~intended~~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.

InProducts ~~2009,~~liability weclaims ~~filed~~relating ~~a five-year plan outlining our strategic decision~~ to ~~focus~~discontinued ~~our~~operations ~~geographical~~could ~~expansion~~result in the international markets, particularly Columbia, Mexico, Saudi Arabia, Libya, Egypt and the MENA region. As part of this plan, we have begun to transfer idle assets overseas. We may not be successful in executing our strategy. We may not be able to find suitable international acquisitions. In addition, engaging in any international acquisition will incur a variety of costs, and we may never realize the anticipated benefits of any such acquisition. We may need additional financing in order to fund additional acquisitions. Acquisition efforts can consume significant management attention and require substantial ~~expenditures,~~ ~~which could detract from our other businesses~~losses. In addition, we may devote resources to potential acquisitions that are never completed. If not successful in achieving our strategic plan may have a material adverse effect on our financial condition, liquidity and results of operations.

WeSince ~~do business~~our reorganization under the United States federal bankruptcy laws in ~~international~~1988, ~~jurisdictions~~we ~~whose~~have ~~political~~been ~~and~~regularly named in products liability ~~regulatory~~lawsuits ~~environments~~primarily resulting from the manufacture of products containing asbestos. In connection with our bankruptcy, a special products liability trust was established and ~~compliance~~funded ~~regimes~~to ~~differ~~address ~~from~~products ~~those~~liability claims. This product liability trust is in the Uprocess of being dissolved.S: We believe that product liability claims relating to our business prior to bankruptcy are barred by applicable bankruptcy law. 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.

A- ~~significant~~16 ~~amount of our revenue is attributable to~~- operations in foreign countries. These activities accounted for approximately 62.8% of our consolidated revenue in the year ended December 31, 2009. 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;

•Index the inability to collectFinancial 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.Statements

~~Part~~We ofmay ~~our~~be ~~strategy~~subject is to ~~prudently~~claims ~~and~~for ~~opportunistically acquire~~personal ~~businesses~~injury and ~~assets~~property ~~that complement our existing products and services~~damage, ~~and~~which ~~to expand our geographic footprint.~~could Ifmaterially weadversely ~~make~~affect ~~acquisitions in other countries, we may increase~~ our ~~exposure~~ tofinancial ~~the~~condition ~~risks~~and ~~discussed~~results ~~above~~of operations.

We ~~attempt~~provide toservices ~~limit~~and ~~the~~equipment ~~risks~~to ofoil and ~~currency~~natural ~~fluctuation~~gas exploration and ~~restrictions~~ onproduction ~~currency~~companies. ~~repatriation~~These ~~where~~operations ~~possible~~are ~~by obtaining~~subject ~~contracts~~to ~~providing~~inherent ~~for~~hazards ~~payment~~that ofcan acause ~~percentage~~personal injury or loss of ~~the contract~~life, ~~indexed~~damage to ~~the~~or ~~U.S. dollar~~destruction ~~exchange~~of ~~rate.~~property, Toequipment, the ~~extent~~ ~~possible,~~environment weand ~~seek~~marine tolife, ~~limit~~and ~~our~~suspension of ~~exposure~~operations. toSubstantially ~~local currencies~~all byof ~~matching~~our ~~the~~Drilling ~~acceptance~~and ofCompletion ~~local~~operations ~~currencies~~are subject to ~~our local~~hazards ~~expense~~that ~~requirements~~are incustomary ~~those~~for ~~currencies.~~oil ~~Although~~and wenatural ~~have done~~gas ~~this~~drilling inoperations, ~~the~~including ~~past~~blowouts, wereservoir ~~may~~damage, ~~not~~loss beof ~~able~~well tocontrol, ~~take~~cratering, ~~these~~oil ~~actions~~and gas well infires ~~the~~and ~~future~~explosions, ~~thereby~~natural ~~exposing~~disasters, uspollution toand ~~foreign~~mechanical ~~currency fluctuations~~failure. ~~that~~Any of these risks could ~~cause~~result ~~our~~in ~~results~~damage to or destruction of ~~operations~~drilling equipment, ~~financial~~ ~~condition~~personal injury and ~~cash~~property ~~flows~~damage, tosuspension ~~deteriorate~~of ~~materially~~operations or environmental damage.

We operate with our customers through Master Service Agreements, or MSAs. We endeavor to allocate potential liabilities and ~~Additionally~~risks between the parties in the MSAs. Generally, our MSAs contain indemnification to us for liability for pollution or environmental claims arising from subsurface conditions or resulting from the drilling activities of our customers or their operators. We may have liability in ~~some~~such ~~jurisdictions~~cases if we are ~~subject~~grossly negligent or commit willful acts. In addition, any liability may be capped for either party to ~~foreign~~an MSA. Generally, our customers also agree to indemnify us against claims arising from ~~governmental~~their ~~regulations~~employees’ ~~favoring~~personal injury or ~~requiring~~death, ~~the~~unless ~~awarding~~resulting ~~of contracts~~from our gross negligence or willful misconduct. Similarly, we agree to ~~local~~indemnify ~~contractors~~our customers for liabilities arising from personal injury or ~~requiring~~death ~~foreign~~of ~~contractors~~any of our employees, unless toresulting ~~employ~~from ~~citizens~~gross negligence or willful misconduct of the customer. In addition, our customers agree to indemnify us for loss or ~~purchase~~destruction ~~supplies~~of ~~from~~customer-owned property or equipment, aand ~~particular~~in turn, we agree to indemnify our customers for loss or ~~jurisdiction~~destruction of property or equipment we own. ~~These~~However, ~~regulations~~for ~~may~~equipment ~~adversely~~we ~~affect~~rent to our ~~ability~~ customers, our contracts generally provide that the customer is responsible for the replacement of any damaged or lost equipment in their care. Losses due to catastrophic ~~compete~~events, such as blowouts, are generally the responsibility of the customer. However, despite this general allocation of risk, we might not succeed in enforcing such contractual allocation or we might incur an unforeseen liability falling outside the scope of such allocation.

~~Our~~Litigation ~~international~~arising ~~business~~from ~~operations~~an ~~also~~accident ~~include~~at ~~projects~~a ~~in countries~~location where ~~governmental~~our ~~corruption~~products ~~has~~or services ~~been~~are ~~known~~used or provided may cause us to ~~exist~~be named as a defendant in lawsuits asserting potentially large claims. We ~~are~~maintain ~~subject~~customary insurance to ~~the~~protect ~~anti-bribery~~our ~~restrictions~~business ofagainst ~~the~~these ~~Foreign Corrupt~~potential ~~Practices~~losses. ~~Act,~~Our ~~which~~general ~~make~~liability itpolicy ~~illegal~~would cover claims where we agreed to ~~give~~indemnify ~~anything~~the ~~of value~~customer, subject to ~~foreign~~any ~~officials~~typical orexclusions ~~employees~~that ormay ~~agents~~exist ofunder ~~nationally owned~~the ~~oil~~policy. ~~companies~~However, inwe ~~order~~could become subject to ~~obtain~~material oruninsured ~~retain~~liabilities ~~any~~that ~~business~~could orhave a material adverse effect on our financial ~~other~~condition ~~advantage~~and results of operations. The limits and deductibles for our general liability policy are as follows:

~~Violations~~• ofGeneral ~~these~~Aggregate ~~laws could result in monetary and criminal penalties against us or our subsidiaries and could damage our reputation and~~$2, ~~therefore~~000, ~~our ability to do business.~~ 000;

~~Devaluation of~~• ~~the~~Products/Completed ~~Argentine~~Operations ~~Peso,~~Aggregate ~~the Mexican Peso or the Brazilian Real could adversely affect our results of operations.~~ $2,000,000;

~~These~~• ~~currencies~~Occurrence ~~have~~Limit 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$1, ~~it is impossible to predict whether~~000, 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. Similar economic and political turmoil in Mexico and Brazil could also expose us to unpredictable currency exchange rates in these countries that may result in an adverse effect on our financial condition and results of operations. 000;

~~Argentina continues~~• toPersonal/Advertising ~~face~~Injury ~~considerable~~Limit ~~political and economic uncertainty.~~ $1,000,000;

~~Although~~• ~~general~~Deductible ~~economic~~(Bodily ~~conditions~~Injury ~~have~~& ~~shown~~Property ~~improvement~~Damage ~~and political~~Combined) ~~protests~~Per ~~and~~Claim ~~social disturbances have diminished considerably since the economic crisis of 2001 and 2002~~$100, the rapid and radical nature of the changes in the Argentine social, political, economic and legal environment over the past several 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 future000. 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

In addition, our general liability policy is scheduled under a $30.0 million umbrella/excess liability policy (subject to the 18 policy’s terms, conditions and exclusions). We also have workers compensation insurance coverage up to $1,000,000.

We have a contractor’s pollution liability policy of $10.0 million which has a $200,000 deductible, and all environmental claims would be subject to the terms, conditions and exclusions of that policy. Our umbrella policy does not apply to the contractor’s pollution liability policy.

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 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.

- 17 -

unemploymentIndex andto greaterFinancial social unrest. If instability persists, there could be a material adverse effect on our results of operations and financial condition. Statements

InRisks ~~the~~Related ~~event~~to ~~of further social or political crisis, companies in Argentina may also face~~ the ~~risk~~Merger 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.

~~An increase~~We inhave ~~inflation~~and inwill ~~Argentina~~continue ~~could~~to ~~have~~incur atransaction ~~material~~costs ~~adverse effect~~in onconnection ~~our~~with ~~results~~the ~~of operations~~merger.

~~Historically~~We have incurred, and expect to continue to incur, significant costs in connection with the ~~devaluation~~merger, ofincluding the ~~Argentine~~fees ~~Peso~~of ~~has~~our ~~created~~respective professional advisors. We will also incur integration and ~~pressures~~restructuring oncosts following the ~~domestic~~completion ~~price~~of ~~system~~the ~~that~~merger ~~generated~~as ~~high~~our ~~rates of~~operations ~~inflation~~are integrated with Seawell’s operations. WeThe ~~cannot~~efficiencies ~~assure~~anticipated ~~you~~to ~~that~~arise ~~inflation~~from ~~rates~~the ~~will remain~~merger ~~stable~~may not be achieved in the ~~future.~~near ~~Significant~~term ~~inflation~~or inat ~~Argentina~~all, and, if achieved, may ~~could~~not ~~have~~be asufficient ~~material~~to offset the costs associated with the merger. Unanticipated costs, or the failure to achieve expected efficiencies, may have an adverse ~~effect~~impact on ~~our~~the results of operations ~~and~~of ~~financial~~the ~~condition.~~combined company following the completion of the merger.

WeFollowing ~~are subject~~the tomerger, ~~numerous~~the ~~governmental~~combined ~~laws~~company ~~and~~may ~~regulations,~~be ~~including those~~unable ~~that~~to ~~may~~successfully ~~impose~~integrate ~~significant~~our ~~liability~~business oninto ~~us for~~Archer’s ~~environmental~~business and ~~natural~~realize ~~resource~~the ~~damages~~anticipated benefits of the merger.

WeThe ~~are~~merger ~~subject~~involves ~~to various federal, state, local and foreign laws and regulations relating to~~ the ~~energy~~combination ~~industry in general and the environment in particular. For example, many aspects~~ of ~~our Drilling~~two ~~and~~companies ~~Completion operations are subject to laws and~~that ~~regulations~~operated ~~that~~as ~~may~~independent ~~relate~~public ~~directly~~companies. orThe ~~indirectly~~combined tocompany ~~the contract~~will ~~drilling~~be ~~and~~required ~~well servicing industries, including those requiring us~~ to ~~control~~devote ~~the~~management ~~discharge~~attention ~~of oil~~ and ~~other contaminants~~resources ~~into the environment or otherwise relating~~ to ~~environmental~~ ~~protection.~~integrating ~~The~~its ~~countries where our Drilling and Completion~~ business ~~operates~~practices ~~have environmental laws~~ and ~~regulations~~ ~~covering the discharge of oil and other contaminants and protection of the environment in connection with~~ operations. ~~Failure~~ toPotential ~~comply~~difficulties ~~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~~combined ~~have become~~company ~~more stringent in recent years and~~ may inencounter 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~~integration ofprocess ~~these~~include ~~requirements,~~ the ~~modification~~following: of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or development drilling for oil and gas could materially limit future contract drilling opportunities or materially increase our costs or both.

~~Environmental liabilities~~• ~~relating~~the inability to ~~discontinued~~successfully ~~operations~~integrate ~~could~~our business into Seawell’s business in a manner that permits the combined company to achieve the cost savings and operating synergies anticipated to result from the merger, which would result in ~~substantial~~ ~~losses.~~ the anticipated benefits of the merger not being realized partly or wholly in the time frame currently anticipated or at all;

~~Since~~• ~~our~~integrating ~~reorganization~~personnel ~~under~~from the ~~U.S. federal~~two ~~bankruptcy laws~~companies inwhile ~~1988,~~maintaining afocus ~~number~~on ofproviding ~~parties~~consistent, ~~including~~high ~~the~~quality ~~Environmental Protection~~products 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 wecustomer 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. service;

~~Products liability~~• ~~claims~~potential ~~relating~~unknown toliabilities ~~discontinued~~and ~~operations~~unforeseen ~~could result~~increased inexpenses, ~~substantial~~delays ~~losses.~~ or regulatory conditions associated with the merger; and

~~Since~~• ~~our~~performance ~~reorganization~~shortfalls ~~under~~at ~~the~~one ~~U.S. federal~~or ~~bankruptcy laws~~both inof ~~1988, we have been regularly named in products liability lawsuits primarily resulting from~~ the ~~manufacture~~two ofcompanies ~~products containing~~as ~~asbestos. In connection with our bankruptcy,~~ a ~~special~~ ~~products~~result ~~liability~~of ~~trust was established and funded to address products liability claims. This product liability trust is in~~ the ~~process~~diversion of ~~being~~management’s ~~dissolved.~~attention Wecaused ~~believe that product liability claims relating to our business prior to bankruptcy are barred~~ by ~~applicable~~completing ~~bankruptcy~~the ~~law.~~merger ~~Since~~and ~~1988,~~integrating nothe ~~court has~~companies’ ~~ruled that we are responsible for products liability claims~~operations. ~~However, if we are held responsible for product liability claims, we could suffer substantial losses that could have a material adverse~~

It is possible that the integration process could result in the diversion of management’s attention, the disruption or interruption of, or the loss of momentum in, our ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability 19to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of the merger, or could reduce the earnings or otherwise adversely affect the business and financial results of the combined company.

Following the merger, the carrying value of our assets may differ significantly from the historical cost.

As part of the acquisition process, we are currently undergoing a purchase price valuation exercise to review the fair values of our assets. As part of this review, the book values of assets may differ materially once the exercise is concluded and the new values pushed down into our balance sheet. The accounting rules related to the valuation of assets acquired in a business combination are different from the reporting of historical results. We expect this exercise to be completed by June 30, 2011.

The failure of the lenders under Seawell’s undrawn credit facilities to perform could have a material adverse effect on our liquidity and results of operations. We are exposed to systemic risk of the financial markets and institutions and the risk of non-performance of the individual lenders under Seawell’s undrawn credit facilities.

Maintaining sufficient liquidity in our business for maintenance and operating expenditures, capital expenditures and collateral is crucial in order to mitigate the risk of future financial distress to us. Accordingly, Seawell maintains a revolving credit facility to manage its expected liquidity needs and contingencies. The failure of the lenders to perform under the Seawell revolving credit facility could have a material adverse effect on our results of operations. In the event that financial institutions are unwilling or unable to renew Seawell’s existing revolving credit facility or enter into new revolving credit facilities, our ability to hedge economically our assets could be impaired.

- 18 -

effectIndex onto ourFinancial financial condition and results of operations. We have not manufactured products containing asbestos since our reorganization in 1988. Statements

WeRisks ~~may be~~Associated ~~subject~~With toOur ~~claims~~Indebtedness ~~for personal injury and property damage, which could materially adversely affect our financial condition and results of operations.~~

~~Our~~We ~~products and services~~ are ~~used~~an ~~for~~indirect ~~the~~wholly ~~exploration~~owned ~~and production~~subsidiary of ~~oil and natural gas~~Seawell. ~~These~~Seawell ~~operations are subject to inherent hazards that~~ can ~~cause~~exercise ~~personal~~substantial ~~injury~~control orover ~~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~~operations ~~certain coverage~~and ~~exclusions. However, we~~ could ~~become~~do ~~subject~~so toin ~~material uninsured~~a ~~liabilities~~manner that ~~could~~is ~~have a material~~ adverse ~~effect on~~to our ~~financial condition and results of operations~~interests.

~~Substantially~~We ~~all of our Drilling and Completion operations~~ are ~~subject~~ tomanaged 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~~officers 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.~~employees ~~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~~Seawell. ~~The occurrence of an event not fully insured or~~Our ~~for~~management 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~~make todeterminations ~~be available~~with torespect ~~cover any or all of these risks, or, even if available, that insurance premiums or other costs will not rise significantly in the future, so as~~ to ~~make~~ the ~~cost~~following: ~~of such insurance prohibitive.~~

~~Risks Associated~~• ~~With~~decisions anon ~~Investment~~our infinancings ~~Our~~and ~~Common~~our ~~Stock~~ capital raising activities;

~~Our common~~• ~~stock~~mergers ~~price~~or ~~has~~other ~~been volatile, which could adversely affect our~~ business ~~and~~combinations; ~~cause our stockholders to suffer significant losses~~ and

~~The~~• ~~trading price of~~ our ~~common~~acquisition ~~stock~~or ~~has~~disposition ~~historically fluctuated significantly. For example, during the twelve months ended December 31, 2009, the high sales price per share~~ of ~~our~~ ~~common stock as reported on the New York Stock Exchange was $6~~assets.~~07 and the low sales price per share was $0.71. The volatility of our stock price depends upon many factors including:~~

•We ~~decreases~~are ina ~~prices~~wholly ~~for~~owned ~~oil~~subsidiary. ~~and~~As ~~natural~~a ~~gas~~result, ~~resulting~~we inare ~~decreased~~dependent ~~demand~~upon ~~for~~cash ~~our~~dividends, ~~services;~~distributions •or ~~variations~~other intransfers ~~our~~we ~~operating~~receive ~~results~~from ~~and~~our ~~failure~~parent to ~~meet~~repay ~~expectations~~any ofdebt ~~investors~~we ~~and~~may ~~analysts;~~incur, •and ~~increases~~to inmeet ~~interest~~our ~~rates;~~other obligations. •The ~~illiquidity~~ability of ~~the market for~~ our ~~common~~parent ~~stock;~~to •make ~~developments~~payments ~~specifically~~to ~~affecting~~us ~~the~~will ~~economies~~depend inon ~~Latin~~their ~~America;~~operating •results ~~sales~~and ofmay ~~common~~be ~~stock~~restricted by, ~~existing~~among ~~stockholders;~~other •things, ~~our~~applicable ~~substantial~~corporate, ~~indebtedness;~~tax and • other ~~developments~~laws ~~affecting~~and usregulations orand ~~the financial markets~~agreements.

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 our parent or debt financings or other sources, will be available or, if available, will be on terms satisfactory to us. The turmoil in the financial markets since mid-2008 and its 20impact on the financial condition of the banking sector and other lenders, has significantly reduced access to the capital markets. It is uncertain to what extent capital will be available to us in the future and at what 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 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 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 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.

If there were an event of default under any of the indentures, the affected creditors could cause all amounts borrowed under these instruments to be due and payable immediately.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

- 19 -

AIndex reduced stock price will result in a loss to investorsFinancial and will adversely affect our ability to issue stock to fund our activities. Statements

~~Substantial sales of our common stock could adversely affect our stock price~~ITEM 2. PROPERTIES

~~Sales~~The offollowing atable ~~substantial~~describes ~~number~~the location and general character of ~~shares~~the principal physical properties used in each of our ~~common~~company’s businesses ~~stock~~as of March 1, ~~or the~~2011. ~~perception~~Our ~~that~~principal ~~such~~executive ~~sales~~office ~~could~~is ~~occur~~rented and located in Houston, ~~could~~Texas ~~adversely affect~~and the ~~market~~table ~~price~~below presents all of our ~~common~~material ~~stock~~operating locations and whether the property is owned or leased.

We had 71,459,876 shares of common stock outstanding as of February 26, 2010 and 14,202,146 shares reserved for issuance upon conversion of our convertible preferred stock. At February 26, 2010, we had reserved an additional 8,552,387 shares of common stock for issuance under our equity compensation plans, of which 701,732 shares were issuable upon the exercise of outstanding options with a weighted average exercise price of $6.31 per share. As of the same date, there were a total of 433,960 shares of non-performance-based restricted stock and 481,666 shares of performance-based restricted stock outstanding under our equity compensation plans.


Business Segment	Location	Owned/Leased
Oilfield Services	Kensett, Arkansas	Leased
	Youngsville, Louisiana	Owned
	Carlsbad, New Mexico	Leased
	Farmington, New Mexico	Leased
	Elk City, Oklahoma	Leased
	McAlester, Oklahoma	Leased
	Mt Morris, Pennsylvania	Leased
	Muncy, Pennsylvania	Leased
	Conroe, Texas	Leased
	Corpus Christi, Texas	Leased – 2 locations
	Houston, Texas	Leased
	Kilgore, Texas	Leased
	Longview, Texas	Leased
Drilling and Completion	Buenos Aires, Argentina	Leased
	Comodoro Rivadavia, Argentina	Owned
	Neuquen, Argentina	Owned
	Pio Truncado, Santa Cruz, Argentina	Leased
	Rincon de los Sauces, Argentina	Owned
	Rio Grande, Tierra del Fuego, Argentina	Leased
	Tartagal, Argentina	Owned
	Santa Cruz, Bolivia	Leased
	Catu, Bahia, Brazil	Owned
	Aracuja, Sergipe, Brazil	Leased
	Macae, Rio de Janeiro, Brazil	Leased
	Parnamirim, Rio Grande de Norte, Brazil	Leased
	Rio de Janeiro, Rio de Janeiro, Brazil	Leased
Rental Services	Broussard, Louisiana	Leased
	Morgan City, Louisiana	Owned
	Muncy, Pennsylvania	Leased
	Conroe, Texas	Owned
	Victoria, Texas	Owned

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 over 15% of our common stock as of FebruaryITEM ~~26, 2010 In addition, in connection with our backstopped rights offering, we entered into a registration rights agreement with Lime Rock who hold 19,889,044~~3. ~~shares~~LEGAL ofPROCEEDINGS our common stock and 36,393 shares of our preferred stock as of February 26, 2010, which are convertible into 14,202,146 shares of our common stock. Pursuant to those agreements, the DLS sellers and Lime Rock are entitled to certain rights with respect to the registration of the sale of such common 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.

WeOn ~~cannot~~June 29, ~~predict~~1987, ~~whether~~we ~~future~~filed ~~sales~~for ofreorganization ~~our~~under ~~common~~Chapter 11 ~~stock,~~of or the ~~availability~~United ofStates ~~our~~Bankruptcy ~~common~~Code. ~~stock~~Our ~~for~~plan ~~sale,~~of ~~will adversely~~reorganization ~~affect~~was ~~the~~confirmed ~~market~~by ~~price~~the ~~for~~Bankruptcy ~~our~~Court ~~common~~after ~~stock~~acceptance orby our ~~ability~~creditors ~~to raise~~and ~~capital~~stockholders, byand ~~offering~~was ~~equity~~consummated ~~securities~~on December 2, 1988.

~~The DLS~~At ~~sellers~~confirmation ~~and~~of ~~Lime~~our ~~Rock~~plan ~~control~~of ~~substantial~~reorganization, ~~ownership~~the ~~stakes in~~United usStates Bankruptcy Court approved the establishment of the A-C Reorganization Trust as the primary vehicle for distributions and ~~have~~the ~~board~~administration of ~~nomination~~claims ~~rights~~under our plan of reorganization, two trust funds to service health care and ~~they~~life ~~are~~insurance ~~therefore~~programs for retired employees and a trust fund to process and liquidate future product liability claims. The trusts assumed responsibility for ~~able~~substantially all remaining cash distributions to ~~exert~~be ~~significant~~made ~~influence~~to onholders ~~our~~of ~~affairs~~claims and ~~actions, including~~interests ~~matters~~pursuant ~~submitted~~to ~~for~~our aplan ~~stockholder vote~~of reorganization. We were thereby discharged of all debts that arose before confirmation of our plan of reorganization.

~~The~~We ~~DLS~~do ~~sellers~~not ~~collectively~~administer ~~hold~~any ~~over 15%~~ of ~~our issued and outstanding common stock as of February 26, 2010. Under~~ the ~~investors~~ ~~rights~~aforementioned ~~agreement that we entered into in connection with the DLS acquisition~~trusts, ~~the~~some ~~DLS sellers have the right to designate two nominees for election to our board~~ of directors. Lime Rock currently holds 19,889,044 shares of our common stock, representing approximately 27.8% of our issued and outstanding shares as of February 26, 2010. In addition, Lime Rock owns 36,393 shares of preferred stock which ~~are convertible~~have ~~into~~been 14dissolved,~~202,146 shares~~ ~~of our common stock. Through its ownership of common~~ and ~~preferred~~retain ~~stock,~~no ~~Lime~~responsibility ~~Rock controls,~~for in the ~~aggregate, 35% of our stockholders’ voting~~assets ~~power.~~transferred ~~Pursuant~~ to ~~the~~or ~~investment~~distributions ~~agreement~~made weor ~~entered into with Lime Rock, Lime Rock has the right~~ to ~~designate~~be upmade toby ~~four people~~such totrusts ~~serve~~pursuant on our board of directors based upon the amount of our common stock Lime Rock and its affiliates beneficially own (counting the preferred stock on an as converted basis). Lime Rock has the right to ~~designate four nominees for election to~~ our ~~board~~plan of ~~directors and have designated two directors at this time~~reorganization. As a result, the DLS sellers and Lime Rock each have considerable influence over the composition of our board of directors, our future operations and strategy and our future corporate actions, including matters submitted for a stockholder vote.

~~Following~~As ~~the~~part ~~earlier~~of our plan of ~~June 26~~reorganization, ~~2012~~we ~~and~~settled with the ~~date~~EPA ~~on which~~certain ~~the~~claims ~~transfer~~for ~~restrictions~~cleanup ~~set~~costs ~~forth~~at inall ~~the~~known ~~Investment Agreement~~sites ~~expire,~~where ~~Lime~~we ~~Rock~~were ~~will~~alleged ~~not~~to behave ~~prohibited~~disposed ~~from acquiring~~of ~~additional~~hazardous ~~shares~~waste. ofThe ~~our~~EPA ~~common~~settlement ~~stock~~included orboth ~~converting its~~past ~~shares~~and offuture ~~preferred~~cleanup ~~stock,~~costs ~~even~~at ifthese ~~such~~sites ~~conversion~~and ~~will~~released us ~~result~~of inliability ~~its~~to ~~control~~other ofpotentially ~~more~~responsible ~~than~~parties ~~35%~~in ofconnection ~~our~~with ~~stockholders’ voting~~these ~~power~~specific sites. AsIn ~~a result~~addition, ~~Lime~~we ~~Rock’s~~negotiated ~~influence~~settlements ~~over~~of ~~us may~~various ~~increase~~environmental inclaims ~~the~~asserted ~~future~~by certain state environmental protection agencies.

- 20 - 21

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

~~The~~Subsequent ~~board~~to ~~designation~~our ~~rights~~bankruptcy ~~described~~reorganization, ~~above~~the ~~could~~EPA ~~have~~and ~~the effect~~state ofenvironmental ~~delaying~~protection agencies orhave ~~preventing~~in a ~~change~~few incases ~~our~~asserted ~~control~~that we are liable for cleanup costs or ~~otherwise~~ ~~discouraging~~fines ain ~~potential~~connection ~~acquirer~~with ~~from~~several ~~attempting~~hazardous waste disposal sites containing products manufactured by us prior to ~~obtain~~ ~~control~~consummation of usour plan of reorganization. In each instance, ~~which~~we have taken the position that the cleanup costs and all other liabilities related to these sites were discharged in ~~turn~~the ~~could~~bankruptcy, and the cases have abeen disposed of without material ~~and~~cost. A number of Federal Courts of Appeal have ~~adverse~~issued ~~effect~~rulings consistent with this position, and based on ~~the~~such ~~market~~rulings, ~~price~~we ofbelieve that we will continue to prevail in our ~~securities~~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~~/or~~ ~~our~~in each event, the A-C Reorganization Trust, under its mandate to provide plan of reorganization ~~ability~~implementation services to ~~meet~~us, had responded to such claims, generally, by informing claimants that our ~~obligations~~liabilities ~~thereunder~~were discharged in the bankruptcy. Each of such claims have 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.

~~Existing stockholders’~~We ~~interest~~have inassumed usthe ~~may~~responsibility beof ~~diluted~~responding to claimants and to the EPA and state agencies previously undertaken by ~~additional~~the A-C Reorganization Trust. However, we have been advised by the A-C ~~issuances~~Reorganization Trust that its cost of ~~equity~~providing ~~securities~~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 ~~expect~~are tonamed ~~issue~~as ~~additional~~a ~~equity~~defendant ~~securities~~from time to ~~fund~~time ~~the acquisition~~in ofproduct ~~additional~~liability ~~businesses~~lawsuits ~~and~~alleging ~~pursuant~~personal toinjuries ~~employee~~resulting from our activities ~~benefit~~prior ~~plans~~to our reorganization involving asbestos. WeThese ~~may~~claims ~~also~~had ~~issue~~previously ~~additional~~been ~~equity~~referred ~~securities~~ to and handled by a special products liability trust formed to be responsible for ~~other~~such ~~purposes~~claims in connection with our reorganization. ~~These~~Such ~~securities~~products ~~may~~liability trust ~~have~~is in the ~~same~~process ~~rights~~of ~~as our~~being ~~common~~dissolved. ~~stock~~As ~~or,~~with ~~alternatively~~environmental claims, ~~may~~we ~~have~~do ~~dividend, liquidation,~~not orbelieve ~~other~~we ~~preferences~~are liable for product liability claims relating to our ~~common~~business ~~stock.~~prior ~~The issuance~~to ofour ~~additional~~bankruptcy. ~~equity~~However, ~~securities~~there ~~will~~can ~~dilute~~be ~~the holdings~~no ofassurance ~~existing~~that ~~stockholders~~we ~~and~~will ~~may~~not ~~reduce~~be ~~the~~subject to ~~share~~material ~~price of~~product ~~our~~liability ~~common~~claims ~~stock~~in the future.

Shortly following the announcement of the merger agreement, ten putative stockholder class-action petitions and compliants were filed against various combinations of us, members of our board of directors, Seawell, and Wellco. Seven of the lawsuits were filed in the District Court of Harris County, Texas, which we refer ~~Risks~~to as the Texas Actions, and three lawsuits were filed in the Court of Chancery of the State of Delaware, which we refer to as the Delaware Actions. These lawsuits challenge the proposed merger and generally allege, among other things, that our ~~Associated~~directors ~~With~~have ~~Our~~breached ~~Indebtedness~~their fiduciary duties owed to our public stockholders by approving the proposed merger and failing to take steps to maximize our value to our public stockholders, that we, Seawell, and Wellco aided and abetted such breaches of fiduciary duties, and that the merger agreement unreasonably dissuades potential suitors from making competing offers and restricts us from considering competing offers. The lawsuits generally seek, among other things, compensatory damages, attorneys’ and experts’ fees, declaratory and injunctive relief concerning the alleged breaches of fiduciary duties, and injunctive relief prohibiting the defendants from consummating the merger.

WeVarious ~~are~~plaintiffs in the Texas Actions filed competing motions to consolidate the suits, to appoint their counsel as interim class counsel and to compel expedited discovery. On September 16, 2010, the defendants filed joint motions to stay the Texas Actions in favor of a ~~holding~~first-filed ~~company~~Delaware lawsuit, and asopposing athe ~~result~~motions wefor ~~are~~expedited ~~dependent~~discovery. onThere ~~dividends~~is no hearing ~~from~~date ~~our~~set ~~subsidiaries~~for these motions. The parties to ~~meet~~the ~~our~~Texas ~~obligations,~~State ~~including~~Court ~~with respect~~actions have agreed that the various defendants need not respond to the ~~notes.~~petitions until after lead counsel is appointed, a consolidated amended petition is filed and served or, alternatively, an active petition is designated by lead counsel.

WeOn ~~are~~September 21, a2010, ~~holding~~the ~~company~~plaintiffs ~~and~~in dothe ~~not~~Delaware Actions ~~conduct~~wrote ~~any~~the ~~business operations~~court ofseeking ~~our~~consolidation ~~own.~~of ~~Our~~the ~~principal~~Delaware ~~assets~~cases. ~~are~~Defendants ~~the~~did ~~equity interests~~not weoppose ~~own~~consolidation inand ~~our~~took ~~operating~~no ~~subsidiaries,~~position ~~either~~regarding ~~directly or~~lead ~~indirectly~~plaintiff. AsOn ~~a result~~September 29, ~~we are dependent upon cash dividends~~2010, ~~distributions~~the orDelaware ~~other~~court ~~transfers~~granted wethe ~~receive~~motion ~~from our subsidiaries~~ to ~~repay~~consolidate. ~~any~~Previously, on ~~debt~~September 16, ~~we may incur~~2010, Seawell and toWellco ~~meet~~answered ~~our other~~the ~~obligations.~~first-filed ~~The~~Girard ~~ability~~Complaint, ofwhich ~~our~~is ~~subsidiaries~~the tooperative ~~pay dividends~~complaint ~~and~~post-consolidation. ~~make~~We ~~payments~~answered tothe usconsolidated ~~will~~complaint ~~depend~~ on ~~their operating results and may be restricted by~~October 4, ~~among~~2010. ~~other~~On ~~things~~January 26, ~~applicable corporate~~2011, ~~tax~~the ~~and~~plaintiffs in ~~other~~the ~~laws~~Delaware ~~and~~Actions ~~regulations~~filed ~~and~~an ~~agreements~~amended ~~of those~~complaint ~~subsidiaries.~~that ~~For example~~included, ~~the~~among ~~corporate~~other ~~laws~~claims, ofallegations ~~some jurisdictions~~that ~~prohibit~~ the ~~payment~~disclosures ofmade ~~dividends~~ by ~~any subsidiary~~Defendants ~~unless~~concerning the ~~subsidiary~~merger ~~has~~are aincomplete ~~capital~~and ~~surplus or net profits in the current or immediately preceding fiscal year~~misleading. ~~Payments~~ orAlso ~~distributions from our subsidiaries also could be subject to restrictions~~ on ~~dividends~~January 26, ~~or repatriation of earnings under applicable local law~~2011, ~~and~~the ~~monetary~~plaintiffs ~~transfer restrictions~~ in the Delaware ~~jurisdictions~~Actions infiled ~~which~~a ~~our~~motion ~~subsidiaries~~to ~~operate.~~expedite ~~Our subsidiaries~~proceedings ~~are~~for ~~separate~~discovery and ~~distinct~~briefing ~~legal~~and ~~entities. Any right that we have~~ to ~~receive~~set ~~any~~a ~~assets~~date ~~of/or~~and ~~distributions~~time ~~from~~to ~~any subsidiary~~hear ~~upon~~their ~~its~~application ~~bankruptcy,~~for ~~dissolution,~~a ~~liquidation~~preliminary ~~or reorganization,~~injunction or to ~~realize~~enjoin ~~proceeds from~~ the ~~sale~~merger. ofFollowing ~~the assets~~a ofhearing, ~~any~~on ~~subsidiary~~February 3, ~~will~~2011, ~~be junior to~~ the ~~claims~~Delaware court ofdenied ~~that subsidiary~~plaintiffs’s ~~creditors, including trade creditors~~motion.

We ~~have~~ abelieve ~~substantial~~all ~~amount~~ of ~~debt,~~these ~~which~~lawsuits ~~could~~are ~~adversely~~without ~~affect our~~merit ~~financial health~~ and ~~prevent~~intend usto ~~from~~defend ~~making principal and~~them ~~interest payments on the notes and our other debt~~vigorously.

AtWe ~~December 31~~are involved in various other legal proceedings, ~~2009~~including labor contract litigation, wein ~~have~~the ~~approximately~~ordinary course ~~$492~~of business.~~2 million~~ ofThe ~~consolidated~~legal ~~total~~proceedings ~~indebtedness outstanding~~are ~~and~~at ~~approximately~~different ~~$85.8 million~~stages; however, we believe that the likelihood of ~~additional secured~~material ~~borrowing~~loss ~~capacity~~relating ~~available~~to ~~under~~any ~~our~~such ~~credit~~legal ~~agreement~~proceedings is remote.

In- ~~addition,~~21 ~~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 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 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

conditionsIndex and to certainFinancial 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. Statements

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%ITEM ~~senior notes, our 8~~4.~~5% senior notes~~ or[RESERVED] ~~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 financings or other sources, will be available or, if available, will be on terms satisfactory to us. The turmoil in the financial markets since mid-2008 and its impact on the financial condition of the banking sector and other lenders, has significantly reduced access to the capital markets. It is uncertain to what extent capital will be available to us in the future and at what 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%PART ~~senior notes, our~~ ~~8.5% senior~~II ~~notes or any other debt securities we may offer.~~

~~The indenture governing our 9.0%~~ITEM ~~senior notes, the indenture governing our 8.~~5%. ~~senior~~MARKET ~~notes~~FOR ~~and~~REGISTRANT’S ~~our~~COMMON ~~credit~~EQUITY, ~~agreement impose~~RELATED ~~restrictions~~STOCKHOLDER onMATTERS ~~us that may limit the discretion of~~AND ~~management~~ISSUER inPURCHASES ~~operating~~OF ~~our~~EQUITY ~~business and that, in turn, could impair our ability to meet our obligations~~SECURITIES.

~~The~~MARKET ~~indenture~~PRICE ~~governing~~INFORMATION 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:

•On ~~incur~~February 23, ~~additional~~2011, ~~debt;~~we •merged ~~make~~with ~~certain~~and ~~investments~~into orWellco ~~pay~~Sub ~~dividends~~Company, ora ~~distributions~~wholly onowned ~~our~~subsidiary ~~capital~~of ~~stock~~Seawell. orAccordingly, ~~purchase~~there oris ~~redeem~~no established orpublic ~~retire~~trading ~~capital~~market for our common stock;. •Prior ~~sell~~to ~~assets~~the merger, ~~including~~our ~~capital~~common stock ofwas ~~our~~traded ~~restricted~~on ~~subsidiaries;~~the •New ~~restrict~~York ~~dividends~~Stock orExchange ~~other~~under ~~payments~~the bysymbol ~~restricted~~“ALY”. ~~subsidiaries;~~The •following ~~create~~table ~~liens;~~sets •forth ~~enter~~high ~~into~~and ~~transactions~~low ~~with~~sale ~~affiliates;~~prices ~~and~~of •our ~~merge~~common orstock reported ~~consolidate~~on ~~with~~the ~~another~~New ~~company~~York Stock Exchange for 2010 and 2009.

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 demand for our services experienced in 2009 adversely impacts our ability to maintain or meet such financial ratios.


Calendar Quarter	High		Low
2010
First Quarter	$	4.57	$	3.36
Second Quarter		4.28		2.00
Third Quarter		4.18		1.79
Fourth Quarter		7.17		4.16
2009
First Quarter	$	6.07	$	0.71
Second Quarter		4.53		1.80
Third Quarter		4.94		2.01
Fourth Quarter		4.87		3.06

~~These~~Holder 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

23 There was one record holder of our common stock at March 1, 2011.

Dividends

No dividends were declared or paid on our common stock during the past two years, and no dividends are anticipated to be declared or paid in the foreseeable future on such common stock. 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, 2010 with respect to the shares of our common stock that may be issued under our equity compensation plans.


Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants And Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in first column)

Equity compensation plans approved by security holders		2,683,101	$	4.74		4,342,286
Equity compensation plans not approved by security holders		—		—		—

Total		2,683,101	$	4.74		4,342,286

Equity Compensation Plans Not Approved By Security Holders

None

- 22 -

creditIndex 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 dueFinancial 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. Statements

~~ITEM~~PERFORMANCE ~~1B.~~GRAPH ~~UNRESOLVED STAFF COMMENTS~~

Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of our common stock ~~None~~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, 2010. 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.

~~ITEM~~The 2graph assumes that $100 was invested on December 31, 2005 in our common stock and in each index, and that all dividends were reinvested. ~~PROPERTIES~~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.

LOGO

~~The~~- ~~following~~23 ~~table describes the location and general character~~- of the principal physical properties used in each of our company’s businesses as of February 26, 2010. Our principal executive office is rented and located in Houston, Texas and the table below presents all of our material operating locations and whether the property is owned or leased.

Business Segment	Location	Owned/Leased
Oilfield Services	Searcy, Arkansas	Leased
	Broussard, Louisiana	Owned
	Youngsville, Louisiana	Owned
	Carlsbad, New Mexico	Leased
	Farmington, New Mexico	Leased
	Elk City, Oklahoma	Leased
	McAlester, Oklahoma	Leased
	Oklahoma City, Oklahoma	Leased
	Mt Morris, Pennsylvania	Leased
	Conroe, Texas	Leased
	Corpus Christi, Texas	Leased — 2 locations
	Fort Stockton, Texas	Leased
	Houston, Texas	Leased
	Kilgore, Texas	Leased
	Longview, Texas	Leased
	San Angelo, Texas	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	Owned
	Aracuja, Sergipe, Brazil	Leased
	Macae, Rio de Janeiro, 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

ITEMIndex 3.to LEGALFinancial PROCEEDINGSStatements

OnCOMPARISON ~~June 29,~~OF ~~1987,~~CUMULATIVE weTOTAL ~~filed~~RETURN ~~for~~OF ~~reorganization~~ONE ~~under Chapter 11~~OR ofMORE ~~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~~COMPANIES, ~~the U.S. Bankruptcy~~PEER ~~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~~GROUPS, ~~two~~INDUSTRY ~~trust~~INDEXES ~~funds~~AND/OR toBROAD ~~service~~MARKETS 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.

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

FISCAL YEAR ENDING

COMPANY/INDEX/MARKET

12/31/2005

12/31/2006

12/30/2007

12/29/2008

12/31/2009

12/31/2010

Allis-Chalmers Energy Inc.

100.00

184.76

118.28

44.11

31.51

59.25

Russell 2000 Index

100.00

118.37

116.51

77.15

98.11

124.46

Oil & Gas Equipment/Svcs

100.00

120.81

174.92

70.98

116.10

158.33

~~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~~ITEM 6. SELECTED ~~The~~FINANCIAL ~~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~~DATA. ~~In addition, we negotiated settlements of various environmental claims asserted by certain state environmental protection agencies.~~

~~Subsequent~~Omitted topursuant 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~~Instruction ofI ~~our plan~~ of ~~reorganization.~~ InForm 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 pre10-~~petition triggers have been discharged~~K. A(Omission ~~number~~ of ~~claimants~~ ~~have~~Information 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, had responded to such claims, generally, by ~~informing~~Certain ~~claimants~~Wholly ~~that~~Owned ~~our liabilities were discharged in the bankruptcy~~Subsidiaries). Each of such claims have 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.

~~We have assumed the responsibility of responding to claimants and to the EPA and state agencies previously undertaken by the A-C Reorganization Trust~~ITEM 7. MANAGEMENT’S ~~However,~~DISCUSSION weAND ~~have~~ANALYSIS ~~been~~OF ~~advised~~FINANCIAL byCONDITION ~~the A-C~~AND ~~Reorganization~~RESULTS ~~Trust that its cost of providing these~~OF ~~services~~OPERATIONS 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.

WePursuant ~~are named as a defendant from time~~ to ~~time~~General inInstruction ~~product liability~~I ~~lawsuits~~of ~~alleging~~Form ~~personal~~10-K ~~injuries~~“Omission ~~resulting~~of ~~from~~Information ~~our activities prior to our reorganization involving asbestos. These claims had previously been referred to and handled~~ by aCertain ~~special~~Wholly-Owned ~~products~~Subsidiaries,” ~~liability~~this ~~trust~~section ~~formed~~includes toonly bemanagement’s ~~responsible~~narrative ~~for~~analysis ~~such claims~~of ~~in connection with our reorganization. Such products liability trust is in~~ the ~~process~~results of ~~being~~operations ~~dissolved. As with environmental claims, we do not believe we are liable~~ for ~~product~~ ~~liability~~the ~~claims~~year ~~relating~~ended toDecember 31, ~~our~~2010, ~~business~~the ~~prior~~most torecent ~~our bankruptcy.~~fiscal ~~However~~year, ~~there~~compared ~~can~~with bethe noyear ~~assurance~~ended ~~that~~December 31, we2009, ~~will~~the ~~not~~fiscal beyear ~~subject~~immediately topreceding ~~material product liability claims in the future~~it.

The following discussion and analysis should be read in conjunction with 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 25reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of risks and uncertainties, including, but not limited to, those discussed under “Item 1A. Risk Factors.”

Overview of Our Business

We are a multi-faceted oilfield service company that provides services and equipment to oil and natural gas exploration and production companies, throughout the United States including Texas, Louisiana, Pennsylvania, Arkansas, West Virginia, Oklahoma, Colorado, offshore in the Gulf of Mexico and internationally primarily in Argentina, Brazil, Bolivia and Mexico. 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 day and 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 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.

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.

Merger with Seawell

On February 23, 2011, we merged with and into Wellco Sub Company, a wholly owned subsidiary of Seawell, and each share of our common stock was converted into the right to receive either 1.15 Seawell common shares or $4.25 in cash. In connection with the merger, Wellco Sub Company changed its name to Allis-Chalmers Energy Inc.

- 24 -

WeIndex 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 suchFinancial legal proceedings is remote. Statements

~~ITEM~~We 4recorded approximately $2.1 ~~[RESERVED]~~million of costs related to the merger during the year ended December 31, 2010, which are included in selling, general and administrative expense on our Consolidated Statements of Operations. Approval of the merger resulted in certain of our contractual obligations being triggered or accelerated under the “change of control” provisions of such contractual arrangements. Examples of such arrangements include stock-based compensation awards, severance and retirement plan agreements applicable to executive officers, directors and certain employees and certain other debt obligations, including our senior notes.

~~PART II~~ Company Outlook

~~ITEM~~Throughout 5the first half of 2009, we saw a significant decline in the global economy which led to reduced activity in the energy sector. This ~~MARKET~~reduced ~~FOR~~activity ~~REGISTRANT’S~~in ~~COMMON~~the ~~EQUITY~~energy sector resulted in lower demand for our services and we incurred significant losses. Since the second quarter of 2009, ~~RELATED~~we ~~STOCKHOLDER~~have ~~MATTERS~~experienced ~~AND~~quarter ~~ISSUER~~over ~~PURCHASES~~quarter OFimprovement ~~EQUITY~~in ~~SECURITIES~~our total revenues which has resulted in reduced net losses.

On April 20, 2010, a fire and explosion occurred onboard the semisubmersible drilling rig Deepwater Horizon, which was owned by Transocean Ltd. and under contract to a subsidiary of BP plc. The accident resulted in the loss of life and a significant oil spill. In response to this incident, the Minerals Management Service of the ~~MARKET~~United States Department of Interior, or the MMS, issued a notice on May 30, 2010 implementing a six-month moratorium on certain drilling activities in the United States Gulf of Mexico. The notice also stated that the MMS would not consider ~~PRICE~~drilling ~~INFORMATION~~permits for new wells and related activities for specified water depths during the six-month moratorium period. In addition, entities in the process of drilling wells covered by the moratorium were required to halt drilling and take steps to secure such wells. On October 12, 2010, the moratorium was lifted, and deepwater oil and natural gas drilling in the United States Gulf of Mexico has been allowed to resume, provided that operators certify compliance with all existing rules and requirements, including those that recently went into effect, and demonstrate the availability of adequate blowout containment resources. The first new permit was not issued until March 2011.

~~Our~~Although ~~common~~the ~~stock~~moratorium ison ~~traded~~oil onand natural gas drilling in the ~~New~~United ~~York~~States ~~Stock~~Gulf ~~Exchange~~of ~~under~~Mexico has been lifted, new guidelines, regulations and restrictions could increase the ~~symbol~~costs ~~“ALY”~~of exploration and production, reduce the area of operations and result in permitting delays. ~~The~~These ~~following~~may ~~table~~include ~~sets~~new ~~forth~~or ~~high~~ additional bonding and ~~low~~safety ~~sale~~requirements, ~~prices~~and other requirements regarding certification of ~~our~~equipment. ~~common~~The ~~stock~~enactment ~~reported~~of stricter restrictions on ~~the~~offshore ~~New~~drilling ~~York Stock~~or ~~Exchange.~~further regulation of offshore drilling or contracting services operations could materially affect our business, financial condition and results of operations.

Calendar Quarter	High		Low
2009
First Quarter	$	6.07	$	0.71
Second Quarter		4.53		1.80
Third Quarter		4.94		2.01
Fourth Quarter		4.87		3.06
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

Results of Operations

In July 2010, we acquired all of the outstanding stock of AWC, which is reported as part of our Rental Services segment. We consolidated the results of this acquisition from the day it was acquired. The ~~Holders~~ foregoing acquisition affects the comparability from period to period of our historical results, and our historical results may not be indicative of our future results.

AsComparison of ~~February~~Years Ended December 2631, 2010, ~~there~~and ~~were approximately 878 holders of record of our common stock. On February~~December 2631, ~~2010,~~ ~~the~~2009 ~~closing price for our common stock reported on the New York Stock Exchange was $3.78 per share.~~

Our revenues for the year ended December 31, 2010 were $659.7 million, an increase of 30.3% compared to $506.3 million for the year ended December 31, 2009. Revenues increased in all three of our segments. Both our Oilfield Services and Rental Services segments have a strong concentration in the United States domestic oil and natural gas market. Due to the ~~Dividends~~increased drilling activity in the United States, particularly in the natural gas shale plays, compared to 2009, we experienced significant improvement in both equipment utilization and pricing. This resulted in an increase in revenues of our Oilfield Services segment to $210.6 million for the year ended December 31, 2010 compared to revenues of $143.6 million for the year ended December 31, 2009. Our Rental Services segment had an increase in revenues to $70.9 million for the year ended December 31, 2010 compared to revenues of $58.7 million for the year ended December 31, 2009. The acquisition of AWC in July 2010 contributed $15.7 million of the increase in revenues for the Rental Services segment. The contribution in revenues by AWC and the increase in activity from the United States land shale plays were partially offset by the drilling moratorium in the Gulf of Mexico. The increase in revenues in our Drilling and Completion segment was due to higher rig utilization and pricing in our Argentina operations. The Drilling and Completion segment generated $378.2 million in revenues for the year ended December 31, 2010 compared to revenues of $304.0 million for the year ended December 31, 2009.

No- ~~dividends~~25 ~~were declared or paid on our common stock during~~- the past two years, and no dividends are anticipated to be declared or paid in the foreseeable future on such common stock. Our credit facilities and the indentures governing our senior notes restrict our ability to pay dividends on our common stock.

EQUITY COMPENSATIONIndex PLANto INFORMATION Financial Statements

Our direct costs for the year ended December 31, 2010 increased 31.3% to ~~The~~$498.1 million, ~~following~~or ~~table~~75.5% ~~provides~~of ~~information~~revenues, ascompared to $379.4 million, or 75.0%, of revenues for the year ended December 31, 2009. The increase in direct costs is consistent with ~~respect~~the increase in revenues. Our Oilfield Services segment direct costs for the year ended December 31, 2010 increased $35.0 million, or 31.4%, from direct costs for the year ended December 31, 2009, while the revenues increased 46.7% over that same period, resulting in an improved gross margin of 30.4% for 2010 compared to 22.3% for 2009. In addition, our Oilfield Services segment had $1.2 million of expenses recorded during the ~~shares~~year ended December 31, 2009 related to severance payments, the closing of unprofitable locations and downsizing other locations. Direct costs in our ~~common~~Drilling ~~stock~~and Completion segment increased $74.4 million, or 30.2%, for the year ended December 31, 2010 compared to the year ended December 31, 2009, while the revenues increased 24.4% over that ~~may~~same beperiod, resulting in a reduction of gross margin to 15.1% for 2010 compared to 18.8% in 2009. This unfavorable variance is primarily attributed to labor and other cost increases due to the inflationary environment in Argentina and ~~issued~~decreased ~~under~~utilization and pricing for our ~~existing~~rigs ~~equity~~in ~~compensation~~Brazil. ~~plans~~Our Rental Services segment direct costs for the year ended December 31, 2010 increased $9.3 million, or 43.9%, from direct costs for the year ended December 31, 2009, while the revenues increased 20.7% over that same period, resulting in a reduction of gross margin to 57.0% in 2010 compared to 63.9% in 2009. The AWC acquisition in July 2010 contributed $15.7 million in revenues and $9.5 million in direct costs to the Rental Services segment for the year ended December 31, 2010 for an effective gross margin as a percentage of revenues of 39.5%. The lower margin manufacturing operation of AWC is the primary reason that the gross margin percentage in the Rental Services segment declined for the year ended December 31, 2010 compared to the year ended December 31, 2009.

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

securities

Options, Warrants

reflected in first

Plan Category

And Rights

and Rights

column)

Equity compensation plans approved by security holders

1,179,398

6.27

7,454,989

Equity compensation plans not approved by security holders

4,000

13.75

—

Total

1,183,398

6.31

7,454,989

Depreciation expense increased 7.5% to $84.1 million for the year ended December 31, 2010 from $78.3 million for the year ended December 31, 2009. The primary increase in depreciation expense is due to our on-going investment in equipment to serve our customer base.

Selling, general and administrative expense was $60.4 million for the year ended December 31, 2010 compared to $50.8 million for the year ended December 31, 2009. Selling, general and administrative expense increased primarily due to bonuses, the amortization of share-based compensation arrangements and merger related transaction costs, partially offset by reduced bad debt provision. Bonus expense for the year ended ~~Equity~~December 31, 2010 was $6.9 million compared to $1.3 million for the prior year due to the improved operating results for 2010 compared to 2009. Selling, general and administrative expense includes share-based compensation expense of $8.0 ~~Compensation~~million ~~Plans~~in ~~Not~~2010 ~~Approved~~and By$4.8 ~~Security~~million ~~Holders~~in 2009. Transaction costs related to the merger with Seawell were $2.1 million and included our fairness opinion and other professional fees. Our bad debt expense for the year ended December 31, 2010 was $368,000 compared to $2.8 million for the year ended December 31, 2009 and is a reflection of the improved market conditions in the United States oilfield industry. As a percentage of revenues, selling, general and administrative expenses were 9.2% in 2010 compared to 10.0% in 2009.

During the year ended December 31, 2010, we recorded a $10.6 million loss on the ~~These~~sale ~~plans~~of ~~comprise~~two drilling rigs that we had constructed in 2008 which we were never able to operate on a reliable basis. We received $25.0 million for the ~~following:~~rigs, but our costs related to the rig were $35.2 million. In addition, we incurred a $311,000 early repayment fee and wrote off deferred financing costs of $115,000 related to the underlying debt to those two rigs. During the year ended December 31, 2009, we recorded a $1.6 million loss on an asset disposition from the total loss of a rig from a blow-out in our Drilling and Completion segment. The insurance proceeds for the loss were not sufficient to cover the book value of the rig and related assets.

InAmortization ~~1999~~expense ~~and~~was ~~2000,~~$4.8 million for the ~~Board~~year ~~compensated~~ended ~~Board members who had served from 1989 to March~~December 31, ~~1999~~2010 ~~without~~compared ~~compensation~~to ~~by issuing~~$4.7 million ~~promissory~~for ~~notes~~the ~~totaling~~year ~~$325~~ended December 31,~~000~~ ~~and~~2009. byThe ~~granting~~increase ~~stock options~~was toprimarily ~~these~~attributable ~~same individuals. Options~~ to ~~purchase~~ ~~4,800 shares~~intangible ofassets ~~common~~associated ~~stock were granted~~ with anour ~~exercise price~~acquisition of ~~$13.75.~~AWC ~~These options vested immediately and expire~~ in ~~March~~ July 2010. ~~As of December 31, 2009, 4,000 of these options remain outstanding.~~

Our income from operations for the year ended December 31, 2010 totaled $1.6 million, compared to an $8.5 million loss for the year ended December 31, 2009, for an improvement of $10.1 million. The improvement is primarily related to increased revenues in all our segments, 27partially offset by higher selling, general and administrative costs, the increased loss on asset dispositions and increased depreciation and amortization expense for the year ended December 31, 2010 compared to year ended December 31, 2009.

Our interest expense was $45.8 million for the year ended December 31, 2010, compared to $48.1 million for the year ended December 31, 2009. On June 29, 2009 we purchased $74.8 million of our senior notes with proceeds from our $125.6 million in equity issuances on that same date. We also prepaid the then $35.0 million outstanding loan balance under our revolving credit facility on June 29, 2009 from those same equity proceeds. Our outstanding balance under our revolving credit facility was $36.5 million at December 31, 2010 compared to no borrowings at December 31, 2009. In November 2010, we repaid the outstanding balance of $20.8 million term loan on the two rigs that were sold in 2010. Interest expense includes amortization expense of debt issuance costs of $2.2 million for both of the years ended December 31, 2010 and 2009.

- 26 -

PERFORMANCE GRAPH Index to Financial Statements

~~Set~~Our ~~forth~~interest ~~below~~income iswas a$537,000 ~~line~~for ~~graph comparing~~ the ~~annual~~year ~~percentage change~~ended inDecember 31, ~~the~~2010, ~~cumulative~~compared ~~return~~ to ~~the stockholders of our~~ ~~common~~$72,000 ~~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, 2009. ~~The CoreData~~We ~~Services~~received ~~Oil~~$405,000 ~~and Gas Equipment and Services Index is an index~~ of ~~approximately~~interest 75income ~~oil~~related ~~and gas equipment and services providers. The information contained in the performance graph shall not be deemed~~ to bea ~~“soliciting~~receivable ~~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~~was ~~incorporate~~collected itthrough bybankruptcy ~~reference~~proceedings ~~into~~in ~~such filing~~2010.

~~The~~During ~~graph~~the ~~assumes~~year ~~that~~ended December 31, 2009, we recorded a gain of $~~100~~26.4 ~~was~~million ~~invested~~as a result of a tender offer that we completed on ~~December~~June 3129, ~~2004~~ in2009. We purchased $30.6 million aggregate principal of our ~~common~~9.0% ~~stock~~senior notes and in$44.2 ~~each~~million ~~index,~~aggregate ~~and~~principal ~~that~~of ~~all dividends~~8.5% ~~were~~senior ~~reinvested~~notes for approximately $46.4 Nomillion. ~~dividends~~Included ~~have~~in ~~been~~the ~~declared~~computation ~~or paid~~of onthe ~~our~~gain ~~common~~is ~~stock~~the write-off of $1.5 ~~Stockholder~~million ~~returns~~of ~~over~~debt issuance costs related to the ~~indicated~~retired notes and we ~~period~~incurred ~~should~~approximately ~~not~~$466,000 bein ~~considered~~expenses ~~indicative~~related ofto ~~future~~the ~~shareholder returns~~transactions.

Our benefit for income taxes for the year ended *December 31, 2010 was $~~100~~7.4 ~~invested~~million, onor ~~12/~~15.8% of our net loss before income taxes, compared to an income tax benefit of $9.9 million, or 31~~/04~~.8% of our net loss before income taxes for 2009. Our effective tax rate in ~~stock~~the orUnited ~~index,~~States ~~including~~was 29.4% in ~~reinvestment~~2010 ofcompared ~~dividends~~to 35.5% in 2009, while our effective tax rate for international activities increased to 85.6% in 2010 compared to 44.4% in 2009. The decrease in the United States tax rate was primarily attributable to higher nondeductible items ~~Fiscal~~during the 2010 year ~~ending~~including ~~December 31~~transaction costs and meals and entertainment. The increase in the international tax rate is primarily due to our BCH operations which generate a loss in Brazil but incurs a withholding tax on its revenues which is reported as an income tax.

~~COMPARISON OF~~We ~~CUMULATIVE~~had ~~TOTAL~~a ~~RETURN~~net OFloss ~~ONE~~of OR$39.5 million ~~MORE~~for the year ended December 31, 2010, compared to a ~~COMPANIES~~net loss of $21.2 million for the year ended December 31, ~~PEER~~2009. ~~GROUPS~~The net loss for the year ended December 31, ~~INDUSTRY~~2010 ~~INDEXES~~included ~~AND/OR~~the ~~BROAD~~$10.6 million loss on the sale of two rigs, while the net loss in 2009 includes the $26.4 million gain as a ~~MARKETS~~ result of the senior notes tender offer.

	Fiscal Year Ending
Company/Index/Market	12/31/2004		12/31/2005		12/30/2006		12/29/2007		12/31/2008		12/31/2009
Allis-Chalmers Energy Inc.		100.00		254.49		470.20		301.02		112.24		80.18
Russell 2000 Index		100.00		104.55		123.76		121.82		80.66		102.58
Oil & Gas Equipment/Svcs		100.00		151.13		177.92		254.37		102.83		166.75

The net loss attributed to common stockholders for the years ended December 31, 2010 and 2009 was $42.1 million and $22.5 million, respectively, after $2.5 million and $1.3 million in preferred stock dividends, respectively. The preferred stock dividend relates to 36,393 shares of $1,000 par value preferred shares at 7.0%.

The following table compares revenues and income (loss) from operations for each of our business segments for the years ended 28 December 31, 2010 and December 31, 2009. Income (loss) from operations consists of our revenues and the gain (loss) on asset dispositions less direct costs, general and administrative expenses, depreciation and amortization:


	Revenues						Income (Loss) from Operations
	2010		2009		Change		2010			2009			Change
	(In thousands)
Oilfield Services	$	210,617	$	143,564	$	67,053	$	15,393		$	(14,691	)	$	30,084
Drilling & Completion		378,154		303,975		74,179		4,369			19,222			(14,853	)
Rental Services		70,894		58,714		12,180		4,115			140			3,975
General Corporate		—		—		—		(22,314	)		(13,218	)		(9,096	)

Total	$	659,665	$	506,253	$	153,412	$	1,563		$	(8,547	)	$	10,110

Oilfield Services. Revenues for the year ended December 31, 2010 for our Oilfield Services segment were $210.6 million, an increase of 46.7% from the $143.6 million in revenues for the year ended December 31, 2009. Income from operations for our Oilfield Services segment increased $30.1 million and resulted in an income from operations of $15.4 million for the year ended December 31, 2010 compared to loss from operations of $14.7 million for the year ended December 31, 2009. Our Oilfield Services segment revenues and operating income for the year ended December 31, 2010 increased compared to the year ended December 31, 2009 due to improved market conditions that resulted in increased demand and pricing for our services. During the year ended December 31, 2009, we incurred $1.2 million of costs related to severance payments, the closing of unprofitable locations and downsizing other locations in our Oilfield Services segment.

Drilling and Completion. Our Drilling and Completion revenues were $378.2 million for the year ended December 31, 2010, an increase of 24.4% from the $304.0 million in revenues for the year ended December 31, 2009. Our Drilling and Completion revenues increased in 2010 primarily due to increased activity in Argentina. Income from operations decreased to $4.4 million in 2010 compared to $19.2 million for the year ended December 31, 2009. Income from operations as percentage of revenue decreased to 1.2% for 2010 compared to 6.3% for 2009. This reduction was due to: (1) a $10.6 million loss on the disposition of two drilling rigs manufactured in 2008 that never achieved acceptable performance; (2) increased labor and other costs in Argentina during the year ended December 31, 2010; (3) an increase of $4.1 million, or 18.4%, in depreciation and amortization in the year ended December 31, 2010; and (4) reduced rig utilization and rig rates in Brazil during the year ended December 31, 2010 compared to the prior year. Results for the Drilling and Completion segment in 2010 were also impacted by a high incidence of labor strikes in Argentina during the year. Operating income in 2009 was impacted by (1) a $1.6 million non-cash loss recorded in the year ended December 31, 2009 on a rig destroyed in a blow-out; (2) $1.7 million of severance costs during the year ended December 31, 2009 related to workforce reductions in Argentina as a result of lower activity and (3) $329,000 of costs incurred to consolidate operating locations in Brazil during the year ended December 31, 2009. The increase in depreciation and amortization expense was the result of our continual upgrade to our equipment.

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ITEMIndex 6.to SELECTEDFinancial FINANCIAL DATA.Statements

~~The~~Rental ~~following~~Services. ~~selected~~Our ~~historical~~Rental ~~financial~~Services ~~information~~revenues were $70.9 million for ~~each~~the year ended December 31, 2010, an increase of 20.7% from the ~~five~~$58.7 million ~~years~~in revenues for the year ended December 31, 2009,. ~~has~~Income ~~been derived~~ from operations for our ~~audited~~Rental ~~consolidated~~Services ~~financial~~segment ~~statements~~increased ~~and~~to ~~related notes~~$4.1 ~~Certain~~million ~~reclassifications~~for ~~have~~the ~~been~~year ~~made~~ended December 31, 2010 compared to $140,000 for the ~~prior~~ year’s ~~selected~~ended ~~financial~~December 31, ~~data~~2009. toOur ~~conform~~Rental ~~with~~Services ~~the~~segment ~~current period~~revenues ~~presentation.~~and ~~This~~operating ~~information~~income isfor ~~only~~the ayear ~~summary~~ended ~~and should~~December 31, be2010 ~~read~~increased incompared ~~conjunction~~to ~~with~~the ~~material~~prior ~~contained~~year ~~in “Management’s~~due ~~Discussion~~primarily ~~and~~to ~~Analysis~~the acquisition of ~~Financial Condition~~AWC. ~~and~~AWC ~~Results~~generated $15.7 million of ~~Operations,”~~revenues ~~which~~and ~~includes~~$5.3 ~~a discussion~~million of ~~factors~~operating ~~materially~~income ~~affecting~~from ~~the~~its ~~comparability~~acquisition ~~of the~~in ~~information~~July ~~presented~~2010 through December 31, ~~and~~2010. inOur ~~conjunction~~Rental ~~with~~Services ~~our~~segment ~~financial statements~~was ~~included~~negatively ~~elsewhere~~impacted ~~herein.~~by Asthe ~~discussed~~moratorium in the Gulf of ~~Item 7~~Mexico resulting from the Deepwater Horizon incident, ~~“Management’s~~partially ~~Discussion~~offset by increased pricing and ~~Analysis~~utilization of ~~Financial~~ ~~Condition~~certain ~~and~~equipment ~~Results~~as a result of ~~Operations,”~~our wefocus ~~have during~~on the ~~past~~land ~~five~~shale ~~years~~drilling ~~effected~~activity. aWe ~~number~~had ofno ~~business combinations~~bad ~~and~~debt ~~other~~expense ~~transactions~~recorded ~~that~~in ~~materially~~our ~~affect~~Rental ~~the~~Services ~~comparability~~segment offor the ~~information~~year ~~set~~ended ~~forth~~December 31, ~~below~~2010 ~~(in~~compared ~~thousands, except~~to ~~per~~$1.5 ~~share~~million ~~amounts):~~ for the year ended December 31, 2009.

	Years Ended December 31,
	2009			2008			2007		2006		2005
Statement of Operations Data
Revenues	$	506,253		$	675,948		$	570,967	$	310,964	$	108,022
Impairment of goodwill	$	—		$	115,774		$	—	$	—	$	—
Income (loss) from operations	$	(8,547	)	$	(13,520	)	$	124,782	$	67,730	$	13,518
Net income (loss) from continuing operations	$	(21,190	)	$	(39,464	)	$	50,440	$	35,626	$	7,175
Net income (loss) attributed to common stockholders	$	(22,492	)	$	(39,464	)	$	50,440	$	35,626	$	7,175
Per Share Data:
Net income (loss) from continuing operations per common share:
Basic	$	(0.42	)	$	(1.13	)	$	1.48	$	1.73	$	0.48
Diluted	$	(0.42	)	$	(1.13	)	$	1.45	$	1.66	$	0.44
Weighted average number of common shares outstanding:
Basic		53,669			35,052			34,158		20,548		14,832
Diluted		53,669			35,052			34,701		21,410		16,238

General Corporate. General corporate expenses increased $9.1 million to $22.3 million for the year ended December 31, 2010 compared to $13.2 million for the year ended December 31, 2009. The increase was primarily due to the increase in share-based compensation expense, bonus expense and transaction costs related to the merger with Seawell. Share-based compensation expense included in general corporate was $6.7 million for the year ended December 31, 2010 compared to $3.7 million for the year ended December 31, 2009, with the increase primarily attributed to accelerated vesting on restricted stock in connection with the then pending merger with Seawell. Bonus expense for the year ended December 31, 2010 was $6.4 million higher than the previous year due to a new bonus plan adopted in 2010 and the achievement of certain performance goals for 2010. We incurred $2.1 million of costs related to the Seawell merger during the year ended December 31, 2010.

	As of December 31,
	2009		2008		2007		2006		2005
Balance Sheet Data
Total assets	$	1,080,620	$	1,115,051	$	1,053,585	$	908,326	$	137,355
Long-term debt classified as:
Current	$	17,027	$	14,617	$	6,434	$	6,999	$	5,632
Long-term	$	475,206	$	579,044	$	508,300	$	561,446	$	54,937
Redeemable convertible
Preferred stock	$	34,183	$	—	$	—	$	—	$	—
Stockholders’ equity	$	483,647	$	383,409	$	414,329	$	253,933	$	60,875
Book value per common share	$	6.78	$	10.75	$	11.80	$	8.99	$	3.61

Liquidity and Capital Resources

~~ITEM~~Our 7on-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. ~~MANAGEMENT’S~~In ~~DISCUSSION~~the ~~AND~~past, ~~ANALYSIS~~our OFprimary ~~FINANCIAL~~source ~~CONDITION~~of ~~AND~~liquidity ~~RESULTS~~were OFthe ~~OPERATIONS~~proceeds from the issuance of debt and equity securities and cash flows from operations. At the completion of the merger our revolving credit facility was repaid and cancelled and future funds will be provided by operating cash flow or advances from our parent company.

~~The~~Operating ~~following~~Activities 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

In the year ended December 31, 2010, we generated $54.9 million in cash from operating activities. Our net loss for the year ended December 31, 2010 was $39.5 million. Non-cash additions to the net loss totaled $96.0 million in 29the 2010 period consisting primarily of $88.9 million of depreciation and amortization, $10.6 million related to loss on disposition of two drilling rigs, $8.0 million related to the expensing of stock options, $2.2 million of amortization and write-off of deferred financing fees, $1.5 million from the loss on the sale of an investment in an exploration and production company, $0.8 million from losses incurred by a joint venture operating in Saudi Arabia and $0.7 million of losses from the disposition of equipment, partially offset by $17.1 million in deferred income taxes.

During the year ended December 31, 2010, changes in working capital used $1.6 million in cash. Cash was provided by decreases in prepaid expenses and other of $11.1 million and $1.7 million in other assets, increases in trade payables of $11.1 million, $7.4 million in accrued expense and $9.9 million in accrued salaries, benefits and payroll taxes, this was offset by cash used by increases in accounts receivable of $35.7 million and $6.0 million in inventories, and a decrease of $0.9 million in other liabilities. Our accounts receivables increased at December 31, 2010 primarily due to the increase in our revenues in 2010. Inventories increased at December 31, 2010 primarily due to the acquisition of AWC which had $3.0 million of manufacturing related inventory at December 31, 2010 and also due to an increase in activity. Prepaid expenses and other current assets decreased primarily due to tax prepayments in Argentina being utilized to cover current period income taxes and due to the amortization of insurance premiums that were financed. The decrease in other assets relates to recurring amortization of deferred mobilization costs as well as amortization on oil and gas investments. Our accounts payable and accrued expenses increased primarily due to the increase in costs due to our increase in activity. Approximately $5.0 million of the increase in accrued salaries, benefits and payroll taxes relates to yearend bonus accruals at December 31, 2010 and the rest of the increase relates to general timing differences on when payroll is paid.

In the year ended December 31, 2009, we generated $55.5 million in cash from operating activities. Our net loss for the year ended December 31, 2009 was $21.2 million. Non-cash additions to net loss totaled $49.3 million in the 2009 period consisting primarily of $83.0 million of depreciation and amortization, $4.8 million related to the expensing of stock options, $2.8 million for bad debts, $2.2 million of amortization and write-off of deferred financing fees and $1.6 million related to loss on rig destroyed by fire, partially offset by $26.4 million from gain on debt extinguishment, $17.9 million in deferred income taxes and $0.9 million of gains from the dispositions of equipment.

- 28 -

PrivateIndex Securities Litigation Reform Act of 1995 that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of risks and uncertainties, including, but not limited to, thoseFinancial discussed under “Item 1A. Risk Factors.” Statements

During the year ended December 31, 2009, changes in working capital provided $27.4 million in cash, principally due to a decrease of $50.0 million in accounts receivable, a decrease of $4.6 million in inventories, a decrease in other current assets of $4.6 million and an increase of $2.7 million in accrued employee ~~Overview~~ benefits and payroll taxes, offset by an decrease of $27.6 million in accounts payable, a decrease of $4.6 million in accrued expenses and a decrease in accrued interest of $2.8 million. Our ~~Business~~accounts receivables decreased at December 31, 2009 primarily due to the decrease in our revenues in 2009. Inventories decreased at December 31, 2009 primarily due to a slow down in our activity. Other current assets decreased primarily due to tax refunds received in 2009. Our accounts payable, and other accrued expenses decreased primarily due to the decrease in costs due to our decrease in activity.

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

WeDuring ~~derive~~the ~~operating~~year ~~revenues~~ended ~~from~~December 31, ~~rates~~2010, ~~per~~we ~~job~~used ~~that~~$67.7 wemillion ~~charge~~in investing activities, consisting of $102.2 million for ~~the~~capital ~~labor~~expenditures, ~~and~~$15.9 ~~equipment~~million ~~required~~for tothe ~~provide~~acquisition of AWC, offset by a ~~service~~decrease ~~and rates~~of ~~per~~$18.3 ~~day~~million ~~for~~in deposits on asset commitments, $6.6 million of proceeds from equipment sales and ~~tools~~$25.0 ~~that~~million wein ~~rent~~proceeds tofrom ~~our~~the sale of two drilling rig ~~customers~~manufactured in 2008. ~~The~~Included ~~price~~in wethe ~~charge~~$102.2 million for ~~our~~capital ~~services~~expenditures ~~depends~~was ~~upon several~~$26.6 ~~factors,~~million ~~including~~for ~~the~~our ~~level~~Oilfield ofServices ~~oil~~segment, ~~and~~$38.4 ~~natural~~million ~~gas~~ for two domestic drilling ~~activity~~rigs and ~~the~~$21.8 ~~competitive~~million ~~environment~~for additional equipment in ~~the~~our Drilling and Completion ~~particular~~segment ~~geographic~~and ~~regions~~$14.6 million for drill pipe and other equipment used in ~~which~~our weRental ~~operate~~Services segment. ~~Contracts~~We ~~are awarded~~acquired ~~based~~AWC onfor ~~the~~a ~~price,~~cash ~~quality~~payment of ~~service~~$17.2 ~~and~~million ~~equipment, and~~directly to the ~~general~~seller ~~reputation~~ and ~~experience~~1.0 million shares of our ~~personnel~~common stock at a value of $2.0 ~~The~~million. ~~demand~~The ~~for~~acquired ~~drilling~~assets ~~services~~of ~~has~~AWC ~~historically~~included ~~been~~$1.2 ~~volatile~~million ~~and is~~in ~~affected~~cash. byThe ~~the~~decrease ~~capital~~in ~~expenditures~~deposits on asset commitments was primarily due to the completion of ~~oil~~all ~~and~~drilling ~~natural~~rigs ~~gas exploration~~under ~~and~~construction ~~development~~by ~~companies~~December 31, ~~which~~2010. ~~can~~We ~~fluctuate~~also ~~based~~received $6.6 million from the ~~upon~~sale of assets during the ~~prices~~year ofended ~~oil~~December 31, ~~and~~2010, ~~natural~~comprised ~~gas~~mostly orfrom ~~the~~equipment ~~expectation~~“lost-in-hole” ~~for the~~from ~~prices~~our ofRental ~~oil~~Services segment ($4.0 million) and ~~natural~~our ~~gas~~Oilfield Services segment ($1. 8 million).

~~The~~During ~~rig~~the ~~count~~year isended anDecember 31, ~~important~~2009, ~~indicator~~we ofused ~~activity~~$64.0 ~~levels~~million in ~~the~~ ~~oil~~investing ~~and~~activities, ~~natural~~consisting ~~gas~~of ~~industry~~$78.1 ~~According~~million tofor ~~the~~capital expenditures, ~~Baker~~$1.1 ~~Hughes rig~~million ~~count~~of additional investments, ~~the~~offset ~~rig~~by ~~count~~a indecrease ~~the~~of U$2.~~S. increased~~7 ~~from~~million ~~862~~in ~~as of~~deposits ~~December 27,~~on ~~2002~~asset tocommitments, a$8.6 ~~peak~~million of ~~2,031~~proceeds infrom ~~August~~equipment ~~2008~~sales and $3. ~~However~~9 ~~the~~million in insurance proceeds for a drilling rig ~~count~~destroyed ~~began~~by toa blow-out. ~~decline~~Included in the ~~fourth~~$78.1 ~~quarter~~million ~~of 2008~~for ~~and~~capital ~~continued~~expenditures towas ~~decline~~$11.4 inmillion ~~2009~~for ~~reaching~~our aOilfield ~~low~~Services ofsegment, ~~876~~$38.5 million for two domestic drilling rigs in ~~June~~and ~~2009~~$19.9 ~~The~~million ~~rapid~~for ~~decline~~additional equipment in ~~the~~our ~~U.S. rig~~Drilling ~~count~~and Completion segment and ~~experienced~~$8.2 inmillion ~~2009~~for ~~was~~drill ~~due~~pipe toand ~~the~~other ~~economic~~equipment ~~slowdown~~used in ~~the U~~our Rental Services segment.S We invested $2. 4 million of cash and ~~the~~cash ~~decrease~~expenditures infor ~~natural~~equipment ~~gas~~into our investment into our Saudi Arabia joint venture and ~~oil~~we ~~prices~~received ~~which~~$1.3 million from ~~impacted~~insurance ~~the~~proceeds ~~capital~~related ~~expenditures~~to ofa ~~our~~pre-acquisition ~~customers~~contingency on BCH. The ~~turmoil~~ decrease in ~~the~~other ~~financial~~assets ~~markets~~was ~~and~~due ~~its~~to ~~impact~~the conversion of deposits on ~~the~~equipment ~~availability~~purchases of into capital expenditures for ~~our~~the ~~customers~~drilling ~~also~~rigs ~~affected~~and ~~drilling~~assets ~~activity~~used in ~~the~~our directional drilling Uservices.~~S. The~~ ~~rig~~We ~~count~~also ~~has~~received ~~since~~$8.6 ~~increased~~million tofrom ~~1,373~~the assale of ~~February~~ assets during the year ended December 2631, ~~2010~~2009, ~~due~~comprised tomostly ~~the~~from ~~recovery~~equipment of“lost-in-hole” ~~oil~~from ~~prices~~our Rental Services segment ($3.5 million) and ~~the stabilization~~our ofOilfield ~~natural~~Services ~~gas~~segment ($0.8 million) ~~prices~~along with $3.9 ~~The~~million ~~directional~~from ~~and horizontal~~the ~~rig~~sale ~~count~~a plane in ~~the~~our URental Services segment.~~S.,~~ ~~according~~We toalso ~~Baker~~transferred ~~Hughes,~~$1.6 ~~was 914~~million of rental assets as part of ~~February 26,~~our ~~2010~~investment ~~compared~~into toour ~~692~~Saudi ~~one~~Arabia ~~year earlier.~~joint ~~According~~venture toin ~~Baker~~a ~~Hughes~~non-cash transaction. In 2009, we reduced the ~~offshore~~carrying ~~Gulf~~value of ~~Mexico rig~~goodwill ~~count~~on ~~was~~the 44BCH ~~rigs~~acquisition atby ~~February 26,~~$1.3 ~~2010~~million ~~from~~due 51to ~~at February 27,~~the ~~2009~~utilization of a pre-acquisition tax asset.

~~While~~Financing ~~our~~Activities 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.

During the year ended December 31, 2010, financing activities used $7.3 million in cash. We borrowed a net of $36.5 million under our revolving credit facility and an additional $4.0 million under a term loan facility. We repaid $42.2 million of long-term debt, including a $20.8 million repayment of the rig financing term loan from the proceeds of the two rigs sold in November ~~Company~~2010. We also paid $2.5 million in preferred dividends during the year ended December 31, 2010. We incurred $189,000 in debt issuance costs on the revolving credit facility, primarily to modify our loan covenants. As the result of net exercises ~~Outlook~~of restricted grant vesting, we had a net cash outlay of $1.7 million related to the payment of payroll taxes on those exercises. We recorded an income tax impact of $1.2 million as a result of the expense recorded on restricted stock grants exceeding the actual tax deduction generated by those awards. In addition, we financed our renewal of $2.9 million in insurance policy premiums in non-cash transactions.

WeDuring ~~believe~~the ~~that~~year ~~our~~ended ~~revenue~~December 31, ~~and~~2009, ~~operating~~financing ~~income~~activities ~~for~~provided ~~all~~$42.7 ofmillion ~~our operating segments will improve~~ in ~~2010~~cash. ~~Our~~We ~~Oilfield~~raised ~~Service segment is heavily based on oil and natural gas activity in the U~~$120.~~S. and~~2 amillion ~~good~~net ~~indicator~~ of ~~that~~expenses ~~activity~~from is the ~~U.S. rig~~ ~~count.~~issuance ~~The~~of ~~Baker~~common ~~Hughes~~and ~~rig~~preferred ~~count~~stock, inand ~~the~~borrowed U$25.~~S. for~~0 ~~the~~million ~~first~~under ~~eight~~a ~~weeks~~loan offacility ~~2010 decreased~~ to ~~an average~~acquire oftwo ~~1,308~~drilling ~~compared to an average of 1~~rigs,~~428~~ ~~for~~offset ~~the~~in ~~first eight~~part ~~weeks~~by repayments of ~~2009,~~$64.8 ~~but~~million ~~has increased when compared to the average rig count for the fourth quarter~~ of ~~2009~~long-term ~~of 1~~debt,~~115~~ ora ~~the average~~net ~~rig~~repayment ~~count~~on ofour ~~1,079~~revolving ~~for~~credit ~~all~~facility of ~~2009~~$36.5 ~~That~~million ~~favorable trend in rig count should result in improved demand~~ and ~~pricing~~$665,000 for ~~our~~ ~~Oilfield~~preferred ~~Services~~dividend ~~segment~~payments. ~~Our Rental Services segment has~~The ~~historically~~repayments ~~been~~of ~~very~~long-term ~~dependent~~debt onconsisted ~~drilling activity in the Gulf~~ of ~~Mexico~~$46.4 ~~The~~million ~~Baker~~on ~~Hughes~~the ~~average~~senior ~~rig~~notes ~~count~~as ina ~~the~~result ~~Gulf~~ of ~~Mexico~~a ~~for~~tender ~~the~~offer ~~first~~and ~~eight~~$18.4 ~~weeks~~million of ~~2010~~scheduled ~~decreased~~debt torepayment 42including ~~rigs compared~~a toprepayment anon ~~average~~our ofBCH 60loan ~~rigs~~facility. ~~for~~We ~~the~~also ~~first~~incurred ~~eight weeks of 2009~~$658,000 ~~but~~in ~~increased~~debt ~~when~~issuance ~~compared to 34 rigs for the last~~costs ~~quarter~~consisting of ~~2009.~~$528,000 Weon ~~believe~~the ~~this~~revolving ~~favorable~~credit ~~trend since the fourth quarter~~facility, ~~and~~primarily ~~our strategy of moving rental assets~~ to ~~new markets,~~modify ~~will result in increased utilization and pricing for~~ our ~~Rental~~loan ~~Services~~covenants, ~~segment. We anticipate our Drilling~~ and ~~Completion~~ ~~segment~~$131,000 ~~will~~on ~~exceed~~the ~~2009~~rig ~~results~~financing ~~for~~agreement. ~~both~~In ~~revenue~~addition, ~~and operating income as drilling activity in Argentina is improving and~~ we ~~have~~financed ~~relocated~~our ~~underutilized~~renewal ~~rigs~~of ~~to Brazil~~$3.2 Wemillion ~~have~~in ~~also signed~~insurance ~~two~~policy ~~new~~premiums ~~contracts~~ in ~~Bolivia~~non-cash ~~to commence drilling~~transactions.

- 29 - 30

operationsIndex in February and April of 2010. Our Drilling and Completion segment currently operates in Argentina, Brazil and Bolivia, but we have two rigs scheduled to beFinancial delivered in the U.S. in 2010. Currently, we have no firm commitments of work for the two U.S. rigs, so the impact of revenue and operating income from these rigs may have a negative impact on our Drilling and Completion segment’s operating results. Statements

WeOn ~~expect~~January 18, ~~our~~2006 ~~general~~ and ~~administrative~~August 14, ~~expenses~~2006, ~~in 2010 to be relatively flat as~~ we ~~realize~~closed aon ~~full~~private ~~year~~offerings, ~~benefit from reductions of our administrative staffs made in 2009~~ to ~~reflect~~ ~~the~~qualified ~~decline~~institutional inbuyers ~~activity,~~pursuant ~~offset by additional administrative positions created~~ to ~~handled~~Rule ~~our~~144A ~~growing~~under ~~international activities~~the ~~and~~Securities ~~costs~~Act ~~related~~of to1933, ~~investigation~~ of ~~new~~$160.0 ~~operational~~ and ~~financial~~$95.0 ~~reporting~~million ~~tools~~aggregate toprincipal ~~improve~~amount of our ~~operating performance.~~senior Wenotes, ~~also~~respectively. ~~anticipate~~The ansenior ~~increase~~notes inare ~~compensation~~due ~~for existing~~January 15, ~~administrative~~2014 ~~positions~~and inbear ~~response~~interest ~~to market~~at ~~conditions~~9.0%. ~~Our~~The ~~net~~proceeds ~~interest~~were ~~expense~~used isto ~~dependent~~fund ~~upon~~the ~~our~~acquisitions ~~level~~ of ~~debt~~Specialty ~~and~~Rental ~~cash on hand~~Tools, ~~which~~Inc. ~~are~~and ~~principally dependent on acquisitions we complete~~DLS, ~~our~~to ~~capital~~repay ~~expenditures~~existing debt and ~~our~~for ~~cash flows~~general ~~from~~corporate ~~operations~~purposes. ~~Due~~On ~~to the shortage of liquidity and credit in the U.S.~~June ~~financial~~29, ~~markets~~2009, we ~~may~~closed ~~see~~on ~~an increase~~a intender ~~our~~offer ~~effective~~in ~~interest~~which ~~rate~~we inpurchased ~~2010~~$30.6 ~~We do not~~million ~~anticipate~~aggregate ~~the~~principal ~~ability~~of ~~to record a gain on debt extinguishment in 2010 as~~ our 9.0% senior notes ~~are~~for ~~trading close to face value. We anticipate that our effective tax rate will increase in 2010 due to~~ a ~~projected~~total ~~domestic~~consideration ~~tax~~of ~~loss~~$650 atper ~~lower~~$1,000 ~~tax~~principal ~~rate than the tax rate applied to our international operations which are expected to generate taxable income~~amount.

In January 2007, ~~Our~~we ~~operating~~closed ~~income~~on isa ~~principally~~private ~~dependent~~offering, onto ~~our~~qualified ~~level~~institutional ~~of revenues~~buyers ~~and~~pursuant to Rule 144A under the ~~pricing~~Securities ~~environment~~Act of ~~our~~1933, ~~services~~of $250.0 million Inprincipal amount of 8.5% senior notes due 2017. The proceeds of the senior notes offering, ~~addition~~together with a portion of the proceeds of our concurrent common stock offering, ~~demand~~were ~~for~~used to repay the debt outstanding under our ~~services~~$300.0 ismillion ~~dependent~~bridge ~~upon~~loan facility which we incurred to finance our acquisition of substantially all the assets of ~~customers’~~Oil & ~~capital~~Gas ~~spending~~Rental ~~plans~~Services, Inc. On June 29, 2009, we closed on a tender offer in which ~~are~~we ~~largely~~purchased ~~driven by~~$44.2 ~~current~~million ~~commodity~~aggregate ~~prices~~principal ~~and~~of ~~their~~our ~~expectations~~8.5% senior notes for a total consideration of ~~future commodity~~$600 ~~prices~~per $1,000 principal amount.

We ~~believe~~had ~~that~~a ~~2010~~$90.0 ~~will~~million berevolving line of credit with a ~~challenging~~final ~~year~~maturity ~~for~~date ~~our~~of April 26, 2012 pursuant to a revolving credit ~~operations~~agreement ~~although~~that ~~increased~~contains ~~oil~~customary events of default and ~~natural~~financial ~~gas~~covenants ~~prices~~and limits our ability to incur additional indebtedness, make capital expenditures, pay dividends or make other distributions, create liens and ~~the~~sell assets. On April 9, ~~resulting~~2009, ~~increased~~we ~~rig~~amended ~~count~~our ~~should~~revolving ~~increase~~credit agreement to modify the ~~utilization~~ leverage and ~~pricing~~interest coverage ratio covenants. Effective December 31, 2009, we again amended the leverage and interest coverage ratio covenants of the revolving credit agreement. This amendment relaxed the required financial ratios for ~~our~~the ~~equipment~~quarter ended December 31, 2009 and ~~services~~for each of the quarters in 2010. WeOur ~~believe~~obligations under the amended and restated credit agreement were secured by substantially all of our ~~cost~~assets ~~cuts~~located in the United States. We were in compliance with all debt covenants as of December 31, 2010 and ~~our~~December 31, ~~strategy~~2009. As of ~~international~~December 31, ~~growth~~2010, bywe ~~offering~~had ~~new equipment~~$36.5 million of borrowings outstanding and ~~technology~~$4.1 tomillion ~~our~~in ~~customers~~outstanding ~~and~~letters of credit under our ~~focus~~revolving oncredit facility. As of December 31, 2009, the U only usage of our revolving credit facility consisted of $4.S2 million in outstanding letters of credit. ~~land~~ ~~shale~~The ~~plays,~~interest ~~will~~rate ~~improve~~under our ~~operating~~revolving ~~results~~credit facility was based inon prime or LIBOR plus a margin. The weighted-average interest rate was 7.8% at December 31, 2010. In connection with merger with Seawell, this facility was repaid and cancelled.

As part of our acquisition of DLS, we assumed various bank loans with floating interest rates based on LIBOR plus a margin and terms ~~Results~~ ranging from 2 to 5 years. The weighted average interest rates on these loans was 2.0% and 2.1% as of ~~Operations~~December 31, 2010 and 2009, respectively. The outstanding amount due under these bank loans as of December 31, 2010 and 2009 was $350,000 and $1.1 million, respectively.

InOn ~~June~~February 15, ~~2007~~2008, through our DLS subsidiary in Argentina, we ~~acquired~~entered ~~all~~into a $25.0 million import finance facility with a bank. Borrowings under this facility were used to fund a portion of the ~~outstanding~~purchase ~~stock~~price of ~~Coker,~~the new drilling and service rigs ordered for our Drilling and Completion segment. The loan is repayable over four years in ~~July~~equal ~~2007,~~semi-annual weinstallments ~~acquired~~beginning ~~all~~one ofyear after each disbursement with the ~~outstanding~~final ~~stock~~principal payment due not later than March 15, 2013. The import finance facility is unsecured and contains customary events of ~~Diggar~~default and financial covenants and inlimits ~~November~~DLS’ ~~2007~~ability to incur additional indebtedness, wemake ~~acquired~~capital ~~substantially~~expenditures, ~~all~~create ofliens ~~the assets~~and ofsell ~~Diamondback~~assets. InWe ~~October~~were ~~2007,~~in wecompliance ~~acquired~~with all debt covenants as of ~~the~~December 31, 2010 and 2009. The bank loan rates are based on ~~outstanding~~LIBOR ~~stock~~plus ofa ~~Rebel~~margin. InThe ~~June~~weighted ~~2007~~average interest rate was 4.2% and 4.4% at December 31, we2010 ~~sold~~and ~~our~~2009, ~~capillary assets~~respectively. WeThe ~~report~~outstanding amount under the ~~operations~~import offinance ~~these~~facility ~~four~~as ~~acquisitions~~of December 31, 2010 and ~~one~~ ~~disposition~~2009 inwas ~~our~~$14.4 ~~Oilfield~~million ~~Services~~and ~~segment~~$20.1 million, respectively.

InAs ~~December~~part ~~2008~~of our acquisition of BCH, we ~~acquired~~assumed ~~all~~a $23.6 million term loan credit facility with a bank. The credit agreement was dated June 2007 and contains customary events of default and financial covenants which were based on BCH’s stand-alone financial statements. Obligations under the ~~outstanding~~facility ~~stock~~were secured by substantially all of the BCH assets. BCH, ~~which~~was isin ~~reported~~compliance aswith ~~part~~all debt covenants as of ~~our~~December 31, ~~Drilling~~2009. The bank waived certain financial ratio covenants for the September 30, 2010 and ~~Completion segment~~December 31, 2010 measurement periods. InAs ~~August~~we ~~2008~~could not be certain that BCH would attain compliance with the covenants within one year, we ~~sold~~have ~~our~~classified ~~drill~~the ~~pipe~~entire ~~tong manufacturing~~outstanding ~~assets~~balance of the loan in the current portion of long-term debt as of December 31, ~~which~~2010. ~~were~~The ~~reported~~facility was repayable in ~~our~~quarterly ~~Oilfield~~principal ~~Services~~installments ~~segment~~plus interest with the final payment due not later than August 2012. The interest rates were based on LIBOR plus a margin. At December 31, 2010 and 2009, the outstanding amount of the loan was $7.0 million and $16.2 million and the interest rate was 3.5%. At the time of the merger, this facility was prepaid.

On May 22, 2009, we drew down $25.0 Wemillion ~~consolidated~~on ~~the~~a ~~results~~new term loan credit facility with a lending institution. The facility was utilized to fund a portion of ~~all~~the purchase price of ~~these~~two ~~acquisitions~~new ~~from~~drilling rigs. The loan was secured by the equipment and was repaid in November 2010 when the equipment was sold to the ~~day~~manufacturer. ~~they~~The ~~were~~facility ~~acquired~~was repayable in quarterly installments of approximately $1.4 million of principal and interest and was to mature in May 2015. The loan bore interest at a fixed rate of 9.0%. At December 31, 2009, the outstanding amount of the loan was $23.4 million.

~~The~~- ~~foregoing~~30 ~~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, 2009 and December 31, 2008

Our revenues for the year ended December 31, 2009 were $506.3 million, a decrease of 25.1% compared to $675.9 million for the year ended December 31, 2008. The decrease in revenues is due to the decrease in revenues in our Oilfield Services and Rental Services segments, offset in part by a slight increase in revenues in our Drilling and Completion segment. Both our Oilfield Services and Rental Services segments have a strong concentration in the U.S. domestic oil and natural gas market. Due to the decline in oil and natural gas prices and drilling activity in the U.S. compared to 2008, we experienced significant deterioration in both equipment utilization and pricing. This resulted in a decline in revenues of our Oilfield Services segment to $143.6 million for the year ended December 31, 2009 compared to revenues of $280.8 million for the year ended December 31, 2008. Our Rental Services segment had a decline in revenues to $58.7 million for the year ended December 31, 2009 compared to revenues of $103.8 million for the year ended December 31,

2008.Index The increase in revenues in our Drilling and Completion segment was due to theFinancial acquisition of BCH in Brazil offset by lower rig utilization and pricing in our Argentina operations. The Drilling and Completion segment generated $304.0 million in revenues for the year ended December 31, 2009 compared to revenues of $291.3 million for the year ended December 31, 2008. BCH, which was acquired on December 31, 2008, generated $43.6 million in revenues for the year ended December 31, 2009. Statements

~~Our~~On ~~direct costs for the year ended December~~February 319, ~~2009 decreased 14.4% to $379.4 million~~2010, orthrough 75.0% of revenues, compared to $443.4 million, or 65.6%, of revenues for the year ended December 31, 2008. The increase in the percentage of direct costs to revenue between periods is primarily due to the change in our ~~revenue~~DLS ~~mix and the fact that not all of our direct costs are variable and therefore do not fluctuate with revenues. For the year ended December 31~~subsidiary, ~~2009,~~ ~~our~~we ~~higher~~entered ~~margin~~into ~~Rental~~a ~~Services segment only comprised 11.6% of our total revenues compared to 15.~~$4~~% of our total revenues for the year ended December 31, 2008~~.0 Our direct costs in our Oilfield Services and Rental Services segments decreased in absolute dollars for the year ended December 31, 2009 compared to the year ended December 31, 2008, but our revenues in our Oilfield Services and Rental Services segments decreased more during that same period than the reduction in direct costs. Our Oilfield Services segment direct costs for the year ended December 31, 2009 decreased 39.4% from direct costs for the year ended December 31, 2008, while the revenues decreased 48.9% over that same period. In addition, our Oilfield Services segment had $1.2 million ~~of expenses recorded during the~~term ~~year~~loan ~~ended December 31, 2009 related to severance payments, the closing of unprofitable locations and downsizing other locations~~facility. ~~Our~~The ~~Oilfield~~loan ~~Services~~is ~~segment~~repayable has also been impacted by pricing pressure that decreases revenues but has no impact on direct costs. Our Rental Services segment direct costs for the year ended December 31, 2009 decreased 36.4% from direct costs for the year ended December 31, 2008, while the revenues decreased 43.4% 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, pricing pressure has reduced our Rental Services revenues but had no impact on our direct costs. Direct costs in ~~our~~semi-annual ~~Drilling~~installments ~~and~~beginning ~~Completion segment increased $20.6~~April ~~million for the year ended December 31~~14, ~~2009 compared~~2011 ~~to the year ended December 31, 2008. Direct costs related to our December 2008 acquisition of BCH were $29.6 million during the year ended December 31, 2009. Our Drilling~~ and ~~Completion~~bears ~~segment~~interest ~~direct~~at ~~costs for the year ended December 31, 2009 increased 9~~8.15% ~~from direct costs for the year ended December~~ ~~31,~~per ~~2008, while the revenues increased 4~~annum.3% ~~over~~The ~~that~~final ~~same~~maturity ~~period.~~date ~~This unfavorable variance~~ is ~~primarily attributed to lower utilization of our drilling and service rigs during the year ended December~~April 3114, ~~2009 compared~~2014 ~~to the same period of the prior year~~ and ~~labor and other cost increases due to~~ the ~~inflationary~~loan ~~environment~~is ~~in Argentina~~unsecured. Additionally, workforce reductions in response to market conditions are difficult and costly to implement in the labor environment in Argentina. We incurred $1.7 million in severance costs in Argentina during the year ended December 31, 2009.

~~Depreciation~~In ~~expense~~2010, ~~increased~~we ~~23.3%~~obtained toinsurance premium financings in the aggregate amount of $782.3 9 million ~~for~~with a fixed weighted-average interest rate of ~~the~~4.8%. ~~year~~Under ~~ended~~terms ~~December 31~~of the agreements, ~~2009~~amounts ~~from~~outstanding ~~$63~~are paid over eight and 11 month repayment schedules.~~5 million for~~ ~~the~~The ~~year~~outstanding ~~ended~~balance of these notes was approximately $1.0 million at December 31, ~~2008~~2010. ~~The~~In ~~primary~~2009, ~~increase~~we obtained insurance premium financings in ~~depreciation~~the ~~expense~~aggregate isamount ~~due~~of to$3.2 ~~the~~million ~~acquisitions~~with ~~completed~~a ~~in the~~fixed ~~second~~weighted-average ~~half~~interest rate of ~~2008~~4.8%. ~~and~~Under ~~the~~terms ~~acquisition~~ of ~~BCH~~these inagreements, ~~December 2008~~amounts outstanding are paid over 10 and 11 month repayment schedules. ~~Depreciation~~The ~~expense~~outstanding ~~for~~balance ~~BCH~~of these notes was approximately $~~3.3 million~~0 ~~for~~and ~~the year~~$997,000 ~~ended~~at December 31, 2010 and 2009, respectively.

~~General~~As ~~and~~part ~~administrative~~of ~~expense~~our ~~was~~acquisition ~~$50.8 million~~of ~~for the year ended December 31~~BCH, ~~2009 compared to~~we ~~$62.8 million~~assumed ~~for~~various ~~the~~capital ~~year~~leases ~~ended~~with ~~December 31,~~terms ~~2008. General~~of ~~and~~two ~~administrative expense decreased primarily due~~ to ~~the~~ ~~amortization~~three ~~of share-based compensation arrangements, reduced management, accounting and administrative staffs and reductions in provided benefits~~years. ~~General~~The ~~and~~outstanding ~~administrative expense~~balance ~~includes~~under ~~share-based~~these ~~compensation~~capital ~~expense~~leases of was $~~4.8 million~~0 ~~in 2009~~ and $~~7.9 million~~254,000 inat ~~2008. As a percentage of revenues~~December 31, ~~general~~2010 and ~~administrative expenses were 10.0% in~~ 2009, ~~compared to 9~~respectively.3% ~~in 2008.~~

~~During~~The ~~the~~following ~~year~~table ~~ended~~summarizes ~~December 31, 2009, we recorded a $1.6 million loss on an asset disposition from the total loss of a rig from a blow-out in~~ our ~~Drilling~~obligations and ~~Completion segment.~~commitments ~~The insurance proceeds for the loss were not sufficient~~ to ~~cover~~make ~~the~~future ~~book~~payments ~~value~~under ofour ~~the~~notes ~~rig and related assets. Effective August 1~~payable, ~~2008,~~operating ~~we sold our drill pipe tong manufacturing~~leases, ~~assets~~employment ~~that~~contracts ~~were~~and ~~part~~consulting ofagreements ~~our~~for ~~Oilfield~~the ~~Services~~periods ~~segment.~~specified ~~The total~~as ~~consideration was approximately $7.5 million. We recognized a gain~~ of ~~$166~~December 31,~~000~~ ~~related to the transaction~~2010.


	Payments by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		After 5 Years
	(In thousands)
Contractual Obligations
Long-term debt	$	493,440	$	15,215	$	10,907	$	261,518	$	205,800
Interest payments on long-term debt		174,492		41,450		76,896		35,786		20,360
Operating leases		11,218		3,376		4,095		2,026		1,721
Purchase obligations		21,045		21,045		—		—		—
Employment contracts		2,846		1,915		931		—		—

Total contractual cash obligations	$	703,041	$	83,001	$	92,829	$	299,330	$	227,881

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.

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, oilfield services 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.

- 31 -

WeIndex recordedto anFinancial 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 at that time, 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, 2009 and recorded no impairment. Statements

~~Amortization~~Impairment ~~expense~~Of ~~was~~Long-Lived $4Assets.7 ~~million~~Long-lived ~~for~~assets, ~~the~~principally ~~year~~property, ~~ended~~plant ~~December 31~~and equipment, ~~2009~~comprise ~~compared~~a significant amount of our total assets. We make judgments and estimates in conjunction with the carrying value of these assets, including amounts to $4be capitalized, depreciation and amortization methods and useful lives.~~2 million~~ Additionally, the carrying values of these assets are reviewed for impairment whenever events or changes in circumstances indicate that the ~~year~~ ~~ended~~carrying ~~December 31,~~amounts ~~2008~~may not be recoverable. ~~The~~An ~~increase~~impairment ~~was~~loss ~~primarily~~is recorded in the period in which it is ~~attributable~~determined that the carrying amount is not recoverable. This requires us to ~~intangible~~make long-term forecasts of our future revenues and costs related to the assets ~~associated~~subject ~~with~~to review. These forecasts require assumptions about demand for our products and ~~acquisition~~services, offuture ~~BCH~~market conditions and technological developments. Significant and unanticipated changes to these assumptions could require a provision for impairment in ~~December~~a ~~2008~~future period.

~~Our~~Goodwill ~~loss~~and ~~from~~Other ~~operations~~Intangibles. As ~~for~~of ~~the year ended~~ December 31, ~~2009~~ ~~totaled~~2010 we have recorded approximately $846.53 million, ~~compared~~of togoodwill and $1333.59 million ~~loss~~ ~~for~~of ~~the~~other ~~year~~identifiable ~~ended~~intangible ~~December 31,~~assets. ~~2008,~~We ~~for~~perform ~~an improvement~~purchase ofprice $5allocations to intangible assets when we make a business combination.~~0 million.~~ ~~The~~Business ~~improvement~~combinations isand ~~primarily~~purchase price allocations have been consummated for ~~related~~acquisitions toin ~~the~~all ~~$115~~of our reportable segments.~~8 million~~ ~~goodwill~~The ~~impairment~~excess inof the ~~year~~ ~~ended~~purchase ~~December 31,~~price ~~2008~~after ~~compared~~allocation toof nofair ~~impairment~~values ~~for the~~to ~~year~~tangible ~~ended~~assets ~~December 31,~~is ~~2009,~~allocated ~~offset~~to byidentifiable ~~decreased revenues~~intangibles and ~~increased~~thereafter ~~depreciation~~to goodwill. We make judgments and ~~amortization~~estimates ~~expense~~in ofconjunction ~~$15.3 million~~with ~~from~~ the ~~year~~carrying ~~ended~~value ~~December 31~~of these assets, ~~2009 compared~~including amounts to ~~year~~be ~~ended~~capitalized ~~December 31,~~and ~~2008~~whether the asset has a finite life for amortization purposes.

Our ~~interest~~annual ~~expense~~impairment ~~was~~tests ~~$48.1 million~~involve ~~for~~ the ~~year~~use ~~ended December 31,~~of ~~2009,~~different ~~compared~~valuation totechniques, ~~$48.4 million~~including ~~for~~ the ~~year~~ ~~ended~~income ~~December 31,~~approach ~~2008.~~and/or Onmarket ~~June 29~~approach, ~~2009~~to ~~we purchased~~determine ~~$74.8 million~~the offair ~~our~~value ~~senior~~of ~~notes with proceeds from~~ our ~~$125~~reporting units.~~6 million~~ inDetermining ~~equity issuances on that same~~the ~~date.~~fair Wevalue ~~also~~of ~~prepaid~~a ~~the~~reporting ~~then~~unit ~~$35.0 million~~is ~~outstanding loan~~a ~~balance~~matter ~~under~~of ~~our~~judgment ~~revolving~~and ~~credit~~often ~~facility~~involves ~~on June 29,~~the ~~2009~~use ~~from~~of ~~those~~significant ~~same~~estimates ~~equity~~and ~~proceeds~~assumptions. ~~This compared~~If tothe anfair ~~outstanding~~value ~~balance~~ of ~~$36.5 million~~the ~~at December 31,~~reporting ~~2008~~unit ~~under~~is ~~our~~less ~~revolving~~than ~~credit~~its ~~facility.~~carrying ~~In 2008~~value, ~~through~~an ~~DLS,~~impairment weloss ~~entered~~is ~~into~~recorded ato ~~new~~the ~~$25.0 million~~extent that ~~import~~the ~~finance~~implied ~~facility~~fair ~~with~~value ~~a bank to fund a portion~~ of the ~~purchase~~ ~~price~~reporting ofunit’s ~~new~~goodwill ~~drilling~~is ~~and~~less ~~service~~than ~~rigs.~~its ~~Interest expense~~carrying ~~increased~~value. ~~due~~We torecorded ~~the~~an ~~acquisition~~impairment charge of ~~BCH~~$115.8 atmillion ~~the~~in ~~end of~~ 2008. ~~BCH~~as ~~had~~ a ~~$22.1 million~~result ~~term~~of ~~loan~~our ~~facility~~test. at At December 31, ~~2008~~2010 ~~which~~and ~~was~~2009, ~~reduced~~no toimpairment ~~$16.2 million at~~was ~~December 31,~~deeded ~~2009~~necessary. Significant ~~Interest~~and ~~expense~~unanticipated ~~includes amortization~~changes ~~expense~~to ofthese ~~debt~~assumptions ~~issuance~~could ~~costs~~require ofan ~~$2.2 million and~~additional ~~$2.1 million~~provision for ~~the~~impairment ~~years~~in ~~ended~~a ~~December 31,~~future ~~2009 and 2008, respectively~~period.

~~Our~~Purchase ~~interest~~Price ~~income~~Allocation ~~was~~of ~~$72,000~~Acquired ~~for~~Businesses. We allocate the ~~year~~purchase ~~ended December 31,~~price ~~2009,~~of ~~compared~~acquired businesses to ~~$5.6 million~~the ~~for~~identifiable assets and liabilities of the ~~year~~ ~~ended~~businesses, ~~December 31~~post acquisition, ~~2008~~based on estimated fair values. InThe ~~January~~excess ~~2008~~of the purchase price over the amount allocated to the assets and liabilities, weif ~~invested $40~~any, is recorded as goodwill.~~0 million~~ ~~into~~We aengage ~~15%~~third-party ~~convertible~~appraisal ~~subordinated~~firms ~~secured~~and valuation experts to assist in the determination of ~~debenture~~identifiable ~~with~~assets ~~BCH~~and liabilities. WeOur ~~earned~~judgments ~~interest~~and estimates for the allocation of purchase price are based on ~~this~~information ~~note~~available upduring ~~until December 28,~~the ~~2008~~measurement period, ~~when~~these wejudgments ~~acquired~~and ~~all~~estimates ofcan ~~the~~materially ~~outstanding~~impact our financial position as ~~stock~~well as our results of ~~BCH~~operations.

Income Taxes. The determination and evaluation of our annual income tax provision ~~During~~involves the ~~year~~interpretation ~~ended~~of ~~December 31,~~tax ~~2009,~~laws in various jurisdictions in which we ~~recorded~~operate aand ~~gain of~~requires ~~$26.4 million~~significant asjudgment aand ~~result~~the use of aestimates ~~tender~~and ~~offer~~assumptions ~~that~~regarding ~~we completed~~significant onfuture ~~June 29,~~events ~~2009.~~such Weas ~~purchased~~the ~~$30.6 million aggregate~~amount, ~~principal~~timing and character of ~~our~~income, deductions 9and tax credits.~~0% senior~~ ~~notes~~Changes in tax laws, regulations and ~~$44.2 million~~ ~~aggregate~~our ~~principal~~level of ~~8.5% senior~~operations ~~notes for~~or ~~approximately~~profitability ~~$46.4 million.~~in ~~Included~~each jurisdiction may impact our tax liability in any given year. While our annual tax provision is based on the information available to us ~~computation~~at the time, a number of ~~the~~years ~~gain~~may iselapse before the ~~write-off~~ultimate oftax $1liabilities in certain tax jurisdictions are determined.~~5 million~~ Current income tax expense (benefit) reflects an estimate of our income tax liability for the current year, withholding taxes, ~~debt~~changes ~~issuance~~in ~~costs~~tax ~~related~~rates toand changes in prior year tax estimates as returns are filed. Deferred tax assets and liabilities are recognized for the ~~retired~~anticipated ~~notes~~future tax effects of temporary differences between the financial statement basis and wethe ~~incurred~~tax ~~approximately~~basis ~~$466,000~~of our assets and liabilities using the enacted tax rates in ~~expenses~~effect ~~related~~at toyear end. A valuation allowance for deferred tax assets is recorded when it is more-likely-than-not that the ~~transactions~~benefit from the deferred tax asset will not be realized.

~~Our~~It ~~benefit~~is ~~for income taxes for the year ended December 31, 2009 was $9.9 million, or 31.8% of~~ our ~~net~~ ~~loss~~intention ~~before income taxes, compared~~ to anpermanently ~~income~~reinvest ~~tax~~all ~~benefit~~ of ~~$17.4 million,~~the orundistributed ~~30.6%~~earnings of our ~~net~~non-United ~~income~~States ~~before~~subsidiaries ~~income taxes for 2008. Our effective tax rate~~ in ~~the U.S. was~~such 35subsidiaries.5% ~~in 2009 compared to 31.1% in 2008~~Accordingly, ~~while~~we ~~our~~have ~~effective~~not ~~tax rate~~provided for ~~international~~United ~~activities~~States ~~increased~~deferred totaxes ~~44.4%~~on inthe ~~2009 compared~~undistributed toearnings ~~31.7%~~of inour ~~2008.~~non-United ~~The~~States ~~increase~~subsidiaries. inIf ~~the~~a ~~U.S. tax rate~~distribution ~~was~~is ~~primarily~~made ~~attributable~~ to ~~higher~~us ~~nondeductible~~from ~~items during~~ the ~~2008 year~~undistributed ~~including~~earnings ~~intangible~~of ~~disposals~~these ~~and meals~~subsidiaries, ~~and~~we ~~entertainment.~~could ~~The increase in the international tax~~be ~~rate~~required ~~is primarily due~~ to ~~our~~record ~~BCH~~additional ~~operations which generate a loss in Brazil which has a valuation allowance of $2~~taxes.~~1 million~~ ~~against~~Because ~~its~~we ~~benefit.~~cannot ~~For~~predict ~~the~~when, ~~year~~if ~~ended December 31,~~at ~~2009~~all, ~~the~~we ~~U.S. operations~~will ~~generated~~make a ~~$43.9 million~~ ~~book~~distribution ~~loss~~of ~~before~~these ~~income~~undistributed ~~taxes~~earnings, ~~while~~we ~~the international~~are ~~activities~~unable ~~generated~~to ~~$12.9 million~~make ofa ~~income before~~determination ~~income~~of ~~taxes, resulting in~~ the ~~U.S. operations having~~amount aof ~~higher~~unrecognized ~~influence~~deferred ~~on our consolidated effective~~ tax ~~rate in 2009~~liability.

WeRecently ~~had~~Issued aAccounting ~~net~~Standards ~~loss of $21.2 million for the year ended December 31, 2009, compared to a net loss of $39.5 million for the year ended December 31, 2008.~~

~~The~~For ~~net~~a ~~loss~~discussion ~~attributed~~of tonew ~~common~~accounting ~~stockholders~~standards, ~~was $22.5 million~~see ~~after~~the ~~$1.3 million~~applicable section in ~~preferred~~Note 1 ~~stock dividends.~~to ~~The~~our ~~preferred~~Consolidated ~~stock~~Financial ~~dividend~~Statements ~~relates~~included ~~to 36,393 shares~~in ~~of $1,000~~“Item ~~par~~8. ~~value~~Financial ~~preferred~~Statements ~~shares~~and atSupplementary 7Data.~~0%.~~ ”

- 32 - 33

TheIndex followingto tableFinancial compares revenues and income (loss) from operations for each of our business segments for the years ended December 31, 2009 and December 31, 2008. Income (loss) from operations consists of our revenues and the gain (loss) on asset dispositions less direct costs, general and administrative expenses, goodwill impairment, depreciation and amortization: Statements

	Revenues							Income (Loss) from Operations
	2009		2008		Change			2009			2008			Change
	(In thousands)
Oilfield Services	$	143,564	$	280,835	$	(137,271	)	$	(14,691	)	$	38,643		$	(53,334	)
Drilling & Completion		303,975		291,335		12,640			19,222			40,226			(21,004	)
Rental Services		58,714		103,778		(45,064	)		140			(74,361	)		74,501
General Corporate		—		—		—			(13,218	)		(18,028	)		4,810
Total	$	506,253	$	675,948	$	(169,695	)	$	(8,547	)	$	(13,520	)	$	4,973

Off-Balance Sheet Arrangements

~~Oilfield~~We ~~Services. Revenues~~have ~~for~~no ~~the~~off ~~year~~balance ~~ended December 31~~sheet arrangements, ~~2009~~other ~~for~~than ~~our~~normal ~~Oilfield~~operating ~~Services~~leases ~~segment~~and ~~were $143.6 million~~employee contracts, athat ~~decrease~~have ofor ~~48.9%~~are ~~from~~likely ~~the $280.8 million~~to inhave ~~revenues for the year ended~~a ~~December 31,~~current ~~2008.~~or ~~Income~~future ~~from~~material ~~operations~~effect ~~for~~on our ~~Oilfield Services~~financial ~~segment~~condition, ~~decreased~~changes ~~$53.3 million and resulted~~ in ~~a loss~~financial ~~from~~condition, ~~operations~~revenues, ~~of $14.7 million for the year ended December 31~~expenses, ~~2009~~results ~~compared~~of ~~to income from~~ operations, ~~of $38.6 million~~liquidity, ~~for~~capital ~~the~~expenditures ~~year~~or ~~ended~~capital ~~December 31, 2008~~resources. ~~The~~ ~~operating~~We ~~income~~have ~~for the year ended December 31, 2008 included~~ a $990.4 0 million ~~non-cash~~revolving ~~charge~~credit ~~for~~facility ~~the~~with ~~impairment~~a maturity of ~~goodwill.~~April Our Oilfield Services segment revenues and operating income for the year ended December 31, 2009 decreased compared to the year ended December 31, 2008 due to weak market conditions that resulted in reduced demand and pricing for our services2012. ~~During~~At ~~the year ended~~ December 31, ~~2009~~2010, we ~~incurred~~had $136.2 5 million of ~~costs related~~borrowings toon ~~severance~~the ~~payments~~facility, ~~the closing of unprofitable locations~~ and ~~downsizing~~availability ~~other~~is ~~locations~~reduced inby ~~our~~outstanding ~~Oilfield Services~~letters ~~segment.~~of ~~Depreciation~~credit ~~and~~of ~~amortization expense for the Oilfield Services segment increased by~~ $54.~~9 million~~1 ~~or 23~~million.7% ~~for the year ended December 31, 2009 compared to the prior year, due to capital expenditures completed during 2008, including six coiled tubing units delivered in the last half of 2008.~~ We ~~have~~do not ~~realized~~guarantee ~~the~~obligations ~~benefits~~ of ~~these~~any ~~capital expenditures~~unconsolidated ~~due to decreased utilization and pricing of our equipment as a result of the decline in U~~entities.~~S. drilling~~ ~~activity.~~

~~Drilling and Completion. Our Drilling and Completion revenues were $304.0~~ITEM ~~million for the year ended December 31, 2009, an increase of 4~~7A.3% ~~from~~QUANTITATIVE ~~the $291.3 million~~AND inQUALITATIVE ~~revenues~~DISCLOSURES ~~for~~ABOUT ~~the~~MARKET ~~year ended December 31, 2008~~RISK. Our Drilling and Completion revenues increased in 2009 primarily due to $43.6 million in revenues generated by BCH, which we acquired in December 2008, offset by a decrease in revenues in Argentina. Income from operations decreased to $19.2 million in 2009 compared to $40.2 million for the year ended December 31, 2008. Income from operations as percentage of revenue decreased to 6.3% for 2009 compared to 13.8% for 2008. This reduction was due to: (1) reduced rig utilization and rig rates in Argentina during the year ended December 31, 2009; (2) increased labor and other costs in Argentina during the year ended December 31, 2009 (3) an increase of $8.0 million, or 55.9%, in depreciation and amortization in the year ended December 31, 2009; (4) a $1.6 million non-cash loss recorded in the year ended December 31, 2009 on a rig destroyed in a blow-out; (5) $1.7 million of severance costs during the year ended December 31, 2009 related to workforce reductions in Argentina as a result of lower activity and (6) $329,000 of costs incurred to consolidate operating locations in Brazil during the year ended December 31, 2009. The increase in depreciation and amortization expense was the result of the addition of new rigs in Argentina and the acquisition of BCH.

~~Rental~~We ~~Services. Our~~are ~~Rental~~exposed ~~Services~~to ~~revenues were~~market ~~$58.7 million~~risk ~~for~~primarily ~~the year ended December 31, 2009, a decrease of 43.4%~~ from ~~the~~changes ~~$103.8 million~~ in ~~revenues~~ ~~for~~interest ~~the~~rates ~~year~~and ~~ended~~foreign ~~December 31,~~currency ~~2008.~~exchange ~~Income from operations for our Rental Services segment increased to $140,000 for the year ended December 31, 2009 compared to a loss of $74~~risks.~~4 million~~ for the year ended December 31, 2008. The operating income for the year ended December 31, 2008 included a $106.4 million non-cash charge for impairment of goodwill, without this charge our operating income for the year ended December 31, 2008 would have been $32.0 million. Our Rental Services segment revenues and operating income as adjusted for goodwill impairment for the year ended December 31, 2009 decreased compared to the prior year due primarily to the decrease in utilization of

34 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, 2010 we were exposed to interest rate fluctuations on approximately $58.2 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 $582,000. 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.

Foreign Currency Exchange Rate Risk

We have designated the United States dollar as the functional currency for our operations in international locations as we contract with customers, purchase equipment and finance capital using the United States 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, 2010, 2009 and 2008, we had a net foreign exchange loss of $0.5 million, $0.7 million and $1.2 million, 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 United States dollars.

- 33 -

ourIndex rental equipment and a more competitive pricing environment due to theFinancial decrease in drilling activity in the United States. The decrease in income from operations for the year ended December 31, 2009 is also due to a $306,000 increase to the bad debt expense for Rental Services segment customers who are facing financial difficulties, and $237,000 of costs related to closing a rental yard and reducing our workforce. Our bad debt expense recorded in our Rental Services segment for the year ended December 31, 2009 was $1.5 million compared to $1.2 million for the year ended December 31, 2008. In addition, depreciation and amortization expense for our Rental Services segment increased $1.7 million or 5.9%, for the year ending December 31, 2009 compared to the prior year due to capital expenditures made during 2008. Statements

~~General Corporate. General corporate expenses decreased $4.8~~ITEM ~~million to $13~~8.~~2 million~~ ~~for~~FINANCIAL ~~the~~STATEMENTS ~~year ended~~AND ~~December 31,~~SUPPLEMENTARY ~~2009 compared to $18.0 million for~~DATA the year ended December 31, 2008. The decrease was primarily due to the decrease in share-based compensation expense and the decrease in payroll costs and benefits due to reduced management and accounting and administrative staff. Share-based compensation expense included in general corporate was $3.7 million for the year ended December 31, 2009 compared to $6.7 million for the year ended December 31, 2008.

~~Comparison of~~INDEX ~~Years~~TO ~~Ended~~FINANCIAL ~~December 31,~~STATEMENTS ~~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, measurementALLIS-~~while-drilling,~~CHALMERS orENERGY ~~MWD, tools, and directional drilling personnel resulting in increased capacity and increased market penetration~~INC. ~~Revenues~~AND ~~also~~SUBSIDIARIES 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 30.9% to $443.4 million, or 65.6% of revenues, compared to $338.8 million, or 59.3%, 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 24.7% 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


	Page

Management’s Report to the Stockholders of Allis-Chalmers Energy Inc.		35

Reports of Independent Registered Public Accounting Firm		36

Consolidated Balance Sheets		38

Consolidated Statements of Operations		39

Consolidated Statement of Stockholders’ Equity		40

Consolidated Statements of Cash Flows		41

Notes to Consolidated Financial Statements		42

Supplemental Information to Consolidated Financial Statements—Summarized Quarterly Financial Data		71

- 34 - 35

concessionsIndex 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 theirFinancial 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, which we benefited from in 2007, to the shorter term land-drilling rental work in 2008, requires more handling on our part which increases costs. Statements

~~Depreciation~~MANAGEMENT’S ~~expense~~REPORT ~~increased~~TO ~~24.6%~~THE toSTOCKHOLDERS ~~$63.5 million~~OF ~~for~~ALLIS-CHALMERS ~~the~~ENERGY ~~year ended December 31, 2008 from $50~~INC.~~9 million for~~ the year ended December 31, 2007. The primary increase in depreciation expense is due to 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~~Management’s ~~and~~Report ~~administrative~~on ~~expense~~Internal ~~was~~Control ~~$62.8 million~~Over ~~for the~~Financial ~~year~~Reporting ended December 31, 2008 compared to $61.2 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 9.3% in 2008 compared to 10.7% in 2007.

~~Effective~~As ~~August 1~~management, ~~2008,~~ we ~~sold~~are ~~our~~responsible ~~drill~~for ~~pipe~~establishing ~~tong manufacturing~~and ~~assets~~maintaining ~~that~~adequate ~~were~~internal ~~part~~control ofover ~~our~~financial ~~Oilfield~~reporting ~~Services~~for Allis-Chalmers ~~segment~~Energy Inc. ~~The~~and ~~total~~its ~~consideration~~subsidiaries, ~~was~~or ~~approximately $7~~Allis-Chalmers.~~5 million.~~ WeIn ~~recognized~~order ato ~~gain~~evaluate the effectiveness of ~~$166~~internal control over financial reporting,~~000~~ ~~related~~as to required by Section 404 of the ~~transaction.~~Sarbanes-Oxley OnAct ~~June 29,~~of ~~2007~~2002, we ~~sold~~have ~~our~~conducted ~~capillary~~an assessment, including ~~tubing~~testing, ~~assets~~using ~~that~~the ~~were~~criteria ~~part~~in Internal Control-Integral Framework issued by the Committee of ~~our~~Sponsoring ~~Oilfield~~Organization ~~Services~~of ~~segment~~the Treadway Commission (COSO). ~~The~~ ~~total~~Allis-Chalmers’ ~~consideration~~system ~~was~~of ~~approximately~~internal ~~$16.3 million~~control inover financial reporting is designed to ~~cash.~~provide Wereasonable ~~recognized~~assurance aregarding ~~gain~~the reliability of ~~$8.9 million~~financial ~~related~~reporting toand the ~~sale~~ preparation of ~~these~~financial ~~assets~~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.

WeBased ~~recorded~~on anour assessment, ~~impairment~~we ofhave ~~goodwill~~concluded ofthat ~~$115.8 million~~Allis-Chalmers ~~as of~~maintained ~~December 31,~~effective ~~2008.~~internal Incontrol ~~light~~over offinancial ~~adverse~~reporting ~~market~~as ~~conditions affecting~~of ~~our~~December 31, ~~stock~~2010, ~~price~~based ~~and~~on ~~market~~criteria ~~conditions,~~in weInternal ~~determined that~~Control-Integrated ~~impairment~~Framework ~~was~~issued ~~necessary~~by onthe ~~all~~COSO. ofThe ~~our~~effectiveness ~~goodwill associated~~of ~~with~~Allis-Chalmers ~~our~~internal ~~Rental~~control ~~Services~~over ~~segment~~financial asreporting ~~well~~ as onof ~~our~~December 31, ~~Tubular Services~~2010 ~~and~~has ~~Production~~been ~~Services~~audited ~~reporting~~by ~~units~~UHY ~~included~~LLP, inan ~~our Oilfield~~independent ~~Services~~registered ~~segment.~~public Weaccounting ~~performed~~firm, ~~the~~as ~~same~~stated ~~annual impairment~~in ~~test~~their ~~as of December 31~~report, ~~2007~~which ~~and~~is ~~recorded~~included ~~no impairment~~herein.

~~Amortization~~Management’s ~~expense~~Certifications ~~was $4.2 million for the year ended December 31, 2008 compared to $4.1 million for the year ended December 31, 2007.~~

~~Our~~The ~~loss~~certifications ~~from~~of ~~operations~~Allis-Chalmers’ ~~for~~Chief ~~the~~Executive ~~year~~Officer ~~ended~~and ~~December 31, 2008~~Chief ~~totaled~~Financial ~~$13.5 million,~~Officer ~~compared~~required toby ~~$124.8 million in income from operations for~~ the ~~year~~Sarbanes-Oxley ~~ended~~Act ~~December 31, 2007, for a total decrease~~ of ~~$138.3 million.~~2002 ~~The~~have ~~decrease is~~been ~~primarily~~included ~~related~~as toExhibits ~~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~~32 ~~gain~~in ~~related to the sale of our capillary~~Allis-Chalmers’ ~~tubing~~Form ~~assets in 2007~~10-K.

~~Our~~ALLIS-CHALMERS ~~interest~~ENERGY ~~expense was $48~~INC.~~4 million~~ ~~for~~By: ~~the~~/s/ ~~year~~JORGEN ~~ended December 31,~~RASMUSSEN ~~2008,~~By: ~~compared~~/s/ toVICTOR ~~$49~~M.~~5 million~~ ~~for~~PEREZ ~~the year~~Jorgen ~~ended~~Rasmussen ~~December 31,~~Victor ~~2007.~~Perez ~~During~~Chief ~~2008,~~Executive weOfficer ~~borrowed against~~Chief ~~our~~Financial 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 Oil & Gas Rental Services, Inc., or 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. Officer

~~Our~~- ~~interest~~35 ~~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~~

subordinatedIndex 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 generateFinancial interest income during this period. Statements

~~Our~~REPORT ~~benefit~~OF ~~for~~INDEPENDENT ~~income~~REGISTERED ~~taxes~~PUBLIC ~~for~~ACCOUNTING ~~the year ended~~FIRM December 31, 2008 was $17.4 million, or 30.6% of our net loss before income taxes, compared to an 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 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.

WeTo ~~had~~the aBoard ~~net loss~~ of ~~$39.5 million~~Directors ~~for~~and ~~the~~Stockholders ~~year ended December 31, 2008, compared to net income~~ of ~~$50.4 million~~ ~~for the year ended December 31, 2007.~~

~~The~~Allis-Chalmers ~~following~~Energy ~~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~~Inc. 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	)

We have audited the accompanying consolidated balance sheets of Allis-Chalmers Energy Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule 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.

~~Oilfield~~We ~~Services. Revenues~~conducted ~~for the year ended December 31, 2008 for~~ our ~~Oilfield~~audits ~~Services~~in ~~segment~~accordance ~~were $280.8 million,~~with anthe ~~increase~~standards of ~~20.0% from~~ the ~~$234.0 million~~ inPublic ~~revenues~~Company ~~for~~Accounting ~~the~~Oversight ~~year~~Board ~~ended December 31,~~(United ~~2007~~States). ~~The~~Those ~~increase~~standards inrequire ~~revenues~~that iswe ~~due~~plan ~~to the purchase of additional MWD tools, new compressors~~ and ~~new “foam”~~perform ~~units~~the ~~for~~audits ~~our~~to ~~underbalanced~~obtain ~~drilling~~reasonable ~~operations,~~assurance ~~new~~about ~~coiled~~whether ~~tubing units and~~ the ~~benefit~~consolidated ~~of acquisitions~~financial ~~completed~~statements inare ~~the~~free ~~last half~~ of ~~2007~~material ~~which added downhole motors, MWDs, and directional drillers~~misstatement. ~~The~~An ~~additional equipment~~audit ~~and~~includes ~~personnel~~examining, ~~enabled~~on usa totest ~~strengthen~~basis, ~~our~~evidence ~~presence~~supporting ~~in new geographic markets and increase our market penetration. The impact of~~ the ~~acquisitions~~amounts ~~of Diggar~~ and ~~Coker~~disclosures ~~completed~~ in the ~~last~~ ~~half~~financial ~~of 2007 and of the additional MWD tools are not easily identifiable as they were quickly integrated with our pre-existing operations~~statements. ~~The~~An ~~acquisition~~audit ofalso ~~Diamondback provided~~includes ~~$30.3 million~~assessing ~~in 2008 compared to $3.1 million of revenues from~~ the ~~date~~accounting ofprinciples ~~acquisition~~used toand ~~December 31,~~significant ~~2007. Income~~estimates ~~from~~made ~~operations~~by ~~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~~management, ~~2008~~as ~~includes~~well ~~a goodwill~~as ~~impairment~~evaluating ~~charge of $9.4 million while~~ the ~~year ended~~overall ~~December 31,~~financial ~~2007~~statement ~~included an $8~~presentation.~~9 million~~ ~~gain on~~We ~~sale~~believe ofthat our ~~capillary~~audits ~~tubing~~provide ~~assets.~~a ~~Depreciation~~reasonable ~~and amortization~~basis ~~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~~opinion.

~~Drilling~~In ~~and~~our ~~Completion. Our~~opinion, ~~Drilling~~the ~~and Completion~~consolidated ~~revenues~~financial ~~were~~statements ~~$291.3 million~~referred ~~for~~to ~~the~~above ~~year~~present ~~ended December 31~~fairly, ~~2008,~~in anall ~~increase~~material ofrespects, ~~35.0%~~the ~~from~~consolidated ~~the~~financial position of ~~$215.8 million~~Allis-Chalmers inEnergy ~~revenues~~Inc. ~~for~~and ~~the~~subsidiaries ~~year~~as ~~ended~~ of December 31, ~~2007.~~2010 ~~Our Drilling~~ and ~~Completion~~2009, ~~revenues increased in 2008 primarily due to 16 new service rigs~~ and ~~one drilling~~the ~~rig~~consolidated ~~which~~results ~~were~~of ~~placed~~their inoperations ~~service at various dates in 2008~~ and ~~increased~~their ~~prices~~cash flows for ~~our~~each ~~services.~~of ~~Income~~the ~~from operations~~three ~~increased~~years ~~to $40.2 million~~ in ~~2008 compared to $38.8 million for~~ the ~~year~~period ended December 31, ~~2007. Income~~2010, ~~from~~in ~~operations~~conformity aswith accounting ~~percentage~~principles ofgenerally ~~revenue~~accepted ~~decreased~~in ~~to 13.8%~~the ~~for~~United ~~2008~~States ~~compared~~of ~~to 18~~America.0% ~~for 2007. This was due primarily to higher wages~~Also, ~~which~~in ~~included~~our ~~other payroll expenses~~opinion, ~~and~~ the ~~increase~~related infinancial ~~administrative~~statement ~~costs~~schedule, ~~all~~when ~~relating to~~considered ~~labor concessions~~ in ~~Argentina~~relation ~~granted~~to by the ~~oil~~basic ~~industry~~consolidated ~~in the~~financial ~~last~~statements ~~half~~taken ofas ~~2007 and~~ a ~~significant~~whole, ~~increase~~presents infairly ~~our labor~~in ~~force~~all ~~and~~material ~~labor-related~~respects ~~expenses~~the ininformation ~~connection~~set ~~with~~forth ~~the~~therein. ~~delivery of~~

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, 2010, based on criteria established in Internal Control-Integrated Framework issued by the 37 Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2011 expressed an unqualified opinion thereon.

/s/ UHY LLP

Houston, Texas

March 15, 2011

- 36 -

newIndex rigs prior to theirFinancial 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. Statements

~~Rental~~REPORT ~~Services. Our~~OF ~~Rental~~INDEPENDENT ~~Services~~REGISTERED ~~revenues were~~PUBLIC ~~$103.8 million~~ACCOUNTING ~~for~~FIRM 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 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.

General Corporate. General corporate expenses increased $1.6 million to $18.0 million for the year ended December 31, 2008 compared to $16.4 million for the year ended December 31, 2007. The ~~increase~~Board ~~was primarily~~of ~~due~~Directors toand ~~the~~Stockholders ~~increase~~of ~~in share-based compensation expense.~~

~~Liquidity and~~Allis-Chalmers ~~Capital~~Energy ~~Resources~~ Inc.:

We have audited InAllis-Chalmers ~~June~~Energy ~~2009,~~Inc.’s weinternal ~~strengthened~~control ~~our~~over ~~balance~~financial ~~sheet~~reporting byas ~~raising approximately~~of ~~$125.6~~December ~~million~~31, in2010, ~~gross~~based ~~proceeds~~on ~~from~~criteria ~~the sale~~established ofin ~~common~~Internal ~~stock~~Control-Integrated ~~and~~Framework aissued ~~newly~~by ~~issued~~the ~~series~~Committee of ~~preferred stock.~~Sponsoring ~~The~~Organizations ~~transactions~~of ~~were effected through a common stock~~the ~~rights~~Treadway ~~offering~~Commission to(the ~~our~~COSO ~~existing~~criteria). ~~stockholders,~~Allis-Chalmers ~~the~~Energy ~~sale~~Inc.’s ofmanagement ~~common stock~~is toresponsible ~~Lime~~for ~~Rock~~maintaining ~~through~~effective ~~its~~internal ~~backstop~~control ~~commitment~~over offinancial ~~the rights offering~~reporting, and ~~the~~for ~~sale~~its ofassessment ~~convertible perpetual preferred stock to Lime Rock. Approximately $46.4 million~~ of the ~~proceeds were~~effectiveness ~~used~~of tointernal ~~purchase~~control anover ~~aggregate of $74.8 million~~financial ~~principal~~reporting ~~amount~~included ofin ~~our~~the ~~existing~~accompanying ~~senior~~Management’s ~~notes,~~Report ~~approximately $35.0 million~~on ~~was~~Internal ~~used~~Control toOver ~~repay~~Financial ~~all~~Reporting. ~~the~~Our ~~borrowings~~responsibility ~~under our~~is ~~revolving~~to ~~bank~~express ~~credit~~an ~~facility~~opinion ~~due~~on ~~2012,~~the ~~except~~Company’s ~~for outstanding~~internal ~~letters~~control ofover ~~credit,~~financial ~~and~~reporting ~~the~~based ~~remainder~~on ~~for~~our ~~general corporate purposes~~audit.

~~Our~~We ~~on-going~~conducted ~~capital~~our ~~requirements~~audit ~~arise~~in ~~primarily~~accordance ~~from~~with ~~our~~the ~~need to~~standards ~~service~~of ~~our~~the ~~debt,~~Public toCompany ~~acquire~~Accounting ~~and~~Oversight ~~maintain~~Board ~~equipment,~~(United toStates). ~~fund our~~Those ~~working~~standards ~~capital~~require ~~requirements~~that we plan and toperform ~~complete~~the ~~acquisitions. Our~~audit ~~primary~~to ~~sources~~obtain ofreasonable ~~liquidity~~assurance ~~are~~about ~~proceeds~~whether ~~from~~effective ~~the~~internal ~~issuance of~~control ~~debt~~over ~~and~~financial ~~equity~~reporting ~~securities~~was ~~and~~maintained ~~cash~~in ~~flows~~all ~~from~~material ~~operations~~respects. Our ~~amended~~audit ~~and~~included ~~restated~~obtaining ~~revolving~~an ~~credit~~understanding ~~facility~~of ~~permits borrowings~~internal ofcontrol upover tofinancial reporting, ~~$90.0 million~~assessing inthe ~~principal~~risk ~~amount.~~that ~~As of~~a ~~December 31,~~material ~~2009~~weakness exists, wetesting ~~had~~and ~~$85.8 million~~evaluating ~~available for~~the ~~borrowing~~design ~~under~~and ~~our~~operating ~~amended~~effectiveness ~~and~~of ~~restated~~internal ~~revolving~~control ~~credit facility.~~based ~~Cash~~on ~~flows~~the ~~from~~assessed ~~operations~~risk, ~~are~~and ~~expected~~performing tosuch beother ~~our primary~~procedures ~~source~~as ofwe ~~liquidity~~considered necessary in ~~fiscal 2010~~the circumstances. We ~~had~~believe ~~cash~~that ~~and~~our ~~cash equivalents~~audit ofprovides ~~$41.1 million~~a atreasonable ~~December 31,~~basis ~~2009 compared~~for toour $6opinion.~~9 million~~ ~~at December 31, 2008.~~

~~Our~~A ~~revolving~~company’s ~~credit~~internal ~~agreement~~control ~~requires~~over ~~us to maintain specified~~ financial reporting ~~ratios.~~is Ifa weprocess ~~fail~~designed to ~~comply~~provide ~~with~~reasonable ~~the~~assurance ~~financial~~regarding ~~ratio covenants,~~the itreliability ~~could~~of ~~limit~~financial orreporting ~~eliminate~~and the ~~availability~~preparation ~~under our~~of ~~revolving~~financial ~~credit~~statements ~~agreement.~~for ~~Our~~external ~~ability~~purposes toin ~~maintain~~accordance ~~such financial~~with ~~ratios~~generally ~~may~~accepted beaccounting ~~affected~~principles. byA company’s ~~events~~internal ~~beyond~~control ~~our~~over ~~control, including~~financial ~~changes~~reporting inincludes ~~general~~those ~~economic~~policies and ~~business~~procedures ~~conditions, and~~that we(1) pertain ~~cannot~~to ~~assure~~the ~~you~~maintenance ~~that~~of werecords ~~will~~that, ~~maintain~~in orreasonable ~~meet~~detail, ~~such ratios~~accurately and ~~tests~~fairly orreflect ~~that~~ the ~~lenders~~transactions ~~under~~and ~~the~~dispositions ~~credit~~of ~~agreement~~the ~~will~~assets ~~waive~~of ~~any~~the ~~failure~~company; to(2) provide ~~meet~~reasonable ~~such~~assurance ~~ratios~~that ortransactions ~~tests.~~are ~~The decrease~~recorded inas ~~the~~necessary ~~U.S. rig~~to ~~count~~permit ~~experienced~~preparation ~~late~~of infinancial ~~2008~~statements ~~and 2009 and the resulting decrease~~ in ~~demand~~accordance ~~for~~with ~~our~~generally ~~services adversely~~accepted ~~impacts~~accounting ~~our~~principles ~~ability~~and tothat ~~maintain~~receipts orand ~~meet~~expenditures ~~such financial~~of ~~ratios.~~the Wecompany ~~believe~~are ~~that~~being ~~the~~made ~~$125.6 million~~only in ~~gross~~accordance ~~equity proceeds~~with ~~received~~authorizations inof ~~June~~management ~~2009~~and ~~has~~directors ~~significantly~~of ~~improved~~the ~~our liquidity~~company; and ~~decreased~~(3) provide ~~our~~reasonable ~~reliance~~assurance onregarding ~~our~~prevention ~~revolving~~or ~~credit facility.~~timely Wedetection ~~utilized~~of aunauthorized ~~portion~~acquisition, use, or disposition of the company’s ~~equity~~assets ~~proceeds~~that tocould ~~prepay all~~have ~~borrowings~~a ~~under~~material ~~our~~effect ~~revolving~~on ~~credit~~the ~~agreement~~financial statements.

~~Exclusive~~Because of ~~any~~its ~~acquisitions~~inherent limitations, weinternal ~~currently~~control over ~~expect~~financial ~~our~~reporting ~~capital spending~~may tonot beprevent ~~between~~or ~~$60~~detect misstatements.~~0 million~~ ~~and~~Also, ~~$85.0 million in~~projections ~~2010~~of ~~depending~~any ~~upon~~evaluation ~~the~~of ~~market~~effectiveness ~~demand~~to wefuture ~~experience,~~periods ~~our operating~~are ~~performance~~subject ~~during~~to the ~~year~~risk ~~and~~that ~~expenditures~~controls ~~which~~ may be ~~associated~~become ~~with~~inadequate ~~potential~~because ~~new contracts. These amounts are net~~ of ~~equipment~~changes ~~deposits paid~~ in ~~2009. As of December 31~~conditions, ~~2009,~~ weor ~~had~~that ~~capital~~the ~~expenditure commitments of~~degree ~~$19.2 million, net~~ of ~~equipment~~compliance ~~deposits.~~with ~~The majority of these commitments are due to $12.1 million remaining to be paid on two new 1600 horsepower drilling rigs expected to be completed in~~ the ~~second~~policies ~~and~~or ~~fourth~~procedures ~~quarters~~may ~~of 2010~~deteriorate. ~~We believe that our cash generated from operations, cash on hand and cash available~~

In our opinion, Allis-Chalmers Energy Inc. and subsidiaries maintained, in all 38 material respects, effective internal control over financial reporting as of December 31, 2010, 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, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010, and our report dated March 15, 2011 expressed an unqualified opinion thereon.

/s/ UHY LLP

Houston, Texas

March 15, 2011

- 37 -

underIndex our credit facilities will provide sufficient funds for our identified projects. Our ability to obtainFinancial 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. Statements

~~Operating Activities~~ ALLIS-CHALMERS ENERGY INC.

InCONSOLIDATED ~~the~~BALANCE ~~year~~SHEETS ended December 31, 2009, we generated $55.5 million in cash from operating activities. Our net loss for the year ended December 31, 2009 was $21.2 million. Non-cash additions to net loss totaled $49.3 million in the 2009 period consisting primarily of $83.0 million of depreciation and amortization, $4.8 million related to the expensing of stock options, $2.8 million for bad debts, $2.2 million of amortization and write-off of deferred financing fees and $1.6 million related to loss on rig destroyed by fire, partially offset by $26.4 million from gain on debt extinguishment, $17.9 million in deferred income taxes and $0.9 million of gains from the dispositions of equipment.

During the year ended December 31, 2009, changes in working capital provided $27.4 million in cash, principally due to a decrease of $50.0 million in accounts receivable, a decrease of $4.6 million in inventories, a decrease in other current assets of $4.6 million and an increase of $2.7 million in accrued employee benefits and payroll taxes, offset by an decrease of $27.6 million in accounts payable, a decrease of $4.6 million in accrued expenses and a decrease in accrued interest of $2.8 million. Our accounts receivables decreased at December 31, 2009 primarily due to the decrease in our revenues in 2009. Inventories decreased at December 31, 2009 primarily due to a slow down in our activity. Other current assets decreased primarily due to tax refunds received in 2009. Our accounts payable, and other accrued expenses decreased primarily due to the decrease in costs due to our decrease in activity.


	December 31,
	2010			2009
	(In thousands, except for share and per share amounts)

ASSETS
Cash and cash equivalents	$	20,940		$	41,072
Trade receivables, net of allowance for doubtful accounts of $4,361 and $4,923 at December 31, 2010 and 2009, respectively		144,960			105,059
Inventories		42,140			34,528
Deferred income tax asset		1,835			3,790
Prepaid expenses and other		9,192			13,799

Total current assets		219,067			198,248

Property and equipment, at cost net of accumulated depreciation of $286,062 and $209,782 at December 31, 2010 and 2009, respectively		723,234			746,478
Goodwill		46,333			40,639
Other intangible assets, net of accumulated amortization of $16,835 and $13,973 at December 31, 2010 and 2009, respectively		33,899			32,649
Debt issuance costs, net of accumulated amortization of $8,490 and $6,314 at December 31, 2010 and 2009, respectively		7,405			9,545
Deferred income tax asset		37,602			22,047
Other assets		8,116			31,014


Total assets	$	1,075,656		$	1,080,620


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt	$	15,215		$	17,027
Trade accounts payable		46,042			34,839
Accrued salaries, benefits and payroll taxes		32,790			22,854
Accrued interest		15,524			15,821
Accrued expenses		30,676			21,918

Total current liabilities		140,247			112,459

Deferred income tax liability		8,240			8,166
Long-term debt, net of current maturities		478,225			475,206
Other long-term liabilities		233			1,142

Total liabilities		626,945			596,973

Commitments and Contingencies

Stockholders’ Equity
Preferred stock, $0.01 par value (25,000,000 shares authorized, 36,393 shares issued and outstanding at December 31, 20010 and 2009)		34,183			34,183
Common stock, $0.01 par value (200,000,000 shares authorized; 73,722,347 issued and outstanding at December 31, 2010 and 71,378,529 issued and outstanding at December 31, 2009)		737			714
Capital in excess of par value		429,924			422,823
(Accumulated deficit) retained earnings		(16,133	)		25,927

Total stockholders’ equity		448,711			483,647


Total liabilities and stockholders’ equity	$	1,075,656		$	1,080,620

InThe ~~the~~accompanying ~~year~~Notes ~~ended~~are ~~December 31,~~an ~~2008,~~integral wepart 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~~Consolidated ofFinancial ~~stock options, $3~~Statements.~~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 income taxes and $1.9 million of gains from the dispositions of equipment.

~~During~~- ~~the~~38 ~~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, $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

increaseIndex 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 theFinancial 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. Statements

~~Investing Activities~~ ALLIS-CHALMERS ENERGY INC.

~~During~~CONSOLIDATED ~~the~~STATEMENTS ~~year~~OF ~~ended~~OPERATIONS December 31, 2009, we used $64.0 million in investing activities, consisting of $78.1 million for capital expenditures, $1.1 million of additional investments, offset by a decrease of $2.7 million in deposits on asset commitments, $8.6 million of proceeds from equipment sales and $3.9 million in insurance proceeds for a drilling rig destroyed by a blow-out. Included in the $78.1 million for capital expenditures was $11.4 million for our Oilfield Services segment, $38.5 million for two domestic drilling rigs and $19.9 million for additional equipment in our Drilling and Completion segment and $8.2 million for drill pipe and other equipment used in our Rental Services segment. We invested $2.4 million of cash and cash expenditures for equipment into our investment into our Saudi Arabia joint venture and we received $1.3 million from insurance proceeds related to a pre-acquisition contingency on BCH. The decrease in other assets was due to the conversion of deposits on equipment purchases into capital expenditures for the drilling rigs and assets used in our directional drilling services. We also received $8.6 million from the sale of assets during the year ended December 31, 2009, comprised mostly from equipment “lost-in-hole” from our Rental Services segment ($3.5 million) and our Oilfield Services segment ($0.8 million) along with $3.9 million from the sale a plane in our Rental Services segment. We also transferred $1.6 million of rental assets as part of our investment into our Saudi Arabia joint venture in a non-cash transaction. In 2009, we reduced the carrying value of goodwill on the BCH acquisition by $1.3 million due to the utilization of a pre-acquisition tax asset.

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.


	Years Ended December 31,
	2010			2009			2008
	(In thousands, except per share amounts)

Revenues	$	659,665		$	506,253		$	675,948

Operating costs and expenses
Direct costs		498,120			379,437			443,414
Depreciation		84,118			78,276			63,460
Selling, general and administrative		60,434			50,763			62,774
Loss (gain) on asset dispositions		10,624			1,602			(166	)
Impairment of goodwill		—			—			115,774
Amortization		4,806			4,722			4,212

Total operating costs and expenses		658,102			514,800			689,468


Income (loss) from operations		1,563			(8,547	)		(13,520	)


Other income (expense):
Interest expense		(45,825	)		(48,145	)		(48,411	)
Interest income		537			72			5,617
Gain on debt extinguishment		—			26,365			—
Other		(3,211	)		(798	)		(563	)

Total other expense		(48,499	)		(22,506	)		(43,357	)


Loss before income taxes		(46,936	)		(31,053	)		(56,877	)

Income tax benefit		7,424			9,863			17,413


Net loss		(39,512	)		(21,190	)		(39,464	)

Preferred stock dividend		(2,548	)		(1,302	)		—


Net loss attributed to common stockholders	$	(42,060	)	$	(22,492	)	$	(39,464	)


Loss per common share:
Basic	$	(0.59	)	$	(0.42	)	$	(1.13	)

Diluted	$	(0.59	)	$	(0.42	)	$	(1.13	)


Weighted average number of common shares outstanding:
Basic		71,726			53,669			35,052

Diluted		71,726			53,669			35,052

~~During~~The ~~the~~accompanying ~~year~~Notes ~~ended~~are ~~December 31,~~an ~~2007,~~integral wepart ~~used $137.1 million in investing activities consisting~~ of ~~four acquisitions and our capital expenditures. During~~ the ~~year~~Consolidated ~~ended December 31,~~Financial ~~2007, we completed the following acquisitions for a total net cash outlay of $41~~Statements.~~0 million,~~ ~~consisting of the purchase price and acquisition costs less cash acquired:~~

•- In39 ~~June 2007, we acquired Coker for a purchase price of approximately $3.6 million in cash and a promissory note for $350,000.~~-

•Index Into JulyFinancial 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.Statements

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 “lostALLIS-~~in-hole” equipment~~CHALMERS inENERGY ~~the Rental Services segment and $28~~INC.~~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 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.

~~Financing Activities~~ CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

During the year ended December 31, 2009, financing activities provided $42.7 million in cash. We raised $120.2 million net of expenses from the issuance of common and preferred stock, and borrowed $25.0 million under a loan facility to acquire two drilling rigs, offset in part by repayments of $64.8 million of long-term debt, a net repayment on our revolving credit facility of $36.5 million and $665,000 for preferred dividend payments. The repayments of long-term debt consisted of $46.4 million on the senior notes as a result of a tender offer and $18.4 million of scheduled debt repayment including a prepayment on our BCH loan facility. We also incurred $658,000 in debt issuance costs consisting of $528,000 on the revolving credit facility, primarily to modify our loan covenants, and $131,000 on the rig financing agreement. In addition, we financed our renewal of $3.2 million in insurance policy premiums in non-cash transactions.


									Capital in Excess of Par Value			Retained Earnings (Deficit)			Total Stockholders’ Equity
	Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount
					(In thousands, except share amounts)

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

Net loss		—		—		—		—		—			(21,190	)		(21,190	)
Preferred stock dividend		—		—		—		—		—			(1,302	)		(1,302	)

Issuance of common stock:
Rights offering, net of offering costs		36,393		34,183		35,683,688		357		85,683			—			120,223
Issuance under stock plans		—		—		20,099		—		43			—			43

Stock-based compensation		—		—		—		—		4,799			—			4,799
Tax benefits on stock plans		—		—		—		—		(2,335	)		—			(2,335	)


Balances, December 31, 2009		36,393		34,183		71,378,529		714		422,823			25,927			483,647

Net loss		—		—		—		—		—			(39,512	)		(39,512	)
Preferred stock dividend		—		—		—		—		—			(2,548	)		(2,548	)

Issuance of common stock:
Business acquisition		—		—		1,000,000		10		1,990			—			2,000
Issuance under stock plans		—		—		1,343,818		13		(1,735	)		—			(1,722	)

Stock-based compensation		—		—		—		—		8,030			—			8,030
Tax benefits on stock plans		—		—		—		—		(1,184	)		—			(1,184	)


Balances, December 31, 2010		36,393	$	34,183		73,722,347	$	737	$	429,924		$	(16,133	)	$	448,711

~~During~~The ~~the~~accompanying ~~year~~Notes ~~ended~~are ~~December 31,~~an ~~2008,~~integral ~~financing activities~~part ~~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~~Consolidated ofFinancial ~~our Drilling and Completion segment’s rig fleet~~Statements. 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~~40 ~~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.~~

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 Rental Tools, Inc. and DLS, to repay existing debt and for general corporate purposes. On June 29, 2009, we closed on a tender offer in which we purchased $30.6 million aggregate principal of our 9.0% senior notes for a total consideration of $650 per $1,000 principal amount.

InIndex January 2007, we closed on a private offering, to qualified institutionalFinancial 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 Oil & Gas Rental Services, Inc. On June 29, 2009, we closed on a tender offer in which we purchased $44.2 million aggregate principal of our 8.5% senior notes for a total consideration of $600 per $1,000 principal amount. Statements

OnALLIS-CHALMERS ~~January 18,~~ENERGY ~~2006, we also executed an amended and restated credit agreement which provided for a $25~~INC.~~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. On April 9, 2009, we entered into a Third Amendment to our existing Second Amended and Restated Credit Agreement dated as of April 26, 2007 which modified the leverage and interest coverage ratio covenants of the Credit Agreement. In addition, permitted maximum capital expenditures were reduced to $85.0 million for 2009 compared to the previous limit of $120.0 million. Effective December 31, 2009, we amended the leverage and interest coverage ratio covenants of the Credit Agreement. This amendment relaxed the required financial ratios for the quarter ended December 31, 2009 and for each of the quarters in 2010. 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, 2009 and 2008. As of December 31, 2009, we had no borrowings under the facility except $4.2 million in outstanding letters of credit. At December 31, 2008 we had $36.5 million of borrowings outstanding and $5.8 million in outstanding letters of credit. 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.

AsCONSOLIDATED ~~part~~STATEMENTS ofOF ~~our~~CASH ~~acquisition~~FLOWS 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 2.1% and 5.1% as of December 31, 2009 and 2008, respectively. The bank loans are denominated in U.S. dollars and the outstanding amount due as of December 31, 2009 and 2008 was $1.1 million and $2.5 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 loan is repayable 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, 2009 and 2008. The bank loan rates are based on LIBOR plus a margin. The weighted average interest rate was 4.4% and 6.9% at December 31, 2009 and 2008, respectively. The bank loans are denominated in U.S. dollars and the outstanding amount as of December 31, 2009 and 2008 was $20.1 million and $25.0 million, respectively.


	Years Ended December 31,
	2010			2009			2008
	(In thousands)
Cash Flows from Operating Activities:
Net loss	$	(39,512	)	$	(21,190	)	$	(39,464	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		88,924			82,998			67,672
Amortization and write-off of deferred issuance costs		2,214			2,231			2,089
Gain on debt extinguishment		—			(26,365	)		—
Impairment of goodwill		—			—			115,774
Stock-based compensation		8,030			4,799			7,902
Allowance for bad debts		368			2,835			3,283
Deferred income taxes		(17,077	)		(17,883	)		(29,949	)
Loss on investment		1,466			—			—
Equity in loss of unconsolidated affiliates		783			—			—
Loss (gain) on sale of property and equipment		680			(948	)		(1,762	)
Loss (gain) on asset dispositions		10,624			1,602			(166	)
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in trade receivable		(35,683	)		49,977			(27,499	)
Decrease (increase) in inventories		(5,954	)		4,559			(9,719	)
Decrease (increase) in prepaid expenses and other assets		11,142			4,628			(1,623	)
Decrease in other assets		1,746			1,648			1,224
(Decrease) increase in trade accounts payable		11,061			(27,588	)		21,903
(Decrease) increase in accrued interest		(297	)		(2,802	)		567
(Decrease) increase in accrued expenses		7,438			(4,607	)		1,131
(Decrease) in other liabilities		(909	)		(1,051	)		(1,130	)
Increase in accrued salaries, benefits and payroll taxes		9,872			2,662			3,452

Net cash provided by operating activities		54,916			55,505			113,685


Cash Flows from Investing Activities:
Acquisitions, net of cash acquired		(15,935	)		—			(53,709	)
Net sales (purchases) of investment interests		368			(1,102	)		1,374
Purchases of property and equipment		(102,155	)		(78,067	)		(154,468	)
Deposits on asset commitments		18,347			2,685			(9,901	)
Proceeds from asset dispositions		25,000			3,916			3,000
Proceeds from sale of property and equipment		6,638			8,581			11,480

Net cash used in investing activities		(67,737	)		(63,987	)		(202,224	)


Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		4,000			25,000			25,000
Payments on long-term debt		(42,168	)		(64,755	)		(9,905	)
Net borrowings (repayments) on lines of credit		36,500			(36,500	)		36,500
Proceeds from issuance of stock, net of offering costs		—			120,223			—
Payment of preferred stock dividend		(2,548	)		(665	)		—
Exercise of options and warrants		(1,722	)		43			633
Income tax impact of stock-based compensation plans		(1,184	)		—			9
Debt issuance costs		(189	)		(658	)		(525	)

Net cash (used) provided by financing activities		(7,311	)		42,688			51,712


Net increase (decrease) in cash and cash equivalents		(20,132	)		34,206			(36,827	)
Cash and cash equivalents at beginning of year		41,072			6,866			43,693

Cash and cash equivalents at end of year	$	20,940		$	41,072		$	6,866

~~As part of our acquisition of BCH, we assumed a $23.6 million term loan credit facility with a bank.~~ The ~~credit~~ ~~agreement~~accompanying isNotes ~~dated June 2007 and contains customary events of default and financial covenants. Obligations under the facility~~ are ~~secured~~an byintegral ~~substantially~~part ~~all~~ of the ~~BCH~~Consolidated ~~assets.~~Financial ~~The facility is repayable in quarterly principal installments plus interest with the final payment due not later than August 2012~~Statements. We were in compliance with all debt covenants as of December 31, 2009 and 2008. The credit facility loan is denominated in U.S. dollars and interest rates are based on LIBOR plus a margin. At December 31, 2009 and 2008, the outstanding amount of the loan was $16.2 million and $22.1 million and the interest rate was 3.5% and 6.0%, respectively.

- 41 - 42

OnIndex May 22, 2009, we drew down $25.0 million on a new term loan credit facility with a lending institution. The facility was utilized to fundFinancial a portion of the purchase price of two new drilling rigs. The loan is secured by the equipment. The facility is repayable in quarterly installments of approximately $1.4 million of principal and interest and matures in May 2015. The loan bears interest at a fixed rate of 9.0%. At December 31, 2009, the outstanding amount of the loan was $23.4 million. Statements

InALLIS-CHALMERS ~~connection~~ENERGY ~~with the acquisition of Rogers Oil Tools, Inc~~INC., ~~we issued to the seller a note in the amount of $750,000. The note bore interest at 5.0% and was paid in full in April 2009 in accordance with its terms.~~

InNotes ~~2000 we compensated directors who served on the board of directors from 1989~~ to ~~March 31,~~Consolidated ~~1999~~Financial ~~without~~Statements compensation, by issuing promissory notes totaling $325,000. The notes bear interest at the rate of 5.0%. As of December 31, 2009 and 2008, the principal and accrued interest on these notes totaled approximately $0 and $32,000, respectively.

~~In April 2008 and August 2008, we obtained insurance premium financings in the aggregate amount of $3.0~~NOTE ~~million with a fixed average weighted interest rate of 4.9%. Under terms of the agreements, amounts outstanding are paid over 10 and 11~~1 ~~month repayment schedules. The outstanding balance of these notes was approximately $0 and $991,000 at December~~— ~~31,~~NATURE ~~2009~~OF ~~and~~BUSINESS ~~2008,~~AND ~~respectively.~~SUMMARY InOF ~~2009,~~SIGNIFICANT ~~we obtained~~ACCOUNTING ~~insurance~~POLICIES premium financings in the aggregate amount of $3.2 million with a fixed average weighted interest rate of 4.8%. Under terms of the agreements, the amount outstanding is paid over 10 and 11 month repayment schedules. The outstanding balance of these notes was approximately $997,000 as of December 31, 2009.

AsOrganization ~~part~~ of ~~our~~Business acquisition of BCH, we assumed various capital leases with terms of two to three years. The outstanding balance under these capital leases was $254,000 and $779,000 at December 31, 2009 and 2008, respectively.

~~The~~Allis-Chalmers ~~following~~Energy ~~table~~Inc. (“Allis-Chalmers”, ~~summarizes~~“we”, “our” ~~obligations~~or “us”) was incorporated in Delaware in 1913. We provide services and ~~commitments~~ equipment to ~~make~~oil ~~future~~and ~~payments~~natural ~~under~~gas ~~our~~exploration ~~notes~~and ~~payable,~~production ~~operating~~companies throughout the United States ~~leases~~including Texas, ~~employment~~Louisiana, ~~contracts~~Pennsylvania, ~~and~~West ~~consulting~~Virginia, ~~agreements~~Wyoming, ~~for~~Oklahoma, ~~the periods~~offshore ~~specified~~in asthe Gulf of ~~December 31~~Mexico, ~~2008~~and internationally, primarily in Argentina, Brazil, Bolivia and Mexico. We operate in three sectors of the oil and natural gas service industry: Oilfield Services; Drilling and Completion and Rental Services.

	Payments by Period
			Less Than
	Total		1 Year		1-3 Years		3-5 Years		After 5 Years
	(In thousands)
Contractual Obligations
Long-term debt	$	491,979	$	16,778	$	30,033	$	236,738	$	208,430
Capital leases(a)		254		249		5		—		—
Interest payments on long-term debt		215,805		40,931		79,482		57,450		37,942
Operating leases		7,987		2,670		3,212		1,504		601
Purchase obligations		19,186		19,186		—		—		—
Employment contracts		2,434		2,104		330		—		—
Total contractual cash obligations	$	737,645	$	81,918	$	113,062	$	295,692	$	246,973

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.

~~(a)~~Use ~~These amounts represent our minimum capital lease obligations, net~~ of ~~interest~~Estimates ~~payments totaling $18,000.~~

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 ~~Critical~~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 ~~Accounting~~appropriate, ~~Policies~~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.

WePrinciples ~~have identified the policies below as critical to our business operations and the understanding~~ of ~~our~~Consolidation 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

The consolidated financial statements include the accounts of Allis-Chalmers and its subsidiaries. Our subsidiaries at December 31, 2010 are AirComp LLC, Allis-Chalmers Tubular Services LLC, Allis-Chalmers Directional Drilling Services LLC, Allis-Chalmers Rental Services LLC, Allis-Chalmers Production Services LLC, Allis-Chalmers Management LLC, Allis-Chalmers Holdings Inc., 43American Well Control LLC (“AWC”), DLS Drilling, Logistics & Services Company (“DLS”), DLS Argentina Limited, Tanus Argentina S.A., Petro-Rentals LLC, Rebel Rentals LLC, Allis-Chalmers Drilling LLC, BCH Ltd. (“BCH”), ALY do Brasil Servicos do Petroleo Ltda, Drilling Logistics and Services de Mexico and BCH Energy do Brasil Servicos de Petroleo Ltda. All significant inter-company transactions have been eliminated.

Revenue Recognition

We provide rental equipment, oilfield services 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 lost-in-hole equipment of $5.9 million, $4.3 million and $10.6 million for the years ended December 31, 2010, 2009 and 2008, respectively.

- 42 -

liabilitiesIndex atto theFinancial 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. Statements

~~Allowance~~ALLIS-CHALMERS ~~For~~ENERGY ~~Doubtful Accounts~~INC. ~~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~~Notes ~~Recognition. We provide rental equipment, oilfield services and drilling services~~ to ~~our customers~~Consolidated atFinancial 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 lumpStatements-~~sum~~(Continued) ~~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~~Allowance 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 whenever~~Doubtful ~~events~~Accounts 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~~Accounts ~~and~~receivable ~~Other~~are ~~Intangibles. As~~customer ~~of December 31,~~obligations ~~2009~~due weunder ~~have~~normal ~~recorded~~trade ~~approximately $40~~terms.~~6 million~~ ~~of goodwill and $32.6 million of other identifiable intangible assets.~~ We ~~perform~~sell ~~purchase~~our ~~price allocations~~services to ~~intangible~~oil ~~assets~~and ~~when~~natural wegas ~~make~~exploration ~~a business combination. Business combinations~~ and ~~purchase price~~ ~~allocations~~production ~~have been consummated for acquisitions in all of our reportable segments~~companies. ~~The~~We ~~excess~~perform ofcontinuing ~~the~~credit ~~purchase~~evaluations ~~price after allocation~~ of ~~fair~~its ~~values~~customers’ tofinancial ~~tangible~~condition ~~assets is allocated to identifiable intangibles~~ and ~~thereafter~~although towe ~~goodwill.~~generally Wedo ~~make judgments~~not ~~and~~require ~~estimates~~collateral, inletters ~~conjunction with the carrying value~~ of ~~these~~credit ~~assets,~~may ~~including amounts to~~ be ~~capitalized~~required ~~and~~from ~~whether the~~customers ~~asset~~in ~~has~~certain ~~a finite life for amortization purposes~~circumstances.

~~Our~~The ~~annual~~allowance ~~impairment~~for ~~tests~~doubtful ~~involve~~accounts represents our estimate of the ~~use~~amount of ~~different valuation~~probable ~~techniques,~~credit ~~including~~losses ~~the~~existing ~~income~~in ~~approach~~our accounts receivable. ~~and/or market~~Significant ~~approach,~~individual toaccounts ~~determine~~receivable ~~the~~balances ~~fair~~which ~~value~~have ofbeen ~~our~~outstanding ~~reporting units.~~greater ~~Determining~~than ~~the~~90 ~~fair~~days ~~value~~are ofreviewed aindividually ~~reporting~~for ~~unit~~collectibility. isWe have a ~~matter~~ limited number of ~~judgment~~customers ~~and~~with ~~often~~individually ~~involves~~large ~~the~~amounts ~~use~~due ofat ~~significant estimates~~any ~~and~~given ~~assumptions~~date. IfAny unanticipated ~~the~~change ~~fair~~in ~~value~~any one of ~~the~~these ~~reporting unit~~customer’s iscredit ~~less~~worthiness ~~than~~or ~~its~~other ~~carrying~~matters ~~value,~~affecting anthe ~~impairment~~collectibility ~~loss~~of ~~is recorded~~amounts todue ~~the~~from ~~extent~~such ~~that~~customers ~~the~~could ~~implied~~have ~~fair~~a ~~value~~material ofeffect on the ~~reporting~~ ~~unit’s~~results ~~goodwill~~of isoperations ~~less~~in ~~than~~the ~~its~~period ~~carrying~~in ~~value. We~~which ~~recorded~~such anchanges or ~~impairment~~events ~~charge~~occur. ofAfter ~~$115.8 million~~all inattempts ~~2008 as~~to collect a ~~result~~receivable ofhave ~~our~~failed, ~~test~~the receivable is written off against the allowance. AtAs of December 31, ~~2009~~2010 and ~~2007~~2009, ~~no impairment~~we ~~was~~had ~~deeded~~recorded ~~necessary~~an allowance for doubtful accounts of $4.4 ~~Significant~~million and ~~unanticipated~~$4.9 million ~~changes~~respectively. toBad ~~these~~debt ~~assumptions~~expense ~~could~~was ~~require~~$368,000, an$2.8 ~~additional provision~~million and $3.3 million for ~~impairment~~the inyears aended ~~future~~December 31, ~~period~~2010, 2009 and 2008, respectively.

~~Purchase~~Cash ~~Price~~Equivalents 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 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.

We consider all highly liquid investments with an 44 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 two 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 $84.1 million, $78.3 million and $63.5 million for the years ended December 31, 2010, 2009 and 2008, respectively.

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. 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. Our annual impairment tests involve the use of different valuation techniques, including the income approach and/or market approach, to determine the fair value of our reporting units. Determining the fair value of a reporting unit is a matter of judgment and often involves the use of significant estimates and assumptions. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit’s goodwill is less than its carrying value. As a result we recorded an impairment of $115.8 million at December 31, 2008. At December 31, 2010 and 2009, no impairment was deemed necessary. Significant and unanticipated changes to these assumptions could require an additional provision for impairment in a future period.

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IncomeIndex 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 usFinancial 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. Statements

~~It is our intention to permanently reinvest all of the undistributed earnings of our non~~ALLIS-~~U.S. subsidiaries in~~CHALMERS ~~such~~ENERGY ~~subsidiaries~~INC. 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~~Notes ~~Accounting~~to ~~Standards~~ Consolidated Financial Statements-(Continued)

~~For~~Impairment ~~a discussion~~ of ~~new~~Long-Lived ~~accounting~~Assets ~~standards, see the applicable section in Note 1 to our Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data.”~~

~~Off~~Long-~~Balance~~lived assets, which include property, plant and equipment, and other intangible assets, and certain other assets are reviewed for ~~Sheet~~impairment ~~Arrangements~~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.

WeFinancial ~~have~~Instruments 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, 2009, we had no borrowings on the facility, but availability is reduced by outstanding letters of credit of $4.2 million. We do not guarantee obligations of any unconsolidated entities.

~~ITEM~~Financial 7Ainstruments consist of cash and cash equivalents, accounts receivable, accounts payable and debt. ~~QUANTITATIVE~~The ~~AND~~carrying ~~QUALITATIVE~~value ~~DISCLOSURE~~of ~~ABOUT~~cash ~~MARKET~~and cash ~~RISK~~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, 2010 and 2009. Our senior notes, in the aggregate amount of $430.2 million at both December 31, 2010 and 2009, 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 $436.1 million and $394.2 million at December 31, 2010 and 2009, 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.

WeConcentration ~~are~~of ~~exposed~~Credit ~~to market risk primarily from changes in interest rates~~ and ~~foreign~~Customer ~~currency~~Risk ~~exchange risks.~~

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, 2010, we have approximately $1.9 million and $2.7 million of cash and cash equivalents residing in Argentina and Brazil, respectively. Cash and cash equivalents of $1.6 million are restricted in conjunction with financial institution obligations in Brazil. We ~~Interest Rate~~transact ~~Risk~~our business with several financial institutions. However, the amount on deposit in one financial institution exceeded the $250,000 federally insured limit at December 31, 2010 by a total of $16.7 million. Management believes that the financial institutions are financially sound and the risk of loss is minimal.

We sell our services to major and ~~Fluctuations~~independent indomestic ~~the~~and ~~general~~international ~~level~~oil ofand ~~interest~~natural ~~rates~~gas oncompanies. We perform ongoing credit valuations of our ~~current~~ customers and ~~future~~provide ~~fixed~~allowances for probable credit losses where appropriate. In 2010, 2009 and ~~variable~~2008, ~~rate~~one ~~debt~~of ~~obligations~~our customers, Pan ~~expose~~American usEnergy toLLC ~~market~~Sucursal ~~risk.~~Argentina, Weor ~~are~~Pan ~~vulnerable~~American toEnergy, ~~significant fluctuations~~represented in31.1%, ~~interest~~35.5% ~~rates~~and on28.5% of our ~~variable~~consolidated ~~rate~~revenues, ~~debt~~respectively. ~~and~~Revenues ~~on any~~from ~~future~~Pan ~~refinancing~~American Energy represented 52.5%, 56.6% and 62.0% of our ~~fixed~~international ~~rate~~revenues ~~debt~~in 2010, 2009 and on2008, ~~future~~respectively ~~debt~~(see Note 14).

AtDebt ~~December 31,~~Issuance ~~2009~~Costs we were exposed to interest rate fluctuations on approximately $37.4 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 $374,000. 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.

WeThe ~~have~~costs ~~also~~related ~~been~~to ~~subject~~the issuance of debt are capitalized and amortized to interest ~~rate~~expense ~~market~~using ~~risk~~the ~~for short~~straight-~~term~~line ~~invested~~method, ~~cash~~which approximates ~~and~~the ~~cash~~interest ~~equivalents.~~method, ~~The~~over ~~principal~~the maturity periods of ~~such~~ ~~invested~~the ~~funds~~related ~~would~~debt. ~~not~~Interest beexpense ~~subject~~related to ~~fluctuating~~debt ~~value because~~issuance ofcosts ~~their~~were ~~highly~~$2.2 ~~liquid~~million, $2.2 million and $2.1 million for the years ended December 31, 2010, 2009 and 2008, respectively.

45 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.

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short-termIndex nature.to AsFinancial of December 31, 2009, we had approximately $24.0 million of short-term maturing investments. Statements

~~Foreign Currency~~ALLIS-CHALMERS ~~Exchange~~ENERGY ~~Rate~~INC. ~~Risk~~

WeNotes 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, 2009, 2008 and 2007, we had a net foreign exchange loss of $0.7 million, $1.2 million and $128,000, respectively relating to ~~our~~Consolidated ~~Drilling~~Financial ~~and~~Statements-(Continued) 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.

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 46financial 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. For United States federal tax purposes, our tax returns for the tax years 2007 through 2009 remain open for examination by the tax authorities. Our foreign tax returns remain open for examination for the tax years 2002 through 2009. Generally, for state tax purposes, our 2004 through 2009 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-United States subsidiaries in such subsidiaries. Accordingly, we have not provided for United States deferred taxes on the $100.2 million of undistributed earnings of our non-United States subsidiaries as of December 31, 2010. 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 recognize all share-based payments to employees, including grants of employee stock options, in the financial statements based on their grant-date fair values. We utilize the Black-Scholes model to determine fair value, which incorporates assumptions to value stock-based awards. 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. The risk-free interest rate is the related United States Treasury yield curve for periods within the expected term of the option at the time of grant. We estimate forfeiture rates based on our historical experience.

Our net income (loss) for the years ended December 31, 2010, 2009 and 2008 includes approximately $8.0 million, $4.8 million and $7.9 million of compensation costs related to share-based payments, respectively. The tax benefit recorded in association with the share-based payments was $9,000 for the year-ended December 31, 2008. Due to expired unexercised nonqualified stock options and restricted stock vesting at market prices lower than the grant price, we adjusted $1.2 million and $2.3 million of excess tax asset against additional paid in capital for the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010 there is $6.5 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 2010 and 2009:


	For the Years Ended December 31,
	2010			2009
Expected dividend yield		—			—
Expected price volatility		89.81	%		77.32	%
Risk-free interest rate		1.41	%		1.37	%
Expected life of options		5 years			5 years
Weighted average fair value of options granted at market value	$	2.63		$	0.77

Income (Loss) Per Common 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 (deficit) per share.

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ITEMIndex 8.to FINANCIALFinancial STATEMENTS AND SUPPLEMENTARY DATAStatements

~~INDEX~~ALLIS-CHALMERS ~~TO FINANCIAL~~ENERGY ~~STATEMENTS~~ INC.

~~ALLIS-CHALMERS ENERGY~~Notes ~~INC.~~to ~~AND~~Consolidated ~~SUBSIDIARIES~~ Financial Statements-(Continued)

	Page
Management’s Report to the Stockholders of Allis-Chalmers Energy Inc.		48
Reports of Independent Registered Public Accounting Firm		49
Consolidated Balance Sheet		51
Consolidated Statement of Operations		52
Consolidated Statement of Stockholders’ Equity		53
Consolidated Statement of Cash Flows		54
Notes to Consolidated Financial Statements		55
Supplemental Information to Consolidated Financial Statements — Summarized Quarterly Financial Data		90

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,
	2010			2009			2008
Numerator:
Net loss	$	(39,512	)	$	(21,190	)	$	(39,464	)
Preferred stock dividend		(2,548	)		(1,302	)		—

Net loss attributed to common stockholders	$	(42,060	)	$	(22,492	)	$	(39,464	)


Denominator:
Weighted average common shares outstanding excluding nonvested restricted stock		71,726			53,669			35,052
Effect of potentially dilutive common shares:
Warrants and share based compensation shares		—			—			—

Weighted average common shares outstanding and assumed conversions		71,726			53,669			35,052


Loss per common share:
Basic	$	(0.59	)	$	(0.42	)	$	(1.13	)

Diluted	$	(0.59	)	$	(0.42	)	$	(1.13	)


Potentially dilutive securities excluded as anti-dilutive		15,680			15,059			1,041

Convertible preferred stock and share based compensation shares of approximately 13.5 million, 7.5 million and 332,000 were excluded in the computation of diluted earnings per share for 2010, 2009 and 2008, respectively as the effect would have been anti-dilutive due to the net loss for the year.

Segments of an Enterprise and Related Information

We designate the internal organization that is used by management for allocating resources and assessing performance as the source of our reportable segments. Please see Note 15 for further disclosure of segment information and disclosures by geographic region.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board, or the FASB, issued authoritative guidance that eliminates the qualifying special purpose entity concept, changes the requirements for derecognizing financial assets and requires enhanced disclosures about transfers of financial assets. The guidance also revises earlier guidance for determining whether an entity is a variable interest entity, requires a new approach for determining who should consolidate a variable interest entity, changes when it is necessary to reassess who should consolidate a variable interest entity, and requires enhanced disclosures related to an enterprise’s involvement in variable interest entities. We adopted this guidance effective January 1, 2010, which did not have a material effect on our financial statements.

In October 2009, the FASB issued authoritative guidance that amends earlier guidance addressing the accounting for contractual arrangements in which an entity provides multiple products or services (deliverables) to a customer. The amendments address the unit of accounting for arrangements involving multiple deliverables and how arrangement consideration should be allocated to the separate units of accounting, when applicable, by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. The amendments also require that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. This guidance is effective for fiscal years beginning on or after June 15, 2010, with earlier application permitted. We adopted this guidance effective January 1, 2011, which did not have a material effect on our financial statements.

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MANAGEMENT’S REPORTIndex TOto THEFinancial STOCKHOLDERS OF ALLIS-CHALMERS ENERGY INC. Statements

~~Management’s Report~~ALLIS-CHALMERS onENERGY ~~Internal~~INC. ~~Control Over Financial Reporting~~

AsNotes 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~~Consolidated ~~the~~Financial ~~effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes~~Statements-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~~Continued). 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~~In onJanuary ~~our assessment~~2010, wethe ~~have~~FASB ~~concluded~~issued authoritative guidance that ~~Allis-Chalmers~~changes the disclosure ~~maintained~~requirements ~~effective~~for ~~internal~~fair ~~control~~value ~~over~~measurements. ~~financial~~Specifically, the changes require a reporting as ofentity ~~December 31,~~to ~~2009,~~disclose ~~based~~separately onthe ~~criteria~~amounts of significant transfers in ~~Internal Control-Integrated~~and ~~Framework~~out ~~issued~~of byLevel 1 and Level 2 fair value measurements and describe the ~~COSO~~reasons for the transfers. The ~~effectiveness~~ ofchanges ~~Allis-Chalmers~~also ~~internal~~clarify ~~control~~existing ~~over~~disclosure ~~financial reporting~~requirements asrelated ofto ~~December 31,~~how ~~2009~~assets ~~has~~and ~~been~~liabilities ~~audited~~should be grouped by ~~UHY LLP,~~class anand ~~independent~~valuation ~~registered~~techniques ~~public~~used ~~accounting~~for ~~firm,~~recurring asand ~~stated~~ nonrecurring fair value measurements. We adopted this guidance in the ~~their~~first ~~report~~quarter 2010, which isdid ~~included~~not ~~herein~~have a material effect on our financial position, results of operations or cash flows.

In February 2010, the FASB amended guidance on subsequent events to alleviate potential conflicts between FASB guidance and SEC requirements. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and ~~Management’s Certifications~~ we adopted these new requirements in the first quarter of 2010. The adoption of this guidance did not have a material effect on our financial statements.

~~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~~NOTE 312 — EMPLOYEE ~~and~~BENEFIT 32PLANS ~~in Allis-Chalmers’ Form 10-K.~~

On June 30, 2003, we adopted a 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 ~~ALLIS~~Internal Revenue Code of 1986, as amended. It is funded by voluntary pre-~~CHALMERS~~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 ~~ENERGY~~discretionary ~~INC~~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 and our matching contributions. Contributions are invested, as directed by the participant, in investment funds available under the Plan. Matching contributions of approximately $97,000, $349,000 and $1.5 million were paid in 2010, 2009 and 2008, respectively.

~~By:~~NOTE 3 — ACQUISITIONS ~~/s/~~AND ~~Munawar~~ASSET H.DISPOSITIONS ~~Hidayatallah By: /s/ Victor M. Perez Munawar H. Hidayatallah Victor Perez Chief Executive Officer Chief Financial Officer~~

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 allocation of the purchase price and related acquisition costs 48 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

Filing Compare · Allis Chalmers Energy Inc.