FORM OF PERFORMANCE AWARD AGREEMENT

Exhibit 10.5

ALLIS-CHALMERS ENERGY INC.

EMPLOYEE PERFORMANCE AWARD AGREEMENT
Pursuant to the terms of the Allis-Chalmers Energy Inc. 2006 Incentive Plan

      1. Grant of Performance Award. Allis-Chalmers Energy Inc., a Delaware corporation (“Company”), hereby grants to                      (“Participant”) performance awards in the form of [ xx,xxx ] shares (the “Performance Award”) of common stock, $0.01 par value per share, of the Company (“Common Stock”), subject to meeting the Performance Objectives as described in Section 4 hereof, and in accordance with the terms and conditions of this document. This Performance Award Agreement is dated as of [ xx/xx/xx ] . The Performance Award in the form of Common Stock is awarded pursuant to and to implement in part the Allis-Chalmers Energy Inc. 2006 Incentive Plan (as amended and in effect from time to time, the “Plan”) and is subject to the restrictions, forfeiture provisions and other terms and conditions of the Plan, which is hereby incorporated herein and is made a part hereof, and this Performance Award Agreement. By execution of this Performance Award Agreement, Participant agrees to be bound by all of the terms, provisions, conditions and limitations of the Plan as implemented by the Performance Award Agreement, together with all rules and determinations from time to time issued by the Committee pursuant to the Plan. All capitalized terms have the meanings set forth in the Plan unless otherwise specifically provided. All references to specified paragraphs pertain to paragraphs of this Performance Award Agreement unless otherwise provided.

      2. Settlement of Performance Award. The stock certificate(s) evidencing the Performance Award shall not be issued or registered on the Company’s books and records until the Performance Objectives set forth in paragraph 4 below have been met by the Participant and approved by the Committee and all other restrictions contained in this Performance Award Agreement have lapsed. Upon resolution by the Committee that the Participant has achieved the Performance Objectives, and subject to the other terms and conditions of this Performance Award Agreement, the Company will promptly issue a stock certificate with respect to the vested portion of the shares of the Performance Award for which the Performance Objectives have been met.

      3. Risk of Forfeiture. Participant shall immediately forfeit all rights to any Performance Award which have not vested and with respect to which the Performance Objectives have not been met or in the event of termination, resignation, or removal of Participant from employment with the Company or any Affiliate under circumstances that do not cause Participant to become fully vested, under the terms of the Plan.

      4. Performance Objectives. Subject to the provisions of this Performance Award Agreement including, without limitation, the following provisions of this Paragraph 4, the Performance Award shall vest upon Participant meeting performance criteria based on any one or more of the Performance Objectives described below, as more specifically determined by the Compensation Committee and approved by the Board of Directors of the Company:

(i) increase in earnings per share; (ii) increase in price per share, (iii) increase in revenues; (iv) increase in cash flow; (v) return on net assets; (vi) return on assets; (vii) return on investment; (viii) return on equity; (ix) economic value added; (x) gross margin; (xi) net income; (xii) pretax earnings; (xiii) pretax earnings before interest, depreciation, depletion and amortization; (xiv) pretax

operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (xv) operating income; (xvi) total stockholder return; (xvii) debt reduction

Any of the above goals may be determined on an absolute or relative basis or as compared to the performance of a published or special index of companies as determined by the Compensation Committee.

The period from the date hereof until Performance Awards have become one hundred percent (100%) vested and the Committee has determined that such Performance Objectives have been met shall be referred to as the “Restricted Period.”

      5. Transferability. During the Restricted Period, the Participant shall not sell, assign, transfer, pledge, exchange, hypothecate, or otherwise dispose of any right, title or interest in the Performance Award prior to vesting in accordance with this Performance Award Agreement. Upon receipt by the Participant of stock certificate(s) representing the vested shares pursuant to Paragraph 2 above, the Participant may hold or dispose of the shares represented by such certificate(s), subject to compliance with (i) the terms and conditions of the Plan and this Performance Award Agreement, (ii) applicable federal or state securities laws or other applicable law, (iii) applicable rules of any exchange on which the Company’s securities are traded or listed, and (iv) the Company’s rules or policies as established by the Company in its sole discretion.

      6. No Ownership Rights. Prior to the vesting of the Performance Award, the Participant shall not have any rights with respect to the shares of Common Stock represented by the Performance Award hereunder including the right to vote the shares of Common Stock and the right to receive any dividends.

      7. Termination of Employment. If employment of Participant by the Company or any Affiliate is terminated for any reason, including death, disability or retirement, all Performance Awards outstanding at the time of such termination and all rights thereunder shall be forfeited and no further vesting shall occur.

      8. Change in Control.

     (a) Change in Control. Upon the occurrence of a Change in Control (as defined in the Plan), all restrictions and conditions of the Performance Award shall automatically be waived without any required action by the Company, Committee or the Board with the result that the Performance Award shall be fully vested and the restrictions thereon shall have lapsed.

     (b) Right of Cash-Out. If approved by the Board prior to or within thirty (30) days after such time as a Change in Control shall be de