FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “ Amendment ”) is entered into as of October 13, 2009, among ALLIS-CHALMERS ENERGY INC., a Delaware corporation, as borrower (the “ Borrower ”), the undersigned Guarantors (collectively, the “ Guarantors ”), ROYAL BANK OF CANADA, as Administrative Agent and Collateral Agent for the Lenders parties to the hereinafter defined Credit Agreement (in such capacities, the “ Administrative Agent ” and “ Collateral Agent ,” respectively) and the undersigned Required Lenders.

Reference is made to the Second Amended and Restated Credit Agreement dated as of April 26, 2007 among Borrower, the Administrative Agent, the Collateral Agent and the Lenders parties thereto, as amended by a First Amendment to Second Amended and Restated Credit Agreement dated as of December 3, 2007, a Second Amendment to Second Amended and Restated Credit Agreement dated as of December 30, 2008, a Third Amendment to Second Amended and Restated Credit Agreement dated as of April 9, 2009 and a Fourth Amendment to Second Amended and Restated Credit Agreement dated as of May 20, 2009 (as amended, the “ Credit Agreement ”).  Unless otherwise defined in this Amendment, capitalized terms used herein shall have the meanings set forth in the Credit Agreement; all section, exhibit and schedule references herein are to sections, exhibits and schedules in the Credit Agreement; and all paragraph references herein are to paragraphs in this Amendment.

A.            The Borrower has requested certain amendments to the Credit Agreement and the Lenders are willing, on the terms and conditions set forth herein, to amend the Credit Agreement as hereinafter set forth.

Accordingly, for adequate and sufficient consideration, the parties hereto agree, as follows:

Paragraph 1.          Amendments . Effective as of the Fifth Amendment Effective Date, the Credit Agreement is amended as follows:

1.1             Definitions . Section 1.01 of the Credit Agreement is amended as follows:

(a)           The following definitions are amended in their entirety to read as follows:

“ Agreement means this Second Amended and Restated Credit Agreement as amended by the First Amendment to Second Amended and Restated Credit Agreement, Second Amendment to Second Amended and Restated Credit Agreement, Third Amendment to Second Amended and Restated Credit Agreement, Fourth Amendment to Second Amended and Restated Credit Agreement and Fifth Amendment to Second Amended and Restated Credit Agreement.”

“ Threshold Amount at any time means an amount equal to ten (10%) of the Borrower's domestic consolidated assets measured as of the close of the then most recent fiscal quarter end.”

Fifth Amendment to Allis-Chalmers

Energy Second Amended and

Restated Credit Agreement

(b)           The following definitions are inserted alphabetically into Section 1.01 of the Credit Agreement:

“ Fifth Amendment Effective Date means the date the Fifth Amendment to Second Amended and Restated Credit Agreement by its terms becomes effective among the parties thereto.”

“ Fifth Amendment to Second Amended and Restated Credit Agreement means that certain Fifth Amendment to Second Amended and Restated Credit Agreement dated as of October __, 2009, among the Borrower, the Guarantors, Royal Bank of Canada, as Administrative Agent and Collateral Agent, and the Required Lenders.”

“ Foreign Joint Venture means Rawabi Allis-Chalmers Ltd., a Saudi Arabia joint venture 50% owned by Borrower and 50% owned by Rawabi Holding Limited, and each other corporation, partnership, joint venture, limited liability company or other business entity of which 50% or less of the Voting Stock is beneficially owned by Borrower or any of its Subsidiaries.”

“ Foreign Rental Arrangement means a lease or rental agreement (however designated) between the Borrower or any of its Domestic Subsidiaries and a Foreign Person relating to equipment or inventory to be leased to such Foreign Person, which equipment or inventory was moved from the U.S. to a foreign jurisdiction and “ Foreign Rental Arrangements ” means collectively all such lease or rental agreements.”

1.2             Section 6.06(b).    Section 6.06(b)   of the Credit Agreement is amended in its entirety as follows:

“(b)  Keep all Collateral other than Collateral located outside the United States on the Second Amended and Restated Closing Date within the United States unless either (i) prior written notice is given to the Administrative Agent of the intent to move such Collateral outside the United States and the Administrative Agent consents in writing to the movement of such Collateral outside the United States or (ii) such Collateral is moved outside the United States in connection with an Investment permitted pursuant to Section 7.02(n) .”

1.3             Section 6.14(c).    Section 6.14(c) of the Credit Agreement is hereby amended by deleting the first sentence thereof and substituting therefore the following:

“(c)           The Liens required by this Section 6.14 shall be first priority perfected Liens in favor of the Administrative Agent or Collateral Agent for the benefit of the Lenders, subject to no other Liens except Permitted Liens of the type described in Section 7.01; provided with respect to any equipment or inventory invested in Foreign Subsidiaries or Foreign Joint Ventures pursuant to Section 7.02(n) or leased pursuant to a Foreign Rental Arrangement pursuant to Section 7.07(f) , the Lien on such equipment or inventory is not required to be maintained as a first priority perfected Lien under the law of the jurisdiction where such equipment or inventory is located.”

1.4             Section 7.02.    Section 7.02 of the Credit Agreement is amended by deleting the word “and” at the end of Section 7.02(l) , deleting the period at the end of Section 7.02(m) and inserting a semicolon therefor and adding a new Subsection 7.02(n) to read in its entirety as follows:

“(n)           Investments, including the Investments set forth on Schedule 7.02, of up to $30,000,000 in the aggregate at any one time (less the amount of any Dispositions associated with Foreign Rental Arrangements permitted pursuant to Section 7.07(f) ) in Foreign Subsidiaries and Foreign Joint Ventures, of which no more than $5,000,000 in the aggregate at any one time shall consist of cash Investments and the remainder of which will consist of the transfer (by sale, lease, contribution or any other form of Disposition) of equipment and inventory; provided , any such equipment and inventory shall continue to be subject to a Lien in favor of the Administrative Agent and/or Collateral Agent for the benefit of the Lenders (although such Lien shall not be required to be perfected under the local law of the jurisdiction where such equipment and inventory is located); provided further if there is a breach of the Fixed Asset Coverage Ratio in Section 7.19(b) which has not been cured or waived, the Required Lenders may require that Borrower cause equipment and/or inventory held by Foreign Subsidiaries outside the U.S. to be moved to the U.S. and subjected to a first priority, perfected Lien (subject to Permitted Liens) in favor of the Administrative Agent or Collateral Agent for the benefit of the Lenders in an amount sufficient to cure such breach.”

1.5             Section 7.07.    Section 7.07 of the Credit Agreement is amended by deleting the word “or” at the end of Section 7.07(d) , deleting the period at the end of Section 7.07(e) and inserting “; or” therefor and adding a new Section 7.07(f) to read in its entirety as follows:

“(f)           Dispositions of equipment and inventory to Foreign Subsidiaries and Foreign Joint Ventures as permitted by Section 7.02(n) and Dispositions pursuant to Foreign Rental Arrangements not to exceed in the aggregate the dollar limitation set forth in Section 7.02(n) .”

1.6             Section 8.01(m).    Section 8.01(m) of the Credit Agreement is amended in its entirety as follows:

“(m)            Collateral; Impairment of Security, etc .  (i) Any provision of any Loan Document shall for any reason cease to be valid and binding on or enforceable against a Loan Party or any Loan Party shall so state in writing or bring an action to limit its obligations or liabilities thereunder; or (ii) any Collateral Document shall for any reason (other than pursuant to the terms thereof) cease to create a valid security interest in the Collateral purported to be covered thereby or such security interest shall for any reason cease to be a perfected and first priority security interest subject to Permitted Liens; provided with respect to the security interest in any Collateral consisting of equipment or inventory invested in Foreign Subsidiaries or Foreign Joint Ventures pursuant to Section 7.02(n) or leased pursuant to a Foreign Rental Arrangement pursuant to Section 7.02(n) , the security interest in such Collateral is not required to be maintained as a perfected and first priority security interest under the law of the foreign jurisdiction where such Collateral is located; or”

1.7             Schedule 7.02 .   Schedule 7.02 (Investments in Foreign Subsidiaries and Foreign Joint Ventures) is hereby added to the Credit Agreement by Schedule 7.02 attached to this Amendment.

Paragraph 2.          Effective Date . This Amendment shall not become effective until the date (such date, the “ Fifth Amendment Effective Date ”) the Administrative Agent receives all of the agreements, documents, certificates, instruments, and other items described below:

(a)           this Amendment, executed by the Borrower, the Guarantors, and the Required Lenders;

(b)         &