Allis-Chalmers to Supply Additional Rigs in Argentina

Allis-Chalmers Energy reports that DLS Drilling Logistic & Services Corporation, its wholly-owned subsidiary based in Buenos Aires, Argentina, has reached a preliminary agreement in principle with its most significant customer, Pan American Energy, to supply and operate 17 additional rigs (3 drilling and 14 service rigs) for operation in the Cerro Dragon area in southern Argentina. Pan American is a joint venture owned 60% by British Petroleum and 40% by Bridas Corporation, and is one of the major exploration and production companies in South America, with gross production in excess of 230,000 barrels of crude per day.

DLS currently has a contract with Pan American in the Golfo San Jorge area under which it provides 31 rigs, consisting of 9 drilling and 22 service rigs. DLS expects to supply the additional rigs to Pan American pursuant to an anticipated amendment to their strategic alliance agreement, which would also be extended for a new five year term. Allis-Chalmers expects to invest approximately $80 million in new equipment under this amended agreement. Financing is anticipated primarily from DLS's cash flow from operations and DLS's credit facilities.

The equipment is expected to be delivered in stages throughout 2007 and 2008 with the first of the 14 service rigs to be delivered in October 2007 and the 3 drilling rigs anticipated to be delivered in the fourth quarter of 2008. On a preliminary basis, Allis-Chalmers estimates that the additional rigs would contribute revenues of approximately $200 million over the five year term of the contract amendment.

Micki Hidayatallah, Allis-Chalmers' Chairman and Chief Executive Officer, stated, "We are excited about the opportunity to expand our mutually beneficial relationship with Pan American, our largest customer in Argentina. We look forward to continuing to build on our relationships in this region and we appreciate the confidence Pan American has shown in us by expanding our association."

Through DLS, Allis-Chalmers provides drilling, completion and work over services in Argentina and Bolivia, and other services such as drilling and completion fluids. DLS currently operates a fleet of 52 rigs, including 21 drilling rigs, 18 work over rigs and 13 pulling rigs.