Allis-Chalmers Energy Inc., Houston, (NYSE: ALY) reports due to the decrease in the active U.S. rig count, the company has taken several steps to reduce costs, including lay-offs and cancelations of various operations.

Allis-Chalmers will reduce its U.S. workforce by approximately 235 people, and will reduce certain employee benefits on all levels. Also, the company will terminate two yard leases and consolide operating yards by converting certain locations to satellite status or yards with reduced functions.

These actions are expected to reduce costs by approximately $21.7 million on an annual basis. Allis-Chalmers will continue to look at its cost structure and make further adjustments as necessary dependent on business conditions.

Allis-Chalmers chairman and chief executive Micki Hidayatallah says, “It is unfortunate and difficult to lay off personnel who have contributed to our success. As we have implemented these actions we have been careful to ensure we can be responsive to our customers and provide them with the highest quality of service and equipment. The cost cutting actions we have implemented follow our previously announced plans to limit capital expenditures to critical replacement and maintenance expenditures in order to maintain our financial flexibility during these times.”

Allis-Chalmers added that the deteriorating rig count domestically began to impact its oilfield services segment in December, and the company will focus marketing efforts on the most active shale plays and continue to diversify its customer base with competitive pricing and with its complement of new equipment and technology acquired during the past two years. The segment continues to benefit from its business in Mexico through its tubular services division, where activity is expected to grow in 2009 due to the expected growth of offshore drilling activity.

Allis-Chalmers’ rental services segment implemented a strategy in the beginning of 2008 to diversify from the offshore Gulf of Mexico shelf by concentrating on the international market, and land shale plays, such as the Haynesville and Marcellus, where rig activity is believed to be the most sustainable.

Allis-Chalmers provides oilfield services domestically primarily in Texas, Louisiana, New Mexico, Colorado, Oklahoma, Mississippi, Wyoming, Arkansas, West Virginia, offshore in the Gulf of Mexico, and internationally, primarily in Argentina, Brazil and Mexico.