Key Energy Services (KEGX) 8-K Results of Operations and Financial Condition

Exhibit 99.1

Key Energy Services, Inc. 1301 McKinney Street Suite 1800 Houston, TX 77010 October 31, 2012   Contact: Gary Russell, Investor Relations 713-651-4434

FOR IMMEDIATE RELEASE

Key Energy Services Generated Third Quarter 2012 Income from

Continuing Operations of $0.15 per Diluted Share

HOUSTON, TX, October 31, 2012 – Key Energy Services, Inc. (NYSE: KEG) reported third quarter 2012 consolidated revenues of $490.9 million, generating income from continuing operations of $22.1 million, or $0.15 per share. Second quarter 2012 consolidated revenues were $516.0 million with income from continuing operations of $31.5 million, or $0.21 per share.

On a consolidated basis, the Company recorded a net loss of $38.1 million, or $0.25 per share. This includes a loss of $60.2 million, or $0.40 per share, associated with the sale of the Argentina business, reflected in discontinued operations. Second quarter 2012 consolidated net income was $29.0 million, or $0.19 per share, which includes a loss from discontinued operations of $2.5 million, or $0.02 per share.

The following table sets forth summary data from continuing operations for the third quarter 2012 and prior comparable quarterly periods.

	Three Months Ended (unaudited)
	September 30,		June 30,		September 30,
	2012		2012		2011
	(in millions, except per share amounts)
Revenues	$	490.9	$	516.0	$	468.5
Income attributable to Key	$	22.1	$	31.5	$	46.5
Diluted earnings per share attributable to Key	$	0.15	$	0.21	$	0.31
EBITDA	$	101.3	$	114.7	$	123.5

U.S. Segment

Third quarter 2012 U.S. revenues were $397.8 million, down 7.8% compared to $431.6 million in the second quarter. Operating income was $60.1 million, or 15.1% of revenue, compared to $82.5 million, or 19.1% of revenue, in the second quarter 2012.

During the third quarter, Fluids Management Services revenues declined 15.1%, Coiled Tubing Services revenues declined 7.9%, and revenues from the frac stack and well testing businesses declined 35.8% sequentially due to lower activity and pricing. Combined, these businesses account for approximately 84% of the decline in U.S. revenues.

October 31, 2012

International Segment

Third quarter 2012 international revenues were $93.0 million, up 10.3% compared to prior quarter revenues of $84.4 million. Operating income was $19.4 million, or 20.8% of revenues. Second quarter 2012 operating income was $16.1 million, or 19.1% of revenues. The improvement in third quarter results was driven largely by higher activity in Mexico.

General and Administrative Expenses

General and Administrative (G&A) expenses were $53.6 million, or 10.9% of revenues. Second quarter 2012 G&A expenses were $58.1 million, or 11.3% of revenues. The decline in third quarter G&A expenses was primarily due to the reversal of previously accrued bonus compensation.

Capital Expenditures and Liquidity

Key’s consolidated cash balance at September 30, 2012 was $38.3 million compared to $28.3 million at June 30, 2012. Capital expenditures were $90.4 million during the third quarter 2012 and $399.7 million through September 30, 2012.

Total debt at September 30, 2012 was $904.0 million compared to total debt of $874.5 million at June 30, 2012. At the end of the quarter, there was $271 million available under the Company’s $550 million senior secured credit facility. Net debt to total capitalization at the end of the third quarter 2012 was 39.8%.

Overview and Outlook

Commenting on the results, Key’s Chairman, President and Chief Executive Officer, Dick Alario, stated, “Our U.S. results were negatively impacted by continued activity declines in natural gas markets, and we began to experience the effects of reduced customer spending in oil markets. Our international segment generated improved results as we continued to take advantage of opportunities to grow and increase profitability in Latin America and the Middle East.”

Alario continued, “Regarding our fourth quarter outlook, we anticipate U.S. activity will trend lower through year end, driven by continued reductions in customer spending and typical year end seasonality. We expect fourth quarter U.S. revenues to decline approximately 6% to 8% and operating income margins to drop approximately 200 to 250 basis points compared to the third quarter. We believe fourth quarter international revenues will increase approximately 5% compared to the third quarter with approximately 100 to 200 basis points of sequential operating income margin improvement.”

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October 31, 2012

Conference Call Information

As previously announced, Key management will host a conference call to discuss its third quarter 2012 financial results on Thursday, November 1, 2012 at 10:00 a.m. CDT. To access the call in the U.S. and Canada dial 888-794-4637. International callers should dial 660-422-4879. All callers should ask for the “Key Energy Services Conference Call” or provide the access code 32988824. The conference call will also be available live via the internet. To access the webcast, go towww.keyenergy.com and select “Investor Relations.”

A telephonic replay of the conference call will be available on Thursday, November 1, 2012, beginning approximately two hours after the completion of the conference call and will remain available for one week. To access the replay, call 855-859-2056 or 800-585-8367. The access code for the replay is 32988824. The replay will also be accessible atwww.keyenergy.com under “Investor Relations” for a period of at least 90 days.

Re-casted Prior Period Financial Results from Continuing Operations

Key has recast certain prior period financial information to reflect its results from continuing operations, which exclude the Argentine operations. This recasted financial information is available on Key’s website atwww.keyenergy.com under “Investor Relations”.

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October 31, 2012

Consolidated Statements of Operations (in thousands, except per share amounts, unaudited):

	Three Months Ended									Nine Months Ended
	September 30, 2012			June 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
REVENUES	$	490,851		$	515,997		$	468,542		$	1,493,599		$	1,247,493
COSTS AND EXPENSES:
Direct operating expenses		335,799			343,996			285,804			991,292			795,053
Depreciation and amortization expense		52,947			52,452			41,708			156,588			120,047
General and administrative expenses		53,567			58,081			59,063			172,566			159,861
Operating income		48,538			61,468			81,967			173,153			172,532
Loss on early extinguishment of debt		—			—			—			—			46,451
Interest expense, net of amounts capitalized		13,962			13,730			10,554			39,574			30,003
Other, net		(1,529	)		(1,380	)		590			(3,938	)		(9,932	)
Income from continuing operations before tax		36,105			49,118			70,823			137,517			106,010
Income tax expense		(12,915	)		(17,419	)		(25,077	)		(49,147	)		(36,706	)
Income from continuing operations		23,190			31,699			45,746			88,370			69,304
Loss from discontinued operations, net of tax		(60,209	)		(2,454	)		(2,308	)		(93,568	)		(8,218	)
Net income (loss)		(37,019	)		29,245			43,438			(5,198	)		61,086
Income (loss) attributable to noncontrolling interest		1,075			204			(730	)		665			(1,027	)
INCOME (LOSS) ATTRIBUTABLE TO KEY	$	(38,094	)	$	29,041		$	44,168		$	(5,863	)	$	62,113
Earnings (loss) per share attributable to Key:
Basic and diluted	$	(0.25	)	$	0.19		$	0.30		$	(0.04	)	$	0.43
Weighted average shares outstanding:
Basic		151,105			151,087			147,722			151,108			144,274
Diluted		151,110			151,100			148,088			151,124			144,713
Income from continuing operations attributable to Key:
Income from continuing operations	$	23,190		$	31,699		$	45,746		$	88,370		$	69,304
Income (loss) attributable to noncontrolling interest		1,075			204			(730	)		665			(1,027	)
Income from continuing operations attributable to Key	$	22,115		$	31,495		$	46,476		$	87,705		$	70,331
Earnings per share from continuing operations attributable to Key:
Basic and diluted	$	0.15		$	0.21		$	0.31		$	0.58		$	0.49
Loss from discontinued operations, net of tax:	$	(60,209	)	$	(2,454	)	$	(2,308	)	$	(93,568	)	$	(8,218	)
Loss per share from discontinued operations:
Basic and diluted	$	(0.40	)	$	(0.02	)	$	(0.01	)	$	(0.62	)	$	(0.06	)

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October 31, 2012

Condensed Consolidated Balance Sheets (in thousands):

	September 30,
	2012		December 31,
	(Unaudited)		2011
ASSETS
Current assets:
Cash and cash equivalents	$	38,332	$	35,443
Other current assets		589,715		504,777
Current assets held for sale		—		60,343
Total current assets		628,047		600,563
Property and equipment, net		1,443,930		1,197,300
Goodwill		625,938		622,773
Other assets, net		122,008		155,601
Non-current assets held for sale		—		22,883
TOTAL ASSETS	$	2,819,923	$	2,599,120
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	100,441	$	71,736
Other current liabilities		208,105		175,877
Current liabilities associated with assets held for sale		—		41,890
Total current liabilities		308,546		289,503
Long-term debt, less current portion		903,250		773,975
Other non-current liabilities		338,542		321,011
Equity		1,269,585		1,214,631
TOTAL LIABILITIES AND EQUITY	$	2,819,923	$	2,599,120

Consolidated Cash Flow Data (in thousands, unaudited):

	Nine Months Ended
	September 30,			September 30,
	2012			2011
Net cash provided by operating activities	$	252,794		$	103,002
Net cash used in investing activities		(387,732	)		(413,742	)
Net cash provided by financing activities		141,162			268,098
Effect of exchange rates on cash		(3,335	)		5,332
Net increase (decrease) in cash and cash equivalents		2,889			(37,310	)
Cash and cash equivalents, beginning of period		35,443			56,628
Cash and cash equivalents, end of period	$	38,332		$	19,318

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October 31, 2012

Segment Revenue and Operating Income from continuing operations (in thousands, except for percentages, unaudited):

	Three Months Ended
	September 30,		June 30,		September 30,
	2012		2012		2011
Revenues
U.S. Operations:
Rig Services	$	201,453	$	208,765	$	192,018
Fluid Management Services		82,140		96,716		102,498
Coiled Tubing Services		52,442		56,929		60,304
Fishing & Rental Services		61,779		69,236		56,969
Total U.S. Operations		397,814		431,646		411,789
International Operations		93,037		84,351		56,753
Consolidated Total	$	490,851	$	515,997	$	468,542

	Three Months Ended
	September 30,			% of			June 30,			% of			September 30,			% of
	2012			Revenues			2012			Revenues			2011			Revenues
Operating Income
U.S. Operations	$	60,136			15.1	%	$	82,497			19.1	%	$	106,207			25.8	%
International Operations		19,359			20.8	%		16,116			19.1	%		12,337			21.7	%
Functional Support		(30,957	)		n/a			(37,145	)		n/a			(36,577	)		n/a
Consolidated Total	$	48,538			9.9	%	$	61,468			11.9	%	$	81,967			17.5	%

	Nine Months Ended
	September 30,		September 30,
	2012		2011
Revenues
U.S. Operations:
Rig Services	$	613,600	$	531,312
Fluid Management Services		276,700		291,096
Coiled Tubing Services		162,351		171,478
Fishing & Rental Services		201,782		115,262
Total U.S. Operations		1,254,433		1,109,148
International Operations		239,166		138,345
Consolidated Total	$	1,493,599	$	1,247,493

	Nine Months Ended
	September 30,			% of			September 30,			% of
	2012			Revenues			2011			Revenues
Operating Income
U.S. Operations	$	234,091			18.7	%	$	251,056			22.6	%
International Operations		45,843			19.2	%		24,471			17.7	%
Functional Support		(106,781	)		n/a			(102,995	)		n/a
Consolidated Total	$	173,153			11.6	%	$	172,532			13.8	%

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October 31, 2012

Following is a reconciliation of income from continuing operations attributable to Key as presented in accordance with United States generally accepted accounting principles (GAAP) to EBITDA from continuing operations as required under Regulation G of the Securities Exchange Act of 1934.

Reconciliations of income from continuing operations to EBITDA (in thousands, except for percentages, unaudited):

	Three Months Ended
	September 30,			June 30,			September 30,
	2012			2012			2011
Income from continuing operations	$	23,190		$	31,699		$	45,746
Income tax expense		12,915			17,419			25,077
(Income) loss attributable to noncontrolling interest, excluding depreciation and amortization		(1,683	)		(596	)		397
Interest expense, net of amounts capitalized		13,962			13,730			10,554
Interest income		(12	)		(7	)		(1	)
Depreciation and amortization		52,947			52,452			41,708
EBITDA	$	101,319		$	114,697		$	123,481
% of revenues		20.6	%		22.2	%		26.4	%
Revenues	$	490,851		$	515,997		$	468,542

“EBITDA” is defined as income or loss from continuing operations attributable to Key before interest, taxes, depreciation, and amortization.

“EBITDA” is a non-GAAP measure that is used as supplemental financial measures by the Company’s management and directors and by external users of the Company’s financial statements, such as investors, to assess:

• The financial performance of the Company’s assets without regard to financing methods, capital structure or historical cost basis;

• The ability of the Company’s assets to generate cash sufficient to pay interest on its indebtedness;

• The Company’s operating performance and return on invested capital as compared to those of other companies in the well services industry, without regard to financing methods and capital structure; and

• The Company’s operating trends underlying the items that tend to be of a non-recurring nature.

EBITDA has limitations as analytical tools and should not be considered an alternative to net income, operating income, cash flow from operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Limitations to using EBITDA as an analytical tool include:

• EBITDA does not reflect Key’s current or future requirements for capital expenditures or capital commitments;

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October 31, 2012

• EBITDA does not reflect changes in, or cash requirements necessary to service, interest or principal payments on Key’s debt;

• EBITDA does not reflect income taxes;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements;

• Other companies in Key’s industry may calculate EBITDA differently than Key does, limiting its usefulness as a comparative measure; and

• EBITDA is a different calculation from earnings before interest, taxes, depreciation and amortization as defined for purposes of the financial covenants in the Company’s senior secured credit facility, and therefore should not be relied upon for assessing compliance with covenants.

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October 31, 2012

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements as to matters that are not of historic fact are forward-looking statements. These forward-looking statements are based on Key’s current expectations, estimates and projections about Key, its industry, its management’s beliefs and certain assumptions made by management, and include statements regarding future operational and activity expectations, and anticipated financial performance in the fourth quarter of 2012. No assurance can be given that such expectations, estimates or projections will prove to have been correct. Whenever possible, these “forward-looking statements” are identified by words such as “expects,” “believes,” “anticipates” and similar phrases.

Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, but not limited to: risks that Key will be unable to achieve its financial and operational projections, including quarterly projections of revenue and/or operating income margins (whether for Key as a whole or for geographic regions and/or business segments individually); risks that market fundamentals in the U.S. could further deteriorate or worsen beyond current expectations and/or that Key could experience further unexpected declines in activity and demand for its rig service, fluid management service, coiled tubing service, and fishing and rental service businesses; risks affecting Key’s international operations, including risks related to growth in Mexico, other risks affecting Key’s operations in Russia, and risks associated with expanding operations in Colombia, Oman and Bahrain; risks associated with the recently completed sale of Key’s Argentine operations, including risk that Key may be unable to achieve the benefits contemplated under the transaction; risks, in responding to changing or declining market conditions, that Key may not be able to reduce, and could even experience increases in, the costs of labor, fuel, equipment and supplies employed and used in Key’s businesses; risks relating to compliance with environmental, health and safety laws and regulations, as well as actions by governmental and regulatory authorities; risks relating to changes in the demand for or the price of oil and natural gas; risks that Key may not be able to execute its capital expenditure program and/or that any such capital expenditure investments, if made, will not generate adequate returns; and other risks affecting Key’s ability to maintain or improve operations, including its ability to maintain prices for services under market pricing pressures, weather risks, and the impact of potential increases in general and administrative expenses.

Because such statements involve risks and uncertainties, many of which are outside of Key’s control, Key’s actual results and performance may differ materially from the results expressed or implied by such forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Other important risk factors that may affect Key’s business, results of operations and financial position are discussed in its most recently filed Annual Report on Form 10-K, recent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K and in other Securities and Exchange Commission filings. Unless otherwise required by law, Key also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. However, readers should review carefully reports and documents that Key files periodically with the Securities and Exchange Commission.

About Key Energy Services

Key Energy Services is the largest onshore, rig-based well servicing contractor based on the number of rigs owned. Key provides a complete range of well intervention services and has operations in all major onshore oil and gas producing regions of the continental United States and internationally in Mexico, Colombia, the Middle East and Russia.

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