AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON 5-14-97

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-8038

KEY ENERGY GROUP, INC.
(Exact name of registrant as specified in its charter)

Maryland 04-2648081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Two Tower Center, Tenth Floor, East Brunswick, NJ 08816
(Address of Principal executive offices) (ZIP Code)

Registrant's telephone number including area code: (908) 247-4822

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant has filed documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court since there was a distribution of securities under a plan confirmed by a
court. Yes X No

Common Shares outstanding at May 14, 1997: 11,894,902

KEY ENERGY GROUP, INC. AND SUBSIDIARIES

INDEX
Page
Number

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements 3

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. 22

Item 2. Changes in Securities. 22

Item 3. Defaults Upon Senior Securities. 22

Item 4. Submission of Matters to a Vote of Security Holders. 22

Item 6. Exhibits and Reports on Form 8-K. 22

Signatures. 25

- 2 -

Key Energy Group, Inc. and Subsidiaries
Consolidated Balance Sheet

March 31, June 30,
(Thousands, except share and per share data) 1997 1996
- ------------------------------------------------------------------------------------------------------------------

Current Assets:
Cash ............................................................................... $ 11,528 $ 3,240
Restricted cash .................................................................... 3,568 971
Accounts receivable, net ........................................................... 32,073 20,570
Inventories ........................................................................ 2,004 1,957
Prepaid expenses and other current assets .......................................... 2,220 743
--------- ---------
Total Current Assets ................................................................. 51,393 27,481
--------- ---------
Property and Equipment:
Oilfield service equipment ......................................................... 118,287 66,432
Oil and gas well drilling equipment ................................................ 5,945 4,862
Motor vehicles ..................................................................... 1,510 1,159
Oil and gas properties and other related equipment, successful efforts method....... 20,525 17,663
Furniture and equipment ............................................................ 974 716
Buildings and land ................................................................. 7,558 5,295
--------- ---------
154,799 96,127
Accumulated depreciation & depletion ................................................... (16,120) (8,920)
--------- ---------
Net Property and Equipment ............................................................. 138,679 87,207
--------- ---------
Other Assets ......................................................................... 14,471 7,034
--------- ---------
Total Assets ......................................................................... $ 204,543 $ 121,722
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................................... $ 13,802 $ 11,086
Other accrued liabilities .......................................................... 12,480 11,002
Accrued interest ................................................................... 1,292 417
Accrued income taxes ............................................................... 118 53
Deferred tax liability ............................................................. 310 310
Current portion of long-term debt .................................................. 1,430 1,471
--------- ---------
Total Current Liabilities ............................................................ 29,432 24,339
--------- ---------
Long-term debt, less current portion ................................................. 91,102 45,354
Non-current accrued expenses ......................................................... 4,832 4,909
Deferred income taxes ................................................................ 15,117 4,244
Minority interest .................................................................... 1,249 1,252

Stockholders Equity:
Common stock, $.10 par value; 25,000,000 shares authorized, 11,733,134 and 10,413,513
shares issued and outstanding at March 31, 1997 and June 30, 1996, r1,173tively ... 1,041
Additional paid-in capital ......................................................... 47,856 32,763
Retained earnings .................................................................. 13,782 7,820
--------- ---------
Total Stockholders' Equity ........................................................... 62,811 41,624
--------- ---------

Total Liabilities and Stockholders' Equity ........................................... $ 204,543 $ 121,722
========= =========

See the accompanying notes which are an integral part of these consolidated
financial statements.

Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Operations

Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
(Thousands, except per share data) March 31, 1997 March 31, 1996 March 31, 1997 March 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------

REVENUES:
Oilfield services $38,308 $11,916 $97,327 $31,064
Oil and gas 2,250 1,016 5,863 2,743
Oil and gas well drilling 2,414 1,370 7,097 5,029
Other revenues, net 78 - 422 258
- -----------------------------------------------------------------------------------------------------------------------------------
43,050 14,302 110,709 39,094
- -----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Oilfield services 26,502 8,655 69,268 22,808
Oil and gas 899 316 2,185 935
Oil and gas well drilling 2,061 1,151 5,905 3,886
Depreciation, depletion and amortization 3,250 1,146 7,687 2,940
General and administrative 4,914 1,219 12,176 3,609
Interest 1,861 571 4,507 1,448
- -----------------------------------------------------------------------------------------------------------------------------------
39,487 13,058 101,728 35,626
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 3,563 1,244 8,981 3,468
Minority interest in net income (9) 18 (1) 18
Income tax expense 1,207 399 3,020 1,129
- -----------------------------------------------------------------------------------------------------------------------------------

NET INCOME $2,365 $827 $5,962 $2,321
===================================================================================================================================

EARNINGS PER SHARE:

Primary:
Income before income taxes and minority interest $0.28 $0.18 $0.76 $0.50
Net income $0.19 $0.12 $0.51 $0.33

Assuming full dilution:
Income before income taxes and minority interest $0.25 $0.18 $0.69 $0.50
Net income $0.17 $0.12 $0.46 $0.33

===================================================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary 12,572 6,981 11,737 6,981
Assuming full dilution 17,977 6,986 17,304 6,986
===================================================================================================================================

See the accompanying notes which are an integral part of these consolidated
financial statements.

Key Energy Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
(Thousands) March 31, 1997 March 31, 1996 March 31, 1997 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,365 $827 $5,962 $2,321
Adjustments to reconcile income from operations to
net cash provided by operations:
Depreciation, depletion and amortization 3,250 1,146 7,687 2,940
Deferred income taxes 1,207 399 3,020 1,129
Minority interest in net income (9) 18 (1) 18
Change in assets and liabilities net of effects from the acquisitions:
(Increase) decrease in accounts receivable (3,462) 26 (7,135) (193)
(Increase) in other current assets (1,253) (184) (1,350) (94)
(Decrease) increase in accounts payable and
accrued expenses (1,541) 191 (4,610) (616)
Increase (decrease) in accrued interest 1,158 (1) 875 22
Increase in accrued taxes - (75) - (125)
Other assets and liabilities 699 (75) (107) (84)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,414 2,272 4,341 5,318
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Oilwell service operations (3,108) (878) (9,057) (2,605)
Capital expenditures - Oil and gas operations (1,623) - (2,639) (7)
Capital expenditures - Oil and gas well drilling operations (485) (90) (1,076) (450)
Cash received in acquisitions 365 - 415 -
Acquisitions - oilwell service operations (8,859) - (22,137) -
Expenditures for oil and gas properties - (382) (281) (2,532)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,710) (1,350) (34,775) (5,594)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (200) (259) (1,253) (1,677)
Cash received from purchase of WellTech, Inc. - 1,168 - 1,168
Borrowings under line-of-credit 1,980 41 3,287 13
Proceeds from exercised stock options - - 58 -
Proceeds from exercised warrants 375 - 375 -
Proceeds from long-term debenture, net - - 50,440 -
Repayment of long-term debt (1,675) - (37,088) -
Proceeds from long-term debt - other 15,000 476 25,500 2,800
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,480 1,426 41,319 2,304
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and restricted cash 4,184 2,348 10,885 2,028
Cash and restricted cash at beginning of period 10,912 955 4,211 1,275
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and restricted cash at end of period $15,096 $3,303 $15,096 $3,303
==================================================================================================================================

Supplemental cash flow disclosures:
Interest paid $703 $434 $3,632 $1,288

See the accompanying notes which are an integral part of these consolidated
financial statements.

Key Energy Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

The consolidated financial information in this report includes the accounts of
Key Energy Group, Inc. (the "Company") and its wholly-owned subsidiaries and was
prepared in conformity with accounting policies used in the Annual Report on
Form 10-K furnished for the preceding fiscal year.

As of May 14, 1997, the Company operates 415 well service and workover rigs in
the United States, which is the third largest fleet of well service and workover
rigs in the United States. The Company operates in Texas, Oklahoma, New Mexico,
Michigan and the Appalachian Basin and is a leader in each of its domestic
markets. The Company generally provides a full range of maintenance and workover
rig services to oil and gas producers in each of its operating regions. These
services also include the completion of newly drilled wells, the recompletion of
existing wells (including horizontal recompletions) and the plugging and
abandonment of wells at the end of their useful lives. Other services include
hot oiling, oil field liquid transportation, storage and disposal, and fishing
tools and services. The Company also is engaged in the production of oil and
natural gas and contract drilling in the Permian Basin of West Texas. In
addition, the Company operates ten workover rigs and three drilling rigs in
Argentina.

The Company conducts its operations primarily through four wholly-owned
subsidiaries: Yale E. Key, Inc. ("Yale E. Key"); WellTech Eastern, Inc.
("WellTech Eastern"); Odessa Exploration Incorporated ("Odessa Exploration");
and Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling ("Clint Hurt"). In
addition, Key operates in Argentina through its 63% ownership in Servicios
WellTech, S.A. ("Servicios"). WellTech Eastern operates through two divisions;
WellTech Mid-Continent Division and WellTech Eastern Division. Yale E. Key,
WellTech Eastern and Servicios provide oil and gas well services. Odessa
Exploration is engaged in the production of oil and gas and Clint Hurt provides
contract oil and gas well drilling services.

In July 1996, the Company completed the offering of $52,000,000 of 7%
convertible subordinated debentures due 2003 (the "Offering"). The Offering was
a private offering pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"). Proceeds from the Offering were used to
substantially repay existing long-term debt (approximately $35.4 million). The
remaining proceeds, together with proceeds from borrowings under existing credit
arrangements, were used to fund the expansion of the Company's operations
through acquisitions of businesses and assets and for working capital and
general corporate purposes. See Note 3 for a more detailed description of the
Offering.

Odessa Exploration utilizes the successful efforts method of accounting for its
oil and gas properties. Under this method, all costs associated with productive
wells and nonproductive development wells are capitalized, while nonproductive
exploration costs and geological and geophysical costs (if any), are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method based on proved reserves expressed as net equivalent
barrels as reviewed by independent petroleum engineers. The carrying amounts of
properties sold or otherwise disposed of and the related allowance for depletion
are eliminated from the accounts and any gain/loss is included in results of
operations.

- 6 -

Odessa Exploration's aggregate oil and gas properties are stated at cost, not in
excess of total estimated future net revenues net of related income tax effects.

In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position as of March 31, 1997, the statement of
cash flows for the three and nine months ended March 31, 1997 and 1996, and the
results of operations for the three and nine month periods then ended.

2. BUSINESS AND PROPERTY ACQUISITIONS

Since June 30, 1996, the Company has completed seventeen acquisitions of
unrelated oilwell service businesses or assets.

Acquisitions Completed after March 31, 1997

The following described acquisitions completed after March 31, 1997, are not
included in the Company's results of operations for the three and nine months
ended March 31, 1997.

Wireline and Excavation Assets

On May 1, 1997, the Company completed its acquisition of ten wireline units and
related equipment for approximately $600,000 in cash. These assets will be
operated in West Virginia by the WellTech Eastern Division of WellTech Eastern.
On May 5, 1997, the Company completed its acquisition of several dump trucks and
related excavation equipment for $410,000 in cash. These assets will be operated
in Michigan by the WellTech Eastern Division of WellTech Eastern.

Shreve's Well Service

On April 18, 1997, the Company completed its acquisition of the assets of
Shreve's Well Service, Inc. ("Shreve's") which operated in West Virginia.
Shreve's assets were acquired for $550,000 in cash and included five well
service rigs and related equipment. The Shreve's assets will be operated by the
WellTech Eastern Division of WellTech Eastern.

Argentine Drilling Rigs

On April 16, 1997, the Company acquired three drilling rigs and related
equipment in Argentina from Drillers, Inc. for $1.5 million in cash. The
drilling rigs will be operated by WellTech Servicios, the Company's Argentine
subsidiary.

Diamond Well Service

On April 3, 1997, the Company completed the acquisition of the assets of Diamond
Well Service, Inc. ("Diamond") for $675,000 in cash. The Diamond assets included
four oilwell service rigs and related equipment in Oklahoma. The Diamond assets
will be operated by the WellTech Mid-Continent Division of WellTech Eastern.

- 7 -

Acquisitions Completed During the Nine Months Ended March 31, 1997

T.S.T. Paraffin Service Co., Inc.

On March 27, 1997, the Company completed the acquisition of T.S.T. Paraffin
Service Co., Inc. ("TST") for $8.7 million in cash. TST operates approximately
61 trucks, 22 hot oil units and other related equipment in west Texas. TST will
be operated by the Company's West Texas subsidiary: Yale E. Key, Inc. The
operating results of TST will be included in the Company's results of operations
effective April 1, 1997.

Kalkaska Construction Service, Inc. and Elder Well Service, Inc.

On March 31, 1997, the Company completed the acquisition of the assets of
Kalkaska Construction Service, Inc.("KalCon") and Elder Well Service, Inc.
("Elder"), both based in Michigan. The KalCon assets included 40 vacuum (fluid
transport) trucks, 40 trucks used in oilfield equipment hauling, seven saltwater
disposal wells and other oilfield related equipment, and were acquired for
approximately $8.5 million in cash and 77,998 shares of the Company's common
stock. The Elder assets included six oilwell service rigs and related equipment
and were acquired for $609,000 in cash. Both the KalCon and Elder assets will be
operated by the WellTech Eastern Division of WellTech Eastern. The operating
results of KalCon and Elder will be included in the Company's results of
operations effective April 1, 1997.

Tri-State Wellhead & Valve, Inc.

The Company completed its acquisition of the assets of Tri-State Wellhead &
Valve, Inc. ("Tri-State") on March 17, 1997 for $550,000 in cash and 83,770
shares of the Company's common stock. The Tri-State assets consisted of a
wellhead equipment rental business and five oilwell service rigs. These assets
will be operated by the WellTech Mid-Continent Division of WellTech Eastern. The
operating results from these assets will be included in the Company's results of
operations effective April 1, 1997.

Cobra Industries, Inc.

Effective as of January 13, 1997, the Company completed the purchase of Cobra
Industries, Inc. ("Cobra") for $5 million in cash and 175,000 shares of the
Company's common stock. Cobra operates 26 oilwell service rigs in southeastern
New Mexico. The acquisition was accounted for using the purchase method.

Talon Trucking Co.

Effective as of January 7, 1997, the Company completed the acquisition of the
assets of Talon Trucking Co. ("Talon") for $2.7 million in cash. Talon operated
three oilwell service rigs, 21 trucks and related fluid transportation and
disposal assets in Oklahoma, which assets are currently operated by the WellTech
Mid-Continent Division of WellTech Eastern. The acquisition was accounted for
using the purchase method.

B&L Hotshot, Inc.

Effective as of December 13, 1996, the Company completed the acquisition of B&L
Hotshot, Inc. and affiliated entities ("B&L) for $4.9 million in cash. B&L
provides trucking and related services for oil and natural gas wells in
Michigan, which operations are currently conducted by the WellTech Eastern
Division of WellTech Eastern. The acquisition was accounted for using the
purchase method.

- 8 -

Brooks Well Servicing, Inc.

Effective as of December 4, 1996, the Company completed the acquisition of
Brooks Well Servicing, Inc. ("Brooks") for 917,500 shares of the Company's
common stock. Brooks was a wholly-owned subsidiary of Hunt Oil Company and
operated 32 oilwell service rigs and ancillary equipment in east Texas, which
operations are currently conducted by the WellTech Mid-Continent Division of
WellTech Eastern. The acquisition was accounted for using the purchase method.

Hitwell Surveys, Inc.

Effective as of December 2, 1996, the Company completed the purchase of Hitwell
Surveys, Inc. ("Hitwell") for approximately $1.3 million in cash. Hitwell
operates eight oilwell logging and perforating trucks in the Appalachian Basin
and Michigan. The acquisition was accounted for using the purchase method.

Energy Air Drilling Services Co.

Effective as of November 1, 1996, the Company completed the acquisition of
certain assets of Energy Air Drilling Services Co. ("Energy Air") for $500,000
in cash and 4,386 shares of the Company's common stock. Energy Air operated four
air drilling packages in west Texas, which operations are currently conducted by
Yale E. Key. The acquisition was accounted for using the purchase method.

Brownlee Well Service Inc.

Effective as of October 24, 1996, the Company completed the purchase of Brownlee
Well Service, Inc. ("Brownlee") and Integrity Fishing and Rental Tools Inc.,
("Integrity"). Consideration for the acquisition was $6.5 million in cash and
61,069 shares of the Company's common stock. Brownlee and Integrity operate 16
oilwell service rigs with ancillary equipment and a variety of oilfield fishing
tools in west Texas. The acquisition was accounted for using the purchase
method.

Woodward Well Service, Inc.

Effective as of October 1, 1996, the Company completed the acquisition of
Woodward Well Service, Inc. ("Woodward") for 75,000 shares of the Company's
common stock and approximately $100,000 in cash, most of which is payable over a
four-year period. Woodward operated five oilwell service units in Oklahoma,
which operations are currently conducted by the WellTech Mid-Continent Division
of Welltech Eastern. The acquisition was accounted for using the purchase
method.

Acquisitions Completed Prior to June 30, 1996

Odessa Exploration Properties

In April of 1996, Odessa Exploration purchased approximately $6.9 million in
cash of oil and gas producing properties from an unrelated company using
proceeds from bank borrowings, which indebtedness was subsequently repaid (see
Note 3). The acquisition was accounted for using the purchase method.

WellTech, Inc.

On March 26, 1996, the Company completed the merger of WellTech, Inc.
("WellTech") into the Company. The net consideration for the merger was
3,500,000 shares of the Company's common stock and warrants to purchase 500,000
additional shares of Common Stock at an exercise price of $6.75 per share.
WellTech conducted oil and gas well servicing operations in the Mid-Continent
and Northeast areas of the United States and in Argentina. The acquisition was
accounted for using the purchase method.

- 9 -

3. LONG-TERM DEBT

On April 7, 1997, the Company announced that it had entered into an agreement by
which Lehman Commercial Paper, Inc. would provide (or arrange to be provided) a
$225 million credit facility, consisting of a $100 million seven-year term loan
and a $125 million five-year revolver. The floating interest rate is expected to
be lower than the Company's current rate on its existing bank debt. The Company
intends to use the proceeds from the facility to: (i) repay existing bank debt;
(ii) make additional acquisitions and capital expenditures; and (iii) provide
working capital. In addition, the credit facility provides, under certain
conditions, for the repurchase of a portion of the Company's outstanding common
stock in the open market from time to time. The credit facility is expected to
be in place before June 30, 1997.

7% Convertible Subordinated Debentures

In July 1996, the Company completed the offering of $52,000,000 of 7%
convertible subordinated debentures due 2003 (the "Offering"). The Offering was
a private offering pursuant to Rule 144A under the Securities Act. Gross
proceeds from the Offering were $52,000,000 and were used to substantially repay
existing long-term debt (approximately $35.4 million). The remaining proceeds
were used to fund the expansion of the Company's operations through acquisitions
of businesses and assets, for working capital and general corporate purposes.

The long-term debt that was repaid with proceeds from the Offering consisted of
(i) indebtedness under the term notes with CIT Group/Credit Finance, Inc.
("CIT") aggregating approximately $21.2 million and (ii) all indebtedness owed
by Odessa Exploration to Norwest Bank Texas, N.A. ("Norwest") totaling
approximately $14.2 million.

The Debentures mature on July 1, 2003 and are convertible at any time after
November 1, 1996 and before maturity, unless previously redeemed, into shares of
the Company's common stock at a conversion price of $9 3/4 per share, subject to
adjustment in certain events. In addition, holders of the Debentures who convert
prior to July 1, 1999 will receive, in addition to the Company's common stock, a
payment generally equal to 50% of the interest otherwise payable on the
converted Debentures from the date of conversion through July 1, 1999, payable
in cash or common stock, at the Company's option. Interest on the Debentures is
payable semi-annually on January 1 and July 1 of each year, commencing January
1, 1997.

The Debentures are not redeemable before July 15, 1999. Thereafter, the
Debentures will be redeemable at the option of the Company in whole or part, at
the declining redemption prices set forth in the original Debenture prospectus,
together with accrued and unpaid interest thereon. The Debentures also may be
redeemed at the option of the holder if there is a change in control (as defined
in the original Debenture prospectus) at 100% of their principal amount,
together with accrued and unpaid interest thereon.

Pursuant to the terms of the Indenture governing the rights of the holders of
the Offering, the Company was required to obtain Servicios' guarantee of the
Company's indebtedness under the offering and agreed to increase the interest
rate payable on the offering to 7 1/2 % in the event such guarantee was not
obtained. To date, such guarantee has not been obtained, and, therefore, the
Offering is currently accruing interest at a rate of 7 1/2%. The Company made
its first interest payment on December 31, 1996.

- 10 -

Other Long-term Debt

In March 1997, the Company completed the renegotiation of its credit facilities
with CIT consisting of a line of credit and term loan for each of WellTech
Eastern, Yale E. Key and Clint Hurt. The renegotiated term and credit facilities
include a maximum credit availability of the lesser of (i) $55 million, or (ii)
an amount subject to certain asset valuations determined by CIT. Also, the
re-negotiated term and credit facilities include an interest rate at one-quarter
percent above the stated prime rate, which was 8.25% at March 31, 1997.

The CIT line of credit, as amended, ($14,787,000 approximate balance at March
31, 1997) requires monthly payments of interest and is collateralized by the
accounts receivable of Yale E. Key, Clint Hurt and WellTech Eastern. At March
31, 1997, there was no credit line availability.

The CIT note, as amended, ($25,500,000 approximate balance at March 31, 1997)
requires monthly payments of interest and is collateralized by all of the assets
of Yale E. Key, Clint Hurt and WellTech Eastern. At March 31, 1997, there was
approximately $3.5 million in unused term loan facilities.

In addition to the CIT credit facilities, Odessa Exploration has funded its
operations and acquisitions in part through a credit facility with Norwest. All
amounts previously owed by Odessa Exploration under the Norwest facility were
paid using a portion of the proceeds from the Offering. Effective January 31,
1997, Odessa Exploration completed the renegotiation of the Norwest credit
facility, which, among other things, increased its borrowing base to $18
million, of which $1.2 million had been advanced as of March 31, 1997.

4. IMPAIRMENT OF LONG-LIVED ASSETS

The Company adopted FAS 121 effective as of July 1, 1996. FAS 121 requires that
long-lived assets held and used by an entity, including oil and gas properties
accounted for under the successful efforts method of accounting, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Long-lived assets to be
disposed of are to be accounted for at the lower of carrying amount or fair
value less cost to sell when management has committed to a plan to dispose of
the assets. All companies, including successful efforts oil and gas companies,
are required to adopt FAS 121 for fiscal years beginning after December 15,
1995. In order to determine whether an impairment had occurred, the Company
estimated the expected future cash flows of its oil and gas properties and
compared such future cash flows to the carrying amount of the oil and gas
properties to determine if the carrying amount was recoverable. Based on this
process, no writedown in the carrying amount of the Company's proved properties
was necessary at March 31, 1997.

5. COMMITMENTS AND CONTINGENCIES

Various suits and claims arising in the ordinary course of business are pending
against the Company. Management does not believe that the disposition of any of
these items will result in a material adverse impact to the consolidated
financial position of the Company.

- 11 -

KEY ENERGY GROUP, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.

The following discussion and analysis should be read in conjunction with the
Company's audited 10-K for the year ended June 30, 1996. Since June 30, 1996,
the Company has completed seventeen acquisitions of unrelated oilwell
service businesses or assets.

Acquisitions Completed after March 31, 1997

The following described acquisitions completed after March 31, 1997, are not
included in the Company's results of operations for the three and nine months
ended March 31, 1997.

Wireline and Excavation Assets

Shreve's Well Service

Argentine Drilling Rigs

Diamond Well Service

Acquisitions Completed During the Nine Months Ended March 31, 1997

T.S.T. Paraffin Service Co., Inc.

On March 27, 1997, the Company completed the acquisition of T.S.T. Paraffin
Service Co., Inc. ("TST") for $8.7 million in cash. TST operates approximately
61 trucks, 22 hot oil units and other related equipment in West Texas. TST will
be operated by the Company's west Texas subsidiary: Yale E. Key, Inc. The
operating results of TST will be included in the Company's results of operations
effective April 1, 1997.

- 12 -

Kalkaska Construction Service, Inc. and Elder Well Service, Inc.

On March 31, 1997, the Company completed the acquisition of the assets of
Kalkaska Construction Service, Inc. ("KalCon") and Elder Well Service, Inc.
("Elder"), both based in Michigan. The KalCon assets included 40 vacuum (fluid
transport) trucks, 40 trucks used in oilfield equipment hauling, seven saltwater
disposal wells and other oilfield related equipment, and were acquired for
approximately $8.5 million in cash and 77,998 shares of the Company's common
stock. The Elder assets included six oilwell service rigs and related equipment
and were acquired for $609,000 in cash. Both the KalCon and Elder assets will be
operated by the WellTech Eastern Division of WellTech Eastern. The operating
results of KalCon and Elder will be included in the Company's results of
operations effective April 1, 1997.

Tri-State Wellhead & Valve, Inc.

Cobra Industries, Inc.

Talon Trucking Co.

B&L Hotshot, Inc.

Brooks Well Servicing, Inc.

Hitwell Surveys, Inc.

- 13 -

Energy Air Drilling Services Co.

Brownlee Well Service Inc.

Woodward Well Service, Inc.

Acquisitions Completed Prior to June 30, 1996

Odessa Exploration Properties

WellTech, Inc.

Other Recent Developments

- 14 -

RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 VERSUS QUARTER ENDED MARCH 31, 1996

The following discussion provides information to assist in the understanding of
the Company's financial condition and results of operations. It should be read
in conjunction with the financial statements and related notes appearing
elsewhere in this report.

Operating results for the quarter ended March 31, 1997 include the Company's
oilfield well service operations conducted by its wholly-owned subsidiaries,
Yale E. Key, Inc. ("Yale E. Key") and WellTech Eastern, Inc., ("WellTech
Eastern"), its oil and natural gas exploration and production operations
conducted by its wholly-owned subsidiary, Odessa Exploration, Inc. ("Odessa
Exploration") and Key Energy Drilling, Inc. d/b/a Clint Hurt Drilling ("Clint
Hurt Drilling") which is engaged in oil and natural gas well contract drilling.
In addition, the Company conducts oilfield service operations in Argentina
through its 63% ownership in Servicios WellTech, S.A. ("Servicios"), an
Argentinean corporation.

Historically, fluctuations in oilfield well service operations and oil and gas
well contract drilling activity have been closely linked to fluctuations in
crude oil and natural gas prices. However, the Company, through acquisitions,
customer alliances and agreements, and diversification of services, seeks to
minimize the effects of such fluctuations on the Company's results of operations
and financial condition.

The Company

Revenues of the Company for the quarter ended March 31, 1997 increased
$28,748,000 or 201% to $43,050,000 from $14,302,000 for the quarter ended March
31, 1996, while net income of $2,365,000 represented an increase of $1,538,000,
or 186%, from the 1996 quarter total of $827,000. The increase in revenues was
primarily due to increased oilwell service equipment utilization, the
acquisition of the WellTech Eastern operations from the date of acquisition of
March 26, 1996, the additional oilfield service acquisitions acquired (see Note
2 ) and the increased oil and gas revenues from Odessa Exploration. In addition,
the increase in revenues can be attributed to the improvement in general market
conditions in which the Company operates. The increase in quarterly 1997 net
income over the quarterly 1996 net income is partially attributable to the
acquisition of WellTech and the other recent acquisitions, but is also a result
of an increase in oilwell service equipment utilization.

Oilfield Services

The Company's oilfield services operations are performed primarily by Yale E.
Key and WellTech Eastern. Yale E. Key conducts oilfield services in west Texas,
while WellTech Eastern conducts oilfield services in the mid-continent region of
the United States (primarily in Oklahoma and East Texas) through its WellTech
Mid-Continent Division, and in the northeastern United States (primarily in
Michigan, Pennsylvania and West Virginia) through its WellTech Eastern Division.
The Company conducts oilfield services in Argentina through its indirect 63%
ownership in Servicios.

Oilfield service revenues increased $26,392,000, or 221%, from $11,916,000 for
the 1996 quarter to $38,308,000 for the 1997 quarter. The increase in revenues
is primarily attributable to higher equipment utilization as the result of an
increase in demand for oilfield services and the acquisition of WellTech
Eastern, and other smaller recent acquisitions, whose operating results are
included for the current quarter but not for the comparable 1996 quarter. In
addition, Yale E. Key diversified oilfield services into higher margin business
segments such as oilfield frac tanks, oilfield fishing tools and trucking
operations.

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Oilfield service expenses increased $17,847,000, or 206%, from $8,655,000 for
the 1996 quarter to $26,502,000 for the current 1997 quarter. The increase was
due primarily to the acquisition of WellTech on March 26, 1996, other smaller
recent acquisitions and the increased demand for oilfield services. In addition,
the Company has continued to expand and diversify its revenue base, offering
ancillary services and equipment such as oilwell fishing tools, blow-out
preventors and oilwell frac tanks.

Oil and Natural Gas Exploration and Production

The Company's oil and natural gas exploration and production operations are
conducted by Odessa Exploration. Revenues from oil and gas activities increased
$1,234,000, or 122%, from $1,016,000 during the quarter ended March 31, 1996 to
$2,250,000 for the current quarter. The increase in revenues was primarily the
result of increased production of oil and natural gas as several oil and natural
gas wells which were drilled began production during fiscal 1997, higher oil and
natural gas prices for the current year, and the April 1996 purchase of $6.9
million of oil and gas properties from an unrelated third party, which almost
doubled the number of oil and natural gas wells owned and/or operated by Odessa
Exploration.

Of the total $2,250,000 of revenues for the quarter ended March 31, 1997,
approximately $1,757,000 was from the sale of oil and gas - 42,604 barrels of
oil at an average price of $20.26 per barrel and 226,305 MCF of natural gas at
an average price of $3.95 per MCF. The remaining $493,000 of revenues
represented primarily administrative fee income and other miscellaneous income.

Expenses related to oil and gas activities increased $583,000, or 185%, from
$316,000 for the 1996 quarter to $899,000 for current 1997 quarter. The increase
in expenses was primarily the result of increased production of oil and natural
gas as several oil and natural gas wells which were drilled began production
during 1996 and the April 1996 purchase of $6.9 million in oil and gas
properties.

Oil and Natural Gas Well Drilling

The Company's oil and natural gas well drilling operations are conducted by
Clint Hurt Drilling. Oil and natural gas well drilling revenues increased
$1,044,000, or 76%, from $1,370,000 for the 1996 quarter to $2,414,000 for the
1997 quarter. The increase in revenues is primarily attributable to higher
equipment utilization and an increase pricing structure. In addition, two
drilling rigs were acquired in the March 1996 merger with WellTech.

Expenses related to oil and natural gas well drilling activities increased
$910,000, or 79%, from $1,151,000 for the 1996 quarter to $2,061,000 for current
1997 quarter. The increase in expenses is attributable to higher equipment
utilization and the addition of two drilling rigs as the result of the WellTech
merger.

Interest Expense

Interest expense increased $1,290,000 or 226% to $1,861,000 for the current 1997
quarter from $571,000 for the 1996 comparable quarter. The increase was
primarily the result of the issuance of $52 million in principal amount of 7%
Convertible Subordinated Debentures, (see Note 3).

General and Administrative Expenses

General and administrative expenses are comprised of the Company's and all
subsidiaries general and administrative expenses. These expenses increased
$3,695,000, or 303%, to $4,914,000 for the current 1997 quarter from $1,219,000
for the comparable 1996 quarter. The increase was primarily attributable to the
Company's recent acquisitions and expanded services.

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Depreciation, Depletion and Amortization Expense

Depreciation, depletion and amortization expense increased $2,104,000, or 184%,
to $3,250,000 for the current 1997 quarter from $1,146,000 for the comparable
1996 quarter. The increase is primarily due to oilfield service depreciation
expense, which is the result of increased oilfield service capital expenditures
for the current period versus the prior period and the acquisition of WellTech.
In addition, depletion expense increased for the period due to the increase in
the production of oil and natural gas.

Income Taxes

Income tax expense of $1,207,000 for current 1997 quarter increased from
$399,000 in income tax expense for the comparable 1996 quarter. The increase in
income taxes is primarily due to the increases in operating income. However, the
Company does not expect to be required to remit a significant amount of the
$1,207,000 in total federal income taxes for fiscal year 1997, because of the
availability of net operating loss carry-forwards, accelerated depreciation and
drilling tax credits.

Cash Flow

Net cash provided by operating activities was $2,414,000 compared to $2,272,000
during the comparable 1996 quarter. The increase is attributable primarily to
increases in net income.

Net cash used in investing activities increased from $1,350,000 for the
comparable 1996 quarter to $13,710,000 for the current 1997 quarter. The
increase is primarily the result of increased capital expenditures as well as
the Company's recent acquisitions (see Note 2 to the Financial Statements).

Net cash provided by financing activities was $15,480,000 for the current 1997
quarter as compared to $1,426,000 in net cash provided by financing activities
for the comparable 1996 quarter. The increase is primarily the result of the
proceeds from other long-term debt.

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NINE MONTHS ENDED MARCH 31, 1997 VERSUS NINE MONTHS ENDED MARCH 31, 1996

The Company

Revenues of the Company for the nine months ended March 31, 1997 increased
$71,615,000, or 183%, to $110,709,000 from $39,094,000 for the nine months ended
March 31, 1996, while net income of $5,962,000 represented an increase of
$3,641,000, or 157%, from the 1996 total of $2,321,000. The increase in revenues
was primarily due to increased oilwell service equipment utilization, the
acquisition of the WellTech Eastern operations from the date of acquisition of
March 26, 1996, the additional oilfield service acquisitions acquired (see Note
2 ) and the increased oil and gas revenues from Odessa Exploration. In addition,
the increase in revenues can be attributed to the improvement in general market
conditions in which the Company operates. The increase in 1997 net income over
the 1996 net income is partially attributable to the acquisition of WellTech and
the other recent acquisitions , but is also a result of an increase in oilwell
service equipment utilization.

Oilfield Services

Oilfield service revenues increased $66,263,000, or 213%, from $31,064,000 for
the 1996 period to $97,327,000 for the 1997 nine month period. The increase in
revenues is primarily attributable to higher equipment utilization as the result
of an increase in demand for oilfield services and the acquisition of WellTech
Eastern, and other smaller acquisitions, whose operating results are included
for the current period but not for the comparable 1996 period.

Oilfield service expenses increased $46,460,000, or 204%, from $22,808,000 for
the 1996 nine month period to $69,268,000 for the current 1997 comparable
period. The increase was due primarily to the acquisition of WellTech on March
26, 1996, other recent acquisitions and the increased demand for oilfield
services. In addition, the Company has continued to expand and diversify its
revenue base, offering ancillary services and equipment such as oilwell fishing
tools, blow-out preventers and oilwell frac tanks.

Oil and Natural Gas Exploration and Production

Revenues from oil and gas activities increased $3,120,000, or 114%, from
$2,743,000 during the nine months ended March 31, 1996 to $5,863,000 for the
current period. The increase in revenues was primarily the result of increased
production of oil and natural gas as several oil and natural gas wells which
were drilled began production during 1997, higher oil and natural gas prices for
the current year, and the April 1996 purchase of $6.9 million of oil and gas
properties from an unrelated third party.

Of the total $5,863,000 of revenues for the nine months ended March 31, 1997,
approximately $4,849,000 was from the sale of oil and gas - 109,584 barrels of
oil at an average price of $22.97 per barrel and 835,918 MCF of natural gas at
an average price of $2.79 per MCF. The remaining $1,014,000 of revenues
represented primarily administrative fee income and other miscellaneous income.

Expenses related to oil and gas activities increased $1,250,000 or 134% from
$935,000 for the 1996 nine month period to $2,185,000 for current 1997 period.
The increase in expenses was primarily the result of increased production of oil
and natural gas as several oil and natural gas wells which were drilled began
production during 1997 and the April 1996 purchase of $6.9 million in oil and
gas properties.

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Oil and Natural Gas Well Drilling

Oil and natural gas well drilling revenues increased $2,068,000, or 41%, from
$5,029,000 for the 1996 nine month period to $7,097,000 for the 1997 period. The
increase in revenues is primarily attributable to higher equipment utilization
and an increase pricing structure. In addition, two drilling rigs were acquired
in the March 1996 merger with WellTech.

Expenses related to oil and natural gas well drilling activities increased
$2,019,000, or 52%, from $3,886,000 for the 1996 nine month period to $5,905,000
for the current 1997 period. The increase in expenses is attributable to higher
equipment utilization and the addition of two drilling rigs as the result of the
WellTech merger.

Interest Expense

Interest expense increased $3,059,000, or 211%, to $4,507,000 for the current
1997 nine months from $1,448,000 for the 1996 comparable period. The increase
was primarily the result of the issuance of $52 million in principal amount of
7% Convertible Subordinated Debentures, (see Note 3).

General and Administrative Expenses

General and administrative expenses are comprised of the Company's and all
subsidiaries general and administrative expenses. These expenses increased
$8,567,000, or 237%, to $12,176,000 for the current 1997 nine month period from
$3,609,000 for the comparable 1996 period. The increase was primarily
attributable to the Company's recent acquisitions and expanded services.

Depreciation, Depletion and Amortization Expense

Depreciation, depletion and amortization expense increased $4,747,000, or 161%,
to $7,687,000 for the current 1997 nine month period from $2,940,000 for the
comparable 1996 period. The increase is primarily due to oilfield service
depreciation expense, which is the result of increased oilfield service capital
expenditures for the current period versus the prior period and the acquisition
of WellTech. In addition, depletion expense increased for the period due to the
increase in the production of oil and natural gas.

Income Taxes

Income tax expense of $3,020,000 for current 1997 nine month period increased
from $1,129,000 in income tax expense for the comparable 1996 period. The
increase in income taxes is primarily due to the increases in operating income.
However, the Company does not expect to be required to remit a significant
amount of the $3,020,000 in total federal income taxes for fiscal year 1997,
because of the availability of net operating loss carryforwards, accelerated
depreciation and drilling tax credits.

Cash Flow

Net cash provided by operating activities decreased $977,000 from $5,318,000
during the comparable 1996 nine month period to $4,341,000 for the current 1997
period. The decrease is attributable primarily to an increase in accounts
receivable and a decrease in accounts payable and accrued expenses.

Net cash used in investing activities increased from $5,594,000 for the
comparable 1996 nine month period to $34,775,000 for the current 1997 period.
The increase is primarily the result of increased capital expenditures and cash
paid for oilwell service acquisitions (see Note 2). These increases are
partially offset by a decrease in expenditures for oil and gas properties.

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Net cash provided by financing activities was $41,319,000 for the current 1997
nine month period as compared to $2,304,000 in net cash provided by financing
activities for the comparable 1996 period. The increase is primarily the result
of the proceeds from the issuance of the Company's 7% debenture and proceeds
from other long-term debt.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1997, the Company had $11,528,000 in cash as compared to $3,240,000
in cash at June 30, 1996.

The Company has projected $12 million for oilfield service capital expenditures
for fiscal 1997, (revised since December 31, 1996 due to oilwell service
acquisitions), as compared to $5.2 million for fiscal 1996. Oilfield service
capital expenditures for the nine months ended March 31, 1997 of $9.1 million
are expected to be primarily capitalized improvement costs to existing equipment
and machinery. The Company expects to finance these capital expenditures
utilizing the operating cash flows of the Company.

Odessa Exploration is forecasting outlays of approximately $6.0 million in
development costs for fiscal 1997, as compared to $9.8 million during fiscal
1996. Financing is expected to come from borrowings under its Norwest credit
facilities.

Clint Hurt Drilling has forecast approximately $1.5 million for oil and gas
drilling capital expenditures for fiscal 1997 primarily for improvements to
existing equipment and machinery compared to $598,000 for fiscal 1996. Such
outlays are treated as capital costs. Financing is expected to come from
existing cash flow.

Debt

Recent Development

Other Debt

In July 1996, the Company completed the offering of $52,000,000 of 7%
convertible subordinated debentures due 2003. The Offering was a private
offering pursuant to Rule 144A under the Securities Act. Proceeds from the
Offering were approximately $52,000,000 and were used to substantially repay
existing long-term debt (approximately $35.4 million). The remaining proceeds
were used to fund the expansion of the Company's operations through acquisitions
of businesses and assets, for working capital and general corporate purposes.

The Company's long-term debt that was repaid with proceeds from the Offering
consisted of (i) indebtedness under the term notes with CIT Group/Credit
Finance, Inc. ("CIT") aggregating approximately $21.2 million and (ii) all
indebtedness owed by Odessa Exploration to Norwest Bank Texas, N.A. ("Norwest")
totaling approximately $14.2 million.

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3/4 per share, subject to adjustment in certain events. In addition, holders of
the Debentures who convert prior to July 1, 1999 will receive, in addition to
the Company's common stock, a payment generally equal to 50% of the interest
otherwise payable on the converted Debentures from the date of conversion
through July 1, 1999, payable in cash or common stock, at the Company's option.
Interest on the Debentures is payable semi-annually on January 1 and July 1 of
each year, commencing January 1, 1997.

In March 1997, the Company completed the re-negotiation of its credit facilities
with CIT consisting of a line of credit and term loan for each of WellTech
Eastern, Yale E. Key and Clint Hurt. The re-negotiated term and credit
facilities include a maximum credit availability of the lesser of (i) $55
million, or (ii) an amount subject to certain asset valuations determined by
CIT. Also, the re-negotiated term and credit facilities include an interest rate
at one-quarter percent above the stated prime rate, which was 8.25% at March 31,
1997.

In addition to the CIT credit facilities, Odessa Exploration has funded its
operations and acquisitions in part through a credit facility with Norwest. All
amounts previously owed by Odessa Exploration under the Norwest facility were
paid using a portion of the proceeds from the Offering. Effective January 31,
1997, Odessa Exploration completed the re-negotiation of the Norwest credit
facility, which, among other things, increased its borrowing base to $18
million, of which $1.2 million had been advanced as of March 31, 1997.

Impact of SFAS 121

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 - Accounting for Long-Lived Assets and
for Long-Lived Assets to be Disposed Of ("SFAS 121") regarding the impairment of
long-lived assets, identifiable intangibles and goodwill related to those
assets. The application of SFAS 121 requires periodic determination of whether
the book value of long-lived assets exceeds the future cash flows expected to
result from the use of such assets and, if so, will require reduction of the
carrying amount of the "impaired" assets to their estimated fair values. The
Company implemented SFAS 121 beginning July 1, 1996, (see Note 4).

Impact of Inflation on Operations

Although in our complex environment it is extremely difficult to make an
accurate assessment of the impact of inflation on the Company's operations,
management is of the opinion that inflation has not had a significant impact on
its business.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings
None.

Item 2. Changes in Securities

The Company effected the following unregistered sales of its securities
during the three months ended March 31, 1997. Each of the following
issuances by the Company of the securities sold in the transactions
referred to below were not registered under the Securities Act of 1933,
as amended, pursuant to the exemption provided under Section 4(2)
thereof for transactions not involving a public offering:

Effective as of January 13, 1997, the Company issued 175,000 shares of
the Company's common stock to Michael and Georgia McDermett as partial
consideration for the acquisition of all of the capital stock of Cobra
Industries, Inc., of which Michael and Georgia McDermett were the sole
shareholders.

Effective as of March 17, 1997, the Company issued 83,770 shares of the
Company's common stock to Tri-State Wellhead & Valve, Inc.
("Tri-State") as partial consideration for the Company's purchase of
certain assets of Tri-State.

Effective as of March 31, 1997, the Company issued 77,998 shares of the
Company's common stock to Dennis and LaWenda Hogerheide as partial
consideration for the acquisition of certain assets of Kalkaska
Construction Service, Inc. of which Dennis and LaWenda Hogerheide were
the shareholders.

Effective as of January 10, 1997, the Company issued to Thomas B.
Murphy, pursuant to the Company's 1995 Employee Stock Option Plan, an
option to purchase 25,000 shares of the Company's common stock (the
"Option") as partial consideration for Mr. Murphy's entering into
employment with the Company. The exercise price of the Option is $13.00
per share and is exercisable under the following vesting schedule;
5,000 shares on each of January 30, 1998, 1999, 2000, 2001 and 2002.

Item 3. Defaults Upon Senior Securities.
None.

Item 4. Submission of Matters to a Vote of Security Holders.

On December 9, 1996, a meeting of the holders of Common Stock, par
value $.10 per share, was held to approve the Company's Board of
Directors and other matters. Only holders of record as of the close of
business on November 15, 1996 were entitled to notice of and to vote at
the meeting and at any adjournment thereof. On the Record Date, the
outstanding number of shares entitled to vote consisted of 10,480,529
shares of common stock. The results of the voting were as follows:

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For Against Abstain
Item 1. To elect Directors:

Francis D. John 8,324,873 (79%) 11,275 * 0

Kevin P. Collins 8,324,870 (79%) 11,278 * 0

Van D. Greenfield 8,313,207 (79%) 22,941 * 0

William Manly 8,324,864 (79%) 11,284 * 0

W. Phillip Marcum 8,313,207 (79%) 22,941 * 0

Morton Wolkowitz 8,324,930 (79%) 11,218 * 0

Item 2. To ratify independent
auditors 8,329,801 (79%) 4,788 * 1,559 *

* - less than 1%

Item 6. Exhibits and Reports on Form 8-K.

(a) The following exhibits are filed as a part of the Form 10-Q:

Number Description

10(a) Stock Purchase Agreement among Key Energy Group,
Inc., Michael and Georgia McDermett dated as of
January 10, 1997

10(b) Asset Purchase Agreement among WellTech Eastern,
Inc., Key Energy Group, Inc., Tri State Wellhead
& Valve, Inc. and John C. Bozeman dated as of
March 14,1997

10(c) Stock Purchase Agreement among Yale E. Key,
Inc., Keith and Leslie Neill as of March 24,
1997

10(d) Asset Purchase Agreement among Key Energy Group,
Inc., WellTech Eastern, Inc., Elder Well
Service, Inc., Martha Elder, Kenneth L. Ward,
Nona Faye Mugraur, Lela Gaye Biehl and Johnny
Ray Johnson dated as of March 28, 1997

10(e) Asset Purchase Agreement #1 among WellTech
Eastern, Inc., Key Energy Group, Inc., Kalkaska
Construction Service, Inc., Dennis Hogerheide,
LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide dated March 31, 1997

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10(f) Asset Purchase Agreement #2 among WellTech
Eastern, Inc., Key Energy Group, Inc., Kalkaska
Construction Service, Inc., Dennis Hogerheide,
LaWenda Hogerheide, David Hogerheide and Derek
Hogerheide dated March 31, 1997

10(g) Stock Purchase Agreement among WellTech Eastern,
Inc., Dennis Hogerheide and LaWenda Hogerheide
dated as of March 31, 1997

10(h) Asset Purchase Agreement among WellTech Eastern,
Inc., Diamond Well Service, Inc., John Scott and
Dwayne Wardwell dated as of April 3, 1997

10(i) Asset Sale Agreement among WellTech Eastern,
Inc. and Drillers, Inc. dated as of April 14,
1997

10(j) Asset Purchase Agreement among WellTech Eastern,
Inc., Shreve's Well Service, Inc. and William A.
Shreve dated as of April 18, 1997

10(k) Asset Purchase Agreement among WellTech Eastern,
Inc. and Petro Equipment, Inc. and Donald E.
Clark dated as of May 1, 1997

10(l) Second Restated Loan Agreement dated as of
January 31, 1997 among Odessa Exploration
Incorporated and Norwest Bank Texas, N.A.

10(m) Second Amendment to Third Amended and Restated
Loan and Security Agreement and Modification of
Notes dated as of March 27, 1997 among
Group/Credit Finance, Inc., Yale E. Key, Inc.,
Key Energy Drilling, Inc. and WellTech Eastern,
Inc.

11(a) Statement - Computation of per share earnings.
Filed herewith as part of the Condensed
Consolidated Financial Statements).

27(a) Statement - Financial Data Schedule (Filed
herewith as part of the Condensed Consolidated
Financial Statements).

(b) There were no reports filed on form 8-K during the quarter ended
March 31, 1997.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

KEY ENERGY GROUP, INC.
(Registrant)

By /s/ Francis D. John
President, Chief Executive Officer
Dated: May 14, 1997 and Chief Financial Officer

By /s/ Danny R. Evatt
Vice President and Chief Accounting
Dated: May 14, 1997 Officer

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