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

FORM 10-Q

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

For the quarterly period ended September 30, 1999

[ ] 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 SERVICES, 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, 20th Floor, East Brunswick, NJ 08816
-------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)

Registrant's telephone number including area code: (732) 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
--- ---

Common Shares outstanding at November 10, 1999 - 82,740,330

KEY ENERGY SERVICES, INC. AND SUBSIDIARIES

INDEX

- -------------------------------------------------------------------------------

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 and June 30, 1999........................ 3

Unaudited Consolidated Statements of
Operations for the Three Months Ended
September 30, 1999 and 1998................................. 4

Unaudited Consolidated Statements of
Cash Flows for the Three Months Ended
September 30, 1999 and 1998................................. 5

Consolidated Statements of Comprehensive
Income for the Three Months Ended
September 30, 1999 and 1998................................. 6

Notes to Consolidated Financial Statements.................. 7

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings............................................... 19

Item 2. Changes in Securities and Use of Proceeds....................... 19

Item 3. Defaults Upon Senior Securities................................. 19

Item 4. Submission of Matters to a Vote of Security Holders............. 19

Item 5. Other Information............................................... 19

Item 6. Exhibits and Reports on Form 8-K................................ 19

Signatures ................................................................ 20

KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 1999 JUNE 30, 1999
------------------ --------------
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS

Current assets:
Cash................................................................................ $12,371 $23,478
Accounts receivable, net............................................................ 112,198 91,998
Inventories......................................................................... 14,584 12,742
Prepaid income taxes................................................................ - 916
Prepaid expenses and other current assets........................................... 5,310 3,409
---------------- ----------------
Total current assets.................................................................. 144,463 132,543
---------------- ----------------
Property and equipment:
Oilfield service equipment.......................................................... 641,200 632,854
Contract drilling equipment......................................................... 85,734 86,225
Motor vehicles...................................................................... 66,651 70,398
Oil and gas properties and other related equipment, successful efforts method....... 42,984 42,925
Furniture and equipment............................................................. 10,034 8,452
Buildings and land.................................................................. 31,325 31,086
---------------- ----------------
877,928 871,940
Accumulated depreciation & depletion.................................................. (116,479) (102,378)
---------------- ----------------
Net property and equipment............................................................ 761,449 769,562
---------------- ----------------
Goodwill, net....................................................................... 200,527 205,423
Deferred costs, net................................................................. 23,558 23,779
Notes receivable - related parties.................................................. 4,750 2,835
Other assets........................................................................ 15,117 13,996
---------------- ----------------
Total assets........................................................................ $1,149,864 $1,148,138
================ ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $26,211 $18,527
Other accrued liabilities........................................................... 29,370 25,291
Accrued interest.................................................................... 5,244 13,079
Current portion of long-term debt................................................... 17,239 16,254
---------------- ----------------

Total current liabilities............................................................. 78,064 73,151
---------------- ----------------

Long-term debt, less current portion.................................................. 693,947 683,724
Non-current accrued expenses.......................................................... 1,907 1,739
Deferred tax liability................................................................ 97,700 101,430
Commitments and contingencies......................................................... - -
Stockholders' equity:
Common stock, $.10 par value; 100,000,000 shares authorized, 83,155,093
and 83,155,072 shares issued, respectively at September 30, 1999 and
June 30, 1999, respectively......................................................... 8,317 8,317
Additional paid-in capital.......................................................... 301,218 301,615
Treasury stock, at cost; 416,666 shares at September 30, 1999 and June 30, 1999..... (9,682) (9,682)
Accumulated other comprehensive income.............................................. 9 9
Retained earnings (deficit)......................................................... (21,616) (12,165)
---------------- ----------------

Total stockholders' equity............................................................ 278,246 288,094
---------------- ----------------

Total liabilities and stockholders' equity............................................ $1,149,864 $1,148,138
================ ================

SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.

KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
---- ----
(THOUSANDS, EXCEPT PER
SHARE DATA)

REVENUES:
Well servicing................................................................... $130,817 $96,494
Contract drilling................................................................ 16,458 16,915
Oil and gas production........................................................... 2,020 1,770
Other, net....................................................................... 597 408
-------------- -------------
149,892 115,587
============== =============
COSTS AND EXPENSES:
Well servicing................................................................... 99,214 67,165
Contract drilling................................................................ 14,271 13,860
Oil and gas production........................................................... 1,000 759
Depreciation, depletion and amortization......................................... 16,821 10,703
General and administrative....................................................... 13,912 11,212
Bad debt expense................................................................. 477 226
Interest......................................................................... 17,388 8,505
-------------- -------------
163,083 112,430
-------------- -------------
Income (loss) before income taxes.................................................. (13,191) 3,157
Income tax benefit (expense)....................................................... 3,740 (1,320)
-------------- -------------
NET INCOME (LOSS).................................................................. $(9,451) $1,837
============== =============

EARNINGS (LOSS) PER SHARE:
Basic............................................................................ $(0.11) $0.10
Diluted.......................................................................... $(0.11) $0.10

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................................................ 82,738 18,268
Diluted.......................................................................... 82,738 18,976

SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS

KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED
SEPTEMBER 30,
----------------
1999 1998
---- ----
(THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(9,451) $1,837
ADJUSTMENTS TO RECONCILE INCOME FROM OPERATIONS TO NET CASH PROVIDED BY (USED IN)
OPERATIONS:..................................................................
Depreciation, depletion and amortization....................................... 16,821 10,703
Amortization of deferred debt costs and warrants............................... 1,255 767
Bad debt expense............................................................... 477 226
Deferred income taxes.......................................................... (3,740) 1,320
Gain on sale of assets......................................................... (6) 47
Other non-cash items........................................................... 916 202
CHANGE IN ASSETS AND LIABILITIES, NET OF EFFECTS FROM THE ACQUISITIONS:
(Increase) decrease in accounts receivable.................................. (20,677) 4,477
(Increase) decrease in other current assets................................. (3,733) 537
Decrease in accounts payable, accrued interest and accrued expenses......... 3,928 (5,213)
Other assets and liabilities................................................ (185) (2,495)
-------------- --------------
Net cash provided by (used in) operating activities............................ (14,395) 12,408
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - Well servicing.......................................... (3,200) (6,587)
Capital expenditures - Contract drilling....................................... (1,100) (1,019)
Capital expenditures - Oil and gas............................................. (77) (1,608)
Capital expenditures - Other................................................... (1,233) -
Proceeds from sale of fixed assets............................................. 127 91
Cash received in acquisitions.................................................. - 27,008
Acquisitions - Well servicing.................................................. - (272,292)
Notes receivable from related parties.......................................... (1,915) -
-------------- --------------
Net cash used in investing activities.......................................... (7,398) (254,407)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt and capital lease obligations...................... (1,314) (1,713)
Borrowings under line-of-credit................................................ 12,000 128,000
Proceeds from bridge loan...................................................... - 150,000
Debt issuance costs............................................................ - (19,636)
-------------- --------------
Net cash provided by financing activities...................................... 10,686 256,651
-------------- --------------
Net increase (decrease) in cash and cash equivalents........................... (11,107) 14,652
Cash and cash equivalents at beginning of period............................... 23,478 25,265
-------------- --------------
Cash and cash equivalents at end of period..................................... $12,371 $39,917
============== ==============

SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS

KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED
SEPTEMBER 30,
---------------
1999 1998
---- ----
(THOUSANDS)

NET INCOME (LOSS).................................................................. $(9,451) $1,837
------------- -------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains on available-for-sale securities, net of $821 tax............... - 1,200

------------- -------------
COMPREHENSIVE INCOME (LOSS), NET OF TAX............................................ $(9,451) $3,037
============= =============

SEE THE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.

KEY ENERGY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998

1. SUMMARY OF SIGNFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements of Key Energy Services, Inc. (the
"Company") and its wholly-owned subsidiaries for the three month periods ended
September 30, 1999 and 1998 are unaudited. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
this Form 10-Q pursuant to the rules and regulations of the Securities and
Exchange Commission. However, in the opinion of management, these interim
financial statements include all the necessary adjustments to fairly present the
results of the interim periods presented. These unaudited interim consolidated
financial statements should be read in conjunction with the audited financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999. The results of operations for the three-month period
ended September 30, 1999 are not necessarily indicative of the results of
operations for the full fiscal year ending June 30, 2000.

RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which, as amended, is effective for fiscal
years beginning after June 15, 2000. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Company is currently evaluating what effect, if any, this statement will have on
the Company's financial statements. The Company will adopt this statement no
later than July 1, 2000.

RECLASSIFICATIONS AND ADJUSTMENTS

Certain reclassifications have been made to the consolidated financial
statements for the three months ended September 30, 1998 to conform to the
presentation for the three months ended September 30, 1999.

2. EARNINGS PER SHARE

The Company accounts for earnings per share based upon Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128,
basic earnings per common share are determined by dividing net earnings
applicable to common stock by the weighted average number of common shares
actually outstanding during the period. Diluted earnings per common share is
based on the increased number of shares that would be outstanding assuming
conversion of dilutive outstanding convertible securities using the "as if
converted" method.

THREE MONTHS
ENDED SEPT. 30,
---------------
1999 1998
---- ----
(THOUSANDS, EXCEPT
PER SHARE DATA)

BASIC EPS COMPUTATION:
NUMERATOR
Net income (loss).............................................. $(9,451) $1,837
DENOMINATOR
Weighted average common shares outstanding..................... 82,738 18,268
--------------- -------------
BASIC EPS........................................................ $(0.11) $0.10
=============== =============

DILUTED EPS COMPUTATION:
NUMERATOR
Net income (loss).............................................. $(9,451) $1,837
Effect of dilutive securities, tax effected:
Convertible securities......................................... - -
--------------- -------------
$(9,451) $1,837
=============== =============

DENOMINATOR
Weighted average common shares outstanding:.................... 82,738 18,268
Warrants....................................................... - 39
Stock options.................................................. - 669
7% Convertible Debentures...................................... - -
5% Convertible Debentures...................................... - -
--------------- -------------
82,738 18,976
--------------- -------------
DILUTED EPS...................................................... $(0.11) $0.10
=============== =============

The earnings per share calculation for the three months ended September
30, 1999 excludes the Company's convertible debt, outstanding warrants and stock
options, because the effects of such instruments on earnings per share would be
anti-dilutive.

3. ACQUISITIONS

There were no acquisitions by the Company during the three months ended
September 30, 1999.

DAWSON PRODUCTION SERVICES, INC.

In September 1998, the Company completed the acquisition of all of the capital
stock of Dawson Production Services, Inc. ("Dawson") for an aggregate
consideration of approximately $382.6 million, including approximately $207.1
million of cash paid for the Dawson stock and for transactional fees and
approximately $175.5 million of net liabilities assumed. The Dawson acquisition
was accounted for using the purchase method of

accounting and the results of operations from the Dawson assets are included in
the Company's results of operations effective September 14, 1998.

Expenditures for the Dawson acquisition, including acquisition costs, less cash
acquired were as follows (in thousands):

Fair value of assets acquired, including goodwill............................................ $409,722
Liabilities assumed.......................................................................... (199,439)
Liabilities for employee termination costs and lease termination costs....................... (3,162)
--------------
Cash paid, including acquisition related expenditures and the cost of Dawson common stock
previously held............................................................................ 207,121
Less: Cash acquired.......................................................................... (27,008)
--------------
Net cash used for the acquisition............................................................ $180,113
==============

At the time of the closing, Dawson owned approximately 527 well service rigs,
200 oilfield trucks, and 21 production testing units in South Texas and the Gulf
Coast, East Texas and Louisiana, the Permian Basin of West Texas and New Mexico,
the Anadarko Basin of Texas and Oklahoma, California, and in the inland waters
of the Gulf of Mexico.

OTHER FISCAL 1999 ACQUISITIONS

In addition to its acquisition of Dawson, the Company acquired the assets and/or
capital stock of six well servicing and contract drilling businesses during the
first two quarters of fiscal 1999, increasing its rig and truck fleet by a total
of approximately 93 well service rigs, 4 drilling rigs and 185 oilfield trucks
(and related equipment) for an aggregate purchase price of approximately $93.7
million in cash. Each of the acquisitions was accounted for using the purchase
method and the results of the operations, generated from the acquired assets,
are included in the Company's results of operations as of the completion date of
each acquisition.

PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)

The following unaudited pro forma results of operations have been prepared as
though the Dawson acquisition had been consummated on July 1, 1998 with
adjustments to record specifically identifiable decreases in direct costs and
general and administrative expenses related to the termination of individual
employees. Pro forma amounts are not necessarily indicative of the results that
may be reported in the future.

THREE MONTHS ENDED SEPT. 30,
----------------------------------
1999 1998
---- ----
(THOUSANDS, EXCEPT
PER SHARE DATA)

Revenues.......................................................... $149,892 $159,198
Net income (loss)................................................. (9,451) 605
Basic earnings (loss) per share................................... (0.11) 0.03

4. STOCKHOLDERS' EQUITY

EQUITY OFFERING

On May 7, 1999, the Company closed the public offering of 55,300,000 shares of
common stock (300,000 shares of which were sold pursuant to the underwriters'
over-allotment option discussed below) at $3.00 per share, or $165.9 million
(the "Public Offering"). In addition, the Company closed the offering of
3,508,772 shares of

common stock at $2.85 per share, or $10.0 million (the "Concurrent Offering"
and together with the Public Offering, the "Equity Offering"). In addition,
on June 7, 1999, the underwriters of the Public Offering exercised an
over-allotment option to purchase an additional 5,436,000 million shares to
cover over-allotments. Net proceeds from the Equity Offering of approximately
$180.4 million were used to repay a portion of the Company's term loan
borrowings under its senior credit facility.

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, results of operations or cash flows of the Company.

6. INDUSTRY SEGMENT INFORMATION

The Company operates in three business segments: well servicing, contract
drilling and oil and gas production.

WELL SERVICING: the Company's operations provide well servicing (ongoing
maintenance of existing oil and natural gas wells), workover (major repairs or
modifications necessary to optimize the level of production from existing oil
and natural gas wells) and production services (fluid hauling and fluid storage
tank rental).

CONTRACT DRILLING: The Company provides contract drilling services for major and
independent oil companies onshore the continental United States, Argentina and
Ontario, Canada.

OIL AND GAS PRODUCTION: The Company produces crude oil and natural gas, in the
Permian Basin and Panhandle areas of West Texas.

WELL CONTRACT OIL AND CORPORATE /
SERVICING DRILLING GAS PRODUCTION OTHER TOTAL
--------- -------- -------------- ----- -----

THREE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues...................................... $130,817 $16,458 $2,020 $597 $149,892
Operating profit ....................................... 31,603 2,187 1,020 597 35,407
Depreciation, depletion and amortization................ 14,282 1,782 570 187 16,821
Interest expense........................................ 374 - - 17,014 17,388
Net income/(loss) *..................................... 8,149 (722) 302 (17,180) (9,451)
Identifiable assets..................................... 752,167 106,975 40,544 49,651 949,337
Capital expenditures (excluding acquisitions)........... 3,200 1,100 77 1,233 5,610

THREE MONTHS ENDED SEPTEMBER 30, 1998
Operating revenues...................................... $96,494 $16,915 $1,770 $408 $115,587
Operating profit........................................ 29,329 3,055 1,011 408 33,803
Depreciation, depletion and amortization................ 8,591 1,407 624 81 10,703
Interest expense........................................ 94 - - 8,411 8,505
Net income/(loss) *..................................... 10,144 533 258 (9,098) 1,837
Identifiable assets..................................... 773,150 98,388 39,698 66,002 977,238
Capital expenditures (excluding acquisitions)........... 6,587 1,019 1,608 - 9,214

* - Net income/loss for Drilling segment include a portion of well servicing
general and administrative expenses allocated on a revenue percentage
basis.

Operating revenues for the Company's foreign operations for the three months
ended September 30, 1999 and 1998 were $8.0 million and $7.6 million,
respectively. Operating profits for the Company's foreign operations for the
three months ended September 30, 1999 and 1998 were $1.5 million and $1.7
million, respectively. The Company's assets related to foreign operations for
the three months ended September 30, 1999 and 1998 were $60.5 million and $48.4
million, respectively.

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

NOTE REGARDING FORWARD - LOOKING STATEMENTS

The statements in this document that relate to matters that are not historical
facts are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
When used in this document and the documents incorporated by reference, words
such as "anticipate," "believe," "expect," "plan," "intend," "estimate,"
"project," "will," "could," "may," "predict" and similar expressions are
intended to identify forward-looking statements. Further events and actual
results may differ materially from the results set forth in or implied in the
forward-looking statements. Factors that might cause such a difference include:

- fluctuations in world-wide prices and demand for oil and gas;

- fluctuations in level of oil and gas exploration and development
activities;

- fluctuations in the demand for well servicing, contract drilling
and ancillary oilfield services;

- the existence of competitors, technological changes and
developments in the industry;

- the existence of operating risks inherent in the well servicing,
contract drilling and ancillary oilfield services;

- the existence of regulatory uncertainties, the possibility of
political instability in any of the countries in which the Company
does business; and

- year 2000 issues and general economic conditions, in addition to
the other matters discussed herein.

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 consolidated financial statements and related notes
appearing elsewhere in this report.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1998

The Company's revenue for the first quarter of fiscal 2000 totaled $149,892,000,
representing an increase of $34,305,000, or 30% as compared to the prior year
period. The results for the prior year period do not include a full quarter of
Dawson's results as well as several other fiscal 1999 acquisitions. Despite the
higher revenues in the current period, reduced rates and a lower margin mix of
business, higher costs associated with hiring crews and reactivating equipment
and increased interest expense have adversely impacted the Company's profits.
The Company's net loss for the first quarter of fiscal 2000 totaled $9,451,000,
or $0.11 per share, versus net income of $1,837,000, or $0.10 per share, for the
prior year period.

The Company's results for the three months ended September 30, 1999 reflect the
second consecutive quarter of sequential improvement in its business. Adverse
business conditions severely impacted the Company beginning in the second
quarter of fiscal 1999 and continued throughout the third quarter. These
conditions were caused

by the significant and unprecedented decline in oil prices, which, in turn,
caused a sustained decline in oilfield spending by producers. Demand for much
of the Company's equipment and services, especially those yielding higher
margins, fell sharply. Beginning in March 1999, oil production cuts initiated
by the Organization of Petroleum Exporting Countries combined with increasing
worldwide demand began to strengthen both oil and natural gas prices. This
has lead to a gradual recovery in spending by oil and gas producers and
increasing hours, revenues and operating profits for the Company. Such
spending has increased cautiously as producers are taking a more conservative
stance waiting to see if the new price levels are sustainable. Management
expects demand for the Company's services and equipment to remain at least at
current levels through December 1999 and anticipates higher activity levels
for calendar 2000 if the current pricing environment continues.

OPERATING REVENUES

WELL SERVICING. Well servicing revenues increased $34,323,000, or 36%, from
$96,494,000 for the three months ended September 30, 1998 to $130,817,000 for
the three months ended September 30, 1999. The increase in revenues was
primarily due to the full quarter effect of the acquisitions completed during
the early portion of fiscal 1999 and was partially offset by a decline in
equipment utilization and, to a lesser extent, pricing of oilfield services.

CONTRACT DRILLING. Revenues from contract drilling activities decreased
$457,000, or 3%, from $16,915,000 for the three months ended September 30, 1998
to $16,458,000 for the three months ended September 30, 1999. The decrease in
revenues was primarily due to a decline in equipment utilization and, to a
lesser extent, pricing of oilfield services throughout fiscal 1999 and was
partially offset by the full quarter effect of the acquisitions completed during
the early portion of fiscal 1999.

OIL AND NATURAL GAS PRODUCTION. Revenues from oil and natural gas production
activities increased $250,000, or 14%, from $1,770,000 for the three months
ended September 30, 1998 to $2,020,000 for the three months ended September 30,
1999. The increase in revenues was primarily due to a 21.2% increase in the
price of oil and gas received on a barrel of oil equivalent ("BOE") basis for
the three months ended September 30, 1999 compared to the prior year period, and
was partially offset by a 5.9% decrease in the volume of oil and gas produced on
a BOE basis for the three months ended September 30, 1999 compared to the prior
year period.

OPERATING EXPENSES

WELL SERVICING. Well servicing expenses increased $32,049,000, or 48%, from
$67,165,000 for the three months ended September 30, 1998 to $99,214,000 for the
three months ended September 30, 1999. The increase was primarily due to the
full quarter effect of the acquisitions completed during the early portion of
fiscal 1999 and the cost of bringing crews and previously idle equipment on line
and was partially offset by cost reductions effected as a result of the
Company's restructuring efforts. Well servicing expenses, as a percentage of
well servicing revenue, increased from 70% for the three months ended September
30, 1998 to 76% for the three months ended September 30, 1999. The increase was
primarily due to a shift in revenue mix from higher margin, higher priced well
services to lower margin, lower priced well services, reduced pricing for well
services, and the start-up costs for bringing crews and equipment back on line.

CONTRACT DRILLING. Expenses related to contract drilling activities increased
$411,000, or 3%, from $13,860,000 for the three months ended September 30, 1998
to $14,271,000 for the three months ended September 30, 1999. The increase was
primarily due to full quarter effect of the acquisition completed during the
early portion of fiscal 1999 and the cost of bringing crews and previously idle
equipment on line and was partially offset by cost reductions effected as a
result of the Company's restructuring efforts. Contract drilling expenses, as a
percentage of contract

drilling revenues, increased from 82% for the three months ended September 30,
1998 to 87% for the three months ended September 30, 1999. The increase was due
to reduced pricing for contract drilling and the start-up costs for bringing
crews and equipment back on line.

OIL AND NATURAL GAS PRODUCTION. Expenses related to oil and natural gas
production activities increased $241,000, or 32%, from $759,000 for the three
months ended September 30, 1998 to $1,000,000 for the three months ended
September 30, 1999. Oil and natural gas production costs increased from $5.23
per BOE for the three months ended September 30, 1998 to $7.32 per BOE for the
three months ended September 30, 1999. The increase per BOE is primarily due to
the costs of placing wells back on production that were not producing prior to
the quarter and, to a lesser extent, increased rates for electricity and other
operating services.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE

The Company's depreciation, depletion and amortization expense increased
$6,118,000, or 57%, from $10,703,000 for the three months ended September 30,
1998 to $16,821,000 for the three months ended September 30, 1999. The increase
is primarily due to an increase in oilfield service depreciation resulting from
the effect of the acquisitions completed during the early portion of fiscal 1999
for the full quarter.

GENERAL AND ADMINISTRATIVE EXPENSES

The Company's general and administrative expenses increased $2,700,000, or 24%,
from $11,212,000 for the three months ended September 30, 1998 to $13,912,000
for the three months ended September 30, 1999. The increase was primarily due to
the effect of the acquisitions completed during the early portion of fiscal 1999
for the full quarter and was largely offset by cost reductions effected as a
result of the Company's restructuring efforts. General and administrative
expenses, as a percentage of revenues, decreased from 9.7% for the three months
ended September 30, 1998 to 9.2% for the three months ended September 30, 1999.

INTEREST EXPENSE

The Company's interest expense increased $8,883,000, or 104%, from $8,505,000
for the three months ended September 30, 1998 to $17,388,000 for the three
months ended September 30, 1999. The increase was primarily due to the full
quarter effect of the additional debt incurred in connection with the
acquisitions completed during the early portion of fiscal 1999 and, to a lesser
extent, higher interest rates and amortization of additional debt issuance
costs. Included in interest expense was the amortization of debt issuance costs
of $1,255,000 and $767,000 for the three months ended September 30, 1999 and
1998, respectively.

BAD DEBT EXPENSE

The Company's bad debt expense increased $251,000, or 111%, from $226,000 for
the three months ended September 30, 1998 to $477,000 for the three months ended
September 30, 1999. The increase was primarily due to increased revenues and the
residual effects of a significant decline in commodity prices and a
corresponding deterioration in market conditions during fiscal 1999.

INCOME TAXES

The Company's income tax expense decreased $5,060,000 from an expense of
$1,320,000 for the three months ended September 30, 1998 to a benefit of
$3,740,000 for the three months ended September 30, 1999. The decrease in income
taxes is due to the decrease in pretax income. The Company's effective tax rate
for the three months ended September 30, 1999 and 1998 was 28% and 42%,
respectively. The effective tax rates are different from the statutory rate of
35% because of the disallowance of certain goodwill amortization, other
non-deductible expenses and state and local taxes. The Company does not expect
to be required to remit federal income taxes for the next few fiscal years
because of the availability of net operating loss carry forwards from fiscal
1999 and previous years.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically funded its operations, acquisitions, capital
expenditures and working capital requirements from cash flow from operations,
bank borrowings, and the issuance of long term debt and equity. We believe that
the current reserves of cash and cash equivalents, access to our existing credit
lines and internally generated cash flow from operations are sufficient to
finance the cash requirements of our current and future operations.

As of September 30, 1999, the Company had working capital of approximately
$83,638,000 and cash and cash equivalents of approximately $12,371,000 as
compared to working capital of approximately $75,646,000 million and cash and
cash equivalents of approximately $23,478,000 as of June 30, 1999. This increase
in working capital is primarily related to the timing of cash receipts and
disbursements. Receivables are higher due to the increase in revenues caused by
the increased utilization of the Company's equipment base and payables are also
higher due to the addition of more employees and greater costs related to the
increased equipment utilization.

The reduction in the Company's cash and cash equivalents since June 30, 1999 was
primarily attributable to:

- Cash from operations of ($14,395,000)

- Borrowings, net of repayments on term debt and revolver, of
$10,686,000

- Capital expenditures of $5,610,000

- Cash from other investing activities of ($1,788,000)

CAPITAL EXPENDITURES

Capital expenditures for fiscal 2000 are expected to approximate fiscal 1999
levels. Expenditures will be directed toward maintaining and selectively
refurbishing our assets as business conditions warrant. The Company will
continue to evaluate opportunities to acquire or divest assets or businesses to
enhance the Company's primary operations. Such capital expenditures,
acquisitions and divestitures are at the discretion of the Company and will
depend on management's view of market conditions as well as other factors.

LONG-TERM DEBT

SENIOR CREDIT FACILITY

As of September 30, 1999, the Company had a $500,000,000 credit agreement (the
"Credit Agreement") with a syndicate of banks led by PNC Bank, N.A. which
consisted of a $150,000,000 revolving loan facility, $43,365,480 in Tranche A
term loans and $177,761,370 in Tranche B term loans. In addition, up to
$20,000,000

of letters of credit can be issued under the Credit Agreement, but any
outstanding letters of credit reduce the borrowing availability under the
revolving loan facility. As of September 30, 1999, approximately $102,000,000
was drawn under the revolving loan facility and approximately $10,439,000 of
letters of credit related to workmens' compensation insurance were outstanding.

The revolving loans and Tranche A term loans bear interest based upon, at the
Company's option, the prime rate plus a variable margin of 0.75% to 2.00% or a
Eurodollar rate plus a variable margin of 2.25% to 3.50%. The Tranche B loans
bear interest based upon, at the Company's option, the prime rate plus 2.50% or
a Eurodollar rate plus 4.00%. The Credit Facility has customary affirmative and
negative covenants including a maximum debt to capitalization ratio, a minimum
interest coverage ratio, a maximum senior leverage ratio, a minimum net worth
and minimum EBITDA ratio as well as restrictions on capital expenditures,
acquisitions and dispositions.

14% SENIOR SUBORDINATED NOTES

On January 22, 1999, the Company completed the private placement of 150,000
units (the "Units") consisting of $150,000,000 of 14% Senior Subordinated Notes
due 2009 (the "14% Senior Subordinated Notes") and 150,000 warrants to purchase
2,032,565 shares of common stock at an exercise price of $4.88125 per share (the
"Unit Warrants"). The cash proceeds from the private placement, net of fees and
expenses, were used to repay substantially all of the remaining $148,600,000
principal amount (plus accrued interest) owed under the Company's bridge loan
facility arranged in connection with the acquisition of Dawson. The 14% Senior
Subordinated Notes are subordinate to the Company's senior indebtedness which
includes borrowings under the Credit Agreement and the Dawson 9 3/8% Senior
Notes.

5% CONVERTIBLE SUBORDINATED NOTES

On September 25, 1997, the Company completed an initial closing of its private
placement of $200,000,000 of 5% Convertible Subordinated Notes due 2004 (the "5%
Convertible Subordinated Notes"). On October 7, 1997, the Company completed a
second closing of its private placement of an additional $16,000,000 of the 5%
Convertible Subordinated Notes pursuant to the exercise of the remaining portion
of an over-allotment option. The 5% Convertible Subordinated Notes are
subordinate to the Company's senior indebtedness which includes borrowings under
the Credit Agreement, the 14% Senior Subordinated Notes and the Dawson 9 3/8%
Senior Notes. The 5% Convertible Subordinated Notes are convertible, at the
holder's option, into shares of the Company's common stock at a conversion price
of $38.50 per share, subject to certain adjustments.

7% CONVERTIBLE SUBORDINATED DEBENTURES

In July 1996, the Company completed a $52,000,000 private placement of 7%
Convertible Subordinated Debentures due 2003 (the "7% Convertible Subordinated
Debentures"). The 7% Convertible Subordinated Debentures are subordinate to the
Company's senior indebtedness which includes borrowings under the Credit
Agreement, the 14% Senior Subordinated Notes and the Dawson 9 3/8% Senior Notes.
The Debentures are convertible, at any time prior to maturity, at the holders'
option, into shares of the Company's common stock at a conversion price of $9.75
per share, subject to certain adjustments. In addition, holders who converted
prior to July 1, 1999 were entitled to receive a payment, in cash or the
Company's common stock (at the Company's option) generally equal to 50% of the
interest otherwise payable from the date of conversion through July 1, 1999. As
a result of conversions, only $4,600,000 principal amount of the 7% Convertible
Subordinated Debentures remained outstanding at September 30, 1999.

DAWSON 9 3/8% SENIOR NOTES

In February 1997, Dawson issued $140,000,000 9 3/8% Senior Notes due 2007 (the
"Dawson 9 3/8% Senior Notes"). As the result of the Dawson acquisition, the
Company assumed Dawson's obligations under the Dawson 9 3/8% Senior Notes which
were equally and ratably secured with the obligations under the Credit
Agreement. As a result of mandatory tender offer made in connection with the
Dawson acquisition, only $1,406,000 principal amount of the Dawson 9 3/8% Senior
Notes remained outstanding at September 30, 1999.

RECENTLY ISSUED ACCOUNTING STANDARDS

The Financial Accounting Standards Board has recently issued the following
accounting standards which will be adopted by the Company in the future.

YEAR 2000 ISSUE

Many older computer programs were written using a two-digit year instead of a
four-digit year. As a result, those computer programs may be unable to process
date-sensitive information in the year 2000 and beyond. This situation,
frequently referred to as the Year 2000 or Y2K issue, could cause a temporary
disruption of the ordinary course of business. Moreover, as a result of the
acquisitions completed by the Company over the past three years, the Company has
simultaneously utilized multiple management information systems in connection
with its business operations and financial reporting process. As a result of the
foregoing factors, the Company made an assessment of its Year 2000 issues in
early calendar year 1998, and at that time determined that many of these
management information systems might be adversely impacted by the arrival of the
Year 2000.

Accordingly, for operational efficiency and to prevent any adverse impacts that
may result from the arrival of Year 2000, in July 1998 the Company commenced the
implementation of a new integrated management information system along with
updated hardware that replaced most of the systems previously utilized by the
Company. The implementation of the new integrated management information system,
which has been certified by its vendor to be Year 2000 compliant, is
substantially complete. While this new management information system does not
cover the Company's Argentine operations, the Company is currently implementing
a separate management information system for its Argentine operations that uses
software that is virtually identical to the Company's domestic management
information system software, that the Company expects to be in place in late
calendar year 1999. Through September 30, 1999, the Company has capitalized
approximately $3,767,000 for its new management information system.

The inventory, assessment, modification and testing of smaller, less critical,
financial and operational systems have been substantially completed. In
addition, the assessment of systems embedded in the Company's buildings,
equipment and other infrastructures has also been completed. To date, there has
been no discovery of a significant non-compliant embedded system. The Company
has communicated with the suppliers, customers and financial institutions that
it considers to be material third parties and is evaluating its risks related to
any possible failure of such third parties to be year 2000 compliant. The
effect, if any, on the Company's results of operations arising from the failure
of these third parties to be Year 2000 compliant is not reasonably estimable at
this time. Risk assessment and contingency plans related to these parties are
expected to be complete by the end of

November 1999. Contingency plans to mitigate the Company's risks from Year
2000-related interruptions are being developed and are expected to be complete
by the end of November 1999.

Although the Company believes that in a most reasonably likely worst case
scenario it will not be materially impacted by its or any third party
non-compliance, there can be no assurances that failure by the Company or by
third parties to fully implement appropriate Year 2000 plans will not have a
material adverse effect on the Company's results of operations. Adverse effects
on the Company could include, among other things: business disruptions (e.g.,
computer downtime and reversion to manual accounting records for billings,
payments and collections), increased costs, and loss of revenues.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(b) Exhibits

10.1* Amended and Restated Employment Agreement dated July 1, 1999
between Francis D. John and Key Energy Services, Inc.

10.2* Employment Agreement dated August 5, 1999 between Thomas K.
Grundman and Key Energy Services, Inc.

10.3* Employment Agreement dated as of July 1, 1999 between Danny R.
Evatt and Key Energy Services, Inc.

10.4* Employment Agreement dated as of July 1, 1999 between James J.
Byerlotzer and Key Energy Services, Inc.

10.5* Agreement dated as of August 2, 1999 between Francis D. John
and Key Energy Services, Inc.

10.6* Promissory Note dated August 3, 1999 made by Thomas K.
Grundman in favor of Key Energy Services, Inc.

10.7* Demand Note dated August 3, 1999 made by Thomas K. Grundman in
favor of Key Energy Services, Inc.

10.8* Confidential Separation and Release Agreement dated as of July
1, 1999 between Key Energy Services, Inc. and Stephen E.
McGregor

27* Financial Data Schedule

(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1999.

- --------------------
* Filed herewith.

SIGNATURES

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 SERVICES, INC.

Dated: November 15, 1999 By /s/ Francis D. John
-------------------------------------
President and Chief Executive Officer

Dated: November 15, 1999 By /s/ Thomas K. Grundman
-------------------------------------
Chief Financial Officer and
Chief Accounting Officer