[AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1999]

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

FORM 10-Q/A

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

For the quarterly period ended September 30, 1998

[ ] 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.
(formerly 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, 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 11, 1998 - 18,293,060

Key Energy Services, Inc. and Subsidiaries

INDEX

PART I. Financial Information

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 3

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

The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.

Current and Subsequent Events

During the three months ended September 30, 1998, the Company completed the
acquisition of the following well servicing, trucking, drilling and ancillary
equipment companies and businesses:

Colorado Well Service, Inc.
Oilfield service assets of TransTexas Gas Corporation
Well servicing assets of Flint Engineering & Construction Co.
Dawson Production Services, Inc.
Iceberg, S.A.
HSI Group

These acquisitions (which are more fully described in Note 3 to the unaudited
consolidated financial statements) involve approximately 620 well service rigs
(including four well service rigs in Argentina), 388 trucks and one drilling
rig. The total purchase price of these acquisitions totaled approximately $288.9
million in cash, excluding any assumed net liabilities.

As of November 11, 1998, the Company owned a fleet of approximately 1,424 well
service rigs, 1,121 oilfield trucks, and 74 drilling rigs, including 21 service
rigs, 28 trucks and six drilling rigs in Argentina and three drilling rigs in
Canada. Management currently believes that the Company's well servicing rig and
oilfield truck fleet are the largest onshore fleets in the world. The Company
operates in all major onshore oil and gas producing regions of the continental
Untied States and Provides a full range of drilling, completion, maintenance,
workover and plugging and abandonment services for the oil and gas industry.

IMPACT OF LOWER CRUDE OIL PRICES

As a result of the prolonged lower oil prices, the Company's drilling,
completion and workover activity have been adversely affected. Equipment
utilization for drilling, completion and workover activity has continued to
decline throughout the last three months of fiscal year 1998 and the first three
months of fiscal 1999. The demand for these services, which generate higher
margins, will continue to be adversely affected until oil prices substantially
increase from their current depressed levels.

GROWTH STRATEGY

Historically, the domestic well servicing industry has been highly fragmented,
characterized by a large number of smaller companies which have competed
effectively on a local basis in terms of pricing and the quality of services
offered. In recent years, however, many major and independent oil and gas
companies have placed increasing emphasis not only on pricing, but also on the
safety records and quality management systems of, and the breadth of services
offered by, their vendors, including well servicing contractors. This market
environment, which requires significant expenditures by smaller companies to
meet these increasingly rigorous standards, has forced many smaller well
servicing companies to sell their operations to larger competitors. As a result,
the industry has seen high levels of consolidation among the competing
contractors.

Over the past two and one-half years, the Company has been the leading
consolidator of this industry, completing in excess of 50 acquisitions of well
servicing and drilling operations through September 30, 1998. This consolidation
has led to reduced fragmentation in the market and more predictable demand for
well services for the Company and its competitors. The Company's management
structure is decentralized, which allows for rapid integration of acquisitions
and the retention of strong local identities of many of the acquired businesses.

As a result of the Company's recent growth through acquisition, the Company has
developed a strategy to:

1. Maximize operating efficiencies by focusing on reducing costs;

2. Fully integrate acquisitions into the Company's decentralized
organizational structure and thereby attempt to maximize operating
margins;

3. Expand business lines and services offered by the Company in existing
areas of operations; and

4. Extend the geographic scope and operating environments for the
Company's operations.

If the current decline in the oil prices persists for a protracted period or a
recovery in such prices remains uncertain, the Company may curtail or halt its
growth strategy until such time as prices reach more favorable ranges.

RESULTS OF OPERATIONS

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

QUARTER ENDED SEPTEMBER 30, 1998 VERSUS THE QUARTER ENDED SEPTEMBER 30, 1997

NET INCOME

For the quarter ended September 30, 1998, the Company reported net income of
$1,837,000 ($.10 per share - basic) as compared to $4,111,000 ($.29 per share -
basic) for the quarter ended September 30, 1997, representing a decrease of
$2,274,000, or 55% (66% decrease in basic earnings per share). The decrease in
net income is primarily attributable to the Company's decrease in service and
drilling rig utilization rates.

REVENUES

The Company's total revenues for the quarter ended September 30, 1998 increased
by $40,188,000, or 53%, to $115,587,000 compared to $75,399,000 reported for the
quarter ended September 30, 1997. The increase is primarily attributable to the
Company's acquisitions of oilfield service and drilling rig companies over the
past twelve months, offset by the Company's decrease in service and drilling rig
utilization rates.

Oilfield service revenues for the quarter ended September 30, 1998 increased by
$36,301,000, or 52% to $105,799,000 compared to $69,498,000 reported for the
quarter ended September 30, 1997. The increase is primarily attributable to the
Company's acquisitions of oilfield service companies over the past twelve
months, offset by the Company's decrease in oilfield service rig utilization
rates.

Drilling revenues for the quarter ended September 30, 1998 increased by
$4,787,000, or 170% to $7,610,000 compared to $2,823,000 reported for the
quarter ended September 30, 1997. The increase is primarily attributable to the
Company's drilling rig acquisitions over the past twelve months, offset by the
Company's decrease in drilling rig utilization rates.

COSTS AND EXPENSES AND OPERATING MARGINS

The Company's total costs and expenses for the quarter ended September 30, 1998
increased by $43,549,000, or 63%, to $112,430,000 compared to $68,881,000
reported for the quarter ended September 30, 1997. The increase is directly
attributable to increased operating costs and expenses associated with the
Company's acquisitions over the past twelve months.

Oilfield service expenses for the quarter ended September 30, 1998 increased by
$25,459,000, or 53%, to $73,698,000 compared to $48,239,000 reported for the
quarter ended September 30, 1997. Oilfield service margins (revenues less direct
costs and expenses) increased for the quarter ended September 30, 1998 by
$10,842,000, or 51%, to $32,101,000 compared to $21,259,000 for the quarter
ended September 30, 1997. Oilfield service margins as a percentage of oilfield
service revenue for the quarters ended September 30, 1998 and 1997 was 30% and
31%, respectively. In

addition, the Company has continued to expand its services, offering higher
margin ancillary services and equipment such as well fishing tools, blow-out
preventers and frac tanks.

The Company's contract drilling costs and expenses for the quarter ended
September 30, 1998 increased by $5,064,000, or 224%, to $7,327,000 compared to
$2,263,000 for the quarter ended September 30, 1997. Oilfield drilling margins
for the Company's drilling operations during the quarter ended September 30,
1998 decreased by $277,000, or 49%, to $283,000 compared to $560,000 for the
quarter ended September 30, 1997. Oilfield drilling margin as a percentage of
oilfield drilling revenue for the quarters ended September 30, 1998 and 1997 was
4% and 20%, respectively. Such decreases are attributable to the decreases in
onshore drilling due to the lower crude oil and natural gas prices.

General and administrative expenses for the quarter ended September 30, 1998
increased by $3,760,000, or 49%, to $11,438,000 compared to $7,678,000 for the
quarter ended September 30, 1997. The increase was primarily attributable to the
Company's recent acquisitions and expanded services. General and administrative
expenses as a percentage of total revenue for the quarters ended September 30,
1997 and 1998 was 10% for each period.

Depreciation, depletion and amortization expense for the quarter ended September
30, 1998 increased by $5,891,000, or 122%, to $10,703,000 compared to $4,812,000
for the quarter ended September 30, 1997. The increase is directly related to
the increase in property and equipment and intangible assets of the Company over
the past twelve months as a result of its acquisitions.

Interest expense for the quarter ended September 30, 1998 increased by
$3,419,000, or 67%, to $8,505,000 compared to $5,086,000 for the quarter ended
September 30, 1997. The increase was primarily the result of increased
indebtedness used to finance the Company's acquisition program.

Income tax expense for the quarter ended September 30, 1998 decreased by
$1,087,000, or 45%, to $1,320,000 compared to $2,407,000 for the quarter ended
September 30, 1997. The effective tax rate for the quarter ended September 30,
1998 as compared to the quarter ended September 30, 1997 has increased due to
amortization of intangible assets (which is generally non-deductible for tax
purposes). The Company does not expect to have to pay the full amount of the
income tax provision because of the availability of accelerated tax
depreciation, drilling tax credits, and tax loss carry-forwards.

CASH FLOWS

Net cash provided by operating activities for the quarter ended September 30,
1998 increased by $8,348,000 or 206%, to $12,408,000 compared to $4,060,000
provided for the quarter ended September 30, 1997. This increase is primarily
related to the Company's acquisitions over the past twelve months.

Net cash used in investing activities for the quarter ended September 30, 1998
increased by $122,553,000, or 93%, to $254,407,000 compared to $131,854,000 used
for the quarter ended September 30, 1997. This increase is primarily related to
the Company's acquisitions over the past twelve months.

Net cash provided by financing activities for the quarter ended September 30,
1998 increased by $121,285,000 or 90%, to $256,651,000 compared $135,366,000
provided during the quarter ended September 30, 1997. The increase is primarily
the result of borrowings of long-term debt used to finance the Company's
acquisition program.

LIQUIDITY, CAPITAL COMMITMENTS AND CAPITAL RESOURCES

At September 30, 1998, the Company had cash of $39.9 million compared to $25.3
million at June 30, 1998, and $49.3 million at September 30, 1997. At September
30, 1998, the Company had working capital of $73.9 million compared to $79.5
million at June 30, 1998 and $77.9 million at September 30, 1997.

In addition to its ongoing acquisition program, for fiscal 1999, the Company has
projected approximately $40 million capital expenditures for improvements of
existing service and drilling rig machinery and equipment, a decrease of $12.1
million over the $52.1 million expended during fiscal 1998. The Company expects
to finance these capital expenditures through internally generated operating
cash flows. Capital expenditures for service and drilling rig improvements for
the three months ended September 30, 1998 and 1997 were $7.6 million and $7.0
million, respectively.

The Company has projected approximately $2.0 million of capital expenditures for
oil and gas exploration for fiscal 1999 as compared to $7.8 million expended for
fiscal 1998. Financing of these costs is expected to come from operations and
available credit facilities. For the three months ended September 30, 1998 and
1997, the Company expended $1.6 million and $2.1 million, respectively.

The Company's primary capital resources are net cash provided by operations and
proceeds from certain long-term debt facilities.

YEAR 2000 ISSUE

We currently are implementing a new integrated management information
system along with updated hardware that will replace most of our current
systems. The implementation of the new management information system, which will
be year 2000 compliant for our systems as well as for those of our past and
future acquisitions, began in July 1998 and is scheduled to be substantially
completed by June 1999. Our new management information systems do not cover our
Argentine operations, but we have established a separate system, which is year
2000 compliance, that will be implemented in late 1999.

We have not yet developed a plan to formally communicate with our
significant suppliers and customers to determine if those parties have
appropriate plans to remedy year 2000 issues when their systems interface with
our systems or may otherwise have an impact on our operations. We do not
anticipate that this will have a material impact on our operations. However,
there can be no assurance that the systems of other companies on which we rely
will be timely converted, or that failure to successfully convert by another
company, or conversion that is incompatible with our systems, would not have an
impact on our operations. We currently do not have a contingency plan to cover
any unforeseen problems encountered that relate to the year 2000, but we intend
to produce one before the end of the current fiscal year.

The cost of the new management information system (a large part of
which we expect will be capitalized) is not expected to have a material impact
on our business, operations or results thereof, financial condition, liquidity
or capital resources. Although we are not aware of any material operational
issues or costs associated with preparing our internal systems for the year
2000, there can be no assurance that there will not be a delay in, or increased
costs associated with, the implementation of the necessary systems and changes
to address the year 2000 issues.

If we are unable to adequately address the year 2000 issue in a timely
manner, the worst case scenario would be that we could suffer significant
computer downtime, and billings, payments and collections would revert to manual
accounting records. In addition, the inability of principal suppliers and major
customers to be year 2000 compliant could result in delays in product deliveries
from those suppliers and collection of accounts receivable.

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.
(Registrant)

Dated: March 30, 1999 By: /s/ FRANCIS D. JOHN
-------------------------------
President and Chief Executive
Officer

Dated: March 30, 1999 By: /s/ STEPHEN E. MCGREGOR
-------------------------------
Executive Vice President, Chief
Financial Officer and Treasurer