##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal
    year ended December 31, 2009o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission file number
    001-08038
 KEY ENERGY SERVICES,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Maryland

04-2648081(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification
    No.)  1301
    McKinney Street
    Suite 1800
    Houston, Texas 77010 (Address
    of principal executive offices, including Zip
    Code)
  (713) 651-4300 (Registrants
    telephone number, including area code) Securities
    registered pursuant to Section 12(b) of the Act:
  Title of Each Class

Name of Exchange on Which RegisteredCommon Stock, $0.10 par value

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
  Title of
    Each Class
  None
  þ o
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




---



##### 





KEY
    ENERGY SERVICES, INC.
    ANNUAL REPORT ON
    FORM 10-K
    For the Year Ended December 31, 2009
    INDEX
   
 PageNumberPART IITEM 1.


Business


4ITEM 1A.


Risk Factors


11ITEM 1B.


Unresolved Staff Comments


17ITEM 2.


Properties


17ITEM 3.


Legal Proceedings


18ITEM 4.


Submission of Matters to a Vote of Security
    Holders


18PART IIITEM 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


18ITEM 6.


Selected Financial Data


21ITEM 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


22ITEM 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


53ITEM 8.


Financial Statements and Supplementary Data


54ITEM 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


119ITEM 9A.


Controls and Procedures


119ITEM 9B.


Other Information


120PART IIIITEM 10.


Directors, Executive Officers and Corporate
    Governance


120ITEM 11.


Executive Compensation


120ITEM 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


120ITEM 13.


Certain Relationships and Related Transactions,
    and Director Independence


120ITEM 14.


Principal Accountant Fees and Services


121PART IVITEM 15.


Exhibits, Financial Statement Schedules


121EX-21EX-23EX-31.1EX-31.2EX-32   2




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CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Item 1A. Risk Factors
   3




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  General
    Description of Business
        Service
    Offerings
  Note 21. Segment
    Information Item 8. Financial
    Statements and Supplementary Data
  Well
    Servicing Segment
  Rig-Based
    Services
  and/or ®
   4




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Fluid
    Management Services
       5




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Production
    Services Segment
  Pressure
    Pumping Services
      Fishing
    and Rental Services
  ®
  Wireline
    Services
     6




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Other
    Business Data
  Raw
    Materials
  Item 1A. Risk Factors.
  Customers
    Competition
    and Other External Factors
  ®
    Item 7. Managements Discussion and Analysis
    of Financial Condition and Results of Operations
 7




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Seasonality
    Patents,
    Trade Secrets, Trademarks and Copyrights
  ®
      Employees
    Item 1A. Risk
    Factors
 8




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Governmental
    Regulations
    Environmental
    Regulations
    Hazardous
    Substances and Waste
        Air
    Emissions
    Global
    Warming and Climate Control
  Item 1A. Risk Factors.
 9




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##### Table of Contents



Water
    Discharges
    Occupational
    Safety and Health Act
    Marine
    Employees
    Saltwater
    Disposal Wells
    Wireline
    Access to
    Company Reports
  www.keyenergy.com Form 10-K, Form 10-Q, Form 8-K Form 10-K.
 10




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##### Table of Contents



ITEM 1A.
    RISK
    FACTORS    BUSINESS-RELATED
    RISK FACTORS
  Our
    business is dependent on conditions in the oil and natural gas
    industry, especially oil and natural gas prices and capital
    expenditures by oil and natural gas companies. Volatility in oil
    and natural gas prices, tight credit markets and disruptions in
    the U.S. and global financial systems may adversely impact our
    business.
    
    the level of development, exploration and production activity
    of, and corresponding capital spending by, oil and natural gas
    companies;
    oil and natural gas production costs;
    government regulations; and
    conditions in the worldwide oil and natural gas industry.    We may
    be unable to maintain pricing on our core
    services.
   11




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Industry
    capacity may adversely affect our business.
  start-up
  Our
    future financial results could be adversely impacted by asset
    impairments or other charges.
    Our
    business involves certain operating risks, which are primarily
    self-insured, and our insurance may not be adequate to cover all
    losses or liabilities we might incur in our
    operations.
    
    accidents resulting in serious bodily injury and the loss of
    life or property;
    liabilities from accidents or damage by our fleet of trucks,
    rigs and other equipment;
    pollution and other damage to the environment;
    reservoir damage;
    blow-outs, the uncontrolled flow of natural gas, oil or other
    well fluids into the atmosphere or an underground
    formation; and
    fires and explosions.     12




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We are
    subject to the economic, political and social instability risks
    of doing business in certain foreign countries.
    
    increased governmental ownership and regulation of the economy
    in the markets where we operate;
    inflation and adverse economic conditions stemming from
    governmental attempts to reduce inflation, such as imposition of
    higher interest rates and wage and price controls;
    increased trade barriers, such as higher tariffs and taxes on
    imports of commodity products;
    exposure to foreign currency exchange rates;
    exchange controls or other currency restrictions;
    war, civil unrest or significant political instability;
    restrictions on repatriation of income or capital;
    expropriation, confiscatory taxation, nationalization or other
    government actions with respect to our assets located in the
    markets where we operate;
    governmental policies limiting investments by and returns to
    foreign investors;
    labor unrest and strikes, including the significant
    labor-related issues we have experienced in Argentina;
    deprivation of contract rights; and
    restrictive governmental regulation and bureaucratic delays.    
    negatively impact our results of operations;
    restrict the movement of funds and equipment to and from
    affected countries; and
    inhibit our ability to collect receivables.  We
    historically have experienced a high employee turnover rate. Any
    difficulty we experience replacing or adding workers could
    adversely affect our business.
   13




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We may
    not be successful in implementing technology development and
    enhancements.
  ®
  
    limit our ability to improve our market position;
    increase our operating costs; and
    limit our ability to recoup the investments made in technology
    initiatives.  We may
    incur significant costs and liabilities as a result of
    environmental, health and safety laws and regulations that
    govern our operations.
    and/or Governmental Regulations Item 1. Business
  We
    rely on a limited number of suppliers for certain materials used
    in providing our pressure pumping services.
    We may
    not be successful in identifying, making and integrating our
    acquisitions.
   14




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The
    loss of a significant customer could cause our revenue to
    decline.
    Compliance
    with climate change legislation or initiatives could negatively
    impact our business.
    DEBT-RELATED
    RISK FACTORS
  We may
    not be able to generate sufficient cash flow to meet our debt
    service obligations.
      
    refinancing or restructuring our debt;
    selling assets;
    reducing or delaying acquisitions or capital investments, such
    as remanufacturing our rigs and related equipment; or
    seeking to raise additional capital.   15




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The
    amount of our debt and the covenants in the agreements governing
    our debt could negatively impact our financial condition,
    results of operations and business prospects.
    
    making it more difficult for us to satisfy our obligations under
    our indebtedness and increasing the risk that we may default on
    our debt obligations;
    requiring us to dedicate a substantial portion of our cash flow
    from operations to required payments on indebtedness, thereby
    reducing the availability of cash flow for working capital,
    capital expenditures and other general business activities;
    limiting our ability to obtain additional financing in the
    future for working capital, capital expenditures, acquisitions
    and general corporate and other activities;
    limiting managements flexibility in operating our business;
    limiting our flexibility in planning for, or reacting to,
    changes in our business and the industry in which we operate;
    diminishing our ability to withstand successfully a downturn in
    our business or the economy generally;
    placing us at a competitive disadvantage against less leveraged
    competitors; and
    making us vulnerable to increases in interest rates, because
    certain debt will vary with prevailing interest rates.      Our
    variable rate indebtedness subjects us to interest rate risk,
    which could cause our debt service obligations to increase
    significantly.
   16




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TAKEOVER
    PROTECTION-RELATED RISKS
  Our
    bylaws contain provisions that may prevent or delay a change in
    control.
    
    establish a classified board of directors, providing for
    three-year staggered terms of office for all members of our
    board of directors;
    set limitations on the removal of directors;
    provide our board of directors the ability to set the number of
    directors and to fill vacancies on the board of directors
    occurring between stockholder meetings; and
    set limitations on who may call a special meeting of
    stockholders.    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES        Office, Repair &


SWDs, and Brine and


Operational FieldService and Other


Freshwater Stations


Services FacilitiesMarketplace

(1)


(2)


(3)United StatesOwned


15



37



90Leased


30



28



56InternationalOwned


0



0



3Leased


22



0



5TOTAL


67



65



154     (1)
    
    Includes ten apartments leased in the United States and twelve
    apartments leased in Argentina for Key employees to use for
    operational support and business purposes only. Also includes
    three properties in Russia leased by Geostream and its
    subsidiaries.(2)
    
    Includes SWD facilities as leased if we own the well
    bore for the SWD but lease the land. In other cases, we lease
    both the well bore and the land. Lease terms vary among
    different sites, but with respect to some of the SWD facilities
    for which we lease the land and own the well bore, the land
    owner has an option under the land lease to retain the well bore
    at the termination of the lease.(3)
    
    Includes two properties in Russia owned by Geostream and its
    subsidiaries. 17




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ITEM 3.
    LEGAL
    PROCEEDINGS    Note 14. Commitments and
    Contingencies Item 8. Financial
    Statements and Supplementary Data
  ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    and Share Prices
    High


LowYear Ended December 31, 20091st Quarter

$
5.47


$
2.122nd Quarter


7.01



2.793rd Quarter


9.58



4.824th Quarter


9.50



7.00   High


LowYear Ended December 31, 20081st Quarter

$
14.47


$
11.232nd Quarter


19.75



13.363rd Quarter


18.94



11.334th Quarter


11.14



3.58   The following Performance Graph and related information shall
    not be deemed soliciting material or to be
    filed with the SEC, nor shall such information be
    incorporated by reference into any future filing under the
    Securities Act of 1933 or the Securities Exchange Act of 1934,
    except to the extent that we specifically incorporate it by
    reference into such filing.
   18




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COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Key Energy Services, Inc., The PHLX Oil Service Sector,
    The Russell 1000 Index, 
    The Russell 2000 Index, and the Peer Group
  
  *
    
    $100 invested on December 31, 2004 in stock or index,
    including reinvestment of dividends.  Dividend
    Policy
    Stock
    Repurchases
   19




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Issuer
    Purchases of Equity Securities
  Total Number of SharesPurchased as Part ofTotal Number


Weighted


Publicly Announcedof Shares


Average Price


Plans orPeriod

Purchased


Paid Per Share


ProgramsOctober 1, 2009 to October 31, 2009


3,528


$
8.34
(1)


November 1, 2009 to November 30, 2009










December 1, 2009 to December 31, 2009


23,291


$
9.03
(2)


     (1)
    
    The price paid per share on the vesting date with respect to the
    tax withholding repurchases was determined using the closing
    prices on October 2, 2009 and October 30, 2009,
    respectively, as quoted on the NYSE.(2)
    
    The price paid per share on the vesting date with respect to the
    tax withholding repurchases was determined using the closing
    prices on December 4, 2009 and December 22, 2009,
    respectively, as quoted on the NYSE.  Equity
    Compensation Plan Information
    Number of Securities


Weighted Average


Number of Securities Remainingto be Issued Upon


Exercise Price of


Available for Future IssuanceExercise of


Outstanding


Under Equity CompensationOutstanding Options,


Options, Warrants


Plans (Excluding SecuritiesWarrants And Rights


And Rights


Reflected in Column (a))Plan Category

(a)


(b)


(c)(In thousands)





(In thousands)Equity compensation plans approved by stockholders(1)


4,215


$
13.19



4,082Equity compensation plans not approved by stockholders(2)


120


$
8.07



Total


4,335







4,082     (1)
    
    Represents options and other stock-based awards granted under
    the Key Energy Services, Inc. 2009 Equity and Cash Incentive
    Plan (the 2009 Incentive Plan), the Key Energy
    Services, Inc. 2007 Equity and Cash Incentive Plan (the
    2007 Incentive Plan), and the Key Energy Group, Inc.
    1997 Incentive Plan (the 1997 Incentive Plan). The
    1997 Incentive Plan expired in November 2007.(2)
    
    Represents non-statutory stock options granted outside the 1997
    Incentive Plan, the 2007 Incentive Plan, and the 2009 Incentive
    Plan. The options have a ten-year term and other terms and
    conditions as those options granted under the 1997 Incentive
    Plan. These options were granted during 2000 and 2001. 20




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Item 7. Managements Discussion and
    Analysis of Financial Condition and Results of Operations Item 8.
    Financial Statements and Supplementary Data
  RESULTS
    OF OPERATIONS DATA
  Year Ended December 31,2009


2008


2007


2006


2005(In thousands, except per share amounts)Revenues

$
1,078,665


$
1,972,088


$
1,662,012


$
1,546,177


$
1,190,444Direct operating expenses


779,457



1,250,327



985,614



920,602



780,243Depreciation and amortization expense


169,562



170,774



129,623



126,011



111,888General and administrative expenses


178,696



257,707



230,396



195,527



151,303Asset retirements and impairments


159,802



75,137











Interest expense, net of amounts capitalized


39,069



41,247



36,207



38,927



50,299Other, net


(120
)


2,840



4,232



(9,370
)


12,313(Loss) income from continuing operations before income taxes and
    noncontrolling interest


(247,801
)


174,056



275,940



274,480



84,398Income tax benefit (expense)


91,125



(90,243
)


(106,768
)


(103,447
)


(35,320
)(Loss) income from continuing operations


(156,676
)


83,813



169,172



171,033



49,078Loss from discontinued operations, net of tax


















(3,361
)Net (loss) income


(156,676
)


83,813



169,172



171,033



45,717Noncontrolling interest


(555
)


(245
)


(117
)






(Loss) income attributable to common stockholders

$
(156,121
)

$
84,058


$
169,289


$
171,033


$
45,717(Loss) earnings per share from continuing operations:Basic

$
(1.29
)

$
0.68


$
1.29


$
1.30


$
0.37Diluted

$
(1.29
)

$
0.67


$
1.27


$
1.28


$
0.37Loss per share from discontinued operations:Basic

$



$



$



$



$
(0.03
)Diluted

$



$



$



$



$
(0.03
)(Loss) earnings per share attributable to common stockholders:Basic

$
(1.29
)

$
0.68


$
1.29


$
1.30


$
0.34Diluted

$
(1.29
)

$
0.67


$
1.27


$
1.28


$
0.34  21




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##### Table of Contents



CASH FLOW
    DATA
  Year Ended December 31,2009


2008


2007


2006


2005(In thousands)Net cash provided by operating activities

$
184,837


$
367,164


$
249,919


$
258,724


$
218,838Net cash used in investing activities


(110,636
)


(329,074
)


(302,847
)


(245,647
)


(33,218
)Net cash (used in) provided by financing activities


(127,475
)


(7,970
)


23,240



(18,634
)


(111,213
)Effect of changes in exchange rates on cash


(2,023
)


4,068



(184
)


(238
)


(662
)   SELECTED
    BALANCE SHEET DATA
  Year Ended December 31,2009


2008


2007


2006


2005(In thousands)Working capital

$
194,363


$
285,749


$
253,068


$
265,498


$
169,022Property and equipment, gross


1,728,174



1,858,307



1,595,225



1,279,980



1,089,826Property and equipment, net


864,608



1,051,683



911,208



694,291



610,341Total assets


1,664,410



2,016,923



1,859,077



1,541,398



1,329,244Long-term debt and capital leases, net of current maturities


523,949



633,591



511,614



406,080



410,781Total liabilities


921,270



1,156,191



969,828



810,887



775,187Equity


743,140



860,732



889,249



730,511



554,057Cash dividends per common share


















   ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis of our financial
    condition and results of operations should be read in
    conjunction with our consolidated financial statements and
    related notes thereto in Item 8. Financial Statements
    and Supplementary Data. The discussion below contains
    forward-looking statements that are based upon our current
    expectations and are subject to uncertainty and changes in
    circumstances including those identified in Cautionary
    Note Regarding Forward-Looking Statements above. Actual
    results may differ materially from these expectations due to
    inaccurate assumptions and known or unknown risks and
    uncertainties. Such forward-looking statements should be read in
    conjunction with our disclosures under Item 1A. Risk
    Factors.
  Overview
    Service Offerings Item 1. Business
 22




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Business
    and Growth Strategies
    Acquisition
    Strategy
  sub-surface
    Controlling
    Spending
    Maintain
    and Grow in Core Segments
    International
    Expansion
   23




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Investing
    in Technology
    KeyView®

    Technology
  ® ® ® ®
  Advanced
    Measurements, Inc. (AMI)
  ®
  SmartTong sm Services
  sm sm sm sm
  Safety
    and Quality
    Maintain
    Strong Balance Sheet and Liquidity
   24




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Related
    Party Notes Payable Liquidity and Capital
    Resources
  PERFORMANCE
    MEASURES
    WTI Cushing Crude


NYMEX Henry Hub


Average Baker HughesYear

Oil(1)


Natural Gas(1)


U.S. Land Drilling Rigs(2)2002

$
26.18


$
3.37



7172003

$
31.08


$
5.49



9242004

$
41.51


$
6.18



1,0952005

$
56.64


$
9.02



1,2902006

$
66.05


$
6.98



1,5592007

$
72.34


$
7.12



1,6952008

$
99.57


$
8.90



1,8142009

$
61.95


$
4.28



1,046     (1)
    
    Represents the average of the monthly average prices for each of
    the years presented. Source: EIA / Bloomberg(2)
    
    Source: www.bakerhughes.com 25




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Rig Hours


Trucking Hours2009First Quarter


489,819



499,247Second Quarter


415,520



416,269Third Quarter


416,810



398,027Fourth Quarter


439,552



422,253Total 2009:


1,761,701



1,735,7962008First Quarter


659,462



585,040Second Quarter


701,286



603,632Third Quarter


721,285



620,885Fourth Quarter


634,772



607,004Total 2008:


2,716,805



2,416,5612007First Quarter


625,748



571,777Second Quarter


611,890



583,074Third Quarter


597,617



570,356Fourth Quarter


614,444



583,191Total 2007:


2,449,699



2,308,398   MARKET
    CONDITIONS AND OUTLOOK
  Market
    Conditions  Year Ended December 31,
    2009
       26




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Market
    Outlook
         27




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Impact
    of Inflation on Operations
   28




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##### Table of Contents



RESULTS
    OF OPERATIONS
  Consolidated
    Results of Operations
    Year Ended December 31,2009


2008


2007(In thousands)REVENUES

$
1,078,665


$
1,972,088


$
1,662,012COSTS AND EXPENSES:Direct operating expenses


779,457



1,250,327



985,614Depreciation and amortization expense


169,562



170,774



129,623General and administrative expenses


178,696



257,707



230,396Asset retirements and impairments


159,802



75,137



Interest expense, net of amounts capitalized


39,069



41,247



36,207Other, net


(120
)


2,840



4,232Total costs and expenses, net


(1,326,466
)


1,798,032



1,386,072(Loss) income before taxes and noncontrolling interest


(247,801
)


174,056



275,940Income tax benefit (expense)


91,125



(90,243
)


(106,768
)Net (Loss) Income


(156,676
)


83,813



169,172Noncontrolling interest


(555
)


(245
)


(117
)(LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

$
(156,121
)

$
84,058


$
169,289   Year
    Ended December 31, 2009 and 2008
    Revenues
  Segment Operating Results  Year Ended
    December 31, 2009 and 2008
  Direct
    operating expenses
  Segment Operating Results  Year Ended
    December 31, 2009 and 2008
 29




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Depreciation
    and amortization expense
    General
    and administrative expenses
    Asset
    retirements and impairments
        Interest
    expense, net of amounts capitalized
   30




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##### Table of Contents



Other,
    net
    Year Ended December 31,2009


2008(In thousands)Loss on early extinguishment of debt

$
472


$
Loss (gain) on disposal of assets, net


401



(641
)Interest income


(499
)


(1,236
)Foreign exchange (gain) loss


(1,482
)


3,547Equity-method loss (income)


1,052



(166
)Other expense, net


(64
)


1,336Total

$
(120
)

$
2,840     Income
    tax benefit (expense)
    Year
    Ended December 31, 2008 and 2007
    Revenues
  Segment Operating Results  Year
    Ended December 31, 2008 and 2007
 31




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Direct
    operating expenses
  Segment Operating Results  Year Ended
    December 31, 2008 and 2007
  Depreciation
    and amortization expense
    General
    and administrative expenses
    Asset
    retirements and impairments
      Interest
    expense, net of amounts capitalized
   32




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##### Table of Contents



Other,
    net
    Year EndedDecember 31,2008


2007(In thousands)Loss on early extinguishment of debt

$



$
9,557(Gain) loss on disposal of assets, net


(641
)


1,752Interest income


(1,236
)


(6,630
)Foreign exchange (gain) loss


3,547



(458
)Equity-method income


(166
)


(391
)Other expense, net


1,336



402Total

$
2,840


$
4,232     Income
    tax expense
    Segment
    Operating Results
  Service
    Offerings Item 1. Business
 33




---



##### Table of Contents



Year
    Ended December 31, 2009 and 2008
    Production


FunctionalFor The Year Ended December 31, 2009

Well Servicing


Services


SupportRevenues

$
859,747


$
218,918


$
Operating expenses


781,504



240,625



105,586Asset retirements and impairments


65,869



93,933



Operating income (loss)


12,374



(115,640
)


(105,586
)Operating income (loss), as a percentage of revenue


1.4
%


52.8
%


n/a   Production


FunctionalFor The Year Ended December 31, 2008

Well Servicing


Services


SupportRevenues

$
1,470,332


$
501,756


$
Operating expenses


1,114,432



407,560



156,816Asset retirements and impairments






69,752



5,385Operating income (loss)


355,900



24,444



(162,201
)Operating income (loss), as a percentage of revenue


24.2
%


4.9
%


n/a   Well
    Servicing
      Production
    Services
   34




---



##### Table of Contents



Functional
    Support
    Year
    Ended December 31, 2008 and 2007
    Production


FunctionalFor The Year Ended December 31, 2008

Well Servicing


Services


SupportRevenues

$
1,470,332


$
501,756


$
Operating expenses


1,114,432



407,560



156,816Asset retirements and impairments






69,752



5,385Operating income (loss)


355,900



24,444



(162,201
)Operating income (loss), as a percentage of revenue


24.2
%


4.9
%


n/a   Production


FunctionalFor The Year Ended December 31, 2007

Well Servicing


Services


SupportRevenues

$
1,240,126


$
421,886


$
Operating expenses


879,270



315,919



150,444Operating income


360,856



105,967



(150,444
)Operating income (loss), as a percentage of revenue


29.1
%


25.1
%


n/a   Well
    Servicing
     35




---



##### Table of Contents



Production
    Services
      Functional
    Support
    Liquidity
    and Capital Resources
    day-to-day
   36




---



##### Table of Contents



Debt
    Service  Senior Secured Credit Facility sub-facility
  Cash
    Flows
       37




---



##### Table of Contents



Year Ended December 31,2009


2008(In thousands)Net cash provided by operating activities

$
184,837


$
367,164Cash paid for capital expenditures


(128,422
)


(218,994
)Acquisitions, net of cash acquired


12,007



(63,457
)Acquisition of Leader fixed assets






(34,468
)Investment in Geostream






(19,306
)Other investing activities, net


5,779



7,151Repayments of capital lease obligations


(9,847
)


(11,506
)Borrowings on revolving credit facility






172,813Payments on revolving credit facility


(100,000
)


(35,000
)Repurchases of common stock


(488
)


(139,358
)Other financing activities, net


(17,140
)


5,081Effect of changes in exchange rates on cash


(2,023
)


4,068Net (decrease) increase in cash and cash equivalents

$
(55,297
)

$
34,188   Debt
    Service
  Senior Secured Credit Facility
  Principal Payments(In thousands)2010

$
3,0442011


2,0002012


89,8132013


2014


425,000Total principal payments

$
519,857     8.375% Senior
    Notes
   38




---



##### Table of Contents



Year

Percentage2011


104.19
%2012


102.09
%2013


100.00
%         
    sell assets;
    pay dividends or make other distributions on capital stock or
    subordinated indebtedness;
    make investments;
    incur additional indebtedness or issue preferred stock;
    create certain liens;
    enter into agreements that restrict dividends or other payments
    from our subsidiaries to us;
    consolidate, merge or transfer all or substantially all of our
    assets;
    engage in transactions with affiliates; and
    create unrestricted subsidiaries.   39




---



##### Table of Contents



Senior
    Secured Credit Facility
  sub-facility
        
    that our consolidated funded indebtedness be no greater than 45%
    of our adjusted total capitalization;
    that our senior secured leverage ratio of senior secured funded
    debt to trailing four quarters of earnings before interest,
    taxes, depreciation and amortization (as calculated pursuant to
    the terms of the Senior Secured Credit Facility,
    EBITDA) be no greater than (i) 2.50 to 1.00 for
    the fiscal quarter ended December 31, 2009 through and
    including the fiscal quarter ending December 31, 2010 and,
    (ii) thereafter, 2.00 to 1.00;
    that we maintain a consolidated interest coverage ratio of
    trailing four quarters EBITDA to interest expense of at least
    the following amounts during each corresponding period:  from the fiscal quarter ended December 31, 2009 through and
    including the fiscal quarter ending June 30, 2010

1.75 to 1.00through the fiscal quarter ending September 30, 2010

2.00 to 1.00for the fiscal quarter ending December 31, 2010

2.50 to 1.00thereafter

3.00 to 1.00;   
    that we limit our capital expenditures (not including any made
    by foreign subsidiaries that are not wholly-owned) to
    (i) $135.0 million during fiscal year 2009 and
    $120.0 million during each subsequent fiscal year if our
    consolidated leverage ratio of total funded debt to trailing
    four quarters EBITDA is greater than 3.50 to 1.00; or
    (ii) $250.0 million if our consolidated leverage ratio
    of total funded debt to trailing four quarters EBITDA is equal
    to or less than 3.50 to 1.00, subject to certain adjustments;
    that we only make acquisitions that either (i) are
    completed for equity consideration, without regard to leverage,
    or (ii) are completed for cash consideration, but only
    (A) if the consolidated leverage ratio of total funded debt
    to trailing four quarters EBITDA is 2.75 to 1.00 or less,
    (x) there is an aggregate amount of $25.0 million in
    unused credit commitments under the facility and (y) we are
    in pro forma 40




---



##### Table of Contents



compliance with the financial covenants contained in the credit
    agreement; and (B) if the consolidated leverage ratio of
    total funded debt to trailing four quarters EBITDA is greater
    than 2.75 to 1.00, in addition to the requirements in
    subclauses (x) and (y) in clause (A) above, the
    cash amount paid with respect to acquisitions is limited to
    $25.0 million per fiscal year (subject to potential
    increase using amounts then available for capital expenditures
    and any net cash proceeds we receive after October 27, 2009
    in connection with the issuance or sale of equity interests or
    the incurrence or issuance of certain unsecured debt securities
    that are identified as being used for such purpose); and  
    that we limit our investment in foreign subsidiaries (including
    by way of loans made by us and our domestic subsidiaries to
    foreign subsidiaries and guarantees made by us and our domestic
    subsidiaries of debt of foreign subsidiaries) to
    $75.0 million during any fiscal year or an aggregate amount
    after October 27, 2009 equal to (i) the greater of
    $200.0 million or 25% of our consolidated net worth, plus
    (ii) any net cash proceeds we receive after
    October 27, 2009, in connection with the issuance or sale
    of equity interests or the incurrence of certain unsecured debt
    securities that are identified as being used for such purpose.      Related
    Party Notes Payable
    Capital
    Lease Agreements
   41




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Contractual
    Obligations
    Payments Due by PeriodLess than 1 Year


1-3 Years


4-5 Years


After 5 YearsTotal


(2010)


(2011-2013)


(2014-2015)


(2016+)(In thousands)8.375% Senior Notes due 2014

$
425,000


$



$



$
425,000


$
Interest associated with 8.375% Senior Notes due 2014


178,073



35,595



106,883



35,595



Borrowings under Senior Secured Credit Facility


87,813







87,813







Interest associated with Senior Secured Credit Facility(1)


9,667



3,276



6,391







Commitment and availability fees associated with Senior Secured
    Credit Facility


1,821



607



1,214







Notes payable  related party, excluding discount


6,000



2,000



4,000







Interest associated with notes payable  related
    party(1)


81



42



39







Capital lease obligations, excluding interest and executory costs


14,313



7,209



7,104







Interest and executory costs associated with capital lease
    obligations(1)


647



308



339







Other long-term indebtedness


1,044



1,044











Interest associated with other long-term indebtedness(1)


10



10











Non-cancelable operating leases


24,533



7,230



11,684



3,982



1,637Liabilities for uncertain tax positions


3,232



1,654



1,432



146



Equity based compensation liability awards(2)


2,912



1,585



1,327







Earnout payments(3)


25,500



500



25,000







Total

$
780,646


$
61,060


$
253,226


$
464,723


$
1,637     (1)
    
    Based on interest rates in effect at December 31, 2009.(2)
    
    Based on our stock price at December 31, 2009.(3)
    
    Assumes performance targets are achieved.   42




---



##### Table of Contents



Debt
    Compliance
    Item 1A. Risk
    Factors
  Capital
    Expenditures
    Geostream
    Investment
  sub-surface
     43




---



##### Table of Contents



Critical
    Accounting Policies
        
    Estimate of reserves for workers compensation, vehicular
    liability and other self-insurance;
    Contingencies;
    Income taxes;
    Estimates of depreciable lives;
    Valuation of indefinite-lived intangible assets;
    Valuation of tangible and finite-lived intangible
    assets; and
    Valuation of equity-based compensation.  Workers
    Compensation, Vehicular Liability and Other
    Self-Insurance
         44




---



##### Table of Contents



Contingencies
        Income
    Taxes
     45




---



##### Table of Contents



Note 12. Income Taxes Item 8. Financial Statements and Supplementary
    Data
  Estimates
    of Depreciable Lives
        Valuation
    of Indefinite-Lived Intangible Assets
       46




---



##### Table of Contents



47




---



##### Table of Contents



Note 7. Goodwill and Other
    Intangible Assets Item 8. Financial
    Statements and Supplementary Data
  Valuation
    of Tangible and Finite-Lived Intangible Assets
      Note 6. Property, Plant and
    Equipment Item 8. Financial
    Statements and Supplementary Data
   48




---



##### Table of Contents



Valuation
    of Equity-Based Compensation
  Note 18. Share-Based Compensation Item 8. Financial Statements and Supplementary
    Data
      Year Ended December 31,2009


2008


2007Risk-free interest rate


2.21
%


2.86
%


4.41
%Expected life of options, years


6



6



6Expected volatility of the Companys stock price


53.70
%


36.86
%


39.49
%Expected dividends


none



none



none       New
    Accounting Standards Adopted in this Report
  SFAS 141(R). Business Combinations
 49




---



##### Table of Contents



SFAS 160. Noncontrolling Interests in
    Consolidated Financial Statements  An amendment of
    ARB No. 51 Consolidated Financial Statements
  SFAS 165. Subsequent Events
  ASU
    2009-01. 2009-01, The FASB Accounting Standards Codification and the Hierarchy
    of Generally Accepted Accounting Principles  a
    replacement of FASB Statement No. 162 2009-01). 2009-01 2009-01, 2009-01 2009-01
  ASU
    2009-05. 2009-05, Fair Value Measurements and Disclosures (Topic
    820)  Measuring Liabilities at Fair Value 2009-05). 2009-05
 50




---



##### Table of Contents



2009-05 2009-05
  Accounting
    Standards Not Yet Adopted in this Report
  SFAS 166. Accounting for Transfers of Financial
    Assets, an amendment of FASB Statement No. 140 Accounting for Transfers and
    Servicing of Financial Assets and Extinguishment of
    Liabilities  a Replacement of FASB Statement 125 Consolidation of Variable
    Interest Entities  an Interpretation of ARB
    No. 51
  SFAS 167. Amendments to FASB Interpretation
    No. 46(R)
  ASU
    2009-13. 2009-13, Revenue Recognition (Topic 605) 
    Multiple-Deliverable Revenue Arrangements, a consensus of the
    FASB Emerging Issues Task Force 2009-13). 2009-13 2009-13, 2009-13 2009-13 2009-13 2009-13
  ASU
    2009-14. 2009-14, Software (Topic 985)  Certain Revenue Arrangements
    That Include Software Elements  a consensus of the
    FASB Emerging Issues Task Force 2009-14). 2009-14
 51




---



##### Table of Contents



2009-14 2009-14 2009-14 2009-14 2009-13 2009-13 2009-14. 2009-14 2009-14 2009-14 2009-13. 2009-14
  ASU
    2009-17. 2009-17, Consolidations (Topic 810)  Improvements to
    Financial Reporting by Enterprises Involved with Variable
    Interest Entities. 2009-17 2009-17 2009-17 2009-17
  ASU
    2010-02. 2010-02, Consolidation (Topic 810)  Accounting and
    Reporting for Decreases in Ownership of a Subsidiary 
    A Scope Clarification. 2010-02 2010-02 2010-02 2010-02
  ASU
    2010-06. 2010-06, Fair Value Measurements and Disclosures (Topic
    820)  Improving Disclosures About Fair Value
    Measurements. 2010-06
 52




---



##### Table of Contents



2010-06 2010-06
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Interest
    Rate Risk
    Foreign
    Currency Risk
    Equity
    Risk
   53




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Key
    Energy Services, Inc. and Subsidiaries
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
   
 PageReport of Independent Registered Public
    Accounting Firm


55Report of Independent Registered Public
    Accounting Firm on Internal Control over Financial Reporting


56Consolidated Balance Sheets


57Consolidated Statements of Operations


58Consolidated Statements of Comprehensive
    Income


59Consolidated Statements of Cash Flows


60Consolidated Statements of Stockholders
    Equity


61Notes to Consolidated Financial Statements


62  54




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Internal Control  Integrated Framework
  GRANT
    THORNTON LLP
    55




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Internal Control 
    Integrated Framework
        Internal Control 
    Integrated Framework
    GRANT
    THORNTON LLP
    56




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  CONSOLIDATED BALANCE SHEETS
  December 31,2009


2008(In thousands, exceptshare amounts)ASSETSCurrent assets:Cash and cash equivalents

$
37,394


$
92,691Accounts receivable, net of allowance for doubtful accounts of
    $5,441 and $11,468


214,662



377,353Inventories


27,452



34,756Prepaid expenses


14,212



15,513Deferred tax assets


25,323



26,623Income taxes receivable


50,025



4,848Other current assets


15,064



7,338Total current assets


384,132



559,122Property and equipment, gross


1,728,174



1,858,307Accumulated depreciation


(863,566
)


(806,624
)Property and equipment, net


864,608



1,051,683Goodwill


346,102



320,992Other intangible assets, net


41,048



42,345Deferred financing costs, net


10,421



10,489Equity-method investments


5,203



24,220Other assets


12,896



8,072TOTAL ASSETS

$
1,664,410


$
2,016,923LIABILITIES AND EQUITYCurrent liabilities:Accounts payable

$
46,086


$
46,185Accrued liabilities


130,517



197,116Accrued interest


3,014



4,368Current portion of capital lease obligations


7,203



9,386Current portion of notes payable  related parties,
    net of discount


1,931



14,318Current portion of long-term debt


1,018



2,000Total current liabilities


189,769



273,373Capital lease obligations, less current portion


7,110



13,763Notes payable  related parties, less current portion


4,000



6,000Long-term debt, less current portion


512,839



613,828Workers compensation, vehicular and health insurance
    liabilities


40,855



43,151Deferred tax liabilities


146,980



188,581Other non-current accrued liabilities


19,717



17,495Commitments and contingenciesEquity:Common stock, $0.10 par value; 200,000,000 shares
    authorized, 123,993,480 and 121,305,289 shares issued and
    outstanding


12,399



12,131Additional paid-in capital


608,223



601,872Accumulated other comprehensive loss


(50,763
)


(46,550
)Retained earnings


137,158



293,279Total equity attributable to common stockholders


707,017



860,732Noncontrolling interest


36,123



Total equity


743,140



860,732TOTAL LIABILITIES AND EQUITY

$
1,664,410


$
2,016,923    57




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2009


2008


2007(In thousands, except per share amounts)REVENUES

$
1,078,665


$
1,972,088


$
1,662,012COSTS AND EXPENSES:Direct operating expenses


779,457



1,250,327



985,614Depreciation and amortization expense


169,562



170,774



129,623General and administrative expenses


178,696



257,707



230,396Asset retirements and impairments


159,802



75,137



Interest expense, net of amounts capitalized


39,069



41,247



36,207Other, net


(120
)


2,840



4,232Total costs and expenses, net


1,326,466



1,798,032



1,386,072(Loss) income before taxes and noncontrolling interest


(247,801
)


174,056



275,940Income tax benefit (expense)


91,125



(90,243
)


(106,768
)Net (Loss) Income


(156,676
)


83,813



169,172Noncontrolling interest


(555
)


(245
)


(117
)(LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS

$
(156,121
)

$
84,058


$
169,289(Loss) earnings per share attributable to common stockholders:Basic

$
(1.29
)

$
0.68


$
1.29Diluted

$
(1.29
)

$
0.67


$
1.27Weighted average shares outstanding:Basic


121,072



124,246



131,194Diluted


121,072



125,565



133,551    58




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE
    INCOME
  Year Ended December 31,2009


2008


2007(In thousands)Net (Loss) Income

$
(156,676
)

$
83,813


$
169,172Other comprehensive (loss) income, net of tax:Foreign currency translation loss, net of tax of $(347), $(952),
    and $0


(4,243
)


(8,561
)


(1,281
)Net deferred loss from cash flow hedges, net of tax of $0, $0,
    and $(115)










(213
)Deferred gain (loss) from available for sale investments, net of
    tax of $0, $0 and $(97)


30



(8
)


(203
)Total other comprehensive loss, net of tax


(4,213
)


(8,569
)


(1,697
)Comprehensive (loss) income, net of tax


(160,889
)


75,244



167,475Comprehensive loss attributable to noncontrolling interest


(416
)


(316
)


(119
)COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON
    STOCKHOLDERS

$
(160,473
)

$
75,560


$
167,594    59




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  CONSOLIDATED STATEMENTS OF CASH
    FLOWS
  Year Ended December 31,2009


2008


2007(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:(Loss) income attributable to common stockholders

$
(156,121
)

$
84,058


$
169,289Adjustments to reconcile (loss) income attributable to common
    stockholders to net cash provided by operating activities:Noncontrolling interest


(555
)


(245
)


(117
)Depreciation and amortization expense


169,562



170,774



129,623Asset retirements and impairments


159,802



75,137



Bad debt expense


3,295



37



3,675Accretion of asset retirement obligations


533



594



585Loss (income) from equity-method investments


1,057



(160
)


(387
)Amortization of deferred financing costs and discount


2,182



2,115



1,680Deferred income tax (benefit) expense


(41,257
)


29,747



24,613Capitalized interest


(4,335
)


(6,514
)


(5,296
)Loss (gain) on disposal of assets, net


401



(641
)


1,752Loss on early extinguishment of debt


472







9,557Loss on sale of available for sale investments, net


30







Share-based compensation


6,381



24,233



9,355Excess tax benefits from share-based compensation


(580
)


(1,733
)


(3,401
)Changes in working capital:Accounts receivable


168,824



(34,943
)


(48,387
)Other current assets


461



(15,622
)


(15,578
)Accounts payable, accrued interest and accrued expenses


(126,949
)


46,375



(1,360
)Cash paid for legal settlement with former chief executive
    officer










(21,200
)Share-based compensation liability awards


646



(516
)


3,701Other assets and liabilities


988



(5,532
)


(8,185
)Net cash provided by operating activities


184,837



367,164



249,919CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures


(128,422
)


(218,994
)


(212,560
)Proceeds from sale of fixed assets


5,580



7,961



8,427Investment in Geostream Services Group






(19,306
)


Acquisitions, net of cash acquired of $28,362, $2,017, and
    $2,154, respectively


12,007



(99,011
)


(160,278
)Dividend from equity-method investments


199







Cash paid for short-term investments










(121,613
)Proceeds from sale of short-term investments






276



183,177Net cash used in investing activities


(110,636
)


(329,074
)


(302,847
)CASH FLOWS FROM FINANCING ACTIVITIES:Repayments of long-term debt


(16,552
)


(3,026
)


(396,000
)Proceeds from long-term debt










425,000Repayments of capital lease obligations


(9,847
)


(11,506
)


(11,316
)Borrowings on revolving credit facility






172,813



50,000Repayments on revolving credit facility


(100,000
)


(35,000
)


Repayments of debt assumed in acquisitions










(17,435
)Repurchases of common stock


(488
)


(139,358
)


(30,454
)Proceeds from exercise of stock options


1,306



6,688



13,444Payment of deferred financing costs


(2,474
)


(314
)


(13,400
)Excess tax benefits from share-based compensation


580



1,733



3,401Net cash (used in) provided by financing activities


(127,475
)


(7,970
)


23,240Effect of changes in exchange rates on cash


(2,023
)


4,068



(184
)Net (decrease) increase in cash and cash equivalents


(55,297
)


34,188



(29,872
)Cash and cash equivalents, beginning of period


92,691



58,503



88,375Cash and cash equivalents, end of period

$
37,394


$
92,691


$
58,503    60




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY
  COMMON STOCKHOLDERSAccumulatedCommon Stock


Additional


OtherNumber of


Amount


Paid-in


Comprehensive


Retained


NoncontrollingShares


at par


Capital


Loss


Earnings


Interest


Total(In thousands)BALANCE AT DECEMBER 31, 2006


131,624


$
13,162


$
711,798


$
(36,284
)

$
39,932


$



$
728,608Comprehensive loss, net of tax














(1,697
)










(1,697
)Common stock purchases


(2,414
)


(241
)


(33,161
)














(33,402
)Purchase of AFTI






















368



368Exercise of stock options


1,598



159



13,285















13,444Exercise of warrants


23



2



(2
)














Share-based compensation


312



32



9,323















9,355Tax benefits from share-based compensation










3,401















3,401Net income


















169,289



(117
)


169,172BALANCE AT DECEMBER 31, 2007


131,143



13,114



704,644



(37,981
)


209,221



251



889,249Comprehensive loss, net of tax














(8,569
)










(8,569
)Common stock purchases


(11,183
)


(1,118
)


(135,291
)














(136,409
)Deconsolidation of AFTI






















(6
)


(6
)Exercise of stock options


757



76



6,612















6,688Exercise of warrants


160



16



(16
)














Share-based compensation


428



43



24,190















24,233Tax benefits from share-based compensation










1,733















1,733Net income


















84,058



(245
)


83,813BALANCE AT DECEMBER 31, 2008


121,305



12,131



601,872



(46,550
)


293,279







860,732Comprehensive loss, net of tax














(4,213
)






(7
)


(4,220
)Common stock purchases


(72
)


(7
)


(481
)














(488
)Exercise of stock options


418



42



1,264















1,306Issuance of warrants










367















367Share-based compensation


2,342



233



5,781















6,014Tax benefits from share-based compensation










(580
)














(580
)Net loss


















(156,121
)


(555
)


(156,676
)Purchase of Geostream






















36,685



36,685BALANCE AT DECEMBER 31, 2009


123,993


$
12,399


$
608,223


$
(50,763
)

$
137,158


$
36,123


$
743,140    61




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
  NOTE 1.
    ORGANIZATION
    AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    Basis
    of Presentation
  Form 10-K
    Note 4. Other
    Income and Expense Note 19.
    Transactions with Related Parties Note 21. Segment
    Information
  Form 10-K
 62




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Principles
    of Consolidation
    Note 2. Acquisitions
  Acquisitions
    Revenue
    Recognition
    
    Evidence of an arrangement exists when a final understanding
    between us and our customer has occurred, and can be evidenced
    by a completed customer purchase order, field ticket, supplier
    contract, or master service agreement.
    Delivery has occurred or services have been rendered when we
    have completed requirements pursuant to the terms of the
    arrangement as evidenced by a field ticket or service log. 63




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    The price to the customer is fixed and determinable when the
    amount that is required to be paid is agreed upon. Evidence of
    the price being fixed and determinable is evidenced by
    contractual terms, our price book, a completed customer purchase
    order, or a completed customer field ticket.
    Collectibility is reasonably assured when we screen our
    customers to determine credit terms and provide goods and
    services to customers that have been granted credit in
    accordance with our credit policy.      Cash
    and Cash Equivalents
          Accounts
    Receivable and Allowance for Doubtful Accounts
     64




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Concentration
    of Credit Risk and Significant Customers
      Inventories
    Property
    and Equipment
      Description

YearsWell service rigs and components


3-15Oilfield trucks, pressure pumping equipment, and related
    equipment


7-12Motor vehicles


3-5Fishing and rental tools


4-10Disposal wells


15-30Furniture and equipment


3-7Buildings and improvements


15-30      65




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6. Property and Equipment
  Asset
    Retirement Obligations
  Note 9. Asset Retirement Obligations
  Capitalized
    Interest
    Deferred
    Financing Costs
    Goodwill
    and Other Intangible Assets
     66




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 7. Goodwill and Other Intangible
    Assets
  Internal-Use
    Software
    Litigation
    Note 14. Commitments and Contingencies
  Environmental
  Note 14. Commitments and Contingencies
 67




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Self
    Insurance
  Note 14.
    Commitments and Contingencies
  Income
    Taxes
      Note 12. Income Taxes
  Earnings
    Per Share
  Note 8. Earnings Per Share
  Share-Based
    Compensation
   68




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 18. Share-Based
    Compensation
  Foreign
    Currency Gains and Losses
    Note 15. Accumulated Other Comprehensive
    Loss
  Comprehensive
    Income
    Leases
       69




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    New
    Accounting Standards Adopted in this Report
  SFAS 141(R). Business Combinations
  SFAS 160. Noncontrolling Interests in
    Consolidated Financial Statements  An amendment of
    ARB No. 51 Consolidated Financial Statements
  SFAS 165. Subsequent Events
 70




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  ASU
    2009-01. 2009-01, The FASB Accounting Standards Codification and the Hierarchy
    of Generally Accepted Accounting Principles  a
    replacement of FASB Statement No. 162 2009-01). 2009-01 2009-01, 2009-01 2009-01
  ASU
    2009-05. 2009-05, Fair Value Measurements and Disclosures (Topic
    820)  Measuring Liabilities at Fair Value 2009-05). 2009-05 2009-05 2009-05
  Accounting
    Standards Not Yet Adopted in this Report
  SFAS 166. Accounting for Transfers of Financial
    Assets, an amendment of FASB Statement No. 140 Accounting for Transfers and
    Servicing of Financial Assets and Extinguishment of
    Liabilities  a Replacement of FASB Statement 125 Consolidation of Variable
    Interest Entities  an Interpretation of ARB
    No. 51
  SFAS 167. Amendments to FASB Interpretation
    No. 46(R)
  ASU
    2009-13. 2009-13, Revenue Recognition (Topic 605) 
    Multiple-Deliverable Revenue Arrangements, a consensus of the
    FASB Emerging Issues Task Force 2009-13). 2009-13
 71




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2009-13, 2009-13 2009-13 2009-13 2009-13
  ASU
    2009-14. 2009-14, Software (Topic 985)  Certain Revenue Arrangements
    That Include Software Elements  a consensus of the
    FASB Emerging Issues Task Force 2009-14). 2009-14 2009-14 2009-14 2009-14 2009-14 2009-13 2009-13 2009-14. 2009-14 2009-14 2009-14 2009-13. 2009-14
  ASU
    2009-17. 2009-17, Consolidations (Topic 810)  Improvements to
    Financial Reporting by Enterprises Involved with Variable
    Interest Entities. 2009-17 2009-17
 72




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2009-17 2009-17
  ASU
    2010-02. 2010-02, Consolidation (Topic 810)  Accounting and
    Reporting for Decreases in Ownership of a Subsidiary 
    A Scope Clarification. 2010-02 2010-02 2010-02 2010-02
  ASU
    2010-06. 2010-06, Fair Value Measurements and Disclosures (Topic
    820)  Improving Disclosures About Fair Value
    Measurements. 2010-06 2010-06 2010-06
  NOTE 2.
    ACQUISITIONS  2009
    Acquisitions
  Geostream Services Group.
  sub-surface
   73




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (In thousands)At September 1, 2009:Cash and cash equivalents

$
28,362Other current assets


8,545Property and equipment


2,959Intangible assets


11,470Other assets


194Total identifiable assets acquired


51,530Current liabilities


5,456Other liabilities


8Total liabilities assumed


5,464Noncontrolling interest


34,994Net identifiable assets acquired


11,072Goodwill


23,918Net assets acquired

$
34,990            74




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2008
    Acquisitions
  Western Drilling, LLC.
  Hydra-Walk, Inc.
  Leader Energy Services Ltd.
    2007
    Acquisitions
  AMI.
  Moncla.
  Kings Oil Tools.
   75




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 3.
    OTHER
    CURRENT AND NON-CURRENT LIABILITIES    December 31,


December 31,2009


2008(In thousands)Current Accrued Liabilities:Accrued payroll, taxes and employee benefits

$
33,953


$
67,408Accrued operating expenditures


24,194



50,833Income, sales, use and other taxes


30,447



41,003Self-insurance reserves


24,366



25,724Insurance premium financing


7,282



Unsettled legal claims


2,665



4,550Phantom share liability


1,518



902Other


6,092



6,696Total

$
130,517


$
197,116     December 31,


December 31,2009


2008(In thousands)Non-Current Accrued Liabilities:Asset retirement obligations

$
10,045


$
9,348Environmental liabilities


3,353



3,004Accrued rent


2,399



2,497Accrued income taxes


2,813



1,359Phantom share liability


508



478Other


599



809Total

$
19,717


$
17,495  76




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 4.
    OTHER
    INCOME AND EXPENSE    Year Ended December 31,2009


2008


2007(In thousands)Loss on early extinguishment of debt

$
472


$



$
9,557Loss (gain) on disposal of assets, net


401



(641
)


1,752Interest income


(499
)


(1,236
)


(6,630
)Foreign exchange (gain) loss, net


(1,482
)


3,547



(458
)Equity-method loss (income)


1,052



(166
)


(391
)Other expense, net


(64
)


1,336



402Total

$
(120
)

$
2,840


$
4,232   NOTE 5.
    ALLOWANCE
    FOR DOUBTFUL ACCOUNTS    AdditionsBalance at





Charged to








Balance atBeginning


Charged to


Other








End ofof Period


Expense


Accounts


Acquisitions


Deductions(1)


Period(In thousands)As of December 31, 2009

$
11,468


$
3,295


$



$



$
(9,322
)

$
5,441As of December 31, 2008


13,501



37



(38
)


15



(2,047
)


11,468As of December 31, 2007


12,998



3,675







1,251



(4,423
)


13,501     (1)
    
    Deductions represent write offs to the allowance. Deductions in
    2009 include approximately $5.2 million for a single
    customer that had been specifically identified and reserved for
    prior to 2007. 77




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 6.
    PROPERTY
    AND EQUIPMENT    December 31,2009


2008(In thousands)Major classes of property and equipment:Well servicing equipment

$
1,368,925


$
1,431,624Disposal wells


52,797



60,508Motor vehicles


101,142



125,031Furniture and equipment


82,346



81,129Buildings and land


55,411



71,014Work in progress


67,553



89,001Gross property and equipment


1,728,174



1,858,307Accumulated depreciation


(863,566
)


(806,624
)Net property and equipment

$
864,608


$
1,051,683         December 31,2009


2008(In thousands)Carrying values of assets leased under capital lease
    obligations:Well servicing equipment

$
116


$
20,442Motor vehicles


10,207



9,271Furniture and fixtures


36



Total

$
10,359


$
29,713      78




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        NOTE 7.
    GOODWILL
    AND OTHER INTANGIBLE ASSETS    Well Servicing


Production Services


Total(In thousands)December 31, 2007

$
306,248


$
72,302


$
378,550Purchase price allocation and other adjustments, net


2,353



23



2,376Goodwill acquired during the period


8,970



1,815



10,785Impairment of goodwill






(69,752
)


(69,752
)Impact of foreign currency translation


(81
)


(886
)


(967
)December 31, 2008


317,490



3,502



320,992Purchase price allocation and other adjustments, net


(356
)


500



144Acquisition of Geostream


23,918







23,918Impairment of goodwill






(500
)


(500
)Impact of foreign currency translation


971



577



1,548December 31, 2009

$
342,023


$
4,079


$
346,102  79




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,


December 31,2009


2008(In thousands)Noncompete agreements:Gross carrying value

$
14,010


$
16,309Accumulated amortization


(5,618
)


(4,699
)Net carrying value

$
8,392


$
11,610Patents, trademarks and tradename:Gross carrying value

$
10,481


$
4,391Accumulated amortization


(917
)


(3,114
)Net carrying value

$
9,564


$
1,277Customer relationships and contracts:Gross carrying value

$
41,389


$
39,225Accumulated amortization


(19,947
)


(12,359
)Net carrying value

$
21,442


$
26,866Developed technology:Gross carrying value

$
3,073


$
3,598Accumulated amortization


(1,724
)


(1,421
)Net carrying value

$
1,349


$
2,177Customer backlog:Gross carrying value

$
724


$
622Accumulated amortization


(423
)


(207
)Net carrying value

$
301


$
415     Year Ended December 31,2009


2008


2007(In thousands)Noncompete agreements

$
3,222


$
4,108


$
1,919Patents and trademarks


489



748



774Customer relationships and contracts


8,679



10,710



1,649Developed technology


659



1,803



389Customer backlog


167



252



210Total intangible asset amortization expense

$
13,216


$
17,621


$
4,941  80




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedAverage RemainingAmortization


Expected Amortization ExpensePeriod (Years)


2010


2011


2012


2013


2014(In thousands)Noncompete agreements


3.3


$
2,654


$
2,620


$
2,423


$
406


$
289Patents and trademarks


4.8



273



203



96



40



33Customer relationships and contracts


8.1



6,726



4,226



3,057



2,208



1,671Customer backlog


1.7



181



120











Developed technology


1.7



798



551











Total intangible asset amortization expense





$
10,632


$
7,720


$
5,576


$
2,654


$
1,993     Note 6. Property and Equipment
     81




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      NOTE 8.
    EARNINGS
    PER SHARE    Year Ended December 31,2009


2008


2007(In thousands, except per share data)Basic EPS Computation:Numerator(Loss) income attributable to common stockholders

$
(156,121
)

$
84,058


$
169,289DenominatorWeighted average shares outstanding


121,072



124,246



131,194Basic (loss) earnings per share

$
(1.29
)

$
0.68


$
1.29Diluted EPS Computation:Numerator(Loss) income attributable to common stockholders

$
(156,121
)

$
84,058


$
169,289DenominatorWeighted average shares outstanding


121,072



124,246



131,194Stock options






555



1,518Restricted stock






254



256Warrants






506



565Stock appreciation rights






4



18121,072



125,565



133,551Diluted (loss) earnings per share

$
(1.29
)

$
0.67


$
1.27    82




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      NOTE 9.
    ASSET
    RETIREMENT OBLIGATIONS      Balance at December 31, 2007

$
9,298Additions


397Costs incurred


(462
)Accretion expense


594Disposals


(479
)Balance at December 31, 2008


9,348Additions


517Costs incurred


(306
)Accretion expense


533Disposals


(47
)Balance at December 31, 2009

$
10,045   NOTE 10.
    EQUITY-METHOD
    INVESTMENTS  IROC
    Energy Services Corp.
       83




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Advanced
    Flow Technologies, Inc.
   84




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 11.
    ESTIMATED
    FAIR VALUE OF FINANCIAL INSTRUMENTS    Cash, cash equivalents, accounts payable and accrued
    liabilities.
  December 31, 2009


December 31, 2008Carrying Value


Fair Value


Carrying Value


Fair Value(In thousands)Financial assets:Notes and accounts receivable  related parties

$
281


$
281


$
336


$
336Financial liabilities:8.375% Senior Notes

$
425,000


$
422,875


$
425,000


$
282,115Senior Secured Credit Facility revolving loans


87,813



87,813



187,813



187,813Notes payable  related parties


5,931



5,931



20,318



20,318   Notes receivable-related parties.
  8.375% Senior Notes due 2014.
  Senior Secured Credit Facility revolving
    loans.
  Notes payable  related parties.
 85




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 12.
    INCOME
    TAXES    Year Ended December 31,2009


2008


2007(In thousands)Current income tax (expense) benefit:Federal and state

$
53,798


$
(55,190
)

$
(81,384
)Foreign


(3,930
)


(5,306
)


(771
)49,868



(60,496
)


(82,155
)Deferred income tax (expense) benefit:Federal and state


36,895



(30,363
)


(24,281
)Foreign


4,362



616



(332
)41,257



(29,747
)


(24,613
)Total income tax benefit (expense)

$
91,125


$
(90,243
)

$
(106,768
)     Year Ended December 31,2009


2008


2007(In thousands)Domestic

$
(279,278
)

$
150,870


$
270,975Foreign


31,477



23,186



4,965Total

$
(247,801
)

$
174,056


$
275,940    86




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2009


2008


2007Income tax computed at Federal statutory rate


35.00
%


35.00
%


35.00
%State taxes


2.1



3.1



3.2Non-deductible goodwill






12.8



Change in valuation allowance






(0.3
)


0.2Other


(0.3
)


1.2



0.3Effective income tax rate


36.80
%


51.80
%


38.70
%     December 31,2009


2008(In thousands)Deferred tax assets:Net operating loss and tax credit carryforwards

$
11,990


$
4,664Self-insurance reserves


17,735



20,944Allowance for doubtful accounts


1,835



4,023Accrued liabilities


11,550



14,681Share-based compensation


10,746



10,116Other


2,554



3,085Total deferred tax assets


56,410



57,513Valuation allowance for deferred tax assets


(835
)


(844
)Net deferred tax assets


55,575



56,669Deferred tax liabilities:Property and equipment


(147,956
)


(190,675
)Intangible assets


(29,238
)


(27,952
)Other


(38
)


Total deferred tax liabilities


(177,232
)


(218,627
)Net deferred tax liability, net of valuation allowance

$
(121,657
)

$
(161,958
)      87




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             88




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Balance at January 1, 2009

$
5,058Additions based on tax positions related to the current year


336Reductions as a result of lapse of applicable statute of
    limitations


(2,153
)Settlements


Balance at December 31, 2009

$
3,241   Tax
    Legislative Changes
  The Economic Stimulus Act of 2008.
  The American Recovery and Reinvestment Act of
    2009.
 89




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 13.
    LONG-TERM
    DEBT    December 31,


December 31,2009


2008(In thousands)8.375% Senior Notes due 2014

$
425,000


$
425,000Senior Secured Credit Facility revolving loans due 2012


87,813



187,813Other long-term indebtedness


1,044



3,015Notes payable  related parties, net of discount of
    $69 and $182, respectively


5,931



20,318Capital lease obligations


14,313



23,149$
534,101


$
659,295Less current portion


(10,152
)


(25,704
)Total long-term debt and capital lease obligations, net of
    discount

$
523,949


$
633,591   8.375% Senior
    Notes due 2014
        Year

Percentage2011


104.19
%2012


102.09
%2013


100.00
%      90




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    sell assets;
    pay dividends or make other distributions on capital stock or
    subordinated indebtedness;
    make investments;
    incur additional indebtedness or issue preferred stock;
    create certain liens;
    enter into agreements that restrict dividends or other payments
    from our subsidiaries to us;
    consolidate, merge or transfer all or substantially all of our
    assets;
    engage in transactions with affiliates; and
    create unrestricted subsidiaries.    Senior
    Secured Credit Facility
  sub-facility
       91




---



##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    that our consolidated funded indebtedness be no greater than 45%
    of our adjusted total capitalization;
    that our senior secured leverage ratio of senior secured funded
    debt to trailing four quarters of earnings before interest,
    taxes, depreciation and amortization (as calculated pursuant to
    the terms of the Senior Secured Credit Facility,
    EBITDA) be no greater than (i) 2.50 to 1.00 for
    the fiscal quarter ended December 31, 2009 through and
    including the fiscal quarter ending December 31, 2010 and,
    (ii) thereafter, 2.00 to 1.00;
    that we maintain a consolidated interest coverage ratio of
    trailing four quarters EBITDA to interest expense of at least
    the following amounts during each corresponding period:  from the fiscal quarter ended December 31, 2009 through and
    including the fiscal quarter ending June 30, 2010

1.75 to 1.00through the fiscal quarter ending September 30, 2010

2.00 to 1.00for the fiscal quarter ending December 31, 2010

2.50 to 1.00thereafter

3.00 to 1.00;   
    that we limit our capital expenditures (not including any made
    by foreign subsidiaries that are not wholly-owned) to
    (i) $135.0 million during fiscal year 2009 and
    $120.0 million during each subsequent fiscal year if our
    consolidated leverage ratio of total funded debt to trailing
    four quarters EBITDA is greater than 3.50 to 1.00; or
    (ii) $250.0 million if our consolidated leverage ratio
    of total funded debt to trailing four quarters EBITDA is equal
    to or less than 3.50 to 1.00, subject to certain adjustments;
    that we only make acquisitions that either (i) are
    completed for equity consideration, without regard to leverage,
    or (ii) are completed for cash consideration, but only
    (A) if the consolidated leverage ratio of total funded debt
    to trailing four quarters EBITDA is 2.75 to 1.00 or less,
    (x) there is an aggregate amount of $25.0 million in
    unused credit commitments under the facility and (y) we are
    in pro forma compliance with the financial covenants contained
    in the credit agreement; and (B) if the consolidated
    leverage ratio of total funded debt to trailing four quarters
    EBITDA is greater than 2.75 to 1.00, in addition to the
    requirements in subclauses (x) and (y) in
    clause (A) above, the cash amount paid with respect to
    acquisitions is limited to $25.0 million per fiscal year
    (subject to potential increase using amounts then available for
    capital expenditures and any net cash proceeds we receive after
    October 27, 2009 in connection with the issuance or sale of
    equity interests or the incurrence or issuance of certain
    unsecured debt securities that are identified as being used for
    such purpose); and
    that we limit our investment in foreign subsidiaries (including
    by way of loans made by us and our domestic subsidiaries to
    foreign subsidiaries and guarantees made by us and our domestic
    subsidiaries of debt of foreign subsidiaries) to
    $75.0 million during any fiscal year or an aggregate amount
    after October 27, 2009 equal to (i) the greater of
    $200.0 million or 25% of our consolidated net worth, plus
    (ii) any net cash proceeds we receive after
    October 27, 2009, in connection with the issuance or sale
    of equity interests or the incurrence of certain unsecured debt
    securities that are identified as being used for such purpose.   92




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Notes
    Payable to Related Parties
     93




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Long-Term
    Debt Principal Repayment and Interest Expense
    Principal Amount of Long-Term Debt(In thousands)2010

$
3,0442011


2,0002012


89,8132013


2014


425,000Thereafter


Total principal payments


519,857Less: fair value discount


(69
)Total long-term debt

$
519,788     Capital Lease Obligation MinimumLease Payments(In thousands)2010

$
7,5172011


4,8282012


2,1162013


4992014


Thereafter


Total minimum lease payments


14,960Less: executory costs


(479
)Net minimum lease payments


14,481Less: amounts representing interest


(168
)Present value of minimum lease payments

$
14,313  94




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2009


2008


2007(In thousands)Cash payments

$
41,750


$
45,211


$
33,964Commitment and agency fees paid


825



102



2,232Amortization of discount


113



140



Amortization of deferred financing costs


2,070



1,975



1,680Settlement of interest rate swaps










2,261Net change in accrued interest


(1,354
)


333



1,366Capitalized interest


(4,335
)


(6,514
)


(5,296
)Net interest expense

$
39,069


$
41,247


$
36,207     Deferred
    Financing Costs
    Year Ended December 31,2009


2008


2007(In thousands)Capitalized costs

$
2,474


$
314


$
13,400Amortization


2,070



1,975



1,680Loss on extinguishment


472







9,557     December 31,2009


2008(In thousands)Deferred financing costs:Gross carrying value

$
14,611


$
12,609Accumulated amortization


(4,190
)


(2,120
)Net carrying value

$
10,421


$
10,489   NOTE 14.
    COMMITMENTS
    AND CONTINGENCIES  Operating
    Lease Arrangements
   95




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Lease Payments2010

$
7,2302011


4,7062012


4,0452013


2,9332014


2,147Thereafter


3,472$
24,533   month-to-month
  Litigation
    Litigation
    with Former Officers and Employees
     96




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Tax
    Audits
    Self-Insurance
    Reserves
  case-by-case
  Environmental
    Remediation Liabilities
     97




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 15.
    ACCUMULATED
    OTHER COMPREHENSIVE LOSS    December 31,2009


2008Foreign currency translation loss

$
(50,763
)

$
(46,520
)Deferred loss from available for sale investments






(30
)Accumulated other comprehensive loss

$
(50,763
)

$
(46,550
)     Argentine Peso


Mexican Peso


Canadian Dollar


Euro


Russian Rouble


Total(In thousands, except for conversion ratios)As of December 31, 2009:Conversion ratio


3.82:1



13.04:1



1.05:1



0.70:1



30.27:1



n/aCumulative translation adjustment

$
(48,953
)

$
(716
)

$
(1,087
)


n/a


$
(7
)

$
(50,763
)As of December 31, 2008:Conversion ratio


3.46:1



13.78:1



1.22:1



0.71:1



29.48:1



n/aCumulative translation adjustment

$
(43,654
)

$
(1,663
)

$
(917
)

$
(286
)


n/a


$
(46,520
)   NOTE 16.
    EMPLOYEE
    BENEFIT PLANS    NOTE 17.
    STOCKHOLDERS
    EQUITY  Common
    Stock
   98




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share
    Repurchase Program
    Tax
    Withholding
    Common
    Stock Warrants
        NOTE 18.
    SHARE-BASED
    COMPENSATION  2009
    Incentive Plan
     99




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or
      2007
    Incentive Plan
        1997
    Incentive Plan
   100




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Accelerated
    Vesting of Option and SAR Awards
    Stock
    Option Awards
    Year Ended December 31, 2009Weighted Average


Weighted AverageOptions


Exercise Price


Fair ValueOutstanding at beginning of period


4,961


$
12.21


$
5.42Granted


15


$
4.14


$
2.23Exercised


(418
)

$
3.12


$
2.30Cancelled or expired


(663
)

$
13.70


$
5.84Outstanding at end of period


3,895


$
12.90


$
5.62Exercisable at end of period


3,853


$
12.99


$
5.66   101




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2008Weighted Average


Weighted AverageOptions


Exercise Price


Fair ValueOutstanding at beginning of period


4,594


$
11.01


$
5.32Granted


1,379


$
14.76


$
5.43Exercised


(757
)

$
8.81


$
4.81Cancelled or expired


(255
)

$
14.53


$
6.15Outstanding at end of period


4,961


$
12.21


$
5.38Exercisable at end of period


4,911


$
12.30


$
5.42   Year Ended December 31, 2007Weighted Average


Weighted AverageOptions


Exercise Price


Fair ValueOutstanding at beginning of period


5,829


$
9.46


$
4.94Granted


1,195


$
14.41


$
5.98Exercised


(1,592
)

$
8.45


$
4.58Cancelled or expired


(838
)

$
10.36


$
5.03Outstanding at end of period


4,594


$
11.01


$
5.32Exercisable at end of period


2,615


$
8.34


$
4.47     Options OutstandingWeighted AverageRemaining


Number ofContractual Life


Options


Weighted Average


Weighted Average(Years)


Outstanding


Exercise Price


Fair ValueRange of exercise prices:$3.87 - $8.00


2.60



350


$
7.36


$
3.98$8.01 - $9.37


0.99



425


$
8.49


$
5.25$9.38 - $13.10


4.64



708


$
11.42


$
5.04$13.11 - $15.05


7.08



1,341


$
14.58


$
6.43$15.06 - $19.42


8.26



1,071


$
15.34


$
5.693,895


$
12.90


$
5.62Aggregate intrinsic value (in thousands)





$
637   102




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Options ExercisableNumber ofOptions


Weighted Average


Weighted AverageExercisable


Exercise Price


Fair ValueRange of exercise prices:$3.87 - $8.00


308


$
7.76


$
4.24$8.01 - $9.37


425


$
8.49


$
5.25$9.38 - $13.10


708


$
11.42


$
5.04$13.11 - $15.05


1,341


$
14.58


$
6.43$15.06 - $19.42


1,071


$
15.34


$
5.693,853


$
12.99


$
5.66Aggregate intrinsic value (in thousands)

$
453     Common
    Stock Awards
      Year Ended December 31, 2009Weighted Average





Weighted AverageOutstanding


Issuance Price


Vested


Issuance PriceShares at beginning of period


1,409


$
14.42



748


$
14.05Shares issued during period(1)


2,667


$
3.30



146


$
5.96Previously issued shares vesting during period





$




272


$
15.04Shares cancelled during period


(325
)

$
7.24






$
Shares repurchased during period


(72
)

$
6.73



(72
)

$
6.73Shares at end of period


3,679


$
7.14



1,094


$
13.70   103




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2008Weighted Average





Weighted AverageOutstanding


Issuance Price


Vested


Issuance PriceShares at beginning of period


1,078


$
14.01



478


$
13.48Shares issued during period(1)


428


$
15.10



47


$
18.01Previously issued shares vesting during period





$




320


$
13.97Shares repurchased during period


(97
)

$
12.86



(97
)

$
12.86Shares at end of period


1,409


$
14.42



748


$
14.05   Year Ended December 31, 2007Weighted Average





Weighted AverageOutstanding


Issuance Price


Vested


Issuance PriceShares at beginning of period


833


$
13.69



258


$
12.44Shares issued during period(1)


318


$
14.87



54


$
17.48Previously issued shares vesting during period





$




239


$
13.87Shares repurchased during period


(73
)

$
14.05



(73
)

$
14.05Shares at end of period


1,078


$
14.01



478


$
13.48     (1)
    
    Includes 143,100, 47,190 and 53,648 shares of common stock
    issued to our non-employee directors vested immediately upon
    issuance during 2009, 2008 and 2007, respectively.    Phantom
    Share Plan
   104




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock
    Appreciation Rights
    Valuation
    Assumptions on Stock Options and Stock Appreciation
    Rights
    Year Ended December 31,2009


2008


2007Risk-free interest rate


2.21
%


2.86
%


4.41
%Expected life of options and SARs, years


6



6



6Expected volatility of our stock price


53.70
%


36.86
%


39.49
%Expected dividends


none



none



none   NOTE 19.
    TRANSACTIONS
    WITH RELATED PARTIES  Employee
    Loans and Advances
    Related
    Party Notes Payable
   105




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Transactions
    with Employees
    Board
    of Director Relationship with Customer
    NOTE 20.
    SUPPLEMENTAL
    CASH FLOW INFORMATION  Year Ended December 31,2009


2008


2007(In thousands)Noncash investing and financing activities:Property and equipment acquired under captial lease obligations

$
938


$
7,654


$
12,003Asset retirement obligations


517



397



12Unrealized loss on short-term investments






(8
)


Accrued repurchases of common stock










2,949Debt assumed and issued in acquisitions










40,149Software acquired under financing arrangement






3,985



Supplemental cash flow information:Cash paid for interest

$
42,575


$
45,313


$
38,457Cash paid for taxes

$
12,872


$
43,494


$
96,327Tax refunds

$
9,135


$
3,701


$
429    106




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 21.
    SEGMENT
    INFORMATION  Note 1. Organization and Summary of Significant
    Accounting Policies
  Well
    Servicing Segment
  Rig
    Services
        Fluid
    Management Services
    Production
    Services Segment
  Pressure
    Pumping Services
   107




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fishing
    and Rental Services
  ®
  Wireline
    Services
    Advanced
    Measurements, Inc.
    Functional
    Support
      Well


Production


FunctionalServicing


Services


Support


Eliminations


TotalAs of and for the year ended December 31, 2009:Revenues from external customers

$
859,747


$
218,918


$



$



$
1,078,665Intersegment revenue


10



5,662







(5,672
)


Operating expenses


781,504



240,625



105,586







1,127,715Asset retirements and impairments


65,869



93,933











159,802Operating income (loss)


12,374



(115,640
)


(105,586
)






(208,852
)Interest expense


(2,007
)


(727
)


41,803







39,069Income (loss) before income taxes


14,414



(114,150
)


(148,065
)






(247,801
)Total assets


1,133,068



251,580



643,854



(364,092
)


1,664,410Capital expenditures, excluding acquisitions


75,242



39,305



13,875







128,422  108




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Well


Production


FunctionalServicing


Services


Support


Eliminations


TotalAs of and for the year ended December 31, 2008:Revenues from external customers

$
1,470,332


$
501,756


$



$



$
1,972,088Intersegment revenue


93



5,281







(5,374
)


Operating expenses


1,114,432



407,560



156,816







1,678,808Asset retirements and impairments






69,752



5,385







75,137Operating income (loss)


355,900



24,444



(162,201
)






218,143Interest expense


(2,310
)


(1,828
)


45,385







41,247Income (loss) before income taxes


354,928



27,804



(208,676
)






174,056Total assets


1,386,753



429,131



587,696



(386,657
)


2,016,923Capital expenditures, excluding acquisitions


145,494



65,312



8,188







218,994   Well


Production


FunctionalServicing


Services


Support


Eliminations


TotalAs of and for the year ended December 31, 2007:Revenues from external customers

$
1,240,126


$
421,886


$



$



$
1,662,012Intersegment revenue


















Operating expenses


879,270



315,919



150,444







1,345,633Asset retirements and impairments


















Operating income (loss)


360,856



105,967



(150,444
)






316,379Interest expense


(1,205
)


(1,047
)


38,459







36,207Income (loss) before income taxes


358,549



108,129



(190,738
)






275,940Total assets


1,300,516



373,380



390,662



(205,481
)


1,859,077Capital expenditures, excluding acquisitions


126,394



79,854



6,312







212,560     U.S.


Argentina


Mexico


Canada


Russia


Eliminations


TotalAs of and for the year ended December 31, 2009:Revenue from external customers

$
881,329


$
68,625


$
118,650


$
873


$
9,188


$



$
1,078,665Long-lived assets


1,263,376



18,671



64,162



8,182



54,956



(129,069
)


1,280,278As of and for the year ended December 31, 2008:Revenue from external customers

$
1,800,199


$
118,841


$
47,200


$
5,848


$



$



$
1,972,088Long-lived assets


1,434,578



25,419



45,547



7,482







(55,225
)


1,457,801As of and for the year ended December 31, 2007:Revenue from external customers

$
1,556,108


$
93,925


$
9,041


$
2,938


$



$



$
1,662,012Long-lived assets


1,368,735



29,762



11,089



10,782







(49,156
)


1,371,212  109




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 22.
    UNAUDITED
    QUARTERLY RESULTS OF OPERATIONS    First Quarter


Second Quarter


Third Quarter


Fourth QuarterYear Ended December 31, 2009:Revenues

$
331,989


$
241,458


$
237,671



267,547Direct operating expenses


227,227



173,853



179,901



198,476Asset retirements and impairments










159,802



Income (loss) before income taxes


1,129



(29,131
)


(198,206
)


(21,593
)Net income (loss)


904



(18,473
)


(125,017
)


(14,090
)Income (loss) attributable to common stockholders


904



(18,473
)


(124,942
)


(13,610
)Earnings per share(1):Basic

$
0.01


$
(0.15
)

$
(1.03
)

$
(0.11
)Diluted

$
0.01


$
(0.15
)

$
(1.03
)

$
(0.11
)   First Quarter


Second Quarter


Third Quarter


Fourth QuarterYear Ended December 31, 2008:Revenues

$
456,399


$
502,003


$
535,620


$
478,066Direct operating expenses


281,641



322,488



342,195



304,003Asset retirements and impairments














75,137Income (loss) before income taxes


56,907



71,247



77,541



(31,639
)Net income (loss)


34,450



43,801



48,462



(42,900
)Income (loss) attributable to common stockholders


34,484



44,012



48,462



(42,900
)Earnings per share(1):Basic

$
0.27


$
0.35


$
0.39


$
(0.35
)Diluted

$
0.27


$
0.35


$
0.39


$
(0.35
)     (1)
    
    Quarterly earnings per common share are based on the weighted
    average number of shares outstanding during the quarter, and the
    sum of the quarters may not equal annual earnings per common
    share. 110




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 23.
    CONDENSED
    CONSOLIDATING FINANCIAL STATEMENTS      CONDENSED
    CONSOLIDATING BALANCE SHEETS
  December 31, 2009Parent


Guarantor


Non-GuarantorCompany


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Assets:Current assets

$
72,021


$
189,935


$
122,018


$
158


$
384,132Property and equipment, net






822,882



41,726







864,608Goodwill






316,513



29,589







346,102Deferred financing costs, net


10,421







537







10,958Intercompany notes, accounts receivable and investment in
    subsidiaries


1,782,002



577,546



7,462



(2,367,010
)


Other assets


4,033



40,198



14,379







58,610TOTAL ASSETS

$
1,868,477


$
1,947,074


$
215,711


$
(2,366,852
)

$
1,664,410Liabilities and equity:Current liabilities

$
6,468


$
145,040


$
38,261


$



$
189,769Long-term debt and capital leases, less current portion


512,812



11,105



32







523,949Intercompany notes and accounts payable


451,361



1,487,950



87,568



(2,026,879
)


Deferred tax liabilities


151,624







(4,644
)






146,980Other long-term liabilities


3,072



57,500











60,572Equity


743,140



245,479



94,494



(339,973
)


743,140TOTAL LIABILITIES AND EQUITY

$
1,868,477


$
1,947,074


$
215,711


$
(2,366,852
)

$
1,664,410   111




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2008Parent


Guarantor


Non-GuarantorCompany


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Assets:Current assets

$
29,673


$
440,758


$
88,534


$
157


$
559,122Property and equipment, net






1,025,007



26,676







1,051,683Goodwill






316,669



4,323







320,992Deferred financing costs, net


10,489















10,489Intercompany notes, accounts receivable and investment in
    subsidiaries


1,917,522



419,554



1,775



(2,338,851
)


Other assets


22,597



48,237



3,803







74,637TOTAL ASSETS

$
1,980,281


$
2,250,225


$
125,111


$
(2,338,694
)

$
2,016,923Liabilities and equity:Current liabilities

$
13,792


$
231,528


$
28,054


$
(1
)

$
273,373Long-term debt and capital leases, less current portion


612,813



20,729



49







633,591Intercompany notes and accounts payable


305,348



1,624,932



69,204



(1,999,484
)


Deferred tax liabilities


187,596







985







188,581Other long-term liabilities






60,386



260







60,646Stockholders equity


860,732



312,650



26,559



(339,209
)


860,732TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
1,980,281


$
2,250,225


$
125,111


$
(2,338,694
)

$
2,016,923  112




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF OPERATIONS
  Year Ended December 31, 2009Guarantor


Non-GuarantorParent Company


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Revenues

$



$
928,639


$
201,507


$
(51,481
)

$
1,078,665Costs and expenses:Direct operating expenses






653,112



164,243



(37,898
)


779,457Depreciation and amortization expense






162,415



7,147







169,562General and administrative expenses


(452
)


160,426



18,693



29



178,696Asset retirements and impairments






159,535



267







159,802Interest expense, net of amounts capitalized


42,671



(3,756
)


154







39,069Other, net


1,237



(698
)


10,412



(11,071
)


(120
)Total costs and expenses, net


43,456



1,131,034



200,916



(48,940
)


1,326,466(Loss) income before income taxes and noncontrolling interest


(43,456
)


(202,395
)


591



(2,541
)


(247,801
)Income tax benefit


90,694







431







91,125Net income (loss)


47,238



(202,395
)


1,022



(2,541
)


(156,676
)Noncontrolling interest










(555
)






(555
)Income (loss) attributable to common stockholders

$
47,238


$
(202,395
)

$
1,577


$
(2,541
)

$
(156,121
)   113




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2008Guarantor


Non-GuarantorParent Company


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Revenues

$



$
1,818,736


$
175,845


$
(22,493
)

$
1,972,088Costs and expenses:Direct operating expenses






1,139,006



127,374



(16,053
)


1,250,327Depreciation and amortization expense






163,257



7,517







170,774General and administrative expenses


1,616



237,635



19,251



(795
)


257,707Asset retirements and impairments






75,137











75,137Interest expense, net of amounts capitalized


44,842



(4,320
)


477



248



41,247Other, net


5,219



(7,073
)


9,143



(4,449
)


2,840Total costs and expenses, net


51,677



1,603,642



163,762



(21,049
)


1,798,032(Loss) income before income taxes and noncontrolling interest


(51,677
)


215,094



12,083



(1,444
)


174,056Income tax expense


(81,233
)


(4,320
)


(4,690
)






(90,243
)Net (loss) income


(132,910
)


210,774



7,393



(1,444
)


83,813Noncontrolling interest










(245
)






(245
)(Loss) income attributable to common stockholders

$
(132,910
)

$
210,774


$
7,638


$
(1,444
)

$
84,058   114




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2007Parent


Guarantor


Non-GuarantorCompany


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Revenues

$



$
1,561,059


$
105,819


$
(4,866
)

$
1,662,012Costs and expenses:Direct operating expenses






906,254



82,980



(3,620
)


985,614Depreciation and amortization expense






123,821



5,802







129,623General and administrative expenses


1,693



216,959



11,935



(191
)


230,396Interest expense, net of amounts capitalized


38,866



(3,134
)


723



(248
)


36,207Loss on early extinguishment of debt


9,557















9,557Other, net


(449
)


(5,850
)


1,781



(807
)


(5,325
)Total costs and expenses, net


49,667



1,238,050



103,221



(4,866
)


1,386,072(Loss) income before income taxes and noncontrolling interest


(49,667
)


323,009



2,598







275,940Income tax (expense) benefit


(105,928
)


934



(1,774
)






(106,768
)Net (loss) income


(155,595
)


323,943



824







169,172Noncontrolling interest










(117
)






(117
)(Loss) income attributable to common stockholders

$
(155,595
)

$
323,943


$
941


$



$
169,289  115




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS
  Year Ended December 31, 2009Parent


Guarantor


Non-GuarantorCompany


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Net cash provided by (used in) operating activities

$



$
185,279


$
(442
)

$



$
184,837Cash flows from investing activities:Capital expenditures






(124,744
)


(3,678
)






(128,422
)Intercompany notes and accounts


65,580



(17,523
)


(22,115
)


(25,942
)


Other investing activities, net


199



5,580



12,007







17,786Net cash provided by (used in) investing activities


65,779



(136,687
)


(13,786
)


(25,942
)


(110,636
)Cash flows from financing activities:Payments on revolving credit facility


(100,000
)














(100,000
)Intercompany notes and accounts


32,823



(76,175
)


17,410



25,942



Other financing activities, net


1,398



(28,873
)










(27,475
)Net cash (used in) provided by financing activities


(65,779
)


(105,048
)


17,410



25,942



(127,475
)Effect of changes in exchange rates on cash










(2,023
)






(2,023
)Net (decrease) increase in cash






(56,456
)


1,159







(55,297
)Cash and cash equivalents, beginning of period






75,847



16,844







92,691Cash and cash equivalents, end of period

$



$
19,391


$
18,003


$



$
37,394   116




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2008Parent


Guarantor


Non-GuarantorCompany


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Net cash provided by (used in) operating activities

$
17,573


$
364,840


$
(15,249
)

$



$
367,164Cash flows from investing activities:Capital expenditures






(214,659
)


(4,335
)






(218,994
)Acquisitions and asset purchases, net






(97,925
)










(97,925
)of cash acquiredInvestment in Geostream Services Group


(19,306
)














(19,306
)Intercompany notes and accounts


(179,501
)


(199,428
)


(1,515
)


380,444



Other investing activities, net






7,151











7,151Net cash (used in) provided by investing activities


(198,807
)


(504,861
)


(5,850
)


380,444



(329,074
)Cash flows from financing activities:Borrowings on revolving credit facilty


172,813















172,813Payments on revolving credit facility


(38,026
)














(38,026
)Repurchases of common stock


(139,358
)














(139,358
)Intercompany notes and accounts


177,698



181,016



21,730



(380,444
)


Other financing activities, net


8,107



(11,506
)










(3,399
)Net cash provided by (used in) financing activities


181,234



169,510



21,730



(380,444
)


(7,970
)Effect of changes in exchange rates on cash










4,068







4,068Net increase in cash






29,489



4,699







34,188Cash and cash equivalents, beginning of period






46,358



12,145







58,503Cash and cash equivalents, end of period

$



$
75,847


$
16,844


$



$
92,691   117




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##### Table of Contents



Key
    Energy Services, Inc. and Subsidiaries
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31, 2007Parent


Guarantor


Non-GuarantorCompany


Subsidiaries


Subsidiaries


Eliminations


Consolidated(In thousands)Net cash (used in) provided by operating activities

$
(3,401
)

$
264,275


$
(10,955
)

$



$
249,919Cash flows from investing activities:Capital expenditures






(207,400
)


(5,160
)






(212,560
)Acquisitions, net of cash acquired






(157,955
)










(157,955
)Investment in available for sale securities






(121,613
)










(121,613
)Proceeds from the sale of available for sale securities






183,177











183,177Intercompany notes and accounts


(473,412
)


(434,672
)






908,084



Other investing activities, net






6,104











6,104Net cash (used in) provided by investing activities


(473,412
)


(732,359
)


(5,160
)


908,084



(302,847
)Cash flows from financing activities:Repayment of long-term debt


(396,000
)














(396,000
)Proceeds from long-term debt


425,000















425,000Borrowings on revolving credit facility


50,000















50,000Common stock acquired by purchase


(30,454
)














(30,454
)Intercompany notes and accounts


424,822



458,560



24,702



(908,084
)


Other financing activities, net


3,445



(28,751
)










(25,306
)Net cash provided by (used in) financing activities


476,813



429,809



24,702



(908,084
)


23,240Effect of changes in exchange rates on cash










(184
)






(184
)Net (decrease) increase in cash






(38,275
)


8,403







(29,872
)Cash and cash equivalents, beginning of period






84,633



3,742







88,375Cash and cash equivalents, end of period

$



$
46,358


$
12,145


$



$
58,503  118




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##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
    Rules 13a-15(e)
  Managements
    Report on Internal Control Over Financial
    Reporting
      Rule 12b-2)
  Internal Control 
    Integrated Framework
 119




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##### Table of Contents



Remediation
    of Material Weaknesses in Internal Control Over Financial
    Reporting
  Item 9A. Form 10-K
  Changes
    in Internal Control Over Financial Reporting
     ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE   120




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##### Table of Contents



ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES    Index to
    Consolidated Financial Statements
    Exhibits
  Exhibit No.

Description3
.1

Articles of Restatement of Key Energy Services, Inc.
    (Incorporated by reference to Exhibit 3.1 of the
    Companys Annual Report on Form 10-K for the fiscal
    year ended December 31, 2006, File No. 001-08038.)3
.2

Unanimous consent of the Board of Directors of Key Energy
    Services, Inc., dated January 11, 2000, limiting the designation
    of the additional authorized shares to common stock.
    (Incorporated by reference to Exhibit 3.2 of the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2000, File No. 001-08038.)3
.3

Second Amended and Restated By-laws of Key Energy Services,
    Inc., adopted September 21, 2006. (Incorporated by reference to
    Exhibit 3.1 of the Companys Current Report on
    Form 8-K filed on September 22, 2006, File
    No. 001-08038.)3
.4

Amendment to Second Amended and Restated By-laws of Key Energy
    Services, Inc., adopted November 2, 2007. (Incorporated by
    reference to Exhibit 3.1 of the Companys Current
    Report on Form 8-K filed on November 2, 2007, File
    No. 001-08038.)3
.5

Amendments to Second Amended and Restated By-laws of Key Energy
    Services, Inc., adopted April 4, 2008. (Incorporated by
    reference to Exhibit 3.1 of the Companys Current
    Report on Form 8-K filed on April 9, 2008, File
    No. 001-08038.)3
.6

Amendment to Second Amended and Restated Bylaws of Key Energy
    Services, Inc., adopted June 4, 2009. (Incorporated by
    reference to Exhibit 3.1 of the Companys Current
    Report on Form 8-K filed on June 10, 2009, File
    No. 001-08038.)4
.1

Indenture, dated as of November 29, 2007, among Key Energy
    Services, Inc., the guarantors party thereto and The Bank of New
    York Trust Company, N.A., as trustee. (Incorporated by reference
    to Exhibit 4.1 of the Companys Current Report on
    Form 8-K filed on November 30, 2007, File
    No. 001-08038.)4
.2

Registration Rights Agreement dated as of November 29, 2007,
    among Key Energy Services, Inc., the subsidiary guarantors of
    the Company party thereto, and Lehman Brothers Inc., Banc of
    America Securities LLC and Morgan Stanley & Co.
    Incorporated, as representatives of the several initial
    purchasers named therein. (Incorporated by reference to
    Exhibit 4.2 of the Companys Current Report on
    Form 8-K filed on November 30, 2007, File
    No. 001-08038.)4
.3

First Supplemental Indenture, dated as of January 22, 2008,
    among Key Marine Services, LLC, the existing Guarantors and The
    Bank of New York Trust Company, N.A., as trustee. (Incorporated
    by reference to Exhibit 4.5 of the Companys Quarterly
    Report on Form 10-Q for the quarter ended March 31, 2008,
    File No. 001-08038.)4
.4

Second Supplemental Indenture, dated as of January 13, 2009,
    among Key Energy Mexico, LLC, the existing Guarantors and The
    Bank of New York Trust Company, N.A., as trustee. (Incorporated
    by reference to Exhibit 4.6 of the Companys Annual
    Report on Form 10-K for the year ended December 31, 2008,
    File No. 001-08038.) 121




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##### Table of Contents



Exhibit No.

Description4
.5

Third Supplemental Indenture, dated as of July 31, 2009, among
    Key Energy Services California, Inc., the existing Guarantors
    and The Bank of New York Trust Company, N.A., as trustee.
    (Incorporated by reference to Exhibit 4.5 of the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2009, File No. 001-08038.)10
.1

Key Energy Group, Inc. 1997 Incentive Plan, as an amendment and
    restatement effective November 17, 1997 of the Key Energy Group,
    Inc. 1995 Outside Directors Stock Option Plan. (Incorporated by
    reference to Exhibit B of the Companys Schedule 14A
    Proxy Statement filed November 26, 1997, File
    No. 001-08038.)10
.2

Form of Restricted Stock Award Agreement under Key Energy Group,
    Inc. 1997 Incentive Plan. (Incorporated by reference to
    Exhibit 10.15 of the Companys Annual Report on
    Form 10-K for the year ended December 31, 2006, File
    No. 001-08038.)10
.3

The 2006 Phantom Share Plan of Key Energy Services, Inc.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on Form 8-K dated October 19,
    2006, File No. 001-08038.)10
.4

Form of Award Agreement under the 2006 Phantom Share Plan of Key
    Energy Services, Inc. (Incorporated by reference to
    Exhibit 10.2 of the Companys Current Report on
    Form 8-K dated October 19, 2006, File No. 001-08038.)10
.5

Form of Stock Appreciation Rights Agreement under Key
    Energy Group, Inc. 1997 Incentive Plan. (Incorporated by
    reference to Exhibit 99.1 of the Companys Current
    Report on Form 8-K dated August 24, 2007, File
    No. 001-08038.)10
.6

Form of Non-Plan Option Agreement under Key Energy Group, Inc.
    1997 Incentive Plan. (Incorporated by reference to
    Exhibit 4.1 of the Companys Registration Statement on
    Form S-8 filed on September 25, 2007, File
    No. 333-146294.)10
.7

Key Energy Services, Inc. 2007 Equity and Cash Incentive Plan.
    (Incorporated by Reference to Appendix A of the Companys
    Schedule 14A Proxy Statement filed on November 1, 2007, File
    No. 001-08038.)10
.8

Form of Nonstatutory Stock Option Agreement under 2007 Equity
    and Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.8 of the Companys Annual Report on
    Form 10-K for the year ended December 31, 2007, File
    No. 001-08038.)10
.9

Form of Restricted Stock Award Agreement under 2007 Equity and
    Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K dated April 16, 2008, File No. 001-08038.)10
.10

Key Energy Services, Inc. 2009 Equity and Cash Incentive Plan.
    (Incorporated by Reference to Appendix A of the Companys
    Schedule 14A Proxy Statement filed on April 16, 2009, File
    No. 001-08038.)10
.11

Form of Restricted Stock Award Agreement under 2009 Equity and
    Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.1 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2009, File
    No. 001-08038.)10
.12

Form of Nonqualified Stock Option Agreement under 2009 Equity
    and Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2009, File
    No. 001-08038.)10
.13

Restated Employment Agreement, dated effective as of December
    31, 2007, among Richard J. Alario, Key Energy Services, Inc. and
    Key Energy Shared Services, LLC. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K filed on January 7, 2008, File No. 001-08038.)10
.14

Acknowledgment and Waiver by Richard J. Alario, dated March 25,
    2005, regarding rescinded option grant. (Incorporated by
    reference to Exhibit 10.1 of the Companys Current
    Report on Form 8-K dated March 29, 2005, File
    No. 001-08038.)10
.15

Employment Agreement, dated as of March 26, 2009, by and between
    Trey Whichard and Key Energy Shared Services, LLC. (Incorporated
    by reference to Exhibit 10.1 of the Companys Current
    Report on Form 8-K dated April 1, 2009, File
    No. 001-08038.) 122




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##### Table of Contents



Exhibit No.

Description10
.16

Restated Employment Agreement, dated effective as of December
    31, 2007, among Newton W. Wilson III, Key Energy Services, Inc.
    and Key Energy Shared Services, LLC. (Incorporated by reference
    to Exhibit 10.3 of the Companys Current Report on
    Form 8-K filed on January 7, 2008, File No. 001-08038.)10
.17

Acknowledgment and Waiver by Newton W. Wilson III, dated March
    25, 2005, regarding rescinded option grant. (Incorporated by
    reference to Exhibit 10.2 of the Companys Current
    Report on Form 8-K dated March 29, 2005, File
    No. 001-08038.)10
.18

Amended and Restated Employment Agreement, dated October 22,
    2008, between Kimberly R. Frye, Key Energy Services, Inc. and
    Key Energy Shared Services, LLC. (Incorporated by reference to
    Exhibit 10.14 of the Companys Annual Report on
    Form 10-K for the year ended December 31, 2008, File
    No. 001-08038.)10
.19

Restated Employment Agreement dated effective as of December 31,
    2007, among Kim B. Clarke, Key Energy Services, Inc. and Key
    Energy Shared Services, LLC (Incorporated by reference to
    Exhibit 10.4 of the Companys Current Report on
    Form 8-K filed on January 7, 2008, File
    No. 001-08038.)10
.20

Employment Agreement, dated as of January 1, 2004, between
    Key Energy Services, Inc. and Jim D. Flynt. (Incorporated
    by reference to Exhibit 10.6 of the Companys Current
    Report on
    Form 8-K
    dated October 19, 2006, File No. 001-08038.)10
.21

First Amendment to Employment Agreement, dated November 26,
    2007, between Key Energy Services, Inc. and Jim D. Flynt.
    (Incorporated by reference to Exhibit 10.2 of the
    Companys Current Report on Form 8-K filed on November
    30, 2007, File No. 001-08038.)10
.22

Employment Agreement, dated November 17, 2004, between Key
    Energy Services, Inc. and Phil Coyne. (Incorporated by reference
    to Exhibit 10.8 of the Companys Current Report on
    Form 8-K dated October 19, 2006, File No. 001-08038.)10
.23

First Amendment to Employment Agreement, effective as of January
    24, 2005, between Key Energy Services, Inc. and Phil Coyne.
    (Incorporated by reference to Exhibit 10.9 of the
    Companys Current Report on Form 8-K dated October 19,
    2006, File No. 001-08038.)10
.24

Amended and Restated Employment Agreement, dated December 31,
    2007, between Key Energy Services, Inc. and Don D. Weinheimer.
    (Incorporated by reference to Exhibit 10.19 of the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2007 filed on February 28, 2008, File
    No. 001-08038.)10
.25

Employment Agreement, dated August 14, 2007, between Key Energy
    Shared Services, LLC and J. Marshall Dodson. (Incorporated by
    reference to Exhibit 10.1 of the Companys Quarterly
    Report on Form 10-Q for the quarter ended September 30,
    2007, File No. 001-08038.)10
.26

Employment Agreement, dated August 14, 2007, between Key Energy
    Shared Services, LLC and D. Bryan Norwood. (Incorporated by
    reference to Exhibit 10.2 of the Companys Quarterly
    Report on Form 10-Q for the quarter ended September 30,
    2007, File No. 001-08038.)10
.27

Restated Employment Agreement, effective August 1, 2007, between
    Key Energy Shared Services, LLC and Tommy Pipes. (Incorporated
    by reference to Exhibit 10.23 of the Companys Annual
    Report on Form 10-K for the year ended December 31, 2008,
    File No. 001-08038.)10
.28

Employment Agreement, effective August 1, 2007, between Key
    Energy Services, Inc. and John Carnett. (Incorporated by
    reference to Exhibit 10.24 of the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2008, File No. 001-08038.)10
.29

Restated Employment Agreement, dated effective as of December
    31, 2007, among William M. Austin, Key Energy Services, Inc. and
    Key Energy Shared Services, LLC. (Incorporated by reference to
    Exhibit 10.2 of the Companys Current Report on
    Form 8-K filed on January 7, 2008, File No. 001-08038.)10
.30

Letter Agreement, dated February 5, 2009, between Key Energy
    Services, Inc. and William M. Austin.  (Incorporated by
    reference to Exhibit 10.1 of the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2009, File No. 001-08038.)10
.31

Settlement Agreement and Release of Claims by and between Kevin
    P. Collins and Key Energy Services, Inc. dated April 3, 2009
    (Incorporated by reference to Exhibit 10.2 of the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2009, File No. 001-08038.) 123




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Exhibit No.

Description10
.32

Settlement Agreement and Release of Claims by and between W.
    Phillip Marcum and Key Energy Services, Inc. dated April 3,
    2009  (Incorporated by reference to Exhibit 10.3 of the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2009, File No. 001-08038.)10
.33

Separation and Release Agreement, dated February 11, 2009, by
    and between Key Energy Shared Services, LLC, Key Energy
    Services, Inc. and William M. Austin. (Incorporated by reference
    to Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2009, File
    No. 001-08038.)10
.34

Separation and Release Agreement, dated February 11, 2009, by
    and between Key Energy Shared Services, LLC, Key Energy
    Services, Inc. and William M. Austin. (Incorporated by reference
    to Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2009, File
    No. 001-08038.)10
.35

Credit Agreement, dated as of November 29, 2007, among Key
    Energy Services, Inc., each lender from time to time party
    thereto, Bank of America, N.A., as Paying Agent,
    Co-Administrative Agent, Swing Line Lender and L/C Issuer, and
    Wells Fargo Bank, National Association, as Co-Administrative
    Agent, Swing Line Lender and L/C Issuer. (Incorporated by
    reference to Exhibit 10.1 of the Companys Current
    Report on Form 8-K filed on November 30, 2007, File
    No. 001-08038.)10
.36

Amendment No. 1 to Credit Agreement, dated as of October
    27, 2009, among Key Energy Services, Inc., each lender from time
    to time party thereto, Bank of America, N.A., as Paying Agent,
    Co-Administrative Agent, Swing Line Lender and L/C Issuer, and
    Wells Fargo Bank, National Association, as Co-Administrative
    Agent, Swing Line Lender and L/C Issuer. (Incorporated by
    reference to Exhibit 10.1 of the Companys Current
    Report on Form 8-K filed on October 29, 2009, File
    No. 001-08038.)10
.37

Stock and Membership Interest Purchase Agreement, dated as of
    September 19, 2007, between and among Key Energy Services, LLC,
    the Sellers named therein, and Moncla Well Service, Inc. and
    certain other affiliated companies named therein. (Incorporated
    by reference to Exhibit 10.1 of the Companys Current
    Report on Form 8-K filed on September 20, 2007, File
    No. 001-08038.)10
.38

First Amendment to Stock and Membership Interest Purchase
    Agreement, dated as of October 25, 2007, among Key Energy
    Services, LLC, the Sellers named therein, and Moncla Well
    Service, Inc. and certain other affiliated companies named
    therein. (Incorporated by reference to Exhibit 10.3 of the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2007, File No. 001-08038.)10
.39

Second Amendment to Stock and Membership Interest Purchase
    Agreement, dated as of September 30, 2008, among Key Energy
    Services, LLC, the Sellers named therein, and Moncla Well
    Service, Inc. and certain other affiliated companies named
    therein.  (Incorporated by reference to Exhibit 10.31 of
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2008, File No. 001-08038.)10
.40

Purchase Agreement, dated November 14, 2007, by and among the
    Company, certain of its domestic subsidiaries, and Lehman
    Brothers, Inc., Banc of America Securities LLC and Morgan
    Stanley & Co. Incorporated, as representatives of the
    initial purchasers. (Incorporated by reference to
    Exhibit 10.2 of the Companys Current Report on
    Form 8-K filed on November 15, 2007, File
    No. 001-08038.)10
.41

Asset Purchase Agreement, dated December 7, 2007, among Key
    Energy Services, LLC, Kings Oil Tools, Inc. and Thomas Fowler.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on Form 8-K filed on December
    13, 2007, File No. 001-08038.)10
.42

Purchase Agreement, dated April 3, 2008, among Key Energy
    Services, LLC, Western Drilling Holdings, Inc., and Fred S.
    Holmes and Barbara J. Holmes. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K filed on April 9, 2008, File
    No. 001-08038.)10
.43

Stock Purchase Agreement, dated May 30, 2008, by and among Key
    Energy Services, LLC, and E. Kent Tolman, Nita Tolman, Ronald D.
    Jones and Melinda Jones. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K filed on June 5, 2008, File
    No. 001-08038.) 124




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##### Table of Contents



Exhibit No.

Description10
.44

Asset Purchase Agreement, dated July 22, 2008, by and among Key
    Energy Pressure Pumping Services, LLC, Leader Energy Services
    Ltd., Leader Energy Services USA Ltd., and CementRite, Inc.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on Form 8-K filed on July 24,
    2008, File
    No. 001-08038.)10
.45

Master Agreement, dated August 26, 2008, by and among Key Energy
    Services, Inc., Key Energy Services Cyprus Ltd., OOO Geostream
    Assets Management and L-Group. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K filed on September 2, 2008, File
    No. 001-08038.)10
.46

Amendment to Master Agreement, dated March 11, 2009, by and
    among Key Energy Services, Inc., Key Energy services Cyprus
    Ltd., OOO Geostream Assets Management and L-Group. (Incorporated
    by reference to Exhibit 10.1 of the Companys Current
    Report on Form 8-K filed on March 25, 2009, File
    No. 001-08038.)10
.47

Amendment No. 2 to Master Agreement, dated June 23, 2009
    (fully executed on June 26, 2009), by and among Key Energy
    Services, Inc., Key Energy Services Cyprus Ltd., OOO Geostream
    Assets Management and L-Group. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K filed on July 1, 2009, File No. 001-08038.)10
.48

Master Equipment Purchase and Sale Agreement, dated September 1,
    2009, by and between Key Energy Pressure Pumping Services, LLC
    and GK Drilling Tools Leasing Company Ltd., and form of Addendum
    thereto (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on Form 8-K filed on
    September 8, 2009, File No. 001-08038.)21
*

Significant Subsidiaries of the Company.23
*

Consent of Independent Registered Public Accounting Firm.31
.1*

Certification of CEO pursuant to Securities Exchange Act Rules
    13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
    the Sarbanes-Oxley Act. of 2002.31
.2*

Certification of Principal Financial Officer pursuant to
    Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002.32
*

Certification of CEO and Principal Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     
    
    Indicates a management contract or compensatory plan, contract
    or arrangement in which any Director or any Executive Officer
    participates.*
    
    Filed herewith. 125




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##### Table of Contents



SIGNATURES
    KEY ENERGY SERVICES, INC.
  By:
    /s/  T.M.
    Whichard III   Senior Vice President and Chief Financial Officer
 (Principal Financial Officer)
    POWER OF
    ATTORNEY
  Form 10-K,
    Signature

Title/s/  Richard
    J. AlarioRichard
    J. Alario

Chairman of the Board of Directors, President and
    Chief Executive Officer (Principal Executive Officer)/s/  T.M.
    Whichard IIIT.M.
    Whichard III

Senior Vice President and Chief Financial Officer
    (Principal Financial Officer)/s/  Ike
    C. SmithIke
    C. Smith

Vice President and Controller (Principal Accounting Officer)/s/  David
    J. BreazzanoDavid
    J. Breazzano

Director/s/  Lynn
    R. ColemanLynn
    R. Coleman

Director/s/  Kevin
    P. CollinsKevin
    P. Collins

Director/s/  William
    D. FertigWilliam
    D. Fertig

Director 126




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##### Table of Contents



Signature

Title/s/  W.
    Phillip MarcumW.
    Phillip Marcum

Director/s/  Ralph
    S. Michael, IIIRalph
    S. Michael, III

Director/s/  William
    F. OwensWilliam
    F. Owens

Director/s/  Robert
    K. ReevesRobert
    K. Reeves

Director/s/  J.
    Robinson WestJ.
    Robinson West

Director/s/  Arlene
    M. YocumArlene
    M. Yocum

Director  127




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EXHIBIT INDEX
  Exhibit No.

Description3
.1

Articles of Restatement of Key Energy Services, Inc.
    (Incorporated by reference to Exhibit 3.1 of the
    Companys Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2006, File
    No. 001-08038.)3
.2

Unanimous consent of the Board of Directors of Key Energy
    Services, Inc., dated January 11, 2000, limiting the
    designation of the additional authorized shares to common stock.
    (Incorporated by reference to Exhibit 3.2 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2000, File
    No. 001-08038.)3
.3

Second Amended and Restated By-laws of Key Energy Services,
    Inc., adopted September 21, 2006. (Incorporated by
    reference to Exhibit 3.1 of the Companys Current
    Report on
    Form 8-K
    filed on September 22, 2006, File
    No. 001-08038.)3
.4

Amendment to Second Amended and Restated By-laws of Key Energy
    Services, Inc., adopted November 2, 2007. (Incorporated by
    reference to Exhibit 3.1 of the Companys Current
    Report on
    Form 8-K
    filed on November 2, 2007, File
    No. 001-08038.)3
.5

Amendments to Second Amended and Restated By-laws of Key Energy
    Services, Inc., adopted April 4, 2008. (Incorporated by
    reference to Exhibit 3.1 of the Companys Current
    Report on
    Form 8-K
    filed on April 9, 2008, File
    No. 001-08038.)3
.6

Amendment to Second Amended and Restated Bylaws of Key Energy
    Services, Inc., adopted June 4, 2009. (Incorporated by
    reference to Exhibit 3.1 of the Companys Current
    Report on
    Form 8-K
    filed on June 10, 2009, File
    No. 001-08038.)4
.1

Indenture, dated as of November 29, 2007, among Key Energy
    Services, Inc., the guarantors party thereto and The Bank of New
    York Trust Company, N.A., as trustee. (Incorporated by
    reference to Exhibit 4.1 of the Companys Current
    Report on
    Form 8-K
    filed on November 30, 2007, File
    No. 001-08038.)4
.2

Registration Rights Agreement dated as of November 29,
    2007, among Key Energy Services, Inc., the subsidiary guarantors
    of the Company party thereto, and Lehman Brothers Inc., Banc of
    America Securities LLC and Morgan Stanley & Co.
    Incorporated, as representatives of the several initial
    purchasers named therein. (Incorporated by reference to
    Exhibit 4.2 of the Companys Current Report on
    Form 8-K
    filed on November 30, 2007, File
    No. 001-08038.)4
.3

First Supplemental Indenture, dated as of January 22, 2008,
    among Key Marine Services, LLC, the existing Guarantors and The
    Bank of New York Trust Company, N.A., as trustee.
    (Incorporated by reference to Exhibit 4.5 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2008, File
    No. 001-08038.)4
.4

Second Supplemental Indenture, dated as of January 13,
    2009, among Key Energy Mexico, LLC, the existing Guarantors and
    The Bank of New York Trust Company, N.A., as trustee.
    (Incorporated by reference to Exhibit 4.6 of the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2008, File
    No. 001-08038.)4
.5

Third Supplemental Indenture, dated as of July 31, 2009,
    among Key Energy Services California, Inc., the existing
    Guarantors and The Bank of New York Trust Company, N.A., as
    trustee. (Incorporated by reference to Exhibit 4.5 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2009, File
    No. 001-08038.)10
.1

Key Energy Group, Inc. 1997 Incentive Plan, as an amendment and
    restatement effective November 17, 1997 of the Key Energy
    Group, Inc. 1995 Outside Directors Stock Option Plan.
    (Incorporated by reference to Exhibit B of the
    Companys Schedule 14A Proxy Statement filed
    November 26, 1997, File
    No. 001-08038.)10
.2

Form of Restricted Stock Award Agreement under Key Energy Group,
    Inc. 1997 Incentive Plan. (Incorporated by reference to
    Exhibit 10.15 of the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2006, File
    No. 001-08038.)10
.3

The 2006 Phantom Share Plan of Key Energy Services, Inc.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    dated October 19, 2006, File
    No. 001-08038.) 128




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##### Table of Contents



Exhibit No.

Description10
.4

Form of Award Agreement under the 2006 Phantom Share Plan of Key
    Energy Services, Inc. (Incorporated by reference to
    Exhibit 10.2 of the Companys Current Report on
    Form 8-K
    dated October 19, 2006, File
    No. 001-08038.)10
.5

Form of Stock Appreciation Rights Agreement under Key Energy
    Group, Inc. 1997 Incentive Plan. (Incorporated by reference to
    Exhibit 99.1 of the Companys Current Report on
    Form 8-K
    dated August 24, 2007, File
    No. 001-08038.)10
.6

Form of Non-Plan Option Agreement under Key Energy Group, Inc.
    1997 Incentive Plan. (Incorporated by reference to
    Exhibit 4.1 of the Companys Registration Statement on
    Form S-8
    filed on September 25, 2007, File
    No. 333-146294.)10
.7

Key Energy Services, Inc. 2007 Equity and Cash Incentive Plan.
    (Incorporated by Reference to Appendix A of the
    Companys Schedule 14A Proxy Statement filed on
    November 1, 2007, File
    No. 001-08038.)10
.8

Form of Nonstatutory Stock Option Agreement under 2007 Equity
    and Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.8 of the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2007, File
    No. 001-08038.)10
.9

Form of Restricted Stock Award Agreement under 2007 Equity and
    Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K
    dated April 16, 2008, File
    No. 001-08038.)10
.10

Key Energy Services, Inc. 2009 Equity and Cash Incentive Plan.
    (Incorporated by Reference to Appendix A of the
    Companys Schedule 14A Proxy Statement filed on
    April 16, 2009, File
    No. 001-08038.)10
.11

Form of Restricted Stock Award Agreement under 2009 Equity and
    Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.1 of the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2009, File
    No. 001-08038.)10
.12

Form of Nonqualified Stock Option Agreement under 2009 Equity
    and Cash Incentive Plan. (Incorporated by reference to
    Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2009, File
    No. 001-08038.)10
.13

Restated Employment Agreement, dated effective as of
    December 31, 2007, among Richard J. Alario, Key Energy
    Services, Inc. and Key Energy Shared Services, LLC.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    filed on January 7, 2008, File
    No. 001-08038.)10
.14

Acknowledgment and Waiver by Richard J. Alario, dated
    March 25, 2005, regarding rescinded option grant.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    dated March 29, 2005, File
    No. 001-08038.)10
.15

Employment Agreement, dated as of March 26, 2009, by and
    between Trey Whichard and Key Energy Shared Services, LLC.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    dated April 1, 2009, File
    No. 001-08038.)10
.16

Restated Employment Agreement, dated effective as of
    December 31, 2007, among Newton W. Wilson III, Key Energy
    Services, Inc. and Key Energy Shared Services, LLC.
    (Incorporated by reference to Exhibit 10.3 of the
    Companys Current Report on
    Form 8-K
    filed on January 7, 2008, File
    No. 001-08038.)10
.17

Acknowledgment and Waiver by Newton W. Wilson III, dated
    March 25, 2005, regarding rescinded option grant.
    (Incorporated by reference to Exhibit 10.2 of the
    Companys Current Report on
    Form 8-K
    dated March 29, 2005, File
    No. 001-08038.)10
.18

Amended and Restated Employment Agreement, dated
    October 22, 2008, between Kimberly R. Frye, Key Energy
    Services, Inc. and Key Energy Shared Services, LLC.
    (Incorporated by reference to Exhibit 10.14 of the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2008, File
    No. 001-08038.)10
.19

Restated Employment Agreement dated effective as of
    December 31, 2007, among Kim B. Clarke, Key Energy
    Services, Inc. and Key Energy Shared Services, LLC (Incorporated
    by reference to Exhibit 10.4 of the Companys Current
    Report on
    Form 8-K
    filed on January 7, 2008, File
    No. 001-08038.) 129




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##### Table of Contents



Exhibit No.

Description10
.20

Employment Agreement, dated as of January 1, 2004, between
    Key Energy Services, Inc. and Jim D. Flynt. (Incorporated by
    reference to Exhibit 10.6 of the Companys Current
    Report on
    Form 8-K
    dated October 19, 2006, File
    No. 001-08038.)10
.21

First Amendment to Employment Agreement, dated November 26,
    2007, between Key Energy Services, Inc. and Jim D. Flynt.
    (Incorporated by reference to Exhibit 10.2 of the
    Companys Current Report on
    Form 8-K
    filed on November 30, 2007, File
    No. 001-08038.)10
.22

Employment Agreement, dated November 17, 2004, between Key
    Energy Services, Inc. and Phil Coyne. (Incorporated by reference
    to Exhibit 10.8 of the Companys Current Report on
    Form 8-K
    dated October 19, 2006, File
    No. 001-08038.)10
.23

First Amendment to Employment Agreement, effective as of
    January 24, 2005, between Key Energy Services, Inc. and
    Phil Coyne. (Incorporated by reference to Exhibit 10.9 of
    the Companys Current Report on
    Form 8-K
    dated October 19, 2006, File
    No. 001-08038.)10
.24

Amended and Restated Employment Agreement, dated
    December 31, 2007, between Key Energy Services, Inc. and
    Don D. Weinheimer. (Incorporated by reference to
    Exhibit 10.19 of the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2007 filed on
    February 28, 2008, File
    No. 001-08038.)10
.25

Employment Agreement, dated August 14, 2007, between Key
    Energy Shared Services, LLC and J. Marshall Dodson.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007, File
    No. 001-08038.)10
.26

Employment Agreement, dated August 14, 2007, between Key
    Energy Shared Services, LLC and D. Bryan Norwood. (Incorporated
    by reference to Exhibit 10.2 of the Companys
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007, File
    No. 001-08038.)10
.27

Restated Employment Agreement, effective August 1, 2007,
    between Key Energy Shared Services, LLC and Tommy Pipes.
    (Incorporated by reference to Exhibit 10.23 of the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2008, File
    No. 001-08038.)10
.28

Employment Agreement, effective August 1, 2007, between Key
    Energy Services, Inc. and John Carnett. (Incorporated by
    reference to Exhibit 10.24 of the Companys Annual
    Report on
    Form 10-K
    for the year ended December 31, 2008, File
    No. 001-08038.)10
.29

Restated Employment Agreement, dated effective as of
    December 31, 2007, among William M. Austin, Key Energy
    Services, Inc. and Key Energy Shared Services, LLC.
    (Incorporated by reference to Exhibit 10.2 of the
    Companys Current Report on
    Form 8-K
    filed on January 7, 2008, File
    No. 001-08038.)10
.30

Letter Agreement, dated February 5, 2009, between Key
    Energy Services, Inc. and William M. Austin. (Incorporated by
    reference to Exhibit 10.1 of the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2009, File
    No. 001-08038.)10
.31

Settlement Agreement and Release of Claims by and between Kevin
    P. Collins and Key Energy Services, Inc. dated April 3,
    2009 (Incorporated by reference to Exhibit 10.2 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2009, File
    No. 001-08038.)10
.32

Settlement Agreement and Release of Claims by and between W.
    Phillip Marcum and Key Energy Services, Inc. dated April 3,
    2009 (Incorporated by reference to Exhibit 10.3 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2009, File
    No. 001-08038.)10
.33

Separation and Release Agreement, dated February 11, 2009,
    by and between Key Energy Shared Services, LLC, Key Energy
    Services, Inc. and William M. Austin. (Incorporated by reference
    to Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2009, File
    No. 001-08038.)10
.34

Separation and Release Agreement, dated February 11, 2009,
    by and between Key Energy Shared Services, LLC, Key Energy
    Services, Inc. and William M. Austin. (Incorporated by reference
    to Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2009, File
    No. 001-08038.) 130




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##### Table of Contents



Exhibit No.

Description10
.35

Credit Agreement, dated as of November 29, 2007, among Key
    Energy Services, Inc., each lender from time to time party
    thereto, Bank of America, N.A., as Paying Agent,
    Co-Administrative Agent, Swing Line Lender and L/C Issuer, and
    Wells Fargo Bank, National Association, as Co-Administrative
    Agent, Swing Line Lender and L/C Issuer. (Incorporated by
    reference to Exhibit 10.1 of the Companys Current
    Report on
    Form 8-K
    filed on November 30, 2007, File
    No. 001-08038.)10
.36

Amendment No. 1 to Credit Agreement, dated as of
    October 27, 2009, among Key Energy Services, Inc., each
    lender from time to time party thereto, Bank of America, N.A.,
    as Paying Agent, Co-Administrative Agent, Swing Line Lender and
    L/C Issuer, and Wells Fargo Bank, National Association, as
    Co-Administrative Agent, Swing Line Lender and L/C Issuer.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    filed on October 29, 2009, File
    No. 001-08038.)10
.37

Stock and Membership Interest Purchase Agreement, dated as of
    September 19, 2007, between and among Key Energy Services,
    LLC, the Sellers named therein, and Moncla Well Service, Inc.
    and certain other affiliated companies named therein.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    filed on September 20, 2007, File
    No. 001-08038.)10
.38

First Amendment to Stock and Membership Interest Purchase
    Agreement, dated as of October 25, 2007, among Key Energy
    Services, LLC, the Sellers named therein, and Moncla Well
    Service, Inc. and certain other affiliated companies named
    therein. (Incorporated by reference to Exhibit 10.3 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007, File
    No. 001-08038.)10
.39

Second Amendment to Stock and Membership Interest Purchase
    Agreement, dated as of September 30, 2008, among Key Energy
    Services, LLC, the Sellers named therein, and Moncla Well
    Service, Inc. and certain other affiliated companies named
    therein. (Incorporated by reference to Exhibit 10.31 of the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2008, File
    No. 001-08038.)10
.40

Purchase Agreement, dated November 14, 2007, by and among
    the Company, certain of its domestic subsidiaries, and Lehman
    Brothers, Inc., Banc of America Securities LLC and Morgan
    Stanley & Co. Incorporated, as representatives of the
    initial purchasers. (Incorporated by reference to
    Exhibit 10.2 of the Companys Current Report on
    Form 8-K
    filed on November 15, 2007, File
    No. 001-08038.)10
.41

Asset Purchase Agreement, dated December 7, 2007, among Key
    Energy Services, LLC, Kings Oil Tools, Inc. and Thomas Fowler.
    (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    filed on December 13, 2007, File
    No. 001-08038.)10
.42

Purchase Agreement, dated April 3, 2008, among Key Energy
    Services, LLC, Western Drilling Holdings, Inc., and Fred S.
    Holmes and Barbara J. Holmes. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K
    filed on April 9, 2008, File
    No. 001-08038.)10
.43

Stock Purchase Agreement, dated May 30, 2008, by and among
    Key Energy Services, LLC, and E. Kent Tolman, Nita Tolman,
    Ronald D. Jones and Melinda Jones. (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K
    filed on June 5, 2008, File
    No. 001-08038.)10
.44

Asset Purchase Agreement, dated July 22, 2008, by and among
    Key Energy Pressure Pumping Services, LLC, Leader Energy
    Services Ltd., Leader Energy Services USA Ltd., and CementRite,
    Inc. (Incorporated by reference to Exhibit 10.1 of the
    Companys Current Report on
    Form 8-K
    filed on July 24, 2008, File
    No. 001-08038.)10
.45

Master Agreement, dated August 26, 2008, by and among Key
    Energy Services, Inc., Key Energy Services Cyprus Ltd., OOO
    Geostream Assets Management and L-Group. (Incorporated by
    reference to Exhibit 10.1 of the Companys Current
    Report on
    Form 8-K
    filed on September 2, 2008, File
    No. 001-08038.)10
.46

Amendment to Master Agreement, dated March 11, 2009, by and
    among Key Energy Services, Inc., Key Energy services Cyprus
    Ltd., OOO Geostream Assets Management and L-Group. (Incorporated
    by reference to Exhibit 10.1 of the Companys Current
    Report on
    Form 8-K
    filed on March 25, 2009, File
    No. 001-08038.) 131




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##### Table of Contents



Exhibit No.

Description10
.47

Amendment No. 2 to Master Agreement, dated June 23,
    2009 (fully executed on June 26, 2009), by and among Key
    Energy Services, Inc., Key Energy Services Cyprus Ltd., OOO
    Geostream Assets Management and L-Group. (Incorporated by
    reference to Exhibit 10.1 of the Companys Current
    Report on
    Form 8-K
    filed on July 1, 2009, File
    No. 001-08038.)10
.48

Master Equipment Purchase and Sale Agreement, dated
    September 1, 2009, by and between Key Energy Pressure
    Pumping Services, LLC and GK Drilling Tools Leasing Company
    Ltd., and form of Addendum thereto (Incorporated by reference to
    Exhibit 10.1 of the Companys Current Report on
    Form 8-K
    filed on September 8, 2009, File
    No. 001-08038.)21
*

Significant Subsidiaries of the Company.23
*

Consent of Independent Registered Public Accounting Firm.31
.1*

Certification of CEO pursuant to Securities Exchange Act
    Rules 13a-14(a)
    and 15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act. of 2002.31
.2*

Certification of Principal Financial Officer pursuant to
    Securities Exchange Act
    Rules 13a-14(a)
    and 15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
*

Certification of CEO and Principal Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     
    
    Indicates a management contract or compensatory plan, contract
    or arrangement in which any Director or any Executive Officer
    participates.*
    
    Filed herewith. 132