<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-K


[X]  Annual report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 2000

                                       OR

[_]  Transition report pursuant to section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from _______ to _________

                      Commission file number    001-11769
                                               ----------


                         KEY PRODUCTION COMPANY, INC.

          A Delaware Corporation           IRS Employer No. 84-1089744

                      707 Seventeenth Street, Suite 3300
                            Denver, Colorado 80202
                        Telephone Number (303) 295-3995

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                 Name of Each Exchange
          Title of Each Class                     on Which Registered
          -------------------                     -------------------
     Common Stock ($.25 par value)               New York Stock Exchange

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                     NONE

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  X
                             ---

     Aggregate market value of the voting stock held by non-affiliates of Key
Production Company, Inc. as of March 16, 2001.................... $297,009,432.

     Number of shares of Key Production Company, Inc. common stock outstanding
as of March 16, 2001........................................ 13,963,070.

                     DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting
of Stockholders are incorporated by reference into Part III.
<PAGE>

                               TABLE OF CONTENTS

                                  DESCRIPTION
<TABLE>
<CAPTION>
Item                                                                       Page
----                                                                       ----
<S>                                                                        <C>
PART I....................................................................     3
     1.   BUSINESS........................................................     3
     2.   PROPERTIES......................................................     7
     3.   LEGAL PROCEEDINGS...............................................    10
     4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
          EXECUTIVE OFFICERS OF THE REGISTRANT............................    10

PART II...................................................................    12
     5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS.............................................    12
     6.   SELECTED FINANCIAL DATA.........................................    12
     7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.............................    12
     7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
          MARKET RISK.....................................................    17
     8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................    19
     9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE.............................    40

PART III..................................................................    40
     10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT*.............    40
     11.  EXECUTIVE COMPENSATION*.........................................    40
     12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT*.................................................    40

     13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................    40

PART IV...................................................................    41
     14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
          ON FORM 8-K.....................................................    41
</TABLE>

     *    This information is incorporated herein by reference from the
          Company's Proxy Statement for its 2001 Annual Meeting of Stockholders.

    In this report, we use terms to discuss oil and gas producing activities as
defined in Rule 4-10(a) of Regulation S-X. We express quantities of natural gas
in terms of thousand cubic feet (Mcf), million cubic feet (MMcf) or billion
cubic feet (Bcf). Oil is quantified in terms of barrels (Bbls), thousands of
barrels (MBbls) and millions of barrels (MMBbls). Oil is compared to natural gas
in terms of equivalent thousand cubic feet (Mcfe). One barrel of oil is the
energy equivalent of six Mcf of natural gas. Information relating to our working
interest in wells or acreage, "net" oil and gas wells or acreage is determined
by multiplying gross wells or acreage by our working interest therein. Unless
otherwise specified, all references to wells and acres are gross.

                                      -2-
<PAGE>

                                     PART I

ITEM 1.   BUSINESS

General

     Key Production Company, Inc. is an independent energy company engaged in
the exploration, development, acquisition, and production of oil and gas in the
continental United States.  We conduct exploration and development activities
primarily in the Anadarko Basin of Oklahoma, the Mississippi Salt Basin, south
Louisiana, and northern California.  We also have production operations and
exploration acreage in Wyoming and other Rocky Mountain states.

     Key was incorporated in Delaware on June 22, 1988, and our corporate office
is in Denver, Colorado. We have regional operations offices in: Tulsa, Oklahoma;
New Orleans, Louisiana; and Sacramento, California and district operational
offices: in Laredo, Texas; Houston, Texas; and Sidney, Montana. Key's common
stock trades on the New York Stock Exchange under the symbol KP. We report all
our operations as one business segment.

     As of December 31, 2000, we had estimated proved reserves of approximately
98.2 Bcf of gas and 9.3 MMBbls of oil, or an aggregate of 153.9 Bcfe. Roughly,
64 percent of our proved reserves are gas and 36 percent are oil. More than 99
percent of our proved reserves are classified as proved developed.

     We own approximately 180,000 net acres of developed leases and 134,000 net
acres of undeveloped leases, the bulk of which is in Wyoming, Mississippi,
Texas, California and Oklahoma. We also own working interests in 2,253 (367 net)
oil and gas wells located primarily in those same states.

     Our primary business objective is to increase shareholder value.  To
accomplish this objective we have implemented strategies designed to generate
attractive economic returns on capital employed and profitable growth in per-
share reserves, production, and cash flow.  We maintain a balanced program of
exploration and development, supplemented from time to time by acquisitions and
other business development initiatives that lead to new drilling projects.
Given the highly competitive nature of the domestic oil and gas business,
decentralization is also a core component of our business strategy.  We seek to
have local experts in each of our regional offices equipped with the necessary
authority to act decisively and motivated by economic incentives designed to
benefit Key's common shareholders.

     In our search for new oil and gas reserves, Key's technical staff uses
sophisticated computer systems for processes encompassing geology, geophysics,
petrophysics, engineering, and economic modeling. Modern field-tested drilling
tools and production technologies also play an integral role in our pursuit of
cost-effective oil and gas resource development. We routinely pool our
collective expertise to ensure that we bring the necessary professional skills
and exploration techniques to bear on every project. Equally important, we
temper our use of technology with experience and sound professional judgment.

     We believe that maintaining a strong balance sheet is integral to the
successful execution of our business strategies because it provides the
financial capability to capture attractive investment opportunities and the
wherewithal to weather periods of low commodity prices.

Business During 2000

     Fueled by strong commodity prices, revenues rose 77 percent over the
previous year to $99.8 million, net income increased 311 percent to $28.0
million, earnings per diluted share increased to $2.23 from $.56, and cash from
operating activities of $70.9 million almost doubled the $35.5 million reported
in 1999.

     Our average realized oil price climbed to $28.92 in 2000, up 65 percent
from the 1999 average of $17.58. The oil price increase added approximately
$17.4 million to sales. Gas

                                      -3-
<PAGE>

prices rose to $3.87 per Mcf in 2000, up 77 percent from the $2.19 per Mcf
averaged in 1999. The positive change in gas prices added approximately $23.3
million to sales.

     Our oil and gas production volumes increased by three percent. On a
combined equivalent basis, we produced 63.0 and 61.2 MMcfe per day in 2000 and
1999, respectively. Oil volumes increased 12 percent to 4,192 Bbls per day and
gas volumes decreased two percent to 37.9 MMcf per day in 2000.

     Cash production costs, including lease operating expense, general and
administrative expense, and production-related taxes, equated to $.77 per Mcfe
in 2000, or 22 percent more than the prior year's corresponding figure of $.63
per Mcfe. Lease operating expenses of $.48 per Mcfe were up 19 percent compared
to the $.40 per Mcfe in 1999. Production taxes for 2000 amounted to $.15 per
Mcfe versus $.12 in 1999.

     Our year-end 2000 proved oil and gas reserves increased 14 percent to 153.9
Bcfe primarily as a result of oil and gas price increases.  We added proved
developed reserves of 28.1 Bcfe through extensions and positive revisions and
another 14.1 Bcfe through acquisitions.  Sixty-four percent of our proved
reserves (98.2 Bcf) are gas and 36 percent are oil (9.3 MMBbls).  Approximately
99.5 percent of year-end 2000 proved reserves were classified as developed.

     During 2000, we made exploration and development expenditures of $60.5
million and participated in drilling 105 wells, with an overall success rate of
78 percent. We concentrated our drilling efforts in the Mid-Continent region,
Mississippi, south Louisiana, and California. We drilled 51 wells in the Mid-
Continent region, and completed 41 of them as producers. In our Gulf Coast
region, 21 out of 23 wells drilled were successful. Our western region yielded
20 good wells out of 31 attempts. On a net basis, 25.9 of the 40.0 wells we
drilled were successful.

     Also in 2000, we incurred $27.6 million for acquisitions.  We've included
$6.7 million in the costs recorded for acquisitions resulting from the step-up
to the book basis of the assets acquired in the tax-free stock-for-stock merger
with Columbus Energy Corp. on December 29, 2000.

     At December 31, 2000, our long-term debt was $44.0 million, $16 million
less than a year earlier; and our debt as compared to total book capitalization
was 24 percent.

Competition

     The oil and gas industry is highly competitive. As a small independent oil
and gas company, we find ourselves competing against companies with
substantially larger financial, human, and technological resources for a variety
of opportunities, including the purchase of proved reserves, exploratory lease
acquisitions, and the marketing of our gas and oil.

Natural Gas and Oil Prices

     Our 2000 gas price averaged $3.87 per Mcf, $1.68 higher than the prior year
average of $2.19 per Mcf. Our 2000 average oil price was $28.92 per barrel, up
$11.34 from the $17.58 per barrel reported in 1999. We did not use futures
contracts, derivative instruments, or other hedging arrangements to mitigate the
impact of changes in commodity prices. Our business will continue to be affected
by changes in domestic and international oil and gas prices. We cannot predict,
with any degree of accuracy, the trend in, or level of, future oil and gas
prices and their impact on our reported results in future periods.

Reserve Value Ceiling Test

     We review the carrying value of our oil and gas properties on a quarterly
basis as prescribed by the accounting rules of the Securities and Exchange
Commission. Under full cost accounting rules, capitalized costs of oil and gas
properties may not exceed the present value of estimated future net revenues
from proved reserves, discounted at 10 percent, plus the lower of cost or fair
market value of unproved properties, as adjusted for related tax effects and
deferred tax revenues. Applying this rule requires pricing of

                                      -4-
<PAGE>

future revenues at the unescalated prices in effect at the end of each fiscal
quarter and requires a write-down if the "ceiling" is exceeded, even if prices
declined for only a short period of time. If a write-down were required, the
charge to earnings would not impact cash flow from operating activities. Key has
never taken a full cost ceiling write-down.

Regulation of Oil and Gas

     Our exploration, production and marketing activities are regulated
extensively by federal, state and local governments. Oil and gas exploration,
development and production activities are subject to various laws and
regulations governing a wide variety of matters. For example, the states in
which Key produces oil and gas have statutes or regulations addressing
production practices that may affect our operations and limit the quantity of
hydrocarbons we may produce and sell. Marketing and transportation of oil and
gas and the valuation of royalty payments are also regulated.

     The Federal Energy Regulatory Commission (FERC) regulates interstate
transportation of natural gas under the Natural Gas Act among other regulated
matters. Intrastate and interstate gas transportation regulations affect our gas
sales. FERC has issued a series of orders that have significantly altered the
marketing and transportation of natural gas. To date, Key has not experienced
any material adverse effect on gas marketing as a result of these FERC orders.
However, we cannot predict what effect subsequent regulations may have on future
gas marketing.

Environmental

     We are subject to various federal, state and local laws and regulations
relating to discharge of materials into, and protection of, the environment.
These laws and regulations may, among other things, impose liability for the
cost of pollution clean-up resulting from operations, subject us to liability
for pollution damages, and restrict injection of liquids into subsurface
aquifers that may contaminate groundwater.

     Key has and will continue to incur costs complying with these requirements,
which we believe are necessary business costs in the oil and gas industry.
These costs are inextricably connected to normal operating expenses.  We are
unable to separate the expenses related to environmental matters.  Although
environmental regulations do have a substantial impact upon the energy industry,
generally these requirements do not appear to affect Key any differently or to
any greater or lesser extent than any other companies in the industry.

     We are not aware of any environmental claims existing as of December 31,
2000, which would have a material impact upon our financial condition or results
of operations. We do not believe that compliance with federal, state or local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, will have such an
impact.

Employees

     On December 31, 2000, Key had 70 employees.

Offices

     Our principal executive office is located at 707 Seventeenth Street, Suite
3300, Denver, Colorado 80202-3404.

                                      -5-
<PAGE>

Glossary


     Mcf - Thousand cubic feet (of natural gas)
     MMcf - Million cubic feet
     Bcf - Billion cubic feet
     Mcfe - Thousand cubic feet equivalent
     Mmcfe - Million cubic feet equivalent
     Bcfe - Billion cubic feet equivalent
     Bbls - Barrels (of oil)
     MMBbls - Million barrels
     Net Acres - Gross acreage multiplied by working interest percentage
     Net Production - Gross production multiplied by net revenue interest

     One barrel of oil is the energy equivalent of six Mcf of natural gas.


                                      -6-
<PAGE>

ITEM 2.   PROPERTIES

       We have implemented a decentralized approach to our exploration and
development program, and to the management of our producing oil and gas
properties. The following are the areas of geographic responsibility that we are
involved in:

Mid-Continent

       Our Mid-Continent region consists of properties principally located in
the Anadarko Basin of western Oklahoma, the Hardeman Basin of north Texas, and a
new area acquired in the Key/Columbus merger in south Texas. Managed out of
Tulsa, Oklahoma, the Mid-Continent region is our largest source of proved
reserves and production, as well as a significant part of our drilling program.
Year-end 2000 proved reserves attributable to this region were 77.6 Bcfe, or 50
percent of the company's total proved reserves. Average daily volumes during
2000 approximated 18.5 MMcf of gas and 2,000 barrels of oil.

Gulf Coast

       Our New Orleans-based Gulf Coast region encompasses the Mississippi Salt
Basin, selected areas of south Louisiana, and coastal Texas. At year-end 2000,
the Gulf Coast had proved reserves of 35 Bcfe, or 23 percent of our total proved
reserves. Daily production during 2000 averaged 7.8 MMcf of gas and 1,200
barrels of oil.

Western

Formerly known as our California and Rocky Mountain regions, this recently
combined region directs production, exploration and development activities from
our office in Denver, Colorado. Western's primary focus is on the Sacramento
Basin in California and the Powder River, Wind River and Big Horn Basins of
Wyoming. Year-end 2000 proved reserves in this region were 41.3 Bcfe and average
daily production was approximately 12 MMcf of gas and 900 barrels of oil.


Proved Reserves

                                              Gas        Oil     Equivalent
Region                                       (MMcf)    (MBbls)     (MMcfe)
------                                       ------    -------     -------
Mid-Continent.............................   59,052     3,095       77,622
Gulf Coast................................   20,431     2,425       34,981
Western...................................   18,731     3,756       41,267
                                             ------     -----      -------
Total.....................................   98,214     9,276      153,870
                                             ======     =====      =======
Proved developed..........................   97,564     9,268      153,172
                                             ======     =====      =======

     Our engineers estimate proved natural gas and oil reserve quantities in
accordance with guidelines established by the SEC.  Ryder Scott Company, L.P.,
who are independent petroleum engineers, reviewed approximately 80 percent of
our reserve estimates.  All information in this Form 10-K relating to oil and
gas reserves is net to Key's interest unless stated otherwise.  See Supplemental
Oil and Gas Disclosures in this Form 10-K for further information.

                                      -7-
<PAGE>

Acreage

     The undeveloped and developed acreage held by Key as of December 31, 2000,
is set forth below:

<TABLE>
<CAPTION>
                                                                 Undeveloped Acreage                 Developed Acreage
                                                                 -------------------                 -----------------
                                                            Gross Acres      Net Acres          Gross Acres     Net Acres
                                                            --------------------------          -----------     ---------
<S>                                                           <C>           <C>                 <C>            <C>
Mid-Continent
     Kansas                                                          -              -                 8,897          7,468
     Oklahoma                                                   24,658         10,852               145,801         28,641
     Texas                                                       8,762          5,689                31,315         12,252
                                                            ----------     ----------           -----------     ----------
                                                                33,420         16,541               186,013         48,361
                                                            ----------     ----------           -----------     ----------
 Gulf Coast
     Arkansas                                                        -              -                 1,596            238
     Louisiana                                                  17,757          3,935                54,370          6,447
     Mississippi                                                35,556         17,778                45,390          8,656
     Texas                                                       1,266            146               126,625         23,104
                                                            ----------     ----------           -----------     ----------
                                                                54,579         21,859               227,981         38,445
                                                            ----------     ----------           -----------     ----------

Western
     California                                                 43,368         28,585                 8,720          8,034
     Colorado                                                      619            310                10,472          2,140
     Montana                                                     1,897          1,706                28,445         11,814
     New Mexico                                                    840          1,470                22,843          4,317
     North Dakota                                                    -              -                36,588          3,356
     Utah                                                       14,993         12,256                 9,172          2,261
     Wyoming                                                    90,842         51,354               205,668         60,058
     Other                                                           -              -                14,274          1,132
                                                            ----------     ----------           -----------     ----------
                                                               152,559         95,681               336,182         93,112
                                                            ----------     ----------           -----------     ----------

TOTAL COMPANY                                                  240,558        134,081               750,176        179,918
                                                            ==========     ==========           ===========     ---=======
</TABLE>

Productive Wells

     We have working interests in the following productive gas and oil wells as
of December 31, 2000

                                         Gas                     Oil
                                         ---                     ---
                                   Gross       Net         Gross       Net
                                   -----       ---         -----       ---

Mid-Continent                        818      137.5          193       71.9
Gulf Coast                           177       27.2          203       33.5
Western                              161       31.8          701       65.1
                                  ------    -------      -------    -------
                                   1,156      196.5        1,097      170.5
                                  ======    =======      =======    =======

     In addition, we have royalty or overriding royalty interests in
approximately 112 properties in the Mid-Continent region, 65 properties in the
Gulf Coast region, and 1,865 properties in the Western region.

                                      -8-
<PAGE>

Gross Wells Drilled

     Key participated in the following number of wells drilled during 2000,
1999, and 1998:

<TABLE>
<CAPTION>
                                       Exploratory                               Developmental
                               ----------------------------             ------------------------------
                               Productive     Dry     Total             Productive       Dry     Total
                               ----------     ---     -----             ----------       ---     -----
     2000
     ----
<S>                           <C>          <C>     <C>                <C>            <C>      <C>
Mid-Continent                           3       5         8                     38         5        43
Gulf Coast                              8       2        10                     13         -        13
Western                                 2      10        12                     18         1        19
                               ---------- ------- ---------             ----------   ------- ---------
                                       13      17        30                     69         6        75
                               ========== ======= =========             ==========  ======== =========

     1999
     ----
Mid-Continent                           4       5         9                     35         6        41
Gulf Coast                              4       3         7                     11         1        12
Western                                 8       9        17                     15         3        18
                               ---------- ------- ---------             ---------- --------- ---------
                                       16      17        33                     61        10        71
                               ========== ======= =========             ========== =========  ========

     1998
     ----
Mid-Continent                           1       6         7                     30         4        34
Gulf Coast                              2       1         3                      6         1         7
Western                                 7       9        16                     15         -        15
                               ---------- ------- ---------             ---------- --------- ---------
                                       10      16        26                     51         5        56
                               ========== ======= =========             ========== =========  ========
 </TABLE>

    We were in the process of drilling, 13 gross (6.0 net) wells at December
31, 2000.

Net Wells Drilled

     The number of net wells Key drilled during each of the last three years is
shown below:

<TABLE>
<CAPTION>
                                         Exploratory                               Developmental
                                 ------------------------------          -----------------------------
                                 Productive     Dry       Total          Productive      Dry     Total
                                 -----------    ---       -----          ----------     ----     -----
     <S>                         <C>           <C>       <C>             <C>           <C>       <C>
     2000                             5.9       12.2      18.1               20.0       1.9       21.9
     1999                            10.2       12.1      22.3               13.6       2.4       16.0
     1998                             5.7       10.6      16.3               10.1       1.7       11.8
</TABLE>

Production and Pricing Information

     The following table describes, for each of the last three fiscal years, our
oil and gas production and pricing data.

<TABLE>
<CAPTION>

                                                                                                                   Average
                                                                                              Average Sales Price Production
                                                                   Oil          Gas           -------------------    Cost
Year Ended December 31                                            MBbls         MMcf          Per Bbl   Per Mcf    Per Mcfe
----------------------                                            -----         ----          -------   -------    --------
<S>                                                              <C>           <C>            <C>       <C>        <C>
2000.....................................................         1,534        13,855         $ 28.92   $  3.87     $   .63
1999.....................................................         1,375        14,070         $ 17.58   $  2.19     $   .52
1998.....................................................           965        12,600         $ 11.78   $  2.00     $   .61
</TABLE>

Reserve Information

     Key's estimated proved oil and gas reserves, as of December 31, 2000, 1999
and 1998, and the standardized measure of discounted future net cash flows
attributable thereto at December 31, 2000, 1999 and 1998, are included in
Supplemental Oil and Gas Disclosures to Financial Statements appearing in this
Form 10-K. Supplemental Oil and Gas Disclosures also include Key's net revenues
from production (including royalty and working interest production) of oil and
natural gas for each year in the three year period ended December 31, 2000.

                                      -9-
<PAGE>

<TABLE>
<CAPTION>
                              TOTAL PROVED RESERVES        PROVED DEVELOPED RESERVES
                              ---------------------        -------------------------
                           Gas       Oil     Equivalent    Gas      Oil      Equivalent
      December 31,       (MMcf)     (MBbls)     Mmcfe     (MMcf)   (MBbls)     MMcfe
      ------------        ----       -----      -----      ----     -----      -----
<S>                      <C>      <C>          <C>      <C>      <C>          <C>
2000...................  98,214        9,276   153,870    97,564    9,268     153,172
1999...................  79,351        9,220   134,671    77,048    8,916     130,544
1998...................  82,956        7,022   125,088    82,337    7,012     124,409
</TABLE>

     Future reserve values are based on year-end prices except in those
instances where the sale of gas is covered by contract terms providing for
determinable escalations. Operating costs, production and ad valorem taxes and
future development costs are based on current costs with no escalations.

<TABLE>
<CAPTION>
                                           Present Value of Estimated      Present Value of Estimated
                                          Future Net Cash Flows Before    Future Net Cash Flows After        Year-end Price
                                                   Income Tax                     Income Tax              Used in Calculation of
                                          (Discounted at 10 Percent)      (Discounted at 10 Percent)     Future Net Cash Flows
                                          --------------------------      -------------------------      ---------------------
     Year Ended December 31,                        Proved                         Proved                    Gas         Oil
     ----------------------                         ------                         ------                    ---         ---
     (In thousands, except prices)
<S>                                      <C>                              <C>                             <C>
2000................................               $638,439                        $454,931                $10.45       $24.17
1999................................               $185,204                        $146,975                $ 2.16       $23.68
1998................................               $118,419                        $104,222                $ 2.01       $ 9.75
</TABLE>

     No major discovery or other favorable or adverse event is believed to have
occurred since December 31, 2000, which would cause significant change in the
estimated proved reserves reported herein. The above estimates are based on
year-end pricing in accordance with Securities and Exchange Commission (SEC)
guidelines and do not reflect current prices. Since December 31, 2000, no oil or
gas reserve information has been filed with, or included in any report to, any
federal authority or agency other than the SEC and/or the Energy Information
Administration.

     Subsequent to December 31, 2000, the price of natural gas decreased
significantly. During March 2001, we received an average natural gas price of
approximately $4.98 per Mcf. Had the lower prices been used, our standardized
measure of discounted net cash flows relating to proved oil and gas reserves at
December 31, 2000, would have been significantly reduced.

ITEM 3.   LEGAL PROCEEDINGS

     We are not subject to any pending litigation that, in the opinion of our
management, will materially affect the financial position or results of
operations of Key.

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

     No matters were submitted for a vote of security holders during the fourth
quarter of 2000.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

     F.H. MERELLI, 65, has been with Key since September 9, 1992. He has been
chairman of the board of directors and chief executive officer since September
1999. From September 1992 to September 1999, he also held the office of
president. From July 1991 to September 1992, Mr. Merelli was engaged as a
private consultant in the oil and gas industry. Mr. Merelli was president and
chief operating officer of Apache Corporation, and president, chief operating
officer and a director of Key from June 1988 to July 1991, at which time he
resigned from those positions in both companies. He was president of Terra
Resources, Inc. from 1979 to 1988. Mr. Merelli has been a director of Apache
Corporation since July 1997.

                                      -10-
<PAGE>

     MONROE W. ROBERTSON, 51, has been with Key since September 1992. Mr.
Robertson was appointed president and chief operating officer in September 1999.
He served as senior vice president and corporate secretary from February 1994 to
September 1999. From September 1992 to February 1994, he served as vice
president and corporate secretary. From August 1988 to July 1992, he was
employed by Apache Corporation in various capacities, the most recent of which
was director of operational planning. From 1986 to 1988, Mr. Robertson was
director of corporate planning for Terra Resources, Inc. From 1973 to 1986, Mr.
Robertson was employed by Gulf Oil Corporation in various engineering and
management positions.

     STEPHEN P. BELL, 46, has been with Key since February 1994. In September
1999, he was appointed senior vice president-business development and land. From
February 1994 to September 1999, he served as vice president-land. From March
1991 to February 1994, he was president of Concord Reserve, Inc., a privately-
held independent oil and gas company. He was employed by Pacific Enterprises Oil
Company (formerly Terra Resources, Inc.) as mid-continent regional manager from
February 1990 to February 1991 and as land manager from August 1985 to January
1990.

     JOSEPH P. ALBI, 42, has been with Key since June 1994. In September 1999,
he was appointed vice president-engineering. He served as manager of engineering
from June 1994 to September 1999. He was executive vice president of Black Dome
Energy Corporation from 1991 to 1994. Prior to that, Mr. Albi held various
engineering positions with Apache Corporation and Nicor Oil and Gas Corporation.

     THOMAS E. JORDEN, 43, has been with Key since November 1993. In September
1999, he was appointed vice president-exploration. He served as chief
geophysicist for Key from November 1993 to September 1999. Prior to joining Key,
Mr. Jorden was with Union Pacific Resources in Fort Worth, Texas.

     PAUL KORUS, 44, joined Key in September 1999, as its vice president and
chief financial officer. He was an equity research analyst with Petrie Parkman &
Co., an investment banking firm, from June 1995 to September 1999. Prior to
that, Mr. Korus was director of investor relations for Apache Corporation.

     BARBARA L. SCHALLER, 46, joined Key in March 1993. She was appointed
general counsel and corporate secretary in September 1999. From March 1993 to
September 1999, she served as corporate counsel and assistant secretary. Ms.
Schaller has been practicing law since 1982 and is a member of the Denver,
Colorado and American Bar Associations.

                                      -11-
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

     Key's common stock, par value $.25 per share, trades on the New York Stock
Exchange under the symbol KP. No dividends were paid in 2000 or in 1999. The
table below shows the market price of the common stock for 2000 and 1999:


                                         MARKET PRICE
                                         ------------
                                 2000                1999
                            -------------        ------------
                            High      Low        High     Low
                            ----      ---        ----     ---
First Quarter             $13.938   $ 6.938    $ 7.750   $5.250
Second Quarter            $20.938   $11.625    $10.063   $7.125
Third Quarter             $24.813   $13.250    $11.000   $9.063
Fourth Quarter            $33.750   $20.500    $ 9.688   $6.750

     The closing price of Key's common stock as reported on the New York Stock
Exchange for March 16, 2001, was $21.85.  At December 31, 2000, the Company's
13,920,637 shares of common stock outstanding were held by approximately 5,100
stockholders of record and approximately 7,500 beneficial owners.

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth selected financial data of the Company for
each of the years in the five-year period ended December 31, 2000, which
information has been derived from the Company's audited financial statements.
This information should be read in connection with and is qualified in its
entirety by the more detailed information and consolidated financial statements
under Item 8 below.

<TABLE>
<CAPTION>
                                                             For the Year Ended December 31,
                                                             -------------------------------
                                                  2000        1999        1998        1997       1996
                                                  ----        ----        ----        ----       ----
                                                       (In thousands, except per share data)
     <S>                                      <C>         <C>         <C>         <C>         <C>
     Revenues...............................  $ 99,820    $ 56,258    $ 37,783    $ 42,151    $37,886
     Net income.............................    27,995       6,804       4,595       9,696      7,980
        Basic earnings per share............      2.32         .59         .40         .84        .73
        Diluted earnings per share..........      2.23         .56         .38         .80        .69
     Oil and gas expenditures...............    88,118      34,456      55,429      44,625     43,476
     Total assets...........................   244,154     176,857     166,295     130,647     95,940
     Long-term debt.........................    44,000      60,000      60,000      35,000     22,500
     Stockholders' equity...................   138,087      76,873      69,681      64,911     55,269
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Financial Results

     We generated net income of $28.0 million, or $2.23 per diluted share. Our
2000 net income was approximately four times the $6.8 million and $.56 per
diluted share reported in 1999, and around six times the $4.6 million and $.38
per diluted shares reported in 1998. The upward trend in net income resulted
from revenues of $99.8, $56.3, and $37.8 million in 2000, 1999 and 1998,
respectively.

     Throughout 2000, positive market conditions for oil and gas, along with
production growth, contributed to record revenues, net income, earnings per
share and cash flow.  Similar to other companies in our industry, the prices we
receive for oil and gas sales are market driven.  However, our production growth
is the result of a successful drilling program.

                                      -12-
<PAGE>

Results of Operations

     Our oil and gas sales rose 78 percent to $99.4 million in 2000, from $55.8
million in 1999. The $43.6 million increase in sales included an increase in oil
sales of $20.2 million, an increase in gas sales of $22.9 million and an
increase in plant products of $.5 million. We produced combined oil and gas
volumes of 63.0 MMcfe per day in 2000 compared to 61.2 MMcfe in 1999, an
increase of three percent.

     Between 1999 and 1998, our oil and gas sales climbed 49 percent to $55.8
million. Oil sales generated $12.8 million of the 1999 sales increase and $5.6
million is from gas sales. Combined oil and gas production increased to 61.1
MMcfe per day in 1999, up 21 percent from the 50.4 MMcfe per day produced during
the prior year.

     The 78 percent overall increase in 2000 revenues was mostly fueled by
higher oil and gas prices.  The rise in gas prices was in response to a tighter
balance between supply and demand in North America.  Market analysts and
economists point to many factors that influence energy prices including:
weather, economics, growth, geopolitical events, Organization of Petroleum
Exporting Countries policies, electricity demand and others.

     The rise in prices had a significant positive effect on our financial
results. We have not entered into any derivative contracts or hedges with
respect to our production. As a result, the prices we receive reflect the full
impact of market forces. Our analysis indicates that the prices we receive tend
to follow changes in domestic natural gas prices and worldwide oil prices. A
commonly used benchmark for natural gas prices is the price at the Henry Hub as
reported by Natural Gas Week. When we track our gas price increases and
decreases, there is a direct correlation between our prices and the prices at
the Henry Hub. A similar relationship exists for our oil prices. One of the
commonly used benchmark prices for oil is West Texas Intermediate (WTI) as
reported in the Wall Street Journal. Our oil price tends to move in direct
correlation with the WTI price.

     Gas sales for 2000 increased to $53.7 million from $30.8 million, a 74
percent increase, due primarily to an increase in gas prices. Our average
realized gas price was $3.87 per Mcf in 2000 compared to $2.19 per Mcf in 1999.
The $1.68 per Mcf increment added approximately $23.3 million to sales. During
2000, gas production declined to 37,855 Mcf per day from 38,549 per day in 1999.
The two percent decrease to gas volumes reduced sales by $.5 million. Through
the first nine months of 2000, we had higher volumes than the prior year due to
production from new wells in Oklahoma and Mississippi, partially offset by
natural reservoir declines in the Sacramento Basin of California. However, in
the fourth quarter of 2000, our volumes were also negatively impacted by
inclement weather in the Mid-Continent region and continuing declines in
California.

     Between 1999 and 1998, gas sales increased to $30.8 million from $25.2
million.  Production and price both contributed to the 22 percent increase.
Average daily production rose to 38,549 Mcf per day in 1999 from 34,520 Mcf per
day in 1998.  The 12 percent volume increase added approximately $2.9 million to
gas sales.  Production increases in 1999 were primarily from new wells drilled
in western Oklahoma, the Sacramento Basin of California and the Mississippi Salt
Basin.  Our average gas price increased to $2.19 per Mcf in 1999 from $2.00 per
Mcf in 1998.  Favorable pricing added about $2.7 million to 1999 sales.

     Driven by significantly higher prices, our oil sales increased by 84
percent between 2000 and 1999. Sales climbed $44.4 million in 2000 from $24.2
million in 1999. We realized an average of $28.92 per barrel in 2000, compared
to $17.58 per barrel in 1999. The price difference between the two years
accounted for approximately $17.4 million of the increase in oil sales. At the
same time prices were on the rise, our production increased by 12 percent. We
produced an average of 4,192 barrels per day in 2000 compared to 3,767 barrels
per day in 1999. The increase in production accounted for approximately $2.8
million of the positive sales variance. A major factor in the production
increase is new wells drilled in the Mid-continent region.

     Oil sales more than doubled between 1999 and 1998. A 49 percent increase in
our average selling price and a 43 percent increase in volume advanced 1999
sales to $24.2 million. This compares to $11.4 million reported in 1998. Our
average oil price rose to

                                      -13-
<PAGE>

$17.58 per barrel in 1999, up from $11.78 per barrel in 1998. The increase in
price added almost $8.0 million in revenues. Our production jumped to 3,767
barrels per day in 1999 versus 2,643 barrels in 1998. This added $4.8 million to
oil sales. The positive production variance is primarily from the acquisition of
oil properties at year-end 1998.

     Product sales from gas processing plants increased 58 percent between 2000
and 1999, and increased two percent between 1999 and 1998.  Price was the basis
for our improved plant product sales.

     Our oil and gas revenues are derived from the following product mix in
2000: 45 percent oil, 54 percent gas and 1 percent plant products.  This
compares to the following mix for 1999: 43 percent oil, 55 percent gas and 2
percent plant products.  If you look at our total production volumes for 2000,
40 percent of our output is oil and 60 percent is gas.  Production for 1999 was
37 percent oil and 63 percent gas.

     Other revenues were approximately $452,000, $460,000 and $370,000 in 2000,
1999 and 1998, respectively.  For all three years, the most significant
component of other revenue is income from our two gathering systems in
California.  The remaining other revenue, for all periods presented, includes
proceeds from gas contract settlements and other miscellaneous items.

Costs and Expenses

     Depreciation, depletion and amortization (DD&A) expense increased nearly 23
percent between 2000 and 1999. Part of the increase can be attributed to the 78
percent increase in oil and gas sales. The increase resulting from higher sales
was partially offset by a decrease in the depletion rate. Our depletion rate as
a percentage of oil and gas sales decreased to 34.6 percent from 50.6 percent in
1999. We use the future gross revenue method and rolling average prices to
compute DD&A expense. Higher product prices over the last year, for both oil and
gas, are helping to lower the depletion rate. DD&A also includes depreciation of
fixed assets and amortization of financing costs associated with our credit
facility.

     Between 1999 and 1998, DD&A expense increased by 76 percent. Part of this
increase is from the 49 percent increase in oil and gas sales. The other
determining factor was the increase in the depletion rate. The depletion rate as
a percentage of oil and gas sales increased to 50.6 percent in 1999 from 42.3
percent in 1998. When the rolling average price is lower than the price we are
currently receiving for our oil and gas production, the increase in DD&A expense
is greater than the increase in revenue for the period. This was the case
between 1999 and 1998. Conversely, as occurred between 2000 and 1999, an average
price that is higher than the price we receive for oil and gas production
resulted in an increase in DD&A expense that was less than the increase in
revenue for the period.

     Lease operating expense (LOE) increased 23 percent between 2000 and 1999.
Compared on a unit of production basis, expenses increased to $.48 per Mcfe in
2000 from $.40 per Mcfe in 1999. In calculating Mcf equivalents, we use a
generally recognized standard in which one BBl of oil is equal to six Mcf of
gas. Some of the items impacting LOE are: 1) production from drilling is growing
and we are paying expenses on more wells, 2) commodity prices are high and it is
becoming economical to do more workovers to further enhance production, 3)
higher prices are increasing property values and, as a result, ad valorem taxes,
and 4) there are upward cost pressures resulting from heightened competition.

     Lease operating expense increased less than one percent between 1999 and
1998. The increase was especially small considering oil and gas revenues
increased by 49 percent and production increased by 21 percent during the same
period. On a unit of production basis, LOE decreased to $.40 per Mcfe in 1999
from $.48 per Mcfe in 1998.

     Production taxes increased to $3.5 million in 2000 from $2.6 million in
1999 and $2.4 million in 1998. The tax for 2000 is a little over 3.3 percent of
oil and gas sales, or $.15 per Mcfe. This compares to 4.7 percent and $.12 per
Mcfe, and 6.4 percent and $.13 per Mcfe in 1999 and 1998, respectively. The
fluctuations are based on several variables: 1) the proportion of sales and/or
production from each of the states we do business in is

                                      -14-
<PAGE>

constantly changing, 2) commodity prices have increased significantly over the
last three years affecting value-based taxes, 3) production/severance taxes can
be based on sales value, volume of production or a combination of both, and 4)
some states like California, have no production or severance taxes.

     General and administrative expense (G&A) increased to $3.3 million in 2000
from $2.6 million in 1999. On a unit basis, G&A increased to $.14 per Mcfe in
2000 from $.11 per Mcfe in 1999. Most of the variance is due to higher employee
compensation and benefit expense and miscellaneous costs related to our
acquisition of Columbus. During the fourth quarter of 2000, we began to hire
additional staff and make preparations for the Columbus acquisition. While these
expenses were related to the acquisition, they were not direct costs and
therefore were not capitalized.

     G&A expense increased to $2.6 million in 1999 from $1.7 million in 1998.
With a 21 percent increase in production, this translates to $.11 and $.09 per
Mcfe in 1999 and 1998, respectively. As prescribed by full cost accounting
rules, we capitalize direct overhead related to exploration and development
activities.

     Interest expense before capitalization was $4.3, $4.1 and $2.8 million for
the years 2000, 1999 and 1998, respectively. We capitalized interest of $1.7,
$1.4 and $1.5 million for those same periods. These capitalized amounts are for
borrowings associated with undeveloped leasehold. Even though our long-term debt
balance decreased $16 million between December 31, 2000 and December 31, 1999,
our interest expense is higher in 2000 due to an increase in interest rates and
most of the debt was paid down in the second half of 2000. At December 31, 2000
our average interest rate was 7.65 percent. A year ago, the average interest
rate was 7.45 percent. While we finished 1999 and 1998 with the same debt
balance, interest expense for 1999 is higher than 1998 because we started 1998
with a debt balance of $35 million and increased it during the year.

Cash Flow and Liquidity

     We primarily need cash to fund oil and gas exploration, development, and
acquisition activities and to pay existing obligations and trade commitments
related to oil and gas operations. Our primary sources of liquidity are cash
flows from operating activities and proceeds from financing activities.

     We generated cash from operating activities of $70.9 million in 2000. This
is nearly double the $35.5 million reported for 1999, and more than two and one
half times the $26.6 million reported in 1998. Most of the 2000 increase was a
consequence of higher oil and gas prices in 2000, and the resulting increases in
oil and gas sales and net income.

     Cash expenditures for exploration and development (E&D) in 2000 totaled
$58.2 million, or 82 percent of cash from operating activities. We participated
in drilling 105 gross wells, with an overall success rate of 78 percent. On a
net basis, 25.9 of the 40.0 wells drilled were successful. We concentrated our
drilling efforts in the Mid-Continent region, principally the Anadarko Basin,
and the Mississippi Salt Basin. Year 2000 E&D projects were funded with cash
generated from operating activities.

     Our 2000 E&D expenditures were $25.4 million more than the $32.8 million
spent in 1999, and $18.4 million more than the $39.8 million spent in 1998. We
drilled 104 gross wells (38.3 net) in 1999 and 82 gross wells (28.1 net) in
1998. While we did not significantly increase the gross number of wells we
drilled, we took a larger interest in the drilling projects we selected.

     In 1999, we acquired additional interests in producing properties we
already operated in the Hardeman Basin and properties in the Gulf Coast region.
The 1999 transactions were funded with cash from operating activities. Late in
1998, we purchased additional interests in producing properties in the Hardeman
Basin for $10.5 million. At this point, we already held an interest in these
properties since the second quarter of 1997 and were operator of the wells. We
obtained funds from our credit facility to complete the 1998 acquisition.

                                      -15-
<PAGE>

     As discussed in Note 1, we completed a merger with Columbus Energy Corp.
during December 2000. In this transaction, Columbus became a wholly-owned
subsidiary of Key. Our consolidated balance sheet includes the assets and
liabilities, as well as the adjustments required to record the acquisition in
accordance with purchase accounting. At the closing date, Columbus had
$1,058,000 in cash and cash equivalents. During the months leading up to the
merger, we incurred approximately $250,000 of costs directly related to the
transaction.

     We received proceeds totaling $.3 million, $2.1 million $3.4 million in
2000, 1999 and 1998, respectively, for the sale of miscellaneous producing
properties and non-producing acreage.

     Using cash from operating activities and proceeds from the issuance of
common stock associated with the exercise of stock options, we paid down $18.2
million of our long-term debt balance in 2000. Although not reflected in our
statement of cash flows, we assumed $2.2 million of long-term debt in our merger
with Columbus. The $2.2 million of Columbus debt is included in the $18.2
million we paid. We started and finished 1999 with a long-term debt balance of
$60.0 million. During 1999, proceeds from borrowings were used to finance
exploration and drilling activities. These borrowings were subsequently repaid
with cash from operating activities. We borrowed $25.0 million in 1998 to fund
various acquisition, exploration and development projects.

     We received cash proceeds of $5.5 million from the issuance of common stock
in 2000. Shares of Key common stock were issued in connection with the exercise
of stock options granted to officers and directors between 1992 and 1999. The
options exercised had exercise prices ranging from $2.50 to $12.00 per share.

     Our chief executive officer (Mr. Merelli) exercised options to purchase
500,000 shares of common stock. The options were granted in 1992 in connection
with his employment contract. These options had an exercise price of $3.00. We
received proceeds valued at $1.5 million from Mr. Merelli for the exercise price
of the options. The proceeds were a combination of cash and 70,000 shares of Key
common stock valued at the then market price. We issued 370,000 shares of stock
to him after withholding 130,000 shares to cover his tax withholding liability.

     We believe that cash on hand, net cash generated from operations and
amounts available under our existing line of credit will be adequate to meet
future liquidity needs, including satisfying our financial obligations and
funding our operations and exploration and development activities. At December
31, 2000, we had material commitments of approximately $3.2 million. All of the
commitments were routine and were made in the normal course of our business.

Future Trends

     Our primary goals are to increase shareholder value and grow the company
profitably. Just as we have done in the past, we will try to position ourselves
to weather all market conditions. Our strategy is to increase our oil and gas
reserves and production through our exploration and development efforts and to
supplement this growth with acquisitions or mergers that meet our economic
criteria.

     In the current price environment, we anticipate exploration and development
expenditures of $65 to $70 million in 2001. The amount and allocation of our
future capital expenditures will depend on a number of factors, including the
impact of oil and gas prices on investment opportunities and available cash
flow, the availability of debt and equity capital, the rate at which we can
evaluate potential drilling projects, and the number and size of attractive
acquisition opportunities. We plan to fund these expenditures with cash provided
by operating activities, supplemented, if necessary, by borrowings under our
bank line of credit.

     Our exploration and development efforts are off to a fast start. At the
close of 2000, we were in the process of drilling 13 wells. As of March 11,
2001, we had participated in the spudding of 18 additional wells. We plan to
concentrate our drilling

                                      -16-
<PAGE>

efforts in the following areas: the Anadarko Basin of western Oklahoma, the
Mississippi Salt Basin, south Louisiana, south Texas, and the Sacramento Basin
of northern California. We will also be drilling in a new area in Wyoming. Since
the formula has worked for us in the past, we will continue to drill a mixture
of low, moderate, and high-risk wells.

     Even though exploration and development activities are at an all-time high
for this time of year, we expect to continue paying down our long-term debt
using cash from operating activities. As of mid-March 2001, we have paid $12.0
million reducing our outstanding debt balance to $32 million.

     We plan to further evaluate the properties we acquired in our 2000
acquisition of Columbus, and assimilate those properties into our operations and
plans for the future.

     Throughout the year, we plan to be actively looking for other merger and
acquisition opportunities. We also plan to pursue merger candidates with the
economic and strategic attributes needed to facilitate our profitable growth.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Price Fluctuations

     Our results of operations are highly dependent upon the prices we receive
for natural gas and crude oil production, and those prices are constantly
changing in response to market forces. Nearly all of our revenue is from the
sale of gas and oil, so these fluctuations, positive and negative, can have a
significant impact.

     If we wanted to manage the risk of commodity price fluctuations on our
business, we could enter into hedging arrangements including commodity swap
agreements, forward sale contracts, commodity futures, options and other similar
agreements relating to natural gas and crude oil. To date, we have not used any
of these financial instruments to manage our commodity price risk.

Interest Rate Risk

     Our reported earnings are impacted by changes in interest rates. Any
fluctuation in interest rates will directly affect the amount of our interest
expense. At December 31, 2001, we had $44 million of long-term debt outstanding
at an average interest rate of 7.65 percent. At our election, our interest
charges are based on either the prime rate or the LIBOR rate plus a margin set
out in our debt agreement. Assuming there is no change in the balance
outstanding during 2000, a ten percent change in the average interest rate would
impact annual interest expense by approximately $337,000. As the interest rate
is variable and is reflective of current market conditions, the carrying value
of our long-term debt approximates its fair value.

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

     This report contains "forward-looking statements" within the meaning of the
federal securities law. These forward-looking statements include, among others,
statements concerning the Company's outlook with regard to production levels,
price realizations, expenditures for exploration and development, plans for
funding operations and capital expenditures, and other statements of
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in or
implied by the statements.

     These risks and uncertainties include, but are not limited to, fluctuations
in the price the Company receives for its oil and gas production, reductions in
the quantity of oil and gas sold due to decreased industry-wide demand and/or
curtailments in production from specific properties due to mechanical, marketing
or other problems, operating and capital expenditures that are either
significantly higher or lower than anticipated because

                                      -17-
<PAGE>

the actual cost of identified projects varied from original estimates and/or
from the number of exploration and development opportunities being greater or
fewer than currently anticipated, and increased financing costs due to a
significant increase in interest rates. These and other risks and uncertainties
affecting the Company are discussed in greater detail in this report and in
other filings by the Company with the Securities and Exchange Commission.

                                      -18-
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See following Index.

                          KEY PRODUCTION COMPANY, INC.

            INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Auditors for the year ended December 31, 2000.......    20
Report of Independent Auditors for the two years ended December 31, 1999..    21
Consolidated statements of income for the years ended
     December 31, 2000, 1999 and 1998.....................................    22
Consolidated statements of cash flows for the years ended
     December 31, 2000, 1999 and 1998.....................................    23
Consolidated balance sheets as of December 31, 2000 and 1999..............    24
Consolidated statements of stockholders' equity for the
     years ended December 31, 2000, 1999 and 1998.........................    25
Summary of significant accounting policies................................    26
Notes to consolidated financial statements................................    29
Supplemental oil and gas disclosures......................................    37
Supplemental quarterly financial data.....................................    40
</TABLE>

     All other supplemental information and schedules have been omitted because
they are not applicable or the information required is shown in the consolidated
financial statements or related notes thereto.

                                      -19-
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS


The Board of Directors
Key Production Company, Inc.:

     We have audited the accompanying consolidated balance sheet of Key
Production Company Inc. and subsidiaries as of December 31, 2000 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Key
Production Company, Inc. and subsidiaries as of December 31, 2000, and the
results of its operations and its cash flows for the year ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.

                                                      KPMG LLP

Denver, Colorado
February 27, 2001

                                      -20-
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of Key Production Company, Inc.:

     We have audited the accompanying consolidated balance sheet of Key
Production Company, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1999, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Key
Production Company, Inc. and subsidiaries as of December 31, 1999, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

                                                  ARTHUR ANDERSEN LLP


Denver, Colorado,
  February 24, 2000

                                      -21-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                        For the Year Ended December 31,
                                                        -------------------------------
                                                          2000       1999        1998
                                                          ----       ----        ----
                                                     (In thousands, except per share data)
<S>                                                   <C>          <C>         <C>
Revenues:
     Natural gas production....................        $53,656     $30,779     $25,217
     Oil production............................         44,379      24,177      11,368
     Plant production..........................          1,333         842         828
     Other.....................................            452         460         370
                                                       -------     -------     -------
                                                        99,820      56,258      37,783
                                                       -------     -------     -------

Expenses:
     Depreciation, depletion and amortization..         35,204      28,672      16,255
     Lease operating...........................         10,965       8,951       8,874
     Production taxes..........................          3,526       2,623       2,409
     General and administrative................          3,324       2,550       1,697
     Financing costs:
       Interest expense........................          4,311       4,081       2,752
       Capitalized interest....................         (1,712)     (1,397)     (1,456)
       Interest income.........................           (234)       (197)       (160)
                                                       -------     -------     -------
                                                        55,384      45,283      30,371
                                                       -------     -------     -------

Income Before Income Taxes.....................         44,436      10,975       7,412

Provision for income taxes.....................         16,441       4,171       2,817
                                                       -------     -------     -------

Net Income.....................................        $27,995     $ 6,804     $ 4,595
                                                       =======     =======     =======

Basic earnings per share.......................        $  2.32     $   .59     $   .40
                                                       =======     =======     =======

Diluted earnings per share.....................        $  2.23     $   .56     $   .38
                                                       =======     =======     =======

Weighted average common shares outstanding.....         12,075      11,537      11,509
                                                       =======     =======     =======

Weighted average diluted shares outstanding....         12,537      12,111      12,140
                                                       =======     =======     =======
</TABLE>


          The accompanying Summary of Significant Accounting Policies
                and Notes to Consolidated Financial Statements
                   are an integral part of these statements.

                                      -22-
<PAGE>

                          KEY PRODUCTION COMPANY, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


                                              For the Year Ended December 31,
                                              -------------------------------
                                                 2000        1999      1998
                                                 ----        ----      ----
                                                       (In thousands)
Cash Flows from Operating Activities:
  Net income.................................  $ 27,995   $  6,804   $  4,595
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:
      Depreciation, depletion and
        amortization.........................    35,204     28,672     16,255
      Common stock issued as
        compensation.........................       181        236        170
     Deferred income taxes...................     9,881      3,732      2,420
     Income tax benefit related to
        stock options exercised..............     4,783          -          -
  Changes in operating assets and
    liabilities:
     (Increase) decrease in receivables......    (8,900)    (4,228)     2,276
     Increase in prepaid expenses
        and other............................      (295)      (654)      (189)
     Increase in accounts payable and
        accrued expenses.....................     2,166      1,443      1,506
     Decrease in other liabilities...........      (103)      (545)      (406)
                                               --------   --------   --------
     Net cash provided by operating
        activities...........................    70,912     35,460     26,627
                                               --------   --------   --------

Cash Flows from Investing Activities:
  Oil and gas exploration and
    development expenditures.................   (58,208)   (32,800)   (39,810)
  Acquisition of oil and gas properties......       (55)    (2,877)   (13,253)
  Cash received in connection with
    acquisition..............................     1,058          -          -
  Cash costs of acquisition..................      (250)         -          -
  Proceeds from sale of oil and gas
    properties...............................       341      2,114      3,411
  Other capital expenditures.................      (422)      (685)      (601)
                                               --------   --------   --------
     Net cash used by investing
        activities                              (57,536)   (34,248)   (50,253)
                                               --------   --------   --------

Cash Flows From Financing Activities:
  Long-term borrowings.......................         -      7,000     25,000
  Payments on long-term debt.................   (18,200)    (7,000)         -
  Payments to acquire treasury stock.........       (36)        (3)        (3)
  Proceeds from issuance of common stock.....     5,519        158          -
                                               --------   --------   --------
     Net cash provided (used) by
        financing activities.................   (12,717)       155     24,997
                                               --------   --------   --------

Net Increase in Cash
  and Cash Equivalents.......................       659      1,367      1,371

Cash and Cash Equivalents at Beginning
  of Year....................................     6,087      4,720      3,349
                                               --------   --------   --------
Cash and Cash Equivalents at End of Year.....  $  6,746   $  6,087   $  4,720
                                               ========   ========   ========


          The accompanying Summary of Significant Accounting Policies
                 and Notes to Consolidated Financial Statements
                   are an integral part of these statements.

                                      -23-
<PAGE>

                          KEY PRODUCTION COMPANY, INC.

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                       December 31,
                                                                      ------------
                           ASSETS                                 2000             1999
                                                                  -----            ----
                                                            (In thousands, except share data)
<S>                                                           <C>               <C>
Current Assets:
     Cash and cash equivalents..............................   $   6,746        $  6,087
     Receivables............................................      25,028          12,206
     Prepaid expenses and other.............................       1,572           1,223
                                                               ---------        --------
                                                                  33,346          19,516
                                                               ---------        --------

Oil and Gas Properties, on the basis of
   full cost accounting:
     Proved properties......................................     307,882         223,285
     Unproved properties and properties
       under development, not being amortized...............      21,284          18,104
                                                               ---------        --------
                                                                 329,166         241,389
     Less - accumulated depreciation,
     depletion and amortization.............................    (120,337)        (85,990)
                                                               ---------        --------
                                                                 208,829         155,399
                                                               ---------        --------

Other Assets, net...........................................       1,979           1,942
                                                               ---------        --------
                                                               $ 244,154        $176,857
                                                               =========        ========

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Accounts payable.......................................   $  16,963        $ 13,189
     Accrued exploration and development....................       4,726           2,388
     Accrued lease operating expense and other..............       4,282           1,901
                                                               ---------        --------
                                                                  25,971          17,478
                                                               ---------        --------

Long-Term Debt..............................................      44,000          60,000
                                                               ---------        --------

Deferred Income Taxes.......................................      35,548          21,855
                                                               ---------        --------

Other Liabilities...........................................         548             651
                                                               ---------        --------

Commitments and Contingencies (Notes 6 and 7)

Stockholders' Equity:
   Common stock, $.25 par value, 50,000,000 shares
     authorized; 14,223,775 and 11,820,190 shares
     issued, respectively...................................       3,556           2,955
   Paid-in capital..........................................      71,122          37,557
   Retained earnings........................................      66,513          38,518
   Treasury stock at cost, 303,138 and 232,887
     shares, respectively...................................      (3,104)         (2,157)
                                                               ---------        --------
                                                                 138,087          76,873
                                                               ---------        --------
                                                               $ 244,154        $176,857
                                                               =========        ========
</TABLE>

          The accompanying Summary of Significant Accounting Policies
                and Notes to Consolidated Financial Statements
                   are an integral part of these statements.

                                      -24-
<PAGE>

                          KEY PRODUCTION COMPANY, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                      Common Stock                            Treasury Stock       Total
                                ---------------------   Paid-in   Retained   ----------------   Stockholders'
                                   Shares      Amount   Capital   Earnings   Shares    Amount       Equity
                                -------------  ------   --------  ---------  -------  -------   --------------
<S>                             <C>            <C>      <C>       <C>        <C>      <C>       <C>
                                                                 (In thousands)
Balance, December 31, 1997            11,776   $2,944   $37,380    $27,165     (278)  $(2,578)       $ 64,911
  Net income.....................          -        -         -      4,595        -         -           4,595
  Common stock issued for
     option exercises............          2        1         7          -        -         -               8
  Common stock issued
     as compensation.............          -        -        19        (23)      18       174             170
  Common stock reacquired........          -        -         -          -        -        (3)             (3)
                                      ------   ------   -------    -------     ----   -------        --------
Balance, December 31, 1998            11,778    2,945    37,406     31,737     (260)   (2,407)         69,681
   Net income....................          -        -         -      6,804        -         -           6,804
   Common stock issued for
     option exercises............         42       10       144          -        -         -             154
   Common stock issued
     as compensation.............          -        -         7        (23)      27       252             236
   Common stock reacquired.......          -        -         -          -        -        (2)             (2)
                                      ------   ------   -------    -------     ----   -------        --------
Balance, December 31, 1999            11,820    2,955    37,557     38,518     (233)   (2,157)         76,873
   Net income....................          -        -         -     27,995        -         -          27,995
   Common stock and stock
     options issued for
   Columbus acquisition..........      1,363      341    24,787          -        -         -          25,128
     Common stock issued for
     option exercises............      1,210      302     6,190          -        -         -           6,492
   Income tax benefit from
     stock options exercised.....          -        -     4,783          -        -         -           4,783
   Common stock issued
     as compensation.............          -        -        64          -       12       117             181
   Common stock reacquired.......       (169)     (42)   (2,259)         -      (82)   (1,064)         (3,365)
                                      ------   ------   -------    -------     ----   -------        --------
Balance, December 31, 2000            14,224   $3,556   $71,122    $66,513     (303)  $(3,104)       $138,087
                                      ======   ======   =======    =======     ====   =======        ========
 </TABLE>

          The accompanying Summary of Significant Accounting Policies
                and Notes to Consolidated Financial Statements
                   are an integral part of these statements.

                                      -25-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Description of Our Business

     We are an independent energy company engaged in the exploration,
development, acquisition, and production of oil and gas in the continental
United States. Our primary focus areas are the Anadarko Basin of Oklahoma, south
Louisiana, the Mississippi Salt Basin, northern California, and the Rocky
Mountain region.

Basis of Presentation

     We are presenting the accounts of Key and its subsidiaries in the
accompanying consolidated financial statements. All intercompany accounts and
transactions were eliminated in consolidation. The balance sheet as of December
31, 2000, includes the accounts of Columbus Energy Corporation (Columbus), which
became a wholly-owned subsidiary on December 29, 2000.

Use of Estimates

     We rely on estimates and assumptions made by our management to prepare
financial statements in conformity with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Property and Equipment

     We use the full cost method of accounting for our investment in oil and gas
properties. As prescribed by full cost accounting rules, we capitalize all costs
associated with property acquisition, exploration, and development activities.
Our exploration and development costs include dry hole costs, geological and
geophysical costs, direct overhead related to exploration and development
activities and other costs incurred for the purpose of finding oil and gas
reserves. We also capitalize salaries and benefits paid to employees directly
involved in the exploration and development of oil and gas properties as well as
other internal costs that can be specifically identified with acquisition,
exploration, and development activities.

     We amortize our capitalized costs using the future gross revenue method
based on rolling average reserve prices. The quarterly provision for
depreciation, depletion and amortization (DD&A) is calculated by multiplying the
quarter's oil and gas revenues by an overall rate determined by dividing the
total unamortized cost of oil and gas properties including estimated future
development costs (excluding the cost of investments in unproved and unevaluated
properties) by the total estimated future oil and gas revenues.

     In accordance with full cost accounting rules, we are subject to a
limitation on capitalized costs. The capitalized cost of our oil and gas
properties, net of accumulated DD&A may not exceed the estimated future net cash
flows from proved oil and gas reserves discounted at 10 percent, plus the lower
of cost or fair market value of unproved properties as adjusted for related tax
effects (the "full cost ceiling test limitation"). If our capitalized costs
exceed this limit, the excess must be charged to DD&A expense. We have never
recorded a "ceiling" write-down of capitalized costs.

     The costs of certain unevaluated leasehold acreage and wells being drilled
are not being amortized. On a quarterly basis, we assess costs not being
amortized for possible impairments or reductions in value. If a reduction in
value has occurred, the portion of the carrying cost in excess of the current
value is included in the costs subject to amortization. Interest expense related
to undeveloped properties is also capitalized. Financing costs were reduced by
capitalized interest of $1,712,000, $1,397,000, and $1,456,000 in 2000, 1999 and
1998, respectively.

                                      -26-
<PAGE>

     Office furniture and equipment are recorded at cost and depreciated on a
straight line basis over the estimated useful lives of the assets, which range
from five to 10 years.

Revenue Recognition

     We use the sales method of accounting for natural gas revenues. Under this
method, revenue recognition is based on actual volumes of gas sold to
purchasers. The volumes of gas sold may differ from the volumes to which Key is
entitled based on its interests in the properties. Differences between volumes
sold and entitlement volumes create gas imbalances. These imbalances are
reflected as adjustments to reported gas reserves and future cash flows in our
supplemental oil and gas disclosures. Adjustments for gas imbalances reduced
Key's proved gas reserves by approximately 2 percent at December 31, 2000.
Revenue is deferred and a liability recorded for those properties where the
estimated remaining reserves will not be sufficient to enable the under-produced
owners to recoup their entitled share through production. We recognize revenue
from oil based on actual volumes sold to purchasers.

Net Income Per Common Share

     We compute basic net income per share by dividing income attributable to
common stock by the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the potential dilution that
could occur if potential common stock (stock options) are assumed to have been
exercised. We use the treasury stock method to determine the number of shares
converted. Calculations of net income per common share are illustrated in Note
9.

Cash and Cash Equivalents

     We consider all highly liquid investments with an original maturity of
three months or less to be cash equivalents. These investments earned an average
of 6.0 and 3.4 percent rates of interest at December 31, 2000 and 1999,
respectively, with cost approximating market.

Financial Instruments

     Our financial investments consist of cash, trade receivables, trade
payables and long-term debt. The carrying value of cash and cash equivalents,
trade receivables and trade payables are considered to be representative of
their fair market value, due to the short maturity of these instruments. The
carrying value of long-term debt approximates fair value because the debt is
variable rate and re-prices periodically.

Income Taxes

     We utilize an asset and liability approach to account for income taxes. A
deferred tax liability or asset is determined based on the temporary differences
between the financial reporting basis and tax basis of assets and liabilities as
measured by the enacted tax rates. A valuation allowance must be established for
any portion of a deferred tax asset for which it is more likely than not that a
tax benefit will not be realized.

General and Administrative Expense

     General and administrative expenses are reported net of amounts billed to
the working interest owners of Key-operated oil and gas properties, and net of
amounts capitalized pursuant to full cost accounting rules. We capitalized costs
of $5.0, $4.6, and $5.4 million in 2000, 1999, and 1998, respectively.

                                      -27-
<PAGE>

Hedging and Related Activities

     We have never used hedging arrangements or other financial instruments to
mitigate changes in market-based commodity prices or interest rates. As a
result, adoption of Statement of Financial Accounting Standards (SFAS) No. 133
"Accounting for Derivative Instruments and Hedging Activities" effective January
1, 2001 will have no impact on the financial statements.

Comprehensive Income

     There is no difference between our net income and comprehensive income.
Therefore, we are not including a comprehensive income disclosure that would be
required by SFAS No. 130, "Reporting Comprehensive Income."

Reclassification

     We reclassified a few prior year amounts to conform to the current year
presentation.

                                      -28-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ACQUISITION OF COLUMBUS ENERGY CORP.

     On December 29, 2000, we consummated a merger with Columbus Energy Corp.
(Columbus). In this transaction we acquired all the outstanding common stock of
Columbus in a tax-free reorganization pursuant to which Columbus became a
wholly-owned subsidiary of Key. Each outstanding share of Columbus common stock
was converted into 0.355 shares of Key common stock. The acquisition has been
accounted for by the purchase method and, accordingly, Columbus' results of
operations have been included in our consolidated statement of income from the
effective date of the acquisition. Our consolidated balance sheet dated December
31, 2000, includes the assets and liabilities, as well as the adjustments
required to record the acquisition in accordance with purchase accounting.

     We issued 1,362,619 shares of Key common stock valued at $18.01 to the
Columbus shareholders. The value of the shares was based on the average price of
the shares a few days prior to and a few days subsequent to the date the
transaction was agreed to and announced. We also issued stock options valued at
$.6 million in exchange for outstanding Columbus options. Costs incurred in
connection with the transaction were approximately $.3 million.

     The assets acquired and the liabilities assumed in the Columbus acquisition
were as follows:(In thousands)

   Assets acquired:
     Cash.........................   $ 1,058
     Current assets...............     4,056
     Oil and gas properties.......    27,267
     Other assets.................       392
                                     -------
                                      32,773

   Liabilities assumed:
     Current liabilities..........   $ 1,633
     Long-term debt...............     2,200
     Non-current liabilities......     3,812
                                     -------
                                       7,645
                                     -------

   Purchase price.................   $25,128
                                     =======

     The following unaudited pro forma financial information presents the
combined results of Key and Columbus, and was prepared as if the acquisition had
occurred at the beginning of 1999, and carried forward through the period's
presented. The pro forma data presented is based on numerous assumptions and is
not necessarily indicative of future results of operations.


                                                 For the Year Ended December 31,
                                                 -------------------------------
                                                   2000                  1999
                                                   ----                  ----
     (In thousands, except per share amounts)
     Revenues..................................  $ 115,028             $  66,272
     Net income................................  $  30,300             $   6,206
     Basic earnings per share..................  $    2.25             $     .48
     Diluted earnings per share................  $    2.18             $     .46

                                      -29-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2. LONG-TERM DEBT

     In November of 1999, we signed a long-term credit agreement with a group of
banks led by Banc of America Securities LLC. It replaced our prior credit
arrangement with NationsBank of Texas. The current agreement specifies a maximum
loan amount of $150 million and had an aggregate borrowing base of $100 million
at the end of 2000. The lenders may periodically re-determine the borrowing base
depending upon the value of our oil and gas properties. We may voluntarily
select a borrowing base, less than the maximum value our properties would allow,
to reduce fees for unused borrowing base capacity.

     In anticipation of closing the Columbus merger, the credit agreement was
amended on November 15, 2000. Based on the combined reserves of Key and
Columbus, the amendment increased the borrowing base to $100 million, from the
initial base of $85 million. If the re-determined borrowing base falls below the
outstanding loan amount, the banks may request repayment of the excess amount.
At December 31, 2000, we had $44 million outstanding and $56 million unused and
available on the credit facility.

     The agreement has a maturity date of January 1, 2006, including a revolving
period that ends on July 1, 2002. At that point, if not amended before then, the
outstanding loan amount converts to a term loan and we must commence quarterly
principal payments.

     At our option, interest on amounts borrowed is calculated based on London
Interbank Offered Rates (LIBOR) or the Base Rate. Base Rate means the higher of
the Federal Funds rate plus 0.5 percent or the prime rate. The interest rate we
pay is also predicated on the facility usage ratio (the quotient obtained by
dividing the outstanding loan amount by the borrowing base). Pursuant to the
terms of the loan agreement, the margin on the interest rate for LIBOR-based
loans could range from 1.00-1.75 percent per annum. Similarly, the margin on
Base Rate borrowings could range from 0.00-0.50 percent per annum.

     The average interest rate on the outstanding debt at the end of 2000 was
7.65 percent. The loan agreement also provides for a 0.30 -0.40 percent
commitment fee (also based on the facility usage ratio) on the average unused
portion of the borrowing base in return for the banks' commitment to maintain
the availability of those funds.

     We secured this debt with oil and gas assets owned by Key and our
subsidiaries. We are also subject to customary covenants and restrictions
including limitations on additional borrowings, and minimum working capital and
net worth requirements. We are currently in compliance with the covenants of the
agreement.

     Aggregate maturities of long-term debt outstanding at December 31, 2000 are
as follows:

                       (In thousands)
     2001...........       $     -
     2002...........         6,287
     2003...........        12,571
     2004...........        12,571
     2005...........        12,571
                           -------
                           $44,000
                           =======

                                      -30-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3. INCOME TAXES

     Deferred tax assets and liabilities are comprised of the following
components at December 31, 2000 and 1999:

                                                    2000           1999
                                                    ----           ----
                                                      (In thousands)
Long-term deferred tax assets:
   Operating loss carryforwards.................. $  1,095       $  2,847
   Percentage depletion carryforwards............    1,991            826
   AMT credit carryforward.......................    1,290              -
   Other.........................................      269           (164)
                                                  --------       --------
                                                     4,645          3,509
Valuation allowance..............................     (343)          (711)
                                                  --------       --------
                                                     4,302          2,798

Long-term deferred tax liabilities:
   Depreciation, depletion and amortization......  (39,850)       (24,653)
                                                  --------       --------

   Net deferred income tax liability............. $(35,548)      $(21,855)
                                                  ========       ========

     We had net tax operating loss carryforwards of approximately $1,007,000 at
December 31, 2000, which expire in the years 2001 through 2010. A portion of
these net operating losses (NOLs), acquired as part of a 1996 acquisition, are
subject to annual limitations. We have provided a $343,000 valuation allowance
for the portion of these NOLs that we do not believe will be available for use
prior to their expiration.

     Income tax expense consisted of the following:

                                            For the Year Ended December 31,
                                            -------------------------------
                                             2000        1999        1998
                                             ----        ----        ----
                                                    (In thousands)
Current taxes:
   Federal...............................   $   971     $     -     $     -
   State.................................        85          78         297
Deferred taxes...........................    15,385       4,093       2,520
                                            -------     -------     -------
   Total tax provision on income            $16,441     $ 4,171     $ 2,817
                                            =======     =======     =======

     A reconciliation of the statutory income tax rate to the effective rate is
as follows:

                                               2000        1999        1998
                                               ----        ----        ----
Statutory income tax rate...................   35.0%       34.0%       34.0%
State income taxes, net of Federal benefit..    4.0         4.0         4.0
Other.......................................   (2.0)          -           -
                                               ----        ----        ----
                                               37.0%       38.0%       38.0%
                                               ====        ====        ====

                                      -31-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4. NON-CASH INVESTING AND FINANCING ACTIVITIES

Supplemental Disclosure of Cash Flow Information

                                           For the Year Ended December 31,
                                           -------------------------------
                                            2000         1999        1998
                                            ----         ----        ----
                                                   (In thousands)
     Cash paid during the year for:
      Interest (net of amounts
       capitalized: $1,712, $1,397 and
        $1,456, respectively)............. $2,547       $2,703      $1,144
     Income taxes (net of refunds
      received)........................... $  221       $   78      $ (147)

Noncash Transactions

     Also in 2000, officers and directors of Key exercised 1,210,166 million
non-qualified stock options. In connection with these transactions, we received
total proceeds of $6.5 million. Approximately $5.5 million of the proceeds was
cash and the balance of the proceeds was noncash. The noncash portion was in the
form of mature (held longer than six months) Key common stock, which was
recorded as treasury stock at market value. In connection with the exercise of
stock options, we issued 1,040,966 shares of stock after withholding 169,200
shares valued at $2.3 million to cover the tax withholding liability. The shares
withheld are included in common stock reacquired and do not have an impact on
cash flows from investing activities.

5. STOCK OPTIONS

     The Key Production Company, Inc. 1992 Stock Option Plan reserves 2,000,000
shares of common stock for issuance to the Company's officers and employees. A
total of 778,667 options were outstanding at year-end. The options expire at
various dates through 2010 and are at prices ranging from $9.69 to $13.31 per
share.

     The Key Production Company, Inc. Stock Option Plan for Non-Employee
Directors reserves 360,000 shares of common stock for issuance to the Company's
non-employee directors. There were 94,167 options outstanding at December 31,
2000. These options were granted at exercise prices from $2.88 to $12.00 and
expire at various dates through 2008.

     Our chief executive officer exercised options to purchase 500,000 shares in
May of 2000. These options were granted in 1992 in accordance with the terms of
his employment agreement at an exercise price of $3.00.

     In connection with the Columbus merger, we reserve 214,000 shares of common
stock for issuance to former Columbus stock option holders. Each option that was
outstanding immediately prior to the merger was converted into a fully vested
option to purchase 0.355 shares of Key common stock for each Columbus share
covered by the option. We issued 179,011 options to purchase Key common stock,
which expire at the end of 2001.

    All options granted had an exercise price equal to or above the market price
on the date of grant. Subject to accelerated vesting under certain circumstances
such as death of the employee or change in control of the Company, one-third of
the options vest in each of the three years following the date of grant.

                                      -32-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    The following table summarizes the changes in stock options for the year,
the number of common shares available for grant and the number of outstanding
options vested at year-end.

                                                    2000
                                           ----------------------
                                                        Weighted-
                                                         Average
                                           Number of    Exercise
                                            Options       Price
                                           ----------   ---------

   Outstanding at beginning of year.......  1,958,000   $    7.11
   Granted................................    125,000   $   13.31
   Exercised.............................. (1,210,166)  $    5.36
   Issued in Columbus merger..............    179,011   $   18.69
                                           ----------
   Outstanding at end of year.............  1,051,845   $   11.86
                                           ==========
   Options exercisable at end of year.....    586,845   $   12.75
                                           ==========
   Available for grant at end of year.....    791,500
                                           ==========


                                                    1999
                                           ----------------------
                                                        Weighted-
                                                         Average
                                           Number of    Exercise
                                            Options       Price
                                           ----------   ---------

   Outstanding at beginning of year.......  1,540,000   $    6.30
   Granted................................    490,000   $    9.69
   Exercised..............................    (42,000)  $    3.76
   Forfeited..............................    (30,000)  $   11.38
                                           ----------
   Outstanding at end of year.............  1,958,000   $    7.11
                                           ==========
   Exercisable at end of year.............  1,269,666   $    5.45
                                           ==========
   Available for grant at end of year.....    702,500
                                           ==========


                                                    1998
                                           ----------------------
                                                        Weighted-
                                                         Average
                                           Number of    Exercise
                                            Options       Price
                                           ----------   ---------

   Outstanding at beginning of year.......  1,479,500   $    6.07
   Granted................................     62,500   $   11.75
   Exercised..............................     (2,000)  $    4.13
                                           ----------
   Outstanding at end of year.............  1,540,000   $    6.30
                                           ==========
   Exercisable at end of year.............  1,129,167   $    4.48
                                           ==========
   Available for grant at end of year.....  1,162,500
                                           ==========

                                      -33-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     The following table summarizes information about the stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                              Options Outstanding    Options Exercisable
                                              -------------------    -------------------
                                              Weighted
                                               Average    Weighted               Weighted
                  Range of                    Remaining   Average                Average
 Year             Exercise        Number     Contractual  Exercise    Number     Exercise
Granted            Prices       Outstanding     Life       Price    Exercisable   Price
-------            ------       -----------     ----       -----    -----------   -----
<S>             <C>             <C>          <C>          <C>       <C>          <C>

1992            $        2.88        45,000   2.0 years    $ 2.88      45,000     $ 2.88
1997            $       11.38       272,500   6.8 years    $11.38     272,500     $11.38
1998            $       12.00        26,667   7.4 years    $12.00      13,333     $12.00
1999            $        9.69       403,667   8.7 years    $ 9.69      77,001     $ 9.69
2000            $13.31-$22.09       304,011   4.7 years    $16.48     179,011     $18.69
                                  ---------  ----------    ------     -------     ------
                                  1,051,845   6.3 years    $11.86     586,845     $12.75
                                  =========  ==========    ======     =======     ======
</TABLE>
     The options granted in 2000 include options to purchase 179,011 shares at
prices ranging from $15.67 to $22.09 issued in connection with the merger with
Columbus.

     Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) was adopted by the Company as of December 31,
1996. This Statement establishes a fair value method of accounting for stock-
based compensation plans either through recognition or disclosure. SFAS No. 123
allows the continued measurement of compensation cost for such plans using the
intrinsic value based method prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), provided that pro forma results of
operations are disclosed for those options granted beginning January 1, 1995. We
account for our stock-based compensation plans under APB Opinion No. 25, and
related interpretations, under which no compensation cost has been recognized
for the Stock Option Plans. If compensation costs had been determined in
accordance with SFAS No. 123, our net income and net income per common share
would approximate the following pro forma amounts:



                                      For the Year Ended December 31,
                                      -------------------------------
                                       2000         1999        1998
                                       ----         ----        ----
                                  (In thousands, except per share amounts)
Net income:
   As reported...................      27,995       6,804       4,595
                                      =======      ======      ======
   Pro forma.....................      27,327       6,025       4,029
                                      =======      ======      ======

Net income per common share:
   Basic:
   As reported...................     $  2.32      $  .59      $  .40
                                      =======      ======      ======
   Pro forma.....................     $  2.26      $  .52      $  .35
                                      =======      ======      ======

   Diluted:
   As reported...................     $  2.23      $  .56      $  .38
                                      =======      ======      ======
   Pro forma.....................     $  2.18      $  .50      $  .33
                                      =======      ======      ======

       For purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting period. The weighted-
average fair value of each option granted is estimated on the date of grant
using the Black Scholes option pricing model with the following assumptions for:
risk-free interest rate of 5.5 to 6.6 percent, expected weighted-average lives
of five years, expected volatility of 47 percent, and no expected dividends.

                                      -34-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. EMPLOYEE BENEFIT PLANS

     Retirement Plan-We provide a 401(k) retirement/savings plan for all
employees. Participants may contribute up to 10 percent of their compensation,
and we match contributions up to 4 percent of their compensation. Our
contribution is made in the form of Key common stock. Employees vest in the
Company's contribution at the rate of 25 percent per year. Total expenses for
our matching contribution were $189,096, $155,485, and $169,714 in 2000, 1999
and 1998 respectively.

     Deferred Compensation Plan-Effective December 1, 1993, the Company
established the Key Production Company, Inc. Deferred Compensation Plan. This
plan is intended to provide a mechanism whereby certain management employees of
the Company may defer compensation. The Company intends for this plan to provide
the eligible employees with the opportunity to defer compensation in cases where
deferrals under the 401(k) plan may be limited by applicable provisions of the
Internal Revenue Code of 1986.

     Income Continuance Plan-Effective June 1, 1994, the Company established the
Key Production Company, Inc. Income Continuance Plan. The plan provides for the
continuation of salary and benefits for certain employees in the event of a
change in control of the Company.

     The administrative, compliance and legal costs associated with
administering these plans are paid by Key. Such expenses were not significant in
2000, 1999, or 1998.

7. COMMITMENTS AND CONTINGENCIES

     Lease Commitments-We have lease commitments for office space with varying
expiration dates through 2002.  Rental expense was $400,886, $387,216, and
$407,039 for 2000, 1999, and 1998, respectively.

     As of December 31, 2000, minimum rental commitments under these leases are
payable in the following years:

     2001............     $366,241
     2002............      116,760
     2003............       12,848
                          --------
                          $495,849
                          ========

     Litigation - We are involved in litigation claims and are subject to
governmental and regulatory controls arising in the ordinary course of business.
It is the opinion of our management that all claims and litigation involving the
Company are not likely to have a material adverse effect on our financial
position, results of operation or cash flows.

     Environmental - We are not aware of any environmental claims existing as of
December 31, 2000, which would have a material impact upon the Company's
financial condition, results of operations or cash flows.

8. CONCENTRATION OF CREDIT RISK

     Most of our accounts receivable balances are uncollateralized and result
from transactions with other companies in the oil and gas industry.  This
concentration of customers may impact our overall credit risk because our
customers may be similarly affected by changes in economic or other conditions
within the industry.

                                      -35-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following major customers purchased 10 percent or more of our oil and
gas production:

<TABLE>
<CAPTION>
                                                                                For the Year Ended December 31,
                                                                                -------------------------------
                           Purchaser                                              2000         1999       1998
                           ---------                                              ----         ----       ----
  <S>                                                                           <C>            <C>        <C>
  Enogex Services Corporation (formerly Transok, LLC)....................            17%         18%        21%
  EOTT Energy Corp.......................................................            14%          -          -
  Plains All American (formerly Scurlock Permian Corporation)............            13%         16%        22%
  Enserco Energy, Inc....................................................             6%          4%        13%
  Tosco Refining & Marketing.............................................             -          10%        14%
  ProEnergy Marketing....................................................             -           6%        11%
</TABLE>

In January 1997, Key signed a five-year agreement with Transok, LLC., now Enogex
Services Corporation (Enogex).  Under this arrangement, Enogex gathers the
majority of our Mid-Continent gas production.

9. EARNINGS PER SHARE

     A reconciliation of the components of basic and diluted net income per
common share for the years ended December 31, 2000, 1999 and 1998 is presented
in the table below:


(In thousands, except per share amounts)                   2000
                                             -----------------------------
                                             Income     Shares   Per Share
                                             ------     -------  ---------
Basic:
 Income available to common stockholders...  $27,995     12,075     $2.32
                                                                    =====
Effect of dilutive securities-
 Stock options.............................        -        462
                                             -------     ------

Diluted:
 Income available to common stockholders,
 including assumed conversions.............  $27,995     12,537     $2.23
                                             =======     ======     =====

                                                           1999
                                             -----------------------------
                                             Income     Shares   Per Share
                                             -------    -------  ----------
Basic:
 Income available to common stockholders...  $ 6,804     11,537     $ .59
                                                                    =====

Effect of dilutive securities-
 Stock options.............................        -        574
                                             -------     ------

Diluted:
 Income available to common stockholders,
 including assumed conversions.............  $ 6,804     12,111     $ .56
                                             =======     ======     =====

                                                           1998
                                             -----------------------------
                                             Income     Shares   Per Share
                                             -------    -------  ---------
Basic:
 Income available to common stockholders...  $ 4,595     11,509     $ .40
                                                                    =====

Effect of dilutive securities-
 Stock options.............................        -        631
                                             -------     ------

Diluted:
 Income available to common stockholders,
 including assumed conversions.............  $ 4,595     12,140     $ .38
                                             =======     ======     =====

                                      -36-
<PAGE>

                         KEY PRODUCTION COMPANY, INC.

                     SUPPLEMENTAL OIL AND GAS DISCLOSURES

     Oil and Gas Operations-The following tables contain direct revenue and cost
information relating to our oil and gas exploration and production activities
for the periods indicated.  We have no long-term supply or purchase agreements
with governments or authorities in which we act as producer.

<TABLE>
<CAPTION>

                                                               For the Year Ended December 31,
                                                               -------------------------------
                                                                2000        1999          1998
                                                                ----        ----          ----
                                                             (In thousands, except percentages)
<S>                                                          <C>            <C>           <C>
Oil and gas revenues from production.................        $ 99,368       $ 55,798       $37,413
                                                             --------       --------       -------
Operating costs:
     Depreciation, depletion and amortization........          34,347         28,238        15,833
     Lease operating.................................          10,965          8,951         8,874
     Production taxes................................           3,526          2,623         2,409
     Income taxes....................................          18,696          6,075         3,913
                                                             --------       --------       -------
                                                               67,534         45,887        31,029
                                                             --------       --------       -------
Results of operations from oil and gas
     producing activities............................        $ 31,834       $  9,911       $ 6,384
                                                             ========       ========       =======

Amortization rate as a percentage
     of revenues.....................................            34.6%          50.6%          2.3%
                                                             ========       ========       =======
</TABLE>

     Capitalized Costs Incurred-The following table sets forth the capitalized
costs incurred in our oil and gas production, exploration and development
activities.

<TABLE>
<CAPTION>
                                                              For the Year Ended December 31,
                                                              -------------------------------
                                                               2000          1999       1998
                                                               ----          ----       ----
                                                                       (In thousands)
<S>                                                          <C>            <C>             <C>
Costs incurred during the year:
  Acquisition of properties
     Proved.........................................         $27,571         $ 1,986        $ 9,605
     Unproved.......................................           1,488             891          3,648
  Exploration.......................................          20,636          15,977         16,780
  Development.... ..................................          38,423          15,602         25,396
                                                             -------         -------        -------
    Oil and gas expenditures........................          88,118          34,456         55,429
  Property sales....................................            (341)         (2,114)        (3,411)
                                                             -------         -------        -------
                                                             $87,777         $32,342        $52,018
                                                             =======         =======        =======
</TABLE>

     Costs Not Being Amortized-The following table summarizes oil and gas
property costs not being amortized at December 31, 2000, by year that the costs
were incurred:

                         2000............  $11,081
                         1999............    2,402
                         1998............    2,696
                         1997 and prior..    5,105
                                           -------
                                           $21,284
                                           =======

     We expect the majority of these costs to be evaluated, and to become
subject to amortization within the next three years.

     Oil and Gas Reserve Information (Unaudited)-Proved oil and gas reserve
quantities are based on estimates prepared by the Company's engineers, and were
audited by Ryder Scott Company Petroleum Engineers, independent petroleum
engineers, in accordance with guidelines established by the Securities and
Exchange Commission (SEC).  Reserve estimates are based on economic and
operating conditions existing at December 31 of each year presented.

                                      -37-
<PAGE>

     There are numerous uncertainties inherent in estimating quantities of
proved reserves and projecting future rates of production and the timing of
development expenditures.  The following reserve data represents estimates only
and should not be construed as being exact.  All of our reserves are located in
the continental or offshore United States.

<TABLE>
<CAPTION>
                                               Gas in Million Cubic Feet           Oil in Thousands of Barrels
                                               -------------------------           ---------------------------
                                             2000         1999         1998       2000         1999        1998
                                             ----         ----         ----       ----         ----        ----
<S>                                       <C>          <C>          <C>           <C>         <C>         <C>
Total proved reserves-
  Developed and undeveloped
     Beginning of year..........            79,351       82,956       69,543        9,220       7,022      6,213
  Revisions of previous
     estimates..................             3,822       (1,951)       8,523         (205)      1,740       (282)
  Extensions and
     discoveries................            19,488       10,849       16,560        1,011       1,575        910
  Purchases of
     reserves...................             9,408        1,567          971          784         258      1,159
  Production....................           (13,855)     (14,070)     (12,600)      (1,534)     (1,375)      (965)
  Sales of properties...........                 -            -          (41)           -           -        (13)
                                          --------     --------     --------      -------     -------     ------
  End of year...................            98,214       79,351       82,956        9,276       9,220      7,022
                                          ========     ========     ========      =======     =======     ======

Proved developed reserves-
  Beginning of year.............            77,048       82,337       67,771        8,916       7,012      6,197
  End of year...................            97,564       77,048       82,337        9,268       8,916      7,012

Year-end price used in
  calculation of future
  net cash flows................          $  10.45     $   2.16     $   2.01      $ 24.17     $ 23.68     $ 9.75
</TABLE>

     Standardized Measure Of Future Net Cash Flows (Unaudited)-Future cash flows
are based on year-end prices except in those instances where the sale of gas is
covered by contract terms providing for determinable escalations.  Operating
costs, production and ad valorem taxes and future development costs are based on
current costs with no escalation.

     The following table presents information concerning future net cash flows
from the production of oil and gas reserves, net of income tax expense.  Income
tax expense has been computed using expected future tax rates and giving effect
to permanent differences and credits, which, under current laws, relate to oil
and gas producing activities.  This information does not purport to present the
fair market value of Key's oil and gas assets, but does present a standardized
disclosure concerning possible future net cash flows that will result under the
assumptions used.

     Discounted Future Net Cash Flows and Changes Relating to Proved Reserves at
December 31,

<TABLE>
<CAPTION>
                                                                                2000      1999       1998
                                                                                ----      ----       ----
                                                                                       (In thousands)
     <S>                                                                    <C>          <C>         <C>
     Cash inflows..........................................                 $1,260,864   $ 403,480   $252,148
     Production costs......................................                   (231,130)   (116,487)   (78,822)
     Development costs.....................................                     (5,755)     (7,005)    (3,209)
     Income tax expense....................................                   (310,432)    (61,117)   (22,143)
                                                                            ----------   ---------   --------
     Net cash flows........................................                    713,547     218,871    147,974
     10% annual discount rate..............................                   (258,616)    (71,896)   (43,752)
                                                                            ----------   ---------   --------
     Standardized measure of discounted
       future net cash flows...............................                 $  454,931   $ 146,975   $104,222
                                                                            ==========   =========   ========
     Discounted future net cash flows
       before income taxes.................................                 $  638,439   $ 185,204   $118,419
                                                                            ==========   =========   ========
</TABLE>

                                      -38-
<PAGE>

     The following are the principal sources of change in the standardized
measure of discounted future net cash flows:

<TABLE>
<CAPTION>
                                                   For the Year Ended December 31,
                                                  -------------------------------
                                                 2000           1999          1998
                                                 ----           ----          ----
                                                          (In thousands)
<S>                                             <C>         <C>           <C>
Sales, net of production costs............      $ (84,877)  $(44,224)     $(26,130)
Net change in prices and production.......        339,123     53,947       (27,302)
Extensions, discoveries and improved
     recovery, net of related costs.......        151,512     38,721        30,580
Change in future development costs........          4,563      1,187         1,857
Revision of quantities....................         11,121     11,876         6,800
Accretion of discount.....................         18,520     11,842        12,172
Change in income taxes....................       (145,279)   (24,033)        8,269
Purchases of reserves in place............         57,618      5,547         9,025
Sales of properties.......................              -          -          (155)
Change in production rates and other......        (44,345)   (12,110)      (10,147)
                                                ---------   --------      --------
                                                $ 307,956   $ 42,753      $  4,969
                                                =========   ========      ========
</TABLE>

     Impact of Pricing (Unaudited)-The estimates of cash flows and reserve
quantities shown above are based on year-end oil and gas prices, except in those
cases where future gas sales are covered by contracts at specified prices.
Fluctuations are largely due to the seasonal pricing nature of natural gas,
supply perceptions for natural gas and significant worldwide volatility in oil
prices.

     Under SEC rules, companies that follow full cost accounting methods are
required to make quarterly "ceiling test" calculations.  Under this test,
capitalized costs of oil and gas properties may not exceed the present value of
estimated future net revenues from proved reserves, discounted at 10 percent,
plus the lower cost or fair market value of unproved properties, as adjusted for
related tax effects and deferred tax reserves.  We calculate the projected
income tax effect using the "year-by-year" method for purposes of the
supplemental oil and gas disclosures and use the "short-cut" method for the
"ceiling test" calculation.  Application of these rules during periods of
relatively low oil and gas prices, even if of short-term duration, may result in
write-downs.

                                      -39-
<PAGE>

                UNAUDITED SUPPLEMENTAL QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                       First     Second      Third     Fourth      Total
                                                       -----     ------      -----     ------      -----
                                                           (In thousands, except for per share data)
<S>                                                   <C>      <C>       <C>     <C>      <C>
2000
----
Revenues........................................      $19,333    $21,744    $27,354    $31,389    $99,820
Expenses, net...................................       15,144     16,476     18,843     21,362     71,825
                                                      -------    -------    -------    -------    -------
Net income......................................      $ 4,189    $ 5,268    $ 8,511    $10,027    $27,995
                                                      =======    =======    =======    =======    =======
Basic earnings per
     common share*..............................      $   .36    $   .44    $   .69    $   .80    $  2.32
                                                      =======    =======    =======    =======    =======
Diluted earnings per
     common share*..............................      $   .34    $   .43    $   .67    $   .77    $  2.23
                                                      =======    =======    =======    =======    =======

1999
----
Revenues........................................      $10,005    $11,884    $15,828    $18,541     56,258
Expenses, net...................................        9,420     11,128     14,056     14,850     49,454
                                                      -------    -------    -------    -------    -------
Net income......................................      $   585    $   756    $ 1,772    $ 3,691    $ 6,804
                                                      =======    =======    =======    =======    =======
Basic earnings per
     common share...............................      $   .05    $   .07    $   .15    $   .32    $   .59
                                                      =======    =======    =======    =======    =======
Diluted earnings per
     common share...............................      $   .05    $   .06    $   .15    $   .30    $   .56
                                                      =======    =======    =======    =======    =======
</TABLE>

* The sum of the individual quarterly net income per common share amounts may
not agree with year-to-date net income per common share because each period's
computation is based on the weighted average number of shares outstanding during
that period.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     Not applicable.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information set forth under the caption "Information About Nominees for
Election as Directors" in the Company's proxy statement relating to the
Company's 2001 annual meeting of stockholders (Proxy Statement) is incorporated
herein by reference.  Certain information with regard to the executive officers
of the Company is set forth under the caption "Executive Officers of the
Registrant" in Part I of this report.

ITEM 11.  EXECUTIVE COMPENSATION

     The information set for the under the captions "Summary Compensation
Table," "Aggregated Option Exercises In The Last Fiscal Year and Fiscal Year-End
Option Values," "Director Compensation," and "Employment Agreements" in the
Proxy Statement is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information set forth under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Proxy Statement
is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

                                      -40-
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1.   The following financial statements are included in Item 8 to this
          10-K.

          Report of Independent Auditors for the year ended December 31, 2000.

          Report of Independent Auditors for the years ended December 31, 1999
          and 1998.

          Statements of income for the years ended December 31, 2000, 1999 and
          1998.

          Statements of cash flows for the years ended December 31, 2000, 1999
          and 1998.

          Balance sheets as of December 31, 2000 and 1999.

          Statements of changes in stockholders' equity for the years ended
          December 31, 2000, 1999 and 1998.

          Summary of significant accounting policies.

          Notes to financial statements.

          Supplemental oil and gas disclosures.

          Supplemental quarterly financial data.


     2.   Schedules: None.

     3.   Exhibits:

          Exhibits not incorporated by reference to a prior filing are
          designated by an asterisk (*) and are filed herewith; all exhibits not
          so designated are incorporated by reference to a prior SEC filing as
          indicated.

          Exhibits designated by a plus sign (+) are management contracts or
          compensatory plans or arrangements required to be filed herewith
          pursuant to Item 14.

                                      -41-
<PAGE>

     Exhibit No.         Description
     -------------------------------

          3.1    --      Certificate of Incorporation of the Registrant
                         (incorporated by reference to Exhibit 3.1 to the
                         Registrant's Registration Statement on Form S-4,
                         registration no. 33-23533 filed with the SEC on August
                         5, 1988).

          3.2    --      Amendment to Certificate of Incorporation of the
                         Registrant (incorporated by reference to Exhibit 3.2 to
                         the Registrant's Registration Statement on Form S-4,
                         registration no. 33-23533 filed with the SEC on August
                         5, 1988).

     *    3.3    --      Second amendment to Certificate of Incorporation of the
                         Registrant, dated June 13, 2000.

          3.4    --      Bylaws of the Registrant, as amended and restated on
                         June 8, 1995 (incorporated by reference to Exhibit 3.3
                         to the Registrant's Form 10-Q for the quarter ended
                         June 30, 1995, file no. 0-17162).

          4.1    --      Form of Common Stock Certificate (incorporated by
                         reference to Exhibit 4.12 to the Registrant's Amendment
                         No. 1 to Registration Statement on Form S-4,
                         registration no. 33-23533 filed with the SEC on August
                         15, 1988).

     +    10.1   --      Key Production Company, Inc. 1992 Stock Option Plan
                         (incorporated by reference to Exhibit 10.7 to the
                         Registrant's Form 10-K for the fiscal year ended
                         December 31, 1992, file no. 0-17162).

     +    10.2   --      Key Production Company, Inc. Stock Option Plan for Non-
                         Employee Directors, (incorporated by reference to
                         Exhibit 10.8 to the Registrant's Form 10-K for the
                         fiscal year ended December 31, 1992, file no. 0-17162).

     +    10.3   --      Key Production Company, Inc. 401(k) Plan (incorporated
                         by reference to Exhibit 10.10 to the Registrant's Form
                         10-K for the fiscal year ended December 31, 1992, file
                         no. 0-17162).

     +    10.4   --      Key Production Company, Inc. Income Continuance Plan,
                         dated effective June 1, 1994 (incorporated by reference
                         to Exhibit 10.18 to the Registrant's Form 10-K for the
                         fiscal year ended December 31, 1992, file no. 0-17162).

     +    10.5.1 --      Amendment No. 1 to the Key Production Company, Inc.
                         1992 Stock Option Plan, dated March 14, 1997
                         (incorporated by reference to Exhibit 10.21.1 to the
                         Registrant's Form 10-Q for the period ended June 30,
                         1998, file no. 0-17162).

     +    10.5.2 --      Amendment No. 1 to the Key Production Company, Inc.
                         Stock Option Plan for Non-Employee Directors, dated
                         January 27, 1997 (incorporated by reference to Exhibit
                         10.21.2 to the Registrant's Form 10-Q for the period
                         ended June 30, 1998, file no. 0-17162).

     +    10.5.3 --      Amendment No. 2 to the Key Production Company, Inc.
                         Stock Option Plan for Non-Employee Directors, dated
                         March 14, 1997 (incorporated by reference to Exhibit
                         10.21.3 to the Registrant's Form 10-Q for the period
                         ended June 30, 1998, file no. 0-17162).

     +    10.5.4 --      Amendment No. 3 to the Key Production Company, Inc.
                         Stock Option Plan for Non-Employee Directors, dated May
                         7, 1998 (incorporated by reference to Exhibit 10.21.4
                         to the Registrant's Form 10-Q for the period ended June
                         30, 1998, file no. 0-17162).

                                      -42-
<PAGE>

     *    10.6  --   Credit Agreement, dated as of November 12, 1999, among Key
                     Production Company, Inc., the Lenders party thereto, Bank
                     of America N.A., as Administrative Agent, Bank One NA, as
                     Documentation Agent, Banc of America Securities LLC, as
                     Lead Arranger and Book Manager.

     *    10.7  --   First Amendment to Credit Agreement, dated as of November
                     15, 2000, among Key Production Company, Inc., Bank of
                     America N.A., as Agent, and the Lenders under the Credit
                     Agreement.

     *    23.1  --   Consent of KPMG LLP, dated March 27, 2001.

     *    23.2  --   Consent of Arthur Andersen LLP, dated March 27, 2001.

(b)  Reports on Form 8-K:

     On November 3, 2000, we filed a report dated November 2, 2000, on Form 8-K.
     The Form 8-K announced our third quarter earnings.

     On December 1, 2000, we filed a report dated November 30, 2000, on Form
     8-K. The Form 8-K announced a change in our Certifying Independent
     Accountants.

                                      -43-
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized:


                                     KEY PRODUCTION COMPANY, INC.


                                     By: /s/ F.H. Merelli
                                         -------------------------------------
                                         F.H. Merelli
Date: April 02, 2001                     Chairman and Chief Executive Officer
--------------------

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

     Signature                      Title                        Date
     ---------                      -----                        ----

  /s/ F.H. Merelli           Director, Chairman, and             April 02, 2001
--------------------------   Chief Executive Officer             --------------
  F.H. Merelli               (Principal Executive Officer)


  /s/ Monroe W. Robertson    President and Chief Operating       April 02, 2001
--------------------------   Officer                             --------------
  Monroe W. Robertson


  /s/ Paul Korus             Vice President and Chief            April 02, 2001
-------------------------    Financial Officer                   --------------
  Paul Korus                 (Principal Financial Officer)




  /s/ Sherri M. Nitta        Director, Financial Reporting       April 02, 2001
-------------------------    (Principal Accounting Officer)      --------------
  Sherri M. Nitta



  /s/ Cortlandt S. Dietler   Director                            April 02, 2001
--------------------------                                       --------------
  Cortlandt S. Dietler



  /s/ L. Paul Teague         Director                            April 02, 2001
-------------------------                                        --------------
  L. Paul Teague

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