<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                        
                                   Form 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

                                       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  0-17162
                        -------


                         KEY PRODUCTION COMPANY, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


Delaware                                                      84-1089744       
--------------------------------------------------------------------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification Number)

707 Seventeenth Street, Suite 3300  Denver, Colorado           80202-3404
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                       (Zip Code)

Registrant's Telephone Number, Including Area Code  303/295-3995.
                                                    ------------  

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 [_] 

The number of shares of Key Production Company, Inc. common stock, $.25 par
value, outstanding as of March 31, 1999 is 11,524,681.
<PAGE>
 
                        PART I -- FINANCIAL INFORMATION
                        -------------------------------

ITEM 1 -- FINANCIAL STATEMENTS
------------------------------

                          KEY PRODUCTION COMPANY, INC.
                        CONSOLIDATED STATEMENT OF INCOME
                                  (Unaudited)


                                                For the Three Months
                                                   Ended March 31,
                                               ---------------------
(In thousands, except per share data)            1999         1998
                                               --------     -------- 
Revenues:
 Natural gas production                        $ 6,087       $6,178
 Oil production                                  3,654        3,398
 Plant production                                  164          210
 Other                                             100           25
                                               -------       ------
                                                10,005        9,811
                                               -------       ------
 
Expenses:
 Depreciation, depletion and amortization        5,279        3,960
 Operating costs                                 2,615        2,827
 Administrative, selling and other                 547          452
 Financing, net                                    643          290
 Income tax provision                              (23)         (33)
                                               -------       ------
                                                 9,061        7,496
                                               -------       ------
 
Income Before Income Taxes                         944        2,315
 
Provision for Income Taxes                         359          880
                                               -------       ------
 
Net Income                                     $   585       $1,435
                                               =======       ======
 
Basic Earnings Per Share                       $   .05       $  .12
                                               =======       ======
 
Diluted Earnings Per Share                     $   .05       $  .12
                                               =======       ======


          The accompanying notes to consolidated financial statements
                    are an integral part of this statement.

                                      -2-
<PAGE>
 
                          KEY PRODUCTION COMPANY, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)

 
                                                   For the Three Months
                                                      Ended March 31,
                                                   --------------------
(In thousands)                                        1999       1998
                                                   ---------   --------
Cash Flows from Operating Activities:
 Net income                                          $   585    $ 1,435
 Adjustment to reconcile net income to net cash
   provided by operating activities:
     Depreciation, depletion and amortization          5,279      3,960
     Deferred income taxes                               321        787
 
 Changes in operating assets and liabilities:
   (Increase) decrease in receivables                 (1,858)     2,956
   (Increase) decrease in prepaid expenses
     and other                                          (108)        26
   Decrease in accounts payable and accrued
     expenses                                         (1,338)    (4,447)
   Increase (decrease) in long-term property
     liabilities and other                                17        (40)
                                                     -------    -------
 
     Net cash provided by operating activities         2,898      4,677
                                                     -------    -------
 
Cash Flows from Investing Activities:
 Oil and gas exploration and development
   expenditures                                       (8,020)    (9,169)
 Acquisition of oil and gas properties                  (243)       (49)
 Proceeds from sale of oil and gas properties            134          -
 Other capital expenditures                              (45)      (126)
                                                     -------    -------

     Net cash used by investing activities            (8,174)    (9,344)
                                                     -------    -------
 
 
Cash Flows From Financing Activities:
 Long-term borrowings                                  5,000      4,000
 Payments to acquire treasury stock                       (1)         -
                                                     -------    -------
 
     Net cash provided by financing activities         4,999      4,000
                                                     -------    -------
 
Net Decrease in Cash and Cash Equivalents               (277)      (667)
 
Cash and Cash Equivalents at Beginning of Year         4,720      3,349
                                                     -------    -------
 
Cash and Cash Equivalents at End of Period           $ 4,443    $ 2,682
                                                     =======    =======
 

          The accompanying notes to consolidated financial statements
                    are an integral part of this statement.

                                      -3-
<PAGE>
 
                         KEY PRODUCTION COMPANY, INC.
                          CONSOLIDATED BALANCE SHEET
                                  (unaudited)


 
                                                  March 31,    December 31,
(In thousands)                                      1999           1998
                                                  --------     ------------
             ASSETS
 
Current Assets:
 Cash and cash equivalents                        $  4,443        $  4,720
 Receivables                                         9,836           7,978
 Prepaid expenses and other                            677             569
                                                  --------        --------
 
                                                    14,956          13,267
                                                  --------        --------
 
Oil and Gas Properties, on the basis of
 full cost accounting:
   Proved properties                               191,492         185,813
   Unproved properties and properties
     under development, not being amortized         24,443          23,276
                                                  --------        --------
                                                   215,935         209,089
   Less - accumulated depreciation,
     depletion and amortization                    (62,917)        (57,752)
                                                  --------        --------
                                                   153,018         151,337
                                                  --------        --------
 
Other Assets, Net                                    1,622           1,691
                                                  --------        --------
 
                                                  $169,596        $166,295
                                                  ========        ========
 
       LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities:
 Accounts payable                                 $ 10,535        $ 11,271
 Accrued exploration and development                 2,368           3,651
 Accrued lease operating expense and other           1,633           2,276
                                                  --------        --------
                                                    14,536          17,198
                                                  --------        --------
 
Long-Term Debt                                      65,000          60,000
                                                  --------        --------
 
Non-current Liabilities
 Deferred income taxes                              18,444          18,123
 Long-term property liabilities and other            1,310           1,293
                                                  --------        --------
                                                    19,754          19,416
                                                  --------        --------
 
Stockholders' Equity:
 Common stock, $.25 par value, 50,000,000
   shares authorized, 11,778,190 shares
   issued                                            2,945           2,945
 Paid-in capital                                    37,406          37,406
 Retained earnings                                  32,304          31,737
 Treasury stock at cost, 253,509, and
   259,734 shares, respectively                     (2,349)         (2,407)
                                                  --------        --------
                                                    70,306          69,681
                                                  --------        --------
                                                  $169,596        $166,295
                                                  ========        ========

 
          The accompanying notes to consolidated financial statements
                    are an integral part of this statement.

                                      -4-
<PAGE>
 
                          KEY PRODUCTION COMPANY, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                                       Total
                                                                                                       Stock-
                                      Common          Paid-in         Retained         Treasury       holders'
                                       Stock          Capital         Earnings           Stock         Equity
                                     --------       ----------      -----------       -----------     ----------
                                                    (In thousands, except per share data)
<S>                                  <C>            <C>             <C>               <C>            <C>
Balance, December 31, 1998            $2,945          $37,406          $31,737           $(2,407)       $69,681
 Net income                                -                -              585                 -            585
 Treasury stock issued                     -                -              (18)               59             41
 Treasury stock purchased                  -                -                -                (1)            (1)
                                      ------          -------          -------           -------        -------
Balance, March 31, 1999               $2,945          $37,406          $32,304           $(2,349)       $70,306
                                      ======          =======          =======           =======        =======
</TABLE>



          The accompanying notes to consolidated financial statements
                    are an integral part of this statement.

                                      -5-
<PAGE>
 
                         KEY PRODUCTION COMPANY, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


     The financial statements included herein have been prepared by Key
Production Company, Inc. (Key or the Company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods, on a basis consistent with the
annual audited statements.  All such adjustments are of a normal, recurring
nature except as disclosed herein.  Certain information, accounting policies,
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the financial
statements and summary of significant accounting policies and notes thereto
included in the Company's latest annual report on Form 10-K.

BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts of
Key and the accounts of its wholly-owned subsidiaries: Brock Exploration
Corporation, Brock Oil and Gas Corporation and Brock Gas Systems and Equipment,
Inc.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

INCOME TAXES

     Income tax expense consisted of the following:
 
                                          Three Months Ended March 31,
                                        -------------------------------
                                           1999                 1998
                                        ----------           ----------
     Current Taxes:
        Federal                           $   -                 $  -
        State                                38                   93
                                                              
     Deferred Taxes:                        321                  787
                                          -----                 ----
                                                              
                                          $ 359                 $880
                                          =====                 ====

                                      -6-
<PAGE>
 
NET INCOME PER SHARE

     Basic earnings per share is computed based on the monthly weighted-average
number of shares outstanding during the periods.  The weighted-average number of
common shares used in computing basic earnings per share was 11,518,389 and
11,498,413 for 1999 and 1998, respectively.  Diluted earnings per share is
computed based on the weighted-average number of common shares outstanding
during the periods and the assumed exercise of dilutive common stock equivalents
(stock options) using the treasury stock method.  Dilutive equivalents assumed
to have been exercised totaled 476,197 and 681,237 for 1999 and 1998,
respectively.

STATEMENT OF CASH FLOWS

     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.  These
investments earned 4.5 and 4.4 percent rates of interest at March 31, 1999 and
December 31, 1998, respectively, with cost approximating market.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 
                                             For the Three Months 
                                                 Ended March 31,
                                        -------------------------------
                                           1999                 1998
                                        ----------           ----------
 
Cash paid during the period for:
  Interest (net of amounts capitalized)    $  689              $  252
  Income taxes                             $   14              $    3

                                      -7-
<PAGE>
 
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

FINANCIAL RESULTS

     Key is reporting first quarter net income of $.6 million, or $.05 per
diluted share.  First quarter results are down 59 percent and 58 percent,
respectively, from the $1.4 million and $.12 per diluted share reported a year
ago.  These results are based on revenues of $10.0 million and $9.8 million for
1999 and 1998, respectively.

     While not apparent in the bottom line, Key's oil and gas production
increased 21 percent between the first quarters of 1998 and 1999.  The increase
to gas production is from new drilling wells while the increase to oil
production is from the acquisition of oil properties at the end of 1998.
 
 
RESULTS OF OPERATIONS
 
                                            For the Three Months
                                               Ended March 31,
                                         ---------------------------
                                            1999             1998
                                         -----------      ----------
Selected Oil and Gas
Operating Statistics
--------------------
 
Gas Volume - Mcf per day                       38,744         33,057
Gas Price - Per Mcf                           $  1.75        $  2.08
Oil Volume - Barrels per day                    3,619          2,808
Oil Price - Per barrel                        $ 11.22        $ 13.45
Full Cost Amortization Rate                      52.1%          39.4%


     Key's oil and gas revenues were $9.9 million and $9.8 million for the first
quarters of 1999 and 1998, respectively.  The $.1 million, or 1 percent increase
in 1999 is the combined effect of increased oil sales and decreased gas and
plant product revenues.

     Sales of natural gas sales slipped 1 percent to $6.1 million for 1999.
Daily gas output for the first quarter increased 17 percent, from 33,057 Mcf per
day in 1998 to 38,744 Mcf per day in 1999, and added $1.1 million in revenue.
Most of the 1999 production increase is from new wells drilled in 1998.  On the
downside, Key's average gas price dropped from $2.08 per Mcf in 1998 to $1.75
per Mcf in 1999 for a $1.2 million reduction to sales.

     Oil sales increased by 8 percent between the first quarters of 1998 and
1999.  A 29 percent increase in crude oil production was more than enough to
offset a 17 percent price decline.  Oil production climbed from 2,808 barrels
per day in 1998 to 3,619 barrels per day in 1999.  The production increase had a
positive impact of $1.0 million on oil sales.  Key's average realized oil price
fell from $13.45 per barrel in 1998 to $11.22 per barrel in 1999, and reduced
sales by $.7 million.

     Product sales from gas processing plants contributed approximately $164,000
and $210,000 to oil and gas production revenues in the first quarters of 1999
and 1998, respectively.

                                      -8-
<PAGE>
 
     Key's oil and gas revenues are derived from the following product mix in
1999: 37 percent oil, 61 percent gas and 2 percent plant products.  This
compares to the following mix for 1998: 35 percent oil, 63 percent gas and 2
percent plant products.

     Other revenues were approximately $100,000 and $25,000 in 1999 and 1998,
respectively.  Other revenue in 1999 is comprised of income from the Company's
gathering system in California.

     Depreciation, depletion and amortization (DD&A) expense increased 33
percent between the first quarters of 1998 and 1999 while sales remained
relatively stable.  The depletion rate as a percentage of oil and gas sales
escalated from 39.4 percent in 1998 to 52.1 percent in 1999.  Depressed product
prices, for both oil and gas, were a factor in the elevated DD&A rate for 1999.

     Operating expenses went from $2.8 million in the first quarter of 1998 to
$2.6 million in the first quarter of 1999.  The decrease in operating costs is
due to a reduction in workover activity.  The 7 percent decrease occurred
despite a 21 percent increase in oil and gas production.  On a unit of
production basis, operating expenses declined from $.63 per EMcf in 1998 to $.48
per EMcf in 1999.  (Oil is compared to natural gas in terms of equivalent
thousand cubic feet, "EMcf."  One barrel of oil is the energy equivalent of six
Mcf of natural gas.)

     Administrative, selling and other costs (G&A) increased by 21 percent
between the first quarters of 1999 and 1998.  Due to an equal percentage
increase in oil and gas output, G&A compared on a unit of production basis
remained flat at $.10 per EMcf.

     Interest expense before capitalization was $962,000 and $625,000 for first
quarters of 1999 and 1998, respectively.  The long-term debt balance was $65.0
million at March 31, 1999, compared to $39.0 million at March 31, 1998.  Key
capitalized interest of $319,000 and $335,000 in the same periods of 1999 and
1998, respectively.  These capitalized amounts are for borrowings associated
with undeveloped leasehold.

     Key is using an effective tax rate of 38 percent for 1999 and 1998.

CASH FLOW AND LIQUIDITY

   Key's primary needs for cash are to fund oil and gas exploration, development
and acquisition activities and for payment of existing obligations and trade
commitments related to oil and gas operations.  The Company's primary sources of
liquidity are cash flows from operating activities and proceeds from financing
activities.

   Cash from operating activities was $2.9 million in the first quarter of 1999,
compared to $4.7 million in 1998.  The $1.8, or 38 percent decrease, is from the
collective changes in the accounts receivable, accounts payable and accrued
expense balances.  The combined changes to net income, DD&A expense and deferred
taxes for 1999 and 1998 resulted in almost no variance.

   Expenditures for exploration and development (E&D) in the first quarter of
1999 totaled $8.0 million.  While the level of expenditures was down from the
$9.2 million expended for E&D in 1998, 1999 expenditures were nearly three times
the cash generated by operating activities for the same period.  Amounts
expended in the first quarter of 1998 for E&D were about two times the cash from
operating 

                                      -9-
<PAGE>
 
activities. E&D projects initiated in the first quarters of 1999 and 1998 were
funded with a combination of cash from operations and long-term debt.

     As mentioned above, the Company drew on its credit facility with
NationsBank of Texas, N.A. to finance exploration and drilling activities in
excess of cash generated by operating activities.  The Company drew $5.0 million
and $4.0 million in the first quarters of 1999 and 1998, respectively.

     Management believes that cash on hand, net cash generated from operations
and amounts available under the Company's revolving line of credit will be
adequate to meet future liquidity needs, including satisfying the Company's
financial obligations and funding operations, exploration and development
activities.

YEAR 2000 COMPLIANCE

     Many existing computer programs use only two digits to identify a year in
the date field and were developed without considering the impact of the upcoming
change in the century.  If not corrected, date-sensitive software applications
could fail or create erroneous results by or at the Year 2000.

     During 1997, Key conducted an assessment of the various computer hardware
and software systems it uses.  This assessment identified date-sensitive
software systems used to record, process and track information in three
functional areas: accounting, land and lease records and reservoir engineering.
The land and lease records and reservoir engineering software was found to be
Year 2000 compliant.  During 1998, the accounting system was upgraded to make it
Year 2000 compliant. Testing of all three systems was conducted throughout the
year, and the Company believes that these systems will continue to function
properly when the century changes.  The cost of the accounting system upgrade
was provided, at no additional charge, as part of the Company's annual software
maintenance agreement with the vendor.  The cost of installing the software and
testing the systems was not material and was charged to expense during 1998.

     The Company feels that its remediation plan has adequately addressed the
Year 2000 problem, and therefore, this issue is not expected to have a material
effect on the Company's internal operations. The Company has also attempted to
assess the impact of this issue on the various entities with which the Company
does business.  Although failure of these entities to adequately address the
Year 2000 issue could indirectly impact the Company, it is not possible to
quantify that impact, if any.  However, the Company does not anticipate that the
impact would have a material adverse effect on the Company's business.

FUTURE TRENDS

     The company expects its drilling efforts to be concentrated in California,
the Gulf Coast and the Mid-Continent for the remainder of 1999.  This year's
drilling program in California is getting under way and the company expects to
drill five or six wells there by mid-summer 1999.  Gulf Coast activity will
continue to center around the West Gueydan prospect and the Mississippi Salt
Dome Basin.  Key is in the process of completing three wells in the Gulf Coast
region.  If productive, sales should commence late in the second quarter.  The
Mid-Continent region continues to be Key's most active area in terms of the
number of wells drilled.  Fourteen of the 17 wells drilled year-to-date in this
region have been completed or are waiting on completion.

                                      -10-
<PAGE>
 
     Although Key plans an active exploration effort in 1999, depressed
commodity prices will impact the availability of drilling capital and,
ultimately, the number of wells the company is able to drill.  The level of oil
and gas prices also affects the borrowing base under the company's line of
credit.  Low commodity prices could limit the company's ability to borrow
additional amounts to fund exploration and development activities.

     As part of its on-going business strategy, Key will continue to evaluate
merger and acquisition opportunities. Acquisition or merger candidates with the
economic and strategic attributes necessary to facilitate the profitable growth
of the company will be actively pursued.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk as a result of changes in the price
of natural gas and crude oil and changes in interest rates.

     Natural gas and crude oil prices fluctuate widely in response to changing
market forces.  Virtually 100 percent of the Company's revenue derives from the
sale of natural gas and crude oil, so these fluctuations, positive and negative,
can have a significant impact on the revenue the Company reports each period.

     Changes in product prices also impact the calculation of the limitation on
capitalized costs under the full cost accounting rules of the Securities and
Exchange Commission.  Application of this rule generally requires pricing 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 decline
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.

     The Company's reported earnings are impacted by changes in interest rates
as a result of its long-term debt with floating interest rates.  Interest
charges are based on either the prime rate or the LIBOR rate.  Fluctuations in
these rates directly impact the amount of interest expense the Company reports
in each period.

     Historically, the Company has not used financial instruments such as
futures contracts or interest rate swaps to mitigate the impact of changes in
commodity prices or interest rates.

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 laws.  These forward-looking statements include, among
others, statements concerning the Company's outlook for the remainder of 1999
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 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

                                      -11-
<PAGE>
 
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 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.

                                      -12-
<PAGE>
 
PART II -- OTHER INFORMATION
----------------------------


ITEM 1.  LEGAL PROCEEDINGS
-------  -----------------

   None.

ITEM 2.  CHANGES IN SECURITIES
-------  ---------------------

   None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
-------  -------------------------------

   None.

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

   None.

ITEM 5.  OTHER INFORMATION
-------  -----------------

   None.

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

(a)  Exhibits:

       27.1  Financial Data Schedule for Commercial and Industrial Companies per
             Article 5 of Regulation S-X for the quarter ended March 31, 1999.

(b)  Reports on Form 8-K:

     None.

                                      -13-
<PAGE>
 
                                   SIGNATURES


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


Dated May 12, 1999


                                      KEY PRODUCTION COMPANY, INC.



                                      /s/ Monroe W. Robertson
                                      ------------------------------------
                                      Monroe W. Robertson
                                      Senior Vice President and Secretary
                                      (Principal Financial Officer)



                                      /s/ Cathy L. Anderson
                                      ------------------------------------
                                      Cathy L. Anderson
                                      Controller
                                      (Principal Accounting Officer)

                                      -14-