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.

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     As of July 30,October 27, 2010, the number of outstanding shares of common stock of the registrant was 125,665,035.141,427,042.

 

     In addition to statements of historical fact, this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These “forward-looking statements” are based on our current expectations, estimates and projections about Key Energy Services, Inc. and its subsidiaries, our industry and management’s beliefs and assumptions concerning future events and financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,” “predicts,” “expects,” “projects,” “potential” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions and are subject to substantial risks and uncertainties. In evaluating those statements, you should carefully consider the information above as well as the risks outlined in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2009, in our Quarterly Report on Form 10-Q for the periodperiods ended March 31, 2010 and June 30, 2010, in our recent Current Reports on Form 8-K and in our other filings with the Securities and Exchange Commission. Actual performance or results may differ materially and adversely.

     We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this report except as required by law. All of our written and oral forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

     Key Energy Services, Inc., its wholly-owned subsidiaries and its controlled subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a complete range of well intervention services to major oil companies, foreign national oil companies and independent oil and natural gas production companies to complete, maintain and enhance the flow of oil and natural gas throughout the life of a well. These services include rig-based services, fluid management services, pressure pumping services, coiled tubing services, fishing and rental services, and wireline services. On October 1, 2010, we completed the sale of our pressure pumping and wireline businesses to Patterson-UTI Energy (“Patterson-UTI”), which significantly reduced our involvement in these lines of business in the United States. We operate in most major oil and natural gas producing regions of the United States as well as internationally in Argentina, Mexico,Latin America, and the Russian Federation. We also own a technology development company based in Canada and have ownership interests in two oilfield service companies based in Canada.

     The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed December 31, 2009 balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

     The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the three and sixnine month periods ended JuneSeptember 30, 2010 are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.

     We have evaluated events occurring after the balance sheet date included in this Quarterly Report on Form 10-Q for possible disclosure as a subsequent event. Management monitored for subsequent events through the date these financial statements were available to be issued. After the balance sheet date included in this Quarterly Report on Form 10-Q but before the financial statements were available to be issued, we entered into an agreement to sellclosed the sale of our pressure pumping and wireline operationsbusiness to Patterson – UTI Energy (“Patterson”)Patterson-UTI that required disclosure as a subsequent event. In addition, we entered into a purchase and sale agreement withclosed the acquisition of certain subsidiaries of OFS Energy Services, LLC (“OFS ES”) to purchase 100% of the membership interests in three of OFS ES’s subsidiaries (and indirectly their related subsidiaries) and related incidental assets. See“Note 17. Subsequent Events”for further discussion.

     Certain reclassifications have been made to prior period information contained in this report in order to conform to current year presentation. As discussed in“Note 16. Discontinued Operations”and“Note 17. Subsequent Events,”on July 2, 2010 we entered into an agreement to sella result of the sale of our pressure pumping and wireline businesses, to Patterson. As a result, we now show the assets being sold as held for sale and the results of operations of thethese businesses being sold as a discontinued operationoperations for all periods presented. The reclassifications had no effect on total assets or the income or loss attributable to Key for any period. See further discussion in“Note 16. Discontinued Operations”and“Note 17. Subsequent Events.”

     The preparation of these unaudited condensed consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates may also impact the nature and extent of our disclosure, if any, of our contingent liabilities. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets, (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves, (vii)

provide allowances for our uncollectible accounts receivable, (viii) value our asset retirement obligations, and (ix) value our equity-based compensation. We review all significant estimates on a recurring basis and record the effect of any necessary adjustments prior to publication of our financial statements. Adjustments made with respect to the use of estimates relate to improved information not previously available. Because of the limitations inherent in this process, our actual results may differ materially from these estimates. We believe that the estimates used in the preparation of these interim financial statements are reasonable.

Certain Recognition and Disclosure Requirements.This update provides amendments to Subtopic 855-10 as follows: (i) an entity that either (a) is an SEC filer or (b) is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter-market, including local or regional markets) is required to evaluate subsequent events through the date that the financial statements are issued; (ii) the glossary of Topic 855 is amended to include the definition of SEC filer. An SEC filer is an entity that is required to file or furnish its financial statements with either the SEC or, with respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section; (iii) an entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated; (iv) the glossary of Topic 855 is amended to remove the definition of public entity. The definition of a public entity in Topic 855 was used to determine the date through which subsequent events should be evaluated; and (v) the scope of the reissuance disclosure requirements is refined to include revised financial statements only. The term revised financial statements is added to the glossary of Topic 855. Revised financial statements include financial statements revised either as a result of correction of an error or retrospective application of U.S. generally accepted accounting principles. We adopted the provisions of ASU 2010-09 on March 1, 2010 and the adoption of this standard did not have a material impact on our financial position, results of operations, or cash flows.

     ASU 2009-13.In October 2009, the FASB issued ASU 2009-13,Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force(“ASU 2009-13”). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements where products or services are accounted for separately rather than as a combined unit, and addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. Existing GAAP requires an entity to use objective and reliable evidence of fair value for the undelivered items or the residual method to separate deliverables in a multiple-deliverable selling arrangement. As a result of ASU 2009-13, multiple-deliverable arrangements will be separated in more circumstances than under current guidance. ASU 2009-13 establishes a hierarchy for determining the selling price of a deliverable. The selling price will be based on Vendor-Specific Objective Evidence (“VSOE”) if it is available, on third-party evidence if VSOE is not available, or on an estimated selling price if neither VSOE nor third-party evidence is available. ASU 2009-13 also requires that an entity determine its best estimate of selling price in a manner that is consistent with that used to determine the selling price of the deliverable on a stand-alone basis, and increases the disclosure requirements related to an entity’s multiple-deliverable revenue arrangements. ASU 2009-13 must be prospectively applied to all revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and early adoption is permitted. Entities may elect, but are not required, to adopt the amendments retrospectively for all periods presented. We expect to prospectively adopt the provisions of ASU 2009-13 on January 1, 2011 and do not believe that the adoption of this standard will have a material impact on our financial position, results of operations, or cash flows.

     The table below presents comparative detailed information about other current assets at JuneSeptember 30, 2010 and December 31, 2009:

     The table below presents comparative detailed information about other non-currentcurrent liabilities at JuneSeptember 30, 2010 and December 31, 2009:

     The changes in the carrying amount of goodwill for the sixnine months ended JuneSeptember 30, 2010 are as follows:

     Certain of our goodwill and other intangible assets are denominated in currencies other than U.S. dollars and, as such, the values of these assets are subject to fluctuations associated with changes in exchange rates. Additionally, certain of these assets are also subject to purchase accounting adjustments. Amortization expense for our intangible assets was $2.3$2.9 million and $3.4$3.1 million for the three months ended JuneSeptember 30, 2010 and 2009, respectively, and $8.0 million and $9.9 million for the nine months ended September 30, 2010 and 2009, respectively. Amortization expenseThe purchase price allocation for our 2009 acquisition of Geostream Services Group (“Geostream”) was finalized in 2010.

     We also performed an impairment analysis for the $8.4 million of intangible assets was $5.1 millionrelated to Geostream that are not amortized. We performed an assessment of the fair value of these assets using an expected present value technique. We used a discounted cash flow model involving assumptions based on forecasted revenues, projected royalty expenses and $6.8 million for the six months ended June 30, 2010 and 2009, respectively.applicable income taxes. Our cash flow projections were based on financial forecasts developed by management. Based on this assessment, these intangible assets were not impaired.

     As of JuneSeptember 30, 2010, we owned 8.7 million shares of IROC Energy Services Corp. (“IROC”), an Alberta-based oilfield services company. The carrying value of our investment in IROC totaled $4.8$4.7 million and $4.0 million as of JuneSeptember 30,

Facility (defined below). We were in compliance with these covenants at JuneSeptember 30, 2010.

     We maintain a senior secured credit facility pursuant to a revolving credit agreement with a syndicate of banks of which Bank of America, N.A. and Wells Fargo Bank, N.A. are the administrative agents (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility (which was amended October 27, 2009) consists of a revolving credit facility, letter of credit sub-facility and swing line facility, up to an aggregate principal amount of $300.0 million, all of which will mature no later than November 29, 2012.

     The interest rate per annum applicable to the Senior Secured Credit Facility (as amended) is, at our option, (i) LIBOR plus a margin of 350 to 450 basis points, depending on our consolidated leverage ratio, or (ii) the base rate (defined as the higher of (x) Bank of America’s prime rate and (y) the Federal Funds rate plus 0.5%), plus a margin of 250 to 350 basis points, depending on our consolidated leverage ratio. Unused commitment fees on the facility range from 0.50% to 0.75%, depending upon our consolidated leverage ratio.

additional loss materially in excess of amounts that have been recorded. During the secondthird quarter of 2010, there were no changes inwe increased our reserves by $0.5 million, associated with our assessment of the ultimate liability related to ongoing legal matters. We paid $0.3 million during the quarter related to the settlement of ongoing legal matters.matters for a net increase to our reserve of $0.2 million during the quarter.

     Our former general counsel, Jack D. Loftis, Jr., filed a lawsuit against us in the U.S. District Court, District of New Jersey, on April 21, 2006, in which he allegesalleged a “whistle-blower” claim under the Sarbanes-Oxley Act, breach of contract, breach of duties of good faith and fair dealing, breach of fiduciary duty and wrongful termination. OnFollowing the transfer of the case to the District of Pennsylvania, on August 17, 2007, we filed counterclaims against Mr. Loftis alleging attorney malpractice, breach of contract and breach of fiduciary duties. In our counterclaims, we are seekingsought repayment of all severance paid to Mr. Loftis (approximately $0.8 million) plus benefits paid during the period July 8, 2004 to September 21, 2004, and damages relating to the allegations of malpractice and breach of fiduciary duties. On September 2, 2010, we reached a settlement with Mr. Loftis regarding the alleged claims, and recorded an additional charge related to the settlement. The case is currently pending in the U.S. District Courtresolution of this claim did not have a material effect on our results of operations for the Eastern District of Pennsylvania and trial is scheduled for the fourth quarter ofnine months ended September 30, 2010. We recorded a liability for this matter in the fourth quarter of 2008.

     On May 3, 2010, a jury returned a verdict in the case ofUMMA Resources, LLC v. Key Energy Services, Inc. The lawsuit involved pipe recovery and workover operations performed between September 2003 through December 2004. The plaintiff alleged that we breached an oral contract and negligently performed the work. We counter suedcountersued for our unpaid invoices for work performed. The jury found that Key was in breach of contract, that Key was negligent in performing the work, and that Key was not entitled to damages under its counter claims.counterclaims. We believe that, as a matter of law, the jury erred in its decision. The judge in this case delayed rendering his judgment and requested both parties to file motions on the jury’s verdict. Our motion for judgment notwithstanding the verdict has been filed and is pending final ruling by the court. Because the court has not yet rendered judgment in this case, the ultimate outcome of this litigation and our potential liability, if any, cannot be predicted at this time. As of JuneSeptember 30, 2010, we have not taken any provision for this matter. We believe the range of possible damage awards, if the matter is decided adversely to us, could be between zero and $13.0 million, plus attorney’s fees. We currently expect to receive the court’s judgment during the thirdfourth quarter of 2010.

     We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicle liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. As of JuneSeptember 30, 2010 and December 31, 2009, we have recorded $66.7$66.1 million and $65.2 million, respectively, of self-insurance reservesliabilities related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had $17.8 million of insurance receivables as of JuneSeptember 30, 2010 and $17.2 million as of December 31, 2009. We feel that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

     The unrecognized compensation cost related to our unvested stock options, restricted shares and phantom shares as of JuneSeptember 30, 2010 is estimated to be $0.1 million, $19.4$13.3 million and $0.9$0.5 million, respectively, and is expected to be recognized over a weighted-average period of 1.51.2 years, 1.41.2 years and 0.7 years, respectively.

     During March 2010, we issued a total of 0.6 million performance units to certain of our employees and officers. Performance units provide a cash incentive award, the unit value of which is determined with reference to our common stock. The performance units are measured based on two performance periods. One half of the performance units are measured based on a performance period consisting of the first year after the grant date, and the other half are measured based on a performance period consisting of the second year after the grant date. At the end of each performance period, 100%, 50%, or 0% of an individual’s performance units for that period will vest, based on the relative placement of our total shareholder return withwithin a peer group consisting of Key and five other companies. If we are in the top third of the peer group, 100% of the performance units will vest; if we are in the middle third, 50% will vest; and if we are in the bottom third, the performance units will expire unvested and no payment will be made. If any performance units vest for a given performance period, the award holder will be paid a cash amount equal to the vested percentage of the performance units multiplied by the closing price of our common stock on the last trading day of the performance period. We account for the performance units as a liability-type award as they are settled in cash. As of JuneSeptember 30, 2010, the fair value of theoutstanding performance units issued in March 2010 was $2.8$2.2 million, and is being accreted to compensation expense over the vesting terms of the awards. During the three and sixnine months ended JuneSeptember 30, 2010, we recognized $0.5$0.2 million and $0.7$0.9 million, respectively, of pre-tax compensation expense associated with these awards. As of September 30, 2010, the unrecognized compensation cost related to our unvested performance units is estimated to be $1.3 million and is expected to be recognized over a weighted-average period of 1.1 years.

     During MayIn October 2010, pursuant to the terms of the sale agreement, we issued 109,410accelerated the vesting period of 0.1 million shares of commonrestricted stock toheld by certain of our outside directors. These shares vested immediately and weemployees who became employees of Patterson-UTI as part of this transaction. Compensation expense of $1.2 million was recognized $1.0 million of expense related to these awards.this accelerated vesting. See “Note 17. Subsequent Events”for further discussion.

     On October 25, 2007, we entered into two promissory notes with related parties in connection with an acquisition. The first was an unsecured note in the amount of $12.5 million and has been repaid, together with accrued interest. The second unsecured note in the amount of $10.0 million was payable in annual installments of $2.0 million, plus accrued interest, on each anniversary date of its issue through October 2012. On May 13, 2010, we repaid the outstanding principal balance of $6.0 million of the remaining note,Related Party Note, plus accrued and unpaid interest. This note was repaid concurrently with the sale of six operational barge rigs and related assetsequipment to the holders of the note for total consideration of $17.9 million. We received net proceeds, after repayment of the note, of $11.9 million and recorded a $0.6 million loss on the sale of these assets.

     In connection with an acquisition in 2008, the former owner of the acquiree became one of our employees. At the time of the acquisition, the employee owned, and continues to own, an exploration and production company. Subsequent to the acquisition, we continued to provide services to this company. The prices charged for these services are at rates that are an average of the prices charged to our other customers in the California market where the services are provided. As of JuneSeptember 30, 2010, our receivables with this company totaled $0.4 million.

     One member of our board of directors is the Senior Vice President, General Counsel and Chief Administrative Officer of Anadarko Petroleum Corporation (“Anadarko”), which is one of our customers. Sales to Anadarko were approximately 3%4% and 2% of our total revenues for the sixnine months ended JuneSeptember 30, 2010.2010 and 2009, respectively. Sales to Anadarko were approximately 6% and 2% of our total revenues for the three months ended September 30, 2010 and 2009, respectively. Receivables outstanding from Anadarko were approximately 6% and 1% of our total accounts receivable as of September 30, 2010 and December 31, 2009, respectively. Transactions with Anadarko for our services are made on terms consistent with other customers.

          The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of JuneSeptember 30, 2010 and December 31, 2009:

          Cash, cash equivalents, accounts payable and accrued liabilities.These carrying amounts approximate fair value because of the short maturity of the instruments or because the carrying value is equal to the fair value of those instruments on the balance sheet date.

providing conventional and/orand horizontal drilling services. Based on current industry data, we have the largest land-based Well Servicing rig fleet in the world. Our rigs consist of various sizes and capabilities, allowing us to work on all types of wells with depths up to 20,000 feet. Many of our rigs are outfitted with our proprietary KeyView^® technology, which captures and

between the casing and the wellbore. Coiled tubing services involve the use of a continuous metal pipe spooled on a large reel for oil and natural gas well applications, such as wellbore clean-outs, nitrogen jet lifts, and through tubing fishing and formation stimulations utilizing acid, chemical treatments and sand fracturing. Coiled tubing is also used for a number of horizontal well applications, including “stiff wireline” services, in which a wireline is placed in the coiled tube and then fed into a well to carry the wireline to a desired depth.applications.

          On July 2,October 1, 2010, we entered into an agreement to sellclosed the sale of our U.S. based pressure pumping businessand wireline businesses to Patterson. We nowPatterson-UTI. For the periods presented in this report, we show these assets as held for sale and the results of operations for pressure pumping operations as a discontinued operationoperations for all periods presented. See“Note 16. Discontinued Operations”and“Note 17. Subsequent Events.”Events”.Our coiled tubing operations and pressure pumping operations in California were not sold as part of this transaction, and are still reported in the Production Services segment.

     Fishing and Rental Services

          We offer a full line of services and rental equipment designed for use both onshore and offshore for drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk^® pipe-handling units and services), pressure-control equipment, power swivels and foam air units.

     Wireline Services

          We have a fleet of wireline units that perform services at various times throughout the life of the well including perforating, completion logging, production logging and casing integrity services. After the wellbore is cased and cemented, we can provide a number of services. Perforating creates the flow path between the reservoir and the wellbore. Production logging can be performed throughout the life of the well to measure temperature, fluid type, flow rate, pressure and other reservoir characteristics. This service helps the operator analyze and monitor well performance and determine when a well may need a workover or further stimulation.

          In addition, wireline services may involve wellbore remediation, which could include the positioning and installation of various plugs and packers to maintain production or repair well problems, and casing inspection for internal or external abnormalities in the casing string. Wireline services are provided from surface logging units, which lower tools and sensors into the wellbore. We use advanced wireline instruments to evaluate well integrity and perform cement evaluations and production logging. On July 2, 2010, As discussed above and in“Note 16. Discontinued Operations” and“Note 17. Subsequent Events,”we entered into an agreementclosed the sale of our U.S. based pressure pumping and wireline businesses to sell our wireline business to Patterson. We nowPatterson-UTI. For the periods presented in this report, we show these assets as held for sale and the results of operations for our wireline businessoperations as a discontinued operationoperations for all periods presented. See“Note 16. Discontinued Operations”and“Note 17. Subsequent Events.”

          We have aggregated all of our operating segments that do not meet the aggregation criteria to form a “Functional Support” segment. These services include expenses associated with managing all of our reportable operating segments. Functional Support assets consist primarily of cash and cash equivalents, accounts and notes receivable and investments in subsidiaries, deferred financing costs, our equity-method investments and deferred income tax assets.

          The following tables set forth our segment information as of and for the three and sixnine month periods ended JuneSeptember 30, 2010 and 2009: