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S-4/A
KEY ENERGY SERVICES INC filed this Form S-4/A on 03/08/1996
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                     KEY ENERGY GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1995

                                   (unaudited)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Key

The consolidated financial information in this report includes Yale E. Key which
is  involved  in  oilwell  service  operations,  OEI  which is  involved  in the
production and  exploration of oil and natural gas and Clint Hurt Drilling which
is involved in the drilling for oil and natural gas.

OEI utilizes the  successful  efforts  method of accounting  for its oil and gas
properties.  Under this method,  all costs  associated with productive wells and
nonproductive development wells are capitalized, while nonproductive exploration
costs and geological and geophysical  costs (if any), are expensed.  Capitalized
costs relating to proved  properties  are depleted using the  unit-of-production
method based on proved reserves  expressed as net equivalent Bbls as reviewed by
independent  petroleum  engineers.  The carrying  amounts of properties  sold or
otherwise  disposed of and the related  allowance for  depletion are  eliminated
from the accounts and any gain/loss is included in results of operations.

OEI's  aggregate  oil and gas  properties  are stated at cost,  not in excess of
total estimated future net revenues net of related income tax effects.


In the opinion of Key Energy Group,  Inc.  ("Key"),  the accompanying  unaudited
condensed   consolidated  financial  statements  contain  all  normal  recurring
adjustments  necessary to present  fairly the financial  position as of December
31, 1995, the statement of cash flows for the six months ended December 31, 1995
and 1994,  and the results of  operations  for the six month periods then ended.
These unaudited  consolidated financial statements should be read in conjunction
with consolidated financial statements and notes thereto included herein for the
year ended June 30, 1995.


The  consolidated  financial  statements of Key have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and with  the  instructions  to Form  10-Q and  Rule  10-01 of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
Operating  results for interim  periods are not  necessarily  indicative  of the
results that may be expected for the full year.

                                      F-33