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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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 September 30, 1996
                               ------------------

                                    OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period               to              .
                               -------------    -------------

Commission File Number 0-14488
                       -------

                                  Seitel, Inc.
                ------------------------------------------------
               (Exact name of registrant as specified in charter)

          Delaware                                          76-0025431
-------------------------------             -----------------------------------
(State or other jurisdiction of             (IRS Employer Identification Number)
 incorporation or organization)

50 Briar Hollow Lane
West Building, 7th Floor
Houston, Texas                                              77027
--------------------------------                 --------------------------
(Address of principal executive                           (Zip Code)
offices)

                                 (713) 627-1990
               --------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
                         -------------------------------
                         Former name, former address and
                         former fiscal year, if changed
                               since last report.

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
                                  ---            ---

As of November 11, 1996 there were  10,015,539  shares of the  Company's  common
stock, par value $.01 per share, outstanding.

--------------------------------------------------------------------------------
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                                  Page 1 of 27
<PAGE>


                                      INDEX



PART I. FINANCIAL INFORMATION                                            Page
                                                                      ----------

     Item 1. Financial Statements

     Consolidated   Balance  Sheets  as  of  September  30,  1996
     (Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . 3

     Consolidated  Statements of Operations  (Unaudited) for the Three
     Months Ended September 30, 1996 and 1995. . . . . . . . . . . . . . . 4

     Consolidated  Statements of Operations  (Unaudited)  for the Nine
     Months Ended September 30, 1996 and 1995. . . . . . . . . . . . . . . 5

     Consolidated  Statements of Stockholders' Equity (Unaudited)
     for the Nine Months Ended September 30, 1996. . . . . . . . . . . . . 6

     Consolidated  Statements of Cash Flows  (Unaudited)  for the
     Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . 7

     Notes to Consolidated Interim Financial Statements. . . . . . . . . . 9

     Item 2.  Management's  Discussion  and Analysis of Financial
     Condition and Results of Operations . . . . . . . . . . . . . . . . .11

PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .14

                                  Page 2 of 27
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                                                         (Unaudited)
                                                                        September 30,    December 31,
                                                                             1996            1995
                                                                          ----------      ----------
<S>                                                                       <C>             <C>      
ASSETS

   Cash and equivalents                                                   $  19,721       $   6,242
   Receivables
     Trade                                                                   44,494          40,992
     Notes and other                                                          3,432           1,289
   Net assets of discontinued operations                                      1,165               -
   Net data bank                                                            116,032         105,369
   Net oil and gas properties, full cost method                              83,257          42,424
   Net geophysical and other property and equipment                          15,188          10,126
   Investment in affiliate                                                    3,785               -
   Prepaid expenses, deferred charges and other assets                        2,694           3,125
                                                                          ---------       ---------
TOTAL ASSETS                                                              $ 289,768       $ 209,567
                                                                          =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY

   Accounts payable and accrued liabilities                               $  28,299       $  18,422
   Income taxes payable                                                       1,128             227
   Net liabilities of discontinued operations                                     -           1,105
   Debt
     Senior Notes                                                            75,000          52,500
     Subordinated debentures                                                      -           1,989
     Term Loans                                                               9,724           3,071
   Obligations under capital leases                                           2,794           3,723
   Contingent payables                                                          279             279
   Deferred income taxes                                                     10,010           6,472
   Deferred revenue                                                          20,690           1,401
                                                                          ---------       ---------
TOTAL LIABILITIES                                                           147,924          89,189
                                                                          ---------       ---------

CONTINGENCIES AND COMMITMENTS

STOCKHOLDERS' EQUITY
   Preferred stock, par value $.01 per share; authorized                          -               -
     5,000,000 shares; none issued
   Common stock, par value $.01 per share;  authorized
     20,000,000 shares; issued and outstanding
     10,001,690 and 9,436,854 at September 30, 1996
     and December 31, 1995, respectively                                        100              94
   Additional paid-in capital                                                95,955          85,821
   Retained earnings                                                         46,997          35,936
   Treasury stock, 409 and 414 shares at cost at September
     30, 1996 and December 31, 1995, respectively                                (4)             (4)
   Notes receivable from officers and employees                              (1,205)         (1,395)
   Cumulative translation adjustment                                              1             (74)
                                                                          ---------       ---------
TOTAL STOCKHOLDERS' EQUITY                                                  141,844         120,378
                                                                          ---------       ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $ 289,768       $ 209,567
                                                                          =========       =========
</TABLE>

                                        The  accompanying  notes are an integral
                                        part  of  these  consolidated  financial
                                        statements.


                                  Page 3 of 27
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                            Three Months Ended 
                                                               September 30,
                                                         ------------------------
                                                            1996           1995
                                                         ---------      ---------

<S>                                                       <C>            <C>    
REVENUE                                                   $30,307        $17,873

EXPENSES:
   Depreciation, depletion and amortization                10,824          5,922
   Cost of sales                                            5,873          3,966
   Selling, general and administrative expenses             5,187          4,054
   Net interest expense                                       761            617
                                                          -------        -------
                                                           22,645         14,559
                                                          -------        -------

Equity in earnings of affiliate                                 3              -
                                                          -------        -------

Income from continuing operations before provision
   for income taxes                                         7,665          3,314

Provision for income taxes                                  2,836          1,226
                                                          -------        -------

Income from continuing operations                           4,829          2,088

Income from discontinued operations, net of
   income tax benefit of $55                                    -             94
                                                          -------        -------

NET INCOME                                                $ 4,829        $ 2,182
                                                          =======        =======

Earnings per share:
   Primary:
     Income from continuing operations                    $   .45        $   .21
     Income from discontinued operations                        -            .01
                                                          =======        =======
     Net income                                           $   .45        $   .22
                                                          =======        =======

   Assuming full dilution:
     Income from continuing operations                    $   .44        $   .21
     Income from discontinued operations                        -            .01
                                                          =======        =======
     Net income                                           $   .44        $   .22
                                                          =======        =======

Weighted average number of common and common
   equivalent shares:
   Primary                                                 10,825          9,940
                                                          =======        =======
   Assuming full dilution                                  10,893         10,235
                                                          =======        =======
</TABLE>


                                        The  accompanying  notes are an integral
                                        part  of  these  consolidated  financial
                                        statements.


                                  Page 4 of 27
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                           Nine Months Ended 
                                                              September 30,
                                                      ---------------------------
                                                         1996             1995
                                                      ----------       ----------
<S>                                                    <C>              <C>     
REVENUE                                                $ 77,753         $ 56,624

EXPENSES:
   Depreciation, depletion and amortization              28,981           20,395
   Cost of sales                                         13,542            8,753
   Selling, general and administrative expenses          14,036           12,283
   Net interest expense                                   2,072            2,343
                                                       --------         --------
                                                         58,631           43,774
                                                       --------         --------
 
Equity in earnings of affiliate                               3                -
                                                       --------         --------

Income from continuing operations before provision
   for income taxes                                      19,125           12,850

Provision for income taxes                                7,076            4,754
                                                       --------         --------

Income from continuing operations                        12,049            8,096

Income from discontinued operations, net of income
   tax expense of $236                                        -              401
Loss on disposal of discontinued operations, net
   of income tax benefit of $580                           (988)               -
                                                       --------         --------

NET INCOME                                             $ 11,061         $  8,497
                                                       ========         ========

Earnings per share:
   Primary
     Income from continuing operations                 $   1.16         $    .82
     Income from discontinued operations                      -              .04
     Loss on disposal of discontinued operations           (.09)               -
                                                       --------         --------
     Net income                                        $   1.07         $    .86
                                                       ========         ========
   Assuming full dilution
     Income from continuing operations                 $   1.12         $    .81
     Income from discontinued operations                      -              .04
     Loss on disposal of discontinued operations           (.09)               -
                                                       --------         --------
     Net income                                        $   1.03         $    .85
                                                       ========         ========

Weighted average number of common and common
   equivalent shares:
   Primary                                               10,382            9,853
                                                       ========         ========
   Assuming full dilution                                10,705           10,105
                                                       ========         ========
</TABLE>


                                        The  accompanying  notes are an integral
                                        part  of  these  consolidated  financial
                                        statements.

                                  Page 5 of 27
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                                                                   
                                                                                                              Notes                 
                                                     Common Stock      Additional          Treasury Stock  Receivable     Cumulative
                                                 -------------------    Paid-In  Retained  -------------- from Officers  Translation
                                                   Shares    Amount     Capital  Earnings  Shares  Amount  & Employees   Adjustments
                                                 ----------  -------    -------- --------  ------  ------  -----------   -----------
<S>                                               <C>          <C>      <C>        <C>        <C>     <C>    <C>           <C>  
Balance, December 31, 1992                        5,976,472    $ 60     $25,672    $12,225        -    $ -   $(2,150)     $ (164)
   Proceeds from issuance of common stock            10,916       -          37          -        -      -         -           -
   Payments received on notes receivable from
     officers and employees                               -       -           -          -     (414)    (4)      111           -
   Foreign currency translation adjustment                -       -           -          -        -      -         -          79
   Net income                                             -       -           -      5,717        -      -         -           -
                                                 ----------    ----     -------    -------    -----    ---   -------      ------
Balance, December 31, 1993                        5,987,388      60      25,709     17,942     (414)    (4)   (2,039)        (85)
   Sale of common stock through public offering   1,061,200      11      31,906          -        -      -         -           -
   Proceeds from issuance of common stock           770,364       7       7,280          -        -      -         -           -
   Tax reduction from exercise of stock options           -       -       1,879          -        -      -         -           -
   Conversion and exchanges of 
     subordinated debentures                      1,006,667      10       8,837          -        -      -         -           -
   Payments received on notes receivable
     from officers and employees                          -       -           -          -        -      -       488           -
   Foreign currency translation adjustment                -       -           -          -        -      -         -          13
   Net income                                             -       -           -      9,315        -      -         -           -
                                                 ----------    ----     -------    -------    -----    ---   -------      ------
Balance, December 31, 1994                        8,825,619      88      75,611     27,257     (414)    (4)   (1,551)        (72)
   Proceeds from issuance of common stock           445,939       4       6,894          -        -      -         -           -
   Tax reduction from exercise of stock options           -       -       1,900          -        -      -         -           -
   Conversions and exchanges of 
     subordinated debentures                        165,296       2       1,416          -        -      -         -           -
   Payments received on notes receivable
     from officers and employees                          -       -           -          -        -      -       156           -
   Foreign currency translation adjustment                -       -           -          -        -      -         -          (2)
   Net income                                             -       -           -      8,679        -      -         -           -
                                                 ----------    ----     -------    -------    -----    ---   -------      ------
Balance, December 31, 1995                        9,436,854      94      85,821     35,936     (414)    (4)   (1,395)        (74)
   Proceeds from issuance of common stock           218,457       3       4,105          -        5      -         -           -
   Acquisition of equity interest in affiliate      132,075       1       3,499          -        -      -         -           -
   Tax reduction from exercise of stock options           -       -         652          -        -      -         -           -
   Conversions and exchanges of 
     subordinated debentures                        214,304       2       1,878          -        -      -         -           -
   Payments received on notes receivable from
     officers and employees                               -       -           -          -        -      -       190           -
   Foreign currency translation adjustment                -       -           -          -        -      -         -          75
   Net Income                                             -       -           -     11,061        -      -         -           -
                                                 ----------    ----     -------    -------     ----    ---   -------      ------

Balance, September 30, 1996 (unaudited)          10,001,690    $100     $95,955    $46,997     (409)   $(4)  $(1,205)     $    1
                                                 ==========    ====     =======    =======     ====    ===   =======      ======
</TABLE>
                                     The accompanying notes are an integral part
                                     of these consolidated financial statements.


                                                        Page 6 of 27
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
                                                                  Nine Months Ended 
                                                                     September 30,
                                                              ------------------------
                                                                1996            1995
                                                              --------        --------
<S>                                                           <C>             <C>     
Cash flows from operating activities:
   Cash received from customers                               $ 75,366        $ 55,547
   Proceeds from volumetric production payment                  19,000               -
   Cash paid to suppliers and employees                        (30,590)        (26,981)
   Interest paid                                                (2,031)           (978)
   Interest received                                               810              81
   Income taxes paid                                            (1,500)         (2,452)
                                                              --------        --------
     Net cash provided by operating activities                  61,055          25,217
                                                              --------        --------

Cash flows from investing activities:
   Cash invested in seismic data                               (28,420)        (32,653)
   Cash invested in oil and gas properties                     (41,215)        (15,606)
   Cash paid to acquire property and equipment                  (8,070)           (935)
   Cash from disposal of property and equipment                     59               -
   Advances made to oil and gas joint venture partner                -          (1,142)
   Collections on loans made                                       208               -
   Loan made to unconsolidated affiliate                        (2,000)              -
   Cost of investment made in unconsolidated affiliate            (109)              -
                                                              --------        --------
     Net cash used in investing activities                     (79,547)        (50,336)
                                                              --------        --------

Cash flows from financing activities:
   Borrowings under line of credit agreements                        -          66,524
   Principal payments under line of credit                           -         (44,985)
   Borrowings under term loans                                   7,697               -
   Principal payments on term loans                             (1,044)           (636)
   Principal payments on capital lease obligations                (970)         (1,057)
   Proceeds from issuance of senior notes                       22,500               -
   Proceeds from issuance of common stock                        4,134           5,499
   Costs of debt and equity transactions                          (851)            (62)
   Payments on receivables from officers and employees             190              88
                                                              --------        --------
     Net cash provided by financing activities                  31,656          25,371
                                                              --------        --------

Effect of exchange rate changes                                     81               -
                                                              --------        --------

Net increase in cash and equivalents                            13,245             252

Cash and cash equivalents at beginning of period:
   Continuing operations                                         6,242             846
   Discontinued operations                                         234             695
                                                              --------        --------
     Total cash and equivalents at beginning of period           6,476           1,541
                                                              --------        --------

Cash and cash equivalents at end of period:
   Continuing operations                                        19,721           1,506
   Discontinued operations                                           -             287
                                                              --------        --------
     Total cash and equivalents at end of period              $ 19,721        $  1,793
                                                              ========        ========
</TABLE>
                                          The accompanying notes are an integral
                                          part of these  consolidated  financial
                                          statements.

                                  Page 7 of 27
<PAGE>
SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited), continued
(In thousands)
<TABLE>
<CAPTION>
                                                                    Nine Months Ended 
                                                                       September 30,
                                                                  ---------------------
                                                                    1996         1995
                                                                  --------     --------
<S>                                                               <C>          <C>     
Reconciliation of net income to net cash provided 
   by operating activities:
Net income                                                        $ 11,061     $  8,497
Adjustments to reconcile net income to net cash 
   provided by operating activities:
   Loss (income) from discontinued operations, net of tax              988         (401)
   Equity in earnings of affiliate                                      (3)           -
   Depreciation, depletion and amortization                         29,713       20,834
   Non-cash sales (Note F)                                               -       (1,404)
   Gain on sale of property and equipment                              (22)           -
   Amortization of deferred revenue                                 (2,925)           -
   Increase in receivables                                          (3,000)      (8,895)
   Decrease (increase) in other assets                                 378       (1,315)
   Proceeds from volumetric production payment                      19,000            -
   Increase in other liabilities                                     9,356        8,393
                                                                  --------     --------
     Total adjustments                                              53,485       17,212

Net cash provided by (used in) operating activities of:
   Continuing operations                                            64,546       25,709
   Discontinued operations                                          (3,491)        (492)
                                                                  --------     --------
                                                                  $ 61,055     $ 25,217
                                                                  ========     ========
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                  Page 8 of 27
<PAGE>
SEITEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)
September 30, 1996

NOTE A-BASIS OF PRESENTATION

         The accompanying  unaudited financial  statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions of Regulation S-X.  Accordingly,  they do
not include all of the  information  and notes  required by  generally  accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.  Certain reclassifications
have been  made to the  amounts  in the prior  year's  financial  statements  to
conform to the  current  year's  presentation.  Operating  results  for the nine
months ended  September 30, 1996 are not  necessarily  indicative of the results
that  may be  expected  for the year  ending  December  31,  1996.  For  further
information,  refer to the financial  statements  and notes thereto for the year
ended December 31, 1995.

NOTE B-EARNINGS PER SHARE

         Earnings  per  share  is  based  on  the  weighted  average  number  of
outstanding  shares of common stock  during the  respective  periods,  including
common  equivalent  shares  applicable to assumed  exercise of stock options and
warrants  when such common stock  equivalents  are  dilutive,  and the Company's
other potentially dilutive securities.

         For the  1996  periods,  there  were  no adjustments  to  net income to
determine  earnings  per share.  For the 1995  periods,  earnings  per share was
determined  by dividing net income,  as adjusted  below,  by  applicable  shares
outstanding (in thousands):
<TABLE>
<CAPTION>
                                                       Three Months     Nine Months 
                                                          Ended           Ended 
                                                       September 30,   September 30,
                                                           1995             1995
                                                         ---------       ---------
<S>                                                       <C>             <C>    
Net income as reported                                    $ 2,182         $ 8,497
Interest eliminated on assumed conversion of 9%
    convertible subordinated debentures                        24              72
                                                          -------         -------

Total income used for fully diluted earnings per share    $ 2,206         $ 8,569
                                                          =======         =======

Weighted average number of common and
    common equivalent shares                                9,940           9,853
                                                          =======         =======

Weighted average number of common shares-
    assuming full dilution                                 10,235          10,105
                                                          =======         =======
</TABLE>

NOTE C-DATA BANK

         Costs  incurred  in  the  creation  of  proprietary  seismic  data  are
capitalized.  Seismic data costs are  amortized for each seismic data program in
the proportion  that the program's  revenue for a period relates to management's
estimate of the program's  ultimate  revenue.  Since  inception,  management has
established guidelines regarding its annual charge for amortization. Under these
guidelines, 90% of the cost incurred in the creation of proprietary seismic data
is amortized within five years of inception for two-dimensional seismic data and


                                  Page 9 of 27
<PAGE>

within seven years of inception  for  three-dimensional  seismic  data,  and the
final 10% is amortized  on a  straight-line  basis over the next fifteen  years.
Costs of existing  seismic  data  libraries  purchased  by the Company are fully
amortized  within ten years from date of  purchase.  On a  periodic  basis,  the
carrying value of seismic data programs are compared to their  estimated  future
revenue  and, if  appropriate,  are reduced to their  estimated  net  realizable
value.

NOTE D-OIL AND GAS PROPERTIES

         The Company  accounts for its oil and gas  exploration  and  production
activities  using the full-cost  method of  accounting.  Under this method,  all
costs  associated with  acquisition,  exploration and development of oil and gas
reserves are capitalized, including directly related overhead costs and interest
costs  related  to its  unevaluated  properties  and  certain  properties  under
development  which are not currently being amortized.  For the nine months ended
September 30, 1996 and 1995,  general and  administrative  costs of $800,000 and
$628,000 respectively,  have been capitalized to oil and gas properties. For the
nine months ended September 30, 1996 and 1995,  interest costs of $1,074,000 and
$543,000, respectively, have been capitalized to oil and gas properties.

         In June 1996,  the  Company's  exploration  and  production  subsidiary
acquired an additional  28.5% working interest in certain oil and gas properties
for  approximately  $25.2 million in cash.  The Company  previously  owned a 19%
working  interest  in such  properties.  At the same time,  the  Company  sold a
volumetric  production payment for $19 million to certain limited  partnerships.
Under the terms of the production  payment  agreements,  the Company  conveyed a
real  property  interest  of  approximately  7.6  billion  cubic feet of certain
natural  gas and  approximately  360,000  barrels of other  hydrocarbons  to the
purchasers. The Company retains responsibility for its working interest share of
the cost of  operations.  The  proceeds  of the sale  were  applied  toward  the
acquisition  cost of the oil and gas properties.  The Company  accounted for the
proceeds received in the transaction as deferred revenue which will be amortized
into revenue and income as natural gas and other  hydrocarbons  are produced and
delivered during the term of the volumetric production payment agreements.

NOTE E--DISCONTINUED OPERATIONS

         On March 22, 1996, the Company's Board of Directors unanimously adopted
a plan of  disposal to  discontinue  the  Company's  gas  marketing  operations.
Accordingly,  the Company's consolidated financial statements as of December 31,
1995, were restated to reflect the discontinued operations.  Effective August 1,
1996, the Company  assigned  substantially  all of its contracts to purchase and
supply  natural gas to a retail  energy  marketer.  During the nine months ended
September 30, 1996, the Company  recorded an additional  loss from  discontinued
operations  of  $988,000,  which is net of an income tax  benefit  of  $580,000,
primarily due to changes in market prices to purchase gas supply. The net assets
of  discontinued  operations at September 30, 1996,  consist  primarily of trade
receivables  and income tax  benefits  offset by  accounts  payable  and accrued
liabilities.

NOTE F-SUPPLEMENTAL CASH FLOW INFORMATION

Significant non-cash investing and financing activities are as follows:

     1.   During  the first nine  months of 1996 and 1995,  the  Company  issued
          214,304 and 161,526 shares, respectively, of its common stock upon the
          conversion and exchange of $1,989,000 and $1,499,000 respectively,  of
          its 9% convertible subordinated  debentures.  In connection with these
          conversions  and  exchanges,  unamortized  bond issue  costs  totaling
          $109,000  and  $95,000  during the first nine months of 1996 and 1995,
          respectively, have been charged to additional paid-in-capital.

     2.   During the first  nine  months of 1996,  the  Company  issued  132,075
          shares of its common stock in exchange for a 50% equity  interest in a
          marine seismic company.

     3.   During the first nine  months of 1995,  the Company  licensed  seismic
          data valued at $1,404,000 in exchange for the purchase of seismic data
          for its library.

     4.   During the first nine months of 1995, the Company acquired $330,000 of
          property and equipment by incurring a directly related note payable.


                                 Page 10 of 27
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS
--------------------------------------------------------------------

RESULTS OF OPERATIONS
---------------------

         Total revenue  increased 70% and 37% during the third quarter and first
nine months of 1996,  respectively,  as compared to the third  quarter and first
nine months of 1995.  Revenue  primarily  consists of revenue generated from the
seismic business and oil and gas production.

         Seismic revenue increased from $16,002,000  during the third quarter of
1995 to  $24,090,000  during  the  third  quarter  of 1996  and  increased  from
$52,993,000 during the first nine months of 1995 to $65,390,000 during the first
nine months of 1996.  These increases are primarily  attributable to an increase
in demand  for  three-dimensional  seismic  data  resulting  in an  increase  in
proprietary  data  acquisition  performed  for  non-affiliated  parties  by  the
Company's crew subsidiary and licensing of data from the Company's data bank.

         Oil and gas revenue  increased from $1,871,000 during the third quarter
of 1995 to  $6,217,000  during  the third  quarter  of 1996 and  increased  from
$3,631,000 during the first nine months of 1995 to $12,363,000  during the first
nine months of 1996. These increases in oil and gas revenue are primarily due to
higher  production  resulting  from more wells being on line in the 1996 periods
(87 wells at  September  30,  1996) as compared to the 1995 periods (61 wells at
September  30, 1995),  and  increased  revenue  interest in certain  wells.  Net
production  of oil and gas increased  from 81,000  barrels and 542 million cubic
feet (mmcf) for the third quarter of 1995 to 129,000  barrels and 1,813 mmcf for
the third  quarter of 1996 and increased  from 165,000  barrels and 851 mmcf for
the first nine  months of 1995 to 261,000  barrels  and 3,310 mmcf for the first
nine months of 1996.  Additionally,  average oil prices increased from $13.06 to
$17.49  per barrel for the third  quarter  of 1995 and 1996,  respectively,  and
increased from $12.83 to $18.91 per barrel for the first nine months of 1995 and
1996, respectively. Average gas prices increased from $1.27 to $2.13 per mcf for
the third quarter of 1995 and 1996,  respectively,  and increased  from $1.39 to
$2.16 per mcf for the first nine months of 1995 and 1996, respectively.

         Depreciation,  depletion and  amortization  consists  primarily of data
bank  amortization.  Refer  to  Note  C  for  a  description  of  the  Company's
amortization policy. Data bank amortization increased from $5,149,000 during the
third  quarter  of 1995 to  $8,220,000  during  the  third  quarter  of 1996 and
increased from  $18,529,000 to $23,708,000 for the first nine months of 1995 and
1996, respectively. As a percentage of revenue from licensing seismic data, data
bank  amortization  was 44% and 47% for the  third  quarter  of 1995  and  1996,
respectively,  and 44% and 48% for the  first  nine  months  of 1995  and  1996,
respectively.  These  changes are primarily due to the mix of sales of 2D and 3D
data amortized at varying  percentages  based on each data program's current and
expected future revenue stream.

         Cost of sales consists of expenses  associated  with the acquisition of
seismic data for non-affiliated  parties,  seismic resale support services,  and
oil and gas  production.  The  increase  in cost of  sales  from  $3,966,000  to
$5,873,000  for the  third  quarter  of 1995 and  1996,  respectively,  and from
$8,753,000  to  $13,542,000  for  the  first  nine  months  of  1995  and  1996,
respectively, is due to the corresponding increase in revenues from these areas.
Revenues from these areas increased from $5,951,000,  to $12,511,000  during the
third quarter of 1995 and 1996, respectively,  and increased from $13,795,000 to
$27,547,000 during the first nine months of 1995 and 1996, respectively.

         The Company's selling,  general and  administrative  expenses increased
during the 1996 periods as compared to the 1995 periods primarily as a result of
variable  expenses related to the increased volume of business.  As a percentage
of total  revenue,  these  expenses  decreased from 23% for the third quarter of
1995 to 17% for the  third  quarter  of 1996,  and from 22% for the  first  nine
months of 1995 to 18% for the first nine  months of 1996.  These  decreases  are
primarily due to ongoing cost reduction programs.

                                 Page 11 of 27
<PAGE>
         The decrease in net interest  expense  during  the first nine months of
1996 as  compared  to the  first  nine  months  of 1995 is  primarily  due to an
increase in interest income earned on the investment of increased cash balances.

         On July 3, 1996, the Company  acquired a 50% equity  interest in Energy
Research  International  ("ERI"), a holding company which wholly owns two marine
seismic  companies,  Horizon  Exploration  Limited and Horizon Seismic Inc. This
investment  provides  the Company  with  greater  access to offshore  vessels to
better meet the demand for new marine  seismic data.  When ERI performs work for
Seitel,  the  intercompany  profits earned by ERI will be eliminated in order to
determine  Seitel's share of ERI's  earnings.  This  elimination of intercompany
profits will reduce Seitel's data bank costs which should ultimately result in a
higher  return on the seismic data.  During the third  quarter of 1996,  ERI was
acquiring  seismic  data in the Gulf of Mexico for the  Company's  seismic  data
subsidiary. Consequently, the profits earned by ERI on this work were eliminated
to determine the Company's  share of ERI's earnings for the third  quarter.  The
Company's  data bank costs were also  reduced by the amount of the  intercompany
profit. The Company's equity interest in the earnings of ERI since July 3, 1996,
was immaterial after elimination of all intercompany transactions.

         On March 22, 1996, the Company's Board of Directors unanimously adopted
a plan of  disposal to  discontinue  the  Company's  gas  marketing  operations.
Accordingly,  the Company's consolidated financial statements as of December 31,
1995, were restated to reflect the discontinued operations.  Effective August 1,
1996, the Company  assigned  substantially  all of its contracts to purchase and
supply  natural gas to a retail  energy  marketer.  During the nine months ended
September 30, 1996, the Company  recorded an additional  loss from  discontinued
operations  of  $988,000,  which is net of an income tax  benefit  of  $580,000,
primarily  due to changes in market  prices to purchase  gas  supply;  such loss
represents the final charge related to the discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         On December  28,  1995,  the Company  completed a private  placement of
three  series of  unsecured  Senior  Notes  totaling  $75  million.  The Company
contemporaneously  issued  its Series A Notes and  Series B Notes,  which  total
$52.5 million and bear interest at a fixed rate of 7.17%.  On April 9, 1996, the
Company  issued its Series C Notes,  which total $22.5 million and bear interest
at a fixed rate of 7.48%.  The Series A Notes mature on December  30, 2001,  and
require annual principal payments of $8.333 million beginning December 30, 1999.
The Series B and Series C Notes mature on December 30, 2002,  and require annual
principal payments of $10 million beginning  December 30, 1998.  Interest on all
series of the notes is payable  semi-annually  on June 30 and  December  30. The
Company  used the majority of the proceeds of the Series A and Series B Notes to
repay amounts outstanding under a $25 million revolving line of credit,  amounts
outstanding  under a wholly-owned  subsidiary's $75 million  reducing  revolving
line of credit,  and amounts owed to a seismic  contractor.  The proceeds of the
Series C Notes  are being  used  primarily  to fund  petroleum  exploration  and
development  activities  of its  wholly-owned  subsidiary  and for other working
capital or general corporate purposes.

         The  Company  filed a  registration  statement  on Form S-3 (the "Shelf
Registration  Statement") in June 1994 to offer from time to time in one or more
series (i) unsecured debt securities, which may be senior or subordinated,  (ii)
preferred  stock,  par value $0.01 per share,  and (iii) common stock, par value
$.01 per share,  or any  combination of the foregoing,  at an aggregate  initial
offering price not to exceed $75,000,000.  The Shelf Registration  Statement was
declared  effective by the Securities and Exchange  Commission on June 30, 1994.
In August 1994, the Company  completed a public offering of 1,061,200  shares of
its common  stock  priced at $32 per share  pursuant  to the Shelf  Registration
Statement. The net proceeds from the offering (after underwriting commission and
offering  expenses) totaled  $31,917,000.  After this sale of common stock at an
initial  aggregate  offering  price  of  $33,958,400,   the  Company  may  offer
additional  securities  in the future for up to an  aggregate  initial  offering
price of $41,041,600 pursuant to the Shelf Registration Statement.

         On July 22, 1996, the Company  entered into an agreement with The First
National Bank of Chicago for a $25,000,000  unsecured  revolving  line of credit
facility.  The facility bears interest at a rate  determined by the ratio of the


                                 Page 12 of 27
<PAGE>
Company's  debt to cash flow from  operations.  While the company has no amounts
outstanding  under the  facility  at this time,  pursuant to the  interest  rate
pricing structure,  $25,000,000  currently could be borrowed at LIBOR plus 3/4%,
the bank's prevailing prime rate, or the sum of the Federal Funds effective rate
for such day plus 1/2%. The facility matures on July 22, 1999.

         On July 9, 1996, a wholly-owned  subsidiary of the Company obtained two
term loans  aggregating  $7,264,000  for the purchase of land and marine seismic
equipment which secures the debt. The first term loan has a principal  amount of
$5,902,000,  is for a term of five years and bears  interest  at the rate of 8%.
Monthly principal and interest payments total $120,000.  The balance outstanding
on this loan at  November  11, 1996 was  $5,660,000.  The second term loan has a
principal amount of $1,362,000,  is for a term of three years and bears interest
at the rate of 8.06%. Monthly principal and interest payments on the second term
loan total  $43,000.  The balance  outstanding on this loan at November 11, 1996
was $1,294,000.

         Prior  to the  second  quarter  of  1996,  the  Company  and two of its
wholly-owned subsidiaries obtained four separate term loans totaling $5,449,000,
three of which have a three year term and one which has a five year term. Two of
the loans bear interest at the rate of 8.413%,  one at the rate of 7.61% and one
at the rate of  7.52%.  The  proceeds  were  used for the  purchase  of  certain
property and equipment  which secures the debt.  Monthly  principal and interest
payments total approximately  $121,000.  The balance outstanding on the loans at
November 11, 1996, was $2,410,000.

         During  1994  and  1995,  the  Company  and  one  of  its  wholly-owned
subsidiaries entered into three capital leases which relate to the purchase of a
3D seismic  recording system and a seismic data processing  center.  These lease
agreements are for terms of three to five years.  Monthly principal and interest
payments  total  approximately  $125,000.  The balance  outstanding  under these
capital lease obligations was $2,669,000 at November 11, 1996.

         From January 1, 1996 through  November 11, 1996,  the Company  received
$4,438,000  from the exercise of common stock purchase  warrants and options and
the Company's  401(k) stock  purchases.  In connection  with the exercises,  the
Company will also receive approximately $730,000 in tax savings.

         In February 1996, the Company called for the March 31, 1996  redemption
of  its 9%  convertible  subordinated  debentures,  thereby  eliminating  future
interest  and  sinking  fund  payments.  All  remaining  outstanding  debentures
converted to common stock.

         During the first nine months of 1996, cash from operations and proceeds
from its Senior  Notes,  the  exercise of common  stock  purchase  warrants  and
options,  and the volumetric  production  payment funded the third party seismic
data  creation  costs  borne  by the  Company  and oil and gas  exploration  and
development  costs,  as well as  taxes,  interest  expenses,  cost of sales  and
general and  administrative  expenses.  The Company  believes its revenues  from
operating  sources,  remaining  proceeds from its Senior Notes and proceeds from
the  exercise of warrants  and  options,  combined  with its  available  line of
credit,  should be sufficient to fund its capital  expenditures  for 1996, along
with expenditures for operating and general and administrative  expenses. To the
extent these  sources are not  sufficient to cover the  Company's  expenses,  it
would be  necessary  for the  Company to arrange for  additional  debt or equity
financing.  There  can be no  assurance  that  the  Company  would  be  able  to
accomplish any such debt or equity financing on terms satisfactory to it.

                                 Page 13 of 27
<PAGE>
                           PART II - OTHER INFORMATION


Item 1. Legal Proceedings.
-------------------------

There have been no material  developments in the legal  proceedings  reported in
Item 1. of the Company's 10-Q for the quarter ended June 30, 1996.

Items 2., 3., and 5.   Not applicable.
-------------------

Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------------

     The Company's  Annual  Meeting of  Stockholders  was held on July 25, 1996.
Matters voted upon at the Annual Meeting,  and the results of those votes are as
follows:

1.   The election of nine directors to serve until the 1996 Annual Meeting.

                                                                  No. of 
      Name                         No. of Votes For           Votes Withheld
     --------------------          ----------------           ---------------

      Herbert M. Pearlman             8,226,775                   242,294
      Paul A. Frame                   8,218,275                   250,794
      Horace A. Calvert               8,318,035                   151,034
      David S. Lawi                   8,226,325                   242,744
      Walter M. Craig, Jr.            8,222,925                   246,144
      William Lerner                  8,225,725                   243,344
      William L. Lurie                8,316,930                   152,139
      John E. Stieglitz               8,224,575                   244,494
      Debra D. Valice                 8,329,530                   139,539

2.   Approval of certain  amendments to the Seitel,  Inc. 1993  Incentive  Stock
     Option Plan.

     No. of Votes For      No. of Votes Against      No. of Votes Abstained
     ----------------      --------------------      ----------------------

        6,949,197                1,172,997                    98,717

3.   Approval of the Seitel, Inc. Non-Employee  Directors' Deferred Compensation
     Plan.

     No. of Votes For      No. of Votes Against      No. of Votes Abstained
     ----------------      --------------------      ----------------------

        7,548,536                  568,463                   103,912

4.   Approval  of the  appointment  of the  public  accounting  firm  of  Arthur
     Andersen  LLP  to  act  as  the  Company's   independent  Certified  Public
     Accountants for the year of 1996.

     No. of Votes For      No. of Votes Against      No. of Votes Abstained
     ----------------      --------------------      ----------------------

        8,372,205                   60,415                    36,449

                                 Page 14 of 27
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K.

(a)  10.1      First Amendment to Seitel,  Inc. Revolving Credit Agreement dated
               as of August 30, 1996 among the  Company  and The First  National
               Bank of Chicago

     10.2      Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan

(b)  Reports on Form 8-K

     The  Registrant  filed a Form 8-K on July 9, 1996, as amended by Form 8-K/A
     Amendment  No. 1 filed on August 16, 1996,  and Form 8-K/A  Amendment No. 2
     filed on September 6, 1996,  disclosing the  acquisition of certain oil and
     gas  properties  including (i)  Statements of Revenue and Direct  Operating
     Expenses for the acquired  properties  for the year ended December 31, 1995
     and for the six months  ended June 30, 1996 and 1995  (unaudited)  and (ii)
     Pro Forma Condensed Consolidated  Statements of Operations for Seitel, Inc.
     (unaudited)  for the year ended  December  31,  1995 and for the six months
     ended June 30, 1996.

                                 Page 15 of 27
<PAGE>

                                   SIGNATURES


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


                                               SEITEL, INC.





Dated:   November 12, 1996                     /s/ Paul A. Frame
                                               ---------------------------------
                                               Paul A. Frame
                                               President and 
                                               Chief Executive Officer





Dated:   November 12, 1996                     /s/ Debra D. Valice
                                               ---------------------------------
                                               Debra D. Valice
                                               Chief Financial Officer





Dated:   November 12, 1996                     /s/ Marcia H. Kendrick
                                               ---------------------------------
                                               Marcia H. Kendrick
                                               Chief Accounting Officer

                                 Page 16 of 27
<PAGE>

                               EXHIBIT INDEX                                Page

10.1      First Amendment to Seitel,  Inc.  Revolving Credit Agreement        18
          dated as of August  30,  1996 among 18 the  Company  and The
          First National Bank of Chicago

10.2      Seitel, Inc. Amended and Restated 1995 Warrant Reload Plan          23

                                 Page 17 of 27