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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2010

OR



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

Commission File Number: 001-10165





SEITEL, INC.

(Exact name of registrant as specified in its charter)







|                                                                    |  |                                     
|------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                            |  | 76-0025431                          
|(State or other jurisdiction of
incorporation or organization)      |  | (I.R.S. Employer Identification No.)
|                                                                    | 
|10811 S. Westview Circle Drive
Building C, Suite 100 Houston, Texas |  | 77043                               
|(Address of principal executive offices)                            |  | (Zip Code)                          

Registrants telephone number, including area code: (713) 881-8900





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

Indicate by check mark 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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 the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  | x |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

As of
November 8, 2010, there were 100 shares of the Companys common stock outstanding, par value $.001 per share.









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INDEX



|         |  |                       |  |                                                                                       |    |  |    | 
|-------- |  | --------------------- |  | ------------------------------------------------------------------------------------- | -- |  | -- | 
|         |  |                       |  | Page                                                                                  |   
|         |  |                      
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                       |    | 
|         |  |                       | 
|         |  | Item 1.               |  | Financial Statements                                                                  |    |  | 3  | 
|         |  |                       | 
|         |  |                       |  | Condensed Consolidated Balance Sheets (Unaudited)                                     |    |  | 3  | 
|         |  |                       | 
|         |  |                       |  | Condensed Consolidated Statements of Operations (Unaudited)                           |    |  | 4  | 
|         |  |                       | 
|         |  |                       |  | Condensed Consolidated Statements of Comprehensive Loss (Unaudited)                   |    |  | 6  | 
|         |  |                       | 
|         |  |                       |  | Condensed Consolidated Statement of Stockholders Equity (Deficit) (Unaudited)        |    |  | 7  | 
|         |  |                       | 
|         |  |                       |  | Condensed Consolidated Statements of Cash Flows (Unaudited)                           |    |  | 8  | 
|         |  |                       | 
|         |  |                       |  | Notes to Condensed Consolidated Interim Financial Statements (Unaudited)              |    |  | 9  | 
|         |  |                       | 
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |    |  | 25 | 
|         |  |                       | 
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                            |    |  | 33 | 
|         |  |                       | 
|         |  | Item 4T.              |  | Controls and Procedures                                                               |    |  | 33 | 
|         |  |                      
|PART II. |  | OTHER INFORMATION     |  |                                                                                       |    | 
|         |  |                       | 
|         |  | Item 1.               |  | Legal Proceedings                                                                     |    |  | 34 | 
|         |  |                       | 
|         |  | Item 1A.              |  | Risk Factors                                                                          |    |  | 34 | 
|         |  |                       | 
|         |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |    |  | 34 | 
|         |  |                       | 
|         |  | Item 3.               |  | Defaults Upon Senior Securities                                                       |    |  | 34 | 
|         |  |                       | 
|         |  | Item 5.               |  | Other Information                                                                     |    |  | 34 | 
|         |  |                       | 
|         |  | Item 6.               |  | Exhibits                                                                              |    |  | 34 | 
|         |  |                      
|         |  | Signatures            |  |                                                                                       | 35 | 



2



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PART I - FINANCIAL INFORMATION



|Item 1. | FINANCIAL STATEMENTS
|------- | --------------------

SEITEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                                                                                                                   |  |                   |          |   |                  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                   |  | (Unaudited)       |          |   |                  |  
|                                                                                                                                   |  | September 30,2010 |          |   | December 31,2009 |  
|ASSETS                                                                                                                             |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                          |  | $                 | 45,623   |   |                  | $ | 26,270   |  
|Receivables                                                                                                                        |  |                   |          |   |                  |   |          |  
|Trade, net of allowance for doubtful accounts of $2,651 and $1,108, respectively                                                   |  |                   | 44,450   |   |                  |   | 29,498   |  
|Notes and other                                                                                                                    |  |                   | 136      |   |                  |   | 286      |  
|Due from Seitel Holdings, Inc.                                                                                                     |  |                   | 156      |   |                  |   | 147      |  
|Net seismic data library, net of accumulated amortization of $564,324 and $446,037, respectively                                   |  |                   | 125,835  |   |                  |   | 200,389  |  
|Net property and equipment, net of accumulated depreciation and amortization of $9,025 and $7,290, respectively                    |  |                   | 5,593    |   |                  |   | 7,003    |  
|Investment in marketable securities                                                                                                |  |                   | 6,245    |   |                  |   | 3,173    |  
|Prepaid expenses, deferred charges and other                                                                                       |  |                   | 11,741   |   |                  |   | 13,426   |  
|Intangible assets, net of accumulated amortization of $21,898 and $17,276, respectively                                            |  |                   | 34,186   |   |                  |   | 38,440   |  
|Goodwill                                                                                                                           |  |                   | 204,617  |   |                  |   | 203,060  |  
|Deferred income taxes                                                                                                              |  |                   | 327      |   |                  |   | 327      |  
|                                                                                                                                   |  |                   |          |   |                  |   |          |  
|                                                                                                                                   |  |                  
|TOTAL ASSETS                                                                                                                       |  | $                 | 478,909  |   |                  | $ | 522,019  |  
|                                                                                                                                   |  |                   |          |   |                  |   |          |  
|                                                                                                                                   |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                     |  |                   |          |   |                  |   |          |  
|LIABILITIES                                                                                                                        |  |                   |          |   |                  |   |          |  
|Accounts payable and accrued liabilities                                                                                           |  | $                 | 34,859   |   |                  | $ | 37,077   |  
|Income taxes payable                                                                                                               |  |                   | 171      |   |                  |   | 9        |  
|Debt                                                                                                                               |  |                   |          |   |                  |   |          |  
|Senior Notes                                                                                                                       |  |                   | 402,081  |   |                  |   | 402,154  |  
|Notes payable                                                                                                                      |  |                   | 168      |   |                  |   | 208      |  
|Obligations under capital leases                                                                                                   |  |                   | 3,316    |   |                  |   | 3,370    |  
|Deferred revenue                                                                                                                   |  |                   | 42,388   |   |                  |   | 26,722   |  
|Deferred income taxes                                                                                                              |  |                   | 2,402    |   |                  |   | 6,118    |  
|                                                                                                                                   |  |                   |          |   |                  |   |          |  
|TOTAL LIABILITIES                                                                                                                  |  |                   | 485,385  |   |                  |   | 475,658  |  
|                                                                                                                                   |  |                   |          |   |                  |   |          |  
|                                                                                                                                   |  |                  
|COMMITMENTS AND CONTINGENCIES                                                                                                      |  |                   |          |   |                  |   |          |  
|                                                                                                                                   |  |                  
|STOCKHOLDERS EQUITY (DEFICIT)                                                                                                     |  |                   |          |   |                  |   |          |  
|Common stock, par value $.001 per share; 100 shares authorized, issued and outstanding at September 30, 2010 and
December 31, 2009 |  |                   |         |   |                  |   |         |  
|Additional paid-in capital                                                                                                         |  |                   | 277,060  |   |                  |   | 274,331  |  
|Retained deficit                                                                                                                   |  |                   | (308,729 | ) |                  |   | (247,984 | )
|Accumulated other comprehensive income                                                                                             |  |                   | 25,193   |   |                  |   | 20,014   |  
|                                                                                                                                   |  |                   |          |   |                  |   |          |  
|TOTAL STOCKHOLDERS EQUITY (DEFICIT)                                                                                               |  |                   | (6,476   | ) |                  |   | 46,361   |  
|                                                                                                                                   |  |                   |          |   |                  |   |          |  
|                                                                                                                                   |  |                  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                               |  | $                 | 478,909  |   |                  | $ | 522,019  |  
|                                                                                                                                   |  |                   |          |   |                  |   |          |  

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



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SEITEL,
INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands)



|                                    |  |                                 |         |   |      |   |         |  
|----------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                    |  | Three Months EndedSeptember 30, |        
|                                    |  | 2010                            |         |   | 2009 |  
|                                    |  |                                
|REVENUE                             |  | $                               | 46,140  |   |      | $ | 19,504  |  
|                                    |  |                                
|EXPENSES:                           |  |                                 |         |   |      |   |         |  
|Depreciation and amortization       |  |                                 | 45,021  |   |      |   | 33,436  |  
|Cost of sales                       |  |                                 | 10      |   |      |   | 131     |  
|Selling, general and administrative |  |                                 | 8,516   |   |      |   | 5,375   |  
|                                    |  |                                 |         |   |      |   |         |  
|                                    |  |                                 | 53,547  |   |      |   | 38,942  |  
|                                    |  |                                 |         |   |      |   |         |  
|                                    |  |                                
|LOSS FROM OPERATIONS                |  |                                 | (7,407  | ) |      |   | (19,438 | )
|                                    |  |                                
|Interest expense, net               |  |                                 | (10,194 | ) |      |   | (10,246 | )
|Foreign currency exchange gains     |  |                                 | 228     |   |      |   | 507     |  
|Other income                        |  |                                 | 55      |   |      |   |        |  
|                                    |  |                                 |         |   |      |   |         |  
|                                    |  |                                
|Loss before income taxes            |  |                                 | (17,318 | ) |      |   | (29,177 | )
|Benefit for income taxes            |  |                                 | (1,401  | ) |      |   | (1,208  | )
|                                    |  |                                 |         |   |      |   |         |  
|                                    |  |                                
|NET LOSS                            |  | $                               | (15,917 | ) |      | $ | (27,969 | )
|                                    |  |                                 |         |   |      |   |         |  

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



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SEITEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands)



|                                      |  |                                |         |   |      |   |         |  
|------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                      |  | Nine Months EndedSeptember 30, |        
|                                      |  | 2010                           |         |   | 2009 |  
|                                      |  |                               
|REVENUE                               |  | $                              | 111,478 |   |      | $ | 76,672  |  
|                                      |  |                               
|EXPENSES:                             |  |                                |         |   |      |   |         |  
|Depreciation and amortization         |  |                                | 121,788 |   |      |   | 108,682 |  
|Cost of sales                         |  |                                | 73      |   |      |   | 238     |  
|Selling, general and administrative   |  |                                | 23,414  |   |      |   | 20,059  |  
|                                      |  |                                |         |   |      |   |         |  
|                                      |  |                                | 145,275 |   |      |   | 128,979 |  
|                                      |  |                                |         |   |      |   |         |  
|                                      |  |                               
|LOSS FROM OPERATIONS                  |  |                                | (33,797 | ) |      |   | (52,307 | )
|                                      |  |                               
|Interest expense, net                 |  |                                | (30,520 | ) |      |   | (30,531 | )
|Foreign currency exchange gains       |  |                                | 120     |   |      |   | 873     |  
|Gain on sale of marketable securities |  |                                | 52      |   |      |   |        |  
|Other income                          |  |                                | 189     |   |      |   | 74      |  
|                                      |  |                                |         |   |      |   |         |  
|                                      |  |                               
|Loss before income taxes              |  |                                | (63,956 | ) |      |   | (81,891 | )
|Benefit for income taxes              |  |                                | (3,211  | ) |      |   | (3,391  | )
|                                      |  |                                |         |   |      |   |         |  
|                                      |  |                               
|NET LOSS                              |  | $                              | (60,745 | ) |      | $ | (78,500 | )
|                                      |  |                                |         |   |      |   |         |  

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



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SEITEL,
INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(Unaudited)

(In thousands)



|                                                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                          |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                          |  | 2010                            |         |   | 2009                           |   |         | 2010 |  |   | 2009    |  
|                                                                          |  |                                 |         |  
|Net loss                                                                  |  | $                               | (15,917 | ) |                                | $ | (27,969 | )    |  | $ | (60,745 | ) |  | $ | (78,500 | )
|                                                                          |  |                                 |         |  
|Unrealized gain on securities held as available for sale, net of tax:     |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Unrealized net holding gain arising during the period                     |  |                                 | 2,829   |   |                                |   | 268     |      |  |   | 3,124   |   |  |   | 876     |  
|Less: Reclassification adjustment for realized gains included in earnings |  |                                 |        |   |                                |   |        |      |  |   | (52     | ) |  |   |        |  
|                                                                          |  |                                 |         |  
|Foreign currency translation adjustments                                  |  |                                 | 3,925   |   |                                |   | 11,924  |      |  |   | 2,107   |   |  |   | 18,829  |  
|                                                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|                                                                          |  |                                 |         |  
|Comprehensive loss                                                        |  | $                               | (9,163  | ) |                                | $ | (15,777 | )    |  | $ | (55,566 | ) |  | $ | (58,795 | )
|                                                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  

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



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SEITEL,
INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT) (Unaudited)

(In thousands, except share amounts)



|                                                                                                         |  |              |     |  |        |   |   |                          |  |   |                 |  |  |                                     |          |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | ------------ | --- |  | ------ | - | - | ------------------------ |  | - | --------------- |  |  | ----------------------------------- | -------- | - |  | - | ------ | -
|                                                                                                         |  |              |     |  |        |   |   | AdditionalPaid-InCapital |  |   | RetainedDeficit |  |  | AccumulatedOtherComprehensiveIncome |         
|                                                                                                         |  |              |     |  |        |  
|                                                                                                         |  | Common Stock |     |  |        |  
|                                                                                                         |  | Shares       |     |  | Amount |   |   |                          | 
|                                                                                                         |  |              |     |  |       
|Balance, December 31, 2009                                                                               |  |              | 100 |  |        | $ |  |                          |  | $ | 274,331         |  |  | $                                   | (247,984 | ) |  | $ | 20,014 |  
|Amortization of stock-based compensation costs                                                           |  |              |    |  |        |   |  |                          |  |   | 2,729           |  |  |                                     |         |   |  |   |       |  
|Net loss                                                                                                 |  |              |    |  |        |   |  |                          |  |   |                |  |  |                                     | (60,745  | ) |  |   |       |  
|Foreign currency translation adjustments                                                                 |  |              |    |  |        |   |  |                          |  |   |                |  |  |                                     |         |   |  |   | 2,107  |  
|Unrealized gain on marketable securities, net of tax                                                     |  |              |    |  |        |   |  |                          |  |   |                |  |  |                                     |         |   |  |   | 3,124  |  
|Reclassification adjustment for realized gains on marketable securities included in earnings, net of tax |  |              |    |  |        |   |  |                          |  |   |                |  |  |                                     |         |   |  |   | (52    | )
|                                                                                                         |  |              |     |  |        |   |   |                          |  |   |                 |  |  |                                     |          |   |  |   |        |  
|Balance, September 30, 2010                                                                              |  |              | 100 |  |        | $ |  |                          |  | $ | 277,060         |  |  | $                                   | (308,729 | ) |  | $ | 25,193 |  
|                                                                                                         |  |              |     |  |        |   |   |                          |  |   |                 |  |  |                                     |          |   |  |   |        |  

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



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SEITEL,
INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)



|                                                                         |  |                                |         |   |      |   |         |  
|------------------------------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                         |  | Nine Months EndedSeptember 30, |        
|                                                                         |  | 2010                           |         |   | 2009 |  
|Cash flows from operating activities:                                    |  |                                |         |   |      |   |         |  
|                                                                         |  |                               
|Reconciliation of net loss to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Net loss                                                                 |  | $                              | (60,745 | ) |      | $ | (78,500 | )
|Depreciation and amortization                                            |  |                                | 121,788 |   |      |   | 108,682 |  
|Deferred income tax benefit                                              |  |                                | (3,485  | ) |      |   | (3,760  | )
|Amortization of deferred financing costs                                 |  |                                | 1,297   |   |      |   | 1,424   |  
|Amortization of debt premium                                             |  |                                | (73     | ) |      |   | (69     | )
|Amortization of stock-based compensation                                 |  |                                | 2,729   |   |      |   | 3,110   |  
|Amortization of favorable facility lease                                 |  |                                | 206     |   |      |   | 185     |  
|Allowance for collection of trade receivables                            |  |                                | 1,524   |   |      |   | 316     |  
|Non-cash revenue                                                         |  |                                | (6,734  | ) |      |   | (6,525  | )
|Gain on sale of marketable securities                                    |  |                                | (52     | ) |      |   |        |  
|Loss (gain) on sale of subsidiary                                        |  |                                | (42     | ) |      |   | 19      |  
|Decrease (increase) in receivables                                       |  |                                | (17,794 | ) |      |   | 32,868  |  
|Decrease (increase) in other assets                                      |  |                                | (24     | ) |      |   | 1,222   |  
|Increase (decrease) in deferred revenue                                  |  |                                | 16,140  |   |      |   | (22,305 | )
|Decrease in accounts payable and other liabilities                       |  |                                | (5,093  | ) |      |   | (16,652 | )
|                                                                         |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                |  |                                | 49,642  |   |      |   | 20,015  |  
|                                                                         |  |                                |         |   |      |   |         |  
|                                                                         |  |                               
|Cash flows from investing activities:                                    |  |                                |         |   |      |   |         |  
|Cash invested in seismic data                                            |  |                                | (30,042 | ) |      |   | (50,387 | )
|Cash paid to acquire property, equipment and other                       |  |                                | (198    | ) |      |   | (305    | )
|Net proceeds from sale of marketable securities                          |  |                                | 52      |   |      |   |        |  
|Advances to Seitel Holdings, Inc.                                        |  |                                | (9      | ) |      |   | (9      | )
|Cash transferred upon sale of subsidiary                                 |  |                                |        |   |      |   | (22     | )
|Cash from disposal of property and equipment                             |  |                                |        |   |      |   | 14      |  
|                                                                         |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                    |  |                                | (30,197 | ) |      |   | (50,709 | )
|                                                                         |  |                                |         |   |      |   |         |  
|                                                                         |  |                               
|Cash flows from financing activities:                                    |  |                                |         |   |      |   |         |  
|Principal payments on notes payable                                      |  |                                | (40     | ) |      |   | (36     | )
|Principal payments on capital lease obligations                          |  |                                | (108    | ) |      |   | (90     | )
|Borrowings on line of credit                                             |  |                                | 10      |   |      |   | 196     |  
|Payments on line of credit                                               |  |                                | (10     | ) |      |   | (196    | )
|Payment of debt issue costs                                              |  |                                | (65     | ) |      |   |        |  
|                                                                         |  |                                |         |   |      |   |         |  
|Net cash used in financing activities                                    |  |                                | (213    | ) |      |   | (126    | )
|                                                                         |  |                                |         |   |      |   |         |  
|                                                                         |  |                               
|Effect of exchange rate changes                                          |  |                                | 121     |   |      |   | (892    | )
|                                                                         |  |                                |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                     |  |                                | 19,353  |   |      |   | (31,712 | )
|Cash and cash equivalents at beginning of period                         |  |                                | 26,270  |   |      |   | 42,678  |  
|                                                                         |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                               |  | $                              | 45,623  |   |      | $ | 10,966  |  
|                                                                         |  |                                |         |   |      |   |         |  
|                                                                         |  |                               
|Supplemental disclosure of cash flow information:                        |  |                                |         |   |      |   |         |  
|Cash paid during the period for:                                         |  |                                |         |   |      |   |         |  
|Interest                                                                 |  | $                              | 39,381  |   |      | $ | 39,363  |  
|Income taxes                                                             |  |                                | 15      |   |      |   | 262     |  
|                                                                         |  |                               
|Supplemental schedule of non-cash investing activities:                  |  |                                |         |   |      |   |         |  
|Additions to seismic data library                                        |  | $                              | 7,890   |   |      | $ | 1,443   |  

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



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SEITEL,
INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)

September 30, 2010

NOTE A-BASIS
OF PRESENTATION

The accompanying condensed consolidated financial statements of Seitel, Inc. and its subsidiaries (the
Company) 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have
been included. In preparing the Companys financial statements, a number of estimates and assumptions are made by management that affect the accounting for and recognition of assets, liabilities, revenues and expenses. Operating results for the
three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The condensed consolidated balance sheet of the Company as of December 31, 2009
has been derived from the audited balance sheet of the Company as of that date. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2009.

NOTE B-REVENUE RECOGNITION

Revenue from Data Acquisition

The Company generates revenue when it creates a new
seismic survey that is initially licensed by one or more of its customers to use the resulting data. The initial licenses often provide the customer with a limited exclusivity period, which lasts for a relatively short period of time after final
delivery of the processed data. The payments for the initial exclusive licenses are sometimes referred to as underwriting or prefunding. Customers make periodic payments throughout the creation period, which generally correspond to costs incurred
and work performed. These payments are non-refundable. The Company considers the contracts signed up to the time the Company makes a firm commitment to create the new seismic survey as underwriting. Any subsequent licensing of the data while it is
in progress is considered a resale license (see Revenue from Non-Exclusive Data Licenses).

Underwriting revenue is recognized
throughout the creation period using the proportional performance method based upon costs incurred and work performed to date as a percentage of total estimated costs and work required. Management believes that this method is the most reliable and
representative measure of progress for its data creation projects. The duration of most data creation projects is generally less than one year. Under these contracts, the Company creates new seismic data designed in conjunction with its customers
and specifically suited to the geology of the area using the most appropriate technology available.

The Company outsources the substantial
majority of the work required to complete data acquisition projects to third party contractors. The Companys payments to these third party contractors comprise the substantial majority of the total estimated costs of the project and are paid
throughout the creation period. A typical survey includes specific activities required to complete the survey, each of which has value to the customers. Typical activities, that often occur concurrently, include:



| |  |  | permitting for land access, mineral rights, and regulatory approval;
| | - |  | --------------------------------------------------------------------



| |  |  | surveying;
| | - |  | ----------



| |  |  | drilling for the placement of energy sources;
| | - |  | ---------------------------------------------



| |  |  | recording the data in the field; and
| | - |  | ------------------------------------



| |  |  | processing the data.
| | - |  | --------------------

The
customers paying for the initial exclusive licenses receive legally enforceable rights to any resulting product of each activity described above. The customers also receive access to and use of the newly acquired, processed data.

The customers access to and use of the results of the work performed and of the newly acquired, processed data is governed by a license agreement,
which is a separate agreement from the acquisition contract. The Companys acquisition contracts require the customer either to have a license agreement in place or to execute one at the time the acquisition contract is signed. The Company
maintains sole ownership of the newly acquired data, which is added to its library, and is free to license the data to other customers when the original customers exclusivity period ends.



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Revenue from Non-Exclusive Data
Licenses

The Company recognizes a substantial portion of its revenue from data licenses sold after any exclusive license period. These
are sometimes referred to as resale licensing revenue, post acquisition license sales or shelf sales.

These sales fall under the following
four basic forms of non-exclusive license contracts.



| |  |  | Specific license contract - The customer licenses and selects data from the data library, including data currently in progress, at the time the
contract is entered into and holds this license for a long-term period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Library card license contract - The customer initially receives only access to data. The customer may then select specific data, from the collection of
data to which it has access, to hold long-term under its license agreement. The length of the selection periods under the library card contracts is limited in time and varies from customer to customer.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Review and possession license contract - The customer obtains the right to review a certain quantity of data for a limited period of time. During the
review period, the customer may select specific data from that available for review to hold long-term under its license agreement. Any data not selected for long-term licensing must be returned to the Company at the end of the review period.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Review only license contract - The customer obtains rights to review a certain quantity of data for a limited period of time, but does not obtain the
right to select specific data to hold long-term.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys non-exclusive license contracts specify the following:



| |  |  | that all customers must also execute a master license agreement that governs the use of all data received under the Companys non-exclusive
license contracts;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the specific payment terms, generally ranging from 30 days to 12 months, and that such payments are non-cancelable and non-refundable;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the actual data that is accessible to the customer; and
| | - |  | -------------------------------------------------------



| |  |  | that the data is licensed in its present form, where is and as is and the Company is under no obligation to make any enhancements, modifications or
additions to the data unless specific terms to the contrary are included.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue from the non-exclusive licensing of
seismic data is recognized when the following criteria are met:



| |  |  | the Company has an arrangement with the customer that is validated by a signed contract;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the sales price is fixed and determinable;
| | - |  | ------------------------------------------



| |  |  | collection is reasonably assured;
| | - |  | ---------------------------------



| |  |  | the customer has selected the specific data or the contract has expired without full selection;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the data is currently available for delivery; and
| | - |  | -------------------------------------------------



| |  |  | the license term has begun.
| | - |  | ---------------------------

Copies of the data are available to the customer immediately upon request.

For licenses that have been invoiced for which payment is due or has been received, but have not met the aforementioned criteria, the revenue is deferred along with the related direct costs (primarily
sales commissions). This normally occurs under the library card, review and possession or review only license contracts because the data selection may occur over time. Additionally, if the contract allows licensing of data that is not currently
available or enhancements, modifications or additions to the data are required per the contract, revenue is deferred until such time that the data is available.



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Revenue from Non-Monetary
Exchanges

In certain cases, the Company will take ownership of a customers seismic data or revenue interest (collectively
referred to as data) in exchange for a non-exclusive license to selected seismic data from the Companys library. In connection with specific data acquisition contracts, the Company may choose to receive both cash and ownership of
seismic data from the customer as consideration for the underwriting of new data acquisition. In addition, the Company may receive advanced data processing services on selected existing data in exchange for a non-exclusive license to selected data
from the Companys library. These exchanges are referred to as non-monetary exchanges. A non-monetary exchange for data always complies with the following criteria:



| |  |  | the data license delivered is always distinct from the data received;
| | - |  | ---------------------------------------------------------------------



| |  |  | the customer forfeits ownership of its data; and
| | - |  | ------------------------------------------------



| |  |  | the Company retains ownership in its data.
| | - |  | ------------------------------------------

In non-monetary exchange transactions, the Company records a data library asset for the seismic data received or processed at the time the contract is entered into or the data is completed, as applicable,
and recognizes revenue on the transaction in equal value in accordance with its policy on revenue from data licenses, which is, when the data is selected by the customer, or revenue from data acquisition, as applicable. The data license to the
customer is in the form of one of the four basic forms of contracts discussed above. These transactions are valued at the fair value of the data received or delivered, whichever is more readily determinable.

Fair value of the data exchanged is determined using a multi-step process as follows:



| |  |  | First, the Company considers the value of the data or services received from the customer. In determining the value of the data received, the Company
considers the age, quality, current demand and future marketability of the data and, in the case of 3D seismic data, the cost that would be required to create the data. In addition, the Company applies a limitation on the value it assigns per square
mile on the data received. In determining the value of the services received, the Company considers the cost of such similar services that it could obtain from a third party provider.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Second, the Company determines the value of the license granted to the customer. Typically, the range of cash transactions by the Company for licenses
of similar data during the prior six months is evaluated. In evaluating the range of cash transactions, the Company does not consider transactions that are disproportionately high or low.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Third, the Company obtains concurrence from an independent third party on the portfolio of all non-monetary exchanges for data of $750,000 or more in
order to support the Companys valuation of the data received. The Company obtains this concurrence on an annual basis, usually in connection with the preparation of its annual financial statements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to the Companys revenue recognition policies, revenue recognized on non-monetary exchange transactions may not occur at the same time the
seismic data acquired is recorded as an asset. The activity related to non-monetary exchanges was as follows (in thousands):



|                                                                    |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|------------------------------------------------------------------- |  | ------------------------------- | ----- |  | ------------------------------ | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                                                    |  | Three Months EndedSeptember 30, |       |  | Nine Months EndedSeptember 30, |  
|                                                                    |  | 2010                            |       |  | 2009                           |   |       | 2010 |  |   | 2009  | 
|                                                                    |  |                                 |       | 
|Seismic data library additions                                      |  | $                               | 1,937 |  |                                | $ | 834   |      |  | $ | 7,890 |  |  | $ | 1,443 | 
|                                                                    |  |                                 |       | 
|Revenue recognized on specific data licenses and selections of data |  |                                 | 648   |  |                                |   | 1,435 |      |  |   | 5,613 |  |  |   | 3,687 | 
|                                                                    |  |                                 |       | 
|Revenue recognized related to acquisition contracts                 |  |                                 | 310   |  |                                |   | 365   |      |  |   | 1,121 |  |  |   | 2,838 | 

Revenue from Seitel Solutions

Revenue from Seitel Solutions (Solutions) is recognized as the services for reproduction and delivery of seismic data are
provided to customers.



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NOTE C-SEISMIC DATA LIBRARY

The Companys seismic data library consists of seismic surveys that are offered for license to customers on a non-exclusive basis.
Costs associated with creating, acquiring or purchasing the seismic data library are capitalized and amortized principally on the income forecast method subject to a straight-line amortization period of four years, applied on a quarterly basis at
the individual survey level.

Costs of Seismic Data Library

For purchased seismic data, the Company capitalizes the purchase price of the acquired data.

For
data received through a non-monetary exchange, the Company capitalizes an amount equal to the fair value of the data received by the Company or the fair value of the license granted to the customer, whichever is more readily determinable. See Note B
 Revenue Recognition  Revenue from Non-Monetary Exchanges for discussion of the process used to determine fair value.

For newly
created data, the capitalized costs include costs paid to third parties for the acquisition of data and related permitting, surveying and other activities associated with the data creation activity. In addition, the Company capitalizes certain
internal costs related to processing the created data. Such costs include salaries and benefits of the Companys processing personnel and certain other costs incurred for the benefit of the processing activity. The Company believes that the
internal processing costs capitalized are not greater than, and generally are less than, those that would be incurred and capitalized if such activity were performed by a third party. Capitalized costs for internal data processing were $418,000 and
$281,000 for the three months ended September 30, 2010 and 2009, respectively, and $1,228,000 and $1,156,000 for the nine months ended September 30, 2010 and 2009, respectively.

Data Library Amortization

The Company amortizes its seismic data library investment
using the greater of the amortization that would result from the application of the income forecast method subject to a minimum amortization rate or a straight-line basis over the useful life of the data. With respect to each survey in the data
library, the straight-line policy is applied from the time such survey is available for licensing to customers on a non-exclusive basis, since some data in the library may not be licensed until an exclusivity period has lapsed.

The Company applies the income forecast method by forecasting the ultimate revenue expected to be derived from a particular data library component over
the estimated useful life of each survey comprising part of such component. This forecast is made by the Company annually and reviewed quarterly. If, during any such review, the Company determines that the ultimate revenue for a library component is
expected to be significantly different than the original estimate of total revenue for such library component, the Company revises the amortization rate attributable to future revenue from each survey in such component. The lowest amortization rate
the Company applies using the income forecast method is 70%. In addition, in connection with the forecast reviews and updates, the Company evaluates the recoverability of its seismic data library investment, and if required, records an impairment
charge with respect to such investment. See discussion on Seismic Data Library Impairment below.

The actual aggregate rate
of amortization depends on the specific seismic surveys licensed and selected by the Companys customers during the period and the amount of straight-line amortization recorded. The income forecast amortization rates can vary by component and,
as of October 1, 2010, is 70% for all components. For those seismic surveys which have been fully amortized, no amortization expense is required on revenue recorded.

The greater of the income forecast or straight-line amortization policy is applied quarterly on a cumulative basis at the individual survey level. Under this policy, the Company first records amortization
using the income forecast method. The cumulative amortization recorded for each survey is then compared with the cumulative straight-line amortization. If the cumulative straight-line amortization is higher for any specific survey, additional
amortization expense is recorded, resulting in accumulated amortization being equal to the cumulative straight-line amortization for such survey. This requirement is applied regardless of future-year revenue estimates for the library component of
which the survey is a part and does not consider the existence of deferred revenue with respect to the library component or to any survey.



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Seismic Data Library Impairment

The Company evaluates its seismic data library investment by grouping individual surveys into components based on its operations and
geological and geographical trends, resulting in the following data library segments for purposes of evaluating impairments: (I) North America 3D onshore comprised of the following components: (a) Texas Gulf Coast, (b) Northern,
Eastern and Western Texas, (c) Haynesville Shale, (d) Southern Louisiana/Mississippi, (e) Northern Louisiana, (f) Rocky Mountains, (g) North Dakota, (h) other United States, (i) Canada and (j) U.S. value-added
products; (II) United States 2D; (III) Canada 2D; (IV) Gulf of Mexico offshore; and (V) international data outside North America. The Company believes that these library components constitute the lowest levels of independently identifiable cash
flows.

The Company evaluates its seismic data library investment for impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. The Company considers the level of sales performance in each component compared to projected sales, as well as industry conditions, among others, to be key factors in determining when its seismic data
investment should be evaluated for impairment. In evaluating sales performance of each component, the Company generally considers five consecutive quarters of actual performance below forecasted sales to be an indicator of potential impairment.

The impairment evaluation is based first on a comparison of the undiscounted future cash flows over each components remaining estimated
useful life with the carrying value of each library component. If the undiscounted cash flows are equal to or greater than the carrying value of such component, no impairment is recorded. If undiscounted cash flows are less than the carrying value
of any component, the forecast of future cash flows related to such component is discounted to fair value and compared with such components carrying amount. The difference between the library components carrying amount and the discounted
future value of the expected revenue stream is recorded as an impairment charge.

For purposes of evaluating potential impairment losses, the
Company estimates the future cash flows attributable to a library component by evaluating, among other factors, historical and recent revenue trends, oil and gas prospectivity in particular regions, general economic conditions affecting its customer
base and expected changes in technology and other factors that the Company deems relevant. The cash flow estimates exclude expected future revenues attributable to non-monetary data exchanges and future data creation projects.

The estimation of future cash flows and fair value is highly subjective and inherently imprecise. Estimates can change materially from period to period
based on many factors, including those described in the preceding paragraph. Accordingly, if conditions change in the future, the Company may record impairment losses relative to its seismic data library investment, which could be material to any
particular reporting period.

The Company did not have any impairment charges during the nine months ended September 30, 2010 or 2009.

NOTE D-DEBT

The following
is a summary of the Companys debt (in thousands):



|                                 |  |                   |         |  |                  |   |         | 
|-------------------------------- |  | ----------------- | ------- |  | ---------------- | - | ------- | 
|                                 |  | September 30,2010 |         |  | December 31,2009 |  
|                                 |  |                  
|9.75% Senior Notes               |  | $                 | 400,000 |  |                  | $ | 400,000 | 
|11.75% Senior Notes              |  |                   | 2,000   |  |                  |   | 2,000   | 
|U.S. Credit Facility             |  |                   |        |  |                  |   |        | 
|Canadian Credit Facility         |  |                   |        |  |                  |   |        | 
|Note payable to former executive |  |                   | 168     |  |                  |   | 208     | 
|                                 |  |                   |         |  |                  |   |         | 
|                                 |  |                   | 402,168 |  |                  |   | 402,208 | 
|Plus: Premium on debt            |  |                   | 81      |  |                  |   | 154     | 
|                                 |  |                   |         |  |                  |   |         | 
|                                 |  | $                 | 402,249 |  |                  | $ | 402,362 | 
|                                 |  |                   |         |  |                  |   |         | 

9.75% Senior Unsecured Notes:On February 14, 2007, the Company issued, in a private placement, $400.0 million
aggregate principal amount of 9.75% senior notes due 2014 (the 9.75% Senior Notes). The proceeds from the 9.75% Senior Notes were used to partially fund the transactions in connection with the February 14, 2007 merger of Seitel
Acquisition Corp. with and into the Company pursuant to a merger agreement between the



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Company and Seitel Acquisition Corp. and Seitel Holdings, Inc. dated October 31, 2006 (the Merger). As required by their terms, the 9.75% Senior Notes were exchanged for senior
notes of like amounts and terms in a publicly registered exchange offer in August 2007. These notes mature on February 15, 2014. Interest is payable in cash, semi-annually in arrears on February 15 and August 15. The 9.75% Senior
Notes are unsecured and are guaranteed by substantially all of the Companys domestic subsidiaries on a senior basis. The 9.75% Senior Notes contain restrictive covenants which limit the Companys ability to, among other things, incur
additional indebtedness, pay dividends and complete mergers, acquisitions and sales of assets.

Upon a change of control (as defined in the
indenture governing the 9.75% Senior Notes), each holder of the 9.75% Senior Notes will have the right to require the Company to offer to purchase all of such holders notes at a price equal to 101% of the principal amount, plus accrued and
unpaid interest.

11.75% Unsecured Senior Notes:On July 2, 2004, the Company issued, in a private placement, $193.0 million
aggregate principal amount of 11.75% senior notes due 2011 (the 11.75% Senior Notes). As required by their terms, the 11.75% Senior Notes were exchanged for senior notes of like amounts and terms in a publicly registered exchange offer
in February 2005. In connection with an excess cash flow offer in March 2005, $4.0 million aggregate principal amount of these notes was tendered and accepted. In connection with the Merger and related transactions, $187.0 million aggregate
principal amount of these notes was tendered and accepted on February 14, 2007. The fair value of these notes was higher than the face value on the date of the Merger; consequently, a premium has been reflected in the financial statements
related to these notes. Interest on the remaining notes is payable semi-annually in arrears on January 15 and July 15. The remaining $2.0 million of notes mature on July 15, 2011. The 11.75% Senior Notes are unsecured and are
guaranteed by substantially all of the Companys U.S. subsidiaries on a senior basis.

As a result of the tender and consent offer,
effective February 14, 2007, the 11.75% Senior Notes no longer contain any restrictive covenants, other than the requirement to make excess cash flow offers. Subject to certain conditions, if at the end of each fiscal year the Company has
excess cash flow (as defined in the indenture governing the 11.75% Senior Notes) in excess of $5.0 million, the Company is required to use 50% of the excess cash flow to fund an offer to repurchase the 11.75% Senior Notes on a pro rata basis at 100%
of its principal amount, plus accrued and unpaid interest. If the Company has less than $5.0 million in excess cash flow at the end of any fiscal year, such excess cash flow will be carried forward to succeeding years, and such repurchase offer is
required to be made in the first year in which the cumulative excess cash flow for all years in which there has not been an offer is at least $5.0 million. Such repurchase offer is required only if there is no event of default under the
Companys revolving credit facilities prior to and after giving effect to the repurchase payment. The Company was not required to make an excess cash flow offer for the year ended December 31, 2009. Upon a change of control (as defined in
the indenture), each holder of the 11.75% Senior Notes will have the right to require the Company to offer to purchase all of such holders notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest.

U.S. Credit Facility:On December 22, 2009, the Company entered into a secured credit agreement with ValueAct Capital Management, L.P., as
initial lender, and ValueAct Capital Management, L.P., as administrative agent (the U.S. Credit Facility). The U.S. Credit Facility provides the Company with the ability to borrow up to $9.9 million. Borrowings under the U.S. Credit
Facility may be made from the date of the agreement until December 31, 2010, and may be prepaid. In certain circumstances defined in the agreement, mandatory prepayments are required, including the requirement to use 50% of the Companys
annual excess cash flow, as defined in the agreement, to prepay any amounts outstanding beginning with the fiscal year ending December 31, 2011. Prepaid amounts may not be reborrowed. Loans made under the U.S. Credit Facility bear interest at
an annual rate equal to 4% plus the greater of: (a) the prime lending rate as publicly announced from time to time by First Republic Bank, N.A.; (b) the federal funds effective rate in effect, plus 0.5%; and (c) 7%. All obligations
under the U.S. Credit Facility are unconditionally guaranteed by each of the Companys domestic subsidiaries, subject to customary exceptions, exclusions and release mechanisms. The maturity date of the U.S. Credit Facility is December 22,
2014. The U.S. Credit Facility contains a financial covenant requiring the Company to achieve and maintain a minimum level of cash EBITDA (as defined in the credit agreement governing the U.S. Credit Facility), and restricts, among other things, the
ability to incur additional indebtedness and complete mergers, acquisitions and sales of assets. The U.S. Credit Facility requires the payment of an unused line fee of 0.5% per annum, payable in arrears, from the date of the agreement until
December 31, 2010.

Canadian Credit Facility:The Companys wholly owned subsidiary, Olympic Seismic Ltd.
(Olympic) has a revolving credit facility (the Canadian Credit Facility) which allows it to borrow up to $5.0 million (Canadian) subject to an availability formula by way of prime-based loans or letters of credit. The
interest rate applicable to



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borrowings is the banks prime rate plus 0.75% per annum. Letter of credit fees are based on scheduled rates in effect at the time of issuance. The Canadian Credit Facility is secured
by the assets of Olympic, but is not guaranteed by the Company or any of its other U.S. subsidiaries. Available borrowings under the Canadian Credit Facility are equivalent to a maximum of $5.0 million (Canadian), subject to a requirement that such
borrowings may not exceed 75% of good accounts receivable (as defined in the credit agreement governing the Canadian Credit Facility) of Olympic, less prior-ranking claims, if any, relating to inventory or accounts. The Canadian Credit Facility is
subject to repayment upon demand and is available from time to time at the banks sole discretion.

Note Payable to Former Executive:In connection with the settlement of certain litigation, the Company entered into a note payable to a former executive with remaining payments of $6,000 per month until May 2013. The note is non-interest bearing. The note is guaranteed by
Olympic.

NOTE E-STOCK-BASED COMPENSATION

The Company has plans in place which provide for the grant of stock options, restricted stock and restricted stock unit awards to eligible employees and directors. These stock-based awards are for the
issuance of common shares in Seitel Holdings, Inc., the Companys parent.

On May 3, 2010, the Company modified all of its
outstanding stock options to reduce the exercise price of the options to $193.13. The vesting conditions and the expiration dates were not changed from the original grant of each option. The modification affected 16 employees and 2 directors who had
a total of 86,135 options outstanding as of the modification date. The incremental compensation cost as a result of the modified exercise price was $1.3 million, of which $0.9 million was expensed immediately for vested options at the date of
modification. The remaining $0.4 million incremental cost along with the remaining unrecognized compensation cost prior to the modification is being recognized using the graded vesting attribution method over the remaining vesting periods of the
stock options. In addition, on May 3, 2010, the Company cancelled options totaling 5,250 with unamortized compensation costs of $0.3 million that was expensed immediately upon cancellation. On the same date, the Company granted 5,250 new
options with a fair value of $0.2 million.

NOTE F-FAIR VALUE MEASUREMENTS

Authoritative guidance on fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In measuring the fair value of the Companys assets and liabilities,
market data or assumptions are used that the Company believes market participants would use in pricing an asset or liability, including assumptions about risk when appropriate. The Companys assets that are measured at fair value on a recurring
basis include the following (in thousands):



|                                                         |  |       |        |  |                                        |   |        |                                            |  |   |                             |  |  |   |   | 
|-------------------------------------------------------- |  | ----- | ------ |  | -------------------------------------- | - | ------ | ------------------------------------------ |  | - | --------------------------- |  |  | - | - | 
|                                                         |  |       |        |  | Fair Value Measurements Using          |  
|                                                         |  | Total |        |  | Quoted Pricesin ActiveMarkets(Level 1) |   |        | Significant OtherObservableInputs(Level 2) |  |   | UnobservableInputs(Level 3) | 
|At September 30, 2010:                                   |  |       |        |  |                                        |   |        |                                            |  |   |                             |  |  |   |   | 
|Cash equivalents                                         |  | $     | 45,254 |  |                                        | $ | 45,254 |                                            |  | $ |                            |  |  | $ |  | 
|Investment in equity securities                          |  |       | 5,577  |  |                                        |   | 5,577  |                                            |  |   |                            |  |  |   |  | 
|Investment in stock options related to equity securities |  |       | 668    |  |                                        |   |       |                                            |  |   | 668                         |  |  |   |  | 
|                                                         |  |       |        | 
|At December 31, 2009:                                    |  |       |        |  |                                        |   |        |                                            |  |   |                             |  |  |   |   | 
|Cash equivalents                                         |  | $     | 26,099 |  |                                        |   | 26,099 |                                            |  | $ |                            |  |  | $ |  | 
|Investment in equity securities                          |  |       | 2,873  |  |                                        |   | 2,873  |                                            |  |   |                            |  |  |   |  | 
|Investment in stock options related to equity securities |  |       | 300    |  |                                        |   |       |                                            |  |   | 300                         |  |  |   |  | 



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The Company had no transfers of assets
between any of the above levels during the nine months ended September 30, 2010 or September 30, 2009.

Cash equivalents include
treasury bills and money market funds that invest in United States government obligations and a Canadian dollar investment account, all with original maturities of three months or less. The original cost of these assets approximates fair value due
to their short-term maturity.

Investment in equity securities are measured at fair value using closing stock prices from an active
international market and are classified within Level 1 of the valuation hierarchy. Investment in stock options related to equity securities are measured at fair value using the Black-Scholes option pricing model based on observable market inputs
such as stock prices, interest rates and expected volatility assumptions. Based on these inputs, these assets are classified within Level 2 of the valuation hierarchy.

During the nine months ended September 30, 2010, the Company sold a portion of its investment in equity securities for proceeds totaling $52,000. Total realized gains were equal to proceeds received.

Other Financial Instruments:



| |  |  | Debt  Based upon the rates available to the Company, the fair value of the 9.75% Senior Notes, the 11.75% Senior Notes and the note payable to a
former executive approximated $366.9 million as of September 30, 2010, compared to the book value of $402.2 million. The quoted market price of the 9.75% Senior Notes was $364.8 million at September 30, 2010. The fair value of the 9.75%
Senior Notes, the 11.75% Senior Notes and the note payable to a former executive approximated $314.6 million as of December 31, 2009, compared to the book value of $402.4 million. The quoted market price of the 9.75% Senior Notes was $312.6
million at December 31, 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Accounts Receivable and Accounts Payable  The fair values of accounts receivable and accounts payable approximated carrying value due to the
short-term maturity of these instruments.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE G-STATEMENT OF CASH FLOW INFORMATION

Cash and cash equivalents at September 30, 2010 and December 31, 2009 include $177,000 and $113,000, respectively of restricted cash related to
collateral on seismic operations bonds.

The Company had non-cash additions to its seismic data library comprised of the following for the
periods indicated (in thousands):



|                                                                 |  |                                |        |   |      |   |        |  
|---------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                 |  | Nine Months EndedSeptember 30, |       
|                                                                 |  | 2010                           |        |   | 2009 |  
|                                                                 |  |                               
|Non-monetary exchanges related to resale licensing revenue       |  | $                              | 3,371  |   |      | $ | 1,010  |  
|Non-monetary exchanges from underwriting of new data acquisition |  |                                | 2,701  |   |      |   | (1,291 | )
|Other non-monetary exchanges                                     |  |                                | 42     |   |      |   |       |  
|Completion of data in progress from prior non-monetary exchanges |  |                                | 3,199  |   |      |   | 1,724  |  
|Less: Non-monetary exchanges for data in progress                |  |                                | (1,423 | ) |      |   |       |  
|                                                                 |  |                                |        |   |      |   |        |  
|Total non-cash additions to seismic data library                 |  | $                              | 7,890  |   |      | $ | 1,443  |  
|                                                                 |  |                                |        |   |      |   |        |  

During the nine months ended September 30, 2009, the Company reversed a non-monetary exchange valued at $1.3 million
that was originally entered into in 2008. The Company was notified that the client was unable to provide clear title to one of the seismic surveys included in the original contract resulting in the negative amount of seismic data library additions
in the first nine months of 2009.



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Non-cash revenue consisted of the
following for the periods indicated (in thousands):



|                                                                                                |  |                                |       |  |      |   |       | 
|----------------------------------------------------------------------------------------------- |  | ------------------------------ | ----- |  | ---- | - | ----- | 
|                                                                                                |  | Nine Months EndedSeptember 30, |      
|                                                                                                |  | 2010                           |       |  | 2009 |  
|                                                                                                |  |                               
|Acquisition revenue on underwriting from non-monetary exchange contracts                        |  | $                              | 1,121 |  |      | $ | 2,838 | 
|Licensing revenue from specific data licenses and selections on non-monetary exchange contracts |  |                                | 5,613 |  |      |   | 3,687 | 
|                                                                                                |  |                                |       |  |      |   |       | 
|Total non-cash revenue                                                                          |  | $                              | 6,734 |  |      | $ | 6,525 | 
|                                                                                                |  |                                |       |  |      |   |       | 

NOTE H-COMMITMENTS AND CONTINGENCIES

The Company is involved from time to time in ordinary, routine claims and lawsuits incidental to its business. In the opinion of management, uninsured losses, if any, resulting from the ultimate
resolutions of these matters should not be material to the Companys financial position or results of operation. However, it is not possible to predict or determine the outcomes of the legal actions brought against it or by it, or to provide an
estimate of all additional losses, if any, that may arise. At September 30, 2010, the Company did not have any amounts accrued related to litigation and claims, as the Company believes it is not probable that any amounts will be paid relative
to such litigation and claims.

NOTE I-RECENT ACCOUNTING PRONOUNCEMENTS

In October 2009, the Financial Accounting Standards Update (FASB) issued Accounting Standards Update (ASU) 2009-13 on Topic 605, Revenue Recognition Multiple
Deliverable Revenue Arrangements  a consensus of the FASB Emerging Issues Task Force. The ASU provides guidance on accounting for products or services (deliverables) separately rather than as a combined unit utilizing a selling
price hierarchy to determine the selling price of a deliverable. The selling price is based on vendor-specific evidence, third-party evidence or estimated selling price. The Company will be required to apply the standard prospectively to
any contracts that may contain multiple-element arrangements entered into or materially modified on or after January 1, 2011; however, earlier application is permitted. The Company does not currently expect the adoption of this new accounting
update to have a material impact on its consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements, which requires new disclosures regarding transfers in and out of Level 1 and 2 and activity within Level 3 fair value measurements and clarifies
existing disclosures of inputs and valuation techniques for Level 2 and 3 fair value measurements. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. This ASU
was effective for annual and interim reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010,
and for interim periods within those years. The Company has applied the new disclosure requirements as of January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be
applied effective January 1, 2011. The adoption of this guidance has not had and is not expected to have a material impact on the Companys consolidated financial position, results of operation or cash flows.

NOTE J-SUPPLEMENTAL GUARANTORS CONSOLIDATING CONDENSED FINANCIAL INFORMATION

On February 14, 2007, the Company completed a private placement of 9.75% Senior Notes in the aggregate principal amount of $400.0 million. The Companys payment obligations under the 9.75%
Senior Notes are jointly and severally guaranteed by certain of its 100% owned U.S. subsidiaries (Guarantor Subsidiaries). All subsidiaries of the Company that do not guaranty the 9.75% Senior Notes are referred to as Non-Guarantor
Subsidiaries.

The consolidating condensed financial statements are presented below and should be read in connection with the Condensed
Consolidated Financial Statements of the Company. Separate financial statements of the Guarantor Subsidiaries are not presented because (i) the Guarantor Subsidiaries are wholly-owned and have fully and unconditionally guaranteed the 9.75%
Senior Notes on a joint and several basis, and (ii) the Companys management has determined such separate financial statements are not material to investors.



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The following consolidating condensed
financial information presents the consolidating condensed balance sheets as of September 30, 2010 and December 31, 2009, and the consolidating condensed statements of operations and statements of cash flows for the nine months ended
September 30, 2010 and September 30, 2009 of (a) the Company; (b) the Guarantor Subsidiaries; (c) the Non-Guarantor Subsidiaries; (d) elimination entries; and (e) the Company, the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries on a consolidated basis.

Investments in subsidiaries are accounted for on the equity method. The principal
elimination entries eliminate investments in subsidiaries, intercompany balances, intercompany transactions and intercompany sales.



18



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CONSOLIDATING
CONDENSED BALANCE SHEET

As of September 30, 2010

(In thousands)



|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|---------------------------------------------------- |  | ------ | -------- | - | --------------------- | - | -------- | ------------------------- |  | - | ------------------------- | - |  | ----------------- | -------- | - |  | - | -------- | -
|                                                     |  | Parent |          |   | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  |   | ConsolidatingEliminations |   |  | ConsolidatedTotal |         
|                                                     |  |        |          |   |                      
|ASSETS                                               |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Cash and cash equivalents                            |  | $      |         |   |                       | $ | 39,238   |                           |  | $ | 6,385                     |   |  | $                 |         |   |  | $ | 45,623   |  
|Receivables                                          |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Trade, net                                           |  |        |         |   |                       |   | 33,008   |                           |  |   | 11,442                    |   |  |                   |         |   |  |   | 44,450   |  
|Notes and other                                      |  |        | 22       |   |                       |   | 108      |                           |  |   | 6                         |   |  |                   |         |   |  |   | 136      |  
|Due from Seitel Holdings, Inc.                       |  |        |         |   |                       |   | 156      |                           |  |   |                          |   |  |                   |         |   |  |   | 156      |  
|Intercompany receivables (payables)                  |  |        | 123,903  |   |                       |   | (121,313 | )                         |  |   | (2,590                    | ) |  |                   |         |   |  |   |         |  
|Investment in subsidiaries                           |  |        | 243,790  |   |                       |   | 413,972  |                           |  |   | 1,491                     |   |  |                   | (659,253 | ) |  |   |         |  
|Net seismic data library                             |  |        |         |   |                       |   | 94,935   |                           |  |   | 30,900                    |   |  |                   |         |   |  |   | 125,835  |  
|Net property and equipment                           |  |        |         |   |                       |   | 1,521    |                           |  |   | 4,072                     |   |  |                   |         |   |  |   | 5,593    |  
|Investment in marketable securities                  |  |        |         |   |                       |   | 6,245    |                           |  |   |                          |   |  |                   |         |   |  |   | 6,245    |  
|Prepaid expenses, deferred charges and other         |  |        | 7,445    |   |                       |   | 3,804    |                           |  |   | 492                       |   |  |                   |         |   |  |   | 11,741   |  
|Intangible assets, net                               |  |        | 900      |   |                       |   | 20,477   |                           |  |   | 12,809                    |   |  |                   |         |   |  |   | 34,186   |  
|Goodwill                                             |  |        |         |   |                       |   | 107,688  |                           |  |   | 96,929                    |   |  |                   |         |   |  |   | 204,617  |  
|Deferred income taxes                                |  |        |         |   |                       |   | 327      |                           |  |   |                          |   |  |                   |         |   |  |   | 327      |  
|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                                     |  |        |          |   |                      
|TOTAL ASSETS                                         |  | $      | 376,060  |   |                       | $ | 600,166  |                           |  | $ | 161,936                   |   |  | $                 | (659,253 | ) |  | $ | 478,909  |  
|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                                     |  |        |          |   |                      
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)       |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Accounts payable and accrued liabilities             |  | $      | 5,314    |   |                       | $ | 13,678   |                           |  | $ | 15,867                    |   |  | $                 |         |   |  | $ | 34,859   |  
|Income taxes payable                                 |  |        | 166      |   |                       |   |         |                           |  |   | 5                         |   |  |                   |         |   |  |   | 171      |  
|Senior Notes                                         |  |        | 402,081  |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   | 402,081  |  
|Notes payable                                        |  |        | 168      |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   | 168      |  
|Obligations under capital leases                     |  |        |         |   |                       |   |         |                           |  |   | 3,316                     |   |  |                   |         |   |  |   | 3,316    |  
|Deferred revenue                                     |  |        |         |   |                       |   | 37,633   |                           |  |   | 4,755                     |   |  |                   |         |   |  |   | 42,388   |  
|Deferred income taxes                                |  |        |         |   |                       |   |         |                           |  |   | 2,402                     |   |  |                   |         |   |  |   | 2,402    |  
|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|TOTAL LIABILITIES                                    |  |        | 407,729  |   |                       |   | 51,311   |                           |  |   | 26,345                    |   |  |                   |         |   |  |   | 485,385  |  
|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                                     |  |        |          |   |                      
|STOCKHOLDERS EQUITY (DEFICIT)                       |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Common stock                                         |  |        |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Additional paid-in capital                           |  |        | 277,060  |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   | 277,060  |  
|Parent investment                                    |  |        |         |   |                       |   | 764,752  |                           |  |   | 156,908                   |   |  |                   | (921,660 | ) |  |   |         |  
|Retained deficit                                     |  |        | (308,729 | ) |                       |   | (222,142 | )                         |  |   | (40,265                   | ) |  |                   | 262,407  |   |  |   | (308,729 | )
|Accumulated other comprehensive income               |  |        |         |   |                       |   | 6,245    |                           |  |   | 18,948                    |   |  |                   |         |   |  |   | 25,193   |  
|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|TOTAL STOCKHOLDERS EQUITY (DEFICIT)                 |  |        | (31,669  | ) |                       |   | 548,855  |                           |  |   | 135,591                   |   |  |                   | (659,253 | ) |  |   | (6,476   | )
|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                                     |  |        |          |   |                      
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |  | $      | 376,060  |   |                       | $ | 600,166  |                           |  | $ | 161,936                   |   |  | $                 | (659,253 | ) |  | $ | 478,909  |  
|                                                     |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  



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CONSOLIDATING
CONDENSED BALANCE SHEET

As of December 31, 2009

(In thousands)



|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|-------------------------------------------- |  | ------ | -------- | - | --------------------- | - | -------- | ------------------------- |  | - | ------------------------- | - |  | ----------------- | -------- | - |  | - | -------- | -
|                                             |  | Parent |          |   | GuarantorSubsidiaries |   |          | Non-GuarantorSubsidiaries |  |   | ConsolidatingEliminations |   |  | ConsolidatedTotal |         
|                                             |  |        |          |   |                      
|ASSETS                                       |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Cash and cash equivalents                    |  | $      |         |   |                       | $ | 24,221   |                           |  | $ | 2,049                     |   |  | $                 |         |   |  | $ | 26,270   |  
|Receivables                                  |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Trade, net                                   |  |        |         |   |                       |   | 15,652   |                           |  |   | 13,846                    |   |  |                   |         |   |  |   | 29,498   |  
|Notes and other                              |  |        | 40       |   |                       |   | 87       |                           |  |   | 159                       |   |  |                   |         |   |  |   | 286      |  
|Due from Seitel Holdings, Inc.               |  |        |         |   |                       |   | 147      |                           |  |   |                          |   |  |                   |         |   |  |   | 147      |  
|Intercompany receivables (payables)          |  |        | 147,022  |   |                       |   | (145,814 | )                         |  |   | (1,208                    | ) |  |                   |         |   |  |   |         |  
|Investment in subsidiaries                   |  |        | 287,245  |   |                       |   | 428,995  |                           |  |   | 876                       |   |  |                   | (717,116 | ) |  |   |         |  
|Net seismic data library                     |  |        |         |   |                       |   | 148,636  |                           |  |   | 51,753                    |   |  |                   |         |   |  |   | 200,389  |  
|Net property and equipment                   |  |        |         |   |                       |   | 2,238    |                           |  |   | 4,765                     |   |  |                   |         |   |  |   | 7,003    |  
|Investment in marketable securities          |  |        |         |   |                       |   | 3,173    |                           |  |   |                          |   |  |                   |         |   |  |   | 3,173    |  
|Prepaid expenses, deferred charges and other |  |        | 8,610    |   |                       |   | 4,368    |                           |  |   | 448                       |   |  |                   |         |   |  |   | 13,426   |  
|Intangible assets, net                       |  |        | 900      |   |                       |   | 22,886   |                           |  |   | 14,654                    |   |  |                   |         |   |  |   | 38,440   |  
|Goodwill                                     |  |        |         |   |                       |   | 107,688  |                           |  |   | 95,372                    |   |  |                   |         |   |  |   | 203,060  |  
|Deferred income taxes                        |  |        |         |   |                       |   | 327      |                           |  |   |                          |   |  |                   |         |   |  |   | 327      |  
|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                             |  |        |          |   |                      
|TOTAL ASSETS                                 |  | $      | 443,817  |   |                       | $ | 612,604  |                           |  | $ | 182,714                   |   |  | $                 | (717,116 | ) |  | $ | 522,019  |  
|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                             |  |        |          |   |                      
|LIABILITIES AND STOCKHOLDERS EQUITY         |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Accounts payable and accrued liabilities     |  | $      | 15,099   |   |                       | $ | 5,456    |                           |  | $ | 16,522                    |   |  | $                 |         |   |  | $ | 37,077   |  
|Income taxes payable                         |  |        | 9        |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   | 9        |  
|Senior Notes                                 |  |        | 402,154  |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   | 402,154  |  
|Notes payable                                |  |        | 208      |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   | 208      |  
|Obligations under capital leases             |  |        |         |   |                       |   |         |                           |  |   | 3,370                     |   |  |                   |         |   |  |   | 3,370    |  
|Deferred revenue                             |  |        |         |   |                       |   | 18,188   |                           |  |   | 8,534                     |   |  |                   |         |   |  |   | 26,722   |  
|Deferred income taxes                        |  |        |         |   |                       |   |         |                           |  |   | 6,118                     |   |  |                   |         |   |  |   | 6,118    |  
|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|TOTAL LIABILITIES                            |  |        | 417,470  |   |                       |   | 23,644   |                           |  |   | 34,544                    |   |  |                   |         |   |  |   | 475,658  |  
|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                             |  |        |          |   |                      
|STOCKHOLDERS EQUITY                         |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|Common stock                                 |  |        |         |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   |         |  
|Additional paid-in capital                   |  |        | 274,331  |   |                       |   |         |                           |  |   |                          |   |  |                   |         |   |  |   | 274,331  |  
|Parent investment                            |  |        |         |   |                       |   | 764,752  |                           |  |   | 161,422                   |   |  |                   | (926,174 | ) |  |   |         |  
|Retained deficit                             |  |        | (247,984 | ) |                       |   | (178,965 | )                         |  |   | (30,093                   | ) |  |                   | 209,058  |   |  |   | (247,984 | )
|Accumulated other comprehensive income       |  |        |         |   |                       |   | 3,173    |                           |  |   | 16,841                    |   |  |                   |         |   |  |   | 20,014   |  
|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|TOTAL STOCKHOLDERS EQUITY                   |  |        | 26,347   |   |                       |   | 588,960  |                           |  |   | 148,170                   |   |  |                   | (717,116 | ) |  |   | 46,361   |  
|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  
|                                             |  |        |          |   |                      
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY   |  | $      | 443,817  |   |                       | $ | 612,604  |                           |  | $ | 182,714                   |   |  | $                 | (717,116 | ) |  | $ | 522,019  |  
|                                             |  |        |          |   |                       |   |          |                           |  |   |                           |   |  |                   |          |   |  |   |          |  



20



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CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2010

(In thousands)



|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|----------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------- | - |  | ----------------- | ------ | - |  | - | ------- | -
|                                                            |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingEliminations |   |  | ConsolidatedTotal |       
|                                                            |  |        |         |   |                      
|REVENUE                                                     |  | $      |        |   |                       | $ | 83,954  |                           |  | $ | 29,837                    |   |  | $                 | (2,313 | ) |  | $ | 111,478 |  
|                                                            |  |        |         |   |                      
|EXPENSES:                                                   |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|Depreciation and amortization                               |  |        |        |   |                       |   | 87,173  |                           |  |   | 34,615                    |   |  |                   |       |   |  |   | 121,788 |  
|Cost of sales                                               |  |        |        |   |                       |   | 66      |                           |  |   | 7                         |   |  |                   |       |   |  |   | 73      |  
|Selling, general and administrative                         |  |        | 2,668   |   |                       |   | 14,196  |                           |  |   | 8,863                     |   |  |                   | (2,313 | ) |  |   | 23,414  |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        | 2,668   |   |                       |   | 101,435 |                           |  |   | 43,485                    |   |  |                   | (2,313 | ) |  |   | 145,275 |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        |         |   |                      
|LOSS FROM OPERATIONS                                        |  |        | (2,668  | ) |                       |   | (17,481 | )                         |  |   | (13,648                   | ) |  |                   |       |   |  |   | (33,797 | )
|                                                            |  |        |         |   |                      
|Interest expense, net                                       |  |        | (14,901 | ) |                       |   | (15,431 | )                         |  |   | (188                      | ) |  |                   |       |   |  |   | (30,520 | )
|Foreign currency exchange gains                             |  |        |        |   |                       |   | 2       |                           |  |   | 118                       |   |  |                   |       |   |  |   | 120     |  
|Gain on sale of marketable securities                       |  |        |        |   |                       |   | 52      |                           |  |   |                          |   |  |                   |       |   |  |   | 52      |  
|Other income                                                |  |        | 1       |   |                       |   | 146     |                           |  |   | 42                        |   |  |                   |       |   |  |   | 189     |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        |         |   |                      
|Loss before income taxes and equity in loss of subsidiaries |  |        | (17,568 | ) |                       |   | (32,712 | )                         |  |   | (13,676                   | ) |  |                   |       |   |  |   | (63,956 | )
|Provision (benefit) for income taxes                        |  |        |        |   |                       |   | 293     |                           |  |   | (3,504                    | ) |  |                   |       |   |  |   | (3,211  | )
|Equity in loss of subsidiaries                              |  |        | (43,177 | ) |                       |   | (10,172 | )                         |  |   |                          |   |  |                   | 53,349 |   |  |   |        |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        |         |   |                      
|NET LOSS                                                    |  | $      | (60,745 | ) |                       | $ | (43,177 | )                         |  | $ | (10,172                   | ) |  | $                 | 53,349 |   |  | $ | (60,745 | )
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  



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CONSOLIDATING
CONDENSED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2009

(In thousands)



|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|----------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------- | - |  | ----------------- | ------ | - |  | - | ------- | -
|                                                            |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingEliminations |   |  | ConsolidatedTotal |       
|                                                            |  |        |         |   |                      
|REVENUE                                                     |  | $      |        |   |                       | $ | 56,783  |                           |  | $ | 21,938                    |   |  | $                 | (2,049 | ) |  | $ | 76,672  |  
|                                                            |  |        |         |   |                      
|EXPENSES:                                                   |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|Depreciation and amortization                               |  |        |        |   |                       |   | 80,711  |                           |  |   | 27,971                    |   |  |                   |       |   |  |   | 108,682 |  
|Cost of sales                                               |  |        |        |   |                       |   | 232     |                           |  |   | 6                         |   |  |                   |       |   |  |   | 238     |  
|Selling, general and administrative                         |  |        | 3,200   |   |                       |   | 11,325  |                           |  |   | 7,583                     |   |  |                   | (2,049 | ) |  |   | 20,059  |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        | 3,200   |   |                       |   | 92,268  |                           |  |   | 35,560                    |   |  |                   | (2,049 | ) |  |   | 128,979 |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        |         |   |                      
|LOSS FROM OPERATIONS                                        |  |        | (3,200  | ) |                       |   | (35,485 | )                         |  |   | (13,622                   | ) |  |                   |       |   |  |   | (52,307 | )
|                                                            |  |        |         |   |                      
|Interest expense, net                                       |  |        | (12,392 | ) |                       |   | (18,011 | )                         |  |   | (128                      | ) |  |                   |       |   |  |   | (30,531 | )
|Foreign currency exchange gains                             |  |        |        |   |                       |   |        |                           |  |   | 873                       |   |  |                   |       |   |  |   | 873     |  
|Other income (loss)                                         |  |        |        |   |                       |   | 93      |                           |  |   | (19                       | ) |  |                   |       |   |  |   | 74      |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        |         |   |                      
|Loss before income taxes and equity in loss of subsidiaries |  |        | (15,592 | ) |                       |   | (53,403 | )                         |  |   | (12,896                   | ) |  |                   |       |   |  |   | (81,891 | )
|Provision (benefit) for income taxes                        |  |        |        |   |                       |   | 149     |                           |  |   | (3,540                    | ) |  |                   |       |   |  |   | (3,391  | )
|Equity in loss of subsidiaries                              |  |        | (62,908 | ) |                       |   | (9,356  | )                         |  |   |                          |   |  |                   | 72,264 |   |  |   |        |  
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  
|                                                            |  |        |         |   |                      
|NET LOSS                                                    |  | $      | (78,500 | ) |                       | $ | (62,908 | )                         |  | $ | (9,356                    | ) |  | $                 | 72,264 |   |  | $ | (78,500 | )
|                                                            |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |        |   |  |   |         |  



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CONSOLIDATING
CONDENSED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2010

(In thousands)



|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|--------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------- | - |  | ----------------- | - |  |  | - | ------- | -
|                                                    |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingEliminations |   |  | ConsolidatedTotal |  
|Cash flows from operating activities:               |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net cash provided by (used in) operating activities |  | $      | (39,224 | ) |                       | $ | 69,025  |                           |  | $ | 19,841                    |   |  | $                 |  |  |  | $ | 49,642  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|                                                    |  |        |         |   |                      
|Cash flows from investing activities:               |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Cash invested in seismic data                       |  |        |        |   |                       |   | (19,070 | )                         |  |   | (10,972                   | ) |  |                   |  |  |  |   | (30,042 | )
|Cash paid to acquire property, equipment and other  |  |        |        |   |                       |   | (153    | )                         |  |   | (45                       | ) |  |                   |  |  |  |   | (198    | )
|Net proceeds from sale of marketable Securities     |  |        |        |   |                       |   | 52      |                           |  |   |                          |   |  |                   |  |  |  |   | 52      |  
|Return of capital from subsidiary                   |  |        |        |   |                       |   | 4,501   |                           |  |   | (4,501                    | ) |  |                   |  |  |  |   |        |  
|Advances to Seitel Holdings, Inc.                   |  |        |        |   |                       |   | (9      | )                         |  |   |                          |   |  |                   |  |  |  |   | (9      | )
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net cash used in investing activities               |  |        |        |   |                       |   | (14,679 | )                         |  |   | (15,518                   | ) |  |                   |   |  |  |   | (30,197 | )
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|                                                    |  |        |         |   |                      
|Cash flows from financing activities:               |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Principal payments on notes payable                 |  |        | (40     | ) |                       |   |        |                           |  |   |                          |   |  |                   |  |  |  |   | (40     | )
|Principal payments on capital lease obligations     |  |        |        |   |                       |   |        |                           |  |   | (108                      | ) |  |                   |  |  |  |   | (108    | )
|Borrowings on line of credit                        |  |        |        |   |                       |   |        |                           |  |   | 10                        |   |  |                   |  |  |  |   | 10      |  
|Payments on line of credit                          |  |        |        |   |                       |   |        |                           |  |   | (10                       | ) |  |                   |  |  |  |   | (10     | )
|Payment of debt issue costs                         |  |        | (65     | ) |                       |   |        |                           |  |   |                          |   |  |                   |  |  |  |   | (65     | )
|Intercompany transfers                              |  |        | 39,329  |   |                       |   | (39,329 | )                         |  |   |                          |   |  |                   |  |  |  |   |        |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net cash provided by (used in) financing activities |  |        | 39,224  |   |                       |   | (39,329 | )                         |  |   | (108                      | ) |  |                   |  |  |  |   | (213    | )
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|                                                    |  |        |         |   |                      
|Effect of exchange rate changes                     |  |        |        |   |                       |   |        |                           |  |   | 121                       |   |  |                   |  |  |  |   | 121     |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net increase in cash and cash equivalents           |  |        |        |   |                       |   | 15,017  |                           |  |   | 4,336                     |   |  |                   |  |  |  |   | 19,353  |  
|Cash and cash equivalents at beginning of period    |  |        |        |   |                       |   | 24,221  |                           |  |   | 2,049                     |   |  |                   |  |  |  |   | 26,270  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Cash and cash equivalents at end of period          |  | $      |        |   |                       | $ | 39,238  |                           |  | $ | 6,385                     |   |  | $                 |  |  |  | $ | 45,623  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  



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CONSOLIDATING
CONDENSED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2009

(In thousands)



|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|--------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------------------- | - |  | ----------------- | - |  |  | - | ------- | -
|                                                    |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | ConsolidatingEliminations |   |  | ConsolidatedTotal |  
|Cash flows from operating activities:               |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net cash provided by (used in) operating activities |  | $      | (38,457 | ) |                       | $ | 39,648  |                           |  | $ | 18,824                    |   |  | $                 |  |  |  | $ | 20,015  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|                                                    |  |        |         |   |                      
|Cash flows from investing activities:               |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Cash invested in seismic data                       |  |        |        |   |                       |   | (38,329 | )                         |  |   | (12,058                   | ) |  |                   |  |  |  |   | (50,387 | )
|Cash paid to acquire property, equipment and other  |  |        |        |   |                       |   | (236    | )                         |  |   | (69                       | ) |  |                   |  |  |  |   | (305    | )
|Advances to Seitel Holdings, Inc.                   |  |        |        |   |                       |   | (9      | )                         |  |   |                          |   |  |                   |  |  |  |   | (9      | )
|Cash transferred upon sale of subsidiary            |  |        |        |   |                       |   |        |                           |  |   | (22                       | ) |  |                   |  |  |  |   | (22     | )
|Return of capital from subsidiary                   |  |        |        |   |                       |   | 500     |                           |  |   | (500                      | ) |  |                   |  |  |  |   |        |  
|Cash from disposal of property and equipment        |  |        |        |   |                       |   | 14      |                           |  |   |                          |   |  |                   |  |  |  |   | 14      |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net cash used in investing activities               |  |        |        |   |                       |   | (38,060 | )                         |  |   | (12,649                   | ) |  |                   |  |  |  |   | (50,709 | )
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|                                                    |  |        |         |   |                      
|Cash flows from financing activities:               |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Principal payments on notes payable                 |  |        | (36     | ) |                       |   |        |                           |  |   |                          |   |  |                   |  |  |  |   | (36     | )
|Principal payments on capital lease obligations     |  |        |        |   |                       |   |        |                           |  |   | (90                       | ) |  |                   |  |  |  |   | (90     | )
|Borrowings on line of credit                        |  |        |        |   |                       |   |        |                           |  |   | 196                       |   |  |                   |  |  |  |   | 196     |  
|Payments in line of credit                          |  |        |        |   |                       |   |        |                           |  |   | (196                      | ) |  |                   |  |  |  |   | (196    | )
|Intercompany transfers                              |  |        | 38,493  |   |                       |   | (24,238 | )                         |  |   | (14,255                   | ) |  |                   |  |  |  |   |        |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net cash provided by (used in) financing activities |  |        | 38,457  |   |                       |   | (24,238 | )                         |  |   | (14,345                   | ) |  |                   |  |  |  |   | (126    | )
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|                                                    |  |        |         |   |                      
|Effect of exchange rate changes                     |  |        |        |   |                       |   |        |                           |  |   | (892                      | ) |  |                   |  |  |  |   | (892    | )
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Net decrease in cash and cash equivalents           |  |        |        |   |                       |   | (22,650 | )                         |  |   | (9,062                    | ) |  |                   |  |  |  |   | (31,712 | )
|Cash and cash equivalents at beginning of period    |  |        |        |   |                       |   | 33,034  |                           |  |   | 9.644                     |   |  |                   |  |  |  |   | 42,678  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  
|Cash and cash equivalents at end of period          |  | $      |        |   |                       | $ | 10,384  |                           |  | $ | 582                       |   |  | $                 |  |  |  | $ | 10,966  |  
|                                                    |  |        |         |   |                       |   |         |                           |  |   |                           |   |  |                   |   |  |  |   |         |  



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|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with our consolidated financial statements and the related notes to the financial statements
included elsewhere in this document.

CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this Quarterly Report) contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Statements contained in this report about our future outlook, prospects, strategies and plans, and about
industry conditions, demand for seismic services and the future economic life of our seismic data are forward-looking. All statements that express belief, expectation, estimates or intentions, as well as those that are not statements of historical
fact, are forward-looking. The words proposed, anticipates, will, would, should, estimates and similar expressions are intended to identify forward-looking statements.
Forward-looking statements represent our present belief and are based on our current expectations and assumptions with respect to future events. While we believe our expectations and assumptions are reasonable, they involve risks and uncertainties
beyond our control that could cause the actual results or outcome to differ materially from the expected results or outcome reflected in our forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Quarterly Report may not occur. Such risks and uncertainties include, without limitation, actual customer demand for our seismic data and related services, the timing and extent of changes in commodity prices for natural
gas, crude oil and condensate and natural gas liquids, conditions in the capital markets during the periods covered by the forward-looking statements, the effect of the duration of the economic downturn on our business, our ability to obtain
financing on satisfactory terms if internally generated funds and our current credit facilities are insufficient to fund our capital needs, the impact on our financial condition as a result of our debt and our debt service, our ability to obtain and
maintain normal terms with our vendors and service providers, our ability to maintain contracts that are critical to our operations, changes in the oil and gas industry or the economy generally, changes in the exploration budgets of our customers,
and our ability to comply with the terms of our final judgment of permanent injunction by the Securities and Exchange Commission (SEC). The foregoing and other risk factors are identified in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2009 filed with the SEC.

The forward-looking statements contained in this report speak only as of the date
hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. All forward-looking
statements attributable to Seitel, Inc. or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in our Annual Report filed on Form 10-K for the fiscal year ended
December 31, 2009 filed with the SEC and in our future periodic reports filed with the SEC.

Overview

General

Our products and
services are used by oil and gas companies to assist in oil and gas exploration and development and management of hydrocarbon reserves. We own an extensive library of onshore and offshore seismic data that we offer for license to oil and gas
companies. Oil and gas companies use seismic data in oil and gas exploration and development efforts to increase the probability of drilling success. We believe that our library of onshore seismic data is the largest available for licensing in the
United States and Canada. We generate revenue primarily by licensing data from our data library and from new data creation products, which are substantially underwritten or paid for by clients. By participating in underwritten, nonexclusive surveys
or purchasing licenses to existing data, oil and gas companies can obtain access to surveys at reduced costs as compared to acquiring seismic data on a proprietary basis.



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Our primary areas of focus are onshore
United States and Canada and, to a lesser extent, offshore U.S. Gulf of Mexico. These markets continue to experience major changes. Several major oil companies have become more active in the U.S. market than in the past few years, primarily in
resource plays. Independent oil and gas companies continue to be responsible for a significant portion of current U.S. drilling activity.

Our
offshore seismic data is primarily located in the shallow waters of the U.S. Gulf of Mexico and generates a small percentage of our revenue. Our results of operations have not been negatively impacted by the offshore drilling moratorium.

Principal Factors Affecting Our Business

Our business is dependent upon a variety of factors, many of which are beyond our control. The following are those that we consider to be principal factors affecting our business.

Demand for Seismic Data: Demand for our products and services is cyclical due to the nature of the oil and gas industry. In particular,
demand for our seismic data services depends upon exploration, production, development and field management spending by oil and gas companies and, in the case of new data creation, the willingness of these companies to forgo ownership in the seismic
data. Capital expenditures by oil and gas companies depend upon several factors, including actual and forecasted oil and natural gas commodity prices, prospect availability and the companies own short-term and strategic plans. These capital
expenditures may also be affected by worldwide economic or industry-wide conditions. The 2009 economic downturn resulted in lower commodity prices and reduced exploration capital expenditures, which, in turn, caused demand for seismic data to
decline. Although we have seen some improvement in the demand for seismic data since year-end 2009, primarily in the unconventional resource plays, there continues to be uncertainty as to the ongoing recovery from the economic downturn and the
impact on demand for seismic data in conventional areas.

Availability of Capital for Our Customers: Some of our customers
consist of independent oil and gas companies and private prospect-generating companies that rely primarily on private capital markets to fund their exploration, production, development and field management activities. The reduction in cash flows
being experienced by our customers resulting from the declines in commodity prices, along with the reduced availability of credit and increased costs of borrowing due to the tightening of the credit markets, could have a material impact on the
ability of such companies to obtain funding necessary to purchase our seismic data.

Merger and Acquisition Activity:Merger and
acquisition activity continues to occur within our client base. This activity could have a negative impact on seismic companies that operate in markets with a limited number of participating clients. However, we believe that, over time, this
activity could have a positive impact on our business, as it should generate re-licensing fees, result in increased vitality in the trading of mineral interests and result in the creation of new independent customers through the rationalization of
staff within those companies affected by this activity.

North America Drilling Activity: The 2009 economic downturn in North
America resulted in reduced demand for natural gas due to an imbalance between supply and demand that led to lower hydrocarbon prices resulting in a decrease in drilling activity in the first part of 2009 with land rig counts in North America
reaching a low in May 2009. North America land drilling activity has been recovering since then, with drilling activity continuing to show improvement in 2010, primarily driven by domestic shale activity. However, weaker than expected natural gas
prices and continued low domestic natural gas demand continue to cause uncertainty as to full recovery of conventional gas exploration.

Government Regulation: Our operations are subject to a variety of federal, provincial, state, foreign and local laws and regulations,
including environmental and health and safety laws. We invest financial and managerial resources to comply with these laws and related permit requirements. Modification of existing laws or regulations and the adoption of new laws or regulations
limiting or increasing exploration or production activities by oil and gas companies may have a material effect on our business operations.



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Non-GAAP Key
Performance Measures

Management considers certain performance measures in evaluating and managing our financial condition and operating
performance at various times and from time to time. Some of these performance measures are non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a companys performance, financial position or cash flows
that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with United States generally accepted accounting principles, or GAAP. These non-GAAP
measures are not in accordance with, nor are they a substitute for, GAAP measures. These non-GAAP measures are intended to supplement our presentation of our financial results that are prepared in accordance with GAAP.

The following are the key performance measures considered by management.

Cash Resales:Cash resales represent new contracts for data licenses from our library, including data currently in progress, payable in cash. We believe this measure is important in gauging new
business activity. We expect cash resales to generally follow a consistent trend over several quarters, while considering our normal seasonality. Volatility in this trend over several consecutive quarters could indicate changing market conditions.

The following is a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, total revenue
(in thousands):



|                                |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | 
|                                |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009    |  
|                                |  |                                 |        |  
|Cash resales                    |  | $                               | 44,429 |   |                                | $ | 12,293 |      |  | $ | 96,842  |   |  | $ | 29,553 | 
|Other revenue components:       |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Acquisition revenue             |  |                                 | 9,697  |   |                                |   | 6,615  |      |  |   | 22,674  |   |  |   | 32,990 | 
|Non-monetary exchanges          |  |                                 |       |   |                                |   | 834    |      |  |   | 4,050   |   |  |   | 1,010  | 
|Revenue recognition adjustments |  |                                 | (8,707 | ) |                                |   | (1,116 | )    |  |   | (14,767 | ) |  |   | 9,779  | 
|Solutions and other             |  |                                 | 721    |   |                                |   | 878    |      |  |   | 2,679   |   |  |   | 3,340  | 
|                                |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Total revenue                   |  | $                               | 46,140 |   |                                | $ | 19,504 |      |  | $ | 111,478 |   |  | $ | 76,672 | 
|                                |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 

Cash EBITDA:Cash EBITDA represents cash generated from licensing data from our data library net of recurring cash
operating expenses. We believe this measure is helpful in determining the level of cash from operations we have available for debt service and funding of capital expenditures (net of the portion funded or underwritten by our customers). Cash EBITDA
includes cash resales plus all other cash revenues other than from data acquisitions, less cash selling, general and administrative expenses (excluding non-recurring corporate expenses such as severance costs) and cost of goods sold.

The following is a quantitative reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, operating loss
(in thousands):



|                                                                     |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|-------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                     |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                     |  | 2010                            |         |   | 2009                           |   |         | 2010 |  |   | 2009     |  
|                                                                     |  |                                 |         |  
|Cash EBITDA                                                          |  | $                               | 37,123  |   |                                | $ | 8,519   |      |  | $ | 79,097   |   |  | $ | 17,059   |  
|Add (subtract) other revenue components not included in cash EBITDA: |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Acquisition revenue                                                  |  |                                 | 9,697   |   |                                |   | 6,615   |      |  |   | 22,674   |   |  |   | 32,990   |  
|Non-monetary exchanges                                               |  |                                 |        |   |                                |   | 834     |      |  |   | 4,050    |   |  |   | 1,010    |  
|Revenue recognition adjustments                                      |  |                                 | (8,707  | ) |                                |   | (1,116  | )    |  |   | (14,767  | ) |  |   | 9,779    |  
|Less:                                                                |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Depreciation and amortization                                        |  |                                 | (45,021 | ) |                                |   | (33,436 | )    |  |   | (121,788 | ) |  |   | (108,682 | )
|Severance and one-time costs associated with cost reduction measures |  |                                 |        |   |                                |   | 43      |      |  |   | (128     | ) |  |   | (1,168   | )
|Non-cash operating expenses                                          |  |                                 | (499    | ) |                                |   | (897    | )    |  |   | (2,935   | ) |  |   | (3,295   | )
|                                                                     |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Operating loss                                                       |  | $                               | (7,407  | ) |                                | $ | (19,438 | )    |  | $ | (33,797  | ) |  | $ | (52,307  | )
|                                                                     |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  



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Growth of Our Seismic Data
Library: We regularly add to our seismic data library through four different methods: (1) recording new data; (2) buying ownership of existing data for cash; (3) obtaining ownership of existing data sets through non-monetary
exchanges; and (4) creating new value-added products from existing data within our library. For the period from January 1, 2010 to September 30, 2010, we completed the addition of approximately 700 square miles of seismic data to our
library, of which approximately 520 square miles were located in resource plays in the U.S. and Canada. As of September 30, 2010, we had approximately 1,100 square miles of seismic data in progress, all of which is located in resource plays.

Critical Accounting Policies

We operate in one business segment, which is made up of seismic data acquisition, seismic data licensing, seismic data processing and seismic reproduction services. There have not been any changes in our
critical accounting policies since December 31, 2009.

Results of Operations

Revenue

The following table
summarizes the components of our revenue for the three and nine months ended September 30, 2010 and 2009 (in thousands):



|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|---------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | 
|                                         |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                         |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009    |  
|Acquisition revenue:                     |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Cash underwriting                        |  | $                               | 9,387  |   |                                | $ | 6,250  |      |  | $ | 21,553  |   |  | $ | 30,152 | 
|Underwriting from non-monetary exchanges |  |                                 | 310    |   |                                |   | 365    |      |  |   | 1,121   |   |  |   | 2,838  | 
|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Total acquisition revenue                |  |                                 | 9,697  |   |                                |   | 6,615  |      |  |   | 22,674  |   |  |   | 32,990 | 
|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Resale licensing revenue:                |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Cash resales                             |  |                                 | 44,429 |   |                                |   | 12,293 |      |  |   | 96,842  |   |  |   | 29,553 | 
|Non-monetary exchanges                   |  |                                 |       |   |                                |   | 834    |      |  |   | 4,050   |   |  |   | 1,010  | 
|Revenue recognition adjustments          |  |                                 | (8,707 | ) |                                |   | (1,116 | )    |  |   | (14,767 | ) |  |   | 9,779  | 
|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Total resale licensing revenue           |  |                                 | 35,722 |   |                                |   | 12,011 |      |  |   | 86,125  |   |  |   | 40,342 | 
|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|                                         |  |                                 |        |  
|Total seismic revenue                    |  |                                 | 45,419 |   |                                |   | 18,626 |      |  |   | 108,799 |   |  |   | 73,332 | 
|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|                                         |  |                                 |        |  
|Solutions and other                      |  |                                 | 721    |   |                                |   | 878    |      |  |   | 2,679   |   |  |   | 3,340  | 
|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 
|Total revenue                            |  | $                               | 46,140 |   |                                | $ | 19,504 |      |  | $ | 111,478 |   |  | $ | 76,672 | 
|                                         |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   |        | 

Total revenue for the third quarter of 2010 was $46.1 million, an increase of $26.6 million, or 137%, from the third quarter
of 2009 total revenue of $19.5 million. Acquisition revenue was $9.7 million for the third quarter of 2010, an increase of $3.1 million from the third quarter of 2009. The increase was primarily due to resumed acquisition activity in 2010 following
reduced activity in 2009 caused by the economic downturn. Acquisition revenue in the third quarter of 2010 related to resource plays in the Haynesville area in east Texas and the Eagle Ford area in south Texas as well as the Montney and Horn River
areas in Canada. Total resale licensing revenue increased to $35.7 million, up 197%, in the third quarter of 2010 compared to $12.0 million in the third quarter of 2009 primarily as a result of increased activity by our clients. Cash resales for the
third quarter of 2010 were $44.4 million, up 261% from the third quarter of 2009. Cash resales in the U.S. increased 389% from the third quarter of 2009 to the third quarter of 2010 primarily related to activity in the Texas Gulf Coast and East
Texas areas. Cash resales in Canada increase 31% during the same period. Revenue recognition adjustments are non-cash adjustments to revenue and reflect the net amount of revenue deferred as a result of all of the revenue recognition criteria not
being met and the subsequent revenue recognition once the criteria are met. In the third quarter of 2010, the deferral of new licensing contracts exceeded the amount of revenue recognized from previously deferred contracts primarily as a result of
cash resales on data that are still in the acquisition phase requiring deferral since the data products are not yet available for delivery. In the third quarter of 2009, the deferral of new licensing contracts exceeded the amount of revenue
recognized from previously deferred contracts primarily due to the level of library cards entered into in the 2009 third quarter.

Total
revenue for the first nine months of 2010 was $111.5 million, an increase of $34.8 million, or 45%, from the first nine months of 2009 total revenue of $76.7 million. Acquisition revenue was $22.7 million for the first nine months of 2010 compared
to $33.0 million in the first nine months of 2009. The $10.3 million decrease was primarily attributable to reduced activity in 2009 caused by the economic downturn which had a continuing effect into 2010. In 2010, we continued adding new
acquisition programs in key shale plays including Haynesville and



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Eagle Ford in the U.S. and Horn River and Montney in Canada. Total resale licensing revenue was $86.1 million in the first nine months of 2010 compared to $40.3 million in the first nine months
of 2009 reflecting the higher activity levels by our clients. Cash resales for the first nine months of 2010 were $96.8 million, up 228% from the first nine months of 2009. Cash resales in U.S. and Canada increased 305% and 59%, respectively, from
the first nine months of 2009 to the first nine months of 2010. Non-monetary exchanges increased $3.0 million from the first nine months of 2009 to 2010; these transactions fluctuate quarter to quarter depending upon the data available for trade. In
the first nine months of 2010, the deferral of new licensing contracts exceeded the amount of revenue recognized from previously deferred contracts as a result of cash resales on data that are still in the acquisition phase requiring deferral since
the data products are not yet available for delivery as well as an increase in the value of library card contracts entered into in the period. In the first nine months of 2009, the revenue recognized from previously deferred contracts was higher
than the deferrals related to new contracts due to the lower level of cash resales in the 2009 period and clients making selections on open library cards. Solutions and other revenue decreased $0.7 million between the nine-month periods due to the
completion of a data management project in 2009 and due to the mix of seismic revenue and the types of products delivered.

At
September 30, 2010, we had a deferred revenue balance of $42.4 million, compared to the December 31, 2009 balance of $26.7 million. The deferred revenue balance was related to (i) data licensing contracts on which selection of
specific data had not yet occurred, (ii) deferred revenue on data acquisition projects and (iii) contracts in which the data products are not yet available or the revenue recognition criteria has not yet been met. The deferred revenue will
be recognized when selection of specific data is made by the customer, upon expiration of the data selection period specified in the data licensing contracts, as work progresses on the data acquisition contracts, as the data products become
available or as all of the revenue recognition criteria are met.

Depreciation and Amortization

Depreciation and amortization was composed of the following for the three and nine months ended September 30, 2010 and 2009 (in thousands):



|                                       |  |                                 |        |  |                                |   |        |      |  |   |         |  |  |   |         | 
|-------------------------------------- |  | ------------------------------- | ------ |  | ------------------------------ | - | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|                                       |  | Three Months EndedSeptember 30, |        |  | Nine Months EndedSeptember 30, |  
|                                       |  | 2010                            |        |  | 2009                           |   |        | 2010 |  |   | 2009    | 
|                                       |  |                                 |        | 
|Amortization of seismic data:          |  |                                 |        |  |                                |   |        |      |  |   |         |  |  |   |         | 
|Income forecast                        |  | $                               | 22,008 |  |                                | $ | 11,328 |      |  | $ | 57,008  |  |  | $ | 45,508  | 
|Straight-line                          |  |                                 | 21,084 |  |                                |   | 20,143 |      |  |   | 58,948  |  |  |   | 57,414  | 
|                                       |  |                                 |        |  |                                |   |        |      |  |   |         |  |  |   |         | 
|Total amortization of seismic data     |  |                                 | 43,092 |  |                                |   | 31,471 |      |  |   | 115,956 |  |  |   | 102,922 | 
|Depreciation of property and equipment |  |                                 | 507    |  |                                |   | 566    |      |  |   | 1,567   |  |  |   | 1,682   | 
|Amortization of acquired intangibles   |  |                                 | 1,422  |  |                                |   | 1,399  |      |  |   | 4,265   |  |  |   | 4,078   | 
|                                       |  |                                 |        |  |                                |   |        |      |  |   |         |  |  |   |         | 
|Total                                  |  | $                               | 45,021 |  |                                | $ | 33,436 |      |  | $ | 121,788 |  |  | $ | 108,682 | 
|                                       |  |                                 |        |  |                                |   |        |      |  |   |         |  |  |   |         | 

Total seismic data library amortization amounted to $43.1 million in the third quarter of 2010 compared to $31.5 million in
the third quarter of 2009 and $116.0 million for the first nine months of 2010 compared to $102.9 million for the first nine months of 2009. The amount of seismic data library amortization fluctuates based on the level and location of specific
seismic surveys licensed (including licensing resulting from new data acquisition) and selected by our customers during any period as well as the amount of straight-line amortization required under our accounting policy.

Seismic data amortization as a percentage of total seismic revenue is summarized as follows:



|                           |  |                                 |      |   |                                |  |       |      |  |  |       |   |  |  |       |  
|-------------------------- |  | ------------------------------- | ---- | - | ------------------------------ |  | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                           |  | Three Months EndedSeptember 30, |      |   | Nine Months EndedSeptember 30, | 
|Components of Amortization |  | 2010                            |      |   | 2009                           |  |       | 2010 |  |  | 2009  |  
|                           |  |                                 |      |  
|Income forecast            |  |                                 | 48.5 | % |                                |  | 60.8  | %    |  |  | 52.4  | % |  |  | 62.1  | %
|Straight-line              |  |                                 | 46.4 | % |                                |  | 108.1 | %    |  |  | 54.2  | % |  |  | 78.3  | %
|                           |  |                                 |      |   |                                |  |       |      |  |  |       |   |  |  |       |  
|Total                      |  |                                 | 94.9 | % |                                |  | 168.9 | %    |  |  | 106.6 | % |  |  | 140.4 | %
|                           |  |                                 |      |   |                                |  |       |      |  |  |       |   |  |  |       |  

The decrease in the percentage of income forecast amortization to total seismic revenue in 2010 is primarily due to the mix
of data being licensed, including the effects of the level of revenue recognized on fully amortized data. In all periods, we had resale revenue recognized which was from data whose costs were fully amortized. In the



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third quarter and first nine months of 2010, 43% and 34%, respectively, of resale revenue recognized was from data whose costs were fully amortized as compared to 21% and 20% in the third quarter
and first nine months of 2009, respectively. Straight-line amortization represents the expense required under our accounting policy to ensure our data value is fully amortized within four years of when the data becomes available for sale. The amount
of straight-line amortization increased $0.9 million between the 2009 and 2010 third quarter periods and by $1.5 million in the first nine months of 2010 compared to the first nine months of 2009 due to the distribution of revenue among the various
seismic surveys.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses were $8.5 million in the third quarter of 2010 compared to $5.4 million in the third quarter of 2009 and $23.4 million in the first nine
months of 2010 compared to $20.1 million in the first nine months of 2009. SG&A expenses are made up of the following cash and non-cash expenses (in thousands):



|                              |  |                                 |       |  |                                |   |       |      |  |   |        |  |  |   |        | 
|----------------------------- |  | ------------------------------- | ----- |  | ------------------------------ | - | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                              |  | Three Months EndedSeptember 30, |       |  | Nine Months EndedSeptember 30, |  
|                              |  | 2010                            |       |  | 2009                           |   |       | 2010 |  |   | 2009   | 
|                              |  |                                 |       | 
|Cash SG&A expenses            |  | $                               | 8,017 |  |                                | $ | 4,478 |      |  | $ | 20,479 |  |  | $ | 16,764 | 
|Non-cash compensation expense |  |                                 | 430   |  |                                |   | 831   |      |  |   | 2,729  |  |  |   | 3,110  | 
|Non-cash rent expense         |  |                                 | 69    |  |                                |   | 66    |      |  |   | 206    |  |  |   | 185    | 
|                              |  |                                 |       |  |                                |   |       |      |  |   |        |  |  |   |        | 
|Total                         |  | $                               | 8,516 |  |                                | $ | 5,375 |      |  | $ | 23,414 |  |  | $ | 20,059 | 
|                              |  |                                 |       |  |                                |   |       |      |  |   |        |  |  |   |        | 

The increase in cash SG&A expenses of $3.5 million from the third quarter of 2009 to the third quarter of 2010 was
primarily due to (1) an increase of $1.1 million in accruals for performance incentive compensation tied to Cash EBITDA; (2) an increase in our allowance for doubtful accounts of $1.5 million; and (3) an increase of $0.5 million in
sales commissions as a result of higher revenues.

The increase in cash SG&A expenses of $3.7 million from the first nine months of 2009
to the first nine months of 2010 was primarily due to (1) an increase of $3.4 million in accruals for performance incentive compensation tied to Cash EBITDA; (2) an increase of $1.2 million in our allowance for doubtful accounts; and
(3) an increase of $0.7 million in sales commissions as a result of higher revenues. These increases were partially offset by (1) a decrease of $1.0 million in one-time costs associated with cost reduction measures; (2) a decrease of
$0.2 million in personnel costs resulting from workforce reductions and employee benefits implemented in 2009; and (3) a decrease of $0.4 million in various expenses primarily resulting from cost cutting measures implemented in 2009.

The decreases in non-cash compensation expense from the 2009 periods to the 2010 periods were primarily due to the use of graded vesting to
amortize the compensation expense related to our stock option issuances, thus recognizing more expense in the earlier periods and gradually reducing in later periods. These decreases were partially offset by additional non-cash compensation expense
resulting from the May 2010 re-pricing of our outstanding stock options.

Income Taxes

Tax benefit was $1.4 million in the third quarter of 2010 compared to $1.2 million in the third quarter of 2009. The benefit in the third quarter of 2010
was comprised of (i) a benefit of $1.6 million related to our Canadian operations; (ii) $0.1 million in U.S. state tax expense; and (iii) $0.1 million related to principal and interest on uncertain tax positions. The benefit in the
third quarter of 2009 was comprised of (i) a benefit of $0.8 million related to our Canadian operations; (ii) a benefit of $0.3 million related to certain research and development tax credits received in Canada; and (iii) a benefit of
$0.1 million primarily related to a reduction in interest on uncertain tax positions following the expiration of the statute of limitations. The Federal tax benefit in both the third quarter of 2010 and 2009 resulting from our U.S. operations was
offset by a valuation allowance because it was more likely than not that the deferred tax asset would not be realized.

Tax benefit was $3.2
million and $3.4 million for the nine months ended September 30, 2010 and 2009, respectively. The benefit for the first nine months of 2010 was comprised of (i) a benefit of $3.8 million related to our Canadian operations; (ii) an
expense of $0.3 million related to principal and interest on uncertain tax positions; and (iii) $0.3 million in U.S. state tax expense. The benefit for the first nine months of 2009 was comprised of (i) a benefit of $3.3 million related to
our Canadian operations; (ii) a benefit of $0.3 million related to certain research



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and development tax credits received in Canada; and (iii) $0.2 million of state tax expense in the U.S. The Federal tax benefit in both the first nine months of 2010 and 2009 resulting from
our U.S. operations was offset by a valuation allowance because it was more likely than not that the deferred tax asset would not be realized.

Liquidity and Capital Resources

As of September 30, 2010, we had $45.6 million in
consolidated cash, cash equivalents and short-term investments. Included in this balance is restricted cash of $177,000. Other sources of liquidity include our credit facilities described below.

U.S. Credit Facility: On December 22, 2009, we entered into a secured credit agreement which provides us with the ability to borrow up to
$9.9 million (the U.S. Credit Facility). Borrowings under the U.S. Credit Facility may be made from date of the agreement until December 31, 2010. Borrowings may be prepaid and, in certain circumstances as defined in the agreement,
mandatory prepayments are required. However, such prepaid amounts may not be reborrowed. The maturity date of the U.S Credit Facility is December 22, 2014. The U.S. Credit Facility contains financial covenants, including a covenant requiring us
to achieve and maintain a minimum level of cash EBITDA (as defined in the credit agreement governing the U.S. Credit Facility). At September 30, 2010, there was no outstanding balance under the U.S. Credit Facility and there was $9.9 million of
availability.

Canadian Credit Facility: Our wholly owned subsidiary, Olympic Seismic Ltd. (Olympic), has a revolving
credit facility (the Canadian Credit Facility) which allows it to borrow up to $5.0 million (Canadian), subject to an availability formula, by way of prime-based loans or letters of credit. Available borrowings under the Canadian Credit
Facility are equivalent to a maximum of $5.0 million (Canadian), subject to a requirement that such borrowings may not exceed 75% of good accounts receivable (as defined in the credit agreement governing the Canadian Credit Facility) of Olympic,
less prior-ranking claims, if any, relating to inventory or accounts. As of September 30, 2010, no amounts were outstanding on the Canadian Credit Facility and $0.7 million (Canadian) was available on the line of credit.

9.75% Senior Unsecured Notes: On February 14, 2007, we issued in a private placement $400.0 million aggregate principal amount of our 9.75%
Senior Notes. Interest on these senior notes is payable in cash, semi-annually in arrears on February 15 and August 15.

11.75%
Senior Unsecured Notes: On July 2, 2004, we issued in a private placement $193.0 million aggregate principal amount of our 11.75% Senior Notes. As of September 30, 2010, $2.0 million of the 11.75% Senior Notes remain outstanding and
mature on July 15, 2011. Interest on these senior notes is payable in cash, semi-annually in arrears on January 15 and July 15.

Cash Flows from Operating Activities:Cash flows provided by operating activities were $49.6 million and $20.0 million for the nine months ended
September 30, 2010 and 2009, respectively. Operating cash flows for 2010 increased from 2009 primarily due to an increase in cash resales and the related cash collections.

Cash Flows from Investing Activities: Cash flows used in investing activities were $30.2 million and $50.7 million for the nine months ended September 30, 2010 and
2009, respectively. Cash expenditures for seismic data were $30.0 million and $50.4 million for the nine months ended September 30, 2010 and 2009, respectively. The decrease in cash invested in seismic data for 2010 compared to 2009 was
primarily due to reduced activity in 2009 caused by the economic downturn which had a continuing effect into 2010.

Cash
Flows from Financing Activities: Cash flows used in financing activities were $0.2 million and $0.1 million for the nine months ended September 30, 2010 and 2009, respectively. The increase in cash used in financing activities is due to the
payment of debt issue costs in 2010 related to our U.S. Credit Facility.

Anticipated Liquidity: Our ability to cover our operating and
capital expenses, make required debt service payments on our 9.75% Senior Notes and 11.75% Senior Notes, incur additional indebtedness, and comply with our various debt covenants will depend primarily on our ability to generate substantial operating
cash flows. Over the next 12 months, we expect to obtain the funds necessary to pay our operating, capital and other expenses and principal and interest on our senior notes and our other indebtedness, from our operating cash flows, cash and cash
equivalents on hand and, if required, from additional borrowings (to the extent available under our credit facilities and otherwise subject to the borrowing base). Our ability to satisfy our payment obligations depends substantially on our future
operating and financial performance, which necessarily will be affected by, and subject



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to, industry, market, economic and other factors. If necessary, we could choose to reduce our spending on capital projects and operating expenses to ensure we operate within the cash flow
generated from our operations. We will not be able to predict or control many of these factors, such as economic conditions in the markets where we operate and competitive pressures.

Deferred Taxes

As of September 30, 2010, we had a net deferred tax liability
of $2.4 million attributable to our Canadian operations and a $0.3 deferred tax asset attributable to U.S. state deferred taxes. In the U.S., we had a Federal deferred tax asset of $104.9 million, all of which was fully offset by a valuation
allowance. The recognition of the U.S. Federal deferred tax asset will not occur until such time that it is more likely than not that some portion or all of the U.S. Federal deferred tax asset will be realized. As of September 30, 2010, it was
more likely than not that all of the U.S. Federal deferred tax asset will not be realized.

Off-Balance Sheet Transactions

Other than operating leases, we do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships
with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expense, results of operations, liquidity, capital expenditures or
capital resources.

Capital Expenditures

During the nine months ended September 30, 2010, capital expenditures for seismic data and other property and equipment amounted to $40.9 million. Our capital expenditures for the remainder of 2010
are presently estimated to be $31.7 million. The first nine months of 2010 actual and 2010 estimated remaining capital expenditures are comprised of the following (in thousands):



|                                            |  |                                    |        |   |                              |   |        |                       |  |   |         |  
|------------------------------------------- |  | ---------------------------------- | ------ | - | ---------------------------- | - | ------ | --------------------- |  | - | ------- | -
|                                            |  | Nine MonthsEndedSeptember 30, 2010 |        |   | Estimate forRemainderof 2010 |   |        | TotalEstimatefor 2010 | 
|                                            |  |                                    |       
|New data acquisition                        |  | $                                  | 31,376 |   |                              | $ | 26,424 |                       |  | $ | 57,800  |  
|Cash purchases and data processing          |  |                                    | 1,441  |   |                              |   | 359    |                       |  |   | 1,800   |  
|Non-monetary exchanges                      |  |                                    | 7,890  |   |                              |   | 4,610  |                       |  |   | 12,500  |  
|Property and equipment and other            |  |                                    | 198    |   |                              |   | 302    |                       |  |   | 500     |  
|                                            |  |                                    |        |   |                              |   |        |                       |  |   |         |  
|Total capital expenditures                  |  |                                    | 40,905 |   |                              |   | 31,695 |                       |  |   | 72,600  |  
|Less: Non-monetary exchanges                |  |                                    | (7,890 | ) |                              |   | (4,610 | )                     |  |   | (12,500 | )
|Changes in working capital                  |  |                                    | (2,775 | ) |                              |   |       |                       |  |   | (2,775  | )
|                                            |  |                                    |        |   |                              |   |        |                       |  |   |         |  
|Cash investment per statement of cash flows |  | $                                  | 30,240 |   |                              | $ | 27,085 |                       |  | $ | 57,325  |  
|                                            |  |                                    |        |   |                              |   |        |                       |  |   |         |  

Capital expenditures funded from operating cash flow are as follows (in thousands):



|                                                     |  |                                    |         |   |                              |   |         |                       |  |   |         |  
|---------------------------------------------------- |  | ---------------------------------- | ------- | - | ---------------------------- | - | ------- | --------------------- |  | - | ------- | -
|                                                     |  | Nine MonthsEndedSeptember 30, 2010 |         |   | Estimate forRemainderof 2010 |   |         | TotalEstimatefor 2010 | 
|                                                     |  |                                    |        
|Total capital expenditures                           |  | $                                  | 40,905  |   |                              | $ | 31,695  |                       |  | $ | 72,600  |  
|Less: Non-cash additions                             |  |                                    | (7,890  | ) |                              |   | (4,610  | )                     |  |   | (12,500 | )
|Cash underwriting                                    |  |                                    | (21,553 | ) |                              |   | (14,847 | )                     |  |   | (36,400 | )
|                                                     |  |                                    |         |   |                              |   |         |                       |  |   |         |  
|Capital expenditures funded from operating cash flow |  | $                                  | 11,462  |   |                              | $ | 12,238  |                       |  | $ | 23,700  |  
|                                                     |  |                                    |         |   |                              |   |         |                       |  |   |         |  

As of November 8, 2010, we had capital expenditure commitments related to data acquisition projects of approximately
$62.3 million, of which we have obtained approximately $36.1 million of cash underwriting and $2.1 million of underwriting for non-monetary exchanges.



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Reconciliation of Non-GAAP to
GAAP Financial Measures

The following table summarizes the percentage increases between the periods indicated for cash resales and
total revenue:



|                     |  |             |     |   |             |  |     |  
|-------------------- |  | ----------- | --- | - | ----------- |  | --- | -
|                     |  | 3Q09 to3Q10 |     |   | 9M09 to9M10 | 
|                     |  |            
|Cash resales         |  |             | 261 | % |             |  | 228 | %
|Total revenue        |  |             | 137 | % |             |  | 45  | %
|U.S. cash resales    |  |             | 389 | % |             |  | 305 | %
|U.S. total revenue   |  |             | 159 | % |             |  | 50  | %
|Canada cash resales  |  |             | 31  | % |             |  | 59  | %
|Canada total revenue |  |             | 59  | % |             |  | 33  | %



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed to market risk, including adverse changes in interest rates and foreign currency exchange rates.

Interest Rate Risk

We may enter into various financial instruments, such as interest rate
swaps or interest rate lock agreements, to manage the impact of changes in interest rates. As of September 30, 2010, we did not have any open interest rate swap or interest rate lock agreements. Therefore, our exposure to changes in interest
rates primarily results from our short-term and long-term debt with both fixed and floating interest rates.

Foreign Currency Exchange Rate
Risk

Our Canadian subsidiaries conduct business in the Canadian dollar and are therefore subject to foreign currency exchange rate risk on
cash flows related to sales, expenses, financing and investing transactions in currencies other than the U.S. dollar. Currently, we do not have any open forward exchange contracts.

We have not had any significant changes in our market risk exposures during the quarter ended September 30, 2010.



|Item 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------



|a) | Evaluation of Disclosure Controls and Procedures
|-- | ------------------------------------------------

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), pursuant to Exchange Act Rule 13a-15.
Based upon that evaluation, our President and Chief Executive Officer along with our Chief Financial Officer concluded that the Companys disclosure controls and procedures as of September 30, 2010 are effective in ensuring that
information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is
accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.



|b) | Changes in Internal Control Over Financial Reporting
|-- | ----------------------------------------------------

There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.



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PART II - OTHER INFORMATION



|Item 1. | LEGAL PROCEEDINGS
|------- | -----------------

See Part I,
Item 1, Note H to Consolidated Financial Statements, which is incorporated herein by reference.



|Item 1A. | RISK FACTORS
|-------- | ------------

In addition to the
cautionary information included in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our 2009 Annual Report on Form 10-K, filed with the SEC on March 30, 2010, which could materially
adversely affect our business, financial condition and/or results of operations.



|Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|Item 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|Item 4. | (REMOVED AND RESERVED)
|------- | ----------------------



|Item 5. | OTHER INFORMATION
|------- | -----------------

None.



|Item 6. | EXHIBITS
|------- | --------



3.1

Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on
July 25, 2007).3.2

Bylaws of Seitel, Inc. (incorporated by reference from Exhibit 3.2 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25,
2007).31.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002.31.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002.32.1**

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2**

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




|* | Filed herewith.
|- | ---------------

|** | Furnished, not filed, pursuant to 601(b)(32) of Regulation S-K.
|-- | ---------------------------------------------------------------



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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.



|                         |  |  |  |              |  |                                      
|------------------------ |  |  |  | ------------ |  | -------------------------------------
|                         |  |  |  | SEITEL, INC.
|                         |  |  | 
|Dated: November 12, 2010 |  |  |  | /s/          |  | Robert D. Monson                     
|                         |  |  |  |              |  | Robert D. Monson                     
|                         |  |  |  |              |  | Chief Executive Officer and President
|                         |  |  | 
|Dated: November 12, 2010 |  |  |  | /s/          |  | Marcia H. Kendrick                   
|                         |  |  |  |              |  | Marcia H. Kendrick                   
|                         |  |  |  |              |  | Chief Financial Officer              



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EXHIBIT

INDEX



|        |  |                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Title                                                                                                                                                                                      
|        | 
|3.1     |  | Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25,
2007).
|        | 
|3.2     |  | Bylaws of Seitel, Inc. (incorporated by reference from Exhibit 3.2 to the Registration Statement on Form S-4, No. 333-144844, as filed with the SEC on July 25,
2007).                     
|        | 
|31.1*   |  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002.                                     
|        | 
|31.2*   |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002.                                     
|        | 
|32.1**  |  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002.                                     
|        | 
|32.2**  |  | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002.                                     



|* | Filed herewith.
|- | ---------------

|** | Furnished, not filed, pursuant to Item 601(b)(32) of Regulation S-K.
|-- | --------------------------------------------------------------------



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