Index



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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



|
|





| |   |  |  |                                                                             
| | - |  |  | ----------------------------------------------------------------------------
| | X |  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
| |   |  |  |                                                                             
| |   |  |  | ACT OF 1934                                                                 
| |   |  |  | For the quarterly period ended June 30, 2001                                
| |   |  |  |                                                                             
| |   |  |  | OR                                                                          
| |   |  |  |                                                                             
| |   |  |  |                                                                             
| |   |  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
| |   |  |  |                                                                             
| |   |  |  | ACT OF 1934                                                                 
|
|
|





|                                                   
|---------------------------------------------------
|SEITEL, INC.                                       
|(Exact name of registrant as specified in charter) 
|                                                   
|                                                   
|Delaware                                           
|(State or other jurisdiction of                    
|incorporation or organization)                     
|                                                   
|                                                   
|50 Briar Hollow Lane, 7th Floor West               
|Houston, Texas                                     
|(Address of principal executive offices)           
|                                                   
|                                                   
|Registrant's telephone number, including area code:
|                                                   
|                                                   
|                                                   





|    |  |   |  |  |    |  |  | 
|--- |  | - |  |  | -- |  |  | 
|Yes |  | X |  |  | No |  |  | 
|    |  |   |  |  |    |  |  | 

As of August 10, 2001, there were 25,039,399 shares of the Company's common stock, par value $.01 per share outstanding.

Page 1 of 128



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INDEX



|         |                                                              | Page                                         
|-------- | ------------------------------------------------------------ | ---------------------------------------------
|         |                                                              |                                              
|PART I.  | FINANCIAL INFORMATION                                        |                                              
|         |                                                              |                                              
|         | Item 1.                                                      | Financial Statements                         
|         |                                                              |                                              
|         | ConsolidatedBalanceSheets as of                              |                                              
|         | June 30, 2001 (Unaudited) and December 31, 2000              | 3                                            
|         |                                                              |                                              
|         | Consolidated Statements of Income (Unaudited)                |                                              
|         | for theThreeMonths Ended June 30, 2001 and 2000              | 4                                            
|         |                                                              |                                              
|         | Consolidated Statements of Income (Unaudited)                |                                              
|         | for theSixMonths Ended June 30, 2001 and 2000                | 5                                            
|         |                                                              |                                              
|         | Consolidated Statements of Stockholders'Equity               |                                              
|         | for the Six Months Ended June 30, 2001 (Unaudited)           |                                              
|         | and for the year ended December 31, 2000                     | 6                                            
|         |                                                              |                                              
|         | Consolidated Statements ofCashFlows (Unaudited)              |                                              
|         | for the Six Months Ended June 30, 2001 and 2000              | 7                                            
|         |                                                              |                                              
|         | Notes to ConsolidatedInterimFinancial Statements (Unaudited) | 8                                            
|         |                                                              |                                              
|         | Item 2.                                                      | Management'sDiscussionand Analysis of        
|         |                                                              | Financial Condition and Results of Operations
|         |                                                              |                                              
|         | Item 3.                                                      | Quantitative and Qualitative                 
|         |                                                              | DisclosuresAbout Market Risk                 
|         |                                                              |                                              
|PART II. | OTHERINFORMATION                                             | 15                                           
|         |                                                              |                                              





---

Index



|PART I - FINANCIAL INFORMATION
|------------------------------
|                              





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

SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts)

|                                           |                                                       |                                                      |         |         |   |              |        
|------------------------------------------ | ----------------------------------------------------- | ---------------------------------------------------- | ------- | ------- | - | ------------ | -------
|                                           |                                                       | (Unaudited)                                          |         |         |   |              |        
|                                           |                                                       | June 30,                                             |         |         |   | December 31, |        
|                                           |                                                       | 2001                                                 |         |         |   | 2000         |        
|                                           |                                                       |                                                      |         |         |   |              |        
|ASSETS                                     |                                                       |                                                      |         |         |   |              |        
|                                           | Cash and equivalents                                  | $                                                    | 6,723   |         |   | $            | 10,216 
|                                           | Receivables                                           |                                                      |         |         |   |              |        
|                                           |                                                       | Trade, net of allowance                              |         | 66,512  |   |              |        
|                                           |                                                       | Notes and other                                      |         | 1,474   |   |              |        
|                                           | Net seismic data library                              |                                                      | 384,248 |         |   |              | 345,201
|                                           | Net oil and gas properties                            |                                                      | 135,182 |         |   |              | 141,658
|                                           | Net other property and equipment                      |                                                      | 4,927   |         |   |              | 3,997  
|                                           | Investment in marketable securities                   |                                                      | 2,773   |         |   |              | 2,029  
|                                           | Prepaid expenses, deferred charges and other assets   |                                                      | 5,573   |         |   |              | 4,716  
|                                           |                                                       |                                                      |         |         |   |              |        
|                                           |                                                       |                                                      |         |         |   |              |        
|                                           | TOTAL ASSETS                                          | $                                                    | 607,412 |         |   | $            | 577,557
|                                           |                                                       |                                                      |         |         |   |              |        
|                                           |                                                       |                                                      |         |         |   |              |        
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                       |                                                      |         |         |   |              |        
|                                           | Accounts payable and accrued liabilities              | $                                                    | 53,355  |         |   | $            | 55,171 
|                                           | Income taxes payable                                  |                                                      | 2,207   |         |   |              | 6,075  
|                                           | Debt                                                  |                                                      |         |         |   |              |        
|                                           |                                                       | Senior Notes                                         |         | 166,333 |   |              |        
|                                           |                                                       | Lines of credit                                      |         | 66,000  |   |              |        
|                                           | Obligations under capital leases                      |                                                      | 218     |         |   |              | 265    
|                                           | Deferred income taxes                                 |                                                      | 28,758  |         |   |              | 30,412 
|                                           | Deferred revenue                                      |                                                      | 1,264   |         |   |              | 2,975  
|                                           |                                                       |                                                      |         |         |   |              |        
|TOTAL LIABILITIES                          |                                                       | 318,135                                              |         |         |   | 301,231      |        
|                                           |                                                       |                                                      |         |         |   |              |        
|                                           |                                                       |                                                      |         |         |   |              |        
|CONTINGENCIES AND COMMITMENTS              |                                                       |                                                      |         |         |   |              |        
|                                           |                                                       |                                                      |         |         |   |              |        
|STOCKHOLDERS' EQUITY                       |                                                       |                                                      |         |         |   |              |        
|                                           | Preferred stock, par value $.01 per share; authorized |                                                      |         |         |   |              |        
|                                           |                                                       | 5,000,000 shares; none issued                        |         | -       |   |              |        
|                                           | Common stock, par value $.01 per share; authorized    |                                                      |         |         |   |              |        
|                                           |                                                       | 50,000,000 shares; issued and outstanding            |         |         |   |              |        
|                                           |                                                       | 25,773,983 and 25,306,517 at June 30, 2001           |         |         |   |              |        
|                                           |                                                       | and December 31,2000, respectively                   |         | 258     |   |              |        
|                                           | Additional paid-in capital                            |                                                      | 165,948 |         |   |              | 159,543
|                                           | Retained earnings                                     |                                                      | 137,832 |         |   |              | 129,543
|                                           | Treasury stock, 735,918 and 635,918 shares at cost    |                                                      |         |         |   |              |        
|                                           |                                                       | at June 30, 2001 and December 31, 2000, respectively |         | (9,072  | ) |              |        
|                                           | Notes receivable from officers and employees          |                                                      | (4,127  | )       |   |              | (4,965 
|                                           | Accumulated other comprehensive income (loss)         |                                                      | (1,562  | )       |   |              | (381   
|                                           |                                                       |                                                      |         |         |   |              |        
|TOTAL STOCKHOLDERS' EQUITY                 |                                                       | 289,277                                              |         |         |   | 276,326      |        
|                                           |                                                       |                                                      |         |         |   |              |        
|                                           |                                                       |                                                      |         |         |   |              |        
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $                                                     | 607,412                                              |         |         | $ | 577,557      |        
|                                           |                                                       |                                                      |         |         |   |              |        

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

Page 3 of 128



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Index

SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)(In thousands, except per share amounts)

|                                         |                                              | Three Months Ended June 30, |       
|---------------------------------------- | -------------------------------------------- | --------------------------- | ------
|                                         |                                              |                             |       
|                                         |                                              | 2001                        |       
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|REVENUE                                  | $                                            | 43,415                      |       
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|EXPENSES                                 |                                              |                             |       
|                                         | Depreciation, depletion and amortization     |                             | 19,797
|                                         | Impairment of oil and gas properties         |                             | 7,980 
|                                         | Cost of sales                                |                             | 1,450 
|                                         | Selling, general and administrative expenses |                             | 9,826 
|                                         | Restructuring charge                         |                             | -     
|                                         |                                              |                             |       
|                                         |                                              | 39,053                      |       
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|INCOME FROM OPERATIONS                   |                                              | 4,362                       |       
|                                         |                                              |                             |       
|Interest expense, net                    |                                              | (3,049                      | )     
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|Income before provision for income taxes |                                              | 1,313                       |       
|                                         |                                              |                             |       
|Provision for income taxes               |                                              | 541                         |       
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|NET INCOME                               | $                                            | 772                         |       
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|Net income per share:                    |                                              |                             |       
|                                         | Basic                                        | $                           | .03   
|                                         |                                              |                             |       
|                                         | Diluted                                      | $                           | .03   
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|                                         |                                              |                             |       
|Weighted average number of common and    |                                              |                             |       
|                                         | common equivalent shares:                    |                             |       
|                                         | Basic                                        |                             | 25,060
|                                         |                                              |                             |       
|                                         | Diluted                                      |                             | 26,340
|                                         |                                              |                             |       

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

Page 4 of 128



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Index

SEITEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)(In thousands, except per share amounts)

|                                         |                                              | Six Months Ended June 30, |       
|---------------------------------------- | -------------------------------------------- | ------------------------- | ------
|                                         |                                              |                           |       
|                                         |                                              | 2001                      |       
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|REVENUE                                  | $                                            | 92,393                    |       
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|EXPENSES                                 |                                              |                           |       
|                                         | Depreciation, depletion and amortization     |                           | 41,004
|                                         | Impairment of oil and gas properties         |                           | 7,980 
|                                         | Cost of sales                                |                           | 2,923 
|                                         | Selling, general and administrative expenses |                           | 21,194
|                                         | Restructuring charge                         |                           | -     
|                                         |                                              |                           |       
|                                         |                                              | 73,101                    |       
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|INCOME FROM OPERATIONS                   |                                              | 19,292                    |       
|                                         |                                              |                           |       
|Interest expense, net                    |                                              | (6,064                    | )     
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|Income before provision for income taxes |                                              | 13,228                    |       
|                                         |                                              |                           |       
|Provision for income taxes               |                                              | 4,939                     |       
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|NET INCOME                               | $                                            | 8,289                     |       
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|Net income per share:                    |                                              |                           |       
|                                         | Basic                                        | $                         | .33   
|                                         |                                              |                           |       
|                                         | Diluted                                      | $                         | .32   
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|                                         |                                              |                           |       
|Weighted average number of common and    |                                              |                           |       
|                                         | common equivalent shares:                    |                           |       
|                                         | Basic                                        |                           | 24,921
|                                         |                                              |                           |       
|                                         | Diluted                                      |                           | 26,311
|                                         |                                              |                           |       

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

Page 5 of 128



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Index



|SEITEL, INC. AND SUBSIDIARIES                  
|-----------------------------------------------
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|(In thousands, except share amounts)           
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Balance, December 31, 1999                     
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Balance, December 31, 2000                     
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|                                               
|Balance, June 30, 2001                         
|                                               
|                                               

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

Page 6 of 128



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Index

|SEITEL, INC. AND SUBSIDIARIES                                              |                                                          |                                           |         |         |        |        
|-------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------- | ------- | ------- | ------ | -------
|CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)                          |                                                          |                                           |         |         |        |        
|(in thousands)                                                             |                                                          | Six Months Ended June 30,                 |        
|                                                                           |                                                          |                                           |        
|                                                                           |                                                          | 2001                                      |         |         | 2000   |        
|                                                                           |                                                          |                                           |         |         |        |        
|Cash flows from operating activities:                                      |                                                          |                                           |         |         |        |        
|Reconciliation of net income to net cash provided by operating activities: |                                                          |                                           |         |         |        |        
|                                                                           | Net income                                               | $                                         | 8,289   |         | $      | 4,371  
|                                                                           | Depreciation, depletion and amortization                 |                                           | 41,028  |         |        | 31,888 
|                                                                           | Impairment of oil and gas properties                     |                                           | 7,980   |         |        | -      
|                                                                           | Restructuring charge                                     |                                           | -       |         |        | 2,470  
|                                                                           | Deferred income tax provision (benefit)                  |                                           | (1,368  | )       |        | 1,450  
|                                                                           | Non-cash sales                                           |                                           | (9,496  | )       |        | -      
|                                                                           | Decrease in receivables                                  |                                           | 321     |         |        | 8,891  
|                                                                           | Increase in other assets                                 |                                           | (545    | )       |        | (356   
|                                                                           | Decrease in accounts payable and other liabilities       |                                           | (12,546 | )       |        | (4,812 
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          | Net cash provided by operating activities |         | 33,663  |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|Cash flows from investing activities:                                      |                                                          |                                           |         |         |        |        
|                                                                           | Cash invested in seismic data                            |                                           | (57,073 | )       |        | (38,503
|                                                                           | Cash invested in oil and gas properties                  |                                           | (8,945  | )       |        | (10,647
|                                                                           | Cash paid to acquire property and equipment              |                                           | (1,785  | )       |        | (288   
|                                                                           | Net proceeds from sale of oil and gas properties         |                                           | 340     |         |        | -      
|                                                                           | Deferred offering costs                                  |                                           | -       |         |        | (889   
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          | Net cash used in investing activities     |         | (67,463 | )      |        
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|Cash flows from financing activities:                                      |                                                          |                                           |         |         |        |        
|                                                                           | Borrowings under line of credit agreement                |                                           | 82,060  |         |        | 26,697 
|                                                                           | Principal payments under line of credit                  |                                           | (56,060 | )       |        | (24,699
|                                                                           | Principal payments on term loans                         |                                           | -       |         |        | (33    
|                                                                           | Principal payments on capital lease obligations          |                                           | (47     | )       |        | (21    
|                                                                           | Proceeds from issuance of common stock                   |                                           | 5,967   |         |        | 158    
|                                                                           | Costs of debt and equity transactions                    |                                           | (471    | )       |        | (2     
|                                                                           | Repurchase of common stock                               |                                           | (1,405  | )       |        | -      
|                                                                           | Payments on notes receivable from officers and employees |                                           | 938     |         |        | 500    
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          | Net cash provided by financing activities |         | 30,982  |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|Effect of exchange rate changes                                            |                                                          | (675                                      | )       |         | 500    |        
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|Net decrease in cash and equivalents                                       |                                                          | (3,493                                    | )       |         | (3,325 | )      
|                                                                           |                                                          |                                           |         |         |        |        
|Cash and equivalents at beginning of period                                |                                                          | 10,216                                    |         |         | 5,188  |        
|                                                                           |                                                          |                                           |         |         |        |        
|Cash and equivalents at end of period                                      | $                                                        | 6,723                                     |         | $       | 1,863  |        
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|Supplemental disclosure of cash flow information:                          |                                                          |                                           |         |         |        |        
|                                                                           | Cash paid during period for:                             |                                           |         |         |        |        
|                                                                           |                                                          | Interest (net of amounts capitalized)     | $       | 6,172   |        | $      
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          | Income taxes                              | $       | 9,727   |        | $      
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           |                                                          |                                           |         |         |        |        
|Supplemental schedule of non-cash investing                                |                                                          |                                           |         |         |        |        
|                                                                           | and financing activities:                                |                                           |         |         |        |        
|                                                                           | Additions to seismic data library                        | $                                         | 9,496   |         | $      | -      
|                                                                           |                                                          |                                           |         |         |        |        
|                                                                           | Capital lease obligations incurred                       | $                                         | -       |         | $      | 22     
|                                                                           |                                                          |                                           |         |         |        |        



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

Page 7 of 128



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Index

SEITEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)
June 30, 2001

NOTE A-BASIS OF PRESENTATION



The Company has changed its presentation of cash flows from operating activities from the direct method to the indirect method as allowed in Statement of Financial Accounting Standards ("SFAS") No. 95.

NOTE B-EARNINGS PER SHARE

In accordance with SFAS No. 128, "Earnings per Share," basic earnings per share is computed based on the weighted average shares of common stock outstanding during the periods. Diluted earnings per share is computed based on the weighted average shares of common stock plus the assumed issuance of common stock for all potentially dilutive securities. The computations for basic and diluted net income per share for the three and six months ended June 30, 2001 and 2000 consist of the following (in thousands except per share amounts):



|                                   |                      | Three Months Ended |       |   | Six Months Ended |    
|---------------------------------- | -------------------- | ------------------ | ----- | - | ---------------- | ---
|                                   |                      | June 30,           |       |   | June 30,         |    
|                                   |                      |                    |       |   |                  |    
|                                   |                      | 2001               |       |   | 2000             |    
|                                   |                      |                    |       |   |                  |    
|                                   |                      |                    |       |   |                  |    
|Net income                         | $                    | 772                |       | $ | 1,866            |    
|                                   |                      |                    |       |   |                  |    
|                                   |                      |                    |       |   |                  |    
|Basic weighted average shares      |                      | 25,060             |       |   | 23,661           |    
|Effect of dilutive securities: (1) |                      |                    |       |   |                  |    
|                                   | Options and warrants |                    | 1,280 |   |                  | 90 
|                                   |                      |                    |       |   |                  |    
|Diluted weighted average shares    |                      | 26,340             |       |   | 23,751           |    
|                                   |                      |                    |       |   |                  |    
|Net income per share:              |                      |                    |       |   |                  |    
|                                   | Basic                | $                  | .03   |   | $                | .08
|                                   | Diluted              | $                  | .03   |   | $                | .08



|    |                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                             
|(1) | During the second quarter of 2001 and 2000 and the first six months of 2001 and 2000, a weighted average number of options and warrants to purchase 279,000, 6,169,000, 196,000 and 6,208,000 shares of common stock were outstanding, respectively, but were not included in the computation of diluted net income per share because their exercise prices were greater than the average market price of the common shares.

Page 8 of 128



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Index

NOTE C-SEISMIC DATA LIBRARY

Costs incurred in the creation of proprietary seismic data, including the direct and incremental costs of Company personnel engaged in project management and design, are capitalized. Approximately 80% of the costs incurred to develop the Company's seismic data library have been for programs created by the Company. The Company uses the income forecast method to amortize the costs of seismic data programs it creates. Under the income forecast method, seismic data costs are amortized in the proportion that revenue for a period relates to management's estimate of ultimate revenues. If anticipated sales fall below expectations, amortization is accelerated. The Company also purchases existing seismic data programs from other companies. The costs of purchased seismic data programs are generally amortized on a straight-line basis over ten years; however, the costs of a significant purchase (greater than 5% of the net book value of the data bank), are amortized using the greater of the income forecast method or ten-year straight-line method. All of the surveys in the Company's seismic data library are expected to be substantially amortized within 10 years from when such data becomes available for resale.

In certain transactions, the Company grants seismic licenses to third parties for data to be used in their operations (not for resale) in exchange for exclusive ownership of seismic data from the third party. The Company recognizes revenue for the licenses granted and records a data library asset for the seismic data acquired. These transactions are accounted for as non-monetary exchanges and are valued at the fair market value of such licenses based on values realized in cash transactions with other parties for similar seismic data, or at the estimated fair value of the seismic data libraries acquired.





Capitalized costs of oil and gas properties, net of accumulated depreciation, depletion and amortization and deferred income taxes, are limited to the present value, discounted at 10 percent, of future net cash flows from estimated proved oil and gas reserves, based on current economic and operating conditions, plus the lower of cost or fair value of unproved properties, adjusted for the effects of related income taxes. If capitalized costs exceed this limit, the excess is charged to impairment of oil and gas properties. Based on the Company's June 30, 2001 estimated proved reserves, the Company recorded a non-cash impairment of oil and gas properties of $7,980,000 ($5,000,000 net of tax) in the second quarter of 2001.

NOTE E-DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company enters into foreign exchange contracts to hedge a portion of its foreign currency exchange risk related to its Canadian activities. On January 1, 2001, the Company adopted SFAS No. 133, as amended, "Accounting for Derivative Instruments and Hedging Activities." Effective with the adoption of SFAS No. 133, all derivatives are recognized on the balance sheet and measured at fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, the gain or loss on the derivative is recognized currently in earnings. If the derivative qualifies for hedge accounting, the gain or loss on the derivative is either recognized in income along with an offsetting adjustment to the basis of the item being hedged or deferred in other comprehensive income to the extent the hedge is effective. The adoption of SFAS No. 133 did not have a material impact on the Company's financial position or results of operations.

Page 9 of 128



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Index

NOTE F-INDUSTRY SEGMENTS

Segment information has been prepared in accordance with SFAS NO. 131, "Disclosures About Segments of an Enterprise and Related Information." Selected financial information as of and for the three and six months ended June 30, 2001 and 2000 is as follows (in thousands):

|                                         |  |   |         |  |   | Exploration |   |   |          | 
|---------------------------------------- |  | - | ------- |  | - | ----------- | - | - | -------- | 
|                                         |  |   |         |  |   | and         |   |   | Total    | 
|                                         |  |   | Seismic |  |   | Production  |   |   | Segments | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Three months ended June 30, 2001         |  |   |         |  |   |             |   |   |          | 
|Revenue from external purchasers         |  | $ | 37,627  |  | $ | 5,788       |   | $ | 43,415   | 
|Depreciation, depletion and amortization |  |   | 16,592  |  |   | 2,745       |   |   | 19,337   | 
|Impairment of oil and gas properties     |  |   | -       |  |   | 7,980       |   |   | 7,980    | 
|Cost of sales                            |  |   | 472     |  |   | 978         |   |   | 1,450    | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Segment operating income (loss)          |  | $ | 20,563  |  | $ | (5,915      | ) | $ | 14,648   | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Capital expenditures (a)                 |  | $ | 27,440  |  | $ | 2,981       |   | $ | 30,421   | 
|Assets                                   |  |   | 458,002 |  |   | 142,750     |   |   | 600,752  | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Three months ended June 30, 2000         |  |   |         |  |   |             |   |   |          | 
|Revenue from external purchasers         |  | $ | 33,980  |  | $ | 6,087       |   | $ | 40,067   | 
|Depreciation, depletion and amortization |  |   | 15,461  |  |   | 2,970       |   |   | 18,431   | 
|Cost of sales                            |  |   | 403     |  |   | 1,154       |   |   | 1,557    | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Segment operating income                 |  | $ | 18,116  |  | $ | 1,963       |   | $ | 20,079   | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Capital expenditures (a)                 |  | $ | 18,318  |  | $ | 4,433       |   | $ | 22,751   | 
|Assets                                   |  |   | 392,132 |  |   | 159,740     |   |   | 551,872  | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Six months ended June 30, 2001           |  |   |         |  |   |             |   |   |          | 
|Revenue from external purchasers         |  | $ | 78,528  |  | $ | 13,865      |   | $ | 92,393   | 
|Depreciation, depletion and amortization |  |   | 34,747  |  |   | 5,385       |   |   | 40,132   | 
|Impairment of oil and gas properties     |  |   | -       |  |   | 7,980       |   |   | 7,980    | 
|Cost of sales                            |  |   | 643     |  |   | 2,280       |   |   | 2,923    | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Segment operating income (loss)          |  | $ | 43,138  |  | $ | (1,780      | ) | $ | 41,358   | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Capital expenditures (a)                 |  | $ | 74,140  |  | $ | 7,505       |   | $ | 81,465   | 
|Assets                                   |  |   | 458,002 |  |   | 142,750     |   |   | 600,752  | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Six months ended June 30, 2000           |  |   |         |  |   |             |   |   |          | 
|Revenue from external purchasers         |  | $ | 56,999  |  | $ | 11,499      |   | $ | 68,498   | 
|Depreciation, depletion and amortization |  |   | 25,749  |  |   | 5,542       |   |   | 31,291   | 
|Cost of sales                            |  |   | 480     |  |   | 2,727       |   |   | 3,207    | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Segment operating income                 |  | $ | 30,770  |  | $ | 3,230       |   | $ | 34,000   | 
|                                         |  |   |         |  |   |             |   |   |          | 
|Capital expenditures (a)                 |  | $ | 38,076  |  | $ | 8,242       |   | $ | 46,318   | 
|Assets                                   |  |   | 392,132 |  |   | 159,740     |   |   | 551,872  | 



|    |                                    
|--- | -----------------------------------
|    |                                    
|(a) | Includes other ancillary equipment.

Page 10 of 128





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|                                  |                      | Three Months Ended                |                        |        | Six Months Ended |  
|--------------------------------- | -------------------- | --------------------------------- | ---------------------- | ------ | ---------------- | -
|                                  |                      | June 30,                          |                        |        | June 30,         |  
|                                  |                      |                                   |                        |        |                  |  
|                                  |                      | 2001                              |                        |        | 2000             |  
|                                  |                      |                                   |                        |        |                  |  
|Income from continuing operations |                      |                                   |                        |        |                  |  
|                                  | before income taxes: |                                   |                        |        |                  |  
|                                  |                      | Total reportable segment          |                        |        |                  |  
|                                  |                      |                                   | operating income       | $      | 14,648           |  
|                                  |                      | Selling general and               |                        |        |                  |  
|                                  |                      |                                   | administrative expense |        | (9,826           | )
|                                  |                      | Restructuring charge              |                        | -      |                  |  
|                                  |                      | Interest expense, net             |                        | (3,049 | )                |  
|                                  |                      | Eliminations and other            |                        | (460   | )                |  
|                                  |                      |                                   |                        |        |                  |  
|                                  |                      | Income from continuing operations |                        |        |                  |  
|                                  |                      |                                   | before income taxes    | $      | 1,313            |  
|                                  |                      |                                   |                        |        |                  |  



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

OVERVIEW

The Company's income before special items was $5,772,000 for the second quarter of 2001 and $13,289,000 for the six months ended June 30, 2001 as compared to $5,609,000 for the second quarter of 2000 and $8,114,000 for the six months ended June 30, 2000. In the second quarter and first six months of 2001, the Company recorded a non-cash impairment of oil and gas properties of $5,000,000, net of tax, bringing net income for the second quarter and first six months of 2001 to $772,000 and $8,289,000, respectively. Additionally, in the second quarter and first six months of 2000, the Company recorded a non-recurring restructuring charge of $3,743,000, net of tax, bringing net income for the second quarter and first six months of 2000 to $1,866,000 and $4,371,000, respectively.





Revenue from the seismic division was $37,627,000 in the second quarter of 2001 compared to $33,980,000 in the second quarter of 2000 and was $78,528,000 in the first six months of 2001 compared to $56,999,000 in the first six months of 2000. This increase in revenue was primarily due to an increase in licensing of existing data from the Company's data library in the United States which more than offset the reduction in revenue from the Company's Canadian subsidiary.

Net volume and price information for the Company's oil and gas production for the second quarters and first six months of 2001 and 2000 are summarized in the following table:



|                                           |   | Quarter Ended |  |   | Six Months Ended
|------------------------------------------ | - | ------------- |  | - | ----------------
|                                           |   | June 30,      |  |   | June 30,        
|                                           |   |               |  |   |                 
|                                           |   | 2001          |  |   | 2000            
|                                           |   |               |  |   |                 
|                                           |   |               |  |   |                 
|Natural gas volumes (mmcf)                 |   | 797           |  |   | 1,305           
|Average natural gas price ($/mcf)          | $ | 5.22          |  | $ | 3.01            
|Crude oil/condensate volumes (mbbl)        |   | 65            |  |   | 83              
|Average crude oil/condensate price ($/bbl) | $ | 24.53         |  | $ | 25.24           

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Oil and gas revenue was $5,788,000 in the second quarter of 2001 compared to $6,087,000 in the second quarter of 2000. The decrease between periods was due to lower production volumes offset by higher gas prices in 2001. Oil and gas revenue was $13,865,000 in the first six months of 2001 compared to $11,499,000 in the first six months of 2000. The increase between periods was attributable to higher market prices in 2001 offset by lower production volumes. The decline in oil and gas production during 2001 was primarily due to normal production declines experienced on several of the Company's older wells as well as a decline related to a group of wells that was sold in August 2000. These declines were partially offset by production from newer wells.

Oil and gas revenue includes losses from hedging activities of $851,000 in the second quarter of 2000 and $913,000 for the six months ended June 30, 2000.



Depletion of oil and gas properties was $2,745,000 for the second quarter of 2001 compared to $2,970,000 for the second quarter of 2000, which amounted to $2.31 and $1.65, respectively, per mcfe of gas produced during such periods. For the six months ended June 30, 2001 and 2000, depletion of oil and gas properties was $5,385,000 and $5,542,000, respectively, which amounted to $2.27 and $1.57, respectively, per mcfe of gas produced during such periods. The depletion rate per mcfe varies with the estimate of proved oil and gas reserves of the Company at each quarter end, as well as evaluated property costs. The increase in the rate between periods was primarily due to lower proved reserves at June 30, 2001 than at June 30, 2000.

At June 30, 2001, the Company recorded a non-cash impairment of oil and gas properties totaling $7,980,000 ($5,000,000 net of taxes) based on its June 30, 2001 estimated proved reserves. The impairment was primarily due to lower commodity prices.

Cost of sales primarily consists of expenses associated with oil and gas production and seismic resale support services. Oil and gas production costs amounted to $978,000, or $.82 per mcfe of gas produced in the second quarter of 2001 compared to $1,154,000 or $.64 per mcfe of gas produced in the second quarter of 2000. Oil and gas production costs amounted to $2,280,000 or $.96 per mcfe of gas produced in the first six months of 2001 compared to $2,727,000 or $.77 per mcfe of gas produced in the first six months of 2000. The increase in this rate between periods was primarily due to higher production taxes in 2001 due to higher oil and gas prices.

The Company's selling, general and administrative expenses were $9,826,000 and $21,194,000 during the second quarter and first six months of 2001, respectively, compared to $8,011,000 and $14,681,000 during the second quarter and first six months of 2000, respectively. The increases primarily resulted from an increase in overhead costs due to the growth of the Company, including research and development costs associated with its wholly-owned subsidiary, Seitel Solutions, and international business development. As a percentage of total revenue, these expenses were 23% for the second quarter and first six months of 2001, and 20% and 21% for the second quarter and first six months of 2000, respectively.

On June 23, 2000, the Company announced that its management incentive bonus compensation contracts had been restructured to reduce bonuses on pre-tax profits to 8.5% from 17.5%. In connection with the restructuring, the Company issued 375,000 restricted shares of its Common Stock to three members of management and made cash payments totaling $1,771,000. As a result, the Company recorded a restructuring charge in the second quarter of 2000 totaling $4,394,000 ($3,743,000 net of tax) to reflect the cost of the shares issued and the cash payments made. In addition, the Company will, subject to continued employment, make (i) four annual payments of $187,500, net of taxes, to Herbert Pearlman, Chairman of the Board of Directors, which began January 1, 2001; (ii) four annual payments of $125,000, net of taxes, to Paul Frame, President and Chief Executive Officer, which began January 1, 2001; and (iii) payments totaling $1.4 million, net of taxes, to David Lawi payable over four years which began January 1, 2001. The withholding taxes on these payments will total 35%. The Company will also make annual payments of $850,000 to Horace Calvert from July 1, 2000 through May 31, 2004, subject to continued employment. These payments will be charged to expense over the period earned.

Page 12 of 128



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The Company's effective income tax rate was 41% and 37% for the second quarter and first six months of 2001, respectively, compared to 56% and 46% for the second quarter and first six months of 2000, respectively. The decrease in the effective tax rate for 2001 is primarily due to the tax impact of the restructuring charge in 2000 causing an increase in the 2000 effective tax rate as well as the mix of earnings between U.S. and foreign locations. Income tax expense in the second quarter and the first six months of 2000, consisted of two items: (1) income tax expense on income before restructuring charge at the Company's estimated annual tax rate of 35% offset by (2) income tax benefit on the restructuring charge totaling $651,000, which represented 15% of the restructuring charge. The Company received a tax benefit on the restructuring charge of $651,000 due to limitations imposed by Section 162(m) of the Internal Revenue Code.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flow from operating activities was $33,663,000 and $43,902,000 for the six months ended June 30, 2001 and 2000, respectively. The decrease from 2000 to 2001 was primarily attributable to an increase in income taxes paid.

On June 29, 2001, the Company replaced its existing $75 million line of credit with a new $75 million unsecured revolving line of credit facility that matures on June 29, 2004. The Company has the ability to increase the amount of the facility to $150 million. The facility bears interest at a rate determined by the ratio of the Company's debt to EBITDA (earnings before interest, taxes, depreciation, deletion and amortization). Pursuant to the interest rate pricing structure, funds can currently be borrowed at LIBOR plus 1.5%, the bank's prevailing prime rate, or the sum of the Federal Funds Effective Rate for such day plus 1/2%. The balance outstanding on this revolving line of credit as of August 10, 2001 was $66 million at an average interest rate of 5.54%.

The Company's wholly-owned subsidiary, Olympic Seismic Ltd. ("Olympic"), has a revolving credit facility which allows it to borrow up to $5 million (Canadian dollars) by way of prime based loans, bankers' acceptances, or letters of credit. Prime based loans and bankers' acceptances bear interest at the rate of the bank's prime rate plus 0.35% per annum and 0.50% per annum, respectively. Letter of credit fees are based on scheduled rates in effect at the time of issuance. The facility is secured by Olympic's assets, but is not guaranteed by Seitel, Inc. or any of its other subsidiaries. Borrowings under the facility are limited to the higher of $2 million or 75% of trade receivables less than 90 days old. The facility is subject to repayment upon demand and is available from time to time at the Bank's sole discretion. As of August 10, 2001, no amounts were outstanding on this revolving line of credit. Olympic is not a party to any of the debt issued by Seitel, Inc.

On February 12, 1999, the Company completed a private placement of three series of unsecured Senior Notes totaling $138 million. The Series D Notes total $20 million, bear interest at a fixed rate of 7.03% and mature on February 15, 2004, with no principal payments due until maturity. The Series E Notes total $75 million, bear interest at a fixed rate of 7.28% and mature on February 15, 2009, with annual principal payments of $12.5 million beginning February 15, 2004. The Series F Notes total $43 million, bear interest at a fixed rate of 7.43% and mature on February 15, 2009, with no principal payments due until maturity. Interest on the Series D, E and F Notes is payable semi-annually on February 15 and August 15. As of August 10, 2001, the balance outstanding on the Series D, E and F Notes was $138 million.

On December 28, 1995, the Company completed a private placement of three series of unsecured Senior Notes totaling $75 million. The Company contemporaneously issued its Series A Notes and Series B Notes, which total $52.5 million and bear interest at a fixed rate of 7.17%. On April 9, 1996, the Company issued its Series C Notes, which total $22.5 million and bear interest at a fixed rate of 7.48%. The Series A Notes mature on December 30, 2001, and require annual principal payments of $8.3 million which began on December 30, 1999. The Series B and Series C Notes mature on December 30, 2002, and require combined annual principal payments of $10 million, which began on December 30, 1998. Interest on the Series A, B and C Notes is payable semi-annually on June 30 and December 30. As of August 10, 2001, the balance outstanding on the Series A, B, and C Notes was $28,333,000.

Page 13 of 128



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The Company may offer from time to time in one or more series (i) unsecured debt securities, which may be senior or subordinated, (ii) preferred stock and (iii) common stock, or any combination of the foregoing, up to an aggregate of $41,041,600 pursuant to an effective "shelf" registration statement filed with the SEC. In addition, under another effective "shelf" registration statement filed with the SEC, the Company may offer up to an aggregate of $200,000,000 of the following securities, in any combination, from time to time in one or more series: (i) unsecured debt securities, which may be senior or subordinated; (ii) preferred stock; (iii) common stock, and (iv) trust preferred securities.

From January 1, 2001, through August 10, 2001, the Company received $5,968,000 from the exercise of common stock purchase warrants and options. In connection with these exercises, the Company will also realize approximately $450,000 in tax savings.



During the first six months of 2001, capital expenditures for seismic data library, oil and gas property and other property and equipment amounted to $73,307,000, $7,258,000 and $1,785,000, respectively. These capital expenditures, as well as taxes, interest expenses, cost of sales and general and administrative expenses, were funded by operations, proceeds from the exercise of common stock purchase warrants and options, and borrowings under the Company's revolving line of credit.

Currently, the Company anticipates capital expenditures for the remainder of 2001 to total approximately $58 million, of which approximately $42 million will be for seismic data bank additions, approximately $2 million will be for computer equipment purchases and approximately $14 million will be for oil and gas exploration and development efforts. The Company believes its current cash balances, revenues from operating sources, and proceeds from the exercise of common stock purchase warrants and options, combined with its available revolving line of credit, should be sufficient to fund the currently anticipated 2001 capital expenditures, along with expenditures for operating and general and administrative expenses and debt repayments. If these sources are not sufficient to cover the Company's anticipated expenditures or if the Company were to increase its planned capital expenditures for 2001, the Company could arrange for additional debt or equity financing during 2001; however, there can be no assurance that the Company would be able to accomplish any such debt or equity financing on satisfactory terms. If such debt or equity financing is not available on satisfactory terms, the Company could reduce its current capital budget or any proposed increases to its capital budget, and fund expenditures with cash flow generated from operating sources.

Information Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward looking statements herein include, but are not limited to, changes in the exploration budgets of the Company's seismic data and related services customers, actual customer demand for the Company's seismic data and related services, the extent of the Company's success in acquiring oil and gas properties and in discovering, developing and producing reserves, the timing and extent of changes in commodity prices for natural gas, crude oil and condensate and natural gas liquids and conditions in the capital markets and equity markets during the periods covered by the forward looking statements. The foregoing and other risk factors are identified in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2000.

Page 14 of 128



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

The Company is exposed to market risk, including adverse changes in commodity prices, interest rates and foreign currency exchange rates. Refer to the Company's Form 10-K for the year ended December 31, 2000 for a detailed discussion of these risks. The following information discusses changes in the Company's market risk exposures since December 31, 2000.

Commodity Price Risk

The Company may enter into various derivative instruments, principally natural gas swaps, to manage commodity price fluctuations. Currently, the Company has no open commodity price hedges.

Interest Rate Risk

The Company may enter into various financial instruments, such as interest rate swaps, to manage the impact of changes in interest rates. Currently, the Company has no open interest rate swap or interest rate lock agreements. Therefore, the Company's exposure to changes in interest rates primarily results from its short-term and long-term debt with both fixed and floating interest rates.

Foreign Currency Exchange Rate Risk

The Company conducts business in the Canadian dollar and pounds sterling and is therefore subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions. Currently, the Company has no open foreign exchange contracts.



|PART II - OTHER INFORMATION
|---------------------------
|                           

Items 1., 2., 3. and 5.

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

The Company's Annual Meeting of Stockholders was held on June 5, 2001. Matters voted upon at the Annual Meeting, and the results of those votes are as follows:

1.   The election of seven directors to serve until the 2002 Annual Meeting.



| | Name                 |  | No. of Votes For |  | No. of Votes Against
| | -------------------- |  | ---------------- |  | --------------------
| |                      |  |                  |  |                     
| |                      |  |                  |  |                     
| | Herbert M. Pearlman  |  | 19,056,485       |  | 3,589,507           
| | Paul A. Frame        |  | 19,058,857       |  | 3,587,135           
| | Debra D. Valice      |  | 19,058,731       |  | 3,587,261           
| | Walter M. Craig, Jr. |  | 21,783,577       |  | 862,415             
| | William Lerner       |  | 21,778,903       |  | 867,089             
| | John E. Stieglitz    |  | 21,780,503       |  | 865,489             
| | Fred S. Zeidman      |  | 21,783,077       |  | 862,915             



Page 15 of 128



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|Item 6.  Exhibits and Report on Form 8-K
|----------------------------------------
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        

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

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|        |  | EXHIBIT
INDEX                                                                                                                                         |  |       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------
|        |  |                                                                                                                                                       |  | Page  
|Exhibit |  | Title                                                                                                                                                 |  | Number
|        |  |                                                                                                                                                       |  |       
|        |  |                                                                                                                                                       |  |       
|10.1    |  | Credit Agreement dated as of June 29, 2001, among Seitel, Inc. and Bank One, NA as Agent and LC Issuer and Comerica Bank - Texas as Syndication Agent |  | 19    
|        |  |                                                                                                                                                       |  |       
|10.2    |  | Ratable Note in the amount of $25,000,000 among Seitel, Inc. and Comerica Bank-Texas                                                                  |  | 90    
|        |  |                                                                                                                                                       |  |       
|10.3    |  | Ratable Note in the amount of $15,000,000 among Seitel, Inc. and Guaranty Bank                                                                        |  | 92    
|        |  |                                                                                                                                                       |  |       
|10.4    |  | Seitel, Inc. 2001 Inducement Stock Option Plan adopted January 1, 2001                                                                                |  | 94    
|        |  |                                                                                                                                                       |  |       
|10.5    |  | Seitel, Inc. 2001 Non-Officer Stock Option Plan adopted June 5, 2001                                                                                  |  | 112   

Page 18 of 128



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