---

INDEX

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, 2003                                           
|                               |  |                                                                                        
|                               |  | OR                                                                                     
|                               |  |                                                                                        
|[    ]                         |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE           
|                               |  | ACT OF 1934                                                                            
|                              
|                              
|Commission File Number 0-14488





|SEITEL, INC.                                       
|---------------------------------------------------
|(Exact name of registrant as specified in charter) 
|                                                   
|                                                   
|Delaware                                           
|(State or other jurisdiction of                    
|incorporation or organization)                     
|                                                   
|                                                   
|10811 S. Westview Circle                           
|Houston, Texas                                     
|(Address of principal executive offices)           
|                                                   
|                                                   
|Registrant's telephone number, including area code:
|                                                   







|Yes | [ X ] |  | No | [   ]
|--- | ----- |  | -- | -----

As of August 13, 2003, there were 25,375,683 shares of the Company's common stock, par value $.01 per share outstanding.



---











|         |                                                                   | Page                                         
|-------- | ----------------------------------------------------------------- | ---------------------------------------------
|         |                                                                   |                                              
|PART I.  | FINANCIAL INFORMATION                                             |                                              
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Item 1.                                                           | Financial Statements                         
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Consolidated Balance Sheetsas of                                  |                                              
|         | June 30, 2003 (Unaudited) and December 31, 2002                   | 3                                            
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Consolidated Statements of Income(Unaudited)                      |                                              
|         | for the Three Months Ended June 30, 2003 and 2002                 | 4                                            
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Consolidated Statements of Income(Unaudited)                      |                                              
|         | for the Six Months Ended June 30, 2003 and 2002                   | 5                                            
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Consolidated Statements of Comprehensive Income(Loss) (Unaudited) |                                              
|         | for the Three and Six Months Ended June 30, 2003 and 2002         | 6                                            
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Consolidated Statements of Stockholders' Equity                   |                                              
|         | for the year ended December 31, 2002 and for the                  |                                              
|         | Six Months Ended June 30, 2003 (Unaudited)                        | 7                                            
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Consolidated Statements of Cash Flows(Unaudited)                  |                                              
|         | for the Six Months Ended June 30, 2003 and 2002                   | 8                                            
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Notes to Consolidated Interim Financial Statements                | 10                                           
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Item 2.                                                           | Management's Discussion and Analysis of      
|         |                                                                   | Financial Condition and Results of Operations
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Item 3.                                                           | Quantitative and Qualitative                 
|         |                                                                   | Disclosures About Market Risk                
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | Item 4.                                                           | Controls and Procedures                      
|         |                                                                   |                                              
|         |                                                                   |                                              
|PART II. | OTHER INFORMATION                                                 | 34                                           
|         |                                                                   |                                              
|         |                                                                   |                                              
|         | SignaturesandCertificates                                         | 38                                           









---

INDEX







CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)



|                                           |                                                       | (Unaudited)                                       |          |         |   |              |         
|------------------------------------------ | ----------------------------------------------------- | ------------------------------------------------- | -------- | ------- | - | ------------ | --------
|                                           |                                                       | June 30,                                          |          |         |   | December 31, |         
|                                           |                                                       | 2003                                              |          |         |   | 2002         |         
|                                           |                                                       |                                                   |          |         |   |              |         
|ASSETS                                     |                                                       |                                                   |          |         |   |              |         
|                                           | Cash and equivalents                                  | $                                                 | 29,607   |         |   | $            | 21,517  
|                                           | Restricted cash                                       |                                                   | 50       |         |   |              | 4,469   
|                                           | Receivables                                           |                                                   |          |         |   |              |         
|                                           |                                                       | Trade, net                                        |          | 35,269  |   |              |         
|                                           |                                                       | Notes and other, net                              |          | 363     |   |              |         
|                                           | Net seismic data library                              |                                                   | 282,660  |         |   |              | 284,396 
|                                           | Net other property and equipment                      |                                                   | 17,927   |         |   |              | 19,789  
|                                           | Oil and gas operations held for sale                  |                                                   | 294      |         |   |              | 656     
|                                           | Investment in marketable securities                   |                                                   | 5        |         |   |              | 5       
|                                           | Deferred income taxes                                 |                                                   | 7,842    |         |   |              | 11,322  
|                                           | Prepaid expenses, deferred charges and other assets   |                                                   | 8,137    |         |   |              | 7,074   
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           | TOTAL ASSETS                                          | $                                                 | 382,154  |         |   | $            | 398,136 
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                       |                                                   |          |         |   |              |         
|                                           | Accounts payable and accrued liabilities              | $                                                 | 16,484   |         |   | $            | 31,391  
|                                           | Income taxes payable                                  |                                                   | 439      |         |   |              | 916     
|                                           | Oil and gas operations held for sale                  |                                                   | 12       |         |   |              | 94      
|                                           | Debt                                                  |                                                   |          |         |   |              |         
|                                           |                                                       | Senior Notes                                      |          | 255,000 |   |              |         
|                                           |                                                       | Term Loans                                        |          | 6,948   |   |              |         
|                                           | Obligations under capital leases                      |                                                   | 7,220    |         |   |              | 8,439   
|                                           | Financial guaranty                                    |                                                   | -        |         |   |              | 554     
|                                           | Deferred revenue                                      |                                                   | 56,722   |         |   |              | 56,084  
|                                           |                                                       |                                                   |          |         |   |              |         
|TOTAL LIABILITIES                          |                                                       | 342,825                                           |          |         |   | 361,100      |         
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|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         |          |         |   |              |         
|                                           |                                                       | 25,811,601 at June 30, 2003 and December 31, 2002 |          | 258     |   |              |         
|                                           | Additional paid-in capital                            |                                                   | 166,630  |         |   |              | 166,630 
|                                           | Retained deficit                                      |                                                   | (123,038 | )       |   |              | (121,793
|                                           | Treasury stock 435,918 shares at cost at              |                                                   |          |         |   |              |         
|                                           |                                                       | June 30, 2003 and December 31, 2002               |          | (5,373  | ) |              |         
|                                           | Notes receivable from officers and employees          |                                                   | (355     | )       |   |              | (1,178  
|                                           | Accumulated other comprehensive income (loss)         |                                                   | 1,207    |         |   |              | (1,508  
|                                           |                                                       |                                                   |          |         |   |              |         
|TOTAL STOCKHOLDERS' EQUITY                 |                                                       | 39,329                                            |          |         |   | 37,036       |         
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|                                           |                                                       |                                                   |          |         |   |              |         
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $                                                     | 382,154                                           |          |         | $ | 398,136      |         
|                                           |                                                       |                                                   |          |         |   |              |         

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

---

INDEX





SEITEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share amounts)



|                                                             |                                              | Three Months Ended June 30, |       
|------------------------------------------------------------ | -------------------------------------------- | --------------------------- | ------
|                                                             |                                              |                             |       
|                                                             |                                              | 2003                        |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|REVENUE (1)                                                  | $                                            | 31,773                      |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|EXPENSES                                                     |                                              |                             |       
|                                                             | Depreciation and amortization                |                             | 20,102
|                                                             | Cost of sales                                |                             | 176   
|                                                             | Selling, general and administrative expenses |                             | 5,626 
|                                                             | Impairment of seismic data library           |                             | -     
|                                                             |                                              |                             |       
|                                                             |                                              | 25,904                      |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|INCOME (LOSS) FROM OPERATIONS                                |                                              | 5,869                       |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|Interest expense, net                                        |                                              | (4,908                      | )     
|Gain on extinguishment of liabilities                        |                                              | 681                         |       
|Loss on sale of security                                     |                                              | -                           |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|Income (loss) from continuing operations before income taxes |                                              | 1,642                       |       
|                                                             |                                              |                             |       
|Provision (benefit) for income taxes                         |                                              | 778                         |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|Income (loss) from continuing operations                     |                                              | 864                         |       
|                                                             |                                              |                             |       
|Income (loss) from discontinued operations (including        |                                              |                             |       
|                                                             | loss from disposal of $56,764 in 2002)       |                             | 39    
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|NET INCOME (LOSS)                                            | $                                            | 903                         |       
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|Basic and diluted income (loss) per share:                   |                                              |                             |       
|                                                             | Income (loss) from continuing operations     | $                           | .04   
|                                                             | Loss from discontinued operations            |                             | -     
|                                                             |                                              |                             |       
|                                                             | Net income (loss)                            | $                           | .04   
|                                                             |                                              |                             |       
|                                                             |                                              |                             |       
|Weighted average number of common and                        |                                              |                             |       
|                                                             | common equivalent shares - basic and diluted |                             | 25,376
|                                                             |                                              |                             |       





|(1) | Non-cash revenue from non-monetary exchanges of seismic data and data selections by customers and the percentage of non-cash revenue to total revenue for the three months ended June 30, 2003 and 2002 are $5,148,000 (16.2%) and $16,029,000 (34.0%), respectively.  See Note C.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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

---

INDEX





SEITEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share amounts)



|                                                                |                                                         | Six Months Ended June 30, |       
|--------------------------------------------------------------- | ------------------------------------------------------- | ------------------------- | ------
|                                                                |                                                         |                           |       
|                                                                |                                                         | 2003                      |       
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|REVENUE (1)                                                     | $                                                       | 62,097                    |       
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|EXPENSES                                                        |                                                         |                           |       
|                                                                | Depreciation and amortization                           |                           | 38,248
|                                                                | Cost of sales                                           |                           | 330   
|                                                                | Selling, general and administrative expenses            |                           | 14,519
|                                                                | Impairment of seismic data library                      |                           | -     
|                                                                |                                                         |                           |       
|                                                                |                                                         | 53,097                    |       
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|INCOME (LOSS) FROM OPERATIONS                                   |                                                         | 9,000                     |       
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|Interest expense, net                                           |                                                         | (9,915                    | )     
|Gain on extinguishment of liabilities                           |                                                         | 681                       |       
|Loss on sale of security                                        |                                                         | -                         |       
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|Loss from continuing operations before income taxes             |                                                         |                           |       
|                                                                | and cumulative effect of change in accounting principle |                           | (234  
|Provision (benefit) for income taxes                            |                                                         | 813                       |       
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|Loss from continuing operations before cumulative               |                                                         |                           |       
|                                                                | effect of change in accounting principle                |                           | (1,047
|                                                                |                                                         |                           |       
|Loss from discontinued operations (including loss               |                                                         |                           |       
|                                                                | from disposal of $56,764 in 2002)                       |                           | (198  
|                                                                |                                                         |                           |       
|Cumulative effect of change in accounting principle, net of tax |                                                         | -                         |       
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|NET LOSS                                                        | $                                                       | (1,245                    | )     
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|Basic and diluted loss per share:                               |                                                         |                           |       
|                                                                | Loss from continuing operations                         | $                         | (.04  
|                                                                | Loss from discontinued operations                       |                           | (.01  
|                                                                | Cumulative effect of change in accounting principle     |                           | -     
|                                                                |                                                         |                           |       
|                                                                | Net loss                                                | $                         | (.05  
|                                                                |                                                         |                           |       
|                                                                |                                                         |                           |       
|Weighted average number of common and                           |                                                         |                           |       
|                                                                | common equivalent shares - basic and diluted            |                           | 25,376
|                                                                |                                                         |                           |       





|(1) | Non-cash revenue from non-monetary exchanges of seismic data and data selections by customers and the percentage of non-cash revenue to total revenue for the six months ended June 30, 2003 and 2002 are $8,830,000 (14.2%) and $21,668,000 (31.1%), respectively.  See Note C.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





---

INDEX





SEITEL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)(In thousands)



|                                                          |                                                           | Three Months Ended                                 |       |   | Six Months Ended |      
|--------------------------------------------------------- | --------------------------------------------------------- | -------------------------------------------------- | ----- | - | ---------------- | -----
|                                                          |                                                           | June 30,                                           |       |   | June 30,         |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          |                                                           | 2003                                               |       |   | 2002             |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|Net income (loss)                                         | $                                                         | 903                                                |       | $ | (78,921          | )    
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|Unrealized gains (losses) on securities held as available |                                                           |                                                    |       |   |                  |      
|                                                          | for sale:                                                 |                                                    |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          | Unrealized net holding gains (losses), net of income      |                                                    | (2    | ) |                  | (331 
|                                                          |                                                           | tax benefit of $82 for the three months            |       |   |                  |      
|                                                          |                                                           | ended June 30, 2002                                |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          | Less:  Reclassification adjustment for losses included in |                                                    |       |   |                  |      
|                                                          |                                                           | income, net of tax benefit of $245 and $75 for the |       |   |                  |      
|                                                          |                                                           | three and six months ended June 30, 2002,          |       |   |                  |      
|                                                          |                                                           | respectively                                       |       | - |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          | Foreign currency translation adjustments                  |                                                    | 1,439 |   |                  | 1,318
|                                                          |                                                           |                                                    |       |   |                  |      
|                                                          |                                                           |                                                    |       |   |                  |      
|Comprehensive income (loss)                               | $                                                         | 2,340                                              |       | $ | (76,942          | )    
|                                                          |                                                           |                                                    |       |   |                  |      





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

---

INDEX





SEITEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)







|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     | Accumulated |      
|-------------------------- | ------------------------------- | ------------------------------ | ---------- | --- | ---------- | --- | - | -------- | ------- | -------------- | -------- | -------- | ---------- | -------- | ------- | ------- | ------ | ----- | ---------- | ----- | --- | ----------- | -----
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       | Notes      |       |     | Other       |      
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       | Receivable |       |     | Compre-     |      
|                           |                                 | Common Stock                   |            |     | Additional |     |   |          |         | Treasury Stock |          |          | from       |          |         | hensive |       
|                           |                                 |                                |            |     | Paid-In    |     |   | Retained |         |                |          |          | Officers & |          |         | Income  |       
|                           |                                 | Shares                         |            |     | Amount     |     |   | Capital  |         |                | Earnings |          | Shares     |          |         | Amount  |        |       | Employees  |       |     | (Loss)      |      
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|Balance, December 31, 2001 |                                 | 25,810,603                     |            | $   | 258        |     | $ | 166,456  |         | $              | 91,624   |          | (735,918   | )        | $       | (9,072  | )      | $     | (3,776     | )     | $   | (1,903      | )    
|                           | Net proceeds from issuance      |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | of common stock upon           |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | exercise of options            |            | 998 |            |     | - |          |         | 9              |          |          | -          |          | -       |         |        | -     |            |       | -   |             |      
|                           | Tax reduction from exercise of  |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | stock options                  |            | -   |            |     | - |          |         | 165            |          |          | -          |          | -       |         |        | -     |            |       | -   |             |      
|                           | Issuance of common stock in     |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | connection with employee       |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | agreements                     |            | -   |            |     | - |          |         | -              |          |          | (977       | )        | 300,000 |         |        | 3,699 |            |       | -   |             |      
|                           | Payments received on notes      |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | receivable from officers       |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | and employees                  |            | -   |            |     | - |          |         | -              |          |          | -          |          | -       |         |        | -     |            |       | 751 |             |      
|                           | Allowance for notes receivable  |                                | -          |     |            | -   |   |          | -       |                |          | -        |            | -        |         |         | -      |       |            | 1,847 |     |             | -    
|                           | Net loss                        |                                | -          |     |            | -   |   |          | -       |                |          | (212,440 | )          | -        |         |         | -      |       |            | -     |     |             | -    
|                           | Foreign currency translation    |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | adjustments                    |            | -   |            |     | - |          |         | -              |          |          | -          |          | -       |         |        | -     |            |       | -   |             |      
|                           | Unrealized gain on marketable   |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | securities                     |            | -   |            |     | - |          |         | -              |          |          | -          |          | -       |         |        | -     |            |       | -   |             |      
|                           | Reclassification adjustment for |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | losses included in income, net |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | of tax benefit of $75          |            | -   |            |     | - |          |         | -              |          |          | -          |          | -       |         |        | -     |            |       | -   |             |      
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|Balance, December 31, 2002 |                                 | 25,811,601                     |            |     | 258        |     |   | 166,630  |         |                | (121,793 | )        | (435,918   | )        |         | (5,373  | )      |       | (1,178     | )     |     | (1,508      | )    
|                           | Payments received on notes      |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | receivable from officers       |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | and employees                  |            | -   |            |     | - |          |         | -              |          |          | -          |          | -       |         |        | -     |            |       | 823 |             |      
|                           | Net loss                        |                                | -          |     |            | -   |   |          | -       |                |          | (1,245   | )          | -        |         |         | -      |       |            | -     |     |             | -    
|                           | Foreign currency translation    |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | adjustments                    |            | -   |            |     | - |          |         | -              |          |          | -          |          | -       |         |        | -     |            |       | -   |             |      
|                           | Unrealized loss on              |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 | marketable securities          |            | -   |            |     | - |          |         | -              |          |          | -          |          | -       |         |        | -     |            |       | -   |             |      
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|Balance June 30, 2003      |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           | (unaudited)                     |                                | 25,811,601 |     | $          | 258 |   | $        | 166,630 |                | $        | (123,038 | )          | (435,918 | )       | $       | (5,373 | )     | $          | (355  | )   | $           | 1,207
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      
|                           |                                 |                                |            |     |            |     |   |          |         |                |          |          |            |          |         |         |        |       |            |       |     |             |      



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

---

INDEX





|SEITEL, INC. AND SUBSIDIARIES                                           |                                                          |                                                                 |                                                                    |         |         |        
|----------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------------------------------ | ------- | ------- | -------
|CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)                       |                                                          |                                                                 |                                                                    |         |         |        
|(in thousands)                                                          |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                   
|                                                                        |                                                          | Six Months Ended June 30,                                       |                                                                   
|                                                                        |                                                          |                                                                 |                                                                   
|                                                                        |                                                          | 2003                                                            |                                                                    |         | 2002    |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|Cash flows from operating activities:                                   |                                                          |                                                                 |                                                                    |         |         |        
|Reconciliation of net loss to net cash provided by operating activities |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        | of continuing operations:                                |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          | Net loss                                                        | $                                                                  | (1,245  | )       | $      
|                                                                        |                                                          | Loss from discontinued operations, net of tax                   |                                                                    | 198     |         |        
|                                                                        |                                                          | Cumulative effect of change in accounting principle, net of tax |                                                                    | -       |         |        
|                                                                        |                                                          | Depreciation, depletion and amortization                        |                                                                    | 38,248  |         |        
|                                                                        |                                                          | Impairment of seismic data library                              |                                                                    | -       |         |        
|                                                                        |                                                          | Allowance for collection of accounts receivable                 |                                                                    | 150     |         |        
|                                                                        |                                                          | Allowance for collection on notes receivable                    |                                                                    | -       |         |        
|                                                                        |                                                          | Deferred income tax provision (benefit)                         |                                                                    | 3,480   |         |        
|                                                                        |                                                          | Non-cash sales                                                  |                                                                    | (8,830  | )       |        
|                                                                        |                                                          | Loss on sale of marketable securities                           |                                                                    | -       |         |        
|                                                                        |                                                          | Write-off of deferred financing costs                           |                                                                    | -       |         |        
|                                                                        |                                                          | Gain on extinguishment of liabilities                           |                                                                    | (681    | )       |        
|                                                                        |                                                          | Loss on sale of property and equipment                          |                                                                    | 12      |         |        
|                                                                        |                                                          | Common stock issued as compensation                             |                                                                    | -       |         |        
|                                                                        |                                                          | Decrease in receivables                                         |                                                                    | 13,931  |         |        
|                                                                        |                                                          | Increase in other assets                                        |                                                                    | (723    | )       |        
|                                                                        |                                                          | Increase (decrease) in deferred revenue                         |                                                                    | 1,004   |         |        
|                                                                        |                                                          | Increase (decrease) in accounts payable and other liabilities   |                                                                    | (6,725  | )       |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 | Net cash provided by operating activities of continuing operations |         | 38,819  |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|Cash flows from investing activities:                                   |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        | Cash invested in seismic data                            |                                                                 | (28,297                                                            | )       |         | (36,208
|                                                                        | Cash paid to acquire property and equipment              |                                                                 | (341                                                               | )       |         | (7,592 
|                                                                        | Cash received from disposal of property and equipment    |                                                                 | 15                                                                 |         |         | 2,398  
|                                                                        | Net proceeds from sale of marketable securities          |                                                                 | -                                                                  |         |         | 1,356  
|                                                                        | Decrease in restricted cash                              |                                                                 | 4,419                                                              |         |         | -      
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          | Net cash used in investing activities of continuing operations  |                                                                    | (24,204 | )       |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|Cash flows from financing activities:                                   |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        | Borrowings under line of credit                          |                                                                 | -                                                                  |         |         | 15,879 
|                                                                        | Principal payments under line of credit                  |                                                                 | -                                                                  |         |         | (16,472
|                                                                        | Borrowings on term loan                                  |                                                                 | -                                                                  |         |         | 2,514  
|                                                                        | Principal payments on term loans                         |                                                                 | (2,327                                                             | )       |         | (1,783 
|                                                                        | Principal payments on capital lease obligations          |                                                                 | (1,594                                                             | )       |         | (1,153 
|                                                                        | Proceeds from issuance of common stock                   |                                                                 | -                                                                  |         |         | 9      
|                                                                        | Costs of debt and equity transactions                    |                                                                 | (300                                                               | )       |         | (10    
|                                                                        | Buyout of financial guaranty                             |                                                                 | (325                                                               | )       |         | -      
|                                                                        | Loans to officers, employees and directors               |                                                                 | (161                                                               | )       |         | (65    
|                                                                        | Payments on notes receivable from officers and employees |                                                                 | 825                                                                |         |         | 750    
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          | Net cash used in financing activities of continuing operations  |                                                                    | (3,882  | )       |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|Effect of exchange rate changes                                         |                                                          | (2,725                                                          | )                                                                  |         | 1,637   |        
|Net cash provided by discontinued operations                            |                                                          | 82                                                              |                                                                    |         | 3,955   |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|Net increase (decrease) in cash and equivalents                         |                                                          | 8,090                                                           |                                                                    |         | (18,054 | )      
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|Cash and equivalents at beginning of period                             |                                                          | 21,517                                                          |                                                                    |         | 25,223  |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|Cash and equivalents at end of period                                   | $                                                        | 29,607                                                          |                                                                    | $       | 7,169   |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        
|                                                                        |                                                          |                                                                 |                                                                    |         |         |        





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

---

INDEX





|SEITEL, INC. AND SUBSIDIARIES                                         |                                    |                                       |       |       |      |      
|--------------------------------------------------------------------- | ---------------------------------- | ------------------------------------- | ----- | ----- | ---- | -----
|CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - continued         |                                    |                                       |       |       |      |      
|(in thousands)                                                        |                                    |                                       |       |       |      |      
|                                                                      |                                    |                                       |      
|                                                                      |                                    | Six Months Ended June 30,             |      
|                                                                      |                                    |                                       |      
|                                                                      |                                    | 2003                                  |       |       | 2002 |      
|                                                                      |                                    |                                       |       |       |      |      
|                                                                      |                                    |                                       |       |       |      |      
|Supplemental disclosure of cash flow information:                     |                                    |                                       |       |       |      |      
|                                                                      | Cash paid during period for:       |                                       |       |       |      |      
|                                                                      |                                    | Interest (net of amounts capitalized) | $     | 9,084 |      | $    
|                                                                      |                                    | Income taxes                          | $     | 1,013 |      | $    
|                                                                      |                                    |                                       |       |       |      |      
|Supplemental schedule of non-cash investing and financing activities: |                                    |                                       |       |       |      |      
|                                                                      | Additions to seismic data library  | $                                     | 6,190 |       | $    | 8,616
|                                                                      | Capital lease obligations incurred | $                                     | -     |       | $    | 7,137
|                                                                      | Note payable to former executive   | $                                     | 469   |       | $    | -    







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

---

INDEX





SEITEL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)
June 30, 2003
NOTE A-BASIS OF PRESENTATION



The accompanying unaudited 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 accruals) considered necessary for a fair presentation have been included.  Certain reclassifications have been made to the amounts in the prior year's financial statements to conform to the current year's presentation.  Operating results for the six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.  These unaudited financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2002 contained in the Company's Annual Report filed on Form 10-K with the Securities and Exchange Commission.

Substantial Doubt About the Company's Ability to Continue as a Going Concern:   The Company's financial statements have been prepared on a basis that assumes the Company will continue as a going concern.  On July 21, 2003, the Company filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code (see "Note B-Reorganization Proceedings").

Accordingly, there is substantial doubt about the Company's ability to continue as a going concern, including recovering assets and satisfying liabilities in the normal course of business.  The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts of liabilities that may result from the outcome of this uncertainty

Contractual Obligations:    As of June 30, 2003, the Company had approximately $274.9 million of outstanding debt and lease obligations, with aggregate contractual cash obligations summarized as follows (in thousands):







|                                   |   |         |   | Payments due by period | 
|---------------------------------- | - | ------- | - | ---------------------- | 
|                                   |   |         |   |                        | 
|                                   |   |         |   |                        | 
|Contractual cash obligations       |   | Total   |   | 2003                   | 
|                                   |   |         |   |                        | 
|                                   |   |         |   |                        | 
|Debt obligations (1)               | $ | 261,948 | $ | 261,376                | 
|Capital lease obligations          |   | 7,220   |   | 657                    | 
|Operating lease obligations        |   | 5,704   |   | 592                    | 
|                                   |   |         |   |                        | 
|                                   |   |         |   |                        | 
|Total contractual cash obligations | $ | 274,872 | $ | 262,625                | 
|                                   |   |         |   |                        | 





|    |                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These debt obligations have contractual maturities ranging from 2003 to 2011.  The Company is in non-compliance with certain of the covenants related to this debt and the maturities have been reflected as due in 2003.





As a result of the bankruptcy filing discussed in Note B below, the rights of and ultimate payments related to certain of these contractual obligations may be substantially altered.

Gain on Extinguishment of Liabilities:  In 2003, the Company negotiated settlement of certain liabilities for less than the amount recorded in the financial statements.  The resulting gain of $681,000 has been reflected as a gain on extinguishment of liabilities in the accompanying consolidated statements of income for the three and six months ended June 30, 2003.



---

INDEX



NOTE B-REORGANIZATION PROCEEDINGS

On July 21, 2003, (the "Petition Date"), Seitel, Inc., and its wholly owned U.S. subsidiaries filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") (Chapter 11 Case No. 03-12227 (PJW)).  Seitel, Inc. and its 30 U.S. subsidiaries that have filed petitions are collectively referred to herein as the "Debtors" and the Chapter 11 cases of these entities are collectively referred to herein as the "Cases."  By order of the Bankruptcy Court dated July 25, 2003, the Cases are being jointly administered.  Since the Petition Date, the Debtors have operated their business as "debtors-in-possession" pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code, which will allow them to continue operations during the reorganization proceeding.  Each Debtor will remain in possession of its assets and properties, and its business and affairs will continue to be managed by its directors and officers, subject in each case to the supervision of the Bankruptcy Court.  No trustee has been appointed.  An official equity committee was appointed on August 11, 2003.

None of the Company's direct or indirect subsidiaries or affiliates incorporated in Canadian or other non-U.S. jurisdictions have filed Chapter 11 and none are expected to file for reorganization or protection from creditors under any insolvency or similar law in the U.S. or elsewhere.  Such non-filing, non-U.S. based subsidiaries and affiliates are called "non-Debtors".

In addition, on July 21, 2003, the Debtors filed a Plan of Reorganization (the "Plan").  The Plan is being financed by Berkshire Hathaway Inc. ("Berkshire").  If the Plan is confirmed and consummated, the Company will become a wholly owned subsidiary of Berkshire.  Consummation of the Plan is subject to a number of conditions, including confirmation by the Bankruptcy Court no later than November 18, 2003.  The document containing the specific Plan terms is publicly available and has been filed with the Bankruptcy Court.  The Plan also is an exhibit to the Company's Form 8-K filed on July 22, 2003.

The Plan generally provides, in summary, for the (i) payment in full on agreed terms or the reinstatement on existing terms of all secured debt; (ii) the assumption and reaffirmation of obligations under the Company's previously issued data license agreements with its customers; (iii) payment in full in cash of all allowed unsecured claims, other than the Note claims (which are to recover approximately 71% of their face value) owing by Debtors that conduct Seitel's principal operations; (iv) payment of cash equal to 25% of allowed unsecured claims which are owing or are guaranteed by entities not presently conducting operations or which have no substantial assets; and (v) subject to the confirmation of the Plan on or before November 18, 2003
and the affirmative vote of Seitel shareholders, the distribution of approximately $10.15 million in cash (equivalent to $.40 per share) to the holders of Seitel common stock in cancellation of such stock.  If shareholders were to vote to reject the Plan and the Plan nevertheless is confirmed by the Bankruptcy Court, Seitel's existing common stock will be cancelled and no distribution would be made to existing Seitel shareholders.  In all events, if the Plan is confirmed and consummated, all presently existing Seitel common stock and all options and warrants to acquire such stock will be cancelled upon the effective date of the Plan.  This foregoing description of the treatments and recoveries under the Plan is only a summary, and any discrepancy between such descriptions and the Plan is controlled exclusively by the Plan.

In connection with the Plan filing, previously filed involuntary bankruptcy petitions which were pending against the Company were dismissed on July 25, 2003 by order of the Bankruptcy Court pursuant to a joint request for such dismissal filed by the Company and Ranch Capital L.L.C. ("Ranch").  Ranch previously purchased all of the senior unsecured notes (the "Notes") held by the entities which filed the involuntary bankruptcy petitions.  Ranch subsequently sold the Notes to Berkshire.

On the Petition Date, the Company sought, and thereafter obtained, authority to take a broad range of actions, including the right to honor and perform under their pre-petition customer data agreements and to promote a "business as usual" atmosphere with customers and employees.  This relief was essential to minimize disruptions to the Company's businesses as a result of the commencement of the Chapter 11 cases and to assure customers that the data license agreements for selection of seismic data would be honored pending confirmation of the Plan.  Additionally, other orders were obtained, including authority to pay certain, limited pre-petition employee wages and benefits, employment of a noticing agent, adequate assurance of future payments to utility companies, continued use of cash management systems and payment of pre-petition sales and use taxes.

The Bankruptcy Court also approved a $10 million interim debtor-in-possession loan and security agreement (the "DIP Facility") with Wells Fargo Foothill, Inc., as lender ("Foothill"), and, upon fulfillment of certain terms and conditions
and the final approval of the Bankruptcy Court, up to $20 million in financing, to support the Debtors' operations during the course of the Cases.  The DIP Facility will terminate upon, among other events, the earlier of the maturity date or the effective date of the Plan.



---

INDEX



Generally, pre-Petition Date claims against the Debtors will fall into two categories: secured and unsecured, including certain contingent or unliquidated claims.  Under the Bankruptcy Code, a creditor's claim is treated as secured only to the extent of the value of the collateral securing such claim, with the balance of such claim being treated as unsecured.  Unsecured and partially secured claims do not accrue interest after the Petition Date.  A fully secured claim, however, does accrue interest after the Petition Date until the amount due and owing to the secured creditor, including interest accrued after the Petition Date, is equal to the value of the collateral securing such claim.  As a result of the Cases, additional pre-Petition Date claims and liabilities may be asserted, some of which may be significant.  No provision has been included in the accompanying financial statements for such potential claims and additional liabilities that may be filed on or before a date to be fixed by the Bankruptcy Court as the last day to file proofs of claim.

The following tables set forth certain financial information for the Debtors and non-Debtors.





|                                        
|----------------------------------------
|Condensed Consolidating Balance Sheets  
|June 30, 2003                           
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|Cash and equivalents                    
|Receivables                             
|Investment in subsidiaries              
|Intercompany receivables (payables)     
|Net seismic data library                
|Net property and equipment              
|Deferred income tax asset (liability)   
|Other assets                            
|                                        
|                                        
|                                        
|                                        
|                                        
|Accounts payable and accrued liabilities
|Debt                                    
|Other liabilities                       
|Stockholders' equity                    
|                                        
|                                        
|                                        









|                                            
|--------------------------------------------
|Condensed Consolidating Statements of Income
|For the Three Months Ended June 30, 2003    
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|Revenue                                     
|Expenses:                                   
|                                            
|                                            
|                                            
|                                            
|                                            
|Income from operations                      
|                                            
|                                            
|                                            
|Interest expense, net                       
|Gain on extinguishment of liabilities       
|Provision for incomes taxes                 
|Income from discontinued operations         
|                                            
|Net income (loss)                           
|                                            





---

INDEX





|                                            
|--------------------------------------------
|Condensed Consolidating Statements of Income
|For the Six Months Ended June 30, 2003      
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|Revenue                                     
|Expenses:                                   
|                                            
|                                            
|                                            
|                                            
|                                            
|Income from operations                      
|                                            
|                                            
|                                            
|Interest expense, net                       
|Gain on extinguishment of liabilities       
|Provision for incomes taxes                 
|Loss from discontinued                      
|                                            
|                                            
|Net income (loss)                           
|                                            





Under the Bankruptcy Code, the rights of and ultimate payments to pre-Petition Date creditors and stockholders may be substantially altered.  The Debtors anticipate that substantially all liabilities of the Debtors as of the date of the filing will be resolved under the Plan and voted on in the Cases in accordance with the provisions of the Bankruptcy Code.  Although the Debtors intend to seek confirmation of the Plan, there can be no assurance that the Plan will be confirmed by the Bankruptcy Court and consummated.

NOTE C-REVENUE RECOGNITION

Revenue from Data Acquisition

Revenue from the creation of new seismic data is recognized 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 projects, 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 contracts typically result in one or more customers underwriting a significant portion of the direct creation costs in exchange for a license or licenses to use the resulting data. Customers make periodic payments throughout the creation period which generally correspond to costs incurred and work performed. These payments are non-refundable. The creation process generally occurs in the following stages: permitting, surveying, drilling, recording and processing. At each stage, the customers receive legally enforceable rights and access to, and the benefits of, the results of all work performed. The customers also receive access to and use of the newly acquired and processed data. The customers may have exclusive access to the work performed and exclusive use of the newly acquired and processed data for a limited term, which is generally nine months or less, after final delivery of the 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.



---

INDEX



Revenue from Data Licenses

The Company licenses data from its seismic data library to customers under four basic forms of contracts.

Under the first form of contract, the customer licenses and selects data from the data library at the time the contract is entered into.

Under the second form of contract, referred to as a "review and possession" 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.

Under the third form of contract, referred to as a "library card" 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 lengths of the selection periods under the library card contracts vary.

Under the fourth form of contract, referred to as a "review only" 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 usage of all data delivered to the customer, whether for review only or to hold long-term, is governed by a license agreement, which is a separate agreement from the contracts that are described above. The Company's contracts require the customer either to have a license agreement in place or to execute one at the time the contract is signed. The license agreement governs all data delivered to the customer during the term. Payment terms under the contracts vary from 30 days to 18 months depending on the size of the transaction. All payments due are non-cancelable and all payments made are non-refundable. The customer has access to all available data covered by the contracts on the date the contract is executed.  If the contract allows licensing of data that is not currently available, revenue is deferred until such time that the data is available for licensing.  The contracts permit selection of the data in its present form 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, in which case revenue with respect to such data would be deferred until performance is met.  Copies of the data are available to the customer immediately upon request.

The Company recognizes revenue from licensing of seismic data when the Company has contracted with the customer for a fixed sales price; a licensing agreement is in place; the customer has selected specific data under the terms of the contract or the contract has expired without full selection having occurred; and collectibility of the sales price is reasonably assured. The Company recognizes revenue for the particular data selected as each specific selection of data is made by the customer. If selections are not completed by the expiration date of the contract, the Company recognizes any remaining revenue under that contract. In each case (selection or expiration), the earnings process is complete. The Company does not recognize revenue for amounts billed in advance of being earned until these conditions are met. For revenue that is deferred, the Company defers the direct costs (primarily commissions) related to the revenues. Revenue from licensing of seismic data is presented net of revenue shared with other entities.

Revenue from Non-Monetary Data Exchanges

In certain cases, the Company grants its customer a non-exclusive license to selected data from its library in exchange for ownership of seismic data from the customer.  The data that the Company receives is distinct from the data that it is licensing to the customer.  Because the Company receives ownership of distinct seismic data to be added to its library, and this data may be relicensed by the Company on a continuing basis, in exchange for a data license, the exchange is not a "like-kind" exchange, which would be accounted for at historical cost.  Once data selection is completed, the exchange represents the culmination of the earnings process with the customer and is not merely an exchange between two seismic companies.  These exchanges are referred to as non-monetary data exchanges.

The Company records a data library asset for the seismic data acquired at the time the contract is entered into and recognizes revenue on the transaction in accordance with its policy on revenue from data licenses, that is, when the data is selected by the customer.  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.



---

INDEX



The Company determines fair value of data exchanged by first determining the value of the license granted to the customer. It does so by evaluating the range of cash transactions by the Company for licenses of similar data during the prior six months for licenses in the United States and for the prior twelve months for licenses in Canada. In evaluating the range of cash transactions, the Company does not consider transactions that are disproportionately high or low. The Company then also considers the value of the data 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 as well as the cost that would be required to create the data.  In the United States, the Company applies a limitation on the value it assigns per square mile on the data exchanged. In Canada, in the event of a difference greater than 2% between the value of the license granted and the value of the data received, the Company assigns the lower value to the exchange.  In significant exchanges ($500,000 or more), the Company also obtains an opinion from an independent third party in order to confirm the Company's valuation of the data received.  The Company obtains these opinions on an annual basis, usually in connection with the preparation of its annual financial statements.

For the three months ended June 30, 2003 and 2002, the Company recorded seismic data library assets from non-monetary exchanges of seismic data of $2,848,000, and $5,323,000, respectively.  For the six months ended June 30, 2003 and 2002, the Company recorded seismic data library assets from non-monetary exchanges of seismic data of $5,957,000 and $8,348,000, respectively.  Revenue on a significant portion of the non-monetary data exchange transactions was initially deferred in accordance with the Company's accounting policy.  As a result of data selections by customers, the Company recognized revenue of $4,965,000, and $15,781,000 for the three months ended June 30, 2003 and 2002, respectively, and $8,597,000 and $21,400,000 for the six months ended June 30, 2003 and 2002, respectively, from non-monetary data exchanges.

Revenue from Solutions

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

NOTE D-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 such costs are amortized on the income forecast method subject to a maximum amortization period determined based on the type of data.

Costs of Seismic Data Library

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

For data acquired through a non-monetary data 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 clearly determinable.  In the case of any single non-monetary exchange where the fair value recorded is in excess of $500,000, the Company also obtains an opinion from a third party to confirm the Company's valuation.

For internally 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 $468,000 and $451,000 for the three months ended June 30, 2003 and 2002, respectively, and $1,020,000 and $869,000 for the six months ended June 30, 2003 and 2002, respectively.

Data Library Amortization

Effective January 1, 2002 (see "Change in Accounting Principle" below), the Company amortizes its seismic data library using the greater of the amortization that would result from the application of the income forecast method or a straight-line basis over the useful economic life of the data.



---

INDEX



The actual rate of amortization depends on the location of specific seismic surveys licensed and selected by the Company's customers during the year.  Effective January 1, 2003, the Company assigns a specific amortization rate to each of fourteen separately identified segments of its seismic data library based on its estimate of future sales from each segment.  The amortization rates vary by segment and range from a low of 37% to a high of 100% with a weighted average rate of 50% based on the net book value of each segment compared with the net book value of the entire seismic data library as of June 30, 2003.  The actual rate of amortization recorded in any period varies from the weighted average rate due to the application of straight-line amortization on a survey-by-survey basis.

The Company applies the income forecast method by forecasting the ultimate revenue expected to be derived from a particular data library segment over the estimated useful economic life of each survey comprising part of such segment. That forecast is made by the Company annually and reviewed quarterly.  If, during any such review and update, the Company determines that the ultimate revenue for a library segment is expected to be significantly different than the original estimate of total revenue for such library segment, the Company revises the amortization rate attributable to future revenue from each survey in such segment.  In addition, in connection with such reviews and updates, the Company evaluates the recoverability of its seismic data library, and if required under Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets," records an impairment charge with respect to such data.  See discussion on "Seismic Data Library Impairment" below.

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 income forecast amortization 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.  This requirement is applied regardless of future-year revenue estimates for the library segment of which the survey is a part and does not consider the existence of deferred revenue with respect to the library segment or to any survey.  As discussed below in "Revision of Useful Life of Data Library," the Company revised its useful life estimate in the fourth quarter of 2002 from ten years to five years with respect to offshore data and from ten years to seven years with respect to onshore data.

Change in Accounting Principle

In the second quarter of 2002, the Company changed its accounting policy for amortizing its created seismic data library from the income forecast method to the greater of the income forecast method or the straight-line method over the useful economic life of the data (described above) and reported the adoption of the new method as a cumulative effect of a change in accounting principle retroactive to January 1, 2002.  The Company changed its accounting policy in an effort to increase the transparency of its methodology and to be more consistent with other industry competitors.  Accordingly, the Company recorded a pre-tax charge of $17.2 million (after-tax charge of $11.2 million) as of January 1, 2002.

Revision of Useful Life

In the fourth quarter of 2002, the Company reevaluated its estimate of the useful life of its seismic data library and revised the estimated useful life of its seismic data library to reduce the useful life of offshore data from ten to five years and onshore data from ten to seven years.  In making this decision, the Company considered a number of factors, including, among others, the impairment charges it reported in 2002, the additional amortization charges the Company recorded during the first three quarters of 2002 pursuant to its new amortization policy and seismic industry conditions.  With respect to each survey in the data library, the useful life policy is applied from the time such survey is available for licensing to customers generally, since some data in the library may not be licensed until an exclusivity period (usually nine months or less) has lapsed.

As a result of the adoption of the new accounting principle described above and the revision of the estimates of the useful lives of the seismic data in the fourth quarter of 2002, all of the Company's seismic data library is amortized on the greater of the income forecast method or straight-line amortization over five or seven years, as applicable.

Seismic Data Library Impairment

As events or conditions require, the Company evaluates the recoverability of its seismic data library in accordance with SFAS No. 144.  The Company evaluates its seismic data library for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Prior to the fourth quarter of 2002, the Company evaluated its seismic data library in the following components: (a) Gulf of Mexico offshore data, (b) Gulf Coast onshore data, (c) Rocky Mountain region data (including U.S. areas outside the Gulf Coast), (d) Canadian data, and (e) international data outside of North America.



---

INDEX



In the fourth quarter of 2002, the Company reevaluated the level which constitutes the lowest level of independently identifiable cash flows.  In its reevaluation, the Company considered the results of the comprehensive forecasting process that had been undertaken by management in the fourth quarter of 2002, recent sales trends and management's expectations relative to its ability to attribute revenues to lower survey aggregation levels.  The results of management's analysis indicated that the Company could reasonably forecast the future sales at levels lower than previously practicable.  Accordingly, in the fourth quarter of 2002, the Company refined its impairment evaluation methodology to evaluate its seismic data library in components based on the Company's operations and geological and geographical trends, and as a result, established the following data library segments for purposes of evaluating impairments:  (I) Gulf of Mexico offshore comprised of the following components:  (a) multi-component data, (b) value-added products, (c) ocean bottom cable data, (d) shelf data, and (e) deep water data; (II)  North American onshore comprised of the following components: (a) Texas Gulf Coast, (b) North, East and West Texas, (c) South Louisiana and Mississippi, (d) North Louisiana, (e) Rocky Mountains, (f) North Dakota, (g) other United States, (h) Canada and (i) value-added products, and (III) international data outside North America.  The Company believes that these library components constitute the lowest levels of independently identifiable cash flows.

In accordance with SFAS No. 144, the impairment evaluation is based first on a comparison of the undiscounted future cash flows 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 is recorded as an impairment loss equal to the difference between the library component's carrying amount and the discounted future value of the expected revenue stream.

For purposes of evaluating potential impairment losses, the Company estimates the future cash flows attributable to a library component by evaluating historical revenue trends, oil and gas prospectivity in particular regions, general economic conditions affecting its customer base and expected changes in technology. 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 is highly subjective, inherently imprecise and can change materially from period to period based on the factors described in the preceding paragraph, among others. Accordingly, if conditions change in the future, the Company may record impairment losses relative to its seismic data library, which could be material to any particular reporting period.

NOTE E-DISCONTINUED OPERATIONS

In June 2002, the Company's Board of Directors unanimously adopted a plan to dispose of the Company's oil and gas operations by sale. Accordingly, the Company's consolidated financial statements report the oil and gas operations as discontinued operations.  During 2002, the Company sold a majority of its oil and gas assets.  Remaining oil and gas assets are not material and consist of six properties in which the Company has a working interest.  The remaining carrying value of these properties is $141,000, and the Company continues to market such oil and gas assets for sale.

Revenue from the discontinued operations was $109,000 and $3,743,000 for the three months ended June 30, 2003 and 2002, respectively, and $190,000 and $6,386,000 for the six months ended June 30, 2003 and 2002, respectively.  Pre-tax income (loss) from the discontinued operations was $39,000 and $(57,835,000) for the three months ended June 30, 2003 and 2002, respectively, and $(198,000) and $(58,711,000) for the six months ended June 30, 2003 and 2002, respectively.

The Company uses the full-cost method of accounting for its oil and gas operations.

NOTE F-DEBT

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







|                                 |   | June 30, |  |   | December 31,
|-------------------------------- | - | -------- |  | - | ------------
|                                 |   | 2003     |  |   | 2002        
|                                 |   |          |  |   |             
|Notes                            | $ | 255,000  |  | $ | 255,000     
|Term loan                        |   | 5,625    |  |   | 6,875       
|Demand reducing credit facility  |   | 861      |  |   | 1,372       
|Note payable to former executive |   | 462      |  |   | -           
|Short-term borrowings            |   | -        |  |   | 375         
|                                 |   |          |  |   |             
|                                 | $ | 261,948  |  | $ | 263,622     
|                                 |   |          |  |   |             





---

INDEX



Notes:    The Company has outstanding Notes totaling $255 million at June 30, 2003.  The financial covenants in the Notes include, among other restrictions, maintenance of minimum net worth and limitations on total debt, interest coverage, liens, debt issuance, dividends and disposition of assets.  As a result of the Company's Chapter 11 filing, the restatement of its financial statements prior to January 1, 2002, the impairment and sale, at a substantial loss, of its oil and gas properties and poor financial results in the first quarter of 2002, the Company is in default on the Notes.

On June 6, 2003, certain of the holders of the Notes filed involuntary chapter 11 petitions against the Company and 16 of its subsidiaries that guaranteed the Notes.  On June 26, 2003, the Company announced that Ranch had purchased all $255 million of the Notes, and that the Company and Ranch had reached an agreement allowing for an extension until July 8, 2003 of the time by which the Company must respond to the involuntary bankruptcy petitions.  On July 8, 2003, the Company reached an agreement-in-principle with Ranch for a consensual reorganization of the Company's capital structure, including all $255 million of the Notes, and on the same date, Ranch and the Company agreed to extend the time to respond to the involuntary petitions to July 21, 2003.  On July 21, 2003, the Debtors filed voluntary petitions in bankruptcy and the Company and Ranch filed motions to dismiss the involuntary petitions (see Note B). In addition, on or before July 21, 2003, Ranch sold all of the Notes to Berkshire.

Term Loans:    The Company is not in compliance with the covenants of a term loan obtained by its wholly owned subsidiary, Seitel Data, Ltd. Pursuant to the Plan,  the Company has proposed an extension of the repayment period  of this loan.  At June 30, 2003, the term loan had an outstanding balance of $5.6 million and a maturity date of October 1, 2004, when a balloon payment of $2.5 million is due.  The Company has proposed an extension of the maturity date to April 1, 2005 and a permanent waiver of the current defaults, subject to certain other terms and conditions.  There can be no assurance that such negotiations will be successful or that they will result in a modification which the Company will determine is satisfactory.

Note Payable to Former Executive:    In connection with the settlement of certain litigation, the Company entered into a note payable to a former executive consisting of payments of $6,417 per month for 36 months commencing June 2003 and payments of $6,000 per month for 84 months commencing June 2006.  The note is non-interest bearing.  The note is guaranteed by Olympic Seismic, Ltd., a wholly owned Canadian subsidiary of the Company.

Debtor-in-Possession Loan Facility:    By order dated July 25, 2003, the Bankruptcy Court approved a $10 million interim debtor-in-possession loan and security agreement  with Wells Fargo Foothill, Inc., as lender, and, upon fulfillment of certain terms and conditions
and the final approval of the Bankruptcy Court, up to $20 million in financing, to support the Debtor's operations during the course of the Cases (the "DIP Facility").  The DIP Facility will terminate upon, among other events, the earlier of the maturity date or the effective date of the Plan.  Advances under the DIP Facility are available pursuant to a formula based on outstanding accounts receivable and the carrying value of the seismic library of the Debtors, subject to certain limitations.  If any advance is made under the DIP Facility, the first such advance must be at least in an amount equal to and the proceeds must be used to retire the balance of the Term Loan payable by Seitel Data Ltd. and described above.  In connection with the application and approval by the lender of the DIP Facility, the Company paid commitment fees of $200,000 plus certain expenses.  In addition, the terms of the DIP Facility include the payment of an unused line fee of .50% per annum payable in arrears, subject to the Bankruptcy Court's final approval of the DIP Facility.

NOTE G-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.  For the three and six months ended June 30, 2003 and 2002, the Company did not have any potentially dilutive securities.  A weighted average number of options and warrants to purchase 5,360,000, 8,987,000, 5,420,000 and 8,885,000  shares of common stock were outstanding during the second quarter of 2003 and 2002 and the six months ended June 30, 2003 and 2002, respectively, but were not included in the computation of diluted per share income because they were antidilutive.



---

INDEX



The Company accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."  APB Opinion No. 25 generally does not require compensation costs to be recorded on options which have exercise prices at least equal to the market price of the stock on the date of grant. Accordingly, no compensation cost has been recognized for the Company's stock-based plans. Had compensation cost for the Company's stock-based compensation plans been determined based on



the fair value at the grant dates for awards under those plans consistent with the optional accounting method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" and expensed pro-rata over the vesting period of the awards, the Company's net loss and loss per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):





|                                  |             | Three Months Ended                        |      |        | Six Months Ended |        
|--------------------------------- | ----------- | ----------------------------------------- | ---- | ------ | ---------------- | -------
|                                  |             | June 30,                                  |      |        | June 30,         |        
|                                  |             |                                           |      |        |                  |        
|                                  |             | 2003                                      |      |        | 2002             |        
|                                  |             |                                           |      |        |                  |        
|Net income (loss):                |             |                                           |      |        |                  |        
|                                  | As reported | $                                         | 903  |        | $                | (78,921
|                                  | Less:       | Total stock-based employee expense        |      |        |                  |        
|                                  |             | determined under SFAS No. 123, net of tax |      | (1,241 | )                |        
|                                  |             |                                           |      |        |                  |        
|                                  | Pro forma   | $                                         | (338 | )      | $                | (79,262
|                                  |             |                                           |      |        |                  |        
|Basic and diluted loss per share: |             |                                           |      |        |                  |        
|                                  | As reported | $                                         | .04  |        | $                | (3.11  
|                                  | Pro forma   | $                                         | (.01 | )      | $                | (3.12  





NOTE H-STATEMENT OF CASH FLOW INFORMATION





During the six months ended June 30, 2003 and 2002, the Company had non-cash additions to its seismic data library totaling $6,190,000 and $8,616,000, respectively.  Of these amounts, $5,957,000 and $8,348,000 resulted from non-monetary exchanges during the six months ended June 30, 2003 and 2002, respectively.  The balance of $233,000 and $268,000 for the six months ended June 30, 2003 and 2002, respectively, resulted from certain data creation costs which were offset against amounts due from the customer for data license fees. The offset amounts are also included in non-cash sales in the Consolidated Statements of Cash Flows.

NOTE I-COMMITMENTS AND CONTINGENCIES

Internal and Securities and Exchange Commission Investigations

During the course of an internal investigation, the Company discovered that two former executive officers may have improperly converted corporate funds for their personal use, including certain unearned advances. Immediately following such discovery, the Company notified the Securities and Exchange Commission ("SEC") Office of Enforcement regarding the findings of the internal investigation.  In December 2002, the SEC issued an "Order Directing Private Investigation and Designating Officers To Take Testimony," commonly called a formal order of investigation.  On June 6, 2003, the SEC charged the Company with violating the reporting, books and records, internal controls and proxy statement provisions of the federal securities laws sections 13 (a), 13 (b) (2)(B) and 14 (a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13 a-1 and 14a-9.  Without admitting or denying the SEC's allegations, the Company agreed to settle this matter by consenting to a final judgment permanently enjoining it from violating these provisions.  In determining to accept the Company's offer, the SEC considered that the Company promptly undertook remedial actions and cooperated with the SEC staff.

Litigation

The former holders of the Notes made demand upon the Company and certain of its former and current officers and directors for money damages arising from certain alleged negligent actions and/or misrepresentations of those officers and directors.  The holders alleged that money damages arising from the foregoing claims were not fully quantified, but exceeded $20 million and included, without limitation, the lost value of such holders investment in the Notes.  Notice of the demand has been provided by the Company to its insurance carriers. The holders of the Notes did not commence suit.  As of June 26, 2003, all of the former holders of the Notes had sold their Notes to Ranch, who subsequently sold the Notes to Berkshire.  Under the Plan, all of the foregoing claims will be released and discharged.





---

INDEX





The Company and certain of its former and current officers and directors have been named as defendants in eleven lawsuits brought as class actions alleging violations of the federal securities laws, all of which were consolidated by an Order entered August 7, 2002, under Cause No. 02-1566, styled In re Seitel, Inc. Securities Litigation, in the United States District Court for the Southern District of Texas.  The Court appointed a lead plaintiff and lead counsel for plaintiffs, who subsequently filed a consolidated amended complaint, which added the Company's auditors, Ernst & Young LLP, as a defendant.  The consolidated amended complaint alleges that during a proposed class period of May 5, 2000 through April 1, 2002, the defendants violated sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by overstating revenues in violation of generally accepted accounting principles.  The plaintiffs seek an unspecified amount of actual and exemplary damages, costs of court, pre- and post-judgment interest and attorneys' and experts' fees.  The Company intends to vigorously defend these consolidated lawsuits.    No discovery has been conducted and the action is stayed as a result of the Company's Chapter 11 filing.

The Company has been named as a nominal defendant in seven stockholder derivative actions filed in various courts: Almekinder v. Frame, Valice, Pearlman, Craig, Lerner, Stieglitz, Zeidman, Hoffman, and Seitel, Inc., No. H-02-2960, In the United States District Court for the Southern District of Texas; Basser v. Frame, Valice, Kendrick, Pearlman, Fiur, Zeidman, Stieglitz, Craig, Lerner, and Seitel, Inc., No. H-02-1874, In the United States District Court for the Southern District of Texas; Berger v. Frame, Pearlman, Valice, Craig, Stieglitz, Lerner, Zeidman, Fiur, and Seitel, Inc., No. 19534-NC, In the Court of Chancery, State of Delaware, Castle County; Chemical Valley & North Central West Virginia Carpenters Pension Plan v. Frame, Valice, Hoffman, Pearlman, Craig, Lerner, Stieglitz, Zeidman, Fiur, and Seitel, Inc., No. 02-CV-3343, In the United States District Court for the Southern District of Texas; Couture v. Frame, Valice, Craig, Lerner, Stieglitz, Zeidman, Hoffman, and Seitel, Inc., No. 20002-37065, In the 80th Judicial District Court, Harris County, Texas; Talley v. Frame, Valice, Pearlman, Craig, Lerner, Stieglitz, Zeidman, Hoffman, and Seitel, Inc., In the 151st Judicial District Court, Harris County, Texas; and Zambie v. Frame, Pearlman, Valice, Craig, Zeidman, Lerner, Stieglitz, Fiur, Ernst & Young LLP, and Seitel, Inc., In the 333rd Judicial District Court, Harris County, Texas.  The plaintiffs generally allege that the defendants breached and conspired to breach fiduciary duties to the Company's shareholders by failing to maintain adequate accounting controls and by using improper accounting and auditing practices and procedures. Certain of the plaintiffs also assert causes of action for mismanagement, waste of corporate assets and unjust enrichment.  The Zambie case also alleges professional negligence against Ernst & Young LLP.  The plaintiffs seek judgments for unspecified amounts of compensatory damages, including return of salaries and other payments to the defendants, exemplary damages, attorneys' fees, experts' fees and costs.  The Company's Board of Directors appointed a special litigation committee to conduct an independent investigation of the allegations asserted in the derivative lawsuits.  The special litigation committee completed its investigation and its report has been delivered to the Company.  The Company filed its motion to dismiss in Delaware Chancery court on March 20, 2003.  The parties previously agreed to stay the Texas state court cases pending the outcome of the Texas federal court derivative cases.  The federal court derivative cases have been consolidated, and the Company has moved to stay the cases pending resolution by the Delaware court.  Presently, all cases are stayed as a result of the Company's Chapter 11 filing.

The Company sued its former chairman of the board in Seitel, Inc. v. Pearlman, C.A. No. H.-02-1843, In the United States District Court in the Southern District of Texas.  The Company sought a declaratory judgment with respect to the employment agreement between Mr. Pearlman and the Company, and asserted various other claims. Mr. Pearlman filed counterclaims with respect to such employment agreement and asserted various causes of action.  On May 9, 2003, the parties reached a settlement in the matter.  Pursuant to the settlement, all parties to the litigation executed releases in favor of the other parties, and all suits were dismissed. The Company reimbursed Mr. Pearlman for certain out of pocket costs and agreed to make certain payments both immediately and over a ten year period in respect of his former employment which was terminated in all respects concurrently with the settlement.  The settlement did not have a material impact on the Company's results of operations for the six months ended June 30, 2003, and performance by the Company under the settlement will not have a material impact on reported results in any future period.

The Company's former chief financial officer, Debra Valice, commenced an action in the 55th Judicial District Court of Harris County, No. 2002-30195, alleging breach of her employment contract by virtue of her termination and that a press release announcing her termination was defamatory.  The Company filed a counterclaim against Ms. Valice to recover certain advances and amounts due on two notes.  The case was tried in the 152nd Judicial District Court of Harris County beginning March 10, 2003.  On March 18, 2003 the jury returned its verdict, finding in favor of Ms. Valice on certain questions and in favor of the Company on others. The jury verdict in the case was never entered, and on July 14, 2003, the parties filed, and the court entered, a joint motion setting aside and disregarding the jury's findings and awards, and the parties have settled all disputes.



---

INDEX



The Company has been sued by its former chief executive officer in Frame v. Seitel, in the 113th Judicial District Court of Harris County, No. 2002-35891.  Mr. Frame alleges a breach of his employment contract by virtue of his termination and also alleges defamation.  He also seeks a declaratory judgment that certain funds he received from the Company were proper and do not have to be repaid.  The Company has answered and asserted various defenses.  The Company also has filed a counter suit to recover approximately $4,200,000 in corporate funds that the Company believes he inappropriately caused the Company to pay him or for his benefit plus over $800,000 due on two notes that were accelerated pursuant to their respective terms.  In addition, the Company also holds a judgment against Mr. Frame in the amount of at least $590,000 relating to a loan made to Mr. Frame by Bank One N.A. ("Bank One") and guaranteed by the Company (see discussionbelow).  The Company intends to defend the suit vigorously and pursue its counterclaim. Discovery is abated in the case pending finalization of certain other matters.

The Company was a party to a suit entitled Bank One, N.A. v. Paul Frame and Seitel, Inc., Cause No. 2002-43070, in the 133rd Judicial District of Harris County, Texas.  The plaintiff sued on an alleged corporate guaranty of a $540,000 note executed by Mr. Frame. In connection with its litigation, Bank One obtained a judgment against Mr. Frame (but not against the Company) in the amount of the note, plus accrued interest and costs of collection.  Subsequently, the Company purchased the note and the judgment from Bank One, and Bank One dismissed its litigation against the Company.  The Company intends to vigorously pursue its claim against Mr. Frame.

The Company is a party to a suit for geophysical trespass entitled Joy Resources, Inc. v. Seitel Data, Ltd., Cause No. 01-02-00828-CV, in the 1st Court of Appeals, Houston, Texas.  The plaintiff is appealing a final judgment by the trial court holding that the plaintiff is not entitled to recover an injunction or to recover damages against the Company.  The plaintiffs assert that the Company obtained seismic data about mineral interests leased by the plaintiff by placing seismic equipment on property adjacent to the property leased by the plaintiff.  The trial court held that no cause of action exists where the seismic equipment is not located on the property leased by the plaintiff.  The briefing has been completed in this matter, and oral argument in the 1st Court of Appeals in Houston, Texas was on May 6, 2003.  The Company intends to vigorously represent its interests in this appeal.

The Company and its subsidiary, Seitel Data, Ltd., are parties to a class action lawsuit for geophysical trespass entitled Juan O. Villarreal v. Grant Geophysical, Inc., et al., Cause No. DC-00-214, in the 229th District Court of Starr County, Texas.  The plaintiffs have sued a number of defendants, including Seitel, Inc. and Seitel Data, Ltd.  The plaintiffs allege that certain defendants conducted unauthorized 3-D seismic exploration of the mineral interests, and sold the information obtained to other defendants.  The plaintiffs seek an unspecified amount of damages.  All of the defendants have obtained summary judgments dismissing the plaintiffs' claims, and the case is now on appeal before the San Antonio Court of Appeals under Cause No. 04-02-00674-CV.  The Company intends to vigorously represent its interests in this appeal.

The Company has sued its former in-house counsel and law firm in Seitel, Inc. v. Cynthia Moulton and Franklin Cardwell and Jones, P.C.,Cause No. 2003-09151 in the 127th Judicial District Court of Harris County, Texas.  The suit alleges negligence, breach of fiduciary duty and breach of contract surrounding the settlement of a personal lawsuit against the former chief executive officer and other aspects of representation.  The Company seeks recovery for fees paid and related expenses.  Initial pleadings were filed on February 21, 2003.  Discovery has not yet commenced.

On March 27, 2003, the Company was served with a complaint filed by the General Electric Credit Corporation of Tennessee ("GE") in the District Court No. 333rd of Harris County, Texas, styled General Electric Credit Corporation of Tennessee, as Plaintiff v. N360X, LLC and Seitel, as Defendants.  The complaint alleges that the Company, as guarantor, and its wholly owned subsidiary N360X, LLC, as lessee, have defaulted on an agreement for the lease of a jet aircraft.  GE has accelerated the obligation, taken possession of the aircraft and demanded payment of amounts GE claims are due pursuant to the termination of the lease. The Company has not yet filed its answer.  The case is in its early stages and no discovery has yet been conducted. The Company has accrued an estimate of the deficiency that would result if the
Plaintiff's claims were to be sustained, the aircraft sold and the proceeds of such sale were to be applied to the payments otherwise due under the lease.  GE has informed the Company that GE believes the amount of $2,323,757.95 is due with respect to the termination of the lease.  The case is subject to the automatic stay of the Bankruptcy Court.

The Company and its subsidiaries, DDD Energy, Inc. ("DDD") and Endeavor Exploration, LLC ("Endeavor") have received a demand letter from an attorney representing a former DDD and Endeavor employee.  The amount claimed is $1,200,000 pursuant to a purported employment contract.  The Company has responded to the demand in writing and has disputed the validity of the claim.  No suit has been filed.

In addition to the lawsuits described above, 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.



---

INDEX



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 June 30, 2003, the Company had accrued $3.5 million, representing management's best estimate of the amount that is probable of being paid relative to all of the litigation and claims set forth above.  This amount reflects a reduction of $2.0 million recorded in the second quarter of 2003 primarily as a result of certain litigation being settled for amounts less than previously estimated and recorded.  However, if one or more of the parties were to prevail against the Company in one or more of the cases described above that have not been settled, the amounts of any judgments against the Company or settlements that the Company may enter into, in addition to liabilities recorded by the Company at June 30, 2003, could be material to the Company's financial statements for any particular reporting period.

In addition, because of the uncertainty surrounding the ability of the Company to collect amounts due from a former executive officer, the Company has provided a full allowance for such amounts.

Stock Exchange Listings

The Company's common stock is publicly traded in the over-the-counter market and in the "pink sheets" under the symbol SEIE and on the Toronto Stock Exchange under the symbol OSL.  Following confirmation of the Plan, such stock will be canceled and not thereafter publicly traded and the listings will be terminated.

NOTE J-RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").  FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  FIN 45 also expands the disclosures required to be made by a guarantor about its obligations under certain guarantees that it has issued.  Initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.  The disclosure requirements were effective for 2002.  The adoption of FIN 45 on January 1, 2003 did not have a material effect on the results of operations or balance sheet of the Company.

In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable Interest Entities, and Interpretation of Accounting Research Bulletin No. 51" ("FIN 46").  FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  The adoption of this interpretation will not have an impact on the financial position or results of operations of the Company.

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

RECENT DEVELOPMENTS







---

INDEX



None of the Company's direct or indirect subsidiaries or affiliates incorporated in Canadian or other non-U.S. jurisdictions have filed Chapter 11 and none are expected to file for reorganization or protection from creditors under any insolvency or similar law in the U.S. or elsewhere.  Such non-filing, non-U.S. based subsidiaries and affiliates are called "non-Debtors".

In addition, on July 21, 2003, the Debtors filed a Plan of Reorganization (the "Plan").  The Plan is being financed by Berkshire Hathaway Inc. ("Berkshire").  If the Plan is confirmed and consummated, the Company will become a wholly owned subsidiary of Berkshire.  Consummation of the Plan is subject to a number of conditions, including confirmation by the Bankruptcy Court no later than November 18, 2003.  The document containing the specific Plan terms is publicly available and has been filed with the Bankruptcy Court.  The Plan also is an exhibit to the Company's Form 8-K filed on July 22, 2003.

The Plan generally provides, in summary, for the (i) payment in full on agreed terms or the reinstatement on existing terms of all secured debt; (ii) the assumption and reaffirmation of obligations under the Company's previously issued data license agreements with its customers; (iii) payment in full in cash of all allowed unsecured claims, other than the Note claims (which are to recover approximately 71% of their face value) owing by Debtors that conduct Seitel's principal operations; (iv) payment of cash equal to 25% of allowed unsecured claims which are owing or are guaranteed by entities not presently conducting operations or which have no substantial assets; and (v) subject to the confirmation of the Plan on or before November 18, 2003
and the affirmative vote of Seitel shareholders, the distribution of approximately $10.15 million in cash (equivalent to $.40 per share) to the holders of Seitel common stock in cancellation of such stock.  If shareholders were to vote to reject the Plan and the Plan nevertheless is confirmed by the Bankruptcy Court, Seitel's existing common stock will be cancelled and no distribution would be made to existing Seitel shareholders.  In all events, if the Plan is confirmed and consummated, all presently existing Seitel common stock and all options and warrants to acquire such stock will be cancelled upon the effective date of the Plan.  This foregoing description of the treatments and recoveries under the Plan is only a summary, and any discrepancy between such descriptions and the Plan is controlled exclusively by the Plan.

In connection with the Plan filing, previously filed involuntary bankruptcy petitions which were pending against the Company were dismissed on July 25, 2003 by order of the Bankruptcy Court pursuant to a joint request for such dismissal filed by the Company and Ranch Capital L.L.C. ("Ranch").  Ranch previously purchased all of the senior unsecured notes (the "Notes") held by the entities which filed the involuntary bankruptcy petitions.  Ranch subsequently sold the Notes to Berkshire.

On the Petition Date, the Company sought, and thereafter obtained, authority to take a broad range of actions, including the right to honor and perform under their pre-petition customer data agreements and to promote a "business as usual" atmosphere with customers and employees.  This relief was essential to minimize disruptions to the Company's businesses as a result of the commencement of the Chapter 11 cases and to assure customers that the data license agreements for selection of seismic data would be honored pending confirmation of the Plan.  Additionally, other orders were obtained, including authority to pay certain, limited pre-petition employee wages and benefits, employment of a noticing agent, adequate assurance of future payments to utility companies, continued use of cash management systems and payment of pre-petition sales.

The Bankruptcy Court also approved a $10 million interim debtor-in-possession loan and security agreement (the "DIP Facility") with Wells Fargo Foothill, Inc., as lender ("Foothill"), and, upon fulfillment of certain terms and conditions
and the final approval of the Bankruptcy Court, up to $20 million in financing, to support the Debtors' operations during the course of the Cases.  The DIP Facility will terminate upon, among other events, the earlier of the maturity date or the effective date of the Plan.

Generally, pre-Petition Date claims against the Debtors will fall into two categories: secured and unsecured, including certain contingent or unliquidated claims.  Under the Bankruptcy Code, a creditor's claim is treated as secured only to the extent of the value of the collateral securing such claim, with the balance of such claim being treated as unsecured.  Unsecured and partially secured claims do not accrue interest after the Petition Date.  A fully secured claim, however, does accrue interest after the Petition Date until the amount due and owing to the secured creditor, including interest accrued after the Petition Date, is equal to the value of the collateral securing such claim.  As a result of the Cases, additional pre-Petition Date claims and liabilities may be asserted, some of which may be significant.  No provision has been included in the accompanying financial statements for such potential claims and additional liabilities that may be filed on or before a date to be fixed by the Bankruptcy Court as the last day to file proofs of claim.



---

INDEX



Under the Bankruptcy Code, the rights of and ultimate payments to pre-Petition Date creditors and stockholders may be substantially altered.  The Debtors anticipate that substantially all liabilities of the Debtors as of the date of the filing will be resolved under the Plan and voted on in the Cases in accordance with the provisions of the Bankruptcy Code.  Although the Debtors intend to seek confirmation of the Plan, there can be no assurance that the Plan will be confirmed by the Bankruptcy Court and consummated.

The accompanying financial information of the Company and related discussions of financial condition and results of operations are based on the assumption that the Company will continue as a "going concern" which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business; however, as a result of the commencement of the Cases, such realization of assets and liquidation of liabilities are subject to a significant number of uncertainties.  Financial information for periods ending after the Petition Date will include adjustments and reclassifications to reflect the liabilities which have been deferred as a result of the commencement of the Cases.  Specifically, but not all inclusive, the financial information as of and for the six months ended June 30, 2003, contained herein does not represent: (a) the realizable value of assets on a liquidation basis or the availability of such assets to satisfy liabilities, (b) the amount which will ultimately be paid to settle liabilities and contingencies which may be allowed in the Cases, (c) the effect of any changes which may be made in connection with the Debtors' capitalizations or operations resulting from the Plan.  Because of the ongoing nature of the Cases, the discussions and consolidated financial statement contained herein are subject to material uncertainties.

SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Revenue from Data Acquisition

Revenue from the creation of new seismic data is recognized 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 projects, 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 contracts typically result in one or more customers underwriting a significant portion of the direct creation costs in exchange for a license or licenses to use the resulting data. Customers make periodic payments throughout the creation period which generally correspond to costs incurred and work performed. These payments are non-refundable. The creation process generally occurs in the following stages: permitting, surveying, drilling, recording and processing. At each stage, the customers receive legally enforceable rights and access to, and the benefits of, the results of all work performed. The customers also receive access to and use of the newly acquired and processed data. The customers may have exclusive access to the work performed and exclusive use of the newly acquired and processed data for a limited term, which is generally nine months or less, after final delivery of the 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.

Revenue from Data Licenses

The Company licenses data from its seismic data library to customers to review for a limited period of time or to hold long-term.

The usage of all data delivered to the customer, whether for review only or to hold long-term, is governed by a license agreement, which is a separate agreement from the sales contract. The Company's contracts require the customer either to have a license agreement in place or to execute one at the time the contract is signed. The license agreement governs all data delivered to the customer during the term. Payment terms under the contracts vary from 30 days to 18 months depending on the size of the transaction.  All payments due are non-cancelable and all payments made are non-refundable. The customer has access to all available data covered by the contracts on the date the contract is executed.  If the contract allows licensing of data that is not currently available, revenue is deferred until such time that the data is available for licensing.  The contracts permit selection of the data in its present form 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, in which case revenue with respect to such data would be deferred until performance is accomplished.  Copies of the data are available to the customer immediately upon request.



---

INDEX



The Company recognizes revenue from licensing of seismic data when the Company has contracted with the customer for a fixed sales price; a licensing agreement is in place; the customer has selected specific data under the terms of the contract or the contract has expired without full selection having occurred; and collectibility of the sales price is reasonably assured. The Company recognizes revenue for the particular data selected as each specific selection of data is made by the customer. If selections are not completed by the expiration date of the contract, the Company then recognizes any remaining revenue under that contract. In each case (selection or expiration), the earnings process is complete. The Company does not recognize revenue for amounts billed in advance of being earned until these conditions are met. For revenue that is deferred, the Company defers the direct costs (primarily commissions) related to the revenues. Revenue from licensing of seismic data is presented net of revenue shared with other entities.

Revenue from Non-Monetary Data Exchanges

In certain cases, the Company grants its customer a non-exclusive license to selected data from its library in exchange for ownership of seismic data from the customer.  The data that the Company receives is distinct from the data that it is licensing to the customer.  Because the Company receives ownership of distinct seismic data to be added to its library, and this data may be relicensed by the Company on a continuing basis, in exchange for a data license, the exchange is not a "like-kind" exchange, which would be accounted for at historical cost.  Once data selection is completed, the exchange represents the culmination of the earnings process with the customer and is not merely an exchange between two seismic companies.  These exchanges are referred to as non-monetary data exchanges.

The Company records a data library asset for the seismic data acquired at the time the contract is entered into and recognizes revenue on the transaction in accordance with its policy on revenue from data licenses, that is, when the data is selected by the customer.  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.

The Company determines fair value of data exchanged by first determining the value of the license granted to the customer. It does so by evaluating the range of cash transactions by the Company for licenses of similar data during the prior six months for licenses in the United States and for the prior twelve months for licenses in Canada. In evaluating the range of cash transactions, the Company does not consider transactions that are disproportionately high or low. The Company then also considers the value of the data 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 as well as the cost that would be required to create the data.  In the United States, the Company applies a limitation on the value it assigns per square mile on the data exchanged. In Canada, in the event of a difference greater than 2% between the value of the license granted and the value of the data received, the Company assigns the lower value to the exchange.  In significant exchanges ($500,000 or more), the Company obtains an opinion from an independent third party in order to confirm the Company's valuation of the data received.  The Company obtains these opinions on an annual basis, usually in connection with the preparation of its annual financial statements.

Revenue from Solutions

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

Seismic Data Library

Costs associated with creating, acquiring or purchasing the seismic data library are capitalized and such costs are amortized principally on the income forecast method subject to a maximum amortization period determined based on the type of data.

Costs of Seismic Data Library

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



---

INDEX



For data acquired through a non-monetary data 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 clearly determinable.  In the case of any single non-monetary exchange where the fair value recorded is in excess of $500,000, the Company also obtains an opinion from a third party to confirm the Company's valuation.

For internally 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.

Data Library Amortization

Effective January 1, 2002 (see "Change in Accounting Principle" below), the Company amortizes its seismic data library using the greater of the amortization that would result from the application of the income forecast method or a straight-line basis over the useful economic life of the data.

The actual rate of amortization depends on the location of specific seismic surveys licensed and selected by the Company's customers during the year.  Effective January 1, 2003, the Company assigns a specific amortization rate to each of fourteen separately identified segments of its seismic data library based on its estimate of future sales from each segment.  The amortization rates vary by segment and range from a low of 37% to a high of 100% with a weighted average rate of 50% based on the net book value of each segment compared with the net book value of the entire seismic data library as of June 30, 2003.  The actual rate of amortization recorded in any period varies from the weighted average rate due to the application of straight-line amortization on a survey-by-survey basis.

The Company applies the income forecast method by forecasting the ultimate revenue expected to be derived from a particular data library segment over the estimated useful economic life of each survey comprising part of such segment. That forecast is made by the Company annually and reviewed quarterly.  If, during any such review and update, the Company determines that the ultimate revenue for a library segment is expected to be significantly different than the original estimate of total revenue for such library segment, the Company revises the amortization rate attributable to future revenue from each survey in such segment.  In addition, in connection with such reviews and updates, the Company evaluates the recoverability of its seismic data library, and if required under Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets," records an impairment charge with respect to such data.  See discussion on "Seismic Data Library Impairment" below.

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 income forecast amortization 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.  This requirement is applied regardless of future-year revenue estimates for the library segment of which the survey is a part and does not consider the existence of deferred revenue with respect to the library segment or to any survey.  As discussed below in "Revision of Useful Life of Data Library," the Company revised its useful life estimate in the fourth quarter of 2002 from ten years to five years with respect to offshore data and from ten years to seven years with respect to onshore data.

Change in Accounting Principle

In the second quarter of 2002, the Company changed its accounting policy for amortizing its created seismic data library from the income forecast method to the greater of the income forecast method or the straight-line method over the useful economic life of the data and reported the adoption of the new method as a cumulative effect of a change in accounting principle retroactive to January 1, 2002.  The Company changed its accounting policy in an effort to increase the transparency of its methodology and to be more consistent with other industry competitors.  Accordingly, the Company recorded a pre-tax charge of $17.2 million (after-tax charge of $11.2 million) as of January 1, 2002.



---

INDEX



Revision of Useful Life

In the fourth quarter of 2002, the Company reevaluated its estimate of the useful life of its seismic data library and revised the estimated useful life of its seismic data library to reduce the useful life of offshore data from ten to five years and onshore data from ten to seven years.  In making this decision, the Company considered a number of factors, including, among others, the impairment charges it reported in 2002, the additional amortization charges the Company recorded during the first three quarters of 2002 pursuant to its new amortization policy and seismic industry conditions.  With respect to each survey in the data library, the useful life policy is applied from the time such survey is available for licensing to customers generally, since some data in the library may not be licensed until an exclusivity period (usually nine months or less) has lapsed.

As a result of the adoption of the new accounting principle described above and the revision of the estimates of the useful lives of the seismic data in the fourth quarter of 2002, all of the Company's seismic data library is amortized on the greater of the income forecast method or straight-line amortization over five or seven years, as applicable.

Seismic Data Library Impairment

As events or conditions require, the Company evaluates the recoverability of its seismic data library in accordance with SFAS No. 144.  The Company evaluates its seismic data library for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Prior to the fourth quarter of 2002, the Company evaluated its seismic data library in the following components: (a) Gulf of Mexico offshore data, (b) Gulf Coast onshore data, (c) Rocky Mountain region data (including U.S. areas outside the Gulf Coast), (d) Canadian data, and (e) international data outside of North America.



In the fourth quarter of 2002, the Company reevaluated the level which constitutes the lowest level of independently identifiable cash flows.  In its reevaluation, the Company considered the results of the comprehensive forecasting process that had been undertaken by management in the fourth quarter of 2002, recent sales trends and management's expectations relative to its ability to attribute revenues to lower survey aggregation levels.  The results of management's analysis indicated that the Company could reasonably forecast the future sales at levels lower than previously practicable.  Accordingly, in the fourth quarter of 2002, the Company refined its impairment evaluation methodology to evaluate its seismic data library in components based on the Company's operations and geological and geographical trends, and as a result, established the following data library segments for purposes of evaluating impairments:  (I) Gulf of Mexico offshore comprised of the following components:  (a) multi-component data, (b) value-added products, (c) ocean bottom cable data, (d) shelf data, and (e) deep water data; (II)  North American onshore comprised of the following components: (a) Texas Gulf Coast, (b) North, East and West Texas, (c) South Louisiana and Mississippi, (d) North Louisiana, (e) Rocky Mountains, (f) North Dakota, (g) other United States, (h) Canada and (i) value-added products, and (III) international data outside North America.  The Company believes that these library components constitute the lowest levels of independently identifiable cash flows.

In accordance with SFAS No. 144, the impairment evaluation is based first on a comparison of the undiscounted future cash flows 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 is recorded as an impairment loss equal to the difference between the library component's carrying amount and the discounted future value of the expected revenue stream.

For purposes of evaluating potential impairment losses, the Company estimates the future cash flows attributable to a library component by evaluating historical revenue trends, oil and gas prospectivity in particular regions, general economic conditions affecting its customer base and expected changes in technology. 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 is highly subjective, inherently imprecise and can change materially from period to period based on the factors described in the preceding paragraph, among others. Accordingly, if conditions change in the future, the Company may record further impairment losses relative to its seismic data library, which could be material to any particular reporting period.



---

INDEX



Use of Estimates and Assumptions

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. These estimates and assumptions must be made because certain of the information that is used in the preparation of the Company's financial statements is dependent on future events, cannot be calculated with a high degree of precision from data available or is simply not capable of being readily calculated based on generally accepted methodologies. In some cases, these estimates are particularly difficult to determine and the Company must exercise significant judgment.

The most difficult, subjective and complex estimates and assumptions that deal with the greatest amount of uncertainty are related to the Company's accounting for its seismic data library and litigation, as described below.  In addition, management adopted a new accounting principle and revised several of the key assumptions and estimates in the Company's accounting for its seismic data library in 2002.

The Company's accounting for its seismic data library requires it to make significant estimates and assumptions relative to future sales and cash flows from such library. Any changes in these estimates or underlying assumptions will impact the Company's income from operations prospectively from the date changes are made. To the extent that such estimates, or the assumptions used to make those estimates, prove to be significantly different than actual results, the carrying value of the seismic data library may be subject to higher prospective amortization rates, additional straight-line amortization or impairment losses.  In addition, based on future events, the Company may make changes in the estimated useful life of the asset.  Changes in the underlying assumptions regarding future sales and cash flows from the library or revisions to estimated useful life may cause the Company's prospective amortization expense to decrease or increase materially and may also result in significant impairment losses being recognized.  If such changes or revisions take place in the future, the effect on the Company's reported results can be significant to any particular reporting period.

In a portion of its seismic data library activities, the Company engages in certain non-monetary exchanges and records a data library asset for the seismic data acquired and recognizes revenue on the transaction in accordance with its policy on revenue from data licenses.  These transactions are valued at the fair value of the data received by the Company or licenses granted by the Company, whichever is more clearly determinable.  In addition, in significant exchanges, the Company obtains third-party appraisals to corroborate its estimate of the fair value of the transactions.  The Company's estimate of the value of these transactions is highly subjective and based, in large part, on data sales transactions between the Company and a limited number of customers over a limited time period, and appraisals of the value of such transactions based on a relatively small market of private transactions over a limited period of time.  If the Company's estimate of the fair value of such transactions were to change, the revenue recognized and the related amortization expense would increase or decrease accordingly.

The Company is involved in civil lawsuits including securities-related shareholder suits, litigation with former executives of the Company and other commercial litigation.  These matters are in various stages of progress.  In some cases, management expects that these matters may extend for a long period of time in the future.  The Company estimates the amount of potential exposure it may have with respect to these matters in accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies."

In developing its estimates of exposure, the Company considers all factors relevant to the likelihood of its success in these matters and makes a number of assumptions relative to what amounts, if any, may be required to be paid by the Company in the future relative to these matters.  Due to the inherent unpredictability of significant future events relative to these matters, it is possible that one or more of these matters may ultimately be settled or adjudicated in a manner inconsistent with the Company's current expectation.  Should that occur, the Company may be required to record an expense, which is in addition to any liabilities already established for such matters in accordance with SFAS No. 5, that could be material to its financial statements for any particular reporting period.

Actual results could differ materially from the estimates and assumptions that the Company uses in the preparation of its financial statements.  To the extent management's estimates and assumptions change in the future, the Company's future profitability may improve or decline significantly based on such changes.



---

INDEX





RESULTS OF OPERATIONS

The Company generates revenue primarily by licensing data from its existing data library and from new data acquisition partially underwritten or sponsored by clients.  Total revenue was $31,773,000 in the second quarter of 2003 compared to revenue of $47,102,000 in the second quarter of 2002.  Total revenue was $62,097,000 for the six months ended June 30, 2003 compared to revenue of $69,615,000 for the six months ended June 30, 2002.





The following table summarizes the components of the Company's revenue for the three and six months ended June 30, 2003 and 2002 (in thousands):







|                    |                        | Three months ended |         |   | Six months ended |        
|------------------- | ---------------------- | ------------------ | ------- | - | ---------------- | -------
|                    |                        | June 30,           |         |   | June 30,         |        
|                    |                        |                    |         |   |                  |        
|                    |                        | 2003               |         |   | 2002             |        
|                    |                        |                    |         |   |                  |        
|                    |                        |                    |         |   |                  |        
|Acquisition revenue | $                      | 8,190              |         | $ | 4,404            |        
|Licensing revenue:  |                        |                    |         |   |                  |        
|                    | New resales for cash   |                    | 20,019  |   |                  | 20,802 
|                    | Non-monetary exchanges |                    | 2,848   |   |                  | 5,323  
|                    | Deferral of revenue    |                    | (13,508 | ) |                  | (13,829
|                    | Selections of data     |                    | 13,399  |   |                  | 29,927 
|Solutions and other |                        | 825                |         |   | 475              |        
|                    |                        |                    |         |   |                  |        
|Total revenue       | $                      | 31,773             |         | $ | 47,102           |        
|                    |                        |                    |         |   |                  |        





The decrease in total revenue for the three and six months ended June 30, 2003 compared to the corresponding periods of 2002 was primarily due to a decrease during 2003 in selections of data from contracts whose revenue was initially deferred.  In the second quarter of 2002, the volume and dollar amount of selections of data by clients increased significantly due to the uncertainty surrounding the Company's financial condition.  Thereafter, selections of data returned to more normal levels and selections in the second quarter of 2003 were generally consistent with the level of selections during the immediately preceding two quarters.  Acquisition revenue for the three and six months ended June 30, 2003 was higher than the corresponding periods in 2002 due to the award of new acquisition projects .  In addition, for the six months ended June 30, 2003, cash licensing sales were higher than the same period in 2002 primarily resulting from improvement in the level of such sales for the first quarter of 2003 as compared to the first quarter of 2002.  First quarter 2002 cash licensing sales were negatively impacted by lower than expected energy commodity prices, which led to an overall slowdown in spending on certain oil and gas activities, including seismic data.  Solutions and other revenue increased by over $1.2 million for the 2003 six month period as compared to 2002 and reflects deliveries of data associated with higher levels of cash licensing in 2003 and the capture of activity previously outsourced to third parties.

At June 30, 2003, the Company had a deferred revenue balance of $56,722,000, of which $16,003,000 resulted from non-monetary exchanges.  The deferred revenue will be recognized when selection of the data is made by the customer or upon expiration of the selection period, whichever occurs first.

Depreciation and amortization consists of data bank amortization and depreciation on property and equipment.  Data bank amortization was $18,587,000 and $35,023,000 in the second quarter and first six months of 2003 compared to $18,715,000 and $35,551,000 in the second quarter and first six months of 2002.  The amount of seismic data amortization fluctuates based on the level and location of specific seismic surveys licensed (including licensing resulting from new data acquisition) and selected by the Company's customers during any period as well as the amount of straight-line amortization required under its accounting policy.  As a percentage of revenue from licensing seismic data, data bank amortization was 60% and 40% for the second quarters of 2003 and 2002, respectively, and 58% and 52% for the first six months of 2003 and 2002, respectively.  The increase in the amortization rate from 2002 to 2003 is primarily due to a change in the amortization policy in effect for purchased data.  In the first six months of 2002, amortization of purchased data costs was determined on a straight-line basis over 10 years, whereas, in 2003 purchased data library costs are amortized on the greater of the income forecast or straight-line method over the data's estimated useful life.   Additionally, in the second quarter of 2003, the rate increase was also due to an increase in straight-line amortization charges resulting from the reduced estimated useful life of the data library in the fourth quarter of 2002.

Depreciation expense on property and equipment was $1,515,000 in the second quarter of 2003 compared to $1,640,000 in the second quarter of 2002.  Depreciation expense was $3,225,000 for the first six months of 2003 compared to $2,610,000 for the same period in 2002.  The increase for the six month period was primarily due to property and equipment placed in service in connection with the opening of data technology centers in Houston and Calgary in March and April 2002, respectively.



---

INDEX



During the second quarter of 2002, the Company recorded a non-cash impairment charge on its Gulf of Mexico offshore and its Rocky Mountain region seismic data totaling $25,696,000.  Based on industry conditions and recent revenue performance, the Company determined that its estimates of future cash flows on these seismic data library components would not be sufficient to recover the carrying value of such data.  As a result, the Company estimated the fair value of these seismic data components by discounting the estimated net cash flows of the data.  The resulting difference between the estimated fair value and carrying value was recorded as an impairment loss during the second quarter of 2002.

The Company's selling, general and administrative ("SG&A") expenses were $5,626,000 in the second quarter of 2003 compared to $24,243,000 in the second quarter of 2002.  Second quarter 2002 SG&A included $9.5 million of charges related to former executives for certain compensation paid pursuant to contracts and allowance for collection of notes receivable.  Second quarter 2003 SG&A expenses include $2.9 million of legal and professional fees related to the Company's ongoing restructuring efforts and costs associated with litigation with several parties, including certain former officers and directors of the Company.  The second quarter of 2002 included $2.6 million of such costs.  Offsetting a portion of these costs were foreign currency transaction gains (reducing SG&A expense) totaling $1.6 million for the three months ended June 30, 2003, related to the strengthening of the Canadian dollar for U.S. denominated transactions of the Company's Canadian subsidiaries. Foreign currency transaction gains in the second quarter of 2002 were $800,000. Additionally, in the second quarter of 2003, the Company recorded a reduction of $2.0 million in liabilities associated with certain litigation, primarily as a result of certain litigation being settled for amounts less than that previously estimated and recorded.  The Company's SG&A expenses were $14,519,000 in the first half of 2003 compared to $34,733,000 in the first half of 2002.  The lower SG&A expenses in the second quarter and first six months of 2003 compared with the same periods a year ago reflect decreased personnel and other costs resulting from cost reduction measures implemented by the Company in the last half of 2002, including a reduction in work force, relocation of its headquarters, overhaul of its compensation structure and the imposition of strict controls on spending of all types.  The first six months 2002 SG&A included $9.5 million of charges related to former executives for certain compensation paid pursuant to contracts and allowance for collection of notes receivable and an additional $3.2 million of costs associated with litigation with several parties, including certain former officers and directors of the Company. Offsetting a portion of these costs were foreign currency transaction gains totaling $700,000 for the six months ended June 30, 2002, related to the strengthening of the Canadian dollar for U.S. denominated transactions of the Company's Canadian subsidiaries.  The first six months 2003 SG&A expenses include $6.0 million of legal and professional fees related to the Company's ongoing restructuring efforts offset partially by $3.0 million of foreign currency gains related to the strengthening of the Canadian dollar for U.S. denominated transactions of the Company's Canadian subsidiaries.  Additionally, in the first six months of 2003, the Company recorded a reduction of $2.0 million in liabilities associated with certain litigation, primarily as a result of certain litigation being settled for amounts less than that previously estimated and recorded.



The decrease in interest expense, net, between the second quarter periods was primarily due to second quarter 2002 interest expense including $321,000 related to the write-off of deferred financing costs associated with the Company's terminated line-of-credit facility and $370,000 of expense related to Note amendment fees, partially offset by capitalized interest of $330,000.  No such costs were incurred in the second quarter of 2003.

During the second quarter of 2003, the Company negotiated settlement of certain liabilities for less than the amount recorded in the financial statements resulting in a gain of $681,000.

During the second quarter of 2002, the Company sold certain marketable securities that it held.  As a result, the unrealized loss that was recorded as a component of equity was recognized in the income statement as a permanent impairment of the marketable security during the second quarter of 2002.

As a result of the Company recording a loss for the first six months of 2003, along with the Chapter 11 filing and the fact that there is substantial doubt about the Company's ability to continue to recover assets and satisfy liabilities in the normal course of business, the U.S. income tax benefit on this loss was offset by a valuation allowance since such benefit is not assured of realization.  Tax expense of $778,000 and $813,000 was recorded in the second quarter and first six months of 2003, respectively, related to earnings on certain Canadian subsidiaries.

In June 2002, the Company's Board of Directors unanimously adopted a plan to dispose of the Company's oil and gas operations by sale.  In 2002, the Company sold a majority of its oil and gas assets.  The Company's remaining oil and gas assets are not material and consist of working interests in six oil and gas properties for which the Company continues to seek buyers.  Based on the most recent offers (none of which have been consummated) received by the Company for certain of its remaining oil and gas properties, the Company recorded a charge in the first six months of 2003 of $278,000 to reduce the carrying value of such properties to their estimated realizable value.



---

INDEX



Revenue from the discontinued operations was $109,000 and $3,743,000 for the three months ended June 30, 2003 and 2002, respectively, and $190,000 and $6,386,000 for the six months ended June 30, 2003 and 2002, respectively. Pre-tax income (loss) from the discontinued operations was $39,000 and $(57,835,000) for the three months ended June 30, 2003 and 2002 respectively, and $(198,000) and $(58,711,000) for the six months ended June 30, 2003 and 2002, respectively.  The decrease in revenue between 2003 and 2002 was primarily due to lower production volumes as a result of the sale of the majority of the producing wells.  The decrease in the pre-tax loss from the discontinued operations between 2003 and 2002 was primarily due to the loss on the sale of the assets recorded in the 2002 periods.

In the second quarter of 2002, the Company revised its policy for amortizing its seismic data library and reported the adoption of its revised method as a cumulative effect of a change in accounting principle retroactive to January 1, 2002. Accordingly, the Company recorded a pre-tax charge of $17.2 million (after-tax charge of $11.2 million) as of January 1, 2002.  Under its revised accounting policy, the Company calculates created data amortization as the greater of the income forecast method or straight-line amortization over the estimated useful life of the asset.

Liquidity and Capital Resources

As of August 13, 2003, the Company had $35.2 million in cash on hand. In addition, the Company has received approval from the Bankruptcy Court with respect to a debtor-in-possession financing facility for up to $10 million initially and up to $20 million, subject to final order of the Bankruptcy Court.  Advances under the facility are available pursuant to a formula based on the carrying value of certain accounts receivable and components of the seismic data library.  If an advance is made under the facility, the first such advance must be in an amount not less than and must be used to retire the Company's term loan presently outstanding in the amount of $5.4 million and secured by certain seismic data.

The Company's cash provided by operating activities from continuing operations was $38,819,000 and $16,731,000 for the six months ended June 30, 2003 and 2002, respectively.  The increase from 2002 to 2003 was primarily due to receipt of a Federal income tax refund of $17.4 million and to increased cash license sales during the first six months of 2003.

As of June 30, 2003, the Company had approximately $274.9 million of outstanding debt and lease obligations, with aggregate contractual cash obligations summarized as follows (in thousands):





|                                   |   |         |   | Payments due by period | 
|---------------------------------- | - | ------- | - | ---------------------- | 
|                                   |   |         |   |                        | 
|                                   |   |         |   |                        | 
|Contractual cash obligations       |   | Total   |   | 2003                   | 
|                                   |   |         |   |                        | 
|                                   |   |         |   |                        | 
|Debt obligations (1)               | $ | 261,948 | $ | 261,376                | 
|Capital lease obligations          |   | 7,220   |   | 657                    | 
|Operating lease obligations        |   | 5,704   |   | 592                    | 
|                                   |   |         |   |                        | 
|                                   |   |         |   |                        | 
|Total contractual cash obligations | $ | 274,872 | $ | 262,625                | 
|                                   |   |         |   |                        | 
|                                   |   |         |   |                        | 





|(1) | These debt obligations have contractual maturities ranging from 2003 to 2011.  The Company is in non-compliance with certain of the covenants related to this debt and the maturities have been reflected as due in 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







As a result of the bankruptcy filing by the Company and its wholly owned U.S. subsidiaries, the rights of and ultimate payments related to certain of these contractual obligations may be substantially altered.

Notes

The Company has outstanding Notes totaling $255 million that were issued in various series from December 1995 through December 2001.  The Notes bear interest at rates ranging from 7.04% to 7.48% and have maturity dates ranging from December 2002 to October 2011.  The financial covenants in the Notes include, among other restrictions, maintenance of minimum net worth and limitations on total debt, interest coverage, liens, debt issuance, dividends and disposition of assets.  As a result of the Company's Chapter 11 filing, the restatement of its financial statements prior to January 1, 2002, the impairment and sale, at a substantial loss, of its oil and gas properties and poor financial results in the first quarter of 2002, the Company is in default on the Notes.

On June 6, 2003, certain of the holders of the Notes filed involuntary chapter 11 petitions against the Company and 16 of its subsidiaries that guaranteed the Notes.  On June 26, 2003, the Company announced that Ranch had purchased all $255 million of the Notes, and that the Company and Ranch had reached an agreement allowing for an extension until July 8, 2003 of the time by which the Company must respond to the involuntary bankruptcy petitions   On July 8, 2003, the Company reached an agreement-in-principle with Ranch for a consensual reorganization of the Company's capital structure, including all $255 million of the Notes and on the same date, Ranch and the Company, agreed to extend the time to respond to the involuntary petitions to July 21, 2003.  On July 21, 2003, the Debtors filed voluntary petitions in bankruptcy and the Company and Ranch filed motions to dismiss the involuntary petitions.  In addition, on or before July 21, 2003, Ranch sold all of the Notes to Berkshire.  The balance outstanding on the Notes was $255 million at August 13, 2003.



---

INDEX



Lines of Credit

On December 9, 2002 the Company's wholly owned subsidiary, Olympic Seismic Ltd. ("Olympic") entered into a new revolving credit facility.  The facility allows it to borrow up to $5 million (Canadian dollars), subject to an availability formula, by way of prime-based loans, bankers' acceptances or letters of credit.  Until January 22, 2003, prime-based loans and bankers' acceptances bore interest at the rate of the bank's prime rate plus 1.75% per annum and 1.40% per annum, respectively. Effective January 22, 2003, such rates were amended to 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 the assets of Olympic, SEIC Trust Administration Ltd. (as sole trustee of, and for and on behalf of, SEIC Business Trust) and SEIC Holdings, Ltd., but is not guaranteed by Seitel, Inc. or any of its other United States subsidiaries.  However, all intercompany debt owing by Olympic to Seitel or to any Seitel U.S. subsidiary (approximately $17,032,000 (Canadian dollars) at June 30, 2003) has been subordinated to the repayment of the revolving credit facility.  Available borrowings under the facility are equivalent to a maximum of $5 million (Canadian dollars), subject to a requirement that such borrowings may not exceed 75% of good accounts receivable (as defined in the agreement) of SEIC Trust Administration, less prior-ranking claims, if any, relating to inventory or accounts. The facility is subject to repayment upon demand and is available from time to time at the Bank's sole discretion.  A review of this demand facility is performed annually at the Bank's discretion.  As of August 13, 2003, no amounts were outstanding on this revolving line of credit and $2,002,000 (Canadian dollars) was available on the line of credit.  Olympic is not a party to any of the debt issued by Seitel other than the note payable to a former executive.

The Company has received approval from the Bankruptcy Court with respect to a debtor-in-possession financing facility for up to $10 million initially and up to $20 million, subject to final order of the Bankruptcy Court.  Advances under the facility are available pursuant to a formula based on the carrying value of certain accounts receivable and components of the seismic data library.  If any advance is made under the facility, the first such advance must be at least in an amount equal to and the proceeds must be used to retire the Company's term loan presently outstanding in the amount of $5.4 million and secured by certain seismic data.  As of August 13, 2003, no amounts were outstanding on this facility.

Term Loans

On August 28, 2001, the Company's wholly owned subsidiary, Seitel Data, Ltd., obtained a term loan totaling $10 million for the purchase of certain seismic data, some of which data secures the debt.  The loan bears interest at the rate of LIBOR plus 2.9%. Monthly principal payments total $208,000.  The Company is not in compliance with the covenants of this term loan.  Pursuant to the Plan, the Company has proposed an extension of the repayment period of this loan.  At June 30, 2003, the term loan had an outstanding balance of $5.6 million and a maturity date of October 1, 2004, when a balloon payment of $2.5 million is due.  The Company has proposed an extension of the maturity date to April 1, 2005 and a permanent waiver of the current defaults, subject to certain other terms and conditions.  There can be no assurance that such negotiations will be successful or that they will result in a modification which the Company will determine is satisfactory.  The balance outstanding on this loan on August 13, 2003, was $5,417,000.

On January 14, 2002, the Company's wholly owned subsidiary, SEIC Business Trust (the "Trust"), entered into a demand reducing credit facility to borrow $4 million (Canadian dollars) by way of prime-based loans. The funds were drawn down on January 30, 2002 to finance the purchase of seismic data.  On December 9, 2002, the Trust replaced the remaining balance owing under this facility with a $2.67 million (Canadian dollars) reducing demand facility, by way of prime-based loans.  Monthly payments total $166,670 (Canadian dollars) plus interest. The facility matures on January 28, 2004.  Until January 22, 2003, the loans bore interest at the bank's prime rate plus 2.00%.  Effective January 22, 2003, the rate was amended to the bank's prime rate plus 0.50%.  The facility is secured by the Trust's assets and guaranteed by Olympic and SEIC Holdings Ltd.  However, all intercompany debt owing by the Trust to Seitel or any Seitel U.S. subsidiary (approximately $38,644,000 (Canadian dollars) at June 30, 2003) has been subordinated to the repayment of the demand reducing credit facility.  The balance outstanding on this loan on August 13, 2003 was $1,000,000 (Canadian dollars).



---

INDEX







Other Debt

During 2001 and 2002, the Company entered into capital leases for the purchase of computer and data technology center furniture and equipment. The lease agreement originally was for a term of approximately two years. On February 18, 2003, the Company and the lessor entered into a restructuring of this lease effective as of January 1, 2003.  Under the restructured obligation, on February 18, 2003, the Company made a one time payment of $1,580,000, plus applicable taxes, in consideration of past due lease payments and agreed to make 33 additional monthly payments of principal and interest of $165,000, plus applicable taxes.  At the conclusion of the lease, the Company may purchase the leased equipment, in whole but not in part, for $810,000, less a credit of $309,910 in respect of a cash deposit held by the lessor.  The outstanding balance on the capital lease as of August 13, 2003 was $4,401,000.

On April 30, 2002, Olympic entered into a sale leaseback agreement on a building and land located in Calgary, Alberta, Canada. Proceeds of the sale were $3.6 million (Canadian dollars). The proceeds were used to pay off Olympic's revolving line of credit and for general corporate purposes. The term of the lease is a 20-year capital lease with lease payments of: $336,000 (Canadian dollars) in years 1-5; $370,860 (Canadian dollars) in years 6-10; $409,500 (Canadian dollars) in years 11-15; and $452,340 (Canadian dollars) in years 16-20. The transaction resulted in a gain on the sale of $737,000, which has been deferred and is being recognized into income over the term of the lease.

In connection with the settlement of certain litigation, the Company entered into a note payable to a former executive consisting of payments of $6,417 per month for 36 months commencing June 2003 and payments of $6,000 per month for 84 months commencing June 2006.  The note is non-interest bearing.  The note is guaranteed by Olympic Seismic, Ltd.  The outstanding balance on this note as of August 13, 2003 was $459,000.

In May 2001, the Company's wholly owned subsidiary, N360X, LLC, entered into an operating lease for a jet aircraft.  The lease agreement was for a term of 10 years.  Monthly lease payments were $25,000 until May 2006 and $35,000 per month thereafter until the end of the lease term.  The lease payments were guaranteed by Seitel.  The Company surrendered the aircraft and has not made any lease payments since December 2002.  The Lessor has demanded payment of all amounts due under the lease and has filed suit to enforce its rights.  Refer to "Legal Proceedings."

Capital Expenditures

During the first six months of 2003, capital expenditures for seismic data and other property and equipment amounted to $26.1 million and $0.6 million, respectively. Of the $26.1 million of seismic data additions, $19.9 million were cash additions and $6.2 million were non-cash additions. These capital expenditures were funded by operations and current cash balances.

Based on its present budget, the Company anticipates capital expenditures for the remainder of 2003 will total approximately $39 million, substantially all of which will be for seismic data library additions.  Of this amount, the Company anticipates that it will receive underwriting or sponsorship totaling approximately $18 million and will execute non-monetary exchanges for an additional $10 million leaving approximately $11 million of capital spending to be funded from operating cash flow. If the Company's cash balances and revenue from operating sources are not sufficient to fund the currently anticipated 2003 capital expenditures, general and administrative expenses and other costs of operation and costs incurred in connection with the Chapter 11 filing, the Company would be required to reduce its capital budget.

Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").  FIN 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  FIN 45 also expands the disclosures required to be made by a guarantor about its obligations under certain guarantees that it has issued.  Initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.  The disclosure requirements were effective for 2002.  The adoption of FIN 45 on January 1, 2003 did not have a material effect on the results of operations or balance sheet of the Company.



---

INDEX





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. Statements contained in this report about Seitel's future outlook, prospects and plans, including those 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", "anticipated", "will", "would", "should", "estimates" and similar expressions are intended to identify forward-looking statements. Forward looking statements represent Seitel's reasonable belief and are based on Seitel's current expectations and assumptions with respect to future events.  While Seitel believes its expectations and assumptions are reasonable, they involve risks and uncertainties beyond Seitel's control that could cause the actual results or outcome to differ materially from the expected results or outcome. Such factors include the ability of the Company to continue as a going concern; the Company's ability to obtain court approval with respect to motions in the Chapter 11 proceeding prosecuted by it from time to time; the impact of litigation on the Company and in any distribution to creditors or equity holders of the Company; the delay or inability of the Company to complete and/or consummate its proposed plan of reorganization; risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for the Company to propose and confirm one or more plans of the reorganization, for the appointment of a Chapter 11 trustee or to convert the Company's Chapter 11 case to a Chapter 7 case; the ability of the Company to obtain and maintain normal terms with vendors and service providers; the Company's ability to maintain contracts that are critical to its operations; the potential adverse impact of the Chapter 11 cases on the Company's liquidity or results of operations and other risks associated with operating a business in Chapter 11; any significant change in the oil and gas industry or the economy generally; 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 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 effect on our reported operating results and stock price as a result of the Company's restatement of financial statements; the results or settlement of litigation regarding the Company or its assets, any litigation or action taken as a result of the Company's non-compliance with its debt covenants; adverse actions which may be taken by the Company's creditors; the level of the Company's cash generated from operations; the Company's ability to obtain alternative debt or equity financing on satisfactory terms if internally generated funds are insufficient to fund its capital needs and the lack of any strategic disposition, acquisition or joint venture involving the Company's businesses and assets. The forward-looking statements contained in this Report speak only as of the date hereof, and Seitel disclaims any duty to update these 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, 2002.





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

The Company is exposed to market risk, including adverse changes in interest rates and foreign currency exchange rates.  Refer to the Company's Form 10-K for the year ended December 31, 2002 for a detailed discussion of these risks.  The Company has not had any significant changes in the market risk exposures since December 31, 2002.





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





Based on an evaluation of the disclosure controls and procedures conducted within 90 days prior to the filing date of this report on Form 10-Q, the Chief Executive Officer, Larry E. Lenig, Jr., and the Acting Chief Financial Officer, Marcia H. Kendrick, have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) promulgated under the Securities Exchange Act of 1934, as amended) are effective. There were no significant changes in the internal controls or in other factors that could significantly affect those controls subsequent to the date of the evaluation thereof.





---

INDEX







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



















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





The former holders of the Notes made demand upon the Company and certain of its former and current officers and directors for money damages arising from certain alleged negligent actions and/or misrepresentations of those officers and directors.  The holders alleged that money damages arising from the foregoing claims were not fully quantified, but exceeded $20 million and included, without limitation, the lost value of such holders investment in the Notes.  Notice of the demand has been provided by the Company to its insurance carriers. The holders of the Notes did not commence suit.  As of June 26, 2003, all of the former holders of Notes had sold their Notes to Ranch, who subsequently sold the Notes to Berkshire.  Under the Plan, all of the foregoing claims will be released and discharged.

The Company and certain of its former and current officers and directors have been named as defendants in eleven lawsuits brought as class actions alleging violations of the federal securities laws, all of which were consolidated by an Order entered August 7, 2002, under Cause No. 02-1566, styled In re Seitel, Inc. Securities Litigation, in the United States District Court for the Southern District of Texas.  The Court appointed a lead plaintiff and lead counsel for plaintiffs, who subsequently filed a consolidated amended complaint, which added the Company's auditors, Ernst & Young LLP, as a defendant.  The consolidated amended complaint alleges that during a proposed class period of May 5, 2000 through April 1, 2002, the defendants violated sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by overstating revenues in violation of generally accepted accounting principles.  The plaintiffs seek an unspecified amount of actual and exemplary damages, costs of court, pre- and post-judgment interest and attorneys' and experts' fees.  The Company intends to vigorously defend these consolidated lawsuits.  No discovery has been conducted and the action is stayed as a result of the Company's Chapter 11 filing.

The Company has been named as a nominal defendant in seven stockholder derivative actions filed in various courts: Almekinder v. Frame, Valice, Pearlman, Craig, Lerner, Stieglitz, Zeidman, Hoffman, and Seitel, Inc., No. H-02-2960, In the United States District Court for the Southern District of Texas; Basser v. Frame, Valice, Kendrick, Pearlman, Fiur, Zeidman, Stieglitz, Craig, Lerner, and Seitel, Inc., No. H-02-1874, In the United States District Court for the Southern District of Texas; Berger v. Frame, Pearlman, Valice, Craig, Stieglitz, Lerner, Zeidman, Fiur, and Seitel, Inc., No. 19534-NC, In the Court of Chancery, State of Delaware, Castle County; Chemical Valley & North Central West Virginia Carpenters Pension Plan v. Frame, Valice, Hoffman, Pearlman, Craig, Lerner, Stieglitz, Zeidman, Fiur, and Seitel, Inc., No. 02-CV-3343, In the United States District Court for the Southern District of Texas; Couture v. Frame, Valice, Craig, Lerner, Stieglitz, Zeidman, Hoffman, and Seitel, Inc., No. 20002-37065, In the 80th Judicial District Court, Harris County, Texas; Talley v. Frame, Valice, Pearlman, Craig, Lerner, Stieglitz, Zeidman, Hoffman, and Seitel, Inc., In the 151st Judicial District Court, Harris County, Texas; and Zambie v. Frame, Pearlman, Valice, Craig, Zeidman, Lerner, Stieglitz, Fiur, Ernst & Young LLP, and Seitel, Inc., In the 333rd Judicial District Court, Harris County, Texas.  The plaintiffs generally allege that the defendants breached and conspired to breach fiduciary duties to the Company's shareholders by failing to maintain adequate accounting controls and by using improper accounting and auditing practices and procedures. Certain of the plaintiffs also assert causes of action for mismanagement, waste of corporate assets and unjust enrichment.  The Zambie case also alleges professional negligence against Ernst & Young LLP.  The plaintiffs seek judgments for unspecified amounts of compensatory damages, including return of salaries and other payments to the defendants, exemplary damages, attorneys' fees, experts' fees and costs.  The Company's Board of Directors appointed a special litigation committee to conduct an independent investigation of the allegations asserted in the derivative lawsuits.  The special litigation committee completed its investigation and its report has been delivered to the Company.  The Company filed its motion to dismiss in Delaware Chancery court on March 20, 2003.  The parties previously agreed to stay the Texas state court cases pending the outcome of the Texas federal court derivative cases.  The federal court derivative cases have been consolidated, and the Company has moved to stay the cases pending resolution by the Delaware court.  Presently, all cases are stayed as a result of the Company's Chapter 11 filing.



---

INDEX



The Company sued its former chairman of the board in Seitel, Inc. v. Pearlman, C.A. No. H.-02-1843, In the United States District Court in the Southern District of Texas.  The Company sought a declaratory judgment with respect to the employment agreement between Mr. Pearlman and the Company, and asserted various other claims. Mr. Pearlman filed counterclaims with respect to such employment agreement and asserted various causes of action.  On May 9, 2003, the parties reached a settlement in the matter.  Pursuant to the settlement, all parties to the litigation executed releases in favor of the other parties and all suits were dismissed. The Company reimbursed Mr. Pearlman for certain out of pocket costs and agreed to make certain payments both immediately and over a ten year period in respect of his former employment which was terminated in all respects concurrently with the settlement.  The settlement did not have a material impact on the Company's results of operations for the six months ended June 30, 2003, and performance by the Company under the settlement will not have a material impact on reported results in any future period.

The Company's former chief financial officer, Debra Valice, commenced an action in the 55th Judicial District Court of Harris County, No. 2002-30195, alleging breach of her employment contract by virtue of her termination and that a press release announcing her termination was defamatory.  The Company filed a counterclaim against Ms. Valice to recover certain advances and amounts due on two notes.  The case was tried in the 152nd Judicial District Court of Harris County beginning March 10, 2003.  On March 18, 2003 the jury returned its verdict, finding in favor of Ms. Valice on certain questions and in favor of the Company on others. The jury verdict in the case was never entered, and on July 14, 2003, the parties filed, and the court entered, a joint motion setting aside and disregarding the jury's findings and awards, and the parties have settled all disputes.

The Company has been sued by its former chief executive officer in Frame v. Seitel, in the 113th Judicial District Court of Harris County, No. 2002-35891.  Mr. Frame alleges a breach of his employment contract by virtue of his termination and also alleges defamation.  He also seeks a declaratory judgment that certain funds he received from the Company were proper and do not have to be repaid.  The Company has answered and asserted various defenses.  The Company also has filed a counter suit to recover approximately $4,200,000 in corporate funds that the Company believes he inappropriately caused the Company to pay him or for his benefit plus over $800,000 due on two notes that were accelerated pursuant to their respective terms.  In addition, the Company also holds a judgment against Mr. Frame in the amount of at least $590,000 relating to a loan made to Mr. Frame by Bank One N.A. ("Bank One") and guaranteed by the Company (see discussionbelow).  The Company intends to defend the suit vigorously and pursue its counterclaim. Discovery is abated in the case pending finalization of certain other matters.

The Company was a party to a suit entitled Bank One, N.A. v. Paul Frame and Seitel, Inc., Cause No. 2002-43070, in the 133rd Judicial District of Harris County, Texas.  The plaintiff sued on an alleged corporate guaranty of a $540,000 note executed by Mr. Frame.  In connection with its litigation, Bank One obtained a judgment against Mr. Frame (but not against the Company) in the amount of the note, plus accrued interest and costs of collection.  Subsequently, the Company purchased the note and the judgment from Bank One, and Bank One dismissed its litigation against the Company.  The Company intends to vigorously pursue its claim against Mr. Frame.

The Company is a party to a suit for geophysical trespass entitled Joy Resources, Inc. v. Seitel Data, Ltd., Cause No. 01-02-00828-CV, in the 1st Court of Appeals, Houston, Texas.  The plaintiff is appealing a final judgment by the trial court holding that the plaintiff is not entitled to recover an injunction or to recover damages against the Company.  The plaintiffs assert that the Company obtained seismic data about mineral interests leased by the plaintiff by placing seismic equipment on property adjacent to the property leased by the plaintiff.  The trial court held that no cause of action exists where the seismic equipment is not located on the property leased by the plaintiff.  The briefing has been completed in this matter, and oral argument in the 1st Court of Appeals in Houston, Texas was on May 6, 2003.  The Company intends to vigorously represent its interests in this appeal.

The Company and its subsidiary, Seitel Data, Ltd., are parties to a class action lawsuit for geophysical trespass entitled Juan O. Villarreal v. Grant Geophysical, Inc., et al., Cause No. DC-00-214, in the 229th District Court of Starr County, Texas.  The plaintiffs have sued a number of defendants, including Seitel, Inc. and Seitel Data, Ltd.  The plaintiffs allege that certain defendants conducted unauthorized 3-D seismic exploration of the mineral interests, and sold the information obtained to other defendants.  The plaintiffs seek an unspecified amount of damages.  All of the defendants have obtained summary judgments dismissing the plaintiffs' claims, and the case is now on appeal before the San Antonio Court of Appeals under Cause No. 04-02-00674-CV.  The Company intends to vigorously represent its interests in this appeal.

The Company has sued its former in-house counsel and law firm in Seitel, Inc. v. Cynthia Moulton and Franklin Cardwell and Jones, P.C.,Cause No. 2003-09151 in the 127th Judicial District Court of Harris County, Texas.  The suit alleges negligence, breach of fiduciary duty and breach of contract surrounding the settlement of a personal lawsuit against the former chief executive officer and other aspects of representation.  The Company seeks recovery for fees paid and related expenses.  Initial pleadings were filed on February 21, 2003.  Discovery has not yet commenced.

On March 27, 2003, the Company was served with a complaint filed by the General Electric Credit Corporation of Tennessee ("GE") in the District Court No. 333rd of Harris County, Texas, styled General Electric Credit Corporation of Tennessee, as Plaintiff v. N360X, LLC and Seitel, as Defendants.  The complaint alleges that the Company, as guarantor, and its wholly owned subsidiary N360X, LLC, as lessee, have defaulted on an agreement for the lease of a jet aircraft.  GE has accelerated the obligation, taken possession of the aircraft and demanded payment of amounts GE claims are due pursuant to the termination of the lease. The Company has not yet filed its answer.  The case is in its early stages and no discovery has yet been conducted. The Company has accrued an estimate of the deficiency that would result if the
Plaintiff's claims were to be sustained, the aircraft sold and the proceeds of such sale were to be applied to the payments otherwise due under the lease.  GE has informed the Company that GE believes the amount of $2,323,757.95 is due with respect to the termination of the lease.  The case is subject to the automatic stay of the Bankruptcy Court.



---

INDEX



The Company and its subsidiaries, DDD Energy, Inc. ("DDD") and Endeavor Exploration, LLC ("Endeavor") have received a demand letter from an attorney representing a former DDD and Endeavor employee.  The amount claimed is $1,200,000 pursuant to a purported employment contract.  The Company has responded to the demand in writing and has disputed the validity of the claim.  No suit has been filed.

In addition to the lawsuits described above, 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.

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 June 30, 2003, the Company had accrued $3.5 million, representing management's best estimate of the amount that is probable of being paid relative to all of the litigation and claims set forth above.  This amount reflects a reduction of $2.0 million recorded in the second quarter of 2003 primarily as a result of certain litigation being settled for amounts less than previously estimated and recorded. However, if one or more of the parties were to prevail against the Company in one or more of the cases described above that have not been settled, the amounts of any judgments against the Company or settlements that the Company may enter into, in addition to liabilities recorded by the Company at June 30, 2003, could be material to the Company's financial statements for any particular reporting period.

Items 2., 4. and 5.  Not applicable.



|Item 3.  Defaults upon Senior Securities 
|-----------------------------------------
|                                         
|                                         
|                                         
|Item 6.  Exhibits and Reports on Form 8-K
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         



---

INDEX







|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                                                                                         
|                                                                                                       
|                                                                                                       
|                                                                                                       
|                                                                                                       







---

INDEX



Sarbanes-Oxley Section 302(a) Certification

I, Larry E. Lenig, Jr. certify that:



|1. | I have reviewed this quarterly report on Form 10-Q of Seitel, Inc.;                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                      
|2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;       
|   |                                                                                                                                                                                                                                                                                                                                      
|3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;                          
|   |                                                                                                                                                                                                                                                                                                                                      
|4. | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|   |                                                                                                                                                                                                                                                                                                                                      
|   | a)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | b)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | c)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | d)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):                                     
|   |                                                                                                                                                                                                                                                                                                                                      
|   | a)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | b)                                                                                                                                                                                                                                                                                                                                   





Date: August 14, 2003/s/ Larry E. Lenig, Jr.Larry E. Lenig, Jr.
President and Principal Executive Officer
















---

INDEX





Sarbanes-Oxley Section 302(a) Certification

I, Marcia H. Kendrick, certify that:



|1. | I have reviewed this quarterly report on Form 10-Q of Seitel, Inc.;                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                      
|2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;       
|   |                                                                                                                                                                                                                                                                                                                                      
|3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;                          
|   |                                                                                                                                                                                                                                                                                                                                      
|4. | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|   |                                                                                                                                                                                                                                                                                                                                      
|   | a)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | b)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | c)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | d)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):                                     
|   |                                                                                                                                                                                                                                                                                                                                      
|   | a)                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                      
|   | b)                                                                                                                                                                                                                                                                                                                                   





Date: August 14, 2003/s/ Marcia H. KendrickMarcia H. Kendrick
Principal Financial Officer








---

INDEX





|        |  | EXHIBIT
INDEX                                |  |       
|------- |  | -------------------------------------------- |  | ------
|       
|Exhibit |  | Title                                        |  | Page  
|        |  |                                              |  | Number
|       
|        |  |                                              |  |       
|99.1    |  | Certification of Principal Executive Officer |  | 43    
|        |  |                                              |  |       
|99.2    |  | Certification of Principal Financial Officer |  | 45    









---