Seitel

1
Seitel

• Sector Energy
• Industry Oil and Gas Drilling Equipment/Services
• Peer Group Oil and Gas (Seismic)
• Ticker Symbol SEI
• SIC Code 1382

2
Seitel (SEI) Business Description

• Seismic Data (84 of revenues)
• Provides seismic data and analysis services used
  in oil and natural gas exploration.
• Owns the largest seismic data library in USA.
• Markets this data to more than 400 oil and gas
  companies under license agreements.
• Extensive data for North America, and also for
  the North Sea.
• Oil and Gas Exploration (16 of revenues)

3
Basic Stock Statistics

• Exchange NYSE
• Beta 0.85
• 52-Week Range
• 8.88 to 23.03
• Recent price 8.88
• Shares outstanding 25M
• Market Cap 294M

• PE/G 0.41
• Valuation ratios
• P/E(ttm) 10.2
• P/S(ttm) 1.49
• P/B(mrq) 0.96
• P/CF(ttm) 2.61
• 2000 Rev 163.8M
• 2000 NI 23.9M
• 2000 Assets 578M
• Institutions own 74
• Officers and Directors own 13.4

4
Recent Significant Developments

• June 25, 2001
• Bought back 100,000 shares
• March 28, 2001
• Purchases 1300 square miles of US onshore 3D
  seismic data from Grant Geophysical
• Jan. 17, 2001
• Purchases all rights to Lacey Digital
  Transcription software, the pre-eminent product
  for seismic data capture.
• Sept. 2000
• Announces plan to allow client access of seismic
  data via the Internet.

5
Recent Significant Developments

• August 14, 2001
• Q2 2001 Revenue Up 8, First Six Months Revenue
  Up 35, Over 2000 Results
• Q2 earnings were up 12 over same quarter a year
  earlier.
• However, earnings were only 0.22/sh versus
  expected 0.30/sh.
• Due to much lower earnings from Canadian
  subsidiary. Head of that subsidiary was
  terminated and replaced.

6
Industry Outlook-Oil and Gas (Drilling and
Equipment)

• Got off to slow start after tremendous
  performance in 2000.
• Has dropped sharply in 2001 due to worries about
  slowed economies and declining natural gas
  prices.
• Domestic drillers should benefit due to Bush
  administration.
• How affected by current crisis?
• National security concerns domestic drilling
  will get a boost?
• Worldwide demand for oil will plummet, so prices
  will collapse?
• Energy demands by military at war will be huge?

7
Industry Outlook-Oil and Gas (Drilling and
Equipment)

• Energy sector boom from 1972-81, bust from
  1982-95, present boom started in 1996 with
  interruption by Asian economic crisis in 1997-98.
• Outdated energy infrastructure that needs to be
  updated and expanded.

8
Seitel (SEI) Where Will Growth Come From?

• More oil companies are starting to realize the
  cost savings of outsourcing their seismic work.
• Seitel only does seismic work and can do it
  better and cheaper.
• Previously, big oil companies only recovered the
  most economical 40 of oil from each discovery.
• The remaining oil is recovered by smaller
  drillers when oil prices are high enough.
• Now, new accurate 3D seismic images have allowed
  the recovery of more oil at lower cost.
• Accurate seismic images allow more precise and
  less environmentally destructive drilling.

9
Seitel (SEI) Where Will Growth Come From?

• DDD Energy wholly owned exploration and
  production subsidiary.
• Cost and revenue sharing relationships with more
  than 100 oil and gas companies.
• Seitel supplies the seismic data and other
  location assistance and shares (average 31) in
  revenues from any oil and gas finds.
• Seitel has already provided these services to
  locate wells that will be drilled during the next
  3 years.
• From March 1993 to 2000, participated in drilling
  of 325 wells, 224 of which were commercially
  productive, a 69 success rate.

10
SEI vs Oil Field Equipment and Services vs SP(3
years)
11
SEI vs Oil Field Equipment and Services vs SP (1
year)
12
Bold black numbers are from Value Line,Red
underlined numbers are estimates from Zacks,
Blue italic numbers are my calculations (Graphs
follow).
13
Growth Rates () per Share EPS, Revenue, CF (My
calculations based on Value Line numbers.)
14
Competitors

• Petroleum Geo Service (PGO)
• Acquiring, processing, and marketing seismic
  data.
• Providing floating production, storage and
  overloading (FPSO) vessels.
• Providing other services that help oil and gas
  companies monitor producing oil and gas
  reservoirs to increase ultimate recoveries.
• Veritas DGC (VTS)
• Provider of integrated seismic and geophysical
  technologies to the petroleum industry worldwide.

15
Seitel (SEI) and 2 Largest Competitors
16
SEI vs Two Largest Competitors vs SP500 (3 years)
17
SEI vs Two Largest Competitors vs SP500 (1 year)
18
Revenue vs Competitors (Quicken)
Revenue vs competitors ( in millions)
19
Net Income vs Competitors (Quicken)
Net Income vs competitors ( in millions)
20
ROE () vs Competitors
ROE Comparison with competitors
21
Net Profit Margins () vs Competitors (MSN)
22
Net Margin vs Oil Gas Equipment/Services
Industry (Quicken)
23
Ratio Comparisons (Yahoo)Industry Oil Well
Services and Equipment
24
PE Ratio Comparisons (Yahoo)Industry Oil Well
Services and Equipment. Sector Energy.
25
History of Crude Oil Prices
26
SEI Historic P/E (Green)
PE Comparison with competitors
27
2001 Intrinsic Value P/E Valuation Method

• Justified P/EEPS1. (FY ends in December)
• Present PE (10.2) is at low end of 5 year range.
• Half the PE of seismic peers.
• For EPS1 estimates
• High 1.16, Low 1.14, Average 1.15
• Best Case (2001) 101.16 11.6
• Worst Case (2001) 51.14 5.70
• Most Likely (2001) 71.15 8.05
• Current Price 8.88/sh

28
2002 Intrinsic ValueP/E Valuation Method

• Justified P/EEPS2. (FY ends in December)
• Present PE 10.2
• EPS2 estimates
• High1.76, Average 1.60, Low 1.35.
• Best Case (2002) 121.60 19.2
• Worst Case (2002) 6 1.20 7.2
• Most Likely (2002) 81.35 10.8
• Current Price 8.88/sh

29
Risks

• Steep decline in energy prices would be a big
  problem.
• Risk that world energy prices could collapse.
• Over last 6 months, 7 insiders have sold 3.3 of
  insider shares. No insider buys.

30
Discussion

• Unknown how would US War on terrorists affect
  oil and gas industry? Price up or down?
• All energy stocks hurt due to huge decrease in
  demand?
• War causes higher energy prices?
• National security issue domestic energy
  emphasis?
• Bush administration support for domestic energy?
• Will OPEC cut back on supply to keep prices up if
  world demand plunges?

31
Oil A National Security Issue?

• Will drilling in US increase because energy is
  considered to be a national security issue.
• Oil embargos has been used as a weapon against
  USA in the past. Imported oil accounted for 35
  of USA needs in 1973 and more than 50 now. And
  this was after the Arab oil embargo in 1973 that
  triggered a USA recession.
• The main reason we did not try harder to take out
  terrorists in the past is due to fear of bad
  relations with our Middle East oil suppliers.
• Should we continue to rely on the fragile long
  line of oil tankers that come from an unstable
  Middle East (20 of our oil imports come from
  the Persian Gulf).
• The Bush administrations energy plan focuses on
  increasing the share of our energy needs that
  come from the US.
• New military build up will require increased
  amounts of oil.
• Previously, wars in Middle East caused oil prices
  to increase.

32
Oil Futures
33
Natural Gas Futures
34
Recommendation

• Wait a while and see what happens with energy
  prices.
• I perceive more downside risk at this time. Might
  be worth the risk if SEI goes below 8.
• Top oil analyst when the OSX hits the 50s (now
  59, down from record high 140), the sector will
  be at rock-bottom and be an excellent time to
  buy, especially given that stocks will be out of
  favor with the street. These will be good 6 to 12
  month bets.
• Aside silver lining for collapse in energy
  prices. Hurts the energy industry, helps other
  industries?. Would put extra money into consumer
  pocketbooks.