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Oil and gas
But the seismic data library, has also enabled Seitel to leverage a new business. In March, 1993 Seitel formed DDD Engery to participate directly in oil and gas exploration and development. Seitel parteners with independent producers, using its data and expertise as its principal form of equity. Management will not enter into a partnership if it cannot see realizing at least a five to one return on ints investment with ten years. Seitel is an attractive partner becasue its data, developed by a geophysical staff of 20 people with collective experience of 400 years in the business, adds evident value.
To date, 90 oil and gas companies have partenered with DDD. They have thus far drilled 85 wells, with a hit rate exceeding 70%, more than double the industry's 34% average. DDD's finding cost of 19 cents per thousand cubic feet of natural gas equivalent are very low. This compares with the top 15 independent oil and gas producers last year reporting an average finding costs of 65 cents.
Also of note, Seitel's average stake in its partnerships is 25%. That is a substantial stake compared to the 5% to 10% that major oil companies typically give up to the service companies that partner with them. By the endo of the year DDD will have 75 wells operating, generating annualized revenues to Seitel of $20 million. The company expects 1996 revenues of about $25 million, up from this year's projected $9 million. DDD at present has reserves equal to $50 million in cash. It has a 25% interest in 200,000 acres worth of leases held by its various partners. To offer some perspective, one such large partner, Louisiana Land and dExploration, has 290,000 acres under lease - which it took 80- years to accumulate. DDD Energy has five employees and is less than three years old. It seeks to double or triple its acreage in the next five years, which will be enough to keep it busy for the next 20 years.
The Future
With five years Seitel's 3 lines of business should each be generation about $1000 million in annual sales. Management foresees the following net profit margins: for the seismic business 15% for DDD Energy 35%, for the gas marketing business %5. Long term debt is 13% of total capitalization. CEO Paul Fram says, "We'll continue to be in the market for money, but not through sale of equity." He notes that Seitel has a $100 million line of bank credit, of which it has thus far used $17 million
This has been a volatile stock. The short position last month totaled 677,000 of the 9.9 million shares. Management believes that critics don't fully appreciate the value of Seitel's sesmic data. Adds CEO Paul Frame says, "We are a growth company in a poorly understood industry. We are a technology company. Wall street is always enamored by the developer of a technology, not the user. That's what we do." Author of article ""I think this is an aggressive buyt undervalued situation.
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