Buffet bets on Seitel (July 2003)

Warren Buffets Berkshire Hathaway has made its first venture capital investment in the oil industry with the rescue of troubled seismic data broker Seitel from the throes of bankruptcy.

The Seitel plot thickens! As revealed in Oil IT Journal last month, the troubled seismic data broker was rescued from bankruptcy by a white knight in the form of Californian private equity firm Ranch Capital.

Berkshire

Now it emerges that Warren Buffets Berkshire Hathaway investment company is behind the Ranch move, and will be financing Seitels reorganization. If all goes as planned, Seitel will become a wholly-owned subsidiary of Berkshire Hathaway.

Debt

The Seitel dnouement began when holders of Seitels senior debt (i.e. first creditors in the pecking order in the event of the company winding-up) filed a bankruptcy petition against Seitel. But before the court acted on the petition, Ranch acquired all $255 the senior debt at an undisclosed, but likely highly discounted rate. This debt was then sold on to Berkshire again for an undisclosed amount and the forced bankruptcy proceedings were halted.

Reorganization

Seitel has now filed a reorganization plan with the Delaware Bankruptcy Court for itself and some 30 of its US-based subsidiaries. The reorganization will be financed by Berkshire. Ranch CEO Larry Hershfield will be the new Seitel chairman while Larry Lenig is to continue as CEO, upon its emergence from bankruptcy.

Business as usual

Seitel has  filed to dismiss the original bankruptcy petitions, the reorganization will be carried out under US Chapter 11 legislation. Seitel and its US subsidiaries will continue to operate their business as usual. Seitels Canadian subsidiaries are concerned by the present reorganization. Seitel currently has $26 million of cash and a further $20 million line of credit from Wells Fargo bank to see it through the restructuring process.

A sign?

It is tempting to speculate on Buffets motivation behind the Seitel acquisition. Is this just an opportunistic punt by the most powerful businessperson in Americaaccording to the current edition of Fortune magazine? Buffet is a great believer in investing in fundamentals and in intrinsic valuea great sign for a troubled industry sector.  Another sign maybe the 20% hike in worldwide drilling activity just reported by Baker Hughes. But our question for Buffet iswhy Seitel? Why not PGS!

Click here to comment on this article

If your browser does not work with the MailTo button, send mail to info@oilit.com with PDM_V_3.3_0307_1 as the subject. Web use only - not for intranet/corporate use. Copyright 2003 The Data Room - all rights reserved.