Independents resume the search for oil. Market uncertainties, however, tend to drive out marginal operators

America's independent oil and gas explorers -- a group known for high risk, legendary strikes, and million-dollar dry holes -- face the best drilling opportunities in recent years, industry analysts say. Having been hit by an exhilarating boom in 1979 and 1980 and then a debilitating bust in 1982, independent energy exploration and production companies are climbing back on their feet, although weak world oil prices keep the industry somewhat off balance.

Drilling rigs in operation have climbed from a low of 1,800 in April 1983 to 2,728 today, according to the Hughes Tool Company rig count. The high point came in 1980, when 4,800 rigs were punching holes in the ground in pursuit of American energy independence.

An independent is one who finds oil or gas and pumps it out of the ground. Then an oil refiner or gas pipeline company delivers the product to the marketplace. Although major oil companies have active exploration programs, independents fuel the drive for energy independence. They drill 90 percent of the new wells and produce about one-third of the total petroleum.

Observers say the business is now on an even keel, minus most of the excesses of the last few years. ``The people that are active now have been around a long time,'' says Thomas Dougherty, senior vice-president of Petroleum Information Inc., an oil industry publishing group in Denver. ``It's a solid core of healthy companies. We think that will continue. Right now, we're operating at about 60 percent of capacity.''

Industry watchers caution against over optimism, though. Oil prices are weak, and money is tight -- a combination that lets only the most well-financed companies move aggressively. ``Until we get the price of oil pretty well pegged where it's going to stay,'' says Kenneth Nickerson, president of Royal Resources Corporation in Denver, ``it's not going to be much of a recovery. What we're seeing now is a leveling.''

Money is perhaps as scarce as it's ever been. The tax act of 1980 snatched away the major tax advantages of energy investing, and the financial troubles of several companies and institutions have made bankers and investors alike squeamish. The prospect of the Organization of Petroleum Exporting Countries losing its grip on oil prices, plus the current surplus in natural gas, could bring much of the energy exploration business to a standstill.

For the present, however, the recovery has left the industry well positioned. ``What the decline did was weed out those people who shouldn't have been in business, the speculators who jumped in to make a quick buck off rising oil prices,'' says Michelle Loewelcq, spokeswoman for the 9,000-member Independent Petroleum Association of America in Washington.

Gone are the wild days when a geologist and his brother-in-law accountant could raise a few million in the ``penny stock'' market based largely on the premise of finding some oil prospects. In 1980 and 1981, when both the penny market and the oil business were screaming along like a Porsche on the Autobahn, it didn't take much to coax money out of investors. Some companies took the money and drilled for oil or gas; some found it; some didn't. (A rule of thumb says an average of 1 out of every 10 holes brings a find.) Some companies didn't even bother to look.

Those years saw the birth of a new kind of energy operation, dubbed a ``CD oil company'' over long lunches at the Petroleum Club here. ``A CD company is one where the officers raised money from individual investors or the penny market, plugged it into a certificate deposit at the bank and then lived off the interest. Nice work if you can get it,'' says one longtime observer.

The softening in oil prices in 1982 -- due largely to unexpected gains in conservation -- shook out much of that crowd. ``Many of the people that were not long in the oil business after 1980 and '81,'' says Mr. Dougherty, ``predicated their behavior on expectations of $100 [per barrel] oil in the 1990s.'' Fostering those expectations was a 1979 Department of Energy study that projected $60 oil by 1984 and $90 oil by 1986.

Since then, a few dozen companies have folded, although the Denver area still hosts about 1,000 oil and gas companies. But those hit hardest were service contractors. They supply exploration companies -- which provide the prospects and financing -- with everything from the rigs to pipe to drilling mud. When a bust comes, service companies end up with the idle hardware in their back lots. ``Things are real bad for the service companies that absolutely depend on the number of rigs working,'' says Mr. Dougherty.

The misfortune of service companies, however, is a boon to wildcatters, because it cuts drilling costs. ``The phrase we hear a lot is that you can drill a well `in half the time at half the cost,' '' says IPAA's Loewel. ``Overall, the cost of drilling has gone down about 30 percent.''

``There has never been a better time to drill,'' says Mr. Dougherty. ``If a company has the money and the prospects, this is the best time to be in the business.''

One such company is Mr. Nickerson's Royal Resources, which rose from the bankruptcy ashes of another energy firm, King Resources, in 1976. For six years, RRI was regarded as a Volkswagen in a business that identifies with a Mercedes. It was conservative, staying out of debt and growing only on the strength of internal cash flow.

The company now has no debt, $11.5 million in 1984 cash flow, and money in the bank. ``I'd say that right now, we're fairly unique in this city,'' says Mr. Nickerson. ``It's definitely a buyers' market in acquiring new prospects [fields with a strong likelihood of an oil or gas find]. There are companies that need cash, and if you've got it, you can make yourself some good deals. I've never seen such a good market for prospects.''

But problems caused by weak oil prices in the past may reappear. ``The industry had been in a slump for the past two or three years partly because of oil-price declines and the gas bubble and in part because of skittishness by banks and the total lack of interest from capital markets,'' comments a local analyst. ``All that was getting better, but now we're dealing with a new round of price uncertainty in OPEC. There is some consensus that the price of oil will have to come down again, and that raises a new level of uncertainty on part of banks and capital markets.''