From Shallow Wells Flow Deep Riches

Nobody is betting just yet on hitting a home run in the beaten-down oil stocks. But a few savvy investors say it may be time to go after some of the plays that could at least deliver a neat two-bagger. One that's been attracting a crowd of fans is a small "home-drilling" independent: Parker & Parsley Petroleum.

Parker & Parsley specializes in low-risk drilling of "infill," or shallow wells, in the U.S. "They don't go off exploring in faraway exotic but expensive places like Sumatra," says money manager Scott Black of Delphi Management, who has accumulated a 3.5% stake in the company. He estimates that Parker, whose stock has edged up to 15 from 12 a share in July, owns oil-and-gas assets valued at more than $22 a share. Competing oil-and-gas explorers, Black notes, sell at a premium to their oil-and-gas reserves.

Parker has been very aggressive in buying oil-and-gas properties in the U.S., mainly in the Permian Basin area of West Texas. The company's daily output has been growing robustly, says Black, with production increasing to 12,800 barrels of oil a day in the third quarter from 7,550 barrels a year ago. Natural gas production has also risen, to 69,000 cubic feet a day from last year's 53,000 cubic feet.

`OPPORTUNISTIC.' Parker's big advantage over its rivals, says Black, flows from its expertise in drilling wells that usually cost about $300,000, plus an additional $50,000--if the drilling proves successful vs. a cost of $5 million to $30 million in deep-well exploration, explains Black. Abroad, the cost could reach $100 million, he believes.

Black figures Parker's "opportunistic" buying of oil-and-gas assets at cheap prices, plus its low-cost and low-risk drilling efforts, will result in earnings of 95 cents to $1 a share this year--vs. last year's 77 cents--and $1.25 to $1.30 in 1993. With its healthy cash flow and efficient management, says Black, Parker has been able to cut its debt.

Parker's oil-and-gas properties are in Colorado, New Mexico, Oklahoma, Pennsylvania, and Texas, and the company sees further expansion through more property acquisitions. Parker is believed ready to buy assets from several major oil companies, including some put on the block by Arco.

Investment pro Alan Gaines is also high on Parker. He believes the company's production will increase substantially next year. "Parker is the most aggressive and most active driller in the Permian Basin area, where the company has a niche operation with an infrastructure in processing plants," says Gaines, president of Gaines Berland, a New York securities firm that specializes in energy. He is forecasting that the stock will hit 24 by mid-1993.

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