Oil Service Industry Stocks Gain as Investors Look for Bargains

Investors seeking bargain stocks in a bull market have given the oil service industry its first major stock price rally since 1983, with prices up an average of almost 18% over the last two weeks.

In Southern California, the three largest oil service firms--all in Orange County--saw stock prices rise an average 21% for the two weeks.

Not only are oil service company stocks riding a general market upsurge, they are also benefiting from the OPEC agreement last month that has led to a rise in oil prices and spurred hope that an increase in drilling will follow.

In the two weeks between Dec. 31 and Jan. 14, oil service industry stocks have more than doubled the overall market gain, according to Standard & Poor indexes, which show an 8.5% increase in the composite index for 500 stocks compared to a 17.9% increase in the index that monitors oil well equipment and service firms.

“This is the most important rally in years,” said Wayne Whipple, a vice president and oil analyst with Merrill Lynch.

Like other analysts, Whipple said some investors who have watched oil service company stocks tumble in price since the early 1980s now seem confident that the worst is over and that it is a good time to buy.

Analysts add, however, that the oil service stocks probably won’t rise much more unless there is another significant boost in the price of crude oil, which has risen to about $19 a barrel from $17 in the last two weeks.

The last major increase in oil service stock prices took place in the summer of 1983 in expectation of drilling in the Gulf of Mexico. Since then, oil service industry stock prices have plunged with the worsening of a worldwide oil glut.

This time, analysts and oil industry officials link the stock rally to investor confidence in the ability of the Organization of Petroleum Exporting Countries to limit production and boost prices to a level that makes drilling economical.

“It appears to all of us that the OPEC nations have managed to reach an accord,” said Walter Benjamin (Bennie) Reinhold, chairman of the board and chief executive officer of Varco International, an oil field services firm in Orange.

Jim Woods, president of Baker International, also in Orange, said, however, that he and the customers who use his company’s products still are skeptical that today’s oil prices will last. “It will take a good six months before the customer community believes it,” he said. “There are no large orders coming in today.”

At Varco, the common stock has risen 35%--from $2.50 a share at the close of trading on Dec. 31 to $3.375 a share at the market close Thursday. The company’s preferred stock increased 25% to $10 per share from $8 in the same period.

Baker’s price per share rose 19% to $14.125 from $11.875 for the two-week period, while Irvine-based Smith International--which is in the midst of a Chapter 11 bankruptcy reorganization--posted the smallest gain of the Orange County companies as its common shares rose 5.5% to $4.75 from $4.50.

At Dresser Industries and Hughes Tool, both in Dallas, closing prices Thursday showed 22% increases for the two weeks. Dresser closed at $23.875, up from $19.625, and Hughes closed at $10.875, up from $8.875.

Dallas-based Halliburton rose 18.5% to $28.875 from $24.375 a share; Paris-based Schlumberge’s stock increased 15% to $36.5 from $31.75, and NL Industries Inc. in New York saw its common share price increase to $6 from $5.25--a 14% hike--while its preferred stock rose 15% to $13.50 from $11.75.