H&H; Oil Tool Co. Stays Cautious Though Drilling, Profits Are Up : Santa Paula: Prudent survival tactics kept the equipment-leasing firm afloat when delays in offshore ventures caused rough seas in the ‘80s.

H&H; Oil Tool Co. was started in 1953, and since then, the founding Rushing family has seen nearly as many ups and downs in the oil business as the Ewings of TV’s “Dallas.”

The last several years have been decidedly down for the tiny Santa Paula company, which leases drilling and production equipment, from steel pipes to cranes, to big oil companies, such as Shell Oil, Chevron and Unocal, in California, Colorado, Utah, New Mexico and Wyoming.

When it went public in 1981, the company’s revenues totaled $24 million; by 1986, revenues had plummeted to $12 million. From 1985 through 1989, H&H; lost a total of $5 million and had just one profitable year--1988, when it earned $404,000.

H&H; stock has never regained the $13.875-a-share level it went public at, and has been trading recently at about $5.

The company’s troubles had one major source: the decrease in domestic oil drilling and production. From 1981 to 1989, the nation’s oil rig count plunged from 4,500 to about 700, a result of both declining oil prices and, in California, restrictions on drilling and production.

Another blow to H&H; has been the stalled effort by the oil industry to start new offshore oil drilling along the California coast. H&H; had purchased much of the heavy-duty equipment used for offshore drilling in anticipation of that becoming a major market. That equipment now sits idle.

While many other small oil service companies closed their doors in recent years, H&H; managed to survive by cutting costs and selling equipment. Its two biggest remaining competitors are units of Enterra and W.R. Grace--large corporations that are better able to withstand a downturn.

This year, however, things started looking up for H&H.; The national rig count rebounded slightly to about 1,000, and the increased drilling and production activity resulted in H&H;’s largest six-month profit since 1981. From January through June, the company earned $402,000 on revenues of $10.8 million.

Meanwhile, the Middle East crisis has pushed up oil prices and rekindled talk of a nationwide effort to reduce American dependence on foreign oil.

So why isn’t H&H; celebrating?

Henry Rushing, president of H&H; and son of founder Hebron Rushing, said he’s been tricked by a jump in oil prices before. “We thought we saw it turning around in 1984,” he said. “Then 1985 came, and it was bad; 1986 came, and it was absolutely terrible.” So Rushing says he’s remaining cautious.

He has good reason. Despite the surge in oil prices, American oil companies have yet to boost their capital budgets for increased drilling. “You don’t make economic decisions involving hundreds of millions of dollars based on a geopolitical situation in the Middle East,” Chevron spokesman G. Michael Marcy said.

The worry in the industry is that the Persian Gulf conflict might have a backlash on the U.S. oil industry, because several foreign oil-producing countries have boosted their production to make up for the loss of oil from Iraq and Kuwait.

When the situation in the Middle East is resolved, oil companies fear, the world might find itself with an oil glut. That would send prices tumbling and put oil companies in an even more cautious mood when it comes to new drilling and production.

“I don’t think the oil people really trust that this is going to stick,” said Kenneth B. Funsten, managing director of Financial Management Advisors in Beverly Hills, referring to the higher oil prices.

Nonetheless, Sam Z. Albright, managing director of the investment banking firm Howard Weil Financial Corp. in New Orleans, who has followed H&H; since it went public, said the outlook for H&H; “is not all that bleak.” He projected oil rig activity will finish the year up 15% from 1989 and increase another 12% next year.

Albright estimated H&H; would report earnings per share of between 15 cents and 20 cents for all of 1990, compared to a loss of 18 cents a share in 1989. For 1991, he estimated the company would earn 35 cents a share, although he warned that the Middle East situation remains “a real wild card.”

The equipment H&H; leases at its 13 outlets in California and the Rocky Mountain states isn’t cheap, and a small company like H&H; cannot afford to have it stand idle. Steel pipes of various lengths and diameters, which currently rent for 4 to 6 cents per foot per day, cost H&H; $6 to $24 a foot.

Blowout preventers--large steel contraptions weighing up to several tons that are used to seal off holes and contain pressure that could cause an explosion or fire at an oil rig--can cost hundreds of thousands of dollars. Even a small preventer that rents for $35 to $40 a day can cost about $45,000 new.

Generators, which provide power to oil rigs and cost $15,000 to $80,000, rent for $60 to $100 a day. H&H; also rents cranes, storage tanks, trucks and steel collars that add weight to drill pipes.

The problem is that, while domestic oil drilling slowed down in recent years, much of this equipment sat unused. In 1986, the company’s worst year, its equipment went unrented an average of about two-thirds of the time.

Rushing said H&H; survived by cutting back. In 1981, the company had 234 employees; today, the work force is down to 189, despite the acquisition of a small rental company in 1984 and two other firms in 1989. It has also kept its debt low, and as of June 30, H&H; had just $3.8 million in long-term debt as opposed to total assets of $21.7 million.

In 1986, many employees took wage cuts, including Henry Rushing and his sister, H&H; Chairman Zella Rushing. The Rushings slashed their own salaries by 40%. Pension contributions were cut, employees started chipping in for health care, and some copiers and phones were eliminated. The company sold several cranes and generated a small amount of revenue by renting out warehouse space for storage.

“That was a very traumatic time,” Henry Rushing said.

All salaries have since been restored. According to a proxy statement mailed to shareholders last May, Henry Rushing receives an annual salary of $143,953, including company pension contributions, and Zella Rushing receives $67,935.

The volatility of oil prices isn’t the only danger facing companies in this business. A 1988 oil rig fire in Ventura County that injured one worker and caused several million dollars in damage has resulted in several lawsuits, some of which name H&H; as one of several defendants.

The suits, some of which claim that the fire was caused by a faulty H&H; fan that was intended to blow fumes away, seek unspecified damages. H&H; denied there were any problems with the fan, but Rushing said the company has insurance covering it for $1 million in liability, and he expects the various parties involved to reach a settlement soon.

H&H; was founded in 1953 by Hebron Rushing, now 79, an oil-field worker who started the rental business as a sideline in Santa Paula, a small town east of Ventura which has been an oil center since the 1800s. In 1966, he quit drilling work and turned the rental business into a full-time venture.

His son Henry, 47, joined the company in 1969, and his daughter Zella, 50, joined in 1970. The Rushing family and other insiders now own about 61% of the company’s stock.

The Rushings may not be the Ewings of “Dallas,” but they do evoke images of a salty, old-time oil-industry clan. As a young man in the days of the “wildcatters,” Hebron Rushing traveled the country working on oil rigs. Now retired, he reminisces about the old days, when “it was more dangerous, but you knew how to take care of yourself.”

Zella Rushing, though not involved with H&H; on a daily basis, is well known in local oil circles and is a frequent speaker at industry gatherings. Henry Rushing, who runs the company from a modest office, is a plain-talking man who eschews suits and ties and calls women “ma’am.”

Henry Rushing said he’s hopeful that conditions in the oil industry will soon stabilize. But he said he’s learned from the past several years that it’s best to remain cautious, keep spending and debt down, and not get overly optimistic about a big surge in demand for oil-field equipment.

“I’m always digging through that pile of horse manure and thinking there’s a pony in there somewhere,” Henry Rushing said. “But it’s very hard to have a strategic plan that says this is where we’re going to be five years from now.”

H&H; OIL CO. AT A GLANCE

H&H; Oil Tool of Santa Paula leases oil drilling and production equipment to big oil companies such as Shell Oil, Chevron and Unocal. H&H; has offices in California and the Rocky Mountain states. The company, which was founded in 1953 and went public in 1981, suffered through the latter part of the 1980s as domestic oil drilling and production activity slowed. For fiscal years ended Dec. 31; in millions