Oil income funds -- as opposed to drilling funds -- holding their own

The newly rich bulls on Wall Street have lately been singing an old refrain to twit their newly poor cousins in Houston: ''You can find oil cheaper on Wall Street than you can drill for it in the ground.''

And in tax shelter circles, a new corollary has developed: ''You can buy it for less than you can find it.'' According to Bradley McCurtain, a broker and tax shelter specialist at the Portland, Maine, office of Boston Bay Capital: ''It costs $12 per barrel to find oil now and you can buy reserves for under $8 .''

That fact hasn't been lost on investors. Last year, they lowered the amount of money committed to limited partnerships in oil and gas drilling to $1 billion , from the previous year's $2 billion. Investments in oil income limited partnerships, however, rose from about $878 million in 1981 to $1.3 billion in 1982, according to RPI Publications Inc., which specializes in tracking oil and gas partnerships. Petro-Lewis alone, the country's largest purveyor of oil income funds, increased its sale of such funds from $249 million in 1981 to over

Explains John Plukas, president of HCW Oil & Gas Inc., a Boston-based firm that puts together and sells oil income funds as well as oil and gas drilling funds, and whose oil income partnerships sales rose from $20 million in 1981 to December 1981 was the peak of the oil and gas business. In that month you had 4, 100 rigs in operation. In a period of six months the rig count dropped in half.''

The result, Mr. Plukas comments, ''is that you had industry people expecting that 1982 would be a flat year, and instead they were caught in a cash shortage. They had no access to outside capital. Penn Square and other banks were no longer making funds accessible. That put companies in a position where their only alternative to meet financial obligations was to sell off their assets.''

That happened to companies as big as Du Pont (with Conoco), Dome Petroleum (now in the process of selling some reserves), and Fluor Corporation (which had oil from its purchase of St. Joe Minerals). And it happened to dozens of small independents.

Accordingly, the price of oil per barrel in the ground fell. In early January , Petro-Lewis closed a huge deal for millions of barrels of Conoco's reserves for a shade under $8 a barrel. Little more than a year before, at the height of the market, Petro-Lewis had been paying as much as $16 a barrel when it bought reserves from Clayton Williams, a Midland, Texas, independent oilman. (While these figures mark highs and lows in the market, they are indicative of what all companies in the oil income business are paying at any time.)

Robert Stanger, whose Stanger Report tracks the issuance and sale of a wide spectrum of tax shelters, says: ''Oil prices dropped because the Penn Square bank collapse caused a tremendous squeeze on the liquidity of oil drillers.''

And Edward Kostin, a tax partner in Coopers & Lybrand's Boston office, adds: ''There are two ways to raise money in the oil business. You can sell properties where you don't know if there is anything of value there (an exploration fund), or you can sell properties where you know there is oil. If you really need the money, you sell the investor a sure thing. And this year there was a critical need for money. There were a lot of hard-pressed companies in the industry that were overextended.''

Furthermore, Mr. Kostin says, the prospect of further price erosion in oil assured the investor that returns on income funds were higher than they otherwise might have been. ''People perhaps felt that there is more risk that the price of oil will go down to $24 per barrel than it will go up to $44 per barrel.''

Therefore, the investor who looked into oil income funds last year found them offering enticing returns as a premium for the downside risk in oil prices. Mr. Kostin explains: ''People will say: 'I will buy at a 20 percent rate offered now , and if oil prices fall I could get 14 percent or 12 percent.' That appears to be quite attractive right now, especially as interest rates in competitive investments are falling.''

In fact, according to Mr. Plukas at HCW Oil & Gas, returns on oil income funds purchased in 1982 are already yielding more return than those bought in ' 81. The '82 income funds have rates of return ranging from 20 percent to 24 percent, with the bulk of it tax-free for the first few years. (Oil income funds are not primarily tax shelters. Investors get tax deductions only for the cost of getting the oil out of the ground, for the depletion allowance, and for interest expense, if any.)

If such returns sound too good to be true, however, investors should take a hard look at what might become negatives. First of all, no one knows exactly how many barrels of oil are really underground. ''Generally, people give these estimates a one-third haircut,'' he comments; ''estimated reserves are by definition, estimated.''

Furthermore, warns Kostin, investors must relinquish the use of the funds they invest for 10 or 15 years - the life of the partnership - since there is almost no liquidity in oil income partnerships. ''You don't have the kind of liquidity you have with municipal bonds.''

The most glaring of the problems, however, is the possibility oil prices may fall and stay low for years. That very risk is what has made yields so attractive now. Says Mr. Plukas: ''The investor today is not only getting a higher return than one who bought a partnership at the top of the market, he is also buying more barrels in the ground. So if oil prices eventually start to increase over the next decade, there should be more of a pop in profits, since he has more barrels in reserve.''

Furthermore, he maintains that if oil prices merely stay flat and don't decline at all, the investor will make out quite well. ''The price we are buying oil at now assumes a price decline,'' he notes. ''The prices are so low because the sellers as well as the buyers realize there is a chance prices will drop. But that is already cranked into today's prices. Thus, there is an inherent gain if prices just stay flat.''

But a tax shelter expert points out that if oil prices no longer keep heading upward, it might be wise for investors to take a closer look than before at the fees and profit-splitting arrangements oil promoters offer. Mr. Stanger's service rates the funds on a variety of front-end, back-end, and other fees. Currently it has given its highest rating to Graham Oil & Gas Ltd., a Louisiana-based partnership that is being marketed by Merrill Lynch, Pierce, Fenner & Smith.

A competitor who also received a fairly high rating from Mr. Stanger said: ''Graham is a relative newcomer to the business. It has to charge less. In a year when there are a lot of oil companies in trouble, people want a track record or a better deal.'' With the same reasoning, Petro-Lewis, as the IBM of the business, can still charge a 24 percent front-end fee and sink fewer investor dollars in the ground, because of its long record.

But whatever the individual deal, investors are showing evidence that in oil income funds, the price is right.