They struck oil under Paragon Paints and under Oscar's Automotive Service, too, and under a dozen other warehouses, businesses and homes here. Good Texas crude, 5,000 feet below the guy servicing cars at Oscar's.

It was not a lot of oil, perhaps three million barrels to be pumped out during the coming years - just about what this country now consumes every four hours. But the fact that Amoco, despite unusually high drilling costs and unknown results, even put a drill bit in the ground is, the company says, a visible example of how higher oil prices can result in new oil supplies.

And Amoco is not acting alone. Apparently prompted by higher prices for some domestic oil, drill rig activity in the United States - the search for new oils - last week was at its highest point since 1959. In addition, fewer small wells, those pumping ten barrels a day or less are being abandoned as uneconomical following the removal of price controls on their output.

"Pricing has improved to the point to make it more attractive to drill more wells," says Frank C. Ratcliff, manager of Western U.S. sales for the Hughes Tool Co. "People are begging for rigs to drill their wells."

Thus, as the Congress and the President debate a national energy policy, including the questions of price controls and oil and gas production incentives, some analysts now see evidence that long-standing federal actions allowing for periodic increases in some oil prices have slowed the nation's long decline in oil production.

While oil production in the United States declined about 6.5 per cent a year in the early 1970s, the rate of decline now has slowed to 2.5 to 3 per cent, according to the Department of Energy. At the same time, higher priced oil is counting for a larger and larger share of the nation's domestically produced crude.

Acknowledging the difficulty of linking actual price increases to production increases, one DOE analyst said, however, that the nation may now be "seeing the effects" of pricing decisions made by the government five years ago.

But critics of the oil industry say that the companies have been rewarded with "very, very generous prices," as Edwin Rothschild of the Energy Action Committee put it, for only "marginal" gains "not wroth the higher price."

There are other questions, too: How much of the higher priced oil would have been produced without the increase in prices? Would smaller price increases have produced the same amount of new oil?

Whatever the impact, and neither the industry nor the government knows the exact relation of prices to production, the higher prices have yet to reverse the United States' growing dependence on foreign sources of oil. In 1973, the year of the Arab oil embargo, 36 per cent of oil consumed here was imported; last year it was 41 per cent, and this year it is 48 per cent.

The bulk of the oil produced in the United States falls into two categories selling at vastly defferent prices.

Essentially, old oil is from wells in production in 1972. New oil represents discoveries and production increase since then. (There are also tenbarrel-a-day stripper wells whose output put is not subject to price controls, but they account for only 13.5 per cent of domestic oil production.)

As a result, here in South Houston, where Amoco now has both, the steady, electric whir of the blackbird-like oil pumps brings up $5.52 - a barrel old oil in one block and $11.90-a-barrel new oil next to it.

How that came to be reflects many of the points in the national debate over oil pricing.

Oil was discovered here 42 years ago on a barren patch of land that now functions mostly as a shortcut to a high school. Nine miles south of downtown Houston, the city gradually developed over the years - homes, shopping strips and industrial buildings.

Meanwhile, 39 million barrels of oil and 10 billion cubic feet of natural gas were tapped far below the growing community by some 200 wells.

In 1974, as oil prices continued to rise, Amoco petroleum engineer Morris Etheridge began restudying geologic charts of the area. He decided that, despite 40 years of drilling and pumping, there were as yet undiscovered zones that could contain more oil.

But many of the target zones lay beneath such things as Nebraska Ave., Oscar's and Paragon or between houses where there was not enough land to set up a drill rig.So early this year. Amoco put its drill rigs on a central plot of land, drilled down 1,200 feet and then drilled diagonally 5,000 feet.

The result was the location of an oil pump perhaps three city blocks from its oil reservoir - a technique used in offshore drilling costs - to about $250,000 a well, or roughly $50,000 more than it would have cost to drill straight down.

"It wouldn't have been economically feasible if it had been at the lower price," said Earl E. Morris, division operations superintendent for Amoco production. "It took the (higher) prices for us to be willing to go into a marginal reserve."

While acknowledging the small amount of oil actually discovered, Morris said, "If we truly want domestic sources of oil, we've got to look to these and add them all up."

The Carter administration, for its part, would like to see the oil companies seek out bigger, now unknown oil reserves and has proposed permitting higher prices for oil discovered substantial distances from existing fields. It has proposed, too, a tax that would raise all crude oil prices to current world levels, with increases to account for inflation.

The administration and the House of Representatives, would return some of that tax money to consumers. Sen. Russell Long (D-La.), chairman of the Senate Finance Committee, and other senators would like to see a portion of any increases go to the oil companies as an incentive to explore and develop new oil sources.

Meanwhile, a number of oil companies, sensing higner prices in the future, have begun developing new expexsive recovery methods to increase the amount of oil extracted from known reserves. Too, they are undertaking more expensive drilling in older fields in hopes of findingoil that has long gone underdiscovered.

Amoco, for one, has gone back a third time to Spindletop, the original East Texas gusher and has added two good wells there. But after spending $300,000 to drill down 3,030 feet only to discover insurmountable production problems, it abandoned a third well. Said Ethridge, "It ate us alive."