I hope you have shorted it .... ;-)
Monday, February 2, 1998
Simply Amazing
Is Pinnacle's oil-exploration device a new force or a new farce?
By Cheryl Strauss Einhorn
For some reason, Wall Street loves a good story, even a highly
implausible one. It may be because a lot of investors, like certain
denizens of the world's race tracks, cannot resist the allure of a
longshot. How else to explain the millions of dollars that were lost
on the Bre-X mining escapade last year or on Molten Metal
Technology's failed effort to detoxify hazardous waste? Well, the
Street's latest amazing story is being told by R. Dirk Stinson,
president of Calgary-based Pinnacle Oil International. Stinson
claims to have a device that can be taken 2,000 feet above ground
in an airplane and still somehow spot oil deposits that lie miles
below the earth's surface.
Judging by the upward trajectory of Pinnacle's stock, Stinson has
persuaded a lot of investors. Pinnacle's share price has surged
almost 25% in the past month alone, and it has more than tripled in
the past year or so. At the current share price of 11 3/4, the stock is
valued at $140 million, and that's pretty rich considering that the
company has no revenues, posted operating losses of $475,000 in
1996 and doesn't have a patent on its highly touted technological
breakthrough.
Pinnacle's supposed miracle machine is called the Stress Field
Detector, or SFD, and it was developed by the company's
reclusive chairman, George Liszicasz. The promotional literature
says the device was "developed upon a quantum physics
phenomena which management believes can greatly reduce the
costs and time associated with exploration and discovery of
hydrocarbon deposits." Among Pinnacle's more remarkable claims
is that the device is so sensitive that it can differentiate between
oil and gas deposits from the sky, yet it isn't bothered by electronic
interference, from, say, high-voltage power lines or cellular
telephones. A measuring device being immune to such interference
would be highly unusual, to say the least.
"No one should believe what we're doing," says Stinson. "We
believe we have found a new force and we have an unbelievable
technology. It defines the difference between oil and gas reserves
flying in an airplane at 200 miles per hour. Our problem is that we
can't disclose anything about it. I don't even understand how or
why it works. But it does."
Even geologists who have tested the SFD don't understand it. Rod
Morris, the geologist hired by Pinnacle to conduct what the
company says is an independent survey of the SFD technology and
its implications for oil and gas exploration, says he hasn't a clue.
"The obvious question is, what does the SFD actually measure?
The answer to this question is unknown," he says.
Still, Morris managed to determine that the SFD was 98% accurate
in finding oil and gas deposits. "If you put the science aside, this is
one of the greatest things to ever happen to the oil and gas
business," he says.
It should be pointed out that Morris owned 13,000 shares of
Pinnacle stock at the time of his evaluation. He has since sold out.
He bought the stock at $1 a share in a private placement, and he
sold at prices between $4 and $5 a share.
The only man who claims to understand the SFD is Pinnacle
Chairman Liszicasz, and he won't talk. Liszicasz is said to have
studied electronics and physics in Hungary. He says he fears that
someone will steal the secret behind his discovery and that's why
he hasn't applied for a patent on the technology and won't in the
future. "George won't talk to anyone," says Stinson. "He is insecure
about the technology. That is why we can't disclose how it works,
because then it could be copied. If we open it up to science, it
won't be worth anything to us anymore. We don't tell people what
we do or where we go. We protect our technology."
Of course, there are those among us who would like to see proof,
quaint as the notion may seem. Some attempt to explain the
workings of SFD, however vague, can be found in the company's
literature, which says the box "operates on the premise that there
exists, above ground, non-electromagnetic energy patterns
reflecting various sub-surface conditions. The SFD sensor is a
passive transducer that converts these energy patterns into
electrical signals to be processed, displayed and/or stored for
further analysis."
But a number of experts contacted by Barron's doubted that SFD
was for real. Roger Anderson, director of the Energy Center at
Columbia University, said, "This sounds like one of those
black-box frauds people push in the oil patch all the time."
Anderson is particularly skeptical about the use of the phrase
"non-electromagnetic energy patterns." Generally, the forces of
gravity and magnetism are used in energy-exploration devices, and
Anderson feels Pinnacle's use of the word "transducer" suggests
some acoustical measurement, while the words "quantum physics"
would seem to indicate testing of particles. Anderson's
conclusion? "Sounds like someone's been to the library and is
putting on a scam," he says. "They're saying they've discovered a
new piece of physics."
If Pinnacle has really found a new force of nature, "such a
discovery would win the Nobel Prize," says David Cassel,
Cornell University emeritus professor of quantum physics.
When Barron's read Cassel the company's description of the SFD
as a "device developed upon quantum physics phenomena," he
laughed heartily. When he recovered, he explained that quantum
physics doesn't work that way. It can't measure anything that is not
microscopic, and it can only measure things in a very short range.
Put another way, quantum phenomena cannot be measured from
finger to thumb, let alone from an airplane to crustacean oil and
gas deposits 13,000 feet beneath the earth's surface. "If they could
do that, it would be truly remarkable," says Cassel. "I would want
to see verification of these things. It would have to be a
phenomenon far outside of all things that we have experienced so
far. It reminds me of cold fusion," which, as it turned out, was a
flop.
When confronted with the experts" skepticism, Stinson replied that
he doesn't understand quantum physics himself. "People with
black-box technologies are usually in the business of promoting
them," says Stinson. "They are scam games. That is why there is
nothing for us to gain by talking about it."
And how about the SFD's inventor, Pinnacle Chief Executive
Liszicasz, who won't speak to anyone? "He only knows what he
has taught himself of quantum physics," says Stinson.
Liszicasz's background is in electronics and physics, which he is
said to have studied in Hungary and at the University of British
Columbia, though he never got a degree. "His discovery was an
accident," says Stinson. "He knows nothing about oil and gas."
When we asked Stinson for further references beyond Morris, the
geologist, who might vouch for the company's technology, Stinson
demurred. But he told Barron's that Pinnacle will soon make a big
announcement about new ventures. "In two weeks, we will reveal
some spectacular events that will tell the world more about us," he
said.
Indeed, the currently lofty level of Pinnacle's shares, 70% of which
are owned by company insiders, suggests that investors clearly
believe some good news is about to be made public.
"My interest," says Stinson, "is not to show the world that the SFD
works. We just want to show it to a couple of companies that we
want to work with. The companies who choose to work with us
have decided it wasn't important for them to understand how the
SFD works as long as it does work. It is less important to have a
patent than it is to have a confidentiality agreement."
Unfortunately, the main company working with Pinnacle at present,
a medium-sized Canadian oil and gas exploration company called
Encal Energy, at first agreed to talk to Barron's but then later
refused and didn't answer numerous follow-up phone calls.
Stinson told Barron's that the way Pinnacle convinces companies
that its technology has proven itself is by flying over other
companies' oil fields and verifying known deposits. "We let them
hold the box on their lap in the airplane," says Stinson. "They don't
even let me see the screen."
On Friday, as Barron's was preparing to go to press, Pinnacle
shares slid to 11 3/4 on near-record volume on the Nasdaq bulletin
board. That was down from its all-time high of 14 3/16 on
Tuesday.
Perhaps Pinnacle will be helped by its announcement Friday that
the company had entered into an agreement with Renaissance
Energy to explore for oil on 360,000 acres in which Renaissance
holds an interest. Dan Topolinsky, Renaissance's vice president
for exploration, who helped arrange the deal, told Barron's he first
heard about Pinnacle through his former schoolmate, Rod Morris,
the geologist who has studied the SFD technology. Topolinsky also
said he recently had bought 10,000 shares of Pinnacle at $12.50 a
share.
Topolinsky, who characterized officials at Pinnacle as "mad
scientists," said he doesn't understand how the SFD technology
works but that it did manage to identify some large Renaissance oil
deposits in a test.
Pinnacle's pitch to Renaissance and other companies is that its box
can save time and money over conventional methods of finding oil.
Most oil exploration is done with seismic technology that sends
waves into the ground and measures how they bounce back to a
reading device. On land, 3-D Seismic exploration costs anywhere
from $50,000 to $100,000 per square mile. By contrast, according
to Pinnacle, SFD can do the job for about 5% of the cost.
Moreover, the company's literature states, "unlike seismic, the
SFD can relay information instantly ... and can give a good
indication of commercial viability." Pinnacle's business plan
concludes: "The SFD is not 100% accurate, but it is the best and
most cost effective exploration tool to date to locate ... major oil
fields."
When we asked Stinson why Pinnacle isn't looking for oil on its
own, he said, "We know nothing about the oil and gas business, so
we need companies in the business who take our survey work and
confirm it with seismic."
Charles Yeager, who works the land-acquisition department of
Western Atlas, the largest seismic company in the world, says, "It
sounds like a magical device to me. I've been in the industry for 17
years, and I've never heard of such a gizmo. There is no such thing
that can directly measure hydrocarbon content. If it works, it will
put us out of business. My personal opinion is that something
doesn't seem right."
Officials at Input/Output, another 3-D seismic company, say that
they've never heard of Pinnacle or the SFD. "I hear about a new
black box every month," says Robert Brook, the company's chief
geophysicist. "So this is the 12th revolutionary method I've heard
about in the past year."
Who knows? Maybe this little-known Canadian company actually
has discovered a new force of nature and invented a way to
harness it. But if not, Pinnacle is worth a heck of a lot less than
$140 million -- probably about $140 million less. |
