Reprint of old Barron's article:
Here is the Barron's article from over a year ago that some of you have requested to see. A little bit dated at this point. Dirk is gone, replaced by Dan Topolinski. It was time for the company to get oil and gas guys in there. IMO not a great article, from the research point of view, since she found three people who had never heard of the company or the technology except as described by her over the phone. Of course they laughed and she played the ridicule aspect to the hilt. I value ridicule from knowledgeable people, but not from these sources. I have been told Cheryl got the tip on the story from a shortseller in San Francisco. I know the guy, we had a few arguments about Pinnacle in the past. He was getting squeezed in early 1998 and paid us shareholders back by getting a hit piece written by Barron's. Anyway, she did her thing, called Rod Morris first and totally pissed him off. Basically she insinuated that Rod would ruin his whole reputation for a profit of $45,000 in PSFD stock. Rod has a good reputation in Calgary as a free lance geologist. I have talked to him and people who know him many times and I think he is a reputable person. He tested the device and wrote a report in Sept 1996. I believe he introduced the company to Encal and the old Pinnacle Resources (since acquired by Renaissance), because he had gone to college with one of the top guys at each firm and they trusted his judgment. That was Pinnacle's big break. After hearing of Rod's treatment by Cheryl, the Encal people refused to talk to her and Dan was the only one to stick his ass on the line. I think the most important part of the whole article, reading it objectively, was that here you had the number three guy, Dan Topolinsky, VP Exploration at Renaissance using the device first hand and telling us what he thinks of it by going and buying stock himself! But that was barely mentioned towards the end of the article. Cheryl has recently been contacted again concerning the Pinnacle saga, and she was "simply amazed" that Dan had joined the company, but other than that gave no indication whether she had any follow on interest in PSFD. I personally doubt we will ever hear from her again, her hit job done. She did leave herself a little wiggle room for the SFD to work, but my guess is she is too proud to eat crow.
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. |
