Sun Cal Energy (fka SCEY)

[petermic]

=DJ IN THE MONEY: Paid Promotions Send Sun Cal Stock Flying

June 12, 2007 13:46


By Carol S. Remond
A Dow Jones Newswires Column

Ask the stock promoters, and they'll tell you Sun Cal Energy Inc.'s
(SCEY) headed for its day in the sun. Yet its financials are more akin
to a bleak February morning.
Sun Cal came to life as a publicly traded company last October when
Canadian executive George Drazenovic bought a corporate shell named
Host Ventures Inc. for $250,000 from Colorado-based William Stewart.
Yet almost overnight, Sun Cal, which calls itself an exploration-stage
mineral company, has transformed itself into a $254 million company
sporting extraordinary trading volume, despite having no revenue,
plenty of losses and only $268,000 in the bank.
And the stock promoters promise even greater riches: "Sun Cal Energy
(SCEY) is under $3.50 and on it's way to $55," clamors the Elite
Stock-Market Advisory newsletter, while James Rapholz in his Economic
Advise report says at $3 a share, it's a "sitting duck" with a
takeover price of at least $90.
Or course, both newsletters are paid advertisements and investors
should instead look to Sun Cal's history before getting into the
stock.
Drazenovic was Sun Cal's sole executive until May 1 when the company
hired Joseph Lewis Dillman, a Vancouver-based executive with a long
history of involvement in the small-cap market to take over as chief
executive and president. Neither Dillman nor Drazenovic, who remains
Sun Cal's chief financial officer, treasurer and secretary, returned
several telephone calls seeking information.
According to information available online, Drazenovic is a certified
accountant with political aspirations. He ran unsuccessfully for
parliament in the Vancouver suburb of Burnaby-Douglas in 2004 and
2006. According to a stock ownership form filed with the Securities
and Exchange Commission on March 23, Drazenovic owns 42.8 million
shares of Sun Cal. The company's most recent quarterly report shows
that there were 79 million shares outstanding as of May 17.
Sun Cal describes itself in its quarterly SEC report in May as an
"exploration stage company, which means we are engaged in the search
for mineral deposits (reserves) which are not in either the
development or production stage. We have not generated any revenues
from our operations and have achieved losses since our inception."

Dizzying Stock Market Value

If Sun Cal's lack of revenue isn't a deterrent, investors might
wonder about the company's dizzying stock market value and that high
trading volume. Almost 12.5 million shares of Sun Cal changed hands in
the four days trading week following the Memorial Day weekend. So far
this month, more than 21 million shares of Sun Cal have traded.
Maybe it has to do with some mining rights the company acquired
through one of its subsidiaries? Or maybe it has to do with the
$105,000 paid by Pinnacle Energy Investments to promote Sun Cal stock?
That payment is mentioned in the disclosure statement of the Elite
Stock-Market Advisory newsletter. There is no information available
about who controls Pinnacle or whether the firm is a Sun Cal
shareholder.
In March, at about the same time that promotional reports started
touting the company's stock, Sun Cal acquired all the common stock of
Sun Cal Energy Corp., a wholly owned subsidiary. Under that
transaction, Sun Cal also indirectly acquired 100% of Sun Cal Energy
Canada Corp., itself a subsidiary of Sun Cal Energy Corp.
Which brings us to Sun Cal's only "assets."
Last October, right around the time Drazenovic bought the Nevada
shell that helped take Sun Cal public, Sun Cal Energy Canada acquired
a 1.5% royalty interest in an oil and gas lease known as the Hobart
Lease from TriMar Energy Partners Inc. for $525,000 and stock. Sun Cal
Canada also acquired a 45% interest in oil and gas leases known as the
Lokern Leases from Western Energy Capital LLC for $125,000 and 1.3
million shares.
There is very little information available about the two firms that
sold those leases.
Documents filed with the SEC show that TriMar and Western Energy
share the same executive, Steven C. Marshall. The firms' names don't
show up in any other SEC filings. Searches on the Internet don't
provide any information about the two entities or whom they might have
done business with in the past. State corporate databases show that
TriMar is a corporation in good standing in California, while Western
Energy is a domestic limited liability company in default in Nevada.
Marshall told Dow Jones Newswires that the shares received by
Western Energy and TriMar are restricted and that he hasn't sold
stock. He said that he sold some assets to Sun Cal but that he knows
"very little about the company itself." Marshall said he never heard
of Pinnacle, the entity that paid for the promotion of Sun Cal's
stock.

Beneficial Leases

So far, those leases have proven quite beneficial to Sun Cal, at
least when it comes to its stock price.
Following a May 30 press release in which Sun Cal heralded the
"successful drilling and testing of its deep development well in
Washita County, Oklahoma," the company stock gained almost a dollar
over the next 24 hours, closing at $3.70 a share on May 31.
Now, remember the 1.5% royalty interest acquired from TriMar Energy?
Sun Cal could stand to receive a tiny fraction of revenue from oil
found on land for which it owns a portion of mineral rights: That's a
far cry from the way Sun Cal described a well operated by Marathon Oil
Corp. (MRO) as its own in a press release that prompted a feverish
jump in trading volume.
And what about the 45% right in these Californian leases purchased
from Western Energy?
According to an independent review of the prospect posted on Sun
Cal's Web site, it would cost more than $4.5 million to drill a 15,500
foot well to test previously discovered hydrocarbons there. The review
describes the Lokern Prospect as "attractive based on the known
presence of hydrocarbons."
Optimists might simply argue Sun Cal's trying to cash in on its
assets. But here again, the information presented to investors isn't
complete.
That independent review by Kansas-based geologist James Melland
wasn't prepared in March for Sun Cal or even Western Energy as its
front page suggests. It was written some six years ago for a now
defunct energy company named Pohle Oil & Gas. Melland said that Western
Energy's Marshall asked him whether he could use the Pohle report and
that he updated it with some recent information and handed it to
Marshall. "They pay me for my time. I have no interest in Sun Cal,"
Melland said when asked whether he is a shareholder.
Then there's Sun Cal's private placement on May 10.
If the company is on the verge of a huge payoff as oil prices
continue to climb, as suggested by those promotional reports, why did
it sell 900,000 units consisting of one share and a warrant to buy
another share for $1.50 at a steep discount?
Sun Cal said in a filing with the SEC that it sold 900,000 units to
a non-U.S. person for $900,000. That means two shares for $2.50 ($1
for the share embedded in the unit and $1.50 when the warrant is
exercise). Sun Cal's stock closed at $2.27 a share on May 10.
What's sure is that someone has made a lot of money, selling stock
into the promotion paid for by the enigmatic Pinnacle Energy. But it's
very unlikely that investors receiving those promotional newsletters
and buying Sun Cal stock will see the same result.
(Carol S. Remond is an award-winning columnist who won a Gerald Loeb
Award in 2005 for best news service content with "Exposing Small-Cap
fraud," a series of articles that described how three small companies
unscrupulously pumped up their stocks.)
-By Carol S. Remond, Dow Jones Newswires; 303 997 5783;
[e-mail]

(END) Dow Jones Newswires
06-12-07 1346ET
Copyright (c) 2007 Dow Jones & Company, Inc.