Why I'm Not Buying Sun Cal Energy

| About: Sun Cal (SCEY)

According to Sun Cal Energy's (OTC:SCEY) recent 10Q:

Sun Cal Energy, Inc. (the “Company”), was incorporated in the State of Nevada on July 20, 2004 under the name Host Ventures, Inc. On November 6, 2006, the Company changed its name to Sun Cal Energy, Inc. The Company is currently in the exploratory stage as defined in FASB Statement 7 with its principal activity being the exploration of mining properties for future commercial development and production.

Effective March 12, 2007, the Company acquired all of the outstanding shares of Sun Cal Energy Corporation (”SCEC”) in exchange for issuing 26,925,000 of its common stock. SCEC was incorporated in the state of Nevada on June 2, 2006, For financial reporting purposes, the acquisition was treated as a reverse acquisition whereby SCEC’s operations continue to be reported as if it had actually been the acquirer.

The company has no revenue, and just enough cash on the balance sheet to last for another nine months at the current burn rate. According to the 10Q:

Even if we are successful in obtaining equity financing to fund our exploration program, there is no assurance that we will obtain the funding necessary to pursue any advanced exploration of our properties. If we do not continue to obtain additional financing, we will be forced to abandon our properties and our plan of operations.

Still, this hasn’t stopped someone identified as Pinnacle Energy Investments from paying a whopping $900,000 to NatCon Publishing to blast mail a glowing report on the company touting its investment prospects.

The report’s author, who claims he is “becoming the greatest oil & gas stock-picker of all time” (move over, Boone Pickens and Richard Rainwater!) says the shares, now trading at $3.26, could be on their way to $55 because they have “75 million barrels of potential oil reserves x $60 per barrel of oil = $4.5 billion, or $55 per share.” Yet even ExxonMobil trades at a valuation far below its proven (let alone potential) oil reserves. And Exxon has financed its exploration program and is actually getting oil out of the ground and to market.

Anyway, if I were confident my $3.26 stock was headed to $55, I would be using my $900,000 to buy up all the shares I could, not to pay somebody to write a newsletter about it.

SCEY.OB 1-yr chart:

SCEY.OB 1-yr chart

Disclosure: author is long UNITED STS OIL FD LP UNITS (NYSEARCA:USO) at time of publication.