Thursday, April 12, 2007

Particle Drilling--Technologies Still Not Worth a Drill Bit.

Since we first posted on Particle Drilling (PDRT-$3.97) back in October 2006, shares in this developer of the Particle Impact Drilling (PID) System, a patented system utilizing a specially designed “fit for purpose” drill bit fitted with jetting nozzles and polycrystalline diamond compact cutting structures for penetrating hard-rock formations in the exploration of oil and gas, have risen about 42 percent.

This report will address several developments that have been positive catalysts on the stock price over the past few months.

CEO Jim Terry stated: “During this trial, the Company (PDTI) completed the longest ever footage run with its PID technology, drilling a 120 foot interval in approximately eight hours of on-bottom drilling time.”

10Q Detective: Minimized in the excitement was that equipment failures resulted in interruptions of continuous operations, including a mechanical failure with the particle storage drum drive line, a broken valve, and debris plugging a nozzle on the new PID bit.

Pursuant to this agreement, PDTI will provide its patented Particle Impact Drilling services in connection with the Operator's drilling program in East Texas with the initial PID operations expected to commence during the first calendar quarter of 2007.

10Q Detective: “The compensation under this agreement, if any, is based on the Company's performance pursuant to a gain-sharing formula.” As the PID System was still in the developmental phase as of April 2007, it is doubtful that PDTI recognized any revenue from this alleged deal.

Oh, “at the Operator's request, its name was withheld and additional details of the contract remained confidential.”

Shares of the oilfield services driller surged more than 14 percent, or 59 cents, to close at $4.10 on the news.

  • February 12, 2007. It was subsequently revealed in this issue of Oil & Gas Journal that the undisclosed exploration concern was Denver-based Gasco Energy (GSX-$1.92), which with a market capitalization of $163.5 million is hardly “one of North America’s Largest Independent Oil & Gas Companies.”

CEO Terry also said in the interview that PDTI was expecting to have ten sets of equipment available for rental by the end of 2007 (initial costs are estimated at about $1.8 million, with an expected payback period for each unit of about eight months).

The payback period, of course, is subject to changes in day drilling rates, delays due to equipment failures or bad weather, and variable labor costs.

  • During the week of March 16, 2007, the Houston Business Journal ran an article on “Hard-Rock Drilling,” which positioned the PID System as a promising, radical departure from traditional technologies. Did we forget to mention that Thomas Hardisty, senior VP of corporate development at PDTI, wrote the story?

This commercial trial allowed the Company to field-test several new advances to its Particle Impact Drilling system under rigorous conditions: (i) it tested a newly constructed solids-processing and particle-storage unit; (ii) for the first time used a newly designed 8.5 inch diameter bit; and (iii) the Company drilled at depths below 12,500 feet -- its deepest drilling operation to date.

The Company is now focused on completing the development of its new injector system and further improving productive-drilling-time (PDT) as the priorities for the next commercial trial.

CEO Jim Terry points out that several upcoming improvements to the PID system will help the company realize the full potential of its new technology: "Our drilling efficiency continues to improve and we will now focus on getting an operational injector replacement as soon as possible, and will proceed with the next commercial trial when that effort is complete."

On the commercialization front, Terry indicated that the Company is working with a growing number of oil and gas companies to evaluate their target applications. He expects to establish additional contracts with a group of early adopters, thus providing a solid foundation for rapid growth once the PID system is fully commercialized.

Can PDTI management’s claim of its drilling results be trusted? Their repeated promulgations of alleged commercialization have been only outmatched by the fact that the Company still has yet to earn a dollar in rig rentals.

Total revenue generated by the Company from June 9, 2003 (date of inception) to December 31, 2006: nil. Accumulated net loss = $22.6 million.

Do unfulfilled promises justify a 42 percent gain in the stock since last we met?

1 comment:

Chris Boswell said...


Another very articulate article but once again your facts are inaccurate. As before, I am limited as to what I can communicate in this forum but here goes. We currently have two contracts, one with Gasco (GSX) as you have identified from the February 12, 2007 Oil and Gas journal article and a second contract with one of the top five oil and gas companies in North America. We do not believe it is in our best interest to "lie" in our press releases and therefore your assertion that we are, in fact, misleading investors is somewhat concerning. It is not uncommon for the larger Oil and Gas companies to require their name to be withheld from a contractor press release and therefore you should not be surprised by this request. If you suspect that our latest trial was again with GSX, then I challenge you to research the GSX public disclosures to determine whether or not GSX has any drilling activity in Texas or in the Travis Peak formation (the site of our most recent test). I think you will disprove your own theory by conducting such "research".

We have continued to progress the technology and have now conducted four full scale field trials (three with GSX and one with our new customer). As indicated in the investor presentation on our website, we have progressed from 19% productive drilling time to 51% productive drilling time during the past 11 months. Further, each trial has yielded an improved drilling performance in terms of footage drilled during a 24 hour period. We have gone from 76 ft in May 2006 to 212 ft in March 2007. This may not be so impressive to you but we continue to gain industry recognition and with further surface equipment enhancements, our performance should continue to improve and other "large" oil and gas companies should be compelled to deploy our technology once we have done so.

J. Chris Boswell
Senior Vice President & Chief Financial Officer
Particle Drilling Technologies, Inc.