It has certainly been a year of change for AGR Tools Inc. (OTCBB: AGRT) as the company, along with its wholly owned subsidiary AGR Energy Holdings Inc., has experienced quite a shakeup with the resignation of their Board of Directors along with a 500:1 reverse stock split of the company’s common stock. Now on Wednesday AGRT announced that they have entered into a letter of intent with Consolidated Oil and Gas to acquire a 80% ownership interest in the 700 acre Paul Lease in Overton County, Tennessee.
Wednesday’s news has played a significant role in sending the share price of AGRT north with trading holding around the 0.64 level. Given the fact that shares were as low as 0.1550 on Tuesday and had sunk to 0.1200 last Friday its hard not to be impressed.
That being said, the question is what do investors see in AGRT? For the quarterly period ended March 31, 2012 the company earned no revenue and had a cash balance of $289. On top of these ugly figures AGRT reported a working capital deficit of $885,127 and an accumulated deficit of $2,127,695 since inception.
Of course a recently launched promotional campaign has played a big role in AGRT’s surge but just how long the company, which says their mission is “to deliver a competitive and sustainable rate of return to shareholders by developing, acquiring and exploring for oil and gas resources vital to the world’s health and welfare,” can maintain this share price level is yet to be seen.
Judging by their financial condition it’s difficult to see how they will turn Wednesday’s news into a profitable venture. As stated in the press release they will issue 5 million restricted common shares to COGC in consideration for the ownership stake. Their initial plans for the “20 historically producing wells” is to drill and complete 10 new wells at a total capital cost of $1.5 million with the projected partnership revenue from these 10 wells over a 5 year time frame coming to roughly $7 million.
AGRT’s CEO Vern Wilson, appointed following the resignation of the Board of Directors back in January, said of the deal “The area of the Paul lease and the Alpine Quadrangle has considerable potential. Wells are shallow with substantial productivity, and are relatively inexpensive to drill.” That’s great that they are relatively inexpensive to drill but it is highly doubtful that the $289 in cash is going to be enough to cover the work.
There is obviously a serious risk involved with AGRT given the fact they didn’t generate any revenue for the previous three-month period yet their share price has shot up to what appears to be an unjustifiable level. It would seem likely that this could collapse at any time and if an investor is holding their breath for this letter of intent to actually end in an agreement to proceed then they may be disappointed when news to the contrary surfaces.