Royale Energy Inc

Competition

The exploration and production of oil and natural gas is an intensely competitive industry. The sale of interests in oil and gas projects, like those Royale sells, is also very competitive. Royale encounters competition from other oil and natural gas producers, as well as from other entities that invest in oil and gas for their own account or for others, and many of these companies are substantially larger than Royale.

Markets

Market factors affect the quantities of oil and natural gas production and the price Royale can obtain for the production from its oil and natural gas properties. Such factors include: the extent of domestic production; the level of imports of foreign oil and natural gas; the general level of market demand on a regional, national and worldwide basis; domestic and foreign economic conditions that determine levels of industrial production; political events in foreign oil-producing regions; and variations in governmental regulations including environmental, energy conservation, and tax laws or the imposition of new regulatory requirements upon the oil and natural gas industry.

Regulation

Federal and state laws and regulations affect, to some degree, the production, transportation, and sale of oil and natural gas from Royale’s operations. States in which Royale operates have statutory provisions regulating the production and sale of oil and natural gas, including provisions regarding deliverability. These statutes, along with the regulations interpreting the statutes, generally are intended to prevent waste of oil and natural gas, and to protect correlative rights to produce oil and natural gas by assigning allowable rates of production to each well or proration unit. On September 16, 2022, the Governor of California, Gavin Newsom, signed** Senate Bill No. 1137 (“SB1137”) **into law. SB1137 prohibits the issuance of well permits and the construction and operation of new production facilities within a “health protection zone” of 3,200 feet from certain sensitive (receptors such as homes, schools, nursing homes, or hospitals). We and our industry partner, RMX Resources, LLC (“RMX”) operate wells, production facilities, and future drilling located within a health protection zone. In December 2022, proponents of a voter referendum initiated to challenge SB1137 (the “Referendum”) collected the requisite signatures to place SB1137 on the November 2024 ballot. On February 3, 2023, the Secretary of State of California certified that the requisite number of signatures had been submitted and validated for the Referendum to become duly qualified for the November 2024 ballot. By law, the effectiveness of a statute challenged in its entirety by a duly validated Referendum is stayed until it has been approved by the voters at the required election. Thus, the implementation of SB1137’s provisions are stayed as of February 3, 2023, until the Referendum challenge has been resolved by a vote of the California electorate on November 5, 2024. If SB 1137 were to be left in effect, it would limit certain undeveloped drilling locations, and significantly deter our participation in future drilling efforts with RMX. Additionally, we cannot predict any future actions the State of California, or other parties, may take that could further limit our ability to drill in certain areas.

The exploration, development, production and processing of oil and natural gas are subject to various federal and state laws and regulations to protect the environment. Various federal and state agencies are considering, and some have adopted, other laws and regulations regarding environmental controls that could increase the cost of doing business. These laws and regulations may require: the acquisition of permits by operators before drilling commences; the prohibition of drilling activities on certain lands lying within wilderness areas or where pollution arises; and the imposition of substantial liabilities for pollution resulting from drilling operations, particularly operations in offshore waters or on submerged lands. The cost of oil and natural gas development and production also may increase because of the cost of compliance with such legislation and regulations, together with any penalties resulting from failing to comply with the legislation and regulations. Ultimately, Royale may bear some of these costs.

Presently, Royale does not hold any undeveloped federal acreage on which it had plans to drill, and does not anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect on capital expenditures, earnings, or its competitive position in the oil and natural gas industry; however, changes in the laws, rules or regulations, or the interpretation thereof, could have a materially adverse effect on Royale’s financial condition or results of operation.

Availability of Public Filings

You may obtain a copy of any materials filed by Royale with the Securities and Exchange Commission (“SEC”) at http://www.sec.gov. Royale also provides access to its SEC reports and other public announcements on its website, http://www.royl.com. The information on our website is not part of this Annual Report on Form 10-K.