Royale Energy Inc

Previous wording

During the first six months of 2024, revenues from oil and gas production increased $200,667 or 20.4%, to $1,189,411 during the period in 2024 from revenues of $988,744 during the first six months of 2023. This increase was mainly due to higher oil production volumes and higher oil commodity prices. The net sales volume of oil and condensate for the six months ended June 30, 2024, was approximately 14,280 barrels with an average price of $75.18 per barrel, versus 9,864 barrels with an average price of $71.69 per barrel for the six months of 2023. This represents an increase in net sales volume of 4,416 barrels or 44.8%, which was due to wells completed and put online during the latter half of 2023 and first half of 2024. The net sales volume of natural gas for the six months ended June 30, 2024, was approximately 61,073 Mcf with an average price of $1.87 per Mcf, versus 68,081 Mcf with an average price of $4.10 per Mcf for the same period in 2023. This represents a decrease in net sales volume of 7,008 Mcf or 10.3%. The decrease in natural gas production volume was also due to the natural declines on our wells. For the quarter ended June 30, 2024, revenues from oil and gas production increased $115,453 or 26.8% to $545,746 from the 2023 second quarter revenues of $430,293. This increase was also due to higher oil production volumes and oil commodity prices. The net sales volume of oil and condensate for the quarter ended June 30, 2024, was approximately 6,476 barrels with an average price of $79.41 per barrel, versus 5,104 barrels with an average price of $70.45 per barrel for the second quarter of 2023. This represents an increase in net sales volume of 1,372 barrels or 26.9% for the quarter in 2024. The net sales volume of natural gas for the quarter ended June 30, 2024, was approximately 28,414 Mcf with an average price of $1.07 per Mcf, versus 37,962 Mcf with an average price of $1.84 per Mcf for the second quarter of 2023. This represents an increase in net sales volume of 9,548 Mcf or 25.2% for the quarter in 2023.

Current wording

During the first nine months of 2024, revenues from oil and gas production increased $301,422 or 20.8%, to $1,749,120 in 2024 from revenues of $1,447,698 during the first nine months of 2023. This increase was mainly due to higher oil production volumes during the period in 2024. The net sales volume of oil and condensate for the nine months ended September 30, 2024, was approximately 21,079 barrels with an average price of $74.88 per barrel, versus 14,851 barrels with an average price of $73.20 per barrel for the nine months of 2023. This represents an increase in net sales volume of 6,228 barrels or 41.9%, which was due to wells completed and put online during the latter half of 2023 and first half of 2024. The net sales volume of natural gas for the nine months ended September 30, 2024, was approximately 91,255 Mcf with an average price of $1.84 per Mcf, versus 101,324 Mcf with an average price of $3.51 per Mcf for the same period in 2023. This represents a decrease in net sales volume of 10,069 Mcf or 9.9%. The decrease in natural gas production volume was also due to the natural declines of our wells. For the quarter ended September 30, 2024, revenues from oil and gas production increased $100,755 or 22.0% to $559,709 from the 2023 third quarter revenues of $458,954. This increase was also due to higher oil production volumes. The net sales volume of oil and condensate for the quarter ended September 30, 2024, was approximately 6,800 barrels with an average price of $74.25 per barrel, versus 4,987 barrels with an average price of $76.19 per barrel for the third quarter of 2023. This represents an increase in net sales volume of 1,813 barrels or 36.4% for the quarter in 2024. The net sales volume of natural gas for the quarter ended September 30, 2024, was approximately 30,182 Mcf with an average price of $1.79 per Mcf, versus 33,242 Mcf with an average price of $2.32 per Mcf for the third quarter of 2023. This represents a decrease in net sales volume of 3,060 Mcf or 9.2% for the quarter in 2023.

Previous wording

Oil and natural gas lease operating expenses decreased by $234,677 or 23.1%, to $780,125 for the six months ended June 30, 2024, from $1,014,802 for the same period in 2023. For the second quarter in 2024, lease operating expenses decreased $91,634 or 20.9% from the same quarter in 2023. Both of these decreases were partially due to the receipt of water disposal recovery fees of $101,190 received during the six-month period in 2024 versus $87,293 received during the 2023 period, which began in April 2023 as we converted an existing non-producing oil well into a water injection well to reduce water disposal hauling costs paid to outside vendors, which also decreased our trucking costs. These decreases were also due lower equipment repairs on our Jameson field during the period in 2024 as we attempted to increase production during the period in 2023.

Current wording

Oil and natural gas lease operating expenses decreased by $38,640 or 2.9%, to $1,292,525 for the nine months ended September 30, 2024, from $1,331,165 for the same period in 2023. This decrease was due to lower water disposal hauling costs paid to outside vendors, which decreased our trucking costs as we converted an existing non-producing oil well into a water injection well to reduce water disposal hauling costs in 2023. For the third quarter in 2024, lease operating expenses increased $196,037 or 62.0% from the same quarter in 2023, primarily due to repairs and restoration of well equipment in our Jameson field due to weather related damage.

Previous wording

The aggregate of supervisory fees and other income was $30,258 for the six months ended June 30, 2024, a decrease of $81,708 from $111,966 during the same period in 2023. During the second quarter 2024, supervisory fees and other income increased $2,690 when compared to the quarter in 2023. These increases were mainly due to higher interest income on our bank balances.

Current wording

The aggregate of supervisory fees and other income was $44,963 for the nine months ended September 30, 2024, an increase of $12,209 from $32,754 during the same period in 2023. During the third quarter 2024, supervisory fees and other income increased $6,624 when compared to the quarter in 2023. These increases were mainly due to higher interest income on our bank balances.

Previous wording

Depreciation, depletion and amortization expense increased to $197,179 from $173,907, an increase of $23,272 or 13.4% for the six months ended June 30, 2024, as compared to the same period in 2023. During the second quarter 2024, depreciation, depletion and amortization expenses decreased $4,322 or 3.8%. The depletion rate is calculated using production as a percentage of reserves. This increase in depletion expense was due to a decrease in expected recoverable reserves which increased the depletion rate.

Current wording

Depreciation, depletion and amortization expense increased to $253,726 from $231,224, an increase of $22,502 or 9.7% for the nine months ended September 30, 2024, as compared to the same period in 2023. During the third quarter 2024, depreciation, depletion and amortization expenses decreased $770 or 1.3%. The depletion rate is calculated using production as a percentage of reserves. The increase in depletion expense was due to a decrease in expected recoverable reserves which increased the depletion rate.

Previous wording

At June 30, 2024, Royale Energy had a Deferred Drilling Obligation of $9,465,832. During the first six months of 2024, we removed $3,371,095 of drilling obligations as we participated in the drilling and completion of two oil wells in the Texas Permian basin, while incurring expenses of $2,843,380, resulting in a gain of $527,715. At June 30, 2023, Royale Energy had a Deferred Drilling Obligation of $8,190,855. During the first six months of 2023, we removed $2,561,610 of drilling obligations as we completed one oil well in our Texas Jameson field and participated in the drilling and completion of an oil well in the Texas Permian basin, while incurring expenses of $1,222,228, resulting in a gain of $1,339,382.

Current wording

At September 30, 2024, Royale Energy had a Deferred Drilling Obligation of $11,328,332. During the first nine months of 2024, we removed $3,371,095 of drilling obligations as we participated in the drilling and completion of two oil wells in the Texas Permian basin, while incurring expenses of $2,843,380, resulting in a gain of $527,715. At September 30, 2023, Royale Energy had a Deferred Drilling Obligation of $9,761,927. At September 30, 2023, Royale Energy had a Deferred Drilling Obligation of $10,140,855. During the first nine months of 2023, we removed $2,561,610 of drilling obligations as we completed one oil well in our Texas Jameson field and participated in the drilling and completion of an oil well in the Texas Permian basin, while incurring expenses of $1,223,305, resulting in a gain of $1,338,305.

Previous wording

General and administrative expenses decreased by $50,138 or 5.7% from $878,169 for the six months ended June 30, 2023 to $828,031 for the same period in 2024. For the second quarter 2024, general and administrative expenses decreased $40,981 or 9.7% when compared to the same period in 2023. These decreases were mainly due to lower employee related expenses due to cost reduction measures during the periods in 2024. For the first six months of 2024, marketing expenses decreased $5,118 or 3.5% to $141,773, compared to $146,891 for the first six months of 2023. For the second quarter 2024, marketing expenses increased $23,709 or 40.8% when compared to the second quarter in 2023. Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs.

Current wording

General and administrative expenses decreased by $64,865 or 5.1% from $1,262,542 for the nine months ended September 30, 2023 to $1,197,677 for the same period in 2024. For the second quarter 2024, general and administrative expenses decreased $14,727 or 3.8% when compared to the same period in 2023. These decreases were mainly due to lower employee and board related expenses due to cost reduction measures during the periods in 2024. For the first nine months of 2024, marketing expenses increased $39,702 or 17.2% to $269,984, compared to $230,282 for the first nine months of 2023. For the third quarter 2024, marketing expenses increased $44,820 or 53.8% when compared to the third quarter in 2023. Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs.

Previous wording

Legal and accounting expense increased to $342,164 for the six-month period in 2024, compared to $273,143 for the same period in 2023, a $69,021 or 25.3%. This increase during the period in 2024 was primarily due to higher legal fees related to our debt facility entered into during the first quarter of 2024. For the second quarter 2024, legal and accounting expenses decreased $182,626 or 74.5%, when compared to the second quarter in 2023, primarily due to the delay in our 2022 audit and its related fees, which occurred during the second quarter 2023.

Current wording

Legal and accounting expense increased to $485,114 for the nine-month period in 2024, compared to $368,810 for the same period in 2023, a $116,304 or 31.5%. This increase during the period in 2024 was primarily due to higher legal fees related to our debt facility entered into during the first quarter of 2024, and preparation of the transaction documents related to the conversion of the Series B Convertible Preferred shares described in Note 9. For the third quarter 2024, legal and accounting expenses increased $47,283 or 49.4%, when compared to the third quarter in 2023, primarily due to fees related to conversion document preparation.

Previous wording

During the six months ended June 30, 2024, we recorded Bad Debts expense of $176,044 which arose from identified uncollectable receivables relating to our oil and natural gas properties either plugged and abandoned or scheduled for plugging and abandonment (“P&A”) and our period end oil and natural gas reserve values. We periodically review our accounts receivable from working interest owners to determine whether collection of any of these charges appears doubtful. During the period in 2024, we also recorded lease impairments of $63,054 on various lease and land costs in our California natural gas fields where the carrying value exceeded the fair value, no lease impairments were recorded in the first six months of 2023. During the six months ended June 30, 2023, we recorded a Gain on Other of $54,975 as we reconciled employee related items previously recorded as liabilities. We also recorded a gain on other of approximately $57,000 on our share of prior years property tax refunds received by RMX Resources, LLC during the period in 2023. During the period in 2023, we recorded a write down of $9,840 on certain well equipment that was either written down to its current market value or written off as it was no longer usable.

Current wording

During the nine months ended September 30, 2024, we recorded Bad Debts expense of $279,491 which arose from identified uncollectable receivables relating to our oil and natural gas properties either plugged and abandoned or scheduled for plugging and abandonment (“P&A”) and our period end oil and natural gas reserve values. We periodically review our accounts receivable from working interest owners to determine whether collection of any of these charges appears doubtful. During the period in 2024, we also recorded lease impairments of $400,554 on various lease and land costs in our California fields where the carrying value exceeded the fair value, no lease impairments were recorded in the first nine months of 2023. During the nine months ended September 30, 2023, we recorded a gain on other of $54,975 as we reconciled employee related items previously recorded as liabilities. We also recorded a gain on other of approximately $57,000 on our share of property tax refunds for prior years received by RMX Resources, LLC during the period in 2023. During the period in 2023, we recorded a write down of $9,840 on certain well equipment that was either written down to its current market value or written off as it was no longer usable.

Previous wording

Interest expense for the six months ended June 30, 2024, and 2023, were $99,740 and $1,056, respectively. The higher 2024 interest expense was due to the $1.4 million note payable obtained in February 2024, discussed in Note 8.

Current wording

Interest expense for the nine months ended September 30, 2024, and 2023, were $207,744 and $1,383, respectively. The higher 2024 interest expense was due to the $1.4 million note payable obtained in February 2024, discussed in Note 8.

Previous wording

At June 30, 2024, we had current assets totaling $7,989,300 and current liabilities totaling $17,404,389, a $9,415,089 working capital deficit. We had $1,449,068 in cash and $4,182,800 in restricted cash at June 30, 2024, compared to $2,202,521 in cash and $3,325,000 in restricted cash at December 31, 2023.

Current wording

At September 30, 2024, we had current assets totaling $8,971,747 and current liabilities totaling $19,962,529, a $10,990,782 working capital deficit. We had $1,737,465 in cash and $4,032,800 in restricted cash at September 30, 2024, compared to $2,202,521 in cash and $3,325,000 in restricted cash at December 31, 2023.

Previous wording

At June 30, 2024, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $698,006 compared to $1,036,401 at December 31, 2023, a $338,395 or 32.6% decrease. This decrease was mainly due to lower accounts receivables from direct working interest owners for lease operating expenses from our Texas Jameson wells netted revenues. At June 30, 2024, revenue receivable was $394,383 a decrease of $483,995, compared to $878,378 at December 31, 2023, due to lower production volumes during the second quarter in 2024 when compared to the yearend 2023. At June 30, 2024, our accounts payable and accrued expenses totaled $6,116,199 an increase of $634,125 from the accounts payable at December 31, 2023 of $5,482,074, which was mainly due to higher trade payables due mainly to drilling costs during the first half of 2024.

Current wording

At September 30, 2024, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $622,921 compared to $1,036,401 at December 31, 2023, a $413,480 or 39.9% decrease. This decrease was mainly due to lower accounts receivables from payment of Joint Interest Bills by direct working interest owners for lease operating expenses from our Texas Jameson wells. At September 30, 2024, revenue receivable was $513,418 a decrease of $364,960, compared to $878,378 at December 31, 2023, due to lower production volumes during the third quarter in 2024 when compared to the year-end 2023. At September 30, 2024, our accounts payable and accrued expenses totaled $6,240,895 an increase of $758,821 from the accounts payable at December 31, 2023 of $5,482,074, which was mainly due to higher trade payables primarily related to drilling costs during the period in 2024.

Previous wording

We have had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $9,415,089 and an accumulated deficit of $91,636,335. These factors raise substantial doubt about our ability to continue as a going concern. We anticipate that our primary sources of liquidity will be from the sale of oil and gas in the course of normal operations, the sale of oil and gas property, sales of participation interest and possible issuance of debt and/or equity. If we are unable to generate sufficient cash from operations or financing sources, it may become necessary to curtail, suspend or cease operations, sell property, or enter into financing transaction(s) on less favorable terms; any such outcomes could have a material adverse effect on our business, results of operations, financial position, and liquidity. Management has plans to continue to increase revenues by making commitments to participate with industry partners in drilling wells in the Permian basin and will also continue to drill and workover wells in our Texas Jameson field. Although there are no assurances, Management believes that expected increases in revenue together with reduced capital expenditures for drilling will allow the company to meet its liquidity needs through the remainder of the year.

Current wording

We have had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $10,990,782 and an accumulated deficit of $93,042,036. These factors raise substantial doubt about our ability to continue as a going concern. We anticipate that our primary sources of liquidity will be from the sale of oil and gas in the course of normal operations, the sale of oil and gas property, sales of participation interest and possible issuance of debt and/or equity. If we are unable to generate sufficient cash from operations or financing sources, it may become necessary to curtail, suspend or cease operations, sell property, or enter into financing transaction(s) on less favorable terms; any such outcomes could have a material adverse effect on our business, results of operations, financial position, and liquidity. Management plans to continue to increase revenues by making commitments to participate with industry partners in drilling wells in the Permian basin and will also continue to drill and workover wells in our Texas Jameson field. Although there are no assurances, Management believes that expected increases in revenue together with reduced capital expenditures for drilling will allow the company to meet its liquidity needs through the remainder of the year.

Previous wording

Operating Activities. Net cash used in operating activities totaled $728,190 and $1,658,304 for the six months ended June 30, 2024 and 2023, respectively. This difference in cash was mainly due to an increase in accounts payable and accrued expenses during the period in 2024 mainly due to drilling and lease costs when compared to a decrease in accounts payables during the period in 2023.

Current wording

Operating Activities. Net cash used in operating activities totaled $1,381,384 and $198,937 for the nine months ended September 30, 2024 and 2023, respectively. This difference in cash was mainly due to an increase in accounts payable and expenses during the period in 2024 mainly due to drilling and lease costs when compared to the period in 2023.

Previous wording

Investing Activities. Net cash used in investing activities totaled $561,191 and $24,774 for the six months ended June 30, 2024 and 2023, respectively. During the six-month period in 2024, we received approximately $3.1 million in drilling funds while our drilling and lease expenditures were approximately $3.6 million as we participated in the drilling and completion of two oil wells in the Texas Permian basin and obtained lease interests in the Permian basin. During the six-month period in 2023, we received approximately $2.62 million in drilling funds while our drilling expenditures were approximately $2.65 million as we drilled and completed one Texas oil well and participated in the drilling and completion of a Texas Permian basin oil well.

Current wording

Investing Activities. Net cash provided by investing activities totaled $231,089 and $1,337 for the nine months ended September 30, 2024 and 2023, respectively. During the nine-month period in 2024, we received approximately $4.9 million in drilling funds while our drilling and lease expenditures were approximately $4.7 million as we participated in the drilling and completion of two oil wells in the Texas Permian basin and obtained lease interests in the Permian basin. During the nine-month period in 2023, we received approximately $4.6 million in drilling funds while our drilling expenditures were approximately $4.6 million as we drilled and completed one Texas oil well and participated in the drilling and completion of a Texas Permian basin oil well.

Previous wording

Financing Activities. Net cash provided by financing activities totaled $1,393,728 for the six months ended June 30, 2024. Net cash used in financing activities totaled $5,895 for the six months ended June 30, 2023. The difference in cash was due to receipt of $1.4 million from the note payable discussed in Note 8. During the six-month periods in 2024 and 2023, $6,272 and $5,895, respectively, were used for principal payments on our financing lease payments.

Current wording

Financing Activities. Net cash provided by financing activities totaled $1,393,039 for the nine months ended September 30, 2024. Net cash used in financing activities totaled $8,916 for the nine months ended September 30, 2023. The difference in cash was due to receipt of $1.4 million from the note payable discussed in Note 8. During the nine-month periods in 2024 and 2023, $6,961 and $8,916, respectively, were used for principal payments on our financing lease payments.