Royale Energy, Inc.

Previous 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.

Current wording

During the first three months of 2025, revenues from oil and gas production decreased $187,559 or 29.1%, to $456,106 from revenues of $643,665 during the first three months of 2024. This decrease was mainly due to lower oil and gas production volumes during the quarter in 2025. The net sales volume of oil and condensate for the three months ended March 31, 2025, was approximately 5,688 barrels with an average price of $69.24 per barrel, versus 7,804 barrels with an average price of $71.68 per barrel for the first three months of 2024. This represents a decrease in net sales volume of 2,116 barrels or 27.1%. The lower production volumes was due to weather and equipment related issues in our Texas Jameson field during the first quarter of 2025. The net sales volume of natural gas for the three months ended March 31, 2025, was approximately 22,767 Mcf with an average price of $2.68 per Mcf, versus 32,659 Mcf with an average price of $2.56 per Mcf for the same period in 2024. This represents a decrease in net sales volume of 9,892 Mcf or 30.3%. The decrease in natural gas production volume was due to some of our California natural gas wells being offline for approximately a month due to mandatory pipeline inspections by Pacific Gas and Electric.

Previous 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.

Current wording

Depreciation, depletion and amortization expense decreased to $73,218 from $87,026, a decrease of $13,808 or 15.9% for the three months ended March 31, 2025, as compared to the same period in 2024. The depletion rate is calculated using production as a percentage of reserves. The decrease in depletion expense was due to a increase in expected recoverable reserves which decreased the depletion rate.

Previous 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.

Current wording

General and administrative expenses increased by $19,094 or 4.3% from $447,324 for the three months ended March 31, 2024, to $466,418 for the same period in 2025, primarily due to marketing bonuses paid to employees during the quarter in 2025. For the first three months of 2025, marketing expenses increased $9,043 or 15.1% to $69,035, compared to $59,992 for the first three months of 2024. Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated exhibition and travel costs.

Previous 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.

Current wording

Legal and accounting expense decreased to $245,506 for the three-month period in 2025, compared to $279,539 for the same period in 2024, a $34,033 or 12.2% decrease. This decrease was primarily due to higher legal fees related to our debt facility entered into during the first quarter of 2024.

Previous 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.

Current wording

During the three months ended March 31, 2025, we recorded a gain on settlement of $105,494 with a vendor due to an equipment failure which occurred during a workover. During the three months ended March 31, 2025, we recorded a $5,353 gain on settlement of liability due to a reconciliation of our asset retirement obligation. During the three months ended March 31, 2025, we recorded lease impairments of $27,250 on various lease and land costs in our California natural gas fields where the carrying value exceeded the fair value, compared to $56,209, recorded in the first three months of 2024. During the three months ended March 31, 2025 and 2024, we also recorded Credit Loss expenses of $13,126 and $30,958, respectively, 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.

Previous 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.

Current wording

Interest expense for the three months ended March 31, 2025, and 2024, were $97,179 and $36,242, respectively. The higher 2025 interest expense was due to the $1.4 million note payable obtained in February 2024, discussed in Note 8 and the notes payable related to the debt restructuring in October 2024, discussed in Note 9.

Previous 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.

Current wording

At March 31, 2025, we had current assets totaling $9,717,825 and current liabilities totaling $21,687,390, resulting in a $11,969,565 working capital deficit. We had $1,850,831 in cash and $6,000,000 in restricted cash at March 31, 2025, compared to $1,877,163 in cash and $6,025,000 in restricted cash at December 31, 2024.

Previous 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.

Current wording

At March 31, 2025, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $669,873 compared to $868,429 at December 31, 2024, a $198,556 or 22.9% decrease, mainly due to lower joint interest billing receivables. At March 31, 2025, revenue receivable was $439,207, a decrease of $325,446, compared to $764,653 at December 31, 2024, due to lower production volumes during the first quarter in 2025 when compared to the fourth quarter of 2024. At March 31, 2025, our accounts payable and accrued expenses totaled $6,510,879, a decrease of $455,726 from the accounts payable at December 31, 2024 of $6,966,605, which was mainly due to lower revenue payables at the end of the first quarter 2025.

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 $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.

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 $11,969,565 and an accumulated deficit of $94,186,420. These factors raise substantial doubt about our ability to continue as a going concern, and 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.

Previous 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.

Current wording

Investing Activities. Net cash provided by investing activities totaled $569,051 for the three months ended March 31, 2025, while net cash used by investing activities totaled $2,038,357 for the three months ended March 31, 2024. During the three-month period in 2025, we received $575,000 in drilling funds while our drilling and lease expenditures were approximately $6,000. During the three-month period in 2024, we received approximately $1.2 million in drilling funds while our drilling and lease expenditures were approximately $3.2 million as we participated in drilling and obtained lease interests in the Permian basin.

Previous 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.

Current wording

Financing Activities. Net cash used by financing activities totaled $2,771 for the three months ended March 31, 2025 and net cash provided by financing activities were $1,396,8877 for the three months ended March 31, 2024. The difference in cash provided, was due to receipt of $1.4 million from the note payable discussed in Note 8. During the three-month periods in 2025 and 2024, the totals were also used for principal payments on our financing lease payments.