Royale Energy, Inc.

Previous wording

In addition to historical information contained herein, certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the SEC, press releases, conferences or otherwise, may be deemed to be “forward-looking statements” within the meaning of Section 21E of the Exchange Act. This information includes, without limitation, statements concerning the Company’s future financial position and results of operations, planned capital expenditures, sources and availability of financing, business strategy and other plans for future operations, the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future demand, and industry conditions. While we believe our forward-looking statements are based upon reasonable assumptions, we can give no assurance that such expectations will prove to have been correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may” and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” elsewhere in this Quarterly Report on Form 10-Q, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and those described from time to time in our future reports filed with the SEC.

Current wording

In addition to historical information contained herein, certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the SEC, press releases, conferences or otherwise, may be deemed to be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). This information includes, without limitation, statements concerning the Company’s future financial position and results of operations, planned capital expenditures, sources and availability of financing, business strategy and other plans for future operations, the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future demand, and industry conditions. While we believe our forward-looking statements are based upon reasonable assumptions, we can give no assurance that such expectations will prove to be correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may” and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” elsewhere in this Quarterly Report on Form 10-Q, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and those described from time to time in our future reports filed with the SEC.

Previous wording

Royale is an independent oil and natural gas producer. Royale’s principal lines of business are the production and sale of oil and natural gas, acquisition of oil and gas lease interests and proved reserves, drilling of both exploratory and development wells, and sales of fractional working interests in wells to be drilled by Royale. Since 1993, Royale has primarily acquired and developed producing and non-producing natural gas properties in California. In December 2018, Royale became the operator of a newly acquired oil and gas property in Texas. The most significant factors affecting our results of operations are (i) changes in oil and natural gas prices, production levels and reserves, (ii) turnkey drilling activities, and (iii) the increase in future cost associated with abandonment of wells.

Current wording

Royale is an independent oil and natural gas producer. Royale’s principal lines of business are the production and sale of oil and natural gas, acquisition of oil and gas lease interests and proved reserves, drilling of both exploratory and development wells, and sales of fractional working interests in wells to be drilled by Royale. Prior to 2019, Royale primarily acquired and developed producing and non-producing natural gas properties in California. In December 2018, Royale became the operator of an acquired oil and gas property in Texas. The most significant factors affecting our results of operations are (i) changes in oil and natural gas prices, production levels and reserves, (ii) turnkey drilling activities, and (iii) the increase in future cost associated with abandonment of wells.

Previous 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.

Current wording

During the first six months of 2025, revenues from oil and gas production decreased $401,068 or 33.7%, to $788,343 during the period in 2025 from revenues of $1,189,411 during the first six months of 2024. This decrease was mainly due to lower oil and natural gas production volumes and lower oil commodity prices. The net sales volume of oil and condensate for the six months ended June 30, 2025, was approximately 10,500 barrels with an average price of $64.29 per barrel, versus 14,280 barrels with an average price of $75.18 per barrel for the six months of 2024. This represents a decrease in net sales volume of 3,780 barrels or 26.5%, which was mainly due to wells being offline during the period in 2025 due to weather related issues in our Texas Jameson field. The net sales volume of natural gas for the six months ended June 30, 2025, was approximately 50,801 Mcf with an average price of $2.19 per Mcf, versus 61,073 Mcf with an average price of $1.87 per Mcf for the same period in 2024. This represents a decrease in net sales volume of 10,272 Mcf or 16.8%. The decrease in natural gas production volume was also due to the weather related issues in our Jameson field and to some of our California natural gas wells being offline for approximately a month due to mandatory pipeline inspections by Pacific Gas and Electric. For the quarter ended June 30, 2025, revenues from oil and gas production decreased $213,509 or 39.1% to $332,237 from the 2024 second quarter revenues of $545,746. This decrease was also due to lower oil production volumes and lower oil commodity prices. The net sales volume of oil and condensate for the quarter ended June 30, 2025, was approximately 4,812 barrels with an average price of $58.44 per barrel, versus 6,476 barrels with an average price of $79.41 per barrel for the second quarter of 2024. This represents a decrease in net sales volume of 1,664 barrels or 25.7% for the quarter in 2025. The net sales volume of natural gas for the quarter ended June 30, 2025, was approximately 28,035 Mcf with an average price of $1.78 per Mcf, versus 28,414 Mcf with an average price of $1.07 per Mcf for the second quarter of 2024. This represents a decrease in net sales volume of 379 Mcf or 1.3% for the quarter in 2025.

Previous wording

Oil and natural gas lease operating expenses decreased by $143,915 or 33.3%, to $288,839 for the three months ended March 31, 2025, from $432,754 for the same period in 2024. This decrease was due to higher workover-related costs during the first quarter of 2024 in our Texas Jameson as we attempted to increase production.

Current wording

Oil and natural gas lease operating expenses decreased by $187,148 or 24.0%, to $592,977 for the six months ended June 30, 2025, from $780,125 for the same period in 2024. For the second quarter of 2025, lease operating expenses decreased $43,233 or 12.5% from the same quarter in 2024. Both of these decreases were due to lower workover related costs and equipment repairs on our Jameson field during the period in 2025 as we attempted to increase production during the period in 2024.

Previous wording

The aggregate of supervisory fees and other income was $31,667 and $16,269 for the three months ended March 31, 2025 and 2024, respectively, an increase of $15,398 mainly due to higher interest and rental income during the first quarter of 2025.

Current wording

The aggregate of supervisory fees and other income was $52,981 for the six months ended June 30, 2025, an increase of $22,723 from $30,258 during the same period in 2024. During the second quarter of 2025, supervisory fees and other income increased $7,325 when compared to the quarter in 2024. These increases were mainly due to higher interest income on our bank balances.

Previous 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.

Current wording

Depreciation, depletion and amortization expense decreased to $115,480 from $197,179, a decrease of $81,699 or 41.4% for the six months ended June 30, 2025, as compared to the same period in 2024. During the second quarter 2025, depreciation, depletion and amortization expenses decreased $67,891 or 61.6%. The depletion rate is calculated using production as a percentage of reserves. This decrease in depletion expense was due to an increase in expected recoverable reserves which decreased the depletion rate.

Previous wording

At March 31, 2025, Royale Energy had a Deferred Drilling Obligation of $12,032,996. During the first three months of 2025, we did not participate in the drilling of any wells. At March 31, 2024, Royale Energy had a Deferred Drilling Obligation of $10,911,927. During the first 3 months of 2024, although we participated in the drilling and completion of a well in the Texas Permian basin, we did not book turnkey gains or losses as we waited for final costs to be determined.

Current wording

At June 30, 2025, Royale Energy had a Deferred Drilling Obligation of $13,282,996. During the first six months of 2025, although we participated in the drilling of a well in the Texas Permian basin, we did not book turnkey gains or losses as we waited for the well to be completed and the final costs to be determined. 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.

Previous 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.

Current wording

General and administrative expenses increased by $24,015 or 2.9% from $828,031 for the six months ended June 30, 2024 to $852,046 for the same period in 2025. For the second quarter 2025, general and administrative expenses increased $4,921 or 1.3% when compared to the same period in 2024. These increases were mainly due to higher employee related expenses due primarily to marketing bonuses paid to employees during the period in 2025. For the first six months of 2025, marketing expenses increased $24,755 or 17.5% to $166,528, compared to $141,773 for the first six months of 2024. For the second quarter 2025, marketing expenses increased $15,712 or 19.2% when compared to the second quarter in 2024. 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 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.

Current wording

Legal and accounting expense decreased to $305,712 for the six-month period in 2025, compared to $342,164 for the same period in 2024, a $36,452 or 10.7%. For the second quarter 2025, legal and accounting expenses decreased $2,419 or 3.9%. These decreases during the period in 2025 were primarily due to higher legal fees related to our debt facility entered into during the period in 2024.

Previous 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.

Current wording

During the six months ended June 30, 2025, we recorded a $220,692 gain on settlement of asset retirement obligation liability due mainly to finalizing the plugging and abandonment of three natural gas sites in California. During the six months ended June 30, 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 six months ended June 30, 2025, we recorded 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 $63,054, recorded in the first six months of 2024. During the six months ended June 30, 2025 and 2024, we also recorded Credit Loss expenses of $13,126 and $176,044, 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 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.

Current wording

Interest expense for the six months ended June 30, 2025, and 2024, was $195,112 and $99,740, respectively. The higher 2025 interest expense was due to the $1.4 million note payable entered into 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 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.

Current wording

At June 30, 2025, we had current assets totaling $9,463,845 and current liabilities totaling $21,494,800, resulting in a $12,030,955 working capital deficit. We had $1,456,696 in cash and $6,000,000 in restricted cash at June 30, 2025, compared to $1,877,163 in cash and $6,025,000 in restricted cash at December 31, 2024.

Previous 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.

Current wording

At June 30, 2025, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $685,566 compared to $868,429 at December 31, 2024, a $182,863 or 21.1% decrease, mainly due to lower joint interest billing receivables. At June 30, 2025, revenue receivable was $332,426, a decrease of $432,227, compared to $764,653 at December 31, 2024, due to lower production volumes and commodity prices during the period in 2025 when compared to the fourth quarter of 2024. At June 30, 2025, our accounts payable and accrued expenses totaled $5,066,253, a decrease of $1,900,352 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 second quarter 2025 and accounts payable payments and accrued liability settlements during the period in 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 $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.

Current wording

We have had recurring operating and net losses and cash used in operations and the consolidated financial statements reflect a working capital deficiency of $12,030,955 and an accumulated deficit of $94,605,190. 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 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 should allow the Company to meet its liquidity needs through the remainder of 2025.

Previous 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.

Current wording

Investing Activities. Net cash provided by investing activities totaled $1,808,069 for the six months ended June 30, 2025, while net cash used in investing activities totaled $561,191 for the six months ended June 30, 2024. During the six month period in 2025, we received approximately $1.8 million in drilling funds while our drilling and lease expenditures were approximately $16,900. 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 drilling and obtained lease interests in the Permian basin.

Previous 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.

Current wording

Financing Activities. Net cash used in financing activities totaled $5,625 for the six months ended June 30, 2025 and net cash provided by financing activities was $1,393,728 for the six months ended June 30, 2024. The difference in cash provided, was due to receipt of $1.4 million from the note payable discussed in Note 8. During the six-month periods in 2025 and 2024, the totals were also used for principal payments on our financing lease payments.