Royale Energy, Inc.

Previous wording

For the six months ended June 30, 2025, and 2024, we incurred net losses of $1,100,721 and $880,726, respectively. The difference was primarily due to the gain on turnkey drilling recognized during the six months ended June 30, 2024, where we recognized a gain of $527,715 as we participated in the drilling and completion of two wells in the Texas Permian basin and decreased oil and gas revenues. During the three months ended June 30, 2025 and 2024, we had net losses of $418,770 and $110,616, respectively. The difference was due primarily to the $527,715 gain on turnkey drilling recognized during the second quarter of 2024.

Current wording

For the nine months ended September 30, 2025, and 2024, we incurred net losses of $1,651,014 and $2,065,017, respectively. The difference was primarily due to lower lease operating, lease impairment, and credit loss expenses recognized during the nine months ended September 30, 2025 when compared to the same period in 2024. During the three months ended September 30, 2025 and 2024, we incurred net losses of $550,293 and $1,184,291, respectively. The difference was due primarily an impairment of $337,500 recognized during the period in 2024.

Previous 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.

Current wording

During the first nine months of 2025, revenues from oil and gas production decreased $376,201 or 21.5%, to $1,372,919 during the period in 2025 from revenues of $1,749,120 during the first nine 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 nine months ended September 30, 2025, was approximately 18,592 barrels with an average price of $63.86 per barrel, versus 21,079 barrels with an average price of $74.88 per barrel for the nine months of 2024. This represents a decrease in net sales volume of 2,487 barrels or 11.8%, 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 nine months ended September 30, 2025, was approximately 84,898 Mcf with an average price of $2.15 per Mcf, versus 91,255 Mcf with an average price of $1.84 per Mcf for the same period in 2024. This represents a decrease in net sales volume of 6,357 Mcf or 7.0%. 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 September 30, 2025, revenues from oil and gas production increased $24,867 or 4.4% to $584,576 from the 2024 third quarter revenues of $559,709. This increase was due to higher oil and natural gas production volumes during the period in 2025. The net sales volume of oil and condensate for the quarter ended September 30, 2025, was approximately 8,092 barrels with an average price of $63.29 per barrel, versus 6,800 barrels with an average price of $74.25 per barrel for the third quarter of 2024. This represents an increase in net sales volume of 1,292 barrels or 19.0% for the quarter in 2025. The net sales volume of natural gas for the quarter ended September 30, 2025, was approximately 34,096 Mcf with an average price of $2.11 per Mcf, versus 30,182 Mcf with an average price of $1.79 per Mcf for the third quarter of 2024. This represents an increase in net sales volume of 3,914 Mcf or 13.0% for the quarter in 2025.

Previous 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.

Current wording

Oil and natural gas lease operating expenses decreased by $444,056 or 34.4%, to $848,469 for the nine months ended September 30, 2025, from $1,292,525 for the same period in 2024. For the third quarter of 2025, lease operating expenses decreased $151,414 or 29.6% from the same quarter in 2024. Both of these decreases were partially 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. During the nine months ended September 30, 2025, we also recorded settlement of accounts payable of $105,494 with a vendor due to an equipment failure which occurred during a workover. Additionally, during the nine months ended September 30, 2025, we recorded a settlement of accounts payable of $53,583 due to the write-off of accounts payable where vendors are not legally entitled to collect.

Previous 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.

Current wording

The aggregate of supervisory fees and other income was $74,234 for the nine months ended September 30, 2025, an increase of $29,271 from $44,963 during the same period in 2024. During the third quarter of 2025, supervisory fees and other income increased $6,548 when compared to the same 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 $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.

Current wording

Depreciation, depletion and amortization expense decreased to $198,976 from $253,726, a decrease of $54,750 or 21.6% for the nine months ended September 30, 2025, compared to the same period in 2024. This decrease in depletion expense was due to an increase in expected recoverable reserves which decreased the depletion rate. The depreciation rate is calculated using production as a percentage of reserves. During the third quarter 2025, depreciation, depletion and amortization expenses increased $26,949 or 47.7% due to an increase in our oil and gas assets during the quarter due to our purchase of additional interests in existing wells.

Previous 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.

Current wording

At September 30, 2025, Royale Energy had a Deferred Drilling Obligation of $13,982,996. During the first nine 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 December 31, 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.

Previous 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.

Current wording

General and administrative expenses increased by $37,326 or 3.1% from $1,197,677 for the nine months ended September 30, 2024 to $1,235,003 for the same period in 2025. For the third quarter 2025, general and administrative expenses increased $13,311 or 3.6% when compared to the same period in 2024. These increases were mainly due to higher employee related expenses during the periods in 2025. For the first nine months of 2025, marketing expenses decreased $41,252 or 15.3% to $228,732, compared to $269,984 for the first nine months of 2024. For the third quarter 2025, marketing expenses decreased $66,007 or 51.5% when compared to the third quarter in 2024. Marketing expense varies from period to period according to the number of marketing events attended by our personnel and their associated costs.

Previous 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.

Current wording

Legal and accounting expense decreased to $382,660 for the nine-month period in 2025, compared to $485,114 for the same period in 2024, a decrease of $102,454 or 21.1%. For the third quarter 2025, legal and accounting expenses decreased $66,002 or 46.2%. These decreases during the periods 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 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.

Current wording

During the nine months ended September 30, 2025, we recorded a $230,681 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 nine months ended September 30, 2025 and 2024, we recorded impairments of $27,250 and $400,554, respectively, on various lease and land costs in our California natural gas fields where the carrying value exceeded the fair value. During the nine months ended September 30, 2025 and 2024, we also recorded Credit Loss expenses of $111,558 and $279,491, 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 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 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.

Current wording

Interest expense for the nine months ended September 30, 2025, and 2024, was $296,200 and $207,744, 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 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.

Current wording

At September 30, 2025, we had current assets totaling $8,765,809 and current liabilities totaling $20,992,223, resulting in a $12,226,414 working capital deficit. We had $796,979 in cash and $5,476,900 in restricted cash at September 30, 2025, compared to $1,877,163 in cash and $6,025,000 in restricted cash at December 31, 2024.

Previous 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.

Current wording

At September 30, 2025, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $663,775 compared to $868,429 at December 31, 2024, a $204,654 or 23.6% decrease, mainly due to lower joint interest billing receivables. At September 30, 2025, revenue receivable was $573,638, a decrease of $191,015, 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 September 30, 2025, our accounts payable and accrued expenses totaled $5,261,628, a decrease of $1,704,977 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 third 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 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.

Current wording

We have had recurring operating and net losses and cash used in operations and the condensed consolidated financial statements reflect a working capital deficiency of $12,226,414 and an accumulated deficit of $95,155,483. 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 properties, sales of participation interests in oil and gas wells 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

Operating Activities. Net cash used in operating activities totaled $2,247,911 and $728,190 for the six months ended June 30, 2025 and 2024, respectively, a $1,519,721 or 209% difference. This difference in cash used was mainly due to a decrease in accounts payable and accrued expenses due to payments made during the period, lower revenue payables to direct working interest owners due to lower revenue receipts, and to accrued asset retirement liability settlements during the 2025 period.

Current wording

Operating Activities. Net cash used in operating activities totaled $2,675,708 and $1,381,384 for the nine months ended September 30, 2025 and 2024, respectively, a $1,294,324 or 93.7% difference. This difference in cash used was mainly due to a decrease in accounts payable and accrued expenses due to payments made during the period, lower revenue payables to direct working interest owners due to lower revenue receipts, and to accrued asset retirement liability settlements during the 2025 period.

Previous 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.

Current wording

Investing Activities. Net cash provided by investing activities totaled $555,994 and $231,089 for the nine months ended September 30, 2025 and 2024, respectively, a $324,905 or 140.6% difference. During the nine month period in 2025, we received approximately $2.5 million in drilling funds while our drilling and lease expenditures were approximately $2.0 million, mainly due to our purchase of additional interests in our existing Permian basin wells. 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 drilling and obtained lease interests in the Permian basin.

Previous 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.

Current wording

Financing Activities. Net cash provided by financing activities totaled $491,430 and $1,393,039 for the nine months ended September 30, 2025 and 2024, respectively. The difference in cash provided, was due to receipt of $500,000 during the period in 2025 and $1.4 million received in 2024 from the note payable discussed in Note 8. During the nine-month periods in 2025 and 2024, $8,570 and $6,961, respectively, were used for principal payments on our financing lease payments.