What changed in this filing

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Item 1. Financial Statements

2024-05-15 compared with 2023-11-13 · 143 added, 160 removed, 335 unchanged (47% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

March 31, 2024

December 31, 2023

Current Assets

5 unchanged sentences

Deferred Drilling Costs

Prepaid Drilling to RMX Resources, LLC

Total Current Assets

Right of Use Assets - Leases

Oil and Gas Properties, (Successful Efforts Basis),

Equipment and Fixtures, net

Oil and Gas Properties (Successful Efforts Basis), Equipment and Fixtures, net

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

March 31, 2024

December 31, 2023

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

11 unchanged sentences

Accrued Unpaid Guaranteed Payments

Notes Payable

Operating Leases - Long-Term

2 unchanged sentences

Mezzanine Equity:

Convertible Preferred Stock, Series B, $ 10 par value, 3,000,000 Shares Authorized,

2,423,505 , and 2,361,154 shares issued and outstanding at September 30, 2023 and

December 31, 2022, respectively

Convertible Preferred Stock, Series B, $ 10 par value, 3.5 % annual dividend, 2,466,455 and 2,444,885 shares issued and outstanding as of March 31, 2024 and December 31, 2023 respectively.

Stockholders' Equity (Deficit):

Common Stock, .001 Par Value, 280,000,000 Shares Authorized, 67,684,188 and

61,876,957 shares issued and outstanding at September 30, 2023 and

December 31, 2022, respectively

Common Stock, .001 Par Value, 280,000,000 Shares Authorized, 71,863,829 and 70,564,188 shares issued and outstanding as of March 31, 2024 and December 31, 2023.

Additional Paid in Capital

6 unchanged sentences

For the three

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

For the three

March 31, 2024

March 31, 2023

Oil, NGL and Gas Sales

4 unchanged sentences

Depreciation, Depletion and Amortization

Bad Debt Expense

Well Equipment Write Down

2 unchanged sentences

Total Costs and Expenses

Gain (Loss) on Turnkey Drilling

Loss From Operations

Gain on Turnkey Drilling

Gain (Loss) From Operations

Other Income (Expense):

Interest Expense

Gain on Settlement of Accounts Payable

Loss Before Income Taxes

Gain on Other

Total Other Income (Expense)

Income (Loss) Before Income Tax Expense

Income Tax Provision

Net Income (Loss)

Preferred Stock Dividend

Preferred Stock Dividend in Arrears

Net Loss available to common stock

Shares used in computing Basic Net Loss per share

Basic and Diluted Loss Per Share

Shares used in computing Diluted Net Loss per share

Diluted Net Loss per Share

Net Income (Loss) available to common stock

Shares used in computing Basic Net Income/Loss per share

Basic Income (Loss) per share

Shares used in computing Diluted Net Income (Loss) per share

Diluted Income (Loss) per share

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

For the Nine Months Ended

September 30, 2023

September 30, 2022

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

For the Three Months Ended

March 31, 2024

March 31, 2023

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to Reconcile Net Loss to Net

Cash Used in Operating Activities:

Net Income (Loss)

Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities:

Depreciation, Depletion and Amortization

Gain on Turnkey Drilling Programs

(Gain) Loss on Settlement of Accounts Payable

Bad Debt Expense

Gain on Other

Well Equipment Write Down

Stock-Based Compensation

Gain on Other

Right of use asset depreciation

(Increase) Decrease in:

Changes in assets and liabilities:

Other & Revenue Receivables

Prepaid Expenses and Other Assets

Increase (Decrease) in:

Accounts Payable and Accrued Expenses

Royalties Payable

Net Cash Used in Operating Activities

Net Cash used in in Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Proceeds from Turnkey Drilling Programs

Net Cash Provided by Investing Activities

Net Cash Provided by (used in) Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Long Term Debt

Principal Payments on Long-Term Debt

Net Cash Used by Financing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

Net Cash Provided by (used in) Financing Activities

Net Change in Cash and Cash Equivalents

Cash, Cash Equivalents, and Restricted Cash at Beginning of Period

Cash, Cash Equivalents, and Restricted Cash at End of Period

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

Cash Paid for Interest

Cash Paid for Taxes

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING & FINANCING TRANSACTIONS:

Accounts Payable for Oil and Gas Properties

Increase in Capital Accrued Balance

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING & FINANCING ACTIVITIES:

Series B Paid-In-Kind Dividends

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Number of Shares

Issued and Outstanding

Paid in Capital

Comprehensive Deficit

Stockholders' Deficit

Common Shares

1 unchanged sentence

December 31, 2022 Balance

Stock Issued in lieu of Compensation

Preferred Series B 3.5 % Dividend

September 30, 2022 Balance

March 31, 2023 Balance

Common Shares

1 unchanged sentence

December 31, 2023 Balance

Cashless Warrant Exercise Issuance

Stock Issued in lieu of Compensation

Preferred Series B 3.5 % Dividend

September 30, 2023 Balance

Common Shares

Common Amount

June 30, 2022 Balance

Stock Issued in lieu of Compensation

Preferred Series B 3.5% Dividend

September 30, 2022 Balance

Common Shares

Common Amount

June 30, 2023 Balance

Preferred Series B 3.5% Dividend

September 30, 2023 Balance

March 31, 2024 Balance

See notes to unaudited condensed consolidated financial statements.

11 unchanged sentences

Significant intercompany transactions have been eliminated in the consolidation.

In our opinion, all adjustments considered necessary for a fair presentation have been included, disclosures are adequate, and the presented information is not misleading.

In our opinion, all adjustments considered necessary for a fair presentation have been included.

The consolidated balance sheet as of December 31, 2023 was derived from the audited financial statements at that date.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as filed with the SEC.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023, or for any other period.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2024, or for any other period.

Liquidity and Going Concern

1 unchanged sentence

There are factors that give rise to substantial doubt about our ability to meet liquidity demands, and we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, the sale of oil and natural gas property participation interests through our normal course of business and the sale of non-strategic assets.

At September 30, 2023, our consolidated financial statements reflect a working capital deficiency of $ 7,482,591 .

We had net losses of $ 470,730 and $ 503,761 for the three and nine months ended September 30, 2023, respectively.

This indicates that there is substantial doubt about our ability to continue as a going concern.

At March 31, 2024, our consolidated financial statements reflect a working capital deficiency of $ 9,407,630 , and an accumulated deficit of $ 91,308,620 .

We had a net loss of $ 770,110 for the three months ended March 31, 2024.

These factors indicate that there is substantial doubt about our ability to continue as a going concern.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

12 unchanged sentences

For the three months ended

September 30,

For the nine months ended

September 30,

Oil & Condensate Sales

37 unchanged sentences

A portion of the funds received in advance of the drilling of a well from a working interest participant are held for the expressed purpose of drilling a well (“Drilling Funds”).

If something changes, we may designate the Drilling Funds a substitute well.

If something changes, we may designate the Drilling Funds to drill a substitute well.

Under certain conditions, a portion of the Drilling Funds may be required to be returned to a participant.

1 unchanged sentence

We manage these Turnkey Agreements for the participants of the well.

We segregate the collections of pre-drilling AFE amounts and the gains and losses on the Turnkey Agreements are recorded in income or expense at the time of the casing point election in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 932-323-25 and 932-360.

We manage the performance obligation for the well participants and only records revenue or expense at the time the performance obligation of the Turnkey Agreement has been satisfied.

We segregate the collections of pre-drilling Authorization for Expenditure (“AFE”) amounts and the gains and losses on the Turnkey Agreements are recorded in income or expense at the time of the casing point election in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 932-323-25 and 932-360.

We manage the performance obligation for the well participants and only record revenue or expense at the time the performance obligation of the Turnkey Agreement has been satisfied.

Restricted Cash

3 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

September 30,

March 31, 2024

December 31, 2023

Cash and Cash Equivalents

13 unchanged sentences

All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged off accounts are added to the allowance.

At September 30, 2023, and December 31, 2022, we maintained an allowance for uncollectable accounts of $ 2,746,925 and $ 2,757,549 , respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

At March 31, 2024, and December 31, 2023, we maintained an allowance for uncollectable accounts of $ 1,809,485 and $ 1,837,551 , respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Fair Value Measurements

11 unchanged sentences

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

At September 30, 2023 and December 31, 2022, we do not have any financial assets measured and recognized at fair value on a recurring basis.

At March 31, 2024 and December 31, 2023, we do not have any financial assets measured and recognized at fair value on a recurring basis.

We estimate asset retirement obligations (“ARO’s”) pursuant to the provisions of ASC 410, “ Asset Retirement and Environmental Obligations ”.

10 unchanged sentences

The Board of Directors authorized the issuance of the Preferred Stock, for the settlement of dividends accumulated through December 31, 2023.

We accrued $ 213,807 and $ 206,485 for dividends related to the Preferred Stock for the third quarters of 2023 and 2022, respectively.

We accrued $ 215,221 and $ 205,556 for dividends related to the Preferred Stock for the first quarters of 2024 and 2023, respectively.

Each quarter, we charge retained earnings for the accumulating dividend as the amounts add to the liquidation preference of the Preferred Stock.

2 unchanged sentences

Recently Adopted

ASU 2016-13, Credit Impairment

In 2016, the FASB issued ASC Topic 326, Financial Instruments – Credit Losses.

This new guidance replaces the current incurred loss impairment model with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.

This new Current Expected Credit Losses (“CECL”) model applies to (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and financial assets measured at fair value, and (4) beneficial interests in securitized financial assets.

This ASU was effective for Securities and Exchange Commission (“SEC”) filers beginning after December 15, 2019;

however, on November 15, 2019, the FASB issued ASU 2019-10, which delayed the effective date for “smaller reporting companies.” Therefore, ASU 2016-13 is effective for “smaller reporting companies” (as defined by the SEC) such as Royale, for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under the modified retrospective method.

We adopted this new standard on January 1, 2023, and there is no material impact on our consolidated financial statements.

For further information regarding our adoption of this standard, see Note 7 - ALLOWANCE FOR CREDIT LOSSES below.

NOTE 2 – OIL AND GAS PROPERTY AND EQUIPMENT AND FIXTURES

Oil and gas properties, equipment and fixtures consist of the following:

September 30,

Producing properties, including drilling costs

2 unchanged sentences

Accumulated depletion, depreciation & amortization

Net capitalized costs Total Oil & Gas

Equipment and fixtures

Net capitalized costs Total

Commercial and Other

Furniture and equipment

Accumulated depreciation

Net capitalized costs Total Equipment and Fixtures

Net capitalized costs Total

31 unchanged sentences

Impairments are measured by the amount the carrying value exceeds fair value.

During the nine months ended September 30, 2023, and 2022, no impairment losses were incurred.

During the three months ended March 31, 2024, we incurred an impairment loss of $ 56,209 .

No impairment losses were incurred during the three months ended March 31, 2023.

Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that Royale Energy expects to hold the properties.

15 unchanged sentences

A certain portion of the turnkey drilling participant’s funds received are non-refundable.

We hold all funds invested as Deferred Drilling Obligations until drilling is complete.

We record all funds invested as Deferred Drilling Obligations until drilling is complete.

Occasionally, drilling is delayed for various reasons such as weather, permitting, drilling rig availability and/or contractual obligations.

At September 30, 2023, and December 31, 2022, we had Deferred Drilling Obligations of $ 10,140,855 and $ 8,129,965 , respectively.

At March 31, 2024, and December 31, 2023, we had Deferred Drilling Obligations of $ 10,911,927 and $ 9,761,927 , respectively.

If we are unable to drill the wells, and a suitable replacement well is not found, we would retain the non-refundable portion of the contract and return the remaining funds to the participant.

Included in Restricted Cash are amounts for use in completion of turnkey drilling programs in progress.

Included in Restricted Cash are amounts for use in completion of turnkey drilling in progress.

Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.

2 unchanged sentences

The Preferred Stock has never been registered under the Securities Exchange Act of 1934, as amended, (“Exchange Act”) and no market exists for the Preferred Stock.

Additionally, the Preferred Stock will automatically convert into shares of common stock at any time in which the Volume Weighted Average Price (“VWAP”) of our common stock exceeds $3.50 per share for 20 consecutive trading days, the shares of our common stock are registered with the SEC and the trading volume of shares of our common stock exceed 200,000 shares per day.

Additionally, the Preferred Stock will automatically convert into shares of common stock at any time in which the Volume Weighted Average Price (“VWAP”) of our common stock exceeds $3.50 per share for 20 consecutive trading days, the shares of our common stock are registered under the Securities Exchange Act of 1934, as amended, and the trading volume of shares of our common stock exceed 200,000 shares per day.

Beginning in 2020, the holders of the Preferred Stock became entitled to vote the number of shares of our common stock into which the shares of Preferred Stock would be entitled to convert.

1 unchanged sentence

For 2023 and 2022, the board authorized the payment of each quarterly dividend on shares of Preferred Stock, as Paid-In-Kind shares to be paid immediately following the end of the quarter.

For the quarter ending September 30, 2023, we accrued 21,380 shares with a value of $ 213,807 .

For the quarter ending March 31, 2024, we accrued a value of $ 215,221 .

During 2023 and 2022 no cash was used to pay dividends on shares of the Preferred Stock.

NOTE 4 – LOSS PER SHARE

NOTE 4 – INCOME (LOSS) PER SHARE

Basic and diluted loss per share are calculated as follows:

Three Months Ended September 30,

Preferred Stock Dividend

Net Loss Attributable to Common Shareholders

Weighted average common shares outstanding

Effect of dilutive securities

Weighted average common shares, including Dilutive effect

Nine Months Ended September 30,

Three Months Ended

March 31, 2024

March 31, 2023

Net Income (Loss)

Preferred Stock Dividend

Net Loss Attributable to Common Shareholders

Preferred Stock Dividend In Arrears

Net Income (Loss) Attributable to Common Shareholders

Weighted average common shares outstanding

1 unchanged sentence

Weighted average common shares, including Dilutive effect

For the nine months ended September 30, 2023 and 2022, we had dilutive securities of 24,235,050 and 26,867,129 , respectively.

For the three months ended September 30, 2023 and 2022, we had dilutive securities of 24,235,050 and 26,827,162 , respectively.

In both periods, these securities were not included in the dilutive loss per share, due to their antidilutive nature.

Per share basic and fully diluted:

Basic Income (Loss) per share

Fully diluted Income (Loss) per share

For the three months ended March 31, 2024 and 2023, we had dilutive securities of 24,664,550 and 27,113,307 , respectively.

During the period in 2024, these securities were not included in the dilutive loss per share, due to their antidilutive nature.

NOTE 5 – INCOME TAXES

7 unchanged sentences

CIC elected to make a cashless exercise of the warrant and as a result we issued 3,266,055 shares of our common stock to CIC.

During the nine months ended September 30, 2023, in lieu of cash payments for board fees, we issued 2,541,176 shares of common stock valued at approximately $ 108,001 to board members.

During the nine months ended September 30, 2022, in lieu of cash payments for salaries and board fees, we issued 5,637,242 shares of common stock valued at approximately $ 395,006 to an executive officer and board members.

During the three months ended March 31, 2024, in lieu of cash payments for board fees, we issued 1,299,641 shares of common stock valued at approximately $ 36,000 to board members.

During the three months ended March 31, 2023, no common stock was issued in lieu of cash payments for salaries and board fees.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

4 unchanged sentences

Write-offs charged against the allowance

Balance at September 30, 2023

Balance at March 31, 2023

Balance at December 31, 2023

Provision for credit loss

Write-offs charged against the allowance

Balance at March 31, 2024

NOTE 8 – RELATED PARTY NOTES PAYABLE

On February 7, 2024 the board of directors approved a debt facility of up to $ 3 million.

On February 9, 2024, Royale Energy, Inc.

entered into a Secured Term Loan Note with Walou Investments, LP, a Texas limited partnership, which is under the direct and indirect control of Johnny Jordan, the Company’s Chief Executive Officer and a member of the Company’s Board of Directors.

In addition, Mr.

Jordan is the beneficial owner of approximately 14.8 % of the Company’s issued and outstanding common stock.

The initial loan to the Company was $ 1,400,000 which was received on February 9, 2024.

The outstanding principal balance of the loan has an interest rate of 18.0 %.

The Company began making monthly interest payments on March 1, 2024, and will continue until the maturity date, August 1, 2025, when the unpaid principal balance becomes due.

The loan is secured by a deed of trust, which was recorded in Ector County, Texas and covers, among other things, certain oil and gas assets in Ector County, Texas.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

13 unchanged sentences

RESULTS OF OPERATIONS

For the nine months ended September 30, 2023 and 2022, we had net losses of $503,761 and $739,184, respectively.

The decrease in net losses were primarily due to the completion of one oil well in Texas and participating in the drilling and completion of an oil well in the Texas Permian basin where we recognized a gain on turnkey drilling of $1,338,305 for the nine months ended September 30, 2023 compared to $627,136 for the nine months ended September 30, 2022.

During the three months ended September 30, 2023 and 2022, we had net losses of $470,730 and $426,331, respectively.

The difference was primarily due to lower oil and gas revenues due to lower oil and gas commodity prices during the third quarter 2023.

During the first nine months of 2023, revenues from oil and gas production decreased $281,431 or 16.3%, to $1,447,698 in 2023 from revenues of $1,729,129 during the first nine months of 2022.

This decrease was mainly due to lower oil and natural gas commodity prices.

The net sales volume of oil and condensate for the nine months ended September 30, 2023, was approximately 14,851 barrels with an average price of $73.20 per barrel, versus 11,330 barrels with an average price of $98.69 per barrel for the nine months of 2022.

This represents an increase in net sales volume of 3,521 barrels or 31.1%, which was due to wells completed and put online during the latter half of 2022 and first half of 2023.

The net sales volume of natural gas for the nine months ended September 30, 2023, was approximately 101,324 Mcf with an average price of $3.51 per Mcf, versus 99,830 Mcf with an average price of $6.04 per Mcf for the same period in 2022.

For the three months ended March 31, 2024, and 2023, we had a net loss of $770,110 and net income of $1,002,344, respectively.

The difference was primarily due to the gain on turnkey drilling recognized during the three months ended March 31, 2023, where we recognized a gain of $1,594,354 upon the completion of one oil well in Texas and participating in the drilling and completion of an oil well in the Texas Permian basin.

During the first three months of 2024, revenues from oil and gas production increased $85,214 or 15.3%, to $643,665 from revenues of $558,451 during the first three months of 2023.

This increase was mainly due to higher oil and gas production volumes during the quarter in 2024.

The net sales volume of oil and condensate for the three months ended March 31, 2024, was approximately 7,804 barrels with an average price of $71.68 per barrel, versus 4,761 barrels with an average price of $73.03 per barrel for the first three months of 2023.

This represents an increase in net sales volume of 3,043 barrels or 63.9%, which was due to higher production volumes due to drilling efforts during 2023.

The net sales volume of natural gas for the three months ended March 31, 2024, was approximately 32,659 Mcf with an average price of $2.56 per Mcf, versus 30,119 Mcf with an average price of $6.94 per Mcf for the same period in 2023.

This represents an increase in net sales volume of 2,540 Mcf or 8.4%.

The increase in natural gas production volume was also due to new wells being brought online.

For the quarter ended September 30, 2023, revenues from oil and gas production decreased $83,556 or 15.4% to $458,954 from the 2022 third quarter revenues of $542,510.

This decrease was also due to lower oil and natural gas commodity prices.

The net sales volume of oil and condensate for the quarter ended September 30, 2023, was approximately 4,987 barrels with an average price of $76.19 per barrel, versus 3,143 barrels with an average price of $96.37 per barrel for the third quarter of 2022.

This represents an increase in net sales volume of 1,844 barrels or 58.7% for the third quarter in 2023.

The net sales volume of natural gas for the quarter ended September 30, 2023, was approximately 33,242 Mcf with an average price of $2.32 per Mcf, versus 34,522 Mcf with an average price of $6.86 per Mcf for the third quarter of 2022.

This represents a decrease in net sales volume of 1,280 Mcf or 3.7% for the third quarter in 2023.

Oil and natural gas lease operating expenses increased by $240,811 or 19.6%, to $1,469,988 for the nine months ended September 30, 2023, from $1,229,177 for the same period in 2022.

This increase was mainly due to higher well equipment and supplies costs in order to increase production primarily on our Texas Jameson wells.

For the third quarter in 2023, lease operating expenses decreased $48,306 or 11.6% from the same quarter in 2022, mainly due to lower workover costs in our Texas Jameson field during the third quarter in 2023.

The aggregate of supervisory fees and other income was $171,577 for the nine months ended September 30, 2023, an increase of $147,228 from $24,349 during the same period in 2022.

During the third quarter 2023, supervisory fees and other income increased $52,303 when compared to the quarter in 2022.

These increases were mainly due to increases in water disposal recovery income as we converted an existing non-producing oil well into a water injection well in order to reduce water disposal hauling costs paid to outside vendors.

Depreciation, depletion and amortization expense decreased to $231,224 from $301,235, a decrease of $70,011 or 23.2% for the nine months ended September 30, 2023, as compared to the same period in 2022.

During the third quarter 2023, depreciation, depletion and amortization expenses increased $290 or 0.5%.

The increase in natural gas production volume was also due to wells that were drilled and began production in 2023.

Oil and natural gas lease operating expenses decreased by $143,043 or 24.8%, to $432,754 for the three months ended March 31, 2024, from $575,797 for the same period in 2023.

This decrease was due to the receipt of water disposal recovery fees of $52,090 received during the quarter in 2024 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.

The aggregate of supervisory fees and other income was $16,269 and $13,374 for the three months ended March 31, 2024 and 2023, respectively, an increase of $2,895 mainly due to higher interest income during the period in 2024.

Depreciation, depletion and amortization expense increased to $87,026 from $59,432, an increase of $27,594 or 46.4% for the three months ended March 31, 2024, as compared to the same period in 2023.

The depletion rate is calculated using production as a percentage of reserves.

The decrease in depletion expense was due to an increase in expected recoverable reserves which decreased the depletion rate.

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.

At September 30, 2022, Royale Energy had a Deferred Drilling Obligation of $10,084,011.

During the first nine months of 2022, we disposed of $3,185,928 of drilling obligations upon completing one oil well in Texas and participated in the drilling and completion of two oil wells in southern California, while incurring expenses of $2,558,792, resulting in a gain of $627,136.

General and administrative expenses decreased by $118,740 or 8.6% from $1,381,282 for the nine months ended September 30, 2022 to $1,262,542 for the same period in 2023.

This decrease was mainly due to lower employee related expenses due to cost reduction measures during the period in 2023.

For the third quarter 2023, general and administrative expenses increased $26,908 or 7.5% when compared to the same period in 2022, mainly due to higher employee related insurance expenses and outside services during the quarter in 2023.

For the first nine months of 2023, marketing expenses increased $46,242 or 25.1% to $230,282, compared to $184,040 for the first nine months of 2022.

For the third quarter 2023, marketing expenses increased $33,670 or 67.7% when compared to the third quarter in 2022.

Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs.

Legal and accounting expense decreased to $368,810 for the nine-month period in 2023, compared to $440,130 for the same period in 2022, a $71,320 or 16.2% decrease.

This decrease during the period in 2023 was primarily due to higher fees related to the conversion of our accounting software during the period in 2022.

For the third quarter 2023, legal and accounting expenses increased $1,947 or 2.1%, when compared to the third quarter in 2022.

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 prior years property tax refunds received by RMX Resources, LLC during the period in 2023.

During the nine months ended September 30, 2022, we recorded a gain of $422,614 on settlement of accounts payable for a reduced amount.

The increase in depletion expense was due to a decrease in expected recoverable reserves which increased the depletion rate.

At March 31, 2024, Royale Energy had a Deferred Drilling Obligation of $10,911,927.

During the first three 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 come through.

At March 31, 2023, Royale Energy had a Deferred Drilling Obligation of $6,840,855.

During the first three 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 another oil well in the Permian Basin in Texas, while incurring expenses of $967,256, resulting in a gain of $1,594,354.

General and administrative expenses decreased by $9,157 or 2.0% from $456,481 for the three months ended March 31, 2023, to $447,324 for the same period in 2024.

For the first three months of 2024, marketing expenses decreased $28,827 or 32.5% to $59,992, compared to $88,819 for the first three months of 2023.

Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated exhibition and travel costs.

Legal and accounting expense increased to $279,539 for the three-month period in 2024, compared to $27,892 for the same period in 2023, a $251,647 or 902% increase.

This increase was primarily due to the audit fees completed and expensed in the first quarter in 2024, but in 2023 was recognized during the 2nd quarter of 2023 when the audit was performed.

During the three months ended March 31, 2024, we recorded lease impairments of $56,209 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 three months of 2023.

During the period in 2024, we also recorded Bad Debts expense of $30,958 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 three months ended March 31, 2023, we recorded a Gain on Other of $54,975 as we reconciled employee related items previously recorded as liabilities.

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.

Interest expense for the three months ended March 31, 2024, and 2023, were $36,242 and $549, respectively.

The higher 2024 interest expense was due to the $1.4 million note payable obtained in February 2024, discussed in Note 8.

CAPITAL RESOURCES AND LIQUIDITY

At September 30, 2023, we had current assets totaling $9,970,189 and current liabilities totaling $17,452,780, a $7,482,591 working capital deficit.

We had $523,619 in cash and $3,169,999 in restricted cash at September 30, 2023, compared to $1,650,507 in cash and $2,249,627 in restricted cash at December 31, 2022.

At March 31, 2024, we had current assets totaling $9,150,930 and current liabilities totaling $18,558,560, a $9,407,630 working capital deficit.

We had $1,898,987 in cash and $2,407,800 in restricted cash at March 31, 2024, compared to $2,202,521 in cash and $3,325,000 in restricted cash at December 31, 2023.

In accordance with ASC 480-10-S99, we reclassified the Series B Convertible Preferred Stock from Permanent Equity to Mezzanine capital as a result of the change in voting rights provided at the time of issuance.

For more information, see Note 3 – Series B Convertible Preferred Stock.

At September 30, 2023, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $1,029,774 compared to $943,633 at December 31, 2022, a $86,141 increase.

This increase was mainly due to accounts receivables from direct working interest owners for lease operating expenses to increase production volumes on our Texas Jameson wells.

At September 30, 2023, revenue receivable was $273,356, a decrease of $428,581, compared to $701,937 at December 31, 2022, due to lower commodity prices during the third quarter in 2023.

At September 30, 2023, our accounts payable and accrued expenses totaled $5,702,296 a decrease of $173,467 from the accounts payable at December 31, 2022 of $5,528,829, which was mainly due to lower revenue payables due to the lower commodity prices during the period in 2023.

At March 31, 2024, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $1,021,854 compared to $1,036,401 at December 31, 2023, a $14,547 or 1.4% decrease.

At March 31, 2024, revenue receivable was $547,006, a decrease of $331,372, compared to $878,378 at December 31, 2023, due to commodity prices during the first quarter in 2024.

At March 31, 2024, our accounts payable and accrued expenses totaled $6,038,704 an increase of $556,630 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 quarter 2024.

We have had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $9,407,630 and an accumulated deficit of $91,308,620.

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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.

We are also looking for possible ways to increase production on some of our California natural gas wells.

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.

Operating Activities.

Net cash used in operating activities totaled $198,937 and $1,331,314 for the nine months ended September 30, 2023 and 2022, respectively.

This difference in cash used was mainly due to lower revenue receivables, due to lower commodity prices in 2023, and lower accounts payable during the period in 2023 when compared to higher revenue receivables and accounts payables during the period in 2022.

Net cash used by operating activities totaled $579,264 and $895,002 for the three months ended March 31, 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.

Investing Activities.

Net cash provided by investing activities totaled $1,337 and $1,598,227 for the nine months ended September 30, 2023, and 2022, respectively.

During the nine-month period in 2023, we received approximately $4.6 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $4.6 million as we drilled and completed one Texas well and participated in the drilling and completing of another Texas well in the Permian basin.

Additionally, we are participating in the drilling of in progress wells, one in Southern California and three in the Permian basin.

During the nine-month period in 2022, we received approximately $5.4 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $3.8 million as we drilled and completed one Texas well and participated in the drilling and completing of two southern California oil wells.

Net cash used by investing activities totaled $2,038,357 for the three months ended March 31, 2024, while Net cash provided by investing activities totaled $654,249 for the three months ended March 31, 2023.

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 continue to participate in drilling and obtain lease interests in the Permian basin.

During the three-month period in 2023, we received approximately $1.3 million in Drilling Funds while our drilling expenditures were $618,251 as we drilled and completed one Texas oil well and participated in the drilling and completion of a Texas Permian basin oil well.

Financing Activities.

Net cash used in financing activities totaled $8,916 and $99,173 for the nine months ended September 30, 2023, and 2022, respectively.

During the periods in 2023 and 2022, the totals were used for principal payments on our notes payable and financing lease payments.

Net cash provided by financing activities totaled $1,396,877 for the three months ended March 31, 2024.

Net cash used in financing activities totaled $2,926 for the three months ended March 31, 2023.

The difference in cash was due to receipt of $1.4 million from the note payable discussed in Note 8.

During the three-month periods in 2024 and 2023, the totals were also used for principal payments on our financing lease payments.

Critical Accounting Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements