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Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 186 added, 129 removed, 349 unchanged (47% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2024

June 30, 2024

December 31, 2023

8 unchanged sentences

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

March 31, 2024

June 30, 2024

December 31, 2023

12 unchanged sentences

Accrued Unpaid Guaranteed Payments

Notes Payable

Note Payable to Related Parties

Operating Leases - Long-Term

2 unchanged sentences

Mezzanine Equity:

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.

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 June 30, 2024 and December 31, 2023 respectively.

Stockholders' Equity (Deficit):

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.

Common Stock, .001 Par Value, 280,000,000 Shares Authorized, 71,863,829 and 70,564,188 shares issued and outstanding as of June 30, 2024 and December 31, 2023.

Additional Paid in Capital

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the three

March 31, 2024

March 31, 2023

For the three months ended

For the six months ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Oil, NGL and Gas Sales

4 unchanged sentences

Depreciation, Depletion and Amortization

Bad Debt Expense

Well Equipment Write Down

Lease Impairment

Legal and Accounting

Bad Debt Expense

General and Administrative

Total Costs and Expenses

Gain on Turnkey Drilling

Gain (Loss) From Operations

Gain (Loss) on Turnkey Drilling

Loss From Operations

Other Income (Expense):

Interest Expense

Gain on Other

Total Other Income (Expense)

Income (Loss) Before Income Tax Expense

Income Tax Provision

Net Income (Loss)

Loss Before Income Tax Expense

Preferred Stock Dividend

Preferred Stock Dividend in Arrears

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

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 Income (Loss) per Share

See notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

For the Three Months Ended

March 31, 2024

March 31, 2023

FOR THE SIX MONTHS ENDED JUNE 30, 2024, AND 2023

For the Six Months Ended

June 30, 2024

June 30, 2023

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income (Loss)

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

Adjustments to Reconcile Net Loss to Net

Cash Used in Operating Activities:

Depreciation, Depletion and Amortization

Gain on Turnkey Drilling Programs

Lease Impairment

Bad Debt Expense

Gain on Other

Well Equipment Write Down

Stock Based Compensation

Gain on Other

Right of use asset depreciation

Changes in assets and liabilities:

(Increase) Decrease in:

Other & Revenue Receivables

Prepaid Expenses and Other Assets

Prepaid Expenses

Increase (Decrease) in:

Accounts Payable and Accrued Expenses

Net Cash used in in Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Expenditures for Oil and Gas Properties and Other Capital Expenditures

Royalties Payable

Net Cash Used in Operating Activities

CASH FLOWS USED IN INVESTING ACTIVITIES

Expenditures for Oil and Gas Properties and Other

Capital Expenditures

Proceeds from Turnkey Drilling Programs

Net Cash Provided by (used in) Investing Activities

Net Cash Used by Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Long Term Debt

Proceeds from Note Payable to Related Party

Principal Payments on Long-Term Debt

Net Cash Provided by (used in) Financing Activities

Net Change in Cash and Cash Equivalents

Net Increase (decrease) 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

3 unchanged sentences

Increase in Capital Accrued Balance

SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING & FINANCING ACTIVITIES:

Series B Paid-In-Kind Dividends

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Number of Shares

Issued and Outstanding

Paid in Capital

Comprehensive Deficit

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Number of Shares Issued and Outstanding

Additional Paid in Capital

Accumulated Comprehensive Deficit

Stockholders' Deficit

2 unchanged sentences

December 31, 2022 Balance

Cashless Warrant Exercise Issuance

Stock Issued in lieu of Compensation

Preferred Series B 3.5 % Dividend

March 31, 2023 Balance

June 30, 2023 Balance

Common Shares

3 unchanged sentences

Preferred Series B 3.5 % Dividend

June 30, 2024 Balance

Number of Shares Issued and Outstanding

Additional Paid in Capital

Accumulated Comprehensive Deficit

Stockholders' Deficit

Common Shares

Common Amount

March 31, 2023 Balance

Cashless Warrant Exercise Issuance

Stock Issued in lieu of Compensation

Preferred Series B 3.5 % Dividend

June 30, 2023 Balance

Common Shares

Common Amount

March 31, 2024 Balance

Preferred Series B 3.5 % Dividend

June 30, 2024 Balance

See notes to unaudited condensed consolidated financial statements.

14 unchanged sentences

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 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.

Operating results for the six months ended June 30, 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

The primary sources of liquidity have historically been issuances of common stock, oil and gas sales through ongoing operations and the sale of oil and gas properties.

The Company’s primary sources of liquidity have historically been issuances of common stock, oil and gas sales through ongoing operations and the sale of oil and gas properties.

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 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.

At June 30, 2024, our consolidated financial statements reflect a working capital deficiency of $ 9,415,089 , and an accumulated deficit of $ 91,636,335 .

We had a net loss of $ 880,726 for the six months ended June 30, 2024.

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

4 unchanged sentences

There can be no assurance that such a plan will be successful.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying financial statements to maintain consistency between periods presented.

The reclassifications had no impact on previously reported equity.

Use of Estimates

The accompanying financial statements have been prepared in conformity GAAP and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The accompanying financial statements have been prepared in conformity with GAAP and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the estimate of Company oil and gas reserves prepared by an independent engineering consultant.

Material estimates that are particularly susceptible to significant change relate to the estimate of the Company’s oil and gas reserves prepared by an independent engineering consultant.

Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proven reserves.

2 unchanged sentences

A significant portion of our revenues are derived from the sale of crude oil, condensate, natural gas liquids (“NGLs”) and natural gas under spot and term agreements with our customers as follows:

For the three months ended

For the three months ended June 30,

For the six months ended June 30,

Oil & Condensate Sales

12 unchanged sentences

We often serve as the operator for jointly owned oil and gas properties.

As part of this role, we perform activities to explore, develop and produce oil and gas properties in accordance with the joint operating arrangement and collective decisions of the joint parties.

As part of this role, we perform activities to explore, develop and produce oil and gas properties in accordance with the applicable joint operating arrangement and collective decisions of the joint parties.

Other working interest owners reimburse us for costs incurred based on our agreements.

29 unchanged sentences

Restricted Cash

Prior to commencement of drilling, we classify Drilling Funds as restricted cash based on guidance codified as under ASC 230-10-50-8.

In the event that progress payments are made from these funds;

they are recorded as Prepaid Expenses and Other Current Assets.

Prior to commencement of drilling, we classify Drilling Funds as restricted cash based on guidance codified under ASC 230-10-50-8.

In the event that progress payments are made from these funds, they are recorded as Prepaid Expenses and Other Current Assets.

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.

March 31, 2024

June 30, 2024

December 31, 2023

6 unchanged sentences

Equity method investments are included as noncurrent assets on the consolidated balance sheet.

Currently, the Company has no equity investments.

Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred as called for under ASC 323.

6 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 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.

At June 30, 2024, and December 31, 2023, we maintained an allowance for uncollectable accounts of $ 1,945,518 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

According to Fair Value Measurements and Disclosures Topic of the FASB ASC, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in periods subsequent to initial recognition, the reporting entity shall disclose information that enable users of its financial statements to assess the inputs used to develop those measurements and for recurring fair value measurements using significant unobservable inputs, the effect of the measurements on earnings for the period.

According to the Fair Value Measurements and Disclosures Topic of the FASB ASC, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in periods subsequent to initial recognition, the reporting entity shall disclose information that enables users of its financial statements to assess the inputs used to develop those measurements and for recurring fair value measurements using significant unobservable inputs and the effect of the measurements on earnings for the period.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

9 unchanged sentences

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

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 ”.

The estimates of the fair value the AROs are based on discounted cash flow projections using numerous estimates, assumptions, and judgements regarding such factors as the existence of a legal obligation for an ARO, amounts and timing of settlements, the credit-adjusted risk-free rate to be used and inflation rates.

At June 30, 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 (AROs) pursuant to the provisions of ASC 410, “ Asset Retirement and Environmental Obligations ”.

The estimates of the fair value the ARO's are based on discounted cash flow projections using numerous estimates, assumptions, and judgements regarding such factors as the existence of a legal obligation for an ARO, amounts and timing of settlements, the credit-adjusted risk-free rate to be used and inflation rates.

The initial measurement of AROs at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties.

7 unchanged sentences

The Series B Convertible Preferred Stock (“Preferred Stock”) has an obligation to pay a 3.5 % cumulative dividend, in kind or cash, on a quarterly basis.

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

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

The Board of Directors authorized the issuance of additional shares of the Preferred Stock, for the settlement of dividends paid in kind and accumulated through December 31, 2023.

We accrued $ 432,320 and $ 415,200 for dividends related to the Preferred Stock for the first half 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.

45 unchanged sentences

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

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.

During the six months ended June 30, 2024, we incurred an impairment loss of $ 63,054 .

No impairment losses were incurred during the six months ended June 30, 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.

17 unchanged sentences

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

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

At June 30, 2024, and December 31, 2023, we had Deferred Drilling Obligations of $ 9,465,832 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.

4 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 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.

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 Exchange Act, 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.

In accordance with ASC 480-10-S99-1.02, we have determined that the conversion or redemption of the Preferred Stock are outside the sole control of the Company and that they should be classified in mezzanine or temporary equity as redeemable noncontrolling interest beginning at the reporting period ended June 30, 2020.

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 March 31, 2024, we accrued a value of $ 215,221 .

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

For the quarter ending June 30, 2024, we accrued a value of $ 217,099 .

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

1 unchanged sentence

Basic and diluted loss per share are calculated as follows:

Three Months Ended

March 31, 2024

March 31, 2023

Three Months Ended June 30,

Net Income (Loss)

Preferred Stock Dividend

Preferred Stock Dividend In Arrears

Net Income (Loss) Attributable to Common Shareholders

Net Income (Loss) Attributable to

Common Shareholders

Weighted average common shares outstanding

Effect of dilutive securities

Weighted average common shares, including Dilutive effect

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.

Weighted average common shares,

including Dilutive effect

Six Months Ended June 30,

Net Income (Loss)

Preferred Stock Dividend

Net Income (Loss) Attributable to

Common Shareholders

Weighted average common shares outstanding

Effect of dilutive securities

Weighted average common shares,

including Dilutive effect

For the six and three months ended June 30, 2024 and 2023, we had dilutive securities of 24,664,550 and 24,025,410 , respectively.

During the six and three month periods in 2024 and 2023, these securities were not included in the dilutive loss per share, due to their antidilutive nature.

NOTE 5 – INCOME TAXES

2 unchanged sentences

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

At the end of 2015, management reviewed the reliability of our net deferred tax assets, and due to our continued cumulative losses in recent years, the we concluded it is not “more-likely-than-not” our deferred tax assets will be realized.

Prior to 2022, management reviewed the reliability of our net deferred tax assets, and due to our continued cumulative losses in recent years, we concluded it is not “more-likely-than-not” our deferred tax assets will be realized.

As a result, we will continue to record a full valuation allowance against the deferred tax assets in 2024.

For the six months ended

June 30, 2024

June 30, 2023

Tax benefit computed at statutory rate of 21 % at

June 30, 2024 and 2023, respectively

Increase (decrease) in taxes resulting from:

Other non-deductible expenses

Change in valuation allowance

Provision (benefit)

NOTE 6 – ISSUANCE OF COMMON STOCK

1 unchanged sentence

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 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.

During the six months ended June 30, 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 six months ended June 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.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

4 unchanged sentences

Write-offs charged against the allowance

Balance at March 31, 2023

Balance at June 30, 2023

Balance at December 31, 2023

1 unchanged sentence

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.

Balance at June 30, 2024

NOTE 8 – NOTE PAYABLE TO RELATED PARTIES

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

On February 9, 2024, Royale Energy, Inc.

6 unchanged sentences

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.

As of June 30, 2024, there was $ 1.4 million outstanding under the loan with Walou Investments, LP.

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

13 unchanged sentences

RESULTS OF OPERATIONS

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 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.

For the six months ended June 30, 2024, and 2023, we had a net loss of $880,726 and $33,031, respectively.

The difference was primarily due to the gain on turnkey drilling recognized during the six months ended June 30, 2023, where we recognized a gain of $1,339,3382 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 three months ended June 30, 2024 and 2023, we had net losses of $110,616 and $1,035,375, respectively.

The difference was due to a gain of $527,715 on turnkey drilling recognized during the second quarter of 2024 where we participated in the drilling of two Texas wells in the Permian basin.

During the first six months of 2024, revenues from oil and gas production increased $200,667 or 20.4%, to $1,189,411 during the period in 2024 from revenues of $988,744 during the first six months of 2023.

This increase was mainly due to higher oil production volumes and higher oil commodity prices.

The net sales volume of oil and condensate for the six months ended June 30, 2024, was approximately 14,280 barrels with an average price of $75.18 per barrel, versus 9,864 barrels with an average price of $71.69 per barrel for the six months of 2023.

This represents an increase in net sales volume of 4,416 barrels or 44.8%, which was due to wells completed and put online during the latter half of 2023 and first half of 2024.

The net sales volume of natural gas for the six months ended June 30, 2024, was approximately 61,073 Mcf with an average price of $1.87 per Mcf, versus 68,081 Mcf with an average price of $4.10 per Mcf for the same period in 2023.

This represents a decrease in net sales volume of 7,008 Mcf or 10.3%.

The decrease in natural gas production volume was also due to the natural declines on our wells.

For the quarter ended June 30, 2024, revenues from oil and gas production increased $115,453 or 26.8% to $545,746 from the 2023 second quarter revenues of $430,293.

This increase was also due to higher oil production volumes and oil commodity prices.

The net sales volume of oil and condensate for the quarter ended June 30, 2024, was approximately 6,476 barrels with an average price of $79.41 per barrel, versus 5,104 barrels with an average price of $70.45 per barrel for the second quarter of 2023.

This represents an increase in net sales volume of 1,372 barrels or 26.9% for the quarter in 2024.

The net sales volume of natural gas for the quarter ended June 30, 2024, was approximately 28,414 Mcf with an average price of $1.07 per Mcf, versus 37,962 Mcf with an average price of $1.84 per Mcf for the second quarter of 2023.

This represents an increase in net sales volume of 9,548 Mcf or 25.2% for the quarter in 2023.

Oil and natural gas lease operating expenses decreased by $234,677 or 23.1%, to $780,125 for the six months ended June 30, 2024, from $1,014,802 for the same period in 2023.

For the second quarter in 2024, lease operating expenses decreased $91,634 or 20.9% from the same quarter in 2023.

Both of these decreases were partially due to the receipt of water disposal recovery fees of $101,190 received during the six-month period in 2024 versus $87,293 received during the 2023 period, which began in April 2023 as we converted an existing non-producing oil well into a water injection well to reduce water disposal hauling costs paid to outside vendors, which also decreased our trucking costs.

These decreases were also due lower equipment repairs on our Jameson field during the period in 2024 as we attempted to increase production during the period in 2023.

The aggregate of supervisory fees and other income was $30,258 for the six months ended June 30, 2024, a decrease of $81,708 from $111,966 during the same period in 2023.

During the second quarter 2024, supervisory fees and other income increased $2,690 when compared to the quarter in 2023.

These increases were mainly due to higher interest income on our bank balances.

Depreciation, depletion and amortization expense increased to $197,179 from $173,907, an increase of $23,272 or 13.4% for the six months ended June 30, 2024, as compared to the same period in 2023.

During the second quarter 2024, depreciation, depletion and amortization expenses decreased $4,322 or 3.8%.

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

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.

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

At June 30, 2024, Royale Energy had a Deferred Drilling Obligation of $9,465,832.

During the first six months of 2024, we removed $3,371,095 of drilling obligations as we participated in the drilling and completion of two oil wells in the Texas Permian basin, while incurring expenses of $2,843,380, resulting in a gain of $527,715.

At June 30, 2023, Royale Energy had a Deferred Drilling Obligation of $8,190,855.

During the first six months of 2023, we removed $2,561,610 of drilling obligations as we completed one oil well in our Texas Jameson field and participated in the drilling and completion of an oil well in the Texas Permian basin, while incurring expenses of $1,222,228, resulting in a gain of $1,339,382.

General and administrative expenses decreased by $50,138 or 5.7% from $878,169 for the six months ended June 30, 2023 to $828,031 for the same period in 2024.

For the second quarter 2024, general and administrative expenses decreased $40,981 or 9.7% when compared to the same period in 2023.

These decreases were mainly due to lower employee related expenses due to cost reduction measures during the periods in 2024.

For the first six months of 2024, marketing expenses decreased $5,118 or 3.5% to $141,773, compared to $146,891 for the first six months of 2023.

For the second quarter 2024, marketing expenses increased $23,709 or 40.8% when compared to the second quarter in 2023.

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

Legal and accounting expense increased to $342,164 for the six-month period in 2024, compared to $273,143 for the same period in 2023, a $69,021 or 25.3%.

This increase during the period in 2024 was primarily due to higher legal fees related to our debt facility entered into during the first quarter of 2024.

For the second quarter 2024, legal and accounting expenses decreased $182,626 or 74.5%, when compared to the second quarter in 2023, primarily due to the delay in our 2022 audit and its related fees, which occurred during the second quarter 2023.

During the six months ended June 30, 2024, we recorded Bad Debts expense of $176,044 which arose from identified uncollectable receivables relating to our oil and natural gas properties either plugged and abandoned or scheduled for plugging and abandonment (“P&A”) and our period end oil and natural gas reserve values.

We periodically review our accounts receivable from working interest owners to determine whether collection of any of these charges appears doubtful.

During the 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 2024, we also recorded lease impairments of $63,054 on various lease and land costs in our California natural gas fields where the carrying value exceeded the fair value, no lease impairments were recorded in the first six months of 2023.

During the six months ended June 30, 2023, we recorded a Gain on Other of $54,975 as we reconciled employee related items previously recorded as liabilities.

We also recorded a gain on other of approximately $57,000 on our share of prior years property tax refunds received by RMX Resources, LLC during the period in 2023.

During the period in 2023, we recorded a write down of $9,840 on certain well equipment that was either written down to its current market value or written off as it was no longer usable.

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

Interest expense for the six months ended June 30, 2024, and 2023, were $99,740 and $1,056, respectively.

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

CAPITAL RESOURCES AND LIQUIDITY

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 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.

At June 30, 2024, we had current assets totaling $7,989,300 and current liabilities totaling $17,404,389, a $9,415,089 working capital deficit.

We had $1,449,068 in cash and $4,182,800 in restricted cash at June 30, 2024, compared to $2,202,521 in cash and $3,325,000 in restricted cash at December 31, 2023.

At June 30, 2024, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $698,006 compared to $1,036,401 at December 31, 2023, a $338,395 or 32.6% decrease.

This decrease was mainly due to lower accounts receivables from direct working interest owners for lease operating expenses from our Texas Jameson wells netted revenues.

At June 30, 2024, revenue receivable was $394,383 a decrease of $483,995, compared to $878,378 at December 31, 2023, due to lower production volumes during the second quarter in 2024 when compared to the yearend 2023.

At June 30, 2024, our accounts payable and accrued expenses totaled $6,116,199 an increase of $634,125 from the accounts payable at December 31, 2023 of $5,482,074, which was mainly due to higher trade payables due mainly to drilling costs during the first half of 2024.

We have had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $9,415,089 and an accumulated deficit of $91,636,335.

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Operating Activities.

Net cash used by operating activities totaled $579,264 and $895,002 for the three months ended March 31, 2024 and 2023, respectively.

Net cash used in operating activities totaled $728,190 and $1,658,304 for the six months ended June 30, 2024 and 2023, respectively.

This difference in cash was mainly due to an increase in accounts payable and accrued expenses during the period in 2024 mainly due to drilling and lease costs when compared to a decrease in accounts payables during the period in 2023.

Investing Activities.

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.

Net cash used in investing activities totaled $561,191 and $24,774 for the six months ended June 30, 2024 and 2023, respectively.

During the six-month period in 2024, we received approximately $3.1 million in drilling funds while our drilling and lease expenditures were approximately $3.6 million as we participated in the drilling and completion of two oil wells in the Texas Permian basin and obtained lease interests in the Permian basin.

During the six-month period in 2023, we received approximately $2.62 million in drilling funds while our drilling expenditures were approximately $2.65 million as we drilled and completed one Texas oil well and participated in the drilling and completion of a Texas Permian basin oil well.

Financing Activities.

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.

Net cash provided by financing activities totaled $1,393,728 for the six months ended June 30, 2024.

Net cash used in financing activities totaled $5,895 for the six months ended June 30, 2023.

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

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

During the six-month periods in 2024 and 2023, $6,272 and $5,895, respectively, were used for principal payments on our financing lease payments.

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