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Item 1. Financial Statements

2024-11-14 compared with 2024-08-14 · 142 added, 141 removed, 394 unchanged (42% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2024

September 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

June 30, 2024

September 30, 2024

December 31, 2023

12 unchanged sentences

Accrued Unpaid Guaranteed Payments

Note Payable to Related Parties

Notes 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 June 30, 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 September 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 June 30, 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 September 30, 2024 and December 31, 2023, respectively.

Additional Paid in Capital

6 unchanged sentences

For the three months ended

For the six months ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

For the nine months ended

September 30, 2024

September 30, 2023

September 30, 2024

September 30, 2023

Oil, NGL and Gas Sales

14 unchanged sentences

Interest Expense

Total Other Income (Expense)

Loss Before Income Tax Expense

Preferred Stock Dividend

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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

For the Six Months Ended

June 30, 2024

June 30, 2023

For the Nine Months Ended

September 30, 2024

September 30, 2023

CASH FLOWS FROM OPERATING ACTIVITIES

11 unchanged sentences

Other & Revenue Receivables

Prepaid Expenses

Prepaid Expenses and Other Assets

Increase (Decrease) in:

2 unchanged sentences

Net Cash Used in Operating Activities

CASH FLOWS USED IN INVESTING ACTIVITIES

Expenditures for Oil and Gas Properties and Other

Capital Expenditures

CASH FLOWS FROM INVESTING ACTIVITIES

Expenditures for Oil and Gas Properties and Other Capital Expenditures

Proceeds from Turnkey Drilling Programs

Net Cash Used by Investing Activities

Net Cash Provided by Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from Note Payable to Related Party

Proceeds from Related Party Note Payable

Principal Payments on Long-Term Debt

Net Cash Provided by (Used in) Financing Activities

Net Increase (decrease) in Cash and Cash Equivalents

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

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

3 unchanged sentences

Cash Paid for Taxes

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING & FINANCING TRANSACTIONS:

Accounts Payable for Oil and Gas Properties

Increase in Capital Accrued Balance

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 SIX MONTHS ENDED JUNE 30, 2024 AND 2023

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Number of Shares Issued and Outstanding

Additional Paid in Capital

Accumulated Comprehensive Deficit

Comprehensive Deficit

Stockholders' Deficit

5 unchanged sentences

Preferred Series B 3.5 % Dividend

June 30, 2023 Balance

September 30, 2023 Balance

Common Shares

3 unchanged sentences

Preferred Series B 3.5 % Dividend

June 30, 2024 Balance

September 30, 2024 Balance

Number of Shares Issued and Outstanding

4 unchanged sentences

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

Preferred Series B 3.5 % Dividend

September 30, 2023 Balance

Common Shares

Common Amount

March 31, 2024 Balance

Preferred Series B 3.5 % Dividend

June 30, 2024 Balance

Preferred Series B 3.5 % Dividend

September 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 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.

Operating results for the nine months ended September 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

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 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.

At September 30, 2024, our consolidated financial statements reflect a working capital deficiency of $ 10,990,782 , and an accumulated deficit of $ 93,042,036 .

We had a net loss of $ 2,065,017 for the nine months ended September 30, 2024.

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

15 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 June 30,

For the six months ended June 30,

For the three months ended

September 30,

For the nine months ended

September 30,

Oil & Condensate Sales

23 unchanged sentences

Crude oil and Condensate

For the crude sales agreements, we satisfy our performance obligations and recognize revenue once customers take control of the crude at the designated delivery points, which include pipelines, trucks, or vessels.

For the crude oil and condensate sales agreements, we satisfy our performance obligations and recognize revenue once customers take control of the product at the designated delivery points, which include pipelines, trucks, or vessels.

Natural gas and NGLs

When selling natural gas and NGLs, we engage midstream entities to process our production stream by separating natural gas from the NGLs.

When selling natural gas and natural gas liquids (“NGLs”), we engage midstream entities to process our production stream by separating natural gas from the NGLs.

Frequently, these midstream entities also purchase our natural gas and NGLs under the same agreements.

19 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.

June 30, 2024

September 30, 2024

December 31, 2023

11 unchanged sentences

Other receivables, net, consist of joint interest billing receivables from direct working interest investors and industry partners.

We provide for uncollectible accounts receivable using the allowance method of accounting for bad debts.

Under this method of accounting, a provision for uncollectible accounts is charged directly to bad debt expense when it becomes probable the receivable will not be collected.

The allowance account is increased or decreased based on past collection history and management’s evaluation of accounts receivable.

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

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.

We account for expected credit losses on receivables using the Current Expected Credit Loss (CECL) methodology.

Under this standard, an allowance for expected credit losses is established and adjusted based on historical loss experience, current conditions, and reasonable and supportable forecasts of future economic conditions.

The allowance account is increased or decreased in response to changes in these factors, reflecting our best estimate of credit losses over the remaining life of the receivables.

All amounts considered uncollectible are charged against the allowance account, while recoveries of previously charged-off accounts are added back to the allowance.

At September 30, 2024, and December 31, 2023, we maintained an allowance for expected credit losses of $ 2,023,302 and $ 1,837,551 , respectively, primarily for receivables from direct working interest investors whose expenses on non-producing wells are 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 June 30, 2024 and December 31, 2023, we do not have any financial assets measured and recognized at fair value on a recurring basis.

At September 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 ”.

10 unchanged sentences

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.

We accrued $ 653,730 and $ 629,007 for dividends related to the Preferred Stock for the first nine months 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.

For further information regarding the Preferred Stock see Note 3, below.

ACCOUNTING STANDARDS

2 unchanged sentences

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

Net capitalized costs

Commercial and Other

1 unchanged sentence

Accumulated depreciation

Net capitalized costs Total

Net capitalized costs

The guidance set forth in the Continued Capitalization of Exploratory Well Costs paragraph of the Extractive Activities Topic of the FASB ASC requires that we evaluate all existing capitalized exploratory well costs and disclose the extent to which any such capitalized costs have become impaired and are expensed or reclassified during a fiscal period.

30 unchanged sentences

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

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.

During the nine months ended September 30, 2024, we incurred an impairment loss of $ 400,554 .

No impairment losses were incurred during the nine months ended September 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.

The valuation allowances are reviewed at least annually.

Upon the sale or retirement of a complete field of a proven property, we eliminate the cost from our books, and the resulting gain or loss is recorded to the Statement of Operations.

Upon the sale of an entire interest in an unproved property where the property has been assessed for impairment individually, a gain or loss is recognized in the Statement of Operations.

Upon the sale or retirement of a complete field of a proven property, we eliminate the cost, and the resulting gain or loss is recorded to the Consolidated Statement of Operations.

Upon the sale of an entire interest in an unproved property where the property has been assessed for impairment individually, a gain or loss is recognized in the Consolidated Statement of Operations.

If a partial interest in an unproved property is sold, any funds received are accounted for as a recovery of the cost in the interest retained with any excess funds recognized as a gain.

13 unchanged sentences

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

At June 30, 2024, and December 31, 2023, we had Deferred Drilling Obligations of $ 9,465,832 and $ 9,761,927 , respectively.

At September 30, 2024, and December 31, 2023, we had Deferred Drilling Obligations of $ 11,328,332 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.

8 unchanged sentences

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 2024 and 2023 no cash was used to pay dividends on shares of the Preferred Stock.

On October 11, 2024, we entered into an agreement with all of our preferred shareholders, to exchange their shares of Preferred Stock, thereby eliminating the class of stock.

For further information see Note 9 – Subsequent Events.

NOTE 4 – INCOME (LOSS) PER SHARE

Basic and diluted loss per share are calculated as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Net Income (Loss)

Preferred Stock Dividend

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

Six Months Ended June 30,

Weighted average common shares, including Dilutive effect

Nine Months Ended September 30,

Net Income (Loss)

Preferred Stock Dividend

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

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.

Weighted average common shares, including Dilutive effect

For the nine and three months ended September 30, 2024 and 2023, we had dilutive securities of 24,664,550 and 24,235,050 , respectively.

During the nine 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

4 unchanged sentences

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

For the nine months ended

September 30, 2024

September 30, 2023

Tax benefit computed at statutory rate of 21 % at September 30, 2024 and 2023, respectively

Increase (decrease) in taxes resulting from:

5 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 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.

During the nine months ended September 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 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.

NOTE 7 – ALLOWANCE FOR CREDIT LOSSES

4 unchanged sentences

Write-offs charged against the allowance

Balance at June 30, 2023

Balance at September 30, 2023

Balance at December 31, 2023

1 unchanged sentence

Write-offs charged against the allowance

Balance at June 30, 2024

Balance at September 30, 2024

NOTE 8 – NOTE PAYABLE TO RELATED PARTIES

3 unchanged sentences

In addition, Mr.

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

Jordan is the beneficial owner of approximately 14.8 % of the Company’s issued and outstanding common stock, as of September 30, 2024.

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

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

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

Effective September 30, 2024, the note was amended to extend the maturity date from August 1, 2025, to January 1, 2026, with no other terms amended.

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

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

NOTE 9 – SUBSEQUENT EVENTS

Series B Preferred Stock Exchange and Redemption

On October 11, 2024, we entered into privately negotiated Exchange Agreements with holders of our Preferred Stock.

Under these agreements, effective as of June 30, 2024, all 2,466,455 outstanding shares of Series B Preferred Stock , valued at $ 10 per share, with a total value of $ 24,664,550 , were exchanged for a combination of 22,198,095 shares of common stock, senior notes totaling $ 2,466,455 , and options to purchase 25,000,000 shares of common stock at an exercise price of $ 0.10 per share.

Additionally, 50% of the overriding royalty interests in certain Alaska oil and gas properties and ownership in real property located in Kern County California, were transferred to a holding company owned by the preferred stockholders.

As a result of these transactions, we no longer have any outstanding shares of Preferred Stock.

Release of Historical Liabilities

In conjunction with the exchange of the Preferred Stock, we also entered into Release Agreements with certain creditors to discharge approximately $ 2,820,423 of historical liabilities.

These liabilities were settled through the issuance of 2,538,378 shares of common stock and additional senior notes totaling $ 282,042 .

These transactions resulted in the complete redemption of the Preferred Stock, with 2,466,455 shares exchanged, and the satisfaction of related historical payment obligations, which we expect will have a material impact on the Company's capital structure and financial obligations.

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

13 unchanged sentences

RESULTS OF OPERATIONS

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.

For the nine months ended September 30, 2024, and 2023, we had a net loss of $2,065,017 and $503,761, respectively.

The difference was due to gains on turnkey drilling recognized during the nine months ended September 30, 2024 and 2023, of $527,715 and $1,338,305, respectively.

In addition, during the nine month period in 2024, we had higher lease impairments, bad debt expenses and interest expenses, more fully discussed below.

During the three months ended September 30, 2024 and 2023, we had net losses of $1,184,291 and $470,730, respectively.

The difference was also due to higher lease impairments, bad debt expenses and interest expenses recorded during the three month period in 2024 when compared to the period in 2023.

During the first nine months of 2024, revenues from oil and gas production increased $301,422 or 20.8%, to $1,749,120 in 2024 from revenues of $1,447,698 during the first nine months of 2023.

This increase was mainly due to higher oil production volumes during the period in 2024.

The net sales volume of oil and condensate for the nine months ended September 30, 2024, was approximately 21,079 barrels with an average price of $74.88 per barrel, versus 14,851 barrels with an average price of $73.20 per barrel for the nine months of 2023.

This represents an increase in net sales volume of 6,228 barrels or 41.9%, which was due to wells completed and put online during the latter half of 2023 and first half of 2024.

The net sales volume of natural gas for the 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.

The net sales volume of natural gas for the nine months ended September 30, 2024, was approximately 91,255 Mcf with an average price of $1.84 per Mcf, versus 101,324 Mcf with an average price of $3.51 per Mcf for the same period in 2023.

This represents a decrease in net sales volume of 10,069 Mcf or 9.9%.

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

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

For the quarter ended September 30, 2024, revenues from oil and gas production increased $100,755 or 22.0% to $559,709 from the 2023 third quarter revenues of $458,954.

This increase was also due to higher oil production volumes.

The net sales volume of oil and condensate for the quarter ended September 30, 2024, was approximately 6,800 barrels with an average price of $74.25 per barrel, versus 4,987 barrels with an average price of $76.19 per barrel for the third quarter of 2023.

This represents an increase in net sales volume of 1,813 barrels or 36.4% for the quarter in 2024.

The net sales volume of natural gas for the quarter ended 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.

The net sales volume of natural gas for the quarter ended September 30, 2024, was approximately 30,182 Mcf with an average price of $1.79 per Mcf, versus 33,242 Mcf with an average price of $2.32 per Mcf for the third quarter of 2023.

This represents a decrease in net sales volume of 3,060 Mcf or 9.2% for the quarter in 2023.

Oil and natural gas lease operating expenses decreased by $38,640 or 2.9%, to $1,292,525 for the nine months ended September 30, 2024, from $1,331,165 for the same period in 2023.

This decrease was due to lower water disposal hauling costs paid to outside vendors, which decreased our trucking costs as we converted an existing non-producing oil well into a water injection well to reduce water disposal hauling costs in 2023.

For the third quarter in 2024, lease operating expenses increased $196,037 or 62.0% from the same quarter in 2023, primarily due to repairs and restoration of well equipment in our Jameson field due to weather related damage.

The aggregate of supervisory fees and other income was $44,963 for the nine months ended September 30, 2024, an increase of $12,209 from $32,754 during the same period in 2023.

During the third quarter 2024, supervisory fees and other income increased $6,624 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%.

Depreciation, depletion and amortization expense increased to $253,726 from $231,224, an increase of $22,502 or 9.7% for the nine months ended September 30, 2024, as compared to the same period in 2023.

During the third quarter 2024, depreciation, depletion and amortization expenses decreased $770 or 1.3%.

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

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.

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

At September 30, 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.

At September 30, 2023, Royale Energy had a Deferred Drilling Obligation of $9,761,927.

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.

General and administrative expenses decreased by $64,865 or 5.1% from $1,262,542 for the nine months ended September 30, 2023 to $1,197,677 for the same period in 2024.

For the second quarter 2024, general and administrative expenses decreased $14,727 or 3.8% when compared to the same period in 2023.

These decreases were mainly due to lower employee 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.

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

For the first nine months of 2024, marketing expenses increased $39,702 or 17.2% to $269,984, compared to $230,282 for the first nine months of 2023.

For the third quarter 2024, marketing expenses increased $44,820 or 53.8% when compared to the third quarter in 2023.

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

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.

Legal and accounting expense increased to $485,114 for the nine-month period in 2024, compared to $368,810 for the same period in 2023, a $116,304 or 31.5%.

This increase during the period in 2024 was primarily due to higher legal fees related to our debt facility entered into during the first quarter of 2024, and preparation of the transaction documents related to the conversion of the Series B Convertible Preferred shares described in Note 9.

For the third quarter 2024, legal and accounting expenses increased $47,283 or 49.4%, when compared to the third quarter in 2023, primarily due to fees related to conversion document preparation.

During the nine months ended September 30, 2024, we recorded Bad Debts expense of $279,491 which arose from identified uncollectable receivables relating to our oil and natural gas properties either plugged and abandoned or scheduled for plugging and abandonment (“P&A”) and our period end oil and natural gas reserve values.

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

During the period in 2024, we also recorded lease impairments of $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 2024, we also recorded lease impairments of $400,554 on various lease and land costs in our California fields where the carrying value exceeded the fair value, no lease impairments were recorded in the first nine months of 2023.

During the nine months ended September 30, 2023, we recorded a gain on other of $54,975 as we reconciled employee related items previously recorded as liabilities.

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

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

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

Interest expense for the nine months ended September 30, 2024, and 2023, were $207,744 and $1,383, respectively.

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

CAPITAL RESOURCES AND LIQUIDITY

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.

At September 30, 2024, we had current assets totaling $8,971,747 and current liabilities totaling $19,962,529, a $10,990,782 working capital deficit.

We had $1,737,465 in cash and $4,032,800 in restricted cash at September 30, 2024, compared to $2,202,521 in cash and $3,325,000 in restricted cash at December 31, 2023.

At September 30, 2024, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $622,921 compared to $1,036,401 at December 31, 2023, a $413,480 or 39.9% decrease.

This decrease was mainly due to lower accounts receivables from payment of Joint Interest Bills by direct working interest owners for lease operating expenses from our Texas Jameson wells.

At September 30, 2024, revenue receivable was $513,418 a decrease of $364,960, compared to $878,378 at December 31, 2023, due to lower production volumes during the third quarter in 2024 when compared to the year-end 2023.

At September 30, 2024, our accounts payable and accrued expenses totaled $6,240,895 an increase of $758,821 from the accounts payable at December 31, 2023 of $5,482,074, which was mainly due to higher trade payables primarily related to drilling costs during the period in 2024.

We have had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $10,990,782 and an accumulated deficit of $93,042,036.

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any such outcomes could have a material adverse effect on our business, results of operations, financial position, and liquidity.

Management has plans to continue to increase revenues by making commitments to participate with industry partners in drilling wells in the Permian basin and will also continue to drill and workover wells in our Texas Jameson field.

Management plans to continue to increase revenues by making commitments to participate with industry partners in drilling wells in the Permian basin and will also continue to drill and workover wells in our Texas Jameson field.

Although there are no assurances, Management believes that expected increases in revenue together with reduced capital expenditures for drilling will allow the company to meet its liquidity needs through the remainder of the year.

Operating Activities.

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.

Net cash used in operating activities totaled $1,381,384 and $198,937 for the nine months ended September 30, 2024 and 2023, respectively.

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

Investing Activities.

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.

Net cash provided by investing activities totaled $231,089 and $1,337 for the nine months ended September 30, 2024 and 2023, respectively.

During the nine-month period in 2024, we received approximately $4.9 million in drilling funds while our drilling and lease expenditures were approximately $4.7 million as we participated in the drilling and completion of two oil wells in the Texas Permian basin and obtained lease interests in the Permian basin.

During the nine-month period in 2023, we received approximately $4.6 million in drilling funds while our drilling expenditures were approximately $4.6 million as we drilled and completed one Texas oil well and participated in the drilling and completion of a Texas Permian basin oil well.

Financing Activities.

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.

Net cash provided by financing activities totaled $1,393,039 for the nine months ended September 30, 2024.

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

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

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

During the nine-month periods in 2024 and 2023, $6,961 and $8,916, respectively, were used for principal payments on our financing lease payments.

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