Item 1B. Unresolved Staff Comments
Item
1B Unresolved Staff Comments
None.
Item
1C Cybersecurity
Risk
Management and Strategy
The
Company’s cybersecurity environment is led by our third-party information technology (IT) contractor, which, in addition to cybersecurity
matters, oversees the Company’s IT infrastructure. The IT contractor is responsible for monitoring and managing the security
of the Company’s corporate network and enterprise systems, including technical controls, and safety protocols and responding to security
threats.
The
Company maintains a cybersecurity risk management program that establishes safeguards for protecting the confidentiality, integrity,
and availability of our data, technology, and information systems. The program includes general controls for managing changes in and
access to the Company’s IT environment, cybersecurity awareness and training to help employees identify and mitigate against cybersecurity
threats, cybersecurity incident response plans and third-party incident response retainers to help expedite the Company’s response
in the event of a cybersecurity incident.
The
Company’s IT contractor is primarily responsible for the day-to-day operation of the Company’s cybersecurity program and
for identifying cybersecurity threats and incidents and managing the material risks associated with the cybersecurity threats. The Company’s
IT contractor engages third-party vendors and cybersecurity consortiums periodically for cybersecurity-related guidance and certifications.
In the event of a cybersecurity incident, the Company’s process calls for the IT contractor, our Chief Executive Officer and our
Chief Financial Officer, to work to assess and respond to the incident and provide briefings to the Audit Committee of the Board of Directors.
The
Audit Committee is responsible for providing oversight over management’s processes to identify and evaluate cybersecurity risks to which
the Company is exposed and to implement processes and programs to manage cybersecurity risks and mitigate any incidents. The Audit Committee
also reports material cybersecurity risks to the Board. We believe this risk management process provides visibility and oversight to
allow the Board and executive leadership team to make timely, data-driven decisions ensuring that the Company, its employees, investors,
and partners are adequately protected.
As
of and for the year ended December 31, 2024, there have been no cybersecurity incidents that have materially affected the Company’s
business strategy, results of operations, or financial condition.
Item
2 Description of Property
Since
1993, Royale had concentrated on development of properties in the Sacramento Basin and the San Joaquin Basin of Northern and Central
California. In the last few years it has moved its focus to Mitchell County and Ector County, Texas. In 2024, Royale participated in
the drilling of four gross (0.0722 net) oil wells in Texas all of which are productive.
Following
industry standards, Royale generally acquires oil and natural gas acreage without warranty of title except as to claims made by, though,
or under the transferor. In these cases, Royale attempts to conduct due diligence as to title before the acquisition, but it cannot assure
that there will be no losses resulting from title defects or from defects in the assignment of leasehold rights. Title to property most
often carries encumbrances, such as royalties, overriding royalties, carried and other similar interests, and contractual obligations,
all of which are customary within the oil and natural gas industry.
Following
is a discussion of Royale’s significant oil and natural gas properties. Reserves at December 31, 2024, for each property discussed
below, have been determined by Netherland, Sewell & Associates, Inc., registered professional petroleum engineers, in accordance
with reports submitted to Royale on February 17, 2025.
California
Royale
owns interests in nine gas fields with locations ranging throughout the Sacramento Basin in California. At December 31, 2024, Royale
operated 10 wells and owns interests in 13 non-operated gas wells in Northern California and 8 non-operated oil wells in Southern and
Central California. Our California estimated total proven, developed, and undeveloped net reserves are approximately 0.160 BCFE, according
to Royale’s independently prepared reserve report as of December 31, 2024.
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Texas
At
December 31, 2024, Royale owned and operated interests in 26 oil wells in its Jameson field. Additionally, Royale owns interests in
six non-operated oil wells in the Permian Basin in Texas and three non-operated gas wells, two located in Oklahoma and one located
in Texas. Our Texas estimated total producing, developed, and undeveloped reserves are approximately 277.6 million barrels of oil
equivalent (“MBOE”) , according to Royale’s independently prepared reserve report as of December 31, 2024. Barrel
of oil equivalent or BOE is determined using a ratio of six Mcf of natural gas equal to one barrel of oil equivalent. The ratio does
not assume price equivalency and, given price differentials, the price for a BOE for natural gas differs significantly from the
price for a barrel of oil. A barrel of NGL also differs significantly in price from a barrel of oil.
Developed
and Undeveloped Leasehold Acreage
As
of December 31, 2024, Royale owned leasehold interests in the following developed and undeveloped properties in both gross and net acreage.
Developed
Undeveloped
Gross
Acres
Net
Acres
Gross
Acres
Net
Acres
California
2,401.02
1,784.84
3,097.25
996.80
All Other
States
7,465.00
7,465.00
0.00
0.00
Total
9,866.02
9,249.84
3,097.25
996.80
MMBoe
is one million BOE, determined using a ratio of six Mcf of natural gas equal to one BOE.
Gross
and Net Productive Wells
As
of December 31, 2024 and 2023, Royale owned interests in the following oil and gas wells in both gross and net:
2024
2023
Gross
Wells
Net
Wells
Gross
Wells
Net
Wells
Natural Gas
26
10.0838
28
10.8831
Oil
40
21.1191
38
20.8226
Total
66
31.2029
66
31.7057
Drilling
Activities
The
following table sets forth Royale’s drilling activities during the years ended December 31, 2024 and 2023. All wells are located
in the continental U.S., in California and Texas.
Year
Type of Well(a)
Gross Wells(b)
Net Wells(e)
Total
Producing(c)
Dry(d)
Producing(c)
Dry(d)
2023
Exploratory
0
0
0
0
0
Developmental
4
3
1
0.3321
0.5679
2024
Exploratory
0
0
0
0
0
Developmental
4
4
0
0.0722
0
a) An
exploratory well is one that is drilled in search of new oil and natural gas reservoirs, or to test the boundary limits of a previously
discovered reservoir. A developmental well is one drilled on a previously known productive area of an oil and natural gas reservoir with
the objective of completing that reservoir.
b) Gross
wells represent the number of actual wells in which Royale owns an interest. Royale’s interest in these wells may range from 1%
to 100%.
c) A
producing well is one that produces oil and/or natural gas that is being purchased on the market.
d) A
dry well is a well that is not deemed capable of producing hydrocarbons in paying quantities.
e) One
“net well” is deemed to exist when the sum of fractional ownership working interests in gross wells or acres equals one.
The number of net wells is the sum of the fractional working interests owned in gross wells expressed as a whole number or a fraction.
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Production
The
following table summarizes, for the years indicated, Royale’s net share of oil and natural gas production, average sales price
per barrel (BBL), per thousand cubic feet (MCF) of natural gas, and the MCF equivalent (MCFE) for the barrels of oil based on a 6 to
1 ratio of the price per barrel of oil to the price per MCF of natural gas. “Net” production is production that Royale owns
either directly or indirectly through partnership or joint venture interests produced to its interest after deducting royalty, limited
partner or other similar interests. Royale generally sells its oil and natural gas at prices then prevailing on the “spot market”
and does not have any material long term contracts for the sale of natural gas at a fixed price.
2024
2023
Net volume
Oil (BBL)
26,573
22,399
Gas (MCF)
116,406
128,160
MCFE
275,846
262,554
Average sales price
Oil (BBL)
$ 72.83
$ 74.27
Gas (MCF)
$ 1.94
$ 3.47
Net production costs and taxes
$ 1,983,173
$ 1,731,670
Lifting costs (per MCFE)
$ 7.19
$ 6.60
Reserve
Estimates
Management
has established, and is responsible for, internal controls designed to provide reasonable assurance that the estimates of proved reserves
are computed and reported in accordance with rules and regulations promulgated by the SEC as well as established industry practices used
by independent engineering firms and our peers. These internal controls include documented process workflows and qualified professional
engineering and geological personnel with specific reservoir experience. Our internal processes and controls surrounding this process
are routinely tested. We also retain outside independent engineering firms to prepare estimates of our proved reserves. Management reviews
and approves our reserve estimates, whether prepared internally or by third parties. Our Chief Executive Officer oversaw our outside
independent engineering firm, Netherland, Sewell & Associates, Inc. (“NSAI”), in connection with the preparation of their
estimates of our proved reserves as of December 31, 2024. We also regularly communicate with NSAI throughout the year regarding technical
and operational matters critical to our reserve estimations. Our Chief Executive Officer, with input from other members of management,
is responsible for the selection of our third-party engineering firms and review of the reports generated. Our Chief Executive Officer
has over 39 years of experience in the oil and natural gas industry and is a graduate of the University of Oklahoma with a degree in
Chemical Engineering. During his career, he has had various relevant responsibilities in technical and leadership roles including asset
management, drilling and completions, production engineering, reservoir engineering and reserves management, economic evaluations and
field development in U.S. onshore projects. The third-party engineering reports are also provided to our Audit Committee.
Net
Proved Oil and Natural Gas Reserves
Category
Oil
(MBBL)
Natural
Gas
(MMCF)
PROVED
Developed:
California
25.820
1.950
Texas
126.730
233.750
All
other states
-
2.620
Undeveloped:
California
-
-
Texas
86.190
154.450
All
other states
-
-
TOTAL
PROVED
238.740
392.770
Prices
used:
$ 76.32
$ 2.13
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As
of December 31, 2024, Royale had proved developed reserves of 238,310 MCF and total proved reserves of 392,760 MCF of natural gas. As
of December 31, 2024, Royale also had proved developed oil and NGL combined reserves of 152,550 BBL and total proved oil and NGL combined
reserves of 238,740 BBL.
As
of December 31, 2023, Royale had proved developed reserves of 357,940 MCF and total proved reserves of 473,540 MCF of natural gas. For
the same period, Royale also had proved developed oil and NGL combined reserves of 138,060 BBL and total proved oil and NGL combined
reserves of 217,780 BBL.
During
2024, our overall proved developed and undeveloped oil reserves increased by 9.6% and our previously estimated proved developed and undeveloped
oil reserve quantities were revised upward by approximately 32 thousand barrels. This upward revision was mainly the result of an increase
in proved undeveloped oil reserves from drilling locations which the Company had previously estimated. Our overall proved developed and
undeveloped natural gas reserves decreased by 17.1% and our previously estimated proved developed and undeveloped natural gas reserve
quantities were revised upward by approximately 4 thousand cubic feet of natural gas. This upward revision was mainly the result of an
increase in proved undeveloped natural gas reserves from drilling locations which the Company had previously estimated.
Oil
and gas reserve estimates and the discounted present value estimates associated with the reserve estimates are based on numerous engineering,
geological and operational assumptions that generally are derived from limited data.