Item 1B. Unresolved Staff Comments
Item 1B Unresolved Staff Comments
None.
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Table of Contents
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 of directors.
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, 2025, 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 2025, Royale participated in the drilling of one gross (0.0035 net) oil well in Texas which was 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, 2025, 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 March 11, 2026.
Texas
At December 31, 2025, Royale owned and operated interests in 26 oil
wells in its Jameson field. Additionally, Royale owns interests in eight 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 919.6 thousand barrels of oil equivalent (“MBOE”), according to Royale’s independently prepared
reserve report as of December 31, 2025. 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.
California
Royale owns interests in nine gas fields with locations ranging throughout
the Sacramento Basin in California. At December 31, 2025, Royale operated 10 wells and owns interests in 12 non-operated gas wells in
Northern California and 8 non-operated oil wells in Southern and Central California. Our California estimated total proved, developed,
and undeveloped net reserves are approximately 0.170 BCFE, according to Royale’s independently prepared reserve report as of December
31, 2025.
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Developed and Undeveloped Leasehold Acreage
As of December 31, 2025, 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
Texas
23,035.00
8,632.75
9,170.00
687.75
California
2,401.02
1,784.84
3,097.25
996.80
Total
25,436.02
10,417.59
12,267.25
1,684.55
Gross and Net Productive Wells
As of December 31, 2025 and 2024, Royale owned interests in the following
oil and gas wells in both gross and net:
2025
2024
Gross Wells
Net Wells
Gross Wells
Net Wells
Natural Gas
25
10.2366
26
10.0838
Oil
42
22.0245
40
21.1191
Total
67
32.2611
66
31.2029
Drilling Activities
The following table sets forth Royale’s drilling activities during
the years ended December 31, 2025 and 2024. All wells are located in the continental U.S., in California and Texas.
Gross Wells(b)
Net Wells(e)
Year
Type of Well(a)
Total
Producing(c)
Dry(d)
Producing(c)
Dry(d)
2025
Exploratory
0
0
0
0
0
Developmental
1
1
0
0.0035
0
2024
Exploratory
0
0
0
0
0
Developmental
4
4
0
0.0722
0
2023
Exploratory
0
0
0
0
0
Developmental
4
3
1
0.3321
0.5679
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 economic 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.
2025
2024
2023
Net volume
Oil (BBL)
California
3,597
4,779
4,768
Texas
22,366
21,777
17,615
Other
13
13
16
Total Oil
25,976
26,570
22,399
Gas (MCF)
California
54,489
58,642
72,167
Texas
60,924
56,153
53,772
Other
1,806
1,610
2,221
Total Gas
117,219
116,406
128,160
BOE
45,513
45,971
43,759
Average sales price
Oil (BBL)
California
$ 65.87
$ 77.84
$ 78.44
Texas
$ 60.87
$ 71.74
$ 73.14
Other
$ 60.00
$ 68.78
$ 72.93
Gas (MCF)
California
$ 2.58
$ 2.80
$ 5.40
Texas
$ 1.75
$ 1.59
$ 0.93
Other
$ 1.62
$ 1.28
$ 2.31
Net production costs and taxes
California
$ 520,240
$ 564,428
$ 621,658
Texas
$ 898,160
$ 1,760,925
$ 1,358,206
Other
$ (24,849 )
$ 3,019
$ 8,375
Lifting costs (per BOE)
California
$ 41.03
$ 38.78
$ 37.01
Texas
$ 27.62
$ 56.56
$ 51.10
Other
$ (79.12 )
$ 10.72
$ 21.69
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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 include collection and submission of data reconciled with reviewed
accounting records for production, lease operating expense, and revenue to our independent reserve engineering firm. 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 reserve estimates as of December 31, 2025, which we refer to as the Reserve Report, were
prepared based on a report by Netherland, Sewell & Associates, Inc. (“NSAI”), our independent petroleum engineering firm.
The Royale’s technical person primarily responsible for overseeing the preparation of its reserve estimates is Johnny Jordan, Royale’s
Chief Executive Officer, who oversaw NSAI in connection with the preparation of their estimates of our proved reserves as of December
31, 2025. We also regularly communicate with NSAI throughout the year regarding technical and operational matters critical to Royale’s
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. Mr. Jordan has over 40 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. Within NSAI, the technical
person primarily responsible for preparing the estimates set forth in the Reserve Report meets or exceeds the education, training, and
experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated
by the Society of Petroleum Engineers, and is proficient in applying industry standard practices to engineering and geoscience evaluations
as well as applying SEC and other industry reserves definitions and guidelines. Within NSAI, the technical persons primarily responsible
for preparing the estimates set forth in the Reserve Report each have over 20 years of industry experience. NSAI does not own an interest
in any of our properties, nor is it employed by us on a contingent basis. The Reserve Report was also provided to Royale’s audit
committee.
Net Proved Oil and Natural Gas Reserves
2025
2024
Category
Oil (MBBL)
Natural Gas
(MMCF)
Oil (MBBL)
Natural Gas
(MMCF)
PROVED
Developed:
Texas
192.378
573.572
126.730
233.750
California
25.336
22.206
25.820
1.950
All other states
-
6.601
-
2.650
Undeveloped:
Texas
429.375
1,213.380
86.190
154.450
California
-
-
-
-
All other states
-
-
-
TOTAL PROVED
647.089
1,815.759
238.740
392.800
Prices used:
$ 66.01
$ 3.39
$ 76.32
$ 2.13
As of December 31, 2025, Royale had proved developed reserves of 602,379
MCF and total proved reserves of 1,815,759 MCF of natural gas. As of December 31, 2025, Royale also had proved developed oil and NGL combined
reserves of 217,714 BBL and total proved oil and NGL combined reserves of 647,089 BBL.
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.
During 2025, our overall proved developed and undeveloped oil reserves
increased by 171.1% and our previously estimated proved developed and undeveloped oil reserve quantities were revised upward by approximately
107 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 increased by 362.3% and
our previously estimated proved developed and undeveloped natural gas reserve quantities were revised upward by approximately 688 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.
Proved Undeveloped Reserves. As of December 31, 2025, the Company’s
proved undeveloped reserves totaled approximately 631,605 BOE, consisting of 429,375 barrels of oil and NGL and 1,213,380 MCF of natural
gas. During 2025, the Company added 550,400 BOE of proved undeveloped reserves in its Jameson field as a result of new drilling plans
in that field. In its other non-operated Texas properties, one gross ( 0.35 net) well was drilled during 2025, converting 22,400 BOE of
proved undeveloped reserves into proved developed reserves, and two newly planned undeveloped wells were added to the Company’s
estimates, bringing the total number of proved undeveloped well locations in those properties to six. Capital expenditures incurred during
2025 in connection with the development of the Company’s reserves are set forth in the drilling and capital cost information presented
elsewhere in this Annual Report. None of the Company’s proved undeveloped reserves have remained undeveloped for five years or more
following their initial disclosure as proved undeveloped reserves.
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.