Royale Energy, Inc. is an independent oil and natural gas producer. Royale
Energys principal lines of business are the production and sale of natural
gas, acquisition of oil and gas lease interests and proved reserves, drilling
of both exploratory and development wells, and sales of fractional working interests
in wells to be drilled by Royale Energy. Royale Energy was incorporated in California
in 1986 and began operations in 1988. Royale Energys common stock is traded
on the Over-The-Counter QB (OTCQB) Market System (symbol ROYL).
Royale Energy owns wells and leases located mainly in the Sacramento Basin and
San Joaquin Basin in California as well as in Utah, Texas, Oklahoma, and Louisiana.
Royale Energy usually sells a portion of the working interest in each well it
drills or participates in to third party investors and retains a portion of
the prospect for its own account. Selling part of the working interest to others
allows Royale Energy to reduce its drilling risk by owning a diversified inventory
of properties with less of its own funds invested in each drilling prospect,
than if Royale Energy owned all the working interest and paid all drilling and
development costs of each prospect itself. Royale Energy generally sells working
interests in its prospects to accredited investors in exempt securities offerings.
The prospects are bundled into multi-well investments, which permit the third
party investors to diversify their investments by investing in several wells
at once instead of investing in single well prospects.
Royale Energy acquires interests in oil and natural gas reserves and sponsors
private joint ventures. Royale Energy believes that its stockholders are better
served by diversification of its investments among individual drilling prospects.
Through its sale of joint ventures, Royale Energy can acquire interests and
develop oil and natural gas properties with greater diversification of risk
and still receive an interest in the revenues and reserves produced from these
properties. By selling some of its working interest in most projects, Royale
Energy decreases the amount of its investment in the projects and diversifies
its oil and gas property holdings, to reduce the risk of concentrating a large
amount of its capital in a few projects that may not be successful.
After acquiring the leases or lease participation, Royale Energy drills or participates
in the drilling of development and exploratory oil and natural gas wells on
its property. Royale Energy pays its proportionate share of the actual cost
of drilling, testing, and completing the project to the extent that it retains
all or any portion of the working interest.
Royale Energy also may sell fractional working interests in undeveloped wells
to finance part of the drilling cost. A drilling contract that calls for a company
to drill a well, for a fixed price, to a specified depth or geological formation
is called a "turnkey contract." When Royale Energy sells fractional
working interests in unproved property to raise capital to drill oil and natural
gas wells, generally it agrees to drill these wells on a turnkey contract basis,
so that the holders of the fractional interests prepay a fixed amount for the
drilling and completion of a specified number of wells. Under a turnkey contract,
Royale Energy may record a gain if total funds received to drill a well were
more than the actual cost to drill those wells including costs incurred on behalf
of the participants and costs incurred for its own account.
Although Royale Energy’s operating agreements do not usually address whether
investors have a right to participate in subsequent wells in the same area of
interest as a proposed well, it is the Company’s policy to offer to investors
in a successful well the right to participate in subsequent wells at the same
percentage level as their working interest investment in the prior successful
well.
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