Document_And_Entity_Informatio
Document And Entity Information | 3 Months Ended |
Mar. 31, 2015 | |
Document and Entity Information [Abstract] | |
Entity Registrant Name | ROYALE ENERGY INC |
Document Type | 10-Q |
Current Fiscal Year End Date | -19 |
Entity Common Stock, Shares Outstanding | 14,945,789 |
Amendment Flag | FALSE |
Entity Central Index Key | 864839 |
Entity Current Reporting Status | Yes |
Entity Voluntary Filers | No |
Entity Filer Category | Smaller Reporting Company |
Entity Well-known Seasoned Issuer | No |
Document Period End Date | 31-Mar-15 |
Document Fiscal Year Focus | 2015 |
Document Fiscal Period Focus | Q1 |
BALANCE_SHEETS
BALANCE SHEETS (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Current Assets | ||
Cash and Cash Equivalents | $1,075,128 | $3,061,841 |
Other Receivables, net | 1,919,837 | 1,760,181 |
Revenue Receivables | 309,697 | 493,295 |
Prepaid Expenses | 581,887 | 158,404 |
Total Current Assets | 3,886,549 | 5,473,721 |
Other Assets | 555,844 | 510,821 |
Oil and Gas Properties, (successful efforts basis), Equipment and Fixtures, net | 7,398,362 | 7,594,666 |
Total Assets | 11,840,755 | 13,579,208 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 4,381,371 | 4,502,559 |
Current Portion of Long-Term Debt | 29,220 | 29,031 |
Deferred Turnkey Drilling Obligation | 7,398,033 | 7,937,786 |
Total Current Liabilities | 11,808,624 | 12,469,376 |
Noncurrent Liabilities: | ||
Asset Retirement Obligation | 832,214 | 804,206 |
Note Payable, less current portion | 1,439,274 | 1,446,853 |
Total Noncurrent Liabilities | 2,271,488 | 2,251,059 |
Total Liabilities | 14,080,112 | 14,720,435 |
Stockholders' (Deficit): | ||
Convertible preferred stock, Series AA, no par value, 147,500 shares authorized; 46,662 shares issued and outstanding at March 31, 2015 and December 31, 2014 | 136,149 | 136,149 |
Common Stock, no par value, authorized 20,000,000 shares, 14,945,789 shares issued and outstanding at March 31, 2015 and December 31, 2014 | 38,014,730 | 38,014,730 |
Additional Paid in Capital | 371,426 | 337,640 |
Accumulated Deficit | -40,755,159 | -39,623,243 |
Accumulated Other Comprehensive (Loss) | -6,503 | -6,503 |
Total Stockholders' (Deficit) | -2,239,357 | -1,141,227 |
Total Liabilities and Stockholders' (Deficit) | $11,840,755 | $13,579,208 |
BALANCE_SHEETS_Parentheticals
BALANCE SHEETS (Parentheticals) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Convertible Preferred Stock, Series AA, no par value (in Dollars per share) | ||
Convertible Preferred Stock, Series AA, shares authorized | 147,500 | 147,500 |
Convertible Preferred Stock, Series AA, shares issued | 46,662 | 46,662 |
Convertible preferred stock, Series AA, shares outstanding | 46,662 | 46,662 |
Common stock, no par value (in Dollars per share) | ||
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 14,945,789 | 14,945,789 |
Common Stock, shares outstanding | 14,945,789 | 14,945,789 |
STATEMENTS_OF_OPERATIONS_Unaud
STATEMENTS OF OPERATIONS (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Revenues: | ||
Sale of Oil and Gas | $294,309 | $825,556 |
Supervisory Fees and Other | 175,760 | 153,475 |
Total Revenues | 470,069 | 979,031 |
Costs and Expenses: | ||
General and Administrative | 828,944 | 835,061 |
Lease Operating | 314,792 | 453,536 |
Delay Rentals | 29,128 | 19,494 |
Lease Impairment | 12,681 | 0 |
Well Equipment Write Down | 19,000 | 0 |
Legal and Accounting | 224,476 | 218,652 |
Marketing | 76,988 | 95,196 |
Depreciation, Depletion and Amortization | 74,791 | 89,826 |
Total Costs and Expenses | 1,580,800 | 1,711,765 |
Gain (Loss) on Turnkey Drilling Programs | 0 | -19,033 |
(Loss) From Operations | -1,110,731 | -751,767 |
Other Income (Expense): | ||
Interest Expense | -21,185 | -15,338 |
(Loss) Before Income Tax Expense | -1,131,916 | -767,105 |
Net (Loss) | ($1,131,916) | ($767,105) |
Basic Earnings Per Share: | ||
Net Income (Loss) available to common stock (in Dollars per share) | ($0.08) | ($0.05) |
Diluted Earnings (Loss) Per Share (in Dollars per share) | ($0.08) | ($0.05) |
STATEMENTS_OF_CASH_FLOWS_Unaud
STATEMENTS OF CASH FLOWS (Unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net (Loss) | ($1,131,916) | ($767,105) |
Adjustments to Reconcile Net (Loss) to Net Cash Provided by (Used in) Operating Activities: | ||
Depreciation, Depletion and Amortization | 74,791 | 89,826 |
Lease Impairment | 12,681 | 0 |
(Gain) Loss on Turnkey Drilling Programs | 0 | 19,033 |
Well Equipment Write Down | 19,000 | 0 |
Stock-Based Compensation | 33,786 | 0 |
(Increase) Decrease in: | ||
Other & Revenue Receivables | 23,942 | -650,709 |
Prepaid Expenses and Other Assets | -487,506 | 48,112 |
Increase (Decrease) in: | ||
Accounts Payable and Accrued expenses | -93,180 | -53,995 |
Deferred Drilling Obligations | -539,753 | 280,346 |
Net Cash (Used in) Operating Activities | -2,088,155 | -1,034,492 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Expenditures for Oil and Gas Properties and Other Capital Expenditures | -1,055,922 | -560,773 |
Proceeds from Turnkey Drilling Programs | 1,164,754 | 385,153 |
Net Cash Provided By (Used in) Investing Activities | 108,832 | -175,620 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Principal Payments on Long-Term Debt | -7,390 | -3,721 |
Net Cash (Used in) Financing Activities | -7,390 | -3,721 |
Net (Decrease) in Cash and Cash Equivalents | -1,986,713 | -1,213,833 |
Cash at Beginning of Year | 3,061,841 | 4,878,233 |
Cash at End of Period | 1,075,128 | 3,664,400 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: | ||
Cash Paid for Interest | 21,185 | 15,338 |
Cash Paid for Taxes | $800 | $1,900 |
NOTE_1
NOTE 1 | 3 Months Ended | ||
Mar. 31, 2015 | |||
Accounting Policies [Abstract] | |||
Significant Accounting Policies [Text Block] | NOTE 1 – In the opinion of management, the accompanying unaudited financial statements include all adjustments, consisting only of normally recurring adjustments, necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented. The results of operations for the three month period are not, in management’s opinion, indicative of the results to be expected for a full year of operations. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report. | ||
Use of Estimates | |||
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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. Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proven reserves. Estimated reserves are used in the calculation of depletion, depreciation and amortization, unevaluated property costs, impairment of oil and natural gas properties, estimated future net cash flows, taxes, and contingencies. | |||
Liquidity | |||
The Company has negative working capital, losses from operations and negative cash flows from operations. The primary sources of liquidity have historically been issuances of common stock and operations. Until we become cash flow positive, we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, and the sale of oil and natural gas property participation interests . Assuming there are no further changes in expected sales and expense trends subsequent to May 12, 2015, the Company believes that its cash position will be sufficient to continue operations for the foreseeable future. | |||
Oil and Gas Property and Equipment | |||
Depreciation, depletion and amortization, based on cost less estimated salvage value of the asset, are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration. Maintenance and repairs, including planned major maintenance, are expensed as incurred. Major renewals and improvements are capitalized and the assets replaced are retired. | |||
Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods. Under the unit-of-production method, oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank. | |||
Proved oil and gas properties held and used by Royale Energy are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. | |||
Royale Energy estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. Cash flows used in impairment evaluations are developed using annually updated evaluation assumptions for crude oil commodity prices. Annual volumes are based on field production profiles, which are also updated annually. Prices for natural gas and other products are based on assumptions developed annually for evaluation purposes. | |||
Impairment analyses are generally based on proved reserves. An asset group would be impaired if the undiscounted cash flows were less than its carrying value. Impairments are measured by the amount the carrying value exceeds fair value. During the three months ended March 31, 2015 and 2014, impairment losses of $12,681 and $0, respectively, were recorded on various capitalized lease and land costs that were no longer viable. | |||
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 proved property, Royale Energy eliminates the cost from its books, and the resultant gain or loss is recorded to Royale Energy’s 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 Royale Energy’s 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. Should Royale Energy’s turnkey drilling agreements include unproved property, total drilling costs incurred to satisfy its obligations are recovered by the total funds received under the agreements. Any excess funds are recorded as a Gain on Turnkey Drilling Programs, and any costs not recovered are capitalized and accounted for under the “successful efforts” method. | |||
Royale Energy sponsors turnkey drilling agreement arrangements in unproved properties as a pooling of assets in a joint undertaking, whereby proceeds from participants are reported as Deferred Drilling Obligations, and then reduced as costs to complete its obligations are incurred with any excess booked against its property account to reduce any basis in its own interest. Gains on Turnkey Drilling Programs represent funds received from turnkey drilling participants in excess of all costs Royale incurs during the drilling programs (e.g., lease acquisition, exploration and development costs), including costs incurred on behalf of participants and costs incurred for its own account; and are recognized only upon making this determination after Royale’s obligations have been fulfilled. | |||
The contracts require the participants pay Royale Energy the full contract price upon execution of the agreement. Royale Energy completes the drilling activities typically between 10 and 30 days after drilling begins. The participant retains an undivided or proportional beneficial interest in the property, and is also responsible for its proportionate share of operating costs. Royale Energy retains legal title to the lease. The participants purchase a working interest directly in the well bore. | |||
In these working interest arrangements, the participants are responsible for sharing in the risk of development, but also sharing in a proportional interest in rights to revenues and proportional liability for the cost of operations after drilling is completed and the interest is conveyed to the participant. | |||
A certain portion of the turnkey drilling participant’s funds received are non-refundable. The company holds all funds invested as Deferred Drilling Obligations until drilling is complete. Occasionally, drilling is delayed due to the permitting process or drilling rig availability. At March 31, 2015 and December 31, 2014, Royale Energy had Deferred Drilling Obligations of $7,398,033 and $7,937,786 respectively. | |||
If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, Royale would retain the non-refundable portion of the contact and return the remaining funds to the participant. Included in cash and cash equivalents are amounts for use in completion of turnkey drilling programs in progress. | |||
Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value. | |||
Cash and Cash Equivalents | |||
Cash and cash equivalents include cash on hand and on deposit, and highly liquid debt instruments with maturities of three months or less. | |||
Other Receivables | |||
Our other receivables consists of 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 March 31, 2015 and December 31, 2014, the Company had an allowance for uncollectable accounts of $1,734,713 and $1,734,713, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue. | |||
Revenue Receivables | |||
Our revenue receivables consists of receivables related to the sale of our natural gas and oil. Once a production month is completed we receive payment approximately 15 to 30 days later. | |||
Equipment and Fixtures | |||
Equipment and fixtures are stated at cost and depreciated over the estimated useful lives of the assets, which range from three to seven years, using the straight-line method. Repairs and maintenance are charged to expense as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Maintenance and repairs, which neither materially add to the value of the property nor appreciably prolong its life, are charged to expense as incurred. Gains or losses on dispositions of property and equipment, other than oil and gas, are reflected in operations. | |||
Fair Value Measurements | |||
According to Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in period 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. | |||
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. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities. | |||
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: | |||
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. | |||
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. | |||
Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions | |||
At March 31, 2015, Royale Energy reported the fair value of $0 in available for sale securities. The fair value was determined using the number of shares owned as of March 31, 2015, multiplied by the market price of those securities on March 31, 2015 | |||
Reclassifications | |||
Certain items in the financial statements have been reclassified to maintain consistency and comparability for all periods presented herein. | |||
Recently Issued Accounting Pronouncements | |||
The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the quarter ended March 31, 2015, and have determined that the updates are not applicable to the Company. | |||
NOTE_2_LOSS_PER_SHARE
NOTE 2 - LOSS PER SHARE | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
Earnings Per Share [Abstract] | |||||||||||||
Earnings Per Share [Text Block] | NOTE 2– LOSS PER SHARE | ||||||||||||
Basic and diluted earnings (loss) per share are calculated as follows: | |||||||||||||
For the Three Months ended | |||||||||||||
31-Mar-15 | |||||||||||||
Loss | Shares | Per-Share | |||||||||||
(Numerator) | (Denominator) | Amount | |||||||||||
Basic Loss Per Share: | |||||||||||||
Net loss available to common stock | $ | (1,131,916 | ) | 14,945,789 | $ | (0.08 | ) | ||||||
Diluted Loss Per Share: | |||||||||||||
Effect of dilutive securities and stock options | 0 | 0 | 0 | ||||||||||
Net loss available to common stock | $ | (1,131,916 | ) | 14,945,789 | $ | (0.08 | ) | ||||||
For the Three Months ended | |||||||||||||
31-Mar-14 | |||||||||||||
Loss | Shares | Per-Share | |||||||||||
(Numerator) | (Denominator) | Amount | |||||||||||
Basic Loss Per Share: | |||||||||||||
Net loss available to common stock | $ | (767,105 | ) | 14,942,728 | $ | (0.05 | ) | ||||||
Diluted Loss Per Share: | |||||||||||||
Effect of dilutive securities and stock options | 0 | 0 | 0 | ||||||||||
Net loss available to common stock | $ | (767,105 | ) | 14,942,728 | $ | (0.05 | ) | ||||||
For the three months ended March 31, 2015 and 2014, Royale Energy had dilutive securities of 23,331 and 406,225, respectively. These securities were not included in the dilutive loss per share due to their antidilutive nature. | |||||||||||||
NOTE_3_OIL_AND_GAS_PROPERTIES_
NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Oil and Gas Exploration and Production Industries Disclosures [Abstract] | |||||||||
Oil and Gas Exploration and Production Industries Disclosures [Text Block] | NOTE 3 – OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES | ||||||||
Oil and gas properties, equipment and fixtures consist of the following: | |||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
(Unaudited) | (Audited) | ||||||||
Oil and Gas | |||||||||
Producing properties, including drilling costs | $ | 4,949,110 | $ | 4,920,521 | |||||
Undeveloped properties | $ | 2,699,984 | $ | 2,773,422 | |||||
Lease and well equipment | $ | 4,327,612 | $ | 4,410,120 | |||||
$ | 11,976,706 | $ | 12,104,063 | ||||||
Accumulated depletion, depreciation & amortization | $ | (7,372,875 | ) | $ | (7,318,510 | ) | |||
$ | 4,603,831 | $ | 4,785,553 | ||||||
Commercial and Other | |||||||||
Real Estate, Bldg Improvements, including furn and fix | $ | 2,770,724 | $ | 2,768,394 | |||||
Vehicles | $ | 116,830 | $ | 116,830 | |||||
Furniture and equipment | $ | 1,115,654 | $ | 1,114,086 | |||||
$ | 4,003,208 | $ | 3,999,310 | ||||||
Accumulated depreciation | $ | (1,208,677 | ) | $ | (1,190,197 | ) | |||
$ | 2,794,531 | $ | 2,809,113 | ||||||
$ | 7,398,362 | $ | 7,594,666 | ||||||
The guidance set forth in the Continued Capitalization of Exploratory Well Costs paragraph of the Extractive Activities Topic of the FASB Accounting Standards Codification 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. We did not make any additions to capitalized exploratory well costs pending a determination of proved reserves during the periods in 2015 or 2014. | |||||||||
NOTE_4_STOCK_COMPENSATION_PLAN
NOTE 4 - STOCK COMPENSATION PLAN | 3 Months Ended |
Mar. 31, 2015 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | NOTE 4 – STOCK COMPENSATION PLAN |
During the October 10, 2014 Board of Directors meeting, directors and executive offices of Royale Energy were granted 20,000 options each, 140,000 total, to purchase common stock at an exercise price of $5.00 per share. These options were granted for a period of 3 years and will expire after December 31, 2017. These options become exercisable at 5,000 shares per period beginning October 13, 2014, January 1, 2015, April 1, 2015 and July 1 2015. During the quarter ended March 31, 2015, Royale recognized compensation costs of $33,786 relating to this option grant. There were no stock compensation costs recognized during the same quarter in 2014. | |
NOTE_5_INCOME_TAXES
NOTE 5 - INCOME TAXES | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Income Tax Disclosure [Abstract] | |||||||||
Income Tax Disclosure [Text Block] | NOTE 5 – INCOME TAXES | ||||||||
Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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 2014, management reviewed the reliability of the Company’s net deferred tax assets, and due to the Company’s continued cumulative losses in recent years, Royale and it management concluded it is not “more-likely-than-not” its deferred tax assets will be realized. As a result, the Company will continue to record a full valuation allowance against the deferred tax assets in 2015. | |||||||||
A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the statutory income tax rates at March 31, 2015 and 2014, respectively, to pretax income is as follows: | |||||||||
Three Months | Three Months | ||||||||
Ended | Ended | ||||||||
31-Mar-15 | 31-Mar-14 | ||||||||
Tax (benefit) computed at statutory rate of 34% | $ | (384,851 | ) | $ | -260,816 | ||||
Increase (decrease) in taxes resulting from: | |||||||||
State tax / percentage depletion / other | |||||||||
Other non-deductible expenses | 216 | 375 | |||||||
Change in valuation allowance | 384,635 | 260,441 | |||||||
Provision (benefit) | $ | - | $ | - | |||||
NOTE_6_SUBSEQUENT_EVENTS
NOTE 6 - SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2015 | |
Subsequent Events [Abstract] | |
Subsequent Events [Text Block] | NOTE 6 – SUBSEQUENT EVENTS |
On April 7, 2015, NASDAQ notified Royale Energy, Inc., by letter that Royale is not currently in compliance with the requirement that companies listed on the NASDAQ Capital Market are required by Marketplace Rule 4450(a)(3) to maintain a minimum of $2.5 million in stockholders’ equity for continued listing. Royale’s Form 10-K for the year ended December 31, 2014, reported stockholders’ equity at December 31, 2014, of ($1,141,227). | |
Under NASDAQ rules, Royale has 45 calendar days from the date of the notification to submit a plan to regain compliance. Royale is preparing to submit its plan to regain compliance in accordance with NASDAQ rules. The Company’s management is planning to raise additional equity, and on April 2, 2015, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission to register additional equity and debt securities for sale in a public offering. | |
The Company will provide to NASDAQ a specific plan to accomplish such an increase to meet continued NASDAQ listing requirements by May 22, 2015. | |
Accounting_Policies_by_Policy_
Accounting Policies, by Policy (Policies) | 3 Months Ended | ||
Mar. 31, 2015 | |||
Accounting Policies [Abstract] | |||
Use of Estimates, Policy [Policy Text Block] | Use of Estimates | ||
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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. Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proven reserves. Estimated reserves are used in the calculation of depletion, depreciation and amortization, unevaluated property costs, impairment of oil and natural gas properties, estimated future net cash flows, taxes, and contingencies. | |||
Liquidity Disclosure [Policy Text Block] | Liquidity | ||
The Company has negative working capital, losses from operations and negative cash flows from operations. The primary sources of liquidity have historically been issuances of common stock and operations. Until we become cash flow positive, we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, and the sale of oil and natural gas property participation interests . Assuming there are no further changes in expected sales and expense trends subsequent to May 12, 2015, the Company believes that its cash position will be sufficient to continue operations for the foreseeable future. | |||
Oil and Gas Properties Policy [Policy Text Block] | Oil and Gas Property and Equipment | ||
Depreciation, depletion and amortization, based on cost less estimated salvage value of the asset, are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration. Maintenance and repairs, including planned major maintenance, are expensed as incurred. Major renewals and improvements are capitalized and the assets replaced are retired. | |||
Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods. Under the unit-of-production method, oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank. | |||
Proved oil and gas properties held and used by Royale Energy are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. | |||
Royale Energy estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. Cash flows used in impairment evaluations are developed using annually updated evaluation assumptions for crude oil commodity prices. Annual volumes are based on field production profiles, which are also updated annually. Prices for natural gas and other products are based on assumptions developed annually for evaluation purposes. | |||
Impairment analyses are generally based on proved reserves. An asset group would be impaired if the undiscounted cash flows were less than its carrying value. Impairments are measured by the amount the carrying value exceeds fair value. During the three months ended March 31, 2015 and 2014, impairment losses of $12,681 and $0, respectively, were recorded on various capitalized lease and land costs that were no longer viable. | |||
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 proved property, Royale Energy eliminates the cost from its books, and the resultant gain or loss is recorded to Royale Energy’s 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 Royale Energy’s 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. Should Royale Energy’s turnkey drilling agreements include unproved property, total drilling costs incurred to satisfy its obligations are recovered by the total funds received under the agreements. Any excess funds are recorded as a Gain on Turnkey Drilling Programs, and any costs not recovered are capitalized and accounted for under the “successful efforts” method. | |||
Royale Energy sponsors turnkey drilling agreement arrangements in unproved properties as a pooling of assets in a joint undertaking, whereby proceeds from participants are reported as Deferred Drilling Obligations, and then reduced as costs to complete its obligations are incurred with any excess booked against its property account to reduce any basis in its own interest. Gains on Turnkey Drilling Programs represent funds received from turnkey drilling participants in excess of all costs Royale incurs during the drilling programs (e.g., lease acquisition, exploration and development costs), including costs incurred on behalf of participants and costs incurred for its own account; and are recognized only upon making this determination after Royale’s obligations have been fulfilled. | |||
The contracts require the participants pay Royale Energy the full contract price upon execution of the agreement. Royale Energy completes the drilling activities typically between 10 and 30 days after drilling begins. The participant retains an undivided or proportional beneficial interest in the property, and is also responsible for its proportionate share of operating costs. Royale Energy retains legal title to the lease. The participants purchase a working interest directly in the well bore. | |||
In these working interest arrangements, the participants are responsible for sharing in the risk of development, but also sharing in a proportional interest in rights to revenues and proportional liability for the cost of operations after drilling is completed and the interest is conveyed to the participant. | |||
A certain portion of the turnkey drilling participant’s funds received are non-refundable. The company holds all funds invested as Deferred Drilling Obligations until drilling is complete. Occasionally, drilling is delayed due to the permitting process or drilling rig availability. At March 31, 2015 and December 31, 2014, Royale Energy had Deferred Drilling Obligations of $7,398,033 and $7,937,786 respectively. | |||
If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, Royale would retain the non-refundable portion of the contact and return the remaining funds to the participant. Included in cash and cash equivalents are amounts for use in completion of turnkey drilling programs in progress. | |||
Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value. | |||
Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and Cash Equivalents | ||
Cash and cash equivalents include cash on hand and on deposit, and highly liquid debt instruments with maturities of three months or less. | |||
Receivables, Policy [Policy Text Block] | Other Receivables | ||
Our other receivables consists of 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 March 31, 2015 and December 31, 2014, the Company had an allowance for uncollectable accounts of $1,734,713 and $1,734,713, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue. | |||
Revenue Recognition, Policy [Policy Text Block] | Revenue Receivables | ||
Our revenue receivables consists of receivables related to the sale of our natural gas and oil. Once a production month is completed we receive payment approximately 15 to 30 days later. | |||
Property, Plant and Equipment, Policy [Policy Text Block] | Equipment and Fixtures | ||
Equipment and fixtures are stated at cost and depreciated over the estimated useful lives of the assets, which range from three to seven years, using the straight-line method. Repairs and maintenance are charged to expense as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Maintenance and repairs, which neither materially add to the value of the property nor appreciably prolong its life, are charged to expense as incurred. Gains or losses on dispositions of property and equipment, other than oil and gas, are reflected in operations. | |||
Fair Value Measurement, Policy [Policy Text Block] | Fair Value Measurements | ||
According to Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in period 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. | |||
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. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities. | |||
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: | |||
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. | |||
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument. | |||
Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions | |||
At March 31, 2015, Royale Energy reported the fair value of $0 in available for sale securities. The fair value was determined using the number of shares owned as of March 31, 2015, multiplied by the market price of those securities on March 31, 2015 | |||
Reclassification, Policy [Policy Text Block] | Reclassifications | ||
Certain items in the financial statements have been reclassified to maintain consistency and comparability for all periods presented herein. | |||
New Accounting Pronouncements, Policy [Policy Text Block] | Recently Issued Accounting Pronouncements | ||
The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the quarter ended March 31, 2015, and have determined that the updates are not applicable to the Company. |
NOTE_2_LOSS_PER_SHARE_Tables
NOTE 2 - LOSS PER SHARE (Tables) | 3 Months Ended | ||||||||||||
Mar. 31, 2015 | |||||||||||||
Earnings Per Share [Abstract] | |||||||||||||
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] | Basic and diluted earnings (loss) per share are calculated as follows: | ||||||||||||
For the Three Months ended | |||||||||||||
31-Mar-15 | |||||||||||||
Loss | Shares | Per-Share | |||||||||||
(Numerator) | (Denominator) | Amount | |||||||||||
Basic Loss Per Share: | |||||||||||||
Net loss available to common stock | $ | (1,131,916 | ) | 14,945,789 | $ | (0.08 | ) | ||||||
Diluted Loss Per Share: | |||||||||||||
Effect of dilutive securities and stock options | 0 | 0 | 0 | ||||||||||
Net loss available to common stock | $ | (1,131,916 | ) | 14,945,789 | $ | (0.08 | ) | ||||||
For the Three Months ended | |||||||||||||
31-Mar-14 | |||||||||||||
Loss | Shares | Per-Share | |||||||||||
(Numerator) | (Denominator) | Amount | |||||||||||
Basic Loss Per Share: | |||||||||||||
Net loss available to common stock | $ | (767,105 | ) | 14,942,728 | $ | (0.05 | ) | ||||||
Diluted Loss Per Share: | |||||||||||||
Effect of dilutive securities and stock options | 0 | 0 | 0 | ||||||||||
Net loss available to common stock | $ | (767,105 | ) | 14,942,728 | $ | (0.05 | ) |
NOTE_3_OIL_AND_GAS_PROPERTIES_1
NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Oil and Gas Exploration and Production Industries Disclosures [Abstract] | |||||||||
Property, Plant and Equipment [Table Text Block] | Oil and gas properties, equipment and fixtures consist of the following: | ||||||||
March 31, | December 31, | ||||||||
2015 | 2014 | ||||||||
(Unaudited) | (Audited) | ||||||||
Oil and Gas | |||||||||
Producing properties, including drilling costs | $ | 4,949,110 | $ | 4,920,521 | |||||
Undeveloped properties | $ | 2,699,984 | $ | 2,773,422 | |||||
Lease and well equipment | $ | 4,327,612 | $ | 4,410,120 | |||||
$ | 11,976,706 | $ | 12,104,063 | ||||||
Accumulated depletion, depreciation & amortization | $ | (7,372,875 | ) | $ | (7,318,510 | ) | |||
$ | 4,603,831 | $ | 4,785,553 | ||||||
Commercial and Other | |||||||||
Real Estate, Bldg Improvements, including furn and fix | $ | 2,770,724 | $ | 2,768,394 | |||||
Vehicles | $ | 116,830 | $ | 116,830 | |||||
Furniture and equipment | $ | 1,115,654 | $ | 1,114,086 | |||||
$ | 4,003,208 | $ | 3,999,310 | ||||||
Accumulated depreciation | $ | (1,208,677 | ) | $ | (1,190,197 | ) | |||
$ | 2,794,531 | $ | 2,809,113 | ||||||
$ | 7,398,362 | $ | 7,594,666 |
NOTE_5_INCOME_TAXES_Tables
NOTE 5 - INCOME TAXES (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
Income Tax Disclosure [Abstract] | |||||||||
Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] | A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the statutory income tax rates at March 31, 2015 and 2014, respectively, to pretax income is as follows: | ||||||||
Three Months | Three Months | ||||||||
Ended | Ended | ||||||||
31-Mar-15 | 31-Mar-14 | ||||||||
Tax (benefit) computed at statutory rate of 34% | $ | (384,851 | ) | $ | -260,816 | ||||
Increase (decrease) in taxes resulting from: | |||||||||
State tax / percentage depletion / other | |||||||||
Other non-deductible expenses | 216 | 375 | |||||||
Change in valuation allowance | 384,635 | 260,441 | |||||||
Provision (benefit) | $ | - | $ | - |
NOTE_1_Details
NOTE 1 (Details) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
NOTE 1 (Details) [Line Items] | |||
Impairment of Oil and Gas Properties | $12,681 | $0 | |
Customer Deposits, Current | 7,398,033 | 7,937,786 | |
Allowance for Doubtful Accounts Receivable | 1,734,713 | 1,734,713 | |
Available-for-sale Securities | $0 | ||
Minimum [Member] | |||
NOTE 1 (Details) [Line Items] | |||
Property, Plant and Equipment, Useful Life | 3 years | ||
Maximum [Member] | |||
NOTE 1 (Details) [Line Items] | |||
Property, Plant and Equipment, Useful Life | 7 years |
NOTE_2_LOSS_PER_SHARE_Details
NOTE 2 - LOSS PER SHARE (Details) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Earnings Per Share [Abstract] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 23,331 | 406,225 |
NOTE_2_LOSS_PER_SHARE_Details_
NOTE 2 - LOSS PER SHARE (Details) - Schedule of Earnings Per Share, Basic and Diluted (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Basic Loss Per Share: | ||
Net loss available to common stock, basic | ($1,131,916) | ($767,105) |
Weighted average basic common shares outstanding | 14,945,789 | 14,942,728 |
Loss per share, basic | ($0.08) | ($0.05) |
Diluted Loss Per Share: | ||
Effect of dilutive securities and stock options on net loss | 0 | 0 |
Effect of dilutive securities and stock options | 0 | 0 |
Effect of dilutive securities and stock options on loss per share | $0 | $0 |
Net loss available to common stock, diluted | ($1,131,916) | ($767,105) |
Weighted average diluted common shares outstanding | 14,945,789 | 14,942,728 |
Loss per share, diluted | ($0.08) | ($0.05) |
NOTE_3_OIL_AND_GAS_PROPERTIES_2
NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Details) - Schedule of Oil and Gas Properties, Equipment and Fixtures (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Oil and Gas | ||
Producing properties, including drilling costs | $4,949,110 | $4,920,521 |
Undeveloped properties | 2,699,984 | 2,773,422 |
Lease and well equipment | 4,327,612 | 4,410,120 |
11,976,706 | 12,104,063 | |
Accumulated depletion, depreciation & amortization | -7,372,875 | -7,318,510 |
4,603,831 | 4,785,553 | |
Commercial and Other | ||
Property, Plant and Equipment, Gross | 4,003,208 | 3,999,310 |
Accumulated depreciation | -1,208,677 | -1,190,197 |
2,794,531 | 2,809,113 | |
7,398,362 | 7,594,666 | |
Land, Buildings and Improvements [Member] | ||
Commercial and Other | ||
Property, Plant and Equipment, Gross | 2,770,724 | 2,768,394 |
Vehicles [Member] | ||
Commercial and Other | ||
Property, Plant and Equipment, Gross | 116,830 | 116,830 |
Furniture and Fixtures [Member] | ||
Commercial and Other | ||
Property, Plant and Equipment, Gross | $1,115,654 | $1,114,086 |
NOTE_4_STOCK_COMPENSATION_PLAN1
NOTE 4 - STOCK COMPENSATION PLAN (Details) (Directors and Executive Officers [Member], Employee Stock Option [Member], USD $) | 0 Months Ended |
Oct. 10, 2014 | |
NOTE 4 - STOCK COMPENSATION PLAN (Details) [Line Items] | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 140,000 |
Share-based Compensation by Shre-based Payment Award, Options, Exercis Price of Options | 5 |
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period | 3 years |
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights | These options become exercisable at 5,000 shares per period beginning October 13, 2014, January 1, 2015, April 1, 2015 and July 1 2015. |
Share-based Compensation | 33,786 |
Options Granted to Each Individual [Member] | |
NOTE 4 - STOCK COMPENSATION PLAN (Details) [Line Items] | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 20,000 |
NOTE_5_INCOME_TAXES_Details_Sc
NOTE 5 - INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Schedule of Effective Income Tax Rate Reconciliation [Abstract] | ||
Tax (benefit) computed at statutory rate of 34% | ($384,851) | ($260,816) |
Increase (decrease) in taxes resulting from: | ||
State tax / percentage depletion / other | 0 | 0 |
Other non-deductible expenses | 216 | 375 |
Change in valuation allowance | 384,635 | 260,441 |
Provision (benefit) | $0 | $0 |
NOTE_5_INCOME_TAXES_Details_Sc1
NOTE 5 - INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation (Parentheticals) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Schedule of Effective Income Tax Rate Reconciliation [Abstract] | ||
Statutory rate | 34.00% | 34.00% |
NOTE_6_SUBSEQUENT_EVENTS_Detai
NOTE 6 - SUBSEQUENT EVENTS (Details) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Subsequent Events [Abstract] | ||
Stockholders' Equity Attributable to Parent | ($2,239,357) | ($1,141,227) |