Document And Entity Information
Document And Entity Information | 9 Months Ended |
Sep. 30, 2015shares | |
Document and Entity Information [Abstract] | |
Entity Registrant Name | ROYALE ENERGY INC |
Document Type | 10-Q |
Current Fiscal Year End Date | --12-31 |
Entity Common Stock, Shares Outstanding | 15,525,483 |
Amendment Flag | false |
Entity Central Index Key | 864,839 |
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 | Sep. 30, 2015 |
Document Fiscal Year Focus | 2,015 |
Document Fiscal Period Focus | Q3 |
BALANCE SHEETS
BALANCE SHEETS - USD ($) | Sep. 30, 2015 | Dec. 31, 2014 |
Current Assets | ||
Cash and Cash Equivalents | $ 1,706,321 | $ 3,061,841 |
Other Receivables | 2,025,010 | 1,760,181 |
Revenue Receivables | 199,172 | 493,295 |
Prepaid Expenses | 90,081 | 158,404 |
Total Current Assets | 4,020,584 | 5,473,721 |
Other Assets | 580,844 | 510,821 |
Oil and Gas Properties, at cost, (successful efforts basis), and Equipment and Fixtures | 6,716,227 | 7,594,666 |
Total Assets | 11,317,655 | 13,579,208 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 3,586,291 | 4,502,559 |
Current Portion of Long-Term Debt, Net | 30,089 | 29,031 |
Deferred Turnkey Drilling Obligation | 8,137,553 | 7,937,786 |
Total Current Liabilities | 11,753,933 | 12,469,376 |
Noncurrent Liabilities: | ||
Asset Retirement Obligation | 834,679 | 804,206 |
Note Payable | 1,424,237 | 1,446,853 |
Total Noncurrent Liabilities | 2,258,916 | 2,251,059 |
Total Liabilities | 14,012,849 | 14,720,435 |
Stockholders' (Deficit): | ||
Common Stock, no par value, authorized 20,000,000 shares, 15,525,483 and 14,945,789 shares issued and outstanding. | 38,478,003 | 38,014,730 |
Convertible preferred stock, Series AA, no par value, 147,500 shares authorized; 46,662 and 46,662 shares issued and outstanding | 136,149 | 136,149 |
Accumulated Deficit | (41,683,202) | (39,623,243) |
Additional Paid in Capital | 380,359 | 337,640 |
Accumulated Other Comprehensive (Loss) | (6,503) | (6,503) |
Total Stockholders' (Deficit) | (2,695,194) | (1,141,227) |
Total Liabilities and Stockholders' (Deficit) | $ 11,317,655 | $ 13,579,208 |
BALANCE SHEETS (Parentheticals)
BALANCE SHEETS (Parentheticals) - $ / shares | Sep. 30, 2015 | Dec. 31, 2014 |
Common stock, no par value (in Dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 15,525,483 | 14,945,789 |
Common Stock, shares outstanding | 15,525,483 | 14,945,789 |
Convertible Preferred Stock, Series AA, no par value (in Dollars per share) | $ 0 | $ 0 |
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 |
STATEMENTS OF OPERATIONS (Unaud
STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Revenues: | ||||
Sale of Oil and Gas | $ 255,179 | $ 507,784 | $ 831,472 | $ 2,077,750 |
Supervisory Fees and Other | 186,616 | 169,475 | 529,082 | 497,379 |
Total Revenues | 441,795 | 677,259 | 1,360,554 | 2,575,129 |
Costs and Expenses: | ||||
General and Administrative | 710,239 | 858,137 | 2,397,434 | 2,280,268 |
Lease Operating | 218,953 | 248,028 | 803,549 | 969,390 |
Delay Rentals | 0 | 2,400 | 49,565 | 34,192 |
Lease Impairment | 83,755 | 37,494 | 96,436 | 37,494 |
Well Equipment Write Down | 0 | 0 | 19,000 | 0 |
Legal and Accounting | 130,037 | 39,030 | 453,935 | 307,433 |
Marketing | 94,861 | 133,047 | 240,608 | 263,365 |
Depreciation, Depletion and Amortization | 70,018 | 62,880 | 209,238 | 241,015 |
Total Costs and Expenses | 1,307,863 | 1,381,016 | 4,269,765 | 4,133,157 |
Gain (Loss) on Turnkey Drilling Programs | 887,440 | 562,885 | 903,677 | 959,339 |
Gain (Loss) on Sale of assets | 0 | 369,977 | 10,070 | 335,376 |
Income (Loss) From Operations | 21,372 | 229,105 | (1,995,464) | (263,313) |
Other Income (Expense): | ||||
Interest Expense | (21,766) | (22,792) | (64,495) | (60,085) |
Income (Loss) Before Income Tax Expense | (394) | 206,313 | (2,059,959) | (323,398) |
Net Income (Loss) | $ (394) | $ 206,313 | $ (2,059,959) | $ (323,398) |
Basic Earnings Per Share (in Dollars per share) | $ 0 | $ 0.01 | $ (0.14) | $ (0.02) |
Diluted Earnings Per Share (in Dollars per share) | $ 0 | $ 0.01 | $ (0.14) | $ (0.02) |
STATEMENTS OF CASH FLOWS (Unaud
STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net (Loss) | $ (2,059,959) | $ (323,398) |
Adjustments to Reconcile Net (Loss) to Net Cash (Used) by Operating Activities: | ||
Depreciation, Depletion and Amortization | 209,238 | 241,015 |
Lease Impairment | 96,436 | 37,494 |
(Gain) Loss on Sale of Assets | (10,070) | (335,376) |
(Gain) Loss on Turnkey Drilling Programs | (903,677) | (959,339) |
Well Equipment Write Down | 19,000 | 0 |
Stock-Based Compensation, net of adjustments | 86,878 | 0 |
(Increase) Decrease in: | ||
Other & Revenue Receivables | 29,294 | (1,000,194) |
Prepaid Expenses and Other Assets | (20,700) | 31,198 |
Increase (Decrease) in: | ||
Accounts Payable and Accrued expenses | (885,795) | (492,176) |
Deferred Drilling Obligations | 199,767 | (594,709) |
Net Cash (Used) by Operating Activities | (3,239,588) | (3,395,485) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Expenditures for Oil and Gas Properties and Other Capital Expenditures | (2,193,233) | (2,696,088) |
Proceeds from Turnkey Drilling Programs | 3,173,208 | 3,889,058 |
Proceeds from Sale of Assets | 506,537 | 0 |
Net Cash Provided by Investing Activities | 1,486,512 | 1,192,970 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Principal Payments on Long-Term Debt | (21,558) | (17,061) |
Proceeds from Sale of Common Stock | 419,114 | 0 |
Net Cash Provided (Used) by Financing Activities | 397,556 | (17,061) |
Net (Decrease) in Cash and Cash Equivalents | (1,355,520) | (2,219,576) |
Cash at Beginning of Year | 3,061,841 | 4,878,233 |
Cash at End of Period | 1,706,321 | 2,658,657 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: | ||
Cash Paid for Interest | 64,495 | 60,085 |
Cash Paid for Taxes | $ 3,000 | $ 2,000 |
NOTE 1
NOTE 1 | 9 Months Ended |
Sep. 30, 2015 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies [Text Block] | NOTE 1 – 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. Historically, the primary source of liquidity has been cash flow from 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 non-core assets. Assuming there are no changes in expected sales and expense trends subsequent to October 31, 2015, the Company believes that these sources will be sufficient to continue operations for the foreseeable future. On April 7, 2015, NASDAQ notified us that the company is not in compliance with the minimum stockholders’ equity requirement of the NASDAQ Capital Market listing standards, which require that issuers maintain a minimum stockholders’ equity of at least $2.5 million. We have filed a registration statement with the SEC to sell common stock sufficient to raise net stockholder’s equity to a level above $2.5 million. On May 20, 2015, the registration statement became effective with the SEC. On June 4, 2015, NASDAQ granted an extension through October 5, 2015, to file financial statements demonstrating compliance with the minimum stockholders’ equity requirement. On October 6, 2015, Royale Energy, Inc., received a letter from the NASDAQ notifying the Company it has not regained compliance with the minimum $2.5 million stockholders’ equity for continued listing. The Company’s securities would be subject to delisting unless the Company requests a hearing on the delisting notice before the NASDAQ Listing Qualifications Panel (the “Panel”) by October 13, 2015. The Company requested a hearing on October 13, 2015, and has been assigned a hearing date on December 3, 2015, at which the Company will present its plan to regain and thereafter sustain compliance with all applicable listing requirements. The Company’s securities will continue to be listed on The NASDAQ Capital Market pending the completion of the hearing process and the expiration of any extension granted by the Panel. However, there can be no assurance that the Panel will grant the Company’s request for continued listing. If the Company becomes delisted from the NASDAQ Capital Market, it will become ineligible to register and sell its securities on SEC Form S-3, and thus the failure to maintain a listing on the NASDAQ Capital Market may make it more difficult for the company to meet its capital needs through the sale of its securities in a public offering. 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 nine months ended September 30, 2015 and 2014, impairment losses of $96,436 and $37,494, 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 undeveloped 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 records a liability for 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 September 30, 2015 and December 31, 2014, Royale Energy had Deferred Drilling Obligations of $8,137,553 and $7,937,786 respectively. 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 original maturities of three months or less. Other Receivables Other receivables consist 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 September 30, 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 Revenue receivables consist of receivables related to the sale of our natural gas and oil. Once a production month is completed Royale Energy receives 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 September 30, 2015 and December 31, 2014, 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 September 30, 2015, multiplied by the market price of those securities on September 30, 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 nine months ended September 30, 2015, and have determined that the updates are not applicable to the Company. |
NOTE 2 - EARNINGS (LOSS) PER SH
NOTE 2 - EARNINGS (LOSS) PER SHARE | 9 Months Ended |
Sep. 30, 2015 | |
Earnings Per Share [Abstract] | |
Earnings Per Share [Text Block] | NOTE 2 – EARNINGS (LOSS) PER SHARE Basic and diluted earnings (loss) per share are calculated as follows: Three Months Ended September 30, 2015 2014 Basic Diluted Basic Diluted Net Income (Loss) $ (394 ) $ (394 ) $ 206,313 $ 206,313 Weighted average common shares outstanding 14,998,103 14,998,103 14,942,728 14,942,728 Effect of dilutive securities -- -- -- 262,573 Weighted average common shares, including Dilutive effect 14,998,103 14,998,103 14,942,728 15,205,301 Per share: Net income (Loss) $ 0.00 $ 0.00 $ 0.01 $ 0.01 Nine Months Ended September 30, 2015 2014 Basic Diluted Basic Diluted Net (Loss) $ (2,059,959 ) $ (2,059,959 ) $ (323,398 ) $ (323,398 ) Weighted average common shares outstanding 14,998,103 14,998,103 14,942,728 14,942,728 Effect of dilutive securities -- -- -- -- Weighted average common shares, including Dilutive effect 14,998,103 14,998,103 14,942,728 14,942,728 Per share: Net (Loss) $ (0.14 ) $ (0.14 ) $ (0.02 ) $ (0.02 ) For the nine months ended September 30, 2015 and 2014, Royale Energy had dilutive securities of 23,331 and 184,844, respectively. For the three month period ended September 30, 2015, Royale Energy had dilutive securities of 23,331. 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 | 9 Months Ended |
Sep. 30, 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: September 30, December 31, 2015 2014 (Unaudited) (Audited) Oil and Gas Producing properties, including drilling costs $ 5,028,699 $ 4,920,521 Undeveloped properties 2,541,751 2,773,422 Lease and well equipment 4,348,948 4,410,120 Gross Oil and Gas Properties $ 11,919,398 $ 12,104,063 Accumulated depletion, depreciation & amortization (7,470,091 ) (7,318,510 ) Net Oil and Gas Properties $ 4,449,307 $ 4,785,553 Commercial and Other Real Estate, Bldg Improvements, including furn and fix $ 2,266,050 $ 2,768,394 Vehicles 118,061 116,830 Furniture and equipment 1,120,760 1,114,086 Gross Equipment and Fixtures $ 3,504,871 $ 3,999,310 Accumulated depreciation (1,237,951 ) (1,190,197 ) Net Equipment and Fixtures $ 2,266,920 $ 2,809,113 Net Oil, Gas, Equipment and Fixtures $ 6,716,227 $ 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 PLA
NOTE 4 - STOCK COMPENSATION PLAN | 9 Months Ended |
Sep. 30, 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 nine months ended September 30, 2015, Royale recognized compensation costs of $86,878 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 | 9 Months Ended |
Sep. 30, 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 September 30, 2015 and 2014, respectively, to pretax income is as follows: Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014 Tax (benefit) computed at statutory rate of 34% $ (700,386 ) $ (109,955 ) Increase (decrease) in taxes resulting from: State tax / percentage depletion / other Other non-deductible expenses 530 787 Change in valuation allowance 699,856 109,168 Provision (benefit) $ - $ - |
NOTE 6 - SUBSEQUENT EVENTS
NOTE 6 - SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2015 | |
Subsequent Events [Abstract] | |
Subsequent Events [Text Block] | NOTE 6 – SUBSEQUENT EVENTS On September 25, 2015, the Company reached an agreement with Rampart Alaska, LLC, whereby all disputes between the two companies have been resolved, and Royale shall repurchase Rampart’s 30% interest in its Alaska North Slope Western Block. Royale anticipates concluding the terms of the agreement during the fourth quarter of this year. |
Accounting Policies, by Policy
Accounting Policies, by Policy (Policies) | 9 Months Ended |
Sep. 30, 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 and Going Concern [Policy Text Block] | Liquidity The Company has negative working capital, losses from operations and negative cash flows from operations. Historically, the primary source of liquidity has been cash flow from 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 non-core assets. Assuming there are no changes in expected sales and expense trends subsequent to October 31, 2015, the Company believes that these sources will be sufficient to continue operations for the foreseeable future. On April 7, 2015, NASDAQ notified us that the company is not in compliance with the minimum stockholders’ equity requirement of the NASDAQ Capital Market listing standards, which require that issuers maintain a minimum stockholders’ equity of at least $2.5 million. We have filed a registration statement with the SEC to sell common stock sufficient to raise net stockholder’s equity to a level above $2.5 million. On May 20, 2015, the registration statement became effective with the SEC. On June 4, 2015, NASDAQ granted an extension through October 5, 2015, to file financial statements demonstrating compliance with the minimum stockholders’ equity requirement. On October 6, 2015, Royale Energy, Inc., received a letter from the NASDAQ notifying the Company it has not regained compliance with the minimum $2.5 million stockholders’ equity for continued listing. The Company’s securities would be subject to delisting unless the Company requests a hearing on the delisting notice before the NASDAQ Listing Qualifications Panel (the “Panel”) by October 13, 2015. The Company requested a hearing on October 13, 2015, and has been assigned a hearing date on December 3, 2015, at which the Company will present its plan to regain and thereafter sustain compliance with all applicable listing requirements. The Company’s securities will continue to be listed on The NASDAQ Capital Market pending the completion of the hearing process and the expiration of any extension granted by the Panel. However, there can be no assurance that the Panel will grant the Company’s request for continued listing. If the Company becomes delisted from the NASDAQ Capital Market, it will become ineligible to register and sell its securities on SEC Form S-3, and thus the failure to maintain a listing on the NASDAQ Capital Market may make it more difficult for the company to meet its capital needs through the sale of its securities in a public offering. |
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 nine months ended September 30, 2015 and 2014, impairment losses of $96,436 and $37,494, 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 undeveloped 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 records a liability for 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 September 30, 2015 and December 31, 2014, Royale Energy had Deferred Drilling Obligations of $8,137,553 and $7,937,786 respectively. 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 original maturities of three months or less. |
Receivables, Policy [Policy Text Block] | Other Receivables Other receivables consist 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 September 30, 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 Revenue receivables consist of receivables related to the sale of our natural gas and oil. Once a production month is completed Royale Energy receives 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 September 30, 2015 and December 31, 2014, 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 September 30, 2015, multiplied by the market price of those securities on September 30, 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 nine months ended September 30, 2015, and have determined that the updates are not applicable to the Company. |
NOTE 2 - EARNINGS (LOSS) PER 13
NOTE 2 - EARNINGS (LOSS) PER SHARE (Tables) | 9 Months Ended |
Sep. 30, 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: Three Months Ended September 30, 2015 2014 Basic Diluted Basic Diluted Net Income (Loss) $ (394 ) $ (394 ) $ 206,313 $ 206,313 Weighted average common shares outstanding 14,998,103 14,998,103 14,942,728 14,942,728 Effect of dilutive securities -- -- -- 262,573 Weighted average common shares, including Dilutive effect 14,998,103 14,998,103 14,942,728 15,205,301 Per share: Net income (Loss) $ 0.00 $ 0.00 $ 0.01 $ 0.01 Nine Months Ended September 30, 2015 2014 Basic Diluted Basic Diluted Net (Loss) $ (2,059,959 ) $ (2,059,959 ) $ (323,398 ) $ (323,398 ) Weighted average common shares outstanding 14,998,103 14,998,103 14,942,728 14,942,728 Effect of dilutive securities -- -- -- -- Weighted average common shares, including Dilutive effect 14,998,103 14,998,103 14,942,728 14,942,728 Per share: Net (Loss) $ (0.14 ) $ (0.14 ) $ (0.02 ) $ (0.02 ) |
NOTE 3 - OIL AND GAS PROPERTI14
NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Tables) | 9 Months Ended |
Sep. 30, 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: September 30, December 31, 2015 2014 (Unaudited) (Audited) Oil and Gas Producing properties, including drilling costs $ 5,028,699 $ 4,920,521 Undeveloped properties 2,541,751 2,773,422 Lease and well equipment 4,348,948 4,410,120 Gross Oil and Gas Properties $ 11,919,398 $ 12,104,063 Accumulated depletion, depreciation & amortization (7,470,091 ) (7,318,510 ) Net Oil and Gas Properties $ 4,449,307 $ 4,785,553 Commercial and Other Real Estate, Bldg Improvements, including furn and fix $ 2,266,050 $ 2,768,394 Vehicles 118,061 116,830 Furniture and equipment 1,120,760 1,114,086 Gross Equipment and Fixtures $ 3,504,871 $ 3,999,310 Accumulated depreciation (1,237,951 ) (1,190,197 ) Net Equipment and Fixtures $ 2,266,920 $ 2,809,113 Net Oil, Gas, Equipment and Fixtures $ 6,716,227 $ 7,594,666 |
NOTE 5 - INCOME TAXES (Tables)
NOTE 5 - INCOME TAXES (Tables) | 9 Months Ended |
Sep. 30, 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 September 30, 2015 and 2014, respectively, to pretax income is as follows: Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014 Tax (benefit) computed at statutory rate of 34% $ (700,386 ) $ (109,955 ) Increase (decrease) in taxes resulting from: State tax / percentage depletion / other Other non-deductible expenses 530 787 Change in valuation allowance 699,856 109,168 Provision (benefit) $ - $ - |
NOTE 1 (Details)
NOTE 1 (Details) - USD ($) | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
NOTE 1 (Details) [Line Items] | |||
Stockholders' Equity Minimum Required | $ 2,500,000 | ||
Impairment of Oil and Gas Properties | 96,436 | $ 37,494 | |
Customer Deposits, Current | 8,137,553 | $ 7,937,786 | |
Allowance for Doubtful Accounts Receivable | 1,734,713 | 1,734,713 | |
Available-for-sale Securities | $ 0 | $ 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 - EARNINGS (LOSS) PER 17
NOTE 2 - EARNINGS (LOSS) PER SHARE (Details) - shares | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2015 | Sep. 30, 2014 | |
Earnings Per Share [Abstract] | |||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 23,331 | 23,331 | 184,844 |
NOTE 2 - EARNINGS (LOSS) PER 18
NOTE 2 - EARNINGS (LOSS) PER SHARE (Details) - Schedule of Earnings Per Share, Basic and Diluted - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Schedule of Earnings Per Share, Basic and Diluted [Abstract] | ||||
Net Income (Loss) (in Dollars) | $ (394) | $ 206,313 | $ (2,059,959) | $ (323,398) |
Net Income (Loss) (in Dollars) | $ (394) | $ 206,313 | $ (2,059,959) | $ (323,398) |
Weighted average common shares outstanding | 14,998,103 | 14,942,728 | 14,998,103 | 14,942,728 |
Effect of dilutive securities | 0 | 0 | 0 | 0 |
Effect of dilutive securities | 0 | 262,573 | 0 | 0 |
Weighted average common shares, including Dilutive effect | 14,998,103 | 14,942,728 | 14,998,103 | 14,942,728 |
Weighted average common shares, including Dilutive effect | 14,998,103 | 15,205,301 | 14,998,103 | 14,942,728 |
Per share: | ||||
Net income (Loss) (in Dollars per share) | $ 0 | $ 0.01 | $ (0.14) | $ (0.02) |
Net income (Loss) (in Dollars per share) | $ 0 | $ 0.01 | $ (0.14) | $ (0.02) |
NOTE 3 - OIL AND GAS PROPERTI19
NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Details) - Schedule of Oil and Gas Properties, Equipment and Fixtures - USD ($) | Sep. 30, 2015 | Dec. 31, 2014 |
Oil and Gas | ||
Producing properties, including drilling costs | $ 5,028,699 | $ 4,920,521 |
Undeveloped properties | 2,541,751 | 2,773,422 |
Lease and well equipment | 4,348,948 | 4,410,120 |
Gross Oil and Gas Properties | 11,919,398 | 12,104,063 |
Accumulated depletion, depreciation & amortization | (7,470,091) | (7,318,510) |
Net Oil and Gas Properties | 4,449,307 | 4,785,553 |
Commercial and Other | ||
Property, Plant and Equipment, Gross | 3,504,871 | 3,999,310 |
Accumulated depreciation | (1,237,951) | (1,190,197) |
Net Equipment and Fixtures | 2,266,920 | 2,809,113 |
Net Oil, Gas, Equipment and Fixtures | 6,716,227 | 7,594,666 |
Land, Buildings and Improvements [Member] | ||
Commercial and Other | ||
Property, Plant and Equipment, Gross | 2,266,050 | 2,768,394 |
Vehicles [Member] | ||
Commercial and Other | ||
Property, Plant and Equipment, Gross | 118,061 | 116,830 |
Furniture and Fixtures [Member] | ||
Commercial and Other | ||
Property, Plant and Equipment, Gross | $ 1,120,760 | $ 1,114,086 |
NOTE 4 - STOCK COMPENSATION P20
NOTE 4 - STOCK COMPENSATION PLAN (Details) - Employee Stock Option [Member] - Directors and Executive Officers [Member] - USD ($) | Oct. 10, 2014 | Sep. 30, 2015 | Sep. 30, 2014 |
NOTE 4 - STOCK COMPENSATION PLAN (Details) [Line Items] | |||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | 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 | $ 86,878 | $ 0 | |
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 (in Shares) | 20,000 |
NOTE 5 - INCOME TAXES (Details
NOTE 5 - INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($) | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
Schedule of Effective Income Tax Rate Reconciliation [Abstract] | ||
Tax (benefit) computed at statutory rate of 34% | $ (700,386) | $ (109,955) |
Increase (decrease) in taxes resulting from: | ||
State tax / percentage depletion / other | 0 | 0 |
Other non-deductible expenses | 530 | 787 |
Change in valuation allowance | 699,856 | 109,168 |
Provision (benefit) | $ 0 | $ 0 |
NOTE 5 - INCOME TAXES (Detai22
NOTE 5 - INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation (Parentheticals) | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
Schedule of Effective Income Tax Rate Reconciliation [Abstract] | ||
Statutory rate | 34.00% | 34.00% |
NOTE 6 - SUBSEQUENT EVENTS (Det
NOTE 6 - SUBSEQUENT EVENTS (Details) | Sep. 25, 2015 |
Rampart Alaska, LLC [Member] | |
NOTE 6 - SUBSEQUENT EVENTS (Details) [Line Items] | |
Equity Method Investment, Ownership Percentage | 30.00% |