10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549 

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020 Commission File No. 000-55912

ROYALE ENERGY, INC.

(Exact name of registrant as specified in its charter)

Delaware	81-4596368
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1870 Cordell Court, Suite 210

El Cajon, CA 92020

(Address of principal executive offices) (Zip Code)

619-383-6600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and  (2) has been subject to such filing requirements for the past 90 days. Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act).  Check one:

Large accelerated filer  ☐	Accelerated filer  ☐
Non-accelerated filer  ☐	Smaller reporting company  ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate by check mark whether the registrant is a blank check company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value .001 per share	ROYL	OTC: QB

At November 4, 2020, a total of 54,273,919 shares of registrant’s common stock were outstanding. 

TABLE OF CONTENTS

PART I.    FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II.   OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
Signatures		24

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ROYALE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2020		December 31, 2019
ASSETS	(unaudited)
Current Assets
Cash and Cash Equivalents	$	558,249	$	1,031,014
Restricted Cash		1,825,000		2,845,515
Other Receivables, net		1,402,631		1,189,892
Revenue Receivables		345,336		589,151
Prepaid Expenses		142,460		376,587
Prepaid Drilling to RMX Resources, LLC		1,235,796		2,680,155
Total Current Assets		5,509,472		8,712,314
Investment in Joint Venture		6,718,505		6,185,995
Right of Use Assets - Leases		270,335		392,774
Other Assets		708,554		708,554
Oil and Gas Properties, (Successful Efforts Basis), Equipment and Fixtures, net		4,951,535		4,590,990
Total Assets	$	18,158,401	$	20,590,627

See notes to unaudited condensed consolidated financial statements.

3

ROYALE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2020			December 31, 2019
	(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable and Accrued Expenses	$	4,963,091		$	6,031,034
Royalties Payable		623,405			623,405
Notes Payable		330,923			55,573
Due to RMX Resources, LLC		23,087			32,367
Deferred Drilling Obligation		3,870,774			5,232,675
Lease Liability - current		174,154			162,272
Total Current Liabilities		9,985,434			12,137,326
Noncurrent Liabilities:
Accrued Liabilities - Long Term		1,306,605			1,306,605
Accrued Unpaid Guaranteed Payments		1,616,205			1,616,205
Lease Liability - long-term		97,532			231,071
Asset Retirement Obligation		3,737,003			3,632,423
Total Liabilities		16,742,779			18,923,630
Mezzanine Equity:
Convertible Preferred Stock, Series B, $10 par value, 3,000,000 Shares Authorized		22,021,955			-
Stockholders' Equity (Deficit):
Convertible Preferred Stock, Series B, $10 par value, 3,000,000 Shares Authorized		-			21,453,338
Common Stock, $.001 Par Value, 280,000,000 Shares Authorized		54,127			51,854
Additional Paid in Capital		53,836,146			53,549,543
Accumulated Deficit		(74,496,606	)		(73,387,738	)
Total Stockholders' Equity (Deficit)		(20,606,333	)		1,666,997
Total Liabilities, Mezzanine Equity and Stockholders' Equity (Deficit)	$	18,158,401		$	20,590,627

See notes to unaudited condensed consolidated financial statements.

4

ROYALE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	For the three months ended			For the three months ended			For the nine months ended			For the nine months ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Revenues:
Oil, NGL and Gas Sales	$	551,846		$	610,427		$	1,137,845		$	1,419,821
Supervisory Fees and Other		10,309			24,961			31,265			610,971
Total Revenues		562,155			635,388			1,169,110			2,030,792
Costs and Expenses:
Oil and Gas Lease Operating		384,670			517,627			1,163,428			1,237,785
Depreciation, Depletion and Amortization		93,867			92,470			249,492			217,327
Lease Impairment		-			40,223			-			40,223
Bad Debt Expense		182,249			-			368,417			5,863
Geological and Geophysical Expense		-			691			14,392			263,277
Legal and Accounting		63,464			114,191			238,124			502,995
Marketing		31,437			159,366			86,501			319,906
General and Administrative		505,297			358,019			1,580,637			1,660,921
Total Costs and Expenses		1,260,984			1,282,587			3,700,991			4,248,297
Gain on Turnkey Drilling		118,247			1,787,860			1,028,695			1,898,259
Gain (Loss) From Operations		(580,582	)		1,140,661			(1,503,186	)		(319,246	)
Other Income (Expense):
Interest Expense		(2,862	)		(4,842	)		(10,306	)		(17,186	)
Gain (Loss) on Settlement of Accounts Payable		-			834,736			(31,500	)		897,708
Other Gain		271,310			-			471,311			-
Gain (Loss) on Sale of Assets		920			-			920			(1,237,126	)
Gain (Loss) on Investment in Joint Venture		(301,015	)		333,553			532,510			(124,716	)
Income (Loss) Before Income Tax Expense		(612,229	)		2,304,108			(540,251	)		(800,566	)
Net Income (Loss)		(612,229	)		2,304,108			(540,251	)		(800,566	)
Less: Preferred Stock Dividend		192,583			185,971			568,617			547,114
Net Loss available to common stock	$	(804,812	)	$	2,118,137		$	(1,108,868	)	$	(1,347,680	)
Shares used in computing Basic Net Loss per share		53,711,702			51,009,871			52,940,630			50,655,286
Basic and Diluted (Loss) Per Share		(0.01	)		0.04			(0.02	)		(0.03	)
Shares used in computing Diluted Net Loss per share		53,711,702			74,948,229			52,940,630			50,655,286
Diluted Net Income (Loss) per Share	$	(0.01	)	$	0.03		$	(0.02	)	$	(0.03	)

See notes to unaudited condensed consolidated financial statements.

5

ROYALE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE nine MONTHS ENDED September 30, 2020 AND 2019

	September 30, 2020			September 30, 2019
Net (Loss)	$	(540,251	)	$	(800,566	)
Cash Flows Used in Operating Activities:
Depreciation, Depletion and Amortization		249,492			217,327
Loss on Lease Impairment		-			40,223
(Gain) Loss on Sale of Assets		(920	)		1,237,126
(Gain) Loss on Turnkey Drilling Programs		(1,028,695	)		(1,898,259	)
(Gain) Loss on Settlement of Accounts Payable		31,500			(897,708	)
(Gain) Loss on Investment in Joint Venture		(532,510	)		124,716
Bad Debt Expense		368,417			5,863
Right of Use Asset Depreciation		8,203			-
Stock Based Compensation		288,876			455,146
Geological & Geophysical Costs		14,392			241,586
Gain on Other		(271,310	)		-
(Increase) Decrease in:
Other & Revenue Receivables		(65,110	)		(401,072	)
Prepaid Expenses and Other Assets		1,678,486			(278,524	)
Accounts Payable and Accrued Expenses		(836,947	)		963,958
Royalties Payable		-			(9,386	)
Due to Affiliate		(9,280	)		(311,908	)
Other Liabilities		-			-
Net Cash Used in Operating Activities		(645,657	)		(1,311,478	)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Oil and Gas Properties and Other Capital Expenditures		(4,017,429	)		(7,420,386	)
Proceeds from Turnkey Drilling Programs		3,025,000			9,246,819
Net Cash Provided (Used) by Investing Activities		(992,429	)		1,826,433
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt		207,800			-
Principal Payments on Long-Term Debt		(62,994	)		(390,840	)
Principal Payments on Seismic Financing Agreement		-			(131,391	)
Net Cash Provided (Used) by Financing Activities		144,806			(522,231	)
Net Increase (Decrease) in Cash and Cash Equivalents		(1,493,280	)		(7,276	)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period		3,876,529			6,355,042
Cash, Cash Equivalents, and Restricted Cash at End of Period		2,383,249			6,347,766
Cash Paid for Interest		10,306			17,186
Cash Paid for Taxes		5,400			16,581
Increase (Decrease) in Capital Accrued Balance	$	(153,765	)	$	585,918

See notes to unaudited condensed consolidated financial statements.

6

ROYALE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

	Common Shares		Common Amount		Preferred Shares		Preferred Amount		Additional Paid in Capital		Accumulated Comprehensive Deficit			Total
December 31, 2018 Balance		49,421,387	$	49,421		2,071,861	$	20,718,613	$	53,023,350	$	(72,304,630	)	$	1,486,754
Stock Issued in lieu of Compensation		1,881,491		1,881		-		-		453,265		-			455,146
Preferred Series B 3.5% Dividend		-		-		54,712		547,114		-		(547,114	)		-
Net Loss		-		-		-		-		-		(800,566	)		(800,566	)
September 30, 2019 Balance		51,302,878	$	51,302		2,126,573	$	21,265,727	$	53,476,615	$	(73,652,310	)	$	1,141,334

	Common Shares		Common Amount		Preferred Shares			Preferred Amount			Additional Paid in Capital		Accumulated Comprehensive Deficit			Total
December 31, 2019 Balance		51,854,136	$	51,854		2,145,334		$	21,453,338		$	53,549,543	$	(73,387,738	)	$	1,666,997
Stock Issued in lieu of Compensation		2,273,245		2,273		-			-			286,603		-			288,876
Preferred Series B 3.5% Dividend		-		-		18,720			187,200			-		(568,617	)		(381,417	)
Net Loss		-		-		-			-			-		(540,251	)		(540,251	)
Reclassify Preferred B to Mezzanine		-		-		(2,164,054	)		(21,640,538	)		-		-			(21,640,538	)
September 30, 2020 Balance		54,127,381	$	54,127		-		$	-		$	53,836,146	$	(74,496,606	)	$	(20,606,333	)

	Common Shares		Common Amount		Preferred Shares		Preferred Amount		Additional Paid in Capital		Accumulated Comprehensive Deficit			Total
June 30, 2019 Balance		50,804,608	$	50,804		2,107,976		21,079,756	$	53,370,890	$	(75,770,447	)		(1,268,997	)
Stock Issued in lieu of Compensation		498,270		498		-		-		105,725		-			106,223
Preferred Series B 3.5% Dividend		-		-		18,597		185,971		-		(185,971	)		-
Net Income		-		-		-		-		-		2,304,108			2,304,108
September 30, 2019 Balance		51,302,878	$	51,302		2,126,573	$	21,265,727	$	53,476,615	$	(73,652,310	)	$	1,141,334

	Common Shares		Common Amount		Preferred Shares		Preferred Amount		Additional Paid in Capital		Accumulated Comprehensive Deficit			Total
June 30, 2020 Balance		53,244,923	$	53,244		-		-	$	53,717,703	$	(73,691,794	)		(19,920,847	)
Preferred Series B 3.5% Dividend		-		-		-		-		-		(192,583	)		(192,583	)
Stock Issued in lieu of Compensation		882,458		883		-		-		118,443		-			119,326
Net Loss		-		-		-		-		-		(612,229	)		(612,229	)
September 30, 2020 Balance		54,127,381	$	54,127		-	$	-	$	53,836,146	$	(74,496,606	)	$	(20,606,333	)

 See notes to unaudited condensed consolidated financial statements.

7

ROYALE ENERGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – In the opinion of management, the accompanying unaudited condensed consolidated financial statements (“statements”) include all 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 nine-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 as filed on Form 10-K.

The Company has a substantial investment in RMX Resources, LLC (“RMX”), a joint venture with CIC RMX LP. Royale entered into the RMX joint venture on April 13, 2018 and records its interest in RMX under the equity method as further described below.

Liquidity and Going Concern

The primary sources of liquidity have historically been issuances of common stock and operations.  There are factors that give rise to substantial doubt about the Company’s ability to meet liquidity demands, and we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, the sale of oil and natural gas property participation interests through our normal course of business and the sale of non-strategic assets.

The Company’s 2020 financial statements reflect a working capital deficiency of $4,475,962 as of September 30, 2020 and a net loss of $540,251 for the nine months ended September 30, 2020. These factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management’s plans to alleviate the going concern by cost control measures that include the reduction of overhead costs and the sale of non-strategic assets.  There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will become profitable and generate positive operating cash flow, which may be more difficult in light of the volatility created during the COVID-19 pandemic. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, attempt to extend note repayments, and reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

Consolidation

The accompanying financial statements include the accounts of Royale Energy, Inc. (sometimes called the “Company” “we,” “our,” “us,” “Royale Energy,” or “Royale”), Royale Energy Funds, Inc. (“REF”), and Matrix Oil Management Corporation and its subsidiaries.  All entities comprising the financial statements of Royale Energy have fiscal years ending December 31.  All material intercompany accounts and transactions have been eliminated in the financial statements.

Correction of Immaterial Errors in Previously Issued Financial Statements

Subsequent to the issuance of the consolidated financial statements for the year ended December 31, 2019, the Company concluded that the Statement of Cash Flows for the year ending December 31, 2019, contained immaterial errors related to the classification of payments arising from operating leases and to the quantification of the amount of capital expenditures that had been accrued for but not yet paid. These immaterial errors have been corrected for the comparative period, resulting in an increase in cash flows used in operating activities of $681,388; an increase in cash flows provided by investing activities of $585,918; and a decrease in cash flows used in financing activities of $95,470 for the period ending September 30, 2019. These immaterial errors did not have any impact on our financial position, net loss or total cash flow for the period ending September 30, 2019. 

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.  

8

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.

Termination of RMX MSA

On December 31, 2018, Royale was formally notified of RMX Resources, LLC’s intent to terminate the Master Service Agreement (“MSA”) as of March 31, 2019. The Termination Notice called for Royale to continue to provide accounting and other services through March 31, 2019. Thereafter, per Article VII, Section 7.2 of the MSA, Royale provided all reasonable assistance requested, by the RMX Board of Directors, to transition the management of RMX through April 30, 2019 at which point all services under the MSA terminated.

Settlement Agreement and Well Participation Agreement with RMX

On March 11, 2019, Royale entered into a Settlement Agreement with RMX to resolve differences which resulted from the calculation of certain post-closing amounts as called for under Section 7.3 of the Subscription and Contribution Agreement. Under the terms of this provision, Royale estimated that it may have owed RMX approximately $552,645 related to its calculation of this post-closing amount under this provision. In addition, there were other disputed amounts related to certain joint owner billing amounts which remained unpaid at year end. In settlement of these differences, Royale agreed to assign its remaining interests in the Bellevue Field, located in Kern County and the W. Whittier Field located in Los Angeles County, California to RMX. At December 31, 2018, the Bellevue and W. Whittier fields accounted for 5.145 and 140.647 Mboe in reserves and were valued at $67,671 and $2.4 million, respectively, using SEC pricing and discounted at 10%.

Royale will continue to be responsible for the liability for the payment of all royalties and suspended funds incurred prior to March 1, 2018. As part of this Settlement Agreement, RMX will offer Royale the right, but not the obligation, to participate in a number of wells to be drilled in the Sansinena, Sempra, Whittier and/or East LA properties in Los Angeles County, California at an offered working interest up to 75% of RMX’s working interest in each of the offered wells. The minimum number of wells to be offered to Royale in each year is 2 net wells as determined by an agreed upon methodology. The Agreement also calls for certain credits toward future drilling costs of the offered wells. The Company recorded a loss of $1,237,126 on the settlement during the three months ended March 31, 2019.

West Coast Settlement

On December 5, 2018, Royale entered into a Purchase and Sale Agreement (“West Coast Agreement”) for properties located in the Jameson North Field Area in Mitchell and Nolan Counties, Texas and the Big Mineral Creek Field Area in Grayson County, Texas. The seller was West Coast Energy Properties, LP. The West Coast Agreement called for a post-closing settlement. On July 11, 2019, Royale entered into a post-closing settlement as called for under the terms of the West Coast Agreement for payment due seller of $156,975 which were made in equal monthly payments of $26,163 commencing July 31, 2019 with the final payment on December 31, 2019.

Prospective East LA Sale

On June 24, 2020, Royale and RMX Resources, LLC entered into a Purchase and Sale Agreement to sell a portion of property jointly owned by Royale and RMX, located in Los Angeles County, California for a gross price of $2,150,000. The property is jointly owned by Royale and RMX, and calls for, among other things, the abandonment of one well, located on the subject lands. The gross sale proceeds to Royale, if and when the sales closes, will be $1,075,000.

9

Revenue Recognition

The majority of our ongoing revenues are derived from the sale of crude oil and condensate, natural gas liquids ("NGLs") and natural gas under spot and term agreements with our customers.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Oil & Condensate Sales	$	477,724	$	471,201	$	874,936	$	832,108
Natural Gas Sales		73,878		139,226		262,532		587,713
NGL Sales		244		-		377		-
Total	$	551,846	$	610,427	$	1,137,845	$	1,419,821

The pricing in our hydrocarbon sales agreements are variable, determined using various published benchmarks which are adjusted for negotiated quality and location differentials. As a result, revenue collected under our agreements with customers is highly dependent on the market conditions and may fluctuate considerably as the hydrocarbon market prices rise or fall. Typically, our customers pay us monthly, within a short period of time after we deliver the hydrocarbon products. As such, we do not have any financing element associated with our contracts. We do not have any issues related to returns or refunds, as product specifications are standardized for the industry and are typically measured when transferred to a common carrier or midstream entity, and other contractual mechanisms (e.g., price adjustments) are used when products do not meet those specifications.

We often serve as the operator for jointly owned oil and gas properties. As part of this role, we perform activities to explore, develop and produce oil and gas properties in accordance with the joint operating arrangement and collective decisions of the joint parties. Other working interest owners reimburse us for costs incurred based on our agreements. We determined that these activities are not performed as part of customer relationships, and such reimbursements are recorded as cost reimbursements.

We commonly market the share of production belonging to other working interest owners as the operator of jointly owned oil and gas properties. Those marketing activities are carried out as part of the collaborative arrangement, and we do not purchase or otherwise obtain control of other working interest owners’ share of production. Therefore, we act as a principal only regarding the sale of our share of production and recognize revenue for the volumes associated with our net production.

The Company frequently sells a portion of the working interest in each well it drills or participates in, to third-party investors and retains a portion of the prospect for its own account.  The Company typically guarantees a cost to drill to the third-party drilling participants and records a loss or gain on the difference between the guaranteed price and the actual cost to drill the well.  When monies are received from third parties for future drilling obligations, the Company records the liability as Deferred Drilling Obligations.  Once the contracted depth for the drilling of the well is reached and a determination as to the commercial viability of the well (typically call “Casing Point Election” or “Logging Point”), the difference in the actual cost to drill and the guaranteed cost is recorded as income or expense depending on whether there was a gain or loss.

Crude oil and condensate

For the crude sales agreements, we satisfy our performance obligations and recognize revenue once customers take control of the crude at the designated delivery points, which include pipelines, trucks or vessels.

Natural gas and NGLs

When selling natural gas and NGLs, we engage midstream entities to process our production stream by separating natural gas from the NGLs. Frequently, these midstream entities also purchase our natural gas and NGLs under the same agreements. In these situations, we determined the performance obligation is complete and satisfied at the tailgate of the processing plant when the natural gas and NGLs become identifiable and measurable products. We determined the plant tailgate is the point in time where control, as defined in the new revenue standard, is transferred to midstream entities and they are entitled to significant risks and rewards of ownership of the natural gas and NGLs.

10

The amounts due to midstream entities for gathering and processing services are recognized as shipping and handling cost and included as lease operating expense in our consolidated statement of operations, since we make those payments in exchange for distinct services with the exception of natural gas sold to Pacific Gas & Electric (PG&E) where transportation is netted directly against revenue. Under some of our natural gas processing agreements, we have an option to take the processed natural gas and NGLs in-kind and sell to customers other than the processing company. In those circumstances, our performance obligations are complete after delivering the processed hydrocarbons to the customer at the designated delivery points, which may be the tailgate of the processing plant or an alternative delivery point requested by the customer.

Turnkey Drilling

These Turnkey Agreements are managed by the Company for the participants of the well. The collections of pre-drilling AFE amounts are segregated by the Company and the gains and losses on the Turnkey Agreements are recorded in income or expense at the time of the casing point election in accordance with ASC 932-323-25 and 932-360. The Company manages the performance obligation for the well participants and only records revenue or expense at the time the performance obligation of the Turnkey Agreement has been satisfied.

Supervisory Fees and Other

These amounts include proceeds from the Master Service Agreement (“MSA”) with RMX for the providing of land, engineering, accounting and support services for the RMX joint venture. Revenues earned under the MSA were recorded at the end of each month that services were performed, in conformity with the Agreement. The service fee income was deemed earned at the end of each month that services were performed as prescribed by the contract. On December 31, 2018, Royale received notice of cancelation of the MSA by RMX effective March 31, 2019. For the nine months ended September 30, 2019, the Company recognized $610,971 in supervisory fees from RMX. Also included in the caption are Pipeline and Compressor fees which are received and allocated based on production volumes.

Restricted Cash

Royale sponsors turnkey drilling arrangements in proved and unproved properties. The contracts require that participants pay Royale the full contract price upon execution of the drilling agreement. Each participant earns an undivided interest in the well bore at the completion of the well. A portion of the funds received in advance of the drilling of a well from a working interest participant are held for the expressed purpose of drilling a well. If something changes, the Company may designate these funds for a substitute well. Under certain conditions, a portion of these funds may be required to be returned to a participant. Once the well is drilled, the funds are used to satisfy the drilling cost. Royale classifies these funds prior to commencement of drilling as restricted cash based on guidance codified as under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 230-10-50-8. In the event that progress payments are made from these funds, they are recorded as Prepaid Expenses and Other Current Assets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

	September 30, 2020		December 31, 2019
Cash and Cash Equivalents	$	558,249	$	1,031,014
Restricted Cash		1,825,000		2,845,515
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	2,383,249	$	3,876,529

Equity Method Investments

Investments in entities over which we have significant influence, but not control, are accounted for using the equity method of accounting. Income from equity method investments represents our proportionate share of net income generated by the equity method investees and is reflected in revenue and other income in our condensed consolidated statements of operations. Equity method investments are included as noncurrent assets on the consolidated balance sheet.

Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred as called for under ASC 323. When a loss is deemed to have occurred and is other than temporary, the carrying value of the equity method investment is written down to fair value, and the amount of the write-down is included in income.

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The earnings from RMX reflected in these financial statements as Investment in Joint Venture (“JV”), reflect our share of net earnings or losses directly attributable to this equity method investment. As of September 30, 2020, we evaluated our investment in RMX and determined that any losses were not other than temporary.

Listed below is the summarized information required under Rule 3-09 of regulation S-X, Article 10 for Royale’s investment in RMX:

	September 30, 2020		December 31, 2019
Balance Sheet
Total Assets	$	79,350,594	$	72,401,841
Total Liabilities		45,859,628		41,573,426
Member Equity	$	33,490,966	$	30,828,415

	For the 9 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	7,008,053		$	11,975,338
Income (Loss) from operations		(2,464,919	)		930,072
Net Income (Loss)	$	2,662,551		$	(623,579	)

	For the 3 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	2,350,609		$	4,195,522
Income (Loss) from operations		(873,879	)		478,946
Net Income (Loss)	$	(1,505,076	)	$	1,787,844

Other Receivables

Other receivables consist of joint interest billing 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, 2020 and December 31, 2019, the Company maintained an allowance for uncollectable accounts of $1,942,911 and $1,791,162, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Fair Value Measurements

According to Fair Value Measurements and Disclosures Topic of the FASB ASC, 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.

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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, 2020 and December 31, 2019, Royale Energy does not have any financial assets measured and recognized at fair value on a recurring basis. The Company estimates asset retirement obligations (ARO’s) pursuant to the provisions of ASC 410, “Asset Retirement and Environmental Obligations”. The estimates of the fair value the ARO’s are based on discounted cash flow projections using numerous estimates, assumptions and judgements regarding such factors as the existence of a legal obligation for an ARO, amounts and timing of settlements, the credit-adjusted risk-free rate to be used and inflation rates.

The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties. Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs.

Fair Values - Non-recurring

The Company applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including oil and natural gas property impairments and other long-lived asset impairments. These items are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances.

Dividends on Series B Convertible Preferred Stock

The Series B Convertible Preferred Stock, (“Preferred”), has an obligation to pay a 3.5% cumulative dividend, in kind or cash, on a quarterly basis. In the first quarter of 2019, the Board of Directors authorized the issuance of Preferred shares, for the settlement of dividends accumulated through December 31, 2020.  The Company accrued $192,583 and $185,971 for dividends related to the Preferred shares during the third quarters of 2020 and 2019, respectively. Each quarter, the Company charges retained earnings for the accumulating dividend as the amounts add to the liquidation preference of the Preferred. For further information regarding the Preferred Stock see Note 3, below.

Accounting Standards

Recently Adopted

We adopted the following ASUs during 2020, none of which had a material impact to our financial statements or financial statement disclosures:

ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606

This is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Application of this ASU did not have a material impact on our consolidated financial statements.

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ASU 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities

Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Application of this ASU has not had a material impact on our consolidated financial statements.

ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-400), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

Effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Application of this ASU has not had a material impact on our consolidated financial statements.

ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for fair value measurement

Effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Application of this ASU has not had a material impact on our consolidated financial statements.

NOT YET ADOPTED

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's consolidated financial statements.

NOTE 2 – OIL AND GAS PROPERTY AND EQUIPMENT AND FIXTURES

Oil and gas properties, equipment and fixtures consist of the following:

	September 30,			December 31,
	2020			2019
Oil and Gas
Producing properties, including drilling costs	$	8,350,975		$	7,792,156
Undeveloped or unevaluated properties		2,842			46,990
Lease and well equipment		3,317,718			3,304,565
Total Oil & Gas		11,671,535			11,143,711
Accumulated depletion, depreciation & amortization		(6,724,826	)		(6,559,182	)
Total Oil & Gas Net		4,946,709			4,584,529
Commercial and Other
Vehicles		40,061			40,061
Furniture and equipment		1,097,428			1,097,428
Total Commercial and Other		1,137,489			1,137,489
Accumulated depreciation		(1,132,663	)		(1,131,028	)
Total Commercial and Other Net		4,826			6,461
Oil & Gas Property and Equipment and Fixtures	$	4,951,535		$	4,590,990

The guidance set forth in the Continued Capitalization of Exploratory Well Costs paragraph of the Extractive Activities Topic of the FASB ASC 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.

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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 are expensed as incurred.  Major renewals and improvements are capitalized and the assets replaced are retired.

The project construction phase commences with the development of the detailed engineering design and ends when the constructed assets are ready for their intended use.  Interest costs, to the extent they are incurred to finance expenditures during the construction phase, are included in property, plant and equipment and are depreciated over the service life of the related assets.

Royale Energy uses the “successful efforts” method to account for its exploration and production activities.  Under this method, Royale Energy accumulates its proportionate share of costs on a well-by-well basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred and capitalizes expenditures for productive wells.  Royale Energy amortizes the costs of productive wells under the unit-of-production method.

Royale Energy carries, as an asset, exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where Royale Energy is making sufficient progress assessing the reserves and the economic and operating viability of the project.  Exploratory well costs not meeting these criteria are charged to expense. Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred.

Acquisition costs of proved oil and gas properties are amortized using a unit-of-production method, computed on the basis of total proved oil and gas reserves.

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.

Production costs are expensed as incurred. Production involves lifting the oil and gas to the surface and gathering, treating, field processing and field storage of the oil and gas. The production function normally terminates at the outlet valve on the lease or field production storage tank. Production costs are those incurred to operate and maintain Royale Energy’s wells and related equipment and facilities. They become part of the cost of oil and gas produced. These costs, sometimes referred to as lifting costs, include such items as labor costs to operate the wells and related equipment; repair and maintenance costs on the wells and equipment; materials, supplies and energy costs required to operate the wells and related equipment; and administrative expenses related to the production activity. 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 and whether carrying amounts should be impaired. The Company performs the evaluation of carrying amounts at least annually or when economic events or commodity prices indicate that a substantial and measurable change in future cash flows has occurred. Cash flows used in impairment evaluations are developed using updated evaluation assumptions for crude oil and natural gas commodity prices.  Annual volumes are based on field production profiles, which are also updated annually.

Impairment analyses are generally based on proved reserves. An asset group would be further assessed 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, 2019, impairment losses of $40,223 were incurred on various lease and land costs that were no longer viable.  During the nine months ended September 30, 2020, no impairment losses were incurred.

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.

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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 for various reasons such as weather, permitting, drilling rig availability and/or contractual obligations.  At September 30, 2020 and December 31, 2019, Royale Energy had Deferred Drilling Obligations of $3,870,774 and $5,232,675, 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 contract and return the remaining funds to the participant.  Included in Restricted Cash 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.

NOTE 3 – SERIES B PREFERRED STOCK

On March 7, 2018, the Company was notified by the California Secretary of State of the filing and acceptance of agreements of merger by the California Secretary of State, to complete the previously announced merger between the companies (the “Merger”). Pursuant to the terms of the Merger all Class A limited partnership interests of Matrix Investments, LP (“Matrix Investments”) were exchanged for Royale Common stock using conversion ratios according to the relative value of the Class A limited partnership interests, and $20,124,000 of Matrix Investments preferred limited partnership interests were converted into 2,012,400 shares of Series B Convertible Preferred Stock of Royale. The Board of Directors of Royale Energy, prior to the merger, authorized 3,000,000 shares of Series B Convertible Preferred, which carries a liquidation preference and a 3.5% dividend, payable in cash or Paid-In-Kind shares. The Series B Convertible Preferred Stock is convertible at the option of the security holder at the rate of ten shares of common stock for one share of Series B Convertible Preferred Stock. The Series B Preferred Stock has never been registered under the Securities Exchange Act of 1934, and no market exists for the shares. Additionally, the Series B Convertible Preferred shares will automatically convert to common stock at any time in which the Volume Weighted Average Price (VWAP) of the common stock exceeds $3.50 per share for 20 consecutive trading days, the shares are registered with the SEC and the volume of common shares trades exceeds 200,000 shares per day.

The shareholders of the Series B Convertible Preferred became entitled to vote the number of shares into which they would be entitled to convert, beginning in 2020. In accordance with ASC 480-10-S99-1.02, the Company has determined that the conversion or redemption of these shares are outside the sole control of the Company and that they should be classified in mezzanine or temporary equity as redeemable noncontrolling interest beginning at the reporting period ended March 31, 2020.

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NOTE 4 – LOSS PER SHARE

Basic and diluted loss per share are calculated as follows:

	Three Months ending
	September 30, 2020						September 30, 2019
	Basic			Diluted			Basic		Diluted
Net Income (Loss)	$	(612,229	)	$	(612,229	)	$	2,304,108	$	2,304,108
Less: Preferred Stock Dividend		192,583			192,583			185,971		185,971
Less: Preferred Stock Dividend In Arrears		-			-			-		-
Net Income (Loss) Attributable to Common Shareholders		(804,812	)		(804,812	)		2,118,137		2,118,137
Weighted average common shares outstanding		53,711,702			53,711,702			51,009,871		51,009,871
Effect of dilutive securities		-			-			-		23,938,358
Weighted average common shares, including Dilutive effect		53,711,702			53,711,702			51,009,871		74,948,229
Per share:
Net Income (Loss)	$	(0.01	)	$	(0.01	)	$	0.04	$	0.03

	Nine Months ending
	September 30, 2020						September 30, 2019
	Basic			Diluted			Basic			Diluted
Net Income (Loss)	$	(540,251	)	$	(540,251	)	$	(800,566	)	$	(800,566	)
Less: Preferred Stock Dividend		568,617			568,617			547,114			547,114
Less: Preferred Stock Dividend In Arrears		-			-			-			-
Net Income (Loss) Attributable to Common Shareholders		(1,108,868	)		(1,108,868	)		(1,347,680	)		(1,347,680	)
Weighted average common shares outstanding		52,940,630			52,940,630			50,655,286			50,655,286
Effect of dilutive securities		-			-			-			-
Weighted average common shares, including Dilutive effect		52,940,630			52,940,630			50,655,286			50,655,286
Per share:
Net Income (Loss)	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.03	)

For the nine months ended September 30, 2020 and 2019, Royale Energy had dilutive securities of 25,160,750 and 23,967,039, respectively.  For the three months ended September 30, 2020 and 2019, Royale Energy had dilutive securities of 25,166,967 and 23,938,358, respectively. These securities were not included in the dilutive loss per share, due to their antidilutive nature.

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 2015, management reviewed the reliability of the Company’s net deferred tax assets, and due to the Company’s continued cumulative losses in recent years, the Company 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 2020.

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A reconciliation of Royale Energy’s provision for income taxes and the amount computed by applying the statutory income tax rates at September 30, 2020 and 2019, respectively, to pretax income is as follows: 

	Nine months ended
	September 30, 2020			September 30, 2019
Tax benefit computed at statutory rate of 21% at September 30, 2020 and 2019, respectively	$	(110,838	)	$	(168,119	)
Increase (decrease) in taxes resulting from:
State tax / percentage depletion / other
Other non-deductible expenses		466			1,211
Provision-to-Return Adjustments		-			366,161
Change in valuation allowance		110,372			(199,253	)
Provision (benefit)	$	-		$	-

NOTE 6 – ISSUANCE OF COMMON STOCK

During the nine months ended September 30, 2020, in lieu of cash payments for salaries and board fees, Royale issued 2,273,245 shares of its Common stock valued at approximately $288,876 to an executive officer and board members, compared to the issuance of 1,881,491 shares issued with an approximate value of $455,146 in the same period of 2019.

NOTE 7 – Cares act – ppp loan

On April 22, 2020, the Company entered into a loan (the "PPP Loan") evidenced by a promissory note (the "Promissory Note"), under the Paycheck Protection Program sponsored by the U.S. Small Business Administration ("SBA") through the Bank of Southern California N.A. providing for $207,800 in proceeds, which amount was funded to the Company on April 23, 2020. The PPP Loan was made pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is administered by the SBA.

The Promissory Note matures April 22, 2022 and provides for 18 monthly payments of principal and interest commencing on November 21, 2020. The interest rate on the PPP Loan is 1.00%. The Promissory Note is unsecured and contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Bank of Southern California N.A., or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. The Promissory Note principal may be forgiven subject to the terms of the Paycheck Protection Program.

During the period, the Company submitted an application for loan forgiveness for the full amount outstanding. On November 10, the Company received notice that the SBA has remitted funds to the initiating bank in the amount of $198,846 in repayment of its PPP loan, leaving a balance of $10,054.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

In addition to historical information contained herein, this discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, subject to various risks and uncertainties that could cause our actual results to differ materially from those in the “forward-looking statements”. While we believe our forward-looking statements are based upon reasonable assumptions, there are factors that are difficult to predict and that are influenced by economic and other conditions beyond our control. Investors are directed to consider such risks and other uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.

Results of Operations

In late 2019 and continuing into 2020, there was a global outbreak of novel coronavirus (COVID-19) that has resulted in changes in global supply and demand of certain mineral and energy products. While the direct and indirect negative impacts that may affect the Company cannot be determined, they could have a prospective material impact.  For more information, see Item 3 below.

For the nine months ended September 30, 2020, we had a net loss of $540,251 compared to the net loss of $800,566, during the nine months ended September 30, 2019. The difference was primarily the result of a loss of $1.2M on sale of assets recorded during the first quarter of 2019 and there was no comparative loss in the current year period. We also had a $532,510 gain relating to our equity method investment in RMX recorded during the nine months ended September 30, 2020, compared to a loss of $124,716 recorded during the nine months ended September 30, 2019. The gain in RMX during the current period was primarily due to their hedging activities. Our net loss for the third quarter of 2020 was $612,229, while in the third quarter of 2019 the net income was $2,304,108, mainly due increased Turnkey drilling activity during the third quarter of 2019, as we drilled four wells during that quarter. Total revenues for the first nine months of 2020 and 2019 were $1,169,110 and $2,030,792, respectively.

During the first nine months of 2020, revenues from oil and gas production decreased $281,976 or 19.9% to $1,137,845 from the 2019 first nine months revenues of $1,419,821. This decrease was mainly due to lower oil and natural gas commodity prices as demand decreased due to federal and state government stay-at-home orders. The net sales volume of oil and condensate for the nine months ended September 30, 2020, was approximately 23,432 barrels with an average price of $37.34 per barrel, versus 14,851 barrels with an average price of $56.03 per barrel for the first nine months of 2019. This represents an increase in net sales volume of 8,581 barrels or 57.8%. The net sales volume of natural gas for the nine months ended September 30, 2020, was approximately 121,097 Mcf with an average price of $2.17 per Mcf, versus 198,439 Mcf with an average price of $2.96 per Mcf for the same period in 2019. This represents a decrease in net sales volume of 77,342 Mcf or 39.0%. The decrease in natural gas production volume was due to certain wells that were offline and waiting on workovers and to lower volumes on existing wells due to natural declines. For the quarter ended September 30, 2020, revenues from oil and gas production decreased $58,581 or 9.6% to $551,846 from the 2019 third quarter revenues of $610,427. This decrease was also due to lower commodity prices and wells that were offline and waiting on workovers. The net sales volume of oil and condensate for the quarter ended September 30, 2020, was approximately 11,933 barrels with an average price of $40.03 per barrel, versus 8,222 barrels with an average price of $57.31 per barrel for the third quarter of 2019. This represents an increase in net sales volume of 3,711 barrels or 45.1% for the third quarter in 2020. The net sales volume of natural gas for the quarter ended September 30, 2020, was approximately 38,057 Mcf with an average price of $1.94 per Mcf, versus 62,553 Mcf with an average price of $2.23 per Mcf for the third quarter of 2019. This represents a decrease in net sales volume of 24,496 Mcf or 39.2% for the quarter in 2020.

Oil and natural gas lease operating expenses decreased by $74,357 or 6.0%, to $1,163,428 for the nine months ended September 30, 2020, from $1,237,785 for the same period in 2019. For the third quarter in 2020, lease operating expenses decreased $132,957 or 25.7% from the same quarter in 2019. These were both lower due to decreases in workover costs and outside operated lease operating costs as certain non-operated wells were offline and waiting on workovers.

The aggregate of supervisory fees and other income was $31,265 for nine months ended September 30, 2020, a decrease of $579,706 from $610,971 during the same period in 2019. The decrease was mainly due to the cancellation of the service agreement with RMX Resources as of March 31, 2019. During the third quarter 2020, supervisory fees and other income decreased $14,652 or 58.7% when compared to the quarter in 2019, due to lower pipeline and compressor fees due to the decrease in natural gas production and lower interest income received on cash deposits.

19

Depreciation, depletion and amortization expense increased to $249,492 from $217,327, an increase of $32,165 or 14.8% for the nine months ended September 30, 2020, as compared to the same period in 2019. During the third quarter 2019, depreciation, depletion and amortization expenses also increased $1,397 or 1.5%. The depletion rate is calculated using production as a percentage of reserves. This increase in depreciation expense was due to the increase in oil production and wells and related equipment due to drilling activity in 2019 and the first nine months of 2020.

At September 30, 2020, Royale Energy had a Deferred Drilling Obligation of $3,870,774. During the first nine months of 2020, we disposed of $4,386,901 of drilling obligations upon completing the drilling of three oil wells, one in California and two wells in Texas, while incurring expenses of $3,358,206, resulting in a gain of $1,028,695. At September 30, 2019, Royale Energy had a Deferred Drilling Obligation of $6,077,583. During the first nine months of 2019, we disposed of $9,382,519 of drilling obligations upon completing the drilling of eight wells, six natural gas wells in Northern California and two oil wells in Southern California, while incurring expenses of $7,484,260, resulting in a gain of $1,898,259.

General and administrative expenses decreased by $80,284 or 4.8% from $1,660,921 for the nine months ended September 30, 2019, to $1,580,637 for the same period in 2020. This decrease was mainly due to lower employee related costs and outside consulting services, in an effort by the Company to reduce costs. For the third quarter 2020, general and administrative expenses increased $147,278 or 41.1% when compared to the same period in 2019. This increase was mainly due to higher drilling overhead offsets during the third quarter of 2019 as four wells were completed. Marketing expense for the nine months ended September 30, 2020, decreased $233,405, or 73.0%, to $86,501, compared to $319,906 for the same period in 2019. For the third quarter 2020, marketing expenses decreased $127,929 or 80.3% when compared to the third quarter in 2019. Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs. During the period in 2020 fewer marketing events were attended as the governmental mandate against large gatherings was implemented.

Legal and accounting expense decreased to $238,124 for the nine month period in 2020, compared to $502,995 for the same period in 2019, a $264,871 or 52.7% decrease. For the third quarter 2020, legal and accounting expenses decreased $50,727 or 44.4%, when compared to the third quarter in 2019. These decreases were primarily due to higher accounting fees related to the Matrix post-merger reporting incurred during the period in 2019.

During the nine months ended September 30, 2020, we recorded a gain of $532,510, on investment in joint venture as our 20% share of RMX Resources, LLC’s, compared to a loss of $124,716 in 2019. During the third quarter in 2020, we recorded a gain of $271,310 based on the contract agreement with an industry partner in the drilling of two wells. During the second quarter in 2020 we recorded a gain of $200,001 on the receipt of a pre-Matrix merger prepayment refund. During the first quarter in 2020, we recorded a loss on settlement of $31,500 related to a 2018 seismic sales agreement. During the first quarter in 2019 we recorded a loss on the sale of assets of $1,237,126 related a settlement agreement with RMX Resources, LLC. During the nine-month period in 2019, we recorded geological and geophysical expense of $263,277 related mainly to the acquisition of a seismic survey of a Northern California field, during the same period in 2020, we recorded $14,392 in geological and geophysical expenses. During the nine months ended September 30, 2019, we recorded a gain of $897,708, mainly on the reconciliation and settlement of royalties payable.  We periodically review our proved properties for impairment on a field-by-field basis and charge impairments of value to the expense. During the nine months ended September 30, 2019, we recorded a lease impairment of $40,223 on various lease and land costs that were no longer viable.

Bad debt expense for the periods ended September 30, 2020, and 2019 were $368,417 and $5,863, respectively.  During the period in 2020 approximately $203,000 was related to revenue receivable from an industry partner whose collectability was in doubt. Approximately $154,000 of the expenses in 2020 arose from identified uncollectable receivables relating to our oil and natural gas properties either plugged and abandoned or scheduled for plugging and abandonment and our period end oil and natural gas reserve values.  We periodically review our accounts receivable from working interest owners to determine whether collection of any of these charges appears doubtful.  By contract, the Company may not collect some charges from its Direct Working Interest owners for certain wells that ceased production or had been sold during the year, to the extent that these charges exceed production revenue.

Interest expense decreased to $10,306 for the nine months ended September 30, 2020, from $17,186 for the same period in 2019, a $6,880 decrease.  This decrease was mainly due to lower principal balances on notes payable during the nine month period in 2020. 

20

Capital Resources and Liquidity

At September 30, 2020, we had current assets totaling $5,509,472 and current liabilities totaling $9,985,434, a $4,475,962 working capital deficit.  We had $558,249 in cash and $1,825,000 in restricted cash at September 30, 2020, compared to $1,031,014 in cash and $2,845,515 in restricted cash at December 31, 2019.

In accordance with ASC 480-10-S99 the Company reclassified the Series B Convertible Preferred Stock from Permanent Equity to Mezzanine capital as a result of the change in voting rights provided at the time it of issuance. For more information, see Note 3 – Series B Convertible Preferred Stock.

At September 30, 2020, our other receivables, which consist of joint interest billing receivables from direct working interest investors and industry partners, totaled $1,402,631, compared to $1,189,892 at December 31, 2019, a $212,739 increase.  This increase was mainly due to an increase in receivable from an industry partner for drilling costs incurred during the period in 2020.  At September 30, 2020, revenue receivable was $345,336, a decrease of $243,815, compared to $589,151 at December 31, 2019, due to lower commodity prices and lower natural gas production volumes on existing wells.  At September 30, 2020, our accounts payable and accrued expenses totaled $4,963,091, a decrease of $1,067,943 from the accounts payable at December 31, 2019 of $6,031,034, which was related to payments made on account during the period in 2020. 

The Company has had recurring operating and net losses and cash used in operations and the financial statements reflect a working capital deficiency of $4,475,962 and an accumulated deficit of $74,496,606. These factors raise substantial doubt about our ability to continue as a going concern. We anticipate that our primary sources of liquidity will be from the sale of oil and gas in the course of normal operations, the sale of oil and gas property, sales of participation interest and possible issuance of debt and/or equity. If the Company is unable to generate sufficient cash from operations or financing sources, it may become necessary to curtail, suspend or cease operations, sell property, or enter into financing transaction(s) on less favorable terms; any such outcomes could have a material adverse effect on the Company’s business, results of operations, financial position and liquidity. Additionally, management has, and plans to continue, to increase revenue and reduce overhead and Lease Operating Expense (LOE) costs.

Operating Activities.  Net cash used by operating activities totaled $645,657 and $1,311,478 for the nine months ended September 30, 2020, and 2019, respectively.  This difference in cash used was mainly due to a loss on the sale of assets during the first quarter in 2019 and the decrease in prepaid drilling in 2020 as they were applied to actual costs.

Investing Activities.  Net cash used by investing activities totaled $992,429 compared to $1,826,433 provided for the nine months ended September 30, 2020, and 2019, respectively. During the period in 2020, we received approximately $3 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $4 million in the drilling and completing of one Southern California oil well and two Texas oil wells. During the 2019 period, we received approximately $9.2 million in direct working interest investor turnkey drilling investments while our drilling expenditures were approximately $7.4 million in the drilling and completing of six Northern California natural gas wells and two Southern California oil wells.

Financing Activities.  Net cash provided by financing activities totaled $144,806 compared to net cash of $522,231 used for the nine months ended September 30, 2020, and 2019, respectively. During the period in 2020, we received $207,800 in PPP loan as discussed in Note 7. There were principal payments of approximately $63,000 on our notes payable. During the nine month period in 2019, a financing agreement for a seismic survey was recognized when the terms were finalized, on which there were principal payments of approximately $131,000.  Additionally, in 2019, there were principal payments of approximately $391,000 on our note with Forza Operating.

21

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In late 2019 and continuing into 2020, there was a global outbreak of COVID-19 that has resulted in changes in global supply and demand of certain mineral and energy products. While the direct and indirect negative impacts that may affect the Company cannot be determined, they could have a prospective material impact to the Company's operations, cash flows and liquidity, primarily related to the decline in product price, in part, as a result of a decline in demand related to “shelter-in-place” orders by various governmental bodies.

Our major market risk exposure relates to pricing of oil and gas production, which during the period in 2020 resulted in historically low prices due to stay at home orders.  The prices we receive for oil and gas are closely related to worldwide market prices for crude oil and local spot prices paid for natural gas production.  Prices have been volatile for the last several years and have become even more unpredictable in the current period. We expect that volatility to continue.  Our monthly average oil and condensate prices ranged from a high of $60.99 per barrel to a low of $18.79 per barrel and our monthly average natural gas prices ranged from a high of $2.91 per Mcf to a low of $1.69 per Mcf for the first nine months of 2020.  

Item 4. Controls and Procedures

As of September 30, 2020, an evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures.  These controls and procedures are based on the definition of disclosure controls and procedures in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. 

As a result of the review by the CFO and CEO, the material weakness was identified as listed below.

● In connection with the audit of our 2019 consolidated financial statements, management has identified a material weakness that exists because we did not maintain effective controls over our financial close and reporting process, and has concluded that the financial close and reporting process needs additional formal procedures to ensure there are appropriate reviews occur on all financial reporting analysis. Updated procedures have been implemented through the close process for the year ended December 31, 2019, and we will continue to monitor these throughout 2020 to be able to fully assess whether the procedures and controls are effective.

Because of the material weaknesses described above, our management was unable to conclude that our internal control over financial reporting was effective as of the end of period to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.

Except for the actions described above that were taken to address the material weaknesses, there were no changes in our internal controls during the period ended September 30, 2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Notwithstanding the material weaknesses described above, our management, including our Chief Executive Officer and Chief Financial Officer, believes that the consolidated financial statements contained in this Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal periods presented in conformity with U.S. generally accepted accounting principles. In addition, the material weaknesses described did not result in the restatements of any of our audited or unaudited consolidated financial statements or disclosures for any previously reported periods.

Internal Control over Financial Reporting and Changes in Internal Control over Financial Reporting

During the nine months ended September 30, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

22

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

Not applicable to smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the period covered by this report, we have not issued any unregistered shares.

Item 4. Mine Safety Disclosures

Not applicable

Item 5.  Other Information

None

Item 6.  Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification
31.2	Rule 13a-14(a)/15d-14(a) Certification
32.1	18 U.S.C. § 1350 Certification
32.2	18 U.S.C. § 1350 Certification
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

23

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ROYALE ENERGY, INC.
Date:  November 13, 2020	/s/ Johnny Jordan
	Johnny Jordan, Chief Executive Officer
Date:  November 13, 2020	/s/ Stephen M. Hosmer
	Stephen M. Hosmer, Chief Financial Officer

24

EX-31.1

Exhibit 31.1

I, Johnny Jordan, certify that:

1. I have reviewed this report on Form 10-Q of Royale Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2020	/s/ Johnny Jordan
	Johnny Jordan, Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Stephen M. Hosmer, certify that:

1. I have reviewed this report on Form 10-Q of Royale Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions)

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2020	/s/ Stephen M. Hosmer
	Stephen M. Hosmer, Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. § 1350

The undersigned, Johnny Jordan, Chief Executive Officer of Royale Energy, Inc., a Delaware corporation (the “Company”), pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, hereby certifies that:

(1) the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2020	By:	/s/ Johnny Jordan
		Johnny Jordan, Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. § 1350

The undersigned, Stephen M. Hosmer, Co-President, Co-Chief Executive Officer and Chief Financial Officer of Royale Energy, Inc., a Delaware corporation (the “Company”), pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, hereby certifies that:

(1) the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 13, 2020	By:	/s/ Stephen M. Hosmer
		Stephen M. Hosmer, Chief Financial Officer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 04, 2020
Document Information Line Items
Entity Registrant Name	Royale Energy, Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		54,273,919
Amendment Flag	false
Entity Central Index Key	0001694617
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Document Period End Date	Sep. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Interactive Data Current	Yes

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Cash and Cash Equivalents	$ 558,249	$ 1,031,014
Restricted Cash	1,825,000	2,845,515
Other Receivables, net	1,402,631	1,189,892
Revenue Receivables	345,336	589,151
Prepaid Expenses	142,460	376,587
Prepaid Drilling to RMX Resources, LLC	1,235,796	2,680,155
Total Current Assets	5,509,472	8,712,314
Investment in Joint Venture	6,718,505	6,185,995
Right of Use Assets - Leases	270,335	392,774
Other Assets	708,554	708,554
Oil and Gas Properties, (Successful Efforts Basis), Equipment and Fixtures, net	4,951,535	4,590,990
Total Assets	18,158,401	20,590,627
Current Liabilities:
Accounts Payable and Accrued Expenses	4,963,091	6,031,034
Royalties Payable	623,405	623,405
Notes Payable	330,923	55,573
Due to RMX Resources, LLC	23,087	32,367
Deferred Drilling Obligation	3,870,774	5,232,675
Lease Liability - current	174,154	162,272
Total Current Liabilities	9,985,434	12,137,326
Accrued Liabilities - Long Term	1,306,605	1,306,605
Accrued Unpaid Guaranteed Payments	1,616,205	1,616,205
Lease Liability - long-term	97,532	231,071
Asset Retirement Obligation	3,737,003	3,632,423
Total Liabilities	16,742,779	18,923,630
Mezzanine Equity:
Convertible Preferred Stock, Series B, $10 par value, 3,000,000 Shares Authorized	22,021,955	0
Stockholders' Equity (Deficit):
Convertible Preferred Stock, Series B, $10 par value, 3,000,000 Shares Authorized	0	21,453,338
Common Stock, .001 Par Value, 280,000,000 Shares Authorized	54,127	51,854
Additional Paid in Capital	53,836,146	53,549,543
Accumulated Deficit	(74,496,606)	(73,387,738)
Total Stockholders' Equity (Deficit)	(20,606,333)	1,666,997
Total Liabilities, Mezzanine Equity and Stockholders' Equity (Deficit)	$ 18,158,401	$ 20,590,627

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Convertible Preferred Stock, Series B, par value	$ 10	$ 10
Convertible Preferred Stock, Shares Authorized	3,000,000	3,000,000
Convertible Preferred Stock, Series B, Shares Authorized	3,000,000	3,000,000
Common Stock, Par Value	$ 0.001	$ 0.001
Common stock, shares authorized	280,000,000	280,000,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues:
Revenues	$ 562,155	$ 635,388	$ 1,169,110	$ 2,030,792
Costs and Expenses:
Oil and Gas Lease Operating	384,670	517,627	1,163,428	1,237,785
Depreciation, Depletion and Amortization	93,867	92,470	249,492	217,327
Lease Impairment	0	40,223	0	40,223
Bad Debt Expense	182,249	0	368,417	5,863
Geological and Geophysical Expense	0	691	14,392	263,277
Legal and Accounting	63,464	114,191	238,124	502,995
Marketing	31,437	159,366	86,501	319,906
General and Administrative	505,297	358,019	1,580,637	1,660,921
Total Costs and Expenses	1,260,984	1,282,587	3,700,991	4,248,297
Gain on Turnkey Drilling	118,247	1,787,860	1,028,695	1,898,259
Gain (Loss) From Operations	(580,582)	1,140,661	(1,503,186)	(319,246)
Interest Expense	(2,862)	(4,842)	(10,306)	(17,186)
Gain (Loss) on Settlement of Accounts Payable	0	834,736	(31,500)	897,708
Other Gain	271,310	0	471,311	0
Gain (Loss) on Sale of Assets	920	0	920	(1,237,126)
Gain (Loss) on Investment in Joint Venture	(301,015)	333,553	532,510	(124,716)
Income (Loss) Before Income Tax Expense	(612,229)	2,304,108	(540,251)	(800,566)
Net Income (Loss)	(612,229)	2,304,108	(540,251)	(800,566)
Less: Preferred Stock Dividend	192,583	185,971	568,617	547,114
Net Loss available to common stock	$ (804,812)	$ 2,118,137	$ (1,108,868)	$ (1,347,680)
Shares used in computing Basic Net Loss per share (in Shares)	53,711,702	51,009,871	52,940,630	50,655,286
Basic and Diluted (Loss) Per Share (in Dollars per share)	$ (0.01)	$ 0.04	$ (0.02)	$ (0.03)
Shares used in computing Diluted Net Loss per share (in Shares)	53,711,702	74,948,229	52,940,630	50,655,286
Diluted Net Income (Loss) per Share (in Dollars per share)	$ (0.01)	$ 0.03	$ (0.02)	$ (0.03)
Oil and Gas [Member]
Revenues:
Revenues	$ 551,846	$ 610,427	$ 1,137,845	$ 1,419,821
Management Service [Member]
Revenues:
Revenues	$ 10,309	$ 24,961	$ 31,265	$ 610,971

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Statement of Cash Flows [Abstract]
Net (Loss)	$ (540,251)	$ (800,566)
Cash Flows Used in Operating Activities:
Depreciation, Depletion and Amortization	249,492	217,327
Loss on Lease Impairment	0	40,223
(Gain) Loss on Sale of Assets	(920)	1,237,126
(Gain) Loss on Turnkey Drilling Programs	(1,028,695)	(1,898,259)
(Gain) Loss on Settlement of Accounts Payable	31,500	(897,708)
(Gain) Loss on Investment in Joint Venture	(532,510)	124,716
Bad Debt Expense	368,417	5,863
Right of Use Asset Depreciation	8,203	0
Stock Based Compensation	288,876	455,146
Geological & Geophysical Costs	14,392	241,586
Gain on Other	(271,310)	0
Other & Revenue Receivables	(65,110)	(401,072)
Prepaid Expenses and Other Assets	1,678,486	(278,524)
Accounts Payable and Accrued Expenses	(836,947)	963,958
Royalties Payable	0	(9,386)
Due to Affiliate	(9,280)	(311,908)
Other Liabilities	0	0
Net Cash Used in Operating Activities	(645,657)	(1,311,478)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Oil and Gas Properties and Other Capital Expenditures	(4,017,429)	(7,420,386)
Proceeds from Turnkey Drilling Programs	3,025,000	9,246,819
Net Cash Provided (Used) by Investing Activities	(992,429)	1,826,433
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt	207,800	0
Principal Payments on Long-Term Debt	(62,994)	(390,840)
Principal Payments on Seismic Financing Agreement	0	(131,391)
Net Cash Provided (Used) by Financing Activities	144,806	(522,231)
Net Increase (Decrease) in Cash and Cash Equivalents	(1,493,280)	(7,276)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	3,876,529	6,355,042
Cash, Cash Equivalents, and Restricted Cash at End of Period	2,383,249	6,347,766
Cash Paid for Interest	10,306	17,186
Cash Paid for Taxes	5,400	16,581
Increase (Decrease) in Capital Accrued Balance	$ (153,765)	$ 585,918

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - USD ($)	Common Stock [Member]	Preferred Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2018	$ 49,421	$ 20,718,613	$ 53,023,350	$ (72,304,630)	$ 1,486,754
Balance (in Shares) at Dec. 31, 2018	49,421,387	2,071,861
Stock issued in lieu of Compensation	$ 1,881		453,265		$ 455,146
Stock issued in lieu of Compensation (in Shares)	1,881,491				1,881,491
Preferred Series B 3.5% Dividend		$ 547,114		(547,114)
Preferred Series B 3.5% Dividend (in Shares)	0	54,712
Net Income (Loss)				(800,566)	$ (800,566)
Balance at Sep. 30, 2019	$ 51,302	$ 21,265,727	53,476,615	(73,652,310)	1,141,334
Balance (in Shares) at Sep. 30, 2019	51,302,878	2,126,573
Balance at Jun. 30, 2019	$ 50,804	$ 21,079,756	53,370,890	(75,770,447)	(1,268,997)
Balance (in Shares) at Jun. 30, 2019	50,804,608	2,107,976
Stock issued in lieu of Compensation	$ 498		105,725		106,223
Stock issued in lieu of Compensation (in Shares)	498,270
Preferred Series B 3.5% Dividend		$ 185,971		(185,971)
Preferred Series B 3.5% Dividend (in Shares)		18,597
Net Income (Loss)				2,304,108	2,304,108
Balance at Sep. 30, 2019	$ 51,302	$ 21,265,727	53,476,615	(73,652,310)	1,141,334
Balance (in Shares) at Sep. 30, 2019	51,302,878	2,126,573
Balance at Dec. 31, 2019	$ 51,854	$ 21,453,338	53,549,543	(73,387,738)	1,666,997
Balance (in Shares) at Dec. 31, 2019	51,854,136	2,145,334
Stock issued in lieu of Compensation	$ 2,273		286,603		$ 288,876
Stock issued in lieu of Compensation (in Shares)	2,273,245				2,273,245
Preferred Series B 3.5% Dividend		$ 187,200		(568,617)	$ (381,417)
Preferred Series B 3.5% Dividend (in Shares)	0	18,720
Net Income (Loss)				(540,251)	(540,251)
Reclassify Preferred B to Mezzanine		$ (21,640,538)			(21,640,538)
Reclassify Preferred B to Mezzanine (in Shares)		(2,164,054)
Balance at Sep. 30, 2020	$ 54,127		53,836,146	(74,496,606)	(20,606,333)
Balance (in Shares) at Sep. 30, 2020	54,127,381
Balance at Jun. 30, 2020	$ 53,244		53,717,703	(73,691,794)	(19,920,847)
Balance (in Shares) at Jun. 30, 2020	53,244,923
Stock issued in lieu of Compensation	$ 883		118,443		119,326
Stock issued in lieu of Compensation (in Shares)	882,458
Preferred Series B 3.5% Dividend				(192,583)	(192,583)
Net Income (Loss)				(612,229)	(612,229)
Balance at Sep. 30, 2020	$ 54,127		$ 53,836,146	$ (74,496,606)	$ (20,606,333)
Balance (in Shares) at Sep. 30, 2020	54,127,381

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NOTE 1

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 1 – In the opinion of management, the accompanying unaudited condensed consolidated financial statements (“statements”) include all 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 nine-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 as filed on Form 10-K.

The Company has a substantial investment in RMX Resources, LLC (“RMX”), a joint venture with CIC RMX LP. Royale entered into the RMX joint venture on April 13, 2018 and records its interest in RMX under the equity method as further described below.

Liquidity and Going Concern

The primary sources of liquidity have historically been issuances of common stock and operations.  There are factors that give rise to substantial doubt about the Company’s ability to meet liquidity demands, and we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, the sale of oil and natural gas property participation interests through our normal course of business and the sale of non-strategic assets.

The Company’s 2020 financial statements reflect a working capital deficiency of $4,475,962 as of September 30, 2020 and a net loss of $540,251 for the nine months ended September 30, 2020. These factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management’s plans to alleviate the going concern by cost control measures that include the reduction of overhead costs and the sale of non-strategic assets.  There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will become profitable and generate positive operating cash flow, which may be more difficult in light of the volatility created during the COVID-19 pandemic. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, attempt to extend note repayments, and reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

Consolidation

The accompanying financial statements include the accounts of Royale Energy, Inc. (sometimes called the “Company” “we,” “our,” “us,” “Royale Energy,” or “Royale”), Royale Energy Funds, Inc. (“REF”), and Matrix Oil Management Corporation and its subsidiaries.  All entities comprising the financial statements of Royale Energy have fiscal years ending December 31.  All material intercompany accounts and transactions have been eliminated in the financial statements.

Correction of Immaterial Errors in Previously Issued Financial Statements

Subsequent to the issuance of the consolidated financial statements for the year ended December 31, 2019, the Company concluded that the Statement of Cash Flows for the year ending December 31, 2019, contained immaterial errors related to the classification of payments arising from operating leases and to the quantification of the amount of capital expenditures that had been accrued for but not yet paid. These immaterial errors have been corrected for the comparative period, resulting in an increase in cash flows used in operating activities of $681,388; an increase in cash flows provided by investing activities of $585,918; and a decrease in cash flows used in financing activities of $95,470 for the period ending September 30, 2019. These immaterial errors did not have any impact on our financial position, net loss or total cash flow for the period ending September 30, 2019. 

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.

Termination of RMX MSA

On December 31, 2018, Royale was formally notified of RMX Resources, LLC’s intent to terminate the Master Service Agreement (“MSA”) as of March 31, 2019. The Termination Notice called for Royale to continue to provide accounting and other services through March 31, 2019. Thereafter, per Article VII, Section 7.2 of the MSA, Royale provided all reasonable assistance requested, by the RMX Board of Directors, to transition the management of RMX through April 30, 2019 at which point all services under the MSA terminated.

Settlement Agreement and Well Participation Agreement with RMX

On March 11, 2019, Royale entered into a Settlement Agreement with RMX to resolve differences which resulted from the calculation of certain post-closing amounts as called for under Section 7.3 of the Subscription and Contribution Agreement. Under the terms of this provision, Royale estimated that it may have owed RMX approximately $552,645 related to its calculation of this post-closing amount under this provision. In addition, there were other disputed amounts related to certain joint owner billing amounts which remained unpaid at year end. In settlement of these differences, Royale agreed to assign its remaining interests in the Bellevue Field, located in Kern County and the W. Whittier Field located in Los Angeles County, California to RMX. At December 31, 2018, the Bellevue and W. Whittier fields accounted for 5.145 and 140.647 Mboe in reserves and were valued at $67,671 and $2.4 million, respectively, using SEC pricing and discounted at 10%.

Royale will continue to be responsible for the liability for the payment of all royalties and suspended funds incurred prior to March 1, 2018. As part of this Settlement Agreement, RMX will offer Royale the right, but not the obligation, to participate in a number of wells to be drilled in the Sansinena, Sempra, Whittier and/or East LA properties in Los Angeles County, California at an offered working interest up to 75% of RMX’s working interest in each of the offered wells. The minimum number of wells to be offered to Royale in each year is 2 net wells as determined by an agreed upon methodology. The Agreement also calls for certain credits toward future drilling costs of the offered wells. The Company recorded a loss of $1,237,126 on the settlement during the three months ended March 31, 2019.

West Coast Settlement

On December 5, 2018, Royale entered into a Purchase and Sale Agreement (“West Coast Agreement”) for properties located in the Jameson North Field Area in Mitchell and Nolan Counties, Texas and the Big Mineral Creek Field Area in Grayson County, Texas. The seller was West Coast Energy Properties, LP. The West Coast Agreement called for a post-closing settlement. On July 11, 2019, Royale entered into a post-closing settlement as called for under the terms of the West Coast Agreement for payment due seller of $156,975 which were made in equal monthly payments of $26,163 commencing July 31, 2019 with the final payment on December 31, 2019.

Prospective East LA Sale

On June 24, 2020, Royale and RMX Resources, LLC entered into a Purchase and Sale Agreement to sell a portion of property jointly owned by Royale and RMX, located in Los Angeles County, California for a gross price of $2,150,000. The property is jointly owned by Royale and RMX, and calls for, among other things, the abandonment of one well, located on the subject lands. The gross sale proceeds to Royale, if and when the sales closes, will be $1,075,000.

Revenue Recognition

The majority of our ongoing revenues are derived from the sale of crude oil and condensate, natural gas liquids ("NGLs") and natural gas under spot and term agreements with our customers.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Oil & Condensate Sales	$	477,724	$	471,201	$	874,936	$	832,108
Natural Gas Sales		73,878		139,226		262,532		587,713
NGL Sales		244		-		377		-
Total	$	551,846	$	610,427	$	1,137,845	$	1,419,821

The pricing in our hydrocarbon sales agreements are variable, determined using various published benchmarks which are adjusted for negotiated quality and location differentials. As a result, revenue collected under our agreements with customers is highly dependent on the market conditions and may fluctuate considerably as the hydrocarbon market prices rise or fall. Typically, our customers pay us monthly, within a short period of time after we deliver the hydrocarbon products. As such, we do not have any financing element associated with our contracts. We do not have any issues related to returns or refunds, as product specifications are standardized for the industry and are typically measured when transferred to a common carrier or midstream entity, and other contractual mechanisms (e.g., price adjustments) are used when products do not meet those specifications.

We often serve as the operator for jointly owned oil and gas properties. As part of this role, we perform activities to explore, develop and produce oil and gas properties in accordance with the joint operating arrangement and collective decisions of the joint parties. Other working interest owners reimburse us for costs incurred based on our agreements. We determined that these activities are not performed as part of customer relationships, and such reimbursements are recorded as cost reimbursements.

We commonly market the share of production belonging to other working interest owners as the operator of jointly owned oil and gas properties. Those marketing activities are carried out as part of the collaborative arrangement, and we do not purchase or otherwise obtain control of other working interest owners’ share of production. Therefore, we act as a principal only regarding the sale of our share of production and recognize revenue for the volumes associated with our net production.

The Company frequently sells a portion of the working interest in each well it drills or participates in, to third-party investors and retains a portion of the prospect for its own account.  The Company typically guarantees a cost to drill to the third-party drilling participants and records a loss or gain on the difference between the guaranteed price and the actual cost to drill the well.  When monies are received from third parties for future drilling obligations, the Company records the liability as Deferred Drilling Obligations.  Once the contracted depth for the drilling of the well is reached and a determination as to the commercial viability of the well (typically call “Casing Point Election” or “Logging Point”), the difference in the actual cost to drill and the guaranteed cost is recorded as income or expense depending on whether there was a gain or loss.

Crude oil and condensate

For the crude sales agreements, we satisfy our performance obligations and recognize revenue once customers take control of the crude at the designated delivery points, which include pipelines, trucks or vessels.

Natural gas and NGLs

When selling natural gas and NGLs, we engage midstream entities to process our production stream by separating natural gas from the NGLs. Frequently, these midstream entities also purchase our natural gas and NGLs under the same agreements. In these situations, we determined the performance obligation is complete and satisfied at the tailgate of the processing plant when the natural gas and NGLs become identifiable and measurable products. We determined the plant tailgate is the point in time where control, as defined in the new revenue standard, is transferred to midstream entities and they are entitled to significant risks and rewards of ownership of the natural gas and NGLs.

The amounts due to midstream entities for gathering and processing services are recognized as shipping and handling cost and included as lease operating expense in our consolidated statement of operations, since we make those payments in exchange for distinct services with the exception of natural gas sold to Pacific Gas & Electric (PG&E) where transportation is netted directly against revenue. Under some of our natural gas processing agreements, we have an option to take the processed natural gas and NGLs in-kind and sell to customers other than the processing company. In those circumstances, our performance obligations are complete after delivering the processed hydrocarbons to the customer at the designated delivery points, which may be the tailgate of the processing plant or an alternative delivery point requested by the customer.

Turnkey Drilling

These Turnkey Agreements are managed by the Company for the participants of the well. The collections of pre-drilling AFE amounts are segregated by the Company and the gains and losses on the Turnkey Agreements are recorded in income or expense at the time of the casing point election in accordance with ASC 932-323-25 and 932-360. The Company manages the performance obligation for the well participants and only records revenue or expense at the time the performance obligation of the Turnkey Agreement has been satisfied.

Supervisory Fees and Other

These amounts include proceeds from the Master Service Agreement (“MSA”) with RMX for the providing of land, engineering, accounting and support services for the RMX joint venture. Revenues earned under the MSA were recorded at the end of each month that services were performed, in conformity with the Agreement. The service fee income was deemed earned at the end of each month that services were performed as prescribed by the contract. On December 31, 2018, Royale received notice of cancelation of the MSA by RMX effective March 31, 2019. For the nine months ended September 30, 2019, the Company recognized $610,971 in supervisory fees from RMX. Also included in the caption are Pipeline and Compressor fees which are received and allocated based on production volumes.

Restricted Cash

Royale sponsors turnkey drilling arrangements in proved and unproved properties. The contracts require that participants pay Royale the full contract price upon execution of the drilling agreement. Each participant earns an undivided interest in the well bore at the completion of the well. A portion of the funds received in advance of the drilling of a well from a working interest participant are held for the expressed purpose of drilling a well. If something changes, the Company may designate these funds for a substitute well. Under certain conditions, a portion of these funds may be required to be returned to a participant. Once the well is drilled, the funds are used to satisfy the drilling cost. Royale classifies these funds prior to commencement of drilling as restricted cash based on guidance codified as under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 230-10-50-8. In the event that progress payments are made from these funds, they are recorded as Prepaid Expenses and Other Current Assets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

	September 30, 2020		December 31, 2019
Cash and Cash Equivalents	$	558,249	$	1,031,014
Restricted Cash		1,825,000		2,845,515
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	2,383,249	$	3,876,529

Equity Method Investments

Investments in entities over which we have significant influence, but not control, are accounted for using the equity method of accounting. Income from equity method investments represents our proportionate share of net income generated by the equity method investees and is reflected in revenue and other income in our condensed consolidated statements of operations. Equity method investments are included as noncurrent assets on the consolidated balance sheet.

Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred as called for under ASC 323. When a loss is deemed to have occurred and is other than temporary, the carrying value of the equity method investment is written down to fair value, and the amount of the write-down is included in income.

The earnings from RMX reflected in these financial statements as Investment in Joint Venture (“JV”), reflect our share of net earnings or losses directly attributable to this equity method investment. As of September 30, 2020, we evaluated our investment in RMX and determined that any losses were not other than temporary.

Listed below is the summarized information required under Rule 3-09 of regulation S-X, Article 10 for Royale’s investment in RMX:

	September 30, 2020		December 31, 2019
Balance Sheet
Total Assets	$	79,350,594	$	72,401,841
Total Liabilities		45,859,628		41,573,426
Member Equity	$	33,490,966	$	30,828,415

	For the 9 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	7,008,053		$	11,975,338
Income (Loss) from operations		(2,464,919	)		930,072
Net Income (Loss)	$	2,662,551		$	(623,579	)

	For the 3 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	2,350,609		$	4,195,522
Income (Loss) from operations		(873,879	)		478,946
Net Income (Loss)	$	(1,505,076	)	$	1,787,844

Other Receivables

Other receivables consist of joint interest billing 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, 2020 and December 31, 2019, the Company maintained an allowance for uncollectable accounts of $1,942,911 and $1,791,162, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Fair Value Measurements

According to Fair Value Measurements and Disclosures Topic of the FASB ASC, 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, 2020 and December 31, 2019, Royale Energy does not have any financial assets measured and recognized at fair value on a recurring basis. The Company estimates asset retirement obligations (ARO’s) pursuant to the provisions of ASC 410, “Asset Retirement and Environmental Obligations”. The estimates of the fair value the ARO’s are based on discounted cash flow projections using numerous estimates, assumptions and judgements regarding such factors as the existence of a legal obligation for an ARO, amounts and timing of settlements, the credit-adjusted risk-free rate to be used and inflation rates.

The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties. Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs.

Fair Values - Non-recurring

The Company applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including oil and natural gas property impairments and other long-lived asset impairments. These items are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances.

Dividends on Series B Convertible Preferred Stock

The Series B Convertible Preferred Stock, (“Preferred”), has an obligation to pay a 3.5% cumulative dividend, in kind or cash, on a quarterly basis. In the first quarter of 2019, the Board of Directors authorized the issuance of Preferred shares, for the settlement of dividends accumulated through December 31, 2020.  The Company accrued $192,583 and $185,971 for dividends related to the Preferred shares during the third quarters of 2020 and 2019, respectively. Each quarter, the Company charges retained earnings for the accumulating dividend as the amounts add to the liquidation preference of the Preferred. For further information regarding the Preferred Stock see Note 3, below.

Accounting Standards

Recently Adopted

We adopted the following ASUs during 2020, none of which had a material impact to our financial statements or financial statement disclosures:

ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606

This is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Application of this ASU did not have a material impact on our consolidated financial statements.

ASU 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities

Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Application of this ASU has not had a material impact on our consolidated financial statements.

ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-400), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

Effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Application of this ASU has not had a material impact on our consolidated financial statements.

ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for fair value measurement

Effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Application of this ASU has not had a material impact on our consolidated financial statements.

NOT YET ADOPTED

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's consolidated financial statements.

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OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES

9 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE 2 – OIL AND GAS PROPERTY AND EQUIPMENT AND FIXTURES

Oil and gas properties, equipment and fixtures consist of the following:

	September 30,			December 31,
	2020			2019
Oil and Gas
Producing properties, including drilling costs	$	8,350,975		$	7,792,156
Undeveloped or unevaluated properties		2,842			46,990
Lease and well equipment		3,317,718			3,304,565
Total Oil & Gas		11,671,535			11,143,711
Accumulated depletion, depreciation & amortization		(6,724,826	)		(6,559,182	)
Total Oil & Gas Net		4,946,709			4,584,529
Commercial and Other
Vehicles		40,061			40,061
Furniture and equipment		1,097,428			1,097,428
Total Commercial and Other		1,137,489			1,137,489
Accumulated depreciation		(1,132,663	)		(1,131,028	)
Total Commercial and Other Net		4,826			6,461
Oil & Gas Property and Equipment and Fixtures	$	4,951,535		$	4,590,990

The guidance set forth in the Continued Capitalization of Exploratory Well Costs paragraph of the Extractive Activities Topic of the FASB ASC 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.

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 are expensed as incurred.  Major renewals and improvements are capitalized and the assets replaced are retired.

The project construction phase commences with the development of the detailed engineering design and ends when the constructed assets are ready for their intended use.  Interest costs, to the extent they are incurred to finance expenditures during the construction phase, are included in property, plant and equipment and are depreciated over the service life of the related assets.

Royale Energy uses the “successful efforts” method to account for its exploration and production activities.  Under this method, Royale Energy accumulates its proportionate share of costs on a well-by-well basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred and capitalizes expenditures for productive wells.  Royale Energy amortizes the costs of productive wells under the unit-of-production method.

Royale Energy carries, as an asset, exploratory well costs when the well has found a sufficient quantity of reserves to justify its completion as a producing well and where Royale Energy is making sufficient progress assessing the reserves and the economic and operating viability of the project.  Exploratory well costs not meeting these criteria are charged to expense. Other exploratory expenditures, including geophysical costs and annual lease rentals, are expensed as incurred.

Acquisition costs of proved oil and gas properties are amortized using a unit-of-production method, computed on the basis of total proved oil and gas reserves.

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.

Production costs are expensed as incurred. Production involves lifting the oil and gas to the surface and gathering, treating, field processing and field storage of the oil and gas. The production function normally terminates at the outlet valve on the lease or field production storage tank. Production costs are those incurred to operate and maintain Royale Energy’s wells and related equipment and facilities. They become part of the cost of oil and gas produced. These costs, sometimes referred to as lifting costs, include such items as labor costs to operate the wells and related equipment; repair and maintenance costs on the wells and equipment; materials, supplies and energy costs required to operate the wells and related equipment; and administrative expenses related to the production activity. 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 and whether carrying amounts should be impaired. The Company performs the evaluation of carrying amounts at least annually or when economic events or commodity prices indicate that a substantial and measurable change in future cash flows has occurred. Cash flows used in impairment evaluations are developed using updated evaluation assumptions for crude oil and natural gas commodity prices.  Annual volumes are based on field production profiles, which are also updated annually.

Impairment analyses are generally based on proved reserves. An asset group would be further assessed 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, 2019, impairment losses of $40,223 were incurred on various lease and land costs that were no longer viable.  During the nine months ended September 30, 2020, no impairment losses were incurred.

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 for various reasons such as weather, permitting, drilling rig availability and/or contractual obligations.  At September 30, 2020 and December 31, 2019, Royale Energy had Deferred Drilling Obligations of $3,870,774 and $5,232,675, 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 contract and return the remaining funds to the participant.  Included in Restricted Cash 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.

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SERIES B PREFERRED STOCK

9 Months Ended

Sep. 30, 2020

Disclosure Text Block Supplement [Abstract]

Preferred Stock [Text Block]

NOTE 3 – SERIES B PREFERRED STOCK

On March 7, 2018, the Company was notified by the California Secretary of State of the filing and acceptance of agreements of merger by the California Secretary of State, to complete the previously announced merger between the companies (the “Merger”). Pursuant to the terms of the Merger all Class A limited partnership interests of Matrix Investments, LP (“Matrix Investments”) were exchanged for Royale Common stock using conversion ratios according to the relative value of the Class A limited partnership interests, and $20,124,000 of Matrix Investments preferred limited partnership interests were converted into 2,012,400 shares of Series B Convertible Preferred Stock of Royale. The Board of Directors of Royale Energy, prior to the merger, authorized 3,000,000 shares of Series B Convertible Preferred, which carries a liquidation preference and a 3.5% dividend, payable in cash or Paid-In-Kind shares. The Series B Convertible Preferred Stock is convertible at the option of the security holder at the rate of ten shares of common stock for one share of Series B Convertible Preferred Stock. The Series B Preferred Stock has never been registered under the Securities Exchange Act of 1934, and no market exists for the shares. Additionally, the Series B Convertible Preferred shares will automatically convert to common stock at any time in which the Volume Weighted Average Price (VWAP) of the common stock exceeds $3.50 per share for 20 consecutive trading days, the shares are registered with the SEC and the volume of common shares trades exceeds 200,000 shares per day.

The shareholders of the Series B Convertible Preferred became entitled to vote the number of shares into which they would be entitled to convert, beginning in 2020. In accordance with ASC 480-10-S99-1.02, the Company has determined that the conversion or redemption of these shares are outside the sole control of the Company and that they should be classified in mezzanine or temporary equity as redeemable noncontrolling interest beginning at the reporting period ended March 31, 2020.

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NET INCOME (LOSS) PER SHARE

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 4 – LOSS PER SHARE

Basic and diluted loss per share are calculated as follows:

	Three Months ending
	September 30, 2020						September 30, 2019
	Basic			Diluted			Basic		Diluted
Net Income (Loss)	$	(612,229	)	$	(612,229	)	$	2,304,108	$	2,304,108
Less: Preferred Stock Dividend		192,583			192,583			185,971		185,971
Less: Preferred Stock Dividend In Arrears		-			-			-		-
Net Income (Loss) Attributable to Common Shareholders		(804,812	)		(804,812	)		2,118,137		2,118,137
Weighted average common shares outstanding		53,711,702			53,711,702			51,009,871		51,009,871
Effect of dilutive securities		-			-			-		23,938,358
Weighted average common shares, including Dilutive effect		53,711,702			53,711,702			51,009,871		74,948,229
Per share:
Net Income (Loss)	$	(0.01	)	$	(0.01	)	$	0.04	$	0.03

	Nine Months ending
	September 30, 2020						September 30, 2019
	Basic			Diluted			Basic			Diluted
Net Income (Loss)	$	(540,251	)	$	(540,251	)	$	(800,566	)	$	(800,566	)
Less: Preferred Stock Dividend		568,617			568,617			547,114			547,114
Less: Preferred Stock Dividend In Arrears		-			-			-			-
Net Income (Loss) Attributable to Common Shareholders		(1,108,868	)		(1,108,868	)		(1,347,680	)		(1,347,680	)
Weighted average common shares outstanding		52,940,630			52,940,630			50,655,286			50,655,286
Effect of dilutive securities		-			-			-			-
Weighted average common shares, including Dilutive effect		52,940,630			52,940,630			50,655,286			50,655,286
Per share:
Net Income (Loss)	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.03	)

For the nine months ended September 30, 2020 and 2019, Royale Energy had dilutive securities of 25,160,750 and 23,967,039, respectively.  For the three months ended September 30, 2020 and 2019, Royale Energy had dilutive securities of 25,166,967 and 23,938,358, respectively. These securities were not included in the dilutive loss per share, due to their antidilutive nature.

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INCOME TAXES

9 Months Ended

Sep. 30, 2020

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 2015, management reviewed the reliability of the Company’s net deferred tax assets, and due to the Company’s continued cumulative losses in recent years, the Company 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 2020.

A reconciliation of Royale Energy’s provision for income taxes and the amount computed by applying the statutory income tax rates at September 30, 2020 and 2019, respectively, to pretax income is as follows: 

	Nine months ended
	September 30, 2020			September 30, 2019
Tax benefit computed at statutory rate of 21% at September 30, 2020 and 2019, respectively	$	(110,838	)	$	(168,119	)
Increase (decrease) in taxes resulting from:
State tax / percentage depletion / other
Other non-deductible expenses		466			1,211
Provision-to-Return Adjustments		-			366,161
Change in valuation allowance		110,372			(199,253	)
Provision (benefit)	$	-		$	-

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ISSUANCE OF COMMON STOCK

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 6 – ISSUANCE OF COMMON STOCK

During the nine months ended September 30, 2020, in lieu of cash payments for salaries and board fees, Royale issued 2,273,245 shares of its Common stock valued at approximately $288,876 to an executive officer and board members, compared to the issuance of 1,881,491 shares issued with an approximate value of $455,146 in the same period of 2019.

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CARES ACT - PPP LOAN

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 7 – Cares act – ppp loan

On April 22, 2020, the Company entered into a loan (the "PPP Loan") evidenced by a promissory note (the "Promissory Note"), under the Paycheck Protection Program sponsored by the U.S. Small Business Administration ("SBA") through the Bank of Southern California N.A. providing for $207,800 in proceeds, which amount was funded to the Company on April 23, 2020. The PPP Loan was made pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is administered by the SBA.

The Promissory Note matures April 22, 2022 and provides for 18 monthly payments of principal and interest commencing on November 21, 2020. The interest rate on the PPP Loan is 1.00%. The Promissory Note is unsecured and contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Bank of Southern California N.A., or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. The Promissory Note principal may be forgiven subject to the terms of the Paycheck Protection Program.

During the period, the Company submitted an application for loan forgiveness for the full amount outstanding. On November 10, the Company received notice that the SBA has remitted funds to the initiating bank in the amount of $198,846 in repayment of its PPP loan, leaving a balance of $10,054.

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Accounting Policies, by Policy (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Liquidity and Going Concern [Policy Text Block]

Liquidity and Going Concern

The primary sources of liquidity have historically been issuances of common stock and operations.  There are factors that give rise to substantial doubt about the Company’s ability to meet liquidity demands, and we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, the sale of oil and natural gas property participation interests through our normal course of business and the sale of non-strategic assets.

The Company’s 2020 financial statements reflect a working capital deficiency of $4,475,962 as of September 30, 2020 and a net loss of $540,251 for the nine months ended September 30, 2020. These factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management’s plans to alleviate the going concern by cost control measures that include the reduction of overhead costs and the sale of non-strategic assets.  There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will become profitable and generate positive operating cash flow, which may be more difficult in light of the volatility created during the COVID-19 pandemic. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, attempt to extend note repayments, and reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

Consolidation, Policy [Policy Text Block]

Consolidation

The accompanying financial statements include the accounts of Royale Energy, Inc. (sometimes called the “Company” “we,” “our,” “us,” “Royale Energy,” or “Royale”), Royale Energy Funds, Inc. (“REF”), and Matrix Oil Management Corporation and its subsidiaries.  All entities comprising the financial statements of Royale Energy have fiscal years ending December 31.  All material intercompany accounts and transactions have been eliminated in the financial statements.

Reclassification, Comparability Adjustment [Policy Text Block]

Correction of Immaterial Errors in Previously Issued Financial Statements

Subsequent to the issuance of the consolidated financial statements for the year ended December 31, 2019, the Company concluded that the Statement of Cash Flows for the year ending December 31, 2019, contained immaterial errors related to the classification of payments arising from operating leases and to the quantification of the amount of capital expenditures that had been accrued for but not yet paid. These immaterial errors have been corrected for the comparative period, resulting in an increase in cash flows used in operating activities of $681,388; an increase in cash flows provided by investing activities of $585,918; and a decrease in cash flows used in financing activities of $95,470 for the period ending September 30, 2019. These immaterial errors did not have any impact on our financial position, net loss or total cash flow for the period ending September 30, 2019

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.

Termination Agreement, Policy [Policy Text Block]

Termination of RMX MSA

On December 31, 2018, Royale was formally notified of RMX Resources, LLC’s intent to terminate the Master Service Agreement (“MSA”) as of March 31, 2019. The Termination Notice called for Royale to continue to provide accounting and other services through March 31, 2019. Thereafter, per Article VII, Section 7.2 of the MSA, Royale provided all reasonable assistance requested, by the RMX Board of Directors, to transition the management of RMX through April 30, 2019 at which point all services under the MSA terminated.

Contractual Adjustments and Third Party Settlements, Policy [Policy Text Block]

Settlement Agreement and Well Participation Agreement with RMX

On March 11, 2019, Royale entered into a Settlement Agreement with RMX to resolve differences which resulted from the calculation of certain post-closing amounts as called for under Section 7.3 of the Subscription and Contribution Agreement. Under the terms of this provision, Royale estimated that it may have owed RMX approximately $552,645 related to its calculation of this post-closing amount under this provision. In addition, there were other disputed amounts related to certain joint owner billing amounts which remained unpaid at year end. In settlement of these differences, Royale agreed to assign its remaining interests in the Bellevue Field, located in Kern County and the W. Whittier Field located in Los Angeles County, California to RMX. At December 31, 2018, the Bellevue and W. Whittier fields accounted for 5.145 and 140.647 Mboe in reserves and were valued at $67,671 and $2.4 million, respectively, using SEC pricing and discounted at 10%.

Royale will continue to be responsible for the liability for the payment of all royalties and suspended funds incurred prior to March 1, 2018. As part of this Settlement Agreement, RMX will offer Royale the right, but not the obligation, to participate in a number of wells to be drilled in the Sansinena, Sempra, Whittier and/or East LA properties in Los Angeles County, California at an offered working interest up to 75% of RMX’s working interest in each of the offered wells. The minimum number of wells to be offered to Royale in each year is 2 net wells as determined by an agreed upon methodology. The Agreement also calls for certain credits toward future drilling costs of the offered wells. The Company recorded a loss of $1,237,126 on the settlement during the three months ended March 31, 2019.

West Coast Settlement

On December 5, 2018, Royale entered into a Purchase and Sale Agreement (“West Coast Agreement”) for properties located in the Jameson North Field Area in Mitchell and Nolan Counties, Texas and the Big Mineral Creek Field Area in Grayson County, Texas. The seller was West Coast Energy Properties, LP. The West Coast Agreement called for a post-closing settlement. On July 11, 2019, Royale entered into a post-closing settlement as called for under the terms of the West Coast Agreement for payment due seller of $156,975 which were made in equal monthly payments of $26,163 commencing July 31, 2019 with the final payment on December 31, 2019.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Prospective East LA Sale

On June 24, 2020, Royale and RMX Resources, LLC entered into a Purchase and Sale Agreement to sell a portion of property jointly owned by Royale and RMX, located in Los Angeles County, California for a gross price of $2,150,000. The property is jointly owned by Royale and RMX, and calls for, among other things, the abandonment of one well, located on the subject lands. The gross sale proceeds to Royale, if and when the sales closes, will be $1,075,000.

Revenue [Policy Text Block]

Revenue Recognition

The majority of our ongoing revenues are derived from the sale of crude oil and condensate, natural gas liquids ("NGLs") and natural gas under spot and term agreements with our customers.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Oil & Condensate Sales	$	477,724	$	471,201	$	874,936	$	832,108
Natural Gas Sales		73,878		139,226		262,532		587,713
NGL Sales		244		-		377		-
Total	$	551,846	$	610,427	$	1,137,845	$	1,419,821

The pricing in our hydrocarbon sales agreements are variable, determined using various published benchmarks which are adjusted for negotiated quality and location differentials. As a result, revenue collected under our agreements with customers is highly dependent on the market conditions and may fluctuate considerably as the hydrocarbon market prices rise or fall. Typically, our customers pay us monthly, within a short period of time after we deliver the hydrocarbon products. As such, we do not have any financing element associated with our contracts. We do not have any issues related to returns or refunds, as product specifications are standardized for the industry and are typically measured when transferred to a common carrier or midstream entity, and other contractual mechanisms (e.g., price adjustments) are used when products do not meet those specifications.

We often serve as the operator for jointly owned oil and gas properties. As part of this role, we perform activities to explore, develop and produce oil and gas properties in accordance with the joint operating arrangement and collective decisions of the joint parties. Other working interest owners reimburse us for costs incurred based on our agreements. We determined that these activities are not performed as part of customer relationships, and such reimbursements are recorded as cost reimbursements.

We commonly market the share of production belonging to other working interest owners as the operator of jointly owned oil and gas properties. Those marketing activities are carried out as part of the collaborative arrangement, and we do not purchase or otherwise obtain control of other working interest owners’ share of production. Therefore, we act as a principal only regarding the sale of our share of production and recognize revenue for the volumes associated with our net production.

The Company frequently sells a portion of the working interest in each well it drills or participates in, to third-party investors and retains a portion of the prospect for its own account.  The Company typically guarantees a cost to drill to the third-party drilling participants and records a loss or gain on the difference between the guaranteed price and the actual cost to drill the well.  When monies are received from third parties for future drilling obligations, the Company records the liability as Deferred Drilling Obligations.  Once the contracted depth for the drilling of the well is reached and a determination as to the commercial viability of the well (typically call “Casing Point Election” or “Logging Point”), the difference in the actual cost to drill and the guaranteed cost is recorded as income or expense depending on whether there was a gain or loss.

Crude oil and condensate

For the crude sales agreements, we satisfy our performance obligations and recognize revenue once customers take control of the crude at the designated delivery points, which include pipelines, trucks or vessels.

Natural gas and NGLs

When selling natural gas and NGLs, we engage midstream entities to process our production stream by separating natural gas from the NGLs. Frequently, these midstream entities also purchase our natural gas and NGLs under the same agreements. In these situations, we determined the performance obligation is complete and satisfied at the tailgate of the processing plant when the natural gas and NGLs become identifiable and measurable products. We determined the plant tailgate is the point in time where control, as defined in the new revenue standard, is transferred to midstream entities and they are entitled to significant risks and rewards of ownership of the natural gas and NGLs.

The amounts due to midstream entities for gathering and processing services are recognized as shipping and handling cost and included as lease operating expense in our consolidated statement of operations, since we make those payments in exchange for distinct services with the exception of natural gas sold to Pacific Gas & Electric (PG&E) where transportation is netted directly against revenue. Under some of our natural gas processing agreements, we have an option to take the processed natural gas and NGLs in-kind and sell to customers other than the processing company. In those circumstances, our performance obligations are complete after delivering the processed hydrocarbons to the customer at the designated delivery points, which may be the tailgate of the processing plant or an alternative delivery point requested by the customer.

Turnkey Drilling

These Turnkey Agreements are managed by the Company for the participants of the well. The collections of pre-drilling AFE amounts are segregated by the Company and the gains and losses on the Turnkey Agreements are recorded in income or expense at the time of the casing point election in accordance with ASC 932-323-25 and 932-360. The Company manages the performance obligation for the well participants and only records revenue or expense at the time the performance obligation of the Turnkey Agreement has been satisfied.

Supervisory Fees and Other

These amounts include proceeds from the Master Service Agreement (“MSA”) with RMX for the providing of land, engineering, accounting and support services for the RMX joint venture. Revenues earned under the MSA were recorded at the end of each month that services were performed, in conformity with the Agreement. The service fee income was deemed earned at the end of each month that services were performed as prescribed by the contract. On December 31, 2018, Royale received notice of cancelation of the MSA by RMX effective March 31, 2019. For the nine months ended September 30, 2019, the Company recognized $610,971 in supervisory fees from RMX. Also included in the caption are Pipeline and Compressor fees which are received and allocated based on production volumes.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Royale sponsors turnkey drilling arrangements in proved and unproved properties. The contracts require that participants pay Royale the full contract price upon execution of the drilling agreement. Each participant earns an undivided interest in the well bore at the completion of the well. A portion of the funds received in advance of the drilling of a well from a working interest participant are held for the expressed purpose of drilling a well. If something changes, the Company may designate these funds for a substitute well. Under certain conditions, a portion of these funds may be required to be returned to a participant. Once the well is drilled, the funds are used to satisfy the drilling cost. Royale classifies these funds prior to commencement of drilling as restricted cash based on guidance codified as under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 230-10-50-8. In the event that progress payments are made from these funds, they are recorded as Prepaid Expenses and Other Current Assets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

	September 30, 2020		December 31, 2019
Cash and Cash Equivalents	$	558,249	$	1,031,014
Restricted Cash		1,825,000		2,845,515
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	2,383,249	$	3,876,529

Investment, Policy [Policy Text Block]

Equity Method Investments

Investments in entities over which we have significant influence, but not control, are accounted for using the equity method of accounting. Income from equity method investments represents our proportionate share of net income generated by the equity method investees and is reflected in revenue and other income in our condensed consolidated statements of operations. Equity method investments are included as noncurrent assets on the consolidated balance sheet.

Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred as called for under ASC 323. When a loss is deemed to have occurred and is other than temporary, the carrying value of the equity method investment is written down to fair value, and the amount of the write-down is included in income.

The earnings from RMX reflected in these financial statements as Investment in Joint Venture (“JV”), reflect our share of net earnings or losses directly attributable to this equity method investment. As of September 30, 2020, we evaluated our investment in RMX and determined that any losses were not other than temporary.

Listed below is the summarized information required under Rule 3-09 of regulation S-X, Article 10 for Royale’s investment in RMX:

	September 30, 2020		December 31, 2019
Balance Sheet
Total Assets	$	79,350,594	$	72,401,841
Total Liabilities		45,859,628		41,573,426
Member Equity	$	33,490,966	$	30,828,415

	For the 9 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	7,008,053		$	11,975,338
Income (Loss) from operations		(2,464,919	)		930,072
Net Income (Loss)	$	2,662,551		$	(623,579	)

	For the 3 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	2,350,609		$	4,195,522
Income (Loss) from operations		(873,879	)		478,946
Net Income (Loss)	$	(1,505,076	)	$	1,787,844

Receivable [Policy Text Block]

Other Receivables

Other receivables consist of joint interest billing 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, 2020 and December 31, 2019, the Company maintained an allowance for uncollectable accounts of $1,942,911 and $1,791,162, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

According to Fair Value Measurements and Disclosures Topic of the FASB ASC, 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, 2020 and December 31, 2019, Royale Energy does not have any financial assets measured and recognized at fair value on a recurring basis. The Company estimates asset retirement obligations (ARO’s) pursuant to the provisions of ASC 410, “Asset Retirement and Environmental Obligations”. The estimates of the fair value the ARO’s are based on discounted cash flow projections using numerous estimates, assumptions and judgements regarding such factors as the existence of a legal obligation for an ARO, amounts and timing of settlements, the credit-adjusted risk-free rate to be used and inflation rates.

The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties. Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs.

Fair Values - Non-recurring

The Company applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including oil and natural gas property impairments and other long-lived asset impairments. These items are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances.

Stockholders' Equity Note, Redeemable Preferred Stock, Issue, Policy [Policy Text Block]

Dividends on Series B Convertible Preferred Stock

The Series B Convertible Preferred Stock, (“Preferred”), has an obligation to pay a 3.5% cumulative dividend, in kind or cash, on a quarterly basis. In the first quarter of 2019, the Board of Directors authorized the issuance of Preferred shares, for the settlement of dividends accumulated through December 31, 2020.  The Company accrued $192,583 and $185,971 for dividends related to the Preferred shares during the third quarters of 2020 and 2019, respectively. Each quarter, the Company charges retained earnings for the accumulating dividend as the amounts add to the liquidation preference of the Preferred. For further information regarding the Preferred Stock see Note 3, below.

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Standards

Recently Adopted

We adopted the following ASUs during 2020, none of which had a material impact to our financial statements or financial statement disclosures:

ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606

This is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Application of this ASU did not have a material impact on our consolidated financial statements.

ASU 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities

Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Application of this ASU has not had a material impact on our consolidated financial statements.

ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-400), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract

Effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Application of this ASU has not had a material impact on our consolidated financial statements.

ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for fair value measurement

Effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Application of this ASU has not had a material impact on our consolidated financial statements.

NOT YET ADOPTED

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's consolidated financial statements.

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NOTE 1 (Tables)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Disaggregation of Revenue [Table Text Block]

The majority of our ongoing revenues are derived from the sale of crude oil and condensate, natural gas liquids ("NGLs") and natural gas under spot and term agreements with our customers.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Oil & Condensate Sales	$	477,724	$	471,201	$	874,936	$	832,108
Natural Gas Sales		73,878		139,226		262,532		587,713
NGL Sales		244		-		377		-
Total	$	551,846	$	610,427	$	1,137,845	$	1,419,821

Schedule of Cash and Cash Equivalents [Table Text Block]

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows.

	September 30, 2020		December 31, 2019
Cash and Cash Equivalents	$	558,249	$	1,031,014
Restricted Cash		1,825,000		2,845,515
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	2,383,249	$	3,876,529

Equity Method Investments [Table Text Block]

Listed below is the summarized information required under Rule 3-09 of regulation S-X, Article 10 for Royale’s investment in RMX:

	September 30, 2020		December 31, 2019
Balance Sheet
Total Assets	$	79,350,594	$	72,401,841
Total Liabilities		45,859,628		41,573,426
Member Equity	$	33,490,966	$	30,828,415

	For the 9 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	7,008,053		$	11,975,338
Income (Loss) from operations		(2,464,919	)		930,072
Net Income (Loss)	$	2,662,551		$	(623,579	)

	For the 3 months ended
	September 30, 2020			September 30, 2019
Results of Operations:
Net Operating revenue	$	2,350,609		$	4,195,522
Income (Loss) from operations		(873,879	)		478,946
Net Income (Loss)	$	(1,505,076	)	$	1,787,844

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OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Tables)

9 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Oil and gas properties, equipment and fixtures consist of the following:

	September 30,			December 31,
	2020			2019
Oil and Gas
Producing properties, including drilling costs	$	8,350,975		$	7,792,156
Undeveloped or unevaluated properties		2,842			46,990
Lease and well equipment		3,317,718			3,304,565
Total Oil & Gas		11,671,535			11,143,711
Accumulated depletion, depreciation & amortization		(6,724,826	)		(6,559,182	)
Total Oil & Gas Net		4,946,709			4,584,529
Commercial and Other
Vehicles		40,061			40,061
Furniture and equipment		1,097,428			1,097,428
Total Commercial and Other		1,137,489			1,137,489
Accumulated depreciation		(1,132,663	)		(1,131,028	)
Total Commercial and Other Net		4,826			6,461
Oil & Gas Property and Equipment and Fixtures	$	4,951,535		$	4,590,990

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NET INCOME (LOSS) PER SHARE (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

Basic and diluted loss per share are calculated as follows:

	Three Months ending
	September 30, 2020						September 30, 2019
	Basic			Diluted			Basic		Diluted
Net Income (Loss)	$	(612,229	)	$	(612,229	)	$	2,304,108	$	2,304,108
Less: Preferred Stock Dividend		192,583			192,583			185,971		185,971
Less: Preferred Stock Dividend In Arrears		-			-			-		-
Net Income (Loss) Attributable to Common Shareholders		(804,812	)		(804,812	)		2,118,137		2,118,137
Weighted average common shares outstanding		53,711,702			53,711,702			51,009,871		51,009,871
Effect of dilutive securities		-			-			-		23,938,358
Weighted average common shares, including Dilutive effect		53,711,702			53,711,702			51,009,871		74,948,229
Per share:
Net Income (Loss)	$	(0.01	)	$	(0.01	)	$	0.04	$	0.03

	Nine Months ending
	September 30, 2020						September 30, 2019
	Basic			Diluted			Basic			Diluted
Net Income (Loss)	$	(540,251	)	$	(540,251	)	$	(800,566	)	$	(800,566	)
Less: Preferred Stock Dividend		568,617			568,617			547,114			547,114
Less: Preferred Stock Dividend In Arrears		-			-			-			-
Net Income (Loss) Attributable to Common Shareholders		(1,108,868	)		(1,108,868	)		(1,347,680	)		(1,347,680	)
Weighted average common shares outstanding		52,940,630			52,940,630			50,655,286			50,655,286
Effect of dilutive securities		-			-			-			-
Weighted average common shares, including Dilutive effect		52,940,630			52,940,630			50,655,286			50,655,286
Per share:
Net Income (Loss)	$	(0.02	)	$	(0.02	)	$	(0.03	)	$	(0.03	)

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INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2020

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, 2020 and 2019, respectively, to pretax income is as follows:

	Nine months ended
	September 30, 2020			September 30, 2019
Tax benefit computed at statutory rate of 21% at September 30, 2020 and 2019, respectively	$	(110,838	)	$	(168,119	)
Increase (decrease) in taxes resulting from:
State tax / percentage depletion / other
Other non-deductible expenses		466			1,211
Provision-to-Return Adjustments		-			366,161
Change in valuation allowance		110,372			(199,253	)
Provision (benefit)	$	-		$	-

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NOTE 1 (Details)			3 Months Ended			9 Months Ended		12 Months Ended
	Jul. 11, 2019 USD ($)	Mar. 11, 2019 USD ($)	Sep. 30, 2020 USD ($) shares	Sep. 30, 2019 USD ($) shares	Mar. 31, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($) MMBoe	Dec. 31, 2019 USD ($)
NOTE 1 (Details) [Line Items]
Working Capital (Deficit)			$ (4,475,962)			$ (4,475,962)
Net Income (Loss) Attributable to Parent			(612,229)	$ 2,304,108		(540,251)	$ (800,566)
SEC pricing and discounted, Oil and Gas Property, Percentage		10.00%
Gain (Loss) on Disposition of Assets			920	0	$ (1,237,126)	920	(1,237,126)
Payments to Acquire Businesses, Gross	$ 156,975
Noncash or Part Noncash Acquisition, Description	$156,975 which were made in equal monthly payments of $26,163 commencing July 31, 2019 with the final payment on December 31, 2019
Proceeds from Sale of Oil and Gas Property and Equipment						2,150,000
Proceeds from Sale of Real Estate						1,075,000
Revenues			562,155	$ 635,388		1,169,110	2,030,792
Accounts Receivable, Allowance for Credit Loss			$ 1,942,911			$ 1,942,911			$ 1,791,162
Preferred Stock, Dividend Rate, Percentage						3.50%
Preferred Stock Dividends, Shares (in Shares) | shares			192,583	185,971
Services related to Master Service Agreement with RMX [Member]
NOTE 1 (Details) [Line Items]
Revenues							610,971
Reclassification, Other [Member]
NOTE 1 (Details) [Line Items]
Net Cash Provided by (Used in) Operating Activities, Continuing Operations							681,388
Net Cash Provided by (Used in) Investing Activities, Continuing Operations							585,918
Net Cash Provided by (Used in) Financing Activities, Continuing Operations							$ 95,470
RMX Resources, LLC [Member]
NOTE 1 (Details) [Line Items]
Estimated Liability		$ 552,645
Working Interest, Percentage		75.00%
RMX Resources, LLC [Member] | Oil and Gas Properties [Member] | Bellevue Field [Member]
NOTE 1 (Details) [Line Items]
Oil and Gas, Production Reserve, Energy (in Millions of Barrels of Oil Equivalent) | MMBoe								5.145
Property, Plant, and Equipment, Fair Value Disclosure								$ 67,671
RMX Resources, LLC [Member] | Oil and Gas Properties [Member] | Whittier Field [Member]
NOTE 1 (Details) [Line Items]
Oil and Gas, Production Reserve, Energy (in Millions of Barrels of Oil Equivalent) | MMBoe								140.647
Property, Plant, and Equipment, Fair Value Disclosure								$ 2,400,000

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NOTE 1 (Details) - Disaggregation of Revenue - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Disaggregation of Revenue [Line Items]
Revenues	$ 562,155	$ 635,388	$ 1,169,110	$ 2,030,792
Oil and Gas [Member]
Disaggregation of Revenue [Line Items]
Revenues	551,846	610,427	1,137,845	1,419,821
Oil [Member]
Disaggregation of Revenue [Line Items]
Revenues	477,724	471,201	874,936	832,108
Natural Gas [Member]
Disaggregation of Revenue [Line Items]
Revenues	73,878	139,226	262,532	587,713
Natural Gas Liquids [Member]
Disaggregation of Revenue [Line Items]
Revenues	$ 244	$ 0	$ 377	$ 0

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NOTE 1 (Details) - Schedule of Cash and Cash Equivalents - USD ($)	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019	Dec. 31, 2018
Schedule of Cash and Cash Equivalents [Abstract]
Cash and cash equivalents	$ 558,249	$ 1,031,014
Restricted cash	1,825,000	2,845,515
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$ 2,383,249	$ 3,876,529	$ 6,347,766	$ 6,355,042

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NOTE 1 (Details) - Equity Method Investments - RMX Resources, LLC [Member] - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Balance Sheet
Total Assets	$ 79,350,594		$ 79,350,594		$ 72,401,841
Total Liabilities	45,859,628		45,859,628		41,573,426
Member Equity	33,490,966		33,490,966		$ 30,828,415
Results of Operations:
Net Operating revenue	2,350,609	$ 4,195,522	7,008,053	$ 11,975,338
Income (Loss) from operations	(873,879)	478,946	(2,464,919)	930,072
Net Income (Loss)	$ (1,505,076)	$ 1,787,844	$ 2,662,551	$ (623,579)

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OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Property, Plant and Equipment [Abstract]
Operating Lease, Impairment Loss	$ 0	$ 40,223	$ 0	$ 40,223
Contract with Customer, Liability	$ 3,870,774		$ 3,870,774		$ 5,232,675

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OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Details) - Schedule of Property, Plant and Equipment - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Oil and Gas
Producing properties, including intangible drilling costs	$ 8,350,975	$ 7,792,156
Undeveloped properties	2,842	46,990
Lease and well equipment	3,317,718	3,304,565
Oil and gas, gross	11,671,535	11,143,711
Accumulated depletion, depreciation and amortization	(6,724,826)	(6,559,182)
Oil and gas, net	4,946,709	4,584,529
Commercial and Other
Property, Plant and Equipment, Gross	1,137,489	1,137,489
Accumulated depreciation	(1,132,663)	(1,131,028)
Property, Plant and Equipment, Net	4,826	6,461
Oil and gas properties, equipment and fixtures	4,951,535	4,590,990
Vehicles [Member]
Commercial and Other
Property, Plant and Equipment, Gross	40,061	40,061
Furniture and Fixtures [Member]
Commercial and Other
Property, Plant and Equipment, Gross	$ 1,097,428	$ 1,097,428

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SERIES B PREFERRED STOCK (Details) - USD ($)		9 Months Ended
	Mar. 07, 2018	Sep. 30, 2020	Dec. 31, 2019
SERIES B PREFERRED STOCK (Details) [Line Items]
Conversion of Stock, Amount Converted (in Dollars)	$ 20,124,000
Preferred Stock, Shares Authorized		3,000,000	3,000,000
Preferred Stock, Dividend Rate, Percentage		3.50%
Series B Preferred Stock [Member]
SERIES B PREFERRED STOCK (Details) [Line Items]
Preferred Stock, Shares Issued	2,012,400
Preferred Stock, Shares Authorized	3,000,000
Preferred Stock, Dividend Rate, Percentage	3.50%
Convertible Preferred Stock, Terms of Conversion	The Series B Convertible Preferred Stock is convertible at the option of the security holder at the rate of ten shares of common stock for one share of Series B Convertible Preferred Stock. The Series B Preferred Stock has never been registered under the Securities Exchange Act of 1934, and no market exists for the shares. Additionally, the Series B Convertible Preferred shares will automatically convert to common stock at any time in which the Volume Weighted Average Price (VWAP) of the common stock exceeds $3.50 per share for 20 consecutive trading days, the shares are registered with the SEC and the volume of common shares trades exceeds 200,000 shares per day.

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NET INCOME (LOSS) PER SHARE (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Earnings Per Share [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	25,166,967	23,938,358	25,160,750	23,967,039

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NET INCOME (LOSS) PER SHARE (Details) - Schedule of Earnings Per Share, Basic and Diluted - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Schedule of Earnings Per Share, Basic and Diluted [Abstract]
Net Income (Loss)	$ (612,229)	$ 2,304,108	$ (540,251)	$ (800,566)
Less: Preferred Stock Dividend	192,583	185,971	568,617	547,114
Net (Loss) Attributable to Common Shareholders	(804,812)	2,118,137	(1,108,868)	(1,347,680)
Net (Loss) Attributable to Common Shareholders	$ (804,812)	$ 2,118,137	$ (1,108,868)	$ (1,347,680)
Weighted average common shares outstanding (in Shares)	53,711,702	51,009,871	52,940,630	50,655,286
Effect of dilutive securities (in Shares)	0	23,938,358	0	0
Weighted average common shares, including Dilutive effect (in Shares)	53,711,702	51,009,871	52,940,630	50,655,286
Weighted average common shares, including Dilutive effect (in Shares)	53,711,702	74,948,229	52,940,630	50,655,286
Net Income (Loss) (in Dollars per share)	$ (0.01)	$ 0.04	$ (0.02)	$ (0.03)
Net Income (Loss) (in Dollars per share)	$ (0.01)	$ 0.03	$ (0.02)	$ (0.03)

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INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Schedule of Effective Income Tax Rate Reconciliation [Abstract]
Tax benefit computed at statutory rate of 21% at September 30, 2020 and 2019, respectively	$ (110,838)	$ (168,119)
Other non-deductible expenses	466	1,211
Provision-to-Return Adjustments	0	366,161
Change in valuation allowance	110,372	(199,253)
Provision (benefit)	$ 0	$ 0

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INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation (Parentheticals)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Schedule of Effective Income Tax Rate Reconciliation [Abstract]
Tax benefit computed at statutory rate	21.00%	21.00%

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ISSUANCE OF COMMON STOCK (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Stockholders' Equity Note [Abstract]
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture			2,273,245	1,881,491
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture	$ 119,326	$ 106,223	$ 288,876	$ 455,146

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CARES ACT - PPP LOAN (Details) - USD ($)	Nov. 10, 2020	Apr. 22, 2020
Debt Disclosure [Abstract]
Borrowings under Guaranteed Investment Agreements		$ 207,800
Debt Instrument, Maturity Date		Apr. 22, 2022
Debt Instrument, Payment Terms		provides for 18 monthly payments of principal and interest commencing on November 21, 2020
Debt Instrument, Interest Rate, Stated Percentage		1.00%
Debt Instrument, Decrease, Forgiveness	$ 198,846
Notes Payable to Bank	$ 10,054