10-Q

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, 2007
Commission File No. 000-22750

ROYALE ENERGY, INC.

(Exact name of registrant as specified in its charter)

California	33-0224120
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7676 Hazard Center Drive, Suite 1500

San Diego, CA 92108

(Address of principal executive offices)

(Zip Code)

619-881-2800

(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  [X]     No  [   ]

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

Large accelerated filer  __ Accelerated Filer  __ Non-accelerated filer  X

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

At September 30, 2007, a total of 7,918,659 shares of registrant's common stock were outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4	Controls and Procedures	13
PART II	OTHER INFORMATION	14
Item 1	Legal Proceedings	14
Item 1A	Risk Factors	14
Item 6.	Exhibits	14
	Signatures	14

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PART I.        FINANCIAL INFORMATION

Item 1.  Financial Statements

ROYALE ENERGY, INC.

BALANCE SHEETS

	September 30, 2007	December 31, 2006
	(Unaudited)	(Audited)
ASSETS
Current Assets
Cash and cash equivalents	$   3,892,416	$    7,377,604
Accounts receivable	2,970,838	2,906,290
Prepaid expenses	849,676	2,301,267
Deferred tax asset	195,615	195,615
Inventory	355,014	401,521
Total Current Assets	8,263,559	13,182,297
Investments	6,946	6,946
Oil and Gas Properties at cost, (successful efforts
basis), Equipment and Fixtures	22,615,244	20,525,960
TOTAL ASSETS:	$ 30,885,749	$  33,715,203

See notes to Financial Statements

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ROYALE ENERGY, INC.

BALANCE SHEETS

	September 30, 2007	December 31, 2006
	(Unaudited)	(Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$     8,142,861	$    7,158,612
Current portion of long-term debt	0	233,045
Deferred revenue from turnkey drilling	5,686,290	5,018,261
Total Current Liabilities	13,829,151	12,409,918
Noncurrent Liabilities
Asset retirement obligation	283,266	273,049
Deferred tax liability	1,022,799	1,673,922
Long-term debt, net of current portion	1,725,000	3,810,000
Total Noncurrent Liabilities	3,031,065	5,756,971
Total Liabilities	16,860,216	18,166,889
Stockholders' Equity
Common stock, no par value, authorized     10,000,000 shares, 7,951,746 and 7,951,748     shares issued; 7,918,659 and 7,916,408 shares     outstanding, respectively	19,511,963	19,511,963
Convertible preferred stock, Series AA, no par     value, 147,500 shares authorized; 57,416 and     57,416 shares issued and outstanding, respectively	167,979	167,979
Accumulated (Deficit)	(5,499,972)	(3,964,439)
Total paid in capital and accumulated deficit	14,179,970	15,715,503
Less cost of treasury stock, 33,087 and 35,340     shares	(181,012)	(192,052)
Paid in capital, treasury stock	26,575	24,863
Total Stockholders' Equity	14,025,533	15,548,314
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY:	$    30,885,749	$  33,715,203

See notes to Financial Statements

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ROYALE ENERGY, INC.

STATEMENTS OF OPERATIONS

	Three Months Ended September 30,		Nine Months Ended September 30,
	2007 (Unaudited)	2006 (Unaudited)	2007 (Unaudited)	2006 (Unaudited)
Revenues:
Sale of oil and gas	$ 1,298,165	$  1,934,972	$  4,552,179	$   6,219,887
Turnkey drilling	3,207,261	2,429,087	6,021,892	9,523,901
Supervisory fees and other	271,813	266,756	791,225	878,438
Total Revenues	4,777,239	4,630,815	11,365,296	16,622,226
Costs and Expenses:
General and administrative	1,069,442	1,356,795	3,345,386	3,625,421
Turnkey drilling and development	1,519,535	2,099,967	2,956,819	6,222,225
Lease operating	587,772	634,107	1,970,147	1,796,309
Lease impairment	32,930	13,482	34,894	123,809
Legal and accounting	345,076	100,321	629,480	300,252
Marketing	323,434	330,016	1,080,631	1,197,786
Depreciation, depletion &     amortization	1,037,210	1,019,100	2,905,024	2,981,543
Total Costs and Expenses	4,915,399	5,553,788	12,922,381	16,247,345
Loss on Sale of Assets	(0)	0	(44,931)	0
Income (Loss) from Operations	(138,160)	(922,973)	(1,602,016)	374,881
Other Expense:
Interest expense	41,729	144,304	116,435	395,476
Income before Income Tax Expense	(179,889)	(1,067,277)	(1,718,451)	(20,595)
Income Tax Provision (Benefit)	(58,764)	(300,140)	(579,966)	50,498
Net Income (Loss)	$   (121,125)	$ (767,137)	$(1,138,485)	$      (71,093)
Diluted Earnings Per Share	$         (0.02)	$         (0.10)	$         (0.14)	$          (0.01)
Basic Earnings Per Share	$         (0.02)	$         (0.10)	$         (0.14)	$          (0.01)

See notes to Financial Statements

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ROYALE ENERGY, INC.

STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2007	2006
	(Unaudited)	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$  (1,138,485)	$    (71,093)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization	2,905,024	2,981,543
Lease impairment	34,894	123,809
(Gain) Loss on Sale of Assets	44,931	0
Bad Debt Expense	0	208,577
Compensation Expense - Stock Grant	12,752	26,105
Accounts receivable	(64,548)	692,537
Prepaid expenses and other assets	1,498,098	960,005
Increase (decrease) in:
Accounts payable and accrued expenses	994,466	(1,361,646)
Deferred revenues - DWI	668,029	(759,555)
Deferred income taxes	(651,123)	(329,096)
Net Cash Provided by Operating Activities	$   4,304,038	$  2,471,186
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for oil and gas properties and
other capital expenditures	(5,192,002)	(2,108,648)
Proceeds from Sale of Assets	117,870	0
Net Cash (Used) by Investing Activities	(5,074,132)	(2,108,648)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt	0	94,367
Payments on long-term debt	(2,318,045)	0
Dividends Paid	(397,049)	0
Net Cash Used by Financing Activities	(2,715,094)	94,367
Net increase (decrease) in cash and cash equivalents	(3,485,188)	456,905
Cash at beginning of period	7,377,604	4,716,772
Cash at end of period	$    3,892,416	$  5,173,677
SUPPLEMENTAL INFORMATION
Cash paid for interest	$       141,564	$     392,349
Cash paid for taxes	$       571,157	$     258,949

See notes to financial statements
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ROYALE ENERGY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1 - In the opinion of management, the accompanying unaudited financial statements include all adjustments, consisting only of normally recurring adjustments, necessary to present fairly the Company's financial position and the results of its operations and cash flows for the periods presented. The results of operations for the 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.

NOTE 2 - EARNINGS PER SHARE

Basic and diluted earnings (loss) per share are calculated as follows:

	For the Nine Months ended September 30, 2007
	Income (Numerator)	Shares (Denominator)	Per-Share Amount
Basic Earnings Per Share:
Net income available to common stock	$   (1,138,485)	7,917,543	$     (0.14)
Diluted Earnings Per Share:
Effect of dilutive securities and stock      options	0	0	0.00
Net income available to common stock	$    (1,138,485)	7,917,543	$     (0.14)
	For the Nine Months ended September 30, 2006
	Income (Numerator)	Shares (Denominator)	Per-Share Amount
Basic Earnings Per Share:
Net income available to common stock	$         (71,093)	7,932,198	$     (0.01)
Diluted Earnings Per Share:
Effect of dilutive securities and stock      options	0	0	0.00
Net income available to common stock	$       (71,093)	7,932,198	$    (0.01)

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ROYALE ENERGY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES

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

	September 30, 2007	December 31, 2006
Oil and Gas
Producing properties, including drilling costs	$    31,151,232	$     27,876,284
Undeveloped properties	3,078,083	1,767,671
Lease and well equipment	7,684,123	7,136,142
	41,913,438	36,780,097
Accumulated depletion, depreciation & amortization	(20,552,115)	(17,745,105)
	21,361,323	19,034,992
Commercial and Other
Real estate, including furniture and fixtures	$      503,344	$       503,344
Vehicles	313,460	287,155
Furniture and equipment	1,517,162	1,702,127
	2,333,966	2,492,626
Accumulated depreciation	(1,080,045)	(1,001,658)
	1,253,921	1,490,968
	$    22,615,244	$     20,525,960

On April 4, 2005, the Financial Accounting Standards Board posted FSP FAS 19-1, Accounting for Suspended Well Costs, to be effective for reporting periods beginning after April 4, 2005. We have adopted FSP FAS 19-1 effective as of July 1, 2005. The guidance set forth in the FSP requires that we evaluate all existing capitalized exploratory well costs and disclose the extent to which any such capitalized costs have become impaired and are expensed or reclassified during a fiscal period. We performed an evaluation of our capitalized costs and determined that no previously capitalized exploratory well costs pending the determination of proved reserves were required to be expensed or reclassified during the first quarter of 2006 or 2005. We did not make any additions to capitalized exploratory well costs pending a determination of proved reserves during the first nine months of 2007 or 2006. We did not charge any previously capitalized exploratory well costs to expense upon adoption of FSP FAS 19-1.

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ROYALE ENERGY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

	Nine Months ended September 30,
Beginning balance at January 1	$              0	$             0
Additions to capitalized exploratory well costs pending the
determination of proved reserves	2,100,508	1,819,133
Reclassifications to wells, facilities, and equipment based on
the determination of proved reserves	(2,100,508)	(1,819,133)
Ending balance at September 30	$              0	$             0

NOTE 4 - STOCK BASED COMPENSATION

Royale Energy has a stock-based employee compensation plan. Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) ("SFAS No. 123R"), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards under SFAS No. 123R, consistent with that us ed for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected to use the modified prospective transition method as permitted by SFAS No. 123R and accordingly prior periods have not been restated to reflect the impact of SFAS No. 123R. The modified prospective transition method requires that stock-based compensation expense be recorded for all new and unvested stock options, restricted stock, restricted stock units, and employee stock purchase plan shares that are ultimately expected to vest as the requisite service is rendered beginning on January 1, 2006. Stock-based compensation expense for awards granted prior to January 1, 2006 is based on the grant-date fair-value as determined under the pro forma provisions of SFAS No. 123. The Company recognized incremental stock-based compensation expense of $0 for the nine months ended September 30, 2007 and 2006, respectively.

On June 1, 2005, Royale Energy awarded shares of restricted common stock to certain of its employees pursuant to an incentive compensation plan. On that date, the Company's stock price was $5.66 per share. A total of 6,048, 4,612 and 2,253 shares of vested restricted common stock were issued in 2005, 2006 and 2007 respectively. The Company recognized corresponding compensation expense of $34,241, $26,105, and $12,752 for 2005, 2006 and 2007, respectively.

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NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS 157 "Fair Value Measurements", which provides expanded guidance for using fair value to measure assets and liabilities. SFAS 157 establishes a hierarchy for data used to value assets and liabilities, and requires additional disclosures about the extent to which a company measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. Implementation of SFAS 157 is required on January 1, 2008. We are currently evaluating the impact of adopting SFAS 157 on the financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), that provides an option to report selected financial assets and liabilities at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the first fiscal year beginning after November 15, 2007. We are currently evaluating the impact of SFAS 159 on the Company.

NOTE 6 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS

Royale Energy identifies reportable segments by product and country, although Royale Energy currently does not have foreign country segments. Royale Energy includes revenues from both external customers and revenues from transactions with other operating segments in its measure of segment profit or loss. Royale Energy also includes interest revenue and expense, DD&A, and other operating expenses in its measure of segment profit or loss.

Royale Energy's operations are classified into two principal industry segments. Following is a summary of segmented information for the nine months ended September 30, 2007, and 2006:

	Oil and Gas
	Producing	Turnkey
	and	Drilling
	Exploration	Services	Total
Period Ended September 30, 2007
Revenues from External Customers	$  4,552,179	$6,021,892	$10,574,071
Supervisory Fees	$     631,909	$              -	$     631,909
Interest Revenue	$     159,316	$              -	$     159,316
Interest Expense	$       58,218	$     58,217	$     116,435
Expenditures for Segment Assets	$  4,315,318	$5,667,145	$  9,982,463

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	Oil and Gas Producing And Exploration	Turnkey Drilling Services	Total
Lease Impairment	$       17,447	$       17,447	$      34,894
Loss on Sale of Assets	$       22,466	$       22,465	$       44,931
Income Tax (Benefit)	$   (289,983)	$    (289,983)	$   (579,966)
Total Assets	$30,885,749	$                 -	$30,885,749
Net Income (Loss)	$ (1,539,835)	$     401,350	$ (1,138,485)

Period Ended September 30, 2006
Revenues from External Customers	$  6,219,887	$  9,523,901	$15,743,788
Supervisory Fees	$     761,265	$                 -	$     761,265
Interest Revenue	$     117,173	$                 -	$     117,173
Interest Expense	$     197,738	$     197,738	$     395,476
Expenditures for Segment Assets	$   4,112,456	$  9,029,537	$13,141,993
Depreciation, Depletion, and Amortization	$   2,832,466	$     149,077	$  2,981,543
Lease Impairment	$        61,905	$       61,904	$     123,809
Income Tax	$        25,249	$       25,249	$       50,498
Total Assets	$ 40,495,283	$                 -	$40,495,283
Net Income (Loss)	$   (131,489)	$       60,396	$     (71,093)

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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

For the first nine months of 2007, we had a net loss of $1,138,485, a $1,067,392 increase from the net loss of $71,093 we had during the first nine months of 2006. The loss resulted from decreases in revenues from both the turnkey drilling and the oil and natural gas production segments of our business. We had a net loss of $121,125 for the third quarter of 2007, a $646,012 improvement from the net loss of $767,137 achieved during the third quarter of 2006. Total revenues for the first nine months in 2007 declined by $5,256,930 (31.6%) to $11,365,296 from the total revenues of $16,622,226 received during the period in 2006. Lower turnkey drilling revenues accounted for 67% of the decrease, and lower oil and natural gas production accounted for 32% of the decrease. Total revenues for the third quarter of 2007 were $4,777,239, a $146,424 or 3.2% increase from the third quarter 2006 revenues of $4,630,815.

In the first nine months of 2007, revenues from oil and gas production decreased by $1,667,708 or 26.8% to $4,552,179 from the 2006 nine months revenues of $6,219,887 mainly due to a decreases in natural gas and oil production. In the third quarter 2007, oil and gas revenue decreased $636,807 or 32.9% from the third quarter 2006 revenues of $1,934,972. The net sales volume of natural gas for the nine months ended September 30, 2007, was approximately 600,579 Mcf with an average price of $6.51 per Mcf, versus 838,475 Mcf with an average price of $6.22 per Mcf for the first nine months of 2006. This represents a decrease in net sales volume of 237,896 Mcf or 28.4%. For the third quarter of 2007, the net sales volume of natural gas decreased 78,856 Mcf, from 269,818 Mcf in the period in 2006 to 190,962 Mcf in 2007 and the average price decreased $0.13 per Mcf. This decrease was partially due to natural declines in production from existing wells and to the sale of a number of underperforming properties at the end of 2006.

The net sales volume for oil and condensate (natural gas liquids) was 10,872 barrels with an average price of $58.87 per barrel for the first nine months of 2007, compared to 16,153 barrels at an average price of $62.20 per barrel for the nine months in 2006. This represents a decrease in net sales volume of 5,281 barrels, or 32.7%. For the third quarter of 2007, production decreased 2,268 barrels, or 42.3% from the same quarter in 2006 and the average price for oil

and condensate increased $3.30 per barrel, from $63.73 in 2006 to $67.03 in 2007. These

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production decreases are mainly due to the natural production declines of existing wells.

Oil and natural gas lease operating expenses increased by $173,838 or 9.7%, to $1,970,147 for the nine months ended September 30, 2007, from $1,796,309 for the nine months in 2006. This increase was mainly due to higher workover costs during the period in 2007 when compared to 2006, as we attempted to increase production on some of our existing wells. For the third quarter 2007, lease operating expenses decreased $46,335 or 7.3% over the same period in 2006.

For the nine months ended September 30, 2007, turnkey drilling revenues decreased $3,502,009 or 36.8% to $6,021,892 from $9,523,901 in the same nine months in 2006. We also had a $3,265,406 or 52.5% decrease in turnkey drilling and development costs to $2,956,819 in 2007 from $6,222,225 in 2006. These decreases were due to fewer wells drilled, five during the period in 2007 while nine wells were drilled during the period in 2006. In the third quarter of 2007, turnkey drilling revenues increased $778,174 or 32%, but the related costs decreased, $580,432, or 27.6% over the same quarter in 2006. Turnkey drilling revenues were higher due to increased direct working interest sales and costs were lower due to decreased drilling during the period in 2007. During the first six months 2007, we processed the permits on several wells in Utah. In the third quarter 2007, we completed and began testing one of these wells and began drilling a second well which should be completed during the fourth quarter 2007. A third Utah well should also be drilled and completed during the fourth quarter 2007.

We periodically review our proved properties for impairment on a field-by-field basis and charge impairments of value to expense. Impairment losses of $34,894 and $123,809 were recorded in the first nine months of 2007 and 2006, respectively. These impairments were mainly due to various lease and land costs that were determined to be associated with prospects that are no longer viable. During the period in 2007 we also recorded a loss of $44,931 on the sale of a non-oil and gas asset.

The aggregate of supervisory fees and other income was $791,225 for nine months ended September 30, 2007, a decrease of $87,213 (9.9%) from $878,438 during the period in 2006. This was mainly due to lower supervisory fees during the period in 2007 due to the decrease in drilling. Third quarter supervisory fees and other income increased $5,057 or 1.9% to $271,813 from $266,756 in 2006.

Depreciation, depletion and amortization expense decreased to $2,905,024 from $2,981,543, a decrease of $76,519 (2.6%) for the nine months ended September 30, 2007, as compared to the same period in 2006. This decrease in depletion expense was mainly due to the decrease in our oil and gas assets from our 2006 asset sale and impairments.

General and administrative expenses decreased by $280,035 or 7.7%, from $3,625,421 for the nine months ended September 30, 2006, to $3,345,386 for the period in 2007. Third quarter 2007 general and administrative expenses decreased $287,353 or 21.2% from $1,356,795 in 2006 compared to $1,069,442 in 2007. These decreases were primarily due to a bad debts write-off during the period in 2006 of approximately $208,577 for receivables from direct working interest investors whose expenses on non-producing wells are contractually not collectable. Legal and accounting expense increased to $629,480 for the period, compared to $300,252 for

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period in 2006, a $329,228 or 110% increase. For the quarter, legal and accounting expenses increased $244,755 or 244% from the previous year. The increase in legal and accounting expense was a result of higher legal fees due to litigation defending property rights during the period. Marketing expense for the nine months ended September 30, 2007, decreased $117,155, or 9.8 %, to $1,080,631, compared to $1,197,786 for the period in 2006. For the third quarter, marketing expenses decreased $6,582, or 2%, to $323,434, compared to $330,016 for the same period in 2006. Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs.

Interest expense decreased to $116,435 for the nine months ended September 30, 2007, from $395,476 for the same period in 2006, a $279,041, or 70.6% decrease. This decrease was due to principal balance reduction on our line of credit.

For the first nine months in 2007 we had an income tax benefit of $579,966 due to our net operating loss. For the same period in 2006 our income tax expense was $50,498 due to our net operating income for the period.

Capital Resources and Liquidity

At September 30, 2007, Royale Energy had current assets totaling $8,263,559 and current liabilities totaling $13,829,151, a $5,565,592 working capital deficit. We had cash and cash equivalents at September 30, 2007, of $3,892,416 compared to $7,377,604 at December 31, 2006. During the nine months ended September 30, 2007, we repaid approximately $2,318,045 on our commercial bank credit line and loan.

We have a revolving line of credit under a loan agreement with Guaranty Bank, FSB, which is secured by all of our oil and gas properties. At September 30, 2007, we had outstanding indebtedness of $1,725,000, compared to $3,810,000 at December 31, 2006.

Our loan from Guaranty Bank, FSB, secured by our non-oil and gas real estate assets was repaid on March 19, 2007 in the amount of $217,774, compared to outstanding indebtedness of $233,045 at December 31, 2006.

At September 30, 2007, our accounts receivable totaled $2,970,838, compared to $2,906,290 at December 31, 2006, a $64,548 (2.2%) increase, primarily due to receivables from industry members participating in wells we are scheduled to drill. At September 30, 2007, our accounts payable and accrued expenses totaled $8,142,861, an increase of $984,249 or 13.7% from the accounts payable at December 31, 2006, of $7,158,612, mainly due to an increase in our trade accounts payable related to drilling activities at the end of the period in 2007.

We ordinarily fund our operations and cash needs from cash flows generated from operations. We believe that we have sufficient liquidity for the remainder of 2007 and do not foresee any liquidity demands that cannot be met from cash flow or financing activities.

Operating Activities. For the nine months ended September 30, 2007, cash provided by operating activities totaled $4,304,038 compared to $2,471,186 for the same period in 2006, a

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$1,832,852 or 74.2% increase. This increase in cash provided was due to a decrease in accounts receivables and an increase in direct working interest sales during the period in 2007.

Investing Activities. Net cash used by investing activities, primarily in capital acquisitions of oil

and gas properties, amounted to $5,074,132 for the period in 2007, compared to $2,108,648 used by investing activities for the same period in 2006, a $2,965,484 or 141% increase in cash used. This was mainly due to lower expenditures for undeveloped properties during the period in 2006 due to the allocation of previously capitalized lease and land costs to various wells to be drilled.

Financing Activities. For the nine months ended September 30, 2007, cash used by financing activities was $2,715,094 compared to $94,367 provided by financing activities for the same period in 2006. This difference was primarily due to principal payments on our commercial bank line of credit and loan during the period in 2007 when compared to 2006. Also, on January 18, 2007, the Board of Directors declared a cash dividend of $0.05 per share for shareholders of record on February 19, 2007. This dividend was paid March 5, 2007, in the amount of $397,049.05.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Our major market risk exposure relates to pricing of oil and gas production. 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 few years, and we expect that volatility to continue. Monthly average natural gas prices ranged from a low of $5.92 per Mcf to a high of $7.57 per Mcf for the first nine months of 2007. We have not entered into any hedging or derivative agreements to limit our exposure to changes in oil and gas prices or interest rates.

Item 4.   Controls and Procedures

As of September 30, 2007, 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. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2007.

No changes occurred in our internal control over financial reporting during the nine months ended September 30, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

Item 1 Legal Proceedings

There were no material developments during the third quarter of 2007 in any material legal proceedings in which we are involved. See our Form 10-Q for the period ended June 30, 2007.

Item 1A Risk Factors

There were no changes in the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2006, during the first nine months of 2007.

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. Section 1350 Certification

32.2 18 U.S.C. Section 1350 Certification

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 14, 2007	/s/ Donald H. Hosmer
	Donald H. Hosmer, President and Chief Executive Officer
Date:    November 14, 2007	/s/ Stephen M. Hosmer
	Stephen M. Hosmer, Executive Vice President and Chief Financial Officer

-14-

EX-31

Exhibit 31.1

I, Donald H. Hosmer, certify that:       

1. I have reviewed this quarterly 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 14, 2007	/s/ Donald H. Hosmer
	Donald H. Hosmer, President and Chief Executive Officer

EX-31

Exhibit 31.2

I, Stephen M. Hosmer, certify that:

1. I have reviewed this quarterly 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 14, 2007	/s/ Stephen M. Hosmer
	Stephen M. Hosmer, Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32.1

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

The undersigned, Donald H. Hosmer, President and Chief Executive Officer of Royale Energy, Inc., a California 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 Annual Report on Form 10-Q for the period ended September 30, 2007 (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 14, 2007	By:	/s/ Donald H. Hosmer
		Donald H. Hosmer, President and Chief Executive Officer

EX-32

Exhibit 32.2

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

The undersigned, Stephen M. Hosmer, Executive Vice President and Chief Financial Officer of Royale Energy, Inc., a California 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 Annual Report on Form 10-Q for the period ended September 30, 2007 (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 14, 2007	By:	/s/ Stephen M. Hosmer
		Stephen M. Hosmer, Executive Vice President and Chief Financial Officer