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 March 31, 2016 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.)

3777 Willow Glen Drive

El Cajon, CA 92019

(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).              Yes ☒     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  ☐	Smaller reporting company  ☒

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

At May 2, 2016, a total of 18,399,124 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	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
PART II	OTHER INFORMATION	13
Item 1.	Legal Proceedings	13
Item 1A.	Risk Factors	13
Item 6.	Exhibits	13
	Signatures	14

PART I.   FINANCIAL INFORMATION

Item 1.  Financial Statements

ROYALE ENERGY, INC.

BALANCE SHEETS

	March 31, 2016		December 31, 2015
	(Unaudited)		(Audited)
ASSETS
Current Assets
Cash	$	2,543,296	$	3,763,819
Other Receivables, net		409,453		381,192
Revenue Receivables		99,409		147,936
Prepaid Expenses		168,074		114,036
Total Current Assets		3,220,232		4,406,983
Other Assets		690,844		730,844
Oil and Gas Properties, (Successful Efforts Basis),  Equipment and Fixtures, net		6,396,095		6,532,478
Total Assets	$	10,307,171	$	11,670,305

See notes to unaudited financial statements.

1

ROYALE ENERGY, INC.

BALANCE SHEETS

	March 31, 2016			December 31, 2015
	(Unaudited)			(Audited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable and Accrued Expenses	$	3,205,711		$	2,937,226
Current Portion of Long-Term Debt		31,200			30,528
Deferred Drilling Obligation		7,199,443			8,415,528
Total Current Liabilities		10,436,354			11,383,282
Noncurrent Liabilities:
Asset Retirement Obligation		1,130,357			1,096,179
Note Payable, less current portion		1,408,074			1,416,325
Total Noncurrent Liabilities		2,538,431			2,512,504
Total Liabilities		12,974,785			13,895,786
Stockholders' Deficit:
Convertible preferred stock, Series AA, no par value,  147,500 shares authorized; 46,662 shares issued and  outstanding at March 31, 2016 and December 31, 2015		136,149			136,149
Common Stock, no par value, authorized 30,000,000 shares,  17,651,385 and 16,396,579 shares issued and outstanding  at March 31, 2016 and December 31, 2015		39,028,938			38,846,751
Additional Paid in Capital		425,678			425,678
Accumulated Deficit		(42,258,379	)		(41,634,059	)
Total Stockholders' Deficit		(2,667,614	)		(2,225,481	)
Total Liabilities and Stockholders' Deficit	$	10,307,171		$	11,670,305

See notes to unaudited financial statements.

2

ROYALE ENERGY, INC.

STATEMENTS OF OPERATIONS

FOR THE QUARTER ENDED MARCH 31, 2016 AND 2015

	2016			2015
	(Unaudited)			(Unaudited)
Revenues:
Sale of Oil and Gas	$	134,117		$	294,309
Supervisory Fees and Other		152,841			175,760
Total Revenues		286,958			470,069
Costs and Expenses:
General and Administrative		632,777			828,944
Lease Operating		185,135			314,792
Delay Rentals		-			29,128
Lease Impairment		-			12,681
Well Equipment Write Down		10,589			19,000
Legal and Accounting		159,637			224,476
Marketing		44,381			76,988
Depreciation, Depletion and Amortization		77,183			74,791
Total Costs and Expenses		1,109,702			1,580,800
Gain on Turnkey Drilling		220,074			-
Loss From Operations		(602,670	)		(1,110,731	)
Other Expense:
Interest Expense		(21,650	)		(21,185	)
Loss Before Income Tax Expense		(624,320	)		(1,131,916	)
Net Loss	$	(624,320	)	$	(1,131,916	)
Basic Loss Per Share:
Net Loss available to common stock	$	(0.04	)	$	(0.08	)
Diluted Loss Per Share	$	(0.04	)	$	(0.08	)

See notes to unaudited financial statements.

3

ROYALE ENERGY, INC.

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

	2016			2015
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(624,320	)	$	(1,131,916	)
Adjustments to Reconcile Net Loss to Net  Cash Used in Operating Activities:
Depreciation, Depletion and Amortization		77,183			74,791
Lease Impairment		-			12,681
Gain on Turnkey Drilling Programs		(220,074	)		-
Well Equipment Write Down		10,589			19,000
Stock-Based Compensation		182,187			33,786
(Increase) Decrease in:
Other & Revenue Receivables		20,266			23,942
Prepaid Expenses and Other Assets		(24,627	)		(487,506	)
Increase (Decrease) in:
Accounts Payable and Accrued expenses		302,663			(93,180	)
Net Cash Used in Operating Activities		(276,133	)		(1,548,402	)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Oil and Gas Properties and Other Capital Expenditures		(1,411,811	)		(1,055,922	)
Proceeds from Turnkey Drilling Programs		475,000			625,001
Net Cash Used In Investing Activities		(936,811	)		(430,921	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt		(7,579	)		(7,390	)
Net Cash Used in Financing Activities		(7,579	)		(7,390	)
Net Decrease in Cash and Cash Equivalents		(1,220,523	)		(1,986,713	)
Cash at Beginning of Period		3,763,819			3,061,841
Cash at End of Period	$	2,543,296		$	1,075,128
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid for Interest	$	21,650		$	21,185
Cash Paid for Taxes	$	2,100		$	800

See notes to unaudited financial statements.

4

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 three month period are not, in management’s opinion, indicative of the results to be expected for a full year of operations.  It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report.

Use of Estimates

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.   As reflected in the accompanying financial statements, the Company has negative working capital, losses from operations and negative cash flows from operations.

Material estimates that are particularly susceptible to significant change relate to the estimate of Company oil and gas reserves prepared by an independent engineering consultant.  Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proven reserves. Estimated reserves are used in the calculation of depletion, depreciation and amortization, unevaluated property costs, impairment of oil and natural gas properties, estimated future net cash flows, taxes, and contingencies.

Liquidity

The primary sources of liquidity have historically been issuances of common stock and operations. Until we become cash flow positive, we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, and the sale of oil and natural gas property participation interest. Assuming there are no further changes in expected sales and expense trends subsequent to May 6, 2016, the Company believes that its cash position together with anticipated financing activities, which include the sale of our office building and land, will be sufficient to continue operations for the foreseeable future. 

Oil and Gas Property and Equipment

Depreciation, depletion and amortization, based on cost less estimated salvage value of the asset, are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration.  Maintenance and repairs, including planned major maintenance, are expensed as incurred.  Major renewals and improvements are capitalized and the assets replaced are retired.

Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods.  Under the unit-of-production method, oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank.

Proved oil and gas properties held and used by Royale Energy are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Royale Energy estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. Cash flows used in impairment evaluations are developed using annually updated evaluation assumptions for crude oil commodity prices.  Annual volumes are based on field production profiles, which are also updated annually. Prices for natural gas and other products are based on assumptions developed annually for evaluation purposes.

Impairment analysis are generally based on proved reserves.  An asset group would be impaired if the undiscounted cash flows were less than its carrying value.  Impairments are measured by the amount the carrying value exceeds fair value.  No impairment losses were recorded during the three months ended March 31, 2016.  During the three months ended March 31, 2015 an impairment loss of $12,681 was recorded on various capitalized lease and land costs that were no longer viable.

Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that Royale Energy expects to hold the properties.  The valuation allowances are reviewed at least annually. 

5

Upon the sale or retirement of a complete field of a proved property, Royale Energy eliminates the cost from its books, and the resultant gain or loss is recorded to Royale Energy’s Statement of Operations.  Upon the sale of an entire interest in an unproved property where the property has been assessed for impairment individually, a gain or loss is recognized in Royale Energy’s Statement of Operations.  If a partial interest in an unproved property is sold, any funds received are accounted for as a recovery of the cost in the interest retained with any excess funds recognized as a gain. Should Royale Energy’s turnkey drilling agreements include unproved property, total drilling costs incurred to satisfy its obligations are recovered by the total funds received under the agreements.  Any excess funds are recorded as a Gain on Turnkey Drilling Programs, and any costs not recovered are capitalized and accounted for under the “successful efforts” method. 

Royale Energy sponsors turnkey drilling agreement arrangements in unproved properties as a pooling of assets in a joint undertaking, whereby proceeds from participants are reported as Deferred Drilling Obligations, and then reduced as costs to complete its obligations are incurred with any excess booked against its property account to reduce any basis in its own interest.  Gains on Turnkey Drilling Programs represent funds received from turnkey drilling participants in excess of all costs Royale incurs during the drilling programs (e.g., lease acquisition, exploration and development costs), including costs incurred on behalf of participants and costs incurred for its own account; and are recognized only upon making this determination after Royale’s obligations have been fulfilled.

The contracts require the participants pay Royale Energy the full contract price upon execution of the agreement.   Royale Energy completes the drilling activities typically between 10 and 30 days after drilling begins.  The participant retains an undivided or proportional beneficial interest in the property, and is also responsible for its proportionate share of operating costs.  Royale Energy retains legal title to the lease.  The participants purchase a working interest directly in the well bore.

In these working interest arrangements, the participants are responsible for sharing in the risk of development, but also sharing in a proportional interest in rights to revenues and proportional liability for the cost of operations after drilling is completed and the interest is conveyed to the participant.

A certain portion of the turnkey drilling participant’s funds received are non-refundable.    The company holds all funds invested as Deferred Drilling Obligations until drilling is complete.  Occasionally, drilling is delayed due to the permitting process or drilling rig availability.  At March 31, 2016 and December 31, 2015, Royale Energy had Deferred Drilling Obligations of $7,199,443 and $8,415,528, respectively.

If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, Royale would retain the non-refundable portion of the contact and return the remaining funds to the participant.  Included in cash are amounts for use in completion of turnkey drilling programs in progress.

Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.

Cash

Cash includes cash on hand and on deposit.

Other Receivables

Our other receivables consists of receivables from direct working interest investors and industry partners. We provide for uncollectible accounts receivable using the allowance method of accounting for bad debts.  Under this method of accounting, a provision for uncollectible accounts is charged directly to bad debt expense when it becomes probable the receivable will not be collected.  The allowance account is increased or decreased based on past collection history and management’s evaluation of accounts receivable.  All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged off accounts are added to the allowance.    At March 31, 2016 and December 31, 2015, the Company had an allowance for uncollectable accounts of $2,270,773 and $2,270,773, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Revenue Receivables

Our revenue receivables consists of receivables related to the sale of our natural gas and oil.  Once a production month is completed we receive payment approximately 15 to 30 days later.

6

Equipment and Fixtures

Equipment and fixtures are stated at cost and depreciated over the estimated useful lives of the assets, which range from three to seven years, using the straight-line method. Repairs and maintenance are charged to expense as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Maintenance and repairs, which neither materially add to the value of the property nor appreciably prolong its life, are charged to expense as incurred. Gains or losses on dispositions of property and equipment, other than oil and gas, are reflected in operations.

Fair Value Measurements

According to Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in period subsequent to initial recognition, the reporting entity shall disclose information that enable users of its financial statements to assess the inputs used to develop those measurements and for recurring fair value measurements using significant unobservable inputs, the effect of the measurements on earnings for the period.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities.

The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

At March 31, 2016 and December 31, 2015, Royale Energy did not have any financial assets measured and recognized at fair value on a recurring basis.  The Company estimates asset retirement obligations pursuant to the provisions of FASB ASC Topic 410, "Asset Retirement and Environmental Obligations" ("FASB ASC 410"). 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.

Reclassifications

Certain items in the financial statements have been reclassified to maintain consistency and comparability for all periods presented herein.

Recently Issued Accounting Pronouncements

The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the quarter ended March 31, 2016:

ASU 2016-01: Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)

7

In January 2016, FASB issued ASU 2016-01 which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in Other Comprehensive Income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The Update provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The Update also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The new standard becomes effective for fiscal years beginning after December 15, 2017. Early adoption is only permitted for the provision related to instrument-specific credit risk and the fair value disclosure exemption provided to nonpublic entities.  The Company is currently evaluating the effects of adopting ASU 2016-01 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements. 

ASU No. 2016-02: Leases (Topic 842). In February 2016, FASB issued ASU 2016-02 which aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing agreements. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements. 

ASU 2016-09: Compensation—Stock Compensation (Topic 718): Improvements to Employee Share- Based Payment Accounting. In March 2016, FASB issued ASU 2016-09 which amends several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. If early adopted, an entity must adopt all of the amendments in the same period. The Company is currently evaluating the impact of the adoption of ASU 2016-09 on the Company's financial statements. 

NOTE 2 –LOSS PER SHARE

Basic and diluted loss per share are calculated as follows:

	For the Three Months ended
	March 31, 2016
	Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic Loss Per Share:
Net loss available to common stock		$	(624,320	)		17,049,067		$	(0.04	)
Diluted Loss Per Share:
Effect of dilutive securities and stock options			-			-			-
Net loss available to common stock		$	(624,320	)		17,049,067		$	(0.04	)

	For the Three Months ended
	March 31, 2015
	Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic Loss Per Share:
Net loss available to common stock		$	(1,131,916	)		14,945,789		$	(0.08	)
Diluted Loss Per Share:
Effect of dilutive securities and stock options			-			-			-
Net loss available to common stock		$	(1,131,916	)		14,945,789		$	(0.08	)

For the three months ended March 31, 2016 and 2015, Royale Energy had dilutive securities of 23,331 and 23,331, respectively.  These securities were not included in the dilutive loss per share due to their antidilutive nature.

8

NOTE 3 – OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES

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

	March 31, 2016			December 31, 2015
	(Unaudited)			(Audited)
Oil and Gas
Producing properties, including drilling costs	$	5,217,141		$	5,217,637
Undeveloped properties		2,394,840			2,381,564
Lease and well equipment		4,263,802			4,339,122
		11,875,783			11,938,323
Accumulated depletion, depreciation & amortization		(7,714,540	)		(7,656,731	)
		4,161,243			4,281,592
Commercial and Other
Real Estate, Bldg Improvements, including furn and fix		2,266,050			2,266,050
Vehicles		118,061			118,061
Furniture and equipment		1,120,760			1,120,760
		3,504,871			3,504,871
Accumulated depreciation		(1,270,019	)		(1,253,985	)
		2,234,852			2,250,886
	$	6,396,095		$	6,532,478

The guidance set forth in the Continued Capitalization of Exploratory Well Costs paragraph of the Extractive Activities Topic of the FASB Accounting Standards Codification requires that we evaluate all existing capitalized exploratory well costs and disclose the extent to which any such capitalized costs have become impaired and are expensed or reclassified during a fiscal period. We did not make any additions to capitalized exploratory well costs pending a determination of proved reserves during the periods in 2016 or 2015. 

NOTE 4 – STOCK COMPENSATION PLAN

During the October 10, 2014 Board of Directors meeting, directors and executive offices of Royale Energy were granted 20,000 options each, 140,000 total, to purchase common stock at an exercise price of $5.00 per share. These options were granted for a period of 3 years and will expire after December 31, 2017.  These options become exercisable at 5,000 shares per period beginning October 13, 2014, January 1, 2015, April 1, 2015 and July 1 2015.  There were no stock compensation costs related to this option grant recognized during the quarter ended March 31, 2016.  During the quarter ended March 31, 2015, Royale recognized compensation costs of $33,786 relating to this option grant.   

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, Royale and it management concluded it is not “more-likely-than-not” its deferred tax assets will be realized.  As a result, the Company will continue to record a full valuation allowance against the deferred tax assets in 2016.

9

A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the statutory income tax rates at March 31, 2016 and 2015, respectively, to pretax income is as follows:

	Three Months Ended March 31, 2016			Three Months Ended March 31, 2015
Tax benefit computed at statutory rate of 34%	$	(212,269	)	$	(384,851	)
Increase (decrease) in taxes resulting from:
State tax / percentage depletion / other
Other non-deductible expenses		140			216
Change in valuation allowance		212,129			384,635
Provision (benefit)	$	-		$	-

NOTE 6 – SUBSEQUENT EVENTS

On April 19, 2016, Royale Energy issued 622,316 restricted common shares to one individual in exchange for cash proceeds of $200,000 under a private placement (Reg. D) stock sale.

On September 14, 2015, Hemco Development, LLC (“Hemco”) filed a complaint, asserting that the Company owed Hemco $451,080.10 for the Company’s share of operating costs. On April 29, 2016, the Company entered into a settlement agreement with Hemco which includes payment of a reduced amount over time and the assignment of well interests.  The final payment is scheduled for October 1, 2016.  A dismissal with prejudice of the entire lawsuit is yet to be filed by Hemco.  As of March 31, 2016, the Company has recorded a liability within its accounts payable due to Hemco of $451,080.10.

10

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 three months ended March 31, 2016, we had a net loss of $624,320, a $507,596 improvement when compared to the net loss of $1,131,916 during the first quarter of 2015.  This improvement was mainly due to cost reduction measures and the gain from the drilling of a well during the period in 2016.  Total revenues for the first quarter in 2016 were $286,958, a decrease of $183,111 or 39% from the total revenues of $470,069 during the period in 2015.  The lower revenues were the result of decreases in both natural gas prices and production volumes during the quarter in 2016, when compared to 2015.

In the first quarter of 2016, revenues from oil and gas production decreased $160,192 or 54.4% to $134,117 from the 2015 first quarter revenues of $294,309.  This decrease was due to lower natural gas commodity prices and decreased production.  The lower production volumes were due mainly to the natural declines in our wells.  The net sales volume of natural gas for the quarter ended March 31, 2016, was approximately 68,336 Mcf with an average price of $1.96 per Mcf, versus 103,032 Mcf with an average price of $2.82 per Mcf for the first quarter of 2015.  This represents a decrease in net sales volume of 34,696 Mcf or 33.7%.    

Oil and natural gas lease operating expenses decreased by $129,657 or 41.2%, to $185,135 for the quarter ended March 31, 2016, from $314,792 for the quarter in 2015.  This difference was mainly due to lower workover and plugging and abandonment costs during the period in 2016.  Delay rental costs decreased by $29,128, as there were no delay rental costs during the first quarter of 2016.

The aggregate of supervisory fees and other income was $152,841 for quarter ended March 31, 2016, a decrease of $22,919 or 13.0% from $175,760 during the period in 2015.  This decrease was due to lower overhead and transportation costs due to the lower production volumes.

Depreciation, depletion and amortization expense increased slightly to $77,183 from $74,791, an increase of $2,392 or 3.2% for the quarter ended March 31, 2016, as compared to the same period in 2015. The depletion rate is calculated using production as a percentage of reserves.  This increase in depreciation expense was mainly due to a higher depletion rate as reserve volumes were lower during the period.

General and administrative expenses decreased by $196,167 or 23.7% from $828,944 for the quarter ended March 31, 2015, to $632,777 for the period in 2016, mainly due to employee related cost reduction measures.  Marketing expense for the quarter ended March 31, 2016, decreased $32,607, or 42.4%, to $44,381, compared to $76,988 for the same period in 2015. Marketing expense varies from period to period according to the number of marketing events attended by personnel and their associated costs.

Legal and accounting expense decreased to $159,637 for the period, compared to $224,476 for the same period in 2015, a $64,839 or 28.9% decrease.  The decrease in legal and accounting expense was a result of lower tax preparation fees paid during the period in 2016 when compared to the same period in 2015.  Legal expenses were also lower due to a litigation settlement paid during the quarter in 2015.

We periodically review our proved properties for impairment on a field-by-field basis and charge impairments of value to the expense. During the quarter ended March 31, 2015, we recorded a lease impairment of $12,681 on various lease and land costs that were no longer viable.  There were no lease impairments recorded during the quarter in 2016.  During the first quarters in 2016 and 2015, we recorded a write down of $10,589 and $19,000, respectively, on certain well equipment to its estimated fair value.

At March 31, 2016, Royale Energy had a Deferred Drilling Obligation of $7,199,443.  During the first quarter of 2016, we disposed of $1,691,085 of these obligations upon completing the drilling of one well, while incurring expenses of $1,471,010, resulting in a gain of $220,075.  At March 31, 2015, Royale Energy had a Deferred Drilling Obligation of $7,398,033.  During the quarter in 2015, we disposed of $1,164,754 of deferred drilling obligations upon completing the drilling of one well, while incurring expenses of $1,175,186, resulting in a capitalization of $10,523 in drilling costs. 

11

Interest expense increased slightly to $21,650 for the quarter ended March 31, 2016, from $21,185 for the same period in 2015, a 2.2% increase. The interest expense is primarily related to the outstanding loan for the corporate headquarters.  

Capital Resources and Liquidity

At March 31, 2016, Royale Energy had current assets totaling $3,220,232 and current liabilities totaling $10,436,354 a $7,216,122 working capital deficit.  We had cash at March 31, 2016, of $2,543,296 compared to $3,763,819 at December 31, 2015.

In December of 2013, Royale purchased an office building for $2,000,000, of which $500,000 was paid in cash on the date of purchase, and $1,500,000 was borrowed from AmericanWest Bank, with a note secured by the property being purchased.  The note carries an interest rate of 5.75% until paid in full. Royale will pay this loan in 119 regular payments of $9,525 each and one balloon payment estimated at $1,150,435. Royale’s first payment was due February 1, 2014, and all subsequent payments are due on the same day of each month after that. Royale’s final payment will be due on January 1, 2024, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest.  At March 31, 2016, the outstanding balance of this note was $1,439,274.  On February 11, 2016, Royale Energy entered into a purchase and sale agreement for the sale of the office building for $2.5 million.  The buyer is currently conducting their due diligence process prior to completion of the sale.

At March 31, 2016, our other receivables totaled $409,453, compared to $381,192 at December 31, 2015, a $28,261 or 7.4% increase.  At March 31, 2016, our revenue receivables totaled $99,409, compared to $147,936 at December 31, 2015, a $48,527 or 32.8% decrease.  This was primarily due to lower oil and gas revenue receivables, reflecting lower commodity prices and decreased production during the period.  At March 31, 2016, our accounts payable and accrued expenses totaled $3,205,711, an increase of $268,485 or 9.1% from the accounts payable at December 31, 2015, of $2,937,226, mainly due to the drilling activity during March 2016.

Ordinarily, we fund our operations and cash needs from our available credit and cash flows generated from operations.  We believe that for the foreseeable future we will be able to meet our liquidity demands through cash flow or financing activities, including ongoing operations as the Company continues to increase its well inventory or additional sales of equity or debt securities.     

Operating Activities.  Net cash used by operating activities totaled $276,133 and $1,548,402 for the three month periods ended March 31, 2016 and 2015, respectively.  This $1,272,269 or 82.2% decrease in cash used was mainly due to cost reduction measures and higher stock based compensation as executive management and members of the board of directors received common stock in lieu of cash compensation.  During the quarter in 2016, executive management and directors received 1,254,806 shares of the Company’s common stock valued at $182,187.

Investing Activities. Net cash used in investing activities amounted to $936,811 and $430,921 for the three month periods ended March 31, 2016 and 2015, respectively.  The increase in cash used can be attributed to lower proceeds from turnkey operations during the quarter in 2016and higher costs of our drilling activity, due to the depth of the well drilled, when compared to the 2015 quarter.

Financing Activities.  Net cash used by financing activities totaled $7,579 in the first quarter of 2016, which were principal payments on the Company’s long-term debt; while $7,390 was used by financing activities for the three month period ended March 31, 2015.  

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 several years, and we expect that volatility to continue.  Monthly average natural gas prices ranged from a low of $1.89 per Mcf to a high of $2.61 per Mcf for the first three months of 2016.  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 March 31, 2016, 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 March 31, 2016.

No changes occurred in our internal control over financial reporting during the three months ended March 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

12

PART II.   OTHER INFORMATION

Item 1.  Legal Proceedings

Hemco Development LLC vs. Royale Energy, Inc., et al, 44th Judicial District, Dallas County, Texas, Case No. DC-15-10958. On September 14, 2015, Hemco Development, LLC (“Hemco”) filed a complaint, asserting that the Company owed Hemco $451,080.10 for the Company’s share of operating costs. On April 29, 2016, the Company entered into a settlement agreement with Hemco which includes payment of a reduced amount over time and the assignment of well interests.  The final payment is scheduled for October 1, 2016.  A dismissal with prejudice of the entire lawsuit is yet to be filed by Hemco.  As of March 31, 2016, the Company has recorded a liability within its accounts payable due Hemco of $451,080.10.

Item 1A.  Risk Factors

Please review the risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2015.

Item 6.  Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification
31.2	Rule 13a-14(a)/15d-14(a) Certification
31.3	Rule 13a-14(a)/15d-14(a) Certification
32.1	18 U.S.C. § 1350 Certification
32.2	18 U.S.C. § 1350 Certification
32.3	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

13

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:  May 6, 2016	/s/ Jonathan Gregory
	Jonathan Gregory, Chief Executive Officer
Date:  May 6, 2016	/s/ Donald H. Hosmer
	Donald H. Hosmer, President of Business Development
Date:  May 6, 2016	/s/ Stephen M. Hosmer
	Stephen M. Hosmer, President and Chief Financial Officer

14

EX-31.1

Exhibit 31.1

I, Jonathan Gregory, 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:  May 6, 2016	/s/ Jonathan Gregory
	Jonathan Gregory, Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Donald H. 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:  May 6, 2016	/s/ Donald H. Hosmer
	Donald H. Hosmer, President of Business Development

EX-31.3

Exhibit 31.3

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:  May 6, 2016	/s/ Stephen M. Hosmer
	Stephen M. Hosmer, President and Chief Financial Officer

EX-32.1

Exhibit 32.1

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

The undersigned, Jonathan Gregory, 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 Quarterly Report on Form 10-Q for the period ended March 31, 2016 (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:  May 6, 2016	By:	/s/ Jonathan Gregory
		Jonathan Gregory, Chief Executive Officer

EX-32.2

Exhibit 32.2

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

The undersigned, Donald H. Hosmer, Co-President and Co-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 Quarterly Report on Form 10-Q for the period ended March 31, 2016 (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:  May 6, 2016	By:	/s/ Donald H. Hosmer
		Donald H. Hosmer, President of Business Development

EX-32.3

Exhibit 32.3

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 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 March 31, 2016 (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:  May 6, 2016	By:	/s/ Stephen M. Hosmer
		Stephen M. Hosmer, President and Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 02, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	ROYALE ENERGY INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		18,399,124
Amendment Flag	false
Entity Central Index Key	0000864839
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1

XML

BALANCE SHEETS - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current Assets
Cash	$ 2,543,296	$ 3,763,819
Other Receivables, net	409,453	381,192
Revenue Receivables	99,409	147,936
Prepaid Expenses	168,074	114,036
Total Current Assets	3,220,232	4,406,983
Other Assets	690,844	730,844
Oil and Gas Properties, (Successful Efforts Basis), Equipment and Fixtures, net	6,396,095	6,532,478
Total Assets	10,307,171	11,670,305
Current Liabilities:
Accounts Payable and Accrued Expenses	3,205,711	2,937,226
Current Portion of Long-Term Debt	31,200	30,528
Deferred Drilling Obligation	7,199,443	8,415,528
Total Current Liabilities	10,436,354	11,383,282
Noncurrent Liabilities:
Asset Retirement Obligation	1,130,357	1,096,179
Note Payable, less current portion	1,408,074	1,416,325
Total Noncurrent Liabilities	2,538,431	2,512,504
Total Liabilities	12,974,785	13,895,786
Stockholders' Deficit:
Convertible preferred stock, Series AA, no par value, 147,500 shares authorized; 46,662 shares issued and outstanding at March 31, 2016 and December 31, 2015	136,149	136,149
Common Stock, no par value, authorized 30,000,000 shares, 17,651,385 and 16,396,579 shares issued and outstanding at March 31, 2016 and December 31, 2015	39,028,938	38,846,751
Additional Paid in Capital	425,678	425,678
Accumulated Deficit	(42,258,379)	(41,634,059)
Total Stockholders' Deficit	(2,667,614)	(2,225,481)
Total Liabilities and Stockholders' Deficit	$ 10,307,171	$ 11,670,305

XML

BALANCE SHEETS (Parentheticals) - $ / shares	Mar. 31, 2016	Dec. 31, 2015
Convertible Preferred Stock, Series AA, no par value (in Dollars per share)	$ 0	$ 0
Convertible Preferred Stock, Series AA, shares authorized	147,500	147,500
Convertible Preferred Stock, Series AA, shares issued	46,662	46,662
Convertible preferred stock, Series AA, shares outstanding	46,662	46,662
Common stock, no par value (in Dollars per share)	$ 0	$ 0
Common stock, shares authorized	30,000,000	30,000,000
Common stock, shares issued	17,651,385	16,396,579
Common Stock, shares outstanding	17,651,385	16,396,579

XML

STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenues:
Sale of Oil and Gas	$ 134,117	$ 294,309
Supervisory Fees and Other	152,841	175,760
Total Revenues	286,958	470,069
Costs and Expenses:
General and Administrative	632,777	828,944
Lease Operating	185,135	314,792
Delay Rentals	0	29,128
Lease Impairment	0	12,681
Well Equipment Write Down	10,589	19,000
Legal and Accounting	159,637	224,476
Marketing	44,381	76,988
Depreciation, Depletion and Amortization	77,183	74,791
Total Costs and Expenses	1,109,702	1,580,800
Gain on Turnkey Drilling	220,074	0
Loss From Operations	(602,670)	(1,110,731)
Other Expense:
Interest Expense	(21,650)	(21,185)
Loss Before Income Tax Expense	(624,320)	(1,131,916)
Net Loss	$ (624,320)	$ (1,131,916)
Basic Loss Per Share:
Net Loss available to common stock (in Dollars per share)	$ (0.04)	$ (0.08)
Diluted Loss Per Share (in Dollars per share)	$ (0.04)	$ (0.08)

XML

STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$ (624,320)	$ (1,131,916)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation, Depletion and Amortization	77,183	74,791
Lease Impairment	0	12,681
Gain on Turnkey Drilling Programs	(220,074)	0
Well Equipment Write Down	10,589	19,000
Stock-Based Compensation	182,187	33,786
(Increase) Decrease in:
Other & Revenue Receivables	20,266	23,942
Prepaid Expenses and Other Assets	(24,627)	(487,506)
Increase (Decrease) in:
Accounts Payable and Accrued expenses	302,663	(93,180)
Net Cash Used in Operating Activities	(276,133)	(1,548,402)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Oil and Gas Properties and Other Capital Expenditures	(1,411,811)	(1,055,922)
Proceeds from Turnkey Drilling Programs	475,000	625,001
Net Cash Used In Investing Activities	(936,811)	(430,921)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt	(7,579)	(7,390)
Net Cash Used in Financing Activities	(7,579)	(7,390)
Net Decrease in Cash and Cash Equivalents	(1,220,523)	(1,986,713)
Cash at Beginning of Period	3,763,819	3,061,841
Cash at End of Period	2,543,296	1,075,128
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid for Interest	21,650	21,185
Cash Paid for Taxes	$ 2,100	$ 800

XML

NOTE 1

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 1 – In the opinion of management, the accompanying unaudited financial statements include all adjustments, consisting only of normally recurring adjustments, necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented.  The results of operations for the three month period are not, in management’s opinion, indicative of the results to be expected for a full year of operations.  It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report.

Use of Estimates

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.   As reflected in the accompanying financial statements, the Company has negative working capital, losses from operations and negative cash flows from operations.

Material estimates that are particularly susceptible to significant change relate to the estimate of Company oil and gas reserves prepared by an independent engineering consultant.  Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proven reserves. Estimated reserves are used in the calculation of depletion, depreciation and amortization, unevaluated property costs, impairment of oil and natural gas properties, estimated future net cash flows, taxes, and contingencies.

Liquidity

The primary sources of liquidity have historically been issuances of common stock and operations. Until we become cash flow positive, we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, and the sale of oil and natural gas property participation interest. Assuming there are no further changes in expected sales and expense trends subsequent to May 6, 2016, the Company believes that its cash position together with anticipated financing activities, which include the sale of our office building and land, will be sufficient to continue operations for the foreseeable future. 

Oil and Gas Property and Equipment

Depreciation, depletion and amortization, based on cost less estimated salvage value of the asset, are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration.  Maintenance and repairs, including planned major maintenance, are expensed as incurred.  Major renewals and improvements are capitalized and the assets replaced are retired.

Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods.  Under the unit-of-production method, oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank.

Proved oil and gas properties held and used by Royale Energy are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Royale Energy estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. Cash flows used in impairment evaluations are developed using annually updated evaluation assumptions for crude oil commodity prices.  Annual volumes are based on field production profiles, which are also updated annually. Prices for natural gas and other products are based on assumptions developed annually for evaluation purposes.

Impairment analysis are generally based on proved reserves.  An asset group would be impaired if the undiscounted cash flows were less than its carrying value.  Impairments are measured by the amount the carrying value exceeds fair value.  No impairment losses were recorded during the three months ended March 31, 2016.  During the three months ended March 31, 2015 an impairment loss of $12,681 was recorded on various capitalized lease and land costs that were no longer viable.

Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that Royale Energy expects to hold the properties.  The valuation allowances are reviewed at least annually. 

Upon the sale or retirement of a complete field of a proved property, Royale Energy eliminates the cost from its books, and the resultant gain or loss is recorded to Royale Energy’s Statement of Operations.  Upon the sale of an entire interest in an unproved property where the property has been assessed for impairment individually, a gain or loss is recognized in Royale Energy’s Statement of Operations.  If a partial interest in an unproved property is sold, any funds received are accounted for as a recovery of the cost in the interest retained with any excess funds recognized as a gain. Should Royale Energy’s turnkey drilling agreements include unproved property, total drilling costs incurred to satisfy its obligations are recovered by the total funds received under the agreements.  Any excess funds are recorded as a Gain on Turnkey Drilling Programs, and any costs not recovered are capitalized and accounted for under the “successful efforts” method. 

Royale Energy sponsors turnkey drilling agreement arrangements in unproved properties as a pooling of assets in a joint undertaking, whereby proceeds from participants are reported as Deferred Drilling Obligations, and then reduced as costs to complete its obligations are incurred with any excess booked against its property account to reduce any basis in its own interest.  Gains on Turnkey Drilling Programs represent funds received from turnkey drilling participants in excess of all costs Royale incurs during the drilling programs (e.g., lease acquisition, exploration and development costs), including costs incurred on behalf of participants and costs incurred for its own account; and are recognized only upon making this determination after Royale’s obligations have been fulfilled.

The contracts require the participants pay Royale Energy the full contract price upon execution of the agreement.   Royale Energy completes the drilling activities typically between 10 and 30 days after drilling begins.  The participant retains an undivided or proportional beneficial interest in the property, and is also responsible for its proportionate share of operating costs.  Royale Energy retains legal title to the lease.  The participants purchase a working interest directly in the well bore.

In these working interest arrangements, the participants are responsible for sharing in the risk of development, but also sharing in a proportional interest in rights to revenues and proportional liability for the cost of operations after drilling is completed and the interest is conveyed to the participant.

A certain portion of the turnkey drilling participant’s funds received are non-refundable.    The company holds all funds invested as Deferred Drilling Obligations until drilling is complete.  Occasionally, drilling is delayed due to the permitting process or drilling rig availability.  At March 31, 2016 and December 31, 2015, Royale Energy had Deferred Drilling Obligations of $7,199,443 and $8,415,528, respectively.

If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, Royale would retain the non-refundable portion of the contact and return the remaining funds to the participant.  Included in cash are amounts for use in completion of turnkey drilling programs in progress.

Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.

Cash

Cash includes cash on hand and on deposit.

Other Receivables

Our other receivables consists of receivables from direct working interest investors and industry partners. We provide for uncollectible accounts receivable using the allowance method of accounting for bad debts.  Under this method of accounting, a provision for uncollectible accounts is charged directly to bad debt expense when it becomes probable the receivable will not be collected.  The allowance account is increased or decreased based on past collection history and management’s evaluation of accounts receivable.  All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged off accounts are added to the allowance.    At March 31, 2016 and December 31, 2015, the Company had an allowance for uncollectable accounts of $2,270,773 and $2,270,773, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Revenue Receivables

Our revenue receivables consists of receivables related to the sale of our natural gas and oil.  Once a production month is completed we receive payment approximately 15 to 30 days later.

Equipment and Fixtures

Equipment and fixtures are stated at cost and depreciated over the estimated useful lives of the assets, which range from three to seven years, using the straight-line method. Repairs and maintenance are charged to expense as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Maintenance and repairs, which neither materially add to the value of the property nor appreciably prolong its life, are charged to expense as incurred. Gains or losses on dispositions of property and equipment, other than oil and gas, are reflected in operations.

Fair Value Measurements

According to Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in period subsequent to initial recognition, the reporting entity shall disclose information that enable users of its financial statements to assess the inputs used to develop those measurements and for recurring fair value measurements using significant unobservable inputs, the effect of the measurements on earnings for the period.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities.

The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

At March 31, 2016 and December 31, 2015, Royale Energy did not have any financial assets measured and recognized at fair value on a recurring basis.  The Company estimates asset retirement obligations pursuant to the provisions of FASB ASC Topic 410, " Asset Retirement and Environmental Obligations" ("FASB ASC 410"). 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.

Reclassifications

Certain items in the financial statements have been reclassified to maintain consistency and comparability for all periods presented herein.

Recently Issued Accounting Pronouncements

The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the quarter ended March 31, 2016:

ASU 2016-01: Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)

In January 2016, FASB issued ASU 2016-01 which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in Other Comprehensive Income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The Update provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The Update also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The new standard becomes effective for fiscal years beginning after December 15, 2017. Early adoption is only permitted for the provision related to instrument-specific credit risk and the fair value disclosure exemption provided to nonpublic entities.  The Company is currently evaluating the effects of adopting ASU 2016-01 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements. 

ASU No. 2016-02: Leases (Topic 842). In February 2016, FASB issued ASU 2016-02 which aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing agreements. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements. 

ASU 2016-09: Compensation—Stock Compensation (Topic 718): Improvements to Employee Share- Based Payment Accounting. In March 2016, FASB issued ASU 2016-09 which amends several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. If early adopted, an entity must adopt all of the amendments in the same period. The Company is currently evaluating the impact of the adoption of ASU 2016-09 on the Company's financial statements. 

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NOTE 2 - LOSS PER SHARE

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 2 – LOSS PER SHARE

Basic and diluted loss per share are calculated as follows:

	For the Three Months ended
	March 31, 2016
	Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic Loss Per Share:
Net loss available to common stock		$	(624,320	)		17,049,067		$	(0.04	)
Diluted Loss Per Share:
Effect of dilutive securities and stock options			-			-			-
Net loss available to common stock		$	(624,320	)		17,049,067		$	(0.04	)

	For the Three Months ended
	March 31, 2015
	Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic Loss Per Share:
Net loss available to common stock		$	(1,131,916	)		14,945,789		$	(0.08	)
Diluted Loss Per Share:
Effect of dilutive securities and stock options			-			-			-
Net loss available to common stock		$	(1,131,916	)		14,945,789		$	(0.08	)

For the three months ended March 31, 2016 and 2015, Royale Energy had dilutive securities of 23,331 and 23,331, respectively.  These securities were not included in the dilutive loss per share due to their antidilutive nature.

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NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES

3 Months Ended

Mar. 31, 2016

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

Oil and Gas Exploration and Production Industries Disclosures [Text Block]

NOTE 3 – OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES

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

	March 31, 2016			December 31, 2015
	(Unaudited)			(Audited)
Oil and Gas
Producing properties, including drilling costs	$	5,217,141		$	5,217,637
Undeveloped properties		2,394,840			2,381,564
Lease and well equipment		4,263,802			4,339,122
		11,875,783			11,938,323
Accumulated depletion, depreciation & amortization		(7,714,540	)		(7,656,731	)
		4,161,243			4,281,592
Commercial and Other
Real Estate, Bldg Improvements, including furn and fix		2,266,050			2,266,050
Vehicles		118,061			118,061
Furniture and equipment		1,120,760			1,120,760
		3,504,871			3,504,871
Accumulated depreciation		(1,270,019	)		(1,253,985	)
		2,234,852			2,250,886
	$	6,396,095		$	6,532,478

The guidance set forth in the Continued Capitalization of Exploratory Well Costs paragraph of the Extractive Activities Topic of the FASB Accounting Standards Codification requires that we evaluate all existing capitalized exploratory well costs and disclose the extent to which any such capitalized costs have become impaired and are expensed or reclassified during a fiscal period. We did not make any additions to capitalized exploratory well costs pending a determination of proved reserves during the periods in 2016 or 2015. 

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NOTE 4 - STOCK COMPENSATION PLAN

3 Months Ended

Mar. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 4 – STOCK COMPENSATION PLAN

During the October 10, 2014 Board of Directors meeting, directors and executive offices of Royale Energy were granted 20,000 options each, 140,000 total, to purchase common stock at an exercise price of $5.00 per share. These options were granted for a period of 3 years and will expire after December 31, 2017.  These options become exercisable at 5,000 shares per period beginning October 13, 2014, January 1, 2015, April 1, 2015 and July 1 2015.  There were no stock compensation costs related to this option grant recognized during the quarter ended March 31, 2016.  During the quarter ended March 31, 2015, Royale recognized compensation costs of $33,786 relating to this option grant.   

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NOTE 5 - INCOME TAXES

3 Months Ended

Mar. 31, 2016

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, Royale and it management concluded it is not “more-likely-than-not” its deferred tax assets will be realized.  As a result, the Company will continue to record a full valuation allowance against the deferred tax assets in 2016.

A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the statutory income tax rates at March 31, 2016 and 2015, respectively, to pretax income is as follows:

	Three Months Ended March 31, 2016			Three Months Ended March 31, 2015
Tax benefit computed at statutory rate of 34%	$	(212,269	)	$	(384,851	)
Increase (decrease) in taxes resulting from:
State tax / percentage depletion / other
Other non-deductible expenses		140			216
Change in valuation allowance		212,129			384,635
Provision (benefit)	$	-		$	-

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NOTE 6 - SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 6 – SUBSEQUENT EVENTS

On April 19, 2016, Royale Energy issued 622,316 restricted common shares to one individual in exchange for cash proceeds of $200,000 under a private placement (Reg. D) stock sale.

On September 14, 2015, Hemco Development, LLC (“Hemco”) filed a complaint, asserting that the Company owed Hemco $451,080.10 for the Company’s share of operating costs. On April 29, 2016, the Company entered into a settlement agreement with Hemco which includes payment of a reduced amount over time and the assignment of well interests.  The final payment is scheduled for October 1, 2016.  A dismissal with prejudice of the entire lawsuit is yet to be filed by Hemco.  As of March 31, 2016, the Company has recorded a liability within its accounts payable due to Hemco of $451,080.10.

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Accounting Policies, by Policy (Policies)

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.   As reflected in the accompanying financial statements, the Company has negative working capital, losses from operations and negative cash flows from operations.

Material estimates that are particularly susceptible to significant change relate to the estimate of Company oil and gas reserves prepared by an independent engineering consultant.  Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proven reserves. Estimated reserves are used in the calculation of depletion, depreciation and amortization, unevaluated property costs, impairment of oil and natural gas properties, estimated future net cash flows, taxes, and contingencies.

Liquidity and Going Concern [Policy Text Block]

Liquidity

The primary sources of liquidity have historically been issuances of common stock and operations. Until we become cash flow positive, we anticipate that our primary sources of liquidity will be from the issuance of debt and/or equity, and the sale of oil and natural gas property participation interest. Assuming there are no further changes in expected sales and expense trends subsequent to May 6, 2016, the Company believes that its cash position together with anticipated financing activities, which include the sale of our office building and land, will be sufficient to continue operations for the foreseeable future.

Oil and Gas Properties Policy [Policy Text Block]

Oil and Gas Property and Equipment

Depreciation, depletion and amortization, based on cost less estimated salvage value of the asset, are primarily determined under either the unit-of-production method or the straight-line method, which is based on estimated asset service life taking obsolescence into consideration.  Maintenance and repairs, including planned major maintenance, are expensed as incurred.  Major renewals and improvements are capitalized and the assets replaced are retired.

Capitalized exploratory drilling and development costs associated with productive depletable extractive properties are amortized using unit-of-production rates based on the amount of proved developed reserves of oil and gas that are estimated to be recoverable from existing facilities using current operating methods.  Under the unit-of-production method, oil and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the lease or field storage tank.

Proved oil and gas properties held and used by Royale Energy are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Royale Energy estimates the future undiscounted cash flows of the affected properties to judge the recoverability of carrying amounts. Cash flows used in impairment evaluations are developed using annually updated evaluation assumptions for crude oil commodity prices.  Annual volumes are based on field production profiles, which are also updated annually. Prices for natural gas and other products are based on assumptions developed annually for evaluation purposes.

Impairment analysis are generally based on proved reserves.  An asset group would be impaired if the undiscounted cash flows were less than its carrying value.  Impairments are measured by the amount the carrying value exceeds fair value.  No impairment losses were recorded during the three months ended March 31, 2016.  During the three months ended March 31, 2015 an impairment loss of $12,681 was recorded on various capitalized lease and land costs that were no longer viable.

Significant unproved properties are assessed for impairment individually, and valuation allowances against the capitalized costs are recorded based on the estimated economic chance of success and the length of time that Royale Energy expects to hold the properties.  The valuation allowances are reviewed at least annually. 

Upon the sale or retirement of a complete field of a proved property, Royale Energy eliminates the cost from its books, and the resultant gain or loss is recorded to Royale Energy’s Statement of Operations.  Upon the sale of an entire interest in an unproved property where the property has been assessed for impairment individually, a gain or loss is recognized in Royale Energy’s Statement of Operations.  If a partial interest in an unproved property is sold, any funds received are accounted for as a recovery of the cost in the interest retained with any excess funds recognized as a gain. Should Royale Energy’s turnkey drilling agreements include unproved property, total drilling costs incurred to satisfy its obligations are recovered by the total funds received under the agreements.  Any excess funds are recorded as a Gain on Turnkey Drilling Programs, and any costs not recovered are capitalized and accounted for under the “successful efforts” method. 

Royale Energy sponsors turnkey drilling agreement arrangements in unproved properties as a pooling of assets in a joint undertaking, whereby proceeds from participants are reported as Deferred Drilling Obligations, and then reduced as costs to complete its obligations are incurred with any excess booked against its property account to reduce any basis in its own interest.  Gains on Turnkey Drilling Programs represent funds received from turnkey drilling participants in excess of all costs Royale incurs during the drilling programs (e.g., lease acquisition, exploration and development costs), including costs incurred on behalf of participants and costs incurred for its own account; and are recognized only upon making this determination after Royale’s obligations have been fulfilled.

The contracts require the participants pay Royale Energy the full contract price upon execution of the agreement.   Royale Energy completes the drilling activities typically between 10 and 30 days after drilling begins.  The participant retains an undivided or proportional beneficial interest in the property, and is also responsible for its proportionate share of operating costs.  Royale Energy retains legal title to the lease.  The participants purchase a working interest directly in the well bore.

In these working interest arrangements, the participants are responsible for sharing in the risk of development, but also sharing in a proportional interest in rights to revenues and proportional liability for the cost of operations after drilling is completed and the interest is conveyed to the participant.

A certain portion of the turnkey drilling participant’s funds received are non-refundable.    The company holds all funds invested as Deferred Drilling Obligations until drilling is complete.  Occasionally, drilling is delayed due to the permitting process or drilling rig availability.  At March 31, 2016 and December 31, 2015, Royale Energy had Deferred Drilling Obligations of $7,199,443 and $8,415,528, respectively.

If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, Royale would retain the non-refundable portion of the contact and return the remaining funds to the participant.  Included in cash are amounts for use in completion of turnkey drilling programs in progress.

Losses on properties sold are recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash

Cash includes cash on hand and on deposit.

Receivables, Policy [Policy Text Block]

Other Receivables

Our other receivables consists of receivables from direct working interest investors and industry partners. We provide for uncollectible accounts receivable using the allowance method of accounting for bad debts.  Under this method of accounting, a provision for uncollectible accounts is charged directly to bad debt expense when it becomes probable the receivable will not be collected.  The allowance account is increased or decreased based on past collection history and management’s evaluation of accounts receivable.  All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged off accounts are added to the allowance.    At March 31, 2016 and December 31, 2015, the Company had an allowance for uncollectable accounts of $2,270,773 and $2,270,773, respectively, for receivables from direct working interest investors whose expenses on non-producing wells were unlikely to be collected from revenue.

Revenue Recognition, Policy [Policy Text Block]

Revenue Receivables

Our revenue receivables consists of receivables related to the sale of our natural gas and oil.  Once a production month is completed we receive payment approximately 15 to 30 days later.

Property, Plant and Equipment, Policy [Policy Text Block]

Equipment and Fixtures

Equipment and fixtures are stated at cost and depreciated over the estimated useful lives of the assets, which range from three to seven years, using the straight-line method. Repairs and maintenance are charged to expense as incurred. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. Maintenance and repairs, which neither materially add to the value of the property nor appreciably prolong its life, are charged to expense as incurred. Gains or losses on dispositions of property and equipment, other than oil and gas, are reflected in operations.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements

According to Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification, assets and liabilities that are measured at fair value on a recurring and nonrecurring basis in period subsequent to initial recognition, the reporting entity shall disclose information that enable users of its financial statements to assess the inputs used to develop those measurements and for recurring fair value measurements using significant unobservable inputs, the effect of the measurements on earnings for the period.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Carrying amounts of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally short maturities.

The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

At March 31, 2016 and December 31, 2015, Royale Energy did not have any financial assets measured and recognized at fair value on a recurring basis.  The Company estimates asset retirement obligations pursuant to the provisions of FASB ASC Topic 410, " Asset Retirement and Environmental Obligations" ("FASB ASC 410"). 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.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain items in the financial statements have been reclassified to maintain consistency and comparability for all periods presented herein.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting Pronouncements

The Company has reviewed the updates issued by the Financial Accounting Standards Board (FASB) during the quarter ended March 31, 2016:

ASU 2016-01: Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)

In January 2016, FASB issued ASU 2016-01 which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in Other Comprehensive Income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The Update provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The Update also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The new standard becomes effective for fiscal years beginning after December 15, 2017. Early adoption is only permitted for the provision related to instrument-specific credit risk and the fair value disclosure exemption provided to nonpublic entities.  The Company is currently evaluating the effects of adopting ASU 2016-01 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements. 

ASU No. 2016-02: Leases (Topic 842). In February 2016, FASB issued ASU 2016-02 which aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing agreements. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements. 

ASU 2016-09: Compensation—Stock Compensation (Topic 718): Improvements to Employee Share- Based Payment Accounting. In March 2016, FASB issued ASU 2016-09 which amends several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. If early adopted, an entity must adopt all of the amendments in the same period. The Company is currently evaluating the impact of the adoption of ASU 2016-09 on the Company's financial statements.

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NOTE 2 - LOSS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

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

LOSS PER SHARE

	For the Three Months ended
	March 31, 2016
	Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic Loss Per Share:
Net loss available to common stock		$	(624,320	)		17,049,067		$	(0.04	)
Diluted Loss Per Share:
Effect of dilutive securities and stock options			-			-			-
Net loss available to common stock		$	(624,320	)		17,049,067		$	(0.04	)

	For the Three Months ended
	March 31, 2015
	Loss				Shares		Per-Share
	(Numerator)				(Denominator)		Amount
Basic Loss Per Share:
Net loss available to common stock		$	(1,131,916	)		14,945,789		$	(0.08	)
Diluted Loss Per Share:
Effect of dilutive securities and stock options			-			-			-
Net loss available to common stock		$	(1,131,916	)		14,945,789		$	(0.08	)

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NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Tables)

3 Months Ended

Mar. 31, 2016

Oil and Gas Exploration and Production Industries Disclosures [Abstract]

Property, Plant and Equipment [Table Text Block]

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

	March 31, 2016			December 31, 2015
	(Unaudited)			(Audited)
Oil and Gas
Producing properties, including drilling costs	$	5,217,141		$	5,217,637
Undeveloped properties		2,394,840			2,381,564
Lease and well equipment		4,263,802			4,339,122
		11,875,783			11,938,323
Accumulated depletion, depreciation & amortization		(7,714,540	)		(7,656,731	)
		4,161,243			4,281,592
Commercial and Other
Real Estate, Bldg Improvements, including furn and fix		2,266,050			2,266,050
Vehicles		118,061			118,061
Furniture and equipment		1,120,760			1,120,760
		3,504,871			3,504,871
Accumulated depreciation		(1,270,019	)		(1,253,985	)
		2,234,852			2,250,886
	$	6,396,095		$	6,532,478

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NOTE 5 - INCOME TAXES (Tables)

3 Months Ended

Mar. 31, 2016

Income Tax Disclosure [Abstract]

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the statutory income tax rates at March 31, 2016 and 2015, respectively, to pretax income is as follows:

	Three Months Ended March 31, 2016			Three Months Ended March 31, 2015
Tax benefit computed at statutory rate of 34%	$	(212,269	)	$	(384,851	)
Increase (decrease) in taxes resulting from:
State tax / percentage depletion / other
Other non-deductible expenses		140			216
Change in valuation allowance		212,129			384,635
Provision (benefit)	$	-		$	-

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NOTE 1 (Details) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
NOTE 1 (Details) [Line Items]
Impairment of Oil and Gas Properties		$ 12,681
Customer Deposits, Current	$ 7,199,443		$ 8,415,528
Allowance for Doubtful Accounts Receivable	$ 2,270,773		$ 2,270,773
Minimum [Member]
NOTE 1 (Details) [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Maximum [Member]
NOTE 1 (Details) [Line Items]
Property, Plant and Equipment, Useful Life	7 years

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NOTE 2 - LOSS PER SHARE (Details) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Earnings Per Share [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	23,331	23,331

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NOTE 2 - LOSS PER SHARE (Details) - Schedule of Earnings Per Share, Basic and Diluted - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Basic Loss Per Share:
Net loss available to common stock, basic (in Dollars)	$ (624,320)	$ (1,131,916)
Weighted average shares outstanding, basic	17,049,067	14,945,789
Earnings per share, basic (in Dollars per share)	$ (0.04)	$ (0.08)
Diluted Loss Per Share:
Effect of dilutive securities and stock options, shares	0	0
Net loss available to common stock, diluted (in Dollars)	$ (624,320)	$ (1,131,916)
Weighted average shares outstanding, diluted	17,049,067	14,945,789
Earnings per share, diluted (in Dollars per share)	$ (0.04)	$ (0.08)

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NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Details) - Schedule of Oil and Gas Properties, Equipment and Fixtures - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Oil and Gas
Producing properties, including drilling costs	$ 5,217,141	$ 5,217,637
Undeveloped properties	2,394,840	2,381,564
Lease and well equipment	4,263,802	4,339,122
	11,875,783	11,938,323
Accumulated depletion, depreciation & amortization	(7,714,540)	(7,656,731)
	4,161,243	4,281,592
Commercial and Other
Property, Plant and Equipment, Gross	3,504,871	3,504,871
Accumulated depreciation	(1,270,019)	(1,253,985)
	2,234,852	2,250,886
	6,396,095	6,532,478
Land, Buildings and Improvements [Member]
Commercial and Other
Property, Plant and Equipment, Gross	2,266,050	2,266,050
Vehicles [Member]
Commercial and Other
Property, Plant and Equipment, Gross	118,061	118,061
Furniture and Fixtures [Member]
Commercial and Other
Property, Plant and Equipment, Gross	$ 1,120,760	$ 1,120,760

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NOTE 4 - STOCK COMPENSATION PLAN (Details) - Employee Stock Option [Member] - Directors and Executive Officers [Member] - USD ($)		3 Months Ended
	Oct. 10, 2014	Mar. 31, 2016	Mar. 31, 2015
NOTE 4 - STOCK COMPENSATION PLAN (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)	140,000
Share-based Compensation by Shre-based Payment Award, Options, Exercis Price of Options	$ 5.00
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights	These options become exercisable at 5,000 shares per period beginning October 13, 2014, January 1, 2015, April 1, 2015 and July 1 2015.
Share-based Compensation		$ 0	$ 33,786
Options Granted to Each Individual [Member]
NOTE 4 - STOCK COMPENSATION PLAN (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)	20,000

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NOTE 5 - INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Schedule of Effective Income Tax Rate Reconciliation [Abstract]
Tax benefit computed at statutory rate of 34%	$ (212,269)	$ (384,851)
Increase (decrease) in taxes resulting from:
State tax / percentage depletion / other	0	0
Other non-deductible expenses	140	216
Change in valuation allowance	212,129	384,635
Provision (benefit)	$ 0	$ 0

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NOTE 5 - INCOME TAXES (Details) - Schedule of Effective Income Tax Rate Reconciliation (Parentheticals)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Schedule of Effective Income Tax Rate Reconciliation [Abstract]
Statutory rate	34.00%	34.00%

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NOTE 6 - SUBSEQUENT EVENTS (Details) - USD ($)	Apr. 29, 2016	Apr. 19, 2016	Sep. 14, 2015
NOTE 6 - SUBSEQUENT EVENTS (Details) [Line Items]
Loss Contingency, Name of Plaintiff			Hemco Development, LLC (“Hemco”)
Loss Contingency, Damages Sought			$451,080.10
Subsequent Event [Member]
NOTE 6 - SUBSEQUENT EVENTS (Details) [Line Items]
Loss Contingency, Settlement Agreement, Terms	On April 29, 2016, the Company entered into a settlement agreement with Hemco which includes payment of a reduced amount over time and the assignment of well interests. The final payment is scheduled for October 1, 2016. A dismissal with prejudice of the entire lawsuit is yet to be filed by Hemco.
Subsequent Event [Member] | Private Placement [Member]
NOTE 6 - SUBSEQUENT EVENTS (Details) [Line Items]
Stock Issued During Period, Shares, New Issues		622,316
Proceeds from Issuance of Private Placement		$ 200,000