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| ROYL > SEC Filings for ROYL > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
Forward Looking Statements
In addition to historical information contained herein, this discussion contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, subject to various risks and uncertainties that could cause our actual results to differ materially from those in the "forward-looking" statements. While we believe our forward looking statements are based upon reasonable assumptions, there are factors that are difficult to predict and that are influenced by economic and other conditions beyond our control. Investors are directed to consider such risks and other uncertainties discussed in documents filed by the company with the Securities and Exchange Commission.
Results of Operations
For the first quarter of 2009, we had a net loss from operations of $891,056 compared to the net loss of $927,460 during the first quarter of 2008, a $36,404 difference. Total revenues for the first quarter in 2009 were $2,268,170, a decrease of $722,087 or 24.2% from the total revenues of $2,990,257 during the period in 2008. This decrease in revenues and the quarter's net loss was the result of decreases in oil and natural gas commodity prices affecting our oil and natural gas production revenues.
In the first quarter of 2009, revenues from oil and gas production decreased $877,815 or 51.1% to $838,577 from the 2008 first quarter revenues of $1,716,392, due to lower prices received for our oil and natural gas production. The net sales volume of natural gas for the quarter ended March 31, 2009, was approximately 176,928 Mcf with an average price of $4.38 per Mcf, versus 175,822 Mcf with an average price of $8.22 per Mcf for the first quarter of 2008. This represents an increase in net sales volume of 1,107 Mcf or 0.6%. This slight increase was mainly due to new production brought online during the quarter , partially offset by the natural declines in production from existing wells. The net sales volume for oil and condensate (natural gas liquids) production was 2,002 barrels with an average price of $32.10 per barrel for the first three months of 2009, compared to 3,069 barrels at an average price of $88.44 per barrel for the three months in 2008. This represents a decrease in net sales volume of 1,067 barrels, or 34.8%.
Oil and natural gas lease operating expenses decreased by $237,124 or 34.7%, to $446,938 for the quarter ended March 31, 2009, from $684,062 for the quarter in 2008. This decrease was mainly due to lower workover costs during the period in 2009.
For the quarter ended March 31, 2009, turnkey drilling revenues increased $194,271 or 17.7% to $1,290,467 from $1,096,196 in the same quarter in 2008. We also had a $226,008 or 22.7% increase in turnkey drilling and development costs to $1,220,694 in 2009 from $994,686 in 2008. Turnkey drilling revenues and costs increased due to the drilling of two wells in California during the period in 2009, the Lonestar East #1, which went online in January and the Raptor #1, an exploratory dry hole. One well was drilled during the period in 2008. During the year to date in 2009, we processed the permits on several wells in California, and we expect to participate in
The aggregate of supervisory fees and other income was $139,126 for quarter ended March 31, 2009, a decrease of $38,543 (21.7%) from $177,669 during the period in 2008. This decrease was due to lower interest income received on our available cash and to lower cost recovery fees on facilities due to lower natural gas production.
Depreciation, depletion and amortization expense decreased to $542,775 from $854,844, a decrease of $312,069 (36.5%) for the quarter ended March 31, 2009, as compared to the same period in 2008. This decrease in depletion expense was mainly due to the decrease in our oil and gas assets from our 2008 impairments.
General and administrative expenses decreased by $71,557 or 7.2%, from $991,204 for the quarter ended March 31, 2008, to $919,647 for the period in 2009. This was primarily due to our cost control measures. Marketing expense for the quarter ended March 31, 2009, decreased $14,787, or 6.5%, to $212,707, compared to $227,494 for the period in 2008. 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 $366,511 for the period, compared to $531,650 for period in 2008, a $165,139 or 31.1% decrease. The decrease in legal and accounting expense was a result of lower legal fees due to litigation defending property rights, which culminated in a trial and a successful outcome for the Company in April 2008.
Interest expense decreased to $18,961 for the quarter ended March 31, 2009, from $83,423 for the same period in 2008, a $64,462, or 77.3% decrease. This was due to a decrease in the usage of our bank line of credit and lower interest rate on funds borrowed. For the first quarters in 2009 and 2008, we had income tax benefits of $569,007 and $477,469, respectively, due to net operating losses in both periods.
Capital Resources and Liquidity
At March 31, 2009, Royale Energy had current assets totaling $8,204,379 and current liabilities totaling $12,227,967, a $4,023,588 working capital deficit. We had cash and cash equivalents at March 31, 2009, of $3,044,316 compared to $1,330,739 at December 31, 2008.
During 2008, Royale Energy maintained a revolving credit agreement with Guaranty Bank, FSB, secured by all of our oil and gas properties, which at December 31, 2008, had outstanding indebtedness of $1,975,974. In February 2009, the Guaranty Bank loan was repaid and we entered into a new agreement with Texas Capital Bank, N.A. for a new revolving line of credit and letter of credit facility, also secured by our oil and gas properties, of up to $14,250,000 and separate letter of credit facility of up to $750,000, for the purposes of refinancing Royale's existing debt and to fund development, exploration and acquisition activities as well as other general corporate purposes. Under the terms of the agreement, Royale Energy may borrow, repay, and reborrow funds as necessary. At March 31, 2008, we had outstanding indebtedness
At March 31, 2009, we were not in compliance with some financial covenants of our loan agreement with the bank, but we have obtained a temporary waiver from the terms of those loan covenants. We are not now, nor have we been, in default on any principal, interest or sinking fund payment.
At March 31, 2009, our accounts receivable totaled $2,157,689, compared to $3,750,557 at December 31, 2008, a $1,592,868 (42.5%) decrease, primarily due to lower receivables from an industry member participating in wells we drilled at the end of 2008. At March 31, 2009, our accounts payable and accrued expenses totaled $8,218,387, a decrease of $2,101,800 or 20.4% from the accounts payable at December 31, 2008, of $10,320,187, mainly due to applying prepaid drilling remittances to trade accounts payables.
We ordinarily fund our operations and cash needs from cash flows generated from operations. We believe that we have sufficient liquidity for the remainder of 2009 and do not foresee any liquidity demands that cannot be met from cash flow or financing activities.
Operating Activities. For the quarter ended March 31, 2009, cash used by operating activities totaled $565,680 compared to cash provided by operating activities of $746,608 for the same period in 2008, a $1,312,288 difference. This difference was due to decreases in accounts payables, accounts receivable, and prepaid expenses from the increased drilling activity during the period in 2009.
Investing Activities. Net cash used by investing activities, primarily in capital acquisitions of oil and gas properties, amounted to $198,950 for the period in 2009, compared to $1,482,015 used by investing activities for the same period in 2008, a $1,283,065 or 86.6% decrease in cash used. This decrease capital acquisition was due to the timing of the wells drilled in 2009. The process to fund the necessary vendors working on the wells drilled in early January 2009 began in late December 2008, whereas the process to fund the one well drilling in the first quarter of 2008 began in the same quarter. The expense and costs for these wells in the first quarter of 2009 were recorded in the quarter, but the actual cash usage occurred in December 2008.
Financing Activities. For the three months ended March 31, 2009, cash provided by financing activities was $2,478,207 compared to cash used by financing activity of $400,000 for the same period in 2008. This difference was primarily due to the change from Guaranty Bank to Texas Capital Bank, and drawing down on our new credit line to fund continued drilling and corporate operations.
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