The focus of our 1999 development will continue to be in California, however, Royale Energy will be expanding into new areas to increase the number of prospects, as well as, the quality and size of the prospects. After a thorough evaluation, we believe the U.S. Gulf Coast provides an outstanding opportunity to add significant natural gas production and reserves. Many operators have reduced their exploration budgets due to lower oil prices, causing them to look for outside partners to help fund prospects. These are high quality prospects that have already been defined by good seismic data and other wells drilled in the area. Royale's recent success in Louisiana's Four Isle Dome field is the first well in this expansion effort.

Additional prospects have been identified by our technical department.  These areas have nearby pipelines and infrastructure in place that reduces the overall cost of completing a productive well. 

Daniel Yergin, chairman of  Cambridge Energy Associates and author of the Pulitzer award winning book THE PRIZE, said in a recent Oil & Gas Journal article, that "despite the downturn, the outlook is good for the U.S. Gulf of Mexico."  Yergin said cuts in exploration and a decline in the shallow Gulf of Mexico output will force a significant decline in gas productive capacity this year and next that will force an upswing in natural gas prices sooner rather than later.  "This kind of decline is taking place at a time when this country is making a greater bet for natural gas as a source for the electric power industry," Yergin said. 

We feel expanding into the Gulf Coast region will be an exciting and rewarding diversification of the company's drilling portfolio. 

Four Isle Dome Field; 
Louisiana Land & Exploration State Unit B #3 (LL&E); 
Terrebone Parish, LA In Gulf Coast.
Date: April 1999; Depth +/-14,000'

U.S. natural gas consumption will reach a record in 1999, exceeding the 22.1 trillion cubic used in 1972, as utilities burn more gas to generate electricity, the U.S. Energy Information Administration said.  The agency, which is part of the U.S. Department of Energy, gave no specific estimate of 1999 consumption.

"Natural gas has become the fuel of choice for most new and planned electric generating units, as new gas-fired generating technologies offer lower initial costs, higher efficiencies and less adverse environmental effects compared to generation from other fossil fuels,'' the EIA said. 

U.S. natural gas consumption will grow by 50 percent between 1998 and 2020, EIA predicted. Since 1994, U.S. electric utilities increased the use of natural gas by 22 percent, according to the agency. 

For 1999, we're forecasting overall domestic natural gas demand growth of 5.6%, or 3.3 billion cubic feet per day.  On an annualized basis, this translates into an increase in consumption of 1.22 trillion cubic feet, to 23.03 Tcf.  This would be a new record for U.S. gas demand - exceeding 1972's level of 22.10 Tcf," says Michael Barbis, executive director and natural gas analyst for Warburg Dillon Read LLC in New York.

Half of Barbis' 1999 gas-demand-growth outlook is driven by an expectation of normal winter weather.  The other half is driven by an expected increase in new gas-fired electricity generation plants, increased penetration by gas into the commercial and residential markets, and an increase in gas-burning equipment. 

How will their demand growth be met?  "We expect inventories of gas in storage to meet much of the increase in demand during the winter heating season," Barbis says.  "In fact, we believe we'll go into the winter of 1998-1999 with as much as 175 Bcf more in storage more than we normally do.  Thus, relative to the winter of 1997-1998, storage should contribute an incremental 389 Bcf to supply."

With two pipeline expansions expected to come onstream by late 1998, Canada should also be well place to meet some of the 1999 gas-demand increase.

"We expect the 700-MMcf-per-day expansion/extension of the Northern Border pipeline and the 358-MMcf-per-day expansion of the TransCanada Pipeline to run at about a 70% utilization rate, providing some 740 MMcf of gas per day, or 270 Bcf annually, of Canadian gas to the U.S. market.

"However, this 70% utilization estimate could be high, since we're not convinced that Canadian producers will be capable of filling this new capacity."

What this means is, U.S. production will have to meet more than half of the expected 1999 increase in domestic gas demand, says Barbis.  "We believe this will be a major challenge.  Most of the traditional domestic gas producing areas are in decline, while more remote producing regions are experiencing volume increases only because of one-time expansions in pipeline capacity."

Concludes Barbis, "Given our view that both U.S. Production and Canadian imports will be hard pressed to meet increased 1999 gas demand, the domestic supply-demand balance will be quite tight.  We estimate 1999 gas prices will average $2.20 per Mcf at Henry Hub."

    ----- Brian A. Toal

Natural gas rose more than 1 percent to a 4-month high as utilities and marketers continues to lock in supplies at prices that traders said probably will  be the lowest they'll see for the rest of the year.

Natural gas rose about 1 percent to a five-month high on expectation that late-season utility demand and less available production is helping to ease a surplus caused by a mild winter.

While inventories are rising as utilities stock up for next winter, they're growing slowly because of warm weather in parts of the South, where gas is used to generate electricity, and colder weather in the East and Midwest, where it heats homes.  "Supplies are short, and we just keep chiseling away at the surplus" compared with year-ago levels, said Tom Pena senior energy analyst at ED&F Man in New York. "There's just less gas on the market than in the past" because low prices discouraged production and development of new well, he said.

After the close of trading, the American Gas association said U.S. inventories grew less than expected in the week ended April 23.  Supplies in storage rose 5 billion cubic feet to 1.375 trillion cubic feet, well short of the increase of 29 billion expected by analysts.

Inventories still are 15 percent larger than a year ago, though that's down from a 20 percent gap the previous week.

In the past month, inventories have risen 39 billion cubic feet.  During the same four weeks last year, inventories rose 193 billion cubic feet.

Demand from utility customers has slowed the rise in inventories, analysts said.  Also, shutdowns of nuclear power plants, such as Energy Corp.'s River Bend reactor in Louisiana, will force some utilities to burn moiré gas in backup generators, analysts said.

If prices rise above $2.515, they could surge into the $2 range within a couple of days, Pena said.  "If you go rolling through there I think you'll see a panic of buyers in the market," he said.

Listed below are stocks from key commodity industries (oil, gas, agriculture, steel, and mining) that trade for $25 or less and scored well in The Low Price Stock Survey's proprietary rating system.  Among more than 400 commodity-related stocks graded, the stocks below ranked in the top 8% for overall score.  The numbers bellow are percentile ranks.  Royale Energy, Inc. for example scores better than 98% of the 400 companies for quality.

The Freeport Channel Prospect is located in Sacramento County, California.  The proposed well will be drilled to approximately 6000 feet to test the Cretaceous Winters channel sands.  This well will test a potential pinchout of the main Winters channel sands, which is updip to a well drilled by Chevron. The Winters channel sands are well documented by local well control and have a unique seismic signature that can be mapped on 2D data.  The seismic data shows that the channel can be found 400 feet structurally higher than the Chevron well at the Winters horizon.  The Chevron well produced over 2 billion cubic feet of gas (BCFG) from the upper Winter channel sands that is a secondary target in this prospect.  Estimated gas reserves for this prospect range from 3 to 7 billion cubic feet of gas (BCFG).  This is the same trap type and play concept that was successfully tested by Royale's Blossom #1 well. 

The Bowerbank #15 is located in Kern County, California, in the Southern San Joaquin Basin.  The proposed well will be drilled to 5,100 feet and has up to nine potential Pliocene sand target zones.  The structure being drilled is an elongated dome on the larger plunging structural nose upon which the Bowerbank gas  field is located.  The 2D seismic data and local well control define the trap.  Royale has now drilled and completed 14 wells in Bowerbank gas field area using similar data and has had an outstanding success rate of 80%.  The main pay target in the well is the 4th Sub-Mulinia Sand which has a most likely resource potential of 2.5 billion cubic feet of gas (BCFG).  The upside potential of this well is high (6-8 BCFG) because of the large number of potential sand objectives at this location.

The Grand River Prospect is located in Iberville Parish, Louisiana, approximately 20 miles south of Baton Rouge.  The proposed well will be drilled to approximately 12,000 feet to test the Oligocene Camerina and Lower Templet sands.  The prospect is an updip development well located in the Grand River field (water drive reservoirs) which has produced 2.0 million barrels of oil (MMBO) and 5.75 billion cubic feet of gas (BCFG).  Reservoir data, subsurface information, and high quality 3D data, were all used to map the updip portion of the field which has yet to have been produced.  A well penetrating shallower sands in the same structural position in the field produced over 1.1 million barrels of oil (MMBO).  Most likely resources for this well are 900,000 barrels of oil (BO) and 2.7 billion cubic feet of gas (BCFG) with an upside potential of up to 1.5 million barrels of oil (MMBO) and 9.7 billion cubic feet of gas (BCFG).

U.S. Gulf Coast Prospect.  The company is evaluating and selecting high quality offshore prospects.  All of the prospects are in known prolific producing trends with reservoir targets with proven high flow capabilities and, are either adjacent to or within known fields.  All have been mapped with excellent quality 3D seismic data for the first time, providing relatively high potential resource objectives at low to moderate risk. 

To be designated.

Florida Gas Transmission Co., a join venture of Enron Corp. and Sonat Inc., asked federal regulators to approve a $350 million expansion of its 5,000-mile natural-gas pipeline system to meet growing demand for the fuel in Florida.

The expansion will increase the amount of gas the pipeline can carry each day by 272 million cubic feet, to 1.77 billion cubic feet.  Florida Gas told the Federal Energy Regulatory Commission that it wants to construct 205 miles of pipeline and add 48,570 horsepower of compression to force more gas through the pipe.

Florida Gas moves gas from the Texas coast to Florida, where it's used by utilities and industrial customers.  The expansion will extend the pipeline system into southwestern Florida.

Royale Energy has recruited Bennett Z. Spevack to assume the position of Chief Explorationist. Bennett comes with almost 20 years of successful exploration experience at Amoco Production Company. For the past 10 years, as Exploration Manager, Spevack has directed exploration programs in California, the Gulf of Mexico, Alaska, and internationally. These efforts led to a number of commercial discoveries. Before that he acted as a Geophysical Interpreter. Bennett brings an extensive knowledge of state-of-the-art seismic technology, such as, 3D AVO, pre-stack depth migration, and seismic attribute analysis, as well as, the practical applicability of this technology to successful oil and gas exploration.  Spevack holds an MA in geology from State University of New York in Binghamton, NY.  The company is looking forward to his eagerness to contribute to making Royale Energy's future exploration efforts and production programs a success.

"If we had it to do all over again, we never would have," said Skip Nordstrom in his December 1998 issue of Growth Stock Newsletter while referring to taking out Royale Energy, Inc. from its portfolio.  "Back in March of 1996, we featured Royale Energy Inc. (NASDAQ: ROYL) as our 'Pick of the Litter', and we were right on the target as to the growth potential of the company.  I'm not exactly sure why we took it out of the portfolio, but after meeting again with the company management team recently, I'm putting it back in"  said Nordstrom.  "There are a lot of reasons to consider investing a natural gas drilling and production company, especially Royale Energy, not the least of which is the short term as well as the long term growth."  As a consequence, Royale has been placed back in the Growth Stock Portfolio in the December 1998 issue of the newsletter.  In May 1999 issue, Skip Nordstrom had commented on Royale's latest well discoveries and 1998 earnings.  He referred to Royale's successful completion of its first attempt at exploring for natural gas in the Gulf Coast as "the icing on this cake."  Nordstrom concluded:  "I am glad that I put this company back in the portfolio!"