Business Strategy - Because
of the rapidly increasing demand for energy by newly developing economies,
it is the view of some experts that those who own natural gas reserves
that are commercially productive today are in an excellent position
to earn a good return on their investments. It will take years
before substantial new supplies can be brought to market. Those
companies which can maintain low overhead costs and are profitable
in today's market will have good hunting in the U.S. Most companies
do not have the positive cash flow necessary to take advantage of
this opportunity. This creates a great opportunity for companies
such as Royale Energy and individual investors to step in and fill
the gap.
The objective of The Company is to contribute to American energy
independence through the profitable development, operation and marketing
of natural gas wells within established fields in the continental
United States.
We accomplish our goals through the following means:
- The application of sound business principles in the successful
development and operation of oil and natural gas wells.
- Utilization of stringent screening procedures in the identification
and evaluation of properties for development.
- The involvement of investors who wish to participate in one or
more of the investment vehicles created by The Company and its subsidiaries
for asset acquisition and development.
- The implementation of policies and procedures to optimize the
operations and gas marketing activities of producing wells.
The Company's short-term strategy is to develop and produce existing
discoveries that can be brought on stream quickly, in order to generate
early cash flow and increase production and reserve levels.
The Company continues its policy of purchasing producing wells that
have additional well locations for development. By focusing
its exploration operations on development drilling, the probability
of securing commercially productive wells is higher. This policy,
coupled with the investors' participation in multiple wells, has been
the corner stone of each of The Company's investment offerings.
These properties allow a lower cost basis for drilling as energy prices
rise.
The Company has performed an evaluation of 52 different producing
basins in the United States and compared statistics on exploration
well success, development well success, well cost, reserves per well
and initial production rates. Subjective assessments of operating
expenses, basin development potential, environmental risks, availability
of leases and market concerns were also made. The results of
this review are used to guide future expansion efforts of The Company.
The Sacramento and San Joaquin Basins in California are considered
to be most compatible with The Company's goals.
Acquisitions - The Company is
continually evaluating acquisitions in proven natural gas basins.
The Company may purchase these properties for development inventory
to be drilled, produced and marketed.
Economic Evaluation -
Acquisitions in targeted basins are evaluated by performing a current
cash flow analysis. Low-case natural gas prices and high-case
operating cost escalation factors published by Randall & Dewey,
Inc. are used in the evaluations. Conservative production forecasts
are verified by third party consultants.
Operational/Development
Strategy - The Company normally acts as operator of wells in which
it has an interest. This strategy has allowed The Company to
reduce its operating costs and improve production. The Company
continually pursues less expensive and more efficient methods of operating.
The Company employs creativity and the latest technology to minimize
cost and maximize profitability from its operated properties.
Development opportunities are pursued aggressively, where appropriate,
to maximize the present value profit of the properties.
The rigorous process of acquisition evaluation, along with product
price and operating cost assumptions, are used to evaluate the prospects.
Prospects are then ranked on the basis of:
- Future Net Revenues
- Profit to Investment Ratio
- Internal Rate of Return.
Investment Criteria - Drilling
prospects are subjected to a screening process similar to that for
producing property acquisitions. These include: developmental
potential, operatorship, exploratory areas, and evaluation methods.
Development Potential
- Fields are sought with additional development potential outside
the existing production. These typically will require three
or four wells to develop.
Operatorship - When appropriate,
The Company will attempt to assume the largest interest and operatorship
of exploration projects.
Exploration Areas - As in
acquisition of producing properties, exploration areas have been identified
by our Basin Evaluation report. The basins targeted for exploration
are largely the same as those targeted for acquisitions.
Economic Factors - The Company
uses a then current, risked cash flow analysis technique for evaluating
its exploration prospects.
