[DESCRIPTION]  FORM 10-KSB
<PAGE>    1
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549

                           FORM 10-KSB
          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1997Commission File No. 0-22750

                       ROYALE ENERGY, INC.
          (Name of Small Business Issuer in its charter)

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

               7676 Hazard Center Drive, Suite 1500
                       San Diego, CA 92108
             (Address of principal executive offices)
           Issuer's telephone number:     619-297-8505

   Securities registered pursuant to Section 12(b) of the Act:
                               None

Securities to be registered pursuant to Section 12(g) of the Act:
                    Common Stock, no par value
                         (Title of Class)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.  Yes   X  ; 
No _____

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best or registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [  ]

State issuer's revenues for its most recent fiscal year:  $8,365,130

At March 31, 1999, there were 2,679,542 outstanding shares of registrant's
Common Stock held by non-affiliates, with an aggregate market value of
approximately $7,020,400, based on the closing Nasdaq price on that date.

At March 31, 1999, a total of 3,816,846 shares of registrant's Common Stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  None

Transitional Small Business Disclosure Format (check one):  Yes       ; No   X 


Exhibit Index appears on page 22.

<PAGE>    2
                        TABLE OF CONTENTS

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
     Item 1.   Description of Business . . . . . . . . . . . .-1-
     Item 2.   Description of Property . . . . . . . . . . . .-4-
     Item 3.   Legal Proceedings . . . . . . . . . . . . . . .-8-
     Item 4.   Submission of Matters to a Vote of Security 
               Holders . . . . . . . . . . . . . . . . . . . .-8-

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
     Item 5.   Market Price of the Company's Common Stock 
               and Related Stockholder Matters . . . . . . . .-8-
     Item 6.   Management's Discussion and Analysis of 
               Financial Condition and Results of Operations .-9-
     Item 7.   Financial Statements and Supplementary Data . -13-
     Item 8.   Changes in and Disagreements with Accountants
               on Accounting and Financial Disclosure. . . . -13-

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
     Item 9.   Directors, Executive Officers, Promoters and
               Control Persons, Compliance with Section 16(a)
               of the Exchange Act . . . . . . . . . . . . . -13-
     Item 10.  Executive Compensation. . . . . . . . . . . . -16-
     Item 11.  Security Ownership of Certain Beneficial
               Owners and Management. . . . . . . . . . . . .-18-
     Item 12.  Certain Relationships and Related Transactions-21-
     Item 13.  Exhibits, Lists, and Reports on Form 8-K. . . -22-
     Signatures. . . . . . . . . . . . . . . . . . . . . . . -23-

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . .-F-1-
                                ii
<PAGE>    3
                       ROYALE ENERGY, INC.

PART I

Item 1.   Description of Business

Royale Energy, Inc. (the "Company"), is an independent oil and natural gas
producer.  The Company's principal lines of business are the production and
sale of natural gas, acquisition of oil and gas lease interests and proved
reserves, drilling of both exploratory and development wells, and sales of
fractional working interests in wells to be drilled by the Company.  The
Company owns wells and leases in major geological basins located mainly in
California.  The Company offers fractional working interests and seeks to
minimize the risks of oil and gas drilling by selling multiple well drilling
ventures which do not include the use of debt financing.  The Company was
incorporated in California in 1986 and commenced operations in 1988.  The
Company's Common Stock is traded on the Nasdaq National Market System (symbol
ROYL).  On March 31, 1999, the Company had sixteen full time and two part time
employees.

During the fiscal year ended December 31, 1998, the Company continued its
exploration and development of natural gas properties in northern California. 
The Company drilled eight wells in 1998, of which it elected to complete two
as commercially productive wells. Six wells drilled in 1998 were plugged and
abandoned as dry holes.  The Company's estimated total natural gas reserves
declined from approximately 16.9 Bcf at January 1, 1998 to 15.2 Bcf at
December 31, 1998.

For the years ended December 31, 1998 and 1997, the Company reported gross
revenues in the amounts of $3,789,995 and $5,638,437,  respectively, in
connection with the drilling of wells on a turnkey contract basis, which
represents 45.3% and 62.2% of the Company's total revenues for those years. 
These amounts are offset by drilling expenses and development costs of
$1,541,624 and $3,163,945, respectively.  The Company hires, in addition to
its own engineering staff, independent contractors to drill, test, complete
and equip the wells that it drills.

For the years ended December 31, 1998 and 1997, the Company had oil and
natural gas sales from production of its wells in the amounts of $4,101,553
and $2,992,679, respectively, which represents 43.8% and 33.0%, of the
Company's total revenues for those years.


Plan of Business

The Company is engaged in the acquisition of interests in oil and natural gas
reserves by sponsoring private joint ventures.  Management believes that the
Company's shareholders are better served by diversification and limitation of
total exposure in individual drilling projects.  Through its participation in
joint ventures, the Company can acquire interests and develop oil and natural
gas properties with limited expense and risk and still receive an interest in
the revenues and reserves produced from these properties.
                               -1-
<PAGE>    4

After acquiring the leases or lease participation, the Company drills or
participates in the drilling of development and exploratory oil and natural
gas wells on its property. To the extent that the Company retains all or any
portion of the working interest, the Company pays its proportionate share of
the actual cost of drilling, testing, and completing the project.

The Company may also elect to finance part of the drilling cost by selling
fractional interests in undeveloped wells.  When the Company sells fractional
interests to raise capital to drill oil and natural gas wells, the Company
generally agrees to drill these wells on a "turnkey contract" basis, so that
the holders of the fractional interests prepay a fixed amount for the drilling
and completion of a specified number of wells.  Under a turnkey contract, the
Company recognized gross revenue for the amount paid by the purchaser and
agrees to pay the expense of drilling and development of the well for the
participants.  The actual drilling and development costs may or may not be
greater than the gross revenue which is recognized by the Company for its
fractional interest sales.

When the Company receives funds from purchase of a turnkey drilling project
sold by it, a percentage of the purchasers' funds are used by the Company to
prepay lease costs, intangible drilling costs, and other costs as required to
allow the drilling project to proceed without delay.  These funds are non-
refundable once the purchase has been made.  The non-refundable portion of the
total turnkey drilling project is based on a percentage calculated by
estimating the pre-drilling costs as a percentage of total drilling costs for
a particular project.  The Company recognizes the non-refundable portion of
the total purchase price as revenue and the related pre-drilling costs are
expensed.  The Company records the remaining funds from the sale of working
interests as income at the commencement of drilling, and carries its
obligation to expend the remaining unexpended funds for drilling wells on
behalf of the purchasers as a current liability.  See, Note 1 to the Company's
Financial Statements.  The Company maintains internal records of the
expenditure of each investor's funds for drilling projects.

Wells completed by the Company are generally operated by the Company. As
operator, the Company receives fees set by industry standards from the owners
of fractional interests in the wells and expense reimbursements.  For the
years ended December 31, 1998, and 1997, the Company earned gross revenues in
the amounts of $473,582 and $388,085, from operation of the wells, which
represent 5.7% and 4.3% of the Company's total revenues on a consolidated
basis for those years, respectively.  As of December 31, 1998, the Company is
the operator of fifty-one natural gas wells on properties leased by the
Company in the Northern Sacramento Valley, Central Sacramento Valley, and Kern
County in California.

The Company's business is not dependent on a single customer or a few
customers and management does not believe it will be in the foreseeable
future.  Oil and natural gas purchasers are readily available in today's
markets, and the Company does not believe that the loss of any customer would
have a material affect on the Company's business or ability to find ready
purchasers for its oil and gas production at current market prices.  
                               -2-
<PAGE>    5

Prior to December 1996, the Company purchased natural gas on a spot basis from
wells operated by the Company and from unaffiliated producers and resold the
gas to consumers in the open market.  The purchasers were mainly utilities and
manufacturers located in California.  This was essentially a brokerage
operation which generates a large volume of sales revenue at small profit
margins.  In December 1996, the Company's gas marketing operations were
discontinued.

Natural gas demand and the prices paid for gas have become seasonal, showing
decreases in the summer and fall.  The oil business is not generally seasonal
in nature.


Affiliated Entities

On December 31, 1998, Royale Petroleum Corporation ("RPC") owned 27.4% of the
Company's Common Stock (excluding rights to purchase shares pursuant to
warrants).  RPC is owned equally by Donald H. Hosmer and Stephen M. Hosmer,
who are brothers.  Donald H. Hosmer is president and director of the Company,
and Stephen Hosmer is chief financial officer and director of the Company. 
Donald H. and Stephen M. Hosmer are sons of Harry E. Hosmer, chairman of the
Company's board of directors.  See, Security Ownership of Certain Beneficial
Owners and Management.  RPC is a predecessor and affiliate of the Company. 
RPC is a Delaware corporation formed in 1985.

The Company had no subsidiaries at December 31, 1998.


Competition, Markets and Regulation

Competition

The exploration and production of oil and natural gas is an intensely
competitive industry.  The sales of interests in oil and gas projects such as
those the Company sells is also very competitive.  The Company encounters
competition from other oil and natural gas producers, as well as from other
entities which invest in oil and gas for their own account or for others, many
of which companies are substantially larger than the Company.


Markets

The quantities of, and price obtainable for, oil and natural gas production
from the Company's oil and natural gas properties, are affected by market
factors beyond the Company's control.  Such factors include:  the extent of
domestic production; the level of imports of foreign oil and natural gas; the
general level of market demand on a regional, national and worldwide basis;
domestic and foreign economic conditions that determine levels of industrial
production; political events in foreign oil-producing regions; and variations
in governmental regulations 
                               -3-
<PAGE>    6
including environmental, energy conservation, and tax laws or the imposition
of new regulatory requirements upon the oil and natural gas industry.  There
can be no assurance that oil and natural gas prices will not increase or
decrease in the future, thereby increasing or decreasing the revenues that the
Company receives from its oil and natural gas sales.


Regulation

Production, transportation, and sale of oil and natural gas from the Company's
operations are affected to some degree by federal and state laws and
regulations.  Many states in which the Company operates have statutory
provisions regulating the production and sale of oil and natural gas,
including provisions regarding deliverability. Such statutes, and the
regulations promulgated in connection therewith, are generally intended to
prevent waste of oil and natural gas and to protect correlative rights to
produce oil and natural gas produced by assigning allowable rates of
production to each well or proration unit.

The exploration, development, production and processing of oil and natural gas
are subject to various federal and state laws and regulations to protect the
environment.  Various federal and state agencies are considering, and some
have adopted, other laws and regulations regarding environmental controls that
could increase the cost of doing business.  These laws and regulations may
require: the acquisition of a permit by operators before drilling commences;
prohibition of drilling activities on certain lands lying within wilderness
areas or where pollution arises; and imposition of substantial liabilities for
pollution resulting from drilling operations, particularly operations in
offshore waters or on submerged lands.  Compliance with such legislation and
regulations, together with any penalties resulting from noncompliance
therewith, may also increase the cost of oil and natural gas development and
production.  Certain of these costs may ultimately be borne by the Company. 
The Company does not presently anticipate that compliance with federal, state
and local environmental regulations will have a material adverse effect on
capital expenditures, earnings or the competitive position of the Company in
the oil and natural gas industry; however, since these laws and regulations
change frequently, the costs of the Company's compliance with existing and
future environmental regulations cannot be predicted.

The preceding discussion of regulation of the oil and natural gas industry is
not intended to constitute a complete discussion of the various statutes,
rules, regulations or governmental orders to which the Company's operations
may be subject.


Item 2.   Description of Property

Since 1993, the Company has concentrated on development of properties in the
Sacramento Basin of Northern California.  In 1998, the Company drilled two
commercially productive wells and six dry holes in Northern California.  In
1997, the Company drilled nine commercially productive gas wells and four dry
holes in Northern California. The Company also owns other interests in
                               -4-
<PAGE>    7
properties in Texas and Oklahoma in connection with joint ventures in which
the Company is a participant but is not the operator.

Following industry standards, the Company generally acquires oil and natural
gas acreage without warranty of title except as to claims made by, through, or
under the transferror.  In these cases due diligence as to title is attempted
prior to acquisition, but there are no assurances that losses will not result
from title defects or from defects in the assignment of leasehold rights. 
Title to property most often carries encumbrances, such as royalties,
overriding royalties, carried and other similar interests and contractual
obligations as are customary within the oil and natural gas industry.

The Company has available a $5,000,000 revolving credit line from a major
commercial bank for working capital purposes, acquisitions, and development of
oil and gas properties.  At December 31, 1998, $5,000,000 in loans were
outstanding under this credit line.  All of the Company's oil and gas
properties are pledged to secure this credit line.

The following is a discussion of the Company's significant oil and natural gas
properties.  Reserves at December 31, 1998, for each property discussed below,
have been determined by WZI, Inc., registered professional petroleum
engineers, in accordance with its report dated March 1999 (the most recent
report available).


Northern California

The Company owns lease interests in 41,566.15 gross (29,120.51 net) acres in
15 gas fields  with locations ranging from Tehama County in the north to Kern
County in the south, in the Sacramento and San Joaquin Basins in Northern
California.  At December 31, 1998, the Company operated 51 wells in Northern
California, and its estimated total gas reserves in Northern California were
approximately 15.2 Bcf, according to the Company's independently prepared
reserve report.


Developed and Undeveloped Leasehold Acreage

As of December 31, 1998, the Company owned leasehold interests in the
following developed and undeveloped properties in both gross and net acreage.
                               -5-
<PAGE>    8
<TABLE>
<CAPTION>
                              Developed               Undeveloped
                          Gross       Net           Gross      Net
                          Acres       Acres         Acres      Acres
                          -----       -----         -----      -----
<S>                      <C>         <C>            <C>        <C>
California               11,820.46   8,085.09       27,324.69  20,819.42
All other States          2,421.00     216.00            -          -    
                         ---------   --------       ---------  ---------
Total                    14,241.46   8,301.09       27,324.69  20,819.42
</TABLE>

Drilling Activities

The following table sets forth the Company's drilling activities during the
years ended December 31, 1996, 1997, and 1998.  All wells are located in the
Continental U.S., in California, Texas, and Oklahoma.
<TABLE>
<CAPTION>
                           Gross Wells (b)                    Net Wells
                         -----------------------------   --------------------
Year Type of Well (a)    Total   Producing (c) Dry (d)  Producing (c) Dry (d)
<S>  <S>                 <C>     <C>           <C>      <C>           <C>
1996 Exploratory           1        -           1          -          0.3263 
     Developmental         8        5           3        1.2573       1.0383

1997 Exploratory           3        1           2         .4430        .6150
     Developmental        10        8           2        3.1507        .7650

1998 Exploratory           -        -           -          -             -
     Developmental         8        2           6         .9727       2.9287
</TABLE>

(a)  An exploratory well is one that is drilled in search of new oil and
     natural gas reservoirs, or to test the boundary limits of a previously
     discovered reservoir.  A developmental well is one drilled on a
     previously known productive area of an oil and natural gas reservoir
     with the objective of completing that reservoir.

(b)  Gross wells represent the number of actual wells in which the Company
     owns an interest.  The Company's interest in these wells may range from
     1% to 100%.

(c)  A producing well is one that is producing oil and/or natural gas that is
     being purchased on the market.

(d)  A dry well is a well that is not deemed capable of producing
     hydrocarbons in paying quantities.
                               -6-
<PAGE>    9    

As of December 31, 1998, the Company had 51 gross (28.95 net) currently
producing natural gas wells.

Production

The following table summarizes, for the periods indicated, the Company's net
share of oil and natural gas production, average sales price per barrel (Bbl),
per thousand cubic feet (Mcf) of natural gas, and the Mcf equivalent (Mcfe)
for the barrels of oil based on a 10 to 1 ratio of the price per barrel of oil
to the price per Mcf of natural gas.  "Net" production is production that is
owned by the Company either directly or indirectly through partnership or
joint venture interests produced to its interest after deducting royalty,
limited partner or other similar interests.  The Company generally sells its
oil and natural gas at prices then prevailing on the "spot market" and does
not have any material long term contracts for the sale of natural gas at a
fixed price.
<TABLE>
<CAPTION>
                                1998        1997        1996
<S>                             <C>         <C>         <C>
NET VOLUME
Oil (Bbl)                           1,238         679        22
Gas (Mcf)                       1,773,294   1,365,562   672,383
Mcfe                            1,785,674   1,376,334   672,603
AVERAGE SALES PRICE
Oil (Bbl)                          $9.42       $14.42    $16.07
Gas (Mcf)                          $2.21        $2.26     $1.79
Net Production Costs & Taxes    $708,137     $460,768  $260,789
Lifting Costs                      $0.39        $0.34     $0.37
</TABLE>

Net Proved Oil and Natural Gas Reserves

As of December 31, 1998, the Company had proved developed reserves of
10,386,000 Mcf and total proved reserves of 15,248,000 Mcf of natural gas on
all properties leased by the Company.  Proved developed reserves are those
reserves which are expected to be recovered from already producing completion
intervals and are currently producing to a market.  Total proved reserves
include proved developed reserves and those reserves that are estimated to be
recoverable from new wells on undrilled acreage or from existing wells where a
major capital expenditure is required for additional completion.
                               -7-
<PAGE>    10

Oil and gas reserve estimates and the discounted present value estimates
associated therewith are based on numerous engineering, geological and
operational assumptions that generally are derived from limited data.  Common
assumptions include such matters as the areal extant and average thickness of
a particular reservoir, the average porosity and permeability of the
reservoir, the anticipated future production from existing and future wells,
future development and production costs and the ultimate hydrocarbon recovery
percentage.  As a result, oil and gas reserve estimates and discounted present
value estimates are frequently revised in subsequent periods to reflect
production data obtained after the date of the original estimate.  If the
reserve estimates are inaccurate, production rates may decline more rapidly
than anticipated, and future production revenues may be less than estimated.

Additional data relating to the Company's oil and natural gas properties is
disclosed in Supplemental Information About Oil and Gas Producing Activities
(Unaudited), attached to the Company's Financial Statements which are part of
this document.  The oil and natural gas reserve information disclosed in the
supplement to the financial statements are based upon the reserve reports for
the years ended December 31, 1998 and 1997, prepared by the Company's
independent reserve engineering consultants.


Item 3.   Legal Proceedings

None.


Item 4.   Submission of Matters to a Vote of Security Holders

During the fourth quarter of fiscal 1998, no matters were submitted to a vote
of the Company's security holders.


PART II

Item 5.   Market Price of the Company's Common Stock and Related Stockholder
          Matters

Since February 25, 1997, the Company's Common Stock has been traded on the
Nasdaq National Market System under the symbol "ROYL."  From October 1994
until February 24, 1997, the Company's Common Stock was traded on the Nasdaq
Small Cap Market.  The following table reflects high and low quarterly sales
prices from April 1997 through December 1998, and the high and low inter-dealer
bid price per share quotations in the Nasdaq Small Cap Market for the
first quarter of 1997.
                               -8-
<PAGE>    11
<TABLE>
<CAPTION>
          1st Quarter    2nd Quarter    3rd Quarter    4th Quarter
          High  Low      High  Low      High  Low      High  Low
     <S>  <C>   <C>      <C>   <C>      <C>   <C>      <C>   <C>
     1997 6-3/8 4-1/16   5-7/8 4        5-1/8 3-7/16   5-1/4 3-5/8
     1998 4-1/2 3-3/8    5-1/4 4        4-1/4 2-13/16  4-5/8 3
</TABLE>

Conversion of Preferred Stock to Common Stock

During the fourth quarter of 1998, 3,125 shares of the Company's Common Stock
were issued to one holder of the Company's previously issued Series AA Preferred
Convertible Stock, pursuant to the shareholder's exercise of his right to 
convert his shares of Preferred Stock to Common Stock.  The sole consideration 
received by the Company was the Preferred Stock surrendered in the conversion.  
Each outstanding share of Series AA Preferred Stock is convertible to Common 
Stock at a ratio of one share of Common Stock for each of two shares of 
Preferred.  The Preferred Stock had originally been issued prior to 1993 in 
private placements pursuant to Section 4(2) of the Securities Act of 1933, and 
to the extent, if any, that the individual shareholder's conversion of his 
Preferred shares to Common might be considered a sale of securities, the 1998 
issuance of Common to the converting Preferred shareholder was also made 
pursuant to Section 4(2) of the Securities Act of 1933.

Dividends

The Company has not declared or paid any cash dividends to its common
shareholders.  The board has discussed whether it may wish to declare a dividend
in the future.  The future determination as to the payment of dividends will
depend on the Company's financial condition and other factors deemed relevant by
the Company's board of directors.


Item 6.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

The following discussion should be read in conjunction with the Company's
Financial Statements and Notes thereto and other financial information relating
to the Company included elsewhere in this document.

For the past five years, the Company has primarily acquired and developed
producing and non-producing natural gas properties in Northern California.  The
most significant factors affecting the Company's results of operations are (i)
changes in the sales price of natural gas, (ii) recording of turnkey drilling
revenues and the associated drilling expense, (iii) the containment of costs and
expenses on a company wide basis, and (iv) the change in natural gas reserves
owned by the Company.
                                 -9-
<PAGE>    12

In its past drilling projects, the Company has sold geological and geophysical
data developed on the prospects to participants as part of the project costs. 
The consideration received from these sales constituted an immaterial fraction 
of the Company's revenues.  The Company expects to continue to recover at least 
part of the cost of its geological and geophysical library from participants in 
future projects, and the Company may sell information from its library to third 
party oil industry participants.  Due to the increased cost associated with the
acquisition of three dimensional seismic data, and to the expected commencement
of sales of such data to unaffiliated industry members, the Company has chosen
 to segregate these assets on its financial statements as Other Capitalized 
Costs. See, Note 1 to the Company's Financial Statements for the Years Ended 
December 31, 1998 and 1997 - Other Capitalized Costs.


Results of Operations for the Twelve Months Ended December 31, 1998, as Compared
to the Twelve Months Ended December 31, 1997

For the year ended December 31, 1998, the Company achieved a net profit of
$774,406,  a $735,977 or 48.7% decrease from the net profit in 1997 of 
$1,510,383.  The Company's management attribute this decrease to lower revenues
from turnkey drilling and an increase in oil and gas property related expenses. 
Total revenues for the year ended December 31, 1998 were $8,365,130, which was a
decrease of $700,996 or 7.7%, when compared to 1997.  The decrease in total
revenues can be primarily attributed to the decrease in revenues from turnkey
drilling in 1998, compared to 1997.

Although the Company's net profit for 1998 was lower than in 1997, cash flows
from operating activities (before deducting non-cash items such as depreciation,
lease impairment, and deferred DWI revenues) increased to $3,239,819 in 1998,
from $2,998,779 in 1997, and increase of 8%.

Oil and gas revenues for the year ended December 31, 1998 were $4,101,553
compared to $2,992,679 for the same period in 1997, which represents a 
$1,108,874 or 37.1% increase.  This increase in revenues was mainly due to the 
increase in natural gas production from Company owned wells.  The net sales 
volume for the year ended December 31, 1998, was 1,773,294 Mcf with an average 
price of $2.21 per Mcf, versus 1,365,562 Mcf with an average price of $2.26 per 
Mcf for 1997, which represents and increase in net sales volume of 407,732 Mcf 
or 29.9%.  The net sales volume for condensate (natural gas liquids) production 
was 1,238 barrels with an average price of $9.42 per Bbl for the period ended 
December 31, 1998, compared to 679 barrels at an average price of $14.42 per 
Bbl for the same period in 1997, which represents an increase in net sales 
volume of 559 barrels or 82.3%.

The Company's oil and gas lease operating expenses increased by $409,104, or 
67%, to $1,020,541 for the year ended December 31, 1998, from $611,437 for the 
same period in 1997.  This increase in costs can be attributed to an increase in
the number of wells operated by the Company, along with workover costs on 
several of the Company's wells.  For 1998, the Company's gross margins on oil 
and gas production (excluding drilling and development costs) were 75.1%, 
compared to 79.6% in 1997.  The decrease in gross margin was due to both the 
decrease in the average price the Company received for its natural gas during 
1998 and an increase in associated production costs.

For the year ended December 31, 1998, turnkey drilling revenues decreased
$1,848,442, to  $3,789,995 in 1998 from $5,638,437 in 1997, or 32.8% for the
year.  The Company also experienced
                                -10-
<PAGE>    13
a $1,622,321 or 51.3% decrease in drilling and development costs from $3,163,945
in 1997 to $1,541,624 in 1998.  This decrease in turnkey revenues and expenses
was due to the Company's drilling of eight wells, two of which were commercially
productive, that were sold to outside parties in 1998, versus nine productive
wells and four dry holes in 1997.  The Company's gross margins, or profits, on
drilling  depend on the Company's ability to accurately estimate the costs
associated with  the development of projects in which it sells working interests
to investors.  Costs associated with contract drilling depend on location, well
depth, weather, and availability of drilling contractors and equipment.  The
Company's gross margins on drilling were 59.3% and 43.9% for the years ended
December 31, 1998 and 1997, respectively.

During the first quarter of 1997, the Company recorded gas distribution revenue
from a brokered natural gas sale in the amount of $46,925, which was offset by
cost of sales of $23,741.  There were no such sales of this type during 1998. 
The 1997 sale was an isolated trade.

Our aggregate of supervisory fees and other income was $473,582 for the year
ended December 31, 1998, an increase of $85,497 (22%) from $388,085 during 1997.
Supervisory fees are charged in accordance with the Council for Petroleum
Accountants Societies (COPAS) policy for reimbursement of costs associated with
the joint accounting for billing, revenue disbursement, and payment of taxes and
royalties.  These charges are reevaluated each year and adjusted up or down as
deemed appropriate by a published report to the industry by Ernst & Young, 
Public Accountants.  Supervisory fees increased $74,001 or 26.3%, from $281,564 
in 1997 to $355,565 in 1998.  This change can be attributed to the increased 
number of wells that the Company operates.

Depreciation, depletion and amortization expense increased to $1,461,511 from
$665,694, an increase of $795,817 (119.6%) for 1998, compared to 1997.  The
depletion rate is calculated using production as a percentage of reserves, and
the increase in depletion was mainly due to the increase in gas production 
during 1998.

The Company periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, pursuant to SFAS No. 121.  In addition, management also
periodically assesses the value of significant proved and unproved properties 
and charges impairments of value to expense.  In 1998, the Company changed the 
method by which it assesses its proved properties from a field-by-field basis to
a region-by-region basis, to reflect a more consistent geological relationship
between the Company's assets and exploration activities.  The 1998 review for
impairment under the former, field-by-field basis resulted in an impairment loss
of $1,659,048, compared to a 1997 impairment loss of $300,000.  However, the
change to region-by-region review of proved properties resulted in a reduction
of the impairment loss by $1,193,528.  This amount is recorded on the Company's
1998 Income Statement as a change in accounting principle for the cumulative 
change in accounting for the impairment of long-lived assets.  The difference of
$465,520, between $1,659,048 and $1,193,528, represents the total impairment 
loss for 1998 after taking into account the accounting change.  See, Note 1 to 
the Company's Financial Statements for the Years Ended December 31, 1998 and 
1997.
                                -11-
<PAGE>    14
The Company also reevaluated several of its geological lease and land costs,
which had been previously capitalized, in order to write off those prospects
which were no longer viable.  As a result, $139,664 of previously capitalized
costs were written off and recorded as geological and geophysical expense during
1998. 

General and administration expenses increased by $169,656, or 11.8%, from
$1,437,046 for the year ended December 31, 1997 to $1,606,702 for the same 
period in 1998.  Legal and accounting expense decreased to $544,228 for the 
period, compared to $658,864 for 1997, a $114,636 (17.4%) decrease.  The 
decrease is due to lower litigation costs in 1998.  Marketing expense for the 
year ended December 31, 1998, decreased $21,047 or 4.74%, to $422,693, 
compared to $443,740 for 1997. Marketing expense for the Company varies from 
period to period according to the number of marketing conferences attended by 
Company personnel and associated travel costs.

During the first half of 1997, the Company extended an existing credit line from
a major commercial bank, which it used to purchase the California assets of
Vernon E. Faulconer, Inc.  Because of borrowings pursuant to this credit line,
interest expense increased to $335,373 for the year ended December 31, 1998 from
$149,725 for 1997.


Capital Resources and Liquidity

At December 31, 1998, the Company had current assets totaling $2,884,229 and
current liabilities totaling $4,084,103, a $1,199,874 working capital deficit. 
The primary reason for this deficit is the Company's obligation to complete 
wells on behalf of investors who bought fractional working interests from the 
Company. The Company records these obligations as deferred revenue from 
turnkey drilling until the drilling projects are completed.  For the industry 
as a whole, a working capital deficit is not uncommon.  Management believes 
that the Company has sufficient liquidity for the short term.
  
Operating Activities.  For the year ended December  31, 1998, cash provided by
operating activities totaled $3,239,819 compared to $2,998,779 provided by
operations for 1997.  This increase in cash provided in 1998 can be mainly
attributed to increased deferred revenues, due to the decrease in drilling in
1998.  

Investing Activities.  Net cash used by investing activities, primarily in
capital acquisitions of oil and gas properties, amounted to $4,942,652 for the
period, compared to $6,996,401 used by investing activities for 1997.  The
decrease in cash used can be primarily attributed to the Company's acquisition,
during 1997, of the California assets of Vernon E. Faulconer, Inc. and to the
decrease in drilling during 1998.

Financing Activities.  Net cash provided by financing activities for the year
ended December 31, 1998,  was $687,138, compared to $3,434,179 provided by
financing activities for the same period in 1997.  The primary reason for the
difference was the increase in long term debt due to the 
                                -12-
<PAGE>    15

Faulconer property acquisition during the period in 1997. In April 1998, the
Company began repurchasing its own common stock in open market purchases, in
order to retire it.  For all of 1998, the Company repurchased 77,150 shares for
$310,262 with an average share price of $4.02.  In addition, the Company paid
$82,250 to two executive officers in 1998 to repurchase stock options.  See,
Executive Compensation.


Year 2000

The Company believes that it is prepared for the challenges to management
information and other computer systems presented by Year 2000 ("Y2K").  In
general, Y2K issues relate to the way that many computer programs refer to 
dates and their ability to recognize dates after the end of 1999.   The 
majority of the Company's computer software are "off-the-shelf" applications, 
which have released updates to correct for the Y2K issue.   The off-the-shelf 
software updates have been implemented on or after their originally scheduled 
update cycle, and therefore did not cause the Company any incremental expense.
The Company's major off-the-shelf systems include its accounting system and 
its seismic, geologic, and engineering software.

Item 7.   Financial Statements and Supplementary Data

See, pages F-1, et seq., included herein.


Item 8.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

None.


PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons,
          Compliance with Section 16(a) of the Exchange Act

Listed below is certain information about the current directors and executive
officers of the Company.  Directors are elected by shareholders at each annual
shareholders' meeting and serve until their successors are elected and 
qualified. Officers serve at the discretion of the board of directors.

The following persons currently serve as the directors and executive officers of
the Company, its subsidiaries and affiliated companies.
                                -13-
<PAGE>    16
<TABLE>
<CAPTION>
                              First Became Director
Name                    Age   or Executive Officer  Positions Held
----                    ---   --------------------  --------------
<S>                      <C>   <C>                  <C>
Harry E. Hosmer*         68    1987                 Chairman of the Board.

Donald H. Hosmer         42    1987                 President, Secretary and
                                                    Director.  Chairman of the
                                                    Board and President of
                                                    Royale Petroleum
                                                    Corporation ("RPC").

Stephen M. Hosmer        32    1991                 Chief Financial Officer and
                                                    Director.  Secretary and
                                                    Director of RPC.

Oscar A.
  Hildebrandt+           63    1995                 Director.

Gilbert C.L. Kemp        65    1998                 Director.

Rodney Nahama            67    1994                 Director.

George M. Watters*+      79    1991                 Director.
</TABLE>
*    Member of the audit committee.

+    Member of the compensation committee.

The following summarizes the business experience of each director and executive
officer for the past five years.

HARRY E. HOSMER is the Chairman of the Board of the Company.  He has served as
Chairman since the Company began operations in 1987, and from inception in 1987
until June 1995, he also served as President and Chief Executive Officer.  In
October 1985, Mr. Hosmer and three of his sons founded Royale Petroleum
Corporation, an affiliate of the Company.

DONALD H. HOSMER is President, Chief Executive Officer, Secretary, and 
Director of the Company.  He has served as an executive officer and Director 
of the Company since its inception in 1987, and in June 1995 he became 
President and Chief Executive Officer.  Prior to becoming President, he 
was Executive Vice President, responsible for marketing  working interests 
in oil and gas projects developed by the Company.  He was also responsible 
for investor relations and communications. Donald H. Hosmer is the son of 
Harry E. Hosmer and brother of Stephen M. Hosmer.

STEPHEN M. HOSMER is Chief Financial Officer and Director of the Company.  Mr.
Hosmer joined the Company as the Management Information Systems Manager in May
1988, responsible for developing and maintaining the Company's computer 
software. Mr. Hosmer developed programs and software systems used by the 
Company.  Mr. Hosmer graduated from Oral Roberts 
                                 -14-
<PAGE>    17
University in Tulsa, Oklahoma, in May 1988 with a Bachelor of Science in 
Business Administration. Stephen M. Hosmer is the son of Harry E. Hosmer 
and brother of Donald H. Hosmer.

OSCAR HILDEBRANDT, D.V.M., is a Director and is Chairman of the Company's
Compensation Committee.  From 1994 to 1995 he served as an advisory member 
of the Company's Board of Directors.  Dr. Hildebrandt practiced veterinary 
medicine as President of Medford Veterinary Clinic, Medford, Wisconsin, 
from 1960 to 1990. Since 1990, Dr. Hildebrandt has engaged independently 
in veterinary practice consulting services.  He has served on the board of 
directors of Fidelity National Bank - Medford, Wisconsin, and its 
predecessor bank from 1965 to the present and is past chairman of the board 
of the Bank.  From 1990 to the present he has acted as a financial advisor 
engaged in private business interests.  Dr. Hildebrandt received a Bachelor 
of Science degree from the University of Wisconsin in 1954 and a Doctor of 
Veterinary Medicine degree from the University of Minnesota in 1958.

GILBERT C. L. KEMP currently manages the California operations of Western 
Atlas, Inc., a New York Stock Exchange company.  Mr. Kemp was a founding 
member of 3D Geophysical, Inc., where he served as Vice President from 
1996 until March 1998. In March 1998 3-D Geophysical, whose stock had 
been listed on the Nasdaq National Market System since February 1996, 
merged with Western Atlas, Inc. During the years 1987 to 1995, Mr. Kemp 
served as President and CEO of Kemp Geophysical Corporation, which owned 
and operated seismic crews in the United States and Canada. 

RODNEY NAHAMA, a Director of the Company, was employed as president and chief
executive officer of Nahama & Weagant Energy Co. from 1971 until March 1994. 
Since March 1994, Mr. Nahama has pursued private business interests, 
including the provision of geologic consulting services to the Company.  
Mr. Nahama holds a B.A. degree in geology from the University of California, 
Los Angeles, and an M.A. degree in geology from the University of Southern 
California.  He was an independent exploration geologist from 1965 to 1971 
and prior to that served as a geologist with Franco Western Oil Company 
from 1963 to 1965.  Between 1957 and 1963, Mr. Nahama worked as an 
exploration geologist with Honolulu Oil Company, Getty Oil Company, and 
Sunray Oil Company.  Mr. Nahama is a member of the American Association 
of Petroleum Geologists, the San Joaquin Geological Society, the California 
Independent Petroleum Association and the Independent Petroleum Association 
of America.

GEORGE M. WATTERS has been retired from full time employment during the 
last five years.  Mr. Watters retired from AMOCO Corporation in 1983 after 
serving for 24 years in senior management positions with AMOCO Corporation 
and its affiliates. From 1987 to the present Mr. Watters has managed his 
personal investments. Mr. Watters received his Bachelor of Science degree 
from Massachusetts Institute of Technology in 1942.
                                 -15-
<PAGE>    18

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 and Securities and 
Exchange Commission regulations require that the Company's directors, 
certain officers, and greater than 10 percent shareholders are required to 
file reports of ownership and changes in ownership with the SEC and the NASD 
and to furnish the Company with copies of all such reports they file.  
Directors Oscar A. Hildebrandt and Gilbert C. L. Kemp have each filed one 
late report of purchases or sales of securities during 1998.  Except for 
these two reports, and based solely upon a review of the copies of the 
forms furnished to the Company, or written representations from certain 
reporting persons that no reports were required, the Company believes that
no other persons failed to file required reports on a timely basis during 
or in respect of 1998.

Item 10.  Executive Compensation

The following table summarizes the compensation of chief executive officer
 and the other most highly compensated executive officers of the Company
 and its subsidiaries during the past year.
<TABLE>
<CAPTION>
                    Annual Compensation
                    -------------------
(a)              (b)        (c)     (d)        (e)               (f)

                                       Other Annual      All Other
                                       Compensation    Compensation
Name               Year   Salary   Bonus         (1)            (2), (3)
---------------    ----   -------  --------- -------------   -------------

<S>                <C>    <C>      <C>        <C>            <C>
Donald H. Hosmer,  1998   $121,169 $10,000    $368           $53,350
  President        1997   $103,974            $356     
                   1996   $100,000            $703     
Harry E. Hosmer,   1998   $130,000            $669     
 Chairman          1997   $110,000            $299     
                   1996   $122,444            $882     
Stephen M. Hosmer, 1998    $97,808 $10,000    $340           $37,269
 Chief Financial   1997    $75,995            $361     
 Officer           1996    $73,385            $412     
</TABLE>

(1)  Under the terms of a plan adopted by the board of directors in 1989, 
     each of the listed executives have elected to participate in wells 
     drilled by the Company.  See, Certain Relationships and Related 
     Transactions.  The costs that they incurred for interests acquired in 
     wells pursuant to this policy are less than would have been the cost 
     of purchasing an equivalent percentage as working interests in these 
     wells which are sold to unaffiliated outside investors.  The difference 
     between the executives' actual cost and the cost incurred 
                                  -16-
<PAGE>    19
     by outside investors could be considered as additional compensation to 
     them. However, the Company's management does not believe that the amount 
     of such difference is significant.  In addition, prior to June 1995, 
     the Company advanced funds to the executives to pay for their well 
     participation interests.  To the extent that the advances amount to 
     interest free loans, the executives could also be considered to have 
     received additional compensation.  The Other Annual Compensation in the 
     foregoing table consists of the amounts which the Company's management 
     believe may be considered income to be imputed from such foregone 
     interest.  The imputed interest was estimated using approximate amounts 
     due at the end of each period, as if that amount had been due for the 
     entire period.  The imputed interest rate used by the Company is 
     currently 7.5% simple interest per annum. In June 1995, the Company's 
     policy regarding advancement of funds was changed.  The current policy 
     requires that all such purchases of interests in wells must be paid in
     cash.

(2)  Includes the amount received upon resale of stock options to the Company
     in September 1998 by Donald Hosmer ($51,750) and Stephen Hosmer ($34,400).
     See, Aggregated 1998 Option Exercises and Year-End Values.

(3)  Includes the Company's matching contribution for Donald Hosmer ($1,600) 
     and Stephen Hosmer ($2,769) to the Company's retirement savings plan 
     initiated in April 1998.

No Stock Options Were Granted in 1998

The Company did not grant any stock options or stock appreciation rights to its
officers or employees during 1998.


Aggregated 1998 Option Exercises and Year-End Values

None of the executive officers named in the Summary Compensation Table 
exercised any stock options or stock appreciation rights in 1998, 1997, or 
1996.  The following table summarizes the number and value of all unexercised 
stock options held by those executive officers at the end of 1998.
                                  -17-
<PAGE>    20
<TABLE>
<CAPTION>
     (a)          (b)         (c)          (d)                   (e)
                                        Number of
                                        Securities            Value of
                                        Underlying            Unexercised In-
                   Number of            Unexercised           the-Money
                   Securities           Options/SARs          Options/SARs at
                   Underlying           at FY-End (#)         FY-End ($) (1)
                   Options/
                   SARs       Value     Exercisable/          Exercisable/
Name               Exercised  Realized  Unexercisable         Unexercisable
-----------------------------------------------------------------------------
<S>                <C>        <C>       <C>                   <C>
Harry E. Hosmer    -          -         45,000/0              $35,700/0
Donald H. Hosmer   30,000(2)  $51,750   15,000/0              $   900/0
Stephen M. Hosmer  20,000(2)  $34,500   10,000/0              $   600/0
</TABLE>
 
(1)  Based on a fair market value of $3.06 per share, which was the closing bid
     price of the Company's Common Stock in the Nasdaq National Market System on
     December 31, 1998.

(2)  On September 29, 1998, the noted officers exercised their rights to resell
     previously granted stock options to the Company under a plan adopted by the
     board of directors in July 1998, offering to repurchase officers' stock
     options prior to September 30, 1998.  Donald Hosmer and Stephen Hosmer sold
     their stock options to the Company for $1.72 per share, which was the
     difference between the exercise price of the stock options ($1.90 per 
     share)and the stock's closing market price on September 30, 1998 ($3.62 
     per share).

Compensation of Directors

Each director who is not an employee of the Company receives a quarterly fee for
their services, which in 1998 was set at $1,700 for the first quarter and 
raised to $1,785 for each of the remaining three quarters, plus a fee of $250 
for each Board or Board Committee meeting attended. In addition, the Company 
reimburses directors for the expenses they incur for their service   No 
directors received any stock options or stock appreciation rights in 1998.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following tables set forth certain information regarding the ownership of 
the Company's voting securities as of December 31, 1998, by: (i) each person 
who is known by the Company to own beneficially more than 5% of the 
outstanding shares of each class of equity securities, (ii) each director of 
the Company, and (iii) all directors and officers of the Company as a group.  
Except pursuant to applicable community property laws and except as otherwise 
indicated, each shareholder identified in the table possesses sole voting and 
investment power with respect to its or his shares.
                                  -18-
<PAGE>    21
Common Stock

On December 31, 1998, 3,808,613 shares of the Company's Common Stock were
outstanding.

<TABLE>
<CAPTION>

                                       Shares Owned (1)
                                       ----------------
Shareholder (2)                     Number                 Percent
---------------                     ------                --------
<S>                                 <C>                   <C>
Royale Petroleum Corporation        1,274,076  (3), (4)   31.54%
Donald H. Hosmer                    1,290,076  (3), (4)   31.96%
Harry E. Hosmer                        45,000  (4)         1.17%
Oscar A. Hildebrandt                   59,033  (5)         1.54%
Stephen M. Hosmer                   1,285,236  (3), (4)   31.84%
Gilbert C. L. Kemp                      5,000             Less than 1%
Owen LeTissier
St. Peter Port
Guernsey, Channel Islands             400,000  (6)        10.50%
Rodney Nahama                          14,000             Less than 1%
George M. Watters                      77,500  (7)         2.02%
All directors and officers as a
group (7 persons)                   1,501,859  (3)        35.99%
</TABLE>

(1)  Includes shares which the listed shareholder has the right to acquire 
     before March 1,1999, from options or warrants, as follows: Royale 
     Petroleum Corporation 230,555, Donald H. Hosmer 15,000, Harry E. Hosmer 
     45,000, Stephen M. Hosmer 10,000, Oscar Hildebrandt 20,000, Rodney Nahama 
     14,000, George M. Watters 30,000, and all officers and directors as a 
     group (excluding Royale Petroleum Corporation) 134,000. 

(2)  Unless otherwise indicated, the mailing address of each listed 
     shareholder is 7676 Hazard Center Drive, Suite 1500, San Diego, California
     92108.

(3)  Because Messrs. Donald and Stephen Hosmer are directors of Royale 
     Petroleum Corporation ("RPC") and have power to vote the shares of Common 
     Stock owned  by RPC, pursuant to Rule 13d-3 promulgated under the 
     Securities Exchange Act of 1934, as amended, each of them may be deemed 
     to be the beneficial owner of all the Common Stock owned by RPC.  
     Accordingly, the 1,274,076 shares of the Company owned by RPC
                                    -19-
<PAGE>    22
     are included in the number of shares held by both Donald and Stephen 
     Hosmer and in the number of shares owned by all officers and directors  
     as a group.

(4)  Donald H. and Stephen M. Hosmer are sons of Harry E. Hosmer, Chairman of 
     the Board.

(5)  Includes shares held by a family partnership of which Dr. Hildebrandt is 
     a 50% partner and shares held by a trust of which Dr. Hildebrandt is 
     trustee.

(6)  The Company's transfer records reflect that Owen LeTissier holds 400,000
     shares as the Trustee of two foreign charitable trusts.

(7)  Includes Common Stock held by a trust of which Mr. Watters is the Trustee.


Preferred Stock

Holders of each series of Convertible Preferred Stock have voting rights 
equal to the number of shares into which they are convertible.  None of the 
Preferred shareholders have the right to vote as much as 5% of the shares 
entitled to vote when taking into account the total number of both Common and 
Preferred shares.  On December 31, 1998, there were 9,375 shares of  Series A 
and 43,750 shares of Series AA Convertible Preferred Stock outstanding. The 
shares of each series of Preferred shares is convertible into the Company's 
Common Stock at the option of the security holder, at the rate of two shares 
of Convertible Preferred Stock for each share of Common Stock.  To the 
Company's knowledge, none of the Preferred shareholders would own more than 
1% of the Company's Common Stock, if their Preferred shares were converted to
Common shares.
<TABLE>
<CAPTION>
                                     Series A         Series AA
                                     --------         ---------
Shareholder                          Number     %     Number     %
-----------                          ------     -     ------     -
<S>                                  <C>        <C>   <C>        <C>   
Richard G. and Margaret E. Algire    3,125      33.3%    
Marjorie Carson                                       6,250      14.28%
June L. Ginnings                                      3,125       7.14%
Overland Bank                                         6,250      14.28%
Audrey Sanabria & B.G. Dienelt, Jr.                   3,125       7.14%
George Singleton                                      6,250      14.28%
James S. Trowbridge                  6,250      66.7% 
William W. Well                                       6,250      14.28%
Jerome Winston                                        6,250      14.28%
                                  -20-
<PAGE>    23
                                     Series A         Series AA
                                     --------         ---------
Shareholder                          Number     %     Number     %
-----------                          ------     -     ------     -
Nim E. Wire                                           6,250      14.28%
All officers and directors as a
group (7 persons).                   0          0.0%  0           0.0%
</TABLE>

Item 12.  Certain Relationships and Related Transactions

In 1989, the board of directors adopted a policy (the "1989 policy") that 
permits each director and officer of the Company to purchase from the Company, 
at its cost, up to one percent (1%) fractional interest in any well to be 
drilled by the Company. When an officer or director elects to make such a 
purchase, the amount charged per each percentage working interest is equal 
to the actual pro rata cost to the Company of drilling and completion costs, 
rather than the higher amount that the Company charges to working interest 
holders for the purchase of a percentage working interest in a well.  Of the 
current officers and directors, Donald Hosmer, Stephen Hosmer, Harry E. 
Hosmer, and Oscar Hildebrandt have at various times elected to purchase 
interests in certain wells drilled by the Company under the 1989 policy.  

Under the 1989 policy, officers and directors may elect to participate in 
wells at any time up until drilling of the prospect commences.  Participants 
do not pay a set, turnkey price (as do outside investors who purchase 
undivided working interests from the Company), but are liable for all direct 
costs and expenses through completion of a well, whether or not the well 
drilling  and completion expenses exceed the Company's cost estimates.  Thus, 
they participate on terms much the same as would be afforded to other oil and 
gas industry participants or joint venturers. Participants are invoiced for 
their share of direct costs of drilling and completion as expenses are 
incurred by the Company.  

Officer and director participants under this program do not pay some expenses
paid by outside, retail investors in working interests, such as sales 
commission, if any, or marketing expenses. The outside, turnkey drilling 
agreement investors, on the other hand, are not obligated to pay additional 
costs if a drilling project experiences cost overruns or unanticipated 
expenses in the drilling and completion stage.  Accordingly, the Company's 
Management believes that the terms on which officers and directors participate 
in wells under the Board of Directors' policy are being offered their 
interests on terms the same as could be obtained by unaffiliated oil and 
gas industry participants in arms-length transactions, albeit those terms
are different than the turnkey agreement under which outside investors purchase
fractional undivided working interests from the Company.

Donald and Stephen Hosmer have each individually participated in 32 wells 
under the 1989 policy.  Donald and Stephen Hosmer have also participated in 
27 wells in the name of RPC, a 
                                  -21-
<PAGE>    24

corporation jointly owned by them, beginning in 1996.  The Hosmer Trust, a 
trust for the benefit of family members of Harry E. Hosmer, has participated 
in 31 wells.  

During 1998, Donald and Stephen Hosmer invested in one well under the 1989 
policy in the name of RPC and was charged a total of $710 for its 0.25% 
interest.  Also in 1998, RPC was charged $3,592 for wells in which it 
purchased interests in 1997, but which were not drilled until 1998.

Donald Hosmer's 1998 investments in wells under the 1989 policy totaled 
$5,833 for 0.25% interests in seven wells.  In 1998, Stephen Hosmer invested 
purchased 0.25% interests in four wells and 0.125% interests in three wells 
under the 1989 policy, for a total investment of $4,453.

The Hosmer Trust purchased 1.0% interests in seven wells during 1998 for a 
total investment of $23,330.

Prior to June 1995, the Company had advanced to the participants under the 1989
policy, the funds with which to purchase their interests, with funds to be 
repaid from future production from the working interests, with advances to be 
repaid from well production.  Each month, participants are credited with well 
income and charged with well expenses from producing wells, at the same time 
as other investors including working interest purchasers.  Each officer and 
director who participates in one or more wells with the Company has a single 
account to which all charges and income from all wells is credited.  In June 
1995, the Company's policy regarding the advancement of funds was changed.  
Current policy requires that all such purchases of interests in wells must be 
paid in cash.  At December 31, 1998, the following executive officers and 
their affiliates owed the following amounts on advances for well 
participations:  Donald Hosmer $5,720; Stephen Hosmer $4,578; RPC $526; the
Hosmer Trust $14,513. 


Item 13.  Exhibits, Lists, and Reports on Form 8-K

(a)  Certain of the Exhibits set forth in the following index are incorporated 
     by reference.

3.1  Restated Articles of Incorporation of Royale Energy, Inc., incorporated by
     reference to Exhibit 3.1 of the Company's Form 10-SB Registration 
     Statement.

3.2  Certificate of Amendment to the Articles of Incorporation of Royale Energy,
     Inc. (effecting reverse stock split and defining certain rights of equity
     security holders), incorporated by reference to Exhibit 3.1 of the 
     Company's Form 8-K dated October 31, 1994.

3.3  Bylaws of Royale Energy, Inc., incorporated by reference to Exhibit 3.2 
     of the Company's Form 10-SB Registration Statement.
                                  -22-
<PAGE>    25

4.1  Certificate of Determination of the Series A Convertible Preferred Stock,
     incorporated by reference to Exhibit 4.1 of the Company's Form 10-SB
     Registration Statement.

4.2  Certificate of Determination of the Series AA Convertible Preferred Stock,
     incorporated by reference to Exhibit 4.2 of the Company's Form 10-SB
     Registration Statement.

10.1 Wellbore Farmout Agreement between Royale Energy Funds, Inc., and 
     Pacific Gas & Electric Co., dated March 15, 1993, incorporated by 
     reference to Exhibit 10.2 of the Company's Form 10-SB Registration 
     Statement.

10.2 Form of Indemnification Agreement, incorporated by reference to Exhibit 
     10.3 of the Company's Form 10-SB Registration Statement.


(b)  Reports on Form 8-K

The Company filed no Reports on Form 8-K during the last fiscal quarter of 1998.


                               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:  April 15, 1999                    /s/ Donald H. Hosmer
                                ----------------------------------
                                Donald H. Hosmer, President

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the 
registrant and in the capacities indicated.


Date:  April 15, 1999                    /s/ Harry E. Hosmer
                                ---------------------------------
                                Harry E. Hosmer, Chairman of the 
                                Board

Date:  April 15, 1999                   /s/ Donald H. Hosmer          
                                ---------------------------------
                                Donald H. Hosmer, Chief Executive
                                Officer, President, Secretary, and Director
                                  -23-
<PAGE> 26

Date:  April 15, 1999                   /s/ Stephen M. Hosmer
                                ----------------------------------
                                Stephen M. Hosmer, Chief Financial
                                Officer and Director

Date:  April 15, 1999                  /s/ Oscar A. Hildebrandt
                                -----------------------------------  
                                Oscar A. Hildebrandt, Director

Date:  April 15, 1999                  /s/ Gilbert C. L. Kemp
                                -----------------------------------
                                Gilbert C.L. Kemp, Director

Date: April 15, 1999                   /s/ Rodney Nahama
                                -----------------------------------
                                Rodney Nahama, Director

Date:  
     ---------------            -----------------------------------
                                George M. Watters, Director

<PAGE> 27
                           ROYALE ENERGY, INC.
                      INDEX TO FINANCIAL STATEMENTS
                         AND SUPPLEMENTARY DATA
                                                         Page

Index to Financial Statements. . . . . . . . . . . . . . .           F-1

Report of Brown Armstrong Randall Reyes Paulden & McCown,
   Independent Auditors. . . . . . . . . . . . . . . . . .           F-2

Balance Sheets at December 31, 1998 and 1997 . . . . . . .           F-3

Statements of Income for the Years Ended
   December 31, 1998 and 1997. . . . . . . . . . . . . . .           F-5

Statements of Stockholders' Equity for the
   Years Ended December 31, 1998 and 1997. . . . . . . . .           F-7

Statements of Cash Flows for the Years
   Ended December 31, 1998 and 1997. . . . . . . . . . . .           F-9

Notes to the Financial Statements. . . . . . . . . . . . .          F-11

Supplemental Information About Oil and Gas Producing
   Activities (Unaudited). . . . . . . . . . . . . . . . .          F-26


Financial statement schedules have been omitted since they are either
not required, are not applicable, or the required information is shown
in the financial statements and related notes.
                                   F-1
<PAGE> 28
               REPORT OF INDEPENDENT AUDITORS
          
          Shareholders and Board of Directors
          Royale Energy, Inc.
          
          We have audited the accompanying balance sheets of Royale
          Energy, Inc. (a California corporation) as of December 31,
          1998 and 1997, and the related statements of income,
          stockholders' equity and cash flows for the years then
          ended.  These financial statements are the responsibility of
          the Company's management.  Our responsibility is to express
          an opinion on these financial statements based on our audit.
          
          We conducted our audits in accordance with generally
          accepted auditing standards.  Those standards require that
          we plan and perform the audit to obtain reasonable assurance
          about whether the financial statements are free of material
          misstatement.  An audit includes examining, on a test basis,
          evidence supporting the amounts and disclosures in the
          financial statements.  An audit also includes assessing the
          accounting principles used and significant estimates made by
          management, as well as evaluating the overall financial
          statement presentation.  We believe that our audits provide
          a reasonable basis for our opinion.
          
          In our opinion, the financial statements referred to above
          present fairly in all material respects, the financial
          position of Royale Energy, Inc., as of December 31, 1998 and
          1997, and the results of their operations and their cash
          flows for the years then ended in conformity with generally
          accepted accounting principles.
          
          As discussed in Note 1 to the financial statements, during
          1998, the Company changed its method of evaluating its oil
          and gas properties for impairment.
          
                             BROWN ARMSTRONG RANDALL 
                             REYES PAULDEN & McCOWN
                             ACCOUNTANCY CORPORATION
          
          Bakersfield, California
          March 5, 1999
                             F-2
          <PAGE>        29
                         ROYALE ENERGY, INC.
                            BALANCE SHEETS

                                ASSETS
<TABLE>
<CAPTION>
                                        December 31, December 31,
                                             1998         1997
                                        ------------  -----------
<S>                                     <C>            <C>
CURRENT ASSETS
  Cash and cash equivalents             $1,016,306   $2,032,001
  Accounts receivable                    1,531,259    1,823,388
  Receivables from related parties          49,412       34,218
  Note receivable                          118,149      159,024
  Other current assets                     169,103      136,459
                                         ----------   ----------
    Total Current Assets                 2,884,229    4,185,090
                                         ----------   ----------

OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS
BASIS), EQUIPMENT AND FIXTURES, NET     11,597,827    9,288,487
                                        ----------   ----------

OTHER ASSETS
  Other capitalized costs                  927,208      220,927
  Receivables from other related parties     7,151        9,652
                                        ----------   ----------

    Total Other Assets                     934,359      230,579
                                        ----------   ----------

                                       $15,416,415  $13,704,156
                                       ===========  ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements
                                  F-3
<PAGE>                                  30
                          ROYALE ENERGY, INC.
                            BALANCE SHEETS

                 LIABILITIES AND STOCKHOLDERS' EQUITY
<BTB>
<TABLE>
<CAPTION>
                                        December 31, December 31,
                                             1998         1997
                                        ------------ ------------
<S>                                     <C>          <C>
CURRENT LIABILITIES
  Accounts payable and accrued expenses $1,249,127   $2,112,756
  Deferred revenue from turnkey
  drilling                               2,834,976    1,735,826
                                        ----------   ----------

    Total Current Liabilities            4,084,103    3,848,582
                                        ----------   ----------

LONG-TERM DEBT, NET OF CURRENT PORTION   5,000,000    3,900,000
                                        ----------   ----------

REDEEMABLE PREFERRED STOCK
  Series A, convertible preferred stock,
  no par value, 59,250 shares authorized;
  9,375 and 16,875 shares, respectively,
  issued and outstanding                    19,100       49,100
                                        ----------   ----------

STOCKHOLDERS' EQUITY
  Common stock, no par value, 10,000,000
  shares authorized; 3,808,613 and
  3,864,300 shares, respectively,
  issued and outstanding                 8,240,605    8,676,273
  Convertible preferred stock, Series AA,
  no par value, 147,500 shares authorized;
  43,750 and 50,000 shares, respectively,
  issued and outstanding                   175,000      200,000
  Accumulated deficit                   (2,007,893)  (2,782,299)
                                        -----------  -----------

    Total paid in capital and
    accumulated deficit                  6,407,712    6,093,974
                                        ----------   ----------

  Less cost of treasury stock 19,300
  and 37,500 shares, respectively          (94,500)    (187,500)
                                        -----------  -----------

    Total Stockholders' Equity           6,313,212    5,906,474
                                        ----------   ----------

                                        $15,416,415  $13,704,156
                                        ===========  ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
                                  F-4
<PAGE>                                  31
                          ROYALE ENERGY, INC.
                        STATEMENTS OF INCOME
           FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE><CAPTION><BTB>

                                        Year Ended   Year Ended
                                        December 31, December 31,
                                            1998         1997
                                        ------------ ------------
<S>                                     <C>          <C>
REVENUES
  Sale of oil and gas                   $ 4,101,553  $ 2,992,679
  Gas distribution                               -        46,925
  Turnkey drilling                        3,789,995    5,638,437
  Supervisory fees and other                473,582      388,085
                                        -----------  -----------

    Total Revenues                        8,365,130    9,066,126
                                        -----------  -----------

COSTS AND EXPENSES
  Cost of gas distribution sales                 -        23,741
  General and administrative              1,606,702    1,437,046
  Geological and geophysical expense        139,664           -
  Turnkey drilling and development        1,541,624    3,163,945
  Lease operating                         1,020,541      611,437
  Lease impairment                        1,659,048      300,000
  Legal and accounting                      544,228      658,864
  Marketing                                 422,693      443,740
  Depreciation, depletion and
  amortization                            1,461,511      665,694
                                        -----------  -----------

    Total Costs and Expenses              8,396,011    7,304,467
                                        -----------  -----------

INCOME (LOSS) FROM OPERATIONS               (30,881)   1,761,659
                                        -----------  -----------

OTHER (EXPENSE)
  Interest                                 (335,373)    (149,725)
                                        -----------  -----------

INCOME (LOSS) BEFORE INCOME TAX EXPENSE
  AND CHANGE IN ACCOUNTING PRINCIPLE       (366,254)   1,611,934
                                        -----------  -----------

INCOME TAX EXPENSE                           52,868      101,551
                                        -----------  -----------

NET INCOME (LOSS) BEFORE CHANGE IN
  ACCOUNTING PRINCIPLE                     (419,122)   1,510,383

CHANGE IN ACCOUNTING PRINCIPLE - CUMULATIVE
  EFFECT OF CHANGE IN ACCOUNTING FOR THE
  IMPAIRMENT OF LONG-LIVED ASSETS         1,193,528           -
                                        -----------  -----------

NET INCOME                              $   774,406  $ 1,510,383
                                        ===========  ===========
                                                     (Continued)
</TABLE>
The accompanying notes are an integral part of these financial
statements.
                                  F-5
<PAGE>                                  32
                          ROYALE ENERGY, INC.
                         STATEMENTS OF INCOME
            FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                        Year Ended   Year Ended
                                        December 31, December 31,
                                            1998         1997
                                        ------------ ------------
<S>                                     <C>          <C>
BASIC EARNINGS (LOSS) PER COMMON SHARE
  (See Note 1)

  Net income (loss) before changes
  in accounting principles              $     (0.11) $      0.39
                                        ===========  ===========
  
  Changes in accounting principles
  per common share                      $      0.31  $        -
                                        ===========  ===========

  Net income per common share           $      0.20  $      0.39
                                        ===========  ===========

  Diluted earnings per common share
  (see Note 1)                          $      0.19  $      0.37
                                        ===========  ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
                                  F-6
<PAGE>                                  33
                               ROYALE ENERGY, INC.
                        STATEMENTS OF STOCKHOLDERS' EQUITY
                  FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                 Preferred Stock
              Common Stock          Series AA                    Treasury Stock
          -------------------- ------------------             -----------------
          Number               Number
          of Shares            of Shares
          Issued               Issued                           Number
          and Out-             and Out-            Accumulated  of
          standing   Amount    standing   Amount     Deficit    shares  Amount
          --------- ---------- --------- --------  ------------ ------ --------
<S>       <C>       <C>        <C>       <C>       <C>          <C>    <C>
Balance,
January
1, 1997   3,834,049 $8,386,273 115,000   $460,000  $(4,292,682)  4,200  $ 21,000

Shares
issued
in
connection
with
preferred
stock
Series A
Conversion    3,750     30,000      -          -           -        -         -

Shares
issued in
in
connection
with
preferred
stock
Series AA
Conversion   32,501    260,000      -          -           -        -         -

Shares
Purchased        -          -       -          -           -    33,000   166,500

Shares
redeemed
and 
canceled     (6,000)        -  (65,000)  (260,000)         -        -         -

Net Income       -          -       -          -     1,510,383      -         -
          --------- ---------- --------- --------- -----------  ------  --------
Balance,
December
31, 1997  3,864,300 $8,676,273  50,000   $200,000  $(2,782,299) 37,500  $187,500
          ========= ==========  ======== ========= ============ ======  ========
</TABLE>
                             (Continued on next page)
                                       F-7
<PAGE>   34
                               ROYALE ENERGY, INC.
                        STATEMENTS OF STOCKHOLDERS' EQUITY
                  FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                 Preferred Stock
              Common Stock          Series AA                    Treasury Stock
          -------------------- ------------------             -----------------
          Number               Number
          of Shares            of Shares
          Issued               Issued                           Number
          and Out-             and Out-            Accumulated  of
          standing   Amount    standing   Amount     Deficit    shares  Amount
          --------- ---------- --------- --------  ------------ ------ --------
<S>       <C>       <C>        <C>       <C>       <C>          <C>    <C>
Balance,
January
1, 1998   3,864,300 $8,676,273  50,000   $200,000  $(2,782,299) 37,500 $187,500

New
Shares
Issued       18,060         -       -          -            -       -        -

Shares
issued
in
connection
with
preferred
stock
Series A
Conversion    3,750     30,000      -          -           -        -        -

Shares
issued in
in
connection
with
preferred
stock
Series AA
Conversion    3,125     25,000      -          -           -        -        -

Stock
Options
Repurchased      -     (86,250)     -          -           -        -        - 

Shares
redeemed
and 
canceled    (80,622)  (404,418) (6,250)   (25,000)         -   (18,200) (93,000)

Net Income       -          -       -          -       774,406      -        -
          --------- ---------- --------- --------- -----------  ------ --------
Balance,
December
31, 1998  3,808,613 $8,240,605  43,750   $175,000  $(2,007,893) 19,300  $ 94,500
          ========= ==========  ======== ========= ============ ======  ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
                                  F-8
<PAGE>   35
                          ROYALE ENERGY, INC.
                       STATEMENTS OF CASH FLOWS
            FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                        Year Ended   Year Ended
                                        December 31, December 31,
                                            1998         1997
                                        ------------ ------------
<S>                                     <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                            $   774,406  $ 1,510,383
  Adjustment to reconcile net income
   to net cash provided by operating
   activities:  Depreciation,
    depletion and amortization            1,461,511      665,694
    Loss on lease impairment                465,520      300,000
    (Increase) decrease in:
      Accounts receivable                   292,129      105,084
      Receivable from related parties         2,501       (6,117)
      Prepaid expenses and other assets     (32,644)      54,076
      Notes receivable                       40,875      (27,177)
    Increase(Decrease) in:
      Accounts payable and accrued
       expenses                            (863,629)     165,051
      Deferred revenues - DWI             1,099,150      231,785
                                        -----------  -----------

       Net Cash Provided by
         Operating Activities             3,239,819    2,998,779
                                        -----------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Expenditures for oil and gas
   properties                            (4,817,413)  (6,929,049)
  Proceeds from sale of oil and
   gas properties                                -         7,307
  Other capital expenditures               (125,239)     (74,659)
                                        -----------  -----------

    Net Cash Used by Investing
     Activities                          (4,942,652)  (6,996,401)
                                        -----------  -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  (Increase) decrease in receivable from
   related parties, net                     (15,194)         679
  Proceeds from line of credit            1,100,000    3,900,000
  Principal payments on notes payable            -      (300,000)
  Common stock purchased and canceled      (397,668)          -
  Treasury stock sold                            -      (166,500)
                                        -----------  -----------

    Net Cash Provided by Financing
     Activities                             687,138    3,434,179
                                        -----------  -----------

NET DECREASE IN CASH AND
 CASH EQUIVALENTS                        (1,015,695)    (563,443)

CASH AT BEGINNING OF YEAR                 2,032,001    2,595,444
                                        -----------  -----------

CASH AT END OF YEAR                     $ 1,016,306  $ 2,032,001
                                        ===========  ===========
</TABLE>
                       (Continued on next page)
                                  F-9
<PAGE> 36
                       ROYALE ENERGY FUNDS, INC.
                       STATEMENTS OF CASH FLOWS
            FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                        Year Ended   Year Ended
                                        December 31, December 31,
                                            1998         1997
                                        ------------ ------------
<S>                                     <C>          <C>

SUPPLEMENTAL INFORMATION:

  Cash paid for interest                $    335,373 $    149,725

  Cash paid for taxes                            800      101,551

NONCASH TRANSACTIONS:

  Series A preferred stock exchanged
    for common stock                          30,000       30,000

  Series AA stock exchanged for
    common stock                              25,000      260,000

  Treasury stock reclassed to
    common stock                              93,000           -
</TABLE>
The accompanying notes are an integral part of these financial
statements.
                                 F-10
<PAGE> 37
                          ROYALE ENERGY, INC.
                     NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Royale Energy, Inc.
(the "Company") is presented to assist in understanding the Company's
financial statements.  The financial statements and notes are
representations of the Company's management, which is responsible for
their integrity and objectivity.  These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.

Description of Business

The Company is an independent oil and gas producer which also has
operations in the area of turnkey drilling.  The Company owns wells and
leases in major geological basins located in California. The Company
offers fractional working interests and seeks to minimize the risks of
oil and gas drilling by selling multiple well drilling ventures which do
not include the use of debt financing.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles 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.

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
proved reserves. Estimated reserves are used in the calculation of
depletion, depreciation and amortization as well as the Company's
assessment of proved oil and gas properties for impairment.

Revenue Recognition

The Company recognizes revenues from the sales of oil and gas in the
period of delivery.

The Company enters into turnkey drilling agreements with investors to
develop leasehold acreage acquired by the Company.  The Company receives
funds from investors for the drilling and completion of oil and gas
wells.  A percentage of total funds invested are used by the Company to
pay their share of the land costs and other costs as required to allow
the drilling projects to proceed without delay. These funds are non-refundable 
once the investment has been made. The non-refundable portion
of the total Turnkey Drilling investment is based on a percentage
calculated by estimating the pre-drilling costs as a percentage of total
drilling costs for a particular investment. The non-refundable portion
of the total investment is recognized as revenue and the related pre-drilling 
costs are expensed. If costs exceed revenues and the Company
participates as a working interest owner, the excess is capitalized as
the cost of the Company's working interest.  If the Company is unable to
drill the wells, and a suitable replacement well is not found, the
deferred funds received would be returned to the investors. If the
drilling effort is successful, each investor receives a working interest
in the wells, and the Company, along with the investors, receive an
assignment of working interests. Included in cash and cash equivalents
are amounts for use in the completion of Turnkey drilling programs in
progress.
                                 F-11
<PAGE>                               38
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Oil and Gas Property and Equipment (Successful Efforts)

The Company accounts for its oil and gas exploration and development
costs using the successful efforts method. Leasehold acquisition costs
are capitalized. If proved reserves are found on an undeveloped
property, leasehold cost is transferred to proved properties.
Significant undeveloped leases are reviewed periodically and a valuation
allowance is provided for any estimated decline in value. Cost of other
undeveloped leases is expensed over the estimated average life of the
leases. Cost of exploratory drilling is initially capitalized but is
subsequently expensed if proved reserves are not found. Other
exploratory costs are charged to expense as incurred. Development costs,
including unsuccessful development wells, are capitalized.  Depletion,
depreciation and amortization of oil and gas producing properties are
computed on an aggregate basis using the units-of-production method.

Financial Accounting Standards Board (FASB), Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and/or Long-Lived Assets to be Disposed of", requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. It establishes guidelines for determining
recoverability based on future net cash flows from the use of the asset
and for the measurement of the impairment loss. Impairment loss under
SFAS No. 121 is calculated as the difference between the carrying amount
of the asset and its fair value. Any impairment loss is recorded in the
current period in which the recognition criteria are first applied and
met. Under the successful efforts method of accounting for oil and gas
operations, the Company periodically assessed its proved properties for
impairments by comparing the aggregate net book carrying amount of all
proved properties with their aggregate future net cash flows. The
statement requires that the impairment review be performed on the lowest
level of asset groupings for which there are identifiable cash flows.
Prior to 1998, the Company performed the impairment review on a field by
field basis. In 1998, management decided to perform the impairment
review on a region by region basis.  According to management, regional
aggregations of fields are more consistent with the company's operations
and identifiable sources of cash flows. Regional aggregations of fields 
also correctly reflect geological relationships between proved reserves. 
This change is reflected as a change in accounting principle on the
Company's income statement.  The change does not have a material effect
on the prior period's net income.

In 1997, $300,000, was recorded as an impairment loss based on
management's assessment.  Impairment loss for the year ended December
31, 1998 was $1,659,048 reduced by $1,193,528 as a result of the change
in accounting principle for a net expense of $465,520.

Upon the sale of oil and gas reserves in place, costs less accumulated
amortization of such property are removed from the accounts and
resulting gain or loss on sale is reflected in operations.  Upon
abandonment of properties, the reserves are deemed fully depleted and
any unamortized costs are recorded in the statement of operations under
loss on leases.

Other Capitalized Costs

Other capitalized costs are related to 3D seismic studies performed by
an outside Geophysical and Geological company on behalf of the Company.
The cost of this data is based on cost per square mile multiplied by the
number of squares analyzed. The data is used by the Company to enhance
or evaluate proposed developments of its proved and unproved fields, as
well as held for sale to outside parties. As the Company uses the data
for its exploratory and development projects, that portion of the
capitalized costs used will be reclassified as proved oil and gas
properties or expensed. The portion of the data library not used by the
Company for its projects will be amortized over a three year period
using the straight-line method.

As of the audit report date, the Company had not licensed and/or sold
seismic data to outside parties.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and on deposit, and
highly liquid debt instruments with maturities of three months or less.
                                 F-12
<PAGE>                               39
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Capitalization of Interest

Interest cost is capitalized on construction and development programs
until placed into operation.

Earnings (Loss) Per Share (SFAS 128)

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share", which was adopted by the Company for the year ended December
31, 1997.  SFAS 128 replaces the presentation of primary earnings per
share with a presentation of basic earnings per share based upon the
weighted average number of common shares for the period.  It also
requires dual presentation of basic and diluted earnings per share for
companies with complex structures.

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

<TABLE>
<CAPTION>                           
                                        For the Year Ended 1998
                                   --------------------------------------
                                     Income         Shares       Per-Share
                                   (Numerator)    (Denominator)   Amount
                                   ------------   -------------  --------
<S>                                <C>            <C>            <C>
Basic Earnings (Loss) Per Share:
  Net income (loss) available to
   common stock before changes in
   accounting principles           $  (419,122)     3,839,127    $  (0.11)
  Changes in accounting principles   1,193,528                       0.31
                                   -----------    -----------    --------

  Net income (loss) available
   to common stock                 $   774,406                   $   0.20
                                   ===========    ===========    ========

Diluted Earnings (Loss) Per Share:
  Net income (loss) available to 
   common stock before changes in
   accounting principles           $  (419,122)     3,839,127    $  (0.11)
  Effect of dilutive securities
   and stock options                        -         294,883         .01
                                   -----------     ----------    --------
  Net income (loss) available to
   common stock before changes in
   accounting principles              (419,122)     4,134,010       (0.10)
  Changes in accounting principles   1,193,528                       0.29
                                   -----------     ----------    --------

  Net income (loss) available
   to common stock                 $   774,406                   $   0.19
                                   ===========     ==========    ========
</TABLE>
                                 F-13
<PAGE>                           40
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings (Loss) Per Share (SFAS 128) (Continued)
<BTB>
<TABLE>
<CAPTION>
                                         For the Year Ended 1997
                                   --------------------------------------
                                     Income         Shares       Per-Share
                                   (Numerator)    (Denominator)   Amount
                                   ------------   -------------  --------
<S>                                <C>            <C>            <C>
Basic Earnings Per Share:
  Net income available to
   common stock before changes in
   accounting principles           $ 1,510,383     3,861,589     $   0.39
  Changes in accounting principles          -                         -
                                   -----------    -----------    --------

  Net income available
   to common stock                 $ 1,510,383                   $   0.39
                                   ===========    ===========    ========

Diluted Earnings Per Share:
  Net income available to 
   common stock before changes in
   accounting principles           $ 1,510,383     3,861,589     $   0.39
  Effect of dilutive securities
   and stock options                        -        244,006         (.02)
                                   -----------    ----------     --------
  Net income available to
   common stock before changes
   in accounting principles          1,510,383     4,105,595         0.37
  Changes in accounting principles          -                         -
                                   -----------    ----------     --------

  Net income available
   to common stock                 $ 1,510,383                   $   0.37
                                   ===========    ==========     ========
</TABLE>

Income Taxes

The provision for income taxes is based on pretax financial accounting
income. Deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the tax basis
of assets and liabilities and their reported net amounts.

Fair Values of Financial Instruments

Disclosure of the estimated fair value of financial instruments is
required under SFAS No. 107,  "Disclosure About Fair Value of Financial
Instruments." The fair value estimates are made at discrete points in
time based on relevant market information and information about the
financial instruments. These estimates may be subjective in nature and
involve uncertainties and significant judgment and therefore cannot be
determined with precision.

The Company includes fair value in the notes to financial statements
when the fair value of its financial instruments is different from the
book value. The Company assumes that the book value of financial
instruments that are classified as current approximate fair value
because of the short maturity of these instruments. For noncurrent
financial instruments, the Company uses quoted market prices or, to the
extent that there are no available quoted market prices, market prices
for similar instruments.

Reclassification

Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
                                 F-14
<PAGE>                           41
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

New Accounting Pronouncements

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income.
This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income is
the same as net income for all years presented.

Effective January 1, 1998, the Company adopted Statement of Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an
Enterprise and Related Information. This statement requires the Company
to report income/loss, revenue, expense and assets by business segment
including information regarding the revenues derived from specific
products and services and about the countries in which the Company is
operating. The Statement also requires that the Company report
descriptive information about the way that operating segments were
determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the Company's general-purpose financial
statements and changes in the measurement of segment amounts from period
to period. As noted above this statement establishes standards for
reporting and display and has no material effect on the Company's
financial condition or results of operations.

In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), Employers' Disclosures about Pensions and
other Postretirement Benefits. This statement standardizes the
disclosure requirements for pension and other post retirement benefits.
The Company typically does not offer the types of benefit programs that
fall under the guidelines of this statement.

In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and
Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. The
statement is effective for fiscal years beginning after June 15, 1999. 
The Company does not have any derrvative instruments or hedging
activities.  Management does not anticipate any impact to the Company's
financial statements as a result of the adoption of this statement.


NOTE 2 - NOTE RECEIVABLE

Notes receivable at December 31, 1998 consist of $103,116 note from an
individual secured by oil and natural gas interests bearing an interest
rate of prime plus 1.5%, and a note from a corporation in the amount of
$15,033 secured by Royale Covenant Security Corporation stock, bearing
an interest rate of prime plus 1.5%.
                                 F-15
<PAGE>                           42
NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES

Oil and gas properties, equipment and fixtures consist of the following
at December 31:

Oil and Gas

<TABLE>
<CAPTION>
                                          1998           1997
                                        ------------ ------------
<S>                                     <C>          <C>
  Producing properties, including
   intangible drilling costs            $ 9,180,297  $ 8,868,655
  Undeveloped properties                  1,444,942      295,022
  Lease and well equipment                3,950,428    2,442,696
                                        -----------  -----------

                                         14,575,667   11,606,373
  Accumulated depletion, depreciation
   and amortization                      (3,127,477)  (1,717,620)
  Reserve for lease impairment                   -      (728,938)
                                        -----------  -----------

                                         11,448,190    9,159,815
                                        -----------  -----------

Commercial and Other

  Furniture and equipment                   355,254      282,153
  Accumulated depreciation                 (205,617)    (153,481)
                                        -----------  -----------

                                            149,637      128,672
                                        -----------  -----------

                                        $11,597,827  $ 9,288,487
                                        ===========  ===========
</TABLE>

The following sets forth costs incurred for oil and gas property
acquisition and development activities, whether capitalized or expensed:
<TABLE>
<CAPTION>
                                          1998           1997
                                        ------------ ------------
<S>                                     <C>          <C>

  Acquisition                           $   979,068  $ 3,999,087
  Development                           $ 4,048,896  $ 5,150,617
</TABLE>

In July 1997, the Company acquired additional working interests in
producing wells and properties with development potential.  In exchange
for these working interests and properties, the Company gave
consideration of cash by utilizing their credit line and cash in the
bank.
                                 F-16
<PAGE>                                  43
NOTE 3 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Continued)

Results of Operations from Oil and Gas Producing and Exploration
Activities

The results of operations from oil and gas producing and exploration
activities (excluding corporate overhead and interest costs) for the two
years ended December 31, are as follows:

<TABLE>
<CAPTION>
                                          1998           1997
                                        ------------ ------------
<S>                                     <C>          <C>

  Oil and gas sales                     $ 4,101,553  $ 2,992,679
  Production related costs               (1,020,541)    (611,437)
  Geological and geophysical expense       (139,664)          -
  Depreciation, depletion and
   amortization                          (1,409,858)    (631,133)
                                        -----------  -----------

  Results of operations from producing
    and exploration activities          $ 1,531,490  $ 1,750,109
                                        ===========  ===========
</TABLE>

NOTE 4 - TURNKEY DRILLING CONTRACTS

The Company receives funds under turnkey drilling contracts which
requires the Company to drill oil and gas wells within a reasonable time
period from the date of receipt of the funds.  As of December 31, 1998
and 1997, the Company had recorded deferred turnkey drilling revenue
associated with undrilled wells of $2,834,976 and $1,735,826,
respectively, as a current liability.


NOTE 5 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS

The Company adopted SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information  SFAS 131" in 1998 which changes the
way the Company reports information about its operating segments.

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

The accounting policies of the reportable segments are the same as those
described in the Summary of Significant Accounting Principles (see Note
1).
                                 F-17
<PAGE>                                  44
NOTE 5 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS (Continued)
The Company's operations are classified into two principal industry
segments. Following is a summary of segmented information for 1998 and
1997:

<TABLE>
<CAPTION>
                                Oil and Gas
                                Producing               Turnkey
                                and                    Drilling
                                Exploration            Services         Total
                                -----------           ------------   ----------
<S>                             <C>                   <C>            <C>

Year Ended December 31, 1998
  Revenues from External
  Customers                     $  4,101,553          $  3,789,995   $  7,891,548
                                ============          ============   ============

  Interest Revenue              $     57,882          $         -    $     57,882
                                ============          ============   ============

  Interest Expense              $    335,373          $         -    $    335,373
                                ============          ============   ============

Expenditures for Segment Assets $  3,023,868          $  1,541,624   $  4,565,482
                                ============          ============   ============

Depreciation, Depletion,
 and Amortization               $  1,409,858          $         -    $  1,409,858
                                ============          ============   ============

Lease Impairment                $  1,659,048          $         -    $  1,659,048
                                ============          ============   ============

Total Assets                    $ 15,416,415          $         -    $ 15,416,415
                                ============          ============   ============

Income (Loss) Before Income
  Tax and Change in
  Accounting Principle          $ (2,614,625 )        $  2,248,371   $   (366,254)
Income Tax Expense                        -                 52,868         52,868
                                ------------          ------------   ------------

Net Income (Loss) Before Change
  in Accounting Principle         (2,614,625)            2,195,503       (419,122)

Changes in Accounting Principle -
  Cumulative Effect of Change
  in Accounting for the
  Impairment of Long-Lived
  Assets                           1,193,528                    -       1,193,528
                                ------------          ------------   ------------

Net Income (Loss)               $ (1,421,097)         $  2,195,503   $    774,406
                                ============          ============   ============

Year Ended December 31, 1997
  Revenues from External
  Customers                     $  2,992,679          $  5,638,437   $  8,631,116
                                ============          ============   ============

  Interest Revenue              $     56,376          $         -    $     56,376
                                ============          ============   ============

  Interest Expense              $    149,725          $         -    $    149,725
                                ============          ============   ============

Expenditures for Segment Assets $  6,929,049          $    611,437   $  7,540,486
                                ============          ============   ============

Depreciation, Depletion,
 and Amortization               $    631,133          $         -    $    631,133
                                ============          ============   ============

Lease Impairment                $    300,000          $         -    $    300,000
                                ============          ============   ============

Total Assets                    $ 13,704,156          $         -    $ 13,704,156
                                ============          ============   ============

Income (Loss) Before Income
  Tax and Change in
  Accounting Principle          $   (862,558)         $  2,474,492   $  1,611,934
Income Tax Expense                   101,551                    -    $    101,551
                                ------------          ------------   ------------

Net Income (Loss) Before Change
  in Accounting Principle           (964,109)         $  2,474,492   $  1,510,383

Changes in Accounting Principle -
  Cumulative Effect of Change
  in Accounting for the
  Impairment of Long-Lived
  Assets                                  -                     -              -
                                -----------           ------------   ------------

Net Income (Loss)               $  (964,109)          $  2,474,492   $  1,510,383
                                ============          ============   ============
</TABLE>
                                 F-18
<PAGE>                          45
NOTE 6 - LONG-TERM DEBT 
<TABLE>
<CAPTION>
                                              1998          1997
                                           -----------   ----------
<S>                                        <C>           <C>

  Revolving line of credit with a
  maximum available of $5,000,000 for
  working capital purposes, acquisitions,
  and development of oil and gas
  properties. Agreement was amended on 
  November 13, 1998. Interest at New York
  prime plus 75.0 and 137.5 basis points,
  resulting in rates of 8.5% and 9.875%
  at December 31, 1998 and 1997,
  respectively. Principal and interest
  payable monthly, with the remaining
  outstanding principal due at maturity
  on January 31, 2000. Secured by
  property and assignment of production.  $ 5,000,000  $3,900,000
                                          ===========  ==========
</TABLE>

Maturities of long-term debt for years subsequent to December 31, 1998 are as 
follows:
<TABLE>
<CAPTION>
  December 31,
    <C>                                   <C>
      2000                                $ 5,000,000
                                          ===========
</TABLE>

The loan agreement for the revolving line of credit prohibits the purchase of 
treasury stock; however, the lender has waived this requirement under 
specific circumstances.  The Company purchased treasury stock under this 
waiver in 1997 and 1998.


NOTE 7 - INCOME TAXES

The provisions for income taxes for the years ended December 31, 1998 and 1997
represents minimum state taxes.

As of December 31, 1998, the Company had federal net operating loss 
carryforwards as indicated:

<TABLE>
<CAPTION>
       Year             Year of        Net Operating
    Originated        Expiration            Loss
    ----------        ----------       --------------
    <C>               <C>              <C>
    1990                 2006          $    797,786
    1991                 2007               970,101
    1992                 2008               227,241
    1993                 2009             1,654,713
                                       ------------
                                       $  3,649,841
                                       ============
</TABLE>
                                 F-19
<PAGE>                46
NOTE 7 - INCOME TAXES (Continued)

The components of the net deferred tax assets were as follows:
<TABLE>
<CAPTION>
                                          1998           1997
                                        ------------ ------------
<S>                                     <C>          <C>

  Deferred Tax Assets:
    Net operating loss carryforwards    $ 1,240,946  $ 1,314,318
    Statutory depletion carryforwards       227,904      182,622
    Accumulated depreciation                 23,799       94,487
                                        -----------  -----------

  Total Deferred Tax Assets               1,492,649    1,591,427
                                        -----------  -----------

  Valuation Allowance                    (1,492,649)  (1,591,427)
                                        -----------  -----------

  Net Deferred Tax Assets               $        -   $        -
                                        ===========  ===========
</TABLE>

A full valuation allowance has been established for the deferred tax
assets generated by net operating loss carryforwards due to the
uncertainty of future utilization.

A reconciliation of the Company's provision for income taxes and the
amount computed by applying the U.S. statutory federal income tax rate
of 34% at December 31, 1998 and 1997, respectively, to pretax income is
as follows:
<TABLE>
<CAPTION>

                                          1998           1997
                                        ------------ ------------
<S>                                     <C>          <C>

  Tax computed at 34%, respectively     $   281,001  $   513,533

  Increase (decrease) in taxes
    resulting from:
    Net operating loss carryforwards       (281,001)    (513,533)
    State taxes                              52,868      101,551
                                        -----------  -----------

                                        $    52,868  $   101,551
                                        ===========  ===========

  Effective Tax Rate                        6.8%         5.6%
                                            ====         ====
</TABLE>

NOTE 8 - REDEEMABLE PREFERRED STOCK

In 1993, the Company's Board of Directors authorized the issuance of
259,250 shares of Series A Convertible Preferred Stock which were sold
through a private placement offering.  The Series A Convertible
Preferred Stock was offered in units.  Each unit consisted of 25,000
shares of Series A Convertible Preferred Stock and a 0.1% interest in
the distributions of the Royale Energy Income Trust, to be formed.  The
Company had the right to sell fractional units.  The Series A
Convertible Preferred Stock has a stated value of $4 per share and
provides shareholders with a one time 10% dividend payable thirty days
after the expiration of one year from the date of purchase.  The
dividend has been paid on all outstanding shares at December 31, 1994.
There were no dividends declared and/or paid during 1998 or 1997.

The Series A Convertible Preferred Stock is convertible any time at the
basic conversion rate of one share of common stock for two shares of
Series A Convertible Preferred Stock, subject to adjustment. The Company
has the option to call, at any time, the Series A Convertible Preferred
Stock at either the issue price of $4 per share  plus 10%, if called
within one year after issuance, or $4 per share thereafter.  (Subject to
the holders' conversion rights outlined above).
                                 F-20
<PAGE>                47
NOTE 8 - REDEEMABLE PREFERRED STOCK (Continued)
Upon the sale of 50% of the units of beneficial interest in Royal Energy
Income Trust, a holder of Series A Convertible Preferred Stock may
require the Company to redeem their Series A Convertible Preferred Stock
at the issue price of $4 per share plus accrued dividends, if any.

The Series A Convertible Preferred Stock has a liquidation preference to
the common stock equal to $4 per share plus accrued dividends. Holders
of Series A Convertible Preferred Stock shall have voting rights equal
to the number of shares of common stock into which the Series A
Convertible Preferred Stock may be converted.

On October 28, 1993, the Company's Series A Convertible Preferred Stock
shareholders were made a one time offer to convert their Series A
Convertible Preferred Stock to common stock.  This conversion would be
at one share of common stock for each share of Series A Convertible
Preferred Stock, rather than at the original conversion price of $4 per
share.  This conversion would not affect the shareholders' rights and
incentives in the Royale Energy Income Trust.  As of December 31, 1998,
224,875 shares of Series A Convertible Preferred Stock had been
converted to 198,625 shares of common stock.

NOTE 9 - SERIES AA PREFERRED STOCK
In April 1992, the Company's Board of Directors authorized the sale of
Series AA Convertible Preferred Stock.  Holders of Series AA Convertible
Preferred Stock have dividend, conversion and preference rights
identical to Series A Convertible Preferred Stockholders.  The Series AA
Convertible Preferred Stock does not have the right of redemption at the
shareholders' option.  As of December 31, 1998 and 1997, there were
43,750 and 50,000 shares issued and outstanding, respectively.  The
dividend has been paid on all shares outstanding at December 31, 1998.

NOTE 10 - COMMON STOCK
During 1998, 3,125 shares of common stock were issued for conversion of
6,250 Series AA Preferred Stock, and 3,750 common shares were issued for
conversion of 7,500 shares of Series A Preferred Stock.  Also, in 1998,
12,200 shares were canceled.  Additionally, 62,422 shares of the
Company's common stock were repurchased and canceled. The Company's
Board of Directors, at its December 1997 meeting, authorized the
repurchase and cancellation of up to 15% of the outstanding common stock
of the Company.

During 1997, 32,501 shares of common stock were issued for conversion of
65,000 Series AA Preferred Stock, and 3,750 common shares were issued
for conversion of 7,500 shares of Series A Preferred Stock.  Also, in
1997, 6,000 shares were canceled as a result of a settlement agreement
executed in 1996.  This settlement agreement was not material to the
Company as a whole.

NOTE 11 - STOCK WARRANTS
Changes in the Company's common stock warrants were as follows:
<TABLE>
<CAPTION>
                                        Year Ended   Year Ended
                                        December 31, December 31,
                                           1998         1997
                                        ------------ ------------
<S>                                     <C>          <C>
Outstanding warrants at beginning
  of period                                230,555      230,555
Additional warrants issued
  - Exercise of stock warrants                                                        -         -
  - Warrants expired or ineligible              -            -
                                        ----------   ----------

Outstanding warrants at end of period      230,555      230,555
                                        ==========   ==========
</TABLE>
                                 F-21
<PAGE>                48
NOTE 11 - STOCK WARRANTS (Continued)

The Company's affiliate, RPC, acquired 111,111 shares of the Company's
common stock during the year ended December 31, 1993, at a purchase
price of $333,333.  This transaction was pursuant to the exercise of a
stock purchase warrant granted to RPC by the Company's Board of
Directors on December 18, 1992, to purchase a maximum of 166,666 shares
at the minimum bid price on December 18, 1992 of $3.00 per share.  The
expiration date to purchase the remaining 55,555 additional shares
pursuant to this grant has been extended through December 31, 2002.

At the November 3, 1993 Board of Directors meeting, the Board of
Directors granted RPC additional warrants to purchase 175,000 shares of
the Company's common stock at prices ranging from $1.50 to $3.00 per
share.  The expiration date of this grant has been extended through
December 31, 2002.


NOTE 12 - OPERATING LEASES

The Company leases office space under a sixty month noncancellable
operating lease, which expires in July 2000. The lease calls for monthly
payments ranging from $10,875 to $12,325. Future minimum lease
obligations as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
  Year Ended December 31,
    <C>                                 <C>
    1999                                $   145,359
    2000                                     86,275
                                        -----------

                                        $   231,634
                                        ===========
</TABLE>

Rental expense for the years ended December 31, 1998 and 1997, was
$146,397 and $138,664, respectively.


NOTE 13 - RELATED PARTY TRANSACTIONS

Significant Ownership Interests

On December 31, 1998, 27.40% of the Company's common stock was owned by
Royale Petroleum Corporation (RPC). RPC is owned equally by Donald H.
Hosmer and Stephen M. Hosmer.

Harry E. Hosmer, the Company's former president and former chief
executive officer, is principal adviser to trusts which own 10.50% of
the Company's common stock at December 31, 1998. Donald H. and Stephen
M. Hosmer are sons of Harry E. Hosmer.  Donald H. Hosmer and Stephen M.
Hosmer are also officers and directors of the Company.

Related Party Receivables

Amounts due from officers were $49,412 and $34,218 at December 31, 1998
and 1997, respectively. Receivables from other related parties amounted
to $7,151 and $9,652 on December 31, 1998 and 1997, respectively.
                                 F-22
<PAGE>                49
NOTE 13 - RELATED PARTY TRANSACTIONS (Continued)

Stock Compensation Plan

On December 18, 1992, the Board of Directors granted the directors and
executive officers of the Company 30,000 options to purchase common
stock at an exercise or base price of $3.00 per share.  All options are
exercisable on or after the second anniversary of the date of grant. 
Also on this date, the Board of Directors voted to adopt a policy of
awarding stock options to key employees and contractors based on
performance. 

At the March 10, 1995 Board of Directors meeting, directors and
executive officers of the Company were granted 154,000 options to
purchase common stock at an exercise or base price of $1.90 per share.
These options were granted for a period of ten years, and may be
exercised after the second anniversary of the grant. The Company applies
APB Opinion 25 and related interpretations in accounting for its plans.
Accordingly, the Company recorded $48,150 as compensation expense for
the directors and officers in 1995. The Company did not grant stock
options during 1998 or 1997.

A summary of the status of the Company's stock option plan as of
December 31, 1998 and 1997, and changes during the years ending on those
dates is presented below:

<TABLE>
<CAPTION>
                               1998                       1997
                        ----------------------   ----------------------
                                  Weighted-                Weighted-
                                  Average                  Average
                        Shares   Exercise Price  Shares  Exercise Price
                        ------   --------------  ------  --------------
<S>                     <C>      <C>             <C>     <C>

Fixed Options
  Outstanding at
   beginning of year    184,000   $    2.15      184,000 $    2.86
  Granted                    -                        -
  Exercised              50,000                       -
                        -------                  -------

Outstanding at end
  of year               134,000                  184,000
                        =======                  =======

Options exercisable
  at year end           134,000                  184,000
                        =======                  =======

Weighted-average fair
  value of options
  granted during
  the year              $    -                   $    -
</TABLE>

The following table summarizes information about fixed stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
      Options Outstanding                      Options Exercisable
  ---------------------------------------   ---------------------------
                          Weighted-                               Weighted-
          Number          Average      Weighted-  Number          Average
Range of  Outstanding at  Remaining    Average    Outstanding at  Remaining
Exercise  December 31,    Contractual  Exercise   December 31,    Contractual
 Prices     1998          Life (Years) Price         1997         Life (Years)
--------- -------------   ------------ ---------  -------------   ------------
<C>       <C>             <C>          <C>        <C>             <C>

$ 3.00           30,000        4.0       $ 3.00          30,000         5.0
$ 1.90          104,000        6.2       $ 1.90         154,000         7.2
          -------------                           -------------

$ 1.90 to                               $ 1.90 to
$ 3.00          134,000        5.7      $ 3.00          184,000         6.6
          =============                           =============
</TABLE>
                                 F-23
<PAGE>   50

NOTE 13 - RELATED PARTY TRANSACTIONS (Continued)

The Board of Directors adopted a policy in 1989 that permits directors
and officers of the Company to purchase from the Company, at the
Company's actual cost, up to one percent of a fractional interest in any
well to be drilled by the Company.  Current and former officers and
directors received as compensation or were billed $24,811 and $35,475
for their interests for the years ended December 31, 1998 and 1997,
respectively.


NOTE 14 - ENVIRONMENTAL MATTERS

The Company has established procedures for the on-going evaluation of
its operations to identify potential environmental exposures and assure
compliance with regulatory policies and procedures. Management monitors
these laws and regulations and periodically assesses the propriety of
its operational and accounting policies related to environmental issues.
The nature of the Company's business requires routine day-to-day
compliance with environmental laws and regulations. The Company incurred
no environmental investigation, compliance and remediation costs in 1998
or 1997.

The Company is unable to predict whether its future operations will be
materially affected by these laws and regulations. It is believed that
legislation and regulations relating to environmental protection will
not materially affect the results of operations of the Company.


NOTE 15 - COMMITMENTS AND CONTINGENCIES

In 1996, the Company agreed to purchase 37,500 shares of its common
stock from an investor as part of a mediated settlement of litigation. 
The stock was purchased at a total price of $187,500 with 4,200 shares
purchased in December of 1996 for $21,000 and the remaining 33,300
shares purchased for $166,500 during 1997.  As of December 31, 1998, the
Company had satisfied their obligation under the agreement, however,
18,900 of the 37,500 shares had not been received by the Company from
the investor. Shares received by the Company as a result of this
settlement were canceled during 1998.

In October 1997, the Company settled its litigated issues with Stanley
L. Worthington. To avoid further litigation on this matter, the Company
agreed to re-purchase Mr. Worthington's oil and gas working interests.
The re-purchase amount, which is considered material to the financial
statements, was capitalized as an investment in the working interest
acquired.

In May 1998, the Company settled its litigated issues with Lucille F.
Biegel, et al. To avoid further litigation on this matter, the Company
agreed to re-purchase the claimants oil and gas working interests. The
re-purchase amount, which is considered material to the financial
statements, was capitalized as an investment in the working interest
acquired.
                                 F-24
<PAGE>   51
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)

Operating revenues, operating income, net income, and earnings per
common share by quarters from 1998 and 1997 are shown below. The
Company, in its opinion, has included all adjustments necessary for a
fair presentation of the results of operations for the quarters. Due to
the nature of Turnkey Drilling Revenues, which are recognized at
specified times over program development on specified wells,  annual
amounts are not generated evenly by quarter during the year.
<TABLE>
<CAPTION>
                                                                           Basic
                                          Aggregate                        Earnings Weighted-
                                          Effect of  Change in  Net        Per      Average
                    Total      Gross      Year-End   Accounting Income     Common   Shares
Quarter Ended       Revenues   Profit     Adjustment Principle  (Loss)     Shares   Outstanding
-------------       --------   ------     ---------- ---------- ------     -------- -----------
<S>                 <C>        <C>        <C>        <C>        <C>        <C>      <C>
December 31,  1998  $2,115,378 $  817,637 $(254,987) $1,193,528 $(233,095)   0.00    3,839,127
              1997   2,687,906  1,316,638        -           -    471,094    0.12    3,861,589

September 30, 1998  $1,732,662 $1,122,345 $      -   $       -  $ 333,262    0.09    3,797,636
              1997   2,314,392  1,366,755        -           -    522,926    0.13    3,853,569

June 30,      1998   3,025,311  1,484,204        -           -    567,944    0.15    3,832,629
              1997   2,520,193  1,258,232        -           -    448,332    0.12    3,845,062

March 31,     1998   1,491,779    917,268        -           -    106,295    0.03    3,864,845
              1997   1,543,635    659,684        -           -     68,039    0.02    3,837,555
</TABLE>
                                 F-25
<PAGE>          52
                          ROYALE ENERGY, INC.

SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

The following estimates of proved oil and gas reserves, both developed
and undeveloped, represent interests owned by the Company located solely 
in the United States.  Proved reserves represent estimated quantities of
crude oil and natural gas which geological and engineering data
demonstrate to be reasonably certain to be recoverable in the future
from known reservoirs under existing economic and operating conditions. 
Proved developed oil and gas reserves are reserves that can be expected
to be recovered through existing wells, with existing equipment and
operating methods.  Proved undeveloped oil and gas reserves are reserves
that are expected to be recovered from new wells on undrilled acreage,
or from existing wells for which relatively major expenditures are
required for completion.

Disclosures of oil and gas reserves which follow are based on estimates
prepared by independent engineering consultants for the years ended
December 31, 1998 and 1997.  Such estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved
reserves and in the projection of future rates of production and the
timing of development expenditures.  These estimates do not include
probable or possible reserves.

These estimates are furnished and calculated in accordance with
requirements of the Financial Accounting Standards Board and the
Securities and Exchange Commission (SEC).  Because of unpredictable
variances in expenses and capital forecasts, crude oil and natural gas
price changes, largely influenced and controlled by U.S. and foreign
government actions, and the fact that the bases for such estimates vary
significantly, management believes the usefulness of these projections
is limited.  Estimates of future net cash flows presented do not
represent management's assessment of future profitability or future cash
flows to the Company.  Management's investment and operating decisions
are based upon reserve estimates that include proved reserves prescribed
by the SEC as well as probable reserves, and upon different price and
cost assumptions from those used here.

It should be recognized that applying current costs and prices and a 10
percent standard discount rate does not convey absolute value.  The
discounted amounts arrived at are only one measure of the value of
proved reserves.
                                 F-26
<PAGE>    53
Changes in Estimated Reserve Quantities

The net interest in estimated quantities of proved developed reserves of
crude oil and natural gas at December 31, 1998 and 1997 and changes in
such quantities during each of the years then ended, were as follows:

<TABLE>
<CAPTION>
                              1998                   1997
                         -------------------  --------------------
                         Oil         Gas        Oil      Gas
                         (BBL)       (MCF)      (BBL)    (MCF)
                         -------   ---------  --------   --------
<S>                      <C>       <C>        <C>        <C>

Proved developed and
 undeveloped reserves:

  Beginning of period     4,698    16,882,699    1,647   12,909,322
  Revisions of previous
   estimates               (386)   (2,153,290)   3,730   (5,522,625)
  Production             (4,312)   (6,099,330)    (679)  (1,365,562)
  Extensions, discoveries
   and improved recovery     -      5,003,000       -     8,087,987
  Purchase of minerals
   in place                  -      1,614,921       -     2,773,577
  Sale of minerals
   in place                  -             -        -            -
                         -------   -----------  ------   ----------

Proved reserves end
  of period                  -     15,248,000    4,698   16,882,699
                         ======    =========    ======   ==========

Gas equivalent reserve       -                  46,980
                         ======                 ======

Proved developed and undeveloped
 reserves:
 
  Beginning of period     4,698    16,882,699    1,647   12,909,322
                         ======    ==========   ======   ==========

  End of period              -     15,248,000    4,698   16,882,699
                         ======    ==========   ======   ==========
</TABLE>

Standardized measure of discounted future net cash flows relating to
proved oil and gas reserves

The standardized measure of discounted future net cash flows is
presented below for the two years ended December 31, 1998.

The future net cash inflows are developed as follows:

     (1)  Estimates are made of quantities of proved reserves and
          the future periods during which they are expected to be
          produced based on year-end economic conditions.

     (2)  The estimated future production of proved reserves is
          priced on the basis of year-end prices.

     (3)  The resulting future gross revenue streams are reduced by
          estimated future costs to develop and to produce proved
          reserves, based on year end estimates.

     (4)  The resulting future net revenue streams are reduced to
          present value amounts by applying a ten percent discount.

Disclosure of principal components of the standardized measure of
discounted future net cash flows provides information concerning the
factors involved in making the calculation.  In addition, the disclosure
of both undiscounted and discounted net cash flows provides a measure of
comparing proved oil and gas reserves both with and without an estimate
of production timing.  The standardized measure of discounted future net
cash flow relating to proved reserves reflects estimated income taxes.
                                 F-27
<PAGE>                            54
<TABLE>
<CAPTION>
                                          1998           1997
                                        ------------ ---------
<S>                                     <C>          <C>
Future cash inflows                     $36,230,000  $37,322,465
Future production costs                 (10,674,000)  (8,721,586)
Future development costs                 (2,557,000)  (2,706,685)
Future income tax expenses               (6,899,700)  (7,782,165)
                                        -----------  -----------

Future net cash flows                    16,099,300   18,112,029

10% annual discount for estimated
  timing of cash flows                   (6,028,407)  (5,125,811)
                                        -----------  -----------

Standardized measure of discounted
  future net cash flow                  $10,070,893  $12,986,218
                                        ===========  ===========
</TABLE>

Changes in standardized measure of discounted future net cash flow from
proved reserve quantities

This statement discloses the sources of changes in the standardized
measure from year to year. The amount reported as "Net changes in prices
and production costs" represents the present value of changes in prices
and production costs multiplied by estimates of proved reserves as of
the beginning of the year. The "accretion of discount" was computed by
multiplying the ten percent discount factor by the standardized measure
on a pretax basis as of the beginning of the year. The "Sales of oil and
gas produced, net of production costs" are expressed in actual dollar
amounts. "Revisions of previous quantity estimates" is expressed at
year-end prices. The "Net change in income taxes" is computed as the
change in present value of future income taxes.

<TABLE>
<CAPTION>
                                          1998           1997
                                        ------------ ------------
<S>                                     <C>          <C>
  Standardized measure -
    beginning of year                   $12,986,218  $12,021,253
                                        -----------  -----------

  Sales of oil and gas produced,
    net of production costs              (6,824,289)  (1,515,072)

  Purchase of minerals in place           1,890,036    2,662,529

  Revisions of estimates of reserves
    provided in prior years:
     Net changes in prices and production
       costs                             (4,330,121)  (9,799,460)

  Extensions, discoveries and improved
    recovery                              5,057,000   10,422,897

  Accretion of discount                      42,624     (392,373)

  Net change in income taxes              1,249,425     (413,556)
                                        -----------  -----------

  Net increase (decrease)                (2,915,325)     964,965
                                        -----------  -----------

  Standardized measure - end of year    $10,070,893  $12,986,218
                                        ===========  ===========
</TABLE>
                                 F-28