*                                                                                    Asfiled with the SEC on November 12, 2002*

**SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KSB/AAmendment No. 1 to 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, 2001 | **                             ** | Commission File No. 0-22750 |
|---------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|

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

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

**7676 Hazard Center Drive, Suite 1500San Diego, CA 92108**(Address of principal executive offices)Issuer's telephone number:    **  619-881-2800**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, par value $.01 per share**(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 thepast 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to suchfiling 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 willnot be contained, to the best or registrant's knowledge, in definitive proxy or information statements incorporated by reference inPart III of this Form 10-KSB or any amendment to this Form 10-KSB. [   ]   State issuer's revenues for its most recent fiscal year:  $15,858,273.At December 31, 2001, there were 3,057,028 outstanding shares of registrant's Common Stock held by non-affiliates, with anaggregate market value of approximately $19,473,268, based on the closing Nasdaq price on that date.At December 31, 2001, a total of 4,386,354 shares of registrant's Common Stock were outstanding.DOCUMENTS INCORPORATED BY REFERENCE:  NoneExhibit Index appears on page 20.

**TABLE OF CONTENTS**

| Part I               |     |                                                                                                                                                                                          |     |    |
|----------------------|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|----|
| Item 1.              |     | Description of Business                                                                                                                                                                  |     | 1  |
|                      |     | Plan of Business                                                                                                                                                                         |     | 2  |
|                      |     | Competition, Markets and Regulation                                                                                                                                                      |     | 4  |
| Item 2.              |     | Description of Property                                                                                                                                                                  |     | 5  |
|                      |     | Northern California                                                                                                                                                                      |     | 6  |
|                      |     | Developed and Undeveloped Leasehold Acreage                                                                                                                                              |     | 6  |
|                      |     | Drilling Activities                                                                                                                                                                      |     | 6  |
|                      |     | Production                                                                                                                                                                               |     | 7  |
|                      |     | Net Proved Oil and Natural Gas Reserves                                                                                                                                                  |     | 7  |
| Item 3.              |     | Legal Proceedings                                                                                                                                                                        |     | 8  |
| Item 4.              |     | Submission of Matters to a Vote of Security Holders                                                                                                                                      |     | 9  |
|                      |     |                                                                                                                                                                                          |     | 9  |
| Part II              |     |                                                                                                                                                                                          |     |    |
| Item 5.              |     | Market Price of Royale Energy's Common Stock and Related Stockholder           Matters                                                 |     | 9  |
|                      |     | Dividends                                                                                                                                                                                |     | 9  |
|                      |     | No Recent Sales of Equity Securities                                                                                                                                                     |     | 9  |
| Item 6.              |     | Management's Discussion and Analysis of Financial Condition and Results           of Operations                                        |     | 10 |
|                      |     | Critical Accounting Policies                                                                                                                                                             |                    | 10 |
|                      |     | Results of Operations for the Twelve Months Ended December31, 2001, as           Compared to the Twelve Months Ended December 31, 2000 |     | 12 |
|                      |     | Capital Resources and Liquidity                                                                                                                                                          |     | 14 |
| Item 7.              |     | Financial Statements and Supplementary Data                                                                                                                                              |     | 15 |
|                      |     |                                                                                                                                                                                          |     |    |
| Part III             |     |                                                                                                                                                                                          |     |    |
| Item 9.              |     | Directors, Executive Officers, Promoters and Control Persons, Compliance           with Section 16(a) of the Exchange Act              |     | 15 |
|                      |     | Compliance with Section 16(a) of the Exchange Act                                                                                                                                        |     | 17 |
| Item 10.             |     | Executive Compensation                                                                                                                                                                   |     | 18 |
|                      |     | No Stock Options Were Granted in 2001                                                                                                                                                    |     | 19 |
|                      |     | Aggregated 2001 Option Exercises and Year-End Values                                                                                                                                     |     | 19 |
|                      |     | Compensation of Directors                                                                                                                                                                |     | 19 |
| Item 11.             |     | Security Ownership of Certain Beneficial Owners and Management                                                                                                                           |     | 19 |
|                      |     | Common Stock                                                                                                                                                                             |     | 20 |
|                      |     | Preferred Stock                                                                                                                                                                          |     | 21 |
| Item 12.             |     | Certain Relationships and Related Transactions                                                                                                                                           |     | 22 |
| Item 13.             |     | Exhibits, Lists, and Reports on Form 8-K                                                                                                                                                 |     | 23 |
| Signatures           |                    |                                                                                                                                                                           | 24                 |
| Financial Statements |     | F-1                                                                                                                                                                                      |

**ROYALE ENERGY, INC.**

**PART****  I**

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| **Item 1.** | **   ** | **Description of Business** |
|-------------|------------------------|-----------------------------|

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Royale Energy, Inc. ("Royale Energy"), is an independent oil and natural gas producer.  Royale Energy's principal lines ofbusiness are the production and sale of natural gas, acquisition of oil and gas lease interests and proved reserves, drilling ofboth exploratory and development wells, and sales of fractional working interests in wells to be drilled by Royale Energy. Royale Energy was incorporated in California in 1986 and began operations in 1988.  Royale Energy's Common Stock is traded onthe Nasdaq National Market System (symbol ROYL).  On March 23, 2002, Royale Energy had 17 full time employees.Royale Energy owns wells and leases located mainly in the Sacramento Basin and San Joaquin Basin in California.  Royale Energyusually sells a portion of the working interest in each lease that it acquires to third party investors and retains a portion ofthe prospect for its own account.  Selling part of the working interest to others allows Royale Energy to reduce its drillingrisk by owning a diversified inventory of properties with less of its own funds invested in each drilling prospect, than if RoyaleEnergy owned the whole working interest and paid all drilling and development costs of each prospect itself.  Royale Energygenerally sells working interests in its prospects to accredited investors in exempt securities offerings.  The prospects arebundled into multi-well investments, which permits the third party investors to diversify their investments by investing in severalwells at once instead of investing in single well prospects.During its fiscal year ended December 31, 2001, Royale Energy continued to explore and develop natural gas properties in northernCalifornia.  Royale Energy drilled eleven wells in 2001, seven of which are currently commercially productive wells. One wellis waiting on completion.  In 2001, four previously drilled wells were "shut-in," which means that the wellhead valves wereclosed, shutting off production.  The shut-in wells were awaiting further equipment or production arrangements to begin orrecommence operations, such as production equipment or pipeline easements.  Royale Energy's estimated total natural gasreserves decreased from approximately 16.7 Bcf (billion cubic feet) at December 31, 2000 to approximately 13.2 Bcf at December 31,2001.  According to the reserve report furnished to Royale Energy by WZI, Inc., Royale Energy's independent petroleumengineers, the net present value of its proved developed and undeveloped reserves was more than $13.6 million at December 31, 2001,based on natural gas prices ranging from $2.41 per Mcf to $2.85 per Mcf.  Of course, net present value does not represent thefair market value of our reserves on that date, and we cannot be sure what return we will eventually receive on our reserves. The engineer determined our standard measure of discounted future net cash flows at December 31, 2001, to be $9,013,270.Royale Energy reported gross revenues in connection with the drilling of wells on a "turnkey contract" basis, or sales offractional interests in undeveloped wells, in the amount of $6,703,452 for the year ended December 31, 2001, which represents 42.3%of its total revenues for the year.

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In the year ended 2000, Royale Energy reported $4,792,151 gross revenues for the year, representing 41.0% of Royale Energy'stotal revenues for that year.  These amounts are offset by drilling expenses and development costs of $3,065,747 in 2001, and$1,975,242 in 2000.  In addition to Royale Energy's own engineering staff, Royale Energy hires independent contractors todrill, test, complete and equip the wells that it drills.Approximately 53.3% of Royale Energy's total revenue for the year ended December 31, 2001 came from oil and natural gas sales fromproduction of its wells ($8,452,282).  In 2000, this amount was $6,194,451, which represented 53.0% of Royale Energy's totalrevenues.**Plan of Busine****ss**Royale Energy acquires interests in oil and natural gas reserves and sponsors private joint ventures.  Royale Energy believesthat its shareholders are better served by diversification of its investments among individual drilling projects.  Through itssale of joint ventures, Royale Energy can acquire interests and develop oil and natural gas properties with greater diversificationof risk and still receive an interest in the revenues and reserves produced from these properties.  By selling some of itsworking interest in most projects, Royale Energy decreases the amount of its investment in the projects and diversifies its oil andgas property holdings, to reduce the risk of concentrating a large amount of its capital in a few projects that may not besuccessful.After acquiring the leases or lease participation, Royale Energy drills or participates in the drilling of development andexploratory oil and natural gas wells on its property.  Royale Energy pays its proportionate share of the actual cost ofdrilling, testing, and completing the project to the extent that it retains all or any portion of the working interest.Royale Energy also may sell fractional interests in undeveloped wells to finance part of the drilling cost. A drilling contractthat calls for a drilling contractor to drill a well, for a fixed price, to a specified depth is called a "turnkey contract." WhenRoyale Energy sells fractional interests to raise capital to drill oil and natural gas wells, generally it agrees to drill thesewells on a turnkey contract basis, so that the holders of the fractional interests prepay a fixed amount for the drilling andcompletion of a specified number of wells.  Under a turnkey contract, Royale Energy recognizes gross revenue for the amountpaid by the purchaser and agrees to pay the expense of drilling and development of the well for the participants.  Sometimesthe actual drilling and development costs are less than the fixed amount that Royale Energy received from the fractional interestsale.When Royale Energy authorizes a turnkey drilling project for sale, a calculation is made to estimate the pre-drilling costs and thedrilling costs.  A percentage for each is calculated.  The turnkey drilling project is then sold to investors who executea contract with Royale Energy.  In this agreement, the investor agrees to share in the pre-drilling costs, which include leasecosts, geological and geophysical costs, and other costs as required so that the drilling of the project can proceed.  Asstated in the contract, the percentage of the pre-drilling costs that the investor

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contributes is non-refundable, and thus on its financial statements, Royale Energy recognizes these non-refundable payments asrevenue since the pre-drilling costs have commenced.  The remaining investment is held and reported by Royale Energy asdeferred revenue until the well is spudded (begun).  The deferred revenue is referred to as "remaining funds" in RoyaleEnergy’s disclosure.   See Note 1 to Royale Energy's Financial Statements on page F-7.  Royale Energymaintains internal records of the expenditure of each investor's funds for drilling projects.Royale Energy generally operates the wells it completes.  As operator, it receives fees set by industry standards from theowners of fractional interests in the wells and from expense reimbursements.  For the year ended December 31, 2001, RoyaleEnergy earned gross revenues from operation of the wells in the amount of $702,539, representing 4.4% of its total revenues on aconsolidated basis for that year.  In 2000, the amount was $700,750, which represented 6.0% of the consolidated totalrevenues.  As of December 31, 2001, Royale Energy holds working interests in 69 gas wells in California, with locationsranging from Tehama County in the north to Kern County in the south.Royale Energy's business does not depend on a single customer or a few customers and Royale Energy's management does not believethis will change in the foreseeable future.  Oil and natural gas purchasers are readily available in today's markets, andRoyale Energy does not believe that the loss of any customer would materially affect its business or its ability to find readypurchasers for its oil and gas production at current market prices. Natural gas demand and the prices paid for gas are seasonal. In recent years, natural gas demand and prices in Northern Californiahave decreased during the fall and winter and risen in the spring and summer, reflecting increased electricityconsumption.   In the winter and spring of 2001, a gas shortage in Northern California caused dramatic rises in the priceRoyale Energy received for its gas production.  The high prices in the first half of 2001 materially increased RoyaleEnergy’s revenues from gas production and sales in that period  Gas prices fell again in the summer of 2001. Discussions of a few natural gas price regulations, including price caps, have taken place at the state and federal levels. The fluctuations in gas prices and possible new regulations create uncertainty about whether Royale Energy can continue to producegas for a profit.  Royale Energy does not expect natural gas prices to return to their winter 2001 levels in the forseeablefuture.Affiliated EntitiesOn December 31, 2001, Royale Petroleum Corporation ("RPC") owned 31.5% of Royale Energy's Common Stock (including rights topurchase shares pursuant to warrants).  RPC is owned equally by Donald H. Hosmer and Stephen M. Hosmer, who arebrothers.  Donald H. Hosmer is president and director of Royale Energy, and Stephen Hosmer is chief financial officer anddirector of Royale Energy.  Donald H. and Stephen M. Hosmer are sons of Harry E. Hosmer, chairman of Royale Energy's board ofdirectors.  See, Security Ownership of Certain Beneficial Owners and Management on page 17.  RPC is a predecessor andaffiliate of Royale Energy.  RPC is a Delaware corporation formed in 1985.

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Royale Energy had no subsidiaries at December 31, 2001.**Competition, Markets and Regulati****on**CompetitionThe exploration and production of oil and natural gas is an intensely competitive industry.  The sale of interests in oiland gas projects, like those Royale Energy sells, is also very competitive.  Royale Energy encounters competition from otheroil and natural gas producers, as well as from other entities which invest in oil and gas for their own account or for others, andmany of these companies are substantially larger than Royale Energy.MarketsMarket factors affect the quantities of oil and natural gas production and the price Royale Energy can obtain for the productionfrom its oil and natural gas properties.  Such factors include: the extent of domestic production; the level of imports offoreign oil and natural gas; the general level of market demand on a regional, national and worldwide basis; domestic and foreigneconomic conditions that determine levels of industrial production; political events in foreign oil-producing regions; andvariations in governmental regulations including environmental, energy conservation, and tax laws or the imposition of newregulatory requirements upon the oil and natural gas industry.RegulationFederal and state laws and regulations affect, to some degree, the production, transportation, and sale of oil and natural gasfrom Royale Energy's operations.  Many states in which Royale Energy operates have statutory provisions regulating theproduction and sale of oil and natural gas, including provisions regarding deliverability.  These statutes, along with theregulations interpreting the statutes, generally are intended to prevent waste of oil and natural gas, and to protect correlativerights 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 andregulations to protect the environment.  Various federal and state agencies are considering, and some have adopted, other lawsand regulations regarding environmental controls that could increase the cost of doing business.  These laws and regulationsmay require: the acquisition of a permit by operators before drilling commences; the prohibition of drilling activities on certainlands lying within wilderness areas or where pollution arises; and the imposition of substantial liabilities for pollutionresulting from drilling operations, particularly operations in offshore waters or on submerged lands.  The cost of oil andnatural gas development and production also may increase because of the cost of compliance with such legislation and regulations,together with any penalties resulting from failing to comply with the legislation and regulations.  Ultimately, Royale Energymay bear some of these costs. 

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Presently, Royale Energy does not anticipate that compliance with federal, state and local environmental regulations will have amaterial adverse effect on capital expenditures, earnings, or its competitive position in the oil and natural gas industry;however, changes in the laws, rules or regulations, or the interpretation thereof, could have a materially adverse effect on RoyaleEnergy's financial condition or results of operation.Royale Energy files quarterly, yearly and other reports with the Securities Exchange Commission.  You may obtain a copy of anymaterials filed by Royale Energy with the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling 1-800-SEC-0300. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regardingissuers that file electronically with the SEC at http://www.sec.gov.
| **Item 2.** | **   ** | **Description of Property** |
|-------------|------------------------|-----------------------------|

Since 1993, Royale Energy has concentrated on development of properties in the Sacramento Basin and the San Joaquin Basin ofNorthern California.  In 2001, Royale Energy drilled eleven wells in northern California, eight of which are currentlycommercially productive wells.  There are nine shut-in wells that Royale Energy plans to return to production.  In 2001,Royale Energy performed perforating programs in three wells to recover gas reserves that were previously unrecoverable.  Thereare plans to perforate four other wells to recover gas.Following industry standards, Royale Energy generally acquires oil and natural gas acreage without warranty of title except as toclaims made by, through, or under the transferor.  In these cases, Royale Energy attempts to conduct due diligence as to titlebefore the acquisition, but it cannot assure that there will be no losses resulting from title defects or from defects in theassignment of leasehold rights.  Title to property most often carries encumbrances, such as royalties, overriding royalties,carried and other similar interests, and contractual obligations, all of which are customary within the oil and natural gasindustry.In December of 2000, Royale Energy, Inc. entered into an agreement with Bank One, Texas, NA ("Bank One"), in which Bank One assumedthe revolving line of credit that was originally extended to Royale Energy by Hibernia National Bank.  Under the terms of theagreement, from time to time, Royale Energy may borrow, repay, and reborrow money from Bank One with a total credit line of$15,000,000.  The maximum allowable amount of each credit request is governed by a formula in the agreement.  The initialmaximum allowable amount was $6,000,000.  At December 31, 2001, Royale Energy owed $2,000,000 under this credit line.Following is a discussion of Royale Energy's significant oil and natural gas properties.  Reserves at December 31, 2001, foreach property discussed below, have been determined by WZI, Inc., registered professional petroleum engineers, in accordance withits report submitted to Royale Energy on March 6, 2002 (the most recent report available).

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**Northern Californ****ia**Royale Energy owns lease interests in 12 gas fields with locations ranging from Tehama County in the north to Kern County in thesouth, in the Sacramento and San Joaquin Basins in northern California.  At December 31, 2001, Royale Energy operated 69 wellsin Northern California, and its estimated total proved developed and undeveloped gas reserves in Northern California wereapproximately 13.2 Bcf, according to Royale Energy's independently prepared reserve report.**Developed and Undeveloped Leasehold Acrea****ge**As of December 31, 2001, Royale Energy owned leasehold interests in the following developed and undeveloped properties in bothgross and net acreage.
|                  | **                   Developed                  ** |       | **                  Undeveloped             ** |
|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  | Gross Acres                                                                                                                                                                                                                                 |       | Net Acres                                                                                                                                                                                                 |       | Gross Acres |       | Net Acres |
| California       | 15,817.56                                                                                                                                                                                                                                   |       | 11,582.27                                                                                                                                                                                                 |       | 1,027.65 |       | 913.39  |
| All other States | 875.00                                                                                                                                                                                                                                      |       | 455.50                                                                                                                                                                                                    |       | 800.00 |       | 595.90  |
| Total            | 16,692.56                                                                                                                                                                                                                                   |       | 12,037.77                                                                                                                                                                                                 |       | 1,827.65 |       | 1,509.29  |

**Drilling Activiti****es**The following table sets forth Royale Energy's drilling activities during the years ended December 31, 1999, 2000, and 2001. All wells are located in the Continental U.S., in California, Texas, and Oklahoma.

| **Year** | **   ** | **Type of Well****(a)** | **Gross Wells****(b)** | **   ** | **Net Wells****(e)** |
|----------|------------------------|-------------------------|------------------------|------------------------|----------------------|
|          |         |                         | Total                  |         | Producing(c)         |     | Dry(d) |     | Producing(c) |     | Dry(d) |
| 1999     |         | Exploratory             | 3                      |         | 1                    |     | 2 |     | .4320     |     | .9653 |
|          |         | Developmental           | 9                      |         | 6                    |     | 3 |     | 1.8156     |     | 1.0758 |
|          |         |                         |                        |         |                      |     |  |     |  |     |  |
| 2000     |         | Exploratory             | 2                      |         | 2                    |     | - |     | .4104     |     | - |
|          |         | Developmental           | 7                      |         | 6                    |     | 1 |     | 2.7971     |     | .5295 |
|          |         |                         |                        |         |                      |     |  |     |  |     |  |
| 2001     |         | Exploratory             | 5                      |         | 3                    |     | 2 |     | 1.4311     |     | .6682 |
|          |         | Developmental           | 6                      |         | 5                    |     | 1 |     | 1.8565     |     | .6082 |

(a)          An exploratory well is one that is drilled in search of newoil and natural gas reservoirs, or to test the boundary limits of a previously discovered reservoir.  A developmental well isone drilled on a previously known productive area of an oil and natural gas reservoir with the objective of completing thatreservoir.(b)         Gross wells represent the number of actual wells in which RoyaleEnergy owns an interest.  Royale Energy's interest in these wells may range from 1% to 100%.(c)          A producing well is one that is producing oil and/or naturalgas that is being purchased on the market.

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(d)         A dry well is a well that is not deemed capable of producinghydrocarbons in paying quantities.(e)          One "net well" is deemed to exist when the sum of fractionalownership working interests in gross wells or acres equals one.  The number of net wells is the sum of the fractional workinginterests owned in gross wells expressed as a whole number or a fraction.As of December 31, 2001, Royale Energy had 52 gross (30.57 net) currently producing natural gas wells.

**Producti****on**The following table summarizes, for the periods indicated, Royale Energy's net share of oil and natural gas production, averagesales price per barrel (Bbl), per thousand cubic feet (Mcf) of natural gas, and the Mcf equivalent (Mcfe) for the barrels of oilbased on a 10 to 1 ratio of the price per barrel of oil to the price per Mcf of natural gas.  "Net" production is productionthat Royale Energy owns either directly or indirectly through partnership or joint venture interests produced to its interest afterdeducting royalty, limited partner or other similar interests.  Royale Energy generally sells its oil and natural gas atprices then prevailing on the "spot market" and does not have any material long term contracts for the sale of natural gas at afixed price.
|                                  |       |        2001      |       |       2000     |       |      1999     |
|----------------------------------|--------------------------------|------------------------------------------------------------------------------|--------------------------------|------------------------------------------------------------------|--------------------------------|------------------------------------------------------------|
| NET VOLUME                       |       |                                                                              |       |                                                                  |       |                                                            |
| Oil (Bbl)                        |       | 1,893                                                                        |       | 596                                                              |       | 2,215                                                      |
| Gas (Mcf)                        |       | 1,371,286                                                                    |       | 1,161,513                                                        |       | 1,331,887                                                  |
| Mcfe                             |       | 1,390,216                                                                    |       | 1,167,473                                                        |       | 1,354,037                                                  |
|                                  |       |                                                                              |       |                                                                  |       |                                                            |
| AVERAGE SALES PRICE              |       |                                                                              |       |                                                                  |       |                                                            |
| Oil (Bbl)                        |       | $        26.55                       |       | $      23.59                       |       | $     16.30                       |
| Gas (Mcf)                        |       | $          6.12            |       | $        5.32            |       | $       2.34            |
|                                  |       |                                                                              |       |                                                                  |       |                                                            |
| Net Production Costs & Taxes |       | $ 1,266,245                                                             |       | $  936,841                                             |       | $ 896,321                                             |
|                                  |       |                                                                              |       |                                                                  |       |                                                            |
| Lifting Costs (per Mcfe)         |       | $          0.91            |       | $        0.60            |       | $       0.49            |

**Net Proved Oil and Natural Gas Reserv****es**As of December 31, 2001, Royale Energy had proved developed reserves of 11,245 MMcf and total proved reserves of 13,161 MMcf ofnatural gas on all of the properties Royale Energy  leases.  For the same period, Royale Energy also had proved developedoil reserves of 8 Mbbl and total proved oil reserves of 8 Mbbl on the same properties.Oil and gas reserve estimates and the discounted present value estimates associated with the reserve estimates are based onnumerous engineering, geological and operational assumptions that generally are derived from limited data. 

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Common assumptions include such matters as the areal extant and average thickness of a particular reservoir, the averageporosity and permeability of the reservoir, the anticipated future production from existing and future wells, future developmentand production costs and the ultimate hydrocarbon recovery percentage.  As a result, oil and gas reserve estimates anddiscounted present value estimates are frequently revised in subsequent periods to reflect production data obtained after the dateof the original estimate.  If the reserve estimates are inaccurate, production rates may decline more rapidly thananticipated, and future production revenues may be less than estimated.Additional data relating to Royale Energy's oil and natural gas properties is disclosed in Supplemental Information About Oil andGas Producing Activities (Unaudited), attached to Royale Energy's Financial Statements, beginning on page F-1.  The oil andnatural gas reserve information disclosed in the supplement to the financial statements are based upon the reserve reports for theyears ended December 31, 2001 and 2000, prepared by Royale Energy's independent reserve engineering consultants.
| **Item 3.** | **   ** | **Legal Proceedings** |
|-------------|------------------------|-----------------------|

*Buck, et al., v. Royale Energy, et al., No. C 00-CV-1499-K (NLS), U.S. District Court, Southern District ofCalifornia.*  On December 10, 1999, a group of 16 investors in drilling projects sponsored by Royale Energy from 1994 to1998 filed suit against Royale Energy and certain of its officers and former officers in U.S. District Court for the NorthernDistrict of California, alleging fraud, negligent misrepresentation, breach of fiduciary duties and other related claims inconnection with the sales of working interests in those projects.  The complaint generally states that the defendants failedto adequately disclose the company's track record regarding previously drilled wells and makes other general statements aboutmisconduct which are not, in Royale Energy's view, supported by specific factual allegations.  The suit seeks an unspecifiedamount of damages, restitution of amounts the plaintiffs invested, and punitive damages.  In July 2000, the court grantedRoyale Energy's motion to transfer the case to the U.S. District Court for the Southern District of California.  No discoveryhas been conducted in the case.  No discovery has ever been conducted in the case since it was filed in December 1999. If the plaintiffs elect to pursue this case, Royale Energy will contend that the plaintiffs suffered no damages, that their claimsare completely without merit and that the complaint fails to state a claim on which relief can be based.*Blue Star Resources, et al., v. Royale Energy, Inc.,No. 49460, Superior Court of Tehama County, California.* On October 12,2001, Blue Star Resources, Inc. and others filed suit against Royale Energy for declaratory relief, money damages, and impositionof a constructive trust, seeking a working interest and drilling rights to certain properties covered by a joint operatingagreement between plaintiffs and Royale Energy.  The dispute is over whether plaintiffs failed to consent to drillingoperations that resulted in a commercially productive well drilled by Royale Energy and thereby lost their rights to workinginterests in the well.  The case is set for trial in January 2003.  In March 2001, the court dismissed the plaintiffs'motion for partial summary judgment.  Royale Energy has sought leave of the court to file a partial summary judgment of itsown.  The Plaintiffs alleged money damages of more than $1,000,000.

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| **Item 4.** | **   ** | **Submission of Matters to a Vote of Security Holders** |
|-------------|------------------------|---------------------------------------------------------|

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No matters were submitted to a vote of security holders during the fourth quarter of 2001.

**PART****II**
| **Item 5.** | **   ** | **Market Price of Royale Energy's Common Stock and Related Stockholder Matters** |
|-------------|------------------------|----------------------------------------------------------------------------------|

****

Since 1997 Royale Energy's Common Stock has been traded on the Nasdaq National Market System under the symbol "ROYL."  Asof December 31, 2001, 4,386,354 shares of Royale Energy's Common Stock were held by approximately 2,800 shareholders.  Thefollowing table reflects high and low quarterly sales prices from January 2000 through December 2001.
|      |          1st Quarter      |    |        2nd Quarter      |    |         3rd Quarter       |    |        4th Quarter        |
|------|-------------------------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------|
|      |   High                                                                           |    |  Low                                                                      |    |   High                                                                           |    |  Low                                                                                  |    |   High  |    |   Low  |    |   High  |    |   Low  |
| 2000 | 3.125                                                                                           |    | 2.125                                                                               |    | 3.3125                                                                                          |    | 2.25                                                                                            |    | 7.00 |    | 2.4375 |    | 7.4375 |    | 2.75 |
| 2001 | 7.88                                                                                            |    | 5.50                                                                                |    | 21.00                                                                                           |    | 6.56                                                                                            |    | 17.19 |    | 6.70 |    | 9.50 |    | 4.02 |

****

**Dividen****ds**On June 15, 2001, Royale Energy paid a 15% stock dividend to its security holders of record on May 25, 2001.  All commonshareholders received the dividend in common shares, equal to 15% of their share holdings as of the record date.  The dividendalso increased by 15%, the number of shares of common stock issuable on exercise of all outstanding warrants and options and onconversion of all outstanding preferred shares.  As a result of the dividend, the number of outstanding common sharesincreased by 569,147 shares (not including shares that may be issued on the exercise of options and warrants and on the conversionof preferred stock).On March 18, 2002, Royale Energy's board of directors declared another 15% stock dividend to its security holders of record as ofMay 31, 2002.  The dividend will increase the number of shares of common stock outstanding and those issuable on exercise ofall outstanding warrants and options and on conversion of all outstanding shares.  Based on the number of shares outstandingon March 18, 2002, (4,373,514 shares)the dividend would increase the number of outstanding common shares by 656,027 shares (notincluding shares that may be issued on the exercise of options and warrants and on the conversion of preferred stock).**No Recent Sales of Equity Securities**Royale Energy sold no equity securities in the fourth quarter of 2001.

-9-
| **Item 6.** | **   ** | **Management's Discussion and Analysis of Financial Condition and Results of perations** |
|-------------|------------------------|------------------------------------------------------------------------------------------|

The following discussion should be read in conjunction with Royale Energy’s Financial Statements and Notes thereto andother financial information relating to Royale Energy included elsewhere in this document.For the past seven years, Royale Energy has primarily acquired and developed producing and non-producing natural gas properties inNorthern California.  The most significant factors affecting the results of operations are (i) changes in the sales price ofnatural gas, (ii) recording of turnkey drilling revenues and the associated drilling expense, and (iii) the change in natural gasreserves owned by Royale Energy.**Critical Accounting Policies**Royale Energy’s financial statements include its *pro rata* ownership of wells.  Royale Energy usually sells aportion of the working interest in each lease that it acquires to third party investors and retains a portion of the prospect forits own account.  Royale Energy generally retains about a 30% working interest.  All results, successful or not, areincluded at its *pro rata* ownership amounts: revenue, expenses, assets, and liabilities.Royale Energy has developed two profit-oriented segments of business: marketing Direct Working Interests (DWI), and producing oiland gas.Revenue RecognitionRoyale Energy derives DWI revenue from sales of working interests to high net worth individuals.  The DWI revenue isdivided into payments for pre-drilling costs and for drilling costs.  DWI investments are non-refundable.  Royale Energyrecognizes the pre-drilling revenue portion when the investor deposits money with Royale Energy.  The company holds theremaining investment in trust as deferred revenue until the well is spudded (begun).  Occasionally, spudding is delayed due tothe permitting process, or drilling rig availability.  At June 30, 2002 and December 31, 2001, Royale Energy had deferreddrilling revenue of $1,955,380 and $2,740,991, respectively.  Gross profit from this line of business decreased from 54% in2001 to 35% in the six months ended June 30, 2002.The second business segment is oil and gas production.  Over 80% of Royale Energy’s successful wells produce gas inNorthern California.  Natural gas flows from the wells into gathering line systems, which are equipped occasionally withcompressor systems, which in turn flow into metered customer pipelines.  Monthly, customers measure and price gas flows andcompute the compensation due to Royale Energy and other working interest owners.  Royale Energy operates virtually all of itsown wells and receives industry approved operator fees.

-10-

Royale Energy follows the successful efforts method of accounting for oil and gas properties.  Costs are accumulated on afield by field basis.  These costs include pre-drilling activities such as delay and leasing rents paid, drilling costs, andpost-drilling tangible costs.  Costs of unproved properties are excluded from amortization until the properties areevaluated.  Royale Energy regularly evaluates its unproved properties on a field by field basis for possible impairment. Due to the unpredictable nature of exploration drilling activities, the amount and timing of impairment expenses are difficult topredict with any certainty.The successful efforts method of accounting uses proved reserves in the calculation of depletion, depreciation andamortization.  Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids which geologicaland engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic andoperating conditions.  Proved reserves cannot be measured exactly, and the estimation of reserves involves judgmentdeterminations.  Reserve estimates must be reviewed and adjusted periodically to reflect additional information gained fromreservoir performance, new geological and geophysical data and economic changes.  The estimates are based on currenttechnology and economic conditions, and Royale Energy considers such estimates to be reasonable and consistent with currentknowledge of the characteristics and extent of production.  The estimates include only those amounts considered to be provedreserves and do not include additional amounts which may result from new discoveries in the future, or from application ofsecondary and tertiary recovery processes where facilities are not in place or for which transportation and/or marketing contractsare not in place.  Changes in previous estimates of proved reserves result from new information obtained from productionhistory and changes in economic factors.Impairment Of AssetsProducing property costs are evaluated for impairment and reduced to fair value if the sum of expected undiscounted future cashflows is less than net book value pursuant to Statement of Financial Accounting Standard No. 121 (SFAS 121) "Accounting for theImpairment of Long-Lived Assets and for the Long-Lived Assets to Be Disposed Of."  Impairment of non-producing leasehold costsand undeveloped mineral and royalty interests are assessed periodically on a property-by-property basis, and any impairment invalue is currently charged to expense.The preparation of financial statements in conformity with accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses duringthe reporting period.  The most significant estimates pertain to proved oil, plant products and gas reserve volumes and thefuture development costs.  Actual results could differ from those estimates.

-11-

Deferred income taxes reflect the net tax effects, calculated at currently enacted rates, of (a) future deductible/taxableamounts attributable to events that have been recognized on a cumulative basis in the financial statements or income tax returns,and (b) operating loss and tax credit carry forwards.  A valuation allowance for deferred tax assets is recorded when it ismore likely than not that the benefit from the deferred tax asset will not be realized.******Results of Operations for the Twelve Months Ended December 31, 2001, as Compared to the Twelve Months Ended December 31,2000**For the year ended December 31, 2001, Royale Energy achieved a net profit of $3,746,524, a $686,389 or 22.4% increase over thenet profit of $3,060,135 achieved during the year in 2000.  Royale Energy’s management attribute this to an increase inoil and gas sales resulting from increased production and higher natural gas prices, and an increase in turnkey drillingrevenues.  Total revenues for the year ended December 31, 2001 were $15,858,273, a $4,170,921 or 35.7% increase from the totalrevenues in 2000 of $11,687,352, again as a result of higher turnkey drilling revenues and natural gas sales.  For the year in2001, Royale Energy’s net operating profit was $4,171,514, an increase of $605,621 or 17% over the net operating profit of$3,565,893 during the year in 2000.Oil and gas revenues for the year ended December 31, 2001, were $8,452,282 compared to $6,194,451 for the same period in 2000,which represents a $2,257,831 or 36.5% increase.  This increase in revenues was mainly due to an increase in production andprice Royale Energy received for its natural gas production during the year in 2001.  The net sales volume for the year endedDecember 31, 2001, was 1,371,286 Mcf with an average price of $6.12 per Mcf, versus 1,161,513 Mcf with an average price of $5.32per Mcf for 2000, which represents an increase in net sales volume of 209,773 Mcf or 18.1%.  The net sales volume for oil andcondensate (natural gas liquids) production was 1,893 barrels with an average price of $26.55 per Bbl for the period ended December31, 2001, compared to 596 barrels at an average price of $23.59 per Bbl for the same period in 2000, which represents an increasein net sales volume of 1,297 barrels or 217.6%.Royale Energy’s oil and gas lease operating expenses increased by 35.2% or $329,404, to $1,266,245 for the year endedDecember 31, 2001, from $936,841 for the same period in 2000.  This can be attributed to the increase in the number of wellsoperated by Royale Energy during the year in 2001 when compared to 2000, due to the wells drilled and placed into production during2000 and 2001.  For 2001, Royale Energy's gross margin on oil and gas production (excluding drilling and development costs)was 85%, compared to 84.9% in 2000.For the year ended December 31, 2001, turnkey drilling revenues increased $1,911,301, to  $6,703,452 in 2001 from $4,792,151in 2000, or 39.9% for the year.  Royale Energy also experienced a $1,090,505 or 55.2% increase in turnkey drilling anddevelopment costs from $1,975,242 in 2000 to $3,065,747 in 2001.  This increase in turnkey revenues and costs was due to thedrilling of more wells and higher drilling costs per well during the year in 2001 when compared to 2000. 

-12-

Royale Energy’s gross margins, or profits, on drilling depend on our ability to accurately estimate the costs associatedwith  the development of projects in which we sell working interests.  Costs associated with contract drilling depend onlocation, well depth, weather, and availability of drilling contractors and equipment.  Royale Energy's gross margin ondrilling was 54.3% and 58.8% for the years ended December 31, 2001 and 2000, respectively.Royale Energy’s aggregate of supervisory fees and other income was $702,539 for the year ended December 31, 2001, an increaseof $1,789 (.26%) from $700,750 during 2000.  Supervisory fees are charged in accordance with the Council for PetroleumAccountants Societies (COPAS) policy for reimbursement of expenses associated with the joint accounting for billing, revenuedisbursement, and payment of taxes and royalties.  These charges are reevaluated each year and adjusted up or down as deemedappropriate by a published report to the industry by Ernst & Young, Public Accountants.  Supervisory fees increased$27,537 or 7.9%, from $350,371 in 2000 to $377,908 in 2001.Depreciation, depletion and amortization expense increased to $1,282,640 from $586,907, an increase of $695,733 (118.5%) for 2001,compared to 2000.  This increase mainly resulted from a change in the company's method of reviewing for impairment of longlived assets.  In fiscal 2000, Royale Energy restated its 1997 – 2000 financial statements because it changed the methodof reviewing for impairment of oil and gas properties from a region by region to field by field basis.  The change inimpairment analysis caused Royale Energy to increase amounts recorded as lease impairments in fiscal 2000 and 1999.  Theserestatements reduced our depreciation, depletion and amortization expenses for 2000, and also resulted in an increase in ourdepreciation, depletion and amortization expense for 2001.  *See Note 2 to Financial Statements –Restatements.*Impairment losses of $2,062,028 and $1,540,845 were recorded in 2001 and 2000, respectively.  Royale Energy performs aperiodic review for impairment of proved properties on a field by field basis.  Unamortized capital costs are measured on afield basis and are reduced to fair value if it is determined that the sum of expected future net cash flows are less than the netbook value. Royale Energy determines if an impairment has occurred through either adverse changes or as a result of its periodicreview for impairment. Impairment is measured on discounted cash flows utilizing a discount rate appropriate for risks associatedwith the related properties or based on fair market values.Effective December 31, 1998, Royale Energy began to perform a periodic review for impairment on a region by region basis, and ourannual reports for the fiscal years ended December 31, 1998, 1999 and 2000 reflected this impairment procedure.  In 2001,after the Royale Energy filed its annual report for December 31, 2000, the company determined that it is more appropriate toconduct the impairment analysis on a field by field basis.  This resulted in a restatement of the amount of impairedproperties in 1998, 1999, and 2000, and in the additional impairment of properties in 2001.

-13-

Upon the sale of oil and gas reserves in place, costs less accumulated amortization of such property are removed from theaccounts and resulting gain or loss on sale is reflected in operations. Impairment of unproved properties are assessed periodicallyon the basis of the lowest available unit, either field by field or property-by-property as appropriate, and any impairment invalue is currently charged to expense. In addition, capitalized costs of unproved properties are assessed periodically to determinewhether their value has been impaired below the capitalized costs. Loss is recognized to the extent that such impairment isindicated. In making these assessments, factors such as exploratory drilling results, future drilling plans, and lease expirationterms are considered. When an entire interest in an unproved property is sold, gain or loss is recognized, taking intoconsideration any recorded impairment.  Upon abandonment of properties, the reserves are deemed fully depleted and anyunamortized costs are recorded in the statement of income under impairment expense.Royale Energy also reevaluated its inventory of geological lease and land costs, which had been previously capitalized, in order towrite off those prospects which may be no longer viable.  As a result, $56,806 of previously capitalized costs were writtenoff and recorded as geological and geophysical expense during 2001 compared with $22,337 written off in 2000, a $34,469 or 154.3%increase.General and administration expenses increased by $508,580, or 29.3%, from $1,737,201 for the year ended December 31, 2000 to$2,245,781 for the same period in 2001.  Legal and accounting expense increased to $644,812 for the year, compared to $635,893for 2000, an $8,919 (1.4%) increase.  The increase can be attributed to the higher litigation costs during the year in 2001when compared to 2000.  Marketing expense for the year ended December 31, 2001, increased $376,507 or 54.9%, to $1,062,700,compared to $686,193 for 2000.  Royale Energy’s marketing expense varies from period to period according to the numberof marketing events attended by personnel and associated travel costs.During the year in 2000, Royale Energy extended an existing credit line from a major commercial bank.  Because of a markeddecrease in borrowings pursuant to this credit line, interest expense decreased to $54,455 for the year ended December 31, 2001,from $427,304 for the same period in 2000, a $372,849 or 87.3% decrease.**Capital Resources and Liquidity**At December 31, 2001, Royale Energy had current assets totaling $7,352,358 and current liabilities totaling $6,283,992, a$1,068,366 working capital reserve.  Royale Energy expects to continue to generate sufficient cash from its operations duringthe year in 2002 to fund its operating and capital expenditure requirements.  Unused available credit from RoyaleEnergy’s bank totaled approximately $5,525,000 at December 31, 2001.

-14-

Operating Activities.  For the year ended December 31, 2001, cash provided by operating activities totaled $7,705,142 or$1.85 per basic share compared to $3,415,118 or $0.82 per basic share provided by operations for 2000 which represents a $4,290,024or 125.6% increase.  This increase in cash provided in 2001 can be mainly attributed to increased oil and gas sales during theyear in 2001. Investing Activities.  Net cash used by investing activities, primarily in capital acquisitions of oil and gas properties,amounted to $3,728,035 for the period in 2001, compared to $2,234,845 used by investing activities for 2000.  The increase incash used by investing activities can be primarily attributable to the drilling of eleven wells during the year in 2001 versus thedrilling of nine wells during the year in 2000.Financing Activities.  Net cash used by financing activities for the year ended December 31, 2001,  was $2,952,089,compared to cash used by financing activities during the year in 2000 of $90,411.  The increase in net cash used by financingactivities was mainly due to the decrease in the use of Royale Energy’s credit facility during the period in 2001 whencompared to 2000.
| **Item 7.** | **   ** | **Financial Statements and Supplementary Data** |
|-------------|------------------------|-------------------------------------------------|

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

**PART I****II**
| **Item 9.** | **  ** | **Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act** |
|-------------|------------------|---------------------------------------------------------------------------------------------------------------------|

****

Listed below is certain information about Royale Energy's current directors and executive officers.  Directors are electedby shareholders at each annual shareholders' meeting and serve until their successors are elected and qualified.  Officersserve at the discretion of the board of directors.The following persons currently serve as the directors and executive officers of Royale Energy, its subsidiaries and affiliatedcompanies.

-15-
| **Name**               |    | **Age** |    | **First Became Director or Executive Officer** |    | **Positions Held**                                                                                            |
|------------------------|--------------|---------|--------------|------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------|
| Harry E. Hosmer*       |    | 71      |    | 1986                                           |    | Chairman of the Board                                                                                         |
| Donald H. Hosmer+      |    | 48      |    | 1987                                           |    | President, Secretary and Director Chairman of the Board and President of Royale Petroleum Corporation ("RPC") |
| Stephen M. Hosmer+     |    | 35      |    | 1996                                           |    | Chief Financial Officer and Director Secretary and Director of RPC                                            |
| Oscar A. Hildebrandt*+ |    | 66      |    | 1995                                           |    | Director                                                                                                      |
| Rodney Nahama          |    | 70      |    | 1994                                           |    | Director                                                                                                      |
| Gilbert Kemp           |    | 68      |    | 1998                                           |    | Director                                                                                                      |
| George M. Watters*+    |    | 82      |    | 1991                                           |    | Director                                                                                                      |

*          Member of the audit committee.+          Member of the compensation committee.Following is a summary of the business experience of each director and executive officer for the past five years.HARRY E. HOSMER is the Chairman of the Board of Royale Energy.  He has served as Chairman since Royale Energy began in 1986,and from inception in 1986 until June 1995, he also served as President and Chief Executive Officer.  In October 1985, Mr.Hosmer and his sons founded Royale Petroleum Corporation, an affiliate of Royale Energy.DONALD H. HOSMER is President, Chief Executive Officer, Secretary, and Director of Royale Energy.  He has served as anexecutive officer and Director of Royale Energy since its inception in 1987, and in June 1995 he became President and ChiefExecutive Officer.  Prior to becoming President, he was Executive Vice President, responsible for marketing working interestsin oil and gas projects developed by Royale Energy.  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 Royale Energy.  Mr. Hosmer joined Royale Energy as the ManagementInformation Systems Manager in May 1988, responsible for developing and maintaining Royale Energy's computer software.  Mr.Hosmer developed programs and software systems used by Royale Energy.  From 1991 to 1995, he served as president of RoyaleOperating Company, Royale Energy's operating subsidiary.  In 1995, he became Chief Financial Officer fo Royale Energy. In 1996, he was elected to the board of directors of Royale Energy.  Mr. Hosmer serves on the board of directors of Youth forChrist, a charitable organization in San Diego, California. Stephen M. Hosmer is the son of Harry E. Hosmer and brother of DonaldH. Hosmer.  He has a B.S. degree from Oral Roberts University in Business Administration.

-16-

OSCAR HILDEBRANDT, D.V.M., is a Director and is Chairman of Royale Energy's Compensation Committee.  From 1994 to 1995 heserved as an advisory member of Royale Energy's Board of Directors.  Dr. Hildebrandt practiced veterinary medicine asPresident of Medford Veterinary Clinic, Medford, Wisconsin, from 1960 to 1990.  Since 1990, Dr. Hildebrandt has engagedindependently 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.  From1990 to the present he has acted as a financial advisor engaged in private business interests.  Dr. Hildebrandt received aBachelor of Science degree from the University of Wisconsin in 1954 and a Doctor of Veterinary Medicine degree from the Universityof 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 3-D Geophysical, Inc., where he served as Vice President from 1996 until March 1998.  In March1998 3-D Geophysical, whose stock had been listed on the Nasdaq National Market System since February 1996, merged with WesternAtlas, Inc. During the years 1987 to 1995, Mr. Kemp served as President and CEO of Kemp Geophysical Corporation, which owned andoperated seismic crews in the United States and Canada.RODNEY NAHAMA, a Director of Royale Energy, was employed as president and chief executive officer of Nahama & Weagant EnergyCo. from 1971 until March 1994.  Since March 1994, Mr. Nahama has pursued private business interests, including the provisionof geologic consulting services to Royale Energy.  Mr. Nahama holds a B.A. degree in geology from the University ofCalifornia, Los Angeles, and an M.A. degree in geology from the University of Southern California.  He was an independentexploration geologist from 1965 to 1971 and prior to that served as a geologist with Franco Western Oil Company from 1963 to1965.  Between 1957 and 1963, Mr. Nahama worked as an exploration geologist with Honolulu Oil Company, Getty Oil Company, andSunray Oil Company.  Mr. Nahama is a member of the American Association of Petroleum Geologists, the San Joaquin GeologicalSociety, 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 AMOCOCorporation in 1983 after serving for 24 years in senior management positions with AMOCO Corporation and its affiliates.  From1987 to the present Mr. Watters has managed his personal investments. Mr. Watters received his B.S. degree from MassachusettsInstitute of Technology in 1942.**Compliance with Section 16(a) of the Exchange A****ct**Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission regulations require that RoyaleEnergy's directors, certain officers, and greater than 10 percent shareholders file reports of ownership and changes in ownershipwith the SEC and the NASD and furnish Royale Energy with copies of all such reports they file.  One director, Harry E. Hosmer,filed a late report on Form 5 of his reacquisition of 392,500 shares of Royale Energy's common stock from two charitable trusts inMay 2000. 

-17-

Based solely upon a review of the copies of the forms furnished to Royale Energy, or representations from certain reportingpersons that no reports were required, Royale Energy believes that no other persons failed to file required reports on a timelybasis during or in respect of 2001.**Item 10.          Executive Compensati****on**The following table summarizes the compensation of the chief executive officer and the other most highly compensated executiveofficers of Royale Energy and its subsidiaries during the past year.

|                                                                                                                        |    |                  |    | **                       AnnualCompensation                ** |    | **    Long Term       Compensation  ** |
|------------------------------------------------------------------------------------------------------------------------|--------------|------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------|
| (a)                                                                                                                    |    | (b)              |    | (c)                                                                                                                                                                                                                                          |    | (d)                                                                                 |    | (e)           |    | (i) |
|           Name          |    |  Year  |    |    Salary                                                                                                                                                                                                                               |    |   Bonus                                                                             |    |     Other Annual  Compensation (1) |    |       All Other     Compensation (2) |
|                                                                                                                        |    |                  |    |                                                                                                                                                                                                                                                                  |    |                                                                                                    |    |  |    |  |
| Donald Hosmer                                                                                                          |    | 2001             |    | $143,289                                                                                                                                                                                                                                                         |    | $50,000                                                                                            |    | $  2,541     |    | $  4,000     |
|    President                                                                                            |    | 2000             |    | $135,046                                                                                                                                                                                                                                                         |    | $10,000                                                                                            |    | $     653     |    | $  2,400     |
|                                                                                                                        |    | 1999             |    | $135,046                                                                                                                                                                                                                                                         |    |                                                                                                    |    | $     415     |    | $  2,400     |
|                                                                                                                        |    |                  |    |                                                                                                                                                                                                                                                                  |    |                                                                                                    |    |  |    |  |
| Stephen Hosmer                                                                                                         |    | 2001             |    | $119,656                                                                                                                                                                                                                                                         |    | $50,000                                                                                            |    | $  1,757     |    | $  3,500     |
|    CFO                                                                                                  |    | 2000             |    | $112,539                                                                                                                                                                                                                                                         |    | $10,000                                                                                            |    | $     630     |    | $  3,300     |
|                                                                                                                        |    | 1999             |    | $112,539                                                                                                                                                                                                                                                         |    |                                                                                                    |    | $     321     |    | $  3,300     |

(1)         Under the terms of a plan adopted by the board of directors in1989, each of the listed executives has elected to participate in wells drilled by Royale Energy.  See, Certain Relationshipsand Related Transactions on page 19.  The costs that they incurred for interests acquired in wells pursuant to this policy areless than would have been the cost of purchasing an equivalent percentage as working interests in these wells which are sold tounaffiliated outside investors.  The difference between the executives' actual cost and the cost incurred by outside investorscould be considered as additional compensation to them.  However, Royale Energy's management does not believe that the amountof such difference is significant.  In addition, prior to June 1995, Royale Energy advanced funds to the executives to pay fortheir well participation interests.  To the extent that the advances amount to interest free loans, the executives could alsobe considered to have received additional compensation.  The Other Annual Compensation in the foregoing table consists of theamounts which the management believes may be considered income to be imputed from such foregone interest.  The imputedinterest was estimated using approximate amounts due at the end of each period, as if that amount had been due for the entireperiod.  Royale Energy used the imputed interest rate of 7% simple interest per annum. In June 1995, Royale Energy's policyregarding advancement of funds was changed.  The current policy requires that all such purchases of interests in wells must bepaid in cash.

-18-

(2)         Includes Royale Energy's matching contribution in 2001 for DonaldHosmer ($4,000) and Stephen Hosmer ($3,500) to Royale Energy's retirement savings plan initiated in April 1998.  For yearending 2000, includes matching contribution for Donald Hosmer ($2,400) and Stephen Hosmer ($3,300) and for the year ending 1999,includes matching contribution for Donald Hosmer ($2,400) and Stephen Hosmer ($3,300).Royale Energy does not have employment agreements with any of its executives.**No Stock Options Were Granted in 20****01**Royale Energy did not grant any stock options or stock appreciation rights or Long-Term Incentive Plan Awards to its officers oremployees during 2001.**Aggregated 2001 Option Exercises and Year-End Valu****es**None of the executive officers named in the Summary Compensation Table exercised any stock options or stock appreciation rights in2001, 2000, or 1999.  The following table summarizes the number and value of all unexercised stock options held by thoseexecutive officers at the end of 2001.

|       (a)        | (b)                                                             |    | (c)                |    | (d)                                                                                                                                                                                                                             |    | (e)                                                                                                                                                                                                                                                                                             |
|------------------------------------------------|----------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                |                                                                                                    |    |                                        |    | Number of Securities Underlying    Unexercised Options/SARs at                           FY-End                   |    |     Value of Unexercised In-the-        Money Options/SARs at FY-                          End (1)                    |
|     Name    |     Shares       Acquired  on Exercise |    |   Value   Realized |    | Exercisable                                                                                                                                                                                                                                                                                                                                                       |    | Unexercisable                                                                                                                                                                                                                                                                                                                                                                                                      |    | Exercisable |    | Unexercisable |
| Donald Hosmer, President                       | 0                                                                                                  |              | $0                                     |    | 17,500                                                                                                                                                                                                                                                                                                                                                            |    | 0                                                                                                                                                                                                                                                                                                                                                                                                                  |    | $111,475 |    | $0 |
|                                                |                                                                                                    |              |                                        |    |                                                                                                                                                                                                                                                                                                                                                                   |    |                                                                                                                                                                                                                                                                                                                                                                                                                    |    |  |    |  |
| Stephen Hosmer, CFO                            | 0                                                                                                  |              | $0                                     |    | 11,250                                                                                                                                                                                                                                                                                                                                                            |    | 0                                                                                                                                                                                                                                                                                                                                                                                                                  |    | $ 71,663 |    | $0 |

(1)         Based on a fair market value of $6.37 per share, which was theclosing bid price of Royale Energy's Common Stock in the Nasdaq National Market System on Friday, December 29, 2001.**Compensation of Directo****rs**Each director who is not an employee of Royale Energy receives a quarterly fee for his services, which in 2001 was set at$2,500.  In addition, Royale Energy reimburses directors for the expenses they incur for their service.   Nodirectors received any stock options or stock appreciation rights in 2001.

-19-

**Item 11.          Security Ownership of Certain Beneficial Owners andManageme****n****t**The following tables set forth certain information regarding the ownership of Royale Energy's voting securities as of December 31,2001, by: (i) each person Royale Energy knows to own beneficially more than 5% of the outstanding shares of each class of equitysecurities, (ii) each of Royale Energy's directors, and (iii) all of Royale Energy's directors and officers as a group. Except pursuant to applicable community property laws and except as otherwise indicated, each shareholder identified in the tablepossesses sole voting and investment power with respect to its or his shares.**Common Sto****ck**On December 31, 2001, 4,386,354 shares of Royale Energy's Common Stock were outstanding.
|                                                   |     | **                    SharesOwned ****(1)                        ** |
|---------------------------------------------------|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Shareholder (2)                              |     | Number                                                                                                                                                                                                                                                                                               |     |  |     | Percent |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| Donald H. Hosmer                                  |     | 750,994                                                                                                                                                                                                                                                                                              |     | (3), (4) |     | 16.21% |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| Harry E. Hosmer                                   |     | 444,250                                                                                                                                                                                                                                                                                              |     | (4), (5) |     | 10.02% |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| Oscar A. Hildebrandt                              |     | 47,635                                                                                                                                                                                                                                                                                               |     | (6) |     | 1.08% |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| Stephen M. Hosmer                                 |     | 745,428                                                                                                                                                                                                                                                                                              |     | (3), (4) |     | 16.45% |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| Gilbert C. L. Kemp                                |     | 5,750                                                                                                                                                                                                                                                                                                |     |  |     | Less than 1% |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| Rodney Nahama                                     |     | 16,100                                                                                                                                                                                                                                                                                               |     |  |     | Less than 1% |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| George M. Watters                                 |     | 34,500                                                                                                                                                                                                                                                                                               |     |  |     | Less than 1% |
|                                                   |     |                                                                                                                                                                                                                                                                                                      |     |  |     |  |
| All directors and officers as a group (7 persons) |     | 2,044,657                                                                                                                                                                                                                                                                                            |     | (3) |     | 42.60% |

(1)         Includes shares which the listed shareholder has the right toacquire before March 1, 2001, from options or warrants, as follows: Royale Petroleum Corporation 265,138, Donald H. Hosmer 17,250,Harry E. Hosmer 46,000, Stephen M. Hosmer 11,500, Oscar Hildebrandt 23,000, Rodney Nahama 16,100, George M. Watters 34,500, and allofficers and directors as a group (excluding Royale Petroleum Corporation) 148,350.(2)         Unless otherwise indicated, the mailing address of each listedshareholder is 7676 Hazard Center Drive, Suite 1500, San Diego, California 92108.

-20-

(3)         The shares owned by Donald and Stephen Hosmer each include sharesowned by Royale Petroleum Corporation ("RPC").  RPC owns 1,465,187 shares (31.5%) of Royale Energy.  Donald and StephenHosmer each own and have power to vote 50% of RPC's equity securities, so each of them may be deemed to be the beneficial owner ofthe Common Stock owned by RPC pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended.  Toillustrate the relative economic and voting interests owned by the directors, the above table attributes 50% (732,594) shares ofthe Royale Energy shares owned by RPC to each of Donald and Stephen Hosmer.  The total number of Royale Energy shares owned byRPC (1,465,187 shares) are included in the number of shares both Donald and Stephen Hosmer own and in the number of shares owned byall 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 two family trusts of which Harry. E. Hosmerand his wife are beneficiaries.(6)         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.**Preferred Sto****ck**Holders of each series of Convertible Preferred Stock have voting rights equal to the number of shares into which they areconvertible.  None of the Preferred shareholders have the right to vote as much as 5% of the shares entitled to vote whentaking into account the total number of both Common and Preferred shares.  On December 31, 2001, there were 10,780 sharesof  Series A and 43,125 shares of Series AA Convertible Preferred Stock outstanding. The shares of each series of Preferredshares are convertible into shares of Royale Energy's Common Stock at the option of the security holder, at the rate of two sharesof Convertible Preferred Stock for each share of Common Stock.  To Royale Energy's knowledge, none of the Preferredshareholders would own more than 1% of Royale Energy's Common Stock, if their Preferred shares were converted to Commonshares.
|                                                   |     | **            SeriesAA         ** |
|---------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| Shareholder                                       |     |  Number                                                                                                                               |     |  Percent |
|                                                   |     |                                                                                                                                            |     |  |
| Richard G. and Margaret E. Algire                 |     | 3,593                                                                                                                                      |     | 8.33% |
| June L. Ginnings                                  |     | 3,593                                                                                                                                      |     | 8.33% |
| Overland Bank                                     |     | 7,187                                                                                                                                      |     | 16.66% |
| Audrey Sanabria & B.G. Dienelt, Jr.           |     | 3,593                                                                                                                                      |     | 8.33% |
| George Singleton                                  |     | 7,187                                                                                                                                      |     | 16.66% |
| William W. Well                                   |     | 7,187                                                                                                                                      |     | 16.66% |
| Jerome Winston                                    |     | 7,187                                                                                                                                      |     | 16.66% |
| Nim E. Wire                                       |     | 7,187                                                                                                                                      |     | 16.66% |
| All officers and directors as a group (7 persons) |     | 0                                                                                                                                          |     | 0.0% |

-21-

**Item 12.          Certain Relationships and RelatedTransactio****n****s**In 1989, the board of directors adopted a policy (the "1989 policy") that permits each director and officer of Royale Energy topurchase from Royale Energy, at its cost, up to one percent (1%) fractional interest in any well to be drilled by RoyaleEnergy.  When an officer or director elects to make such a purchase, the amount charged per each percentage working interestis equal to Royale Energy's actual pro rata cost of drilling and completion, rather than the higher amount that Royale Energycharges to working interest holders for the purchase of a percentage working interest in a well.  Of the current officers anddirectors, Donald Hosmer, Stephen Hosmer, Harry E. Hosmer, and Oscar Hildebrandt at various times have elected under the 1989policy to purchase interests in certain wells Royale Energy has drilled.Under the 1989 policy, officers and directors may elect to participate in wells at any time up until drilling of the prospectbegins.  Participants do not pay a set, turnkey price (as do outside investors who purchase undivided working interests fromRoyale Energy), but they are liable for all direct costs and expenses through completion of a well, whether or not the welldrilling and completion expenses exceed Royale Energy's cost estimates.  Thus, they participate on terms similar to other oiland gas industry participants or joint venturers.  Participants are invoiced for their share of direct costs of drilling andcompletion as Royale Energy incurs expenses.Officer and director participants under this program do not pay some expenses paid by outside, retail investors in workinginterests, such as sales commissions, if any, or marketing expenses. The outside, turnkey drilling agreement investors, on theother hand, are not obligated to pay additional costs if a drilling project experiences cost overruns or unanticipated expenses inthe drilling and completion stage.  Accordingly, Royale Energy's management believes that its officers and directors whoparticipate in wells under the Board of Directors' policy do so on terms the same as could be obtained by unaffiliated oil and gasindustry participants in arms-length transactions, albeit those terms are different than the turnkey agreement under which outsideinvestors purchase fractional undivided working interests from Royale Energy.Donald and Stephen Hosmer each have participated individually in 67 wells under the 1989 policy.  The Hosmer Trust, a trustfor the benefit of family members of Harry E. Hosmer, has participated in 66 wells.Donald Hosmer's 2001 investments in wells under the 1989 policy totaled $23,092 in fractional interests in 11 wells.  In 2001,Stephen Hosmer purchased fractional interests in 11 wells under the 1989 policy, for a total investment of $21,466.The Hosmer Trust purchased .003% interest in 11 wells during 2001 for a total investment of $21,794.Prior to June 1995, Royale Energy had advanced to the participants under the 1989 policy the funds with which to purchase theirinterests, and the funds would be repaid from future production from the working interests and advances repaid from wellproduction. 

-22-

Each month, participants are credited with well income and charged with well expenses from producing wells, at the same time asother investors including working interest purchasers.  Each officer and director who participates in one or more wells withRoyale Energy has a single account to which all charges and income from all wells is credited.  In June 1995, Royale Energychanged its policy regarding the advancement of funds.  Current policy requires that all such purchases of interests in wellsmust be paid in cash.  At December 31, 2001, the following executive officers and their affiliates owed the following amountson advances for well participations:  Donald Hosmer $43,501; Stephen Hosmer $28,972; RPC $527; the Hosmer Trust $93,851.Royale Energy's Chairman of the Board and former President, Harry E. Hosmer, renders management consulting services to RoyaleEnergy on an ongoing basis.  Royale Energy compensated Mr. Hosmer $120,000 annually for his consulting services in 2001 andpays his medical insurance costs.  Mr. Hosmer's consulting services are in addition to his service on the board of directors,for which he receives no compensation other than reimbursement of expenses to attend meetings.**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 Royale Energy's Form10-SB Registration Statement.                                                                                                            |
|         |     |                                                                                                                                                                                                                                                                     |
| 3.2     |     | Certificate of Amendment to the Articles of Incorporation of Royale Energy, Inc. (effecting reverse stock split and definingcertain rights of equity security holders), incorporated by reference to Exhibit 3.1 of Royale Energy's Form 8-K dated October 31,1994. |
|         |     |                                                                                                                                                                                                                                                                     |
| 3.3     |     | Bylaws of Royale Energy, Inc., incorporated by reference to Exhibit 3.2 of Royale Energy's Form 10-SB RegistrationStatement.                                                                                                                                        |
|         |     |                                                                                                                                                                                                                                                                     |
| 4.1     |     | Certificate of Determination of the Series A Convertible Preferred Stock, incorporated by reference to Exhibit 4.1 of RoyaleEnergy'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 RoyaleEnergy's Form 10-SB Registration Statement.                                                                                            |
|         |     |                                                                                                                                                                                                                                                                     |
| 10.1    |     | Form of Indemnification Agreement, incorporated by reference to Exhibit 10.3 of Royale Energy's Form 10-SB RegistrationStatement.                                                                                                                                   |
|         |     |                                                                                                                                                                                                                                                                     |
| 23.1    |     | Consent of Brown Armstrong Paulden McCown Hill Starbuck & Keeter, Independent Auditors, incorporated by reference to Exhibit23.1 of Royale Energy's Form 10-KSB filed on April 11, 2002.                                                                        |
|         |     |                                                                                                                                                                                                                                                                     |
| **(b)** |     | **Reports on Form 8-K**                                                                                                                                                                                                                                             |
|         |     |                                                                                                                                                                                                                                                                     |
|         |     | Royale Energy filed no Reports on Form 8-K during the last fiscal quarter of 2001.                                                                                                                                                                                  |

-23-

**Signatur****es**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized.
|                                          |                 | **ROYALE ENERGY, INC.**                                                                                                                                                                                                                                                           |
|------------------------------------------|--------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          |                 |                                                                                                                                                                                                                                                                                   |
| Date:    October 29, 2002 |                 | *StephenHosmer                                           * |
|                                          |                 | Stephen Hosmer, Chief Financial Officer                                                                                                                                                                                                                                           |

-24-

**Certification**

I, Donald H. Hosmer, Chief Executive Officer of Royale Energy, Inc., certify that:1.         I have reviewed this Amendment No. 1 to the Annual Report on Form 10-KSB ofRoyale Energy, Inc.;2.         Based on my knowledge, this annual report does not contain any untrue statementof a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the period covered by this report.3.         Based on my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects the financial condition, results of operations and cashflows of the registrant as of, and for the periods presented in this annual report.
| Date:  October 29, 2002 |    | By: |    | *Donald H.Hosmer                                       * |
|------------------------------|--------------|-----|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |              |     |              | Donald H. Hosmer, Chief Executive Officer                                                                                                                                                                                                                   |

**Certification**

I, Stephen M. Hosmer, Chief Accounting Officer of Royale Energy, Inc., certify that:1.         I have reviewed this Amendment No. 1 to the Annual Report on Form 10-KSB ofRoyale Energy, Inc.;2.         Based on my knowledge, this annual report does not contain any untrue statementof a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the period covered by this report.3.         Based on my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects the financial condition, results of operations and cashflows of the registrant as of, and for the periods presented in this annual report.
| Date:  October 29, 2002 |    | By: |    | *Donald H.Hosmer                                       * |
|------------------------------|--------------|-----|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |              |     |              | Donald H. Hosmer, Chief Executive Officer                                                                                                                                                                                                                   |

-25-

**ROYALE ENERGY, INC.INDEX TO FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA**

| Index to Financial Statements                                                             |     | F-1  |
|-------------------------------------------------------------------------------------------|--------------------|------|
|                                                                                           |     |      |
| Report of Brown Armstrong Paulden McCown Hill Starbuck & Keeter, Independent Auditors |     | F-2  |
|                                                                                           |     |      |
| Balance Sheets at December 31, 2001 and 2000                                              |     | F-3  |
|                                                                                           |     |      |
| Statements of Income for the Years Ended December 31, 2001 and 2000                       |     | F-4  |
|                                                                                           |     |      |
| Statements of Stockholders' Equity for the Years Ended December 31, 2001 and 2000         |     | F-5  |
|                                                                                           |     |      |
| Statements of Cash Flows for the Years Ended December 31, 2001 and 2000                   |     | F-6  |
|                                                                                           |     |      |
| Notes to the Financial Statements                                                         |     | F-7  |
|                                                                                           |     |      |
| Supplemental Information About Oil and Gas Producing Activities (Unaudited)               |     | F-21 |

Financial statement schedules have been omitted since they are either not required, are not applicable, or the required informationis shown in the financial statements and related notes.

F-1

**REPORT OF INDEPENDENT AUDITOR**

Shareholders and Board of DirectorsRoyale Energy, Inc.We have audited the accompanying balance sheets of Royale Energy, Inc. (a California corporation) as of December 31, 2001 and 2000,and the related statements of income, stockholders' equity and cash flows for the years then ended.  These financialstatements are the responsibility of Royale Energy's management.  Our responsibility is to express an opinion on thesefinancial statements based on our audit.We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An auditalso includes assessing the accounting principles used and significant estimates made by management, as well as evaluating theoverall 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 ofRoyale Energy, Inc., as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the years thenended in conformity with generally accepted accounting principles.**                               BROWN ARMSTRONG PAULDEN                               McCOWN HILL STARBUCK & KEETER                               ACCOUNTANCY CORPORATION**Bakersfield, CaliforniaFebruary 15, 2002

F-2

**ROYALE ENERGY, INC.BALANCE SHEETSDECEMBER 31, 2001 and 2000**

| **ASSETS**                                                                         |    |                                                                                                          |      |        |                                                                                              |
|------------------------------------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------------------|------------------|----------------------------------------------------------------------------------------------|
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|                                                                                    |    | **         2001       ** |      | **  ** | **        2000      ** |
| Current Assets                                                                     |    |                                                                                                          |      |        |                                                                                              |
|   Cash and cash equivalents                                              | $            |      3,131,859                                                                       |      | $                |     2,106,841                                                            |
|   Accounts receivable                                                    |    | 3,525,038                                                                                                |      |        | 6,407,397                                                                                    |
|   Note receivable                                                        |    | -                                                                                                        |      |        | 73,010                                                                                       |
|   Other current assets                                                   |    |         695,461                                                  |      |        |       468,356                                                  |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|     Total Current Assets                                       |    |      7,352,358                                                                  |      |        |    9,055,604                                                                  |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
| Oil and Gas Properties (successful efforts basis), Equipment                       |    |                                                                                                          |      |        |                                                                                              |
|   and Fixtures, net                                                      |    |    12,226,001                                                                             |      |        |   11,719,436                                                                       |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|                                                                                    | $            |    19,578,359                                                                             |      | $                |   20,775,040                                                                       |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                           |    |                                                                                                          |      |        |                                                                                              |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
| Current Liabilities                                                                |    |                                                                                                          |      |        |                                                                                              |
|   Accounts payable and accrued expenses                                  | $            |      3,543,001                                                                       |      | $                |     6,639,808                                                                 |
|   Deferred revenue from turnkey drilling                                 |    |      2,740,991                                                                  |      |        |    1,635,300                                                                  |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|     Total Current Liabilities                                  |    |      6,283,992                                                                  |      |        |    8,275,108                                                                  |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
| Long-Term Debt, net of current portion                                             |    |      2,000,000                                                                  |      |        |    4,952,089                                                                  |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
| Redeemable Preferred Stock                                                         |    |                                                                                                          |      |        |                                                                                              |
|   Series A, convertible preferred stock, no par value, 59,250 shares     |    |                                                                                                          |      |        |                                                                                              |
|     authorized; 10,780 and 9,375 shares issued and outstanding |    |           24,066                                       |      |        |         19,100                                       |
|                                                                          |    |                                                                                                          |      |                  |                                                                                              |
| Stockholders' Equity                                                               |    |                                                                                                          |      |        |                                                                                              |
|   Common stock, no par value, 10,000,000 shares authorized;              |    |                                                                                                          |      |        |                                                                                              |
|     4,386,354 and 3,813,613 shares issued and outstanding,     |    |                                                                                                          |      |        |                                                                                              |
|     respectively                                               |    | 12,292,705                                                                                               |      |        | 8,248,105                                                                                    |
|   Convertible preferred stock, Series AA, no par value, 147,500          |    |                                                                                                          |      |        |                                                                                              |
|     shares authorized; 43,125 and 43,750 shares issued and     |    | 173,174                                                                                                  |      |        | 175,000                                                                                      |
|     outstanding                                                |    |                                                                                                          |      |        |                                                                                              |
|   Accumulated (deficit)                                                  |    |  (1,101,078)                                                                                        |      |        |    (799,862)                                                                  |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|   Total paid in capital and accumulated deficit                          |    | 11,364,801                                                                                               |      |        | 7,623,243                                                                                    |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|   Less cost of treasury stock, 19,300 shares                             |    |        (94,500)                                                       |      |        |      (94,500)                                                       |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|   Total Stockholders' Equity                                             |    |    11,294,367                                                                             |      |        |    7,547,843                                                                  |
|                                                                                    |    |                                                                                                          |      |        |                                                                                              |
|                                                                                    | $            |    19,578,359                                                                             |      | $                |  20,775,040                                                                             |
|                                                                                    |    |                                                                                                          |      |                  |                                                                                              |

F-3The accompanying notes are an integral part of these financial statements.

**ROYALE ENERGY, INC.STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2001 and 2000**
|                                                                            |     |                                                                                                          | **    ** | **  ** | **           2000         ** |
|----------------------------------------------------------------------------|--------------------|----------------------------------------------------------------------------------------------------------|------------------------------|------------------|----------------------------------------------------------------------------------------------------------------------------------|
|                                                                            |     | **         2001       ** | **    ** | **  ** | **   As Restated   **                                                                              |
| Revenues                                                                   |     |                                                                                                          | **    ** | **  ** |                                                                                                                                  |
|   Oil and gas production                                         | $                  |      8,452,282                                                                       | **    ** | $                |      6,194,451                                                                                               |
|   Turnkey drilling                                               |     | 6,703,452                                                                                                | **    ** |        | 4,792,151                                                                                                                        |
|   Supervisory fees and other                                     |     |          702,539                                            | **    ** |        |          700,750                                                                    |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
|     Total Revenues                                     |     |     15,858,273                                                                       | **    ** |        |     11,687,352                                                                                               |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Costs and Expenses                                                         |     |                                                                                                     | **    ** |        |                                                                                                                                  |
|   General and administrative                                     |     | 2,245,781                                                                                                | **    ** |        | 1,737,201                                                                                                                        |
|   Geological and geophysical expense                             |     | 56,806                                                                                                   | **    ** |        | 22,337                                                                                                                           |
|   Turnkey drilling and development                               |     | 3,065,747                                                                                                | **    ** |        | 1,975,242                                                                                                                        |
|   Lease operating                                                |     | 1,266,245                                                                                                | **    ** |        | 936,841                                                                                                                          |
|   Lease impairment                                               |     | 2,062,028                                                                                                | **    ** |        | 1,540,845                                                                                                                        |
|   Legal and accounting                                           |     | 644,812                                                                                                  | **    ** |        | 635,893                                                                                                                          |
|   Marketing                                                      |     | 1,062,700                                                                                                | **    ** |        | 686,193                                                                                                                          |
|   Depreciation, depletion and amortization                       |     |       1,282,640                                                            | **    ** |        |          586,907                                                                    |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
|     Total Costs and Expenses                           |     |     11,686,759                                                                       | **    ** |        |       8,121,459                                                                                    |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Income from Operations                                                     |     | 4,171,514                                                                                                | **    ** |        | 3,565,893                                                                                                                        |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Other Expense                                                              |     |                                                                                                          | **    ** |        |                                                                                                                                  |
|   Interest expense                                               |     |            54,455                                 | **    ** |        |          427,304                                                                    |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Income Before Income Tax Expense                                           |     | 4,117,059                                                                                                | **    ** |        | 3,138,589                                                                                                                        |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Income Tax Provision                                                       |     |          370,535                                            | **    ** |        |            78,454                                                         |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Net Income                                                                 | $                  |       3,746,524                                                            | **    ** | $                |       3,060,135                                                                                    |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Basic Earnings Per Share                                                   | $                  |                 .90      | **    ** | $                |                 .73                              |
|                                                                            |     |                                                                                                          | **    ** |        |                                                                                                                                  |
| Diluted Earnings Per Share                                                 | $                  |                 .84      | **    ** | $                |                 .69                              |
|                                                                            |                    |                                                                                                          | **    ** |                  |                                                                                                                                  |
|                                                                            |                    |                                                                                                          | **    ** |                  |                                                                                                                                  |
|                                                                            |                    |                                                                                                          | **    ** |                  |                                                                                                                                  |
| F-4                                                                        |
| The accompanying notes are an integral part of these financial statements. |

****

**ROYALE ENERGY, INC.STATEMENTS OF STOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2001 and 2000**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    | **               CommonStock              ** | **  ** | **    Preferred Stock Series AA   **                                             | **  ** |                                                                                                                     | **  ** | **            TreasuryStock            ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|---------------------------------------------------------------------------------------------------------------------|------------------|---------------------------------------------------------------------------------------------------------------------|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |     Shares     Outstanding                                                                                                                  |        |       Amount                                                      |        |    Shares    Outstanding                                                         |        |     Amount                                                                                                                     |    | Accumulated       Deficit        |    |    Shares    Outstanding |    |    Amount   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| **Balance at January 1, 2000, as restated**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |    | 3,808,613                                                                                                                                                                                |        | $     8,240,605                                                                            |        | 43,750                                                                                                              |        | $     175,000                                                                                                                            |    | $    (3,859,997) |    |     19,300 |    | $  (94,500) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Shares issued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |    | 5,000                                                                                                                                                                                    |        | 7,500                                                                                                               |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Net income for the year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |    |                    -                                                                      |        |                    - |        | -                                                                                                                   |        | -                                                                                                                                                                 |    |          3,060,135 |    |                   -  |    |                  - |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Balance at December 31, 2000, as restated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |    | 3,813,613                                                                                                                                                                                |        |        8,248,105                                                                 |        | 43,750                                                                                                              |        |        175,000                                                                                                                 |    |          (799,862) |    |         19,300 |    |     (94,500) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Fifteen percent stock divided, less amount held as treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |    | 569,147                                                                                                                                                                                  |        | 4,019,600                                                                                                           |        | -                                                                                                                   |        | -                                                                                                                                                                 |    | (4,019,600) |    | - |    | - |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Fifteen percent stock dividend Series AA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |    | -                                                                                                                                                                         |        | -                                                                                                    |        | 6,562                                                                                                               |        | 23,174                                                                                                                                                            |    | (23,174) |    | - |    | - |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Fifteen percent stock dividend Series A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |    | -                                                                                                                                                                         |        | -                                                                                                    |        | -                                                                                                                   |        | -                                                                                                                                                                 |    | (4,966) |    | - |    | - |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Conversion of Preferred AA to common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |    | 3,594                                                                                                                                                                                    |        | 25,000                                                                                                              |        | (7,187)                                                                                                             |        | (25,000)                                                                                                                                                          |    | -  |    | - |    | - |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Net income for the year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |    |                    -                                                                      |        |                    - |        |                    - |        |                    -                                               |    |          3,746,524 |    |                  - |    |                  - |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |    |                                                                                                                                                                                          |        |                                                                                                                     |        |                                                                                                                     |        |                                                                                                                                                                   |    |  |    |  |    |  |
| Balance at December 31, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    |     4,386,354                                                                                                                                                        |        | $   12,292,705                                                                                       |        | 43,125                                                                                                              |        | $     173,174                                                                                                                            |    | $    (1,101,078) |    |         19,300 |    | $  (94,500) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |                                                                                                                                                                                          |                  |                                                                                                                     |                  |                                                                                                                     |                  |                                                                                                                                                                   |  |  |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |              |                                                                                                                                                                                          |                  |                                                                                                                     |                  |                                                                                                                     |                  |                                                                                                                                                                   |  |  |  |  |  |  |
|                                                                                                    |
|                                                                                                    |
|                                                                                                    |
|                                                                                                    |
|                                                                                                    |
|                                                                                                    |
| F-5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| The accompanying notes are an integral part of these financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

****

**ROYALE ENERGY, INC.STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2001 and 2000**
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    | **           2000         ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|----------------------------------------------------------------------------------------------------------------------|--------------------------|--------------|----------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                | **           2001       ** |      |    | **    As Restated   **                                                                        |
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                                                                                                                                                                                                                                                                                                                                                                 |                |                                                                                                                      |      |    |                                                                                                                                  |
|   Net income                                                                                                                                                                                                                                                                                                                                                                                                   | $                        |      3,746,524                                                                                   |      | $            |      3,060,135                                                                                               |
|   Adjustment to reconcile net income to net cash                                                                                                                                                                                                                                                                                                                                                               |                |                                                                                                                      |      |    |                                                                                                                                  |
|     provided by operating activities:                                                                                                                                                                                                                                                                                                                                                                |                |                                                                                                                      |      |    |                                                                                                                                  |
|       Depreciation, depletion and amortization                                                                                                                                                                                                                                                                                                                                             |                | 1,282,640                                                                                                            |      |    | 586,907                                                                                                                          |
|       Lease impairment                                                                                                                                                                                                                                                                                                                                                                     |                | 2,062,028                                                                                                            |      |    | 1,540,845                                                                                                                        |
|        (Increase) decrease in:                                                                                                                                                                                                                                                                                                                                                        |                |                                                                                                                      |      |    |                                                                                                                                  |
|         Accounts receivable                                                                                                                                                                                                                                                                                                                                                      |                | 2,882,359                                                                                                            |      |    | (4,734,999)                                                                                                                      |
|         Prepaid expenses and other assets                                                                                                                                                                                                                                                                                                                                        |                | (227,105)                                                                                                            |      |    | (78,766)                                                                                                                         |
|         Notes receivable                                                                                                                                                                                                                                                                                                                                                         |                | 73,010                                                                                                               |      |    | 84,662                                                                                                                           |
|       Increase (decrease) in:                                                                                                                                                                                                                                                                                                                                                              |                |                                                                                                                      |      |    |                                                                                                                                  |
|         Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                                                                    |                | (3,096,807)                                                                                                          |      |    | 2,785,649                                                                                                                        |
|       Deferred revenues – DWI                                                                                                                                                                                                                                                                                                                                                        |                |       1,105,691                                                                        |      |    |          170,685                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| Net Cash Provided by Operating Activities                                                                                                                                                                                                                                                                                                                                                                                |                |       7,828,340                                                                        |      |    |       3,415,118                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                                                                                                                                                                                                                                                                                                                                                                                 |                |                                                                                                                      |      |    |                                                                                                                                  |
|   Expenditures for oil and gas properties                                                                                                                                                                                                                                                                                                                                                                      |                | (3,267,284)                                                                                                          |      |    | (2,234,845)                                                                                                                      |
|   Other capital expenditures                                                                                                                                                                                                                                                                                                                                                                                   |                |        (583,949)                                                                       |      |    |                     -        |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| Net Cash Provided (Used) by Investing Activities                                                                                                                                                                                                                                                                                                                                                                         |                |     (3,851,233)                                                                                       |      |    |      (2,234,845)                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                                                                                                                                                                                                                                                                                                                                                                                 |                |                                                                                                                      |      |    |                                                                                                                                  |
|   Principal payments on long-term debt                                                                                                                                                                                                                                                                                                                                                                         |                | (4,952,089)                                                                                                          |      |    | (5,050,000)                                                                                                                      |
|   Proceeds from long-term debt                                                                                                                                                                                                                                                                                                                                                                                 |                | 2,000,000                                                                                                            |      |    | 4,952,089                                                                                                                        |
|   Common stock issued                                                                                                                                                                                                                                                                                                                                                                                          |                |                   -   |      |    |               7,500                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| Net Cash Provided (Used) by Financing Activities                                                                                                                                                                                                                                                                                                                                                                         |                |     (2,952,089)                                                                                       |      |    |          (90,411)                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| Net Increase in Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                |                | 1,025,018                                                                                                            |      |    | 1,089,862                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| Cash at beginning of year                                                                                                                                                                                                                                                                                                                                                                                                |                |       2,106,841                                                                             |      |    |       1,016,979                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| Cash at end of year                                                                                                                                                                                                                                                                                                                                                                                                      | $                        |      3,131,859                                                                                   |      | $            |      2,106,841                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:**                                                                                                                                                                                                                                                                                                                                                                   |      |                                                                                                                      |                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                |                                                                                                                      |      |    |                                                                                                                                  |
|   Cash paid for interest                                                                                                                                                                                                                                                                                                                                                                                       | $                        |          54,455                                                         |      | $            |         427,304                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |                |                                                                                                                      |      |    |                                                                                                                                  |
|   Cash paid for taxes                                                                                                                                                                                                                                                                                                                                                                                          | $                        |         533,661                                                              |      | $            |                800                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                          |                          |                                                                                                                      |      |              |                                                                                                                                  |
|                                                                      |
|                                                                      |
| F-6                                                                                                                                                                                                                                                                                                                                                                                                                      |
| The accompanying notes are an integral part of these financial statements.                                                                                                                                                                                                                                                                                                                                               |

**ROYALE ENERGY, INC.NOTES TO FINANCIAL STATEMENTS**

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**This summary of significant accounting policies of Royale Energy, Inc. (“Royale Energy") is presented to assist inunderstanding Royale Energy's financial statements.  The financial statements and notes are representations of Royale Energy'smanagement, which is responsible for their integrity and objectivity.  These accounting policies conform to accountingprinciples generally accepted in the United States of America and have been consistently applied in the preparation of thefinancial statements.Description of BusinessRoyale Energy is an independent oil and gas producer, which also has operations in the area of turnkey drilling.  RoyaleEnergy owns wells and leases in major geological basins located in California. Royale Energy offers fractional working interestsand seeks to minimize the risks of oil and gas drilling by selling multiple well drilling ventures which do not include the use ofdebt financing.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reportingperiod.  Actual results could differ from those estimates.Material estimates that are particularly susceptible to significant change relate to the estimate of Royale Energy oil and gasreserves prepared by an independent engineering consultant.  Such estimates are subject to numerous uncertainties inherent inthe estimation of quantities of proven reserves. Estimated reserves are used in the calculation of depletion, depreciation andamortization unevaluated property costs, estimated future net cash flows, taxes, and contingencies.Joint VenturesThe accompanying financial statements as of December 31, 2001 and 2000, include the accounts of Royale Energy and its proportionateshare of the assets, liabilities and results of operations.  Royale Energy generally retains an ownership interest ofapproximately 30% in its joint venture projects.  Royale Energy is the operator of the majority of properties in which it hasan ownership interest.  In connection with the drilling and operation of wells, Royale Energy receives management fees, whichare recorded as supervisory fee income.Royale Energy recognizes revenues from the sales of oil and gas in the period of delivery. Royale Energy enters into turnkey drilling agreements with investors to develop leasehold acreage acquired by Royale Energy. WhenRoyale Energy authorizes a turnkey drilling project for sale, a calculation is made to estimate the pre-drilling costs and thedrilling costs. A percentage for each is calculated. The turnkey drilling project is then sold to investors who enter a signedcontract with Royale Energy. In this agreement, the investor agrees to share in the pre-drilling costs, which include lease costs,intangible drilling costs, and other costs as required so that the drilling of the project can proceed. As stated in the contract,the percentage of the pre-drilling costs that the investor contributes is non-refundable, and thus on its financial statements,Royale Energy recognizes these non-refundable payments as revenue since the pre-drilling costs have commenced. The remaininginvestment is held and reported by Royale Energy as deferred revenue until the well is spudded (begun). If costs exceed revenuesand Royale Energy participates as a working interest owner, the excess is capitalized as the cost of Royale Energy's workinginterest. If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, the deferred funds receivedwould be returned to the investors. If the drilling effort is successful, each investor receives a working interest in the wells,and Royale Energy, along with the investors, receive an assignment of working interests. Included in cash and cash equivalents areamounts for use in the completion of Turnkey drilling programs in progress.

F-7

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**Oil and Gas Property and Equipment (Successful Efforts)Royale Energy accounts for its oil and gas exploration and development costs using the successful efforts method. Leaseholdacquisition costs are capitalized. If proved reserves are found on an undeveloped property, leasehold cost is transferred to provedproperties. Significant undeveloped leases are reviewed periodically and a valuation allowance is provided for any estimateddecline in value. Cost of other undeveloped leases is expensed over the estimated average life of the leases. Cost of exploratorydrilling is initially capitalized. In the absence of a determination that proved reserves are found, the costs of drilling suchexploratory wells is charged to expense. Royale Energy makes this determination within one year following the completion ofdrilling. 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 basisusing the units-of-production method.Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for theImpairment of Long-Lived Assets and/or Long-Lived Assets to be Disposed of", requires that long-lived assets be reviewed forimpairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Itestablishes guidelines for determining recoverability based on future net cash flows from the use of the asset and for themeasurement of the impairment loss. Impairment loss under SFAS No. 121 is calculated as the difference between the carrying amountof the asset and its fair value. Any impairment loss is recorded in the current period in which the recognition criteria are firstapplied and met. Under the successful efforts method of accounting for oil and gas operations, Royale Energy periodically assessedits proved properties for impairments by comparing the aggregate net book carrying amount of all proved properties with theiraggregate future net cash flows. The statement requires that the impairment review be performed on the lowest level of assetgroupings for which there are identifiable cash flows. Royale Energy performs a periodic review for impairment of proved properties on a field by field basis. Unamortized capital costsare measured on a field basis and are reduced to fair value if it is determined that the sum of expected future net cash flows areless than the net book value. Royale Energy determines if an impairment has occurred through either adverse changes or as a resultof its periodic review for impairment. Impairment is measured on discounted cash flows utilizing a discount rate appropriate forrisks associated with the related properties or based on fair market values. Impairment losses of $2,062,028 and $1,540,845 wererecorded in 2001 and 2000, respectively. Upon the sale of oil and gas reserves in place, costs less accumulated amortization of such property are removed from the accountsand resulting gain or loss on sale is reflected in operations. Impairment of unproved properties are assessed periodically on aproperty-by-property basis, and any impairment in value is currently charged to expense. In addition, capitalized costs of unprovedproperties are assessed periodically to determine whether their value has been impaired below the capitalized costs. Loss isrecognized to the extent that such impairment is indicated. In making these assessments, factors such as exploratory drillingresults, future drilling plans, and lease expiration terms are considered. When an entire interest in an unproved property is sold,gain or loss is recognized, taking into consideration any recorded impairment.  Upon abandonment of properties, the reservesare deemed fully depleted and any unamortized costs are recorded in the statement of income under impairment expense.Cash and Cash EquivalentsCash and cash equivalents include cash on hand and on deposit, and highly liquid debt instruments with maturities of three monthsor less. Accounts Receivable Management believes that all accounts receivable as of December 31, 2001 and 2000, are fully collectible. Therefore, no allowancefor doubtful accounts is recorded.

F-8

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**Equipment and FixturesEquipment and fixtures are stated at cost and depreciated over the estimated useful lives of the assets, which range from three toseven years, using the straight-line method. Repairs and maintenance are charged to expense as incurred. When assets are sold orretired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included inincome. Maintenance and repairs, which neither materially add to the value of the property nor appreciably prolong its life, arecharged to expense as incurred. Gains or losses on dispositions of property and equipment, other than oil and gas, are reflected inoperations.Earnings (Loss) Per Share (SFAS 128)Basic and diluted earnings (loss) per share are calculated as follows:
|                                                             |    | For the Year Ended 2001                                                                                             |
|-------------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------|
|                                                             |    |       Income        (Numerator)     |    |          Shares           (Denominator)   |    |   Per-Share    Amount   |
|                                                             |    |                                                                                                                     |    |  |    |  |
| Basic Earnings Per Share:                                   |    |                                                                                                                     |    |  |    |  |
|   Net income available to common stock            |    | $    3,746,524                                                                                  |    |       4,161,581 |    | $           .90 |
|                                                             |    |                                                                                                                     |    |  |    |  |
| Diluted Earnings Per Share:                                 |    |                                                                                                                     |    |  |    |  |
|   Effect of dilutive securities and stock options |    |                    - |    |          279,988 |    |         (.06) |
|                                                             |    |                                                                                                                     |    |  |    |  |
| Net income available to common stock                        |    | $    3,746,524                                                                                  |    |       4,441,569 |    | $         .84 |
|                                                             |    | For the Year Ended 2000                                                                                             |
|-------------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------|
|                                                             |    |       Income        (Numerator)     |    |         Shares        (Denominator)  |    |    Per-Share      Amount    |
|                                                             |    |                                                                                                                     |    |  |    |  |
| Basic Earnings Per Share:                                   |    |                                                                                                                     |    |  |    |  |
|   Net income available to common stock            |    | $    3,060,135                                                                                  |    |      4,161,581 |    | $           .73 |
|                                                             |    |                                                                                                                     |    |  |    |  |
| Diluted Earnings Per Share:                                 |    |                                                                                                                     |    |  |    |  |
|   Effect of dilutive securities and stock options |    |                    - |    |     272,729 |    |          (.04) |
|                                                             |    |                                                                                                                     |    |  |    |  |
| Net income available to common stock                        |    | $    3,060,135                                                                                  |    |   4,434,310 |    | $          .69 |

Income TaxesThe provision for income taxes is based on pretax financial accounting income. Deferred tax assets and liabilities are recognizedfor the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported netamounts.Fair Values of Financial InstrumentsDisclosure of the estimated fair value of financial instruments is required under SFAS No. 107, "Disclosure about Fair Value ofFinancial Instruments." The fair value estimates are made at discrete points in time based on relevant market information andinformation about the financial instruments. These estimates may be subjective in nature and involve uncertainties and significantjudgment and therefore cannot be determined with precision.

F-9

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**Fair Values of Financial Instruments (Continued)Royale Energy includes fair value in the notes to financial statements when the fair value of its financial instruments isdifferent from the book value. Royale Energy assumes that the book value of financial instruments that are classified as currentapproximate fair value because of the short maturity of these instruments. For noncurrent financial instruments, Royale Energy usesquoted market prices or, to the extent that there are no available quoted market prices, market prices for similarinstruments.New Accounting StandardsIn April 2000, the FASB issued Financial Interpretation Number (FIN) 44, Accounting for Certain Transactions Involving StockCompensation - an Interpretation of Accounting Principles Board No. 25. FIN 44 clarifies the application of Opinion No. 25. ThisInterpretation was effective immediately and all issues are to be handled prospectively. The adoption of FIN 44 did not have amaterial impact on Royale Energy's financial position or results of operations. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141"Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires allbusiness combinations initiated after June 30, 2001 to be accounted for under the purchase method. For all business combinationsfor which the date of acquisition is after June 30, 2001, SFAS 141 also establishes specific criteria for the recognition ofintangible assets separately from goodwill. SFAS 141 also requires unallocated negative goodwill (in a case where the purchaseprice is less than fair market value of the acquired assets) to be written off immediately as an extraordinary gain, rather thandeferred and amortized. SFAS 142 changes the accounting for goodwill and other intangible assets after an acquisition. The mostsignificant changes made by SFAS 142 are: 1) goodwill and intangible assets with indefinite lives will no longer be amortized; 2)goodwill and intangible assets with indefinite lives must be tested for impairment at least annually; and 3) the amortizationperiod for intangible assets with finite lives will no longer be limited to 40 years. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized priorto the adoption of Statement No. 142. Statement No. 141 will require, upon adoption of Statement No. 142, that an entity evaluateits existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessaryreclassifications in order to conform with the new criteria in Statement No. 141 for recognition apart from goodwill. The adoptionof Statement No. 142, did not leave a material impact on Royale Energy's financial position or results of operations.In June 2001, the FASB also approved for issuance SFAS 143 "Asset Retirement Obligations." SFAS 143 establishes accountingrequirements for retirement obligations associated with tangible long-lived assets such as wells and production facilities. SFAS143 guidance covers (1) the timing of the liability recognition, (2) initial measurement of the liability, (3) allocation of assetretirement cost to expense, (4) subsequent measurement of the liability, and (5) financial statement disclosures. SFAS 143 requiresthat an asset retirement cost should be capitalized as part of the cost of the related long- lived asset and subsequently allocatedto expense using a systematic and rational method. Royale Energy will adopt the statement effective no later than January 1, 2003,as required. The transition adjustment resulting from the adoption of SFAS 143 will be reported as a cumulative effect of a changein accounting principle. At this time, Royale Energy cannot reasonably estimate the effect of the adoption of this statement on itsfinancial position, results of operations or cash flows. In August 2001, the FASB also approved SFAS 144, "Accounting for the Impairment of Disposal of Long-Lived Assets" ("SFAS 144").SFAS 144 replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets to Bed Disposed Of." The new accounting model forlong-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces theprovisions of APB Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business,"for the disposal of segments of a

F-10

**NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**New Accounting Standards (Continued)business. SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost tosell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer bemeasured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 also broadens thereporting of discontinued operations to include all components of an entity with operations that can be distinguished from the restof the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions ofSFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally are to beapplied prospectively. At this time, Royale Energy cannot estimate the effect of this statement on its financial position, resultsof operations, or cash flows.ReclassificationCertain amounts in the financial statements have been reclassified to be consistent and comparable from year-to-year.**NOTE 2 - RESTATEMENTS**Change in Method of Reviewing for ImpairmentCompany management continually reviews its use of generally accepted accounting principles, and occasionally adjusts theirselection of accounting principles to more realistic, conservative methods. Effective January 1, 1998, the Company reinstated its method of reviewing for impairment of its oil and gas properties from aregion by region basis to a field by field basis. The Company believes that evaluating impairment on a field by field is a bettermeasure of impairment than the region by region basis, and is consistent with the practice of the majority of oil and gas companiesin industry for evaluating impairment. Before 1998, the Company had used a field cost center impairment measure, and changed to a regional method for 1998, 1999, and 2000, and throughout the first three quarters of 2001. All of these reportingperiods have been restated.Change in Accounting for Other Capitalized CostsEffective December 31, 1998, the Company changed its method of accounting for the costs of 3D Seismic studies performed byindependent Geophysical and Geological companies on its behalf. Previously, the Company capitalized these costs as inventoriableexpenditures recoverable by sale or by development. Portions of the database used for Company projects have been capitalized aspart of the carrying costs of proved properties. The Company has had prospective buyers of this data in the past, but to date hasnot sold any portions of the data to outside parties. The Company has evaluated whether it is appropriate to report these costs as inventoriable expenditures and has determined that inthe absence of sales, these costs are more appropriately reported as exploration geological and geophysical to be expensed whenincurred. Accordingly, the Company has restated its financial statements to reflect the effect of expensing these costs in 1998when the database was originally acquired.

F-11

**NOTE 2 - RESTATEMENTS (Continued)**Change in Accounting for Other Capitalized Costs****The following tables reconcile the effects of the restatements for the fiscal years ended December 31, 1998, 1999 and 2000:

|                                                              |    |         1998      |    |       1999      |    |         2000       |
|--------------------------------------------------------------|--------------|------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------|
|                                                              |    |                                                                                    |    |                                                                        |    |                                                                                          |
| Income from operations as previously reported                |    | $   1,162,647                                                       |    | $   535,799                                             |    | $   3,498,299                                                             |
| Effect of change in method of reviewing for impairment       |    | (1,149,310)                                                                        |    | (287,426)                                                              |    | (241,475)                                                                                |
| Effect of change in accounting for other capitalized costs   |    | (927,208)                                                                          |    | 309,069                                                                |    | 309,069                                                                                  |
| Income (Loss) from operations as restated                    |    | (913,871)                                                                          |    | 557,442                                                                |    | 3,565,893                                                                                |
|                                                              |    |                                                                                    |    |                                                                        |    |                                                                                          |
| Net Income as previously reported                            |    | 774,406                                                                            |    | 149,903                                                                |    | 2,990,995                                                                                |
| Effect of change in method of reviewing for impairment       |    | (1,120,233)                                                                        |    | (287,426)                                                              |    | (247,035)                                                                                |
| Effect of change in accounting for other capitalized costs   |    | (903,417)                                                                          |    | 309,069                                                                |    | 316,175                                                                                  |
| Net Income (Loss) as restated                                |    | (1,249,244)                                                                        |    | 171,546                                                                |    | 3,060,135                                                                                |
|                                                              |    |                                                                                    |    |                                                                        |    |                                                                                          |
| Net Income per share (basic) as previously reported          |    | 0.20                                                                               |    | 0.04                                                                   |    | 0.71                                                                                     |
| Effect of change in method of reviewing for impairment       |    | (0.29)                                                                             |    | (0.08)                                                                 |    | (0.06)                                                                                   |
| Effect of change in accounting for other capitalized costs   |    | (0.24)                                                                             |    | 0.08                                                                   |    | 0.08                                                                                     |
| Net Income (Loss) per share (basic) operations as restated   |    | (0.33)                                                                             |    | 0.05                                                                   |    | 0.73                                                                                     |
|                                                              |    |                                                                                    |    |                                                                        |    |                                                                                          |
| Net Income (Loss) per share (diluted) as previously reported |    | 0.19                                                                               |    | 0.04                                                                   |    | 0.67                                                                                     |
| Effect of change in method of reviewing for impairment       |    | (0.27)                                                                             |    | (0.08)                                                                 |    | (0.06)                                                                                   |
| Effect of change in accounting for other capitalized costs   |    | (0.22)                                                                             |    | 0.08                                                                   |    | 0.08                                                                                     |
| Net Income (Loss) per share (diluted) as restated            |    | (0.30)                                                                             |    | 0.05                                                                   |    | 0.69                                                                                     |

**NOTE 3 - NOTE RECEIVABLE**Notes receivable for December 31, 2001 and 2000 totaled $0 and $73,010, respectively.**NOTE 4 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES**Oil and gas properties, equipment and fixtures consist of the following at December 31:
|                                                                       |    |        2001        |    |        2000         |
|-----------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------|
| Oil and Gas                                                           |    |                                                                                          |    |                                                                                                |
|   Producing properties, including intangible drilling costs |    | $   12,629,132                                                            |    | $   12,613,859                                                                  |
|   Undeveloped properties                                    |    | 1,939,338                                                                                |    | 1,648,374                                                                                      |
|   Lease and well equipment                                  |    |        4,563,115                                      |    |        4,677,700                                            |
|                                                                       |    |                                                                                          |    |                                                                                                |
|                                                                       |    | 19,131,585                                                                               |    | 18,939,933                                                                                     |
|   Accumulated depletion, depreciation and amortization      |    | (5,120,645)                                                                              |    | (4,307,062)                                                                                    |
|   Allowance for lease impairment                            |    |      (2,020,376)                                                |    |       (3,035,495)                                                |
|                                                                       |    |                                                                                          |    |                                                                                                |
|                                                                       |    |      11,990,564                                                 |    |      11,597,376                                                       |
| Commercial and Other                                                  |    |                                                                                          |    |                                                                                                |
|   Furniture and equipment                                   |    | 597,977                                                                                  |    | 436,713                                                                                        |
|   Accumulated depreciation                                  |    |         (362,540)                                |    |          (314,653)                                |
|                                                                       |    |                                                                                          |    |                                                                                                |
|                                                                       |    |          235,437                            |    |           122,060                            |
|                                                                       |    |                                                                                          |    |                                                                                                |
|                                                                       |    | $   12,226,001                                                            |    | $   11,719,436                                                                  |

F-12

**NOTE 4 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Continued)**The following sets forth costs incurred for oil and gas property acquisition and development activities, whether capitalized orexpensed:
|             |    |    |      2001    |    |    |      2000    |    |    |      1999    |
|-------------|--------------|--------------|------------------------------------------------------|--------------|--------------|------------------------------------------------------|--------------|--------------|------------------------------------------------------|
|             |    |    |                                                      |    |    |                                                      |    |    |                                                      |
| Acquisition |    | $            | 94,174                                               |    | $            | 919,472                                              |    | $            | 55,290                                               |
| Development |    | $            | 2,552,193                                            |    | $            | 1,950,428                                            |    | $            | 3,683,456                                            |
| Exploration |    | $            | 2,221,207                                            |    | $            | 602,438                                              |    | $            | 928,539                                              |

Results of Operations from Oil and Gas Producing and Exploration ActivitiesThe 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:
|                                                                 |    |             2001         |    |              2000         |
|-----------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------|
|                                                                 |    |                                                                                                                              |    |                                                                                                                                    |
| Oil and gas sales                                               |    | $     8,452,282                                                                                     |    | $     6,194,451                                                                                           |
| Production related costs                                        |    | (1,266,254)                                                                                                                  |    | (936,841)                                                                                                                          |
| Geological and geophysical expense                              |    | (56,806)                                                                                                                     |    | (22,337)                                                                                                                           |
| Depreciation, depletion and amortization                        |    |       (1,129,644)                                                                              |    |          (536,981)                                                                    |
|                                                                 |    |                                                                                                                              |    |                                                                                                                                    |
| Results of operations from producing and exploration activities |    | $     5,999,578                                                                                     |    | $     4,698,292                                                                                           |

**NOTE 5 - TURNKEY DRILLING CONTRACTS**Royale Energy receives funds under turnkey drilling contracts, which require Royale Energy to drill oil and gas wells within areasonable time period from the date of receipt of the funds.  As of December 31, 2001 and 2000, Royale Energy had recordeddeferred turnkey drilling revenue associated with undrilled wells of $4,194,942 and $1,635,300, respectively, as a currentliability.**NOTE 6 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS**Royale Energy adopted SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information in 1998 which changes theway Royale Energy reports information about its operating segments.Royale Energy identifies reportable segments by product and country, although Royale Energy currently does not have foreign countrysegments. Royale Energy includes revenues from both external customers and revenues from transactions with other operating segmentsin its measure of segment profit or loss. Royale Energy also includes interest revenue and expense, DD&A, and other operatingexpenses 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 AccountingPrinciples (see Note 1).Royale Energy's operations are classified into two principal industry segments. Following is a summary of segmented information for2001 and 2000:

F-13

**NOTE 6 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS (Continued)**

|                                                          |    |              | Oil and Gas   Producing and  Exploration         |    |    |     Turnkey           Drilling         Services      |    |    |       Total        |
|----------------------------------------------------------|--------------|--------------|--------------------------------------------------------------------------------|--------------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|-------------------------------------------------------------------------------------|
|                                                          |    |              |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Year Ended December 31, 2001                             |    |              |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
|     Revenues from External Customers |    | $            |        8,452,282                            |    | $            |     6,703,452                                                                                                                                                                |    | $            |   15,155,734                                                              |
|     Supervisory Fees                 |    | $            |           604,736            |    | $            |                    -                                                                              |    | $            |        604,736                                   |
|     Interest Revenue                 |    | $            |             97,803 |    | $            |                    -                                                                              |    | $            |          97,803                        |
|     Interest Expense                 |    | $            |             27,228 |    | $            |          27,227                                                                                                                                     |    | $            |          54,455                        |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Expenditures for Segment Assets                          |    | $            |        3,030,565                            |    | $            |     5,311,526                                                                                                                                                                |    | $            |     8,342,091                                                   |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Depreciation, Depletion, and Amortization                |    | $            |        1,223,588                            |    | $            |          59,052                                                                                                                                     |    | $            |     1,282,640                                                   |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Lease Impairment                                         |    | $            |        1,031,014                            |    | $            |     1,031,014                                                                                                                                                                |    | $            |     2,062,028                                                   |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Income Tax                                               |    | $            |           185,268            |    | $            |        185,267                                                                                                                                                |    | $            |        370,535                                   |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Total Assets                                             |    | $            |      19,578,359                                       |    | $            |                    -                                                                              |    | $            |   19,578,359                                                              |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Net Income                                               |    | $            |        3,657,158                            |    | $            |          89,366                                                                                                                                     |    | $            |    3,746,524                                                         |
|                                                          |    |              |                                                                                |    |              |                                                                                                                                                                                                  |    |              |                                                                                     |
| Year Ended December 31, 2000                             |    |              |                                                                                |    |              |                                                                                                                                                                                                  |    |              |                                                                                     |
|     Revenues from External Customers |    | $            |        6,194,451                            |    | $            |     4,792,151                                                                                                                                                                |    | $            |  10,986,602                                                                    |
|     Supervisory Fees                 |    | $            |           668,361            |    | $            |                    -                                                                              |    | $            |       668,361                                         |
|     Interest Revenue                 |    | $            |             32,389 |    | $            |                    -                                                                              |    | $            |         32,389                              |
|     Interest Expense                 |    | $            |           213,652            |    | $            |        213,652                                                                                                                                                |    | $            |       427,304                                         |
|                                                          |    |              |                                                                                |    |              |                                                                                                                                                                                                  |    |              |                                                                                     |
| Expenditures for Segment Assets                          |    | $            |        2,264,380                            |    | $            |     3,729,327                                                                                                                                                                |    | $            |    5,993,707                                                         |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Depreciation, Depletion, and Amortization                |    | $            |           536,981            |    | $            |          49,926                                                                                                                                     |    | $            |       586,907                                         |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Lease Impairment                                         |    | $            |          1129077                  |    | $            |        411,768                                                                                                                                                |    | $            |    1,540,845                                                         |
|                                                          |    |              |                                                                                |    |              |                                                                                                                                                                                                  |    |              |                                                                                     |
| Income Tax                                               |    | $            |             38,454 |    | $            |          40,000                                                                                                                                     |    | $            |         78,545                              |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Total Assets                                             |    | $            |      20,775,040                                       |    | $            |                    -                                                                              |    | $            |  20,775,040                                                                    |
|                                                          |    |    |                                                                                |    |    |                                                                                                                                                                                                  |    |    |                                                                                     |
| Net Income                                               |    | $            |        2,712,688                            |    | $            |        347,447                                                                                                                                                |    | $            |    3,060,135                                                         |

F-14

**NOTE 7 - LONG-TERM DEBT**
|                           |    | 2001                   |  | 2000                   |
|---------------------------|--------------|------------------------|--|------------------------|
| Revolving line of credit* |    | $  2,000,000 |  | $  4,952,089 |

*Revolving line of credit with a maximum available of $6,000,000 issued by Bank One Service Corporation for the purposes ofRefinancing Royale’s existing debt and to fund development, exploration and acquisition activities as well as other generalCorporate purposes.  Agreement was entered into on December 1, 2000. Interest at New York prime plus 100.00 basis points,resulting in a rate of 5.75% at December 31, 2001 and 10.5% at December 31, 2000, payable monthly with borrowing base reductions of$100,000 commencing on February 1, 2001.  All unpaid principal and interest is payable at maturity on December 21, 2003.Maturities of long-term debt for years subsequent to December 31, 2001 are as follows:
| Year Ended   |    |                                          |
|--------------|--------------|------------------------------------------|
| December 31, |    |                                          |
|              |    |                                          |
| 2003         |    | $     2,000,000 |

**NOTE 8 - INCOME TAXES**The components of the net deferred tax assets were as follows:
|                                               |    |         2001                              |    |         2000                             |
|-----------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------|
| Deferred Tax Assets:                          |    |                                                                                                                      |    |                                                                                                                     |
|   Net operating loss carryforwards  |    | $                   - |    | $   1,812,536                                                                                        |
|   Statutory depletion carryforwards |    |          342,000                                                        |    |         355,502                                                             |
|                                               |    |                                                                                                                      |    |                                                                                                                     |
|   Total Deferred Tax Assets         |    |         342,000                                                              |    |      2,168,038                                                                             |
|                                               |    |                                                                                                                      |    |                                                                                                                     |
|   Valuation Allowance               |    |      (342,000)                                                                              |    |   (2,168,038)                                                                                             |
|                                               |    |                                                                                                                      |    |                                                                                                                     |
|   Net Deferred Tax Assets           |    | $                   - |    | $                    |

Royale Energy has approximately $1,500,000 of unused statutory percentage depletion, eligible to be used by Royale Energy infuture years to reduce federal taxable income. This depletion has no expiration date. A full valuation allowance has beenestablished for the deferred tax assets generated by this depletion carryforward due to the uncertainty of futureutilization.A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the U.S. statutory federalincome tax rate of 34% at December 31, 2001 and 2000, respectively, to pretax income is as follows:
|                                                     |    |        2001       |    |       2000                                               |
|-----------------------------------------------------|--------------|------------------------------------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------------------|
|                                                     |    |                                                                               |    |                                                                                                                           |
| Tax computed at 34%, respectively                   |    | $ 1,399,800                                                                   |    | $ 1,044,388                                                                                                          |
|                                                     |    |                                                                                    |    |                                                                                                                           |
| Increase (decrease) in taxes resulting from:        |    |                                                                                    |    |                                                                                                                           |
|   Net operating loss carryforwards used   |    | (932,118)                                                                          |    | (1,044,388)                                                                                                               |
|   State tax                               |    |        244,553                                       |    |           78,454                                                             |
|   Percentage depletion carryforwards used |    |      (341,700)                                            |    |                     - |
|                                                     |    |                                                                                    |    |                                                                                                                           |
|                                                     |    | $     370,535                                             |    | $        78,454                                                                   |
|                                                     |    |                                                                                    |    |                                                                                                                           |
| Effective Tax Rate                                  |    |             9.0%       |    |             3.0%                                              |

F-15

**NOTE 9 - REDEEMABLE PREFERRED STOCK**In 1993, Royale Energy's Board of Directors authorized the issuance of 259,250 shares of Series A Convertible Preferred Stock whichwere sold through a private placement offering. The Series A Convertible Preferred Stock was offered in units.  Each unitconsisted of 25,000 shares of Series A Convertible Preferred Stock and a 0.1% interest in the distributions of the Royale EnergyIncome Trust, to be formed.  Royale Energy had the right to sell fractional units.  The Series A Convertible PreferredStock has a stated value of $4 per share and provides shareholders with a one time 10% dividend payable thirty days after theexpiration of one year from the date of purchase.  The dividend has been paid on all outstanding shares at December 31,1994. The Series A Convertible Preferred Stock is convertible any time at the basic conversion rate of one share of common stock for twoshares of Series A Convertible Preferred Stock, subject to adjustment. Royale Energy has the option to call, at any time, theSeries 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).Upon the sale of 50% of the units of beneficial interest in Royal Energy Income Trust, a holder of Series A Convertible PreferredStock may require Royale Energy to redeem their Series A Convertible Preferred Stock at the issue price of $4 per share plusaccrued dividends, if any.The Series A Convertible Preferred Stock has a liquidation preference to the common stock equal to $4 per share plus accrueddividends. Holders of Series A Convertible Preferred Stock shall have voting rights equal to the number of shares of common stockinto which the Series A Convertible Preferred Stock may be converted.On October 28, 1993, Royale Energy's Series A Convertible Preferred Stock shareholders were made a one time offer to convert theirSeries A Convertible Preferred Stock to common stock.  This conversion would be at one share of common stock for each share ofSeries A Convertible Preferred Stock, rather than at the original conversion price of $4 per share.  This conversion would notaffect the shareholders' rights and incentives in the Royale Energy Income Trust.  As of December 31, 2001 and 2000, 224,815shares of Series A Convertible Preferred Stock had been converted to 198,625 shares of common stock.**NOTE 10 - SERIES AA PREFERRED STOCK**In April 1992, Royale Energy's Board of Directors authorized the sale of Series AA Convertible Preferred Stock.  Holders ofSeries AA Convertible Preferred Stock have dividend, conversion and preference rights identical to Series A Convertible PreferredStockholders.  The Series AA Convertible Preferred Stock does not have the right of redemption at the shareholders'option.  As of December 31, 2001 and 2000, there were 43,125  and 43,750 shares issued and outstanding.  Thedividend has been paid on all shares outstanding at December 31, 2001 and 2000.**NOTE 11 - COMMON STOCK**Royale Energy's Board of Directors, at its December 1997 meeting, authorized the repurchase and cancellation of up to 15% of theoutstanding common stock of Royale Energy. In addition, on March 26, 2001, the Board of Directors authorized a 15% stock dividendto shareholders of record on May 25, 2001. The number of common shares increased by 569,147 shares. The effect of the stockdividend decreased retained earnings (deficit) by $4,047,740.

F-16

**NOTE 12 - STOCK WARRANTS**Changes in Royale Energy's common stock warrants were as follows at December 31:
|                                             |    |       2001                                             |    |       2000                                             |
|---------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------|--------------|---------------------------------------------------------------------------------------------------------------|
|                                             |    |                                                                                                               |    |                                                                                                               |
| Outstanding warrants at beginning of period |    | 230,555                                                                                                       |    | 230,555                                                                                                       |
|                                             |    |                                                                                                               |    |                                                                                                               |
|   15% Stock dividend              |    | 34,583                                                                                                        |    | -                                                                                                             |
|   Additional warrants issued      |    | -                                                                                                             |    | -                                                                                                             |
|   Exercise of stock warrants      |    | -                                                                                                             |    | -                                                                                                             |
|   Warrants expired or ineligible  |    |                   - |    |                   - |
|                                             |    |                                                                                                               |    |                                                                                                               |
| Outstanding warrants at end of period       |    |       265,138                                                                   |    |       230,555                                                                   |

Royale Energy's affiliate, RPC, acquired 111,111 shares of Royale Energy'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 byRoyale Energy's Board of Directors on December 18, 1992, to purchase a maximum of 166,666 shares at the minimum bid price onDecember 18, 1992 of $3.00 per share.  The expiration date to purchase the remaining 55,555 additional shares pursuant to thisgrant 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 175,000shares of Royale Energy's common stock at prices ranging from $1.50 to $3.00 per share.  The expiration date of this grant hasbeen extended through December 31, 2002.Due to the declaration of the 15% stock dividend the number of warrants increased by 34,583, with a  corresponding decrease inprices ranging from $2.60 to $1.35 per share.**NOTE 13 - OPERATING LEASES**Royale Energy occupies office space under a sixty-month noncancellable lease, which expires in July 2005. The lease calls formonthly payments ranging from $16,675 to $17,762. Future minimum lease obligations as of December 31, 2001 is as follows:
|        Year Ended      |    |                                                               |
|------------------------------------------------------------------------------------|--------------|---------------------------------------------------------------|
|      December 31,                     |    |                                                               |
|                                                                                    |    |                                                               |
| 2002                                                                               |    | $        201,913      |
| 2003                                                                               |    | 206,763                                                       |
| 2004                                                                               |    | 210,613                                                       |
| 2005                                                                               |    |          124,338 |
|                                                                                    |    |                                                               |
|                                                                                    |    | $        743,627      |

Rental expense for the years ended December 31, 2001 and 2000, was $186,474 and $177,257, respectively.**NOTE 14 - RELATED PARTY TRANSACTIONS**Significant Ownership InterestsOn December 31, 2001, 27.53% of Royale Energy's common stock was owned by Royale Petroleum Corporation (RPC). RPC is owned equallyby Donald H. Hosmer and Stephen M. Hosmer.

F-17

**NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)**Significant Ownership Interests (Continued)Harry E. Hosmer, Royale Energy's former president and former chief executive officer, owns 10.50% of Royale Energy's common stock .Donald H. and Stephen M. Hosmer are sons of Harry E. Hosmer.  Donald H. Hosmer and Stephen M. Hosmer are also officers anddirectors of Royale Energy.Stock Compensation PlanOn December 18, 1992, the Board of Directors granted the directors and executive officers of Royale Energy 30,000 options topurchase common stock at an exercise or base price of $3.00 per share.  All options are exercisable on or after the secondanniversary of the date of grant.  Also on this date, the Board of Directors voted to adopt a policy of awarding stock optionsto key employees and contractors based on performance. On March 26, 2001, the number of options increased from 30,000 to 34,500 and the price decreased from $3.00 per share to $2.60 pershare due to the declaration of the 15% stock dividend.At the March 10, 1995 Board of Directors meeting, directors and executive officers of Royale Energy were granted 154,000options to purchase common stock at an exercise or base price of $1.90 per share. These options were granted for a period of tenyears, and may be exercised after the second anniversary of the grant. Royale Energy applies APB Opinion 25 and relatedinterpretations in accounting for its plans. Royale Energy did not grant stock options during 2001 or 2000.On March 26, 2001, the number of remaining options of 99,000 increased to 113,850 outstanding and the price decreased from $1.90per share to $1.65 per share due to the declaration of the 15% stock dividend.A summary of the status of Royale Energy's stock option plan as of December 31, 2001 and 2000, and changes during the years endingon those dates is presented below:
|                                              |    |                 2001                    |    |                     2000                    |
|----------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                              |    |   Shares                                                                                                                                                                                           |    | Weighted- Average Exercise      Price                                                                                                                                              |    |    Shares    |    | Weighted- Average Exercise      Price      |
|                                              |    |                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                |    |  |    |  |
| Fixed Options                                |    |                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                |    |  |    |  |
|   Outstanding at beginning of year |    | $129,000                                                                                                                                                                                                               |    | $      1.87                                                                                                                                                                                                      |    | 134,000 |    | $      2.15 |
|   15% of Stocks dividend           |    | 19,350                                                                                                                                                                                                                 |    |                                                                                                                                                                                                                                                |    | - |    |  |
|   Exercised                        |    |               -                                                                                                                                  |    |                                                                                                                                                                                                                                                |    |        5,000 |    |  |
|                                              |    |                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                |    |  |    |  |
|   Outstanding at end of year       |    |   148,350                                                                                                                                                                                                    |    |                                                                                                                                                                                                                                                |    |     129,000 |    |  |
|                                              |    |                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                |    |  |    |  |
| Options exercisable at year end              |    |   148,350                                                                                                                                                                                                    |    |                                                                                                                                                                                                                                                |    |     129,000 |    |  |
|                                              |    |                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                |    |  |    |  |
| Weighted-average fair value of options       |    |                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                |    |  |    |  |
|   Granted during the year          |    | $            -                                                                                                                                             |    |                                                                                                                                                                                                                                                |    | $              - |    |  |

F-18

**NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)**The following table summarizes information about fixed stock options outstanding at December 31, 2001 and 2000:
| Range of Exercise       Prices       |    | Number Outstanding atDecember 31, 2001                  |    | Weighted- Average Remaining ContractualLife (Years) |    | Weighted- AverageExercise Price |    | Number Outstanding atDecember 31, 2000                             |    | Weighted- Average Remaining Contractual Life (Years) |
|-------------------------------------------------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|-----------------------------------------------------|--------------|---------------------------------|--------------|--------------------------------------------------------------------|--------------|-----------------------------------------------------------|
|                                                                                                       |    |                                                         |    |                                                     |    |                                 |    |                                                                    |    |                                                           |
| $2.60                                                                                                 |    | 34,500                                                  |    | 1.0                                                 |    | $3.00                           |    | 30,000                                                             |    | 2.0                                                       |
| $1.65                                                                                                 |    |         113,850 |    | 3.2                                                 |    | $1.90                           |    |           99,000 |    | 4.2                                                       |
|                                                                                                       |    |                                                         |    |                                                     |    |                                 |    |                                                                    |    |                                                           |
| $1.65 to $2.60                                                                                        |    |         148,350 |    | 2.7                                                 |    | $1.90 to $3.00                  |    |         129,000            |    | 3.7                                                       |

The Board of Directors adopted a policy in 1989 that permits directors and officers of Royale Energy to purchase from RoyaleEnergy, at Royale Energy's actual cost, up to one percent of a fractional interest in any well to be drilled by Royale Energy.Current and former officers and directors received as compensation or were billed $77,067 and $73,118 for their interests for theyears ended December 31, 2001 and 2000, respectively.**NOTE 15 - ENVIRONMENTAL MATTERS**Royale Energy has established procedures for the on-going evaluation of its operations to identify potential environmentalexposures and assure compliance with regulatory policies and procedures. Management monitors these laws and regulations andperiodically assesses the propriety of its operational and accounting policies related to environmental issues. The nature ofRoyale Energy's business requires routine day-to-day compliance with environmental laws and regulations. Royale Energy incurred nomaterial environmental investigation, compliance andremediation costs in 2000 or 1999.Royale Energy is unable to predict whether its future operations will be materially affected by these laws and regulations. It isbelieved that legislation and regulations relating to environmental protection will not materially affect the results of operationsof Royale Energy.**NOTE 16 - COMMITMENTS AND CONTINGENCIES**On December 10, 1999, a group of 16 investors in drilling projects sponsored by Royale Energy from 1994 to 1998 filed suit againstRoyale Energy and certain of its officers and former officers in U.S. District Court for the Northern District of California,alleging fraud, negligent misrepresentation, breach of fiduciary duties and other related claims in connection with the sales ofworking interests in those projects.  Buck, et al., v. Royale Energy, et al., No. C 99 5236. The complaint generally statesthat the defendants failed to adequately disclose the company’s track record regarding previously drilled wells and makesother general statements about misconduct which are not in Royale Energy’s view supported by specific factualallegations.  The suit seeks an unspecified amount of damages, restitution of amounts the plaintiffs invested, and punitivedamages. In July 2000, the court granted Royale Energy’s motion to transfer the case to the US District Court for theSouthern District of California.  No discovery has been conducted in the case. No discovery has ever been conducted in thecase since it was filed in December 1999.  If the plaintiffs elect to pursue this case, Royale Energy will contend that theplaintiffs suffered no damages, that their claims are completely without merit and that the complaint fails to state a claim onwhich relief can be based.On October 12, 2001, Blue Star Resources, Inc. and others filed suit against Royale Energy for declaratory relief, money damages,imposition of a constructive trust, and declaratory relief, seeking a working interest and drilling rights to certain propertiescovered by a joint operating agreement between plaintiffs and Royale Energy. The dispute is over whether plaintiffs failed toconsent to drilling operations that resulted in a commercially productive well drilled by Royale Energy and thereby lost theirrights to

F-19

**NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)**working interests in the well. The case is set for trial in July 2002. In March 2001, the court dismissed the plaintiff'smotion for partial summary judgement. Since the amount of the judgement against the Company, if any, cannot be reasonablydetermined at this time, no liability has been accrued in the financial statements.In the normal course of business, Royale Energy occasionally becomes party to litigation.  In the opinion of management, basedon advice of legal counsel, pending and threatened litigation involving Royale Energy will not have a material adverse effect uponits financial condition or results of operations.**NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)**Operating revenues, operating income, net income, and earnings per common share by quarters from 2001 and 2000 are shown below.Royale Energy, in its opinion, has included all adjustments necessary for a fair presentation of the results of operations for thequarters. Due to the nature of Turnkey Drilling Revenues, which are recognized at specified times over program development onspecified wells, annual amounts are not generated evenly by quarter during the year. Amounts for the four quarters and year endedDecember 31, 2000 have been restated (see note 2).

|       Quarter Ended                                                     |    |    |      Total       Revenues |    |    |     Gross         Profit     |    |    |   Net Income       (Loss)      |    | Basic Earnings Per Common    Share    |    |    | Weighted- Average Shares Outstanding  |
|------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|----------------------------------------------------------------------------------|--------------|--------------|-------------------------------------------------------------------------------------------------------------------|--------------|--------------|------------------------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------|--------------|--------------|-------------------------------------------------|
|                                                                                                                                          |    |    |                                                                                  |    |    |                                                                                                                   |    |    |                                                                                                      |    |                                                                          |    |    |                                                 |
| December 31, 2001                                                                                                                        |    | $            | 2,485,301                                                                        |    | $            | 323,262                                                                                                           |    | $            | (1,575,274)                                                                                          |    | $   (0.37)                                                |    | $            | 4,161,581                                       |
|                       2000 |    | $            | 4,330,993                                                                        |    | $            | 3,525,104                                                                                                         |    | $            | 1,995,126                                                                                            |    | $      0.48                                |    | $            | 4,161,581                                       |
|                                                                                                                                          |    |    |                                                                                  |    |    |                                                                                                                   |    |    |                                                                                                      |    |                                                                          |    |    |                                                 |
| September 30, 2001                                                                                                                       |    | $            | 3,470,768                                                                        |    | $            | 1,659,976                                                                                                         |    | $            | 513,216                                                                                              |    | $      0.12                                |    | $            | 4,161,581                                       |
|                       2000 |    | $            | 2,962,880                                                                        |    | $            | 1,604,364                                                                                                         |    | $            | 527,930                                                                                              |    | $      0.13                                |    | $            | 4,161,581                                       |
|                                                                                                                                          |    |    |                                                                                  |    |    |                                                                                                                   |    |    |                                                                                                      |    |                                                                          |    |    |                                                 |
| June 30, 2001                                                                                                                            |    | $            | 3,950,337                                                                        |    | $            | 3,005,045                                                                                                         |    | $            | 1,778,077                                                                                            |    | $      0.43                                |    | $            | 4,161,581                                       |
| 2000                                                                                                                                     |    | $            | 2,495,162                                                                        |    | $            | 1,224,745                                                                                                         |    | $            | 394,535                                                                                              |    | $      0.09                                |    | $            | 4,161,581                                       |
|                                                                                                                                          |    |    |                                                                                  |    |    |                                                                                                                   |    |    |                                                                                                      |    |                                                                          |    |    |                                                 |
| March 31, 2001                                                                                                                           |    | $            | 5,951,867                                                                        |    | $            | 4,459,575                                                                                                         |    | $            | 3,030,505                                                                                            |    | $      0.72                                |    | $            | 4,161,581                                       |
| 2000                                                                                                                                     |    | $            | 1,898,317                                                                        |    | $            | 1,026,910                                                                                                         |    | $            | 142,544                                                                                              |    | $      0.03                                |    | $            | 4,161,581                                       |

F-20

**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 Royale Energylocated solely in the United States.  Proved reserves represent estimated quantities of crude oil and natural gas whichgeological and engineering data demonstrate to be reasonably certain to be recoverable in the future from known reservoirs underexisting economic and operating conditions.  Proved developed oil and gas reserves are reserves that can be expected to berecovered through existing wells, with existing equipment and operating methods.  Proved undeveloped oil and gas reserves arereserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells for which relatively majorexpenditures are required for completion.Disclosures of oil and gas reserves which follow are based on estimates prepared by independent engineering consultants for theyears ended December 31, 2001 and 2000.  Such estimates are subject to numerous uncertainties inherent in the estimation ofquantities 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 theSecurities and Exchange Commission (SEC).  Because of unpredictable variances in expenses and capital forecasts, crude oil andnatural gas price changes, largely influenced and controlled by U.S. and foreign government actions, and the fact that the basesfor such estimates vary significantly, management believes the usefulness of these projections is limited.  Estimates offuture net cash flows presented do not represent management's assessment of future profitability or future cash flows to RoyaleEnergy.  Management's investment and operating decisions are based upon reserve estimates that include proved reservesprescribed 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 absolutevalue.  The discounted amounts arrived at are only one measure of the value of proved reserves.Changes in Estimated Reserve QuantitiesThe net interest in estimated quantities of proved developed reserves of crude oil and natural gas at December 31, 2001 and 2000and changes in such quantities during each of the years then ended, were as follows:

|                                                           |    |                       2001                      |    |                     2000                      |
|-----------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                           |    | Oil (BBL)                                                                                                                                                                                                                                                              |    | Gas (MCF)                                                                                                                                                                                                                                                  |    | Oil (BBL) |    | Gas (MCF) |
| **Proved developed and undeveloped reserves:**            |    |                                                                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                            |    |  |    |  |
|   Beginning of period                           |    | 3,000                                                                                                                                                                                                                                                                  |    | 16,651,010                                                                                                                                                                                                                                                 |    | 80,000 |    | 15,842,000 |
|   Revisions of previous estimates               |    | (2,000)                                                                                                                                                                                                                                                                |    | (6,457,330)                                                                                                                                                                                                                                                |    | (76,404) |    | 1,103,647 |
|   Production                                    |    | -                                                                                                                                                                                                                                                                      |    | (1,366,109)                                                                                                                                                                                                                                                |    | (596) |    | (1,161,513) |
|   Extensions, discoveries and improved recovery |    | 7,000                                                                                                                                                                                                                                                                  |    | 4,333,429                                                                                                                                                                                                                                                  |    | - |    | 866,876 |
|   Purchase of minerals in place                 |    |               -                                                                                                                                                                                  |    |                -                                                                                                                                                                |    |                - |    |                - |
|                                                           |    |                                                                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                            |    |  |    |  |
| **Proved reserves end of period**                         |    |        8,000                                                                                                                                                                                                                        |    | 13,161,000                                                                                                                                                                                                                                                 |    |       3,000 |    | 16,651,010 |
|                                                           |    |                                                                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                            |    |  |    |  |
| **Proved developed reserves:**                            |    |                                                                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                            |    |  |    |  |
|   Beginning of period                           |    |        3,000                                                                                                                                                                                                                        |    | 12,672,000                                                                                                                                                                                                                                                 |    |     80,000 |    | 10,401,000 |
|                                                           |    |                                                                                                                                                                                                                                                                        |    |                                                                                                                                                                                                                                                            |    |  |    |  |
|   End of period                                 |    |        8,000                                                                                                                                                                                                                        |    | 11,245,000                                                                                                                                                                                                                                                 |    |       3,000 |    | 12,672,000 |

F-21

These estimates were determined using gas prices at December 31, 2001 ranging from $2.41 per Mcf to $2.85 per Mcf as applied ona field-by-field basis.Standardized measure of discounted future net cash flows relating to proved oil and gas reservesThe standardized measure of discounted future net cash flows is presented below for the two years ended December 31,2001.  The future net cash inflows are developed as follows:               (1)           Estimates are made of quantities of proved reserves and the futureperiods 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 thebasis of year-end prices.               (3)           The resulting future gross revenue streams are reduced by estimatedfuture costs to develop and to produce proved reserves, based on year end estimates.  Estimated future development cost byyear is as follows:

| 2002       |       | $ |    | 1,469,000 |
|------------|--------------------------------|---|--------------|-----------|
| 2003       |       |   |    | 279,000   |
| 2004       |       |   |    | 5,000     |
| Thereafter |       |   |    | 190,000   |
|            |       |   |    |           |
| Total      |       | $ |    | 1,943,000 |

               (4)           The resulting future net revenue streams are reduced to presentvalue amounts by applying a ten percent discount.Disclosure of principal components of the standardized measure of discounted future net cash flows provides information concerningthe factors involved in making the calculation.  In addition, the disclosure of both undiscounted and discounted net cashflows provides a measure of comparing proved oil and gas reserves both with and without an estimate of production timing.  Thestandardized measure of discounted future net cash flow relating to proved reserves reflects estimated income taxes.
|                                                          |    |           2001         |    |            2000          |
|----------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------------------------------------|
|                                                          |    |                                                                                                                  |    |                                                                                                                              |
| Future cash inflows                                      |    | $   34,888,000                                                                                    |    | $ 246,398,000                                                                                                           |
| Future production costs                                  |    | (11,830,000)                                                                                                     |    | (27,583,000)                                                                                                                 |
| Future development costs                                 |    | (1,943,000)                                                                                                      |    | (2,286,000)                                                                                                                  |
| Future income tax expenses                               |    |      (6,334,800)                                                                        |    |    (64,959,000)                                                                                               |
|                                                          |    |                                                                                                                  |    |                                                                                                                              |
| Future net cash flows                                    |    | 14,780,200                                                                                                       |    | 151,570,000                                                                                                                  |
|                                                          |    |                                                                                                                  |    |                                                                                                                              |
| 10% annual discount for estimated timing of cash flows   |    |      (5,766,930)                                                                        |    |    (68,515,413)                                                                                               |
|                                                          |    |                                                                                                                  |    |                                                                                                                              |
| Standardized measure of discounted future net cash flows |    | $     9,013,270                                                                         |    | $   83,054,587                                                                                                |

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

F-21
|                                                             |    |        2001         |    |        2000        |
|-------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------------|--------------|------------------------------------------------------------------------------------------|
|                                                             |    |                                                                                                |    |                                                                                          |
| Standardized measure - beginning of year                    |    | $   83,054,587                                                                  |    | $    9,503,521                                                       |
|                                                             |    |                                                                                                |    |                                                                                          |
| Sales of oil and gas produced, net of production costs      |    | (1,819,352)                                                                                    |    | (9,402,032)                                                                              |
|                                                             |    |                                                                                                |    |                                                                                          |
| Revisions of estimates of reserves provided in prior years: |    |                                                                                                |    |                                                                                          |
|   Net changes in prices and production costs      |    | (115,624,655)                                                                                  |    | 113,606,329                                                                              |
|                                                             |    |                                                                                                |    |                                                                                          |
| Extensions, discoveries and improved recovery               |    | 5,973,576                                                                                      |    | 6,581,704                                                                                |
|                                                             |    |                                                                                                |    |                                                                                          |
| Accretion of discount                                       |    | 5,216,894                                                                                      |    | (5,213,770)                                                                              |
|                                                             |    |                                                                                                |    |                                                                                          |
| Net change in income tax                                    |    |      32,212,220                                                       |    |   (32,021,165)                                                                 |
|                                                             |    |                                                                                                |    |                                                                                          |
| Net increase (decrease)                                     |    |    (74,041,317)                                                                 |    |     73,551,066                                                       |
|                                                             |    |                                                                                                |    |                                                                                          |
| Standardized measure - end of year                          |    | $     9,013,270                                                       |    | $  83,054,587                                                                  |

F-22