| For the Fiscal Year Ended December 31, 2009 |   | Commission File No. 0-22750 |
|---------------------------------------------|--------|-----------------------------|

| California                                                    | 33-0224120                          |
|---------------------------------------------------------------|-------------------------------------|
| (State or other jurisdiction ofincorporation or organization) | (I.R.S. EmployerIdentification No.) |

| Large accelerated filer | [  ] |   | Accelerated filer         | [  ] |
|-------------------------|----------------|--------|---------------------------|----------------|
| Non-accelerated filer   | [  ] |   | Smaller Reporting Company | [X]            |

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| PART I                     |                                                                                                                          | 1        |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------|----------|
| Item 1                     | Description of Business                                                                                                       | 1        |
|                       | Plan of Business                                                                                                              | 2        |
|                       | Competition, Markets and Regulation                                                                                           | 3        |
| Item 1A                    | Risk Factors                                                                                                                  | 3        |
| Item 2                     | Description of Property                                                                                                       | 7        |
|                       | Northern California                                                                                                           | 8        |
|                       | Developed and Undeveloped Leasehold Acreage                                                                                   | 8        |
|                       | Drilling Activities                                                                                                           | 8        |
|                       | Production                                                                                                                    | 9        |
|                       | Net Proved Oil and Natural Gas Reserves                                                                                       | 9        |
| Item 3                     | Legal Proceedings                                                                                                             | 9        |
| PART II                    |                                                                                                                          | 9        |
| Item 5                     | Market for Common Equity and Related Stockholder Matters                                                                      | 9        |
|                       | Dividends                                                                                                                     | 10       |
|                       | Recent Sales of Unregistered Securities                                                                                       | 10       |
|                       | Performance Graph                                                                                                             | 10       |
| Item 6                     | Selected Financial Data                                                                                                       | 11       |
| Item 7                     | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                   |  11 |
|                       | Critical Accounting Policies                                                                                                  | 11       |
|                       | Results of Operations for the Twelve Months Ended Dexcember 31, 2009 as Compared to the Twelve Months Ended December 31, 2008 |  13 |
|                       | Results of Operations for the Twelve Months Ended December 31, 2008 as Compared to the Twelve Months Ended December 31, 2007  |  14 |
|                       | Capital Resources and Liquidity                                                                                               | 16       |
|                       | Changes in Reserve Estimates                                                                                                  | 18       |
| Item 7A                    | Qualitative and Quantitative Disclosures About Market Risk                                                                    | 19       |
| Item 8                     | Financial Statements                                                                                                          | 19       |
| Item 9A                    | Controls and Procedures                                                                                                       |     |
|                       | Disclosure Controls                                                                                                           | 19       |
|                       | Management Report on Internal Control over Financial Reporting                                                                | 19       |
|                       | Changes in Internal Control over Financial Reporting                                                                          | 20       |
|                       | Limitations on Effectiveness of Controls                                                                                      | 20       |
| PART III                   |                                                                                                                          | 20       |
| Item 10                    | Directors and Executive Officers of the Registrant                                                                            | 20       |
| Item 11                    | Executive Compensation                                                                                                        | 21       |
| Item 12                    | Security Ownership of Certain Beneficial Owners and Management                                                                | 21       |
| Item 13                    | Certain Relationships and Related Transactions                                                                                | 21       |
| Item 14                    | Principal Accountant Fees and Services                                                                                        | 21       |
| PART IV                    |                                                                                                                          | 21       |
| Item 15                    | Exhibits and Financial Statement Schedules                                                                                    | 22       |
| SIGNATURES                 |                                                                                                                          | 23       |
|  FINANCIAL STATEMENTS |  F-1                                                                                                                     |

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|   | · | the timing of both production and related expenses; |
|--------|--------|-----------------------------------------------------|

|   | · | changes in consumption levels; and |
|--------|--------|------------------------------------|

|   | · | governmental regulations or taxation. |
|--------|--------|---------------------------------------|

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| Name                  | Number of Shares (1) | Percent (2), (3) |
|-----------------------|----------------------|------------------|
| Donald H. Hosmer      | 934,709              | 9.0%             |
| Stephen M. Hosmer (4) | 1,175,427            | 11.5%            |
| Harry E. Hosmer       | 748,697              | 7.3%             |
| Total                 | 2,858,833            | 27.8%            |

|   | (1) | Includes the following options to purchase shares of stock:  Donald H. Hosmer – 45,000, Stephen M. Hosmer – 30,000, and Harry E. Hosmer – 30,000. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Based on total of 10,225,208 outstanding shares on December 31, 2009. |
|--------|-----|-----------------------------------------------------------------------|

|   | (3) | Calculated pursuant to Rule 13d-3 of the Securities and Exchange Commission. |
|--------|-----|------------------------------------------------------------------------------|

|   | (4) | Includes 12,000 shares of stock owned by the minor children of Stephen M. Hosmer.  Mr. Hosmer disclaims beneficial ownership of the shares owned by his children. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|             | Developed   | Undeveloped |
|------------------|-------------|-------------|
|             | Gross Acres | Net Acres   | Gross Acres | Net Acres |
| California       | 12,957.58   | 8,044.49    | 9,049.00 | 8,197.54 |
| All Other States | 4,800.48    | 1,849.79    | 19,871.50 | 14,118.38 |
| Total            | 17,758.06   | 9,894.28    | 28,920.50 | 22,315.92 |

|   |            |   |           |         |         |   |
|--------|-----------------|--------|----------------|--------------|--------------|--------|
| Year   | Type of Well(a) |   | Gross Wells(e) | Net Wells(b) |
|   |            | Total  | Producing(c)   | Dry(d)       | Producing(c) | Dry(d) |
|   |            |   |           |         |         |   |
| 2007   | Exploratory     | 4      | 4              | 0            | 1.8424       | 0.0000 |
|   | Developmental   | 3      | 2              | 1            | 0.6007       | 0.4613 |
|   |            |   |           |         |         |   |
| 2008   | Exploratory     | 2      | 1              | 1            | 0.4985       | 0.1238 |
|   | Developmental   | 5      | 4              | 1            | 1.9441       | 0.0000 |
|   |            |   |           |         |         |   |
| 2009   | Exploratory     | 3      | 2              | 1            | 0.9715       | 0.2468 |
|   | Developmental   | 2      | 1              | 1            | 0.4982       | 0.5369 |

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

|   | b) | Gross wells represent the number of actual wells in which Royale Energy owns an interest.  Royale Energy's interest in these wells may range from 1% to 100%. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | d) | A dry well is a well that is not deemed capable of producing hydrocarbons in paying quantities. |
|--------|----|-------------------------------------------------------------------------------------------------|

|   | e) | One "net well" is deemed to exist when the sum of fractional ownership working interests in gross wells or acres equals one.  The number of net wells is the sum of the fractional working interests owned in gross wells expressed as a whole number or a fraction. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | Production |
|--------|------------|

|                           |   |      |   |      |   |      |
|--------------------------------|--------|-----------|--------|-----------|--------|-----------|
|                           |   | 2009      |   | 2008      |   | 2007      |
| Net volume                     |   |      |   |      |   |      |
| Oil (BBL)                      |   | 8,364     |   | 11,089    |   | 14,088    |
| Gas (MCF)                      |   | 575,995   |   | 714,230   |   | 791,195   |
| MCFE                           |   | 659,635   |   | 825,120   |   | 932,075   |
|                           |   |      |   |      |   |      |
| Average sales price            |   |      |   |      |   |      |
| Oil (BBL)                      | $      | 52.92     | $      | 95.04     | $      | $65.02    |
| Gas (MCF)                      | $      | 4.09      | $      | 8.32      | $      | 6.56      |
|                           |   |      |   |      |   |      |
| Net production costs and taxes | $      | 1,415,970 | $      | 2,906,325 | $      | 2,116,977 |
|                           |   |      |   |      |   |      |
| Lifting costs (per MCFE)       | $      | 2.15      | $      | 3.52      | $      | 2.27      |

----

|   | 1st Qtr |   | 2nd Qtr |   | 3rd Qtr |   | 4th Qtr |
|--------|---------|--------|---------|--------|---------|--------|---------|
|   | High    | Low    |    | High   | Low     |   | High    | Low |   | High | Low |
| 2009   | 3.36    | 1.40   |    | 3.77   | 1.88    |   | 2.55    | 1.89 |   | 3.69 | 1.99 |
| 2008   | 3.53    | 2.31   |    | 13.15  | 2.63    |   | 11.36   | 3.89 |   | 4.26 | 2.29 |

|                                   | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|----------------------------------------|------|------|------|------|------|------|
| Royale Energy, Inc.                    | 100  | 88   | 48   | 39   | 39   | 37   |
| S & P Composite 500 Stock Index    | 100  | 103  | 117  | 121  | 75   | 92   |
| DJ US Exploration and Production Index | 100  | 164  | 172  | 245  | 145  | 202  |

----

|                                                                                  | 2009               | 2008                | 2007     | 2006     | 2005     |   |
|---------------------------------------------------------------------------------------|--------------------|---------------------|----------|----------|----------|--------|
| Income Statement Data:                                                                |               |                |     |     |     |   |
|   Revenues                                                                  | $  8,626 | $  19,174 | $ 16,557 | $ 24,896 | $ 25,643 |
|   Operating Income (Loss)                                                   | (3,147)            | (14,362)            | (3,885)  | (3,189)  | 2,257    |
|  Net Income (Loss)                                                               | (2,197)            | (8,778)             | (2,779)  | (2,650)  | 1,186    |
|  Basic Earnings Per Share                                                        | (0.24)             | (1.06)              | (0.35)   | (0.33)   | 0.15     |
| Balance Sheet Date:                                                                   |               |                |     |     |     |
|   Oil & Gas Properties,    Equipment & Fixtures | $8,800             | $  10,264 | $ 23,390 | $ 20,526 | $ 31,221 |
|   Total Assets                                                              | 22,564             | 24,191              | 32,571   | 33,715   | 43,043   |
|   Long Term Obligations                                                     | 2,954              | 2,470               | 6,159    | 5,757    | 10,768   |
|   Total Stockholders’ Equity                                          | 9,451              | 7,394               | 12,385   | 15,548   | 18,318   |

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|   | • | Maintain a minimum ratio of earnings before interest, taxes, depreciation and amortization to interest expense of at lest 3.00 to 1.00; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Maintain a ratio of current assets to current liabilities of at least 1.00 to 1.00; and |
|--------|---------|-----------------------------------------------------------------------------------------|

|   | • | Maintain a tangible net worth as of the close of each fiscal quarter of at least 75% of Royale’s tangible net worth on the loan closing date, plus 75% of positive quarterly net income thereafter. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|           |   | Total Obligations |   |  2010 |   | 2011-2012 |   |  2013-2014 |   |  Beyond |
|----------------|--------|-------------------|--------|------------|--------|-----------|--------|-----------------|--------|--------------|
|           |   |              |   |       |   |      |   |            |   |         |
| Office lease   | $      | 2,208,327         | $      | 369,555    | $      | 772,157   | $      | 819,715         | $      | 246,900      |
| Long-term debt |   | 2,490,417         |   | 50,417     |   | -         |   | 2,440,000       |   | -            |
| Total          | $      | 4,698,744         | $      | 419,972    | $      | 772,157   | $      | 3,259,715       | $      | 246,900      |

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|                                                                     | Oil    | Gas           |
|--------------------------------------------------------------------------|--------|---------------|
| Two existing wells with higher estimated proved producing gas reserves   |   | 560,627  |
| One existing well with higher estimated proved producing oil reserves    | 12,812 |          |
| One existing well with lower estimated proved non-producing gas reserves |   | (351,588)     |
| Increase of proved undeveloped reserves in one existing well             |   | 111,170  |
| Reduction of PUD in one existing well                                    |   | (153,661)     |
|      Total                                      | 12,812 | 166,548  |

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|                                                                  | Gas         |
|-----------------------------------------------------------------------|-------------|
| Two existing wells with lower estimated proved producing reserves     | (385,846)   |
|                                                                  |        |
| Two existing wells with lower estimated proved non-producing reserves | (494,000)   |
|                                                                  |        |
| Reduction of PUD due to four undrilled wells                          | (1,716,000) |
| Reduction of PUD due to three undrilled wells pending evaluation      | (1,166,000) |
|                                                                  |        |
| Reduction of PUD based on drilling results                            | (218,368)   |
|      Total                                   | (3,980,214) |

----

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| 1. | Financial Statements.  See Index to Financial Statements, page F-1 |
|----|------------------------------------------------------------------------------|

| 2. | Schedules.  Supplemental Information About Oil and Gas Producing Activities (Unaudited) begins on page F-29. |
|----|------------------------------------------------------------------------------------------------------------------------|

| 3. | Exhibits.  Certain of the exhibits listed 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 Form 10-Q filed August 14, 2009.                                                     |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  | Amended and Restated Bylaws of Royale Energy, Inc., incorporated by reference to Exhibit 3.2 of Royale Energy’s Form 10-K filed March 27, 2009.                                                             |
| 4.1  | Series A Warrant issued to Cranshire Capital, L.P., incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed August 6, 2009.                                                                |
| 4.2  | Series A-1 Warrant issued to Cranshire Capital, L.P., incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K filed August 6, 2009.                                                              |
| 4.3  | Series B Warrant issued to Cranshire Capital, L.P., incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K filed August 6, 2009.                                                                |
| 4.4  | Series C Warrant issued to Cranshire Capital, L.P., incorporated by reference to Exhibit 4.4 of the Company’s Form 8-K filed August 6, 2009.                                                                |
| 4.5  | Warrant issued to J.P. Turner Partners, L.P. dated August 5, 2009, incorporated by reference to Exhibit 4.5 of the Company’s Form S-3/A filed August 21, 2009.                                              |
| 4.6  | Warrant issued to J.P. Turner Partners, L.P. dated October 20, 2009, incorporated by reference to Exhibit 4.6 of the Company’s Form S-3/A filed December 14, 2009.                                          |
| 4.7  | Warrant issued to Cranshire Capital, L.P., incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed October 21, 2009.                                                                       |
| 4.8  | Waiver letter regarding adjustment of warrant anti-dilution provisions, incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K filed August 6, 2009.                                           |
| 4.9  | Waiver letter regarding adjustment of warrant anti-dilution provisions, incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K filed October 21, 2009.                                         |
| 4.10 | Certificate of Determination of the Series AA Convertible Preferred Stock, incorporated by reference to Exhibit 4.2 of Royale Energy'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 Registration Statement.                                                                                |
| 10.2 | Amended and Restated Credit Agreement between Royale Energy and Texas Capital Bank, N.A. (February 13, 2009), incorporated by reference to Exhibit 310.2 of Royale Energy’s Form 10-K filed March 27, 2009. |
| 10.3 | Form of Promissory Note between Royale Energy and Texas Capital Bank, N.A., incorporated by reference to Exhibit 10.3 of Royale Energy’s Form 10-K filed March 27, 2009.                                    |
| 10.4 | Securities Purchase Agreement between the Company and Cranshire Capital, L.P., dated as of August 4, 2009, incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed August 6, 2009.        |
| 10.5 | Registration Rights Agreement between the Company and Cranshire Capital, L.P., dated as of August 5, 2009, incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed August 6, 2009.        |
| 10.6 | Securities Purchase Agreement between the Company and Cranshire Capital, L.P., dated as of October 16, 2009, incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed October 21, 2009.    |
| 10.7 | Registration Rights Agreement between the Company and Cranshire Capital, L.P., dated as of October 16, 2009, incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed October 21, 2009.    |
| 10.8 | Financial Representative Agreement between the Company and J.P. Turner & Company, LLC, dated July 9, 2009, incorporated by reference to Exhibit 10.3 of the Company’s Form S-3/A filed August 21, 2009. |
| 23.1 | Consent of Padgett Stratemann & Co., L.L.P., filed herewith                                                                                                                                                   |
| 23.2 | Consent of Netherland Sewell & Associates, filed herewith                                                                                                                                                     |
| 23.3 | Consent of Source Energy, LLC, filed herewith                                                                                                                                                                     |
| 31.1 | Rules 13a-14(a), 115d-14(a) Certification, filed herewith.                                                                                                                                                        |
| 31.2 | Rules 13a-14(a), 115d-14(a) Certification, filed herewith.                                                                                                                                                        |
| 32.1 | Section 1350 Certification, filed herewith.                                                                                                                                                                       |
| 32.2 | Section 1350 Certification, filed herewith.                                                                                                                                                                       |
| 99.1 | Report of Netherland Sewell & Associates, Inc., filed herewith                                                                                                                                                |
| 99.2 | Report of Source Energy, LLC, filed herewith                                                                                                                                                                      |

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|   |           | Royale Energy, Inc.                         |
|--------|----------------|---------------------------------------------|
|   |           |                                        |
| Date:  | March 16, 2010 | /s/ Donald H.. Hosmer                       |
|   |           | Donald H.. Hosmer                           |
|   |           | Co-President and Co-Chief Executive Officer |
|   |           |                                        |

| Date: | March 16, 2010 | /s/ Harry E. HosmerHarry E. HosmerChairman of the Board of Directors                                                            |
|-------|----------------|---------------------------------------------------------------------------------------------------------------------------------|
| Date: | March 16, 2010 | /s/ Donald H. HosmerDonald H. HosmerDirector, Co-President, Co-Chief Executive Officer                                          |
| Date: | March 16, 2010 | /s/ Stephen M. HosmerStephen M. HosmerDirector, Co-President, Co-Chief Executive Officer, Chief Financial Officer and Secretary |
| Date: | March 16, 2010 | /s/ Tony HallTony HallDirector                                                                                                  |
| Date: | March 16, 2010 | /s/ Oscar A. HildebrandtOscar A. HildebrandtDirector                                                                            |
| Date: | March 16, 2010 | /s/ Gary GrinsfelderGary GrinsfelderDirector                                                                                    |
| Date: | March 16, 2010 | /s/ Gilbert C.L. KempGilbert C.L. KempDirector                                                                                  |
| Date: | March 16, 2010 | /s/ George M. WattersGeorge M. WattersDirector                                                                                  |

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|   | ROYALE ENERGY, INC. |
|--------|---------------------|

|   | INDEX TO FINANCIAL STATEMENTS |
|--------|-------------------------------|

|   | AND SUPPLEMENTARY DATA |
|--------|------------------------|

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|   | ROYALE ENERGY, INC |
|--------|--------------------|

|                                              |   | 2009       |   | 2008       |
|---------------------------------------------------|--------|------------|--------|------------|
|                                              |   |       |   |       |
| Current Assets                                    |   |       |   |       |
| Cash and Cash Equivalents                         | $      | 3,835,282  | $      | 1,330,739  |
| Accounts Receivable, net                          |   | 2,493,108  |   | 3,750,557  |
| Prepaid Expenses                                  |   | 842,226    |   | 2,839,735  |
| Deferred Tax Asset                                |   | 0          |   | 534,698    |
| Available for Sale Securities                     |   | 0          |   | 218,938    |
| Inventory                                         |   | 845,874    |   | 216,459    |
|                                              |   |       |   |       |
| Total Current Assets                              |   | 8,016,490  |   | 8,891,126  |
|                                              |   |       |   |       |
| Other Assets                                      |   | 6,946      |   | 6,946      |
| Deferred Tax Asset - Noncurrent                   |   | 5,740,414  |   | 5,029,007  |
|                                              |   |       |   |       |
|                                              |   |       |   |       |
| Oil And Gas Properties (Successful Efforts Basis) |   |       |   |       |
| Equipment and Fixtures                            |   | 8,800,293  |   | 10,263,517 |
|                                              |   |       |   |       |
| Total Assets                                      | $      | 22,564,143 | $      | 24,190,596 |
|                                              |   |       |   |       |

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|   | ROYALE ENERGY, INC. |
|--------|---------------------|

|   | BALANCE SHEETS |
|--------|----------------|

|   | DECEMBER 31, 2009 AND 2008 |
|--------|----------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2009                         |   | 2008                         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|------------------------------|
| Current Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Accounts Payable and Accrued Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $      | 5,128,987                    | $      | 10,320,187                   |
| Current Portion of Long-Term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 50,417                       |   | 0                            |
| Deferred Revenue from Turnkey Drilling                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 4,979,605                    |   | 4,005,800                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Total Current Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 10,159,009                   |   | 14,325,987                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Noncurrent Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                         |   |                         |
| Asset Retirement Obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 514,361                      |   | 494,168                      |
| Long-Term Debt, Net of Current Portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2,440,000                    |   | 1,975,974                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Total Noncurrent Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | 2,954,361                    |   | 2,470,142                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Total Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 13,113,370                   |   | 16,796,129                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Stockholders' Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Common Stock, No Par Value, 20,000,000 and $10,000,000 Shares Authorized; 10,257,827 and 8,538,717 Shares Issued10,225,208 and 8,506,098 Shares Outstanding, Respectively                                                                                                                                                                                                                                                                                                                                       |   |    27,246,740 |   |    23,355,926 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Convertible Preferred Stock, Series AA, No Par Value,                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                         |   |                         |
| 147,500 Shares Authorized; 52,784                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                         |   |                         |
| Shares Issued and Outstanding, Respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 154,014                      |   | 154,014                      |
| Accumulated (Deficit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | (18,115,452)                 |   | (15,918,309)                 |
| Accumulated Other Comprehensive Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 0                            |   | (140,053)                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Total Paid in Capital and Accumulated Deficit                                                                            |   | 9,285,302                    |   | 7,451,578                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Less Cost of Treasury Stock, 32,619 Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (179,376)                    |   | (179,376)                    |
| Paid in Capital, Treasury Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 344,847                      |   | 122,262                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Total Stockholders' Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 9,450,773                    |   | 7,394,467                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         |   |                         |
| Total Liabilities and Stockholders' Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $      | 22,564,143                   | $      | 24,190,596                   |

----

|   | FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007 |
|--------|-------------------------------------------------------|

|                                                                                                |   | 2009        |   | 2008         |   | 2007        |
|-----------------------------------------------------------------------------------------------------|--------|-------------|--------|--------------|--------|-------------|
| Revenues:                                                                                           |   |        |   |         |   |        |
| Sale of Oil and Gas                                                                                 | $      | 2,800,557   | $      | 6,999,022    | $      | 6,110,092   |
| Turnkey Drilling                                                                                    |   | 5,061,804   |   | 11,472,065   |   | 9,408,103   |
| Supervisory Fees and Other                                                                          |   | 763,224     |   | 703,027      |   | 1,039,204   |
|                                                                                                |   |        |   |         |   |        |
| Total Revenues                                                                                      | $      | 8,625,585   | $      | 19,174,114   | $      | 16,557,399  |
|                                                                                                |   |        |   |         |   |        |
| Costs and Expenses:                                                                                 |   |        |   |         |   |        |
| General and Administrative                                                                          |   | 3,546,816   |   | 4,382,462    |   | 4,450,092   |
| Turnkey Drilling & Development                                                                  |   | 2,146,904   |   | 6,015,390    |   | 4,977,811   |
| Lease Operating                                                                                     |   | 1,415,970   |   | 2,906,325    |   | 2,540,436   |
| Lease Impairment                                                                                    |   | 1,935,861   |   | 15,691,348   |   | 2,106,670   |
| Bad Debt Expense                                                                                    |   | 255,478     |   | 567,521      |   | 262,532     |
| Legal and Accounting                                                                                |   | 717,173     |   | 1,211,989    |   | 928,628     |
| Marketing                                                                                           |   | 810,147     |   | 1,160,999    |   | 1,455,296   |
| Depreciation, Depletion and Amortization                                                            |   | 989,716     |   | 4,148,415    |   | 3,585,682   |
|                                                                                                |   |        |   |         |   |        |
| Total Costs and Expenses                                                                            | $      | 11,818,065  | $      | 36,084,449   | $      | 20,307,147  |
|                                                                                                |   |        |   |         |   |        |
| Gain (Loss) on Sale of Assets                                                                       |   | 45,611      |   | 2,547,450    |   | (135,396)   |
|                                                                                                |   |        |   |         |   |        |
| Income (Loss) from Operations                                                                       |   | (3,146,869) |   | (14,362,885) |   | (3,885,144) |
|                                                                                                |   |        |   |         |   |        |
| Other Expense:                                                                                      |   |        |   |         |   |        |
| Interest Expense                                                                                    |   | 101,675     |   | 221,667      |   | 152,547     |
|                                                                                                |   |        |   |         |   |        |
| Income (Loss) Before Income Tax Expense                                                             |   | (3,248,544) |   | (14,584,552) |   | (4,037,691) |
|                                                                                                |   |        |   |         |   |        |
| Income Tax Expense (Benefit)                                                                        |   | (1,051,401) |   | (5,806,938)  |   | (1,258,484) |
|                                                                                                |   |        |   |         |   |        |
| Net Income (Loss)                                                                                   | $      | (2,197,143) | $      | (8,777,614)  | $      | (2,779,207) |
|                                                                                                |   |        |   |         |   |        |
| Basic Earnings Per Share:                                                                           |   |        |   |         |   |        |
| Net Income (Loss) Available To Common Stock                                                         | $      | (0.24)      | $      | (1.06)       | $      | (0.35)      |
|                                                                                                |   |        |   |         |   |        |
| Diluted Earnings (Loss) Per Share                                                                   | $      | (0.24)      | $      | (1.06)       | $      | (0.35)      |
|                                                                                                |   |        |   |         |   |        |
| Other Comprehensive Income                                                                          |   |        |   |         |   |        |
|     Unrealized Gain(Loss) on Equity Securities                                  | $      | 352,145     | $      | (303,870)    | $      | 0           |
|     Less: Reclassification Adjustment for Losses (Gains)                        |   |        |   |         |   |        |
|         Included in Net Income                              |   | (120,269)   |   | 71,994       |   | 0           |
|                                                                                                |   |        |   |         |   |        |
| Other Comprehensive Income (Loss), before tax                                                       |   | 231,876     |   | (231,876)    |   | 0           |
|                                                                                                |   |        |   |         |   |        |
| Income Tax Expense (Benefit) Related to Items     of Other Comprehensive Income |   | 91,823      |   | (91,823)     |   | 0           |
|                                                                                                |   |        |   |         |   |        |
| Other Comprehensive Income (Loss), net of tax                                                       |   | 140,053     |   | (140,053)    |   | 0           |
|                                                                                                |   |        |   |         |   |        |
| Comprehensive Income (Loss)                                                                         | $      | (2,057,090) | $      | (8,917,667)  | $      | (2,779,207) |

----

|   | ROYALE ENERGY, INC. |
|--------|---------------------|

|   | FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007 |
|--------|-------------------------------------------------------|

|                                                            | Common Stock  |   | Preferred Stock Series AA |
|-----------------------------------------------------------------|---------------|--------|---------------------------|
|                                                            |          |   |                      |   |   |   |   |
|                                                            | Shares Issued |   |  Amount              |   | Shares Outstanding |   |  Amount |
|                                                            |          |   |                      |   |   |   |   |
| Balance at January 1, 2007                                      | 7,951,748     | $      | $19,511,963               |   | 57,416 | $ | 167,979 |
|                                                            |          |   |                      |   |   |   |   |
| Stock Options Exercised Adjustment                              | (2)           |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Cash Dividend $0.05 Per Share                                   | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Stock Award                                                     | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Net Income (Loss) for the Year                                  | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Balance at December 31, 2007                                    | 7,951,746     | $      | 19,511,963                |   | 57,416 | $ | $167,979 |
|                                                            |          |   |                      |   |   |   |   |
| Stock Options Exercised                                         | 36,844        |   | 105,000                   |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Employee Stock Award Adjustments                                | (134)         |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Common Stock Private Placement                                  | 547,945       |   | 3,724,998                 |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Conversion of Preferred AA                                      | 2,316         |   | 13,965                    |   | (4,632) |   |  (13,965) |
|                                                            |          |   |                      |   |   |   |   |
| Stock-Based Compensation –  Stock Options Grant | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Stock – Based Compensation - Restricted Stock Grant       | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Available for Sale Securities – Unrealized Loss           | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Net Income (Loss) for the Year                                  | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Balance at December 31, 2008                                    | 8,538,717     | $      | 23,355,926                |   | 52,784 | $ | 154,014 |
|                                                            |          |   |                      |   |   |   |   |
| Common Stock Private Placement                                  | 1,175,817     |   | 2,810,164                 |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Common Stock Warrant Exercise                                   | 511,628       |   | 1,080,650                 |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Stock-Based Compensation –  Stock Options Grant | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Stock – Based Compensation - Restricted Stock Grant       | 31,665        |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Available for Sale Securities – Unrealized Gain           | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Net Income (Loss) for the Year                                  | -             |   | -                         |   | - |   | - |
|                                                            |          |   |                      |   |   |   |   |
| Balance at December 31, 2009                                    | 10,257,827    | $      | 27,246,740                |   | 52,784 | $ | 154,014 |

----

|   | ROYALE ENERGY, INC. |
|--------|---------------------|

|   | STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) |
|--------|------------------------------------------------|

|   | FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007 |
|--------|-------------------------------------------------------|

|                                                            | Treasury Stock              |   |                     |
|-----------------------------------------------------------------|-----------------------------|--------|--------------------------|
|                                                            |   Shares Acquired |   |    Amount |   | Paid in Capital Treasury Stock |
|                                                            |                        |   |                     |   |   |
| Balance at January 1, 2007                                      | 35,340                      | $      | (192,052)                | $ | 24,863 |
|                                                            |                        |   |                     |   |   |
| Stock Options Exercised Adjustment                              | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Cash Dividend $0.05 Per Share                                   | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Stock Award                                                     | (2,253)                     |   | $11,040                  | $ | 1,712 |
|                                                            |                        |   |                     |   |   |
| Net Income (Loss) for the Year                                  | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Balance at December 31, 2007                                    | 33,087                      | $      | (181,012)                | $ | 26,575 |
|                                                            |                        |   |                     |   |   |
| Stock Options Exercised                                         | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Employee Stock Award Adjustments                                | (468)                       |   | 1,636                    |   | 254 |
|                                                            |                        |   |                     |   |   |
| Common Stock Private Placement                                  | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Conversion of Preferred AA                                      | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Stock-Based Compensation – Stock Options Grant            | -                           |   | -                        |   | 74,748 |
|                                                            |                        |   |                     |   |   |
| Stock-Based Compensation – Restricted Stock Grant         | -                           |   | -                        |   | 20,688 |
|                                                            |                        |   |                     |   |   |
| Available for Sale Securities – Unrealized Loss           | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Net Income (Loss) for the Year                                  | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Balance at December 31, 2008                                    | 32,619                      | $      | (179,376)                | $ | 122,265 |
|                                                            |                        |   |                     |   |   |
| Common Stock Private Placement                                  | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Common Stock Warrant Exercise                                   | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Stock-Based Compensation –  Stock Options Grant | -                           |   | -                        |   | 74,748 |
|                                                            |                        |   |                     |   |   |
| Stock – Based Compensation - Restricted Stock Grant       | -                           |   | -                        |   | 147,834 |
|                                                            |                        |   |                     |   |   |
| Available for Sale Securities – Unrealized Gain           | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Net Income (Loss) for the Year                                  | -                           |   | -                        |   | - |
|                                                            |                        |   |                     |   |   |
| Balance at December 31, 2009                                    | 32,619                      | $      | (179,376)                | $ | 344,847 |

----

|   | ROYALE ENERGY, INC. |
|--------|---------------------|

|   | STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) |
|--------|------------------------------------------------|

|   | FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007 |
|--------|-------------------------------------------------------|

|                                                            |   |    Accumulated Deficit |   | Accumulated Other Comprehensive Income (Loss) |   |    Total |
|-----------------------------------------------------------------|--------|---------------------------------------|--------|-----------------------------------------------|--------|-------------------------|
|                                                            |   |                                  |   |                                          |   |                    |
| Balance at January 1, 2007                                      | $      | (3,964,439)                           |   | -                                             | $      | 15,548,314              |
|                                                            |   |                                  |   |                                          |   |                    |
| Stock Options Exercised Adjustment                              |   | -                                     |   | -                                             |   | -                       |
|                                                            |   |                                  |   |                                          |   |                    |
| Cash Dividend $0.05 Per Share                                   |   | (397,049)                             |   | -                                             |   |  (397,049)         |
|                                                            |   |                                  |   |                                          |   |                    |
| Stock Award                                                     |   | -                                     |   | -                                             |   | 12,752                  |
|                                                            |   |                                  |   |                                          |   |                    |
| Net Income (Loss) for the Year                                  |   | (2,779,207)                           |   | -                                             |   | (2,779,207)             |
|                                                            |   |                                  |   |                                          |   |                    |
| Balance at December 31, 2007                                    |   | (7,140,695)                           |   | -                                             |   |  12,384,810        |
|                                                            |   |                                  |   |                                          |   |                    |
| Stock Options Exercised                                         |   | -                                     |   | -                                             |   | 105,000                 |
|                                                            |   |                                  |   |                                          |   |                    |
| Employee Stock Award Adjustments                                |   | -                                     |   | -                                             |   | 1,890                   |
|                                                            |   |                                  |   |                                          |   |                    |
| Common Stock Private Placement                                  |   | -                                     |   | -                                             |   | 3,724,998               |
|                                                            |   |                                  |   |                                          |   |                    |
| Conversion of Preferred AA                                      |   | -                                     |   | -                                             |   | -                       |
|                                                            |   |                                  |   |                                          |   |                    |
| Stock-Based Compensation –  Stock Options Grant |   | -                                     |   | -                                             |   | 74,748                  |
|                                                            |   |                                  |   |                                          |   |                    |
| Stock-Based Compensation - Restricted Stock Grant               |   | -                                     |   | -                                             |   | 20,688                  |
|                                                            |   |                                  |   |                                          |   |                    |
| Available for Sale Securities – Unrealized Loss           |   | -                                     |   | (140,053)                                     |   | (140,053)               |
|                                                            |   |                                  |   |                                          |   |                    |
| Net Income (Loss) for the Year                                  |   | (8,777,614)                           |   | -                                             |   | (8,777,614)             |
|                                                            |   |                                  |   |                                          |   |                    |
| Balance at December 31, 2008                                    | $      | (15,918,309)                          | $      | (140,053)                                     | $      | 7,394,467               |
|                                                            |   |                                  |   |                                          |   |                    |
| Common Stock Private Placement                                  |   | -                                     |   | -                                             |   | 2,810,164               |
|                                                            |   |                                  |   |                                          |   |                    |
| Common Stock Warrant Exercise                                   |   | -                                     |   | -                                             |   | 1,080,650               |
|                                                            |   |                                  |   |                                          |   |                    |
| Stock-Based Compensation –  Stock Options Grant |   | -                                     |   | -                                             |   | 74,748                  |
|                                                            |   |                                  |   |                                          |   |                    |
| Stock – Based Compensation - Restricted Stock Grant       |   | -                                     |   | -                                             |   | 147,834                 |
|                                                            |   |                                  |   |                                          |   |                    |
| Available for Sale Securities – Unrealized Gain           |   | -                                     |   | 140,053                                       |   | 140,053                 |
|                                                            |   |                                  |   |                                          |   |                    |
| Net Income (Loss) for the Year                                  |   | (2,197,143)                           |   | -                                             |   | (2,197,143)             |
|                                                            |   |                                  |   |                                          |   |                    |
| Balance at December 31, 2009                                    | $      | (18,115,452)                          | $      | -                                             | $      | 9,450,773               |

----

|   | ROYALE ENERGY, INC. |
|--------|---------------------|

|   | FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 |
|--------|------------------------------------------------------|

|                                                                  |   | 2009        |   | 2008        |   | 2007        |
|-----------------------------------------------------------------------|--------|-------------|--------|-------------|--------|-------------|
|                                                                  |   |        |   |        |   |        |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                 |   |        |   |        |   |        |   |
| Net Income (Loss)                                                     | $      | (2,197,143) | $      | (8,777,614) | $      | (2,779,207) |   |
| Adjustments to Reconcile Net Income to Net Cash (Used in) Provided by |   |        |   |        |   |        |   |
| Operating Activities:                                                 |   |        |   |        |   |        |   |
| Depreciation, Depletion, and Amortization                             |   | 989,716     |   | 4,148,415   |   | 3,585,682   |   |
| Lease Impairment                                                      |   | 1,935,861   |   | 15,691,348  |   | 2,106,670   |   |
| (Gain) Loss on Sale of Assets                                         |   | (165,880)   |   | (2,547,450) |   | 135,396     |   |
| Realized (Gain) Loss on Equity Securities                             |   | 120,269     |   | 71,994      |   | 0           |   |
| Bad Debt Expense                                                      |   | 255,478     |   | 567,521     |   | 262,532     |   |
| Stock-Based Compensation, net of adjustments                          |   | 222,582     |   | 97,580      |   | 12,752      |   |
| (Increase) Decrease in:                                               |   |        |   |        |   |        |   |
| Accounts Receivable                                                   |   | 1,001,971   |   | (227,737)   |   | (1,446,583) |   |
| Prepaid Expenses and Other Assets                                     |   | 1,368,094   |   | (2,038,402) |   | 1,684,996   |   |
| Increase (Decrease) in:                                               |   |        |   |        |   |        |   |
| Accounts Payable and Accrued Expenses                                 |   | (5,120,590) |   | 332,043     |   | 3,050,651   |   |
| Deferred Revenues - DWI                                               |   | 973,805     |   | 58,703      |   | (1,071,164) |   |
| Deferred Income Taxes                                                 |   | (268,532)   |   | (5,835,477) |   | (1,114,713) |   |
|                                                                  |   |        |   |        |   |        |   |
| Net Cash (Used in) Provided by Operating Activities                   |   | (884,369)   |   | 1,540,924   |   | 4,427,012   |   |
|                                                                  |   |        |   |        |   |        |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                 |   |        |   |        |   |        |   |   |
| Expenditures For Oil And Gas Properties And                           |   |        |   |        |   |        |   |
|     Other Capital Expenditures                    |   | (1,430,955) |   | (9,865,255) |   | (8,835,180) |   |
| Proceeds from Sale of Assets                                          |   | 134,482     |   | 5,698,911   |   | 143,652     |   |
| Purchase of Equity Securities                                         |   | (8,857)     |   | (633,427)   |   | 0           |   |
| Sale of Equity Securities                                             |   | 339,402     |   | 110,619     |   | 0           |   |
|                                                                  |   |        |   |        |   |        |   |
| Net Cash Used in Investing Activities                                 |   | (965,928)   |   | (4,689,152) |   | (8,691,528) |   |
|                                                                  |   |        |   |        |   |        |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                 |   |        |   |        |   |        |   |
| Proceeds from Long-Term Debt                                          |   | 7,443,764   |   | 0           |   | 6,150,000   |   |
| Principal Payments on Long-Term Debt                                  |   | (6,979,738) |   | (3,200,000) |   | (5,017,071) |   |
| Dividends Paid                                                        |   | 0           |   | 0           |   | (397,049)   |   |
| Proceeds from Issuance of Common Stock                                |   | 2,810,164   |   | 3,724,999   |   | 0           |   |
| Exercise of Options and Warrants for Cash                             |   | 1,080,650   |   | 105,000     |   | 0           |   |
|                                                                  |   |        |   |        |   |        |   |
| Net Cash Provided by Financing Activities                             |   | 4,354,840   |   | 629,999     |   | 735,880     |   |

----

|                                                                       |   | 2009      |   | 2008        |   | 2007        |
|----------------------------------------------------------------------------|--------|-----------|--------|-------------|--------|-------------|
|                                                                       |   |      |   |        |   |        |
| Net Increase (Decrease) in Cash and Cash Equivalents                       |   | 2,504,543 |   | (2,518,229) |   | (3,528,636) |
|                                                                       |   |      |   |        |   |        |
| Cash & Cash Equivalents at Beginning of Year                           |   | 1,330,739 |   | 3,848,968   |   | 7,377,604   |
|                                                                       |   |      |   |        |   |        |
| Cash & Cash Equivalents at End of Year                                 | $      | 3,835,282 | $      | 1,330,739   | $      | 3,848,968   |
|                                                                       |   |      |   |        |   |        |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:                        |   |      |   |        |   |        |
|                                                                       |   |      |   |        |   |        |
| Cash Paid for Interest                                                     |   | 99,467    |   | 231,512     |   | 173,028     |
|                                                                       |   |      |   |        |   |        |
| Cash Paid for Taxes                                                        |   | 5,371     |   | 19,338      |   | 579,080     |
|                                                                       |   |      |   |        |   |        |
|                                                                       |   |      |   |        |   |        |
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING & FINANCING ACTIVITIES: |   |      |   |        |   |        |
|                                                                       |   |      |   |        |   |        |
| Conversion of accounts payable to long-term note payable                   |   | 55,000    |   | 0           |   | 0           |
|                                                                       |   |      |   |        |   |        |
| Conversion of Series AA Preferred Stock to Common Stock                    |   | 0         |   | 13,965      |   | 0           |
|                                                                       |   |      |   |        |   |        |
| Unrealized Loss on Available-for-Sale Securities, net of tax effect        |   | 140,053   |   | (140,053)   |   | 0           |

----

----

----

----

|   |   |
|--------|--------|

|                                                        |   | For the Year Ended December 31, 2009 |   |                |   |                                 |
|-------------------------------------------------------------|--------|--------------------------------------|--------|---------------------|--------|--------------------------------------|
|                                                        |   | Income(Numerator)                    |   | Shares(Denominator) |   | Per-ShareAmount                      |
| Basic Earnings Per Share:                                   |   |                                 |   |                |   |                                 |
| Net income available to common stock                        | $      | (2,197,143)                          |   | 8,974,786           | $      | (0.24)                               |
|                                                        |   |                                 |   |                |   |                                 |
|   Cumulative effect of accounting change          |   |                                 |   |                |   |                                 |
|                                                        |   |                                 |   |                |   |                                 |
| Diluted Earnings Per Share:                                 |   |                                 |   |                |   |                                 |
|   Effect of dilutive securities and stock options |   |                                 |   |                |   |                                 |
|                                                        |   |                                 |   |                |   |                                 |
| Net income available to common stock                        | $      | (2,197,143)                          |   | 8,974,786           | $      | (0.24)                               |
|                                                        |   |                                 |   |                |   |                                 |
|                                                        |   |                                 |   |                |   |                                 |
|                                                        |   | For the Year Ended December 31, 2008 |   |                |   |                                 |
|                                                        |   | Income(Numerator)                    |   | Shares(Denominator) |   | Per-ShareAmount                      |
| Basic Earnings Per Share:                                   |   |                                 |   |                |   |                                 |
| Net income available to common stock                        | $      | (8,777,614)                          |   | 8,246,972           | $      |      (1.06) |
|                                                        |   |                                 |   |                |   |                                 |
|   Cumulative effect of accounting change          |   |                                 |   |                |   |                                 |
|                                                        |   |                                 |   |                |   |                                 |
| Diluted Earnings Per Share:                                 |   |                                 |   |                |   |                                 |
|   Effect of dilutive securities and stock options |   |                                 |   |                |   |                                 |
|                                                        |   |                                 |   |                |   |                                 |
| Net income available to common stock                        | $      | (8,777,614)                          |   | 8,246,972           | $      |  (1.06)                         |
|                                                        |   |                                 |   |                |   |                                 |

----

|                                                        |   |                                 |   |                |   |                            |
|-------------------------------------------------------------|--------|--------------------------------------|--------|---------------------|--------|---------------------------------|
|                                                        |   | For the Year Ended December 31, 2007 |   |                |   |                            |
|                                                        |   | Income(Numerator)                    |   | Shares(Denominator) |   | Per-ShareAmount                 |
| Basic Earnings Per Share:                                   |   |                                 |   |                |   |                            |
|   Net income available to common stock            | $      | (2,779,207)                          |   | 7,917,543           | $      |    (0.35)        |
|                                                        |   |                                 |   |                |   |                            |
| Cumulative effect of accounting change                      |   |                                 |   |                |   |                            |
|                                                        |   |                                 |   |                |   |                            |
| Diluted Earnings Per Share:                                 |   |                                 |   |                |   |                            |
|   Effect of dilutive securities and stock options |   |                                 |   |                |   |                            |
|                                                        |   |                                 |   |                |   |                            |
| Net income available to common stock                        |   | $(2,779,207)                         |   | 7,917,543           |   | $    (0.35) |

----

| Description                   | 12/31/2009 | Level 1 | 12/31/2008 | Level 1  |
|-------------------------------|------------|---------|------------|----------|
| Available for Sale Securities | $0         | $0      | $218,938   | $218,938 |

----

----

|                                                                  |   | 2009         |   | 2008         |   | 2007         |
|-----------------------------------------------------------------------|--------|--------------|--------|--------------|--------|--------------|
| Oil and Gas                                                           |   |         |   |         |   |         |
|                                                                  |   |         |   |         |   |         |
|   Producing properties, including intangible drilling costs | $      | 23,746,696   | $      | 23,875,461   | $      | 32,479,353   |
|   Undeveloped properties                                    |   | 570,831      |   | 1,102,317    |   | 2,974,647    |
|   Lease and well equipment                                  |   | 9,251,307    |   | 9,081,305    |   | 8,069,725    |
|                                                                  |   | 33,568,834   |   | 34,059,083   |   | 43,523,725   |
|   Accumulated depletion, depreciation and amortization      |   | (25,512,869) |   | (24,612,940) |   | (21,098,694) |
|                                                                  |   |         |   |         |   |         |
|                                                                  | $      | 8,055,965    | $      | 9,446,143    | $      | 22,425,031   |
|                                                                  |   |         |   |         |   |         |
|                                                                  |   |         |   |         |   |         |
|                                                                  |   |         |   |         |   |         |
| Commercial and Other                                                  |   |         |   |         |   |         |
|                                                                  |   |         |   |         |   |         |
|   Real estate, including furniture and fixtures             |   | 502,344      |   | $503,344     |   | 503,344      |
|   Vehicles                                                  |   | 255,496      |   | 313,460      |   | 313,460      |
|   Furniture and equipment                                   |   | 1,258,439    |   | 1,232,647    |   | 1,200,852    |
|                                                                  |   | 2,016,279    |   | 2,049,451    |   | 2,017,656    |
|   Accumulated depreciation                                  |   | (1,271,951)  |   | (1,232,077)  |   | (1,052,946)  |
|                                                                  |   |         |   |         |   |         |
|                                                                  |   | 744,328      |   | 817,374      |   | 964,710      |
|                                                                  |   |         |   |         |   |         |
|                                                                  | $      | 8,800,293    | $      | 10,263,517   | $      | 23,389,741   |
|                                                                  |   |         |   |         |   |         |

|                  |   | 2009      |   | 2008            |   | 2007      |
|-----------------------|--------|-----------|--------|-----------------|--------|-----------|
|                  |   |      |   |            |   |      |
| Acquisition - Proved  | $      | 4,355     | $      | 288,569         | $      | 1,690     |
| Acquisition- Unproved | $      | 16,803    | $      |  (218,533) | $      | 1,060,983 |
| Development           | $      | 1,471,436 | $      | 9,701,556       | $      | 3,441,517 |
| Exploration           | $      | 2,725,885 | $      | 2,047,211       | $      | 9,763,490 |
|                  |   |      |   |            |   |      |

----

|                                                                                                                                                                                                                                                                                                                                                               | 12 Months Ended December 31, |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|
|                                                                                                                                                                                                                                                                                                                                                               |                         | 2009 |   | 2008 |
| Beginning balance at January 1                                                       | $                            | 0 | $ | 0 |
|                                                                                                                                                                                                                                                                                                                                                               |                         |   |   |   |
| Additions to capitalized exploratory well costs  pending the determination of proved reserves                                                                                                                                                                                                                                                            |  $                      |  953,082 |  $ |  497,889 |
|                                                                                                                                                                                                                                                                                                                                                               |                         |   |   |   |
| Reclassifications to wells, facilities, and equipment based on the determination of proved reserves                                                                                                                                                                                                                                                                |  $                      |  (953,082) | $ |  (497,889) |
|                                                                                                                                                                                                                                                                                                                                                               |                         |   |   |   |
| Ending balance at December 31                                                                                                                                                                                                                                                                                                                                      | $                            | 0 | $ | 0 |

|                                     |   | 2009        |   | 2008         |   | 2007        |
|------------------------------------------|--------|-------------|--------|--------------|--------|-------------|
|                                     |   |        |   |         |   |        |
| Oil and gas sales                        | $      | 2,800,557   | $      | 6,999,022    | $      | 6,110,092   |
| Production related costs                 |   | (1,415,970) |   | (2,906,325)  |   | (2,540,436) |
| Lease Impairment                         |   | (1,935,861) |   | (15,691,348) |   | (2,106,670) |
| Depreciation, depletion and amortization |   | (989,716)   |   | (4,148,415)  |   | (3,585,682) |
|                                     |   |        |   |         |   |        |
| Results of operations from producing and |   |        |   |         |   |        |
| exploration activities                   | $      | (1,540,990) | $      | (15,747,066) | $      | (2,122,696) |
| Income Taxes (Benefit)                   |   | (498,746)   |   | (6,269,004)  |   | (732,330)   |
|                                     |   |        |   |         |   |        |
| Net Results                              | $      | (1,042,244) | $      | (9,478,062)  | $      | (1,390,366) |
|                                     |   |        |   |         |   |        |

|                                              |   | 2009     |   | 2008     |
|---------------------------------------------------|--------|----------|--------|----------|
| Asset retirement obligation Beginning of the year |   |     |   |     |
|                                              | $      | 494,168  | $      | 402,278  |
| Liabilities incurred during the period            |   | 2,903    |   | 14,808   |
| Settlements                                       |   | 0        |   | (21,571) |
| Accretion expense                                 |   | 32,293   |   | 27,683   |
| Revisions in estimated cash flow                  |   | (15,003) |   | 70,970   |
|                                              |   |     |   |     |
|                                              |   |     |   |     |
| Asset retirement obligation End of year           | $      | 514,361  | $      | 494,168  |

----

|                                      |    | Oil and Gas Producing and Exploration |   |  Turnkey Drilling Services |   |    Total |
|-------------------------------------------|---------|---------------------------------------|--------|---------------------------------|--------|-------------------------|
| Year Ended December 31, 2009              |    |                                  |   |                            |   |                    |
| Revenues from External Customers          |  $ | 2,800,557                             | $      | 5,061,804                       | $      | 7,862,361               |
|                                      |    |                                  |   |                            |   |                    |
| Supervisory Fees                          |    | 750,632                               |   | 0                               |   | 750,632                 |
|                                      |    |                                  |   |                            |   |                    |
| Interest Revenue                          |    | 0                                     |   | 12,592                          |   | 12,592                  |
|                                      |    |                                  |   |                            |   |                    |
| Interest Expense                          |    | 50,838                                |   | 50,837                          |   | 101,675                 |
|                                      |    |                                  |   |                            |   |                    |
| Expenditures for Segment Assets           |    | 3,931,723                             |   | 4,960,765                       |   | 8,892,488               |
|                                      |    |                                  |   |                            |   |                    |
| Depreciation, Depletion, and Amortization |    | 940,230                               |   | 49,486                          |   | 989,716                 |
|                                      |    |                                  |   |                            |   |                    |
| Lease Impairment                          |    | 1,935,861                             |   | 0                               |   | 1,935,861               |
|                                      |    |                                  |   |                            |   |                    |
| Gain on Sale of Assets                    |    | 45,611                                |   | 0                               |   | 45,611                  |
|                                      |    |                                  |   |                            |   |                    |
| Income Tax (Benefit)                      |    | (525,701)                             |   | (525,700)                       |   | (1,051,401)             |
|                                      |    |                                  |   |                            |   |                    |
| Total Assets                              |    | 22,564,143                            |   | 0                               |   | 22,564,143              |
|                                      |    |                                  |   |                            |   |                    |
| Net Income (Loss)                         |  $ | (2,736,151)                           | $      | 539,008                         | $      | (2,197,143)             |

----

|                                      |    | Oil and Gas Producing and Exploration |   |  Turnkey Drilling Services |   |    Total |
|-------------------------------------------|---------|---------------------------------------|--------|---------------------------------|--------|-------------------------|
| Year Ended December 31, 2008              |    |                                  |   |                            |   |                    |
| Revenues from External Customers          |  $ | 6,999,022                             | $      | 11,472,065                      | $      | 18,471,087              |
|                                      |    |                                  |   |                            |   |                    |
| Supervisory Fees                          |    | 613,338                               |   | -                               |   | 613,338                 |
|                                      |    |                                  |   |                            |   |                    |
| Interest Revenue                          |    | -                                     |   | 89,689                          |   | 89,689                  |
|                                      |    |                                  |   |                            |   |                    |
| Interest Expense                          |    | 110,834                               |   | 110,833                         |   | 221,667                 |
|                                      |    |                                  |   |                            |   |                    |
| Expenditures for Segment Assets           |    | 6,207,052                             |   | 10,037,634                      |   | 16,244,686              |
|                                      |    |                                  |   |                            |   |                    |
| Depreciation, Depletion, and Amortization |    | 3,940,994                             |   | 207,421                         |   | 4,148,415               |
|                                      |    |                                  |   |                            |   |                    |
| Lease Impairment                          |    | 15,691,348                            |   | -                               |   | 15,691,348              |
|                                      |    |                                  |   |                            |   |                    |
| Gain on Sale of Assets                    |    | 2,547,450                             |   | -                               |   | 2,547,450               |
|                                      |    |                                  |   |                            |   |                    |
| Income Tax (Benefit)                      |    | (2,903,469)                           |   | (2,903,469)                     |   | (5,806,938)             |
|                                      |    |                                  |   |                            |   |                    |
| Total Assets                              |    | 24,190,596                            |   | -                               |   | 24,190,596              |
|                                      |    |                                  |   |                            |   |                    |
| Net Income (Loss)                         | $       | (12,886,949)                          | $      | 4,109,335                       | $      | (8,777,614)             |
|                                      |    |                                  |   |                            |   |                    |
| Year Ended December 31, 2007              |    |                                  |   |                            |   |                    |
| Revenues from External Customers          | $       | 6,110,092                             | $      | 9,408,103                       | $      | 15,518,195              |
|                                      |    |                                  |   |                            |   |                    |
| Supervisory Fees                          |    | 847,603                               |   |                            |   | 847,603                 |
|                                      |    |                                  |   |                            |   |                    |
| Interest Revenue                          |    | 95,800                                |   | 95,801                          |   | 191,601                 |
|                                      |    |                                  |   |                            |   |                    |
| Interest Expense                          |    | 76,274                                |   | 76,273                          |   | 152,547                 |
|                                      |    |                                  |   |                            |   |                    |
| Expenditures for Segment Assets           |    | 5,713,881                             |   | 8,900,914                       |   | 14,614,795              |
|                                      |    |                                  |   |                            |   |                    |
| Depreciation, Depletion, and Amortization |    | 3,406,398                             |   | 179,284                         |   | 3,585,682               |
|                                      |    |                                  |   |                            |   |                    |
| Lease Impairment                          |    | 2,106,670                             |   | -                               |   | 2,106,670               |
|                                      |    |                                  |   |                            |   |                    |
| Gain (Loss) on Sale of Assets             |    | (67,698)                              |   | (67,698)                        |   | (135,396)               |
|                                      |    |                                  |   |                            |   |                    |
| Income Tax  (Benefit)           |    | (629,242)                             |   | (629,242)                       |   | (1,258,484)             |
|                                      |    |                                  |   |                            |   |                    |
| Total Assets                              | $       | 32,571,374                            | $      |                            | $      | 32,571,374              |
|                                      |    |                                  |   |                            |   |                    |
| Net Income (Loss)                         | $       | (3,688,184)                           | $      | 908,977                         | $      | (2,779,207)             |
|                                      |    |                                  |   |                            |   |                    |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 2009      |   | 2008                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|-----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |   |                                                                                                |
| Revolving line of credit secured by oil and gas properties, with a maximum available of $5,375,974 at December 31, 2008, issued by Guaranty Bank FSB. for the purposes of refinancing Royale’s existing debt and to fund development, exploration and acquisition activities as well as other general corporate purposes.  The agreement was entered into on January 21, 2003.  Interest is at Guaranty Bank’s “Base Rate” plus 0.50%, resulting in a rate of 3.75% at December 31, 2008, payable monthly with borrowing base reductions of $200,000 commencing on January 1, 2008.  As part of this agreement, Guaranty Bank has issued letters of credit in the amount of $774,025 on behalf of the Company to various agencies.  All unpaid principal and interest was paid on February 13, 2009.                                                                                                                                                                                          | $      | 0         | $      |                1,975,974 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |   |                                                                                                |
| Revolving line of credit secured by oil and gas properties, with a maximum available of $14,250,000 at December 31, 2009, issued by Texas Capital Bank, N.A. for the purposes of refinancing Royale’s existing debt and to fund development, exploration and acquisition activities as well as other general corporate purposes.  The agreement was entered into on February 13, 2009.  Interest is at Texas Capital Bank’s “Base Rate” plus 1.00% with an “Adjusted Base Rate” of 5.00%, resulting in a rate of 5.00% at December 31, 2009, payable monthly with borrowing base reductions of $80,000 commencing on February 1, 2010.  As part of this agreement, Texas Capital Bank has issued letters of credit in the amount of $750,000 on behalf of the Company to various agencies.  All unpaid principal and interest is payable at maturity on February 13, 2013.  At December 31, 2009, Royale’s borrowing base with Texas Capital Bank was $2,440,000. | $      | 2,440,000 | $      | 0                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |   |                                                                                                |
| An unsecured Note payable was issued to Von Fletcher Trucking Inc. for $55,000 for the purposes of financing services performed by the vendor.  The promissory note was entered into on September 30, 2009, with an interest rate of 10%.  Monthly principal payments of $4,583 plus any accrued interest will commence for twelve months beginning January 1, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $      | 50,417    | $      | 0                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |   |                                                                                                |
| Total Long Term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $      | 2,490,417 | $      | 1,975,974                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |   |                                                                                                |
| Less Current Maturity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | $      | 50,417    |   | 0                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |   |                                                                                                |
| Long Term Debt Less Current Portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $      | 2,440,000 | $      | 1,975,974                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |      |   |                                                                                                |

----

| Year Ended December 31, |   |      |
|-------------------------|--------|-----------|
| 2010                    | $      | 50,417    |
| 2011                    | $      | 0         |
| 2012                    | $      | 0         |
| 2013                    | $      | 2,440,000 |
|                    | $      | 2,490,417 |

|                                                |   | 2009      |   | 2008      |   | 2007            |
|-----------------------------------------------------|--------|-----------|--------|-----------|--------|-----------------|
| Deferred Tax Assets (Liabilities):                  |   |      |   |      |   |            |
|   Statutory Depletion Carry Forward       | $      | 894,590   | $      | 902,529   | $      | 689,985         |
|   Net Operating Loss                      |   | 1,740,853 |   | 1,094,343 |   | 421,982         |
|   Other                                   |   | 171,727   |   | 103,979   |   | 8,024           |
|   Mark to Market Securities               |   | 0         |   | 91,823    |   | 0               |
|   Capital Loss / AMT Credit Carry Forward |   | 76,410    |   | 44,117    |   | 18,915          |
|   Charitable Contributions Carry Forward  |   | 6,495     |   | 6,397     |   | 383             |
|  Allowance for Doubtful Accounts               |   | 367,878   |   | 332,499   |   | 209,179         |
|  Oil and Gas Properties and Fixed Assets       |   | 2,780,655 |   | 2,988,018 |   | (1,577,216)     |
|                                                | $      | 6,038,608 | $      | 5,563,705 | $      | (228,748)       |
| Valuation Allowance                                 |   | 298,194   |   | -         |   | (134,847)       |
| Net Deferred Tax Asset (Liability)                  | $      | 5,740,414 | $      | 5,563,705 | $      |  (363,595) |
|                                                |   |      |   |      |   |            |
| Deferred Tax Assets:                                |   |      |   |      |   |            |
|   Current                                 | $      | 0         | $      | 534,698   | $      | 217,586         |
|   Non-current                             |   | 5,740,414 |   | 5,029,007 |   | 0               |
| Deferred Tax Liabilities:                           |   |      |   |      |   |            |
|   Current                                 |   | 0         |   | 0         |   | 0               |
|  Non-current                                   |   | 0         |   | 0         |   | (581,181)       |
| Net Deferred Tax Asset (Liability)                  | $      | 5,740,414 | $      | 5,563,705 | $      |  (363,595) |
|                                                |   |      |   |      |   |            |

----

|                                                 |   | 2009        |   | 2008              |   | 2007                                                                                                        |
|------------------------------------------------------|--------|-------------|--------|-------------------|--------|-------------------------------------------------------------------------------------------------------------|
|                                                 |   |        |   |              |   |                                                                                                        |
| Tax (benefit) computed at statutory rate             | $      | (1,104,505) | $      |  (4,958,749) | $      |  (1,372,815)                                                                                           |
|                                                 |   |        |   |              |   |                                                                                                        |
| Increase (decrease) in taxes resulting from:         |   |        |   |              |   |                                                                                                        |
|                                                 |   |        |   |              |   |                                                                                                        |
|   State tax / percentage depletion / other |   | (234,255)   |   | (727,256)         |   |            (23,503)                                  |
|   Other non deductible expenses            |   | (10,835)    |   | 13,941            |   |                  2,987 |
| Change in valuation allowance                        |   | 298,194     |   | (134,874)         |   |            134,847                                   |
| Provision (benefit)                                  | $      | (1,051,401) | $      |  (5,806,938) | $      |  (1,258,484)                                                                                           |
|                                                 |   |        |   |              |   |                                                                                                        |
| Effective Tax Rate                                   |   | 32.4%       |   | 39.6%             |   |     31.2%                                                                               |

|                                             |   | 2009        |   | 2008        |   | 2007            |
|--------------------------------------------------|--------|-------------|--------|-------------|--------|-----------------|
|                                             |   |        |   |        |   |            |
| Current tax provision (benefit) – federal  | $      | (792,344)   | $      | 20,667      | $      |  (171,795) |
| Current tax provision (benefit) – state    |   | 8,667       |   | 7,872       |   | 28,023          |
| Deferred tax provision (benefit) – federal |   | (159,435)   |   | (4,729,030) |   | (1,120,479)     |
| Deferred tax provision (benefit) – state   |   | (108,289)   |   | (1,106,447) |   | 5,767           |
|                                             |   |        |   |        |   |            |
| Total provision (benefit)                        | $      | (1,051,401) | $      | (5,806,938) | $      | (1,258,484)     |
|                                             |   |        |   |        |   |            |

----

----

| Year Ended   |   |      |
|--------------|--------|-----------|
| December 31, |   |      |
|         |   |      |
| 2010         | $      | 369,555   |
| 2011         | $      | 380,465   |
| 2012         | $      | 391,692   |
| 2013         | $      | 403,873   |
| 2014         | $      | 415,842   |
| Thereafter   | $      | 246,900   |
|         |   |      |
|  Total  | $      | 2,208,327 |
|         |   |      |

----

| Options                     |   | 2009                                                                                        |   | 2008                                                                                        |   | 2007                                                                                        |
|-----------------------------|--------|---------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                        |   |                                                                                        |   |                                                                                        |   |                                                                                        |
| Expected volatility         |   |                - |   | 40%                                                                                         |   |                - |
|                        |   |                                                                                        |   |                                                                                        |   |                                                                                        |
| Weighted-average volatility |   |                - |   | 40%                                                                                         |   |                - |
|                        |   |                                                                                        |   |                                                                                        |   |                                                                                        |
| Expected dividends          |   |                - |   |                - |   |                - |
|                        |   |                                                                                        |   |                                                                                        |   |                                                                                        |
| Expected term (months)      |   |                - |   | 48                                                                                          |   |                - |
|                        |   |                                                                                        |   |                                                                                        |   |                                                                                        |
| Risk-free rate              |   |                - |   | 2.89%                                                                                       |   |                - |

|                                         | 2009    |      | 2008     |      | 2007          |      |   |
|----------------------------------------------|---------|-----------|----------|-----------|---------------|-----------|--------|
|                                         |    | Weighted- |     | Weighted- |          | Weighted- |
|                                         |    | Average   |     | Average   |          | Average   |
|                                         |    | Exercise  |     | Exercise  |          | Exercise  |
|                                         | Shares  | Price     | Shares   | Price     | Shares        | Price     |
|                                         |    |      |     |      |          |      |
| Options                                      |    |      |     |      |          |      |
|   Outstanding at Beginning of Year | 320,000 | $3.50     | -        |      | -             |  -   |
|   Granted                          |  - |      | 360,000  | $3.50     |          |      |
|   Exercised                        | -       |      | (40,000) | $3.50     |  -       |      |
|   Expired or Ineligible            | -       |      | -        |      |  -       |      |
|                                         |    |      |     |      |          |      |
|   Outstanding at End of Year       | 320,000 | $3.50     | 320,000  | $3.50     |   - |  -   |
|                                         |    |      |     |      |          |      |
|   Options Exercisable at Year End  | 200,000 | $3.50     | 80,000   | $3.50     |  -       |  -   |
|                                         |    |      |     |      |          |      |
| Weighted-average Fair Value of Options       |    |      |     |      |          |      |
|   Granted During the Year          | -       |      | $224,244 |      | -             |      |
|                                         |    |      |     |      |          |      |

----

|                                        | 2009   |       |   | 2008                                                                                              |       |   | 2007                                                                                            |       |
|---------------------------------------------|--------|------------|--------|---------------------------------------------------------------------------------------------------|------------|--------|-------------------------------------------------------------------------------------------------|------------|
|                                        |   | Weighted-  |   |                                                                                              | Weighted-  |   |                                                                                            | Weighted-  |
|                                        |   | Average    |   |                                                                                              | Average    |   |                                                                                            | Average    |
|                                        |   | Grant-Date |   |                                                                                              | Grant-Date |   |                                                                                            | Grant-Date |
|                                        | Shares | Fair Value |   | Shares                                                                                            | Fair Value |   | Shares                                                                                          | Fair Value |
|                                        |   |       |   |                                                                                              |       |   |                                                                                            |       |
| Non-vested Shares                           |   |       |   |                                                                                              |       |   |                                                                                            |       |
|   Non-vested at Beginning of Year | 95,000 | $3.31      |   |                 - |       |   |                4,622 | $5.66      |
|   Granted                         | 17,858 | $2.10      |   | 95,000                                                                                            | $3.31      |   | -                                                                                               |       |
|   Reinstated                      | -      |       |   | -                                                                                                 |       |   | -                                                                                               |       |
|   Vested                          | 49,523 | $2.87      |   | -                                                                                                 |       |   | 2,253                                                                                           |       |
|   Expired or Ineligible           | -      |       |   | -                                                                                                 |       |   |  2,369                                                                                     |       |
|                                        |   |       |   |                                                                                              |       |   |                                                                                            |       |
|   Non-vested at End of Year       | 63,335 | $3.31      |   | 95,000                                                                                            | $3.31      |   | -                                                                                               |       |

----

|                      |  First Quarter | Second Quarter | Third Quarter | Fourth Quarter |  Total Year |
|---------------------------|---------------------|----------------|---------------|----------------|------------------|
| 2009                      |                |           |          |           |             |
| Revenues                  | $2,268,170          | $1,300,395     | $1,211,718    | $3,845,302     | $8,625,585       |
| Operating income (loss)   | (1,441,102)         | (460,701)      | (1,320,028)   | 74,962         | (3,146,869)      |
| Net income (loss)         | $(891,056)          | $(294,731)     | $(828,825)    | $(182,531)     | $(2,197,143)     |
| Earnings (loss) per share |                |           |          |           |             |
| Diluted                   | $(0.10)             | $(0.03)        | $(0.10)       | $(0.02)        | $(0.24)          |
| Basic                     | $(0.10)             | $(0.03)        | $(0.10)       | $(0.02)        | $(0.24)          |
|                      |                |           |          |           |             |
| 2008                      |                |           |          |           |             |
| Revenues                  | $2,990,257          | $ 4,710,567    | $4,958,322    | $6,514,968     | $19,174,114      |
| Operating income (loss)   | (1,321,506)         | 1,219,065      | 2,128,256     | (16,388,700)   | (14,362,885)     |
| Net income (loss)         | $(927,460)          | $760,230       | $1,373,491    | $(9,983,875)   | $(8,777,614)     |
| Earnings (loss) per share |                |           |          |           |             |
| Diluted                   | $ (0.12)            | $0.09          | $0.16         | $(1.21)        | $(1.06)          |
| Basic                     | $ (0.12)            | $0.09          | $0.16         | $(1.21)        | $(1.06)          |

|   | · | Commodity Prices – Economic producibility of reserves and discounted cash flows are now based on a 12-month average commodity price unless contractual arrangements designate the price to be used. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Disclosure of Unproved Reserves – Probable and possible reserves may be disclosed separately on a voluntary basis. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | · | Proved Undeveloped Reserves Guidelines – Reserves may be classified as proved undeveloped if there is a high degree of confidence that the quantities will be recovered and they are scheduled to be drilled within the next five years, unless the specific circumstances justify a longer time. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Reserves Estimation Using New Technologies – Reserves may be estimated through the use of reliable technology in addition to flow tests and production history. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Reserves Personnel and Estimation Process – Additional disclosure is required regarding the qualifications of the chief technical person who oversees the reserves estimation process.  We are also required to provide a general discussion of our internal controls used to assure the objectivity of the reserves estimate. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Disclosure by Geographic Area – Reserves in foreign countries or continents must be presented separately if they represent more than 15% of our total oil and gas proved reserves |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Non-Traditional Resources – The definition of oil and gas producing activities has expanded and focuses on the marketable product rather than the method of extraction. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                          | 2009        |   | 2008            |   | 2007         |
|-----------------------------------------------|-------------|--------|-----------------|--------|--------------|
|                                          |        |   |            |   |         |   |   |   |   |   |   |
|                                          | Oil (BBL)   |   | Gas (MCF)       |   | Oil (BBL)    |   | Gas (MCF) |   | Oil (BBL) |   | Gas (MCF) |
| Proved developed and undeveloped reserves:    |        |   |            |   |         |   |   |   |   |   |   |
| Beginning of period                           | 24,635      |   | 3,376,568       |   | 23,866       |   | 3,771,967 |   | 37,000 |   | 8,160,000 |
| Revisions of previous estimates               |  (437) |   |  (409,158) |   |  11,858 |   |  104,796 |   |  954 |   |  (4,048,438) |
| Production                                    | (8,364)     |   | (575,995)       |   | (11,089)     |   | (714,230) |   | (14,088) |   | (791,195) |
| Extensions, discoveries and improved recovery |  -     |   |  2,226,380 |   |  -      |   |  214,035 |   |  - |   |  784,391 |
| Purchase of minerals in place                 |        |   |            |   | -            |   | - |   | - |   | - |
| Sales of minerals in place                    |        |   |            |   | -            |   | - |   | - |   | (332,791) |
|                                          |        |   |            |   |         |   |   |   |   |   |   |
| Proved reserves end of period                 | 15,834      |   | 4,617,794       |   | 24,635       |   | 3,376,568 |   | 23,866 |   | 3,771,967 |
|                                          |        |   |            |   |         |   |   |   |   |   |   |

|                       | 2009      |   | 2008      |   | 2007      |
|----------------------------|-----------|--------|-----------|--------|-----------|
|                       |      |   |      |   |      |   |   |   |   |   |   |
|                       | Oil (BBL) |   | Gas (MCF) |   | Oil (BBL) |   | Gas (MCF) |   | Oil (BBL) |   | Gas (MCF) |
|                       |      |   |      |   |      |   |   |   |   |   |   |
| Proved developed reserves: |      |   |      |   |      |   |   |   |   |   |   |
|                       |      |   |      |   |      |   |   |   |   |   |   |
| Beginning of period        | 24,635    |   | 3,184,966 |   | 23,866    |   | 3,413,578 |   | 37,000 |   | 4,129,000 |
|                       |      |   |      |   |      |   |   |   |   |   |   |
| End of period              | 15,834    |   | 4,562,598 |   | 24,635    |   | 3,184,966 |   | 23,866 |   | 3,413,578 |
|                       |      |   |      |   |      |   |   |   |   |   |   |

|                         | 2009                                  |   | 2008                                 |   | 2007                                  |
|------------------------------|---------------------------------------|--------|--------------------------------------|--------|---------------------------------------|
|                         |                                  |   |                                 |   |                                  |   |   |   |   |   |   |
|                         | Oil (BBL)                             |   | Gas (MCF)                            |   | Oil (BBL)                             |   | Gas (MCF) |   | Oil (BBL) |   | Gas (MCF) |
|                         |                                  |   |                                 |   |                                  |   |   |   |   |   |   |
| Proved undeveloped reserves: |                                  |   |                                 |   |                                  |   |   |   |   |   |   |
|                         |                                  |   |                                 |   |                                  |   |   |   |   |   |   |
| Beginning of period          |       - |   |    191,602            |   |       - |   |    358,389 |   |       - |   | 4,031,000 |
|                         |                                  |   |                                 |   |                                  |   |   |   |   |   |   |
| End of period                |      -       |   |      55,196 |   |       - |   |    191,602 |   |       - |   |    358,389 |
|                         |                                  |   |                                 |   |                                  |   |   |   |   |   |   |

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

| • | The estimated future production of proved reserves is priced on the basis of year-end prices. |
|---------|-----------------------------------------------------------------------------------------------|

| • | The resulting future gross revenue streams are reduced by estimated future costs to develop and to produce proved reserves, based on year-end estimates. Estimated future development costs by year are as follows: |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 2010       | $      | 253,180 |
|------------|--------|---------|
| 2011       |   | 34,810  |
| 2012       |   | -       |
| Thereafter |   | 84,200  |
|       |   |    |
| Total      | $      | 372,190 |
|       |   |    |

|                                                     |    | 2009              |    | 2008                    |    | 2007              |
|----------------------------------------------------------|---------|-------------------|---------|-------------------------|---------|-------------------|
|                                                     |    |              |    |                    |    |              |
| Future cash inflows                                      | $       | 17,684,460        | $       | 18,596,000              | $       | 28,421,000        |
| Future production costs                                  |    | (6,013,780)       |    | (6,411,000)             |    | (7,474,000)       |
| Future development costs                                 |    | (372,190)         |    | (744,000)               |    | (1,085,000)       |
| Future income tax expense                                |    | (3,389,547)       |    | (3,432,285)             |    | (5,958,270)       |
|                                                     |    |              |    |                    |    |              |
| Future net cash flows                                    |    | 7,908,943         |    | 8,008,715               |    | 13,903,730        |
|                                                     |    |              |    |                    |    |              |
| 10% annual discount for estimated timing of cash flows   |    |  (1,647,010) |    |  (2,042,551)       |    |  (3,258,848) |
|                                                     |    |              |    |                    |    |              |
| Standardized measure of discounted future net cash flows |  $ |  6,261,933   |  $ |  5,966,164         |  $ |  10,644,882  |
|                                                     |    |              |    |                    |    |              |
| Sales of oil and gas produced, net of production costs   |  $ |  (957,988)   |  $ |   (2,097,225) |  $ |  (3,858,679) |
|                                                     |    |              |    |                    |    |              |
| Revisions of previous quantity estimates                 |    | (4,006,942)       |    | (5,251,154)             |    | (8,124,443)       |
| Net changes in prices and production costs               |    | 815,884           |    | (1,809,957)             |    | (1,649,513)       |
| Sales of minerals in place                               |    |              |    |                    |    | (220,631)         |
| Purchases of minerals in place-                          |    |              |    |                    |    |              |
|                                                     |    |              |    |                    |    |              |
| Extensions, discoveries and improved recovery            |    |  3,806,933   |    |  775,819           |    |  3,741,753   |
| Accretion of discount                                    |    | 764,641           |    | 1,698,634               |    | 1,537,700         |
|                                                     |    |              |    |                    |    |              |
| Net change in income tax                                 |    | (126,759)         |    | 2,005,165               |    | 2,572,144         |
|                                                     |    |              |    |                    |    |              |
| Net increase (decrease)                                  | $       | 295,769           | $       | (4,678,718)             | $       | (6,001,669)       |
|                                                     |    |              |    |                    |    |              |

----

| Future development cost of:   |   | 2010          |   | 2011         |   | 2012    |
|-------------------------------|--------|---------------|--------|--------------|--------|---------|
| Proved developed reserves     | $      | -             | $      | -            | $      | -       |
| Proved non-producing reserves |   |  152,080 |   |  34,810 |   |  - |
| Proved undeveloped reserves   |   | 101,100       |   | -            |   | -       |
|                          |   |          |   |         |   |    |
| Total                         | $      | 253,180       | $      | 34,810       | $      | -       |
|                          |   |          |   |         |   |    |

| 2009 | $ | 0         |
|------|---|-----------|
| 2008 | $ | 392,055   |
| 2007 | $ | 2,093,801 |

----