As filed with the SEC on September 17, 2001

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB/A

Amendment No. 3 to Form 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the Fiscal Year Ended December 31, 2000	Commission File No. 0-22750



ROYALE ENERGY, INC.

(Name of Small Business Issuer in its charter)



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

7676 Hazard Center Drive, Suite 1500

San Diego, CA 92108

(Address of principal executive offices)

Issuer's telephone number:     619-881-2800



Securities registered pursuant to Section 12(b) of the Act:

None

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

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

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

State issuer's revenues for its most recent fiscal year:  $11,687,352.

At December 31, 2000, there were 2,298,122 outstanding shares of registrant's Common Stock held by non-affiliates, with an aggregate market value of approximately $16,661,385, based on the closing Nasdaq price on that date.

At December 31, 2000, a total of 3,813,613 shares of registrant's Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  None

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

Exhibit Index appears on page 22.

Reason Why This Form 10-KSB/A Amendment No. 3 is Being Filed



The purpose of this filing is to add the Financial Statements that were inadvertently left out of the Form 10-KSB/A, due to technical problems, filed on September 12, 2001.



TABLE OF CONTENTS

|Part I                                                                                                                        | 3  
|----------------------------------------------------------------------------------------------------------------------------- | ---
|                                                                                                                              |    
|Item 1.   Description of Business                                                                                             | 3  
|Plan of Business                                                                                                              | 4  
|Competition, Markets and Regulation                                                                                           | 5  
|Item 2.   Description of Property                                                                                             | 6  
|Northern California                                                                                                           | 7  
|Developed and Undeveloped Leasehold Acreage                                                                                   | 7  
|Drilling Activities                                                                                                           | 8  
|Production                                                                                                                    | 8  
|Net Proved Oil and Natural Gas Reserves                                                                                       | 9  
|Item 3.   Legal Proceedings                                                                                                   | 10 
|Item 4.   Submission of Matters to a Vote of Security Holders                                                                 | 10 
|                                                                                                                              |    
|Part II                                                                                                                       | 11 
|                                                                                                                              |    
|Item 5.   Market Price of Royale Energy's Common Stock and Related
Stockholder Matters                                        | 11 
|Dividends                                                                                                                     | 11 
|Recent Sales of Equity Securities                                                                                             | 11 
|Item 6.   Management's Discussion and Analysis of Financial Condition and
Results of Operations                               | 11 
|Results of Operations for the Twelve Months Ended December 31, 2000, as
Compared to the Twelve Months Ended December 31, 1999 | 12 
|Capital Resources and Liquidity                                                                                               | 13 
|Item 7. 	Financial Statements and Supplementary Data                                                                          | 15 
|                                                                                                                              |    
|Part III                                                                                                                      | 15 
|                                                                                                                              |    
|Item 9   Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act      | 15 
|Compliance with Section 16(a) of the Exchange Act                                                                             | 17 
|Item 10. 	Executive Compensation                                                                                              | 17 
|No Stock Options Were Granted in 2000                                                                                         | 18 
|Aggregated 2000 Option Exercises and Year-End Values                                                                          | 18 
|Compensation of Directors                                                                                                     | 19 
|Item 11.   Security Ownership of Certain Beneficial Owners and Management                                                     | 19 
|Common Stock                                                                                                                  | 19 
|Preferred Stock                                                                                                               | 20 
|Item 12.   Certain Relationships and Related Transactions                                                                     | 21 
|Item 13.   Exhibits, Lists, and Reports on Form 8-K                                                                           | 22 
|Signatures                                                                                                                    | 23 
|                                                                                                                              |    
|Financial Statements                                                                                                          | F-1





ROYALE ENERGY, INC.

PART I



Item 1.	Description of Business

Royale Energy, Inc. ( "Royale Energy"), is an independent oil and natural gas producer.  Royale Energy's principal lines of business are the production and sale of natural gas, acquisition of oil and gas lease interests and proved reserves, drilling of both exploratory and development wells, and sales of fractional working interests in wells to be drilled by Royale Energy.  We were incorporated in California in 1986 and began operations in 1988.  Royale Energy's Common Stock is traded on the Nasdaq National Market System (symbol ROYL).  On February 28, 2001, Royale Energy had 14 full time and 2 part time employees.

Royale Energy owns wells and leases located mainly in the Sacramento Basin and San Joaquin Basin in California.  We usually sell a portion of the working interest in each lease that we acquire to third party investors and retain a portion of the prospect for our own account.  Selling part of the working interest to others allows us to reduce our drilling risk by owning a diversified inventory of properties with less of our own funds invested in each drilling prospect, than if we owned the whole working interest and paid all drilling and development costs of each prospect ourselves.  We generally sell working interests in our prospects to accredited investors in exempt securities offerings.  The prospects are bundled into multi-well investments, which permits the third party investors to diversify their investments by investing in several wells at once instead of investing in single well prospects.

During our fiscal year ended December 31, 2000, we continued to explore and develop natural gas properties in northern California.  We drilled nine wells in 2000, six of which are currently commercially productive wells. Two wells are waiting on completion.  In 2000, seven previously drilled wells were "shut-in," which means that the wellhead valves were closed, shutting off production, in 2000.  The shut-in wells were awaiting further equipment or production arrangements to begin or recommence operations, such as production equipment or pipeline easements.  Royale Energy's estimated total natural gas reserves increased from approximately 15.8 Bcf (billion cubic feet) at December 31, 1999, to 16.7 Bcf at December 31, 2000.  According to the reserve report furnished to Royale Energy by WZI, Inc., Royale Energy's independent petroleum engineers, the net present value of its proved developed and undeveloped reserves was more than $125 million at December 31, 2000.

Royale Energy reported gross revenues in connection with the drilling of wells on a "turnkey contract" basis, or sales of fractional interests in undeveloped wells, in the amount of $4,792,151 for the year ended December 31, 2000, which represents 41.0% of its total revenues for the year.  In the year ended 1999, Royale Energy reported $4,213,696 gross revenues for the year, representing 53.7% of Royale Energy's total revenues for that year.  These amounts are offset by drilling expenses and development costs of $1,975,242 in 2000, and $2,600,555 in 1999.  In addition to Royale Energy's own engineering staff, Royale Energy hires independent contractors to drill, test, complete and equip the wells that it drills.

Fifty-three percent of Royale Energy's total revenue for the year ended December 31, 2000 came from oil and natural gas sales from production of its wells ($6,194,451).  In 1999, this amount was $3,006,010, which represented 38.3% of Royale Energy's total revenues.



Plan of Business

Royale Energy acquires interests in oil and natural gas reserves by sponsoring private joint ventures.  Royale Energy believes that its shareholders are better served by diversification of its investments among individual drilling projects.  Through its participation in joint ventures, Royale Energy can acquire interests and develop oil and natural gas properties with limited expense and risk and still receive an interest in the revenues and reserves produced from these properties.  By selling some of our working interest in most projects, we decrease the amount of Royale Energy's investment in the projects and diversify our oil and gas property holdings, to reduce the risk of concentrating a large amount of our capital in a few projects that may not be successful.

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

Royale Energy also may sell fractional interests in undeveloped wells to finance part of the drilling cost. A drilling contract that calls for a drilling contractor to drill a well, for a fixed price, to a specified depth is called a "turnkey contract." When Royale Energy sells fractional interests to raise capital to drill oil and natural gas wells, generally it agrees to drill these wells on a turnkey contract basis, so that the holders of the fractional interests prepay a fixed amount for the drilling and completion of a specified number of wells.  Under a turnkey contract, Royale Energy recognizes gross revenue for the amount paid by the purchaser and agrees to pay the expense of drilling and development of the well for the participants.  Sometimes the actual drilling and development costs are less than the fixed amount that Royale Energy received from the fractional interest sale.

When Royale Energy authorizes a turnkey drilling project for sale, a calculation is made to estimate the pre-drilling costs and the drilling costs.  A percentage for each is calculated.  The turnkey drilling project is then sold to investors who enter a signed contract with Royale Energy.  In this agreement, the investor agrees to share in the pre-drilling costs, which include lease costs, intangible drilling costs, and other costs as required so that the drilling of the project can proceed.  As stated in the contract, the percentage of the pre-drilling costs that the investor contributes is non-refundable, and thus on its financial statements, Royale Energy recognizes these non-refundable payments as revenue since the pre-drilling costs have commenced.  The remaining investment is held and reported by Royale Energy as deferred revenue until the well is spudded (begun).  The deferred revenue is referred to as "remaining funds" in our disclosure.   See Note 1 to Royale Energy's Financial Statements on Page F-7.  Royale Energy maintains internal records of the expenditure of each investor's funds for drilling projects.

Royale Energy generally operates the wells it completes.  As operator, it receives fees set by industry standards from the owners of fractional interests in the wells and from expense reimbursements.  For the year ended December 31, 2000, Royale Energy earned gross revenues from operation of the wells in the amount of $700,750, representing 6.0% of its total revenues on a consolidated basis for that year.  In 1999, the amount was $624,026, which represented 8.0% of the consolidated total revenues.  As of December 31, 2000, Royale Energy holds working interests in 43 gas wells in California, with locations ranging from Tehama County in the north to Kern County in the south.

Royale Energy's business does not depend on a single customer or a few customers and Royale Energy's management does not believe this will change in the foreseeable future.  Oil and natural gas purchasers are readily available in today's markets, and Royale Energy does not believe that the loss of any customer would materially affect its business or its ability to find ready purchasers for its oil and gas production at current market prices.

Natural gas demand and the prices paid for gas are seasonal. In recent years, natural gas demand and prices in Northern California have decreased during the fall and winter and risen in the spring and summer, reflecting increased electricity consumption.   In the winter and spring of 2001, a gas shortage in Northern California caused dramatic rises in the price we received for our gas production.  Gas prices have begun to fall in the summer of 2001.  Discussions of a few natural gas price regulations, including price caps, have taken place at the state and federal levels.  The fluctuations in gas prices and possible new regulations create uncertainty about whether we can continue to produce gas for a  profit.

Affiliated Entities

On December 31, 2000, Royale Petroleum Corporation ("RPC") owned 33.41% of Royale Energy's Common Stock (including rights to purchase shares pursuant to warrants).  RPC is owned equally by Donald H. Hosmer and Stephen M. Hosmer, who are brothers.  Donald H. Hosmer is president and director of Royale Energy, and Stephen Hosmer is chief financial officer and director of Royale Energy.  Donald H. and Stephen M. Hosmer are sons of Harry E. Hosmer, chairman of Royale Energy's board of directors.  See, Security Ownership of Certain Beneficial Owners and Management on Page19.  RPC is a predecessor and affiliate of Royale Energy.  RPC is a Delaware corporation formed in 1985.

Royale Energy had no subsidiaries at December 31, 2000.



Competition, Markets and Regulation

Competition

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

Markets

Market factors affect the quantities of oil and natural gas production and the price Royale Energy can obtain for the production from its oil and natural gas properties.  Such factors include: the extent of domestic production; the level of imports of foreign oil and natural gas; the general level of market demand on a regional, national and worldwide basis; domestic and foreign economic conditions that determine levels of industrial production; political events in foreign oil-producing regions; and variations in governmental regulations including environmental, energy conservation, and tax laws or the imposition of new regulatory requirements upon the oil and natural gas industry.

Regulation

Federal and state laws and regulations affect, to some degree, the production, transportation, and sale of oil and natural gas from Royale Energy's operations.  Many states in which Royale Energy operates have statutory provisions regulating the production and sale of oil and natural gas, including provisions regarding deliverability.  These statutes, along with the regulations interpreting the statutes, generally are intended to prevent waste of oil and natural gas, and to protect correlative rights to produce oil and natural gas produced by assigning allowable rates of production to each well or proration unit.

The exploration, development, production and processing of oil and natural gas are subject to various federal and state laws and regulations to protect the environment.  Various federal and state agencies are considering, and some have adopted, other laws and regulations regarding environmental controls that could increase the cost of doing business.  These laws and regulations may require: the acquisition of a permit by operators before drilling commences; the prohibition of drilling activities on certain lands lying within wilderness areas or where pollution arises; and the imposition of substantial liabilities for pollution resulting from drilling operations, particularly operations in offshore waters or on submerged lands.  The cost of oil and natural gas development and production also may increase because of the cost of compliance with such legislation and regulations, together with any penalties resulting from failing to comply with the legislation and regulations.  Ultimately, Royale Energy may bear some of these costs.  Presently, Royale Energy does not anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect on capital expenditures, earnings, or its competitive position in the oil and natural gas industry; however, changes in the laws, rules or regulations, or the interpretation thereof, could have a materially adverse effect on Royale Energy's financial condition or results of operation.

Royale Energy files quarterly, yearly and other reports with the Securities Exchange Commission.  You may obtain a copy of any materials filed by Royale Energy with the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling 1-800-SEC-0300.  The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.



Item 2.		Description of Property

Since 1993, Royale Energy has concentrated on development of properties in the Sacramento Basin and the San Joaquin Basin of Northern California.  In 2000, Royale Energy drilled nine wells in Northern California, four of which are currently commercially productive wells.  There are four shut-in wells that Royale Energy plans to return to production.  Royale Energy also purchased an active well in the West Thornton Walnut Grove Field to gain access to gas sales at a reasonable cost for another one of Royale Energy's wells.  In 2000, Royale Energy performed perforating programs in four wells to recover gas reserves that were previously unrecoverable.  There are plans to perforate four other wells to recover gas.

Following industry standards, Royale Energy generally acquires oil and natural gas acreage without warranty of title except as to claims made by, through, or under the transferor.  In these cases, Royale Energy attempts to conduct due diligence as to title before the acquisition, but it cannot assure that there will be no losses resulting from title defects or from defects in the assignment of leasehold rights.  Title to property most often carries encumbrances, such as royalties, overriding royalties, carried and other similar interests, and contractual obligations, all of which are customary within the oil and natural gas industry.

In December of 2000, Royale Energy, Inc. entered into an agreement with Bank One, Texas, NA ("Bank One"), in which Bank One assumed the revolving line of credit that was originally extended to Royale Energy by Hibernia National Bank.  Under the terms of the agreement, from time to time, Royale Energy may borrow, repay, and reborrow money from Bank One with a total credit line of $15,000,000.  The maximum allowable amount of each credit request will be governed by a formula in the agreement.  The initial maximum allowable amount was $6,000,000.  At December 31, 2000, Royale Energy owed $4,952,089 under this credit line.  During the first half of 2001, Royale Energy repaid this debt.  At June 30, 2001, $0 was outstanding under this credit line.

Following is a discussion of Royale Energy's significant oil and natural gas properties.  Reserves at December 31, 2000, for each property discussed below, have been determined by WZI, Inc., registered professional petroleum engineers, in accordance with its report submitted to Royale Energy on February 27, 2000 (the most recent report available).



Northern California

Royale Energy owns lease interests in 15 gas fields with locations ranging from Tehama County in the north to Kern County in the south, in the Sacramento and San Joaquin Basins in Northern California.  At December 31, 2000, Royale Energy operated 43 wells in Northern California, and its estimated total proved developed and undeveloped gas reserves in Northern California were approximately 16.7 Bcf, according to Royale Energy's independently prepared reserve report.



Developed and Undeveloped Leasehold Acreage

As of December 31, 2000, Royale Energy owned leasehold interests in the following developed and undeveloped properties in both gross and net acreage.

|                 | Developed   | Undeveloped
|---------------- | ----------- | -----------
|                 | Gross Acres | Net Acres  
|California       | 16,787.05   | 10,342.24  
|All other States | 315.00      | 236.26     
|Total            | 17,102.05   | 10,578.5   

Drilling Activities

The following table sets forth Royale Energy's drilling activities during the years ended December 31, 1998, 1999, and 2000.  All wells are located in the Continental U.S., in California, Texas, and Oklahoma.



|     |                 | Gross Wells(b) | Net Wells (f)
|---- | --------------- | -------------- | -------------
|Year | Type of Well(a) |                |              
|     |                 | Total          | Producing(c) 
|1998 | Exploratory     | -              | -            
|     | Developmental   | 8              | 2            
|     |                 |                |              
|1999 | Exploratory     | 3              | 1            
|     | Developmental   | 9(e)           | 6            
|     |                 |                |              
|2000 | Exploratory     | 2              | 2            
|     | Developmental   | 7              | 6(e)         

(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 is producing oil and/or natural gas that is being purchased on the market.

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

(e)	Royale Energy has not yet determined whether to complete one developmental well drilled in 1999 and one development well drilled in 2000.  Completion work was performed on these two wells during 2000, but their status remains undetermined.

(f)	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.

As of December 31, 2000, Royale Energy had 48 gross (27.97 net) currently producing natural gas wells.



Production

The following table summarizes, for the periods indicated, Royale Energy's net share of oil and natural gas production, average sales price per barrel (Bbl), per thousand cubic feet (Mcf) of natural gas, and the Mcf equivalent (Mcfe) for the barrels of oil based on a 10 to 1 ratio of the price per barrel of oil to the price per Mcf of natural gas.  "Net" production is production that Royale Energy owns either directly or indirectly through partnership or joint venture interests produced to its interest after deducting royalty, limited partner or other similar interests.  Royale Energy generally sells its oil and natural gas at prices then prevailing on the "spot market" and does not have any material long term contracts for the sale of natural gas at a fixed price.

|                             | 2000      | 1999      | 1998       
|---------------------------- | --------- | --------- | -----------
|NET VOLUME                   |           |           |            
|                             |           |           |            
|Oil (Bbl)                    | 596       | 2,215     | 1,238      
|                             |           |           |            
|Gas (Mcf)                    | 1,161,513 | 1,331,887 | 1,773,294  
|                             |           |           |            
|Mcfe                         | 1,167,473 | 1,354,037 | 1,785,674  
|                             |           |           |            
|AVERAGE SALES PRICE          |           |           |            
|                             |           |           |            
|Oil (Bbl)                    | $23.59    | $16.30    | $9.42      
|                             |           |           |            
|Gas (Mcf)                    | $5.32     | $2.34     | $2.21      
|                             |           |           |            
|Net Production Costs & Taxes | $ 936,841 | $ 896,321 | $ 1,020,541
|                             |           |           |            
|Lifting Costs                | $0.60     | $0.49     | $0.39      
|                             |           |           |            



Net Proved Oil and Natural Gas Reserves

As of December 31, 2000, Royale Energy had proved developed reserves of 12,672 MMcf and total proved reserves of 16,651 MMcf of natural gas on all of the properties Royale Energy  leases.  For the same period, Royale Energy also had proved developed oil reserves of 4 Mbbl and total proved oil reserves of 4 Mbbl on the same properties.

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

Additional data relating to Royale Energy's oil and natural gas properties is disclosed in Supplemental Information About Oil and Gas Producing Activities (Unaudited), attached to Royale Energy's Financial Statements which are part of this document and found on Page F-21.  The oil and natural gas reserve information disclosed in the supplement to the financial statements are based upon the reserve reports for the years ended December 31, 2000 and 1999, prepared by Royale Energy's independent reserve engineering consultants.



Item 3.		Legal Proceedings

On December 10, 1999, a group of 16 investors in drilling projects sponsored by Royale Energy from 1994 to 1998 filed suit against Royale Energy and certain of its officers and former officers in U.S. District Court for the Northern District of California, alleging fraud, negligent misrepresentation, breach of fiduciary duties and other related claims in connection with the sales of working interests in those projects.  Buck, et al., v. Royale Energy, et al.,No. C 99 5236.  The complaint generally states that the defendants failed to adequately disclose the company's track record regarding previously drilled wells and makes other general statements about misconduct which are not, in Royale Energy's view, supported by specific factual allegations.  The suit seeks an unspecified amount of damages, restitution of amounts the plaintiffs invested, and punitive damages.  In July 2000, the the court granted Royale Energy's motion to transfer the case to the U.S. District Court for the Southern District of California.  No discovery has been conducted in the case.  In July 2001, the plaintiff amended its pleadings after court issued a notice of intent to dismiss the case for lack of prosecution.  No discovery has ever been conducted in the case.  Royale Energy will contend that the plaintiffs' claims are completely without merit and that the complaint fails to state a claim on which relief can be based.



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

Royale Energy held its annual shareholders' meeting on October 9, 2000.  At the meeting, the shareholders voted to re-elect each of Royale Energy's seven directors to serve until the 2001 annual meeting.  The board of directors had solicited proxies in favor of re-election of all directors.  No proxies were solicited opposing re-election of the directors nor opposing any other proposal.

The following directors were re-elected:

|                     | For       | Against | Not Voting
|-------------------- | --------- | ------- | ----------
|Harry E. Hosmer      | 3,042,731 | 0       | 32,107    
|Donald H. Hosmer     | 3,042,731 | 0       | 32,107    
|Stephen M. Hosmer    | 3,042,731 | 0       | 32,107    
|Rodney Nahama        | 3,042,731 | 0       | 32,107    
|Oscar A. Hildebrandt | 3,042,731 | 0       | 32,107    
|Gilbert C. L. Kemp   | 3,042,731 | 0       | 32,107    
|George Watters       | 3,042,731 | 0       | 32,107    

The shareholders approved the appointment of Brown, Armstrong, Randall, Reyes, Paulden & McCown,Accounting Corporation as our independent auditors by a vote of 3,058,238 yes, 12,100 no, and 4,500 not voting.



PART II

Item 5.	Market Price of Royale Energy's Common Stock and Related Stockholder Matters

Since 1997 Royale Energy's Common Stock has been traded on the Nasdaq National Market System under the symbol "ROYL."  As of December 31, 2001, 3,813,808 shares of Royale Energy's Common Stock were held by approximately 900 shareholders.  The following table reflects high and low quarterly sales prices from January 1999 through December 2000.

|     | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter
|---- | ----------- | ----------- | ----------- | -----------
|     | High        | Low         | High        | Low        
|1999 | 3.25        | 2.00        | 4.00        | 2.00       
|2000 | 3.125       | 2.125       | 3.3125      | 2.25       



Dividends

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

Recent Sales of Equity Securities

During the fourth quarter of 2000, Royale Energy sold 5,000 shares of its Common Stock to one director pursuant to the exercise of previously granted options to purchase its common stock at $1.90 per share.  The proceeds of the sale were used for general working capital.  The sale was made in reliance on the exemption contained in Section 4(2) of the Securities Act of 1933, for sales made without any general solicitation or advertisement.



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

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

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

Results of Operations for the Twelve Months Ended December 31, 2000, as Compared to the Twelve Months Ended December 31, 1999

For the year ended December 31, 2000, Royale Energy achieved a net profit of $2,990,995, a $2,841,092 increase over the net profit of $149,903 in 1999, or 1895.0% increase.  Royale Energy's management attributes this increase to an increase in oil and gas sales resulting from higher natural gas prices. Total revenues for the year ended December 31, 2000 were $11,687,352, a $3,843,620 or 49.0%, increase from the total revenues in 1999 of $7,843,732, again as a result of higher natural gas prices.



Oil and gas revenues for the year ended December 31, 2000 were $6,194,451 compared to $3,006,010 for the same period in 1999, which represents a $3,188,441 or 106.1% increase.  This increase in revenues was mainly due to an increase in the price Royale Energy received for its natural gas production during the year in 2000.  The net sales volume for the year ended December 31, 2000, was 1,161,513 Mcf with an average price of $5.32 per Mcf, versus 1,331,887 Mcf with an average price of $2.34 per Mcf for 1999, which represents a decrease in net sales volume of 170,374 Mcf or 12.8%.  The net sales volume for oil and condensate (natural gas liquids) production was 596 barrels with an average price of $23.59 per Bbl for the period ended December 31, 2000, compared to 2,215 barrels at an average price of $16.30 per Bbl for the same period in 1999, which represents a decrease in net sales volume of 1,619 barrels or 73.1%.

Royale Energy's oil and gas lease operating expenses increased by only 4.5% or $40,520, to $936,841 for the year ended December 31, 2000, from $896,321 for the same period in 1999.  For 2000, Royale Energy's gross margins on oil and gas production (excluding drilling and development costs) were 84.9%, compared to 70.2% in 1999.  The increase in gross margin was due to higher prices received by Royale Energy for its natural gas production during 2000 when compared to 1999.

For the year ended December 31, 2000, turnkey drilling revenues increased $578,455, to  $4,792,151 in 2000 from $4,213,696 in 1999, or 13.7% for the year.  Royale Energy also experienced a $625,313 or 24.1% decrease in drilling and development costs from $2,600,555 in 1999 to $1,975,242 in 2000.  This increase in turnkey revenues and decrease in expenses was due to an increase in direct working interest sales for the year in 2000 when compared to 1999.  The decrease in turnkey expenses can be attributable to the recognition of expense on more land and geological and geophysical during the period in 1999 when compared to 2000.  Royale Energy's gross margins, or profits, on drilling depend on its ability to accurately estimate the costs associated with the development of projects in which it sells working interests to investors.  Costs associated with contract drilling depend on location, well depth, weather, and availability of drilling contractors and equipment.  Royale Energy's gross margins on drilling were 58.8% and 38.3% for the years ended December 31, 2000 and 1999, respectively.  In 1999, we exceeded our cost estimate for our drilling budget due to problems encountered during drilling, which caused our gross margins on drilling to be lower than in 2000.

Our aggregate of supervisory fees and other income was $700,750 for the year ended December 31, 2000, an increase of $76,724 (12.3%) from $624,026 during 1999.  Supervisory fees are charged in accordance with the Council for Petroleum Accountants Societies (COPAS) policy for reimbursement of costs associated with the joint accounting for billing, revenue disbursement, and payment of taxes and royalties.  These charges are reevaluated each year and adjusted up or down as deemed appropriate by a published report to the industry by COPAS.  Supervisory fees increased $8,150 or 2.4%, from $342,221 in 1999 to $350,371 in 2000.  The overall increase/decrease in supervisory fees and other income was mainly due to partial collection on a stipulated judgment in favor of Royale Energy against a former consultant.

Depreciation, depletion and amortization expense decreased to $1,371,809 from $1,502,026, a decrease of $130,217 (8.7%) for 2000, compared to 1999.  The depletion rate is calculated using production as a percentage of reserves, and the decrease in the depletion rate was mainly due to increased reserves during the year in 2000.

Royale Energy periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, pursuant to SFAS No. 121.  In addition, management also periodically assesses the value of significant proved and unproved properties and charges impairments of value to expense.  As a result of this assessment, $823,537 was recorded as a lease impairment in 2000 while $62,815 was recorded as impaired in 1999. Royale Energy performs a periodic review for impairment on a region by region basis.  It is management's assertion that the regional aggregations of fields are more consistent with Royale Energy's operations and identifiable sources of cash flows.  The regional aggregation of fields also correctly reflects geological relationships between proven reserves.  Unamortized capital costs are measured on a regional basis and are reduced to fair value if it is determined that the sum of expected future net cash flows are less than the net book value.  Royale Energy determines if an impairment has occurred through either adverse changes or as a result of its periodic review for impairment.  Impairment is measured on discounted cash flows utilizing a discount rate appropriate for risks associated with the related properties.

Royale Energy also reevaluated several of its geological lease and land costs, which had been previously capitalized, in order to write off those prospects, which were no longer viable.  As a result, $22,337 of previously capitalized costs were written off and recorded as geological and geophysical expense during 2000 compared with $97,851 written off in 1999, a $75,514 or 77.2% decrease.

General and administration expenses increased by $155,651, or 9.8%, from $1,581,550 for the year ended December 31, 1999 to $1,737,201 for the same period in 2000.  Legal and accounting expense increased to $635,893 for the year, compared to $180,941 for 1999, a $454,952 (251%) increase.  The increase can be attributed to the higher cost of regulatory compliance and litigation costs during the year in 2000 when compared to 1999.  Marketing expense for the year ended December 31, 2000, increased $300,319 or 77.8%, to $686,193, compared to $385,874 for 1999.  Royale Energy's marketing expense varies from period to period according to the number of marketing events attended by personnel and associated travel costs.

During the year in 2000, Royale Energy extended an existing credit line from a major commercial bank.  Because of borrowings pursuant to this credit line, interest expense increased to $427,304 for the year ended December 31, 2000 from $385,896 for the same period in 1999, a $41,408 or 10.7% increase.

Capital Resources and Liquidity

At December 31, 2000, Royale Energy had current assets totaling $9,002,736 and current liabilities totaling $8,276,654, a $726,082 working capital reserve.  Our capital expenditure commitments occur as we decide to drill wells to develop our prospects.  We generally do not decide to drill any prospect until we have sold enough of the working interest in a prospect to third parties to assure that we have sufficient funds on hand to drill each prospect.  We place funds that we receive from third party investors into a separate cash account until they are required for expenditures on each well.  We have only negligible capital expenditure needs in addition to those needs that are satisfied from selling part of the working interest in prospects.  We have not, in past years, experienced shortages of funds needed to satisfy our capital expenditure requirements.  We expect that our available credit and cash flows from operations will be sufficient for any capital expenditure needs that are not satisfied from sales of working interests.

We ordinarily fund our operations and cash needs from current revenues from operations.  We receive a large percentage of the revenue generated by our sales of working interests to third parties during the fourth quarter of each year, as individual high net worth investors make investments according to their own year end financial planning.  We also incur a large percentage of our costs for drilling activities in the third and fourth quarters of each year.  We believe that we have sufficient liquidity for the remainder of 2001 and do not foresee any liquidity demands that cannot be met from cash flow from operations.

Occasionally we borrow from banks, using our oil and gas properties as security.  We usually borrow for the purpose of acquiring oil and gas properties.  We have repaid such borrowings from operating income.

In December 2000, we entered into a new loan agreement with Bank One, Texas, N. A.  The initial maximum borrowing amount under the agreement was $6,000,000.  We had outstanding indebtedness under this agreement of $4,952,089 at December 31, 2000 and $500,000 at March 31, 2001.  It is secured by all of our oil and gas properties.  The loan agreement also contains certain restrictive covenants, including the prohibition of payment of dividends on our stock (other than dividends paid in stock).  The loan agreement contains covenants that, among other things, we must:

- maintain a minimum ratio of earnings before interest, taxes, depreciation and amortization to debt service requirements of at least 1.25 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 $6,086,850 as of September 30, 2000, plus 50% of positive quarterly net income thereafter.

Operating Activities.  For the year ended December 31, 2000, cash provided by operating activities totaled $3,415,118 compared to $2,657,697 provided by operations for 1999.  This increase in cash provided in 2000 can be mainly attributed to increased oil and gas sales during the year in 2000. The increase in accounts receivable was primarily due to an increase in November and December gas sales, which were considerably higher when compared to the first ten months of 2000.  Due to the timing between production and payment during these months, the accounts receivable increased significantly.

Investing Activities.  Net cash used by investing activities, primarily in capital acquisitions of oil and gas properties, amounted to $2,234,845 for the period in 2000, compared to $2,707,024 used by investing activities for 1999.  The lower costs in 2000 can be primarily attributed to increased turnkey drilling which occurred during the year in 1999 when compared to 2000.

Financing Activities.  Net cash provided by financing activities for the year ended December 31, 2000, was $90,411, compared to $50,000 provided by financing activities for the same period in 1999.  The increase in net cash used in 2000 was mainly due to fluctuations in Royale Energy's working capital position in 2000 when compared to 1999.



Item 7.		Financial Statements and Supplementary Data

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



PART III

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

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

The following persons currently serve as the directors and executive officers of Royale Energy, its subsidiaries and affiliated companies.

|Name                   | Age | First Became Director or Executive Officer | Positions Held                                                                                                 
|---------------------- | --- | ------------------------------------------ | ---------------------------------------------------------------------------------------------------------------
|Harry E. Hosmer*       | 70  | 1986                                       | Chairman of the Board                                                                                          
|Donald H. Hosmer+      | 47  | 1987                                       | President, Secretary and Director.  Chairman of the Board and President of Royale Petroleum Corporation ("RPC")
|Stephen M. Hosmer+     | 34  | 1996                                       | Chief Financial Officer and Director.  Secretary and Director of RPC                                           
|Oscar A. Hildebrandt*+ | 65  | 1995                                       | Director                                                                                                       
|Rodney Nahama          | 69  | 1994                                       | Director                                                                                                       
|Gilbert Kemp           | 67  | 1998                                       | Director                                                                                                       
|George M. Watters*+    | 81  | 1991                                       | Director                                                                                                       

*	Member of the audit committee.

+	Member of the compensation committee.

Following is a summary of the business experience of each director and executive officer for the past five years.

HARRY E. HOSMER is the Chairman of the Board of Royale Energy.  He has served as Chairman since Royale Energy began in 1986, and from inception in 1986 until June 1995, he also served as President and Chief Executive Officer.  In October 1985, Mr. Hosmer and three of his sons founded Royale Petroleum Corporation, an affiliate of Royale Energy.

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

STEPHEN M. HOSMER is Chief Financial Officer and Director of Royale Energy.  Mr. Hosmer joined Royale Energy as the Management Information Systems Manager in May 1988, responsible for developing and maintaining Royale Energy's computer software.  Mr. Hosmer developed programs and software systems used by Royale Energy.  In 1996, he was elected to the board of directors of Royale Energy.  Mr. Hosmer serves on the board of directors of Youth for Christ, a charitable organization in San Diego, California. Stephen M. Hosmer is the son of Harry E. Hosmer and brother of Donald H. Hosmer.  He has a BS degree from Oral Roberts University in Business Administration.

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

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

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

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



Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission regulations require that Royale Energy's directors, certain officers, and greater than 10 percent shareholders file reports of ownership and changes in ownership with the SEC and the NASD and furnish Royale Energy with copies of all such reports they file.  Based solely upon a review of the copies of the form furnished to Royale Energy, or written representations from certain reporting persons that no reports were required, Royale Energy believes that no other persons failed to file required reports on a timely basis during or in respect of 2000.



Item 10.	Executive Compensation

The following table summarizes the compensation of chief executive officer and the other most highly compensated executive officers of Royale Energy and its subsidiaries during the past year.

|                            |      | Annual Compensation | Long Term Compensation
|--------------------------- | ---- | ------------------- | ----------------------
|(a)                         | (b)  | (c)                 | (d)                   
|Name                        | Year | Salary              | Bonus                 
|Donald H. Hosmer, President | 2000 | $135,046            | $10,000               
|                            | 1999 | $135,046            |                       
|                            | 1998 | $121,169            | $10,000               
|                            |      |                     |                       
|Stephen M. Hosmer, CFO      | 2000 | $112,539            | $10,000               
|                            | 1999 | $112,539            |                       
|                            | 1998 | $97,808             | $10,000               
|                            |      |                     |                       

(1)	Under the terms of a plan adopted by the board of directors in 1989, each of the listed executives has elected to participate in wells drilled by Royale Energy.  See, Certain Relationships and Related Transactions on Page 21.  The costs that they incurred for interests acquired in wells pursuant to this policy are less than would have been the cost of purchasing an equivalent percentage as working interests in these wells which are sold to unaffiliated outside investors.  The difference between the executives' actual cost and the cost incurred by outside investors could be considered as additional compensation to them.  However, Royale Energy's management does not believe that the amount of such difference is significant.  In addition, prior to June 1995, Royale Energy advanced funds to the executives to pay for their well participation interests.  To the extent that the advances amount to interest free loans, the executives could also be considered to have received additional compensation.  The Other Annual Compensation in the foregoing table consists of the amounts which the management believes may be considered income to be imputed from such foregone interest.  The imputed interest was estimated using approximate amounts due at the end of each period, as if that amount had been due for the entire period.  Royale Energy used the imputed interest rate of 7% simple interest per annum. In June 1995, Royale Energy's policy regarding advancement of funds was changed.  The current policy requires that all such purchases of interests in wells must be paid in cash.

(2)	Includes the amount received upon resale of stock options to Royale Energy in September 1998 by Donald Hosmer ($51,750) and Stephen Hosmer ($34,400).  There were no stock options granted in 1999 or 2000.

(3)	Includes Royale Energy's matching contribution in 2000 for Donald Hosmer ($2,400) and Stephen Hosmer ($3,300) to Royale Energy's retirement savings plan initiated in April 1998.  For year ending 1998, includes matching contribution for Donald Hosmer ($1,600) and Stephen Hosmer ($2,769) and for the year ending 1999, includes matching contribution for Donald Hosmer ($2,400) and Stephen Hosmer ($3,300).

Royale Energy does not have employment agreements with any of its executives.



No Stock Options Were Granted in 2000

Royale Energy did not grant any stock options or stock appreciation rights or Long-Term Incentive Plan Awards to its officers or employees during 2000.



Aggregated 2000 Option Exercises and Year-End Values

None of the executive officers named in the Summary Compensation Table exercised any stock options or stock appreciation rights in 2000, 1999, or 1998.  The following table summarizes the number and value of all unexercised stock options held by those executive officers at the end of 2000.





|(a)                         | (b)                         | (c)            | (d)                                                                | (e)                                                      
|--------------------------- | --------------------------- | -------------- | ------------------------------------------------------------------ | ---------------------------------------------------------
|                            |                             |                | Number of Securities Underlying Unexercised Options/SARs at FY-End | Value of Unexercised In-the-Money Options/SARs at FY-End1
|Name                        | Shares Acquired on Exercise | Value Realized | Exercisable                                                        | Unexercisable                                            
|Donald H. Hosmer, President |                             |                | 15,000                                                             |                                                          
|                            |                             |                |                                                                    |                                                          
|Stephen M. Hosmer, CFO      |                             |                | 10,000                                                             |                                                          



(1)	Based on a fair market value of $7.25 per share, which was the closing bid price of Royale Energy's Common Stock in the Nasdaq National Market System on Friday, December 29, 2000.



Compensation of Directors

Each director who is not an employee of Royale Energy receives a quarterly fee for his services, which in 2000 was set at $2,035.  In addition, Royale Energy reimburses directors for the expenses they incur for their service.   No directors received any stock options or stock appreciation rights in 2000.



Item 11.	Security Ownership of Certain Beneficial Owners and Management

The following tables set forth certain information regarding the ownership of Royale Energy's voting securities as of December 31, 2000, by: (i) each person Royale Energy knows to own beneficially more than 5% of the outstanding shares of each class of equity securities, (ii) each of Royale Energy's directors, and (iii) all of Royale Energy's directors and officers as a group.  Except pursuant to applicable community property laws and except as otherwise indicated, each shareholder identified in the table possesses sole voting and investment power with respect to its or his shares.



Common Stock

On December 31, 2000, 3,813,613 shares of Royale Energy's Common Stock were outstanding.

|                                                          | Shares Owned (1)  
|--------------------------------------------------------- | ------------------
|Shareholder (2)                                           | Number            
|                                                          |                   
|Royale Petroleum Corporation                              | 1,274,076 (3)     
|                                                          |                   
|Donald H. Hosmer                                          | 1,290,076 (3), (4)
|                                                          |                   
|Harry E. Hosmer                                           | 45,000 (4)        
|                                                          |                   
|Oscar A. Hildebrandt                                      | 72,755 (5)        
|                                                          |                   
|Stephen M. Hosmer                                         | 1,285,236 (3), (4)
|                                                          |                   
|Gilbert C. L. Kemp                                        | 5,000             
|                                                          |                   
|Owen LeTissier, St. Peter Port, Guernsey, Channel Islands | 400,000 (6)       
|                                                          |                   
|Rodney Nahama                                             | 14,000            
|                                                          |                   
|George M. Watters                                         | 77,500 (7)        
|                                                          |                   
|All directors and officers as a group (7 persons)         | 1,515,491 (3)     

(1)	Includes shares which the listed shareholder has the right to acquire before March 1, 2000, from options or warrants, as follows: Royale Petroleum Corporation 230,555, Donald H. Hosmer 15,000, Harry E. Hosmer 45,000, Stephen M. Hosmer 10,000, Oscar Hildebrandt 20,000, Rodney Nahama 14,000, George M. Watters 30,000, and all officers and directors as a group (excluding Royale Petroleum Corporation) 134,000.

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

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

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

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

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

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



Preferred Stock

Holders of each series of Convertible Preferred Stock have voting rights equal to the number of shares into which they are convertible.  None of the Preferred shareholders have the right to vote as much as 5% of the shares entitled to vote when taking into account the total number of both Common and Preferred shares.  On December 31, 2000, there were 9,375 shares of  Series A and 43,750 shares of Series AA Convertible Preferred Stock outstanding. The shares of each series of Preferred shares are convertible into shares of Royale Energy's Common Stock at the option of the security holder, at the rate of two shares of Convertible Preferred Stock for each share of Common Stock.  To Royale Energy's knowledge, none of the Preferred shareholders would own more than 1% of Royale Energy's Common Stock, if their Preferred shares were converted to Common shares.

|                                                  | Series A | Series AA
|------------------------------------------------- | -------- | ---------
|Shareholder                                       | Number   | Percent  
|                                                  |          |          
|Richard G. and Margaret E. Algire                 |          |          
|Marjorie Carson                                   |          |          
|June L. Ginnings                                  |          |          
|Overland Bank                                     |          |          
|Audrey Sanabria & B.G. Dienelt, Jr.               |          |          
|George Singleton                                  |          |          
|James S. Trowbridge                               | 6,250    | 66.7%    
|William W. Well                                   |          |          
|Jerome Winston                                    |          |          
|Nim E. Wire                                       |          |          
|All officers and directors as a group (7 persons) | 0        | 0.0%     



Item 12.	Certain Relationships and Related Transactions

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

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

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

Donald and Stephen Hosmer each have participated individually in 56 wells under the 1989 policy.  Donald and Stephen Hosmer also have participated in 27 wells in the name of RPC, a corporation jointly owned by them, beginning in 1996.  The Hosmer Trust, a trust for the benefit of family members of Harry E. Hosmer, has participated in 55 wells.

During 2000, RPC did not invest in any well under the 1989 policy through Donald and Stephen Hosmer.

Donald Hosmer's 2000 investments in wells under the 1989 policy totaled $14,990 for .004% interest in 9 wells.  In 2000, Stephen Hosmer purchased .005% interest in 9 wells under the 1989 policy, for a total investment of $17,584.

The Hosmer Trust purchased .005% interest in 9 wells during 2000 for a total investment of $20,406.

Prior to June 1995, Royale Energy had advanced to the participants under the 1989 policy the funds with which to purchase their interests, and the funds would be repaid from future production from the working interests and advances repaid from well production.  Each month, participants are credited with well income and charged with well expenses from producing wells, at the same time as other investors including working interest purchasers.  Each officer and director who participates in one or more wells with Royale Energy has a single account to which all charges and income from all wells is credited.  In June 1995, Royale Energy changed its policy regarding the advancement of funds.  Current policy requires that all such purchases of interests in wells must be paid in cash.  At December 31, 2000, the following executive officers and their affiliates owed the following amounts on advances for well participations:  Donald Hosmer $29,105; Stephen Hosmer $21,228; RPC $489; the Hosmer Trust $72,275.

Royale Energy's Chairman of the Board and former President, Harry E. Hosmer, renders management consulting services to Royale Energy on an ongoing basis.  Royale Energy compensated Mr. Hosmer $120,000 annually for his consulting services in 2000 and pays his medical insurance costs.  Mr. Hosmer's consulting services are in addition to his service on the board of directors, for which he receives no compensation other than reimbursement of expenses to attend meetings.

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

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

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

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

3.3	Bylaws of Royale Energy, Inc., incorporated by reference to Exhibit 3.2 of Royale Energy's Form 10-SB Registration Statement.

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

4.2	Certificate of Determination of the Series AA Convertible Preferred Stock, incorporated by reference to Exhibit 4.2 of 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.

(b)	Reports on Form 8-K

Royale Energy filed no Reports on Form 8-K during the last fiscal quarter of 2000.



Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ROYALE ENERGY, INC.

Date:	September 10, 2001				Donald H. Hosmer

Donald H. Hosmer, President

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



Date:	September 10, 2001				Harry E. Hosmer

Harry E. Hosmer, Chairman of the Board

Date:	September 10, 2001				Donald H. Hosmer

Donald H. Hosmer, Chief Executive Officer,

President, Secretary, and Director

Date:	September 10, 2001				Stephen M. Hosmer

Stephen M. Hosmer, Chief Financial Officer

and Director

Date:	September 10, 2001				Oscar A. Hildebrandt

Oscar A. Hildebrandt, Director

Date:	September 10, 2001				Gilbert C. L. Kemp

Gilbert C.L. Kemp, Director

Date:	September 10, 2001				Rodney Nahama

Rodney Nahama, Director

Date:	September 10, 2001				George Watters

George M. Watters, Director

ROYALE ENERGY, INC.

INDEX TO FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA



|Index to Financial Statements                                                     | F-1 
|--------------------------------------------------------------------------------- | ----
|                                                                                  |     
|Report of Brown Armstrong Randall Reyes Paulden & McCown, Independent Auditors    | F-2 
|                                                                                  |     
|Balance Sheets at December 31, 2000 and 1999                                      | F-3 
|                                                                                  |     
|Statements of Income for the Years Ended December 31, 2000 and 1999               | F-4 
|                                                                                  |     
|                                                                                  |     
|                                                                                  |     
|Statements of Stockholders' Equity for the Years Ended December 31, 2000 and 1999 | F-5 
|                                                                                  |     
|Statements of Cash Flows for the Years Ended December 31, 2000 and 1999           | F-6 
|                                                                                  |     
|Notes to the Financial Statements                                                 | F-7 
|                                                                                  |     
|Supplemental Information About Oil and Gas Producing Activities (Unaudited)       | F-21



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

REPORT OF INDEPENDENT AUDITOR





Shareholders and Board of Directors

Royale Energy, Inc.



We have audited the accompanying balance sheets of Royale Energy, Inc. (a California corporation) as of December 31, 2000 and 1999, and the related statements of income, stockholders' equity and cash flows for the years then ended.  These financial statements are the responsibility of Royale Energy's management.  Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audits in accordance with generally accepted auditing standards.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Royale Energy, Inc., as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.





BROWN ARMSTRONG RANDALL

REYES PAULDEN & McCOWN

ACCOUNTANCY CORPORATION















Bakersfield, California

February 16, 2001

ROYALE ENERGY, INC.

BALANCE SHEETS

DECEMBER 31, 2000 AND 1999



|ASSETS                                                             
|-------------------------------------------------------------------
|                                                                   
|Current Assets                                                     
|Cash and cash equivalents                                          
|Accounts receivable                                                
|Note receivable                                                    
|Other current assets                                               
|                                                                   
|Total Current Assets                                               
|                                                                   
|Oil and Gas Properties (successful efforts basis), Equipment       
|and Fixtures, net                                                  
|                                                                   
|Other Assets                                                       
|Other capitalized costs, net                                       
|                                                                   
|                                                                   
|                                                                   
|LIABILITIES AND STOCKHOLDERS' EQUITY                               
|                                                                   
|Current Liabilities                                                
|Accounts payable and accrued expenses                              
|Deferred revenue from turnkey drilling                             
|                                                                   
|Total Current Liabilities                                          
|                                                                   
|Long-Term Debt, net of current portion                             
|                                                                   
|Redeemable Preferred Stock                                         
|Series A, convertible preferred stock, no par value, 59,250        
|shares authorized; 9,375 shares issued and outstanding             
|                                                                   
|Stockholders' Equity                                               
|Common stock, no par value, 10,000,000 shares authorized;          
|3,813,613 and 3,808,613 shares issued and outstanding, respectively
|Convertible preferred stock, Series AA, no par value, 147,500      
|shares authorized; 43,750 shares issued and outstanding            
|Accumulated earnings (deficit)                                     
|                                                                   
|Total paid in capital and accumulated deficit                      
|                                                                   
|Less cost of treasury stock, 19,300 shares                         
|                                                                   
|Total Stockholders' Equity                                         
|                                                                   
|                                                                   





ROYALE ENERGY, INC.

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999





|                                         | 2000                 | 1999                
|---------------------------------------- | -------------------- | --------------------
|                                         |                      |                     
|Revenues                                 |                      |                     
|Oil and gas production                   | $     6,194,451      | $     3,006,010     
|Turnkey drilling                         | 4,792,151            | 4,213,696           
|Supervisory fees and other               | 700,750              | 624,026             
|                                         |                      |                     
|Total Revenues                           | 11,687,352           | 7,843,732           
|                                         |                      |                     
|Costs and Expenses                       |                      |                     
|General and administrative               | 1,737,201            | 1,581,550           
|Geological and geophysical expense       | 22,337               | 97,851              
|Turnkey drilling and development         | 1,975,242            | 2,600,555           
|Lease operating                          | 936,841              | 896,321             
|Lease impairment                         | 823,537              | 62,815              
|Legal and accounting                     | 635,893              | 180,941             
|Marketing                                | 686,193              | 385,874             
|Depreciation, depletion and amortization | 1,371,809            | 1,502,026           
|                                         |                      |                     
|Total Costs and Expenses                 | 8,189,053            | 7,307,933           
|                                         |                      |                     
|Income from Operations                   | 3,498,299            | 535,799             
|                                         |                      |                     
|Other Expense                            |                      |                     
|Interest expense                         | 427,304              | 385,896             
|                                         |                      |                     
|Income Before Income Tax Expense         | 3,070,995            | 149,903             
|                                         |                      |                     
|Income Tax Provision                     | 80,000               | -                   
|                                         |                      |                     
|Net Income                               | $     2,990,995      | $        149,903    
|                                         |                      |                     
|                                         |                      |                     
|Basic Earnings Per Share                 | $                .78 | $                .04
|                                         |                      |                     
|Diluted Earnings Per Share               | $                .73 | $                .04





ROYALE ENERGY, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999





|                           |                  |              | Preferred Stock Series AA |            | Treasury Stock     
|-------------------------- | ---------------- | ------------ | ------------------------- | ---------- | -------------------
|                           | Number
of Shares | Amount       | Number
of Shares          | Amount     | Accumulated
Deficit
|Balance, January 1, 1999   | 3,808,613        | $  8,240,605 | 43,750                    | 175,000    | $  (2,007,893)     
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|Net income                 | -                | -            | -                         | -          | 149,903            
|                           |                  |              |                           |            |                    
|Balance, December 31, 1999 | 3,808,613        | 8,240,605    | 43,750                    | 175,000    | (1,857,990)        
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|                           |                  |              |                           |            |                    
|Net income                 | -                | -            | -                         | -          | 2,990,995          
|                           |                  |              |                           |            |                    
|Balance, December 31, 2000 | 3,813,613        | $  8,248,105 | 43,750                    | $  175,000 | $    1,133,005     



ROYALE ENERGY, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999





|                                                   | 2000                | 1999               
|-------------------------------------------------- | ------------------- | -------------------
|CASH FLOWS FROM OPERATING ACTIVITIES               |                     |                    
|Net income                                         | $     2,990,995     | $        149,903   
|Adjustment to reconcile net income to net cash     |                     |                    
|provided by operating activities:                  |                     |                    
|Depreciation, depletion and amortization           | 1,371,809           | 1,502,026          
|Lease impairment                                   | 823,537             | 62,815             
|(Increase) decrease in:                            |                     |                    
|Accounts receivable                                | (4,734,999)         | (298,811)          
|Receivable from related parties                    | -                   | 56,563             
|Prepaid expenses and other assets                  | (78,766)            | (167,619)          
|Notes receivable                                   | 84,662              | 118,149            
|Increase (decrease) in:                            |                     |                    
|Accounts payable and accrued expenses              | 2,787,195           | 2,605,032          
|Deferred revenues - DWI                            | 170,685             | (1,370,361)        
|                                                   |                     |                    
|Net Cash Provided by Operating Activities          | 3,415,118           | 2,657,697          
|                                                   |                     |                    
|CASH FLOWS FROM INVESTING ACTIVITIES               |                     |                    
|Expenditures for oil and gas properties            | (2,234,845)         | (2,671,191)        
|Other capital expenditures                         | -                   | (35,833)           
|                                                   |                     |                    
|Net Cash Used by Investing Activities              | (2,234,845)         | (2,707,024)        
|                                                   |                     |                    
|CASH FLOWS FROM FINANCING ACTIVITIES               |                     |                    
|Principal payments on long-term debt               | (5,050,000)         | -                  
|Proceeds from long-term debt                       | 4,952,089           | 50,000             
|Common stock issued                                | 7,500               | -                  
|                                                   |                     |                    
|Net Cash Provided (Used) by Financing Activities   | (90,411)            | 50,000             
|                                                   |                     |                    
|Net Increase in Cash and Cash Equivalents          | 1,089,862           | 673                
|                                                   |                     |                    
|Cash at beginning of year                          | 1,016,979           | 1,016,306          
|                                                   |                     |                    
|Cash at end of year                                | $     2,106,841     | $     1,016,979    
|                                                   |                     |                    
|                                                   |                     |                    
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |                    
|                                                   |                     |                    
|Cash paid for interest                             | $        427,304    | $        385,896   
|                                                   |                     |                    
|Cash paid for taxes                                | $               800 | $               800
|                                                   |                     |                    



ROYALE ENERGY, INC.

NOTES TO FINANCIAL STATEMENTS



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



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



Description of Business



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



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.



Material estimates that are particularly susceptible to significant change relate to the estimate of Company oil and gas reserves prepared by an independent engineering consultant.  Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proven reserves. Estimated reserves are used in the calculation of depletion, depreciation and amortization unevaluated property costs, estimated future net cash flows, taxes, and contingencies.



Joint Ventures



The accompanying financial statements as of December 31, 2000 and 1999, include the accounts of Royale Energy and its proportionate share of the assets, liabilities and results of operations.  Royale Energy generally retains an ownership interest of approximately 30% in its joint venture projects.  Royale Energy is the operator of the majority of properties in which it has an ownership interest.  In connection with the drilling and operation of wells, the Company receives management fees, which are recorded as supervisory fee income.



Revenue Recognition



Royale Energy recognizes revenues from the sales of oil and gas in the period of delivery.



Royale Energy enters into turnkey drilling agreements with investors to develop leasehold acreage acquired by Royale Energy. When Royale Energy authorizes a turnkey drilling project for sale, a calculation is made to estimate the pre-drilling costs and the drilling costs.  A percentage for each is calculated.  The turnkey drilling project is then sold to investors who enter a signed contract with Royale Energy.  In this agreement, the investor agrees to share in the pre-drilling costs, which include lease costs, intangible drilling costs, and other costs as required so that the drilling of the project can proceed.  As stated in the contract, the percentage of the pre-drilling costs that the investor contributes is non-refundable, and thus on its financial statements, Royale Energy recognizes these non-refundable payments as revenue since the pre-drilling costs have commenced.  The remaining investment is held and reported by Royale Energy as deferred revenue until the well is spudded (begun). If costs exceed revenues and Royale

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Energy participates as a working interest owner, the excess is capitalized as the cost of Royale Energy's working interest.  If Royale Energy is unable to drill the wells, and a suitable replacement well is not found, the deferred funds received would be returned to the investors. If the drilling effort is successful, each investor receives a working interest in the wells, and Royale Energy, along with the investors, receive an assignment of working interests. Included in cash and cash equivalents are amounts for use in the completion of Turnkey drilling programs in progress.



Oil and Gas Property and Equipment (Successful Efforts)



Royale Energy accounts for its oil and gas exploration and development costs using the successful efforts method. Leasehold acquisition costs are capitalized. If proved reserves are found on an undeveloped property, leasehold cost is transferred to proved properties. Significant undeveloped leases are reviewed periodically and a valuation allowance is provided for any estimated decline in value. Cost of other undeveloped leases is expensed over the estimated average life of the leases. Cost of exploratory drilling is initially capitalized.  In the absence of a determination that proved reserves are found, the costs of drilling such exploratory wells is charged to expense.  Royale Energy makes this determination within one year following the completion of drilling.. Other exploratory costs are charged to expense as incurred. Development costs, including unsuccessful development wells, are capitalized.  Depletion, depreciation and amortization of oil and gas producing properties are computed on an aggregate basis using the units-of-production method.



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



Royale Energy performs a periodic review for impairment on a region by region basis.  It is management's assertion that the regional aggregations of fields are more consistent with Royale Energy's operations and identifiable sources of cash flows.  The regional aggregation of fields also correctly reflects geological relationships between proven reserves.  Unamortized capital costs are measured on a regional basis and are reduced to fair value if it is determined that the sum of expected future net cash flows are less than the net book value.  Royale Energy determines if an impairment has occurred through either adverse changes or as a result of its periodic review for impairment.  Impairment is measured on discounted cash flows utilizing a discount rate appropriate for risks associated with the related properties.  Impairment losses of $823,537 and $62,815 were recorded in 2000 and 1999, respectively.



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



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Other Capitalized Costs



Other capitalized costs are related to 3D seismic studies performed by independent Geophysical and Geological companies on behalf of Royale Energy. The cost of this data is based on cost per square mile multiplied by the number of squares analyzed. The data is used by Royale Energy to enhance or evaluate proposed developments of its proved and unproved fields, as well as held for sale to outside parties. As Royale Energy uses the data for its exploratory and development projects, that portion of the capitalized costs used will be reclassified as proved oil and gas properties or expensed. The portion of the data library not used by Royale Energy for its projects are being amortized over a three-year period using the straight-line method. Amortization expense for the year ended December 31, 2000 was $309,069.



Cash and Cash Equivalents



Cash and cash equivalents include cash on hand and on deposit, and highly liquid debt instruments with maturities of three months or less.



Accounts Receivable

Management believes that all accounts receivable as of December 31, 2000 and 1999 are fully collectible.  Therefore, no allowance for doubtful accounts is recorded.



Equipment and Fixtures



Equipment and fixtures are stated at cost and depreciated over the estimated useful lives of the assets, which range from three to seven years, using the straight-line method.  Repairs and maintenance are charged to expense as incurred.  When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income.



Maintenance and repairs, which neither materially add to the value of the property nor appreciably prolong its life, are charged to expense as incurred.  Gains or losses on dispositions of property and equipment, other than oil and gas, are reflected in operations.



Earnings (Loss) Per Share (SFAS 128)



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



|                                                | For the Year Ended 2000
|----------------------------------------------- | -----------------------
|                                                | Income
(Numerator)     
|Basic Earnings Per Share:                       |                        
|Net income available to common stock            | $        2,990,995     
|                                                |                        
|Diluted Earnings Per Share:                     |                        
|Effect of dilutive securities and stock options | -                      
|                                                |                        
|Net income available to common stock            | $        2,990,995     





NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

|                                                | For the Year Ended 1999
|----------------------------------------------- | -----------------------
|                                                | Income
(Numerator)     
|Basic Earnings Per Share:                       |                        
|Net income available to common stock            | $           149,903    
|                                                |                        
|Diluted Earnings Per Share:                     |                        
|Effect of dilutive securities and stock options | -                      
|                                                |                        
|Net income available to common stock            | $           149,903    



Income Taxes



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



Fair Values of Financial Instruments



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



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



New Accounting Standard



In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."  The Statement establishes accounting and reporting standards that require every derivative instrument (including certain derivative instruments embedded in other contracts) to be recorded in the balance sheet as either an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.  We expect to adopt SFAS No. 133 on January 1, 2001.  The adoption may create volatility in equity through changes in other comprehensive income due to the marking to market of hedging contracts; however, we do not anticipate that the standard will have a material impact on our results of operations.



Reclassification



Certain amounts in the financial statements have been reclassified to be consistent and comparable from year-to-year.





NOTE 2 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES



Oil and gas properties, equipment and fixtures consist of the following at December 31, 2000:

NOTE 2 - OIL AND GAS PROPERTIES, EQUIPMENT AND FIXTURES (Continued)





|                                                          | 2000           | 1999          
|--------------------------------------------------------- | -------------- | --------------
|Oil and Gas                                               |                |               
|                                                          |                |               
|Producing properties, including intangible drilling costs | $   12,613,859 | $   10,684,610
|Undeveloped properties                                    | 1,648,374      | 2,051,572     
|Lease and well equipment                                  | 4,677,700      | 4,442,335     
|                                                          |                |               
|                                                          | 18,939,933     | 17,178,517    
|Accumulated depletion, depreciation and amortization      | (5,220,877)    | (4,255,798)   
|Allowance for lease impairment                            | (443,468)      | -             
|                                                          |                |               
|                                                          | 13,275,588     | 12,922,719    
|                                                          |                |               
|Commercial and Other                                      |                |               
|                                                          |                |               
|Furniture and equipment                                   | 436,713        | 391,087       
|Accumulated depreciation                                  | (314,653)      | (264,727)     
|                                                          |                |               
|                                                          | 122,060        | 126,360       
|                                                          |                |               
|                                                          | $   13,397,648 | $   13,049,079

|Other Capitalized Cost   |                  |                 
|------------------------ | ---------------- | ----------------
|                         |                  |                 
|3D seismic data          | $        927,208 | $        927,208
|Accumulated amortization | (618,139)        | (309,069)       
|                         |                  |                 
|                         | $        309,069 | $        618,139



The following sets forth costs incurred for oil and gas property acquisition and development activities, whether capitalized or expensed:



|            | 2000             | 1999             
|----------- | ---------------- | -----------------
|            |                  |                  
|Acquisition | $        919,472 | $          55,290
|Development | $     1,950,428  | $     3,683,456  
|Exploration | $        602,438 | $        928,539 



Results of Operations from Oil and Gas Producing and Exploration Activities



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



|                                                                | 2000            | 1999            
|--------------------------------------------------------------- | --------------- | ----------------
|                                                                |                 |                 
|Oil and gas sales                                               | $     6,194,451 | $     3,006,010 
|Production related costs                                        | (936,841)       | (896,321)       
|Geological and geophysical expense                              | (22,337)        | (97,851)        
|Depreciation, depletion and amortization                        | (1,321,883)     | (1,442,916)     
|                                                                |                 |                 
|Results of operations from producing and exploration activities | $     3,913,391 | $        568,922





NOTE 3 - TURNKEY DRILLING CONTRACTS



Royale Energy receives funds under turnkey drilling contracts which requires Royale Energy to drill oil and gas wells within a reasonable time period from the date of receipt of the funds.  As of December 31, 2000 and 1999, Royale Energy had recorded deferred turnkey drilling revenue associated with undrilled wells of $1,635,300 and $1,464,615, respectively, as a current liability.





NOTE 4 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS



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



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



The accounting policies of the reportable segments are the same as those described in the Summary of Significant Accounting Principles (see Note 1).



Royale Energy's operations are classified into two principal industry segments. Following is a summary of segmented information for 2000 and 1999:



|                                          | Oil and Gas
Producing and
Exploration | Turnkey
Drilling
Services | Total              
|----------------------------------------- | ------------------------------------- | ------------------------- | -------------------
|Year Ended December 31, 2000              |                                       |                           |                    
|Revenues from External Customers          | $       6,194,451                     | $       4,792,151         | $     10,986,602   
|Supervisory Fees                          | $          668,361                    | $                    -    | $          668,361 
|Interest Revenue                          | $            32,389                   | $                      -  | $            32,389
|Interest Expense                          | $          213,652                    | $          213,652        | $          427,304 
|Expenditures for Segment Assets           | $       2,264,380                     | $       3,729,327         | $       5,993,707  
|Depreciation, Depletion, and Amortization | $       1,321,883                     | $            49,926       | $       1,371,809  
|Lease Impairment                          | $          411,769                    | $          411,768        | $          823,537 
|Income Tax                                | $            40,000                   | $            40,000       | $            80,000
|Total Assets                              | $     22,709,453                      | $                      -  | $     27,709,453   
|Net Income                                | $       2,643,518                     | $          347,447        | $       2,990,995  
|                                          |                                       |                           |                    



NOTE 4 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS



|                                          |                                       |                           |                         
|----------------------------------------- | ------------------------------------- | ------------------------- | ------------------------
|                                          | Oil and Gas
Producing and
Exploration | Turnkey
Drilling
Services | Total                   
|Year Ended December 31, 1999              |                                       |                           |                         
|Revenues from External Customers          | $       3,006,010                     | $       4,213,696         | $       7,219,706       
|Supervisory Fees                          | $          610,783                    | $                      -  | $          610,783      
|Interest Revenue                          | $            13,243                   | $                      -  | $            13,243     
|Interest Expense                          | $          192,948                    | $          192,948        | $          385,896      
|Expenditures for Segment Assets           | $       1,963,542                     | $       3,779,550         | $       5,743,092       
|Depreciation, Depletion, and Amortization | $       1,442,916                     | $            59,110       | $       1,502,026       
|Lease Impairment                          | $            31,408                   | $            31,407       | $            62,815     
|Income Tax                                | $                      -              | $                      -  | $                      -
|Total Assets                              | $     16,850,989                      | $                      -  | $     16,850,989        
|Net Income                                | $               (778)                 | $          150,681        | $          149,903      



NOTE 5 - LONG-TERM DEBT



|                                                                      | 2000                 | 1999           
|--------------------------------------------------------------------- | -------------------- | ---------------
|                                                                      |                      |                
|Revolving line of credit with a maximum available of $5,150,000       |                      |                
|for working capital purposes, acquisitions, and development of        |                      |                
|oil and gas properties. Interest at New York prime plus 75.00         |                      |                
|basis points, resulting in a rate of 9.25% at December 31, 1999.      |                      |                
|This note was paid in full on December 1, 2000.                       | $                  - | $     5,050,000
|                                                                      |                      |                
|Revolving line of credit with a maximum available of $6,000,000       |                      |                
|issued by Bank One Service Corporation for the purposes of            |                      |                
|refinancing Royale Energy's existing debt and to fund                 |                      |                
|development, exploration and acquisition activities as well as other  |                      |                
|general corporate purposes.  Agreement was entered into on            |                      |                
|December 1, 2000.  Interest at New York prime plus 100.00             |                      |                
|basis points, resulting in a rate of 10.50% at December 31,           |                      |                
|2000, payable monthly with borrowing base reductions of               |                      |                
|$100,000 commencing on February 1, 2001.  All unpaid                  |                      |                
|principal and interest is payable at maturity on December 21,         |                      |                
|2003.  The line of credit is secured by all oil and gas properties of | 4,952,089            | -              
|the Company.                                                          |                      |                
|                                                                      | $     4,952,089      | $     5,050,000



NOTE 5 - LONG-TERM DEBT (Continued)



Maturities of long-term debt for years subsequent to December 31, 2000 are as follows:



|Year Ended   |                 | 
|------------ | --------------- | 
|December 31, |                 | 
|             |                 | 
|2002         | $     1,200,000 | 
|2003         | 3,752,089       | 
|             | $   4,952,089   | 





NOTE 6 - INCOME TAXES



The provisions for income taxes for the years ended December 31, 2000 and 1999 represents minimum state taxes.



As of December 31, 2000, Royale Energy had federal net operating loss carryforwards as indicated:





|Year Originated | Year of Expiration | Net Operating Loss        
|--------------- | ------------------ | --------------------------
|                |                    |                           
|1991            | 2007               | $                1,595,745
|1992            | 2008               | 227,241                   
|1993            | 2009               | 1,654,713                 
|1997            | 2013               | 717,602                   
|1999            | 2015               | 1,135,686                 
|                |                    |                           
|                |                    | $                5,330,987



The components of the net deferred tax assets were as follows:



|                                  | 2000                 | 1999                
|--------------------------------- | -------------------- | --------------------
|                                  |                      |                     
|Deferred Tax Assets:              |                      |                     
|Net operating loss carryforwards  | $     1,812,536      | $     1,145,406     
|Statutory depletion carryforwards | 355,502              | 227,904             
|Accumulated depreciation          | -                    | 29,324              
|                                  |                      |                     
|Total Deferred Tax Assets         | 2,168,038            | 1,402,634           
|                                  |                      |                     
|Valuation Allowance               | (2,168,038)          | (1,402,634)         
|                                  |                      |                     
|Net Deferred Tax Assets           | $                  - | $                  -



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



A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the U.S. statutory federal income tax rate of 34% at December 31, 2000 and 1999, respectively, to pretax income is as follows:

NOTE 6 - INCOME TAXES (Continued)



|                                             | 2000              | 1999                
|-------------------------------------------- | ----------------- | --------------------
|                                             |                   |                     
|Tax computed at 34%, respectively            | $     1,044,388   | $          50,967   
|                                             |                   |                     
|Increase (decrease) in taxes resulting from: |                   |                     
|Net operating loss carryforwards             | (1,044,388)       | (51,767)            
|State tax                                    | 80,000            | 800                 
|                                             |                   |                     
|                                             | $          80,000 | $                  -
|                                             |                   |                     
|Effective Tax Rate                           | 3.0%              | 0.0%                





NOTE 7 - REDEEMABLE PREFERRED STOCK



In 1993, Royale Energy's Board of Directors authorized the issuance of 259,250 shares of Series A Convertible Preferred Stock which were sold through a private placement offering.  The Series A Convertible Preferred Stock was offered in units.  Each unit consisted of 25,000 shares of Series A Convertible Preferred Stock and a 0.1% interest in the distributions of the Royale Energy Income Trust, to be formed.  Royale Energy had the right to sell fractional units.  The Series A Convertible Preferred Stock has a stated value of $4 per share and provides shareholders with a one time 10% dividend payable thirty days after the expiration of one year from the date of purchase.  The dividend has been paid on all outstanding shares at December 31, 1994. There were no dividends declared and/or paid during 2000 or 1999.



The Series A Convertible Preferred Stock is convertible any time at the basic conversion rate of one share of common stock for two shares of Series A Convertible Preferred Stock, subject to adjustment. Royale Energy has the option to call, at any time, the Series A Convertible Preferred Stock at either the issue price of $4 per share plus 10%, if called within one year after issuance, or $4 per share thereafter.  (Subject to the holders' conversion rights outlined above).



Upon the sale of 50% of the units of beneficial interest in Royal Energy Income Trust, a holder of Series A Convertible Preferred Stock may require Royale Energy to redeem their Series A Convertible Preferred Stock at the issue price of $4 per share plus accrued dividends, if any.



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



On October 28, 1993, Royale Energy's Series A Convertible Preferred Stock shareholders were made a one time offer to convert their Series A Convertible Preferred Stock to common stock.  This conversion would be at one share of common stock for each share of Series A Convertible Preferred Stock, rather than at the original conversion price of $4 per share.  This conversion would not affect the shareholders' rights and incentives in the Royale Energy Income Trust.  As of December 31, 2000 and 1999, 224,875 shares of Series A Convertible Preferred Stock had been converted to 198,625 shares of common stock.





NOTE 8 - SERIES AA PREFERRED STOCK

In April 1992, Royale Energy's Board of Directors authorized the sale of Series AA Convertible Preferred Stock.  Holders of Series AA Convertible Preferred Stock have dividend, conversion and preference rights identical to Series A Convertible Preferred Stockholders.  The Series AA Convertible Preferred Stock

NOTE 8 - SERIES AA PREFERRED STOCK

does not have the right of redemption at the shareholders' option.  As of December 31, 2000 and 1999, there were 43,750 shares issued and outstanding.  The dividend has been paid on all shares outstanding at December 31, 2000 and 1999.





NOTE 9 - STOCK WARRANTS



Changes in Royale Energy's common stock warrants were as follows at December 31:



|                                            | 2000    | 1999   
|------------------------------------------- | ------- | -------
|Outstanding warrants at beginning of period | 230,555 | 230,555
|                                            |         |        
|Additional warrants issued                  |         |        
|Exercise of stock warrants                  | -       | -      
|Warrants expired or ineligible              | -       | -      
|                                            |         |        
|Outstanding warrants at end of period       | 230,555 | 230,555



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



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



NOTE 10 - OPERATING LEASES



Royale Energy occupies office space under a sixty-month noncancellable lease, which expires in July 2005. The lease calls for monthly payments ranging from $16,312 to $17,762. Future minimum lease obligations as of December 31, 2000 is as follows:



|Year Ended   |                  | 
|------------ | ---------------- | 
|December 31, |                  | 
|             |                  | 
|2001         | $        197,563 | 
|2002         | 201,913          | 
|2003         | 206,763          | 
|2004         | 210,613          | 
|2005         | 124,338          | 
|             |                  | 
|             | $        940,690 | 



Rental expense for the years ended December 31, 2000 and 1999, was $177,257 and $151,500, respectively.





NOTE 11 - RELATED PARTY TRANSACTIONS



Significant Ownership Interests



On December 31, 2000, 27.53% of Royale Energy's common stock was owned by Royale Petroleum Corporation (RPC). RPC is owned equally by Donald H. Hosmer and Stephen M. Hosmer.



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



Stock Compensation Plan



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



At the March 10, 1995 Board of Directors meeting, directors and executive officers of Royale Energy were granted 154,000 options to purchase common stock at an exercise or base price of $1.90 per share. These options were granted for a period of ten years, and may be exercised after the second anniversary of the grant. Royale Energy applies APB Opinion 25 and related interpretations in accounting for its plans. Royale Energy did not grant stock options during 2000 or 1999.



A summary of the status of Royale Energy's stock option plan as of December 31, 2000 and 1999, and changes during the years ending on those dates is presented below:



|                                       | 2000              | 1999                            
|-------------------------------------- | ----------------- | --------------------------------
|                                       | Shares            | Weighted-
Average
Exercise
Price
|Fixed Options                          |                   |                                 
|Outstanding at beginning of year       | 134,000           | $  2.15                         
|Granted                                | -                 |                                 
|Exercised                              | 5,000             |                                 
|                                       |                   |                                 
|Outstanding at end of year             | 129,000           |                                 
|                                       |                   |                                 
|Options exercisable at year end        | 129,000           |                                 
|                                       |                   |                                 
|Weighted-average fair value of options |                   |                                 
|Granted during the year                | $               - |                                 





NOTE 11 - RELATED PARTY TRANSACTIONS (Continued)



The following table summarizes information about fixed stock options outstanding at December 31, 2000:



|Range of
Exercise Prices | Number
Outstanding at
December 31,
2000 | Weighted-
Average
Remaining
Contractual
Life (Years) | Weighted-
Average
Exercise Price | Number
Outstanding at
December 31,
1999 | Weighted-
Average
Remaining
Contractual
Life (Years)
|------------------------ | --------------------------------------- | ---------------------------------------------------- | -------------------------------- | --------------------------------------- | ----------------------------------------------------
|                         |                                         |                                                      |                                  |                                         |                                                     
|$3.00                    | 30,000                                  | 2.0                                                  | $3.00                            | 30,000                                  | 3.0                                                 
|$1.90                    | 99,000                                  | 4.2                                                  | $1.90                            | 104,000                                 | 5.2                                                 
|                         |                                         |                                                      |                                  |                                         |                                                     
|$1.90 to $3.00           | 129,000                                 | 3.7                                                  | $1.90 to $3.00                   | 134,000                                 | 4.7                                                 



The Board of Directors adopted a policy in 1989 that permits directors and officers of Royale Energy to purchase from Royale Energy, at Royale Energy's actual cost, up to one percent of a fractional interest in any well to be drilled by Royale Energy. Current and former officers and directors received as compensation or were billed $77,067 and $73,118 for their interests for the years ended December 31, 2000 and 1999, respectively.



Well Paticipation



Officers, directors and affiliates of Royale Energy may elect to participate in wells at any time up until drilling of the prospect begins. Participants do not pay a set, turnkey price (as do outside investors who purchase undivided working interests from Royale Energy), but are liable for all direct costs and expenses through completion of a well, whether or not the well drilling and completion expenses exceed the Royale Energy's cost estimates.  Participants are invoiced for their share of direct costs of drilling and completion as Royale Energy incurs expenses.



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

Company policy requires that all such purchases of interests in wells must be paid in cash.  At December 31, 2000 and 1999, executive offices and their affiliates owed $123,097 and $92,870, respectively.





NOTE 12 - ENVIRONMENTAL MATTERS



Royale Energy has established procedures for the on-going evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. Management monitors these laws and regulations and periodically assesses the propriety of its operational and accounting policies related to environmental issues. The nature of Royale Energy's business requires routine day-to-day compliance with environmental laws and regulations. Royale Energy incurred no material environmental investigation, compliance and remediation costs in 2000 or 1999.



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

NOTE 13 - COMMITMENTS AND CONTINGENCIES



In December 1998, a former employee of Royale Energy, Inc. filed a lawsuit against Royale Energy, Inc., and in May 1999 Royale Energy, Inc. filed a cross-complaint.  In December 1999, mediation was held and a settlement was reached.  The terms of the settlement are confidential but it did involve a payment to Royale Energy, Inc.  The settlement payment was made to Royale Energy, Inc. in February 2000, and the case has been dismissed.



In April 1999, Royale Energy, Inc. filed an action against a former consultant, Isles of June Consulting and its principal Robert Watts.  In October 1999, the defendants filed a cross-complaint against Royale Energy, Inc.  In January 2000, a settlement of $500,000 was reached in the favor of Royale Energy, however, the judgement can be satisfied by defendant by making certain payments totaling $150,000 and the transfer of certain stock to Royale Energy, as well as additional non-financial terms.  During the year ended December 31, 2000, payment of $150,000 was made and the stock was transferred to Royale Energy, Inc.



On December 10, 1999, a group of 16 investors in drilling projects sponsored by Royale Energy from 1994 to 1998 filed suit against Royale Energy and certain of its officers and former officers in U.S. District Court for the Northern District of California, alleging fraud, negligent misrepresentation, breach of fiduciary duties and other related claims in connection with the sales of working interests in those projects.  Buck, et al., v. Royale Energy, et al.,No. C 99 5236.  The suit seeks an unspecified amount of damages, restitution of amounts the plaintiffs invested, and punitive damages.  Royale Energy expects to file responsive motions in the case, which state that the plaintiffs' pleadings are fatally defective and have been filed in the wrong court.  No discovery has been conducted in the case.  Royale Energy will contend that the plaintiffs'  claims are completely without merit and that the plaintiffs' complaint fails to state a claim on which relief can be based.



In the normal course of business, Royale Energy occasionally becomes party to litigation.  In the opinion of management, based on advice of legal counsel, pending and threatened litigation involving Royale Energy will not have a material adverse effect upon its financial condition or results of operations.





NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)



Operating revenues, operating income, net income, and earnings per common share by quarters from 2000 and 1999 are shown below. Royale Energy, in its opinion, has included all adjustments necessary for a fair presentation of the results of operations for the quarters. Due to the nature of Turnkey Drilling Revenues, which are recognized at specified times over program development on specified wells, annual amounts are not generated evenly by quarter during the year.



|Quarter Ended      | Total
Revenues | Gross Profit  | Net
Income
(Loss) | Basic
Earnings
Per Common
Share | Weighted-
Average
Shares
Outstanding
|------------------ | -------------- | ------------- | ----------------- | ------------------------------- | ------------------------------------
|                   |                |               |                   |                                 |                                     
|December 31, 2000  | $  4,330,993   | $  3,525,104  | $   1,925,986     | $           0.51                | 3,808,161                           
|1999               | $  1,556,742   | $  1,004,870  | $      167,962    | $           0.04                | 3,808,613                           
|                   |                |               |                   |                                 |                                     
|September 30, 2000 | $  2,962,880   | $  1,604,364  | $      527,930    | $           0.14                | 3,808,613                           
|1999               | $  2,335,352   | $     589,814 | $        57,896   | $           0.02                | 3,808,613                           
|                   |                |               |                   |                                 |                                     
|June 30, 2000      | $  2,495,162   | $  1,224,745  | $      394,535    | $           0.10                | 3,808,613                           
|1999               | $  2,062,062   | $     655,225 | $     (128,079)   | $          (0.03)               | 3,808,613                           
|                   |                |               |                   |                                 |                                     
|March 31, 2000     | $  1,898,317   | $  1,026,910  | $      142,544    | $           0.04                | 3,808,613                           
|1999               | $  1,889,576   | $     594,921 | $        52,124   | $           0.01                | 3,808,613                           

NOTE 15 - Employee Benefit Plan

Royale Energy maintains a Simple-IRA plan with Fidelity Investments, covering all employees.  Under the plan Royale Energy makes a dollar for dollar match of the employee's elective deferrals each year, up to 3% of the employee's compensation, or $6,000, whichever is less.  For the years ended December 31, 2000 and 1999 Royale Energy contributed $24,841 and $16,357, respectively.



ROYALE ENERGY, INC.

SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)



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



Disclosures of oil and gas reserves which follow are based on estimates prepared by independent engineering consultants for the years ended December 31, 2000 and 1999.  Such estimates are subject to numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures.  These estimates do not include probable or possible reserves.



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



It should be recognized that applying current costs and prices and a 10 percent standard discount rate does not convey absolute value.  The discounted amounts arrived at are only one measure of the value of proved reserves.



Changes in Estimated Reserve Quantities



The net interest in estimated quantities of proved developed reserves of crude oil and natural gas at December 31, 2000 and 1999 and changes in such quantities during each of the years then ended, were as follows:

|                                              | 2000       | 1999       
|--------------------------------------------- | ---------- | -----------
|                                              | Oil (MBBL) | Gas (MCF)  
|Proved developed and undeveloped reserves:    |            |            
|                                              |            |            
|Beginning of period                           | 80         | 15,842,000 
|Revisions of previous estimates               | (76)       | 1,103,647  
|Production                                    | (.6)       | (1,161,513)
|Extensions, discoveries and improved recovery | -          | 866,876    
|Purchase of minerals in place                 | -          | -          
|                                              |            |            
|Proved reserves end of period                 | 4          | 16,651,010 
|                                              |            |            
|Proved developed  reserves:                   |            |            
|                                              |            |            
|Beginning of period                           | 80         | 10,401,000 
|                                              |            |            
|End of period                                 | 4,000      | 12,672,000 



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



The standardized measure of discounted future net cash flows is presented below for the two years ended December 31, 2000.



The future net cash inflows are developed as follows:



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



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



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



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



Disclosure of principal components of the standardized measure of discounted future net cash flows provides information concerning the factors involved in making the calculation.  In addition, the disclosure of both undiscounted and discounted net cash flows provides a measure of comparing proved oil and gas reserves both with and without an estimate of production timing.  The standardized measure of discounted future net cash flow relating to proved reserves reflects estimated income taxes.



|                                                         | 2000           | 1999           
|-------------------------------------------------------- | -------------- | ---------------
|                                                         |                |                
|Future cash inflows                                      | $ 246,398,000  | $   39,051,000 
|Future production costs                                  | (27,583,000)   | (12,304,000)   
|Future development costs                                 | (2,286,000)    | (3,232,000)    
|Future income tax expenses                               | (64,959,000)   | (7,053,600)    
|                                                         |                |                
|Future net cash flows                                    | 151,570,000    | 16,461,400     
|                                                         |                |                
|10% annual discount for estimated timing of cash flows   | (68,515,413)   | (6,957,879)    
|                                                         |                |                
|Standardized measure of discounted future net cash flows | $   83,054,587 | $     9,503,521



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



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



|                                                            | 2000            | 1999           
|----------------------------------------------------------- | --------------- | ---------------
|                                                            |                 |                
|Standardized measure - beginning of year                    | $     9,503,521 | $   10,070,893 
|                                                            |                 |                
|Sales of oil and gas produced, net of production costs      | (9,402,032)     | (2,521,491)    
|                                                            |                 |                
|Revisions of estimates of reserves provided in prior years: |                 |                
|                                                            |                 |                
|Net changes in prices and production costs                  | 113,606,329     | (1,805,533)    
|                                                            |                 |                
|Extensions, discoveries and improved recovery               | 6,581,704       | 3,487,024      
|                                                            |                 |                
|Accretion of discount                                       | (5,213,770)     | 29,469         
|                                                            |                 |                
|Net change in income tax                                    | (32,021,165)    | 243,159        
|                                                            |                 |                
|Net decrease                                                | 73,551,066      | (567,372)      
|                                                            |                 |                
|Standardized measure - end of year                          | $   83,054,587  | $     9,503,521