Royale Energy Doing Well with Natural Gas

By Wiedemann, Liz

Taking a gamble on natural gas has paid off for a local energy company, although predictions of how long the ride will last remain inconclusive.

San Diego-based Royale Energy Inc. reported a 69 percent jump in its stock value in a May 15 company earnings report.

Royale's closing price per share May 20 was $5.59, up from $3.31 at the previous week's close. Its market capitalization for May 20 was $44,272,800.

The independent natural gas exploration and production company is publicly traded on the Nasdaq as ROYL and is operating 68 wells in California, with others in Texas, Utah, Oklahoma and Louisiana.

Donald Hosmer, Royale's chief executive officer and co-founder, said that his company's recent success can be attributed to the price of natural gas rising and an increase in Royale's production.

"From February to March, our production increased 20 percent, and in April we turned on another four wells which added another 15 percent increase," said Hosmer, who founded the company with his father and brother in 1986.

In August 2007, Hosmer said the company was receiving $5.85 per Mcf, or 1,000 cubic feet, of natural gas. Currently, the price is more than $11 per Mcf, he said. One thousand cubic feet of natural gas is approximately enough to meet the natural gas needs of an average home for four days, according to the American Gas Association.

The Gas Price Index, published daily by Natural Gas Intelligence, determines the price at which Royale sells its natural gas to customers and end-users. Such companies have included Spreckels Sugar Co., The Coca-Cola Co., San Diego Gas & Electric Co. and BP Energy.

Hosmer also said that the supply of liquefied natural gas is significantly down.

"Last year we (the United States) were importing 2 billion Mcf per day, and now we're seeing less than 1 billion Mcf per day," he said.

Rush Toward Commodities

There's no doubt that money is to be found in commodities right now, according to Charles Langley, publisher and gasoline analyst for the Utility Consumers' Action Network (UCAN), and nothing succeeds like success, he says.

Key commodities like oil have gone up in price 183 percent since 2005, and the more expensive they get, the more people want them, said Langley of the nonprofit consumer advocacy group.

"But, they're also less affordable," Langley said. "People think oil is highly overvalued in the futures markets."

How long oil and natural gas prices will be on the rise is the million-dollar question, but Hosmer remains optimistic.

"I'm not a gas trader, but it seems that the fundamentals are tight, and there is more demand on natural gas as a cleaner burning fuel," he said. "A lot of people say prices will stay strong because of that."

Michael Shames, executive director for UCAN, said that recent revenue increases reported by oil and gas companies are mostly attributable to the premiums paid on world oil markets.

"Prices at $130 per barrel of oil and $15 per MMBtu (1 million British thermal units) of natural gas far exceed the costs of producing that amount," Shames said.

He said that prices are rising largely because traders in those markets are flush with cash that previously was invested in real estate and complex securities.

"Now traders are rushing away from those tainted markets and towards commodities," Shames said.

The rise in natural gas prices during the last quarter may be responsible for big investment returns, but it was a bet, Shames said.

"My personal conclusion is that oil and gas prices will trend down this year, but I was wrong earlier in the year - which is why I'm not a fuel trader," he said.

The closing trade price of Royale Energy stock was $5.44 on May 28.