I first wrote about Royale Energy (NASDAQ:ROYL) Energy a few months ago when the company announced a joint venture to develop the company's Alaska North Slope acreage with an unknown company. I speculated that if the deal was completed the stock price could see a nice pop. The deal was consummated with Rampart Energy of Australia and the stock price jumped to as high as $3.69 intraday after the deal was announced. This was a significant gain from the $2.60 - $2.70 range when I first wrote about Royale Energy as a speculation and I sold the news.
I have been watching Royale Energy from the sidelines the last couple of months and I think now is a good time to buy back in. My main concern was the deal with Rampart Energy. Rampart Energy currently trades at only 0.003 - 0.004 cents on the Australian Stock Exchange and stocks that trade this low are usually fraudulent penny stocks. However, the market has had time to digest the news and the stock price of Royale Energy is holding up well. The stock price has found significant support in $2.70 range so the deal doesn't seem to be a concern for other investors.
In addition, Rampart Energy has met its initial obligation to pay Royale Energy 1.6 million and Royale Energy announced in their recently released Q2 results that they expect "an agreement will be signed within the month to acquire seismic data over both the Western and Central Blocks, with all costs to be borne by Rampart Energy." So far Rampart Energy is meeting all the conditions of the joint venture.
Royale Energy reported greatly improved results in Q2. Revenue came in at 1.54 million and net income came in at 1.91 million (0.14 earnings per share). Both revenue and net income were up significantly compared to the prior quarter and year over year. The increase in net income was mainly due to the sale of working interest in their Alaska North slope acreage to Rampart Energy.
Royale Energy mentioned many positive catalysts in their Q2 results. They are currently drilling two natural gas wells in California's Sacramento Basin and expect to drill three additional wells in the fourth quarter. They also reached an agreement for the drilling of several oil wells on their property in the Permian basin of Texas by the end of the year. If these wells are successful it will obviously be a positive catalyst to the stock price.
The main catalyst for Royale Energy in my option is the potential of its Alaska North Slope acreage for horizontal drilling (fracking). The CEO of Great Bear, which is another company that has acquired acreage in Alaska's North Slope with the intent to drill horizontally, said the source rocks of the Alaska North Slope are superior to Eagle Ford shale play in Texas. If this can be proven to be true the gains for Royale Energy will be huge.
Disclosure: I am long ROYL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.