"The Oil's There"

Thu Sep 27, 2012 7:30am EDT

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SAN DIEGO, Sept. 27, 2012 (GLOBE NEWSWIRE) -- Royale Energy, Inc. (Nasdaq:ROYL) Co-CEO Stephen Hosmer spoke to delegates at the Alaska Oil and Gas Congress in Anchorage last week. While sharing the stage with CEO of Great Bear Petroleum Operating LLC, Ed Duncan discussed the results of their initial test wells (Alcor #1 and Merak #1) in which they cored portions of the Shublik, HRZ/GRZ, and Kingak shales, the source rock for Alaska's Prudhoe Bay oil field. "I can tell you with absolute confidence that where we thought we would find oil in these source rocks, we found oil." Duncan said among other comments, and stated that Great Bear will accelerate the development phase of their project by as much as a full year.

Mr. Hosmer's remarks reaffirmed Royale's plans to develop nearly 100,000 acres of land immediately adjacent to Great Bear, in which Royale was the successful bidder at the State's most recent lease sale.

Petroleum News reported on Duncan's comments in an article in the September 23 issue reprinted by permission:

The oil's there

Great Bear says it wants to accelerate its North Slope shale oil program

Alan Bailey

Petroleum News

Great Bear's results so far from its Alcor No. 1 shale oil test well on Alaska's North Slope have met expectations for finding oil in North Slope source rocks, Ed Duncan, the company's president and CEO, told the Alaska Oil and Gas Congress on Sept. 19.

"I can tell you with absolute confidence that where we thought we would find oil in these source rocks, we found oil," Duncan said.

The section is very thick in the Cretaceous; it's very thick in the Jurassic; it's a little thicker than expected in the Triassic Shublik, Duncan said. The Shublik is the source rock thought to have the highest shale oil potential on the North Slope, with the two other main source rocks, the HRZ/GRZ and the Lower Kingak, occurring in the Cretaceous and Jurassic sections.

"To date, at least, the outcome has been very, very, very good," Duncan said.

Accelerate program

Given the results of the testing, Duncan said that his permitting team is now working with the state on a change in plan, to potentially proceed with some long-term production testing of the wells, in hopes of accelerating the shale oil development program.

There is still much work to do "but we're working hard to bring the decision forward, for ourselves and for the state of Alaska, for regional development by as much as a year," Duncan said.

That would move a decision on whether to proceed with a full-scale shale oil development from 2014 to the middle of 2013.

Great Bear has previously said that, if the testing of source rock cores proves successful, it would conduct production tests by drilling and fracturing horizontal lateral wells through the source rocks from the initial vertical wells used for source-rock coring.

Second well

Great Bear is currently drilling its second test well, the Merak No. 1 well, next to the North Slope Haul Road. That well has reached the bottom of the GRZ/HRZ, the shallowest of the North Slope source rock horizons, and on Sept. 19 the drillers took a core sample from that horizon at a depth of about 9,100 feet, Duncan said.

"We'll drill the rest of the section over the coming few weeks," he said.

The Alcor well penetrated all three of the major North Slope source rocks.

Petroleum system model

Duncan said that he had determined what leases to purchase and where to drill test wells using a model of the North Slope petroleum system developed by Schlumberger, based on science done by the U.S. Geological Survey and Stanford University. That model had proved very successful in explaining the mix of oils found in the North Slope oil fields. The model had predicted the locations of "liquids fairways" in the source rocks, and the results so far of Great Bear's drilling have substantiated those predictions, Duncan said, adding that Great Bear is testing all three of the source rock units.

In support of its drilling program, Great Bear conducted a 3-D seismic survey last winter and the company anticipates expanding that survey during the coming exploration season.

Lidar survey

The company has also conducted a Lidar survey, a laser-based system for measuring surface topography but which, in the form used by Great Bear, can also measure the bathymetry of lakes. The results of the Lidar survey will feed into an environmental assessment for the shale oil project and eventually into an environmental impact statement, or EIS, for a full-scale development program.

"This is a core part of our program to move towards a regional environmental assessment and EIS to support regional development planning," Duncan said. "It's a huge piece of work on our part. We're just starting the EA (environmental assessment) as well as a regional aquifer study here in the coming months."

Thick aquifer

With plentiful supplies of water being critical to the type of hydraulic fracking used in shale oil development, Duncan said that the presence of a major aquifer under the North Slope is particularly fortunate. The shallow aquifer, charged with brackish and salty water, unsuitable for drinking but usable for fracking, consists of multiple sands 50 to 100 feet thick, with a total thickness of 2,000 to 3,000 feet and representing a massive amount of subsurface water.

"That aquifer is one of the gifts that Mother Nature has given this area, in addition to having great source rocks," Duncan said.

Shale oil development in the area of Great Bear's leases, a few miles south of the Prudhoe Bay and Kuparuk River fields, would enjoy the dual benefits of being close to an existing oil infrastructure and having access to the trans-Alaska oil pipeline, a line that is currently running well below capacity and that has declining throughput. And oil service companies with the technical expertise required for the envisaged development already operate in the state, Duncan said.

High costs

Among the challenges for North Slope shale oil development is the high cost of operating in the region. Duncan questioned whether these high costs are somewhat self-inflicted, with a need for more service competition to drive costs down.

And industry needs to work with the state to reduce the complexities and redundancies of the permitting system.

"It's very expensive," Duncan said. "Time is money and it takes a long time to get just about anything through the permitting system."

Many wells needed

This permitting issue will become especially critical when it comes to development drilling in a shale oil play, with perhaps 200 new wells needed every year, Duncan said, commenting that people need to take a hard look at the regulatory systems in the Lower 48 states, where thousands of wells may be permitted in a year in a single play.

Duncan also suggested extending the Alaska railroad north to Prudhoe Bay. A railroad would enable the transportation of equipment and material to Prudhoe Bay more quickly than at present, and year round; it could act as a backup to the pipeline system for transporting oil south, and might also provide a means of exporting potential North Slope products such as heavy oil or the products from a gas-to-liquids plant, Duncan suggested.

Workforce an issue

Duncan sees the availability of the necessary workforce in Alaska as a huge problem, as activity in a shale oil development ramps up. The "brain drain" from Alaska to the Lower 48 needs to be reversed, and it is important to be pro-active rather than re-active in dealing with this issue, Duncan said. People need to be appropriately educated and trained. Is there scope for Alaska becoming a center of technical expertise and innovation, Duncan asked? And relocation incentives may be necessary to persuade people to move north, he said.

"We're going to need lots of people," Duncan said. "We've got a big thing, we believe, that's about to happen."

About the Company

Headquartered in San Diego, Royale Energy, Inc. is an independent energy company. The company is focused on development, acquisition, exploration, and production of natural gas and oil in California, Texas and the Rocky Mountains. It has been a leading independent producer of oil and natural gas for over 20 years. The company's strength is continually reaffirmed by investors who participate in funding over 50% of the company's new projects. Additional information about Royale Energy, Inc. is available on its web site at www.royl.com.

Forward Looking Statements

In addition to historical information contained herein, this news release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, subject to various risks and uncertainties that could cause the company's actual results to differ materially from those in the "forward-looking" statements. While the company believes its forward looking statements are based upon reasonable assumptions, there are factors that are difficult to predict and that are influenced by economic and other conditions beyond the company's control. Investors are directed to consider such risks and other uncertainties discussed in documents filed by the company with the Securities and Exchange Commission.

CONTACT: Royale Energy, Inc.
         Chanda Idano, Director of Marketing & PR 619-881-2800
         chanda@royl.com
         http://www.royl.com
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