Royale Energy Entered Into a Definitive Merger Agreement With Matrix Oil Management

Transaction Combines Royale’s Legacy Natural Gas Focus With Matrix’s Significant Operated Oil Position


SAN DIEGO, Nov. 30, 2016 (GLOBE NEWSWIRE) -- Royale Energy, Inc. (OTCQB:ROYL) (“Royale” or the “Company”) and privately held Matrix Oil Management Corporation (“Matrix”) jointly announced today that they have entered into a definitive agreement to merge whereby Royale will acquire substantially all of Matrix, and certain Matrix affiliated entities in exchange for 50% of the common stock of the Company, the assumption of Matrix’s senior secured debt in the amount of approximately $12.4 million, and the issuance of approximately $20.1 million of a newly created Series B Convertible Preferred stock to Matrix’s shareholders (the “Transaction”). The Transaction remains subject to the approval of the shareholders of both companies.

This strategic transaction will create a high-growth California-focused operating company with an executive team experienced in raising accretive capital and acquiring, operating and developing successful oil and gas projects. The Sansinena Field in which Matrix acquired a 50% interest in June 2016 in particular provides more than 40 million barrels of oil equivalent (“BOE”) of net 3P reserves, of which more than 12 million BOE (80% oil) of those reserves are in the proved reserve category. 

Highlights of Matrix:

  • $105 million of proved reserves as estimated by Netherland, Sewell & Associates, Inc. effective March 31, 2016
  • 10,036 net acres across 14 fields located primarily in California and West Texas 
  • Approximately 300 BOE per day of net production (90% oil) with an expected 2016 exit rate of 400 BOE per day
  • More than 80 proved undeveloped drilling locations across California and West Texas
  • Core management team has more than 195 combined years of technical and operating experience

Upon consummation of the Transaction, Jonathan Gregory will continue to serve as Chief Executive Officer of Royale, while Johnny Jordan, President of Matrix, will serve as President and Chief Operating Officer. Don Hosmer will continue to lead Royale’s Direct Working Interest program, which has successfully raised over $9 million in direct drilling funds during the last 24 months. Royale’s 30-year history of raising outside drilling funds will prove instrumental in funding the development of the combined companies’ substantial undeveloped reserve base.

The board of the combined company will be comprised of four members from the current Royale board and four members to be appointed by Matrix. Two of the Matrix appointees will be Rod Eson and Jonathan Clarkson. Mr. Eson and Mr. Clarkson bring over 40 years each of oil and gas industry expertise to the Royale board. Harry Hosmer will continue to serve as non-executive Chairman until his planned retirement at the next annual shareholder meeting. The reconstituted board will meet all of the independent director requirements of Nasdaq.   

“I have known the management teams of both Royale and Matrix for over ten years. This Transaction represents a transformative milestone for both companies,” said Jonathan Gregory, CEO of Royale. “This is our collective first step toward building a quality, growth-focused production company uniquely positioned in California. With Royale’s proven access to accretive capital and Matrix’s high quality inventory of economic drilling locations and technical experience, we are well positioned for profitable growth even in the current commodity price environment. Matrix acquired the Sansinena Field in June 2016. In five months, they have increased oil production by over 70% and reduced field operating costs by 50%.”

“Matrix is excited to join forces with Royale to leverage their public company experience and capital markets relationships with our quality properties and acquisition and operating experience. This Transaction sets the stage for us to continue pursuing accretive acquisitions, while developing our existing properties. As a substantial shareholder of the combined company, I am confident this Transaction will be transformative and enhance shareholder value,” said Johnny Jordan, President of Matrix. 

Stephen Hosmer, CFO of Royale commented, “This fundamental transaction dramatically improves our capital structure, allowing us to immediately apply for re-listing with Nasdaq and gives us the capital flexibility we need to execute our current and future acquisition and development plans.”  

Material Terms and Conditions
Royale will acquire Matrix, its subsidiaries and certain affiliated entities in exchange for approximately 25.7 million shares of common stock of Royale, in addition to Royale assuming approximately $12.4 million of Matrix’s senior secured debt resulting in approximately 50% of the common stock of the Company being owned by the current shareholders of Matrix. In addition, the Company will issue approximately $20.1 million of a newly created Series B 3.5% Redeemable Convertible Preferred Stock to Matrix’s shareholders. 

The Boards of directors of both Royale and Matrix have unanimously approved the agreement and all other related transactions, and believe that the Transaction is in the best interest of both companies’ stockholders.  The Transaction remains subject to the approval of the stockholders of both companies as well as other customary approvals. The companies anticipate completing the Transaction in the first quarter of 2017.  The Transaction is expected to qualify as a tax-deferred reorganization under Section 351 of the Internal Revenue Code.

Among other conditions to closing, the Transaction is conditioned upon the consent to assumption of the senior secured debt with existing Matrix lenders or the refinancing of such debt on terms and conditions acceptable to both parties. The Agreement contains certain termination rights for both the Company and Matrix, including, among other things, if the Transaction is not consummated on or before March 31, 2017.

After consummation of the Transaction, the Company intends to apply to list its common stock on Nasdaq or another national securities exchange.  The Royale common stock was previously listed on Nasdaq from 1994 until it was delisted in January 2016.  The Royale common stock currently trades on the OTC QB (Symbol:  ROYL).  There is no assurance that the intended listing application will be approved by Nasdaq or another national securities exchange.

Northland Capital Markets is acting as exclusive financial advisor to Royale. Legal counsel to Royale in the transaction is Strasburger & Price, LLP, Austin, Texas. Legal counsel to Matrix in the transaction is Porter & Hedges, LLP, Houston, Texas.

About Royale Energy, Inc.

Founded in 1986, Royale Energy, Inc. (OTCQB:ROYL) is an independent exploration and production company focused on the acquisition, development, and marketing of natural gas. Royale Energy has its primary operations in the Sacramento and San Joaquin basins in California.

About Matrix Oil Management Corp.

Matrix is a private independent oil and natural gas production company based in Santa Barbara, CA.  The company formed in 1999 and acquired its first interest in the Los Angeles Basin in 1999 in the Las Cienegas Field. The company is focused on acquisition of long-life, low-risk producing oil leases that have drilling upside or operations optimization possibilities.  The company owns and operates oil-producing properties in the Los Angeles and San Joaquin Basins of California.  It owns non-operated natural-gas producing properties in the Sacramento Basin and oil-producing royalty and non-operated leases in the Permian Basin and Midland Basin of West Texas.  The company has lease and fee ownership in 14 producing fields in approximately 10,000 net acres that hold more than 350 wells in which Matrix has an interest.  

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities and Exchange Act of 1934, as amended. Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as "expects," "believes," "intends," "anticipates," "plans," "estimates," "potential," "possible," or "probable" or statements that certain actions, events or results "may," "will," "should," or "could" be taken, occur or be achieved. The forward-looking statements include statements about future operations, estimates of reserve and production volumes and the anticipated timing for closing the proposed merger. Forward-looking statements are based on current expectations and assumptions and analyses made by Royale and Matrix in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform with expectations is subject to a number of risks and uncertainties, including but not limited to: the possibility that the companies may be unable to obtain stockholder approval or satisfy the other conditions to closing; the possibility that the combined company may be unable to obtain an acceptable reserve-based credit facility; that problems may arise in the integration of the businesses of the two companies; that the acquisition may involve unexpected costs; the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas); risks and uncertainties involving geology of oil and gas deposits; the uncertainty of reserve estimates; revisions to reserve estimates as a result of changes in commodity prices; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather; further declines in oil and gas prices; inability of management to execute its plans to meet its goals, shortages of drilling equipment, oil field personnel and services, unavailability of gathering systems, pipelines and processing facilities and the possibility that government policies may change. Royale's annual report on Form 10-K for the year ended December 31, 2015, recent current reports on Form 8-K, and other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors identified that may affect its business, results of operations, and financial condition. Royale and Matrix undertake no obligation to revise or update publicly any forward-looking statements, except as required by law. 

Additional Information About the Proposed Transaction 

This release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of a vote or proxy.

In connection with the proposed Transaction, Royale will file with the SEC and mail to its security holders a proxy statement and other relevant documents. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ROYALE AND THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain these materials (when they are available) and other documents filed with the SEC free of charge at the SEC’s website, www.sec.gov. In addition, a copy of the proxy statement (when it becomes available) may be obtained free of charge from Royale’s website at www.royl.com. Investors and security holders may also read and copy any reports, statements and other information filed by Royale, with the SEC, at the SEC public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800- SEC-0330 or visit the SEC’s website for further information on its public reference room. In addition, the documents filed with the SEC by Royale can be obtained free of charge from Royale’s website at www.royl.com or by contacting Royale by email at ir@royl.com, or by telephone at (619) 383-6600.

This release shall not constitute an offer to sell or the solicitation of any offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.


            

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