Royale Energy Inc. and Matrix Oil Corp. plan to merge in a $41.5 million agreement that combines Royale's legacy gas presence with Matrix's significant oil position, the companies said July 25.

The California companies entered a letter of intent to merge in a combined stock and assumption of debt transaction by the fourth quarter. At closing, the combined company is estimated to have production of 650 barrels of oil equivalents per day (boe/d) from California and West Texas assets.

The company will retain the Royale Energy name. Matrix will become a wholly owned subsidiary of Royale and continue to operate from its current office in Santa Barbara, Calif.

Matrix's assets include oil and gas properties in the Sacramento, San Joaquin and Los Angeles basins in California and Texas' Permian Basin. The company had total proved reserves of 12.2 MMboe with a PV-10 value of $102.8 million, as of March 31.

The merger puts Royale on the path to qualify for reenlistment on NASDAQ, said Harry Hosmer, Royale's founder and chairman.

"The combination of Royale’s great shareholder base and 30-year operating history, with Matrix’s strong management team, technical expertise, current production and solid reserve base provides our company with the catalyst we needed for strong continuous growth,” Hosmer said in a statement.

The transaction also positions the company to pursue further acquisitions, he added.

In the proposed merger, Royale will issue one share of common stock for each share of stock outstanding at the time of the execution of definitive documents. The company will also assume all of Matrix’s $12.5 million of secured term debt and issue 2 million shares of convertible preferred stock with a par redemption value of $10 per share.

The transaction is valued at about $41.5 million, assuming a $0.50 price per common share. The final terms of the new convertible shares will be available upon the execution of the forthcoming definitive documents.

The combined company's board will be comprised of four members from the current Royale board and four members to be appointed by Matrix.

Strasburger & Price LLP, of Austin, Texas, is Royale's legal counsel. Matrix's legal counsel is Porter & Hedges LLP, of Houston. Northland Capital Markets is Royale's financial adviser.