Lessor Form “B”
Paid UpOIL AND GAS LEASE
This is an oil and gas lease (the “Lease”) between_____, whose address is _____, as “Lessor”,
and _____, whose address is _____, as “Lessee”. It is entered into by Lessor and Lessee on the
following terms and conditions: 1. DEFINITIONS
As used in this Lease, the following words and phrases shall have the following meanings: "Effective Date" or "this date" means: _____.
"Land" means _____ acres, more or less, described on Exhibit "A" attached to this Lease.
For the purpose of calculating any payments provided for in this Lease, which are based on
acreage, the Land is deemed to contain _____ acres, whether it actually contains more or
less.
"Primary Term " means _____ (____) years from the Effective Date. The Primary Term
ends @
11:59 P.M. local time on: _____.
"Royalty Percentage" means _____ %.
"Shut-In Amount" means $ _____.
"Depository Bank" means _____, whose address is _____.
"Oil unit acreage" means 40 acres.
"Gas unit acreage" means 40 acres.
"Drilling unit acreage" means 40 acres.
"Affiliate" means a person directly or indirectly, in whole or in part, controlling or controlled by or under common control with, Lessee.
"Assignment" includes a sublease and farmout, and "assignee" includes any
sublessee and
farmee.
"Commence a well," "commencement of a well," "commence actual drilling operat ions,"
"commencement of actual drilling operations," "actual drilling", or "actual drilling of a well"
occurs or is the time when there has been erected on the Land at the locat ion for the well, a
derrick, a
rig, and machinery capable of drilling a well to a depth sufficient to test a
prospective oil or gas horizon on
the Land, and when the well has been "spudded-in" and the
machinery is rotating under power.
"Completion" of a well is the date ten days following the running of final production casing and/or liner in the hole drilled, or ten days following the date total depth i s reached, or the
date of filing of the completion report on the well with the governmental agency whic h has
regulatory authority regarding the well (referred to as the “Oil and Gas Commission”),
whichever is earlier.
"Copy"
means an original or duplicate writing or recording as defined by the rules of
evidence of the appropriate civil statutes of the State (the “Rules of Evidence” ) where the
Land is located. "Certified copy" means a c
opy made self-authenticating in any manner
prescribed by the
local rules of evidence, but including the film code or volume, page and
record specifying the place where actually recorded.
"Filed for record" means filed for record in the Office of the County/Parish Clerk/Recorder of each county or parish where an
y part of the Land is located, in the manner required by
law, to impart constructive notice to third parties.
"Oil and gas" means oil, gas,
casinghead gas, and their byproducts and such other
hydrocarbon substances, carbon dioxide, and sulphur as are necessarily produced with, and
incidental to the production of oil and gas or either of them.
"Person" means:
(i) an individual, a corporation, a partnership, a joint venture, an
association, a joint-stock company, a business trust, an unincorporated organization or any
other business entity;
(ii) a fiduciary; or, (iii) two or more persons having a joint or common
interest.
"Plant" means an absorption, cycling, recycling,
cryogenic or extraction plant, or similar
plant, in which gas is processed
for the recovery of liquid and liquefiable hydrocarbons.
"Produce
," "produced," "producing," and "production" means produce, produced, producing
and production in paying quantities.
"Residue gas" means gas at the outlet side of a plant after it has been processed for the
extraction, absorption, or separation of the liquid and liquefiable hydrocarbons.
"Reworking operations" means reentry into a well previously completed as a producer, or a dry hole, and engagement in actual subsurface work in the hole, with adequate equipment,
in a good and workmanlike manner, prosecuted with reasonable diligence, the purpose of
which is to recover oil or gas from a formation which is then subject to this Lease.
The date of abandonment of a dry hole is the date indicated on the Oil and Gas Com mission
plugging report for the well, or ten days after release of the rig from the location after
testing, or ten days aft
er total depth is reached, whichever is earlier.
2. GRANT OF LEASE
2.1 Lessor, for and in consideration of the sum of Ten and
No/100 Dollars ($10.00) and
other valuable consideration and of the royalties, covenants, agreements, and obligations
contained in this Lease on the part of the Lessee to be paid, kept, and performed, and on the
conditions and with the limitations contained in this Lease, grants, leases, and lets the Land
exclusively to Lessee, for the sole and only purpose of prospecting and drilling for and producing
oil and gas and laying pipe lines, building tanks, and storing oil, to produce, save, take care of,
and transport oil and gas produced from the Land.
2.2 Lessor excepts from this Lease and reserves all minerals of every kind and character
in, on, and under the Land, except only oil and gas. Lessor also excepts from this Lease and
reserves the right to use the Land for the purpose of investigating, exploring, prospecting,
drilling, mining for and producing all other minerals, and for laying pipelines and building roa ds,
tanks and other structures, to mine, produce, save, take care of, treat, transport and own all other
minerals; but, any of these operations by Lessor must not unreasonably interfere with Lessee's
operations and use of the Land. Lessor further excepts from this Lease, and Lessee acquires no
rights under this Lease, to conduct geophysical or seismic related operations on any part on the
Land. Lessor may at any time after the Effective Date, conduct, or grant to thi rd parties the right
to conduct, geophysical or seismic related operations on all or part of the Land.
2.3 This Lease is made subject to any and all easements affecting the Land a s reflected by
the records on file in the office of the County/Parish Clerk/Recorder of the county/parish in
which the Land is located.
2.4 By this Lease, Lessee acquires no right to construct or maintain any plant, lea se house,
camp, warehouse, or similar structure on the Land, and acquires no easement, expressed or
implied, with respect to any other property owned by Lessor.
2.5 With respect to any zone, horizon, formation or depth reserved or excepted from this
Lease or as to which this Lease terminates, Lessor shall have such use of the surface of the Land
relating thereto, and such ingress and egress through all other zones, horizons, formations, or
depths as may be required for all purposes, including, without limitation, exploring for,
developing, producing, storing, treating, transporting, and marketing oil and gas from the zone,
horizon, formation, or depth reserved or excepted or as to which this Lease has terminated.
Operations by either Lessor or Lessee shall not unreasonably interfere with operations of the
other.3. PRIMARY TERM
Subject to the other provisions contained in this Lease, this Lease is for the defined Primary
Term and as long thereafter as oil and gas, or either of them, is produced from the La nd, or this
Lease is maintained in force by virtue of some other provision of this Lease.
4. ROYALTIES
4.1 The royalties to be paid by Lessee to Lessor on oil are the defined Royalty Percent age
of that produced and saved from the Land, to be delivered, free of cost to Lessor, into the
pipeline or other receptacle to which Lessee may connect the well; or at Le ssor's option, the oil
shall be sold by Lessee with Lessee's oil produced and saved from the land, and at the sa me price
received by Lessee, including the payment of any bonuses and premiums for such oil (but in no
event for less than its market value); or at Lessor's option, it shall be delivere d, free of cost to
Lessor at the well, into tanks or other receptacles to be furnished by Lessor. Lessor's opti ons
under this paragraph may be exercised at any time, and from time to time, and t he exercise or
failure to exercise an option at any time shall not constitute a waiver of L essor's right to exercise
further options
4.2 The royalties to be paid by Lessee to Lessor on gas are as follows:
(a) All gas (including
casinghead gas) produced from the Land shall, before sale or
use for any purpose, be passed through a field type separator or other comparable equipment
ordinarily used in the industry and designed and operated to effect the maximum
economical recovery of liquid and liquefiable hydrocarbons. On all hydrocarbons and
products and any mixture of liquid and liquefiable hydrocarbons produced with gas from the
Land and saved by being condensed or absorbed from or separated from the gas by means of
the separator system, Lessor shall have and be entitled to the Royalty Percenta ge of that so
produced and saved, to be delivered free of cost, at Lessor's election, either at t he well or to
the credit of Lessor into the pipeline to which the well may be connected. In addit ion, if the
gas is not thereafter processed but is sold or used, Lessor shall be paid as royalty the ma rket
value at the point of delivery to the pipeline purchaser, if sold, or at the point of use , if used,
of the Royalty Percentage of all the gas sold or used. If the gas, after having passed t hrough
the separator system is thereafter processed, the royalty provisions of paragraph
4.2 (b) or
4.2 (c), whichever is applicable, shall also apply to the gas, and royalties shall be pa id to
Lessor accordingly.
(b) If gas (including casinghead gas) produced from the Land is processed in the
plant of Lessee or an affiliate, Lessor shall have and be entitled to the Royalty Percentage of
all condensate and other plant products extracted, absorbed, separated, manufactured or
saved from the gas, to be delivered free of cost, at Lessor's election, either at t he plant or to
the credit of Lessor into the pipeline to which the plant may be connected. In a ddition,
Lessor shall be paid as royalty the market value at the point of delivery to the pipeline
purchaser, if sold, or if used, at the point of use, the Royalty Percentage of all resi due gas
attributable to the Land and sold or used.
(c) If Lessee enters into a bona fide contract or arrangement with a non-affiliate for
the sale or delivery of gas from the Land for processing in the plant of the non-affiliate,
Lessor shall have and be entitled to the Royalty Percentage of all condensate and other plant
products, proceeds, monies, benefits and other things of value, of every kind or character,
received by Lessee or to which Lessee is entitled under the contract or arrangement , and
attributable to gas produced from the Land. In addition, Lessor shall be paid as royalty the
market value at the outlet of the plant the Royalty Percentage of all residue gas attributable
to the Land and sold or used.
(d) If Lessee enters into a gas purchase contact which contains what is commonly
referred to as a "take or pay provision" (that is, a provision that the gas purchaser agrees to
take delivery of a specified minimum volume or quantity of gas over a specified t erm at a
fixed price or to make minimum periodic payments to the producer even though gas is not
being delivered to the purchaser) and if the purchaser under the gas purchase contract makes
payments to the producer by virtue of the purchaser's failure to take delivery of the
minimum volume or quantity of gas, then Lessor shall be entitled to the Royalty Percentage
of all the sums paid to Lessee or producer under the "pay" provisions of the gas purchase
contract. The royalty payment shall be due and owing to Lessor within sixty days after
Lessee's receipt of each "payment".
4.3 On all substances, including, but not limited to, carbon dioxide and sulphur, permitted
to be produced from the Land by virtue of this Lease and for which no royalty is otherwise
specified in this Lease, Lessor shall have and be entitled to the Royalty Percentage of that
produced or saved, to be delivered to Lessor, free of cost, or, at the option of Lessor, which may
be exercised from time to time, Lessee shall account to Lessor for the Royalt y Percentage of the
amount received by Lessee from the sale of the substance.
4.4 For the purposes of this Lease the term "market value" of residue gas or gas after it has
been processed in a separator system, and not then processed, is defined as follows:
(a) If Lessee enters into a bona fide arms-length gas sales contract for the sale of
gas to a nonaffiliate and if the contract contains adequate provisions for the redetermi nation,
at least annually, of the price for which the gas is sold, to insure that the price for the gas
will always be reasonably equivalent to the current market value of gas, when produced, in
the county/parish where the Land is located, the market value of the gas sold under the
contract shall be considered to be the price received by Lessee, except if the c ontract makes
any deductions for the expenses of producing, gathering, dehydrating, compressing,
transporting, manufacturing, processing, treating or marketing of the gas, then the
deductions shall be added to the price received by Lessee for the gas for the purpose of the
payment of royalties, so that Lessor's royalty shall not bear, directly or indirectly, any of
such expenses. A contract is not a bona fide arms-length gas sales contract if it directly or
indirectly provides for or directly or indirectly results in or is the result of any conc ession or
benefit to Lessee to which Lessor is not also entitled.
(b) On all gas which is used by Lessee or which is sold by Lessee to an affiliate or
which is sold under a contract which does not meet the requirements of paragraph
4.4 (a),
the market value of the gas shall be considered to be the higher of: (i) the price received by
Lessee; or
(ii) the arithmetic average of the three highest prices paid by pipeline purchasers
(including Lessee or its affiliate) for gas produced in the county/parish where the Land is
located during the calendar quarter year in which the gas production from the Land occurs,
with no consideration being given to the quantity or prospective use of the gas involved. If
the gas purchase contracts used in determining the three highest prices provide for an
increase in price if the hydrocarbon content of the gas exceeds 1,000 BTU per cubic foot,
and if the gas from the Land has a hydrocarbon content in excess of 1,000 BTU per cubic
foot, then the increase shall be added to the prices paid under the gas purchase cont racts for
the purpose of determining the arithmetic average of the three highest prices paid under the
contracts. Adjustments made by way of reimbursements for taxes shall likewise be
considered as part of the purchase price in the contracts. If the contracts include any
reduction for the expense of producing, gathering, dehydrating, compressing, transporting,
manufacturing, processing, treating or marketing of the gas, then the reductions shall be
added to the prices in the contracts for the purpose of determining the market value of the
gas, so that Lessor's royalty shall not be chargeable, directly or indirectly, with any of those
expenses.
(c) Notwithstanding the foregoing, for so long as any natural gas produced from the
Land may be subject to a maximum ceiling price under any legislative act (the "Act") or any
applicable legislation, "market value" for the gas shall never be higher than the ce iling price
on the date produced for which the gas could qualify under the Act or other similar
applicable legislation. Lessee agrees to conduct all drilling, producing, and marketing
activities on the Land as a reasonable and prudent operator and in the manner which, aft er
due investigation and consideration of all relevant facts and circumstances relat ing to the
Act or other similar applicable legislation, will qualify all gas produced from the Land for
the highest applicable ceiling price specified in the Act or other similar appl icable
legislation. During the term of this Lease it is the general intent and agree ment of Lessor
and Lessee that Lessee shall at all times use care as a reasonable and prude nt operator would
use under the same or similar circumstances in conducting drilling, producing, and
marketing activities relating to the Land in a manner which will assure, to the extent
reasonably possible, that all gas produced from the Land is not subject to price regulat ion, or
alternatively, and only if the former is not reasonably possible, is qualified for the highe st
applicable ceiling (or other regulated) price, determined at the date the gas is produced,
taking into consideration all relevant facts and circumstances.
4.5 Lessor shall always have the right, at any time and from time to time, on rea sonable
written notice to Lessee, to take Lessor's royalty share of the gas in kind. If Lessor takes or
causes to be taken any or all of Lessor's royalty share of the gas, Lessor and Lessee will e nter
into an appropriate gas balancing agreement. If Lessee commits the gas produced from the Land
to a purchaser for interstate transmission or use, or otherwise dedicates the gas to intersta te
commerce, Lessee shall in any such contract or other dedication of the gas protect Lessor's right
to take royalty gas in kind by
predicating and conditioning the commitment on appropriate
regulatory agency approval and authorization of Lessor's in kind royalty rights.
4.6 Lessee occupies the position of trustee for Lessor in the disposition of Lessor's royalty
oil and gas and shall be under the duty to exercise the utmost good faith in the disposit ion, sale
and accounting to Lessor for Lessor's royalty. Except for royalty taken by Lessor in kind, Lessee
is personally liable for all amounts payable to Lessor as royalty under this Lease. It i s
specifically understood that at all times Lessor’s royalties shall receive, and L essee shall pay to
Lessor the Royalty Percentage of any economic benefits paid or to be paid to or obtaine d by
Lessee (with respect to oil and gas produced from the Land), which are more favorable than, or
are in excess of those economic benefits otherwise paid to or to be obtained by Lessor unde r the
provisions of this Lease.
4.7 Lessor's royalty interest shall, in all cases, bear its proportionate part of all produc tion,
severance, ad valorem, and excise taxes.
4.8 Lessor shall always have the right, at Lessor's option, at any time and from time to
time, on reasonable written notice to Lessee, to require Lessee to handle and ma rket Lessor's
royalty oil, gas, hydrocarbons, carbon dioxide, sulphur, and products extracted, separated or
saved from the gas or residue gas from the Land, free of cost to Lessor and in the same m anner
as Lessee handles Lessee's portion.
4.9 Regardless of any other provision of this Lease to the contrary or apparently to the
contrary, Lessor's royalty shall never bear, either directly or indirectly, any part of the c osts or
expenses of producing, gathering, dehydrating, compressing, transporting, manufacturing,
processing, treating, or marketing of the oil or gas from the Land, nor any part of the costs of
constructing, operating, or depreciating any plant, pipeline, or other facilities or equipment for
processing or treating oil or gas produced from the Land and the market value of Lessor's royal ty
oil and gas shall be determined without regard to or deduction for any of the above costs or
expenses. It is understood and agreed that to the extent that Lessor's royalty oil and gas bea rs
any of the foregoing costs, Lessor shall be reimbursed for same by Lessee in ___________
County/Parish, _______________. Lessee shall immediately reimburse Lessor, at the same
place royalty is payable, for any such costs or expenses which are charged to or deducted from
Lessor’s royalty oil or gas, or which are “netted back” against Lessor’s royalty oil or gas in
determining market value.
4.10 Lessee shall have use of oil and gas produced from the Land for all operations
conducted on the Land under the terms of this Lease, except for recycling operations, pressure
maintenance or central plant operations, and the royalty on oil and gas shall be comput ed after
deducting any so used.
4.11Accounting and payment to Lessor of royalties from the production of oil and gas
from any well shall commence no later than ninety days after the date the well commences first
production. Thereafter all accountings and payments of royalties shall be made on or before the
last day of the calendar month following the calendar month in which the production occ urred.
Any royalties provided for in this Lease which are not paid to Lessor within the applicabl e time
periods specified in this paragraph shall accrue interest at the same rate as judgm ents under the
laws of the State where the Land is located from due date until paid. Should Lessee at any time
fail to make royalty payments to Lessor on or before the last day of the fourth calenda r month
following the calendar month in which the production occurred, and if the failure continues for
thirty days after Lessor has given Lessee written notice of the failure, this Lease shall
automatically terminate. Acceptance by Lessor of royalties which are past due shall not act as a
waiver or estoppel of Lessor's right to receive or recover any and all interest due under the
provisions of this paragraph unless the written acceptance or acknowledgment by Lessor to
Lessee expressly so provides. Any tender or payment to Lessor of a sum less than the total
amount then due to Lessor, which is made or intended to be made as an offer of settle ment or
accord by or on behalf of Lessee, must be accompanied by a Notice of Settlement Offer, so
denominated, addressed to Lessor. Any offer of settlement submitted solely by tender of a c heck
containing language of settlement or accord shall not be deemed an offer of settle ment or accord,
unless preceded by such a Notice of Settlement Offer. Lessee shall pay all reasonable attorney
fees incurred by Lessor in connection with any lawsuit in which Lessor is
successful in
recovering royalties or interest or in terminating this Lease due to Lessee's failure to pay
royalties within the periods set forth in this paragraph.
5. DELAY RENTALS; DEPOSITORY; RELEASE
5.1 Payment of delay rentals is not required to perpetuate this Lease. Any other payment s
permitted to be paid to the Depository Bank under this Lease shall be paid to the c redit of the
party entitled to the payment in the Depository Bank, which bank and its successors shall
continue as the Depository Bank until changed by written notice to Lessee. Payment shal l be in
current funds delivered on or before the due date. If the Depository Bank (or a successor bank),
fails, liquidates or is succeeded by another bank, or for any reason fails or refuses to accept
payment, Lessee shall not be in default unless Lessee fails to make the payment on or before
fifteen days after the party entitled to payment delivers to Lessee a recordable instrument making
provision for another method of payment.
5.2 Lessee may at any time, and from time to time, execute and file for record a release or
releases of this Lease as to part or all of the Land or any mineral or subsurface i nterval or any
depth and thereby surrender this Lease as to the released Land, mineral, horizon, zone or
formation. No release shall relieve Lessee of any liability which has accrued prior to the release.
6. PARTIAL TERMINATION; UNITS FOR PRODUCTION
6.1 If, at the expiration of the Primary Term, Lessee is not engaged in the actual dri lling
of a well on the Land or if Lessee has completed or abandoned a well on the Land wi thin 30 days
prior to expiration of the Primary Term and is not, at the expiration of 60 days after the date of
completion or abandonment of the well, engaged in the actual drilling of another well on the
Land, this Lease shall then terminate as to all of the Land, save and except the following:
(a) Each well producing oil and classified as an oil well under the rules and
regulations of the Oil and Gas Commission, together with the oil unit acreage around e ach
such well (an "oil unit").
(b) Each well producing gas (or capable of producing gas with all shut-in gas well
royalty having been paid) and classified as a gas well under the rules and regulations of the
Oil and Gas
Commission , together with the gas unit acreage around each such well (a "gas
unit").
6.2 Each oil unit or gas unit shall be in the form of a square or rectangle (and if a
rectangle, no side shall be more than twice the length of any other side) except whe re the
configuration is modified by a boundary of the Land, and with the well at a legal l ocation on the
unit. Notwithstanding paragraph 6.1, if the Oil and Gas Commission or other authority having
jurisdiction, by rule or order requires a larger or a smaller number of acres for the purposes of
securing the maximum allowable production, each unit shall be increased or decreased in size as
necessary to conform to the number of acres required by the rule or order, but if the rule or orde r
provides for or permits optional sized tracts or spacing, the unit shall be the smalle st tract
permitted by the rule or order. Once initially established, the size and shape of a unit shall not
later be changed or modified.
6.3 If, at the expiration of the Primary Term, Lessee is engaged in the actual dril ling of a
well on the Land or if Lessee has completed or abandoned a well on the Land within 30 days
prior to expiration of the Primary Term and is, at the expiration of 60 days after compl etion or
abandonment of the well, engaged in the actual drilling of another well on the La nd, this Lease
shall not terminate so long as Lessee pursues the drilling of the well with reasonable diligence to
completion or abandonment and so long as Lessee commences the actual drilling of addit ional
and successive wells on the land at intervals not exceeding 120 days between comple tion of a
well as a producer or dry hole and commencement of actual drilling of the next well on the Land.
If and when Lessee fails to commence the actual drilling of a well within the applicable interval
(or within the extended time provided in paragraph
6.4), this Lease shall then terminate as to all
of the Land, save and except the oil units provided in paragraph 6.1 (a) and the gas units
provided in paragraph 6.1
(b).
6.4 If Lessee, in the conduct of actual drilling operations under this Lease after the
expiration of the Primary Term, commences the actual drilling of any next succeedi ng well
within less than the time interval specified for commencement in paragraph 6.3 and thus speeds
up the development of the Land, Lessee shall have credit in time for the accel erated development
and may, in the conduct of subsequent actual drilling operations, take advantage of the cre dit in
time on a cumulative basis and thus extend the time for the commencement of a ctual drilling of
any subsequent well or wells required to be drilled under the provisions of this Section 6 in orde r
to prevent termination of this Lease; provided, however, that the cumulative days credi t at any
one time shall never exceed 120 days, regardless of the number or frequency of wells drilled.
Within 5 days of the commencement of the actual drilling of each well on the Land, Lessee shall
give Lessor written notice of the date of commencement. Within 5 days after the c ompletion or
abandonment of each well on the Land, Lessee shall give Lessor written notice of t he date of
completion or abandonment and also of the time credit, if any, claimed by Lessee as a result of
having commenced the actual drilling of the well within less than the required int erval. If Lessee
fails to timely notify Lessor in any of these respects, Lessee shall not be enti tled to any credit in
time for accelerated development. These provisions with respect to accumulati on of time assume
that only one well will be drilled at a time, but if Lessee undertakes the drilling of two or more
wells simultaneously, any applicable allowance for time will be calculated as to each well
separately to the end that Lessee will receive credit for time accumulat ed for each well drilled
with like effect as if the wells had been drilled consecutively. Nothing contai ned in this
paragraph shall relieve Lessee of any offset obligation arising by implication or under the terms
of this Lease, but any well drilled by Lessee to satisfy an offset obligation will entitle Lessee to
the privileges of this paragraph.
6.5 Each well drilled on the Land shall be drilled with reasonable diligence in a good and
workmanlike manner in a bona fide attempt to produce oil or gas from the well.
6.6 Upon the termination of this Lease as to all of the Land, save and except oil uni ts and
gas units (whether at the expiration of the Primary Term or cessation of drilling and development
or later) as provided above, this Lease shall also terminate, as to each unit, a s to all depths and
horizons greater than 100 feet below the base of the deepest formation from which production i s
then being had (or at which a well capable of producing gas is completed with all shut-in royalty
having been paid) on each respective unit. Lessee shall, within 60 days after termina tion of this
Lease as to any part of the Land, execute and file for record a written instrument designating and
describing by metes and bounds, and as to depth, all of the Land which, on the terminat ion, is
properly included in any oil unit or gas unit, and execute and file for record a release of this
Lease as to all of the Land and depths not properly included in an oil unit or gas unit. If Lessee
fails to designate the units, or fails to file the instrument of designation for record wi thin that
time, Lessor shall have the right and privilege, at any time after the expira tion of the 60 day
period, to designate the unit or units in the same manner and with the same effect as provided
above, and the designation, whether made by Lessor or Lessee, shall be effective from the date
of termination as provided above.
6.7 As to each oil unit properly designated, this Lease shall remain in effect so long as oil
is produced from the unit and so long as reworking operations or actual drilling operations are
conducted on the unit as specified in this paragraph. If production of oil from any oil unit ce ases,
this Lease shall terminate as to the unit, unless Lessee commences reworking operat ions or
actual drilling operations on the unit within 60 days thereafter and pursues reworking operations
or actual drilling operations on the same or successive wells at intervals not exce eding 60 days
between the date of completion of operations on one well and the date of commencem ent of
reworking operations or actual drilling operations on another; and, if production of oil is restore d
on the unit, this Lease shall remain in effect as to the unit in question so long thereafter as oil is
produced from the unit or additional reworking operations or actual drilling operations are
conducted on the unit as specified above.
6.8 As to each gas unit properly designated, this Lease shall remain in effect so long a s
gas is produced from the unit or is capable of being produced from the unit, with all shut-in gas
well royalty having been paid, and so long as reworking operations or actual drilling operations
are conducted on the unit as specified in this paragraph. If production of gas from a gas unit
ceases, this Lease shall terminate as to the unit unless Lessee commences reworking operations
or actual drilling operations on the unit within 60 days thereafter and pursues reworking
operations or actual drilling operations on the same or successive wells at interval s not exceeding
60 days between the date of completion of operations on one well and the date of
commencement of reworking operations or actual drilling operations on another; and, if
production of gas is restored on the unit this Lease shall remain in effect as to t he unit in question
so long thereafter as gas is produced from the unit or is capable of being produced from the unit ,
with all shut-in gas well royalty having been paid, or additional reworking operations or act ual
drilling operations are conducted on the unit as specified above.
6.9 The provisions of this Section 6. which permit perpetuation of this Lease by payment
of shut-in gas well royalty are subject to and limited by the provisions of Section 9. of t his Lease
limiting the time this Lease may be perpetuated by payment of shut-in royalty.
6.10 After this Lease has terminated as to any of the Land, whether or not an applica ble
release has been delivered, nothing in this Lease, no action of Lessee (including obtai ning actual
production from that portion of the Land), and no action of Lessor (including Lessor's acceptance
of purported royalty or any other payment) shall have the effect of reviving this Lease as t o that
portion of the Land.
6.11 Although this Lease may have terminated in part and have been partially rele ased,
Lessee shall have and retain the easements over and across the terminated porti on or portions of
the Land as shall be reasonably necessary for ingress and egress and to enable Lessee to develop
and operate the portion or portions of the Land as to which this Lease continues in e ffect and
Lessee shall not be required to relocate any pipelines or equipment used in connecti on with
production of oil or gas from the Land.
7. DRAINAGE
7.1 Lessee shall adequately protect the oil and gas under the Land from drainage from
adjacent property and leases. Neither the bonus or royalties paid or to be paid under this L ease
shall relieve Lessee from this obligation. For this purpose, Lessee shall drill as many wells as the
facts may justify and to the depth or depths necessary for effective protection against dra inage by
other wells on adjacent property and leases.
7.2 Notwithstanding any provisions to the contrary in any other part of this Lease, it is
understood and agreed to by Lessee that in the event a well or wells producing oil or gas in
paying quantities should be brought in on adjacent land not owned by Lessor, Lessee agrees to
drill the offset well or wells as a reasonably prudent operator would drill under the same or
similar circumstances. In addition to the covenant to protect the Land from drainage, if a well
producing oil or gas in paying quantities should be brought in on adjacent land not owned by
Lessor and within offset distance, as defined below, of any of the Land retained by Lessee, as to
which an offset well has not been or is not being drilled by Lessee, then Lessee, upon written
notice from Lessor, shall either drill an offset well on the Land, or within three (3) months after
receipt of the notice, Lessee shall surrender to Lessor the offset acreage, as define d below, which
offsets the producing well on adjacent land, or pay the compensatory damages provided below.
"Offset acreage", as used above, shall be a spacing unit so located and shaped as to dire ctly offset
the producing well on adjoining land; provided that if any part of the offset acreage should be
included in a spacing unit around a well drilled by Lessee and producing oil or gas from a
formation different than the formation from which the well on adjacent land is producing, then
Lessee shall in all events be entitled to retain the producing formation as t o the producing
spacing unit only in the offset acreage surrendered. "Offset distance", as used above, in the c ase
of an oil well shall be six hundred feet
(600') and in the case of a gas well shall be one thousand
two hundred-eighty feet
(1,280'). By " spacing unit", as used above, is meant the number of acres
prescribed by the Oil and Gas Commission, or other proper governmental authority, as the
minimum number of acres required for the production of the maximum allowable from a well in
the particular field and from the particular formation involved. Lessee shall not be re quired to
offset any gas well on adjacent land so long as the well remains shut in and the ga s from it is not
marketed. If Lessee should delay the drilling or the delivery of a release more than the period of
three (3) months, then Lessee shall pay to Lessor compensatory damages based on the royalty
provided in this Lease when applied to the total production from the well on adjacent land, from
the end of the three (3) month period until the date of delivery of the release or t he completion as
a dry hole or producer of the offset well, as the case may be.
8. ASSIGNMENTS
8.1 The rights and estates of either party may be assigned, in whole or in part, and t he
provisions of this Lease shall extend to and be binding on their heirs, legal representatives,
successors and assigns; but no change or division in the ownership of the Land, rentals or
royalties, however accomplished, shall operate to enlarge the obligations, or to diminish the
rights, privileges and estates of Lessee; and no assignment by Lessee and no assignment by any
immediate or remote assignee shall be effective without the prior written consent of Lessor.
Lessor shall be furnished with a copy of any assignment respecting the rights, privileges, and
estates granted to Lessee by this Lease. In determining whether or not to consent to a ny
proposed assignment, Lessor may consider, in addition to any other facts and circumstance s
deemed relevant by Lessor, Lessor's past experience with and the history, reputation, financia l
condition and demonstrated operating ability of both the proposed assignor and proposed
assignee. No change or division in the ownership of the Land, the rentals or royalties, however
accomplished, shall be binding on Lessee until thirty days after Lessee has been furnished wi th a
copy of a recorded instrument evidencing the change or division.
8.2 Even though Lessor has given written consent to any immediate or remote assignment,
liability for breach of or failure to perform any express or implied obligation or covenant unde r
this Lease shall rest on Lessee and all immediate, intermediate and rem ote
assignees, jointly and
severally.
9. SHUT-IN ROYALTY
9.1 If, at any time or from time to time, there is a well on any part of the L and as to which
this Lease is then in effect, capable of producing gas, condensate, or both, and the well is shut-in,
Lessee may pay annual shut-in royalty equal to the shut-in amount per acre on the number of
acres of the Land included in the gas unit on which the well is located or, if no gas unit
designation has been made, then on the number of acres which Lessee would be entitled to retain
around the well under the provisions of paragraph 6.1
(b) in case of partial termination. The first
annual payment shall be made within sixty days after the well is shut in and subseque nt
payments shall be made annually on or before the anniversary date of shutting in the well. While
the shut-in royalty is paid as provided in this paragraph, this Lease, insofar as it cove rs the gas
well and the acreage for which the payment is made, shall, subject to the other provi sions of this
Lease, remain in force and effect as though the well were producing gas, condensate, or both,
except after the Primary Term, Lessee shall not have the right to continue this Lease in force as
to any gas unit by payment of shut-in royalty for any single period of more than two successive
years or more than three years in the aggregate. Each payment shall be made t o the parties
entitled to receive royalties and may be made to the Depository Bank in the same manner as
provided in Section 5. The intermittent production of gas or condensate from the well during a
year for which shut-in royalty has been paid shall not render necessary any new or additional
payments of shut-in royalty with respect to the well, but Lessee shall account to the owners of
the royalty for the royalty on any gas or condensate so produced in accordance with the
provisions of this Lease pertaining to the royalty on ordinary production. This provision as to
payment of shut-in royalty is a condition and not a covenant, and the failure to pay a ny shut-in
royalty as provided in this paragraph, shall effect an automatic termination of this L ease as to the
well and acreage in the gas unit for which payment should have been made.
10. FORCE
MAJEURE
10.1All express or implied covenants of this Lease shall be subject to all valid federa l and
state laws, executive orders, rules and regulations and this Lease shall not be term inated, in
whole or in part, nor Lessee held liable in damages, for failure to comply with the se covenants, if
compliance is wholly prevented by, or if the failure is the result of, any such law, order, rul e or
regulation; except nothing in this paragraph shall be construed to suspend the payment of shut-i n
royalty or any other amount otherwise required to maintain this Lease in effect.
10.2 For Lessee to have any of its obligations under this Lease suspended by the force
majeure provisions provided in 10.1 above, Lessee must provide Lessor written notice of the
event claimed to give rise to a suspension of Lessee’s obligations, and the date the claimed event
occurred, and the expected duration of the suspension. In no event shall an event of force
majeure be recognized as being for a duration of more than thirty (30) days, unless Lessee
provides Lessor an additional notice specifying the reason the Lessee’s obligations should be
suspended for a time period in excess of thirty (30) days.
11. WARRANTY
11.1 Lessor hereby warrants and agrees to defend the title to the oil and gas in and under
the Land against the lawful claims and demands of all persons claiming by, through or under
Lessor, but not otherwise, but Lessor's liability in case of the failure of title to a ny portion of the
oil and gas shall be limited to that part of the cash bonus consideration, and shut-in pa yments (all
without interest), actually received by Lessor and applicable to the interest as to which the failure
occurs. Without impairment of Lessee's rights under the warranty in case of failure of ti tle, if
Lessor owns an interest in the oil and gas in and under the Land, less than the enti re fee simple
estate, then the rentals and royalties provided for in this Lease shall be reduced proport ionately.
Lessee, at Lessee's option, may purchase and discharge, in whole or in part, any valid t ax lien on
the Land and thereupon be
subrogated to the rights of the holders of the lien and may apply
royalties and other payments accruing under this Lease toward satisfying the lien or toward
reimbursing Lessee.
12. ABSTRACTS
12.1 Lessee, at Lessee's expense, shall have supplemented to the date of this Lease , Lessor's
abstracts of title covering the Land. Lessee shall have thirty (30) days after receipt of a complete
abstract of title covering the Land in which to examine title,
furnish Lessor a title opinion setting
out in writing any objection to title and return the abstracts to Lessor.
12.2 While this Lease is in effect as to any or all of the Land, Lessee will from time to time
at Lessor's request, obtain, pay for, and deliver to Lessor additional connecting supplementa l
abstracts covering all of the Land to a date specified by Lessor, and in any event, whether or not
requested by Lessor, Lessee will, on termination of this Lease as to all of the Land, obtain, pay
for, and deliver to Lessor, any additional supplemental abstract required to provide compl ete
abstracts covering the Land down through the date of filing for record the release which
evidences complete termination of the Lease. In lieu of requesting or waiting on Le ssee to
furnish abstracts, Lessor may elect to obtain and pay for them, in which case Lessee will, on
demand, reimburse Lessor for the expense of doing so.
12.3All abstracts required by this Section shall be prepared by a reputable abstractor and
shall become the property of Lessor. No complementary abstracts shall be furnished.
13. WATER
13.1 Lessee shall have such use, if any, of water from the Land as may be acquired by
separate written agreement with the owner of the surface estate; otherwise by this Lease, Lessee
does not (expressly or by implication or by operation of law) acquire any title to or right t o use
for any purpose, any water, mineral, or substance other than oil and gas as defined in this Lease.
By this Lease, Lessee does not acquire the right to reinject salt water.
13.2 Unless a different arrangement is made with the surface owner in writing, any water
well which Lessee is permitted to drill shall be cased from top to bottom; t he surface pipe shall
extend two feet above the surface of the land and shall be enclosed in concrete ei ther two feet
square or two feet in diameter in the form of a circle with sufficient length of t he pipe protruding
above the enclosure to facilitate installation of connections or well equipment . On termination of
Lessee's use of a well, the well shall be capped-off and turned over to the surface owner by
written notice, and the well and casing shall become the property of the surface owner and shall
be left by Lessee in the same condition as when water was last obtained from it by Lessee,
except no wellhead equipment or pumps need be left.
14. SURFACE USE
14.1 The provisions of this Section 14. are for the benefit of Lessor, any owner of the
surface estate of the Land (including Lessor, if applicable) and any surface tenant, as their
interests may appear. When these provisions require or permit any notice by or to Lessor or the
exercise of any right or privilege by Lessor, the surface owner is entitled to the same rights with
respect to notice and is entitled to exercise the same rights and privileges.
14.2 Lessee shall pay reasonable sums for all damages to the Land and anything located on
the Land, including, but not limited to grasses, crops, improvements, and livestock, a nd for use
of roads to the extent permitted by this Lease, and for Land occupied by Lessee's facili ties, and
for interference with and interruption of livestock and other agricultural operations resul ting
from Lessee's operations. Any livestock found dead or injured on the Land from other than
natural causes shall be presumed to have been killed or injured by Lessee's operations, unl ess it
is affirmatively shown that the death or injury was otherwise caused.
14.3 Lessee will use only the entrances and roadways for entering and leaving the Land and
will use only the routes in going on, over, or about the Land as are designated by Lessor in
writing for Lessee's normal Lease use. Lessor may prohibit Lessee's use of certain roads, but
agrees, on request and in consultation with Lessee, to designate reasonable routes for Lessee 's
purposes consistent with terrain, preservation of improvements, and the conduct of ranching
and/or agricultural operations, although Lessee may be required to construct new roads.
14.4 New roads may be opened
by Lessee only on written concurrence of Lessor noted on a
survey plat of the road showing its location by a legally sufficient
centerline description. All
new roads shall be straight and parallel to survey lines to the extent the terrain reasonably
permits.
14.5 All roads, existing or new, used by Lessee shall be surfaced by Lessee with a
compacted layer of
caliche at least six inches thick which shall be maintained at that thickness so
long as used by Lessee, shall be watered by Lessee from time to time as rea sonably requested by
Lessor to inhibit blowing dust, and shall otherwise be maintained by Lessee in good repair free
of rocks and ruts to the reasonable satisfaction of Lessor. Lessee will construct diversion
terraces as may be reasonably necessary to prevent soil erosion. Lessee shall install adequate
bridges or culverts wherever any new road crosses a natural stream or drainage area, and all
roads and any pipelines laid by Lessee shall be so constructed and laid as not to int erfere with the
natural flow of surface waters or with drainage. Use of roads shall be confined to Lease
operations and to the use of Lessor, the surface owner and surface tenants; except other mi neral
Lessees may now have or acquire the right to use some or all of the roads incident to their
operations. With Lessor's consent, Lessee may postpone the use of caliche on a lateral road until
production is obtained from a well served by the road.
14.6 Any exterior gate which Lessee is permitted to utilize will be kept closed (and if
required by Lessor, will be kept locked) by Lessee except during actual passage through it. Any
interior gate which Lessee is permitted to utilize will be left open or cl osed as found by Lessee.
No livestock will be permitted to pass through any gate opened by Lessee. If requested by
Lessor, Lessee will install Lessee's locks on specified gates used by Lessee and keep t hem
locked, furnishing keys only to Lessee's authorized representatives.
14.7 Lessee shall never obtain or assist anyone else to obtain or have designated a public
road across the Land.
14.8 Lessee will not cut or go over any fence without the prior written consent of Lessor,
which consent shall not be unreasonably withheld. Any cut must be made at the place
designated by Lessor. Prior to cutting any fence, Lessee will brace the fence adequatel y on both
sides of the proposed cut so that when the cut is made there will be no slackening of the wires.
Lessee will install in any cut either one or the other of the following as direct ed by Lessor:
(i) a
substantial metal gate; or,
(ii) a heavy duty cattleguard, the design of which will be supplied by
Lessor, at least fourteen feet wide and an adjacent wire gap fifty feet wide t o allow livestock and
equipment to bypass the
cattleguard. After installation of gates, cattleguards, or wire gaps,
fences shall be stretched tight and anchored with good corners and
deadmanned with "H" frames
aligned with the fence and constructed of ten inch casing cemented three feet dee p into the
ground with the tops capped or bull-nosed. All
cattleguards shall be constructed so that their
edges or ends rest on adequate concrete footings. At the conclusion of operations, gates,
cattleguards and wire gaps will be left in place and become the property of the surface owner or,
at Lessor's option, Lessee will remove them and restore the fence to its original condition.
14.9 Lessee will notify Lessor at least three days (exclusive of Saturdays, Sundays and
legal holidays) prior to commencement of all exploration, drilling, plugging, electric line
construction or pipeline construction operations, and with reasonable notice prior to
commencement of any logging, testing and coring operations, specifying the approximate dat e
and time of commencement, and the nature and location of the operations. No facilit ies required
for any operation permitted under this Lease shall be commenced, placed, erect ed, or constructed
until Lessor and Lessee have conferred and mutually selected the site or sites for l ocation of the
facilities, taking into consideration use of the Land for ranching and/or agricultural ope rations
and Lessee's needs in conducting operations under the Lease in a reasonable manner.
14.10 All of Lessee's facilities, including pits, will at all times be enclosed by a net wire
fence topped by at least two strands of barbed wire and capable of turning livestock of any a ge
and completely excluding them from the enclosure at all times until the faci lities are abandoned
and the site returned to its natural state. No substance or fluid used in connect ion with or
resulting from Lessee's operations shall be allowed to remain in surface pits for any substantial
length of time and any pit used for this purpose shall be lined, constructed and mainta ined so as
to prevent escape of any of these substances or fluids by leakage, seepage, or overflow. Lessee
is an insurer of the risk of death, damage, or injury to livestock resulting from lack of an
enclosure or failure to exclude livestock from the enclosure or from ingesting or
exposure to any
fluid or substance which escapes the enclosure. When the facilities are abandoned by Le ssee,
Lessee will remove the fence or leave it in place, as Lessor elects, and if Lessor elects to have the
fence left in place, it will become the property of the surface owner when the faci lities have been
abandoned and the site otherwise returned to its natural state.
14.11 At each stage of Lessee's operations, Lessee will maintain the site of operati ons in a
neat, orderly, safe condition, free of litter and free of all objects not reasonably nec essary to
Lessee’s operations. On abandonment of any site, operation, or road, Lessee will notify and
confer with Lessor, and except to the extent Lessor waives, in writing, Lessee's obligati on to do
so, the site or road will be cleaned, all mounds will be leveled and all pits, ruts, and other
excavations (after being allowed to dry out) will be filled, leveled and smoothed, all
caliche will
be removed from the site or road and the site or road will be seeded with grass of the surfa ce
owner's choice and otherwise returned to its natural state.
14.12 Nothing will be brought on or removed from the Land nor any activity engaged in on
the Land nor will anyone go anywhere on the Land except as directly and necessarily requi red in
carrying on Lessee's operations. If, for sufficient cause shown by Lessor, any of Lessee's agents,
employees or independent contractors are or become objectionable to Lessor, Lessor may give
written notice to Lessee, and if Lessee does not voluntarily remove or exclude them from the
Land within ten days after receipt of the notice, Lessor shall have the right to e ject and exclude
them from the Land. No firearms shall be brought on the Land. Anyone found on the Land in
possession of firearms may be summarily ejected from and thereafter excluded from the L and.
Any vehicle found on the land containing firearms may be (with its occupants) summarily
ejected from and thereafter excluded from the Land.
14.13 Except where some other provision of this Lease requires Lessee to leave Lessee's
property or fixtures (including casing) in place on the Land, Lessee shall have the right, a t any
time during or within ninety (90) days after the expiration or termination of this Lease , to remove
all property and fixtures placed by Lessee on the Land, including the right to draw and re move
all casing. Any of Lessee's property left on the Land at the expiration of ninety (90) days after
the expiration or termination of this Lease as to that part of the Land on which the property of
Lessee is located, shall be and become the property of the Lessor, but this provision shal l not
relieve Lessee of the continuing duty to remove the property at Lessee's expense, unless Le ssor
agrees in writing to waive the requirement of such duty.
14.14 Without the prior written consent of Lessor, no well shall be drilled within 1,000 feet
of any residence or barn on the Land. No well shall be drilled during deer or turkey season, as
such seasons are established each year by the applicable State or Federal agenc y which has
regulatory authority over such matters.
14.15 Except as provided for in this Lease, or as may be directed by Lessor, all pipeline s
shall be placed on top of the ground. All pipelines laid by Lessee which are located on presently
cultivated areas of the Land shall be buried below plow depth (considered to be at le ast thirty-six
inches below the surface). At any time required by Lessor, any pipeline which makes a road
crossing will be buried under such crossing at least twenty-four inches below the surface of the
ground. After installation, replacement, or repair, the area occupied by all buried pipel ines shall
be
backfilled and tamped, and otherwise restored as nearly as practical to its condition prior t o
installation, replacement, or repair, utilizing the "double ditch" method. No rock whic h is
uncovered, turned or moved as a result of Lessee's operations, shall be left exposed on the
surface but will be removed by Lessee to sites selected by Lessor, placed in laye rs with filler of
caliche or other soil between each layer with each layer being tapered to its center and with a
layer of topsoil placed as a cap over the entire mound. The mound shall be shaped to allow an
ordinary passenger vehicle to pass over it and shall be placed so as to avoid soil erosion by
water. Topsoil designated by Lessor and available within reasonable haul distance from the
construction site shall be used and at Lessor's option will be taken so as to leave a dirt tank for
holding water. The site from which topsoil is removed shall be
backdressed and left in a
condition reasonably susceptible to
returfing. Any pipeline not required to be buried will,
nevertheless, be suitably covered at all road crossings and at reasonable intervals i n pastures as
requested by Lessor, so as to permit ordinary passenger vehicles to pass over the pipeline.
14.16 On completion of a dry hole or termination of production from a well, Lessee shall
plug the well in the manner provided by law and in the manner reasonably necessary to prote ct
and preserve fresh water strata.
14.17 All location pads will be constructed in a first class manner on a compacted
caliche
base at least six inches thick and large enough for all equipment and vehicles t o work on, and
each pad will be maintained as a first class oil field
caliche pad until the location is returned to its
natural state and abandoned, except with Lessor's consent, Lessee may postpone the use of
caliche on the pad until production is obtained from the well located on the pad.
14.18 At Lessor's option, all
caliche used on the Land will be purchased from and obtained
from pits designated by Lessor. The pits designated shall be the open pits nearest the poi nt of
use, or new pits which Lessor elects to open at no greater distance from the point of use.
14.19 All travel shall be confined to roads and no off-road travel is permitted. During
muddy weather, a drill site will not be established nor will a rig be moved in or out unless an all
weather road has been previously established.
14.20 Without Lessor's prior written consent, including the arrangements for compensation
and
indemnification of Lessor as Lessor may require, no explosives will be detonated on the
Land and no seismic operations will be performed on the Land.
14.21 Lessee agrees that all
