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Page 1 of 8 LEASE OPTION AGREEMENT(Covering a Large Area) This Lease Option Agreement (the “Agreement”) is made and deemed effective the ______ day of ______, ______ (the “Effective Date”) between (Name and Address) (the “Owner”), and (Name and Address), (the “Lessee”). Owner and Lessee may be referred to collectively as the “Parties,” or individually as a “Party.” The Parties desire to enter into this Agreement to provide for the exploration, development, production, and storage of oil and gas and certain other substances from lands i n which Owner claims, or may own, an interest. In consideration of the payment of $______ cash, the receipt of which is acknowledged, and the covenants contained in this Agreement, Owner and Lessee agree as follows: 1. Definitions. As used in this Agreement, the following words and term shall have the following meanings: (a) Hydrocarbons shall mean (i) crude oil, natural gas, casinghead gas together with other gaseous or liquid hydrocarbon substances, and all other mineral substances, including sulphur, produced in association with gaseous or liquid hydrocarbon substances; and, (ii) helium and carbon dioxide and mineral substances produced in association with helium and carbon dioxide. Hydrocarbons shall not include coal or lignite. It is expressly agreed that Lessee shall have the right to the use of water from the Subject Lands to the extent permitt ed by law in connection with its Exploration Activities, as defined, as Lessee deems necessary. (b) Subject Lands shall mean all lands in which Owner claims or may own an intere st in the Surface Estate and Hydrocarbons as of the date of this Agreement which are not now subject to any valid and subsisting lease pertaining to the Surface Estate or Hydroca rbons, including, but limited to, those lands described on Exhibit “A” to this Agreement. Subj ect Lands shall also include any of such lands which are now subject to valid leases pertaining t o the Surface Estate or Hydrocarbons at such time as the existing leases expire or otherwise t erminate, which lands are to be described on Exhibit “B,” which Owner shall prepare within thirty (30) days of the Effective Date of this Agreement. (c) Exploration Activities shall mean oil and gas industry generally accepted m ethods of all surface or subsurface geological and geophysical work, including, but not limited to fi eld sampling, photogeology, seismic surveys, gravity surveys, magnetic surveys and any similar geophysical surveys or studies, core drilling, and the drilling, testing, completing, and equipping of an oil and/or gas or injection well. (d) Exploration Reports shall mean the logs, test reports, surveys, and other reports resulting from the performance of Exploration Activities.(e) Option Period shall mean a period commencing on the Effective Date of this Agreement and ending on the ______ anniversary of that date. Page 2 of 8 2. Title to Subject Lands. (a) Owner does not warrant title or quiet enjoyment to of any of the Subject Lands or any interest in the Subject Lands. In the event Lessee does not elect to defend t itle to Subject Lands in any action brought by a party claiming an interest adverse to the rights grant ed to Lessee in this Agreement, the lands subject to such action shall automatically be deleted from this Agreement. The provisions of this Section 2 (a) shall survive the termination or canc ellation of this Agreement. (b) Owner shall make available to Lessee, on its request during the term of this Agreement, those documents within its control which relate to Owner’s interest in the Surface Estate and Mineral Estate in the Subject Lands. Lessee shall notify Owner prior to undertaking any title curative action with respect to the Subject Lands. Lessee’s obligati ons under this Agreement shall remain in full force and effect notwithstanding any clams of paramount title to the Subject Lands by any third party. If it is determined that Owner has received payment s from Lessee by the terms of a lease entered into pursuant to this Agreement, to which Owner was not entitled because Owner’s title to the Subject Lands has been determined to be deficient, then Owner shall reimburse Lessee for such payments as Lessee is required to reimburse third partie s with superior title. Owner shall provide to Lessee, to the extent possible, a descripti on of all Subject Lands owned by Owner within thirty (30) days of the Effective Date of this Agreement and Exhibit “A” shall be amended accordingly. 3. Sales and Exchanges of Subject Lands. Owner shall have the right to terminate this Agreement as to any of the Subject L ands, whether or not subject to a lease issued under the terms of this Agreement, at the time of a sale or exchange of the lands, subject to the following conditions: (a) In the case of sales, in the event Owner receives a bona fide offer to purchase a parcel or parcels of the Subject Lands, Owner shall notify Lessee of the parcel or parce ls Owner desires to sell and the terms and conditions of the bona fide offer. Lessee shall have t he right to purchase the parcel or parcels on the same terms and conditions as set forth in the bona fide offer; this right to be exercised within ______ days of receipt of written notice of those te rms and conditions. If Lessee shall not affirmatively exercise the right to purchase the parcel or parcels on the same terms and conditions set forth in the notice, then the affected pa rcel or parcels shall, effective upon the completion of the sale on the terms contained in the written notice to Lessee, no longer be subject to the terms of this Agreement. If the terms and conditions of the offer are amended so that they are less advantageous to Owner, then Owner shall re-offer the right to purchase to Lessee on the revised terms and conditions. The right and obligation of Lesse e to purchase, described above, shall include all lands included in a particular transact ion, whether or not all of the lands are included in the Subject Lands. (b) In the case of exchanges, in the event Owner enters into a bona fide exchange agreement relating to a parcel or parcels of the Subject Lands, Owner shall notify L essee of the parcel or parcels Owner desires to exchange and the value established for the exchange (the Page 3 of 8 “Exchange Value”) of the parcel to be exchanged. Lessee shall have the right to purchase the parcel or parcels at the Exchange Value, the right to be exercised within ______ days of re ceipt of written notice of the exchange offer. If Lessee shall not affirmatively exercise t he right to purchase the parcel or parcels at the Exchange Value as set forth in the notice , then the affected parcel or parcels shall, effective on the completion of the exchange, no longer be subjec t to the terms of the Agreement. Any lands Owner receive in return for an exchange of the Subject Lands to a third party, shall automatically become part of the Subject Lands and subject to this Agreement at the time acquired by Owner. (c) As to any lands deleted from this Agreement pursuant to the provisions of Section 3(a) or 3(b), Lessee shall deliver to Owner a valid release of Lessee’s entire intere st in those lands. 4. Exploration Rights. (a) Owner grants to Lessee the exclusive use of whatever rights it may have to conduct Exploration Activities on the Subject Lands for storage or Hydrocarbons on such portions of the Subject Lands which are not improved with structures, but only to the extent such grant of rights is consistent with the rights of third parties using or occupying any portion of the Subject Lands pursuant to an agreement with Owner entered into prior to the Effective Dat e of this Option. The grant of rights pursuant to this Section shall commence on the Effective Date and continue until termination of the Option Period. Lessee shall be responsible for the performance of all obligations to third parties which arise out of or result from Lessee’s exe rcise of Owner’s rights to conduct Exploration Activities. (b) During the Option Period, Owner shall not grant or convey to any third party, other than to Lessee or its affiliates or their respective successors or assigns, any options, licenses, or leases or any other character of interest for the development, or storage of production of Hydrocarbons from beneath the Subject Lands; provided, however, that nothing in this Agreement shall prevent Owner, its lessees, licenses, other assignees and agents from exploring for, developing, mining, producing, or processing any material or substances, excluding Hydrocarbons, on the Subject Lands. Owner agrees that it will not grant any renewals or extensions of any currently existing options, licenses, or leases regarding the development or production of Hydrocarbons on the Subject Lands. 5. Exploration Reports. (a) Lessee agrees to make Exploration Reports pertaining to the Exploration Activities of Lessee on the Subject Lands available for inspection by Owner at Lessee ’s principal place of business on written notice within a reasonable time following completion of a project. Owner shall not disclose Exploration Reports to third parties without the prior written conse nt of Lessee. Notwithstanding the foregoing, Lessee shall not be required to disclose to Owner any Exploration Reports or information obtained from third parties who have limited or prohibite d any further release by Lessee. All of Lessee’s proprietary rights to the Exploration Re ports shall remain in Lessee until such time as Lessee shall elect to surrender same. All trading rights with respect to Exploration Reports shall remain the exclusive property of Lessee. Lessee shall Page 4 of 8 require that any person to whom Lessee discloses data or information derived from or concerning the Subject Lands maintain the confidentiality of the data or information. The duties of non- disclosure and confidentiality shall survive the termination or cancellation of this Agreement. (b) Lessee will deliver to Owner, on written request, copies of reports concerning the Subject Lands which it files with governmental authorities. 6. Option to Lease. (a) Owner grants to Lessee an exclusive continuing option, exercisable at any time and from time to time during the Option Period, to acquire oil and gas or gas and/or stora ge leases as to all or any portions of the Subject Lands for its own behalf or for third part ies. Leases on the Subject Lands shall be substantially in the forms attached as Exhibit “C ”; provided that oil and gas leases granted to third parties, at Lessee’s request, may be at a royal ty of less than ______ (______) if Lessee determines that such lesser royalty is necessary to encourage exploration and operations on the Subject Lands. (b) Each lease to be granted to Lessee shall be granted by Owner within __________ days of Lessee’s written request for the lease. For each lease Lessee shall pay Owner a one-time bonus consideration of $______ per net acre covered by the lease. The bonus payment shall accompany Lessee’s counter-executed copy of the lease on its return to Owner. (c) Each lease shall be subject to all recorded deeds, leases, contracts, easeme nts, and interests in effect on the date of issuance of each lease. In view of possible multipl e use aspects of the Subject Lands, on Lessee’s written request for a lease or on written notificati on that Lessee or its assigns intends to perform Exploration Activities on the Subject Lands, Owner shall promptly notify Lessee in writing of any special unrecorded restrictions or other information involving any portion of the Subject Lands. In the event that a portion of the Subject Lands a re maintained by Owner for purposes of conducting its primary and active business operations, Owner may so designate and reasonably restrict drilling operations or any other Exploration Activities on the lands which are inconsistent with Owner’s primary and active business operations or existing improvements on those lands. Should a written response from Owner not be received with __________ days of Lessee’s lease request, Lessee will proceed with it s further activities as if no such special unrecorded restrictions apply to the Subject Lands. (d) All leases granted by Owner may, for recording purposes only, be reduced to memorandum, which memorandum shall be recorded in the appropriate records of the county where the leased Subject Lands are located. (e) Lessee will be responsible for the filing of all lease memorandum and for the payment of filing fees and will furnish Owner with the recording information. 7. Surrender of Subject Lands. Lessee may, at any time, surrender its rights under this Agreement with respect to any or all of the Subject Lands. The surrender of Subject Lands shall be effective on the del ivery of Page 5 of 8 Owner of: (i) a notice of surrender; and, (ii) a valid release of Lessee’s entire interest in the surrendered Subject Lands in a form suitable for recording in the county where the surrendered lands are located. The notice of surrender shall contain a legal description of the surrendered Subject Lands. 8. Conduct of Exploration Activities. (a) Lessee acknowledges that Owner, its lessees, licensees, other assignees or agents, may from time to time conduct exploration, development, mining, production, or drilling operations on the Subject Lands for materials or substances other than Hydrocarbons. Lessee and Owner agree that all Exploration Activities shall be conducted so as not to interfere unreasonably with the operations of the other on the Subject Lands. On Lessee’s written re quest, Owner shall provide Lessee with access to copies of any presently outstanding contracts, le ases, or licenses involving exploration, development, mining, or production on any portion of the Subject Lands for materials or substances other than Hydrocarbons. (b) Lessee shall notify Owner at lease ______ days prior to commencement of Exploration Activities involving on-the-ground operations on the Subject Lands. The notice shall specify the Subject Lands on which the Exploration Activities are to be c onducted and the identity of the person which will conduct the Exploration Activities. 9. Indemnity. (A) LESSEE SHALL DEFEND, INDEMNITY, AND HOLD OWNER HARMLESS FROM AND AGAINST ALL DEMANDS, LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, CAUSES OF ACTION AND PROCEEDINGS, AND ALL COSTS AND EXPENSES INCURRED BY OWNER IN CONNECTION THEREWITH, EXCEPT AS TO CURING OF TITLE MATTERS NOT REQUESTED BY LESSEE, INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS’ FEES, COURT COSTS, AND COSTS OF DEPOSITIONS, TRANSCRIPTS, EXPERT WITNESSES, AND PRINTING IMPOSED ON OR INCURRED BY OR ASSERTED AGAINST OWNER OR OWNER’S INTERESTS ARISING OUT OF ANY ACT OR OMISSION BY ENERGY OR ANY PERSON ACTING FOR, OR ON BEHALF OF, LESSEE WITH RESPECT TO THIS AGREEMENT, INCLUDING ANY LIABILITY ARISING OUT OF OWNER’S POSSIBLE NEGLIGENCE. IN CASE ANY ACTION, SUIT, OR PROCEEDING IS BROUGHT AGAINST OWNER BY REASON OF ANY ACT OR OMISSION OF LESSEE, OWNER WILL NOTIFY LESSEE OF SUCH ACTION, SUIT OR PROCEEDING AND LESSEE MAY, AND ON OWNER’S REQUEST, SHALL, WITHOUT EXPENSE TO OWNER, RESIST AND DEFEND SUCH ACTION, SUIT OR PROCEEDING, OR CAUSE THE SAME TO BE RESISTED AND DEFENDED BY COUNSEL DESIGNATED BY LESSEE AND APPROVED BY OWNER. (B) OWNER SHALL DEFEND, INDEMNIFY, AND HOLD LESSEE HARMLESS FROM AND AGAINST ALL DEMANDS, CAUSES OF ACTION AND PROCEEDINGS, AND ALL COSTS AND EXPENSES INCURRED BY LESSEE, IN Page 6 of 8 CONNECTION THEREWITH, EXCEPT AS TO CURING OF TITLE MATTERS NOT REQUESTED BY OWNER, INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS’ FEES, COURT COSTS AND COSTS OF DEPOSITIONS, TRANSCRIPTS, EXPERT WITNESSES AND PRINTING IMPOSED ON OR INCURRED BY OR ASSERTED AGAINST LESSEE OR LESSEE’S INTERESTS ARISING OUT OF THE SOLE, ACTIVE NEGLIGENCE OR WILLFUL MISCONDUCT OF OWNER OR ANY PERSON ACTING FOR, OR ON BEHALF OF OWNER WITH RESPECT TO THIS AGREEMENT. IN CASE OF ACTION, SUIT, OR PROCEEDING IS BROUGHT AGAINST LESSEE BY REASON OF THE SOLE, ACTIVE NEGLIGENCE OR WILLFUL MISCONDUCT OF OWNER, LESSEE WILL NOTIFY OWNER OF SUCH ACTION, SUIT, OR PROCEEDING AND OWNER MAY, AND ON LESSEE’S REQUEST, SHALL, WITHOUT EXPENSE TO LESSEE, RESIST AND DEFEND SUCH ACTION, SUIT OR PROCEEDING, OR CAUSE THE SAME TO BE RESISTED AND DEFENDED BY COUNSEL DESIGNATED BY OWNER AND APPROVED BY LESSEE. OWNER’S OBLIGATIONS UNDER THIS SECTION 8(B) SHALL NOT EXTEND TO ANY PERSON OTHER THAN LESSEE WHICH OTHER PERSON EXERCISES THE RIGHTS OF LESSEE UNDER THIS AGREEMENT OR IS AN ASSIGNEE OF LESSEE’S RIGHTS UNDER THIS AGREEMENT.(C)(1) THE INDEMNITOR’S OBLIGATIONS TO INDEMNIFY UNDER SECTION 8(A) OR (B) SHALL NOT EXTEND TO LIABILITY, CLAIMS, DAMAGES, LOSSES, OR EXPENSES, INCLUDING ATTORNEYS’ FEES, ARISING OUT OF (I) THE PREPARATION OR APPROVAL OF MAPS, DRAWINGS, OPINIONS, REPORTS, SURVEYS, CHANGE ORDERS, DESIGNS OR SPECIFICATIONS BY INDEMNITEE, OR THE AGENTS OR EMPLOYEES OF THE INDEMNITEE; OR, (II) THE GIVING OF OR THE FAILURE TO GIVE DIRECTIONS OR INSTRUCTION BY THE INDEMNITEE, OR THE AGENTS OR EMPLOYEES OF THE INDEMNITEE, WHERE SUCH GIVING OR FAILURE TO GIVE DIRECTIONS OR INSTRUCTIONS IS THE PRIMARY CAUSE OF BODILY INJURY TO PERSONS OR DAMAGE TO PROPERTY. (2) THE INDEMNITOR SHALL HAVE NO OBLIGATION UNDER SECTIONS 8(A) OR (B) TO INDEMNIFY THE INDEMNITEE AGAINST LOSS OR LIABILITY FOR DAMAGES FOR: (I) DEATH OR BODILY INJURY TO PERSONS; (II) INJURY TO PROPERTY; (III) ANY OTHER LOSS, DAMAGE OR EXPENSE ARISING UNDER (I) OR (II) OR BOTH; OR, (IV) ANY COMBINATION OF THESE, ARISING FROM THE SOLE NEGLIGENCE OF THE INDEMNITEE OR ANY INDEPENDENT ARISING FROM THE SOLE NEGLIGENCE OF THE INDEMNITEE OR THE AGENTS OR EMPLOYEES OF THE INDEMNITEE OR ANY INDEPENDENT CONTRACTOR WHO IS DIRECTLY RESPONSIBLE TO THE INDEMNITEE, OR FROM ANY ACCIDENT WHICH OCCURS IN OPERATIONS CARRIED ON AT THE DIRECTION OR UNDER THE SUPERVISION OF THE INDEMNITEE OR AN EMPLOYEE OR REPRESENTATIVE OF THE INDEMNITEE OR IN ACCORDANCE WITH METHODS AND MEANS SPECIFIED BY THE INDEMNITEE OR EMPLOYEES OR REPRESENTATIVES OF THE INDEMNITEE. Page 7 of 8 10. Term. This Agreement shall remain in effect for the Option Period unless terminated sooner by mutual agreement of the Parties. Termination of this Agreement shall not affect any rights or obligations accruing prior to the termination nor the validity of any lease granted prior to the termination. 11. Relationship of the Parties. For purposes of this Agreement, Lessee shall be acting independently of Owner and shall in no way be considered an employee, agent, joint venturer, or partner of Owner. This Agreement shall supersede any and all prior agreements between the Parties relati ng to storage rights and Hydrocarbons. 12. Choice of Law and Forum. This Agreement and all matters arising out of or relating to this Agreement shal l be governed and construed according to the laws of the state in which the Subject Lands are located. 13. Waiver. Failure by Owner or Lessee to enforce any provisions of this Agreement shall not constitute a waiver of rights. All waivers shall be in writing, identified as a waive r, designate the right waived, and be signed by the waiving Party. 14. Successors and Assigns. This Agreement shall inure to and be binding on the successors and assigns of the Parties. Owner and Lessee may assign their interest under this Agreement, in whole or in part , provided, however, that Owner or Lessee shall provide notice of any assignment to the other Party wi thin a reasonable period of time after assignment. 15. Section Headings. All headings of the Sections in this Agreement have been inserted for convenience only, are not a part of this Agreement, and shall in no way affecting the interpretation of any provision of this Agreement. 16. Recording of Memorandum of Agreement. This Agreement shall, at the option of Lessee be reduced to a memorandum, which memorandum shall be executed and acknowledged by the Parties and recorded in the records of the counties where the Subject Lands are located. 17. Notices. Page 8 of 8 Notices or other communications required or permitted shall be deemed to have properly been given or delivered when delivered personally or when sent by Certified Mail, Return Receipt Requested, or telegraphed with all postage and charges prepaid to the Part ies at the following addresses: If to Owner: If to Lessee: Owner and Lessee have caused this Agreement to be duly executed as of the date of the ir respective acknowledgments, but shall be effective as of the Effective Date stated above. Owner Lessee (Acknowledgments) [Exhibit “A”: Description of Subject Lands] [Exhibit “B”: Expiration or Termination of Existing Leases on Subject Lands] [Exhibit “C”: Form of Leases on Subject Lands]