Fill and Sign the Underground Storage Lease and Agreementus Legal Forms

Page 1 of 7 UNDERGROUND STORAGE LEASE AND AGREEMENT This Underground Storage Lease and Agreement (the “Storage Agreement” or “Agreement”) is entered into effective _____ (the “Effective Date”), between _____ (the “Lessor”), whose address is _____, and _____ (the “Lessee”), whose address is _____, and its successors and assigns. Lessor is the owner of the surface of the Property described in Exhibit “A.” The owner of the surface is deemed to have the right to store and make use of subsurface stratas, formations, and depths to deposit, store, and sequester non-hydrocarbon substances, both in liquid and gaseous forms (referred to in this Agreement as “Substances”). Deeming itself to have the right of storage and sequestration, Lessor enters into this Agreement with Lessee on the following terms: 1. Grant of Lease: Lessor, for and in consideration of the payments provided below, the receipt and sufficiency of which is acknowledged, leases to Lessee, and Lessee le ases from Lessor, the exclusive right, on the terms and conditions of this Agreement, to inject a nd store Substances in and withdraw and remove Substances from the depths, zones or formations underlying the surface of the lands described in Exhibit “A” (the “Property”). The depths, zones and formations are referred to in this Agreement as the “Storage Reservoir.” Lessee is also granted all rights incident to the injection, sequestration, storage, withdrawal, and re moval of Substances into and from the Storage Reservoir. 2. Rent and Signing Bonus: On execution and delivery of this Agreement by Lessor to Lessee, Lessee shall pay to Lessor a signing bonus in the amount of $_____. a. The bonus consideration provided above shall be deemed to be the full payment of bonus and rents for the initial terms of this Lease, as defined in paragraph 3. below. 3. Term: This Storage Agreement shall be for a term of five (5) years (the “Initial Term”) from and after the Effective Date of this Agreement, and so long as the Storage R eservoir is used for storage of Substances with no continuous period of non-use of two (2) consecutive years. The term “non-use” as used in this paragraph shall mean both no injection of non-hydrocarbon substances into and no withdrawal of Substances from the Storage Reservoir. Non-use shall not be deemed to have occurred if there was either injection of Substances into or wit hdrawal of Substances from the Storage Reservoir within the relevant period. Nothing in this paragraph or Storage Agreement shall obligate or require Lessee to use or continue to use the Storage Reservoir. Lessee shall notify Lessor in writing of the existence of any continuous period of non-use of two (2) or more consecutive years. Lessee shall be entitled to extend this Storage Agreement beyond the Initial Term for two (2) additional five (5) year terms, on the same terms and conditions set forth in this Agre ement except for rental, by delivering written notice of its intent to extend to L essor not sooner than one (1) year and not later than three (3) months prior to expiration of the Initial five (5) yea r term or Page 2 of 7 the first extended term. If Lessee sends written notice of intent to extend to Lessor, Lessee and Lessor shall meet and endeavor in good faith to negotiate a new fair market renta l for the extended term within a period of thirty (30) days following Lessor’s receipt of Lessee’s notice of intent to extend. If Lessee and Lessor do not meet or cannot agree on a fair market re ntal for the extended term within that thirty (30) day period, the fair market rental shall be established by arbitration in the manner set forth in paragraph 19 below. 4. Limits on Use of Surface: Lessee is granted the right to make use of the surface of the lands for the purposes of storing Substances in the Storage Reservoir. Lessee will consult with Lessor concerning the planned use of the surface of the lands for purposes of roads, wells, and facilities, and Lessor and Lessee will agree on the location of all roads, wells, and facilities; it being the intent of Lessee to limit its use of the surface to accommodate L essor’s use of the surface of the lands. 5. Lessee Indemnity and Restoration: a. Lessee shall defend, indemnify, and hold harmless Lessor, from and against any and all claims, demands, losses, damages, liabilities, fines, charges, penalties, administrative and judicial proceedings and orders, judgments, remedial actions of any kind, and all costs and expenses incurred, including without limitation, reasonable attorneys’ fees and costs of defense arising, directly or indirectly, in whole or in part, out of Lessee’s activities on the Property or resulting from Lessee’s facilities placed on the Property, for any reason whatever and without limitation, except to the extent arising from or caused by the intentional or wil lful misconduct or sole negligence of the Lessor. b. Cleanup. Lessee agrees to be responsible for any cleanup, in accordance with any applicable local, state or federal laws, rules or regulations, of the Property resulting from the introduction of substances by Lessee which are defined as of the date of this Agreement i n the Resource Conservation and Recovery Act as “Hazardous Waste” in or on the Property during the construction, operation, and maintenance of a storage project. Lessee shall also be responsi ble for cleanup, in accordance with any applicable local, state, or federal laws, rules or regulations, of the Property resulting from the introduction of substances by Lessee defined by future legislation as Hazardous Waste. c. Lessee agrees to sample and test the groundwater from any groundwater well utilized by Lessor on the Property prior to Lessee’s drilling any initial injection or withdrawal well for a storage project. Lessee shall be given access to Lessor’s groundwater we ll or wells for the purpose of collecting an appropriate sample and testing. Lessee will provide to L essor groundwater test kits, and Lessor shall be entitled, not more often than once every six m onths, to sample and have tested, any groundwater well utilized by Lessor on the Property, at Lessee ’s expense. Should the results of any testing show the presence of contaminants above the baseline level as established by Lessee’s initial sampling and testing, Lessee shall be entitled to access to the affected groundwater well for the purpose of having additional sampling and testing performed. 6. Insurance: Page 3 of 7 a. Prior to the commencement of any storage operations and thereafter so long as this Storage Agreement is in effect, Lessee shall place in effect and maint ain Commercial General Liability insurance with a combined single limit of _____ Million Dollars ($_____) for each occurrence. An umbrella liability policy or policies may be used to obtai n the total limit. Lessor shall be included as an additional insured on the policies of insurance of Lessee and shall be provided with a certificate of insurance providing for thirty (30) days prior notice of any modification or termination of the insurance. b. In the event the Commercial General Liability insurance described in paragraph 6.a. ceases to be available in whole or in part, or for any other reason at the option of Lessee, Lessee may elect to substitute all or part of the insurance coverage specified in paragraph 6.a. with an irrevocable letter of credit drawn on a national bank, or the cash equivale nt in a blocked account deposited in a national bank. The combination of insurance, letter of credit and/or cash deposit shall total _____ Million Dollars ($_____). Any letter of credit, provided pursuant to this paragraph 6.b. shall be subject to the further provisions of paragraph 6.e. below. Any cash deposit provided pursuant to this paragraph 6.b. shall be subject to the further provisions of paragraph 6.f. below. c. Prior to the commencement of any storage operations and thereafter so long as this Storage Agreement is in effect, Lessee shall place in effect and maint ain Environmental Impairment Liability insurance, including first party cleanup and third party liabili ties with a limit of liability of _____ Million Dollars ($_____) for each occurrence. An umbrella liabi lity policy or policies may be used to obtain the total limit. The foregoing Environmenta l Impairment Liability insurance shall be maintained in effect for an additional term of one (1) year following termination of this Storage Agreement. Lessor shall be a named insured on the policies of insurance of Lessee and shall be provided with a certificate of insurance providing for thirty (30) days prior notice of any modification or termination of the insurance. d. In the event the Environmental Impairment Liability insurance described in paragraph 6.c. ceases to be available, in whole or in part, or for any other reason at the option of Lessee, Lessee may elect to substitute all or part of the insurance coverage spe cified in paragraph 6.c. with an irrevocable letter of credit drawn on a national bank, or the cash equivale nt in a blocked account deposited in a national bank. The combination of insurance, letter of c redit, and/or cash deposit shall total _____ Million Dollars ($_____). Any letter of credit provided pursuant to this paragraph 6.d. shall be subject to the further provisions of paragraph 6.e. below. Any cash deposit provided pursuant to this paragraph 6.d shall be subject to the further provisions of paragraph 6.f. below. e. If a letter of credit is provided pursuant to paragraph 6.a. or 6.d., this paragraph 6.e. shall apply. A certified copy of the original letter of credit shall be provided to Lessor. The applicable letter of credit may be presented if the Lessor has a claim tha t is covered by the risks and in the amounts described in paragraphs 6.a. or 6.d. (the “Covered Risk”). The letter of cre dit shall be documentary in form and shall require Lessor to present one of the following documents: Page 4 of 7 (1) A consent for payment executed by Lessee; (2) An arbitration award indicating that the Lessor is entitled to compensation for a Covered Risk, if any dispute is arbitrated by agreement of the Lessor and Lessee; or, (3) A judgment indicating that the Lessor is entitled to compensation for a Covered Risk. f. If a cash deposit in a blocked account is provided pursuant to paragraph 6.a. or 6.d., this paragraph 6.f. shall apply. A withdrawal from the blocked account shall require the signature of Lessor, on the one hand, and Lessee, on the other hand. Lessee shall provide Lessor any documents needed by Lessor to obtain and perfect an interest in the cash deposit a ccount since it is the express intent of the Lessor and the Lessee that the cash de posit account will be held for the benefit of Lessor in the event that Lessor is entitled to compensation for a Covered Risk. Lessor shall be entitled to proceeds from the cash deposit account if Lessor satisfi es one of the following conditions: (1) A consent for payment is executed by Lessee; (2) An arbitration award indicating that the Lessor is entitled to compensation for a Covered Risk, if any dispute is arbitrated by agreement of the Lessor and Lessee; or, (3) A judgment indicating that the Lessor is entitled to compensation for a Covered Risk. 7. Ad Valorem Taxes: If, and to the extent that ad valorem real property taxes assessed against the Property are increased as a result of Lessee’s use of the Property, Lessee shall be responsible for their payment. Lessee shall be responsible for payment of any personal property taxes assessed against the personal property of Lessee installed under the terms of thi s Agreement, which shall be billed separately from any taxes assessed against the real property of Lessor. 8. Payments: All payment provided for in this Agreement, following the initial payment provided for in paragraph 2., may be made by check mailed directly to Lessor at the addre sses set out in paragraph 16. If at any time there be as many as four (4) parties entitled to any payments from Le ssee under the terms of this Agreement, Lessee may withhold payment until all those partie s designate, in writing to Lessee, a common agent to receive all payments due. 9. Proportionate Reduction: If the Lessor owns a less interest than the entire and undivided fee simple estate in the surface of the Property, the payments referred to in this Storage Agreement shall be proportionately reduced. 10. Release: Lessee, at its option, may at any time quitclaim and surrender all of the Property and rights under this Agreement, or any portion of it, in which event this Storage Agreement shall be at an end as to that portion of the Property surrendered and quitclaim ed, and Lessee shall be relieved of all obligations under this Agreement except the obliga tions then Page 5 of 7 accrued, including an obligation on the part of Lessee to fully restore the Property to its condition prior to commencement of any storage activities by Lessee. 11. Force Majeure: Performance of the covenants and conditions imposed on Lessee in this Agreement shall be excused while, and to the extent that, Lessee is hindered in or pre vented from compliance in whole or in part, by war, riots, strikes, walkouts, action of the elements, laws, rules, and regulations of any federal, state, municipal or other governmental agency or a ny other cause beyond the control of the Lessee, whether similar or dissimilar to those specific ally enumerated, without regard to whether the cause exists at the date of this Agreement or later arises; provided, however, that Lessee shall provide written notice to Lessor of any clai m of suspension or excuse of Lessee’s obligations under this paragraph, specifying with particularity the act, event, or condition giving rise to the claim of suspension or excuse and specifying the date on which the act, event, or condition arose. 12. Warranty of Title: Lessor hereby warrants and agrees to defend the title to the Property and should Lessor later acquire any additional rights, title, or interests in or to the Property, it shall be subject to the provisions of this Agreement to the same extent as if owned by Lessor on the Effective Date of this Agreement. Lessor agrees that Lessee shall have the right at any time to redeem for the Lessor, by payment, any deed of trust, mortgage, taxes, or other liens on t he Property, in the event of default of payment by the Lessor, and shall be subrogated to the right s of the holder; and, Lessor agrees that any payments made by the Lessee shall be deduc ted from any amounts of money which may become due the Lessor under the terms of this Storage Agreement. 13. Commingling and Mineral Interests: To the extent Lessor owns any rights, title, or interests in and to the mineral estate in the Property, Lessor expressly consents to c ommingling of stored Substances with any minerals which may exist within the Storage Reservoir. In the event Lessor owns mineral interest in the Property, Lessor grants Lessee the option to acquire an oil and gas lease on Lessor’s mineral interest in the Property. In addit ion to the rent and bonus provided above, for this option, Lessee shall pay to Lessor, on the execution of this Agreement, the sum of _____ Dollars ($_____), which will be deemed adequate consideration for this option. This option shall be for a term of _____ years from the Effective Date of this Agreement. This option grants Lessee the right, but not the obligation, to acquire an oi l and gas lease on all or a portion of the property on the identical terms and conditions as set forth in the form of oil and gas lease attached as Exhibit “B” to this Agreement. Should Lessee elect to exercise its option to acquire a lease from Lessor withi n that option period, Lessee shall notify Lessor in writing of that election by depositing the Noti ce of Election in the U.S. mail, addressed to Lessor, and tendered to Lessor in the form of a Bank Draft or check, payable to Lessor, the amount of _____ Dollars ($_____) per net mineral acre, for each net mineral acre Lessor owns in the Property. 14. Default: Should Lessor claim that a default has been made by Lessee in the payment of any sum due to Lessor under the terms of this Agreement, or in the performance of any other term or condition of this Agreement, Lessor shall provide written notice of that occurrenc e to Page 6 of 7 Lessee. If the claimed default is not contested or cured by Lessee within a period of sixty (60) days following Lessee’s receipt of Lessor’s written notice, or, if the default is not cura ble within the 60-day period, if Lessee has not either contested or commenced the cure of the default within the 60-day period and diligently prosecutes the cure to completion, Lessor may pursue any a nd all remedies available at law or in equity. 15. Binding Effect: This Storage Agreement shall extend to and be binding on the heirs, assigns, executors, administrators, personal representatives, and successors of the Lessor and Lessee. Either of them may assign, transfer, and convey, either in whole or in part, i ts ownership or interest in the land, rights, privileges, and Property covered by this Storage Agreeme nt; but no change in ownership of the Property shall be binding on the Lessee until the instrument conveying title shall have been properly recorded in the Official County Records and a certified copy shall have been furnished to the Lessee. 16. Notices: Any notices or requests required or permitted by this Agreement shall be deemed sufficient as to delivery if given in writing, deposited in the United State s mails, registered, return receipt requested, addressed to the other party as follows: Lessor: Lessee: 17. Compliance: Lessee shall comply with any and all terms and conditions (including without limitation any mitigation measures) set forth in any Certificate of Public Convenience and Necessity issued by the _____ Public Utilities Commission for operation of a storage facility. Lessee shall not be considered to not be in compliance with any such t erm or condition unless found not to be in compliance by final action of that body or a court with proper jurisdiction, and shall be afforded a period of sixty (60) days to commence and thereafte r diligently prosecute actions to remedy the non-compliance prior to being in default unde r this Agreement. 18. Drilling: Drilling through the zones and horizons comprising the Storage Reservoir could adversely affect the integrity of the storage reservoir in the Property to be util ized by Lessee in its storage and withdrawal operations. In consideration of the foregoing, Lessor, to the extent Lessor may be a mineral owner, agrees not to drill through or into or grant othe rs the right to drill through or into the zones and horizons comprising the Storage Reservoir, without Lessee’s prior written consent. Lessee will not withhold its consent unless the proposed operations could potentially damage or drain the Storage Reservoir and any proposed lease or agreement does not contain protective measures and indemnifications that in Le ssee’s reasonable judgment protect Lessee from damage or loss. Should a dispute arise as to the reasonableness of any withholding of consent to drill by Lessee, such dispute shall be resolved by arbitration in t he manner set forth in paragraph 19. 19. Arbitration: Any disputes between the parties to the Agreement as to the interpretation or enforcement of any of its terms or provisions shall be resolved by arbitration before a panel of three arbitrators, with each party appointing one arbitrator and the two arbitrators so appoint ed Page 7 of 7 appointing a third arbitrator. The decision of any two arbitrators shall be binding on the parties. Each party shall bear the fees and costs of its appointed arbitrator. The fees a nd costs of the third arbitrator and the attorneys fees of the party prevailing in the arbitration shall be determined and ordered paid by the losing party to the prevailing party in the arbitration award. Exc ept as otherwise expressly provided in this Agreement, the arbitration shall be conducted in accorda nce with the commercial arbitration rules of the American Arbitration Association. 20. Governing Law: This Agreement, its validity, construction and all rights under it shall be governed by the laws of the State of _____ with venue in _____ County. Date: Lessee Date: Lessor (Acknowledgments) [Exhibit “A”: Description of Property subject to and covered by the Agreement] [Exhibit “B”: Form of Lease]