OIL AND GAS LEASE
STATE OF TEXAS )
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF VICTORIA )
That this Oil and Gas Lease, executed, entered into and effective as of
the 19th day of August, 2004. (hereinafter the "Lease") between XXXXXXXX XXXXXXX
XXXXXX, INDIVIDUALLY AND AS CO-INDEPENDENT EXECUTRIX UNDER THE WILL OF XXXXXX
XXXXXX XXXXXXX, DECEASED, and XXXXX XXXXXXX, INDIVIDUALLY AND AS CO-INDEPENDENT
EXECUTOR UNDER THE WILL OF XXXXXX XXXXXX XXXXXXX, DECEASED, XXXXX XXXXXX XXXX,
and XXXXX XXXXXX XXXXXXXX, A WIDOW, hereinafter called "Lessors," and VAQUERO
PARTNERS, LLC, a Texas limited liability company, whose address is 0 Xxxx
Xxxxxx, Xxxxxxxxx, Xxxxx 00000, as "Lessee,"
WITNESSETH
I.
That Lessors, for and in consideration of the sum of Ten Dollars ($10.00)
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and, further, in consideration of the covenants and
agreements on the part of the Lessee hereinafter stated to be kept and
performed, hereby GRANT, LEASE AND LET exclusively unto Lessee for the purpose
of exploring for, developing and producing oil and gas only (including
casinghead gas, distillate and condensate), laying pipelines, building roads,
tanks and other necessary facilities to produce, save, take care of, treat and
transport said products on the premises described on Exhibit "A" ("the Land")
attached hereto and made a part hereof for all purposes.
II.
This Lease shall be for a primary term (hereinafter the "Primary Term")
beginning on the effective date hereinabove and continuing for a period of six
(6) months and so long thereafter as oil or gas is produced in paying quantities
from the Land or so long as the Lease is continued in force and effect as
otherwise herein expressly provided but subject to all of the provisions for
termination as hereinafter set forth. In the event Lessee shall drill and
complete a well capable of producing oil or gas in paying quantities within the
Primary Term, then this Lease shall continue in force and effect for an
additional period of six (6) months beyond the Primary Term (hereinafter the
"Extended Primary Term"). Likewise, in the event Lessee drills and completes a
well capable of producing oil or gas in paying quantities within such Extended
Primary Term, this Lease shall continue in force and effect for an additional
six (6) month period beyond the Extended Primary Term (hereinafter the "Extended
Primary Terms"). Lessee shall earn the ability to further extend the Primary
Term for additional Extended Primary Terms so long as a well capable of
producing oil or gas in paying quantities is drilled and completed within such
subsequent 6 month extension period.
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Lessee covenants and agrees that it will, within the Primary Term,
commence and thereafter diligently prosecute with good and adequate machinery
operations for the drilling of a well in search of oil and gas to a depth of not
less than 9,000 feet. If Lessee shall fail within the Primary Term to commence
and prosecute in good faith the attempt to effectuate production as herein
provided, Lessee shall pay to Lessors the sum of Two Hundred Thousand Dollars
($200,000.00), said sum having been determined by the parties hereto to be a
reasonable measure of damages which are difficult to assess to Lessors by reason
of such failure.
The Primary Term shall be extended for the number of days as there shall
exist a condition constituting force majeure (as such term is commonly defined
in the oil and gas industry), which condition may include the unavailability of
a suitable rig; provided, however, a force majeure condition based on rig
availability shall not extend the Primary Term beyond one year from the
effective date.
The mineral rights herein granted by Lessors to Lessee hereunder are not
limited as to subsurface depths, except with respect to any currently existing
producing units on the Land as identified on Exhibit "A" ("existing producing
units") attached hereto and made a part hereof for all purposes. With respect to
any such existing producing units, the rights herein granted by Lessors to
Lessee shall be limited to such depth intervals extending from one hundred feet
(100') below the deepest producing depth in each such unit, and below.
If, at the expiration of the Primary Term of this Lease (or the last
Extended Primary Term earned hereunder, if applicable), a well has been
completed on the Land capable of producing oil or gas in paying quantities, but
is not actually producing oil or gas, said well shall be deemed to be producing
in paying quantities and shall maintain this lease in force for a period of
ninety (90) days after the expiration of the Primary Term of this Lease (or the
last Extended Primary Term earned hereunder, if applicable); provided, however,
that after the expiration of such ninety-day period this Lease is subject to
termination as otherwise herein provided.
If, at the expiration of the Primary Term of this Lease (or the last
Extended Primary Term earned hereunder, if applicable), oil or gas is not being
produced on the Land, but Lessee is then engaged in drilling or reworking
operations thereon, then this Lease shall remain in force so long as operations
for drilling or reworking of any well are being prosecuted in good faith with no
cessation of operations of more than ninety (90) days, and if they result in the
production of oil or gas, so long thereafter as oil or gas is produced in paying
quantities from said Land; provided, however, notwithstanding any other
provision hereinabove to the contrary, it is agreed that upon the discontinuance
by Lessee of reworking operations for a period of more than ninety (90) days,
Lessee may not then perpetuate this Lease by further reworking operations
(without further drilling operations as hereinafter set out). Lessee shall still
have an additional ninety (90) days (or one hundred eighty (180) days total from
the cessation of reworking operations) within which to commence additional
continuous drilling operations in order to keep in force the total acreage
covered by this Lease before the operation of the automatic termination
provisions of this Section II.
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Upon the expiration of the Primary Term of this Lease (or the last
Extended Primary Term earned hereunder, if applicable) and while this Lease is
in force there is production of oil or gas in paying quantities on the Land and
such production shall cease, this Lease shall not terminate if Lessee shall,
prior to the expiration of ninety (90) days after such cessation of production,
commence and diligently and continuously prosecute operations for the reworking
of the well on the Land (or, at Xxxxxx's option, drilling a new well), and if
such operations result in the production of oil or gas in paying quantities, so
long thereafter as oil and gas in paying quantities is produced from the Land.
III.
The royalties reserved by Lessors and which shall be paid by Xxxxxx are as
follows:
A. On all oil and on all liquid hydrocarbons extracted from gas under the
provisions of Paragraph B below, thirty percent (30%) of that produced and
saved from the Land, the same to be delivered to Lessor into the storage
tanks or into the pipeline to which the xxxxx may be connected, or, at
Lessor's option, such oil and liquid hydrocarbons shall be sold with
Lessee's oil and liquid hydrocarbons at the same price received by Lessee
(but in no event for less than market value thereof), or at Lessors'
option, such product shall be delivered to Lessors at the xxxxx into tanks
or other receptacle located on the land to be furnished by Lessor.
Lessors' options hereunder may be exercised from time to time, and the
exercise or failure to exercise an option at any time shall not constitute
a waiver of Lessors' rights to exercise further options. Lessors' royalty
shall be free of all costs, charges and expense. The term "market value"
of oil as used in this Section III shall be presumed to mean oil produced
hereunder and sold by Lessee pursuant to an arms-length contract with a
purchaser which is not a subsidiary or affiliate of Lessee, and if such
contract contains a provision for the determination, at least monthly, of
the price for which such oil is sold, to insure that the price for such
oil will always be reasonably equivalent to the current prices of oil paid
to producers, when produced in Railroad Commission District No.2, the
"market value" of oil sold pursuant to such contract shall be the price
received by Lessee therefor.
Upon Lessors' royalty, Lessee shall pay all production, severance and all
other taxes (except, of course, ad valorem and income taxes) assessed by
any authority upon such oil or the production thereof.
B. Lessee shall pay to Lessors as royalty on all gas produced from the Land,
(1) when sold by Lessee at the well, thirty percent (30%) of the net
proceeds realized by Xxxxxx, computed at the mouth of the well, (2) on all
other gas produced from the Land, including casinghead gas and residue gas
at the tailgate of any plant through which gas from the Land may be
processed, thirty percent (30%) of the gas, in kind, at the well or at the
outlet site of the separator herein provided for, or at the tailgate of
any plant through which gas is processed, as the case may be. Prior to the
use or sale of all gas produced from the Land, Lessee shall run such gas
through a fuel-type separator or other comparable equipment ordinarily
used in the industry for the purposes of separating, extracting and saving
liquid and liquefiable hydrocarbons recoverable from the gas; provided,
however, Lessee shall not be required to run the gas through a fuel-type
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separator or comparable equipment if the gas is to be processed in a
recycling, absorption, pressuring or other plant belonging wholly or in
part to Lessee or any subsidiary or company, or if the liquid hydrocarbon
content of the gas is so small as to make the installation and operation
of fuel-type separators or comparable equipment would diminish the ability
to sell and deliver the separated gas against existing gathering system or
pipeline pressures.
Upon Lessors' royalty, Lessee shall pay all production, severance and all
other taxes (except, of course, ad valorem and income taxes) assessed by
any authority upon such gas or the production thereof.
C. On all other products or liquid hydrocarbons separated, extracted or
manufactured from gas produced from the Land by any extraction, cryogenic,
absorption, pressuring or other plant belonging wholly or in part to
Lessee or any company controlled in whole or in part by Lessee, thirty
percent (30%) of the market value at the plant of all such products or
liquid hydrocarbons separated, extracted or manufactured, or at Lessors'
option, thirty percent (30%) of such other products or liquid hydrocarbons
in kind shall be delivered to Lessor at the plant. In the event of the
blending of any part of such condensate or other products with chemical
additives for making any product therefrom, the royalty on such products,
whether paid in kind or at market value, shall be calculated at the plant
on the resulting blended product, less Lessors' proportionate share of the
direct costs of such chemical additives and the blending thereof.
D. All royalties that may become due hereunder shall be paid to Lessors by
mailing checks to each of the Lessors promptly after the sale of such
production, and not later than the last day of the month following the
month of sale or use thereof as to oil, and not later than the fifteenth
day of the second month following the month of sale or use thereof as to
gas.
E. Unless specifically provided in Paragraph C above, all royalties payable
under sub-paragraphs A, B, and C of this Section III shall be without
deduction or cost of gathering, transporting, trucking, piping,
separating, dehydrating, treating, compressing, repressuring or otherwise
treating or making the oil or gas ready for sale or use. The term "market
value" of gas as used in this Section III shall mean gas produced
hereunder sold by Lessee pursuant to an arms-length contract with a
purchaser which is not a subsidiary or affiliate of Lessee, and if such
contract (a) contains a BTU provision and (b) contains a provision for the
determination, at least annually, of the price for which such gas is sold,
to insure that the price for such gas will always be reasonably equivalent
to the current market value of gas when produced in Railroad Commission
District No.2, the "market value" of gas sold pursuant to such contract
shall be presumed to be the price received by Lessee therefor.
X. Xxxxxx shall own and/or be paid an undivided thirty percent (30%) of all
gas contracts, take-or-pay settlements, awards, payments and/or benefits
which arise out of, relate to or concern gas produced from, or
attributable to the Land. In no event shall the royalty provided herein
for the market value of gas for royalty purposes ever bear, directly or
indirectly, in any deduction, gas contract, take-or-pay, amelioration,
allocation, deduction, recoupment or make-up which is not the direct
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result of a take-or-pay settlement and/or benefit in which Lessor has
fully participated to the extent of its undivided thirty percent (30%)
royalty share.
G. In the event that Lessee shall, prior to the time provided in Section V to
designate the released acreage and the units held by production, acquire
from third parties the leasehold interest in and to any one or more of the
xxxxx listed on Exhibit "A" as not being included in the lands herein
leased, and during such period of time rework any such well or wellbore,
then the royalty to be paid on any oil or gas produced from any such
reworked well shall be twenty-five percent (25%).
H. In accounting to Lessors for royalties payable hereunder, Lessee shall be
required, on a monthly basis, to account to Lessors separately for each
well on the Land based upon the volume of production at each wellhead,
with a statement reflecting the gross production of each well, the gross
price per unit of production (gas being expressed in thousand cubic feet
and oil being expressed in barrels of 42 gallons), the royalty interest in
such production and the amount owed and paid to such royalty owner. In the
event that there are any settlements or adjustments reflected in any
month, the statement would detail all of the causes and specifics of such
adjustments. No adjustments shall be made more than one (1) year after the
date of actual production. Royalties not paid when due shall bear interest
at the prime rate of interest at First Victoria National Bank in Victoria,
Texas (or its successor bank) plus two percent (2%) (but not to exceed the
maximum legal interest rate allowed by law) from the due date until paid.
If any royalty payments are not received by Lessors within six (6) months
following the sale of any production, this Lease will automatically
terminate as to that Lessor. However, if there is a bona fide dispute or a
good faith question, based upon an attorney's written opinion of royalty
entitlement, Lessee may pay the portion of the Lessors' royalty that is in
question to a trustee and invested in a governmentally insured interest
bearing account, pending resolution of the net settlement issue, with
interest to belong to the rightful royalty owner. If the parties do not or
cannot agree upon a trustee, Lessee may tender the royalty into a Court of
competent jurisdiction by a Bill of Interpleader, to be so held and
invested by the Clerk under the direction of the Court. If the royalty is
so paid to such trustee or to the Court within the time provided, then the
Lessor shall not have the right to terminate the Lease for the non-timely
payment of royalty. It is agreed that as to this Lease the Lessee shall be
under the duty to exercise its utmost good faith in the sale of Lessors'
royalty production and accounting to Lessors for Lessors' royalty, oil and
gas, or ,liquefiable hydrocarbons, sulphur and other products extracted,
separated or saved from the oil and gas residue gas from the leased
premises. Lessors shall have the right at all reasonable time, personally
or by representative, to inspect the books, accounts, contracts, records
and data of Lessee pertaining to the marketing of the oil and/or gas from
the Land. Lessors may at any time and from time to time, at Lessors'
option and expense, examine any oil or gas meters placed upon any well
upon the Land, install or construct a metering system or device at any
well on the Land and employ a xxxxxx to act with any xxxxxx employed by
Lessee in order to measure and to verify and confirm the amount of
production from any well.
IV.
There exists on adjacent land currently under lease by Lessors to Lessee a
well formerly used as a salt water disposal well known as the Xxxxx Xxxxxx Ford
No.2 SWD. Lessors grant to Lessees during the existence of this Lease the right
to the use of said well for the disposal of salt water generated in the
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production of oil or gas from the Land but not otherwise. Lessors make no
representation that such well is equipped as a salt water disposal well or is
capable of being used as such or that there is any receiving strata capable of
accepting salt water disposal. Lessee, if it shall elect to attempt to utilize
said well bore, shall, at its sole cost and expense, rework said well bore to
accomplish the same and shall comply with any statute, rule, regulation or
requirement of any governmental authority having jurisdiction in the premises
and shall indemnify and hold harmless Lessors against any claim, damage or
expense arising directly or indirectly out of the use, operation or possession
of said well by Xxxxxx. Lessors do not warrant to Lessee that any equipment in,
on or associated with said well or said well bore has been abandoned to Lessors.
Lessors do not represent to Lessee that rights to grant to Lessee the use of
said well, well bore, or associated equipment are in Lessors. In requesting the
grant of this authority to utilize this well, as in this paragraph provided,
Xxxxxx acknowledges that it is relying solely upon Xxxxxx's investigation and
judgment respecting same, and not on any statement, act, promise or other matter
to them made, or claimed to be made, by Lessors or any agent, representative, or
associate thereof.
V.
A. Notwithstanding any other provisions contained herein to the
contrary, upon the expiration of the Primary Term of this Lease (or
the last Extended Primary Term earned hereunder, if applicable) as
hereinabove provided, the acreage to be held under this Lease with
respect to xxxxx drilled by Lessee hereunder shall be as follows:
i. For gas xxxxx: the acreage to be held by each gas well
producing gas in paying quantities from a horizon, the top of
which is above 9,000 feet subsurface, shall be one hundred
sixty (160) acres in as nearly the form of a square or
rectangle as may be practicable (but if a rectangle, its
longest sides shall be no more than twice the length of its
shortest sides), with the well located at a legal spacing
distance within its boundaries. The acreage to be held by a
gas well producing in paying quantities from a horizon, the
top of which is 9,000 feet subsurface or below, shall be three
hundred twenty (320) acres.
ii. For oil xxxxx: the acreage to be held by each oil well
producing oil in paying quantities from a horizon, the top of
which is above 9,000 feet subsurface, shall be forty (40)
acres in as nearly the form of a square or rectangle as may be
practicable (but if a rectangle, its longest sides shall be no
more than twice the length of its shortest sides), with the
well located at a legal spacing distance within its
boundaries. The acreage to be held by an oil well producing in
paying quantities from a horizon, the top of which is 9,000
feet subsurface or below, shall be eighty (80) acres.
iii. In every case, the acreage to be held by a producing well
shall only include all depths from the surface of the earth
down to and including the stratigraphic equivalent of one
hundred (100) feet below the deepest point that production
casing is set in the producing well for such unit. Such
production casing shall always be prudently set by Xxxxxx in
each applicable well drilled hereunder and shall never extend
deeper than what is needed by Lessee to prudently complete the
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deepest zone in such well (hereinafter "deepest zone"). Such
deepest zone shall be presumed to mean the lowest zone in each
well in which Lessee, in its sole discretion and good faith,
is desirous at the time of setting production casing, in
attempting an oil and/or gas completion during the term of
this Lease.
B. Within sixty (60) days following the expiration of the Primary Term
(or Extended Primary Terms) as herein provided, Xxxxxx shall execute
and deliver to Lessors an instrument of designation in recordable
form, acknowledging such termination and identifying the acreage and
depths held by each producing well. In such instrument of
designation, the acreage held shall be identified by a good and
sufficient legal description, and all acreages and depths not held
shall be released. Such release shall, upon the date of such
delivery, terminate this Lease as to the lands and formations
therein released, but Lessee shall not in any way be relieved or
released thereby of any past-due charges or of performing any
obligations which may have accrued under this Lease prior to the
time of delivery of such release. Notwithstanding a partial
termination of this Lease under the above provisions, it is agreed
that Lessee shall have and retain such easements of ingress and
egress over the land covered hereby as shall be necessary to enable
Lessee to develop or operate the portion or portions of this Lease
then in effect for the production of oil and gas therefrom, and it
is further agreed that it shall not be necessary for Lessee to
remove or relocate any pipelines, tank batteries or other surface
equipment or installations from any portions of this Lease which
have terminated for so long as same continue to be used for the
development and operation of such portions of this Lease as are
continued in force and effect.
C. The acreage around and the depths held by each producing well shall
be known as a "unit," and it shall be considered that each unit is
subject to a separate and independent lease after the execution by
Lessee of such instrument of designation. Thereafter, production
from or drilling or reworking operations on one designated unit
shall not serve to keep this Lease in effect as to any other
designated unit. Subject to the provisions of Section II herein, if
production in paying quantities shall cease entirely as to any
designated unit, and if Lessee commences or causes to be commenced,
within ninety (90) days after such cessation, and thereafter
diligently prosecutes or causes to be prosecuted operations for
reworking or additional drilling on such unit in an effort to obtain
or restore production in paying quantities, then this Lease as to
such unit shall continue only so long as production in paying
quantities continues, or so long as such drilling or reworking
operations are carried out without cessation of more than ninety
(90) consecutive days.
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D. In forming each unit, Lessee shall use its best efforts to make each
of the units contiguous to each other so that there are no strips or
gores lying between any unit designated around each producing well.
VI.
Lessee shall have the free use of dry gas from the Land for all operations
hereunder and the royalty paid to Lessors on dry gas shall be in the net
quantity after deducting any so used for Xxxxxx's operations but all monetary
costs of Xxxxxx's operations hereunder shall be borne solely by Xxxxxx, Lessee
shall have the right at any time during or within ninety (90) days after the
expiration of this Lease to remove all property and fixtures placed by Lessee on
the Land, including the right to draw and remove all oil and gas well casing. No
well shall be drilled within five hundred (500) feet of any residence, building,
well, tank or other improvement (except fences) now located or hereafter to be
located on the Land without Lessors' written consent to such location. Lessors
shall have the privilege of making connections and using surplus gas from any
gas well on the Land for stoves and inside lights in any principal dwelling
located on the Land, and shall be done at Lessors' sole cost, risk and expense.
VII.
A. Neither Lessee nor its employees nor anyone else on Xxxxxx's behalf or in
connection with operations under this Lease shall xxxx or conduct any
activity on the Land outside of the necessary work of developing and
operating the Land. Xxxxxx agrees that when Lessors instruct Lessee in
writing to enclose in fence any of their well sites, tank batteries, pits
and other structures on the Land, Lessee will construct such fence of not
less than four (4) strands of barbed wire with fence posts not more than
sixteen (16) feet apart. Lessee will, when required by Lessors, keep all
gates locked on the Land, or on adjoining lands of Lessors over which
Xxxxxx may travel to reach the Land. Any employee or agent violating any
provision of this Lease, whenever Lessors obtain knowledge from any source
that any provision of this Lease has been violated by an employee or
agent, shall be prohibited from any future access to the Land. Lessee
shall dispose of salt water in such a way as to prevent damage to the
Land.
X. Xxxxxx agrees to pay the surface owners reasonable compensation for all
use of or damage to the surface estate (or any incident of the surface
estate) owned by them, which use is made or which damages are incurred in
the exercise of the rights granted to the Lessee by this Lease. Lessee's
obligation to compensate surface owners for such use or damage shall exist
whether or not such use or damage is due to the negligence of the Lessee,
its agents, employees, invitees, or independent contractors. Xxxxxx agrees
to pay for all damages to crops, cattle livestock, grass, trees and any
other personal or real property situated on the Land resulting from
Xxxxxx's operations thereon. Payment of any compensation to the surface
owners shall not relieve Lessee of its obligation to restore the surface
to a state as nearly as possible to its original condition.
Notwithstanding, for the term of this Lease, damages pursuant to this
Paragraph B shall be not less than $3,500.00 for each well drilled.
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C. Within a reasonable time after cessation of any drilling or reworking
operations, not to exceed three (3) months, Lessee shall level all dumps,
fill all pits, remove all debris and all Lessee's equipment and materials,
restore the Land so that it will support the crops and natural range
vegetation that was originally thereon, and generally restore the surface
of the Land to substantially the same condition as it was before the
commencement of such operations. Lessee shall remove all slush materials
or mud from any pits located on the Land immediately after the drill pipe
has been finally removed from the hole (if a dry hole), or immediately
after shut-in operations are completed (if a completion attempt is made),
and Lessee shall level all pits to surface owner's satisfaction within
thirty (30) days after the completion of all drilling operations on any
location. If requested by Lessors, Xxxxxx agrees to firewall all Christmas
trees, pumping units, tanks, separators, and other machinery constructed
on the Land and to maintain such firewalls in good repair at all times for
the continuation of this Lease. Lessee shall keep all tanks, fences and
other equipment at each well location painted and shall keep the well site
and all roads leading thereto free from all weeds and debris.
X. Xxxxxx agrees not to allow any waste oil or salt water to flow over the
surface of the Land or to allow same to drain down any draws, creeks, or
ravines on the Land. Lessee agrees to construct salt water and waste
disposal facilities as shall be required by the rules and regulations of
the Railroad Commission of Texas, or other governmental authority having
jurisdiction in the premises, and to dispose of all waste oil, salt water
and other contaminated substances in compliance with the rules and
regulations.
X. Xxxxxx agrees that, prior to commencement of any operations on the Land,
Lessee will give the surface owner notice of the commencement of its
operations, the approximate date of such commencement and the location of
same; such notice to be given within a reasonable time prior to the
commencement of such operations.
F. Lessee will bury all pipelines located off of the actual location pad so
that the top shall remain more than three (3) feet below the surface of
the Land. If requested by the surface owner, Lessee shall keep the top
soil separated during its excavation. Lessee shall periodically check all
pipelines to make sure the surface has not subsided and created any
rutting or drainage problems. Except for the normal wellhead and surface
equipment at the well site, including separator, dehydrator, Christmas
tree, tanks, gaugers and compressors, there shall be no above-ground
device or property on the Land, including, but not limited to, cathodic
protection devices, houses, camps, or plants.
VIII.
Assignments of less than the entirety of this Lease shall be only with
Lessors' consent, which consent shall not be unreasonably withheld. The
provisions hereof shall extend to the heirs, personal representatives,
successors and assigns of the parties hereto, but no sale or assignment by
Lessors shall operate to enlarge the obligations or diminish the rights and
privileges of Lessee. No assignment by the Lessee, or any assignee of Lessee,
shall be valid or have any force until Lessors shall have been furnished with a
copy certified by the County Clerk of Victoria County, Texas, or with a
photostatic copy of such assignment, as recorded. Each and every assignee of
this Lease shall take subject to the terms and provisions of this instrument,
and each and every provision, condition and requirement hereof shall be binding
upon each and every assignee, and without any diminution or release of Lessee of
the obligations assumed by it hereunder. No sale or assignment by the Lessors
shall be binding on Lessee for any purpose until Lessee shall have been
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furnished with a copy certified by the county clerk of Victoria County, Texas,
or with a photostatic copy of such assignment. If any assignee of Lessee be a
corporation or a trustee or any entity other than an individual person, then
when requested by Xxxxxxx, each assignee shall deliver to Lessors an affidavit
by that assignee (or an officer of assignee) setting out the names of the
holders of the beneficial interest in the trust or business entity, or the names
(so far as is reasonably practicable) of the stockholders of the corporation all
to the end that Lessors shall at all times be fully informed as to the identity
of the person or persons actually owning or benefiting from (directly or
indirectly) the rights of Lessee under this Lease. To the same end, when
requested by Lessors, any individual at any time holding the rights of Lessee
under this Lease shall make and deliver to Lessors an affidavit disclosing
whether he holds the Lease for any undisclosed parties, and if so, for whom.
IX.
It is understood and agreed that should Lessee be prevented, through no
fault of Lessee, from complying with any express or implied covenant of this
Lease, from conducting drilling or reworking operations thereon, or conducting
continuous drilling operations or from producing oil or gas therefrom by reason
of force majeure or as a result of any Federal or state law, or an order, ruling
or regulation of governmental authority, then while so prevented, Xxxxxx's
obligation to comply with such covenant shall be suspended and Lessee shall not
be liable in damages for failure to comply therewith, and this Lease shall be
extended while and so long as Lessee is prevented by any such cause from
conducting drilling or reworking operations or, continuous drilling operations,
or from producing oil or gas from the land, and the time while Lessee is so
prevented shall not be counted against Lessee. Notwithstanding the foregoing
this Lease may not be extended by operation of force majeure for continuous
periods of time in excess of two (2) years. However, it is controllingly
provided that this clause shall not excuse the timely and proper payments
provided for in this Lease. Lessee shall always in good faith notify Lessors, in
writing, of any lengthy delays or interruptions in drilling, producing,
marketing or operations performed hereunder pursuant to this Section IX.
X.
A. Xxxxxx, while actually operating on the Lease, agrees to keep the fences,
as they now exist at the gates, and all the gates on the Land, in good
repair, and agrees to keep up and replace, when necessary, any gates
utilized by it. Xxxxxx agrees that before constructing any road for use in
its operations on the Land, it will submit a diagram or road pattern to
the Lessors, and will obtain Lessors' consent in writing prior to the
construction of each and every road desired to be built by it for use in
its operations on the Land. Upon completing a well as a producer of oil
and/or gas on the Land, Xxxxxx agrees that all roads built on the Land to
such productive well shall be constructed and maintained as graded,
all-weather roads. When any roads constructed by Lessee are no longer used
by Lessee, if Xxxxxx has constructed any character of topping, such as
caliche or otherwise, on such roads, surface owner shall have the right to
require Lessee to remove such topping from the roads. Upon such
abandonment of any roads, Lessee shall restore the surface of the land to
substantially its former condition. Lessee shall pay the surface owner
compensation for damage and loss, if any, of or interference with the use
of the surface lands caused by such roads. Lessee understands that its
right of ingress and egress to the Land shall be limited to such place or
places of entry as Lessors may designate from time to time but Lessors'
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designation of such ingress and egress shall not be unreasonable. Lessee
shall exercise due care to prevent injury being done to Lessors from any
undue use or occupation of Lessee on the Land, and shall repair any and
all damage done to Lessors' fences or their property. Lessee shall install
adequate bridges or culverts wherever any road construction by it crosses
a natural stream or drainage, and agrees to maintain in good condition all
such bridges and culverts installed by it, as well as all bridges and
culverts used by it and at any time installed upon said Land. Such roads,
as well as any pipelines laid by Lessee, shall be constructed so as not to
interfere with the natural flow of surface waters or with any drainage.
Lessee shall not permit any animals of any kind to be brought upon the
Land without the consent of Lessors, and shall not permit any trespass to
be done on the Land. The rights of ingress and egress granted herein are
not given to any other person than Xxxxxx and its agents, servants,
employees and purchasers of production, and Lessee will, as far as may be
reasonable, endeavor to keep all trespassers off the Land. Lessors, of
course, may use the Land for any purposes not inconsistent with the
exercise of the rights and privileges granted Lessee herein. It is
understood that Xxxxxx has no right to locate on the Land any buildings,
except such as are necessary to enclose meters at the xxxxx, without
Lessors' consent in writing.
B. Lessee will not cut or go over any fence or fences of Lessors at any time
or in connection with any operation of the land without first obtaining
Lessors' express consent thereto in writing. If Lessors consent to the
cutting of any fence, the cut must be made in a place designated by
Lessor, and prior to cutting any fence of Lessors, Lessee will brace the
existing fence adequately on both sides of the proposed cut so that there
will be no slackening of the wires. If the cut in such fence is an outside
fence of Lessors, promptly after making such cut, Lessee shall install and
maintain an adequate metal gate in such opening, which Lessee shall keep
locked at all times when not in use, and if Lessors shall desire, Lessee
shall also install and maintain a substantial iron cattle guard capable of
turning cattle, which gate and cattle guard shall become the property of
Lessor. If the cut in the fence is an inside fence of Lessors, Lessee
shall install a substantial metal gate in such opening, which gate shall
become the property of Lessors. Lessee shall promptly close all gates
which Lessee, its agents, servants, and/or employees may use in Xxxxxx's
operations on the Land, to prevent the escape of cattle or stock of
Lessors through any open gates. Xxxxxx further agrees to comply with all
reasonable rules and regulations imposed by Lessors with regard to
opening, closing and locking of all such gates.
XI.
Lessee shall not use water from any of Lessors' tanks or xxxxx, but may
use water from its own xxxxx dri1led on the Land as is reasonably necessary for
operations in drilling and producing oil and gas. Any excessive or unreasonab1e
use of water shall constitute a breach of covenant, and in this regard, it is
specifically agreed that unless agreed to in writing by Lessors, the use of
fresh water produced from the Land for purposes of conducting secondary recovery
operations shall constitute excessive and unreasonable use of water. Should
Lessee or its assigns drill a well or xxxxx for water upon the Land it is
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understood that said well or xxxxx and all casing in connection therewith shall,
at Lessors' option, become the property of Lessors, free of all charges, when
Lessee permanently ceases to use said water well. However, Lessee shall have the
exclusive right to use water from any such well during the term of this Lease,
subject to the reasonable use of same as is above provided. If Lessee drills a
well or xxxxx for water on the Land, such well or xxxxx shall be completed with
casing of minimum size of four (4") diameter to the full depth of casing set.
XII.
Lessors specially warrant (by, through and under Lessors, but no further)
to Lessee that they have good title to the Land; provided, however, that any
recovery under this covenant of warranty shall be limited only to the amount of
monies or royalties attributable to the failed portion of title paid by Lessee
to Lessors under Section III of this Lease. Without impairment of Xxxxxx's
rights under the above special warranty in event of failure of title, it is
agreed that if Xxxxxxx own an interest in said Land less than the entire fee
simple estate, then the royalties, and any other benefits to be paid Lessors
shall be reduced to the proportion which Lessors' interest bears to the whole
thereof. Any non-participating or other outstanding royalty interests shall be
deducted from the royalties herein provided for, and shall not be paid in
addition thereto. In connection with the warranty above set forth, it is
understood that this Lease is subject to all easements and rights-of-way
previously granted upon the Land. In connection with Lessors' warranty herein
set forth, it is agreed that if there be any conflict between the field notes
used as description of the Land and any lease previously granted by any party
outstanding that this warranty does not apply to such conflict, and that the
Lessee accepts these field notes at its risk.
XIII.
All operations or tests upon the Land conducted by the Lessee, its
contractors or employees, shall at all times be open to the inspection and
examination of Lessors or their duly accredited representatives. Lessee shall
furnish to Lessors a copy of any application or report filed with any department
or agency of the State of Texas, or any other governmental authority, with
respect to any operations on the Land, and will furnish Lessors, on request,
copies of tank or line gauge and oil or gas run tickets, the same to be
furnished to the Lessors as often as may be reasonably requested.
XIV.
Should any well be drilled and completed as a producer of oil or gas in
paying quantities on acreage adjoining the Land, and if such well be located
within 1,000 feet of any exterior boundary line of the Land ("Adjoining Lease
Well"), even though such Adjoining Lease Well may be located on acreage
belonging to Lessors not covered by this Lease, as to which an offset well has
not been already drilled or is not being drilled on the Land, then within ninety
(90) days after receipt by Xxxxxx of written notice from Lessors that actual
production from such Adjoining Lease Well has been obtained and is being
produced, Lessee shall either:
a) commence the drilling of a well to offset the Adjoining Lease Well;
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b) execute and deliver to Lessors a recordable release surrendering the
producing zone(s) in which such Adjoining Lease Well is completed
limited to the acreage directly offsetting such Adjoining Lease Well
("Surrendered Area"). In the event of such surrender of producing
zone(s) by Lessee herein, the size and shape of the Surrendered Area
as to such producing zone(s) shall be identical to the acreage
designations provided in Section V herein. Such release shall
surrender only the zone(s) in the Surrendered Area that are actually
producing in such Adjoining Lease Well; or
c) obtain a written waiver from Lessors releasing Lessee from any
obligations under this Section XIV as to such producing zone(s) in
such Adjoining Lease Well.
It is controllingly provided that an express covenant or condition of this
Lease shall not diminish, lessen or relieve any implied covenant, duty or
obligation of Lessee that otherwise arises under a lease or by operation of law.
XV.
During the drilling or reworking of any well hereunder, Lessee shall cause
daily drilling reports to be mailed to Lessors or Lessors' agent. Whenever there
is run upon any well drilled under this Lease, a Schlumberger or other
electrical survey, or any other test, and whenever a core analysis is taken of
any core from any such well, Lessee shall cause the well servicing company to
mail a copy to Lessors at the same time a copy is delivered to Lessee or Lessee
shall mail or deliver a copy of same to Lessors as soon as possible but not
later than seven (7) days after receiving a copy of any log, test or report of
such survey test or core analysis, to the end that Lessors may be promptly
apprised of the results of all electric survey tests and core analysis made on
all xxxxx drilled hereunder. All such reports and communication by Lessee to
Lessors shall always be kept confidential unless a written release of such
information is given by Lessee or such information has previously been released
to non-leasehold estate owners. In the event Lessee does not cause to be
delivered to Lessors daily drilling reports or cause a copy of the log, test or
core analysis to be mailed or delivered within such time, and after seventy-two
(72) hours following written notice by Lessors of such breach, the information
has not been provided to Lessors as herein provided, Lessee shall pay to Lessors
the sum of Two Thousand Five Hundred Dollars ($2,500.00) per day for each day of
delay thereafter until Lessee performs the covenants in this Section. The sums
herein specified to be paid by Xxxxxx are agreed to be liquidated damages
because of the uncertainty of ascertaining the actual damages for each day
Lessee is in breach of the covenants of this Section.
XVI.
The breach by Xxxxxx of any obligation hereunder shall not work a
forfeiture or termination of this Lease nor be cause for cancellation or
rescission hereof in whole or in part, save as expressly provided in Sections II
and IX hereof.
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XVII.
Lessee may at any time surrender and relinquish all, or any part or
portions, of the Land, severed horizontally or vertically, or both, by executing
and delivering to Lessors a legally sufficient instrument of release in
recordable form. Such release shall, upon the date of such delivery, terminate
this Lease as to the lands and formations therein released, but Lessee shall not
in any way be relieved or released thereby of any past due charges or of
performing any obligations which may have accrued under this Lease prior to the
time of delivery of such release. In the event that Lessee should elect to
release, surrender or abandon any portion of the Land containing a well or xxxxx
equipped for production, Xxxxxx shall give written notice of such election to
Lessors not less than thirty (30) days prior to such intended date of release,
surrender or abandonment. Lessors shall have the option to take over any such
well or xxxxx by giving Xxxxxx written notice of their election to do so at any
time prior to such intended date. Within ten (10) days after receipt by Xxxxxx
of such written notice of election by Lessors to take over such well or xxxxx,
Lessee shall execute and deliver to Lessors a legally sufficient instrument of
release in recordable form as hereinabove provided, in return for which Lessors
shall pay to Lessee the reasonable salvage value of the property and equipment
on such well or xxxxx. Additionally, Lessors agree to be solely liable for the
costs of plugging any well or xxxxx taken over from Lessee pursuant to this
Section.
XVIII.
It is expressly understood and agreed that upon the termination of this
Lease, as to all or any part of the Land, for any cause whatsoever (that is,
whether by automatic termination, forfeiture, surrender or other causes) Lessors
shall have full right to make and grant an additional lease or leases with and
to other parties for the purposes of exploring, drilling and producing oil and
gas, and for any other purposes, from such portions of the Land covered by this
Lease as are not then retained and held by Lessee under this Lease, just as
fully as if this Lease had never been made.
XIX.
Xxxxxx agrees to indemnify and hold harmless the parties herein designated
as "Lessors", their heirs, representatives, successors and assignees, from and
against any and all claims, demands, causes of action and damages arising out of
and incidental to, or resulting from, the operation of or for Lessee hereunder,
and from and against all costs and expenses incurred by the parties herein
designated as Lessors, their heirs, representatives, successors and assigns, by
reason of any such claim, demands, and causes of action and damages. Each
assignee of Lessee of this Lease or any interest therein, agrees to indemnify
and hold harmless the parties herein designated as Lessor in the same manner as
is provided above for Lessee.
XX.
If Xxxxxx shall have the title to the Land or any part thereof examined by
an attorney, Xxxxxx agrees to furnish Lessors with a copy of such attorney's
title opinion upon receipt. If Lessee causes an Abstract of Title or supplements
thereto to be prepared, he shall notify Lessors of same, and shall make the same
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available at all reasonable times, and shall furnish the same to Lessors free of
charge upon termination of the Lease, or six (6) months after the first well on
the Land begins production, whichever date is earlier. Lessee shall at all times
have access to such Abstract of Title for so long as this Lease is in effect.
XXI.
Lessee agrees and obligates itself to properly plug any well drilled on
the Land in accordance with the regulations of the Railroad Commission of Texas,
or any other governmental agency having jurisdiction; and, if the Lease is
assigned, the Assignee, by acceptance of said Assignment, agrees and obligates
itself to the Lessors to also assume full and complete obligation to properly
plug any well drilled on the part of the premises assigned to it, but no future
Assignments shall relieve the Lessee or Assignee of this obligation. It is the
intent of this provision that the Lessee and each and every Assignee shall be
obligated to the Lessors to plug every well drilled on the Land in which they at
anytime own an interest (in accordance with the rules of the Railroad Commission
of Texas), or to see that the well is properly plugged if such well is no longer
used in connection with the production of oil and/or gas. Lessors shall be
entitled to enforce this obligation as against the Lessee or any subsequent
Assignee. Each Lessee and each subsequent Assignee shall jointly and severally
indemnify and hold Lessors harmless from any and all plugging obligations, save
and except as provided in Section XVII for any well taken over by Lessors.
XXII.
Lessee represents and warrants to Lessors that Lessee and its agents,
employees, representatives or assigns will not commit any act or omission that
could in any way constitute, cause or result in a violation of any applicable
law, statute, ordinance, rule, regulation, order or determination of any
governmental authority in connection with its activities and operation on the
Land, including without limitation, all applicable laws pertaining to health or
the environment (hereinafter sometimes collectively called the "Applicable
Environmental Laws"), including without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), the
Resource Conservation and Recovery Act of 1976 ("RCRA"), the Texas Water Code
and the Texas Soil and Waste Disposal Act. Lessee shall take all steps necessary
to prevent the contamination of the Land by hazardous substances or solid wastes
and hazardous substances and solid wastes shall not be disposed of or otherwise
released on the Land. The terms "hazardous substance" and "release" shall have
the meanings specified in CERCLA, and the terms "solid wastes" and "disposal"
(or "disposed") shall have the meaning specified in RCRA; provided, to the
extent that the laws of the State of Texas establish a meaning for "hazardous
substance", "release", "solid wastes" or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply. If Xxxxxx
becomes aware that at any time during the term of this Lease or at any time
subsequent thereto that the Land or Lessee is in violation of any Applicable
Environmental Laws, Lessee shall immediately disclose such fact in writing to
Lessors.
Xxxxxx agrees to indemnify and hold harmless Lessors and Lessors' agents,
representatives, successors, assigns and devisees, from and against any and all
actions, liabilities, claims, damages (including consequential damages),
penalties, forfeitures, administrative and judicial proceedings, and the cost
and expenses incident thereto (including cost of defense settlement and
reasonable expert witnesses and attorneys' fees), fines, charges, orders,
15
remedial actions, requirement and enforcement actions of any kind, whether
foreseeable or unforeseeable, which Lessors or their agents, employees,
representatives, successors, assigns and devisees may hereafter, incur or be a
party to, be responsible for or payout as a result of death or bodily injury to
any person, destruction or damage to any property, contamination of or adverse
effects on the environment, whether threat thereof, or any violation of
Applicable Environmental Laws, arising directly or indirectly, in whole or in
part, out of: (1) failure of any of Lessee's representations and warranties
herein given to be true and correct, (2) Lessee's breach of any of its covenants
herein, or (3) Lessee's ownership, operation, occupancy, construction, use and
maintenance of the Land. The forgoing indemnity shall further apply to any
residual contamination on or under the Land, or affecting any natural resources
therein, and to any contamination of the land or natural resources arising in
connection with the generation, use, handling, storage, transport or disposal of
any hazardous substances, regardless of whether any such activities were
undertaken in accordance with the Applicable Environmental Laws. The
indemnities, representations and warranties given above shall survive for a
period of time from the effective date hereof to twenty-one (21) years
subsequent to the date of the termination of the Lease as to all of the Land
covered hereby.
XXIII.
This Lease shall be binding on the heirs, successors, administrators and
on the assigns (as herein limited) of the parties hereto. Words of any gender in
this Lease shall be deemed to include either gender, and words in the singular
number shall be deemed to include the plural, whenever required by this context.
All notices and copies of surveys, tests and other materials to be
delivered to Lessors shall be delivered in person or posted by United States
mail to: Xxxxxxx Xxxxxx, 0000 Xxxxx Xx. Corpus Christi, Texas 78404. Royalties
to Lessors should be paid to: Lessors at addresses listed on Exhibit "B"
attached hereto and made a part hereof for all purposes until changed by Lessors
after providing notice of such change to Lessee. All notices and other
information to be delivered to Lessee shall until be delivered or posted by
United States mail to Lessee at Xxxxxx's address as herein provided.
However, notwithstanding anything contained in this Lease to the contrary,
the applicable drillsite tenant or surface owner given by Lessors to Lessee
shall act with full authority as Lessors' agent insofar as necessary to give
written approval on Lessors' behalf for any operations affecting the surface of
the Land which require Lessors' written approval. In this capacity as agent,
such tenant or surface owner's authority will not be limited to, but include
authority to approve location exceptions and road and building locations
provided for in this Lease.
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XXIV.
Lessors and Xxxxxx hereby acknowledge that the metes and bounds
description of the properties identified on Exhibit "A" may be in error for a
number of reasons, and that Xxxxxx may decide to have said properties properly
surveyed. In the event Xxxxxx should have said properties surveyed, Lessors and
Xxxxxx hereby agree to amend this Lease to include the corrected property
descriptions and to substitute a newly revised Exhibit "A" for the original
attached hereto.
[Signature Pages and Exhibit Intentionally Omitted]
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