LEASE NO: LH4818 0000
OIL AND GAS LEASE
(Exploratory Form)
THIS AGREEMENT, dated February 01, 1997 between the state of New Mexico, acting
by and through its commissioner of public lands, hereinafter called the
"lessor", and
RIO GRANDE RESOURCES INC
202, 0000 00XX XXXXXX, XX
XXXXXXX, XXXXXXX, XXXXXX, XX T
Hereinafter called the "lessee",
WITNESSETH:
WHEREAS, the lessee has filed in the office of the commissioner of public
lands an application for an oil and gas lease covering the lands hereinafter
described and has tendered therewith the required first payment; and
WHEREAS, all of the requirements of law relative to the application and
tender have been duly complied with;
THEREFORE, in consideration of the premises as well as the sum of ONE HUNDRED
TWENTY AND 00/100 dollars ($120.00), the same being the amount of the tender
above mentioned, and the further sum of $30.00 filing fee, and of the covenants
and agreements hereinafter contained, the lessor does hereby grant, demise,
lease and let unto the said lessee, exclusively, for the sole and only purpose
of exploration, development and production of oil or gas (including carbon
dioxide and helium), or both thereon and therefrom with the right to own all oil
and gas so produced and saved therefrom and not reserved as royalty by the
lessor under the terms of the lease, together with rights-of-way, easements and
servitude's for pipelines, telephone lines, tanks, power houses, stations,
gasoline plants and fixtures for producing, treating and caring for such
products, and housing and boarding employees, and any and all rights and
privileges necessary, incident to or convenient for the economical operation of
said land, for oil and gas, with right for such purposes to the free use of oil
gas, casing-head gas or water from said lands, but not from lessor's water
xxxxx, and with the rights of removing either during or after the term hereof ,
all and any improvements placed or erected on the premises by the lessee,
including the right to pull all casing, subject, however, to the covenants and
conditions hereinafter set out, the following described land situated in the
count(y)(ies) of Union, state of New Mexico, and more particularly described as
follows:
Subdivisions Section Twp Rge Acres Institution
SE4NE4, N2NW4 26 32N 34E 120.00 MH
Said lands having been awarded to lessee and designated as Tract No.
LH-0-0093 at public sale held by the commissioner of public lands on January 21,
1997.
To have and to hold said land, and all the rights and privileges granted
hereunder, to and unto the lessee for a primary term of five years from the date
hereof, and as long thereafter as oil and gas, or either of them, is produced in
paying quantities from said land by lessee, subject to all of the terms and
conditions as hereinafter set forth.
In consideration of the premises the parties covenant and agree as follow:
1. Subject to the free use without royalty, as herein before, the lessee
shall pay the lessor as royalty one- eighth part of the oil produced and saved
from the leased premises or the cash value thereof, at the option of the lessor,
such value to be the price prevailing the day oil is run into a pipeline, if the
oil be run into a pipeline, or into storage tanks, if the oil is stored.
2. Subject to the free use without royalty, as herein before provided, at
the option of the lessor at any time and from time to time, the lessee shall pay
the lessor as royalty one- eighth part of the gas produced and saved from the
leased premised, including casing-head gas. Unless said option is exercised by
lessor, the lessee shall pay the lessor as royalty one-eighth of the cash value
of the gas, including casing-head gas, produced and saved from the leased
premises and marketed or utilized, such value to be equal to the net proceeds
derived from the sale of such gas in the field; provided, however, the cash
value for royalty purposes of carbon dioxide gas and of hydrocarbon gas
delivered to a gasoline plant for extraction of liquid hydrocarbons shall be
equal to the net proceeds derived from the sale of such gas, including any
liquid hydrocarbons recovered therefrom. Notwithstanding the foregoing
provisions, the lessor may require the payment of royalty for all or part of the
gas produced and saved under this lease and marketed or utilized at a price per
m.c.f. equal to the maximum price being paid for gas of like kind and quality
and under like conditions in the same field or area or may reduce the royalty
value of any such gas (to any amount not less than the net proceeds of sale
thereof, in the field) if the commissioner of public land shall determine such
action to be necessary to the successful operation of the lands for oil or gas
purposes or to encouragement of the greatest ultimate recovery of oil or as or
to the promotion of conservation of oil or gas or in the public interest.
This lease shall not expire at the end of either the primary or secondary term
hereof if there is a well capable of producing gas in paying quantities located
upon some part of the lands embraced herein, or upon lands pooled or
communitized herewith, where such well is shut-in due to the inability of the
lessee to obtain a pipeline connection or to market the gas therefrom and if the
lessee timely pays an annual royalty on or before the annual rental paying date
next ensuing after the expiration of ninety days from the date said well was
shut-in and on or before said rental date thereafter. The payment of said
annual royalty shall be considered for all purposes the same as if gas were
being produced in paying quantities and upon the commencement of marketing of
gas from said well or xxxxx the royalty paid for the lease year in which the gas
is first marketed shall be credited upon the royalty payable hereunder to the
lessor for such year. The provisions of this section shall also apply where gas
is being marketed from said leasehold premises and through no fault of the
lessee, the pipeline connection or market is lost or ceases, in which case this
lease shall not expire so long as said annual royalty is paid as herein
provided. The amount of any annual royalty payable under this section shall
equal twice the annual rental due be the lessee under the terms of this lease
but not less than three hundred twenty dollars ($320) per well year, provided,
however, that any such annual royalty for any year beginning on or after ten
years from the date hereof shall equal four times the
annual rental due by the lessee under the terms of this lease but not less than
two thousand dollars ($2,000) per well per year; provided further that no annual
royalty shall be payable under this section of equivalent amounts are timely
paid pursuant to another lease issued by lessor and if such other lease includes
lands communitized with lands granted hereunder for the purpose of prorationally
sharing in the shut-in well. Notwithstanding the provisions of this section to
the contrary, this lease shall not be continued after ten years from the date
hereof for any period of more than ten years by the payment of said annual
royalty unless, for good cause shown, the commissioner of public lands, in his
discretion, grants such a continuance.
3. Lessee agrees to make full settlement on the twentieth day of each month
for all royalties due to the lessor for the preceding month, under this lease,
and to permit the lessor or its agents, at all reasonable hours, to examine
lessee' s books relating to the production and disposition of oil and gas
produce. Lessee further agrees to submit to lessor annually upon forms
furnished by lessor, verified reports showing lessee's operations for the
preceding year.
4. An annual rental at the rate of $0.25 per acre shall become due and
payable to the lessor by the lessee upon each acre of the land above described
and then claimed by such lessee, and the same shall be die and payable in
advance to the lessor on successive anniversary dates of this lease, but the
annual rental on any assignment shall in no event be less than forty dollars
($40.00).
In the event the lessee shall elect to surrender any or all of said acreage, he
shall deliver to the lessor a duly executed release thereof, and in event said
lease has been recorded then he shall upon request furnish and deliver to the
lessor a certified copy of a duly recorded release.
5. The lessee may at any time by paying to the lessor all amounts then due
as provided herein and the further sum of forty dollars ($40.00), surrender and
cancel this lease insofar as the same covers all or any portion of the lands
herein leased and be relieved from further obligation or liability hereunder, in
the manner as herein before provided. Provided, this surrender clause and the
option herein reserved to the lessee shall cease and become absolutely
inoperative immediately and concurrently with the institution of any suit in any
court of law or equity by the lessee, lessor or any assignee, to enforce this
lease, or any of its terms expressed or implied.
6. All payments due hereunder shall be made on or before the day such
payment is due, at the office of the commissioner of public lands in Santa Fe,
New Mexico.
7. The lessee with the consent of the lessor shall have the rights to assign
this lease in whole or in part. Provided, however, than no assignment of an
undivided interest in the lease or in any part thereof, nor any assignment of
less than a legal subdivision shall be recognized or approved by the lessor.
Upon approval in writing by the lessor of an assignment, the assignor shall
stand relieved from all obligations to the lessor with respect to the lands
embraced in the assignment and the lessor shall likewise be relieved from all
obligations to the assignor as to such tracts, and the assignee shall succeed to
all of the rights and privileges of the assignor with respect to such tracts and
shall be held to have assumed all of the duties and obligations of the assignor
to the lessor as to such tracts.
8. In the event a well or xxxxx producing oil or gas in paying quantities
should be brought in on adjacent land which is draining the leased premised,
lessee shall drill such offset well or xxxxx as a reasonably prudent operator
would drill under the same or similar circumstances, provided that no such
offset well shall be required if compensatory royalties are paid pursuant to an
agreement between the lessor and the lessee.
9. Thee lessee agrees to notify the lessor of the location of each well
before commencing drilling thereon, to keep a complete and accurate log of each
well drilled and to furnish a copy thereof, verified by some person having
actual knowledge of the facts, to the lessor upon the completion of any well,
and to furnish the log of any unfinished well at any time when requested to do
so by the lessor
If any lands embrace in this lease shall be included in any deed or contract of
purchase outstanding and subsisting issued pursuant to any sale made of the
surface of such lands prior to the date of this lease, it is agreed and
understood that no drilling operation shall be commenced on any such lands so
sold unless and until the lessee shall have filed a good and sufficient bond
with the lessor as required by law, to secure the payment for such damage to the
livestock, range, water, crops or tangible improvements on such lands as may be
suffered by the purchaser holding such deed or contract of purchase, or his
successors, by reason of the developments, use and occupation of such lands by
such lessee. Provided, however, that no such bond shall be required if such
purchaser shall waive the right to require such bond to be given in the manner
provided by law.
10. In drilling xxxxx all water-bearing strata shall be noted in the log and
the lessor reserves the right to require that all or any part of the casing
shall be left in any nonproductive well when lessor deems it to the interest of
the beneficiaries of the lands granted hereunder to maintain said well or xxxxx
for water. For such casing so left in xxxxx the lessor shall pay to the lessee
the reasonable value thereof.
11. Lessee shall be liable and agree to pay all damages to the range,
livestock, growing crops or improvements caused by lessee's operations on said
lands. When requested by the lessor the lessee shall bury pipelines below plow
depth.
12. The lessee shall not remove any machinery or fixtures placed on said
premised, nor draw the casing from any well unless and until all payments and
obligations due the lessor under the terms of this agreement shall have been
paid or satisfied. The lessee's right to remove the casing is subject to the
provision of Paragraph 10 above.
13. Upon failure or default of the lessee to comply with any of the
provisions or covenants hereof, the lessor is hereby authorized to cancel this
lease and such cancellation shall extend to and include all rights hereunder as
to the whole of the tract so claimed, or possessed by the lessee, but shall not
extend to, nor affect the rights of any other lessee or assignee claiming any
portion of the lands upon which no default has been made; provided, however,
that before any such cancellation shall be made, the lessor shall mail to the
lessee so defaulting by registered or certified mail, addressed to the
post-office address of such lessee as shown by the records of the state land
office, a notice of intention of cancellation specifying the default for which
cancellation is to be made, and if within thirty days from the date of mailing
said notice the said lessee shall remedy the default specified in said notice,
cancellation shall not be made.
14. If the lessee shall have failed to make discovery of oil or gas in
paying quantities during the primary term hereof or if such discovery shall have
been made and production shall have ceased for any reason, the lessee may
continue this lease in full force and effect for an additional term of five
years and as long thereafter as oil and gas in paying quantities or either of
them is produced for the leased premises by paying each year in advance, as
herein provided, double the rental provided herein for the primary term, or the
highest rental prevailing at the commencement of the secondary term in any
rental district, or districts in which the lands, or any portion thereof, may be
situated, if it be greater than double the rental provided for in the primary
term; provided, however, such rental shall be paid within the time provided by
Section 13 hereof. If oil or gas in paying quantities should be discovered
during the secondary term hereof but oil or gas in paying quantities is being
produced at the end of the secondary term of five years so long thereafter as
oil and gas in paying quantities or either of them is produced from the leased
premises.
15. If this lease shall have been maintained in accordance with the
provisions hereof and if at the expiration of the secondary term provided for
herein oil or gas is not being produced on said land but lessee is then engaged
in bona fide drilling or reworking operations thereon, this lease shall remain
in full force and effect so long as such operations are diligently prosecuted
and, if they result in the production of oil or gas, so long thereafter as oil
and gas in paying quantities, or either of them, is produced from said land;
provided, however, such operations extending beyond the secondary term shall be
approved by the lessor upon written application filed with the lessor on or
before the expiration of said secondary term, and a report of the status of all
such operations shall be made by the lessee to the lessor every thirty days and
a cessation of such operations for more than twenty consecutive days shall be
considered as an abandonment of such operations and this lease shall thereupon
terminate. If during the drilling or reworking of any well under this section,
lessee loses or junks the hole or well and after diligent efforts in good faith
is unable to complete said operations, then within twenty days after the
abandonment of said operations, lessee may commence another well within three
hundred thirty feet of the lost or junked hole or well and drill the same with
due diligence. Operations commenced and continued as herein provided shall
extend this lease as to all lands as to which the same is in full force and
effect as of the time said drilling operations are commenced; provided. However,
this lease shall be subject to cancellation in accordance with Paragraph 13
hereof for failure to pay rentals or file reports, which may become due while
operations are being conducted hereunder.
16. Should production of oil and gas or either of them in paying quantities
be obtained while this lease is in force and effect and should thereafter cease
from any cause after the expiration of ten years from the date hereof this lease
shall not terminate if lessee commences additional drilling or reworking
operations within sixty days after the cessation of such production and shall
remain in full force and effect so long as such operations are prosecuted in
good faith with no cessation of more than twenty consecutive days, and if such
operations result in the production of oil or gas in paying quantities, so long
thereafter as oil or gas in paying quantities is produced from said land;
provided, however, written notice of intention to commence such operations shall
be filed with the lessor within thirty days after the cessation of such
production, and a report of the status of such operations shall be made by thee
lessee to the lessor every thirty days, and the cessation of such operations for
more than twenty consecutive days shall be considered as an abandonment of such
operations and this lease shall thereupon terminate.
17. Lessee, including their heirs, assigns, agents and contractors shall at
their own expense fully comply with all laws, regulations, rules, ordinances and
requirements of the city, county, state, federal authorities and agencies, in
all matters and things affecting the premises and operations thereon which may
be enacted or promulgated under the governmental police powers pertaining to
public health and welfare, including but not limited to conservation,
sanitation, aesthetics. Pollution, cultural properties, fire and ecology. Such
agencies are not to be deemed third party beneficiaries hereunder, however,
this, clause is enforceable by the lessor in any manner provided in this lease
or by law.
18. Should lessor desire to exercise its rights to take in-kind its royalty
share of oil, gas or associated substances or purchase all or any part of the
oil, gas or associated substances produced from the lands covered by this lease;
the lessee hereby irrevocably consents to the lessor exercising its right. Such
consent is a consent to the termination of any supplier/purchaser relationship
between the lessor and the lessee deemed to exist under federal regulations.
Lessee further agrees that it will require any purchaser of oil, gas or
associated substance to likewise waive any such rights.
19. Lessor reserves a continuing option to purchase at any time and from
time to time, at the market price prevailing in the area on the date of
purchase, all or any part of the minerals (oil and gas) that will be produced
from the lands covered by this lease.
20. Lessor reserves the right to execute leases for geothermal resource
development and operation thereon; the right to sell or dispose of the
geothermal resources of such lands. And the right to grant rights-of-way and
easements for these purposes.
21. All terms of this agreement shall extend to and bind the heirs,
executors, administrator, successors and assigns of the parties hereto.
In witness whereof, the party of the first part has hereunto signed and caused
its name to be signed by its commissioner of public lands thereunto duly
authorized, with the seal of his office affixed, and the lessee has signed this
agreement the day and year first above written.
STATE OF NEW MEXICO
BY: /s/ Commissioner of Public Lands, Lessor
/s/ Rio Grande Resources Inc. Lessee
(ACKNOWLEDGMENT BY CORPORATION)
Province of Alberta
Country of Canada
The foregoing instrument was acknowledged before me this 15th day of February,
1997, by Xxx Xxxxxxxx, President of Rio Grande Resources Inc., an Alberta
corporation, on behalf of said corporation.
My commission does not expire. /s/ Xxxxxxxx X. Xxxxxx, Notary Public in and
for the Province of Alberta
