OIL AND GAS LEASE
STATE OF TEXAS ss.
COUNTY OF XXXXXXX xx.
THIS OIL AND GAS LEASE is made this 31st day of August, 2004, by and between The
Northern Trust Bank of Texas, N.A., as Successor Trustee of the Xxxxx Xxxxx Xxxx
Mineral Trust, whose address is 0000 Xxx Xxxxxxx Xxxxxx, X.X. Xxx 000000,
Xxxxxx, Xxxxx 00000, hereinafter "Lessor," and Petrogen, Inc. whose address is
0000 Xxxxxxxxx Xxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, hereinafter "Lessee."
WITNESSETH
1. That Lessor, in consideration of Ten Dollars ($10.00) and other
valuable consideration, the receipt of which is hereby acknowledged, and of the
covenants and agreements of Lessee hereinafter contained, does hereby grant,
lease and let unto Lessee the land covered hereby for the purposes hereinafter
described and with the exclusive right of exploring, drilling, mining and
operating for, producing and owning oil, gas and sulphur, together with right to
make surveys on said land, lay pipe lines, establish and utilize facilities for
surface or subsurface disposal of salt water, construct roads and bridges, build
tanks, power stations, telephone lines, employee houses and other structures on
said land, necessary or useful in Lessee's operations in exploring, drilling
for, producing, treating, storing and transporting minerals produced from the
land covered hereby or adjacent thereto. The land covered hereby and herein
referred to as the "land" or "said land" is located in the County of Calboun,
State of Texas, and is described as follows:
TRACT ONE: Being all of the XXXXX X. XXXXX SURVEY No. 15, Abstract No.
56, Xxxxxxx County, Texas, containing approximately 801.26 acres, more
or less, and being a part of that certain land described in a Deed
dated July 15, 0000, Xxxxx Xxxxx. Jr., et al to Xxxxxx Xxxx Xxxxx. as
recorded in Volume 70, Page 209, Deed Records of Xxxxxxx County, Texas.
TRACT TWO: Being all of the XXXXX X. XXXXX SURVEY No. 16, Abstract No.
57, Xxxxxxx County, Texas, containing approximately 770.24 acres, more
or less, and being the same land described in that certain Deed dated
July 15, 0000, Xxxxx Xxxxx, Xx., et al to Xxxxxx Xxxx Xxxxx, as
recorded in Volume 70, Page 211, Deed Records of Xxxxxxx County, Texas.
For the purposes of determining the amount of any bonus or other
payment hereunder, said land shall be deemed to contain, 1,571,3 acres, whether
actually containing more or less, arid. the above recital of acreage in any
tract shall be deemed to be the true acreage thereof. Lessor accepts the bonus
as lump sum consideration for this lease and all rights and options hereunder.
2. Unless sooner terminated or longer kept in force under other
provision hereof, this lease shall remain in force for a term of six (6) months
from the effective date hereof, hereinafter called "primary term", and as long
thereafter as oil, gas and/or sulphur is produced from the land or other land
pooled therewith in commercial quantities or operations, as hereinafter defined,
are conducted upon said laud with no cessation for more than ninety (90)
consecutive days.
OIL AND GAS LEASE, PAGE I OF 7 PAGES
08-23-04
3. As royalty, Lessee covenants and agrees:
(a) To deliver to the credit of Lessor, in the pipe line to which
Lessee may connect its xxxxx, the equal 1/5th part of all oil produced
and saved by Lessee from said land, or from time to time, at the option
of Lessee, to pay Lessor the average posted market price of such l/5th
part of such oil at the xxxxx as of the day it is run to the pipe line
or storage tanks;
(b) To pay Lessor on gas and casinghead gas produced from said
land (1) when sold by Lessee, I/5tli of the amount realized by Lessee,
computed at the mouth of the well, or (2) when used by Lessee off said
land or in the manufacture of gasoline or other products, the market
value, at the mouth of the well, of l/5th of such gas and casinghead
gas;
(c) To pay Lessor on all other minerals mined or marketed or
utilized by Lessee from said land, one-tenth either in kind or value at
the well or mine at Lessee's election, except that on sulphur mined and
marketed the royalty shall be $2.50 per long ton. If at the expiration
of the primary term or at any time or times thereafter, there is any
well on said land or on lands with which said land or any portion
thereof has been pooled, capable of producing oil and gas. and all each
xxxxx are shut-in, this lease shall, nevertheless, continue in force as
though operations were being conducted on said land for so long as said
xxxxx are shut-in, and thereafter this lease may be continued in force
as if no shut-in had occurred. Lessee covenants and agrees to use
reasonable diligence to produce, utilize, or market the minerals
capable of being produced from said xxxxx, but in the exercise of such
diligence, Lessee shall not be obligated to install or furnish
facilities other than well facilities and ordinary lease facilities of
flow lines, separator, and lease tank, and shall not be required to
settle labor trouble or to market gas upon terms unacceptable to
Lessee. If at any time or times after the expiration of the primary
term, all such xxxxx are shut-in for a period of ninety consecutive
days, and during such time there are no operations on said land, then
at or before the expiration of said ninety day-period, Lessee shall pay
or tender by check or draft of Lessee, as royalty, the sum of
$7,857.50. Upon making said payment, it will be considered that each
such well is producing gas in paying quantities within the meaning of
this lease for a period of one (I) year after the expiration of said
ninety (90) day period, In like manner and upon like payment being made
annually on or before the expiration of the last preceding year for
which such payment or tender has been made, it will be considered that
said well or xxxxx are producing gas in commercial quantities for
successive periods of one (I) year each. Each such payment or tender
shall be made to the parties who at the time of payment would be
entitled to receive the royalties which would be paid under this lease
if the xxxxx were producing, and may be deposited in the depository
bank provided for below. Nothing herein shall impair Lessee's right to
release as provided in paragraph 4 hereof. In event of assignment of
this lease in whole or in part, liability for payment hereunder shall
rest exclusively on the then owner or owners of this lease, severally
as to acreage owned by each.
4. If at any time or times during the primary term operations are
conducted on said land and if all operations are discontinued, this lease shall
thereafter terminate on the date next following the ninetieth day after such
discontinuance unless on or before such date Lessee conducts operations;
provided, however, if such date is at the end of the primary term, this lease
shall terminate at the end of such term or on the ninetieth day after
discontinuance of all operations, whichever is the later date, unless on such
late date either (1) Lessee is conducting operations or (2) the shut-in well
provisions of paragraph 3 or the provisions of paragraph 10 are applicable.
Whenever used in this lease the word "operations" shall mean operations for and
any of the following: drilling, testing, completing, reworking, recompleting,
deepening, plugging back or repairing of a well in search for or in an. endeavor
to obtain production of oil, gas or sulphur, whether or not in paying
quantities.
OIL AND GAS LEASE. PAGE 2 OF 7 PAGES
08-23-04
5. Lessee shall have the use, free from royalty, of oil and gas
produced from said land in ail operations hereunder. Lessee shall have the right
at any time to remove all machinery and fixtures placed on said land, including
the right to draw and remove casing. No well shall be drilled nearer than 200
feet to the house or barn now on said land without the consent of the Lessor.
Lessee shall pay for damages caused by its operations to growing crops and
timber on said land.
6. The rights and estate of any party hereto may be assigned from time
to time in whole or in part and as to any minerals or horizon. AH of the
covenants, obligations, and considerations of this lease shall extend to and be
binding upon the parties hereto, their heirs, successors, assigns, and
successive assigns, No change or division in the ownership of said land,
royalties, or other moneys, or any part thereof, howsoever effected, shall
increase the obligations or diminish the rights of Lessee, including, but not
limited to, the location and drilling of xxxxx and the measurement of
production. Notwithstanding any Other actual or constructive knowledge or notice
hereof or to Lessee, its successors or assigns, no change or division in the
ownership of said lands of the royalties, or other moneys, or the right to
receive the same, howsoever effected, shall be binding upon the then record
owner of this lease until thirty (30) days after there has been furnished to
such record owner at his or its principal place of business by Lessor or
Lessor's heirs, successors, or assigns, notice of such change or division,
supported by either originals or duly certified copies of the instruments which
have been property filed for record and which evidence such change or division,
and of such court records and proceedings, transcripts, or other documents as
shall be necessary in the opinion of such record owner to establish the validity
of such change or division, If any such change in ownership occurs by reason of
death of the owner, Lessee may nevertheless pay or tender such royalties, or
other moneys, or part thereof, to the credit of the decedent in a depository
bank provided for above.
7. In the event Lessor considers that Lessee has not complied with all
its obligations hereunder, both express and implied, Lessor shall, notify Lessee
in writing, setting out specifically in what respects Lessee has breached this
contract. Lessee shall then have sixty (60) days after the receipt: of said
notice within which to meet or commence to meet all or any part of the breaches
alleged by Lessor. The service of said notice shall be precedent to the bringing
of any action by Lessor on said lease for any cause, and no such action shall be
brought until the lapse of sixty (60) days after service of such notice on
Lessee. Neither the service of said notice nor the doing of any acts by Lessee
aimed to meet all or any of the alleged breaches shall be deemed an admission or
presumption: that Lessee has failed to perform all its obligations hereunder. If
this lease is cancelled for any cause, it shall nevertheless remain in force and
effect as to (I) sufficient acreage around each well as to which there are
operations to constitute a drilling or maximum allowable unit under applicable
governmental regulations, (but in no event less than forty acres), such acreage
to be designated by Lessee as nearly as practicable in the form of a square
centered at the well, or in such shape as then existing spacing rules require;
and (2) any part of said land included in a pooled unit on which there are
operations. Lessee shall also have such easements on said land as are necessary
to operations on the acreage so retained.
8. Lessor's rights and interests hereunder shall be charged primarily
with any mortgages, taxes or other liens, or interest and other charges on said
land, bat Lessor agrees that Lessee shall have the right at any time to pay or
reduce same for Lessor, either before, or after maturity, and be surrogated to
the rights of the bolder thereof and to deduct amounts so paid from royalties or
other payments payable or which may become payable to Lessor and/or assigns
under this lease. If this lease covers a less interest in the oil, gas and
sulphur in all or any part of said land than the entire and undivided fee simple
estate (whether Lessor's interest is herein specified or not), or no interest
therein, then the royalties, and other moneys accruing from any part as to which
this lease covers less than such full interest, shall be paid only in the
proportion which the interest therein, if any, covered by this lease, bears to
the whole and undivided fee simple estate therein. All royalty interest covered
by this lease (whether or not owned by Lessor) shall be paid out of the royalty
herein provided. This lease shall be binding upon each party who executes it
without regard to whether it is executed by all those named herein as Lessor.
9. If, while this lease is in force, at, or after the expiration of the
primary term hereof, it is not being continued in force by reason of production
or the shut-in well provisions of paragraph 3 hereof, and Lessee is not
conducting operations of said land by reason of (1) any law, order, rule or
regulation, (whether or not subsequently determined to be invalid) or (2) any
other cause, whether similar or dissimilar, (except
OIL AND GAS LEASE, PAGE 3 OF ? PAGES
08-23-04
financial) beyond the reasonable control of Lessee, the primary term hereof
shall be extended until the first anniversary date hereof occurring one hundred
and eighty (180) days following the removal of such delaying cause, and this
lease may be extended thereafter by operations as if such delay had not
occurred.
10. Notwithstanding anything hereinabove to the contrary, there is
excepted herefrom and reserved to the Lessor herein all uranium, fissionable
materials and all bentonite, fullers earth and other clay like substances, it is
specifically understood and agreed that this lease covers only oil, gas,
sulphur, and associated liquid or liquefiable hydrocarbons or the constituent
elements of any of the elements named, but this lease does not cover or include
any other minerals with all other such minerals, being reserved to the Lessor
herein. Accordingly, the words "oil, gas" when used herein, shall mean, oil.
gas, sulphur and associated liquid or liquefiable hydrocarbons and their
constituent elements and the words "all other minerals", whenever used herein
shall be stricken from this lease, so that such "all other minerals", as defined
herein are reserved to the Lessor,
11. Lessee's employees and others entitled to admission upon said land
shall confine themselves to their business and duties in the performance of
this lease, and no hunting, fishing or other trespassing shall be permitted by
them; and Lessee shall not permit its employees or any other person to bring any
guns of any kind upon the lease premises.
12. In the event production be established. Lessee agrees to construct
roads sufficient to carry Lessee's equipment and vehicles to all drillsites on
said premises, and such roads shall be maintained by Lessee in good condition so
long as this lease remains in force on the land on which said roads are
situated.
13. Lessee binds Lessee to hold Lessor harmless against and to protect
Lessor from any and all claims of whatsoever kind or character growing out of
the use, occupation and operation of the herein leased premises by Lessee, its
successors or assigns.
14. Upon completion or abandonment of any well drilled upon the leased
premises by Lessee, the surface of the ground appurtenant to such well shall be
smoothed, all excavations and slush pits shall be forthwith filled in, and the
surface of the land restored to substantially the same condition as it was
before the commencement of operations by Lessee, all cost and expense thereof to
be borne by the Lessee, and the surface rights of Lessor in the leased premises
shall be impaired as little as reasonably possible. Promptly after the
completion of drilling operations of any well or xxxxx drilled hereunder, Lessee
shall erect a fence around the pits and excavations caused by Lessee in such
operations, until such time as the ground is in condition that the pits may be
satisfactorily covered (not to exceed in any event 90 days after the completion
of such operations), at which time Lessee shall remove from the land of Lessor
all dumps made by Lessee in such operations, and shall remove from the land of
Lessor all foundations and construction work and debris placed by Lessee on the
leased premises, and shall restore the surface of the land to substantially the
same condition as it was before the commencement of such operations.
15. Lessee shall have the right to pool and combine the lands covered
by this lease, or a portion thereof, with other lands, lease or leases in the
immediate vicinity thereof so as to form a unit or units for the development and
production of oil, gas and gas distillate, provided that no such unit for gas or
gas distillate shall exceed three hundred twenty (320) surface acres plus a ten
percent (10%) tolerance, and for oil, and shall not exceed forty (40) surface
acres plus a ten per cent (10%) tolerance. If Lessee creates any such unit, then
all of the lands constituting the block shall be included in such unit. Lessee
shall execute in writing an instrument identifying and describing the pooled
acreage and each unit thereof, and same shall be filed for record in the County
Clerk's Records in the County in which said land is located. Drilling operations
and production from any part of the pooled acreage shall be treated as if such
drilling operations were upon or such production was from the part of the land
covered by this lease which is within such pool or unit, whether the well or
xxxxx be located on land covered by this lease or not. In iieu of the royalties
on oil, gas and gas distillate elsewhere herein specified, Lessor shall receive
on such production from a unit pooled only such portion of the royalty
stipulated herein as the amount of the acreage placed in the unit or their
royalty interest therein on an acreage basis bears to the total acreage so
pooled in the particular unit involved, provided, however, that this
proportionate reduction of the Lessor's royalty shall not apply to shut-in
royalty.
OIL AND GAS LEASE. PAGE 4 OF 7 PAGES
8-23-04
16. Notwithstanding anything in paragraph numbers three (3) and four
(4) contained to the contary, this lease shall not be kept in force by paying
of shut-in gas royalties as provided in paragraph Nos.. 3 and 4 of this lease
for a period of more than three (3) years beyond the expiration of the primary
term of this lease.
17. In the event a portion or portions of the land described in this
lease are pooled or unitized with other land, lease or leases so as to form a
pooled unit or units, operations for drilling, drilling, or reworking operations
on such unit or units, or production of oil or gas from such unit or units, or
payment of shut-in gas royalties on a well or xxxxx drilled on such unit or
units shall maintain this lease in effect only as to the portion or portions of
the land described in this lease ?which is included in such unit or units. As to
any portion or portions of the land not included in a pooled unit or units, this
lease may be maintained in force and effect in any manner elsewhere provided in
this lease.
18. In the event of termination of this lease as to a portion or
portions hereof, Lesee promptly execute and file for record in the office of the
County Clerk of said county, a written release and surrender of all such
portion or portions of this lease as shall have terminated under the mail to
Lessor an executed copy of such release. A copy of said recorded release shall
be furnished to Lessor within thirty (30) days of its execution.
19. Unless Lessee, in its discretion, elects to rework or reenter a<<
oil or gas well in existence on the effective date of this lease, Lessee shall
have no obligation to plug and abandon or conduct clean up operations on any
such well(s) so as to comply with any governmental regulations or requirements.
20. If during the primary term of this lease Lessee commences the
actual drilling of a well in search of oil or gas on the lease premises, then
said drilling operations shall be prosecuted with reasonable diligence and the
well completed as a producing well or plugged and abandoned as a dry hole within
one hundred and twenty (120) days after spudding. Thereafter, Lessee shall
continue drilling operations on the lease premises with not more than three
hundred and sixty-five {365} days elapsing between completion o r plugging of a
well and spudding of the next well; completion date shall be deemed the date of
filing the initial potential test with the Railroad Commission of Texas, but in
any event not more than thirty (30) days after reaching total depth in such well
aad plugging date shal! be the date of actual plugging or thirty (30) days after
reaching total depth, whichever first occurs. If in the drilling of any of said
xxxxx, Lessee encounters mechanical difficulties rendering further drilling
impractical in the good faith judgment of Lessee, Lessee may plug and abandon
said well and commence another well within sixty (60) days after such plugging
and abandoning and thereafter drill said well in the same manner and within the
same time as provided for the well having mechanical difficulties. In such event
such well shall be considered a substitute well and shall be deemed in
compliance with the terms hereof.
Upon cessation of such continuous development program, this lease shall
ipso facto terminate and all lands covered by this lease shall revert to Lessor
free of any lease or burden of whatsoever nature, save and except each producing
well and the tract upon which it is situated as specified and designated by
Lesee. If production of oil or gas from the lease premises should cease from any
cause, this lease shall nevertheless continue in force as long as additional
drilling operation or reworking operations are conducted on this tease with no
cessation of more than ninety (90) days between the abandonment of operations on
one well and the actual spudding of another well and if production is obtained,
this lease shall thereafter continue as long as oil and gas are produced from
said land.
21. With the prior consent of Lessor, which consent shall not be
unreasonably withheld, Lessee may by written assignment assign this Lease and
its rights and interests arising thereunder either in whole or in part. In the
event of such assignment, Lessee shall notify Lessor of such assignment and
provide Lessor with the identity and address of the party in whose favor the
assignment has been made
22. In the event of any conflict between the terms and provisions of
this Lease and division orders that may be issues in connection, with production
from the lease premises the terms and provisions of this Lease shall be
controlling.
OIL AND GAS LEASE, PAGE 5 OF 7 PAGES
08-23-04
23. Attached hereto and made a part of this Lease for all purposes is
an Addendum to Oil, Gas and Mineral Lease.
IN WITNESS WHEREOF, this instrument is executed on the date first above written.
If this lease is executed in counterparts, then each is to be considered an
original.
LESSOR:
The Northern Trust Bank of Texas, N.A.
as Successor Trustee of the Xxxxx Xxxxx
Xxxx Mineral Trust
/s/ SIGNATURE UNKNOWN
OIL AND GAS LEASE, PAGE 6 OF 7 PAGES
0-00-00
Xxxxx xx Xxxxx
}XX.
Xxxxxx xx Xxxxxx
Xx September 30, 2004 before me, the undersigned, a Notary Public in and for
County and State, personally appeared Xxxxxx M, Ruoker, a Vice President with
Northern Trust Bank, of Texas N.A. personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) IS/ARE
subscribed to the within instrument and acknowledged to me that HE/SHE/THEY
executed the same in HIS/HER/THEIR authorized capacity(ies), and that by
HIS/HER/THEIR signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ XXXXX XXXXXXX
------------------
SIGNATURE
THIS AREA FOR NOTARY SEAL
[NOTARY SEAL GOES HERE]
XXXXX XXXXXXX
MY COMMISSION EXPIRES
AUGUST 26, 2005
ADDENDUM TO OIL, GAS AND MINERAL LEASE
1. It is understood and agreed that this lease is made, executed and delivered
by Lessor only in the capacity of Trustee and not otherwise, and that it
shall be liable and responsible hereunder only in that capacity and not
otherwise. Lessee for himself his successors and assigns, hereby waives,
releases and relinquishes all recourse against Lessor save as such Trustee,
hereby agreeing to look solely to the assets of said Trust estate for
satisfaction of any claim or demand of whatsoever nature he may have or
assert under or by virtue hereof.
2. It is further agreed by all parties to this lease that Lessor does not
warrant title to the subject lands nor to the minerals or hydrocarbons
located in the subject lands.
3. It is understood and agreed by Lessee that all rights granted in this lease
pertain only to oil, gas, and other associated hydrocarbon substances.
4. This lease shall not be continued in effect more than two (2) years beyond
the end of the primary term by the payment of shut-in royalty, by force
majeure or by any other means except continuous operations or the actual
production of oil, gas, and other associated hydrocarbon substances in
paying quantities from the leased premises or lands with which the premises
are pooled hereunder. hi the case of force majeure or shut-in royalty, the
period of lease maintenance is not to exceed a cumulative period of three
(3) years.
5. Notwithstanding anything to the contrary contained herein after the
expiration of five years from the end of the primary term and after all
continuous operations have ceased, Lessee ?and/or its heirs, successors and
assigns shall release all acreage not then dedicated to a proration unit
designated by the appropriate regulatory body. Lessee, and/or its heirs,
successors and assigns, shall also release all acreage, which maybe
included with in the boundaries of a producing proration or spacing unit,
covering all depths and horizons 100 feet below the deepest depth drilled,
in any well commenced during the primary terra of this Lease or at such
time continuous operations have ceased.
6. Upon completion of a well, either as a dry bole or one capable of producing
in paying quantities, Lessee agrees to adequately bury all drilling mud,
pit lining, and other foreign substances in the pits for the well and
restore the pit area to as close as its original state prior to the
commencement of operations, as a reasonably prudent Operator would conduct
under same and similar circumstances. Also, Lessee agrees to remove all
caliche and other base material hauled on to a well location and the road
thereto for the drilling of a well, which upon completion of the well, are
not necessary to conduct prudent oilfield operations.
7. Lessee a grees to indemnify and hold harmless Lessor, and L essor's
surface tenants, from any and all loss, damage and expense sustained or
incurred (including but not limited to reasonable attorneys' fees,
reasonable accountants' fees and punitive damages) with respect to any
claim, demand, cause and cause of action of any third party (including the
present or future tenants of the surface rights) emanating from, either
directly or indirectly. Lessee's, operations on the leased premises.
Page 1 of 2
08-23-04
8. Lessee agrees that as to any well which may be abandoned by it on the
leased premises, it will leave the surface casing therein in conformity
with the requirements of the Texas Railroad Commission and any other
governmental authority having jurisdiction.
9. Any contamination of ground water on the leased premises resulting from
Lessee's activities or omissions shall be their sole responsibility and
Lessee shall bear the full cost of cleanup, including any fines by any
governmental agency.
10. The "free use of gas, oil and water from the leased premises" as set forth
in the lease herein, shall only apply to the storage and extraction of
same from the leased premises and shall not apply to pooling agreements.
11. Lessee shall deliver to the credit of the Lessor, free of all costs the
oil, gas, and associated hydrocarbon substances into the pipeline to which
the xxxxx may be connected. These costs, include but are not limited to
the costs and expenses of dehydrating, transporting, compressing,
treating, gathering, or otherwise rendering marketable the gas produced
from said well, if any, into the pipeline to which the xxxxx may be
connected.
12. Lessee shall bear all costs for utilities in connection with their
operations on the leased premises, including the costs of pumping their
"free" water from xxxxx they have developed on the leased premises.
13. No fluids other than gas or water may be injected into the leased premises
without the express written consent of Lessors, and without environmental
clearances from the appropriate governmental agencies, such as the Texas
Railroad Commission.
14. Except as otherwise required by governmental authority, spacing for oil
shall be:
40 Acres 0 feet to 8,000 feet
80 Acres 8,000 feet to 10,000 feet
160 Acres 10,000 feet to 14,000 feet
320 Acres A depth greater than 14,000 feet
Spacing for gas shall be:
160 Acres 0 feet to 6,000 feet
320 Acres 6,000 feet to 12,000 feet
640 Acres A. depth greater than 14,000 feet
15. It is agreed and understood by all parties hereto that the provisions of
this Addendum supersede any provisions to the contrary in the printed
lease hereof.
Page 2 of 2
08-23-04
