HomeMy WebLinkAboutResolution - 2006-R0119 - Option Agreement - Cone & Petree - Oil & Gas Lease, Covering 480 Acres - 03_08_2006Resolution No. 2006-RO119
March 8, 2006
Item No. 6.11
RESOLUTION
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK:
THAT the Mayor of the City of Lubbock BE and is hereby authorized and
directed to execute for and on behalf of the City of Lubbock, an Option Agreement to
Purchase Oil and Gas Lease (the "Option"), granting an option to Cone & Petree Oil and
Gas Exploration, Inc. ("Cone & Petree") to purchase an Oil and Gas Lease, covering 480
acres of land, more or less, being the East One-half (E/2) and the Northwest Quarter
(NW/4) of Section 14, Block 1, Certificate 360, Abstract No. 742, Lubbock County,
Texas, and further authorizing the Mayor to execute for and on behalf of the City of
Lubbock, all related documents thereto, including without limitation, the Oil and Gas
Lease attached as Exhibit "A" to the Option, upon the valid and timely exercise of the
rights granted in the Option. Said Option is attached hereto and incorporated in this
Resolution as if fully set forth herein and shall be included in the minutes of the Council.
Passed by the City Council this 8th day of
Z
ATTEST:
,-�Q C.
Rebecca Garza, City Secretary
ZPRO D AS TO CONTENT:
Tom Ademr9'/D76puty City Manager
APPROVED AS TO FORM:
f ! `T
Richard K. Casner
First Assistant City Attorney
ml/ccdocs/Petree OGL Option Agrec.res
March 1, 2006
Resolution No. 2006-RO119
March 8, 2006
Item No. 6.11
OPTION AGREEMENT TO PURCHASE OIL AND GAS LEASE
STATE OF TEXAS
COUNTY OF LUBBOCK
Lessor: City of Lubbock
Lessor's P.O. Box 2000
Address: Lubbock, Texas 79457-2000
Attn: City Manager
Lessee: Cone & Petree Oil and Gas Exploration, Inc.
Lessee's P.O. Box 3457
Address: Lubbock, Texas 79452
Date Executed: March 8, 2006
Effective Date: March 8, 2006
FOR THE SUM OF ONE HUNDRED AND NO/100 DOLLARS ($100.00), AND OTHER GOOD
AND VALUABLE CONSIDERATION, Lessor grants and sells to Lessee an exclusive option (the "Option")
commencing on the Effective Date and ending at 5:00 p.m. on September 8, 2006 (the "Option Term"), to
purchase an Oil and Gas Lease (the "Lease") covering Lessor's mineral interest in and under the
following described lands (the "Lands") in Lubbock County, Texas, to -wit:
The East One -Half (E12) and the Northwest Quarter (NW/4) of
Section 14, Block I, Certificate No. 360, Abstract No. 742, Lubbock
County, Texas.
The terms and provisions of the Lease for which the Option is granted will be identical to those
contained in the Lease attached as Exhibit "A" to this agreement, which Exhibit is made a part of this
agreement for all purposes.
In the event Lessee elects to purchase the Lease prior to the expiration of the Option Term,
Lessee shall give Lessor written notice of Lessee's election along with the payment of the sum of One
Hundred and no/100 Dollars ($100.00) per net mineral acre owned by Lessor, as bonus consideration for
the Lease. Written notice and the bonus payment shall be deemed to have been timely given by Lessee
if deposited in the United States mail, bearing adequate postage, addressed to Lessor, at the address set
out above, at any time prior to three (3) days before the expiration of the Option Term.
If Lessee fails to give written notice of Lessee's election to purchase the Lease and tendered to
Lessor the described bonus payment prior to the expiration of the Option Term, it shall be deemed that
Lessee has elected not to purchase the Lease, and the Option shall expire automatically.
Upon the timely tender to Lessor, as described above, of notice of Lessee's election to exercise
the option and the bonus consideration, Lessor and Lessee shall each execute and acknowledge the
Lease . After execution and acknowledgement by Lessor and Lessee, Lessor shall deliver the Lease to
Lessee.
This Agreement is given in replacement of that certain Option Agreement to Purchase Oil and
Gas Lease (the "Original Option"), dated on or about September 21, 2005, Resolution No. 2005-R0440,
OPTION AGREEMENT TO PURCHASE OIL AND GAS LEASE • PAGE 1
by and between Lessor and Lessee. Lessor and Lessee, by the execution and delivery of this
Agreement, hereby terminate the Original Option.
Lessor agrees to furnish Lessee any abstracts in Lessor's possession covering the Lands which
are subject to the Option in the Lease.
LESSOR:
CITY OF LUBBOCK
ATTEST:
Reb cca Garza, City Secretary
APPROVED TO CONTENT:
dams, Depu y City Manager
APPROVED AS TO FORM:
Riohard K. Casner
First Assistant City Attorney
STATE OF TEXAS §
COUNTY OF LUBBOCK §
sf_
The foregoing instrument was acknowledged before me on the 3I day of March, 2006 by
Marc McDougal, Mayor of the CITY OF LUBBOCK.
Place Seal, Printed Name 1, '
& Commission Expiration No a Public, ate of Texas
Date Here:
CEUA WEBB
(a Notary Public, date 0f Tex
Icy Cmirisson Egim 03.012010
OPTION AGREEMENT TO PURCHASE OIL AND GAS LEASE - PAGE 2
LESSEE:
CONE & PETREE OIL and GAS
EXPLORATION, INC.
BY:
arty J9. Petree, President
STATE OF TEXAS §
COUNTY OF LUBBOCK §
P_
The foregoing instrument was acknowledged before me on the _ day of March, 2006 by
Larry G. Petree, President of CONE & PETREE OIL AND GAS EXPLORATION, INC., a Texas
corporation.
Place Seal, Printed Name
& Commission Expiration No ry Public, State of Texas
Date Here:
KIM MARIE DEYOUNG
'Notary Pub4kc state of Texas
sp';e My Cnmm ssron Expires 10 30 06
y,: rF del
ml/Richard/Option Agreement. Petree OGLO30806
February 28, 2006
OPTION AGREEMENT TO PURCHASE OIL AND GAS LEASE • PAGE 3
Resolution No. 2006-RO119
Exhibit "A" to
Option Agreement to Purchase Oil and Gas Lease
PAID UP
OIL AND GAS LEASE
THIS AGREEMENT, made and entered into this day of 92006,
between the City of Lubbock, a Texas home rule municipal corporation, whose address is
P. O. Box 2000, Lubbock, Texas 79457 (hereinafter called "Lessor" ), and Cone &
Petree Oil and Gas Exploration, Inc., a Texas Corporation, whose address is P.O. Box
3457, Lubbock, Texas 79452 (hereinafter called "Lessee").
WITNESSETH:
1. Grant. That Lessor, in consideration of Ten Dollars (SI0.00) in hand paid, of
the royalties herein provided and of the agreements of Lessee hereinafter contained,
hereby grants, leases and lets unto Lessee for the sole purpose of exploring, drilling,
operating for and producing oil, liquid hydrocarbons, gas and other respective constituent
products, and of laying pipelines, storing oil, building tanks (but not tank farms), roads
and other structures thereon, as provided herein, necessary to produce, save, care for,
treat, store and transport said products from the land leased hereunder only, the following
described land situated in Lubbock County, Texas (sometimes referred to as the "Lease
Premises"), to -wit:
The east one-half (E/2) and the northwest quarter (NW/4) of Section 14,
Block I, Certificate #360, Abstract Number 742, Lubbock County, Texas.
For purposes of calculating any shut-in royalty payments herein provided for, said land is
estimated to contain 480 acres, whether it actually contains more or less.
2. Primary Term. Subject to the other provisions herein contained, this lease
shall be for a term of three (3) years from this date (called "primary term") and as long
thereafter as oil, liquid hydrocarbons, gas or their respective constituent products, or any
of them, is produced in paying quantities from said land, or land with which said land is
pooled as herein permitted.
3. Royalties. Lessee shall pay the following royalties, subject to the following
provisions:
A. Lessee shall either pay the Lessor twenty-five percent (25%) of
the market value of all oil and other liquid hydrocarbons produced
and saved from the Lease Premises; or after sixty (60) days written
notice from Lessor, which notice may be given from time to time,
deliver free of cost, to Lessor at the wells or to the credit of Lessor
into the pipeline to which the well may be connected such
percentage of all oil and other liquid hydrocarbons produced and
saved from the Lease Premises. As used herein, market value shall
be conclusively presumed to be the amount realized by Lessee
from an arm's length sale. By way of definition, "arm's length"
shall not include any sales made to Lessee's wholly or partially
owned subsidiaries or controlled entities or pursuant to or under
any type of agreement, contract or arrangement for a term in
excess of twelve (12) months.
B. Lessee shall pay the Lessor twenty-five percent (25%) of the
market value for all gas (including all substances contained in such
gas) produced from the Lease Premises and sold by Lessee or used
off the Lease Premises; provided, however, that the royalty portion
of such gas shall be free and clear of all of the costs and expenses
of dehydrating, transporting, compressing, treating, gathering or
otherwise rendering marketable or marketing such gas, and no
deduction shall be made for any of such costs and expenses in
computing the market value of the gas or in computing any
payment to be made to Lessor pursuant to this clause (B). By way
of definition, "arm's length" shall not include any sales made to
Lessee's wholly or partially owned subsidiaries or controlled
entities or pursuant to or under any type of agreement, contract or
arrangement for a term in excess of twelve (12) months.
C. Lessee shall pay Lessor royalty on all gas produced from a well on
the Lease Premises or on lands pooled with the Lease Premises and
sold or used off the Lease Premises regardless of whether or not
such gas is produced to the credit of Lessee or sold under a
contract executed by or binding on Lessee. Should gas be sold
under a sales contract not binding on Lessor, Lessor's royalty will
be calculated based on the greater of the market value of the gas, or
the highest price paid for any of the gas produced from the well
from which such gas is produced. In no event will the price paid
Lessor for Lessor's share of gas be less than the price paid Lessee
for Lessee's share of gas.
D. While there is a well on the Lease Premises capable of producing
gas in paying quantities but the production thereof is shut-in or
suspended for any reason, Lessee may pay as royalty on or before
90 days after the date on which (i) production from any such well
is shut-in or suspended or (ii) this lease is no longer maintained by
compliance with other provisions hereof, whichever is the later
date, and thereafter at annual intervals, a sum in the amount of
$25.00 per surface acre covered by this lease, that is allocated to
the Proration Unit for the shut-in well, without proportionate
reduction, and if such payment is made or tendered in accordance
with the terms hereof, this lease shall not terminate but shall
continue in full force, subject to the provisions of paragraph 7, and
it will be considered that gas is being produced from the Lease
PaidUp Oil Gas Lease Page 2 of 17
Premises in paying quantities within the meaning of each pertinent
provision of this lease. however, in no event shall shut-in well
payments maintain this lease in force for a cumulative period
exceeding three (3) years. Lessee shall not be entitled to recover
any shut-in royalty payments from the future sale of gas. Should
the shut-in period extend beyond the expiration of the primary
term, such shut-in provision will pertain only to the Proration Unit
of such gas well as provided for in paragraph 7. Should such shut-
in royalty payments not be made in a timely manner or extend or
attempt to extend a period greater than three (3) years as provided
in this paragraph, it will be considered for all purposes that there is
no production or no excuse for delayed production of gas from any
such well or wells and unless there is then in effect other
preservation provisions of this lease, this lease shall terminate at
midnight on the last day provided for the payment of such shut-in
royalties, and Lessee shall thereupon furnish to Lessor a release of
all its interest in and into this lease insofar as this lease covers
lands not otherwise maintained pursuant to the terms hereof.
E. Lessee agrees that before any gas produced from the Lease
Premises is used or sold off the Lease Premises, it will be run, free
of cost to Lessor, through an adequate oil and gas separator of a
conventional type or equipment at least as efficient, to the end that
all liquid hydrocarbons recoverable from the gas by such means
will be recovered on the lease.
F. If Lessee or Lessee's agent or contractor as operator receives any
payment of proceeds of production attributable to the royalty
interest reserved herein, such party shall cause distribution of such
proceeds to be made to Lessor, with a copy of the purchaser's run
statement within thirty (30) days from the receipt of such payment
by such party from the purchaser. If Lessor fails to receive
payments in a timely manner, then Lessor may make written
demand to Lessee for payment and if the default continues for
sixty (60) days after the date of such written demand, then Lessor
may terminate this Lease.
4. Paid up Lease. This is a "paid up" lease and all references to delay rentals shall
be disregarded.
5. Poollne. Lessee is hereby granted the right to pool or combine the land covered
by this lease, or any part or parts thereof, as to all strata or any stratum, with any other
land, as to all strata or any stratum, for the production of oil and gas. Without the written
approval of the Lessor, no portion of the Lease Premises shall be included in a pooled
unit in which the Lease Premises comprises less than fifty (50) per cent of the acreage in
the unit. Pooling in one or more instances shall not exhaust the right of Lessee hereunder
PaidUp Oil Gas Lease Page 3 of 17
to pool this lease or portion thereof into other or different units. Units pooled for oil
hereunder shall not exceed forty (40) acres each, and units pooled for gas hereunder shall
not exceed one hundred sixty (160) acres each, provided that if any federal or state law,
executive order, rule or regulation shall prescribe a spacing pattern for the development
of the field or allocate a producing allowable based in whole or in part on acreage per
well, then any such unit may consist of the minimum number of acres which will permit
the allocation to such unit and the well thereon of the maximum producing allowable. To
effect a unit or units Lessee shall file a written unit designation and surveyor's plat
outlining any such unit and describing the participating tracts in the Real Property
Records of Lubbock County, Texas. A copy of the unit designation shall be famished to
Lessor within thirty (30) days after it is filed in such records, and if Lessee fails to do so,
such unit may be declared invalid by Lessor by an instrument filed in such county
records. Drilling or reworking operations and production on any part of the pooled
acreage shall be treated for all purposes hereof (except the payment of royalties on such
production) as if such drilling or reworking operations were upon or such production was
from the Lease Premises whether the well or wells be located on the land covered by this
lease or not. For the purposes of computing the royalties and other payments out of
production to which the owners of such interests shall be entitled on production of oil and
gas, or either of them, for any such pooled unit, there shall be allocated to the land
covered by this lease and included in such unit (or to each separate tract within the unit if
this lease covers separate tracts within the unit) a pro rats portion of the oil and gas, or
either of them, produced from the pooled unit. Such allocation shall be on an acreage
basis, thus, there shall be allocated to the acreage covered by this lease and included in
the pooled unit (or to each separate tract within the unit if this lease covers separate tracts
within the unit) that pro rata portion of the oil and gas, or either of them, produced from
the pooled unit which the number of surface acres covered by this lease (or in each such
separate tract) and included in the unit bears to the total number of surface acres included
in the pooled unit. Royalties hereunder shall be computed on the portion of such
production whether it be oil and gas, or either of them so allocated to the land covered by
this lease and included in the unit just as though such production were from such land. In
the event only a part, or parts, of the land covered by this lease is pooled or unitized with
other land, or lands, so as to form a pooled unit, or units, operations on or production
from such unit, or units, will maintain this lease in force only as to the land included in
such unit, or units. This lease may be maintained in force as to any land covered hereby
and not included in such unit or units in any manner provided for herein.
6. DrillinPJ Reworking Operations. If at the expiration of the primary tern of
this lease oil or gas is not being produced from the leased premises, but Lessee is then
engaged in drilling operations thereon, this lease shall remain in force so long as drilling
or reworking operations are prosecuted with no cessation of more than sixty (60)
consecutive days, and if they result in production of oil or gas so long thereafter as oil or
gas is produced from said premises, subject to the other provisions of this lease. If after
the expiration of the primary tern of this lease production of oil and gas should cease
from any cause, this lease shall not terminate as to the premises continued to be covered
hereby if Lessee commences drilling or reworking operations within ninety (90) days
after the cessation of such production so long as such operations are prosecuted with no
PaidUp Oil Gas Lease Page 4 of 17
cessation of more than sixty (60) consecutive days, and if they result in production of oil
or gas, so long thereafter as oil or gas is produced from said premises, subject to the other
provisions of this lease. In the event a well or wells producing oil or gas should be
completed on adjacent land within three hundred (300) feet, measured from the location
of the perforations in the wellbore in the producing formation of the well on the adjacent
land, of the Lease Premises for an oil well or within six hundred (600) feet of the Lease
Premises for a gas well, Lessee agrees to commence the drilling of an offset well within
one hundred twenty (120) days or release that portion of the Lease Premises that would
be allocated to such well unit. If oil or gas is discovered on the land covered by this
lease, or on land pooled therewith, Lessee agrees to further develop said land covered by
this lease as a reasonably prudent operator would under the same or similar
circumstances.
7. Continuous Overation/ Retained Acreage. If at the expiration of the primary
term, Lessee has obtained production of oil and/or gas on the Lease Premises or upon
lands pooled therewith, or is then engaged in drilling or reworking operations which
result in the production of oil or gas in paying quantities, Lessee shall thereafter
continuously develop the Lease Premises with no more than one hundred twenty (120)
days between the (i) expiration of the primary term, in the event Lessee has obtained such
production prior to the expiration of the primary term; or (ii) completion of the well
establishing such production, in the event Lessee is engaged in drilling or reworking
operations at the expiration of the primary term, and the commencement of actual drilling
operations of a second well, and thereafter shall drill additional wells with no more than
one hundred twenty (120) days between the completion of one well and the
commencement of actual drilling operations of another well until the Lease Premises are
fully developed on spacing as established under the rules and regulations of the
governmental authority having jurisdiction (the "Proration Unit'). In the absence of field
rules promulgated by the appropriate governing body having jurisdiction, the term
"Proration Unit" as used herein means the following number of acres, depending on the
depth to which the well has been drilled, and whether the well is an oil or gas well: A.
forty (40) acres for an oil well, completed at any depth; B. (i) eighty (80) acres for a gas
well, completed at a depth of less than 2000 feet subsurface; and (ii) one hundred sixty
(160) acres for a gas well, completed at a depth of greater than 2000 feet subsurface. As
to each Proration Unit, this Iease shall continue in force as long as oil or gas is produced
in paying quantities therefrom or so long as drilling or reworking operations are
prosecuted therein as provided in paragraph 6 and shall be limited in depth from the
surface down to and including the deepest depth of case set in the subject well; and,
subject to the provisions of this paragraph 7 and paragraph 6, Lessee shall execute a
release of this lease as to the balance of the land covered hereby as well as lands below
the deepest depth of case set in the well for the respective Proration Units. If a portion of
Lessee's rights terminate as provided in this paragraph 7, then Lessee shall designate in
writing the Proration Units(s), in as nearly the form of a square as possible, including the
acreage and the depths it is allowed to retain around each oil well and each gas well and
such written designation shall be filed for record in the Real Property Records of
Lubbock County, Texas.
PaidUp Oil Gas Lease Page 5 of 17
8. Prior Surface Restrictions. Lessee shall comply with any applicable
restrictions, covenants or agreements relating to use of the surface of the Lease Premises
which may be contained in any deed or other instrument appearing in Lessor's chain of
title to the Lease Premises and shall hold Lessor harmless from any failure by Lessee to
so comply.
9. Oil and Gas. This lease does not include and there is hereby excepted and
reserved to Lessor all of the sulphur, coal, lignite, uranium and other fissionable
materials, geothermal energy (including entrained methane, hydrostatic pressure and
thermal energy), base and precious metals and any other mineral substances (except oil,
liquid hydrocarbons, gas and their respective constituent products expressly covered
under this lease) owned by Lessor in, under or upon the Lease Premises, together with
rights of ingress and egress and use of the Lease Premises by Lessor and its mineral
lessees, for purposes of exploration for and production of the minerals reserved herein to
Lessor. Lessor and Lessee shall each conduct their respective operations on the Lease
Premises so as not to unreasonably interfere with the operations or activities of the other.
10. Assignment. The rights of either party hereunder may be assigned in whole or
in part and the provisions hereof shall extend to the heirs, executors, administrators,
successors and assigns of the parties hereto. If any assignment is made by Lessee or
Lessee's assignees or successors, of this lease, or any portion thereof, the assignee(s)
shall within thirty (30) days after the date of such assignment notify Lessor in writing of
the name and current address of the assignee(s), which notice shall also identify the lease
and property involved and the interest assigned. No change or division in ownership of
the land or royalties however accomplished shall operate to enlarge the obligations or
diminish the rights of Lessee, nor shall any such change or division be binding upon
Lessee for any purpose until the person acquiring any interest has furnished Lessee with
the instrument or instruments, or certified copies thereof, constituting the change of title
from Lessor.
11. Force Maleure. Lessee shall not be liable for delays or defaults in its
performance of any agreement or covenant hereunder (other than any covenant or
agreement which is related to the payment of money) due to force majeure. The term
"force majeure" as used herein shall mean (i) any act of God, including but not limited to
storms, floods, washouts, landslides and lightning; or (ii) the inability to obtain or secure
the use of equipment, services, or material necessary to drill or complete a well. This
lease is expressly made subject to, and Lessee in its operations hereunder shall comply
with applicable requirements of, all federal and state laws, and rules and regulations of
any governmental authority, state or federal, having jurisdiction over the Lease Premises,
and nothing herein contained shall be construed as requiring Lessee to violate any such
laws, rules or regulations or to penalize Lessee for complying therewith. If Lessee is
required, ordered or directed by any federal or state law, or any order, rule, or regulation
of governmental authority to cease drilling, reworking or producing operations on the
Lease Premises, or if Lessee by force majeure is prevented from conducting such
operations, then until such time as such law, order, rule, regulation or force majeure is
terminated and for a period of sixty (60) days after such termination, so long as Lessee
PaidU,p Oil Gas Lease Page 6 of 17
shall comply with the notice provisions herein, each and every provision of this lease or
implied covenant arising thereunder that might operate to terminate this lease or the
estate conveyed by it (other than any covenant or agreement which relates to the payment
of money) shall be suspended and inoperative and this lease shall continue in full force
and effect; provided, however, that in no event shall the term hereof be so extended for a
cumulative period of more than one hundred eighty (180) days solely by reason of this
paragraph. In the event Lessee shall claim the occurrence of a force majeure event,
Lessee shall provide notice to Lessor, on or before five (5) business days after the
occurrence of the claimed force majeure event, containing (i) a description, and the
surrounding facts and circumstances, of such claimed force majeure event; (ii) the actions
Lessee is and/or has taken to avoid, mitigate or remedy such claimed force majeure
event; and (iii) the anticipated duration of the claimed force majeure event. In the event
Lessee shall fail to provide such notice within the time period prescribed herein, it shall
be deemed for all purposes that the claimed event does not constitute a force majeure
event under this lease.
12. Information to Lessor. Lessee shall notify Lessor in writing of the location of
all wells to be drilled upon the Lease Premises, or on any land pooled therewith, no later
than ten (10) days prior to commencement of operations, and shall advise Lessor in
writing of the date of completion and/or abandonment of each such well within thirty (30)
days after completion or abandonment. Such written notice shall include a copy of the
drillsite title opinion rendered by a title attorney. If such well is completed as a well
capable of producing oil or gas in paying quantities, Lessee shall furnish Lessor with a
copy of the division order title opinion rendered by a title attorney, including an opinion
prepared for a pooled unit. Lessee agrees from time to time to furnish at no cost to
Lessor, or its authorized representatives, upon request of Lessor, full and complete
information possessed or hereafter acquired by Lessee with respect to:
A. All operations on the Lease Premises and the production of oil,
liquid hydrocarbons, gas and their respective constituent products
therefrom, including but not limited to, samples of cores, results of
drill stem and electrical logs thereof, and
B. Information regarding the sale of oil, liquid hydrocarbons, gas and
their respective constituent products hereunder to the extent that
such information is pertinent to the calculation of royalty payments
as provided herein.
During the term of this lease, Lessor and its authorized representatives shall at all times
have full right of ingress and egress to the Lease Premises. Lessee agrees to furnish
Lessor at no cost with copies of all logs, potential tests, drill stem tests, completion
reports and other pertinent data pertaining to all wells drilled on the Lease Premises.
Lessor and its representatives shall also have the right at Lessee's offices during regular
business hours to inspect, examine and make copies of and extracts from such of Lessee's
books, records, accounts, contract, commitments and agreements as relate to the Lease
PaidUp Oil Gas Lease Page 7 of 17
Premises, operations thereon or production therefrom (including, without limitation, the
information referred to above).
To the extent provided by law, any information or samples obtained by Lessor or its
authorized representatives pursuant to the rights set forth above, shall be deemed by
Lessor and Lessee to be confidential, trade secrets and proprietary information of Lessee.
In the event Lessor shall receive a request for such information by a third party, Lessor
shall make a good faith attempt to notify Lessee in accordance with Texas law of such
request so that Lessee may protect its rights. Except as to information disclosed pursuant
to the Texas Public Information Act (Texas Government Code, Chapter 552), if any,
Lessor shall require contractual confidentiality agreements with any party to whom it
shares such information. Nothing herein shall be construed to require Lessor to make any
efforts to protect such information, except as expressly provided herein, nor shall Lessor
be responsible or liable, in any way, manner or form, for the breach by any third party of
any confidentiality agreement required herein.
13. Proportionate Reduction. Lessor executes and delivers this lease without
warranty of title, either express, implied, or of any other kind, including without
limitation, any warranties that may arise by virtue of, or under, Section 5.023 of the
Texas Property Code. If Lessor's interest in the minerals covered by this lease in, on and
under the Lease Premises is less than the entire undivided fee simple estate, then Lessor
agrees that the royalties provided for in this lease shall be paid to Lessor in the proportion
which Lessor's interest bears to the entire and undivided fee simple estate therein. Lessee
at its option may discharge any tax lien upon Lessor's interest in the land covered by this
lease (unless such tax lien is being contested in good faith by Lessor by appropriate
proceedings instituted for such purpose) and, in the event Lessee does so, Lessee shall
have the right to apply royalties hereunder to reimburse such payment.
14. Indemnifcation / Plueeintr. Lessee assumes all risk and liability of any kind
and nature incident to, occasioned by or resulting in any manner from Lessee's operations
hereunder, agrees to keep the Lease Premises duly and fully protected against liens of
every character arising, in connection with, or resulting from, said operations AND
AGREES TO INDEMNIFY AND HOLD LESSOR, LESSOR'S ELECTED
OFFICIALS, OFFICERS, AGENTS, AND EMPLOYEES HARMLESS FROM AND
AGAINST ANY AND ALL LIENS AND CLAIMS OF ANY KIND FOR DAMAGES
OCCASIONED BY, OR ON ACCOUNT OF, SAID OPERATIONS AND AGAINST
ANY AND ALL CLAIMS FOR PROPERTY DAMAGE, PERSONAL INJURY OR
DEATH SUSTAINED BY ANY PERSON OR PERSONS WHOMSOEVER,
NATURAL OR CORPORATE, IN CONNECTION WITH, RELATED TO OR
RESULTING FROM LESSEE'S OPERATIONS HEREUNDER.
Lessee shall obtain and maintain in full force and effect during the term of this Lease
insurance coverages stated below with insurance carvers admitted to do business in the
state of Texas. The insurance companies must carry a Best's Rating of A-VII or better.
The policies shall be written on an occurrence basis. In the event Lessee shall contract
with any person or party to perform any or all of the operations or activities contemplated
PaidUp Oil Gas Lease Page 8 of 17
by this Lease, such person or party shall also obtain insurance coverage as required
herein of Lessee.
General Liability:
Lessee's insurance shall contain broad form contractual liability with a combined single
limit of a minimum of $1,000,000 each occurrence and in the aggregate and shall include
the following:
• Bodily Injury and Property Damage
• Personal Injury and Advertising Injury
• Fire legal liability
• Products and completed operations
• Control of Well coverage
Control of Well coverage may either be endorsed onto the liability package policy, or
may be a separate policy. In either event, the $1,000,000 limit shall apply separately to
this coverage.
Business Automobile Liability:
Lessee's insurance shall contain a combined single limit of at least 5500,000 per
occurrence, and include coverage for, but not limited to, the following:
Bodily injury and property damage
• Any and all vehicles owned, used or hired
Workers' Compensation and Employers Liability Insurance:
In the event Lessee shall employ any person(s), Lessee shall elect to obtain workers'
compensation coverage pursuant to Section 406.002 of the Texas Labor Code. Further,
Lessee shall maintain said coverage throughout the term of this Lease and shall comply
with all provisions of Title 5 of the Texas Labor Code to ensure that the Lessee maintains
said coverage.
Notwithstanding anything to the contrary herein, in the event Lessee shall contract with
any person or party to perform all of its operations or activities contemplated by this
Agreement, such person or party shall obtain the required Workers' Compensation
Insurance and, in such event, Lessee shall be relieved of such obligations.
Employer's Liability with limits of at least $500,000 each accident, $500,000 by disease
policy limit, and $500,000 by disease each employee shall also be obtained and
maintained throughout the term of this Lease.
Environmental Impairment Liability Insurance:
Lessee's insurance shall contain a combined single limit of at least $1,000,000 per
occurrence.
Other Insurance Requirements:
Lessee agrees to waive its right of recovery against Lessor for all claims and suits against
Lessor which are or may be covered by the above described insurance coverages. In
addition, its insurers, through policy endorsement, waive their right of subrogation
PaidUp Oil Gas Lease Page 9 of 17
against Lessor for all claims and suits. The certificate of insurance must reflect waiver of
subrogation endorsement. Lessee further waives its right of recovery, and its insurers
also waive their right of subrogation against Lessor for loss of its owned or leased
property or property under its care, custody, or control.
Lessee's insurance policies through policy endorsement must include wording, which
states that the policy shall be primary and non-contributing with respect to any insurance
carried by Lessor. The certificate of insurance described below must reflect that the
above wording is included in evidenced policies.
All policies required above (excluding Workers' Compensation) shall include a
severability of interest endorsement and shall name the Lessor as an additional insured
with respect to work performed under this Lease. Severability of interest naming Lessor
as an additional insured shall be indicated on the certificate of insurance described below.
Lessee shall provide a Certificate of Insurance to the Lessor as evidence of the required
insurance coverage. The Certificate will provide 30 days notice of cancellation. A copy
of the required endorsements and waivers of subrogation shall be included in the
certificate.
Upon termination of this lease or at such earlier time as required by rule, regulations or
law, Lessee shall plug all wells on the Lease Premises in accordance with the rules and
regulations of, and to the satisfaction of, the Texas Railroad Commission, or any other
governmental agency having jurisdiction over Lessee's operations. Lessor shall be
notified of the date of such plugging and no casing shall be removed from the Lease
Premises until such well or wells have been properly plugged.
15. Amendment. The provisions contained in paragraph 5 hereof regarding acreage
covered by this lease which shall be held by drilling operations on or production from
any pooled unit gr units shall not be altered or amended by any pooling, unitization or
like agreement or instrument, or any amendment thereto or ratification or
acknowledgment thereof, unless same shall be specifically designated as an amendment
of paragraph 5 of this lease. It is further agreed that neither this lease nor any terms or
provisions hereof shall be altered, amended, extended or ratified by any division order or
transfer order executed by Lessor, its successors, agents or assigns, but that any division
orders or transfer orders shall be solely for the purpose of confirming the extent of
Lessor's interest in production of oil and gas from the Lease Premises, or any land or
lands pooled therewith. Any amendment, alteration, extension or ratification of this lease
or of any term or provision of this lease shall be made only by an instrument in writing
clearly denominated as to its purpose and effect, describing the specific terms or
provisions of the lease affected and the proposed change or modification thereof, and
executed by the party against whom any such amendment, alteration, extension or
ratification is sought to be enforced, and any purported amendment, alteration, extension
or ratification not so drafted and executed shall be of no force or effect. Any tender or
payment to Lessor of a sum less than the total amount due to Lessor hereunder which is
made or intended to be made as an offer of settlement or accord by or on behalf of
PaidUp Oil Gas Lease Page 10 of 17
Lessee, its agents, successors or assigns, must be accompanied by a Notice of Settlement
Offer, as denominated, addressed to Lessor at the address specified on page 1 hereof (or
such other address as shall be specified by written notice to Lessee). Any such offer of
settlement submitted solely by the tender of a check containing language of settlement or
accord printed or otherwise inserted thereon shall not be deemed an offer of settlement or
accord, unless preceded or accompanied by such a Notice of Settlement Offer,
16. Notice. Any notice or other communication permitted or required under the
terms hereof shall be in writing and, unless otherwise specified, be deemed properly
given on the date personally delivered or on the date postmarked if mailed, postage
prepaid in the United States mail, addressed to Lessor or Lessee at the address set forth at
the commencement of this lease, or to such other address as may hereafter be designated
by either party to the other by notice. Notice given in any other manner shall be effective
only if and when received.
17. Release of Lease. Upon expiration or termination of this lease for any reason
as to all or any portion of the Lease Premises, Lessee shall be obligated at its expense
promptly to prepare, execute and file in the Real Property Records of Lubbock County an
appropriate release instrument covering all or such portion of said land, and to forward a
copy of same as so recorded to Lessor.
18. Land Auptication. Lessee stipulates and agrees that the Lease Premises is
utilized by Lessor as an effluent land application site. As a result, no surface operations
or occupation of any kind may occur in areas of the Lease Premises within the Irrigated
Area, as defined below. All surface operations, whether they be exploration or
production related, and including without limitation, drill sites or well locations, tank
batteries, roads, utilities, pipelines, flow lines and any other activity or operation shall
occur, and only occur, in the areas outside of the Irrigated Area (the "Non -Irrigated
Area"). The areas of effluent irrigation, whether or not such areas are currently being
used for effluent application, (the "Irrigated Area") and the Non -Irrigated Area are
approximately depicted in Exhibit "A", hereto. Lessee, notwithstanding any term or
provision of this lease, shall not occupy or utilize in any way, manner or form, any lands
within the Irrigated Area, and the surface estate of the Irrigated Area shall be considered,
for all purposes, as the dominant estate over the estate granted to Lessee by this lease.
Lessee shall conduct all of its operations hereunder within the Non -Irrigated Area
depicted in Exhibit "A", hereto, and shall not construct any berm or elevated area of any
kind or type within the Irrigated Area, or cause, in any way, the ponding of water, be it
storm water or effluent, on or within the Irrigated Area. In no event shall Lessee
construct or utilize a berm, pad or other elevated area within the Non -Irrigated Area, at a
greater height or elevation than the height or elevation of Lessor's berms now existing or
to be constructed on or near the boundaries of the Non -Irrigated Area.
19. Surface Damages. Lessee shalt pay Lessor for all damages caused by its
operations to crops, pasture land, livestock, water wells, buildings, bridges, culverts, or
any other personal property or improvements situated on the Lease Premises, such
PaidUp Oil Gas Lease Page I I of 17
obligations to be a covenant running with the land. In addition to such damages, Lessee
shall pay to Lessor the following amounts for the use of the surface of the Lease
Premises:
Fifteen Hundred and no/100 dollars ($1,500) for each new well location
(not to exceed one acre, plus a tolerance area of 1/10 of an acre during
drilling operations for the purpose of maneuvering trucks and
equipment).
Fifteen Hundred and no/100 dollars ($1,500) for each tank battery
facility.
Fifteen and no/100 dollars ($15.00) per rod for all pipelines, flowlines,
electric transmission lines or other lines (herein "lines") related to
Lessee's operations on the Lease Premises.
Thirty and no/100 dollars ($30.00) per rod for new roads.
20. Surface Restrictions. With respect to operations upon the Lease
Premises, all of said provisions to be deemed as covenants running with the land:
A. Lessee shall notify Lessor no later than ten (10) days prior
to the commencement of any operations, including
without limitation, the staking of well locations,
installation of lines, or construction of roads, tank
batteries or production equipment, advising Lessor of the
proposed location of same.
B. No well shall be drilled nearer than two hundred (200')
feet to an existing water well, monitor well or livestock
watering facility without first obtaining the written
consent of Lessor. In the event Lessee's operations shall
cause or contribute to the damage of any water or monitor
well, Lessee shall promptly repair, cause the repair or pay
for such damage.
C. Lessee agrees to bury and maintain all pipelines,
flowlines, electric transmission lines, or other lines
necessary to Lessee's operation no Iess than thirty-six
(36) inches below the surface of the ground.
D. Lessee agrees to maintain all roads utilized by Lessee in
good repair and condition at all times. No new roads shall
constructed by Lessee without first securing the consent
of Lessor as to the location of such road. Lessee agrees to
construct no more than one road to each well location and
PaidUp Oil Gas Lease Page 12 of 17
to confine all travel incident to the drilling and production
of such well to the single road. Upon request by Lessor,
Lessee shall construct and/or install cattle guards, at
Lessee's expense, as may be necessary to enclose and/or
prevent the escape of livestock on the Lease Premises.
.All roads constructed by Lessee shall be suitable for all
weather use. Lessee shall have the continuing right and
privilege to use such roadways over and across the Lease
Premises for so long as production of oil and/or gas
should continue on the Lease Premises, or any part
thereof.
E. Upon completion of any operations or abandonment of
any drill site, pit area, well location, tank battery location,
roadway or other surface disturbance, Lessee shall (i)
remove all rock, gravel, caliche, or other materials foreign
to the natural condition of the land; (ii) level and fill with
topsoil all pits, ruts, or other surface disturbances in such
a manner as to restore same to the natural contour of the
land; (iii) clean the area to the end that all objects,
materials and structures not reasonably necessary to the
production of oil and/or gas are removed and eliminated;
(iv) reseed the affected area with native grass; and (v)
otherwise restore the surface of the premises to its
original condition as nearly as reasonably possible.
F. Lessee shall construct all pits necessary for drilling
operations in such a manner that at least two-thirds of the
total pit volume is below natural ground level or a
minimum of eight (8) feet deep, whichever is greater. All
pits shall be fully lined with plastic lining. Prior to
backfilling the pits, all excess fresh and brine water shall
be removed therefrom and any plastic material or liner
used to line the pits shall be removed from the pit, and
properly disposed of, prior to backfilling.
G. Any saltwater produced from wells drilled on the Lease
Premise shall be disposed of off of the Lease Premise. In
the event Lessee shall provide a secondary recovery
operation plan to Lessor, and Lessor shall approve such
plan, such approval to not be unreasonably withheld,
saltwater may be injected on the Leased Premises to be
utilized in Lessee's secondary recovery operations on the
Leased Premises.
PaidUp Oil Gas Lease Page 13 of 17
H. Lessee agrees to protect the potable water, in, under and
on said the Lease Premises from contamination from oil
and gas operations.
I. Prior to cutting any existing fence, Lessee will install on
each side of the proposed cut braced -in type posts, and the
existing fence will be firmly fixed, taut and without sags
and the fence then cut and a sturdy gate and/or cattle
guard installed. All gates on the boundary of the Lease
Premises shall be locked at all times. Lessee shall
provide to Lessor copies of the key(s) to all locks utilized.
J. Lessee, if requested by Lessor, shall construct and
maintain fences around each site of Lessee's surface
facilities (including but not limited to pumping units, tank
batteries and pits) sufficient to keep all livestock out of
such sites.
K. Lessee shall not permit any of its employees, contractors,
agents, or other third parties acting on behalf of Lessee,
entering upon the Lease Premises under the authority of
this lease, to bring upon the Lease Premises any alcoholic
beverages or illegal drugs. Further, Lessee shall not
permit its employees, contractors, agents, or other third
parties acting on behalf of Lessee entering upon the Lease
Premises under the authority of this lease, to hunt on any
portion of the Lease Premises or to take or carry any
firearms thereon for any purpose whatsoever. Lessor or
Lessor's representatives shall have the right to deny
access to or expel from the Lease Premises anyone found
carrying any such prohibited substances or any form of
firearms.
L. Lessee shall conduct its operations on the Lease Premises
as a reasonably prudent operator and in compliance with
the laws, rules, and regulations pertaining to oil and gas
operations within the State of Texas. The Lease Premises
shall be kept free of trash, litter and debris. Further,
Lessee shall be responsible for all of its employees,
servants, contractors, subcontractors, agents, or other third
parties acting on behalf of Lessee who are involved or in
any manner connected with Lessee's operations and/or
activities on the Lease Premises.
21. No Use of Water. No effluent water, potable water, water otherwise
suitable for livestock consumption, or water of any other kind, may be taken or
PaidUp Oil Gas Lease Page 14 of 17
used, in any way, manner or form, from or on the Lease Premises for any
operations, or any other purpose, of Lessee.
22. Removal of Equipment. Lessee shall have the right at any time until
ninety (90) days after the expiration or termination of this lease, or applicable
portion thereof, to remove all, or the applicable portion of, the personal property
and equipment. Any such property remaining on the Lease Premises, or portion
thereof in which this lease has terminated pursuant to the terms hereof, after the
expiration of such ninety (90) day period shall be conclusively presumed to be
abandoned by Lessee and shall become the property of Lessor, at Lessor's
election.
23. Deftnitions. (a) As used in this lease, the term "actual drilling", "actual
drilling operations", "drilling operations", or "drilling", shall mean the actual
operation of drilling in the ground with equipment capable of prosecuting such
drilling to a depth necessary to adequately test one or more of the potential oil
and/or gas bearing formations under the Lease Premises.
(b) As used herein, the term "completion", subject to the
provisions in paragaph I I. shall be deemed to have occurred no later than sixty
(60) days following the completion of drilling operations.
(c) As used herein, the term "abandonment", subject to
the provisions in paragraph 11, shall be deemed to have occurred no later than
thirty (30) days, following the cessation of drilling operations or operations
related to completion.
IN WITNESS WHEREOF, the parties have executed this lease effective as of
the date first above written.
LESSOR:
CITY OF LUBBOCK
MARC MCDOUGAL, MAYOR
ATTEST:
Rebecca Garza, City Secretary
APPROVED AS TO CONTENT:
Thomas Adams, Deputy City Manager
PaidUp Oil Gas Lease Page 15 of 17
John Hindman, Farm Manager
APPROVED AS TO FORM:
Richard Casner
First Assistant City Attorney
STATE OF TEXAS
COUNTY OF LUBBOCK §
This instrument was acknowledged before me on this day of
2005, by Marc McDougal, as Mayor of the City of Lubbock.
Notary Public, State of Texas
My commission expires:
PaidUp Oil Gas Lease Page 16 of 17
LESSEE:
CONE & PETREE OIL AND GAS
EXPLORATION, INC.
un
STATE OF TEXAS §
COUNTY OF §
Larry G. Petree, President
The foregoing instrument was acknowledged before me on this day of
2005, by Larry G. Petree, President of Cone & Petree Oil and
Exploration, Inc., a Texas corporation.
Notary Public in and for the State of Texas
Richard/Oil and Gas Lease.PaidUpPreliminaryFinal
August 30, 2005
PaidUp Oil Gas Lease Page 17 of 17
Resolution No, 2006-RO119
rdpMa A= ❑
Nail--kdpbd Am a
THE EAST ONE-HALF (E/2) AND THE NORTHWEST QUARTER (NW/4) OF SECTION 14•
BLOCK I. CERTIFICATE #361t ABSTRACT IVMR 742 LUBBOCK COUNTY TEXAS.
P.O. Box 2000 • 1625 13th Street
Lubbock. Texas 79457
(806) 775-2222 • Fax (806) 775-3307
September 14, 2006
Via Hand Delivery
Mr. Chris Boyer
Crenshaw, Dupree & Milam, L.L.P.
1500 Broadway, 8`h Floor
Lubbock, TX 49401
Reg 2Dot, -�6[(I
Office of the City Attorney
Re: Oil and Gas Lease /E/2 and NW/4, Section 14, Block I, Certificate #360,
Abstract Number 742, Lubbock County, Texas
Dear Chris:
I have enclosed herewith one (1) originally executed Oil and Gas Lease for
recordation in the Real Property Records of Lubbock County, Texas. After recording in
the Real Property Records, please forward a file marked copy to my attention. If you
have any questions or comments concerning this matter, please do not hesitate to contact
Me.
Sincerely,
P-t AAA,4-j 'i�'
Richard K. Casner �"'
First Assistant City Attorney
RKC:ml
Enclosure
cc w/ encl.: Becky Garza, City Secretary
Resolution No. 2006—RO119
PAID UP
OIL AND GAS LEASE
4h �,,
THIS AGREEMENT, made and entered into this � day o `,ft�+�.b�! , 2006,
between the City of Lubbock, a Texas home rule municipal corporation, whose address is
P. O. Box 2000, Lubbock, Texas 79457 (hereinafter called "Lessor" ), and Cone &
Petrce Oil and Gas Exploration, Inc., a Texas Corporation, whose address is P.O. Box
3457, Lubbock, Texas 79452 (hereinafter called "Lessee").
WITNESSETH:
I . Grant. That Lessor, in consideration of Ten Dollars ($10.00) in hand paid, of
the royalties herein provided and of the agreements of Lessee hereinafter contained,
hereby grants, leases and lets unto Lessee for the sole purpose of exploring, drilling,
operating for and producing oil, liquid hydrocarbons, gas and other respective constituent
products, and of laying pipelines, storing oil, building tanks (but not tank farnis), roads
and other structures thereon, as provided herein, necessary to produce, save, care for,
treat, store and transport said products from the land leased hereunder only, the following
described land situated in Lubbock County, Texas (sometimes referred to as the "Lease
Premises"), to -wit:
The cast one-half (E/2) and the northwest quarter (NW/4) of Section 14,
Block 1, Certificate #360, Abstract Number 742, Lubbock County, Texas.
For purposes of calculating any shut-in royalty payments herein provided for, said land is
estimated to contain 480 acres, whether it actually contains more or less.
2. Primary Term. Subject to the other provisions herein contained, this lease
shall be for a term of three (3) years from this date (called "primary term") and as long
thereafter as oil, liquid hydrocarbons, gas or their respective constituent products, or any
of them, is produced in paying quantities from said land, or land with which said land is
pooled as herein permitted.
3. Rovalties. Lessee shall pay the following royalties, subject to the following
provisions:
A. Lessee shall either pay the Lessor twenty-five percent (25%) of
the market value of all oil and other liquid hydrocarbons produced
and saved from the Lease Premises; or after sixty (60) days written
notice from Lessor, which notice may be given from time to time,
deliver free of cost, to Lessor at the wells or to the credit of Lessor
into the pipeline to which the well may be connected such
percentage of all oil and other liquid hydrocarbons produced and
saved from the Lease Premises. As used herein, market value shall
be conclusively presumed to be the amount realized by Lessee
from an arni's length sale. By way of definition, "arm's length"
PuidUp Oil Gas Lease Page r of 1.7
shall not include any sales made to Lessee's wholly or partially
owned subsidiaries or controlled entities or pursuant to or under
any type of agreement, contract or arrangement for a term in
excess of twelve (12) months.
B. Lessee shall pay the Lessor twenty-five percent (25%) of the
market value for all gas (including all substances contained in such
gas) produced from the Lease Premises and sold by Lessee or used
off the Lease Premises; provided, however, that the royalty portion
Of such gas shall be free and clear of all of the costs and expenses
of dehydrating, transporting, compressing, treating, gathering or
otherwise rendering marketable or marketing such gas, and no
deduction shall be made for any of such costs and expenses in
computing the market value of the gas or in computing any
payment to be made to Lessor pursuant to this clause (B). By way
of definition, "arn's length" shall not include any sales made to
Lessee's wholly or partially owned subsidiaries or controlled
entities or pursuant to or under any type of agreement, contract or
arrangement for a terni in excess of twelve (12) months.
C. Lessee shall pay Lessor royalty on all gas produced from a well on
the Lease Premises or on lands pooled with the Lease Premises and
sold or used off the Lease Premises regardless of whether or not
such gas is produced to the credit of Lessee or sold under a
contract executed by or binding on Lessee. Should gas be sold
under a sales contract not binding on Lessor, Lessor's royalty will
be calculated based on the greater of the market value of the gas, or
the highest price paid for any of the gas produced from the well
from which such gas is produced. In no event will the price paid
Lessor for Lessor's share of gas be less than the price paid Lessee
for Lessee's share of gas.
D. While there is a well on the Lease Premises capable of producing
gas in paying quantities but the production thereof is shut-in or
suspended for any reason, Lessee may pay as royalty on or before
90 days after the date on which (1) production from any such well
is shut-in or suspended or (ii) this lease is no longer maintained by
compliance with other provisions hereof, whichever is the later
date, and thereafter at annual intervals, a sum in the amount of
S25.00 per surface acre covered by this lease, that is allocated to
the Proration Unit for the shut-in well, without proportionate
reduction, and if such payment is made or tendered in accordance
with the terns hereof, this lease shall not terminate but shall
continue in full force, subject to the provisions of paragraph 7, and
it will be considered that gas is being produced from the Lease
PaidUp Oil Gas Luse Page 2 of 17
Premises in paying quantities within the meaning of each pertinent
provision of this lease. However, in no event shall shut-in well
payments maintain this lease in force for a cumulative period
exceeding three (3) years. Lessee shall not be entitled to recover
any shut-in royalty payments from the future sale of gas. Should
the shut-in period extend beyond the expiration of the primary
tern, such shut-in provision will pertain only to the Proration Unit
of such gas well as provided for in paragraph 7. Should such shut-
in royalty payments not be made in a timely manner or extend or
attempt to extend a period greater than three (3) years as provided
in this paragraph, it will be considered for all purposes that there is
no production or no excuse for delayed production of gas from any
such well or wells and unless there is then in effect other
preservation provisions of this lease, this lease shall terminate at
midnight on the last day provided for the payment of such shut-in
royalties, and Lessee shall thereupon furnish to Lessor a release of
all its interest in and into this lease insofar as this lease covers
lands not otherwise maintained pursuant to the terms hereof.
F. Lessee agrees that before any gas produced from the Lease
Premises is used or sold off the Lease Premises, it will be run, free
of cost to Lessor, through an adequate oil and gas separator of a
conventional type or equipment at least as efficient, to the end that
ail liquid hydrocarbons recoverable from the gas by such means
will be recovered oil the lease.
F. If Lessee or Lessee's agent or contractor as operator receives any
payment of proceeds of production attributable to the royalty
interest reserved herein, such party shall cause distribution of such
proceeds to be made to Lessor, with a copy of the purchaser's run
statement within thirty (30) days from the receipt of such payment
by such party from the purchaser. If Lessor fails to receive
payments in a timely manner, then Lessor may make written
demand to Lessee for payment and if the default continues for
sixty (60) days after the date of such written demand, then Lessor
may terminate this Lease.
4. Paid up Lease. This is a "paid up" lease and all references to delay rentals shall
be disregarded.
5. Pooling. Lessee is hereby granted the right to pool or combine the land covered
by this lease, or any part or parts thereof, as to all strata or any stratum, with any other
laird, as to all strata or any stratum, for the production of oil and gas. Without the written
approval of the Lessor, no portion of the Lease Premises shall be included in a pooled
unit in which the Lease Premises comprises less than fifty (50) per cent of the acreage in
the unit. P001i11g in one or more instances shall not exhaust the right of Lessee hereunder
Paidllp Oil Gas Lease Page 3 of 17
to pool this lease or portion thereof into other or different units. Units pooled for oil
hereunder shall not exceed forty (40) acres each, and units pooled for gas hereunder shall
not exceed one hundred sixty (160) acres each, provided that if any federal or state law,
executive order, rule or regulation shall prescribe a spacing pattern for the development
of the field or allocate a producing allowable based in whole or in pant on acreage per
well, then any such unit may consist of the minimum number of acres which will permit
the allocation to such unit and the well thereon of the maximum producing allowable. To
effect a unit or units Lessee shall file a written unit designation and surveyor's plat
outlining any such unit and describing the participating tracts in the Real Property
Records of Lubbock County, Texas. A copy of the unit designation shall be furnished to
Lessor within thirty (30) clays after it is filed in such records, and if Lessee fails to do so,
such unit may be declared invalid by Lessor by an instrument filed in such county
records. Drilling or reworking operations and production on any part of the pooled
acreage shall be treated for all purposes hereof (except the payment of royalties on such
production) as if such drilling or reworking operations were upon or such production was
from the Lease Premises whether the well or wells be located on the land covered by this
lease or not. For the purposes of computing the royalties and other payments out of
production to which the owners of such interests shall be entitled on production of oil and
gas, or either of them, for any such pooled unit, there shall be allocated to the land
covered by this lease and included in such unit (or to each separate tract within the unit if
this lease covers separate tracts within the unit) a pro rata portion of the oil and gas, or
either of them, produced from the pooled unit. Such allocation shall be on an acreage
basis, thus, there shall be allocated to the acreage covered by this lease and included in
the pooled unit (or to each separate tract within the unit if this lease covers separate tracts
Within the unit) that pro rata portion of the oil and gas, or either of them, produced from
the pooled unit which the number of surface acres covered by this lease (or in each such
separate tract) and included in the unit bears to the total number of surface acres included
in the pooled unit. Royalties hereunder shall be computed on the portion of such
production whether it be oil and gas, or either of them so allocated to the land covered by
this lease and included in the unit just as though such production were from such land. In
the event only a part, or parts, of the land covered by this lease is pooled or unitized with
other land, or lands, so as to form a pooled unit, or units, operations on or production
from such unit, or units, will maintain this lease in force onlv as to the land included in
such unit, or units. This lease may be maintained in force as to any land covered hereby
and not included In such unit or units in any manner provided for herein.
6. Drilling/ Reworkin Operations. If at the expiration of the primary term of
this lease oil or gas is not being produced from the leased premises, but Lessee is then
engaged in drilling operations thereon, this lease shall remain in force so long as drilling
or reworking operations are prosecuted with no cessation of more than sixty (60)
consecutive days, and if they result in production of oil or gas so long thereafter as oil or
gas is produced from said premises, subject to the other provisions of this lease. If after
the expiration of the primary term of this lease production of oil and gas should cease
from any cause, this lease shall not terminate as to the premises continued to be covered
hereby if Lessee commences drilling or reworking operations within ninety (90) days
after the cessation of such production so long as such operations are prosecuted with no
PaidUh Oil Gas Lease Page 4 of 17
cessation of more than sixty (60) consecutive days, and if they result in production of oil
or gas, so long thereafter as oil or gas is produced from said premises, subject to the other
provisions of this lease. In the event a well or wells producing oil or gas should be
completed on adjacent land within three hundred (300) feet, measured from the location
of the perforations in the wellbore in the producing formation of the well on the adjacent
land, of the Lease Premises for an oil well or within six hundred (600) feet of the Lease
Premises for a gas well, Lessee agrees to commence the drilling of an offset well within
one hundred twenty (120) days or release that portion of the Lease Premises that would
be allocated to such well unit. If oil or gas is discovered on the land covered by this
lease, or on land pooled therewith, Lessee agrees to further develop said land covered by
this lease as a reasonably prudent operator would under the same or similar
circumstances.
7. Continuous Operation/ Retained Acreage. if at the expiration of the primary
term, Lessee has obtained production of oil and/or gas on the Lease Premises or upon
lands pooled therewith, or is then engaged in drilling or reworking operations which
result in the production of oil or gas in paying quantities, Lessee shall thereafter
continuously develop the Lease Premises with no more than one hundred twenty (120)
days between the (1) expiration of the primary term, in the event Lessee has obtained such
production prior to the expiration of the primary term; or (n) completion of the well
establishing such production, in the event Lessee is engaged in drilling or reworking
operations at the expiration of the primary term, and the commencement of actual drilling
operations of a second well, and thereafter shall drill additional wells with no more than
one hundred twenty (120) days between the completion of one well and the
commencement of actual drilling operations of another well until the Lease Premises are
fully developed on spacing as established under the rules and regulations of the
governmental authority having jurisdiction (the "Proration Unit"). In the absence of field
rules promulgated by the appropriate governing body having jurisdiction, the term
"Proration Unit" as used herein means the following number of acres, depending on the
depth to which the well has been drilled, and whether the well is an oil or gas well: A.
forty (40) acres for an oil well, completed at any depth; B. (i) eighty (80) acres for a gas
well, completed at a depth of less than 2000 feet subsurface; and (ii) one hundred sixty
(160) acres for a gas well, completed at a depth of greater than 2000 feet subsurface. As
to each Proration Unit, this lease shall continue in force as long as oil or gas is produced
in paying quantities therefrom or so long as drilling or reworking operations are
prosecuted therein as provided in paragraph 6 and shall be limited in depth from the
surface down to and including the deepest depth of case set in the subject well; and,
subject to the provisions of this paragraph 7 and paragraph 6, Lessee shall execute a
release of this lease as to the balance of the land covered hereby as well as lands below
the deepest depth of case set in the well for the respective Proration Units. If a portion of
Lessee's rights terminate as provided in this paragraph 7, then Lessee shall designate in
writing the Proration Units(s), in as nearly the form of a square as possible, including the
acreage and the depths it is allowed to retain around each oil well and each gas well and
such written designation shall be filed for record in the Real Property Records of
Lubbock County, Texas.
PaidUp Oil Gas Lease Page 5 of 17
8. Prior Surface Restrictions. Lessee shall comply with any applicable
restrictions, covenants or agreements relating to use of the surface of the Lease Premises
which may be contained in any deed or other instrument appearing in Lessor's chain of
title to the Lease Premises and shall hold Lessor harmless from any failure by Lessee to
so comply.
9. Oil and Gas. This lease does not include and there is hereby excepted and
reserved to Lessor all of the sulphur, coal, lignite, uranium and other fissionable
materials, geothennal energy (including entrained methane, hydrostatic pressure and
thernnal energy), base and precious metals and any other mineral substances (except oil,
liquid hydrocarbons, gas and their respective constituent products expressly covered
under this lease) owned by Lessor in, under or upon the Lease Premises, together with
rights of ingress and egress and use of the Lease Premises by Lessor and its mineral
lessees, for purposes of exploration for and production of the minerals reserved herein to
Lessor. Lessor and Lessee shall each conduct their respective operations on the Lease
Premises so as not to unreasonably interfere with the operations or activities of the other.
10. Assignment. The rights of either party hereunder may be assigned in whole or
in part and the provisions hereof shall extend to the heirs, executors, administrators,
successors and assigns of the parties hereto. If any assigmment is made by Lessee or
Lessee's assignecs or successors, of this lease, or any portion thereof, the assignee(s)
shall within thirty (30) days after the date of such assignment notify Lessor in writing of
the name and current address of the assignee(s), which notice shall also identify the lease
and property involved and the interest assigned. No change or division in ownership of
the land or royalties however accomplished shall operate to enlarge the obligations or
diminish the rights of Lessee, nor shall any such change or division be binding upon
Lessee for any purpose until the person acquiring any interest has furnished Lessee with
the instrument or instruments, or certified copies thereof, constituting the change of title
from Lessor.
It. Force Maieure. Lessee shall not be liable for delays or defaults in its
perfornnance of any agreement or covenant hereunder (other than any covenant or
agreement which is related to the payment of money) due to force majeure. The term
"force majeure" as used herein shall mean (1) any act of God, including but not limited to
storms, floods, washouts, landslides and lightning; or (ii) the inability to obtain or secure
the use of equipment, services, or material necessary to drill or complete a well. This
lease is expressly made subject to, and Lessee in its operations hereunder shall comply'
with applicable requirements of, all federal and state laws, and rules and regulations of
any governmental authority, state or federal, having jurisdiction over the Lease Premises,
and nothing herein contained shall be construed as requiring Lessee to violate any such
laws, rules or regulations or to penalize Lessee for complying therewith. If Lessee is
required, ordered or directed by any federal or state law, or any order, rule, or regulation
of governmental authority to cease drilling, reworking or producing operations on the
Lease Premises, or if Lessee by force majeure is prevented from conducting such
operations, then until such time as such law, order, rule, regulation or force majeure is
tenninatcd and for a period of sixty (60) days after such termination, so long as Lessee
PaidUp Oil Gas Lease Page 6 of 17
shall comply with the notice provisions herein, each and every provision of this lease or
implied covenant arising thereunder that might operate to terminate this lease or the
estate conveyed by it (other than any covenant or agreement which relates to the payment
of money) shall be suspended and inoperative and this lease shall continue in full force
and effect; provided, however, that in no event shall the term hereof be so extended for a
cumulative period of more than one hundred eighty (180) days solely by reason of this
paragraph. In the event lessee shall claim the occurrence of a force majeure event,
Lessee shall provide notice to Lessor, on or before five (5) business days after the
occurrence of the claimed force majeure event, containing (1) a description, and the
Surrounding facts and circumstances, of such claimed force majeure event; (11) the actions
Lessee is and/or has taken to avoid, mitigate or remedy such claimed force majeure
event; and (iii) the anticipated duration of the claimed force majeure event. In the event
Lessee shall fail to provide such notice within the time period prescribed herein, it shall
be deemed for all purposes that the claimed event does not constitute a force majeure
event under this lease.
12. Information to Lessor. Lessee shall notify Lessor in writing of the location of
all wells to be drilled upon the Lease Premises, or on any land pooled therewith, no later
than ten (10) days prior to commencement of operations, and shall advise Lessor in
writing of the date of completion and/or abandonment of each such well within thirty (30)
days after completion or abandonment. Such written notice shall include a copy of the
drillsite title opinion rendered by a title attorney. If such well is completed as a well
capable of producing oil or gas in paying quantities, Lessee shall furnish Lessor with a
copy of the division order title opinion rendered by a title attorney, including an opinion
prepared for a pooled unit. Lessee agrees from time to time to furnish at no cost to
Lessor, or its authorized representatives, upon request of Lessor, full and complete
information possessed or hereafter acquired by Lessee with respect to:
A. All operations on the Lease Premises and the production of oil,
liquid hydrocarbons, gas and their respective constituent products
therefrom, including but not limited to, samples of cores, results of
drill stem and electrical logs thereof, and
B. Information regarding the sale of oil, liquid hydrocarbons, gas and
their respective constituent products hereunder to the extent that
such information is pertinent to the calculation of royalty payments
as provided herein.
During the term of this lease, Lessor and its authorized representatives shall at all times
have full right of ingress and egress to the Lease Premises. Lessee agrees to furnish
Lessor at no cost with copies of all logs, potential tests, drill stem tests, completion
reports and other pertinent data pertaining to all wells drilled on the Lease Premises.
Lessor and its representatives shall also have the right at Lessee's offices during regular
business hours to inspect, examine and make copies of and extracts from such of Lessee's
books, records, accounts, contract, commitments and agreements as relate to the Lease
PaidUp Oil Gas Lcasc Pagc 7 of 17
s
Premises, operations thereon or production therefrom (including, without limitation, the
information referred to above).
To the extent provided by law, any information or samples obtained by Lessor or its
authorized representatives pursuant to the rights set forth above, shall be deemed by
Lessor and Lessee to be confidential, trade secrets and proprietary information of Lessee.
In the event Lessor shall receive a request for such information by a third party, Lessor
shall make a good faith attempt to notify Lessee in accordance with Texas law of such
request so that Lessee may protect its rights. Except as to information disclosed pursuant
to the Texas Public Information Act (Texas Government Code, Chapter 552), if any,
Lessor shall require contractual confidentiality agreements with any party to whom it
shares such information. Nothing herein shall be construed to require Lessor to make any
efforts to protect such information, except as expressly provided herein, nor shall Lessor
be responsible or liable, in any way, manner or form, for the breach by any third party of
any confidentiality agreement required herein.
13. Proportionate Reduction. Lessor executes and delivers this lease without
warranty of title, either express, implied, or of any other kind, including without
limitation, any warranties that may arise by virtue of, or under, Section 5.023 of the
Texas Property Code. If Lessor's interest in the minerals covered by this lease in, on and
under the Lease Premises is less than the entire undivided fee simple estate, then Lessor
agrees that the royalties provided for in this lease shall be paid to Lessor in the proportion
which Lessor's interest bears to the entire and undivided fee simple estate therein. Lessee
at its option may discharge any tax lien upon Lessor's interest in the land covered by this
lease (unless such tax lien is being contested in good faith by Lessor by appropriate
proceedings instituted for such purpose) and, in the event Lessee does so, Lessee shall
have the right to apply royalties hereunder to reimburse such payment.
14. Indemnification 1 Plugging. Lessee assumes all risk and liability of any kind
and nature incident to, occasioned by or resulting in any manner from Lessee's operations
hereunder, agrees to keep the Lease Premises duly and fully protected against liens of
every character arising, in connection with, or resulting from, said operations AND
AGREES TO INDEMNIFY AND HOLD LESSOR, LESSOR'S ELECTED
OFFICIALS. OFFICERS, AGENTS, AND EMPLOYEES HARMLESS FROM AND
AGAINST ANY AND ALL LIENS AND CLAIMS OF ANY KIND FOR DAMAGES
OCCASIONED BY, OR ON ACCOUNT OF, SAID OPERATIONS AND AGAINST
ANY AND AL L CLAIMS FOR PROPERTY DAMAGE, PERSONAL INJURY OR
DEATH SUSTAINED BY ANY PERSON OR PERSONS WHOMSOEVER,
NATURAL OR CORPORATE, IN CONNECTION WITH, RELATED TO OR
RESULTING FROM LESSEE'S OPERATIONS HEREUNDER.
Lessee shall obtain and maintain in full force and effect during the term of this Lease
insurance coverages stated below with insurance carriers admitted to do business in the
state of Texas. The insurance companies must carry a Best's Rating of A-VII or better.
The policies shall be written on an occurrence basis. In the event Lessee shall contract
with any person or party to perforni any or all of the operations or activities contemplated
PaidUp Oil Gas Lease Page 8 of 17
by this Lease, such person or party shall also obtain insurance coverage as required
herein of Lessee.
General Liability:
Lessee's insurance shall contain broad form contractual liability with a combined single
limit of a minimum of $1,000,000 each occurrence and in the aggregate and shall include
the following:
• Bodily Injury and Property Damage
• Personal Injury and Advertising Injury
• Fire legal liability
• Products and completed operations
• Control of Well coverage
Control of Well coverage may either be endorsed onto the liability package policy, or
may be a separate policy. In either event, the $1,000,000 limit shall apply separately to
this coverage.
_Business Automobile Liability:
Lessee's insurance shall contain a combined single limit of at least $500,000 per
occurrence, and include coverage for, but not limited to, the following:
• Bodily injury and property damage
• Any and all vehicles owned, used or hired
Workers' Compensation and Employers Liability Insurance:
In the event Lessee shall employ any person(s), Lessee shall elect to obtain workers'
compensation coverage pursuant to Section 406.002 of the Texas Labor Code, Further,
Lessee shall maintain said coverage throughout the term of this Lease and shall comply
with all provisions of Title 5 of the Texas Labor Code to ensure that the Lessee maintains
said coverage.
Notwithstanding anything to the contrary herein, in the event Lessee shall contract with
any person or party to perform all of its operations or activities contemplated by this
Agreement, such person or party shall obtain the required Workers' Compensation
Insurance and, in such event, Lessee shall be relieved of such obligations.
Employer's Liability with limits of at least $500,000 each accident, $500,000 by disease
policy limit, and $500,000 by disease each employee shall also be obtained and
maintained throughout the term of this Lease.
Environmental Impalrnent Liability Insurance:
Lessee's insurance shall contain a combined single limit of at least $1,000,000 per
occurrence.
Other Insurance Requirements:
Lessee agrees to waive its right of recovery against Lessor for all claims and suits against
Lessor which are or ma_v be covered by the above described insurance coverages. In
addition, its insurers, through policy endorsement, waive their right of subrogation
PaidUp Oil Gas Lease Page 9 of 17
against Lessor for all claims and suits. The certificate of insurance must reflect waiver of
subrogation endorsement. Lessee further waives its right of recovery, and its insurers
also waive their right of subrogation against Lessor for loss of its owned or leased
property or property under its care, custody, or control.
Lessee's insurance policies through policy endorsement must include wording, which
states that the policy shall be primary and non-contributing with respect to any insurance
carried by Lessor. The certificate of insurance described below must reflect that the
above wording is included in evidenced policies.
All policies required above (excluding Workers' Compensation) shall include a
severability of interest endorsement and shall name the Lessor as an additional insured
with respect to work performed under this Lease. Severability of interest naming Lessor
as an additional insured shall be indicated on the certificate of insurance described below.
Lessee shall provide a Certificate of Insurance to the Lessor as evidence of the required
insurance coverage. The Certificate will provide 30 days notice of cancellation. A copy
of the required endorsements and waivers of subrogation shall be included in the
certificate.
Upon termination of this lease or at such earlier time as required by rule, regulations or
law, Lessee shall plug all wells on the Lease Premises in accordance with the rules and
regulations of, and to the satisfaction of, the Texas Railroad Commission, or any other
governmental agency having jurisdiction over Lessee's operations. Lessor shall be
notified of the date of such plugging and no casing shall be removed from the Lease
Premises until such well or wells have been properly plugged.
15. Amendment. The provisions contained in paragraph 5 hereof regarding acreage
covered by this lease which shall be held by drilling operations on or production from
any pooled unit or units shall not be altered or arnended by any pooling, unitization or
like agreement or instrument, or any amendment thereto or ratification or
acknowledgment thereof, unless same shall be specifically designated as an amendment
of paragraph 5 of this lease. It is further agreed that neither this lease nor any terms or
provisions hereof shall be altered, amended, extended or ratified by any division order or
transfer order executed by Lessor, its successors, agents or assigns, but that any division
orders or transfer orders shall be solely for the purpose of confinning the extent of
Lessor's interest in production of oil and gas from the Lease Premises, or any land or
lands pooled therewith. Any amendment, alteration, extension or ratification of this lease
or of any tern or provision of this lease shall be made only by an instrument in writing
clearly denominated as to its purpose and effect, describing the specific terms or
provisions of the lease affected and the proposed change or modification thereof, and
executed by the party against whom any such amendment, alteration, extension or
ratification is sought to be enforced, and any purported amendment, alteration, extension
or ratification not so drafted and executed shall be of no force or effect. Any tender or
payment to Lessor of a SLIM less than the total amount due to Lessor hereunder which is
made or intended to be made as an offer of settlement or accord by or on behalf of
PaidUp Oil Gas Lease Page 10 of 17
Lessee, its agents, successors or assigns, must be accompanied by a Notice of Settlement
Offer, as denominated, addressed to Lessor at the address specified on page I hereof (or
such other address as shall be specified by written notice to Lessee). Any such offer of
settlement submitted solely by the tender of a check containing language of settlement or
accord printed or otherwise inserted thereon shall not be deemed an offer of settlement or
accord, unless preceded or accompanied by such a Notice of Settlement Offer.
16. Notice. Any notice or other communication permitted or required under the
terms hereof shall be in writing and, unless otherwise specified, be deemed properly
given on the date personally delivered or on the date postmarked if mailed, postage
prepaid in the United States mail, addressed to Lessor or Lessee at the address set forth at
the commencement of this lease, or to such other address as may hereafter be designated
by either party to the other by notice. Notice given in any other manner shall be effective
only if and when received.
17. Release of Lease. Upon expiration or termination of this lease for any reason
as to all or any portion of the Lease Premises, Lessee shall be obligated at its expense
promptly to prepare, execute and file in the Real Property Records of Lubbock County an
appropriate release instrument covering all or such portion of said land, and to forward a
copy of same as so recorded to Lessor.
18. band Application. Lessee stipulates and agrees that the Lease Premises is
Utilized by Lessor as an effluent land application site. As a result, no surface operations
or occupation of any kind may occur in areas of the Lease Premises within the Irrigated
Area, as defined below. All surface operations, whether they be exploration or
production related, and including without limitation, drill sites or well locations, tank
batteries, roads, utilities, pipelines, flow lines and any other activity or operation shall
occur, and only occur, in the areas outside of the irrigated Area (the "Non -Irrigated
Area"). The areas of effluent irrigation, whether or not such areas are currently being
used for effluent application, (the "Irrigated Area") and the Non -Irrigated Area are
approximately depicted in Exhibit "A", hereto. Lessee, notwithstanding any term or
provision of this lease, shall not occupy or utilize in any way, manner or form, any lands
within the Irrigated Area, and the surface estate of the Irrigated Area shall be considered,
for all purposes, as the dorninant estate over the estate granted to Lessee by this lease.
Lessee shall conduct all of its operations hereunder within the Non -Irrigated Area
depicted in Exhibit "A", hereto, and shall not construct any berm or elevated area of any
kind or type within the Irrigated Area, or cause, in any way, the ponding of water, be it
storm water or effluent, on or within the Irrigated Area. In no event shall Lessee
construct or utilize a berm, pad or other elevated area within the Non -Irrigated Area, at a
greater height or elevation than the height or elevation of Lessor's berms now existing or
to be constructed on or near the boundaries of the Non -Irrigated Area.
19. Surface Damages. Lessee shall pay Lessor for all damages caused by its
operations to crops, pasture land, livestock, water wells, buildings, bridges, culverts, or
any other personal property or improvements situated on the Lease Premises, such
PaidUp Oil Gas Lease Page 1 1 of 17
obligations to be a covenant running with the land. In addition to such damages, Lessee
shall pay to Lessor the following amounts for the use of the surface of the Lease
Premises:
Fifteen Hundred and no/100 dollars ($1,500) for each new well location
(not to exceed one acre, plus a tolerance area of 1/10 of an acre during
drilling operations for the purpose of maneuvering trucks and
equipment).
Fifteen Hundred and no/100 dollars (S1,500) for each tank battery
facility.
Fifteen and no/100 dollars ($15.00) per rod for all pipelines, flowlines,
electric transmission lines or other lines (herein "lines") related to
Lessee's operations on the Lease Premises.
Thirtv and no/100 dollars (S30.00) per rod for new roads.
20. Surface Restrictions. With respect to operations upon the Lease
Premises, all of said provisions to be deemed as covenants running with the land:
A. Lessee shall notify Lessor no later than ten (10) days prior
to the commencement of any operations, including
without limitation, the staking of well locations,
installation of lines, or constriction of roads, tank
batteries or production equipment, advising Lessor of the
proposed location of same.
B. No well shall be drilled nearer than two hundred (200')
feet to an existing water well, monitor well or livestock
watering facility without first obtaining the written
consent of Lessor. In the event Lessee's operations shall
cause or contribute to the damage of any water or monitor
well, Lessee shall promptly repair, cause the repair or pay
for such damage.
C. Lessee agrees to bury and maintain all pipelines,
flowlines, electric transmission lines, or other lines
necessary to Lessee's operation no less than thirty-six
(36) inches below the surface of the ground.
D. Lessee agrees to maintain all roads utilized by Lessee in
good repair and condition at all times. No new roads shall
constructed by Lessee without first securing the consent
of Lessor as to the location of such road. Lessee agrees to
construct no more than one road to each well location and
PaidLlp Oil Gas Lease Page 12 of 17
to confine all travel incident to the drilling and production
of such well to the single road. Upon request by Lessor,
Lessee shall construct and/or install cattle guards, at
Lessee's expense, as may be necessary to enclose and/or
prevent the escape of livestock on the Lease Premises.
All roads constructed by Lessee shall be suitable for all
weather use. Lessee shall have the continuing right and
privilege to use such roadways over and across the Lease
Premises for so long as production of oil and/or gas
should continue on the Lease Premises, or any part
thereof.
E. Upon completion of any operations or abandonment of
any drill site, pit area, well location, tank battery location,
roadway or other surface disturbance, Lessee shall (i)
remove all rock, gravel, caliche, or other materials foreign
to the natural condition of the land; (ii) level and fill with
topsoil all pits, ruts, or other surface disturbances in such
a manner as to restore same to the natural contour of the
land; (iii) clean the area to the end that all objects,
materials and structures not reasonably necessary to the
production of oil and/or gas are removed and eliminated;
(iv) reseed the affected area with native grass; and (v)
otherwise restore the surface of the premises to its
original condition as nearly as reasonably possible.
F. Lessee shall construct all pits necessary for drilling
operations in such a manner that at least two-thirds of the
total pit volume is below natural ground level or a
minimum of eight (8) feet deep, whichever is greater. All
pits shall be fully lined with plastic lining. Prior to
backfilling the pits, all excess fresh and brine water shall
be removed therefrom and any plastic material or liner
used to line the pits shall be removed from the pit, and
properly disposed of, prior to backfilling.
G. Any saltwater produced from wells drilled on the Lease
Premise shall be disposed of off of the Lease Premise. In
the event Lessee shall provide a secondary recovery
operation plan to Lessor, and Lessor shall approve such
plan, such approval to not be unreasonably withheld,
saltwater may be injected on the Leased Premises to be
utilized in Lessee's secondary recovery operations on the
Leased Premises.
PaidUp Oil Gas Lease Page 13 of 17
H. Lessee agrees to protect the potable water, in, under and
on said the Lease Premises from contamination from oil
and gas operations.
Prior to cutting any existing fence, Lessee will install on
each side of the proposed cut braced -in type posts, and the
existing fence will be firmly fixed, taut and without sags
and the fence then cut and a sturdy gate and/or cattle
guard installed. All gates on the boundary of the Lease
Premises shall be locked at all times. Lessee shall
provide to Lessor copies of the key(s) to all locks utilized.
J. Lessee, if requested by Lessor, shall construct and
maintain fences around each site of Lessee's surface
facilities (including but not limited to pumping units, tank
batteries and pits) sufficient to keep all livestock out of
such sites.
K. Lessee shall not permit any of its employees, contractors,
agents, or other third parties acting on behalf of Lessee,
entering upon the Lease Premises under the authority of
this lease, to bring upon the Lease Premises any alcoholic
beverages or illegal drugs. Further, Lessee shall not
permit its employees, contractors, agents, or other third
parties acting on behalf of Lessee entering upon the Lease
Premises under the authority of this lease, to hunt on any
portion of the Lease Premises or to take or carry any
firearms thereon for any purpose whatsoever. Lessor or
Lessor's representatives shall have the right to deny
access to or expel from the Lease Premises anyone found
carrying any such prohibited substances or any form of
Firearms.
L. Lessee shall conduct its operations on the Lease Premises
as a reasonably prudent operator and in compliance with
the laws, rules, and regulations pertaining to oil and gas
operations within the State of Texas. The Lease Premises
shall be kept free of trash, litter and debris. Further,
Lcssce shall be responsible for all of its employees,
servants, contractors, subcontractors, agents, or other third
parties acting on behalf of Lessee who are involved or in
any manner connected with Lessee's operations and/or
activities on the Lease Premises.
21. No Use of Water. No effluent water, potable water, water otherwise
suitable for livestock consumption, or water of any other kind, may be taken or
PaidUp Oil Gas Lease Page 14 of 17
Im
used, in any way, manner or form, from or on the Lease Premises for any
operations, or any other purpose, of Lessee.
22. Removal of Equipment. Lessee shall have the right at any time until
ninety (90) days after the expiration or termination of this ]ease, or applicable
portion thereof, to remove all, or the applicable portion of, the personal property
and equipment. Any such property remaining on the Lease Premises, or portion
thereof in which this lease has terminated pursuant to the terms hereof, after the
expiration of such ninety (90) day period shall be conclusively presumed to be
abandoned by Lessee and shall become the property of Lessor, at Lessor's
election.
23. Definitions. (a) As used in this lease, the term "actual drilling", "actual
drilling operations", "drilling operations", or "drilling", shall mean the actual
operation of drilling in the ground with equipment capable of prosecuting such
drilling to a depth necessary to adequately test one or more of the potential oil
and/or gas bearing formations under the Lease Premises.
(b) As used herein, the term "completion", subject to the
provisions in paragraph 11, shall be deemed to have occurred no later than sixty
(60) days following the completion of drilling operations.
(c) As used herein, the term "abandonment", subject to
the provisions in paragraph 11, shall be deemed to have occurred no later than
thirty (30) days, following the cessation of drilling operations or operations
related to completion.
IN WITNESS WHEREOF, the parties have executed this lease effective as of
the date first above written.
LESSOR:
CITY OF LUBBOCK
DAVID A.(MILLER, MAYOR
ATTEST:
t
ReI ecca Garza, City Secretary
APPROVE S TO CONTENT:
Thomas , Deputy City Manager
PaidUp Oil Gas Lease Page 15 of 17
APPROVED AS TO FO
Richard Casner
First Assistant City Attorney
STATE OF TEXAS §
COUNTY OF LUBBOCK §
This instrument was acknowledged before me on this day of ,
2006, by David A. Miller, as Mayor of the City of Lubbock.
Notary Public, State of Texas �`
My commission expires: �V(
A�. AMBER NICOLE SIMPSON
Notary Public, State of Texas
My Commission Expires
07-27-2008
PaidUp Oil Gas Lease Page 16 of 17
LESSEE:
CONE & PETREE OIL AND GAS
EXPLORATION, INC.
B y:
L y G. etree, resident
STATE OF TEXAS
COUNTY OFLL, bbdcc
The foregoing instrument was acknowledged before me on this _6_�-day of
2006, by Larry G. Petree, President of Cone & Petree Oil and
Explor tion, Inc., a Texas corporation.
KIM MARIE DEYOUNG
Notary Public, State of Texas
My Commission Expires io-3o4 Notar Public in and for the St e f Texas
foF�,w
4
Richard/OiI and Ga, 1.ease.Paid t IpPreIiniinaryFinal
SePtembcr 5. 2000
PaidUp Oil Gas Lease Page 17 of 17
,FAm air "A"
IrrlpW Area ❑
Non Irr pftd Area 0
THE EAST ONE-HALF (E/2) ANTI THE NORTHWEST QUARTER iNM/41 OF SECTION 149
BLOCK to CERTIFICATE •368: ABSTRACT NUMBER 742 LUBBOCK COUNTY# TEXAS.
M E M O R A N D U M
CITY A TTORNEY'S OFFICE
DATE: September 26, 2006
TO: Tom Adams, Deputy City Manager; Dave Booher,
Right -of -Way Agent; Mary Gonzales, Water Program
Coordinator
cc wl encl; Becky Garza, City Secretary
FROM: Michele Lambert, Legal Secretary
RE: Oil and Gas Lease/Cone & Petree Oil and Gas
Exploration, Inc. (Resolution No. 2006-R0119)
ATTORNEY - CLIENT COMMUNICATION - PRIVILEGED AND CONFIDENTIAL DO NOT
DISCLOSE CONTENTS WITHOUT ADVICE OF COUNSEL AND PROPER AUTHORIZATION
Please find attached a copy of the above captioned Oil and Gas Lease which
has been recorded in the Real Property Records of Lubbock County, Texas.
Attachment
LEASE 2006038971
19 PGs
PAID UP
OIL AND GAS LEASE
THIS AGREEMENT, made and entered into this day of i>°�nj , 2006,
between the City of Lubbock, a Texas home rule municipal corporation, whose address is
P. O. Box 2000, Lubbock, Texas 79457 (hereinafter called "Lessor" ), and Cone &
Petree Oil and Gas Exploration, Inc., a Texas Corporation, whose address is P.O. Box.
3457, Lubbock, Texas 79452 (hereinafter called "Lessee").
WITNESSETH:
1. Grant. That Lessor, in consideration of Ten Dollars ($10.00) in hand paid, of
the royalties herein provided and of the agreements of Lessee hereinafter contained,
hereby grants, leases and lets unto Lessee for the sole purpose of exploring, drilling,
operating for and producing oil, liquid hydrocarbons, gas and other respective constituent
products, and of laying pipelines, storing oil, building tanks (but not tank farms), roads
and other structures thereon, as provided herein, necessary to produce, save, care for,
treat, store and transport said products from the land leased hereunder only, the following
described land situated in Lubbock County, Texas (sometimes referred to as the "Lease
Premises"), to -wit:
The east one-half (E/2) and the northwest quarter (NW/4) of Section 14,
Block 1, Certificate #360, Abstract Number 742, Lubbock County, Texas.
For purposes of calculating any shut-in royalty payments herein provided for, said land is
estimated to contain 480 acres, whether it actually contains more or less.
2. Primary Term. Subject to the other provisions herein contained, this lease
shall be for a term of three (3) years from this date (called "primary term") and as long
thereafter as oil, liquid hydrocarbons, gas or their respective constituent products, or any
of them, is produced in paying quantities from said land, or land with which said land is
pooled as therein permitted.
3. Royalties. Lessee shall pay the following royalties, subject to the following
provisions:
A. Lessee shall either pay the Lessor twenty-five percent (25%) of
the market value of all oil and other liquid hydrocarbons produced
and saved from the Lease Premises; or after sixty (60) days written
notice from Lessor, which notice may be given from time to time,
deliver free of cost, to Lessor at the wells or to the credit of Lessor
into the pipeline to which the well may be connected such
percentage of all oil and other liquid hydrocarbons produced and
saved from the Lease Premises. As used herein, market value shall
be conclusively presumed to be the amount realized by Lessee
from an arm's length sale. By way of definition, "arm's length"
PaidUp Oil Gas Lease Page I of 17
shall not include any sales made to Lessee's wholly or partially
owned subsidiaries or controlled entities or pursuant to or under
any type of agreement, contract or arrangement for a term in
excess of twelve (12) months.
B. Lessee shall pay the Lessor twenty-five percent (25%) of the
market value for all gas (including all substances contained in such
gas) produced from the Lease Premises and sold by Lessee or used
off the Lease Premises; provided, however, that the royalty portion
of such gas shall be free and clear of all of the costs and expenses
of dehydrating, transporting, compressing, treating, gathering or
otherwise rendering marketable or marketing such gas, and no
deduction shall be made for any of such costs and expenses in
computing the market value of the gas or in computing any
payment to be made to Lessor pursuant to this clause (B). By way
of definition, "arm's length" shall not include any sales made to
Lessee's wholly or partially owned subsidiaries or controlled
entities or pursuant to or under any type of agreement, contract or
arrangement for a term in excess of twelve (12) months.
C. Lessee shall pay Lessor royalty on all gas produced from a well on
the Lease Premises or on lands pooled with the Lease Premises and
sold or used off the Lease Premises regardless of whether or not
such gas is produced to the credit of Lessee or sold under a
contract executed by or binding on Lessee. Should gas be sold
under a sales contract not binding on Lessor, Lessor's royalty will
be calculated based on the greater of the market value of the gas, or
the highest price paid for any of the gas produced from the well
from which such gas is produced. In no event will the price paid
Lessor for Lessor's share of gas be less than the price paid Lessee
for Lessee's share of gas.
D. While there is a well on the Lease Premises capable of producing
gas in paying quantities but the production thereof is shut-in or
suspended for any reason, Lessee may pay as royalty on or before
90 days after the date on which (1) production from any such well
is shut-in or suspended or (ii) this lease is no longer maintained by
compliance with other provisions hereof, whichever is the later
date, and thereafter at annual intervals, a sum in the amount of
$25.00 per surface acre covered by this Iease, that is allocated to
the Proration Unit for the shut-in well, without proportionate
reduction, and if such payment is made or tendered in accordance
with the terms hereof, this lease shall not terminate but shall
continue in full force, subject to the provisions of paragraph 7, and
it will be considered that gas is being produced from the Lease
PaidUp Oil Gas Lease Page 2 of 17
Premises in paying quantities within the meaning of each pertinent
provision of this lease. However, in no event shall shut-in well
payments maintain this lease in force for a cumulative period
exceeding three (3) years. Lessee shall not be entitled to recover
any shut-in royalty payments from the future sale of gas. Should
the shut-in period extend beyond the expiration of the primary
term, such shut-in provision will pertain only to the Proration Unit
of such gas well as provided for in Para ar ph 7. Should such shut-
in royalty payments not be made in a timely manner or extend or
attempt to extend a period greater than three (3) years as provided
in this paragraph, it will be considered for all purposes that there is
no production or no excuse for delayed production of gas from any
such well or wells and unless there is then in effect other
preservation provisions of this lease, this lease shall terminate at
midnight on the last day provided for the payment of such shut-in
royalties, and Lessee shall thereupon furnish to Lessor a release of
all its interest in and into this lease insofar as this lease covers
lands not otherwise maintained pursuant to the terms hereof.
E. Lessee agrees that before any gas produced from the Lease
Premises is used or sold off the Lease Premises, it will be run, free
of cost to Lessor, through an adequate oil and gas separator of a
conventional type or equipment at least as efficient, to the end that
all liquid hydrocarbons recoverable from the gas by such means
will be recovered on the lease.
F. If Lessee or Lessee's agent or contractor as operator receives any
payment of proceeds of production attributable to the royalty
interest reserved herein, such party shall cause distribution of such
proceeds to be made to Lessor, with a copy of the purchaser's run
statement within thirty (30) days from the receipt of such payment
by such party from the purchaser. If Lessor fails to receive
payments in a timely manner, then Lessor may make written
demand to Lessee for payment and if the default continues for
sixty (60) days after the date of such written demand, then Lessor
may terminate this Lease.
4. Paid up Lease. This is a "paid up" lease and all references to delay rentals shall
• be disregarded.
5. Pooling. Lessee is hereby granted the right to pool or combine the land covered
by this lease, or any part or parts thereof, as to all strata or any stratum, with any other
land, as to all strata or any stratum, for the production of oil and gas. Without the written
approval of the Lessor, no portion of the Lease Premises shall be included in a pooled
unit in which the Lease Premises comprises less than fifty (50) per cent of the acreage in
the unit. Pooling in one or more instances shall not exhaust the right of Lessee hereunder
PaidUp Oil Gas Lease Page 3 of 17
to pool this lease or portion thereof into other or different units. Units pooled for oil
hereunder shall not exceed forty (40) acres each, and units pooled for gas hereunder shall
not exceed one hundred sixty (160) acres each, provided that if any federal or state law,
executive order, rule or regulation shall prescribe a spacing pattern for the development
of the field or allocate a producing allowable based in whole or in part on acreage per
well, then any such unit may consist of the minimum number of acres which will permit
the allocation to such unit and the well thereon of the maximum producing allowable. To
effect a unit or units Lessee shall file a written unit designation and surveyor's plat
outlining any such unit and describing the participating tracts in the Real Property
Records of Lubbock County, Texas. A copy of the unit designation shall be furnished to
Lessor within thirty (30) days after it is filed in such records, and if Lessee fails to do so,
such unit may be declared invalid by Lessor by an instrument filed in such county
records. Drilling or reworking operations and production on any part of the pooled
acreage shall be treated for all purposes hereof (except the payment of royalties on such
production) as if such drilling or reworking operations were upon or such production was
from the Lease Premises whether the well or wells be located on the land covered by this
lease or not. For the purposes of computing the royalties and other payments out of
production to which the owners of such interests shall be entitled on production of oil and
gas, or either of them, for any such pooled unit, there shall be allocated to the land
covered by this lease and included in such unit (or to each separate tract within the unit if
this lease covers separate tracts within the unit) a pro rats portion of the oil and gas, or
either of them, produced from the pooled unit. Such allocation shall be on an acreage
basis, thus, there shall be allocated to the acreage covered by this lease and included in
the pooled unit (or to each separate tract within the unit if this lease covers separate tracts
within the unit) that pro rata portion of the oil and gas, or either of them, produced from
the pooled unit which the number of surface acres covered by this lease (or in each such
separate tract) and included in the unit bears to the total number of surface acres included
in the pooled unit. Royalties hereunder shall be computed on the portion of such
production whether it be oil and gas, or either of them so allocated to the land covered by
this lease and included in the unit just as though such production were from such land. In
the event only a part, or parts, of the land covered by this lease is pooled or unitized with
other land, or lands, so as to form a pooled unit, or units, operations on or production
from such unit, or units, will maintain this lease in force only as to the land included in
such unit, or units. This lease may be maintained in force as to any land covered hereby
and not included in such unit or units in any manner provided for herein.
6. DriIiinp,/ Reworking Operations. If at the expiration of the primary term of
this lease oil or gas is not being produced from the leased premises, but Lessee is then
engaged in drilling operations thereon, this lease shall remain in force so long as drilling
or reworking operations are prosecuted with no cessation of more than sixty (60)
consecutive days, and if they result in production of oil or gas so long thereafter as oil or
gas is produced from said premises, subject to the other provisions of this lease. If after
the expiration of the primary term of this lease production of oil and gas should cease
from any cause, this lease shall not terminate as to the premises continued to be covered
hereby if Lessee commences drilling or reworking operations within ninety (90) days
after the cessation of such production so long as such operations are prosecuted with no
PaidUp Oil Gas Lease Page 4 of 17
cessation of more than sixty (60) consecutive days, and if they result in production of oil
or gas, so long thereafter as oil or gas is produced from said premises, subject to the other
provisions of this lease. In the event a well or wells producing oil or gas should be
completed on adjacent land within three hundred (300) feet, measured from the location
of the perforations in the wellbore in the producing formation of the well on the adjacent
land, of the Lease Premises for an oil well or within six hundred (600) feet of the Lease
Premises for a gas well, Lessee agrees to commence the drilling of an offset well within
one hundred twenty (120) days or release that portion of the Lease Premises that would
be allocated to such well unit. If oil or gas is discovered on the land covered by this
lease, or on land pooled therewith, Lessee agrees to further develop said land covered by
this Iease as a reasonably prudent operator would under the same or similar
circumstances.
7. Continuous Operation/ Retained Acreage. If at the expiration of the primary
term, Lessee has obtained production of oil and/or gas on the Lease Premises or upon
lands pooled therewith, or is then engaged in drilling or reworking operations which
result in the production of oil or gas in paying quantities, Lessee shall thereafter
continuously develop the Lease Premises with no more than one hundred twenty (120)
days between the (1) expiration of the primary term, in the event Lessee has obtained such
production prior to the expiration of the primary term; or (n) completion of the well
establishing such production, in the event Lessee is engaged in drilling or reworking
operations at the expiration of the primary term, and the commencement of actual drilling
operations of a second well, and thereafter shall drill additional wells with no more than
one hundred twenty (120) days between the completion of one well and the
commencement of actual drilling operations of another well until the Lease Premises are
fully developed on spacing as established under the rules and regulations of the
governmental authority having jurisdiction (the "Proration Unit"). In the absence of field
rules promulgated by the appropriate governing body having jurisdiction, the term
"Proration Unit" as used herein means the following number of acres, depending on the
depth to which the well has been drilled, and whether the well is an oil or gas well: A.
forty (40) acres for an oil well, completed at any depth; B. (i) eighty (80) acres for a gas
well, completed at a depth of less than 2000 feet subsurface, and (ii) one hundred sixty
(160) acres for a gas well, completed at a depth of greater than 2000 feet subsurface. As
to each Proration Unit, this lease shall continue in force as long as oil or gas is produced
in paying quantities therefrom or so Iong as drilling or reworking operations are
prosecuted therein as provided in paragqph 6 and shall be limited in depth from the
surface down to and including the deepest depth of case set in the subject well; and,
subject to the provisions of this paragraph 7 and paragraph 6, Lessee shall execute a
release of this lease as to the balance of the land covered hereby as well as lands below
the deepest depth of case set in the well for the respective Proration Units. If a portion of
Lessee's rights terminate as provided in this paragraph 7, then Lessee shall designate in
writing the Proration Units(s), in as nearly the form of a square as possible, including the
acreage and the depths it is allowed to retain around each oil well and each gas well and
such written designation shall be filed for record in the Real Property Records of
Lubbock County, Texas.
PaidUp Oil Gas Lease Page 5 of 17
S. Prior Surface Restrictions. Lessee shall comply with any applicable
restrictions, covenants or agreements relating to use of the surface of the Lease Premises
which may be contained in any deed or other instrument appearing in Lessor's chain of
title to the Lease Premises and shall hold Lessor harmless from any failure by Lessee to
so comply.
9. Oil and Gas. This lease does not include and there is hereby excepted and
reserved to Lessor all of the sulphur, coal, lignite, uranium and other fissionable
materials, geothermal energy (including entrained methane, hydrostatic pressure and
thermal energy), base and precious metals and any other mineral substances (except oil,
liquid hydrocarbons, gas and their respective constituent products expressly covered
under this lease) owned by Lessor in, under or upon the Lease Premises, together with
rights of ingress and egress and use of the Lease Premises by Lessor and its mineral
lessees, for purposes of exploration for and production of the minerals reserved herein to
Lessor. Lessor and Lessee shall each conduct their respective operations on the Lease
Premises so as not to unreasonably interfere with the operations or activities of the other.
10. Assignment. The rights of either party hereunder may be assigned in whole or
in part and the provisions hereof shall extend to the heirs, executors, administrators,
successors and assigns of the parties hereto. If any assignment is made by Lessee or
Lessee's assignees or successors, of this lease, or any portion thereof, the assignee(s)
shall within thirty (30) days after the date of such assignment notify Lessor in writing of
the name and current address of the assignee(s), which notice shall also identify the lease
and property involved and the interest assigned. No change or division in ownership of
the land or royalties however accomplished shall operate to enlarge the obligations or
diminish the rights of Lessee, nor shall any such change or division be binding upon
Lessee for any purpose until the person acquiring any interest has furnished Lessee with
the instrument or instruments, or certified copies thereof, constituting the change of title
from Lessor.
11. Force Maieure. Lessee shall not be liable for delays or defaults in its
performance of any agreement or covenant hereunder (other than any covenant or
agreement which is related to the payment of money) due to force majeure. The term
"force majeure" as used herein shall mean (i) any act of God, including but not limited to
storms, floods, washouts, landslides and lightning; or (ii) the inability to obtain or secure
the use of equipment, services, or material necessary to drill or complete a well. This
lease is expressly made subject to, and Lessee in its operations hereunder shall comply
with applicable requirements of, all federal and state laws, and rules and regulations of
any governmental authority, state or federal, having jurisdiction over the Lease Premises,
and nothing herein contained shall be construed as requiring Lessee to violate any such
Iaws, rules or regulations or to penalize Lessee for complying therewith. If Lessee is
required, ordered or directed by any federal or state law, or any order, rule, or regulation
of governmental authority to cease drilling, reworking or producing operations on the
Lease Premises, or if Lessee by force majeure is prevented from conducting such
operations, then until such time as such law, order, rule, regulation or force majeure is
terminated and for a period of sixty (60) days after such termination, so long as Lessee
PaidUp Oil Gas Lease Page 6 of 17
shall comply with the notice provisions herein, each and every provision of this lease or
implied covenant arising thereunder that might operate to terminate this lease or the
estate conveyed by it (other than any covenant or agreement which relates to the payment
of money) shall be suspended and inoperative and this lease shall continue in full force
and effect; provided, however, that in no event shall the term hereof be so extended for a
cumulative period of more than one hundred eighty (180) days solely by reason of this
paragraph. In the event Lessee shall claim the occurrence of a force majeure event,
Lessee shall provide notice to Lessor, on or before five (5) business days after the
occurrence of the claimed force majeure event, containing (i) a description, and the
surrounding facts and circumstances, of such claimed force majeure event; (ii) the actions
Lessee is and/or has taken to avoid, mitigate or remedy such claimed force majeure
event; and (iii) the anticipated duration of the claimed force majeure event. In the event
Lessee shall fail to provide such notice within the time period prescribed herein, it shall
be deemed for all purposes that the claimed event does not constitute a force majeure
event under this lease.
12. Information to Lessor. Lessee shall notify Lessor in writing of the location of
all wells to be drilled upon the Lease Premises, or on any land pooled therewith, no later
than ten (10) days prior to commencement of operations, and shall advise Lessor in
writing of the date of completion and/or abandonment of each such well within thirty (30)
days after completion or abandonment. Such written notice shall include a copy of the
drillsite title opinion rendered by a title attorney. If such well is completed as a well
capable of producing oil or gas in paying quantities, Lessee shall furnish Lessor with a
copy of the division order title opinion rendered by a title attorney, including an opinion
prepared for a pooled unit. Lessee agrees from time to time to furnish at no cost to
Lessor, or its authorized representatives, upon request of Lessor, full and complete
information possessed or hereafter acquired by Lessee with respect to:
A. All operations on the Lease Premises and the production of oil,
liquid hydrocarbons, gas and their respective constituent products
therefrom, including but not limited to, samples of cores, results of
drill stem and electrical logs thereof, and
B. Information regarding the sale of oil, liquid hydrocarbons, gas and
their respective constituent products hereunder to the extent that
such information is pertinent to the calculation of royalty payments
as provided herein.
During the term of this lease, Lessor and its authorized representatives shall at all times
have full right of ingress and egress to the Lease Premises. Lessee agrees to furnish
Lessor at no cost with copies of all logs, potential tests, drill stem tests, completion
reports and other pertinent data pertaining to all wells drilled on the Lease Premises.
Lessor and its representatives shall also have the right at Lessee's offices during regular
business hours to inspect, examine and make copies of and extracts from such of Lessee's
books, records, accounts, contract, commitments and agreements as relate to the Lease
PaidUp Oil Gas Lease Page 7 of 11
Premises, operations thereon or production therefrom (including, without limitation, the
information referred to above).
To the extent provided by law, any information or samples obtained by Lessor or its
authorized representatives pursuant to the rights set forth above, shall be deemed by
Lessor and Lessee to be confidential, trade secrets and proprietary information of Lessee.
In the event Lessor shall receive a request for such information by a third party, Lessor
shall make a good faith attempt to notify Lessee in accordance with Texas law of such
request so that Lessee may protect its rights. Except as to information disclosed pursuant
to the Texas Public Information Act (Texas Government Code, Chapter 552), if any,
Lessor shall require contractual confidentiality agreements with any party to whom it
shares such information. Nothing herein shall be construed to require Lessor to make any
efforts to protect such information, except as expressly provided herein, nor shall Lessor
be responsible or liable, in any way, manner or form, for the breach by any third party of
any confidentiality agreement required herein.
13. Proportionate Reduction. Lessor executes and delivers this lease without
warranty of title, either express, implied, or of any other kind, including without
limitation, any warranties that may arise by virtue of, or under, Section 5.023 of the
Texas Property Code. If Lessor's interest in the minerals covered by this lease in, on and
under the Lease Premises is less than the entire undivided fee simple estate, then Lessor
agrees that the royalties provided for in this lease shall be paid to Lessor in the proportion
which Lessor's interest bears to the entire and undivided fee simple estate therein. Lessee
at its option may discharge any tax lien upon Lessor's interest in the land covered by this
lease (unless such tax lien is being contested in good faith by Lessor by appropriate
proceedings instituted for such purpose) and, in the event Lessee does so, Lessee shall
have the right to apply royalties hereunder to reimburse such payment.
14. Indemnification / Plugging. Lessee assumes all risk and liability of any kind
and nature incident to, occasioned by or resulting in any manner from Lessee's operations
hereunder, agrees to keep the Lease Premises duly and fully protected against liens of
every character arising, in connection with, or resulting from, said operations AND
AGREES TO INDEMNIFY AND HOLD LESSOR, LESSOR'S ELECTED
OFFICIALS, OFFICERS, AGENTS, AND EMPLOYEES HARMLESS FROM AND
AGAINST ANY AND ALL LIENS AND CLAIMS OF ANY KIND FOR DAMAGES
OCCASIONED BY, OR ON ACCOUNT OF, SAID OPERATIONS AND AGAINST
ANY AND ALL CLAIMS FOR PROPERTY DAMAGE, PERSONAL INJURY OR
DEATH SUSTAINED BY ANY PERSON OR PERSONS WHOMSOEVER,
NATURAL OR CORPORATE, IN CONNECTION WITH, RELATED TO OR
RESULTING FROM LESSEE'S OPERATIONS HEREUNDER.
Lessee shall obtain and maintain in full force and effect during the term of this Lease
insurance coverages stated below with insurance carriers admitted to do business in the
state of Texas. The insurance companies must carry a Best's Rating of A-VII or better.
The policies shall be written on an occurrence basis. In the event Lessee shall contract
with any person or party to perform any or all of the operations or activities contemplated
PaidUp Oil Gas Lease Page 8 of 17
by this Lease, such person or party shall also obtain insurance coverage as required
herein of Lessee.
General Liability:
Lessee's insurance shall contain broad form contractual liability with a combined single
limit of a minimum of $1,000,000 each occurrence and in the aggregate and shall include
the following:
• Bodily Injury and Property Damage
• Personal Injury and Advertising Injury
• Fire legal liability
• Products and completed operations
• Control of Well coverage
Control of Well coverage may either be endorsed onto the liability package policy, or
may be a separate policy. In either event, the $1,000,000 limit shall apply separately to
this coverage.
Business Automobile Liability:
Lessee's insurance shall contain a combined single limit of at least $500,000 per
occurrence, and include coverage for, but not limited to, the following:
• Bodily injury and property damage
• Any and all vehicles owned, used or hired
Workers' Compensation and Employers Liability Insurance:
In the event Lessee shall employ any person(s), Lessee shall elect to obtain workers'
compensation coverage pursuant to Section 406.002 of the Texas Labor Code. Further,
Lessee shall maintain said coverage throughout the term of this Lease and shall comply
with all provisions of Title 5 of the Texas Labor Code to ensure that the Lessee maintains
said coverage.
Notwithstanding anything to the contrary herein, in the event Lessee shall contract with
any person or party to perform all of its operations or activities contemplated by this
Agreement, such person or party shall obtain the required Workers' Compensation
Insurance and, in such event, Lessee shall be relieved of such obligations.
Employer's Liability with limits of at least $500,000 each accident, $500,000 by disease
policy limit, and $500,000 by disease each employee shall also be obtained and
maintained throughout the term of this Lease.
Environmental Impairment Liability Insurance:
Lessee's insurance shall contain a combined single limit of at least $1,000,000 per
occurrence.
Other Insurance Requirements:
Lessee agrees to waive its right of recovery against Lessor for all claims and suits against
Lessor which are or may be covered by the above described insurance coverages. In
addition, its insurers, through policy endorsement, waive their right of subrogation
PaidUp Oil Gas Lease Page 9 of 17
against Lessor for all claims and suits. The certificate of insurance must reflect waiver of
subrogation endorsement. Lessee further waives its right of recovery, and its insurers
also waive their right of subrogation against Lessor for loss of its owned or leased
property or property under its care, custody, or control.
Lessee's insurance policies through policy endorsement must include wording, which
states that the policy shall be primary and non-contributing with respect to any insurance
carried by Lessor. The certificate of insurance described below must reflect that the
above wording is included in evidenced policies.
All policies required above (excluding Workers' Compensation) shall include a
severability of interest endorsement and shall name the Lessor as an additional insured
with respect to work performed under this Lease. Severability of interest naming Lessor
as an additional insured shall be indicated on the certificate of insurance described below.
Lessee shall provide a Certificate of Insurance to the Lessor as evidence of the required
insurance coverage. The Certificate will provide 30 days notice of cancellation. A copy
of the required endorsements and waivers of subrogation shall be included in the
certificate.
Upon termination of this lease or at such earlier time as required by rule, regulations or
law, Lessee shall plug all wells on the Lease Premises in accordance with the rules and
regulations of, and to the satisfaction of, the Texas Railroad Commission, or any other
governmental agency having jurisdiction over Lessee's operations. Lessor shall be
notified of the date of such plugging and no casing shall be removed from the Lease
Premises until such well or wells have been properly plugged.
15. Amendment. The provisions contained in paragraph 5 hereof regarding acreage
covered by this lease which shall be held by drilling operations on or production from
any pooled unit or units shall not be altered or amended by any pooling, unitization or
like agreement or instrument, or any amendment thereto or ratification or
acknowledgment thereof, unless same shall be specifically designated as an amendment
of paragraph 5 of this lease. It is further agreed that neither this lease nor any terms or
provisions hereof shall be altered, amended, extended or ratified by any division order or
transfer order executed by Lessor, its successors, agents or assigns, but that any division
orders or transfer orders shall be solely for the purpose of confirming the extent of
Lessor's interest in production of oil and gas from the Lease Premises, or any land or
lands pooled therewith. Any amendment, alteration, extension or ratification of this lease
or of any term or provision of this lease shall be made only by an instrument in writing
clearly denominated as to its purpose and effect, describing the specific terms or
provisions of the lease affected and the proposed change or modification thereof, and
executed by the party against whom any such amendment, alteration, extension or
ratification is sought to be enforced, and any purported amendment, alteration, extension
or ratification not so drafted and executed shall be of no force or effect. Any tender or
payment to Lessor of a sum less than the total amount due to Lessor hereunder which is
made or intended to be made as an offer of settlement or accord by or on behalf of
PaidUp Oil Gas Lease Page 10 of 17
Lessee, its agents, successors or assigns, must be accompanied by a Notice of Settlement
Offer, as denominated, addressed to Lessor at the address specified on page 1 hereof (or
such other address as shall be specified by written notice to Lessee). Any such offer of
settlement submitted solely by the tender of a check containing language of settlement or
accord printed or otherwise inserted thereon shall not be deemed an offer of settlement or
accord, unless preceded or accompanied by such a Notice of Settlement Offer.
16. Notice. Any notice or other communication permitted or required under the
terms hereof shall be in writing and, unless otherwise specified, be deemed properly
given on the date personally delivered or on the date postmarked if mailed, postage
prepaid in the United States mail, addressed to Lessor or Lessee at the address set forth at
the commencement of this lease, or to such other address as may hereafter be designated
by either party to the other by notice. Notice given in any other manner shall be effective
only if and when received,
17. Release of Lease. Upon expiration or termination of this lease for any reason
as to all or any portion of the Lease Premises, Lessee shall be obligated at its expense
promptly to prepare, execute and file in the Real Property Records of Lubbock County an
appropriate release instrument covering all or such portion of said land, and to forward a
copy of same as so recorded to Lessor.
18. Land Application. Lessee stipulates and agrees that the Lease Premises is
utilized by Lessor as an effluent land application site. As a result, no surface operations
or occupation of any kind may occur in areas of the Lease Premises within the Irrigated
Area, as defined below. All surface operations, whether they be exploration or
production related, and including without limitation, drill sites or well locations, tank
batteries, roads, utilities, pipelines, flow lines and any other activity or operation shall
occur, and only occur, in the areas outside of the Irrigated Area (the "Non -Irrigated
Area"), The areas of effluent irrigation, whether or not such areas are currently being
used for effluent application, (the "Irrigated Area") and the Non -Irrigated Area are
approximately depicted in Exhibit "A", hereto. Lessee, notwithstanding any term or
provision of this lease, shall not occupy or utilize in any way, manner or form, any lands
within the Irrigated Area, and the surface estate of the Irrigated Area shall be considered,
for all purposes, as the dominant estate over the estate granted to Lessee by this lease.
Lessee shall conduct all of its operations hereunder within the Non -Irrigated Area
depicted in Exhibit "A", hereto, and shall not construct any berm or elevated area of any
kind or type within the Irrigated Area, or cause, in any way, the ponding of water, be it
storm water or effluent, on or within the Irrigated Area. In no event shall Lessee
construct or utilize a berm, pad or other elevated area within the Non -Irrigated Area, at a
greater height or elevation than the height or elevation of Lessor's berms now existing or
to be constructed on or near the boundaries of the Non -Irrigated Area.
19. Surface Damages. Lessee shall pay Lessor for all damages caused by its
operations to crops, pasture land, livestock, water wells, buildings, bridges, culverts, or
any other personal property or improvements situated on the Lease Premises, such
Paid Up oil Gas Lease Page 11 of 17
obligations to be a covenant running with the land. In addition to such damages, Lessee
shall pay to Lessor the following amounts for the use of the surface of the Lease
Premises:
Fifteen Hundred and no/100 dollars ($1,500) for each new well location
(not to exceed one acre, plus a tolerance area of 1/10 of an acre during
drilling operations for the purpose of maneuvering trucks and
equipment).
Fifteen Hundred and no/100 dollars ($1,500) for each tank battery
facility.
Fifteen and no/100 dollars (S15.00) per rod for all pipelines, flowlines,
electric transmission lines or other lines (herein "lines") related to
Lessee's operations on the Lease Premises.
Thirty and no/100 dollars ($30.00) per rod for new roads.
20. Surface Restrictions. With respect to operations upon the Lease
Premises, all of said provisions to be deemed as covenants running with the land:
A. Lessee shall notify Lessor no later than ten (10) days prior
to the commencement of any operations, including
without limitation, the stalking of well locations,
installation of lines, or construction of roads, tank
batteries or production equipment, advising Lessor of the
proposed location of same.
B. No well shall be drilled nearer than two hundred (200')
feet to an existing water well, monitor well or livestock
watering facility without first obtaining the written
consent of Lessor. In the event Lessee's operations shall
cause or contribute to the damage of any water or monitor
well, Lessee shall promptly repair, cause the repair or pay
for such damage.
C. Lessee agrees to bury and maintain all pipelines,
flowlines, electric transmission lines, or other lines
necessary to Lessee's operation no less than thirty-six
(36) inches below the surface of the ground.
D. Lessee agrees to maintain all roads utilized by Lessee in
good repair and condition at all times. No new roads shall
constructed by Lessee without first securing the consent
of Lessor as to the location of such road. Lessee agrees to
construct no more than one road to each well location and
PaidUp Oil Gas Lease Page 12 of 17
to confine all travel incident to the drilling and production
of such well to the single road. Upon request by Lessor,
Lessee shall construct and/or install cattle guards, at
Lessee's expense, as may be necessary to enclose and/or
prevent the escape of livestock on the Lease Premises.
All roads constructed by Lessee shall be suitable for all
weather use. Lessee shall have the continuing right and
privilege to use such roadways over and across the Lease
Premises for so long as production of oil and/or gas
should continue on the Lease Premises, or any part
thereof.
E. Upon completion of any operations or abandonment of
any drill site, pit area, well location, tank battery location,
roadway or other surface disturbance, Lessee shall (1)
remove all rock, gravel, caliche, or other materials foreign
to the natural condition of the land; (ii) level and fill with
topsoil all pits, ruts, or other surface disturbances in such
a manner as to restore same to the natural contour of the
land; (iii) clean the area to the end that all objects,
materials and structures not reasonably necessary to the
production of oil and/or gas are removed and eliminated;
(iv) reseed the affected area with native grass; and (v)
otherwise restore the surface of the premises to its
original condition as nearly as reasonably possible.
F. Lessee shall construct all pits necessary for drilling
operations in such a manner that at least two-thirds of the
total pit volume is below natural ground level or a
minimum of eight (8) feet deep, whichever is greater. All
pits shall be fully lined with plastic lining. Prior to
backfilling the pits, all excess fresh and brine water shall
be removed therefrom and any plastic material or liner
used to line the pits shall be removed from the pit, and
properly disposed of, prior to backfilling.
G. Any saltwater produced from wells drilled on the Lease
Premise shall be disposed of off of the Lease Premise. In
the event Lessee shall provide a secondary recovery
operation plan to Lessor, and Lessor shall approve such
plan, such approval to not be unreasonably withheld,
saltwater may be injected on the Leased Premises to be
utilized in Lessee's secondary recovery operations on the
Leased Premises.
PaidUp Oil Gas Lease Page 13 of 17
H. Lessee agrees to protect the potable water, in, under and
on said the Lease Premises from contamination from oil
and gas operations,
I. Prior to cutting any existing fence, Lessee will install on
each side of the proposed cut braced -in type posts, and the
existing fence will be firmly fixed, taut and without sags
and the fence then cut and a sturdy gate and/or cattle
guard installed. All gates on the boundary of the Lease
Premises shall be locked at all times. Lessee shall
provide to Lessor copies of the key(s) to all locks utilized.
J. Lessee, if requested by Lessor, shall construct and
maintain fences around each site of Lessee's surface
facilities (including but not limited to pumping units, tank
batteries and pits) sufficient to keep all livestock out of
such sites.
K. Lessee shall not permit any of its employees, contractors,
agents, or other third parties acting on behalf of Lessee,
entering upon the Lease Premises under the authority of
this lease, to bring upon the Lease Premises any alcoholic
beverages or illegal drugs. Further, Lessee shall not
permit its employees, contractors, agents, or other third
parties acting on behalf of Lessee entering upon the Lease
Premises under the authority of this lease, to hunt on any
portion of the Lease Premises or to take or carry any
firearms thereon for any purpose whatsoever. Lessor or
Lessor's representatives shall have the right to deny
access to or expel from the Lease Premises anyone found
carrying any such prohibited substances or any form of
firearms.
L. Lessee shall conduct its operations on the Lease Premises
as a reasonably prudent operator and in compliance with
the laws, rules, and regulations pertaining to oil and gas
operations within the State of Texas. The Lease Premises
shall be kept free of trash, litter and debris. Further,
Lessee shall be responsible for all of its employees,
servants, contractors, subcontractors, agents, or other third
parties acting on behalf of Lessee who are involved or in
any manner connected with Lessee's operations and/or
activities on the Lease Premises.
21. No Use of Water. No effluent water, potable water, water otherwise
suitable for livestock consumption, or water of any other kind, may be taken or
PaidUp Oil Gas Lease Page 14 of 17
used, in any way, manner or form, from or on the Lease Premises for any
operations, or any other purpose, of Lessee.
22. Removal of Equipment. Lessee shall have the right at any time until
ninety (90) days after the expiration or termination of this lease, or applicable
portion thereof, to remove all, or the applicable portion of, the personal property
and equipment. Any such property remaining on the Lease Premises, or portion
thereof in which this lease has terminated pursuant to the terms hereof, after the
expiration of such ninety (90) day period shall be conclusively presumed to be
abandoned by Lessee and shall become the property of Lessor, at Lessor's
election.
23. Definitions. (a) As used in this lease, the term "actual drilling", "actual
drilling operations", "drilling operations", or "drilling", shall mean the actual
operation of drilling in the ground with equipment capable of prosecuting such
drilling to a depth necessary to adequately test one or more of the potential oil
and/or gas bearing formations under the Lease Premises.
(b) As used herein, the term "completion", subject to the
provisions in paragraph 11, shall be deemed to have occurred no later than sixty
(60) days following the completion of drilling operations.
(c) As used herein, the term "abandonment", subject to
the provisions in aarragaph 11, shall be deemed to have occurred no later than
thirty (30) days, following the cessation of drilling operations or operations
related to completion.
IN WITNESS WHEREOF, the parties have executed this lease effective as of
the date first above written.
LESSOR:
CITY OF LUBBOCK
DAVID A. MILLER, MAYOR
ATTEST:
Re ccca Garza, City Secretary
APPROVED ONTENT:
Thomas Adams, Deputy City Manager
PaidUp Oil Gas Lease Page 15 of 17
APPROVED AS T F
Richard Casner
First Assistant City Attorney
STATE OF TEXAS
COUNTY OF LUBBOCK §
This instrument was acknowledged before me on this da of ,
day
of
by David A. Miller, as Mayor of the City of Lubbock.
Notary Public, State of Texas -
AMBER NICOLESlMPSON My commission expires:
Notary Public, State of Texas
•, My Commission Expires
07-27-20M
PaidUp Oil Gas Lease Page 16 of 17
LESSEE:
CONE & PETREE OIL AND GAS
EXPLORATION, INC.
•tree, Pr sident
STATE OF TEXAS
COUNTY OF_ox
The foregoing instrument was acknowledged before me on this J�day of
2006, by Larry G. Petree, President of Cone & Petree Oil and
Exploration, Inc., a Texas corporation.
Y' KIM MARIE DEYOUNG
* + Notary Public, State of Texas Not ry Public in and for the S to f Tex
sf *4 My Commission Expires 10.
0 30-06
art cr try+
RichardiOil and Gas Lease. Paid UpPretiminaryPinaI
September 5, 2006
PaidUp Oil Gas Lease Page 17 of 17
rd Am Cl
NowGtigetcd Ater ]a
THE EAST ONE-HALF (E/2) AND THE NORTHWEST QUARTER (NW/4) OF SECTION 14,,
BLOCK It CERTIFICATE 9360P ABSTRACT NUMBER 742 LUBBOCK COUNTY. TEXAS.
_ RILED AND RECORDED
h OFAICIAL PUBLIC RECORDS
°off
Doris Ruff, County Clerk
Lubbock County TEXAS
September 15, 2006 01:41:34 PM
FEE: $79.00 2006038971