Loading...
HomeMy WebLinkAboutResolution - 2018-R0367 - Oil And Gas Lease Agreement With Texland Petroleum, LP. - 10/09/2018Resolution No. 20I 8--R0367 Item No. 6.12 October 9, 2018 RESOLUTION BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK: THAT the Mayor of the City of Lubbock is hereby authorized and directed to execute for and on behalf of the City of Lubbock, an Oil and Gas Lease Agreement by and between the City of Lubbock and Texland Petroleum, LP, and related documents. Said Lease Agreement is attached hereto and incorporated in this resolution as if fully set forth herein and shall be included in the minutes of the City Council. Passed by the City Council on October 9, 2018 "y DANIEL M. POPE, MAYOR ATTEST: Reb cca Garza, City Secre ry —) APPROVED AS TO CONTENT: Kelly Campbell, Executive Director of Aviation APP City Attorney ccdocsiRES. Lease Agrmt- Texland Petroleum September 24, 2018 Producers 88 (4-89) Paid Up Special With 640 Acres Pooling Provision TEXAS STANDARD FORM PAID UP OIL AND GAS LEASE THIS LEASE AGREEMENT is made as of the Qrh day ofOctobcr , 2018, between The City of -Lubbock Texas, a Municipal Corporation, as Lessor (whether one or more) whose address is P. O. Box 2000, Lubbock, Texas 79457, and Tcxland Petroleum, LP., as Lessee, whose address is 777 Main Street, Suite 3200, Fort Worth. Texas 76102. All printed portions of this lease were prepared by the party hereinabove named as Lessee, but all other provisions (including the completion of blank spaces) were prepared jointly by Lessor and Lessee. 1. In consideration of a cash bonus in hand paid and the covenants herein contained, Lessor hereby grants, leases and lets exclusively to Lessee the following described land, hereinafter called leased premises: Section 28, Block A (A-685): N/2 Section 32, Block A (A-684): E/2SW14; SWASWA; W/2SE/4 in the County of Lubbock, State of Texas, containing 520 gross acres, more or less (including any interests therein which Lessor may hereafter acquire by reversion, prescription or otherwise), for the purpose of exploring for, developing, producing and marketing oil and gas, along with all hydrocarbon and nonhydrocarbon substances produced in association therewith. The term "gas" as used herein includes helium, carbon dioxide and other commercial gases, as well as hydrocarbon gases. In addition to the above -described leased premises, this lease also covers accretions and any small strips or parcels of land now or hereafter owned by Lessor which are contiguous or adjacent to the above -described leased premises, and, in consideration of the aforementioned cash bonus, Lessor agrees to execute at Lessee's request any additional or supplemental instruments for a more complete or accurate description of the land so covered. For the purpose of determining the amount of any shut-in royalties hereunder, the number of gross acres above specified shall be deemed correct, whether actually more or less. 2. This lease, which is a "paid -up" lease requiring no rentals, shall be in force for a primary term of Three (3) years from the date hereof, and for as long thereafter as oil or gas or other substances covered hereby are produced in paying quantities from the leased premises or from lands pooled therewith or this lease is otherwise maintained in effect pursuant to the provisions hereof. 3. Royalties on oil, gas and other substances produced and saved hereunder shall be paid by Lessee to Lessor as follows: (a) For oil and other liquid hydrocarbons separated at Lessee's separator facilities, the royalty shall be Twenty -Five percent (25%) of such production, to be delivered at Lessee's option to Lessor at the wellhead or to Lessor's credit at the oil purchaser's transportation facilities, provided that Lessee shall have the continuing right to purchase such production at the wellhead market price then prevailing in the same field (or if there is no such price then prevailing in the same field, then in the nearest field in which there is such a prevailing price) for production of similar grade and gravity; (b) for gas (including casinghead gas) and all other substances covered hereby, the royalty shall be Twenty -Five percent (25%) of the proceeds realized by Lessee from the sale thereof, Iess a proportionate part of ad valorem taxes and production severance, or other excise taxes and the costs incurred by Lessee in delivering, processing or otherwise marketing such gas or other substances, provided that Lessee shall have the continuing right to purchase such production at the prevailing wellhead market price paid for production of similar quality in the same field (or if there is no such price then prevailing in the same field, then in the nearest field in which there is such a prevailing price) pursuant to comparable purchase contracts entered into on the same or nearest preceding date as the date on which Lessee commences its purchases hereunder; and (c) if at the end of the primary term or any time thereafter one or more wells on the leased premises or lands pooled therewith are capable of producing oil or gas or other substances covered hereby in paying quantities, but such well or wells are either shut in or production therefrom is not being sold by Lessee, such well or wells shall nevertheless be deemed to be producing in paying quantities for the purpose of maintaining this lease. If for a period of 90 consecutive days such well or wells are shut in or production therefrom is not being sold by Lessee, then Lessee shall pay shut-in royalty of one dollar per acre then covered by this lease, such payment to be made to Lessor or to Lessor's credit in the depository designated below, on or before the end of said 90-day period and thereafter on or before each anniversary of the end of said 90-day period while the well or wells are shut in or production therefrom is not being sold by Lessee; provided that if this lease is otherwise being maintained by operations, or if production is being sold by Lessee from another well or wells on the leased premises or lands pooled therewith, no shut-in royalty shall be due until the end of the 90-day period next following cessation of such operations or production. Lessee's failure to properly pay shut-in royalty shall render Lessee liable for the amount due, but sbalI not operate to terminate this lease_ 4. All shut-in royalty payments under this lease shall be paid or tendered direct to Lessor at above address. All payments may be made by check and such payments to Lessor deposited in the U.S. Mails in a stamped envelope addressed to the Lessor at the last address known to Lessee shall constitute proper payment. 5. If Lessee drills a well which is incapable of producing in paying quantities (hereinafter called "dry hole") on the leased premises or Iands pooled therewith, or if all production (whether or not in paying quantities) permanently ceases from any cause, including a revision of unit boundaries pursuant to the provisions of Paragraph 6 or the action of any governmental authority, then in the event this lease is not otherwise being maintained in force it shall nevertheless remain in force if Lessee commences operations for reworking an existing well or for drilling an Paid Up Oil and Gas Lease Page I of additional well or for otherwise obtaining or restoring production on the leased premises or lands pooled therewith within 90 days after completion of operations on such dry hole or within 90 days after such cessation of all production. If at the end of the primary term, or at any time thereafter, this lease is not otherwise being maintained in force but Lessee is then engaged in drilling, reworking or any other operations reasonably calculated to obtain or restore production therefrom, this lease shall remain in force s❑ long as any one or more of such operations are prosecuted with no cessation of more than 90 consecutive days, and if any such operations result in the production of oil or gas or other substances covered hereby, as long thereafter as there is production in paying quantities from the leased premises or lands pooled therewith. After completion of a well capable of producing in paying quantities hereunder, Lessee shall drill such additional wells on the leased premises or lands pooled therewith as a reasonably prudent operator would drill under the same or similar circumstances to (a) develop the leased premises as to formations then capable of producing in paying quantities on the leased premises or lands pooled therewith, or (b) to protect the leased premises from uncompensated drainage by any well or wells located on other lands not pooled therewith. There shall be no covenant to drill exploratory wells or any additional wells except as expressly provided herein. 6. Lessee shall have the right but not the obligation to pool all or any part of the leased premises or interest therein with any other lands or interests, as to any or all depths or zones, and as to any or all substances covered by this lease, either before or after the commencement of production, whenever Lessee deems it necessary or proper to do so in order to prudently develop or operate the leased premises, whether or not similar pooling authority exists with respect to such other Iands or interests. The unit Formed by such pooling for an ail well which is not a horizontal completion shall not exceed 80 acres plus a maximum acreage tolerance of 1 Q%, and for a gas well or a horizontal oil completion shall not exceed 640 acres plus a maximum acreage tolerance of 10%; provided that a larger unit may be formed for an oil well or gas well or horizontal completion to conform to any well spacing or density pattern that may be prescribed or permitted by any governmental authority having jurisdiction to do so. For the purpose of the foregoing, the terms "oil well" and "gas well" shall have the meanings prescribed by applicable law or the appropriate government authority, or, if no definition is so prescribed, "ail well" means a well with an initial gas -ail ratio of Iess than 100,000 cubic feet per barrel, and "gas well" means a well with an initial gas -oil ratio of 100,000 cubic feet or more per barrel, based on a 24-hour production test conducted under normal producing conditions using standard lease separator facilities or equivalent testing equipment; and the term "horizontal completion" means a well in which there is a horizontal component in the gross completion reservoir or interval after the vertical component. In exercising its pooling rights hereunder, Lessee shall file of record a written declaration describing the unit and stating the effective date of pooling, Production, drilling or reworking operations anywhere on a unit which includes all or any part of the leased premises shall be treated as if it were production, drilling or reworking operations on the leased premises, except that the production of which Lessor's royalty is calculated shall be that proportion of the total unit production which the net acreage covered by this lease and included in the unit bears to the total gross acreage in the unit, but only to the extent such proportion of unit production is sold by Lessee. Pooling in one or more instances shall not exaust Lessee's pooling rights hereunder, and Lessee shall have the recurring right but not the obligation to revise any unit formed hereunder by expansion or contraction or both, either before or after commencement of production, in order to conform to the well spacing or density pattern prescribed or permitted by the governmental authority having jurisdiction, or to conform to any productive acreage determination made by such governmental authority. In making such a revision, Lessee shall file of record a written declaration describing the revised unit and stating the effective date of revision. To the extent that any portion of the leased premises is included in or excluded from the unit by virtue of such revision, the proportion of unit production on which royalties are payable hereunder shall thereafter be adjusted accordingly. In the absence of production in paying quantities from a unit, or upon permanent cessation thereof, Lessee may terminate the unit by filing of record a written declaration describing the unit and stating the date of termination. Pooling hereunder shall not constitute a cross - conveyance of interests. 7. If Lessor owns less than the full mineral estate in all or any part of the leased premises, the royalties and shut-in royalties payable hereunder for any well on any part of the leased premises or lands pooled therewith shall be reduced to the proportion that Lessor's interest in such part of the leased premises bears to the full mineral estate in such part of the leased premises. S. The interest of either Lessor or Lessee hereunder may be assigned, devised or otherwise transferred in whole or in part, by area and/or by depth or zone, and the rights and obligations of the parties hereunder shall extend to their respective heirs, devisees, executors, administrators, successors and assigns. No change in Lessor's ownership shall have the effect of reducing the rights or enlarging the obligations of Lessee hereunder, and no change in ownership shall be binding on Lessee until 60 days after Lessee has been furnished the original or certified or duly authenticated copies of the documents establishing such change of ownership to the satisfaction of Lessee or until Lessor has satisfied the notification requirements contained in Lessee's usual form of division order. In the event of the death of any person entitled to shut-in royalties hereunder, Lessee may pay or tender such shut-in royalties to the credit of decedent or decedent's estate in the depository designated above. If at any time two or more persons are entitled to shut-in royalties hereunder, Lessee may pay or tender such shut-in royalties to such persons or to their credit in the depository, either jointly or separately in proportion to the interest which each owns. IF Lessee transfers its interest hereunder in whole or in part Lessee shall be relieved of all obligations thereafter arising with respect to the transferred interest, and failure of the transferee to satisfy such obligations with respect to the transferred interest shall not affect the rights of Lessee with respect to any interest not so transferred. If Lessee transfers a full or undivided interest in all or any portion of the area covered by this lease, the obligation to pay or tender shut-in royalties hereunder shall be divided between Lessee and the transferee in proportion to the net acreage interest in this Iease then held by each. 9. Lessee may, at any time and From time to time, deliver to Lessor or file of record a written release of this lease as to a full or undivided interest in all or any portion of the area covered by this lease or any depths or zones Paid Up Oil and Gas Lease Page 2 of thereunder, and shall thereupon be relieved of all obligations thereafter arising with respect to the interest so released. If Lessee releases all or an undivided interest in less than all of the area covered hereby, Lessee's obligation to pay or tender shut-in royalties shall be proportionately reduced in accordance with the net acreage interest retained hereunder. 10. In exploring for, developing, producing and marketing oil, gas and other substances covered hereby on the leased premises or lands pooled or unitized therewith, in primary and/or enhanced recovery, Lessee shall have the right of ingress and egress along with the right to conduct such operations on the leased premises as may be reasonably necessary for such purposes, including but not Iimited to geophysical/seismic operations, the drilling of wells, and the construction and use of roads, canals, pipelines, tanks, water wells, disposal wells, injection wells, pits, electric and telephone lines, power stations, and other facilities deemed necessary by Lessee to discover, produce, store, treat and/or transport production. Lessee may use in such operations, free of cost, any oil, gas, water and/or other substances produced on the leased premises, except water from Lessor's wells or ponds without Lessor's consent. In exploring, developing, producing or marketing from the leased premises or lands pooled therewith, the ancillary rights granted herein shall apply (a) to the entire leased premises described in Paragraph 1 above, notwithstanding any partial release or other partial termination of this lease; and (b) to any other lands in which Lessor now or hereafter has authority to grant such rights in the vicinity of the leased premises or lands pooled therewith. When requested by Lessor in writing, Lessee shall bury its pipelines below ordinary plow depth on cultivated Iands. No well shall be located less than 200 feet from any house or bam now on the leased premises or other lands used by Lessee hereunder, without Lessors consent, and Lessee shall pay for damage caused by its operations to buildings and other improvements now on the leased premises or such other lands, and to commercial timber and growing crops thereon. Lessee shall have the right at any time to remove its fixtures, equipment and materials, including well casing, from the leased premises or such other Iands during the term of this lease or within a reasonable time thereafter. 11. Lessee's obligations under this lease, whether express or implied, shall be subject to all applicable laws, rules, regulations and orders of any governmental authority having jurisdiction including restrictions on the drilling and production of wells, and the price of oil, gas and other substances covered hereby, When drilling, reworking, production or other operations are prevented or delayed by such laws, rules, regulations or orders, or by inability to obtain necessary permits, equipment, services, material, water, electricity, fuel, access or easements, or by fire, flood, adverse weather conditions, war, sabotage, rebellion, insurrection, riot, strike or labor disputes, or by inability to obtain a satisfactory market for production or failure of purchasers or carriers to take or transport such production, or by any other cause not reasonably within Lessee's control, this lease shall not terminate because of such prevention or delay, and at Lessees option, the period of such prevention or delay shall be added to the term hereof. Lessee shall not be liable for breach of any express or implied covenants of this lease when drilling, production or other operations are so prevented, delayed or interrupted. 12. No litigation shall be initiated by Lessor with respect to any breach or default by Lessee hereunder, for a period of at least 90 days after Lessor has given Lessee written notice fully describing the breach or default, and then only if Lessee fails to remedy the breach or default, within such period. In the event the matter is litigated and there is a final judicial determination that a breach or default has occurred, this lease shall not be forfeited or cancelled in whole or in part unless Lessee is given a reasonable time after said judicial determination to remedy the breach or default and Lessee fails to do so. 13. Lessor hereby warrants and agrees to defend title conveyed to Lessee hereunder, and agrees that Lessee at Lessee's option may pay and discharge any taxes, mortgages or Iiens existing, levied or assessed on or against the leased premises. If Lessee exercises such option, Lessee shall be subrogated to the rights of the party to whom payment is made and, in addition to its other rights, may reimburse itself out of any royalties or shut-in royalties otherwise payable to Lessor hereunder. In the event Lessee is made aware of any claim inconsistent with Lessor's title, Lessee may suspend the payment of royalties and shut-in royalties hereunder, without interest, until Lessee has been furnished satisfactory evidence that such claim has been resolved. 14. Lessor, and their successors and assigns, hereby grants Lessee an option to extend the primary term of this lease for an additional period of Two Years from the end of the primary term by paying or tendering to Lessor prior to the end of the primary term the same bonus consideration, terms and conditions as granted for this lease. 15. See Exhibit "A" attached hereto and made a part hereof for additional provisions, Paid Up Oil and Gas Lease Page 3 of 4 IN WITNESS WHEREOF, this lease is executed to be effective as of the date first written above, but upon execution shall be binding on the signatory and the signatory's heirs, devisees, executors, administrators, successors and assigns, whether or not this lease has been executed by all parties here inabove named as Lessor. The City of Lubbock, Texas, a Municipal Corporation By: Daniel Pope, Mayor Texland Petroleum, L.P. a TexasUnited partnership By: Texpet Mgt., L.L. is gen rat p ner By: _ Wi son Woods, Vice President. Land and Legal STATE OF TEXAS COUNTY OF LUBBOCK § This instrument was acknowledged before me on the day oF_ V oOA , 2018, by Daniel P e M2y or of The City of Lubbock Texas, a Municipal Corporation, on behalf of the corporation, CAITLYN E. ENGLISH Noury public, We of Texas NOUq IDI 131W41-1 M" Cfl� EVM 0725-21)22 Notary PublState of Texa STATE OF TEXAS COUNTY OF TARRANT § This instrument was acknowledged before me on the(:�tday of , 2018, by Wilson Woods, Vice President, Land and Legal of Texpet Mgt., L.L.C., the genepartner of Texland Petroleum, L.P., a Texas limited partnership, on behalf of the entity. •, CHRYSTAI.5KAGG5 Ndery Inw � AM 18, 2020 Notary PubIt , State of Texas Paid Up Oil and Gas Lease Page 4 of Exhibit A ADDENDUM ATTACHED TO AND MADE A PART OF THAT CERTAIN OIL AND GAS LEASE DATED October 9, 2018 1. Minerals Covered. This lease covers only oil, gas and other related hydrocarbons, including sulfur produced as a by-product of oil and or gas and does not cover or include any other minerals, including but not limited to coal, lignite or uranium. All other minerals are excluded and are reserved to Lessor. 2. Royalty. The royalties to be paid by Lessee are. (a) royalty payable on oil (other than oil associated with processed gas which is covered by paragraph (c) below) shall be 25% of the Gross Proceeds received by Lessee from the sale of oil at the point of sale. The term "Gross Proceeds" means the proceeds actually received by Lessee from the sale of oil or gas, as the case may be, at the point of sale, whether at the wellhead or downstream of the wellhead, without deduction for any costs of production (including, without limitation, costs of drilling, completing, reworking, pumping, pressurizing, operating, and/or costs of secondary or tertiary recovery operations); (b) royalty on any gas (other than gas associated with processed gas which is covered by paragraph (c) below) shall be 25% part of the Gross Proceeds received by Lessee from the sale of gas at the point of sale; (c) royalty on any gas processed in a gasoline plant or other plant for the recovery of gasoline or other liquid hydrocarbons ("Plant Products") shall be (i) 25% of the Actual Proceeds from the sale of the residue gas attributable to the leased premises and sold by Lessee at the tailgate of the plant and (ii) 25% of the Actual Proceeds of the sale of the Plant Products attributable to the leased premises and credited to Lessee by the plant. The term "Actual Proceeds" means the actual cash proceeds received by Lessee for the sale of residue gas or Plant Products, as the case may be, at the point of sale. If Plant Products are recovered from gas processed in a plant in which Lessee (or its parent, subsidiary or affiliate) owns more than a 18.75% of the voting interest, then, upon 60 days written notice from Lessor, in lieu thereof, Lessor shall be entitled to receive royalty on Plant Products, calculated at the highest percent accruing to a third party processing Gas through such plant under a processing agreement negotiated at arm's length (or if there is no such third party, the average of the highest percent then being specified in processing agreements or contracts in the three (3) most - proximate plants with analogous function); (d) Lessor shall always have the right, at Lessor's option, at any time and from time to time, upon reasonable written notice to Lessee, to require Lessee to .handle and market Lessor's royalty oil, gas and hydrocarbons, sulphur and products extracted, separated or saved from the gas and residue gas from the leased premises, free of costs to Lessor, in the same manner as Lessee shall handle Lessee's portion of same. It is further agreed that Lessor's royalty shall never bear, either directly or indirectly, any part of the costs or expenses of production, gathering, dehydration, compression, transportation (except transportation by truck), manufacture, processing (except Lessor's proportionate share of Lessee's direct costs of processing, other than administrative and overhead costs, capital costs and depreciation), treatment or marketing of the oil or gas from the leased premises, nor any part of the costs of construction, operation or depreciation of any plant or other facilities or equipment for production. Lessor and Lessee agree that the royalties accruing under this lease shall be free and clear of all deductions as aforesaid, notwithstanding the holding Page ] of the Texas Supreme Court in the case of Heritage Resources v. NationsBank. To the extent that Lessee receives any compensation for such services after making any such deduction, said compensation shall be added to the value of such oil or gas for the purpose of computing royalties. Upon written request and reasonable notice by Lessor, Lessee shall make available to Lessor or Lessor's authorized representative for inspection and examination the books and accounts, receipts, well records, and all contracts and other records pertaining to the production, transportation, sale and marketing of the oil and gas produced on the Leased Premises which relate to or have bearing on, in any manner, the royalty to be received by Lessor hereunder. Any inspection or examination shall be done at Lessee's principal place of business during normal working hours. Any use of oil or gas produced from operations on or under the Leased Premises shall be included in calculating revenue and payment of royalties from the well production. Notwithstanding any other provision in this section, Lessee may reduce Lessor's royalty to not less than 22.5% upon providing Lessor satisfactory evidence that, in order to secure an off premise well site from which to produce oil or gas from the Leased Premises, Lessee was obligated to grant an overriding royalty interest in oil or gas produced from the Leased Premises to the surface owner at said off premise well site. In that event, and only in that event, Lessor's royalty may be reduced by the amount of said overriding royalty interest, but in no event shall such reduction exceed a 2.5% royalty interest. Lessee agrees to make best efforts to secure an off premise well site without the grant of an overriding royalty interest. 3. Shut-in Royalty. While there is a gas well on this Lease or on lands pooled with the Leased Premises capable of producing in paying quantities, but gas is not being sold, at the end of the Primary Term or any time thereafter, Lessee shall pay or tender in advance an annual shut-in royalty of $1 0 per net mineral acre for each well from which gas is not being sold. Payment with respect to a well will be due within 60 days after the well is shut-in and shall be proportionately reduced to Lessor's percentage of acreage in the pooled unit. While shut-in royalty payments are timely and properly paid, this Lease will be held as a producing lease. 4. Continuous Development. (a) If, at the expiration of the Primary Term, oil or gas is not being produced from the Leased Premises, but Lessee has commenced the drilling of a well on the Leased Premises, the Lease will not terminate but will remain in effect for so long thereafter as operation are carried out with due diligence with no cessation of more than 60 days, and if the operations result in the production of oil or gas, the Lease shall remain in force as otherwise provided herein. For the purposes of this Lease, the term "operations" means operations for any of the following: drilling, testing, completing, reworking, recompleting, deepening, plugging back, or repairing of a well in search for production of oil or gas. (b) If this Lease is maintained beyond the expiration of the Primary Term by production or otherwise. it will reinain in force as to all acreage and depths as long as there is no lapse Page 2 of more than 180 days between the completion of one well and the commencement of actual drilling of another well. The commencement of actual drilling means the penetration of the surface with a drilling rig capable of drilling to the anticipated total depth of the well. After a well is commenced, drilling operations must continue in a good and workmanlike manner in a good faith effort to reach the anticipated total depth with no cessation of operations for more than 60 consecutive days. A well will be deemed to have been completed on the date of the release of the drilling rig from the drill site and any completion operations cease. The permitted time between wells shall be cumulative so that if a well is commenced prior to the date it is required to be commenced, the ntunber of days prior to the date on which the well should have been commenced shall be added to the time permitted for the next well. (c} If at any time the maximum time for the commencement of the actual drilling of a well expires without the commencement of the well, or upon the expiration of the Primary Term if the Lease is not maintained by continuous drilling or any other provision contained herein, this Lease will terminate except as to the Retained Tract (defined below) surrounding any well that is then producing in paying quantities or deemed to be producing in paying quantities by virtue of payment of shut-in royalties, and as to each Retained Tract, the Lease will then terminate as to all depths 100 feet below the stratigraphic equivalent of the }ease of the deepest producing formation on the Retained Tract. The Lease will be treated as a separate lease with respect to each Retained Tract and will continue so long as production in paying quantities continued from the Retained Tract or the Lease is otherwise maintained. If production from a Retained Tract ceases from any cause, this Lease will terminate as to that tract unless Lessee commences operations for drilling or reworking on the tract within 60 days after the cessation of production or this Lease is maintained by other provisions, in which case the Lease as to that Retained Tract will continue in force as long as the operations are prosecuted with no cessation of more than 60 consecutive days, and if they result in production, so long thereafter as there is production from the Retained Tract. (d) As used in the Lease, the term "horizontal well" means a well that meets the definition of a "horizontal drain hole well" under Statewide Rule 86 of the Railroad Commission of Texas, and a "vertical well" is a well that is not a horizontal well. The land assigned to a well for the purposes of this section is referred to as a "Retained Tract". Once Lessee concludes its continuous drilling operations hereunder, each Retained Tract must include sufficient wells drilled to hold the Retained Tract and the parties agree that the acreage earned by drilling a well may not exceed the minimum size required to obtain a drilling permit under the well density rules adopted by the Railroad Commission of Texas for the field, or if there are no field rules that apply, the Retained Tract shall be limited to the smallest size required to obtain a drilling permit under the statewide well density rules of the Railroad Commission of Texas. A Retained Tract for a vertical well may not exceed 40 acres. If field rules are established later that permit obtaining a drilling permit with less acreage, a Retained Tract for a vertical well may not exceed the minimum size permitted. A Retained Tract for a horizontal well may include the minimum acreage specified above for a vertical well plus the additional acreage listed in the tables in Rule 86 and must comply with the requirements of Rule 86 for a minimum permitted well Page 3 density. Each Retained Tract shall be designated in a shape that maximizes the number of possible Retained Tracts on the Leased Premises. (e) Within 60 days after the last to occur of the expiration of the Primary Term or the continuous drilling program, Lessee must file in the county records and furnish to Lessor a document designating each Retained Tract by metes and bounds description prepared by a professional surveyor, specifying the retained depths thereunder, and releasing all other depths and acreage. A gas well that becomes an oil well will hold only the acreage permitted for an oil well, and Lessee must file a re --designation of the Retained Tract (containing metes and bounds description prepared by a professional surveyor and specifying the retained depths thereunder) in the Real Property Records of Lubbock County. If Lessee fails to file timely a document required by this paragraph after Lessor has provided thirty (30) days prior written notices, then Lessor may do so, and the filing will bind Lessee. 5. Pugh Clause. Upon the expiration of the primary term of this lease or upon the conclusion of the Continuous Development period described above, whichever is the later date, this lease shall expire to all depths below the stratigraphic equivalent of 100 feet below the base of the deepest producing formation. This lease shall also terminate as to any land not included in a pooled unit, proration unit or other unit from which any well, located thereon at pooled therewith, is producing or may be capable of producing in paying quantities, or upon which drilling, reworking or other operations calculated to restore production are being pursued as herein provided. After the expiration of the primary term of this lease, if production on any pooled, proration or other unit permanently ceased from any cause either voluntary or involuntary (and if this lease is not otherwise being maintained), this lease shall terminate as to such unit unless Lessee within (60) days thereafter commences reworking operations or the actual drilling of a new well thereon. In such event, this lease will continue in effect as to such unit so long as such drilling or reworking operations are prosecuted with no cessation of such operations for more than 60 consecutive days until production is restored. 6. Lighting. Any lights used by Lessee on airport property will be subject to the review and approval of airport management prior to activation. All operations on airport property or directly adjacent to airport property will first be coordinated with airport operations to assure compliance with Federal Aviation Administration rules and regulations. Compliance with FAA rules and regulations will be the sole responsibility of Lessee. 7. No Surface Use. It is hereby agreed and understood that there shall be no drilling activities or any other activities incident to the rights granted to Lessee under this Lease on the surface of the Leased Premises without the prior written permission from Lessor. Notwithstanding the foregoing, this waiver of surface shall not be construed as a waiver of the rights of Lessee to utilize the subsurface of the Leased Premises under the Lease, and Lessee shall have the right to exploit, explore for, develop and produce oil, gas and other covered minerals under this Lease from wells from surface locations off the Leased Premises, including but not limited to, directional or horizontal drilling activity which comes under the surface of the Leased Premises. Nothwithstanding any provision of this Lease, it is hereby acknowledged and agreed by the parties that this Lease relates to lands that are part of the Lubbock Page 4 International Airport. As such, all rights, title and interest conveyed under this Lease are hereby expressly subordinated to the City of Lubbock's current or future federal aid grant assurance operations and may not result in any use or development incompatible with airport operations. Further, Lessee agrees to comply with applicable height restrictions and hazard prevention compliance for off -airport activities as found at, inter alia, 14 CFR Part 77. 8. Warranty of Title. This Lease is made and entered into without any express or implied warranty of title by, or recourse upon, Lessor(s) whatsoever, not even for the return of the consideration paid hereunder. If Lessor owns an interest in the Leased Premises less than the entire fee simple estate, then the royalties payable hereunder will be reduced proportionately. 9. Addendum Prevails. It is understood and agreed by all parties hereto that the provisions of this Addendum supersede any provisions to the contrary in the printed lease hereof. 10. Offset Wells. For purposes of this Lease, an "offsetting well" is a well that is producing oil or gas from adjacent or nearby land and is in reasonable probability draining the Leased Premises. If an offsetting well is completed, Lessee must, within 124 days after the date of first sales from the offsetting well, commence operations for the drilling of an offset well on the Lease Premises and must diligently pursue those operations to the horizon which the offsetting well is producing, or at the option of Lessee: (i) execute and deliver to Lessor a release in recordable form of the acreage nearest to the offsetting well; or (ii) pay Lessor a monthly royalty equal to the royalty that would be payable under this Lease if the production from the offsetting well had come from the Leased Premises. In the event acreage is released pursuant to (i) above, the released will cover a tract of a size and shape that will permit the drilling of a well to the producing formation and the creation of a proration unit surrounding the well in compliance with the field rules for the field in which the offsetting well is located, but if there are no fields rules, in compliance with the statewide rules of the Railroad Commission of Texas. A well producing with perforations within 334 feet of the Leased Premises will be conclusively presumed to be draining the Leased Premises. 11. Attorney's Fees. In the event that Lessor is required to employ legal counsel for the enforcement of any provision of this Lease and prevails, Lessor will be entitled to recover from Lessee reasonable attorney's fees and expenses, including but not limited to expert witness fees, incurred by Lessor. 12. Insurance. At all times while this Lease is in force, Lessee shall acquire and maintain insurance covering all of its activities and operations hereunder, including any work performed on its behalf by contractors, subcontractors, and others, naming Lessor as an additional insured. The policies shall include coverage from comprehensive general liability, for bodily injury and property damage, blowout and loss of well coverage, and coverage for any damage to the environment, including coverage for the cost of cleanup and surface remediation. The coverage shall be in the minimum amount of $3,000,000. Lessee shall furnish a certificate from the issuing insurance company or companies evidencing coverage. 13. Indemnity. LESSEE, ITS SUCCESSORS AND ASSIGNS WILL PROTECT, DEFEND, INDEMNIFY, REIMBURSE, AND HOLD HARMLESS, THE Page 5 LESSOR, ITS EMPLOYEES, SURFACE TENANTS, AGENTS, SUCCESSORS, ASSIGNS, HEIRS, DEVISEES, AND PERSONAL REPRESENTATIVES (COLLECTIVELY "LESSOR INDEMNITEES") FROM AND AGAINST ALL ATTORNEYS' FEES, CAUSES OF ACTION, CLAIMS, COSTS, COURT COSTS, DAMAGES, DEMANDS, EXPENSES, EXPERT FEES, JUDGMENTS, PENALTIES, AND SUITS OF EVERY KIND OR CHARACTER (COLLECTIVELY "CLAIMS"), AND WHETHER IN CONTRACT, IN TORT OR EXISTING AT COMMON LAW, OR BY VIRTUE OF ANY STATUTE, REGULATION OR ORDINANCE, ARISING OUT OF ANY ACT WHICH MAY HEREINAFTER TRANSPIRE FROM ANY ACTIVITY EXPRESSLY OR IMPLIEDLY AUTHORIZED OR REQUIRED BY THIS AGREEMENT WHETHER PERFORMED BY THE LESSEE OR THOSE HAVING A CONTRACTUAL RELATIONSHIP WITH LESSEE EXCEPT TO THE EXTENT THAT SUCH CLAIMS RESULT FROM LESSOR INDEMNITIEES' NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. FOR PUROSES OF THE INDEMNITY PROVISIONS HEREOF, ANY ACTS OR OMISSIONS OF LESSEE, OR BY EMPLOYEES, AGENTS, ASSIGNEES, SUCCESSORS, GUESTS, INVITEES, CONTRACTORS, OR SUBCONTRACTORS OF LESSEE OR ACTIONS OF ANY OTHER PERSONS FOR OR ON BEHALF OF LESSEE (WHETHER OR NOT THEY ARE NEGLIGENT, INTENTIONAL, WILLFUL, OR UNLAWFUL), SHALL BE STRICTLY ATTRIBUTABLE TO LESSEE AND AS SUCH SHALL FALL WITHIN THE SCOPE OF LESSEES OBLIGATION IN THIS SUBPARAGRAPH TO INDEMNIFY LESSOR. THE INDEMNITY OBLIGATIONS OF THIS PARAGRAPH SHALL APPLY TO ANY ATTORNEYS' FEES, COURT COSTS OR OTHER EXPENSES LESSOR INCURS IN THE SUCCESSFUL DEFENSE OF ANY ACTION OR CLAIM BROUGHT AGAINST LESSOR WHICH ARISES FROM OR RELATES TO THE ACTIVITY OF LESSEE EXPRESSLY OR IMPLIEDLY AUTHORIZED OR REQUIRED BY THIS AGREEMENT. 14. Compliance with Environmental Laws and Regulations. Lessee, its successors and assigns, by its acceptance of this Lease, hereby agrees to comply with all applicable laws, rules and regulations and hereby assumes full responsibility for, and agrees to indemnify, defend and hold harmless, Lessor from and against any loss, liability, claim, fine, expense cost (including attorneys fees and expenses) and cause of action caused by or arising out of violation (or defense of the alleged violation) of any federal, state or local laws, rules or regulations applicable to any waste material, drilling matter fluid or any hazardous substances released or caused to be released by Lessee or Lessee's agents, or independent contractors, or any other operations on the Leased Premises hereunder into the atmosphere or into or upon the land or any water course or body of water, including ground water, or subsurface water. Further, Lessee covenants and agrees to accept total and sole responsibility for the preservation of all animal and plant life existing under the protection of the Endangered Species Act; and to comply with all governmental laws and edicts relating to any other and all environmental cares and concerns. Lessee further acknowledges and agrees that, as between Lessor and Lessee, it is also solely liable for violations of environmental laws, rulings and edicts by contractors, crews, service companies, transportation companies, and any other company or individual who travels or works on, over or across the Leased Premises while engaged in pursuits that are, in any way, connected with the Lessee's exploration for oil and gas. Additionally, upon receiving any notice regarding Page b any environmental, pollution or contamination problem or violation of any law, rule or regulation, Lessee will forward a copy to Lessor by certified mail within thirty (30) days. This provision and its indemnities shall survive the termination of this Lease, and shall ensure to the successors, heirs and assigns of Lessor and Lessee. 15. Miscellaneous Provisions. (a) In the event this Lease terminates for any reason as to all or any part of the Leased Premises, Lessee shall, within 60 days thereafter, deliver to Lessor a recordable release covering all of the Leased Premises or that portion of the Leased Premises as to which this Lease terminated. (b) Nothing in this Lease negates any implied covenants imposed upon Lessee under applicable law. (c) Lessee will conduct all operations hereunder in compliance with the rules of the Railroad Commission of Texas and federal and state environmental laws and regulations and municipal ordinances. Upon written request of Lessor, Lessee shall furnish to Lessor copies of applications to drill, daily drilling reports, well tests, completion reports, plugging records, and production reports. Lessee will divulge to Lessor's Representative correct information as requested in writing by Lessor as to each well, the production therefrom, and such non-proprietary technical information as Lessee may acquire; however, Lessor and Lessor's Representative must keep all such information confidential and may not divulge same to any third party. Lessor's Representative has the right to be present when wells or tanks are gauged and production metered and upon written request has the right to examine all run tickets and to have full information as to production and runs and to receive copies of all run tickets. (d) The term "production" means production in paying quantities. Lessee's obligations to pay money under this Lease are to be performed in Lubbock County, Texas. Paragraph headings are used in this Lease for convenience only and are not to be considered in the interpretation or construction of this Lease. The execution or ratification by Lessor of any division order, gas contract, or any other documents will not alter any provision of this Lease unless the intent to do so is expressly stated in the document. Under no circumstances may Lessee, its agents, employees, or contractors bring firearms or dogs or other animals on the Leased Premises or hunt or fish on the Leased Premises. Upon Lessor's written request, Lessee agrees to furnish to Lessor a copy of each title opinion or report obtained by Lessee that covers all or any part of the Leased Premises together with a copy of each title curative document obtained by Lessee. (e) Any compressors used in connection with this Lease or the Leased Premises herewith shall be equipped with the latest technology in noise suppression and snuffling devices. Every five years if requested by Lessor, Lessee shall be required to install quieter compressors if such are available for sale and distribution. Page 7 (f) Lessor may not own all of the minerals underlying the Leased Premises. Lessee agrees that it will not drill, conduct operations or participate in drilling or operations on the Leased Premises which are not in compliance with the terms and requirements of this Lease by claiming authority under the lease or leases covering the outstanding interest. (g) Choice of Law. This agreement will be construed under the laws of the State of Texas, without regard to choice -of -law rules of any jurisdiction. Venue is in Lubbock County, Texas. (h) Lessee, for itself and its successors and assigns, hereby waives any right of eminent domain possessed by Lessee or any Affiliate of Lessee to acquire any right of way or easement for the transportation of gas, oil or any other substance. (1) Groundwater Protection. Any oil or gas wells drilled by Lessee shall be drilled in compliance with the surface casing requirements imposed by the State of Texas for groundwater protection and Lessee shall install such surface casing in the required manner in order to insure the protection of all water bearing formations in and under the Leased Premises. Further, Lessee, at its own cost, agrees to conduct water quality testing on any water wells available on lands pooled with the Leased Premises, as follows: (1) an initial baseline water quality test to be conducted no more than 60 days before Lessee commences actual drilling for the first well from Lessee's drillsite located on lands to be pooled with the Leased Premises, and (2) re -testing 1 year following completion of the first well, and (3) repeat testing every three years thereafter, as long as this Lease remains in effect. The testing shall be done by a qualified professional water testing firm and will include, but not be limited to, testing for gas, minerals, metals, volatile organic compounds (VOC's), and semi -volatile organic compounds (SVOCs). U} Remedial Action. Any remedial action or activities required of Lessee under this Lease shall be addressed and the remedial work commenced within the earlier of twenty (20) days or a reasonable amount of time under the circumstances, dependent on the nature of the remedial work, and must be diligently pursued until fully performed. (k) Environmental Safeguards. Lessee shall employ such measures as will reduce the impact of its operations upon improvements, vegetation and habitat on the Leased Premises. Lessee shall use reasonable care and safeguards in conducting its operations to prevent contamination or pollution from any waste, pollutant, or contaminant to any environmental medium, including soil, surface waters, groundwater, sediments, surface or subsurface strata, ambient air, or any other environmental medium in, on, or under the Leased Premises. Lessee shall promptly remediate any condition which is hazardous to humans or wildlife resulting frozen Lessee's operations. (1) Seismic Operations. Lessee shall pay for all damages incw-red to the Leased Premises which result from its seismic operations. Other than seismic operations as provided herein, by execution and delivery of this Lease, Lessee does not otherwise obtain the right to conduct exploration, excavation or drilling operations from or upon the surface of any portion of the Leased Premises. Page S (m) Local Ordinances. In conducting its operations hereunder, Lessee shall comply with all present and future ordinances, rules or regulations imposed by the City of Lubbock or other governmental agency. For purposes of this Lease, the Leased Premises shall be deemed to be wholly inside the corporate boundaries of the City of Lubbock, and Lessee agrees to comply with City of Lubbock Ordinances Article 8.07. (n) This Lease carries with it no express or implied right to utilize fresh surface water or ground water from the Leased Premises and any indication to the contrary is hereby expressly revolted. (o) This Lease may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Executed on the date first written above. Lessor: THE CI T i' yr LU"BOCK, TEXAS, A M NICIP RP RATION Daniel Pope, Mayor Agreed and Accepted this `L� day of September, 2018 TFXLAND PETROLEUM, L.P. By: Texpet 1V g`L., L.L.C., its general partner By: � - Wilson Woods. Vice President, Land and Legal Page g ATTEST: Rebe ca Garza, City Secreta y �) APPROVED AS TO CONTENT: APPR nV_FT7 AS TO FnR TVI; Qa' . Brady, Counsel for City of Lubbock Page 10