HomeMy WebLinkAbout922096
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000669
OIL AND GAS LEASE
THIS LEASE made as of January 31,2006 but effective as of May 16, 1999, between ANADARKO E&P COMPANY LP, a
Delaware Limited Partnership, whose address is 1201 Lake Robbins Dr., The Woodlands, Texas 77380, as Lessor, and CABOT OIL &
GAS CORPORATION, a Delaware corporation, whose address is 7490 East OFeAsffi l1eseJ, Sl:Jitc 360, [FIg le'vdood , CO 80111, as
Lessee. f//~rìthstiS'¡--(/. qt)~NJJ)cf)V(;r Co 8'tJp-d~
WIT N E SSE T H: I
(1) Lessor, for good and valuable consideration, receipt of which is hereby acknowledged, and in consideration of the royalties
herein provided and of the agreement of Lessee herein contained and subject to the limitations herein provided, grants, leases and lets
unto Lessee for the purposes of investigating, exploring, prospecting, drilling and mining for and producing oil and gas (including,
without limitation, nitrogen, carbon dioxide, hydrogen sulphide, helium, and other gaseous substances (except steam) and products
associated therewith) and associated liquid hydrocarbons, and laying pipelines, building tanks, power stations, telephone lines and
other structures thereon to produce, save, take care of, treat, refine, process, store, transport, own, sell and dispose of said oil, gas and
associated liquid hydrocarbons, seventy percent (70%) of Lessor's right, title and interest in and to the oil and gas in and under the
leased premises described as follows:
From the surface of the earth to the stratigraphic equivalent of one hundred feet (100') below 11,500 feet in the wellbore ONLY
for the Champlin 290 B 3R (API No. 49·023·21553), which well is located in the Southwest Quarter (SW/4) of the Southeast
Quarter (S84) of Section 19, Township 21 North, Range 112 West, Lincoln County, Wyoming.
For shut-in royalty payment purposes, the land included in this lease shall be deemed to contain six hundred forty (640) acres, whether
it actually comprises more or less.
z r (2)
This is a paid-up lease and there shall be no requirement for Lessee to pay delay rentals.
l {¡ (3) Subject to the other provision herein contained, this lease shall be for a primary term which expires at twelve o'clock (12:00)
noon, Central Time, on May 16, 2001, which term shall hereinafter be referred to as "the primary term", and as long thereafter as oil,
gas, or associated liquid hydrocarbons or any of them are produced from the leased premises in paying quantities hereunder, or drilling
or reworking operations are conducted thereon under the terms hereof.
(4) Subject to the right of election reserved to Lessor below to take its share of production in kind, the royalties to be paid by
Lessee are Fifteen percent (15%) of eight-eighths (8/8ths) of: (a) the greater of the market value at the well or the amount realized
from the sale of oil and liquid petroleum products recovered at the well and (b) the market value at the well of gas sold, used off the
leased premises or delivered to Lessee at the tailgate of the plant to which the gas is delivered, plus the market value of the products
recovered when such gas is processed; provided that on gas sold at the well by Lessee in an arm's length transaction, the royalty shall
be the same percentage of the amount realized from such sale. For avoidance of doubt, royalty is to be paid on all payments received
by Lessee under or as a result of a gas purchase contract, including, but not limited to reservation charges and, subject to credit to
Lessee when gas for which payment has been made earlier is eventually produced, take-or-pay or contract settlement proceeds and
amounts paid for gas not taken. Lessee shall have free use of oil and gas from said land for operations on the leased premises, and
the royalty on oil and gas shall be computed after deducting any production so used.
The royalties payable under this lease shall be free and clear of costs or deductions for exploration, drilling, development, and
production, including but not limited to, costs of marketing, dehydration, storage, compression, separation by mechanical means and
stabilization of the hydrocarbons. If Lessee treats and/or processes its gas in a natural gas plant (either on or off the leased premises),
whether in Lessee's plant or in the plant of and under contract with a third party, Lessee shall treat and/or process or cause Lessor's
gas to be treated and/or processed. In the event of any such treating and/or processing, Lessee shall be entitled to deduct from the
value of the products recovered by the treating and/or processing of the gas, or if Lessor is taking its production in kind to charge
Lessor for, the actual costs incurred by Lessee for such treating and/or processing, which costs shall include gathering or
transportation costs required to transport the gas to the plant.
If Lessor elects, Lessee shall deliver to Lessor in kind its royalty share of oil and other liquid hydrocarbons saved at the well,
into storage tanks on the lease premises; products recovered in a processing plant, into storage tanks or onto storage sites at the plant;
and gas, at the tailgate of the plant, if processed, or at the well if the gas is sold at the well. In the event of such election with respect to
oil and products, Lessor shall give to Lessee not less than sixty (60) days notice of its election and shall take said royalty share in kind
for a period of not less than six (6) months following the termination of said sixty (60) day period. Any deliveries of production are to be
made from Lessee's facilities at times and amounts which equitably adjust deliveries between the parties. With respect to gas, Lessee
shall give Lessor notice if it intends to enter into a gas contract on its share of the gas, and Lessor shall have a period of thirty (30)
days from receipt of a copy of the gas sales agreement which Lessee is willing to execute to notify Lessee in writing that Lessor elects
to take in kind and separately dispose of its share of such gas.
If there is a gas well on the lease premises or on land pooled therewith capable of producing in paying quantities, but from
which gas is not being sold, and in the absence of oil or other production from the leased premises or on land pooled therewith
sufficient to maintain this lease in full force and effect, this lease shall be extended for a period of ninety (90) days from the date such
well is orwas shut-in, where upon this lease shall terminate unless Lessee shall pay to Lessor as royalty, a sum equal to One Dollar
($1.00) per net acre covered by this lease, which payment shall be made to Lessor at ANADARKO E&P COMPANY LP, ATTN: Land
Manager, Western Region/CBM, on or before the ninetieth (90th) day from and after the date on which such well is or was shut-in, and
annually thereafter a similar payment may be made on or before the anniversarv date on which such well was shut-in. If 5uch
RECEIVED 9/5/2006 at 11 :41 AM
RECEIVING # 922096
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JEANNE WAGNEF
1''''___.' __I ..._, _I __II .,_....____ I.....'
{)92;~09b
0006Þ70
payment, or payments, are timely made, it shall be considered that gas is being produced in paying quantities from the leased
premises under all the terms and provisions of this lease (but only for so long as the well continues to be capable of producing in
paying quantities); however, this lease may not be maintained by shut-in payments more than three (3) (cumulative) years during any
five (5) year period.
Lessee shall be obligated to use diligence to market gas capable of being produced in paying quantities from a shut-in well,
but shall be under no obligation to market same under terms, conditions or circumstances which are unreasonable.
(5) Lessee may at any time execute and place of record a release or releases covering any portion or portions of the above
descried leased premises, furnishing a copy thereof to Lessor, and thereby surrender this lease as to such portion or portions and be
relieved as to the acreage surrendered of all obligations not arising from activities of Lessee prior to said release. Upon the expiration
of any portion of this lease, Lessee shall promptly record an appropriate, legally effective release or releases of said expired portion
and provide Lessor a copy of the recorded instrument within ninety (90) days of said expiration.
(6) If Lessee is drilling a new well or reworking an old well at the expiration of the primary term, this lease shall continue in force
as long as such drilling or reworking operations are prosecuted with no cessation of more than ninety (90) days, and if such drilling or
reworking operations result in production of oil or gas or associated liquid hydrocarbons in paying quantities, then for so long thereafter
as such production in paying quantities continues or this lease is otherwise maintained in full force and effect under the provisions
hereof. If production on this lease ceases after the expiration of the primary term, this lease shall continue in force if drilling or
reworking operations are commenced within sixty (60) days after such cessation of production; and if production is restored or new
production is discovered as a result of any such drilling or reworking operations, conducted without cessation of more than ninety (90)
days, this lease shall continue so long thereafter as production in paying quantities, or additional drilling or reworking operations are
had without cessation of such production, drilling or reworking operations for more than ninety (90) consecutive days.
(7) At the expiration of the primary term, this lease shall terminate as to all land which is not located in a drillsite spacing unit (as
hereinafter defined) in which there is a well on the lease premises or on land pooled therewith, producing oil or gas in paying quantities,
or a shut-in gas well, and in any such producing drillsite spacing unit or units, this lease shall terminate as to those depths lying below
the stratigraphic equivalent of the deepest producing horizon in each drillsite spacing unit of land. For the purpose of this lease, the
drillsite spacing unit shall be the amount of acreage as provided by rule or order of the Wyoming Oil and Gas Conservation
Commission. If Lessee is engaged in actual drilling or reworking operations on the leased premises or Land pooled therewith at the
expiration of the primary term, this provision shall be suspended for so long as Lessee continues such drilling or reworking operations
on the leased premises or land pooled therewith with no cessation of more than ninety (90) consecutive day between the completion or
abandonment of such drilling or reworking operations on one (1) well, and the commencement of actual drilling or reworking
operations on the next well; provided, further, that irrespective of any such continuous drilling or reworking operations, the termination
of this lease as to non-producing Land and depths shall not be suspended for more than five (5) years from the expiration of the
primary term hereof. If the leased premises are included in a Federal Unit then for the purposes of this provision the references to land
pooled with the leased premises shall include only that land which is included in an approved participating area.
(8) Lessee, at its option, is hereby given the right and power to pool or combine the lease premises or any portion thereof, as to
oil and gas, or either of them, with any other land, lease or leases, when in Lessee's judgment it is necessary or advisable to do so in
order to properly develop and operate the leased premises. Any such pooling shall be into a well unit or units not exceeding forty (40)
acres, plus an acreage tolerance of ten percent (10%), for oil, and not exceeding six hundred forty (640) acres, plus an acreage
tolerance of ten percent (10%), for gas, except that larger units may be created to conform to any spacing or well unit pattern that may
be prescribed by state governmental authorities having jurisdiction. Lessee may pool or combine acreage covered by this lease, or any
portion thereof, as above provided, as to oil or gas in anyone or more strata, and oil units need not conform as to area with gas units.
The pooling in one (1) or more instances shall not exhaust the right of the Lessee hereunder to pool this lease or portions thereof into
other units. Lessee shall execute in writing and place of record an instrument or instruments identifying and describing the pooled
acreage. In order to be effective, Lessee shall promptly furnish to Lessor a copy of the document pooling the acreage. The entire
acreage so pooled into a unit shall be treated for all purposes, except the payment of royalties, as if it were included in this lease, and
drilling and reworking operations thereon, and production of oil and gas therefrom, or the completion thereon of a well as a shut-in gas
well, shall be considered for all purposes, except the payment of royalties, as if such operations were on, or such production were from,
or such completion were on the leased premises, whether or not the well or wells be located on the leased premises. In lieu of the
royalties elsewhere herein provided, Lessor shall receive from a unit so formed, only such portion of the royalty stipulated herein as the
amount of its net mineral acres placed in the unit bears to the total acreage so pooled in the particular unit involved. Should any unit as
originally created hereunder contain less than the maximum number of acres hereinabove specified, then Lessee may at any time
thereafter, whether before or after productions is obtained on the unit, enlarge such unit by adding additional acreage thereto, but the
enlarged unit shall in no event exceed the acreage content hereinabove specified. In the event an existing unit is so enlarged, Lessee
shall execute and place of record a supplemental declaration of pooling identifying and describing the land added to the existing unit;
provided, that if such supplemental declaration of pooling is not filed until after production is obtained on the unit as originally created,
then and in such event the supplemental declaration of pooling shall not become effective until the first day of the calendar month next
following the filing thereof and the furnishing to Lessor of a copy of such supplemental declaration. In the absence of production,
Lessee may terminate the unitized area by filing with Lessor and of record a notice of termination.
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(9) Insofar as Lessor may grant such right, Lessee shall have the right at any time during the term of this lease or within six (6)
months after the expiration of this lease to remove all property and fixtures placed by Lessee on the leased premises, including the
right to draw and remove all casing.
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000671.
(10) The rights of Lessor may be assigned in whole or in part. This lease may not be assigned by Lessee in whole or in part,
without the prior written consent of Lessor, which consent shall not be unreasonably refused. Refusal shall be deemed reasonably
denied if, in Lessor's judgment, the numbers of assignees are excessive, an assignee's technical competence or financial ability could
be inadequate or Lessee refuses to accept responsibility for the performance of any of its successors in interest. Any attempted
assignment by Lessee of the rights arising under this lease without such consent shall be void and of not effect. No change in the
ownership of the land, or any interest therein, shall be binding on Lessee or any purchaser of production hereunder, until Lessee shall
be furnished with a certified copy of all recorded instruments, all court proceedings, and all other necessary evidence of any transfer,
inheritance, or sale of said rights. Unless provided otherwise in Lessor's approval of an assignment to be made by Lessee, Lessee
shall continue to be responsible to Lessor for all unpaid sums then due to Lessor and obligations under Section 16 below with respect
to the assigned portion or portions having to do with activities conducted prior to the date of assignment. In addition, the assignment of
this lease, in whole or in part, shall not be valid as to Lessor until Lessor shall have been furnished a true and correct certified copy of
such assignment. No change or division in ownership of the land, shut-in payments, or royalties, however accomplished, shall operate
to enlarge the obligations or diminish the rights of the Lessee.
(11) All express or implied covenants of this lease shall be subject to all applicable laws, orders, rules or regulations, and this lease
. shall not terminate, in whole or in part, nor shall Lessee be held liable in damages for failure to comply therewith, if compliance is
prevented by, or if failure is the result of any applicable law, order, rule or regulation, or if prevented by an act of God, of the public
enemy, or labor strikes.
(12) Lessee at its option may discharge any tax, mortgage, or other lien upon the leased premises, either in whole or in part, and in
the event Lessee does so, it shall be subrogated to any lawful and enforceable rights of the prior creditor with the right to enforce same
and apply shut-in payments and royalties accruing hereunder towards satisfying same. Except as provided, in the immediately
preceding sentence, Lessee shall not acquire or attempt to acquire, directly or indirectly, from any person other than Lessor, any rights
or interests in the oil and gas estate in the leased premises or take any action inconsistent with or adverse to the ownership and quiet
enjoyment by Lessor of its oil and gas estate in the leased premises. If Lessor owns an interest in the leased premises less than the
entire fee simple estate, or if this lease covers less than Lessor's entire interest in the leased premises, then the shut-in payments and
royalties to be paid Lessor shall be reduced proportionately. In any portion of the leased premises is included in a pooled unit, the
amount of the shut-in royalty applicable to the Lessor's interest therein shall be based upon the amount of Lessor's net mineral acres
included in any such pooled unit upon which such gas well is situated.
(13) The rights granted under this lease are granted WITHOUT WARRANTY, EXPRESS OR IMPLIED, and without covenants of
title, including, without limitation, covenants to give possession or for quiet enjoyment.
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(14) Withóut the prior written consent of the owner thereof, Lessee shall not make any entry upon or under any portion of any
railroad right-of-way or station grounds for any of the purposes of this lease, and shall not drill any well or maintain any structures or
facilities within' two hundred feet (200') (by surface or subsurface measurement) of: (a) any railroad tracks or buildings on such right-of-
way, or station grounds, or (b) any buildings upon the leased premises.
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(15) Lessee shall be responsible for injury to or loss or destruction of property, and for injury to or death or illness of any person,
arising out of or in connection with operations hereunder. Lessee expressly agrees to and shall assume all obligations and
responsibility with respect to being in, establishing, achieving, documenting, or reporting full compliance with any and all applicable
laws, orders, rules, regulations, and standards with respect to pollution, the continued operation and eventual plugging, replugging, and
abandonment obligations of any unplugged or improperly plugged wells on the lease premises or land pooled therewith.
(16) Without limiting the generality of Section 15, Lessee shall pay either the tenant or the surface owner (whichever is appropriate)
for any and all damages to land, structures, roads, fences, gates, cattleguards, trees, growing crops, irrigation facilities, equipment, and
livestock caused by construction, operations, or maintenance of facilities, shall bury all pipelines below plow depth where they cross
cultivated land, shall construct gates where necessary for crossing fenced lands and keep the gates in repair and closed. Lessee shall
not permit any lien or other encumbrance to be filed or to remain against the leased premises as a result of operations hereunder.
Irrespective of whether Lessor has consented to an assignment, farmout or other arrangement whereby Lessee consents to drilling or
other operations on the leased premises by a third party, Lessee shall be responsible for any and all claims, demands, actions and
causes of action or liens arising out of such operations, whether arising in law, at equity or administratively.
(17) In the event of Lessee's breach of this lease, Lessor shall notify Lessee by certified mail of such breach, and Lessee shall
have thirty (30) working days from the receipt thereof to comply with this lease. If Lessee fails to remedy a material breach within the
period above provided, and provided such notice patently mentioned the termination of rights next described, Lessor may, at its option,
promptly following such period terminate this lease and be relieved from any obligation hereunder. If the parties are unable to agree
upon whether or not a breach is material, such determination shall be made by arbitration. If either party invokes its right to arbitration,
then the parties shall attempt to arbitrate the matter by selecting one arbitrator who is acceptable to both parties. However, if the
parties are unable to select one arbitrator who is acceptable to both of them, then each party shall select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. If the arbitration is handled by a single arbitrator, the parties shall each pay one-
half (1/2) of the fees of the arbitrator, as well as one-half (1/2) of the costs and expenses of the arbitration, excluding the costs and
expenses of either party's representatives, witnesses and attorneys. If three arbitrators are selected, each party shall bear the costs
and expenses of the fees of the arbitrator it selects, and the two parties shall each pay one-half (1/2) of the fees of the third arbitrator,
as well as one-half (1/2) of the costs and expenses of the arbitration, excluding the costs and expenses of either party's
representatives, witnesses and attorneys. Unless otherwise specifically agreed by both parties in writing, the rules and procedures set
forth in the arbitration laws of the state in which the leased premises are located shall govern the arbitration proceeding as fully as if all
of such laws were set forth in full herein. Irrespective of whether Lessor elects to terminate this lease or exercise any other right or
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000672
remedy under this lease or at law, Lessor shall be entitled to other available remedies, including specific performance to require Lessee
to (a) abandon any well and/or restore the surface of the leased premises to its condition existing prior to entry thereon by Lessee, (b)
furnish any reports required hereunder or information required hereunder from operations on the leased premises or land pooled
therewith, and/or (c) make any payment due hereunder. Except as otherwise expressly provided in this lease, any notices or other
communications required or permitted hereunder shall be in writing and shall be deemed given only when received by the party to
whom the same is directed at the address shown at the top of page 1 of this lease or to such other address as is provided to the other
party with proper notice. As to any breach of this lease by Lessee or, except to the extent caused by the negligence of Lessor, any
claim or suit of a third party resulting from Lessee's activities hereunder, Lessee shall indemnify and hold Lessor harmless against any
expense, including attorney's fees and costs of court, preparation and investigation, that Lessor would incur in enforcing its rights under
this lease or defending said third party claims.
(18) Sections 19 through 29 inclusive, listed on Exhibit "A", attached hereto and hereby made a part hereof, are incorporated into
this lease by reference. Lessee shall, without cost to Lessor, furnish Lessor with copies as described on Exhibit "B" attached hereto
and hereby made a part. Subject to Section 1 0, all the provisions of this lease shall inure to the benefit of and be binding upon the
parties hereto, their successors and assigns.
IN WITNESS WHEREOF, this lease is executed on the date of the respective acknowledgments hereinbelow, but shall be
effective from the date first hereinabove written.
Attest:
&P COMPANY LP
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Secretary
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CABOT OIL & GAS CORPORATION
By:
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STATE OF TEXAS }
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COUNTY OF ~Rl\NT YY10t'l !--fbo ~11
____ The foregoing instrument was acknowledged before me this ~ day of ~ ' 20 ~y
darni?J ~ I () ~ll~, attorney-in-fact for ANADARKO E&P COMP NY LP, a Delaware Limited Partnership, on
behalf of the corporation.
Witness my hand and official seal.
""""""""""""",,~
~ ~\\\'~VI~il~ i
~ !~~,""III~~ DIANA ALLEN I
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i; ·;.~·,i·¡ NotaryPUþltc.SlateolTell$ I
I '\ ~I,,""~I My Commiuion Expires 04-12-09 i
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Signatwe 'A 'I
l:>-t tt r'\CL I t 0
Name (print)' l ' J
My commission expires: 4 / ~ ~
Title of Officer
STATE OF e. /... 10-'" ,-
COUNTY OF 7Jf')1 vt>,
}
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The foregoing instrument was acknowledged before me this ~ day of 4 u..J i1 J' +
"P/"II,'p 1.. J'I-..//'L"'~~" , f't"1.I1'h" A I 1= of a.i.1- ðr/ 01 '-1..[
1) e J '-.,." 11.., ~ ('" "P ~ , .. + r ." ~ -, on behalf of the corporation.
, 20-E-, by
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Witness my hand and official seal.
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Signature
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KATHRYN 8. FLAGER
NOTARY PUBLIC
STATE OF COLORADO
My Commission Explres11/1212007
Name (print)
My commission expires:
Title of Officer
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EXHIBIT "A"
(19) DEPTH LIMIT FOR FARMOUT
This lease covers only those depths and formations from the surface of the earth to 100' below the stratigraphic equivalent of eleven
thousand five hundred feet (11,500'), as found in the Champlin 290 B 3R well located in the SWSE of Section 19, Township 21 North,
Range 112 West, Lincoln County, Wyoming. Lessor reserves all other rights, horizons, strata, and formations, including, but not limited
to, the right to the concurrent use of the surface and the right to drill through the leased interval. This lease is subject to all the terms
and provisions of that certain Farmout and Farmout Option Agreement dated March 1, 1999, by and between Union Pacific Land
Resources Corporation and Cabot Oil & Gas Corporation and such terms and provisions shall survive the execution of this lease.
(20) ENTIRETY CLAUSE
If the leased premises are hereafter owned in severalty or in separate tracts, the leased premises, nevertheless, shall be developed
and operated as an entirety, and royalties shall be paid to each separate owner in the proportion that the acreage owned by said owner
bears to the entire leased premises.
(21) GEOPHYSICAL DATA
In the event that Lessee, during the term of this lease, should conduct geophysical activities upon the leased premises, Lessee shall
promptly furnish Lessor for the entirety of each survey, shot point plats and elevations, observer's notes, surveyor's notes, copies of all
field tapes, reproducible copy and one print of each final stacked section for each line and copies of any other processed or
unprocessed data made available to Lessee. '
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(22) INSURANCE
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Lessee shall c~rry the following insurance in the indicated amounts:
(a) Comprehensive General Liability Insurance, including contractual liability, with a combined single limit per occurrence of
not less than $1,000,000.00 for bodily injury and property damage.
(b) Comprehensive Automobile Insurance, including hired and non-owned vehicles, with a combined single limit per
occurrence of not less than $1,000,000.00 for bodily injury and property damage.
(c) Liability Umbrella (excess of underlying insurance coverage mentioned above) with a combined limit per occurrence
coverage of not less than $10,000,000.00.
(d) Well Control Insurance including underground blowout, seepage and pollution, with a minimum limit of $5,000,000.00.
Lessee shall require each independent contractor and subcontractor to carry and maintain insurance at its own expense in amounts
deemed necessary to cover the risks inherent to the work or services to be performed by the contractor or subcontractor. Every such
insurance policy shall contain a waiver on the part of the insurance carrier of all rights, by subrogation or otherwise, against Lessor.
Lessor shall also be named as additional insured in each such policy.
(a) Quitclaim Deed(s), as applicable, dated as of April 1, 1971, from Union Pacific Railroad Company to Union Pacific Land
Resources Corporation, filed for record April 29, 1971, and appearing in Book 492, at Page 523, in the office of the County
Clerk and Register of Deeds of Sweetwater County, Wyoming, and
(23) LAND GRANT
This lease is subject to the exceptions and reservations set forth in:
(b) Mineral Deed dated December 12,1973, from Union Pacific Land Resources Corporation to Lessor, and
(c) Mineral Deed dated August 30,1989, from Union Pacific Land Resources Corporation to Lessor
Lessee recognizes that among the exceptions and reservations set forth in the above deeds are the rights of Lessor's predecessors in
interest to use such portions of the leased premises as may not be required for the proper conduct of oil and gas operations for all
purposes not inconsistent with such operations and without liability for compensation or damages. Lessee shall so conduct its
operations so as not to interfere unreasonably with such reserved use; provided, nevertheless, that such other use of the leased
premises shall not unreasonably interfere with the operations of the Lessee. Unless the requirement is waived in writing by Lessor at
its discretion, no entry shall be made for drilling operations and no facility shall be installed upon any of the lease premises in which
Lessor owns the mineral rights only, until a written agreement with the surface owner has been secured by Lessor in a form satisfactory
to Lessor. Lessee shall request Lessor to obtain such agreement or to waive the requirement therefore at least thirty (30) days prior to
the date Lessee intends to commence such operations. Payments out of or measured by production which the Lessor elects to pay to
the surface owners shall be paid by Lessor out of its royalty.
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000674
(24) MINIMUM ROYALTY
Subsequent to completion of a producing well on the leased premises or on land pooled therewith, should the royalties paid to Lessor
during the first and any subsequent one (1) year period ending on any annual anniversary date of the completion of said well fail to
equal one dollar ($1.00) times the net mineral acres covered by this lease at the beginning of the respective annual period (which
product shall be called the ""minimum royalty""), Lessee shall pay to Lessor, within sixty (60) days following the end of said annual
anniversary date, the difference between the minimum royalty and the royalties paid to Lessor during said anniversary period. The
minimum royalty payments are subject to proportionate reduction pursuant to Section 12.
(25) REPAIR WATER WELLS/RESERVOIRS
All operations on the leased premises shall be conducted so as not to damage any water supply. However, in the event Lessee's
operations shall result in damage or destruction of any water supply, Lessee promptly shall repair, restore or replace any well, tank,
surface pond or other water facility or any water supply so damaged or destroyed as a result of Lessee's operations. Lessee shall
provide to Lessor and/or surface tenant emergency water and water facilities for use in either's operations until such damage or
destruction is repaired, restored and replaced. The words "" damage"" and ""destroy"" shall also be construed to include contamination.
Contamination is defined to mean the addition of substances to any water supply used for human or animal consumption to a degree
which renders the water supply unfit for consumption by humans or animals, either during Lessee's operations or after such operations
have ceased. Without limitation of the general requirements stated above, Lessee agrees, with reference to each well drilled on the
leased premises, either to (a) set and circulate cement around sufficient surface casing to penetrate and adequately protect all fresh
water sands; or (b) set and circulate cement around surface casing in a manner and to a depth acceptable to the state agency and, in
the event a second string of casing (either intermediate or production casing) is set in such well, circulate cement around such second
string of casing with cement circulated either to the surface or into the surface casing previously set in such well; or (c) utilize such
other technique as may be acceptable to the state agency and in conformance with accepted practices in the industry to assure the
protection of the fresh water sands by placing cement in the annulus between the fresh water sands and the casing.
(26) RIGHT TO TAKE PRODUCT IN KIND
Production in Kind: Lessor expressly reserves the right, at any time and from time to time, to take in kind or separately dispose of its
proportionate share of all oil, gas, and related hydrocarbons produced from the leased premises, or lands and leases unitized
therewith. If Lessor fails to take in kind or separately dispose of its proportionate share of production, then Lessee, upon 30 days
advance written notice to Lessor, may sell such production to others, for the account of Lessor, at the best price obtainable in the area
for such production, but in no event for less than the amount which Lessee is receiving for its production. Any such sale by Lessee
shall be subject always to the right of Lessor to exercise its right to take in kind or separately dispose of its share of production, and
shall be only for such reasonable periods of time as are consistent with the minimum needs of the industry, but in no event for a period
in excess of one year.
¡
In the event that after a reasonable time (not exceeding 30 days) following the completion of a well capable of producing gas there is
no bona fide offer to purchase the gas which is to be produced from or attributable to the leased premises, then Lessee shall notify
Lessor in writing of that fact, and Lessor shall have the right, but not the obligation, to purchase such gas at the Market Price. As used
herein the term ""Market Price"" shall mean the arithmetic average of the prices reported in the first issue of the month of delivery for
the price references included in the Market Price Index applicable to a point of delivery to be designated by Lessor, less the
transportation, compression, gathering and other costs, if applicable, to deliver gas from such point of delivery to the mainline
transmission point or points where such Market Price Index is established. As used herein, the term ""Market Price Index"'" for a
particular point of delivery shall mean the published price references, to be designated by Lessor, which reflects the price paid for gas
sold under spot contracts between unaffiliated third parties into one or more mainline transmission systems which represent a market
for the gas purchased by Lessor at such point of delivery. If the parties disagree on which price references should be included in the
Market Price Index for a particular point of delivery, then the determination of the proper price references for the Market Price Index
shall be submitted to arbitration. If Lessor does not make an offer to purchase the gas, or does not elect to purchase the gas at the
Market Price, then Lessor's right of first refusal shall be reinstated with respect to any bona fide offer subsequently received by Lessee.
In the event gas is found on the leased premises or on lands pooled therewith, Lessee shall immediately notify APC in writing at
Anadarko Petroleum Corporation, Attn: natural Gas Sales, PO Box 1330, Houston, Texas 77251-1330.
Arbitration: If either party invokes its right to arbitration, then the parties shall arbitrate the matter by selecting one arbitrator who is
acceptable to both parties. However, if the parties are unable to select one arbitrator who is acceptable to both of them, then each
party shall select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. If the arbitration is handled by a single
arbitrator, the parties shall each pay one-half (1/2) of the fees of the arbitrator, as well as one-half (1/2) of the costs and expenses of
the arbitration. If three arbitrators are selected, each party shall bear the expense of the fees of the arbitrator it selects, and the two
parties shall each pay one-half (1/2) of the fees of the third arbitrator, as well as one-half (1/2) of the costs and expenses of the
arbitration. The jurisdiction of the arbitrators will be limited to determining which published price references are consistent with the
parties' intent that the Market Price Index will reflect the prices paid for gas sold under spot contracts between unaffiliated third parties
into mainline transmission systems which represent a market for the gas purchased by Lessor at the point of delivery. Unless
otherwise specifically agreed to by both parties in writing, the rules and procedures set forth in the Wyoming Arbitration Laws shall
govern the arbitration proceeding as fully as if all of such laws were set forth in full herein.
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(27) WELL DATA AND ACCESS
Lessor shall be given fifteen (15) days notice prior to commencement of all drilling operations. Lessor's representative (as appointed
by Lessor) shall have the right, at Lessor's risk, to have access to the derrick floor and to observe all operations on all wells drilled on
the leased premises or land pooled therewith. Lessee shall promptly furnish Lessor's representative with not less than one copy of all
applications and reports pertaining to the I~ased premises, of each daily drilling report, and of each well log, core analysis or other data
taken from wells located on the leased premises. Lessee agrees, at Lessor's request, to furnish Lessor's representative true and
correct information pertaining to each well, the production therefrom [including true and complete copies of all contracts or agreements
(and all amendments and modifications thereoD for sale, processing or other disposition of any product produced from the leased
premises] and such technical information as Lessee may acquire with respect to sands and formations encountered. Lessor's
representative shall have the right to be present when wells are tested and/or tanks are gauged and shall have the right to examine al
run tickets and to have full information as to production and runs, including copies of all run tickets upon request. In the event Lessee
notifies Lessor in writing that Lessee considers any such information or data to be confidential, Lessor agrees, until the termination of
this lease or for a period not to exceed the period that a particular matter is held confidential by the state agency, whichever is the
shorter period of time, not to disclose such information or data to any third-party unless such information or data previously has been
available to or examined by the third-party or otherwise generally available to the public or any governmental authority or agency other
than the state agency. This shall not be interpreted to require Lessee to furnish Lessor or Lessor's representative with any interpretive
information or data; or any information or data which lessee is obligated to keep confidential.
(28) WELL TAKEOVER
Without the prior written consent of Lessor, Lessee shall not abandon any well or (except when a replacement is made) remove from
the well bore any well casing, tubing, piping, fittings, tanks, pipe lines or other material and equipment which are necessary for the
recovery and handling of production capable of being recovered from said well upon the leased premises. Lessor shall have the option
to purchase any or all of such material and equipment, except that owned by third parties, upon the leased premises which are still
necessary for the production and handling of hydrocarbons capable of being produced from such well and which are not required by
Lessee for operations elsewhere on the leased premises. If Lessor takes over the well, Lessor shall promptly reimburse Lessee for the
salvage value of all material and equipment in the well or used or acquired in connection with the well which lessor elects to retain for
its operations, less the estimated costs of salvaging and less the estimated costs of plugging and abandoning the well, and Lessee
shall promptly deliver a bill of sale to Lessor for such material and equipment. If Lessor takes over the well, then Lessee shall be
deemed to have relinquished and transferred back to Lessor, free of any burdens created by Lessee, all of the right, title and interest of
Lessee in the well bore, such material and equipment and the production therefrom. If the well taken over by Lessor is the only well
serving to perpetuate this lease, and is subsequent to the expiration of the primary term ofthe lease, Lessee shall release this lease to
Lessor.
(29) LEASE OF WELLBORE ONLY
This is a lease of the wellbore of the Champlin 290 B 3R Well (API No. 49-023-21553) only, and Lessee's rights hereunder in the
leased premises are only for (a) the use of that wellbore, without the right to drill out of the hole, and (b) reasonable use of the surface
for ingress and egress, operations in the immediate vicinity of the surface location of the well, and necessary telephone, pipeline and
utility easements.
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