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RECEIVEL 107 at 10:23 AM
RECEIVING # 929903
BOOK:, 660 PAGE: 188 PAID-UP OIL AND GAS LEASE
JEANNE WAGNER
LINCOLN COUNTY CLERK, KEMMERER, WY
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THIS AGREEMENT, made and entered into the 27th day of March, 2007 by and betwe,m JERRY R. KENNEDY,
as Trustee of the JERRY R. KENNEDY FAMILY LIVING TRUST, dated January 31, 1992, whose address is 8287
Viscounti Drive, Sandy, Utah 84093, hereinafter called lessor (whether one or more) and HANSON & STRAHN, INC.,
whose address is P. O. Box 3020, Cheyenne, Wyoming 82003, hereinafter called lessee.
WITNESSETH:
1. That lessor, for and in consideration of - -Ten-- dollars ($ *10.00* ) in hand paid, receipt of which is hereby
acknowledged, and of the agreements of lessee hereinafter set forth, hereby grants, demises, leases and lets exclusively unto
lessee the lands described below for the purpose of investigating, prospecting, exploring (by geophysical and other methods),
drilling, mining, operating for and producing oil or gas, or both (as defined below), together wÌ';h the right to construct and
maintain pipelines, telephone and electric lines, tanks, ponds, roadways, plants, equipment, and structures thereon to produce,
save and take care of said oil and gas (~hich right shall include specifically a right-of-way and easement for ingress to and
egress from said lands by lessee, or its assignees, agents or permittees, necessary to or associated with the construction and
maintenance of such pipelines, telephone and electric lines, tanks, ponds, roadways, plants, equipment, and structures on said
lands to produce, save and take care of the oil and gas), and the exclusive right to inject air, gas, water, brine and other fluids
from any source into the subsurface strata, and any and all other rights and privileges necessary, incident to, or convenient for
the economical operation of said land, alone or conjointly with neighboring land, for the production, saving and taking care of
oil and gas and the injection of air, gas, water, brine, and other fluids into the subsurface strata, said lands being situated in
the County of Lincoln, State of Wyoming, described as follows, to-wit:
-1
Township 24 North. Range 118 West. 6th P. M.
Section 25: SW1/4SWl/4
Section 26: Wl/2SEl/4, SE1/4SEl/4
Containing 160.00 acres, more or less
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In addition to the land described above, lessor hereby grants, leases and lets exclusively unto lessee, to the same extent as
if specifically described, lands which are owned or claimed by lessor by one of the following reas:ms: (1) all lands and rights
acquired or retained by lessor by avulsion, accretion, reliction or otherwise as the result of a (,hange in the boundaries or
centerline of any river or stream traversing or adjoining the lands described above; (2) all riparian lands and rights which are or
may be incident, appurtenant, related or attributed to lessor in any lake, stream or river traversing or adjoining the lands
described above by virtue of lessor's ownership of the land described above; (3) all lands included in any road, easement or
right-of-way traversing or adjoining the lands described above which are or may be incident, appurtenant, related or attributed
to lessor by virtue of lessor's ownership of the land described above; and (4) all strips or tracts of land adjacent or contiguous
to the lands described above owned or acquired by lessor through adverse possession or other si:l1ilar statutes of the state in
which the lands are located.
For the purpose of calculating payments provided for herein, it shall be deemed that the lands covered by this lease
contain 160.00 acres, whether there actually be more or less.
The term oil as used in this lease shall be interpreted to include any liquid hydrocarbon substances which occur naturally
in the earth, including drip gasoline or other natural condensate recovered from gas without res0l1 to manufacturing process.
The term gas as used in this lease shall be interpreted to include any substance, either combustibl<: or non-combustible, which
is produced in a natural state from the earth and which maintains a gaseous or rarified state ELt ordinary temperature and
pressure conditions, including but not limited to helium, nitrogen, carbon dioxide, hydrogen sulfide, coal bed methane gas,
casinghead gas and sulphur.
Subject to the other provisions herein contained, this lease shall remain in force for a term of five (5) years from this date
(herein called "primary term") and as long thereafter as oil and gas, or either of them, is produced from the leased premises or
drilling operations are continuously prosecuted. For purposes of this lease, a well completed for the production of coalbed
methane gas shall be deemed to be producing gas under this lease at all times when dewatering of the coal seams from which
the coalbed methane gas will be produced is occurring. For purposes of this lease, "drilling operations" shall include
operations for the drilling of a new well and operations for the reworking, deepening or plugging b2cck of a well or hole or other
operations conducted in an effort to establish, resume or re-establish production of oil and gas; drilling operations shall be
considered to be "continuously prosecuted" if not more than one hundred twenty (120) days shall elapse between the
completion and abandonment of one well or hole and the commencement of drilling operations on another well or hole; drilling
operations shall be deemed to be commenced for a new well at such time as lessee has begun the construction of the wellsite
location or the road which provides access to the wellsite location; and drilling operations shall be deemed to be commenced
with respect to reworking, deepening, plugging back or other operations conducted in an effort to resume or re-establish
production of oil and gas at such times as lessee has the requisite equipment for such operations at th,~ wellsite.
2. The lessee shall deliver to the credit of the lessor as royalty, free of cost, in the pipeline to which lessee may connect its
wells the equal fifteen percent (15.00%) part of all oil produced and saved from the leased premises, or lessee may from time to
time at its option purchase any royalty oil in its possession, paying the market price thereof prevail ing for oil of like grade and
gravity in the field where produced on the date of purchase.
The lessee shall pay lessor, as royalty, on gas, including casinghead gas or other gaseous substances, produced from the
leased premises and sold or used off the premises or used in the manufacture of gasoline or other ~roducts, the market value at
the well of fifteen percent (15.00%) of the gas sold or used, provided that on gas sold the royalty shall be fifteen percent (15%)
of the amount realized from such sale. The amount realized from the sale of gas shall be the price established by the gas sales
contract entered into in good faith by lessee and a gas purchaser for such term and under such conditions as are customary in
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the industry. "Price" shall mean the net amount received by lessee after giving effect to applicable regulatory orders and after
application of any applicable price adjustments specified in such contract or regulatory orders. In the event lessee compresses,
treats, purifies or dehydrates such gas (whether on or offthe leased premises) or transports gas offthe leased premises, lessee
in computing royalty hereunder may deduct from such price a reasonable charge for each of such functions performed.
3. This is a paid-up lease and all cash consideration first recited above and annual rentals have been paid to lessor in
advance to keep this lease in full force and effect throughout the primary term. In consideration of the payment of such cash
consideration and advance of annual rentals, lessor agrees that lessee shall not be obligated, except as otherwise provided
herein, to commence or continue any operations during the primary term. Lessee may at any time or times during or after the
primary term surrender this lease as to all or any portion of the land described above, and as to any strata or stratum, by
delivering to lessor or by filing of record a release or releases, and be relieved of all obligations thereafter accruing to the
acreage surrendered.
4. Any payments required to be made to lessors pursuant to this lease, other than the payment of royalties, may be paid by
lessee to the lessor or to lessor's credit in the Direct to Lessor Bank, at (or its successor or
successors, or any bank with which it may be merged or consolidated, or which succeeds to its business assets or any part
thereof, by purchase or otherwise) which shall continue as the depository regardless of changes in the ownership of said land or
the oil and gas. All such payments may be made by cash, check or draft, mailed or delivered on or before the due date for that
payment. Any payments so made shall be binding on the heirs, devisees, executors, administrators, and personal
representatives Qflessor and on lessor's successors in interest or on lessor's assigns.
5. If, at the expiration of the primary term of this lease, oil or gas is not being produced from the leased premises but
lessee is then engaged in drilling operations, this lease shall continue in force so long as drilling operations are continuously
prosecuted; and if production of oil or gas results from any such drilling operations, this lease' shall continue in force so long as
oil or gas shall be produced from the leased premises. If, after the expiration of the primary term of this lease, production on
the leased premises should cease for any cause, this lease shall not terminate if lessee is then engaged in drilling operations, or
within one hundred twenty (120) days after each such cessation of production commences or resumes drilling operations, and
this lease shall remain in force so long as drilling operations are continuously prosecuted, and if production results therefrom,
then as long thereafter as oil or gas is produced from the leased premises.
6. If at any time, either before or after the expiration of the primary term of this lease, there is a well capable of producing
oil or gas on the lands covered by this lease, or on other lands with which lands covered by this lease are pooled or unitized,
but the well is shut-in, whether before or after production therefrom, and this lease is not being maintained otherwise as
provided herein, this lease shall not terminate (unless released by lessee) and it shall nevertheless be considered that oil or gas
is being produced from lands covered by this lease during all times while the well is~o shut-in. Lessee shall use reasonable
diligence to market the oil or gas capable of being produced from such shut-in well, but shall be under no obligation to market
the oil or gas under terms, conditions or circumstances which, in lessee's judgment exercised in good faith, are unsatisfactory.
When the lease is continued in force in this manner, lessee shaH payor tender to the lessor or lessor's successors or assigns, an
amount equal to $5.00 per year per net mineral acre covered by the lease. Such payments shall be made on or before the shut-
in royalty payment date, as defined below, next occurring after the expiration of one hundred twenty (120) days from the date
the well was shut-in, unless prior to such date oil or gas from the weH is sold or used or the lease is otherwise maintained as
provided herein. In like manner, on or before each succeeding shut-in royalty payment date while such well remains shut-in,
lessee shaH make payment of shut-in royalty in the same amount and manner. The term "shut-in royalty payment date" shall
mean the anniversary date of this lease. Any shut-in royalty payment may be made by cash, draft or check, mailed or tendered
on or before the shut-in royalty date. Lessee's failure to payor tender, or properly payor tender, any such sum shall render
lessee liable for the amount due but it shall not operate to terminate the lease.
7. If lessor owns a lesser interest in the above described land other than the entire and undivided fee simple estate therein,
then the royalties, including shut-in royalty, herein provided shall be paid to lessor only in the proportion which lessor's
interest bears to the whole and undivided fee. Any interest in production from the lands described herein to which the interest
of lessor may be subject shall be deducted from the royalty herein reserved.
, ItIAl 8. Lessee shall have the right to use, free of cost, gas, oil and water produced on said land for its operation thereon, except
~, 'water from springs, wells and reservoirs of lessor. Lessee shall have the right at any time and the obligation to remove all
~maChinery and fixtures placed on said premises, including the right (but not the obligation) to draw and remove casing.
9. Lessee shall pay to lessor reasonable amounts for damages caused by its operations to growing crops on said land.
. Wken requested by lesser, lessee shall bury its pipelines which traverse cultivated lands below plow depth. No well shall be
HeÆ drilled nearer than two hundred (200) feet to a house or barn now on said premises, without written consent of lessor. Lessee
shall have the right at any time (but Ret the obJigatioa) and the obligation, to remove all improvements, machinery, and fixtures
placed or erected by lessee on said premises, including the right (but not the obligation) to pull and remove casings.
10. Lessee is hereby given the right and power at any time and from time to time as a recurring right, either before or after
production, as to all or any part of the land described above and as to anyone or more of the formations hereunder, to pool or
unitize the leasehold estate and the mineral estate covered by this lease with other land, lease or leases in the immediate
vicinity for the production of oil and gas, or separately for the production of either, when in lessee's judgment it is necessary or
advisable to do so, and irrespective of whether authority similar to this exists with respect to such other land, lease or leases.
Likewise, units previously formed to include formations not producing oil or gas may be reformed to exclude such non-
producing formations. The forming or reforming of any unit shall be accomplished by lessee executing and filing of record a
declaration of such unitization or reformation, which declaration shaH describe the unit. Any unit may include land upon which
a well has heretofore been completed or upon which drilling operations have been commenced. Production, drilling or
reworking operations or a well shut-in for any reason anywhere on a unit which includes all or a part of this lease shaH be
treated as if it were production, drilling or reworking operations or a well shut-in under this lease. In lieu of the royalties
elsewhere herein specified, lessor shall receive on production from the unit so pooled royalties only on the portion of such
production allocated to this lease; such allocation shall be that proportion of the unit production that the total number of surface
acres covered by this lease and included in the unit bears to the total number of surface acres in such unit.
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11. Lessee shall have the right to unitize, pool, or combine all or any part of the land described above as to one or more of
the formations thereunder with other lands in the same general area by entering into a cooperative or unit plan of development
or operation approved by any governmental authority and, from time to time, with like approval, to modify, change or
terminate any such plan or agreement and, in such event, the terms, conditions, and provisions of this lease shall be deemed
modified to conform to the terms, conditions, and provisions of such approved cooperative or unit plan of development or
operation and particularly, all drilling and development requirements of this lease, express or implied, shall be satisfied by
compliance with the drilling and development requirements of such plan or agreement, and this lease shall not terminate or
expire during the life of such plan or agreement. In the event that the land described above or any part thereof shall hereafter
be operated under any such cooperative or unit plan of development or operation whereby the production therefrom is allocated
to different portions of the land covered by said plan, then the production allocated to any particular tract of land shall, for the
purpose of computing the royalties to be paid hereunder to lessor, be regarded as having been produced from the particular
tract of land to which it is allocated and not to any other tract of land; and the royalty payments to be made hereunder to lessor
shall be based upon production only as so allocated.
12. If the estate of either party hereto is assigned or sublet, and the privilege of assigning or subletting in whole or in part
is expressly allowed, the express and implied covenants hereof shall extend to the sub lessees, successors and assigns of the
parties; and in the event of an assignment or subletting by lessee, lessee shall be relieved and discharged as to the leasehold
rights so assigned or sublet from any liability to lessor thereafter accruing upon any of the covenants or conditions of this lease,
either express or implied. No change in ownership of the land, royalties, or other payments, however accomplished, shall
operate to enlarge the obligations or diminish the rights of lessee or require separate measuring or installation of separate tanks
by lessee. Notwithstanding any actual or constructive knowledge of or notice to lessee, no change in ownership of said land or
of the right to receive royalties or other payments hereunder, or of any interest therein, whether by reason of death, conveyance
or any other matter, shall be binding on lessee (except at lessee's option in any particular case) until one hundred twenty (120)
days after lessee has been furnished written notice thereof, and the supporting information hereinafter referred to, by the party
claiming as a result of such change in ownership or interest. Such notice shall be supported by original and certified copies of
all documents and other instruments or proceedings necessary in lessee's opinion to establish the ownership of the claiming
party .
13. In the interest of conservation, the protection of reservoir pressures and recovery of the greatest ultimate yield of oil
andlor gas, lessee shall have the right to combine the leased premises with other premises in the same general area for the
purpose of 9perating and maintaining repressuring and recycling facilities, and for such purpose may locate such facilities,
1fTJAL: including input wells, upon leased premises, and no royalties shall be payable hereunder upon any gas used for repressuring
'and recycling operations benefiting the leased premises.
14. If lesser, Eluring the primary term sf this leaGe, reseiyes a bena fiEle eff-er frem a thirEl party ts purehase frem lesser a
lease severing any er all sf the substBRses sS'¡ereEl by this lease anEl esvering all sr a pertien sf the lanEl ElesaribeEl herein, with
suaa lease ts beeame effeeti'¡e upen eKpiratisn ef this lease, whish lesser is willing te aseept fiem the affering party, lesser
:RE hereby agrees ts Ratify lessee in ,,¡riting af BaiEl efrer immeEliBtely, ineluEling in the netiee the name aREI aElElress ef the efferor,
the priee effereEl anEl all ether pertiBeBt tefffts aREI eeBElitieRs ef the effsr. Lessee, fer a perieEl sf fifteeB (15) days after the
reeeipt af the natiee, shall have the prior BRei preferreEl right aREI eptien tEl pUfehase the lease Elr part theresf sr iBterest thereiB
eevered by the eifer at the priee aRd en the terms BRd eeBditieRs Bpeeified iR the eITer. ,A.1l effers made up tEl anEl iRelueling the
last day ef the primary term sf this lease shall be sHbjeet tEl the tefB'ls IIßd eeRElitieRs ef this plH'agfLtfJh 14. Should lessee eleet to
pHrehase the lease pl:lrSHaRt te the 'terms hereef, it SA all se Betify lesser iR writiBg by mail, telefw[, er telegram prier to
eKpiratieB ef said fifteeR (15) day peried. Lessee SA all promptly thereafter furRish tEl lesser the Rew lease fer eKeel:ltisR by
lesser alsRg with lessee's sight draft payable te lesser iR paymeRt efthe speeified BmeuRt as eeRsiEleratieR fer the Rew lease,
sueh draft beiBg subjeet te appreval ef title aeeardiRg te the terms tflereef. U peB reeeipt theresf, lesser shall premptly e (eeute
saiEl lease BREI returR same alsBg ·....ith the Elraft tflreugh lesser's bank efreeerEl fer paymeRt.
15. In the event lessor considers that lessee has not complied with all its obligations hereunder, either express or implied,
lessor shall notify lessee in writing, setting out specifically in what respects lessee has breached this lease. Lessee shall then
have sixty (60) days after receipt of said notice within which to meet or commence to meet all or any part of the breaches
alleged by lessor. The service of said notice shall be precedent to the bringing of any action by lessor on said lease for any
cause, and no such action shall be brought until the lapse of sixty (60) days after service of such notice on lessee. Neither the
service of said notice nor the doing of any acts by lessee aimed to meet all or any of the alleged breaches shall be deemed an
admission or presumption that lessee has failed to perform all its obligations hereunder. This lease shall never be forfeited or
cancelled for failure to perform in whole or in part any of its implied covenants, conditions, or stipulations until a judicial
determination is made that such failure exists and lessee fails within a reasonable time to satisfy any such covenants,
conditions, or stipulations. In the event that legal action is required to resolve a dispute betWeen lessor and lessee, then lessee
agrees to pay for all reasonable attorney fees in connection with a judicial determination of a breach by lessee of any covenant,
condition or stipulation of said lease.
16. All express and implied covenants of this lease shall be subject to all federal and state, county or municipal laws,
executive orders, rules and regulations, and lessee's obligations and covenants hereunder, whether express or implied, shall be
suspended at the time or from time to time as compliance with such obligations and covenants is prevented or hindered by or is
in conflict with federal, state, county, or municipal laws, rules, regulations or executive orders asserted as official by or under
public authority claiming jurisdiction, or Act of God, adverse field, weather, or market conditions, inability to obtain materials
in the open market or transportation thereof, wars, strikes, lockouts, riots, or other conditions or circumstances not wholly
controlled by lessee, and this lease shall not be terminated in whole or in part, nor lessee held liable in damages for failure to
comply with any such obligations or covenants if compliance therewith is prevented or hindered by or is in conflict with any of
the foregoing eventualities. The time during which lessee shall be prevented from conducting drilling or reworking operations
[mAl. during the primary term of this lease, under the contingencies above stated, shall be added to the primary term of this lease.
~ 17. Lessor hereby war~aRts BRd agrees te defeRd the title to the ¡¡!REls Elese~ibeel a~e~e, aReI. agrees that lessee, at its ~ption,
hall have the right at any tIme to pay for lessor, any mortgage, taxes or other hens eXlstmg, levied or assessed on or agamst the
above described lands in the event of default of payment by lessor and be subrogated to the rights of the holder thereof, and
ERE lessor hereby agrees that any such payments made by lessee for the lessor may be deducted from any amounts of money which
may become due the lessor under the terms of this lease.
Ü~29903
18. This lease and all its terms, conditions, and stipulations shall extend to and be binding on all successors in interest, in
whole or in part, of said lessor or lessee.
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19. With respect to and for the purpose of this lease, lessor, and each of them if there be more than one, hereby release and
waive the right of homestead.
20. Notwithstanding anything herein to the contrary, it is agreed between the parties herein that no provision of the lease
shall be construed to eliminate the payment of surface damages to the lessor for surface disturbance of the Leased Premises by
Lessee. Such surface damage payment shall be addressed in a surface use agreement between the lessor and lessee prior to any
surface disturbance.
21Lessee agrees to defend, indemnify, and hold harmless lessor and lessor's principals, heirs, successors, and assigns
from and against any and all losses, claims, suits, actions, judgments, proceedings, liabilities, damages, recoveries, and
deficiencies, including, without limitation, interest, penalties, and attorneys' fees (collectively, "Claims") arising out of
Lessee's or its employees', agents', contractors', or invitees' use of the said land or performance of lessee's obligations or
rights under this agreement. This obligation of indemnity shall survive the termination of this Agreement.
22. Lessee hereby covenants and agrees that it shall comply fully and in all respects with the requirements of any
applicable law, statute, ordinance, permit, decree, rule, regulation or order, pertaining to health or the environment, or to the
generation, manufacture, production, use, storage, release or threatened release, discharge, disposal, transportation or presence
of any substance, material or waste which is now or hereafter classified as hazardous or toxic, or which is regulated under
current or future federal, state or local laws or regulations, on or under the said property (hereinafter collectively referred to as
the "Applicable Environmental Laws"), including (but not by way of limitation) the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act, as each of the foregoing
and all other Applicable Environmental Laws now exists and as the same may, from time to time, hereafter be amended,
replaced, re-codified, modified or substituted. Should any Hazardous Materials (as defined in Applicable Environmental
Laws) be discharged on the said property as a result of lessee's operations andlor activities thereon in violation of, or which
result in any cleanup or remediation liability under such Applicable Environmental Laws, lessee agrees to clean-up and remove
the same, if required by Applicable Environmental Laws and in accordance therewith, at Lessee's sole cost and expense. In
addition to the foregoing, Lessee shall protect, defend, indemnify and hold lessor harmless with respect to any fines, penalties,
sanctions, fees or expenses attributable to lessee's or lessee's contractors', subcontractors', licensees' or invitees', violation of,
or actions of lessee or lessee's contractors, subcontractors, licensees or invitees, giving rise to cleanup or remediation liability
under, Applicable Environmental Laws.
Lessee shall promptly notify Lessor upon lessee's acquiring knowledge of (i) the presence of Hazardous Materials on
the said property in violation of Applicable Environmental Laws, resulting from lessee's or lessee's contractors',
subcontractors', licensees' or invitees' operations thereon, or (ii) any contamination by Hazardous Materials on the Property in
violation of such Applicable Environmental Laws resulting from lessee's or lessee's contractors', subcontractors', licensees' or
invitees' operations on the said property. In this regard, lessee shall promptly comply with any governmental requirements for
the removal, treatment or disposal of such Hazardous Materials or Hazardous Materials contamination, and lessee shall provide
to lessor satisfactory evidence of such compliance.
23. All notices and demands which mayor are to be required or permitted to be given hereunder shall be in writing. All notices
and demands shall be sent by receipted hand deliver, by confirmed facsimile, by United States mail, postage prepaid, or by an
express delivery service which maintains records of deliveries, freight prepaid, addressed to lessor or lessee, at the address or
addresses set forth above.
24. This Agreement shall be governed by and conslrued in accordance with the laws of the State of Wyoming.
I
WHEREOF witness our hands as of the day and year first above writtJn.
I
A~~:Z:::'¿¡¡frÁ
STATE OF UTAH
COUNTY OF SALT LAKE
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INDIVIDUAL
BEFORE ME, the undersigned authority, on this day personally appeared JERRY R. KENNEDY to me known to be the
person described in, and who executed the foregoing instrument, and who acknowledged to me that he executed the same as his
free act and deed, including the release and waiver of the right of homestead.
GIVEN UNDER MY HAND AND SEAL OF OFFICE THIS '23n-\
day of
Aprd
.2007.
My Commission Expires:
, -"Z. ?- ~'2-00 f
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Notary Public for the State of Utah
NOTARY PUBLIC
MICHELLE LUND
5779 S. Beaumont Drive
Salt Lake City, Utah 84121
My Commission Expires
January 22.2008
STATE OF UTAH