HomeMy WebLinkAbout872985R ~
~-A
M
REuf I V E D
?e PR PAGE_ ) G ( [)NTY CLERK
I30OK_T.._.__.._
OILANDA7?945 0 1 APR 30 #2: 36
THIS LEASE made as of February 20, 2001, but effecti~~AtsbY,~7'~"~
2000 between RME Land Corp., formerly Union Pacific LarP6(t
Corporation, per name change effective December 1, 2000, a
corporation, whose address is P. 0. Box 1330, Houston, Texas 77251-
1330, as Lessor, and Forest Oil Corporation, a corporation, whose
address is 1600 Broadway, Suite 2200, Denver, Colorado 80202, as
Lessee.
W I T N E S S E T H:
(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 but specifically excluding coalbed gas, including without
limitation, coal gas, coalseam methane gas, coalseam gas, coalbed gas,
coalbed methane, firedamp and any other gaseous substances which are
found in coal and interbedded sandstone] and associated liquid hydro-
carbons, 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, an
undivided seventy-five percent (75%) of Lessor's right, title and
interest in and to the oil and gas in and under the leased premises
described as follows:
Township 19 North, Range 114 West
Section 31: All
Lincoln County, Wyoming
For shut-in royalty payment purposes, the land included in this lease
shall be deemed to contain 640 acres, whether it actually comprises
more or less.
(2) This is a paid-up lease and there shall be no requirement for
Lessee to pay delay rentals.
(3) Subject to the other provisions herein contained, this lease shall
be for a primary term which expires at twelve o'clock (12:00) noon,
Central Time, on August 3, 2003, 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 eighteen percent (18%) 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
Ms. 90
92257-98
48,3
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 leased 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 leased 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
or was shut-in, whereupon 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 P.O. Box 1330, Houston, Texas 77251-1330, ATTN: Manager, Land
Administration, 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 anniversary date on
which such well was shut-in. If such 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
Ms. 90 2
M
484
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 described
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 produc-
tion 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 leased 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 purposes hereof,
drillsite spacing unit is defined as the land included in the drilling
and production unit established for the well or attributed to the well
by the state or federal regulatory authority having jurisdiction; if
no unit or spacing rule exists, then drillsite spacing unit shall be
defined as the forty (40) acre tract surrounding an oil well or one
hundred sixty (160) acre tract surrounding a gas well. 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 days 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 leased premises or any portion thereof, as to oil and
gas, or either of them, with any other land, lease or leases, when in
Ms. 90
3
485
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 one hundred sixty (160) 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 any one 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 production 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.
(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.
(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 no 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
Ms. 90 4
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 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. If 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.
(14) Without 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.
(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 leased 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
Ms. 90 5
V <J 4
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
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 (112) 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 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
attorneys' 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. Subject to Section 10, all the provisions of this lease
shall inure to the benefit of and be binding upon the parties hereto,
their successors and assigns.
Ms. 90
6
M M
IL os-412flIN
IN WITNESS WHEREOF, this lease is
respective acknowledgments hereinbelow,
the date first hereinabove written.
488
executed on the date of the
but shall be effective from
RME Land Co
By:
G/?v
Its: Attorney-in-Fact
Attest:
Secretary
FOREST OIL CORPORATION
By:
Attest:
STATE OF TEXAS
COUNTY OF HARRIS
Its:
Neal A. Stanley
Senior Vice President
V.r
e foregoing instrument was acknowledged before me this L day
of 2001, by Robert M. McCommon, Jr., as Attorney-in-Fact for
RME LAND CORP., a Nebraska corporation, on behalf of the corporation.
Witness my hand and official seal.
pRY Ply lC' PAMELA J. CUNNINGHAM
Notary public
AL STATE OF TEXAS
F t *Comm, Exp. 06/06/2001
STATE OF J Q §
COUNTY OF f - §
IAIII/V-1/ nIL.-
Notary's Sig ure
The foregoing instrument was acknowledged before me this day
of FOREST OIL CORP TION, a
.6 1K a A C) corporation, on behalf of the
corporation.
Witness my hand and official seal.
O~ •SW EFTtii
yP?~61A91-~9'L
S t
G ao
Ms. 90 ~F P
of coL~P
My Commission Expires 02/2312005
Secretary
7
FP'
4 8
Notary's Signature
EXHIBIT "A"
Attached to and made a part of that certain Oil and Gas Lease dated
February 20, 2001, by and between RME Land Corp., as Lessor and Forest
Oil Corporation, as Lessee.
ADDITIONAL SECTIONS
T,ANn rRANT
(19) This lease is subject to the exceptions and reservations set forth
in:
(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 , 1971, and appearing in
Book , at Page in the office of the County Clerk and
Register of Deeds of County, (REC. No.
) and
(b) Mineral
Pacific Land
Deed dated
Resources Corporation to Lessor.
19 from Union
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 pur-
poses 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 leased 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 therefor 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.
RIGHT TO TAKE PRODUCTION IN KIND; RIGHT TO PURCHASE PRODUCTION
(20) 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.
Oil Production: In addition to the rights reserved by Lessor in
the immediately
Lessor shall have
Ms. 90
M
preceding paragraph, Lessor and Lessee agree that
the right, at any time and from time to time, upon
8
I
400
not less than 30 days' advance written notice to Lessee, to purchase
all or any part of the oil (which term as herein used shall include
crude oil, distillate, condensate, and other liquid hydrocarbons)
produced and saved from or attributable to the leased premises, on
Lessor's standard division order terms. The price payable for the oil
contained in a delivery pursuant hereto shall not be less than the
posted price in the field at the time of delivery for oil of like
grade and gravity produced in the same field in which the well is
located. In the event oil is found on the leased premises or on lands
pooled therewith, Lessee shall immediately notify RME in writing at
RME Petroleum Company, Attn: Crude Oil Sales, P. 0. Box 13301 Houston,
Texas 772511-1330.
Gas Production: Lessor and Lessee further expressly agree that in
the event gas (including helium and nitrogen) is produced from or
attributable to the leased premises, Lessor shall have a right of
first refusal to purchase any or all of such gas which is attributable
to the leased premises. Under such right of first refusal, Lessee
shall notify Lessor in writing of any bona fide offer for the purchase
of its gas which it is willing to accept, furnishing the terms
thereof, and Lessor shall have the right within 30 days of the receipt
of such notice and information to elect to purchase the gas on the
same terms and conditions as those contained in the bona fide offer.
In the event Lessor elects not to exercise its right to purchase under
its right of first refusal, then Lessee may, within 60 days
thereafter, enter into a contract to sell the gas to such purchaser in
accordance with said bona fide offer. If, however, Lessee does not
timely enter into such contract with such purchaser (or if, for any
reason, a sale of gas pursuant to such contract is discontinued) then
this right of first refusal to purchase gas shall be reinstated
subject to the terms and conditions set forth herein. For purposes
hereof, an offer shall not be considered as a bona fide offer when the
offer is made by an affiliated company of Lessee.
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 reflect 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 RME in writing
at RME Petroleum Company, Attn: Natural Gas Sales, P. O. Box 1330,
Houston, Texas 772511-1330.
Arbitration: If either party invokes its right to arbitration,
then the parties shall arbitrate the matter by selecting one
Ms. 90 9
r
t~C93 1 _(d I~J 491
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.
Nomination: Lessor hereby reserves the right to nominate an
affiliate, or other third party, to act on its behalf relative to
Lessor's right to take production in kind and/or Lessor's right to
purchase production hereunder.
PROCEEDS OF PRODUCTION
(21) Lessor reserves the right, but not the obligation, to collect from
the purchaser the proceeds from any sale of production from the leased
premises in order to insure the proper division thereof; after
deducting the portion of such proceeds to which Lessor and any other
party may be entitled, Lessor shall remit to Lessee its portion of the
proceeds thus collected.
DEPTH LIMIT FOR FARMOUT
(22) This lease covers only those depths and formations from the
surface of the earth to the stratigraphic equivalent of Thirteen
Thousand Seven Hundred feet (13,7001), as found in the Forest Oil
Hampton #10-21 well located in the Northeast Quarter (NE/4) of Section
21, T-18N, R-114W, Uinta, 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
Contract dated October 26, 1999, by and between Union Pacific Land
Resources Corporation, as Non-Operator and Forest Oil Corporation, as
Operator, and such terms and provisions shall survive the execution of
this lease.
WELL DATA AND ACCESS
(23) 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 leased 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 thereof) for sale,
processing or other disposition of any product produced from the
Ms. 90 10
V
r•
M
492
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 all
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.
REPAIR WATER WELLS/RESERVOIRS
(24) 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.
OFFSET
(25) In the event a well producing oil or gas in paying quantities is
completed on lands in which Lessor does not own all of the oil and gas
mineral estate within six hundred and sixty (660) feet of or draining
the leased premises, Lessee shall, unless Lessee has already drilled
or is drilling a well to the same zone or zones as are producing in
the draining well and which a prudent operator would consider to have
previously satisfied or to soon satisfy this offset obligation, within
ninety (90) days after the commencement of production from such
draining well, commence the drilling or recompletion of an offset well
on the leased premises and shall make a good faith effort to establish
commercial production in the sands or formations from which the
draining well is producing. If at the time such offset obligation
accrues, Lessee shall be engaged in the drilling of another well on
the leased premises, then Lessee shall have not more than thirty (30)
days after the date of completion or abandonment of such other well
drilled by Lessee within which to commence the actual drilling of such
Ms. 90 11
49:3
offset well. If Lessee fails to timely drill a required offset well,
it shall promptly surrender this lease except as to existing wellbores
and reasonable use of the surface for ingress and egress, operations
in the immediate vicinity of the surface location of the wells, and
necessary telephone, pipeline, and utility easements.
GEOPHYSICAL DATA
(26) 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.
TNCT1P2 NMrF.
(27) Lessee shall carry 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.
(d) Well Control Insurance including underground blowout, seepage and
pollution, with a minimum limit of $5,000,000.
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.
ENTIRETY CLAUSE
(28) 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.
WELL TAKEOVER
(29) Without the prior written consent of Lessor, Lessee shall not
abandon any well or (except when a replacement is made) remove from
the wellbore 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
Ms. 90 12
494
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 wellbore, such material and equipment and the production
therefrom. If the well taken over by Lessor is the only well serving
to perpetuate this lease, Lessee shall release this lease to Lessor.
Ms. 90 13