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THE LESSEE AGREES: (a) BOND. To furnish a bond with an approved corporate surety company authorized to transact business In the State of Wyoming, or such other surety as may be acceptable to the lessor, in the penal sum as required by the current rules of the State Board of Land Commissioners, conditioned upon the payment of all rentals and royalties accruing to the lessor under the terms hereof, and upon the full compliance of all other terms and conditions of this lease and the rules and regulations relating thereto, and also conditioned on the payment of all damages to the surface and improvements thereon where the lease covers lands the surface of which has been sold or otherwise leased. Such bond or bonds furnished prior to the development of the lands contained in this lease may be increased in such reasonable amounts as the lessor may decide upon commencement of drilling operations and after the discovery of oil or gas. (b)PAYMENTS. To make all payments accruing hereunder to the Office of State Lands and Investments, 122 West 25th Street, Cheyenne, Wyoming 82002 -0800. (c)RENTALS. Prior to the discovery of oil or gas in paying quantities to pay the lessor in advance, beginning with the effective date hereof, an annual rental of $1.00 per acre or fraction thereof. After the discovery of oil or gas in paying.quantities to pay the lessor in advance beginning with the first day of the lease year succeeding the lease year in which actual discovery was made, an annual rental of $2.00 per acre or fraction thereof, unless changed by agreement. Such rental so paid for any one year shall be credited on the royalty for that year, Annual rentals on all leases shall be payable in advance for the first year and each year thereafter. No notice of rental due shall be sent to the lessee. If the rental is not paid on or before the date it becomes due, notice of default will be sent to the lessee, and a penalty of $0.50 per acre for late payment will be assessed. The lessee is not legally obligated to pay either the rental or the penalty, but if the rental and penalty are not paid within thirty (30) days after the notice of default has been received, the lease will terminate automatically by operation of. law. Termination of the lease shall not relieve the lessee of any obligation incurred under the lease other than the obligation to pay rental or penalty. The lessee shall not be entitled to a credit on royalty due for any penalty paid for late payments of rental on an operating lease. (d)ROYALTIES. The royalties to be paid by lessee are: (i) On oil, one eighth of that produced, saved, and sold from said land, the same to be delivered at the wells or to the credit of lessor into the pipe line to which the wells may be connected. (ii) On gas, including casinghead gas or other hydrocarbon substances, produced from said land saved and sold or used off the premises or in the manufacture of gasoline or other products therefrom, the market value at the well of one eighth of the gas so sold or used, provided that on gas sold at the wells, the royalty shall be one eighth of the amount realized from such sale. (iii) On all other hydrocarbons of value and gaseous substances and elements produced or extracted, including propane, butane, sulphur, nitrogen, carbon dioxide, and helium, at such royalty as shall be mutually determined to be fair and reasonable. (iv) For royalty purposes on gas and natural gasoline the value shall be as approved by the lessor and in the determination of the value of natural gasoline the fair cost of extraction shall be considered as a deductible item; provided, however, that the allowance for the cost of extraction may exceed two- thirds of the amount or value only on approval of the lessor and in no event shall the price for gas, or natural gasoline, be less than that received by the United States of America for its royalties from the same field. (v) In cases where natural gas is produced and the natural gas gasoline extracted therefrom only one royalty shall be paid, except in the event the residue or dry gas shall be marketed it shall then constitute a separate commodity and a royalty shall be paid thereon as above provided. (vi) Natural gas and oil actually used for operating purposes upon the land and, except as to the ultimate sale thereof, gas or liquid hydrocarbons returned to the sand for stimulating the production of oil or secondary recovery purposes shall be royalty free. (e) DISPOSITION OF ROYALTY OIL AND GAS. To deliver to the lessor, or to such Individual, firm or corporation as the lessor may designate, all royalty oil, gas, or other kindred hydrocarbons, free of charge on the premises where produced; or, at the option of the lessor, and In lieu of said royalties in kind, the lessee agrees to pay the lessor the field market price or value of all royalty oil, gas, or other kindred hydrocarbons produced and saved. When the lessor elects to take Its royalty oil, gas, or other hydrocarbons in kind such as oil, gas, or other kindred hydrocarbons shall be good merchantable oil, gas, or other kindred hydrocarbons. Tho lesser shall 111 e..essary furnish storage for royalty oil free otcharge for thirty (30) days alter the end of the calendar month in which the oil is produced, upon the leased premises, or at the such place as the lessor and the lessee may mutually agree upon, provided, that the lessee shall not be held liable for loss or destruction of royalty oil so stored from causes beyond his control. The free storage of oil, as herein provided, shall apply only as long as the said oil is the property of the lessor. (f) MEASUREMENTS OF PRODUCTION. To gauge, measure and correct for temperature all production from said lands in conformance with the rules and regulations adopted by the Board of Land Commissioners and report said production to the lessor in accordance therewith. To keep books, records, and reports pertaining to the production from the land herein leased as well as those pertaining to the production from offset wells operated by the lessee, his operator, or sub- lessee on other lands, which shall be open at all times for the inspection by any duly authorized agent of the lessor. To furnish the lessor with original pipe line reports showing the day, month, year, amount, gravities, and temperatures of all oil run and with monthly reports showing the month, year, amount, and price of all gas and natural -gas gasoline and other products produced and sold from the land herein leased, and the amount of gas returned to the sand. (g) MONTHLY PAYMENTS AND STATEMENTS. Unless the time of payment is otherwise extended by the Office of State Lands and Investments, to make payment on or before the twentieth (20th) day of the calendar month succeeding the month of production and removal and sale of oil and gas from said land, and to furnish sworn monthly statements therewith showing in detail the quantity and quality of the production (per well if required where practical) from the land hereby leased, and the quantity and quality of the production (per well where practical) from offset wells upon cornering or contiguous land operated by the lessee, his operator or sub lessee and such other information as may be called for in the form of report prescribed by lessor. (h) WELLS TO BE DRILLED. To drill and operate effectively all wells necessary to reasonably offset wells upon and production from adjoining lands. To drill such additional wells at such times or places as are necessary and essential to the proper development and commercial production of the oil and gas content of said land. (i)LOG OF WELLS AND REPORTS. To keep a log, in the form approved by the lessor, of each well drilled by the lessee on the lands herein leased showing the strata and character of the formations, water sands and mineral deposits penetrated by the drill, amount of casing, size and where set, and such other information as the lessor may require which log or copy thereof shall be furnished to the lessor. To file progress reports, In the form prescribed by the lessor, at the end of each thirty (30) day period while each weltis being drilled. To file annually, or at such times as the lessor may require, maps showing the development of the structure and the location of all wells, pipe lines and other works used in connection with the operations of the lessee upon said land. To make such other reports pertaining to the production and operations by the lessee on said land, and report such other information as may be possessed by the lessee on the wells, production or operations of others on lands on the same geologic structure that may be of importance in effecting proper development and operation of the lands herein leased, as may be called for by the lessor. All logs, maps, and reports shall be submitted in duplicate and the Office of State Lands and Investments may waive such reports as conditions may warrant. (j)PRODUCTION. To operate the wells upon the land herein leased in a competent and efficient manner in an endeavor to recover all the oil and gas economically possible from said land and to prevent the undue drainage of the oil and gas thereunder by wells operated bythe lessee or others on cornering or contiguous lands to those leased herein. All plans or methods for the purpose of stimulating or increasing production on lands herein leased other than those In common use shall first be presented to the lessor for approval before being put into actual operation. No production agreements limiting, restricting, prorating, or otherwise affecting the natural production from said land shall be entered into by the lessee, nor shall the lessee limit, restrict, or prorate the natural production from said land in any way or in any event, except with the consent in writing of the lessor first had and obtained. (k)SUSPENSION OF OPERATIONS. Should any well drilled upon lands covered by this lease obtain production of oil, gas, or other hydrocarbons in paying quantities and if the lessee is unable to establish a satisfactory market for the oil, gas or hydrocarbons produced from said well the lessee may apply for and the lessor may grant permission for the suspension of production operations until such time as a satisfactory market for the product from said well can be developed. During the time any such suspension of operations is In effect, the lessee shall continue to pay the annual rental of $2.00 per acre or fraction thereof provided by (c) above, and this lease shall remain in effect as though oil or gas was being produced from said lands. (I)DILIGENCE- PREVENTION OF WASTE. To exercise reasonable diligence in drilling, producing, and operating of wells on the land covered hereby, unless consent to suspend OIL AND Geva LL,ivLLi,3E TERMS C 063 operations temporarily is granted by the lessor to carry on all operations hereunder in a good and workmanlike menper jn *ccordarrce with approved methods and practice, having due regard for the prevention of waste of oil and gas, or the entrance of water to the oil or gas bearing sands or strata to the destruction or injury of such deposits, the preservation and conservation of the property for future productive operations and to the health and safety of workmen and employees; to plug securely in an approved manner any well before abandoning it, and not to abandon any well without permission of the lessor, not to drill any well within two hundred (200) feet of any of the outer boundaries of the land covered hereby, unless to protect against drainage by wells drilled on lands adjoining less than 200 feet from the property lines thereof; to conduct all operations subject to the inspection of the lessor to carry out at the lessee's expense all reasonable orders and requirements of the lessor relative to the prevention of waste and preservation of the property and the health and safety of workmen including the replanting and reseeding of drilling sites and other areas disturbed by drilling operations and on failure of the lessee so to do the lessor shall have the right, together with other recourse herein provided, to enter on the property to repair damage or prevent waste at the lessee's expense; to abide by and conform to valid applicable regulations prescribed to reimburse the owner of the surface, if other than the lessor, or lessee of grazing rights thereof for actual damages thereto and injury to improvements thereon, provided, that the lessee shall not be held responsible for acts of providence or actions beyond his control. (m)TAXES AND WAGES FREEDOM OF PURCHASE. To pay, when due, all taxes lawfully assessed and levied under the laws of the State of Wyoming upon improvements, oil and gas produced from the land hereunder, or other rights, property or assets of the lessee, to accord all workmen and employees complete freedom of purchase, and to pay all wages due workmen and employees in conformance with the laws of the State of Wyoming. (n)ASSIGNMENTS OF LEASE PRODUCTION AGREEMENTS. Not to assign this lease or any interest therein, nor sublet any portion of the leased premises, except Nib the consent in writing of the lessor tst had an obtained. Al overriding royalties to be veld, must have the approval of the Board or by the Office of State Lands and Investments when authorty 10 do so has been delegated by the Board and wilt be recorded with the lease. The Board reserves the right of disapproval of such overridng royalties when in is opinion they become excessive and hence are debinettal to the proper development of the leased lands. (o)DELIVER PREMISES IN CASE OF FORFEITURE. To delver up the leased premises, wfh at permanent improvements thereon, h good order and condtion in case of forfeture of this lease, but this shal not be construed to prevent the removal, alteration or renewal of equipment and improvements in the ordinary course of operations. Section 2. THE LESSOR EXPRESSLY RESERVES: (a) The right to lease, sel, or otherwise dispose of the surface of the land embraced within this lease under exb6g laws or laws hereafter enacted, and in accordance wth the rules of the Board of Land Commissioners insofar as the surface not necessary for the use of the lessee in the conduct of operations hereunder. b)The right to lease, sell, or otherwise dispose of other mineral or subsurface resources not covered by the lease, in accordance with the applicable laws and the mites of the Board of Land Commissioners. (c)From the operation of this lease, the surface lands heretofore granted for rights -of -way and easements and reserves the right to grant such other rights -of-way and easements as provided by the statutes of the State of Wyoming, as lengas such rights -of -way and easements do not conflict with the operations for of and gas on the land herein leased. (d)The right to refuse to commit the leased lands to a unit On of development if the Board finds such actionwodd'mpai the lessors reserved right to take is royalty gas in kind and to purchase al other gas alocated to the leased lands as provided h Section 2(f)below. (e)The right to alter or modify the quantity and rate of production to the end that waste may be eliminated or that production may conform to the lessee's fair share of alowable production under any system of State or N0ierd curtained and proration authorized by law. (f)In addtion to its right to take is royaty gas in kind, the lessor reserves the right and option to purchase al other gas produced for sale or use off the leased lands. This option shal be exercised only it the Board finds that the lessee has received and is wiling to accept a bona fide offer from a purchaser who intends to sel or transport the gas into interstate commerce and that one or more intrastate purchasers (i.e., purchasers who wit use, consume, or sel the gas for use or consumption entiey within the State of Wyoming) are wiling and able to purchase the gas upon terms reasonably comparable to and at least as favorable to the lessee as those offered by the hterstate purchaser. The Board shalwake this option and permt an interstate sale RR finds that no intrastate purchaser is wtang and able to purchase the gas upon terms which are reasonably comparable to and al least as favorable to the lessee. As a condition to such waiver, a satisfactory agreement may be entered into by witch the production of is royalty gas may be deferred urd1 it can be produced and sold for consumption and use entirely within the State of Wyoming. Section 3. APPRAISAL OF IMPROVEMENTS. The lessee shal have the right, subject to the provisions ofTtle 36, as to State and Slate School Lands, and Title 11, as to State Loan and Investment Board Lands, W.S. 1977, to remove any improvements owned by lessee within a reasonable time after the termination of this lease. Lessee agrees that any such improvements not removed within a reasonable time after termination of this lease shal be disposed of pursuant to the above statutes. Section 4. FORFEITURE CLAUSE. The Board sisal have the power and authority to cancel leases procured by fraud, deceit, or misrepresentations, or for the use of the lands for unlawful or legal purposes, or for the violation of the covenants of the lease, upon proper proof thereof, in the event that the lessee shal default in the performance or observance of any of the terms, covenants, and stipulations hereof, or of the general regulations pronxlgatedbythe Board of Land Commissioners and in force on the date hereof, the lessor shal serve notice of such failure or default ether by personal service or by certified or registered mat upon the lessee, and t such false or default continues for a period of Thirty (30) days after the service of such notice, then and in that event the lessor may, at is option, declare a fofetue and cancel this lease, whereupon all rights and privileges, obtained by the lessee hereunder shat terminate and cease and the lessor may re -enter and take possession of said premises or any part thereof. These provisions shal not be construedto prevent the exercise by lessor any legal or equitable remedy which the lessor might otherwise have. A waiver of any particular cause or forfeiture shall not prevent the cancellation and forfeiture of this lease by any other cause of forfetue, or for the same cause occurring at any other lime. Section 5. RELINQUISHMENT AND SURRENDER. This lease may be relinquished and surrendered to lessor esteal or any legal subdivision of said lands as folows: (alit' no operations have been conducted under the lease on the land to be relinquished, the lessee shal file with the State Land Board and State Loan and Investment Board, a written relnquishinent or surrender, duly signed and acknowledged and stating therein that no operations have been conducted on the land. The relinquishment so filed shal became effective on the date and hour of receipt thereof in the office of the Director or at some later date, if such be so specified by the lessee therein. If the said refenquistmend fats to state that no operations have been conducted, the effective date of relinquishment shal be the date the retnquislvnent is approved by the Board. (b) If operations have been conducted under the lease on land proposed to be relinquished, the lessee shall give salty (60) days notice and shall fie with the Director, a written retnquishment or surrender duly acknowledged and stating therein that operations have been conducted on the lad. The relinquishment shal not become effective urdt the land and the wells thereon shal have been placed in condition acceptable to lessor and shat have been approved by the Slate 04 and Gas Supervisor. Al rentals becoming due prior to a surrender or relinquishment becoming effective, shal be payable by lessee unless payment thereof shal be waived by lessor. A retnquislxnent having become effective there shall be no recourse bykssee and the lease as to the relinquished lands may not be reinstated. Oh 6 LIU 'r 'ION 00, -5„,(55:1„ 0M auogdaTay d TZ eEjs4P4S 4 .Tr7K V T O Aal lt/tj ssaappy v' cinx1'thjc d›f a *rc77' SSSSS'I squaui4sanui pup spua7 alp: s ;o a°TJ O 'aogoaaTc 1 10 173141°Fr s 3 o papog s ;t ubnoauq pus Aq but ;oj 'ONIWOAM 30 SJxws 'u0SS5'I '12*V 000Z' aagogo0 3o App puZ au; uo anTgoa33a autoaaq o; SSSSS' pus UOSSS'I Aq pa ;naaxe uaaq spq assaT szuf '30SHSHM SSSNIIM NI •sMpT a ;p1s aaugo TIP pus s) ,OT -6C -T agngp ;S butuioAM o; qupnsand subtaaanos sp luau; o4 aTgpTtsnp sesua ;ep TTs pus A ;TunwwT utpgaa ATTsot]toads pus assaT sTuq oqut butaaqua Aq AgTununuT ubtaaanos antpM qou op aossaT aq; pus buTwoAM 3o aqugs Buy *ASININWI NDIMIZAOS 'L uoT409S •04aaau satpapd antgoadsaa au; 3o subTsss ao '30 SI0SS9oons 'Sao ;sa ;sTuzuips 'saognoaxa 'saTau eqq og aanut TTpgs 3oaaa41 gT3auaq Aaana pus 'uodn buTpuTq aq pus o; pua ;xa TTpgs aapunaaaq not ;sbTigo gopa ;pq; pea pus pa ;upuanoo sT ;I 'SSZ2iZSNI NI suossaons QNK StIIZH '9 uoT40eS •suoTDapsupaq Agtanoes 3o not; Tnbaa au; pus :sub pus TTo 3o not ;pnaasuoo au; !ssb pus Tto a03 SpUPq upoZ WaPa ao aqP S 3o buTSSaT aqf :ao3 butptnoad asoq; butpnTout 'aapunaaagf pansaT suotgp'nbaa au; pus s ;uawaatnbaa Aaogngpqs a ;p ;s eTgs3TTdds TTs gfTM Pus 'assaT stq; 3o asaanaa au; uo ;no ;as swag; assaT DT3Toads au; ufTM eoupTTduioo uT pa;onpuoo eq TTsus aapunaaau aEssgri Aq suoT ;saado pus 'o; ;aaCgns aq TTsus pus 'spusT UPO''I Uias3 o; se LL6T 'S'M 'TT aT ;TJ pus 'spusT Tamps pus aTP S aqq oq SP LL6T 'S'M '9E eT ;1,L Aq paaaa ;uoo,A ;Taou ;ns au; aapun pansst st assaT sTgL •s uotgoes •buTwoAM uT ssautsnq gossusag oq peT;TTsnb A'np st 'uoT ;Paodaoo P 3t pus -abs 3o sasaA 6T aano sT pus 'uazT ;To P auiooeq 0 uoTquaquT UP paapToap ssq ao 'sa ;p ;S pagTUn auq 3o U&ZT ;To P St SSSSS'I 'TPnptntput UP 3t ;sq; squesaadaa ATssaadxa SSSSS'I •q uot.oes •ATagsuoTgaodoad paonpaa aq TTsus HOSS3'I pTpd aq o; sTp 41.aa pus sat ;TPAoa au; uaq; 'aqp ;sa a'dutts aa; a1T ;Ue au; upg4 ssaT pus' pTPS uT spb pus TTO uT ;sacra ;uT UP SUMO 2IOSSS'I ag; 3I uoTgoes •papTAoad utaaau SP a ;sp aaTTapa UP ;P pagpuTUiaa4 ao pausTnbuTTaa eq APW assaT stay •saTgTqusnb buTApd UT paonpoad eq APW ssb ao Tto SP aa.3paaauf buoT os pus pagonpuoo buteq aaP suot ;saado Lions SP buoT os goa33a pus aoao3 Ting uT anuT ;uoo Titus assaT stuq '3oaaaq; uoTSUa ;xa AUP butanp ao uraa; A1PU1Tad eq; butanp aaq ;te 'pagonpuoo ATquabTTtp butaq crap SUOT ;Paado butxaoMaa ao buT ;sa; 'uoT ;eIduioo 'buTTTTIP 3T 'aanaMOu 'paptnoad •04aaau4 qupnsand pagdopp saauotssTUnuo3 pupI 3o papog au; 3o suotppTnbaa eq; pus buTwoAM 3o a ;p ;s auk 3o sa ;ngpgs au; Aq papTnoad aq APW SP saoupgsgns passaT 3o not ;onpoad 3o aouasge au; Liz uiaaq Aapuitad sqT puoAaq pepua ;xa aq osTp APW assaT stay •satgTqupnb BuTApd uT spusT au; woa3 paonpoad aq ApuI seoupgsgns passaT SP aag3paaauq buoT os ao3 pus sasaA (S) anT3 30 Ucaa; AaPU1Tad P ao3 1oa33a uT uTSUZaa TTsus pus MoTeq qno ;as asaA pup Asp aq; U0 antgoa33a ewooaq TTsus assaT sTuy •aapunaaauf suot ;paado 3o gonpuoo aadoad au; o; AapsSaoau SST qTTTuPg aagpo ao 'suoT ;P ;s butduind 'sNup; 'saTOnaasaa. 'SautT adtd 'sauTT not ;potununuoa 'sppoa 'sAPMaa ;pM 'squpTd 'butpTtnq 'sNaoM TTs uodnaaaq; utp ;utpUI pus gonaqsuoo o; Aasssaoau st se spusT piss 3o ao23ans au; 3o uonui os asn o; ;ubta au; pus ssaabe pus ssaabuT 3o ;ubTa au; q ;tM aaq ;aboy (3oalaq; UOTZOPa; ao aiDP tad 00'T$) 00'0,9 :ZQ1ueg eouvApy ;TM o; 'pupT pagt.zosap buTMOTTo3 au; woa3 paonpoad aq APW gotgM 'uinTTaq pup aptxotp uogaso 'uaboa ;tu 'aptxotp angd'ns 'apt3Tns uaboapAT 'angdTns butpnTout 'ggTMaaag; paonpoad squauia'a pus saoupgsgns snoaspb pus saoup ;sgns uogasooapAq pagPToossp pus SP 'TTO ag; TTs 3o asodstp pup 'amnia.' ;opa ;xa 'auTUI 'ao3 TTTap o; ggbta anTsnIoxe au; 'SSSSS'I aq; o; assaT pus ;usab Agaaaq seop 'SSSSS'I aq; Aq pauiao ;acrd pup gdax aq o; s ;uauiaaabs pus squpuanoo au; pup ptpd aq o; saT ;TPAoa pup squaa au; 3o not ;Paaptsuoo uT '2IOSS5'I aqy '280a1ina 'T uoTloes ZZSSZ'I SP 'W'd 9 "M 9TT '$1i ''6T 'dML '9T uoT4oeS ITV 00 'VD :ablna 068: 'ON Wound 5£9 -00 00 :sesoy Zino/ utooup :Aluno3 0'I'I 'uot ;usotdx3 .zopuo0 bu1MOTTo; eq; pup 'gOSSZ'I SP saauotsstunuop pup' 3o papog sqT ubnoaq; pus Aq but ;op 'buTwoAM 3o a ;s ;S au; uaam ;aq pup Aq o ;uT paaa ;ua assaT 3o aanwaput, stay aSK37 MED at v 'Iio JNINOAM 3O MMUS KSYZ'I JO WUZS .e uotgoes min) '.Jeu6eM auueer 7 a d Q) ON AM '1e19WU18)1 9'0 0Bed Qo )$009 OI P' �e y/ 7 ''tapJ00ad 866t '9 Raenuer anT7oa7 33 pue paco8 eya hq panoaday wao4 Section 1. THE LESSEE AGREES: (a) BOND. To furnish a bond with an approved corporate surety company authorized to transact business in the State of Wyoming, or such other surety as may be acceptable to the lessor, In the penal sum as required by the current rules of the State Board of Land Commissioners, conditioned upon the payment of all rentals and royalties accruing to the lessor under the terms hereof, and upon the full compliance of all other temps and conditions of this lease and the rules and regulations relating thereto, and also conditioned on the payment of all damages to the surface and improvements thereon where the lease covers lands the surface of which has been sold or otherwise leased. Such bond or bonds furnished prior to the development of the lands contained in this lease may be increased in such reasonable amounts as the lessor may decide upon commencement of drilling operations and after the discovery of oil or gas. (b)PAYMENTS. To make all payments accruing hereunder to the Office of State Lands and Investments, 122 West 25th Street, Cheyenne, Wyoming 82002 -0600, (c)RENTALS. Prior to the discovery of oil or gas in paying quantities to pay the lessor in advance, beginning with the effective date hereof, an annual rental of $1.00 per acre or fraction thereof. After the discovery of oil or gas in paying quantities to pay the lessor in advance beginning with the first day of the lease year succeeding the lease year in which actual discovery was made, an annual rental of $2.00 per acre or fraction thereof, unless changed by agreement. Such rental so paid for any one year shall be credited on the royalty for that year. Annual rentals on at leases shall be payable in advance for the first year and each year thereafter. No notice of rental due shall be sent to the lessee. it the rental is not paid on or before the date it becomes due, notice of default will be sent to the lessee, and a penalty of $0.50 per acre for late payment will be assessed. The lessee is not legally obligated to pay either the rental or the penalty, but 4 the rental and penalty are not paid within thirty (30) days after the notice of detaut has been received, the lease wit terminate automatically by operation of law. Termination of the lease shat not relieve the lessee of any obligation incurred under the lease other than the obligation to pay rental or penalty. The lessee shall not be entitled to a credit on royalty due for any penalty paid for late payments of rental on an operating lease. (d)ROYALTIES. The royalties to be pakf by lessee are: (i) On oil, one -sixth of that produced, saved, and sold from said land, the same to be delivered at the wells or to the credit of lessor into the pipe line to which the wells may be connected. (ii) On gas, including casinghead gas or other hydrocarbon substances, produced from said landsaved and sold or used off the premises or in the manufacture of gasoline or other products therefrom, the market value at the wet of one- sixth of the gas so sold or used, provided that on gas sold at the wells, the royaky shall be one -sbth of the amount realized from such sale. (iii) On all other hydrocarbons of value and gaseous substances and elements produced or extracted, including propane, butane, sulphur, nitrogen, carbon dioxide, and helium, at such royalty as shall be mutually determined to be fair and reasonable. (iv) For royalty purposes on gas and natural gasoline the value shall be as approved by the lessor, and in the determination of the value of natural gasoline the fair cost of extraction shall be considered as a deductible item; provided, however, that the allowance for the cost of extraction may exceed two-thirds of the amount or value only on approval of the lessor and in no event shall the price for gas, or natural gasoline, be less than that received by the United State of America for its royalties from the same field. (v) Natural gas and al actually used for operating purposes upon the land and, except as to the ultimate sale thereof, gas or liquid hydrocarbons returned to the sand for stimulating the production of oil or secondary recovery purposes shall be royaky free. (e) DISPOSITION OF ROYALTY OIL AND GAS. To deliver to the lessor, or to such individual, firm or corporation as the lessor may designate, all royalty oil, gas, or other kindred hydrocarbons, free of charge on the premises where produced, or, at the option of the lessor, and in lieu of said royalties in kind, the lessee agrees to pay the lessor the field market price or value of at royaky dl, gas, or other kindred hydrocarbons produced and saved. When the lessor elects to take its royalty oil, gas, or other hydrocarbons in kind such as oft, gas, or other kindred hydrocarbons shall be good merchantable oil, gas, or other kindred hydrocarbons. The lessee shaft if necessary furnish storage for royalty oil free of charge for thirty (30) days after the end of the calendar month in which the oil Is produced, upon the leased premises, or at the such place as the lessor and the lessee may mutually agree upon, provided, that the lessee shall not be held liable for loss or destruction of royaky oil so stored from causes beyond his control. The free storage of oil, as herein provided, shall apply only as long as the said oil is the property of the lessor. (t) MEASUREMENTS OF PRODUCTION. To gauge, measure and correct for temperature all production from said lands in conformance with the rules and regulations adopted by the Board of Land Commissioners and report said productlon to the lessor in accordance therewith. To keep books, records, and reports pertaining to the production from the land herein leased as well as those pertaining to the production from offset wells operated by the lessee, his operator, or sub lessee on other lands, which shall be opened at all times for the inspection of any duly authorized agent of the lessor, To furnish the lessor with original pipe line reports showing the day, month, year, amount, gravities, and temperatures of all oil run and with monthly reports showing the month, year, amount, and price of all gas and natural gas gasolene and other products produced and sod from the land herein leased, and the amount of gas returned to the sand. (g) MONTHLY PAYMENTS AND STATEMENTS. Unless the time of payment is otherwise extended by the Office of State Lands and Investments to make payment on or before the twentieth (20th) day of the calendar month succeeding the month of production and removal and sale of oil and gas from said land, and to fumish sworn monthly statements therewith showing In detail the quantity and quality of the production (per well 'rf required where practical) from the land hereby leased, and the quantity and quality of the production (per well where practical) from offset wets upon comering or contiguous land operated by the lessee, his operator or sub lessee and such other information as may be called for in the form or report prescribed by lessor. (h) WELLS TO BE DRILLED. To drift and operate effectively all wells necessary to reasonably offset wells upon and production from adjoining lands. To drill such additional wells at such times or places as are necessary and essential to the proper development and commercial production of the oil and gas content of said land. (i)LOG OF WELLS AND REPORTS. To keep a log, in the form approved by the lessor, of each well drilled by the lessee on the lands herein leased, showing the strata and character of the formations, water sands and mineral deposits penetrated by the drill, amount of casing, size and where set, and such other information as the lessor may require which log or copy thereof shall be furnished to the lessor. To file progress reports, in the form prescrbed by the lessor, at the end of each thirty (30) day period while each well is being drilled. To file annually, or at such times as the lessor may require, maps showing the development of the structure and the location of all wells, pipe lines and other works used in connection with the operations of the lessee upon said land. To make such other reports pevainng to the production and operations by the lessee on said land, and report such other information as may be possessed by the lessee on the wells, production or operations of others on lands on the same geologic structure that may be of importance in effecting proper development and operation of the lands herein leased, as may be called for by the lessor. At logs, maps, and reports shall be submitted In duplicate and the Office of State Lands and Investments may waive such reports as conditions may warrant. (j)PRODUCTION. To operate the wells upon the land herein leased in a competent and efficient manner in an endeavor to recover all the oil and gas economically possible from said land and to prevent the under drainage of the of and gas thereunder by wells operated by the lessee or others on cornering or contiguous lands to those leased herein. All plans or methods for the purpose of stimulating or increasing production on lands herein leased other than those in common use shat first be presented to the lessor for approval before being put into actual operation. No production agreements limiting, restricting, prorating, or otherwise affecting the naturalproduction from said land shall be entered Into by the lessee, nor shat the lessee limit, restrict, or prorate the natural production from said land in any way or in any event, except with the consent in writing of the lessor first had an obtained. (k)SUSPENSION OF OPERATIONS. Should any well drilled upon lands covered by this lease obtain production doll, gas, or other hydrocarbons in paying quantities and if the lessee is unable to establish a satisfactory market for the oil, gas or hydrocarbons produced from said well, the lessee may apply for and the lessor may grant permission for the suspension of production operations until such times as a satisfactory market for the product from said well can be developed. During the time any such suspension of operations is in effect, the lessee shall continue to pay the annual rental of $2.00 per acre or fraction thereof provided by (c) above, and this lease shall remain in effect as though oil or gas was being produced from said lands. (I)DILIGENCE- PREVENTION OF WASTE. To exercise reasonable diligence in drilling, producing, and operating of wells on the land covered hereby, unless consent to suspend operations temporarily is granted by the lessor; to carry on all operations hereunder in a good and workmanlike manner In accordance with approved methods and practice, having due regard for the prevention of waste of oil and gas, or the entrance of water to the oil or gas bearing sands or strata to the destruction or injury of such deposits, the preservation and conservation of the properly for future productive operations and to the health and safety of workmen and employees; to plug securely in an approved manner any well before abandoning it, and not to abandon any well without permission of the lessor, not to drill any well within two hundred (200) feet of any of the outer boundaries of the land covered hereby, unless to protect against drainage by wells drilled on lands adjoining less than 200 feet from the property lines thereof; to conduct at operations subject tote Inspection of the lessor; to carry out at the lessee's expense all reasonable orders and requirements of the lessor relative to the prevention of waste and preservation of the property and the health and safety of workmen including the replanting and reseeding of drilling sties and other areas disturbed by drilling operations and on failure of the lessee so to do the lessor shall have the right, together with other recourse herein provided, to enter on the property to repair damage or prevent waste at the lessee's expense; to abide by and conform to valid applicable regulations prescrbedto reimburse the owner of the surface, if other than the lessor, or lessee of grazing rights thereof for actual damages thereto and injury to improvements thereon, provided, that the lessee shall not be held responsible for acts of providence or actions beyond his control. (m)TAXES AND WAGES FREEDOM OF PURCHASE. To pay, when due all taxes lawfully assessed and levied under the laws of the State of Wyoming upon improvements, oil and gas produced from the land hereunder, or other rights, property or assets of the lessee, to accord all workmen and employees complete freedom of purchase, and to pay all wages due workmen and employees in conformance with the laws of the State of Wyoming. (n)ASSIGNMENTS OF LEASE PRODUCTION AGREEMENTS. Not to assign this lease or any interest therein, nor subject any portion of the teased premises, except with the consent In writing of the lessor first had and obtained. At overriding royalties to be valid, must have the approval of the Board or by the Office of Slate Lands and Investments when authority to do so has been delegated by the Board and will be recorded with the lease. The Board reserves the right of disapproval of such overriding royalties when in its opinion they become excessive and hence are detrimental to the proper development of the leased lands. (o)DELIVER PREMISES IN CASE OF FORFEITURE. To deliver up the leased premises, with all permanent improvements thereon, in good order and condition In case of forfeiture of this lease, but this shall not be construed to OIL AND GAS LEASE TEAMS 070 prevent the removal, alteration or renewal of equipment and improvements in the ordinary course of operations. Section 2. THE LESSOR EXPRESSLY RESERVES: (a) The right to lease sell, or otherwise dispose of the surface of the land embraced within this lease under existing laws or laws hereafter enacted, and in accordance with the rules of the Board of Land Commissions insofar as the surface Is not necessary for the use of the lessee in the conduct of operations hereunder. b)The right to lease, sell, or otherwise dispose of other mineral or subsurface resources not covered by the lease, in accordance with the applicable laws and the rules of the Board of Land Commissioners. (c)From the operation of this lease, the surface lands heretofore granted for rights -of -way and easements and reserves the right to grant such other rights-of-way and easements as provided by the statutes of the State of Wyoming, as long as such rights-of-way and easements do not conflict with the operations for oil and gas on the land herein leased. (d)The right to refuse to commit the leased lands to a unit plan of development if the Board finds such action would impair the lessor's reserved right to take its royalty gas in kind and to purchase all other gas allocated to the leased lands a provided in Section 3(e)below. e)The right to after or modify the quantity and rate of production to the end that waste may be eliminated or that production may conform to the lessee's fair share of allowable production under any system of State or National curtailment and proration authorized by law. (f)In addition to its right to take 's royalty gas In kind, the lessor reserves the right and option to purchase Mother gas produced for sale or use off the leased lands. This option shall be exercised only if the Board finds that the lessee has received and is welling to accept a bona fide offer from a purchaser who intends to sell or transport the gas into interstate commerce and that one or more intrastate purchasers (i.e., purchasers who will use, consume, or net the gas for use or consumption entirely within the Stale of Wyoming) are willing and able to purchase the gas upon terms reasonably comparable to and at least as favorable to the lessee as those offered by the interstate purchaser. The Board shall waive this option and permit an Interstate sale it if finds that no intrastate purchaser is willing and able to purchase the gas upon terms which are reasonably comparable to and at least as favorable to the lessee. As a condition to such waiver, a satisfactory agreement may be entered into by which the production of its royalty gas may be deferred until it can be produced and sold for consumption and use entirely within the State of Wyoming. Section 3. APPRAISAL OF IMPROVEMENTS. The lessee shalt have the right subject to the provisions of Title 36, as to State and State School Lands, and Title 11, as to State Loan and Investments Board Lands, W.S. 1977, to repave any improvements owned by lessee within a reasonable time after the termination of this lease. Lessee agrees that any such Improvements not removed within a reasonable time after termination delis lease shall be disposed of pursuant to the above statutes. Section 4.FORFEITURECLAUSE. The Board shall have the power and authority to cancel leases procured by fraud, deceit, or misrepresentations, or for the use of the lands for unlawful or illegal purposes, or for the violation of the covenants of the lease, upon proper proof thereof, in the event that the lessee shall default in the pedomance or observance of any of the terms, covenants, and stipulations hereof, or of the general regulations promulgated by the Board of Land Commissioners and in force on the date hereof, the lessor shall serve notice of such failure or defauti either by personal service or by certified or registered mail upon the lessee, and if such failure ordefauk continues for a period of thirty (30) days after the service of such notice, then and in that event the lessor may, at its option, declare a forfeiture and cancel this lease, whereupon all rights and privileges, obtained by the lessee hereunder shall terminate and cease and the lessor may reenter and take possession of said premises or any part thereof. These provisions shall not be construed to prevent the exercise by lessor any legal or equitable remedy which the lessor might otherwise have. A waiver of any particular cause or forf eiture shall not prevent the cancellation and forfeiture of this lease by any other cause of forfeiture, or for the same cause occurring at any other time. Section 5. RELINQUISHMENT AND SURRENDER. This lease may be relinquished and surrendered to lessor as to all or any legal subdivision of said lands as follows: (a) If no operations have been conducted under the lease on the land to be relinquished, the lessee shall file with the State Land Board and State Loan and Investment Board, a written relinquishment or surrender, duly signed and acknowledged and stating therein that no operations have been conducted on the land. The relinquishment so filed shall become effective on the date and hour of receipt thereof in the office of the Director or at some later date, if such be so specified by the lessee therein. lithe said relinquishment fails to state that no operations have been conducted, the effective date of relinquishment shall be the date the relinquishment is approved by the Board. (b) If operations have been conducted under the lease on land proposed to be relinquished, the lessee shall give sixty (60) days notice and shall file with the Director a written relinquishment or surrender duly acknowledged and stating therein that operations have been conducted on the land. The relinquishment shall not become effective until the land and the wells thereon shall have been placed in condition acceptable to lessor and shall have been approved by the Stale Oil and Gas Supervisor. All rentals becoming due prior to a surrender or relinquishment becoming effective, shall be payable by lessee unless payment thereof shall be waived by lessor. A relinquishment having become effective there shall be no recourse by lessee and the lease as to the relinquished lands may not be reinstated.