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Section 1. THE LESSEE AGREES:
(a) BOND. To furnish a bond with an approved corporate surety company authorized to transact business n 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, condfibned 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 condftioned on the payment of all damages to the surface and improvements
thereon where the lease covers lands the surface of which has been sod 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 B 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 all leases shall be payable in advance for the first year and each year thereafter. No noticed 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 pad 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 -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 and saved and sold or
used off the premises or in the manufacture B gasoline or other products therefrom, the market value at the well of one-
sixth of the gas so sold or used, provided that on gas sold at the wells, the royalty shag be one -sixth 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
fab 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 oil actually used for operating purposes upon the land and, except as lothe 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 delver to the lessor, or to such individual, fine or corporation as
the lessor may designate, all royalty oil, gas, or other kindred hydrocarbons, free B charge on the premises where
produced, or, at the option tithe 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 shag be good merchantable oil, gas, or other kindred hydrocarbons. The lessee shall 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 royalty oil so stored from causes beyond his control.
The free storage of oll, 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 opened at all times for the inspection of any duly authorized agent B the lessor.
To furnish the lessor with original pipe line reports showing the day, month, year, amount, gravities, andtemperatures
B 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 retumed to the sand.
(9) 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 and
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 or report prescribed by lessor.
(h) WELLS TO BE DRILLED. To drill and operate effectively all welts 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 torn 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, sae 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 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 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 Bothers 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 under drainage tithe oil
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 shall first be presented to the lessor for approval before being put into actual operation.
No production agreements lkoting, restricting, prorating, or otherwise affecting the naturalproduction from said land
shall be entered into by the lessee, nor shall the lessee limit, restrict, or prorate the natural production from sad 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 Boil,
gas, or other hydrocarbons in paying quantities and li 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 B 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 0182.00 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.
(1)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 B 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 properly 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 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 prescrbed to
reimburse the owner B 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 responsble for acts B
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 leased premises, except with the consent n writing of the lessor first had and obtained.
All overriding royalties to be valid, must have the approval of the Board or by the Office B State 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 TERMS
S
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 alter or modify the quantity and rated 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 Stale or National
curtailment and proration authorized by law.
(f)In addftion to its right to take Its royalty gas in kind, the lessor reserves the right and option to purchase atlothergas
produced for sale or use off the leased lands. This option shall be exercised only t the Board finds that the lessee has
received and is willing 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 sell the gas
for use or consumption entirely within the State B 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 shag waive this option and permit an interstate sale tit finds that no intrastate purchaser is willing and able to
purchase the gas upon terms which are reasonably comparable to and at least es 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 shaghave 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 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 shall be disposed of pursuant to
the above statutes.
Section 4. FORFEITURE CLAUSE. 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 violas on of the
covenants of the lease, upon proper proof thereof, in the event that the lessee shall default in the performance 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 default
either by personal service or by certified or registered mail upon the lessee, and if such failure ordefaut 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 re -enter 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 forfeiture 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) lino 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 no filed
shall become effective on the date and hour of receipt thereof in the office of the Director or at some later dale, g such
be so specified by the lessee therein. lithe said relinquishment fails to slate 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 shag 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 condglon acceptable to lessor and shall have been approved by the
State 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 shag be no recourse by
lessee and the lease as to the relinquished lands may not be reinstated.
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