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HomeMy WebLinkAbout2001-425S \Our Documents\Ordoi=ces\0l\1ud Process for Oil & Gas Lease Ord doe ORDINANCE NO AN'149b— AN ORDINANCE OF THE CITY OF DENTON, TEXAS, AUTHORIZING THE COMPETITIVE BID PROCESS FOR AN OIL AND GAS LEASE AGREEMENT FOR THE DENTON MUNICIPAL AIRPORT AND APPROVING THE BID AND LEASE DOCUMENTATION, AND PROVIDING AN EFFECTIVE DATE WHEREAS, the City has prepared documents to bid oil and gas mineral interests at the City of Denton Municipal Airport pursuant to the Texas Natural Resources Code, and WHEREAS, the City Council desires to approve said documents and authorize the City Manager or his designee to bid mineral interests at the airport NOW, THEREFORE, THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS SECTION 1 That the City Council hereby authorizes the competitive bid process for oil and gas lease agreements for the Denton Municipal Airport and approves the oil and gas bid documents, which are attached hereto and incorporated by reference herein SECTION 2 That this ordinance shall become effective immediately upon its passage and approval //-- / PASSED AND APPROVED this the day of /L./�L�� 2001 &J" /l "L EULINE BROCK, MAYOR ATTEST JENNIFER WALTERS, CITY SECRETARY BY t", APPROVED AS TO LEGAL FORM HERBERT L PROUTY, CITY ATTORNEY W� ..I N S \Our Documents\Contracts\01\Atrport Bid Doc Gas Wells doc CITY OF DENTONS BID DOCUMENTS GAS WELL DEVELOPMENT ON AIRPORT PROPERTY I. CITY OF DENTON BID FORM II OIL AND GAS LEASE BID INSTRUCTIONS III SURFACE USE AGREEMENT IV OIL AND GAS LEASE CITY OF DENTON BID FORM GAS WELL DEVELOPMENT ON AIRPORT PROPERTY Description of property TRACT I The land described in condemnation proceedings identified by Cause No 3922 filed on November 30, 1943 between the City of Denton and R M Evers, et al and subsequently filed in Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, containing 147 26 acres, 2 26 acres of which is in a public road, in the William Wilburn Survey, Abstract Number 1419 TRACT 2 The land described in that Warranty Deed dated December 23, 1943 between P T Underwood and wife Jimmie Underwood and the City of Denton recorded in Volume 304, Page 503 of the Real Property Records of Denton County, Texas, containing 74 94 acres, 175 acres of which is in a public road, in the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described in that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corbin, a widow, Hugh C Corbin and wife, Sue Lou Corbin, John S Corbin, Alice Corbin Brown and husband W O Brown, Grace Corbin, a feme sole, Georgia Corbin, a feme sole, James E Corbin and wife, Johnnie Corbin, Mrs Gertie Corbin Hurst and husband, G E Hurst, and the City of Denton, recorded in Volume 305, Page 216 of the Real Property Records of Denton County, Texas, containing 33194 acres, 2 61 acres of which is in a public road, in the Wm Smith Survey, Abstract Number 1188, and the Wm Neill Survey, Abstract Number 970 Minimum Standards of the Bid Please check each item that will be included in the lease ❑ A primary term of not more than three (3) years from date of execution ❑ A royalty to lessor not less than one -fifth (115) of all oil and gas produced from said land (If greater than 115, please specify ❑ The royalty to be paid at the highest price in the area A statement by the Lessee that the royalty to be paid the City is equal to the highest price paid by the Lessee to any mineral owner in Denton, County, and that if the Lessee pays a mineral owner in Denton County, Texas a higher royalty percentage during the term of this lease, the Lessee shall increase the royalty paid to the City so as to equal this higher amount ❑ An annual delay rental of not less than ten and no/100 dollars ($10 00) per acre (If greater than $10 00 per acre, specify) (This is a 3 year Paid Up Lease) ❑ Shut-in payment of not less than twenty and no/100 dollars ($20 00) per acre (if greater -2- than $20 00 per acre, specify) ❑ Bonus money as specified by bidder acres X $ = total bonus money bonus money as specified in the bid and with the minimum to be $175 00 per acre For ❑ A Development Plat showing a drill plan and drill sites must be submitted with this bid The City reserves the right to award this bid based on both price and the most advantageous location of the drilling locations and sites n pursuant to the Surface Use Agreement ❑ Bidders shall submit information of the bidder's reputation and quality of the bidder's oil and gas services including but not limited to the bidder's financial ability to provide the oil and gas services, safety record, compliance history and any other relevant information that the bidder submits to the city for the determination of best value ❑ The successful bidder shall comply with all requirements in the Code of Ordinances for the City of Denton, Texas A copy may be obtained in the City Secretary's office or on the City of Denton's webslte, www cayoMenton com ❑ A bidder's conference will be held on November 26, 2001 ❑ An oil and Gas lease, Surface Use Agreement and Right of Way Use Agreement will be negotiated within thirty (30) days after the successful bidder is selected ❑ Upon request, the City shall in writing allow the successful bidder to pool the lease, the land or minerals included in the lease, or any part of these with any other land, leases, minerals estates or parts of any of these to form a drilling or spacing unit for the exploration, development, and production of oil and gas By submitting a bid, each bidder agrees to waive and does hereby waive any claim the bidder has or may have against the City of Denton, Texas, and the City's respective employees and representatives for the award of attorney fees, arising out of or in connection with the administration, evaluation, or recommendation of any bid, waiver of any requirements under the Bid Documents, or the Contract Documents, acceptance or rejection of any bids, and award of the Bid By submitting a bid, the bidder specifically waives any right to recover or be paid attorney's fees from the City of Denton, Texas, or any of the City's employees and representatives under any of the provisions of the Texas Uniform Declaratory Judgments Act (Texas Civil Practice and Remedies Code, Section 37 001, et seq , as amended) The bidder agrees that this is the intentional relinquishment of a presently existing known -3- right By execution and submission of this Bid, the Bidder hereby represents and warrants to the City of Denton that the Bidder has read and understands the Bid Documents and the Contract Documents and tlus Bid is made in accordance with the Bid Documents Bidder acknowledges that it understands all terms within the bid documents, which include the waiver provisions, and that it had the right to consult with counsel regarding all of the above documents By submitting a bid, each bidder agrees to waive and does hereby waive any claim the bidder has or may have against the City of Denton, Texas and the City's employees, agents and officers, ansmg out of or in any way connected with the following 1 the administration, evaluation or recommendation of any bid, 2 waiver or deletion of any of the requirements under the Bid Documents or the Contract Documents, 3 acceptance or rejection of any bids, and 4 award of the Bid or Lease By submitting a bid, the bidder acknowledges that the bidder understands all terns of the bidding documents and consents to the bidding process and the possibility of a negative assessment By submitting a bid, the bidder acknowledges and agrees that there was and is no disparity of bargaining power between the bidder and the City of Denton, Texas The bidder agrees that this is the intentional relinquishment of the above listed presently existing rights The City reserves the right to waive, delete or amend any of the requirements connected with this bid and to reject any and all bids Certification of Bidder W OILAND GAS LEASE BID INSTRUCTIONS The City of Denton intends to lease property for oil and gas development only, as described below TRACT 1 The land described in condemnation proceedings identified by Cause No 3922 filed on November 30, 1943 between the City of Denton and R M Evers, et al and subsequently filed in Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, containing 147 26 acres, 2 26 acres of which is in a public road, in the William Wilburn Survey, Abstract Number 1419 TRACT 2 The land described in that Warranty Deed dated December 23, 1943 between P T Underwood and wife Jimmie Underwood and the City of Denton recorded in Volume 304, Page 503 of the Real Property Records of Denton County, Texas, containing 74 94 acres, 175 acres of which is in a public road, in the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described in that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corbin, a widow, Hugh C Corbin and wife, Sue Lou Corbin, John S Corbin, Alice Corbin Brown and husband W O Brown, Grace Corbin, a feme sole, Georgia Corbin, a feme sole, James E Corbin and wife, Johnnie Corbin, Mrs Gertie Corbin Hurst and husband, G E Hurst, and the City of Denton, recorded in Volume 305, Page 216 of the Real Property Records of Denton County, Texas, containing 33194 acres, 2 61 acres of which is in a public road, in the Wm Smith Survey, Abstract Number 1188, and the Wm Neill Survey, Abstract Number 970 Said lease shall be awarded, at the discretion of the City Council, to the highest and best bidder submitting a bid in accordance with terms as outlined below It is the intention of the Council to award the lease to the highest and best bidder submitting a bid at such public hearing on December 18, 2001, provided that, if in the judgment of the Council the bids submitted do not represent the fair value of such lease, the Council will reject all bids, No bids will be considered unless submitted at said hearing The Council reserves the right to reject any and all bids for such lease However, should any bid be accepted, such lease shall be executed upon a form acceptable to the Council and the Lessee -therein and shall provide The Council shall determine the highest and best bidder according to the terms submitted for the mineral lease, the reputation and quality of the bidder's oil and gas services including but not limited to the bidder's financial ability to provide the oil and gas services, safety record, compliance history and any other relevant information that the bidder submits to the city for consideration 1 for a primary term of not more than three (3) years from date of execution 2 for a royalty to be paid Lessor not less than one -fifth (1/5) of all oil and gas produced from said land, -5- 3 a statement by the Lessee that the royalty to be paid the City is equal to the highest price paid by the Lessee to any mineral owner in Denton, County, and that if the Lessee pays a mineral owner in Denton County, Texas a higher royalty percentage during the term of this lease, the Lessee shall increase the royalty paid to the City so as to equal this higher amount 4 for an annual delay rental of not less than Ten and No/I00 Dollars ($10 00) per acre (This is a 3 year Paid Up Lease), 5 for a shut-in payment of not less than twenty and no/l00 dollars ($20 00) per acre, 6 for bonus money as specified in the bid and with the minimum to be $175 00 per acre, and 7 the following provisions A Lessee agrees and obligates itself to restore the surface of all land that might be damaged by its operation hereunder as nearly as possible to its original conditions as soon as it has finished with the use of the area where such damages occur Lessee must further agree to indemnify Lessor against any and all claims upon the part of third persons for damages or injuries of any kind or character that might arise from the Lessee's operations hereunder, B Lessor prohibits the surface disposal of salt water or oil field waste on the heremabove described tract of land C The use of potable water from the leased premises for water flooding or secondary recovery is expressly prohibited and the use of such water is restricted solely to ordinary exploration and production activities D Lessee must conform to all ordinances regulating oil and gas drilling contained in the Code of the City of Denton, Texas E Ingress and egress to drill sites must be approved by the Director of Airport and Transit Operations or his designee and the FAA F Lessee must satisfy themselves as to title and acquire all necessary abstracts and other title information solely at their own expense, the lease form shall contain no general warranty of title by Lessor G A Development Plat showing the drill plan and drill sites must be submitted with the bid Additional gas well sites may be available on the west side of the airport -6- property subject to the approval by the City and the FAA The City reserves the right to award this bid based on both price and the most advantageous location of the drilling locations and sites Proposed site locations are shown on Attachement A The final site locations will be approved by the Director of Airport and the FAA H An Oil and Gas lease, Surface Use Agreement and Right of Way Use Agreement will be negotiated within thirty (30) days after the successful bidder is selected The oil and gas lease must be approved by the City Council I The City shall allow the successful bidder to pool the lease, the land or minerals included in the lease, or any part of these with any other land, leases, minerals estates or parts of any of these to form a drilling or spacing unit for the exploration, development, and production of oil and gas J By submitting a bid, each bidder agrees to waive and does hereby waive any claim the bidder has or may have against the City of Denton, Texas, and the City's respective employees and representatives for the award of attorney fees, ansmg out of or in connection with the administration, evaluation, or recommendation of any bid, waiver of any requirements under the Bid Documents, or the Contract Documents, acceptance or rejection of any bids, and award of the Bid By submitting a bid, the bidder specifically waives any right to recover or be paid attorney's fees from the City of Denton, Texas, or any of the City's employees and representatives under any of the provisions of the Texas Uniform Declaratory Judgments Act (Texas Civil Practice and Remedies Code, Section 37 001, et seq , as amended) The bidder agrees that this is the intentional relinquishment of a presently existing known right By execution and submission of this Bid, the Bidder hereby represents and warrants to the City of Denton that the Bidder has read and understands the Bid Documents and the Contract Documents and this Bid is made in accordance with the Bid Documents Bidder acknowledges that it understands all terms within the bid documents, which include the waiver provisions, and that it had the right to consult with counsel regarding all of the above documents K By submitting a bid, each bidder agrees to waive and does hereby waive any claim the bidder has or may have against the City of Denton, Texas and the City's employees, agents and officers, ansmg out of or in any way connected with the following 1 the administration, evaluation or recommendation of any bid, -7- 2 waiver or deletion of any of the requirements under the Bid Documents or the Contract Documents, 3 acceptance or rejection of any bids, and 4 award of the Bid or Lease By submitting a bid, the bidder acknowledges that the bidder understands all terms of the bidding documents and consents to the bidding process and the possibility of a negative assessment By submitting a bid, the bidder acknowledges and agrees that there was and is no disparity of bargaining power between the bidder and the City of Denton, Texas The bidder agrees that this is the intentional relinquishment of the above listed presently existing rights L The City reserves the right to waive, delete or amend any of the requirements connected with this bid M Bids shall be received by the Purchasing Agent, City of Denton Service Center, 901B Texas Street, Denton, Texas 76201 on December 6, 2001 Any bid received after the specified time of 2 00 p in will not be considered N Bids shall be submitted on the City of Denton Bid Form The bidder may attach as many additional pages as they deem necessary O Bidders may contact the City of Denton, Tom Shaw, Director of Purchasing Agent, City of Denton Service Center, 901B Texas Street, Denton, Texas 76201 at (940) 349-7100, for clarifications and questions A bidder's conference will be held on November 26, 2001 WE SURFACE USE AGREEMENT CITY OF DENTON AIRPORT This Agreement is made and entered into effective this , by and whose address is (Operator") and the CITY OF DENTON, TEXAS, a home rule municipal corporation, acting by and through its duly authorized City Manager ("Surface Owner"), WHEREAS, Operator owns the right to explore the lands described as follows TRACT 1 The land described in condemnation proceedings identified by Cause No 3922 filed on November 30, 1943 between the City of Denton and R M Evers, et al and subsequently filed in Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, containing 147 26 acres, 2 26 acres of which is in a public road, in the William Wilburn Survey, Abstract Number 1419 TRACT 2 The land described in that Warranty Deed dated December 23, 1943 between P T Underwood and wife Jimmie Underwood and the City of Denton recorded in Volume 304, Page 503 of the Real Property Records of Denton County, Texas, containing 74 94 acres, 175 acres of which is in a public road, in the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described in that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corbin, a widow, Hugh C Corbin and wife, Sue Lou Corbin, John S Corbin, Alice Corbin Brown and husband W O Brown, Grace Corbin, a feme sole, Georgia Corbin, a feme sole, James E Corbin and wife, Johnnie Corbin, Mrs Gertie Corbin Hurst and husband, G E Hurst, and the City of Denton, recorded in Volume 305, Page 216 of the Real Property Records of Denton County, Texas, containing 33194 acres, 2 61 acres of which is in a public road, in the Wm Smith Survey, Abstract Number 1188, and the Wm Neill Survey, Abstract Number 970 Denton County, Texas ("the Lands") for oil and gas operations, and WHEREAS, Operator and Surface Owner desire to enter into an agreement regarding Operator's use of the Lands for its proposed oil and gas operations thereon in connection with Operator's well to be located at a surface location approximately and drilled to a projected vertical depth of approximately feet beneath the surface (the "Well") NOW, THEREFORE, in consideration of the premises and the covenants set forth below, Operator and Surface Owner agree as follows 1 In connection with the Well, and pursuant to the terms and Provisions herein after contained, Operator shall have the right (a) to construct and use a drilling pad location and related drilling and circulation pits on the Land on which such Well is to be situated (the "Site") for the purposes of drilling for, equipping, operating and producing oil, gas and other minerals from the Well (including, but not limited to, the installation and maintenance of a tank battery, heater treater, separator, and other equipment on the drilling pad), and (b) to install flowlines and pipelines to and from the Site, to install electric poles on the Site 2 Drilling Operations For purposes of this Agreement, the drilling pad shall be constructed in the approximate dimensions and configuration depicted on a gas well development plat as approved by the City No well shall be drilled within 500 feet of any structure on the land without the written consent of the Surface Owner During drilling operations, the perimeter of the drill site shall be fenced by Operator at its sole expense with a fence sufficient to turn livestock, thereafter, in the event of production, said fence shall be maintained around the perimeter of the well site and tank battery area actually utilized by Operator Operator shall use only the entrances and roadways for entering upon and leaving the land and will use only the routes in going upon, over or about the land as are designated by Surface Owner in writing for Operator's use in accessing the dnll site Operator shall access the Site directly from Airport Road, and that Operator shall construct roads to the Site as depicted on the gas well development plat approved by the City Operator shall maintain all roads, existing or new, used by Operator in good repair free of rocks and ruts to the reasonable satisfaction of Surface Owner Annual maintenance must include, as a mtmmum, addition of at least two inches of cahche and motor grading Operator will construct diversion terraces as may be reasonably necessary to prevent soil erosion Use of roads shall be confined to lease operations and to the use of the Surface Owner and Surface tenants Operator shall never obtain or assist anyone to obtain or have designated a public road across the land Operator may open new roads only upon written concurrence of Surface Owner noted upon a survey plat of the road showing its location and a legally sufficient centerline description All new roads shall be straight and parallel to survey lines to the extent the terrain permits No interior gate or opening in the fence shall be constructed so as to access any other part of the Land from the Site or rectangular area described in this paragraph without Surface Owner's consent All travel shall be confined to roads and no off -road travel is permitted 3 Refineries prohibited. Operator is prohibited from constructing an oil or gas refinery or a plant for cleaning up gas or removing H2S on the leased premised without first obtaining a separate written lease agreement with Surface Owner The location of separators, dehydrators and compressors shall not be considered as plants 4 Compensation. As compensation for the surface use and operations enumerated herein, Operator agrees to pay Surface Owner the total amount of $10,000 00 for the Site, $1,000 for each tank battery located on the drilling pad, and, $ 10/rod (16 feet) for each flowlme constructed off the drilling pad Such payment for flowlines to be payable upon completion of construction and each year anniversary thereafter until removal Operator shall remit the payments required in this paragraph payable to Surface Owner. 5 No water wells may be drilled on the property 6 Notification. Operator shall notify Surface Owner at least 3 days, exclusive of Saturdays, Sundays and legal holidays, prior to commencement of all exploration, drilling, highline or pipeline construction operations on the land, specifying the approximate date of commencement, and the nature and location of the operations No facilities required for any operation permitted under tlus lease shall be commenced, placed, erected or constructed until Surface Owner and Operator have conferred and mutually selected the site or sites for location of the facilities, taking into consideration the use of the land for airport operations 7 Pipelines and Flowlmes. Prior to constructing pipelines and flowlines on the Lands, Operator shall consult with Surface Owner so that the pipelines and flowlines shall be located, insofar as reasonably practical, to cause minimum interference with Surface Owner's surface operations and use of the land Pipelines and flowlines shall be limited to natural gas transported through such pipeline to natural gas produced under the terms of the lease from the leased premises Operator agrees that all flowlines and gas sales pipelines shall be constructed as near as practical to public right of ways and shall be buried to a depth as the City determines or as may be required under applicable laws including FAA rules and regulations A plot plan showing proposed pipelines shall be filed with the Director of the Airport "As built" plans shall be filed with the Director of the Airport on completion 8. Abandonment of Wells At Operator's cost, Operator agrees to conduct a gammaray neutron log survey from the surface to the bottom of the surface casing of any well drilled on leased premises by Operator in order to assist Surface Owner in determining whether water sands have been encountered to such depths Operator shall provide Surface Owner or surface owner with a copy of such log and, without any warranty whatsoever, Operator's opinion as to whether such log indicates water bearing sands and if so, the location or depth thereof Prior to abandoning a well, Operator agrees to give Surface Owner prior notice of such intended plugging and Surface Owner shall have twenty (20) days after notice within which to elect to take over such well for completion as a water well If Surface Owner elects to take over same, Operator shall plug such well to the depth designated by surface owner and thereafter surface owner shall own such well together with the obligation to plug the remaining, unplugged portion of such well when surface owner abandons same Surface owner agrees to execute the appropriate forms required by the Railroad Commission of Texas and other regulatory authority in order to transfer operations and ownership of, as well as liability for, such well to surface owner In the event Surface Owner declines to take over such well, then Operator shall promptly plug same At each stage of Operator's operations, Operator will maintain the site of operations in a neat, orderly, safe condition, free of litter and free of all objects not reasonably necessary to the operation Upon abandonment of any site, operation or road, Operator will notify and confer with Surface Owner, and except to the extent Surface Owner waives, in writing, Operator's obligation to do so, the site or road will be cleaned, all mounds will be leveled, and all pits, pit liners will be removed at the appropriate time and all pits, ruts and other excavations (after being allowed to dry out) will be filled, leveled and smoothed, all caliche will be removed from the site or road will be seeded with grass of Surface Owner's choice and otherwise returned, as nearly as practical , to its natural state, all within a reasonable time 9 Penalties. In the event Operator fails or refuses to pay Surface Owner for penalties, claims, surface use or damages, as required under this lease, within 30 days after same are due, then Operator shall be required to provide Surface Owner with security in the form of cash in the sum of $10,000 00 payable to Surface Owner which sum may thereafter be applied by Surface Owner toward Operator's obligations for past unpaid, as well as future compensation for penalties, claims, surface usage and damages and on each occasion that Surface Owner applies all or a part of said security deposit toward unpaid penalties, claims or compensation, Operator agrees to restore such security deposit to $10,000 00 If Operator falls to make such $10,000 00 security deposit and/or maintain same, within 20 days after notice from Surface Owner to tender same, then this lease shall terminate Surface Owner shall have a first lien against the leasehold interest of Operator therein to secure Surface Owner under the terms of this lease and further this lease shall constitute a Security Agreement sufficient to satisfy the Uniform Commercial Code of Texas to establish a security interest in this leasehold estate for the benefit of Surface Owner to secure them in the event of default by Surface Owner Until such time as Operator breaches its obligation to timely perform under this lease, Surface Owner agrees that all production and revenue attributable to the working interest hereunder shall be temporarily exempt from this lien Upon notice to Surface Owner of Operator's breach of this or any other provision of this lease, which breach constitutes an accrued but unpaid claim owned by Operator to Surface Owner, then said temporary exemption shall be lifted and this security interest and lien shall thereafter attach to all production and revenue attributable to the working interest under this lease 10 Preferential Right to Sell As part of the consideration for this lease, Operator covenants and agrees that the owner of the surface estate shall have a first preferential right to sell Surface Owner or its contractors or assignees, at the same price and terms Operator can obtain elsewhere, any water, sand, gravel or caliche or any one of them, which Operator or any of its successors, assigns, agents or independent contractors might need incidental to any exploration or development operations on leased premises 11 Place of Payment. All payments, compensation and damages which may be due and payable to Surface Owner shall be payable to Surface Owner at the City of Denton, Texas 12 Environmental. As used in this lease, the term "Hazardous Materials" means any substance defined or identified as a hazardous, extra hazardous or toxic substance, waste, or material under any applicable federal, state, or local statute or regulation "Remedial Work" is defined as any site investigation or monitoring, any cleanup, containment, remedial removal, or restoration work performed in response to any federal, state or local government authority or private attorney general action, or pursuant to any federal, state or local statute, rule regulation or other laws Operator agrees (1) to remove from the leased premises, if, as and when required by law, any Hazardous Materials placed or released thereon by Operator, (2) to perform remedial work where the need therefore arises in connection with Operator's operations or activities on the leased premises, and (3) to comply in all respects with all federal, state and local governmental laws and regulations governing operations by Operator and remedial work on or associated with the leased premises Such remedial work shall be performed by one or more contractors selected by Operator and approved in advance by Surface Owner and under the supervision of a consulting engineer selected by Operator and approved in advance by Surface Owner All costs and expenses of remedial work made necessary by Operator's operations shall be paid by Operator, including, without limitation, the charges of such contractors and/or the consulting engineer and Surface Owner's reasonable attorneys' fees and costs incurred in connection with the monitoring or review of remedial work If Operator shall fail to timely commence or cause to be commenced, or fail to diligently prosecute to completion, such remedial work, Surface Owner may, but shall not be required to, cause such remedial work to be performed Operator promises to notify Surface Owner of any claim or other action by any governmental agency or other third party involving the actual or alleged existence of hazardous materials on the leased premises or on Surface Owner's adjoining property and to provide Surface Owner with copies of (1) any notice of any release of Hazardous Materials given to Operator pursuant to any law or regulation and (2) any report of and response to any such incident Operator agrees to indemnify, pay and protect, defend and save Surface Owner harmless from all claims, liabilities, fees and expenses of any kind that arise from the actual or alleged presence or release any Hazardous Material in connection with Operator's operators on the leased premises This indemnification shall include costs in connection with any remedial work when performed by Surface Owner or any third party in response to any federal, state or local governmental authority, laws or regulations, due and payable upon demand therefore by Surface Owner 13 Notices Operator agrees to designate in writing the name of the person or persons to be present from time to time on said premises as current operations are being conducted, with whom Surface Owner may resolve any claim for use, injury and damage to airport operators surface area or improvements on said premises occasioned by or ansmg from Operator's operations or other activity on the said premises In regard to notice of surface use, the surface owner affected by such operations shall be entitled to prior notice of such operations Either party hereto may from time to time designate in writing a different address or agent The following persons are designated as each party's initial agent To Surface Owner To Operator 14 Second/Tertiary Operations. Operator is denied the right and privilege of injecting any substances into the subsurface for secondary or tertiary recovery operations without Surface Owner's prior written approval 15 Memorandum of Agreements. Operator and Surface Owner agree to execute a Memorandum of this Agreement in the form attached as Exhibit "A" hereto, which may be recorded in the records of Denton County, Texas 16 Assignment. This Agreement shall remain in effect for so long as the oil and gas leases owned by Operator on the Lands are in force and effect, and be binding upon and shall inure to the benefit of the parties hereto, their respective heirs, personal representatives, successors and assigns 17 Indemnification. Operator shall indemnify and hold harmless and defend Surface Owner and Surface Owner's officers, agents and employees from all suits, actions, claims, damages, personal injuries, accidental death, property damage, losses, and expense of any character whatsoever including attorney's fees brought for or on account of any Injuries or damages received or sustained by any person or persons or property, on account of any negligent act of Operator, Operator's officers, agents and employees whether such negligent act was the sole proximate cause of the Injury or damage or a proximate cause jointly and concurrently with Operator or Operator's employees, agents or subcontractors' negligence, in the execution, supervision and operations growing out of or in any way connected with this Agreement and Operator will be required to pay any judgment, with costs, which may be obtained against Surface Owner or any of their officers, agents or employees, including attorney's fees 18 Insurance. Operator shall file evidence in the form of a certificate of insurance with the City Secretary for the City of Denton, acceptable to the City Attorney, that it has obtained liability insurance in accordance with the Oil and Gas Mineral Lease, City's Gas Well Ordinance and with the City of Denton as an additional insured and covering its operations on the Lands Operator shall also file evidence in the form of a certificate of insurance with the City Secretary for the City of Denton, acceptable to the City Attorney, that its workers' compensation and general liability coverage includes in its provisions a waiver of any rights of subrogation as against the City of Denton, Texas in accordance with the City's Oil and Gas Regulations 19 Operator shall follow FAA rules and regulations prior to the commencement of drilling operations under this agreement Operator shall file a aeronautical study request form (Form 7460) before commencing drilling operations and shall obtain all prior consents, approvals or waiver of FAA regulations Operator shall indemnify and hold Surface Owner harmless for any FAA orders requiring Operator to cease operations 20 This agreement shall be construed under the laws of the State of Texas, without reference to conflict of law principles which would require the application of the law of another jurisdiction, and exclusive venue shall be in Denton County, Texas for any claims lawsuits or actions in connection with this Agreement. 21 In the event of any conflict between the parties hereto such that either party brings or commences any legal action or proceeding related to this license, including but not limited to, any action pursuant to the provisions of the Texas Uniform Declaratory Judgments Act (Tex Civ Prac & Rem Code § 37 001, et seq , as amended), the parties hereto agree to waive any and all rights to recovery of attorneys fees to which the prevailing party might otherwise be entitled 22 This Agreement shall never be construed to constitute the parties hereto as partners or joint venturers, or to create a relationship of principal -agent, employer -employee, trustee beneficiary, an association for business or profit, or any other relationship, legal or equitable, among the parties hereto In all respects, each party shall be responsible for its own conduct in connection with the subject matter of this Agreement as though it were an independent contractor, free from all control and direction of the others 23 This Agreement may be executed in multiple counterparts, each of which when taken together shall constitute but one and the same instrument, but none of which shall be effective until and unless executed by all parties named herein Additionally, this Agreement may also be executed in multiple originals, any one of which, when fully executed as herein provided, shall be effective for all purposes `When fully executed as herein provided, the terms and conditions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto, their heirs, successors and assigns 24 EXECUTED by each party hereto as of the date indicated beside its signature, to be effective for all purposes as of the Effective date Date ATTEST Jennifer Walters, City Secretary Date APPROVED AS TO FORM Herbert L Prouty, City Attorney Surface Owner. Michael A Conduff, City Manager CITY OF DENTON, TEXAS Operator- ACKNOWLEDGMENTS STATE OF TEXAS § COUNTY OF DENTON § Before me, the undersigned authority, on this day personally appeared Michael A Conduff, CITY MANAGER OF THE CITY OF DENTON, TEXAS, known to me to be the person and official whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of said City, and for the purposes and consideration therein expressed, and in the capacity therein stated Notary Public, State of Texas STATE OF TEXAS § COUNTY OF DENTON § The foregoing instrument was acknowledged before me on 2001 by, on behalf of the corporation Notary Public, State of Texas EXHIBIT "A" to Surface Use Agreement dated effective between and the CITY OF DENTON, TEXAS MEMORANDUM OF SURFACE USE AGREEMENT The Memorandum is being executed for the purpose of giving notice of the existence of that certain Surface Use Agreement dated effective of even date entered into by and between, whose address is (as "Operator") and the CITY OF DENTON, TEXAS (as "Surface Owner") regarding Operator's use of the lands owned by Surface Owner located in Denton County, Texas, to wit (the "Land") for Operator's oil and gas operations on such lands Dated effective this , 2001 Surface Owner CITY OF DENTON, TEXAS By Michael A Conduff, City Manager ATTEST Jennifer Walters, City Secretary APPROVED AS TO FORM Herb Prouty, City Attorney OIL, GAS AND MINERAL LEASE CITY OF DENTON AIRPORT THIS OIL, GAS AND MINERAL LEASE (the "Lease") is made this day of 2001 (the "Effective Date"), between The City of Denton, Denton, Texas, acting herein by and through its Mayor, Euline Brock, duly authorized by resolution to execute this Lease ("LESSOR"), whose address is 215 East McKinney, Denton, Texas 76201 and ("LESSEE"), whose address is Zip Code WITNESSETH 1. Lease of Land LESSOR in consideration of Dollars ($ ), in hand paid, of the royalties herein provided, and of the agreements of LESSEE herein contained, hereby leases and lets exclusively unto LESSEE for the purpose of investigating, exploring, prospecting, drilling and mining for and producing oil, gas and all associated minerals, conducting exploration, geologic and geophysical surveys by seismograph, core test, gravity and magnetic methods, injecting gas, water and other fluids into subsurface strata, laying pipe lines, building roads, tanks power stations, telephone lines and other structures thereon and on, over and across lands owned or claimed by LESSOR, to produce, save, take care of, treat, transport and own said products, the following described land in Denton County, Texas, to -wit TRACT 1 The land described in condemnation proceedings identified by Cause No 3922 filed on November 30, 1943 between the City of Denton and R M Evers, et al and subsequently filed in Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, containing 147 26 acres, 2 26 acres of which is in a public road, in the William Wilburn Survey, Abstract Number 1419 TRACT 2 The land described in that Warranty Deed dated December 23, 1943 between P T Underwood and wife Jimmie Underwood and the City of Denton recorded in Volume 304, Page 503 of the Real Property Records of Denton County, Texas, containing 74 94 acres, 175 acres of which is in a public road, in the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described in that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corbin, a widow, Hugh C Corbin and wife, Sue Lou Corbin, John S Corbin, Alice Corbin Brown and husband W O Brown, Grace Corbin, a feme sole, Georgia Corbin, a feme sole, James E Corbin and wife, Johnnie Corbin, Mrs Gertie Corbin Hurst and husband, G E Hurst, and the City of Denton, recorded in Volume 305, Page 216 of the Real Property Records of Denton County, Texas, containing 33194 acres, 2 61 acres of which is in a public road, in the Wm Smith Survey, Abstract Number 1188, and the Wm Neill Survey, Abstract Number 970 For all purposes of this Lease, said land is estimated to comprise 554 14 acres, whether it actually comprises more or less 642660 2/SP3/29121/0103/103301 1 However, there is expressly excepted from this Lease and reserved to LESSOR, its successors and assigns, all vanadium, uranium, plutonium, thorium, fissionable minerals and all other minerals of every kind and character in, on and under the land, except only oil, gas, casmghead gas and their byproducts and such other hydrocarbon substances, carbon dioxide and sulfur as are necessarily produced with and incidental to the production of oil and gas, or either of them 2 Reservation. There is hereby excepted and reserved to LESSOR the full use of the land covered hereby and all rights with respect to the surface and subsurface thereof for any and all purposes and all minerals except those expressly leased and only to the extent herein leased to LESSEE The Surface Use Agreement shall govern the use of the surface by LESSEE 3 Primary Term This is a paid up lease and subject to the other provisions here contained, this Lease shall be for a term of three (3) years from the Effective Date (the "Primary Term") and as long thereafter as oil, gas and other minerals are produced in paying quantities from said land or land with which said land is pooled hereunder Ro al As royalty, LESSEE covenants and agrees to pay a As a royalty on oil (including all hydrocarbons produced in liquid form at the mouth of the well and also condensate, distillate, and other liquid hydrocarbons recovered from oil or gas run through a separator or similar equipment) one -fifth (115) of the gross production or the market value thereof, at the option of LESSOR, the value to be determined by (1) the highest posted price, plus premium, if any, offered or paid for oil, condensate, distillate, or other liquid hydrocarbons, respectively, of a like type and gravity for the field where produced and when run, or (n) the highest market price offered or paid for the field where produced and when run, or (in) the gross proceeds of the sale whichever is greater LESSEE agrees that before any gas produced from the land is sold, used or processed in a plant, it will be run, free or cost to the parties entitled to royalties, through an adequate oil and gas separator of conventional type or other equipment at least as efficient to the end that all liquid hydrocarbons recoverable from the gas by such means will be recovered Upon written consent of the royalty owners, the requirement that gas be run through a separator or other equipment may be waived upon terms and conditions as prescribed by them b As a royalty on any gas, which is defined as all hydrocarbons and gaseous substances not defined as oil in subparagraph 4 b above, produced from any well on the land (except as provided in this Lease with respect to gas processed in a plant), one -fifth (1/5) of the gross production or the market value thereof, at the option of LESSOR, the value to be based on the highest market price paid or offered to a third party LESSEE under a gas purchase agreement negotiated at arms' length for gas of comparable quality and quantity in the general area where produced and when run, or the gross price paid or offered to the producer, whichever is greater c As a royalty on any gas processed in a plant, one -fifth (1/5) of the residue gas and the liquid hydrocarbons extracted or the market value thereof, at the option of LESSOR The royalty percentage shall be applied to 100% of the total plant production of residue gas attributable to gas produced from this Lease, and on 50% or that percent accruing to LESSEE, whichever is greater, of the total plant production of liquid hydrocarbons 642660 2 /SP3/29121/0303/103101 2 attributable to the gas produced from this Lease, except if liquid hydrocarbons are recovered from gas processed in a plant in which LESSEE or an affiliate owns an interest, then the royalty percentage for liquid hydrocarbons shall be 50% or the highest percent accruing to a third party processing gas through the plant under a processing agreement negotiated at arms' length The respective royalties on residue gas and on liquid hydrocarbons shall be determined by (i) the highest market price paid or offered for any gas (or liquid hydrocarbons) of a comparable quality in the general area or (11) the gross price paid or offered for such residual gas, or the weighted average gross selling price for the respective grades of liquid hydrocarbons, F O B the plant in which the gas is processed, whichever is greater d On all substances, including, but not limited to carbon dioxide and sulfur, permitted to be produced from the land by virtue of this Lease, and products, except liquid hydrocarbons, produced or manufactured from gas, and for which no royalty is otherwise specified in this Lease, LESSOR shall have and be entitled to the royalty percentage of that produced or saved to be delivered to LESSOR, free of all costs, or, at the option of LESSOR, which may be exercised from time to time, LESSEE shall account to LESSOR for the royalty percentage of the market value thereof, which market value shall be deemed to be the greater of (i) the highest market price of each product for the same month in which the product is produced, or (ii) the average gross sale price of each product for the same in e Accounting and payment to LESSOR of royalties from the production of oil and gas from any well shall commence no later than ninety (90) days after the date the well commences first production Thereafter, all accountings and payments of royalties shall be made on or before the last day of the calendar month following the calendar month in which the production occurred Should LESSEE at any time fail to make royalty payments to LESSOR on or before the last day of the third calendar month following the calendar month in which the production occurred, this Lease shall automatically terminate unless the payments are made within thirty (30) days after written notice is given to LESSEE Any royalties provided for in this Lease which are not paid to LESSOR within the applicable time periods specified in this paragraph shall accrue interest at the same rate as judgments under the laws of the State of Texas from due date until paid Acceptance by LESSOR of royalties which are past due shall not act as a waiver or estoppel of LESSOR'S right to receive or recover any and all interest due under the provisions of this paragraph unless the written acceptance or acknowledgment by LESSOR to LESSEE expressly so provides LESSEE shall pay all reasonable attorney's fees incurred by LESSOR in connection with any lawsuit in which LESSOR is successful in recovering royalties or interest or in terminating this Lease due to LESSEE'S failure to pay royalties within the periods set forth above LESSOR'S royalty shall never bear, either directly or indirectly, any part of the costs or expenses of producing, gathering, dehydrating, compressing, transporting, manufacturing, processing, treating or marketing of the oil or gas from the land, nor any part of the costs of constructing, operating or depreciating any plant or other facilities or equipment for processing or treating oil or gas produced from the land 642660 2 /SP3/29121/0103/103101 3 5 Shµt-In Gas If LESSEE drills a well on land covered by this Lease or on land which the LESSOR has permitted to be pooled herewith, which well is capable of producing gas but such well is not being produced, and this Lease is not being maintained otherwise as provided herein, this Lease shall not terminate, whether it being during or after the Primary Term (unless released by LESSEE) and it nevertheless shall be considered that oil and gas is being produced from the land covered by this Lease When, at the expiration of the Primary Term or any time or times thereafter, the Lease is continued in force in this matter, LESSEE shall pay or tender as royalty to the parties who at the time of such payment would be entitled to receive royalty hereunder if the well is producing, or deposit directly with LESSOR at its address shown herein, a sum equal to Twenty and No/100 Dollars ($20 00) for each gross acre of land subject to this Lease at the time such payment is made The first payment of such sum shall be on or before the first day of the calendar month at the expiration of ninety (90) days from the date the Lease is not otherwise maintained, and thereafter subsequent payments may be made at annual intervals LESSEE'S failure to pay or tender or properly or timely pay or tender such sum as royalty shall render LESSEE liable for the amount due and shall operate to terminate this Lease automatically 6 Limit of Shut -In Notwithstanding anything to the contrary in this Lease, it is expressly agreed and provided that this Lease cannot and shall not be extended beyond the Primary Term by reason of the shut-in well provisions of Paragraph 5 for any single period of more than two (2) consecutive years or more than three (3) years in the aggregate 7 pooling Pooling for oil or gas is expressly denied without the written consent of LESSOR Further, LESSEE is denied the right to seek, or consent to, or participate in the forced pooling of any part of the land under the Texas Mineral Interest Pooling Act and any and all amendments thereto or any other pooling or unitization statutes of the State of Texas without LESSOR'S written consent 8 Termer ination a If, at the expiration of the Primary Term, LESSEE is not engaged in the actual drilling of a well on the land or if LESSEE has completed or abandoned a well on the land within thirty (30) days prior to expiration of the Primary Term and is not, at the expiration of ninety (90) days after the date or completion or abandonment of the well, engaged in the actual drilling of another well on the land, this Lease shall then terminate as to all of the land, save and except the following Each well producing oil or being reworked, and classified as an oil well under the rules and regulations of the Railroad Commission of Texas, together with forty (40) acres around each such well (an "Oil Unit") Each well producing gas (or capable of producing gas with all shut-in royalty having been paid thereon) or being reworked, and classified as a gas well under the rules and regulations of the Railroad Commission of Texas, together with the one hundred sixty (160) acres around each such well (a "Gas Unit") b Each Oil Unit or Gas Unit shall be in as near the form of a square as reasonably practicable considering the boundary of the land and the necessity of a legal location of the well on the unit Notwithstanding the foregoing, if the Railroad Commission of 642660 2 /SP3/29121/0103/103101 4 Texas or other authority having jurisdiction, by rule or order prescribes a larger or a smaller number of acres for the purposes of securing the maximum allowable production, each unit shall be increased or decreased in size as necessary to conform to the number of acres prescribed by the rule or order, but if the rule or order provides for or permits optional sized tracts or spacing, the unit shall be the smallest tract permitted by the rule or order c If, at the expiration of the Primary Term, LESSEE is engaged in the actual drilling of a well on the land or if LESSEE has completed or abandoned a well on the land within thirty (30) days prior to expiration of the Primary Term and is, at the expiration of ninety (90) days after completion or abandonment of the well, engaged in the actual drilling of another well on the land, this Lease shall not terminate so long as LESSEE pursues the drilling of the well with reasonable diligence to completion or abandonment and so long as LESSEE commences the actual drilling of additional and successive wells on the land at intervals not exceeding ninety (90) days between completion of a well as a producer or dry hole and commencement of actual drilling of the next well on the land If and when LESSEE fails to commence the actual drilling of a well within the applicable interval (or within the extended time provided in subparagraph 9 d below, this Lease shall then terminate to all of the land, save and except the Oil Units and Gas Units provided in subparagraph 8 a above Upon expiration of the Primary Term or the cessation of the continuous drilling program set forth herein, whichever is later, this Lease shall also terminate as to all depths below each unit retained as to depths below a depth of one hundred feet (100') beneath the deepest producing horizon or zone for each unit d If LESSEE, in the conduct of actual drilling operations under this Lease after the expiration of the Primary Term, commences the actual drilling of any next succeeding well within less than the ninety (90) day time interval specified in subparagraph 8 c and thus speeds up the development of the land, LESSEE shall have credit in time for the accelerated development and may, in the conduct of subsequent actual drilling operations, take advantage of the credit in time on a cumulative basis and thus extend the time for the commencement of actual drilling of any subsequent well or wells required to be drilled under the provisions of this Lease in order to prevent termination of this Lease Within ten (10) days of the commencement of the actual drilling of each well on the land, LESSEE shall give LESSOR written notice of the date of commencement Within ten (10) days after the completion or abandonment of each well on the land, LESSEE shall give LESSOR written notice of the date of completion or abandonment and also of the time credit, if any claimed by LESSEE as a result of having commenced the actual drilling of the well within less than the required interval If LESSEE fails to timely so notify LESSOR in any of these respects, LESSEE shall not be entitled to any credit in time for accelerated development Nothing contained in this paragraph shall relieve LESSEE of any offset obligation ansmg by implication or under the terms of this Lease, but any well drilled by LESSEE to satisfy an offset obligation will entitle LESSEE to the privileges of this paragraph 9 Removal of Equipment. LESSEE shall have the right at any time during and for one hundred eighty (180) days after the expiration of this Lease to remove all property, casing and fixtures placed by LESSEE on said land, including the right to draw and remove all casing Thereafter, it shall be deemed abandoned to LESSOR If LESSEE falls to remove such property, 642660 2 /6P3/29121/0303/103101 5 casing and fixtures within such 180 day period, ownership of the same will vest in LESSOR, LESSOR' successors and assigns or LESSOR, at its option, may require the removal of said equipment in addition to all other remedies to which LESSOR is entitled under law 10 Assignment. The rights of either party hereunder may be assigned in whole or in part, and the provisions hereof shall extend to their respective heirs, successors and assigns, but no change or division in ownership of the land, rentals or royalties, however accomplished, shall operate to enlarge the obligations or diminish the rights of LESSEE 11. TTitie. LESSOR does not warrant or agree to defend the title of the lands covered hereby LESSEE takes this Lease without warranty of title either express or implied This Lease and the activities to be conducted thereunder are subject to approval of the Federal Aviation Administration If LESSOR owns an interest in the oil, gas and minerals leased hereby less than the entire fee simple estate, then the royalties, or other monies accruing from any part of the land to which this Lease covers less than such full interest shall be paid to LESSOR only in the proportion which LESSOR'S interest therein, if any, bears to the whole and undivided fee simple mineral estate therein It is the sole responsibility of LESSEE to determine the LESSOR's mineral interest The bonus payment paid for this Lease shall be deemed to be final if no title problem& are submitted for resolution within ninety (90) days of the Effective Date 12 Force MlJpure When drilling, production or other operations on said land or land pooled with such land, or any part thereof are prevented, delayed or interrupted by fire, storm, flood, war, rebellion, insurrection, sabotage, not, strike, or as a result of some law, order, rule, regulation or necessity of governmental authority, either State or Federal, the Lease shall nevertheless continue in full force and effect and be extended for the period such drilling, production and other operations are so prevented, delayed or interrupted LESSEE shall not be liable for breach of any express or implied covenants of this Lease when drilling, production or other operations are so prevented, delayed or interrupted, except that nothing in this paragraph 13 shall be construed to suspend the payment of delay rentals, shut-in royalty or any other amount otherwise required to maintain this Lease in effect 13 Iesignation of Gas Unit. a Upon completion of the first well as a producer of oil and/or gas in paying quantities (whether the first or a subsequent well drilled), LESSEE shall designate an approximately sized drilling unit around said first producing well, all out of the above described property, by filing a written designation in the Deed Records of Denton County Texas and shall provide LESSOR with a copy of such unit designation b If a second well is completed as a producer of gas in paying quantities, LESSEE shall again designate an approximately sized drilling unit around said second producing well, all out of the above described property, by filing a written designation in the Deed Records of Denton County, Texas and shall provide LESSOR with a copy of such unit designation LESSEE shall designate all drilling units in a fair and reasonable manner so that the remaining acreage not included in the dulling units is capable of being drilled or pooled with other lands 642660 2/03/29121/01031103301 6 All designations of units as provided in this paragraph 14 shall be in accordance with and subject to the provisions of paragraph 9 above 14 Road Construction If LESSEE completes a well as a producer, LESSEE agrees to construct a good and substantial road to said well at least twenty (20) feet in width, and with base material equivalent to Texas Highway Department No 1 flexible base material and being six (6) inches in depth and built for proper and natural drainage LESSEE agrees to enter into a Road Maintenance Agreement with the City of Denton for damage to the road as a result of LESSEE'S activities 15, FAA Rules and Regulations: No drilling activity or any other activity shall be conducted on any portion of the above described land in contravention of any Federal Aviation Administration ("FAA') rule or regulation or which interferes with any future expansion plan for runways or taxiways LESSEE shall make inquiry with the proper officials of the FAA and obtain all necessary approvals, consents or waivers prior to the location of any dnll site on the subject property to verify compliance with all applicable FAA rules or regulations LESSEE shall provide LESSOR with copies of all waivers or other documentation issued by the FAA indicating approval of well site locations or any other operations prior to the commencement of operations 16 Indemnifications and Insurance LESSEE shall provide or cause to be provided the insurance described below for each well drilled under the terms of this Lease, such insurance to continue until the well is abandoned and the site restored Such insurance shall provide that LESSOR shall be a co-insured, without cost, and that said insurance can not be canceled or terminated without thirty (30) days prior notice to LESSOR and ten (10) days notice to LESSOR for nonpayment of premiums a General Requirements. Indemnification and Express Negligence Provisions LESSEE shall expressly release and discharge, all claims, demands, actions, judgments, and executions which it ever had, or now have or may have, or assigns may have, or claim to have, against the LESSOR, it agents, officers, servants, successors, assigns, sponsors, volunteers, or employees, created by, or arising out of personal injuries, known or unknown, and injuries to property, real or personal, or in any way incidental to or in connection with the performance of the oil and gas drilling and production performed by the LESSEE under this lease and the LESSEE shall fully defend, protect, indemnify, and hold harmless the LESSOR, and/or its departments, agents, officers, servants, employees, successors, assigns, sponsors, or volunteers from and against each and every claim, demand, or cause of action and any and all liability, damages, obligations, judgments, losses, fines, penalties, costs, fees, and expenses incurred in defense of the LESSOR, and/or its departments, agents, officers, servants, or employees, including, without limitation, personal injuries and death in connection therewith which may be made or asserted by LESSEE, its agents, assigns, or any third parties on account of, arising out of, or in any way incidental to or in connection with the performance of the oil and gas well drrllmg,and production performed by the LESSEE under this lease and, the LESSEE agrees to indemnify and hold harmless the LESSOR, and/or its departments, and/or its officers, agents, servants, employees, successors, assigns, sponsors, or volunteers from any liabilities or damages suffered as a result of claims, demands, costs, or judgments against the LESSOR and/or, its departments, it's officers, agents, servants, or employees, created by, or arising out of the acts or omissions of the LESSOR occurring on the dnll site or operation site in the course and scope of 642660 2 /SP3/29121/0303/103101 7 inspecting and permitting the gas wells INCLUDING, BUT NOT LIMITED TO, CLAIMS AND DAMAGES ARISING IN WHOLE OR IN PART FROM THE NEGLIGENCE OF THE LESSOR OCCURRING ON THE DRILL SITE OR OPERATION SITE IN THE COURSE AND SCOPE OF ITS DUTIES UNDER THIS LEASE IT IS UNDERSTOOD AND AGREED THAT THE INDEMNITY PROVIDED FOR IN THIS SECTION IS AN INDEMNITY EXTENDED BY THE LESSEE TO INDEMNIFY AND PROTECT THE LESSOR AND/OR ITS DEPARMENTS, AGENTS, OFFICERS, SERVANTS, OR EMPLOYEES FROM THE CONSEQUENCES OF THE NEGLIGENCE OF THE CITY OF DENTON, TEXAS AND/OR ITS DEPARTMENTS, AGENTS, OFFICERS, SERVANTS, OR EMPLOYEES, WHETHER THAT NEGLIGENCE IS THE SOLE OR CONTRIBUTING CAUSE OF THE RESULTANTANT INJURY, DEATH, AND/OR DAMAGE b All policies shall be endorsed to read "THIS POLICY WILL NOT BE CANCELLED OR NON -RENEWED WITHOUT 30 DAYS ADVANCED WRITTEN NOTICE TO THE OWNER AND THE CITY EXCEPT WHEN THIS POLICY IS BEING CANCELLED FOR NONPAYMENT OF PREMIUM, IN WHICH CASE 10 DAYS ADVANCE WRITTEN NOTICE IS REQUIRED" c Liability policies shall be written by carriers licensed to do business in Texas and with companies with A VIII or better rating in accordance with the current Best Key Rating Guide, or with nonadmitted carriers that have a financial rating comparable to carriers licensed to do business in Texas approved by the City d Liability policies shall name as "Additional Insured" the city and its officials, agents, employees, and volunteers e Certificates of insurance must be presented to the City evidencing all coverages and endorsements required by this Section 35-508, and the acceptance of a certificate without the required limits and/or coverages shall not be deemed a waiver of these requirements f Claims made policies will not be accepted except for excess policies or unless otherwise provided by this Article g Required Insurance Coverages 1 Commercial General Liability Insurance Coverage should be a minimum Combined Single Limit of $1,000,000 per occurrence for Bodily Injury and Property Damage This coverage must include premises, operations, blowout or explosion, products, completed operations, blanket contractual liability, underground property damage, broad form property damage, independent contractors protective liability and personal injury 2 Environmental Impairment (or Seepage and Pollution) shall be either included in the coverage or written as separate coverage Such coverage shall not exclude damage to the lease site If Environmental Impairment (or Seepage and Pollution) Coverage is written on a `claims made" basis, the policy must provide that any retroactive date applicable precedes the effective date of the issuance of 642660 2 /SP3/29121/0303/303101 the permit Coverage shall apply to sudden and non -sudden pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material or other irritants, contaminants or pollutants 3 Automobile Liability Insurance Minimum Combined Single Limit of $500,000 per occurrence for Bodily Injury and Property Damage Such coverage shall include owned, non -owned, and hired vehicles 4 Worker's Compensation Insurance In addition to the minimum statutory requirements, coverage shall include Employer's Liability limits of at least $100,000 for each accident, $100,000 for each employee, and a $500,000 policy limit for occupational disease, and the insurer agrees to waive rights of subrogation against the city, its officials, agents, employees, and volunteers for any work performed for the city by the LESSEE 5 Excess (or Umbrella) Liability Insurance Minimum limit of $10,000,000 covering in excess of the preceding insurance policies 6 Control of Well Insurance a Minimum limit of $5,000,000 per occurrence b Policy shall cover the Cost of controlling a well that is out of control, Redrillmg or Restoration expenses, Seepage and Pollution Damage Damage to Property in the LESSEE's Care, Custody, and Control with a sub -limit of $500,000 may be added 17 Offset Well Requirement. In the event a well or wells producing oil and gas in any quantities that should be brought in by LESSEE or any other LESSEE on adjacent lands and within 330 feet of the land or lands pooled, by permission of LESSOR, with such lands, LESSEE agrees to drill such offset wells as a reasonably prudent LESSEE would drill under the same or similar circumstances 18 Location of Drilling Activity, Pipelines and Euuipment No drilling activity shall be conducted on and no pipelines, equipment or other structures shall be placed on or under any pavement, concrete or asphalt or any other improved surface area situated on the above described land The location of any pipelines installed by LESSEE shall be approved in advance by LESSOR and shall be situated along routes that least interfere with LESSOR's existing or future use of the surface in accordance with the Surface Use Agreement When required by LESSOR, LESSEE will bury all pipelines at a depth of six feet (6% and the location of wells shall comply with Chapter 29, Fire Code, of the Code of Ordinances of the City of Denton, as amended, and all other applicable laws 19 Construction of Fences: Should production be obtained, LESSEE shall promptly construct a good and substantial fence, equivalent to at least a six (6) foot chain link fence (man proof), enclosing the well and related equipment and thereafter maintain such fence in good condition during the life of the well and until such time as the surface is restored to its present 642660 2/SP3/29121/0103/103101 9 condition LESSEE agrees to properly maintain the fenced area in good condition, including, without limitation, the mowing of grass in accordance with the Surface Use Agreement 20 Surface Damages: LESSEE agrees to pay for all actual damages caused by LESSEE's operations hereunder to fences, roads, personal property, underground utilities and services, buildings or other improvements on said land Within a reasonable time after LESSEE's need therefor has ceased, LESSEE shall remove the leasehold debris, fill all its and other excavations made by LESSEE on the above described land, and restore the surface of the land to its condition prior to the commencement of drilling operations insofar as may be reasonably practical 21 Compliance with Laws- LESSEE shall comply with all applicable rules, regulations, ordinances, statutes and other laws in connection with any drilling, producing or other operations under the terms of this Lease, including, without limitation, the oil and gas well regulations of the City of Denton 22 Lease Assianment: The assignment of this Lease by LESSEE, or any successor LESSEE, shall not relieve LESSEE, or any such successor, from its obligations hereunder LESSOR may, unless it agrees to the contrary, look to the LESSEE and/or any successor of LESSEE for performance of any one or more of such obligations 23 Water- LESSEE shall not use any water in, on, or under the above -described land, except in accordance with the Surface Use Agreement 24 Diluent, Good Faith Operations Each well drilled under this Lease shall be drilled with reasonable diligence and in good faith and in a good and workmanlike manner in a bona fide attempt to product oil, gas and associated minerals therefrom 25 Cannons and Headings: The captions and headings in this Lease are for convenience only and shall not modify, change, amend, alter, or affect the true meaning of any paragraph, sentence, clause, phrase, or words herein 26. Suboordmation and Stipulations Required by FAA: This Lease recognizes that the Denton Municipal Airport was acquired and developed with aid and/or grant of land from the United States Copies of such grants are available for review at the office of the City Manager in Denton These grants include a number of obligations and commitments to the general and flying public, to the State of Texas, and to the United States In addition to the above general obligations and commitments, this Lease is subject and subordinate to and is controlled by all the provisions, stipulations, covenants, and agreements in that certain indenture by and between the United States of America and the LESSOR and it is understood that the LESSEE agrees to abide by and enforce all of the provisions, stipulations, covenants, and agreements incorporated in the foregoing instrument the same as if set out in full herein This Lease is subject to approval by the FAA and shall be effective only as of the date of such approval The following agreements and understandings are specifically enumerated to comply with FAA stipulations b It is further especially agreed by the parties hereto that no structures or obstructions, temporary or otherwise, shall be erected which will be in violation of the Federal Aviation Regulations Part 77 (Critena for Determining Obstractions to Air Navigation), unless otherwise approved in writing by the FAA 642660 2 /SP3/29121/0103/103301 10 b Without the prior specific approval of the FAA no surface operations shall be conducted upon any of the lands covered by this Lease closer than the distances set forth in the sub -paragraph above, or within the safety areas of said improvements, including ingress and egress of vehicular traffic c It is specifically understood and agreed that the LESSEE and its successors and assigns shall give to the City of Denton and the FAA, notice in writing of the location of any contemplated well and the route of ingress and egress to such well on the above - described land and that if neither the FAA nor City of Denton objects to said location within a period of thirty (30) days from the receipt of written notice thereof, the said LESSEE and its successors and assigns may proceed to drill the well at the location specified in said notice, provided same does not contravene other provisions of this Lease or the further restrictions and obligations imposed by the City of Denton d This written notice shall not relive the LESSEE from obligation for filing a Notice of Proposed Construction or Alteration, FAA Form 7460-1, required by Federal Aviation Regulations, Part 77, Subpart B e Also it is agreed, that in the event a well is drilled on the above -described land, then such drilling operations shall be prosecuted continuously, with due diligence, until same results in production or a dry hole All temporary structures used in such drilling operations shall be painted and lighted in such a manner as prescribed by the FAA, and further provided that no permanent structures of any kind used in the development, production or transportation of oil, gas and other minerals shall be placed on the above described land in such manner as to interfere with or introduce hazard to the operation of the aircraft f Further, it is agreed that in the event any drilling operations for oil, gas, or other minerals result in production, LESSEE at its own expense shall immediately remove all temporary structures and place all semi -permanent or permanent equipment in such manner as will not interfere with or introduce any hazard to the operation of aircraft In event such drilling operations result in a dry hole, then LESSEE shall at its own expense immediately remove all temporary structures used in such landing operation and level the area so that it may be safely used for landing or taxiing aircraft g LESSEE shall not interfere with the access roads to the City of Denton Airport, and shall not interfere with any other person or agency having a lawful right to use the above -described land, or with any building or improvements of any kind thereon belonging to any other person or agency, nor with their right to enter thereon and remove said buildings or improvements therefrom h During time of war or national emergency, LESSOR shall have the right to lease the landing area or any part thereof to the United States Government for military or naval use, and if such lease is executed with the United States Government, the provisions of this Lease insofar as they are inconsistent with the provisions of the Lease to the Government, shall be suspended 642660 2 /SP3/29121/0303/303101 11 27 Memorandum of Lease. LESSOR and LESSEE agree that a memorandum of lease shall be filed of record in the Official Records of Denton County, Texas, evidencing this Lease and the provisions contained in such memorandum to the parties hereto, the land covered by the Lease, the term of the Lease and notice provisions informing the public of the existence of the Lease 28 Entire Agreement. This Lease states the entire contract between the parties, and no representation or promise, verbal or written, on behalf of either party shall be binding unless contained herein, and this Lease shall be binding upon each party executing the same, regardless of whether or not executed by all owners of the above described land or by all persons above named as "LESSOR", and, notwithstanding the inclusion above of other names as "LESSOR", this term as used in this Lease shall mean and refer only to such parties as execute this Lease and their successors in interest IN WITNESS WHEREOF, this instrument is executed on the date first above written EULINE BROCK, MAYOR ATTEST JENNIFER WALTERS, CITY SECRETARY m APPROVED AS TO LEGAL FORM HERBERT L PROUTY, CITY ATTORNEY m CORPORATION PAJ 642660 2 /SP3/29121/0103/103301 12 STATE OR TEXAS COUNTY OF DENTON Before me, , the undersigned notary public, on this day personally appeared Eulme Brock, the Mayor of the City of Denton, Texas, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he/she executed the instrument for the purposes and consideration therein expressed Given under my hand and seal of office this _ day of Notary Public STATE OF TEXAS COUNTYOF DENTON 2001 Before me, the undersigned notary public, on this day personally appeared , the of Oil Corporation known to me, proved to me on the oath of or _ proved to me through his/her current {description of identification card or other document issued by the federal government or any state government that contains the photograph and signature of the acknowledging person to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he/she executed that instrument for the purposes and consideration therein expressed Given under my hand and seal of office this _ day of Notary Public 2001 642660 2 /SP3/29121/0103/103101 13