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2013-208s: \legal\our documents \ordinances \1Meagleridge lease. doc ORDINANCE NO. 2013 -208 AN ORDINANCE OF THE CITY OF DENTON, TEXAS AUTHORIZING THE CITY MANAGER TO EXECUTE AN OIL AND GAS LEASE (THE "LEASE ") BETWEEN THE CITY OF DENTON, TEXAS, AS LESSOR AND EAGLERIDGE ENERGY, LLC, AS LESSEE, AS ATTACHED HERETO AND MADE A PART HEREOF AS EXHIBIT "A ", SAID LEASE PROVIDING FOR A TWELVE (12) MONTH PRIMARY TERM AND OTHER TERMS AND PROVISIONS AS DESCRIBED THEREIN, AND LEASING APPROXIMATELY 10.0513 ACRES OF REAL PROPERTY, LOCATED IN THE EUGENE PUCHALSKI SURVEY, ABSTRACT NO. 996, AND LOCATED APPROXIMATELY ALONG THE 3100 BLOCK OF WEST PRAIRIE STREET; PROVIDING FINDINGS; AND PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, the City of Denton (the "City ") and EagleRidge Energy, LLC ( "EagleRidge ") desire to enter into the Oil and Gas Lease, as attached hereto and made a part hereof as Exhibit "A", granting to EagleRidge the rights to explore, prospect and drill for and produce oil, gas and other liquid and gaseous hydrocarbons, as described therein, under land in Denton County, Texas, and owned by the City of Denton; and WHEREAS, Eagleridge is the owner of and operator under certain oil and gas leases adjacent to the property covered by the Lease and has proposed to include and pool the lands covered by the Lease in the subject pooled unit; WHEREAS, the inclusion and pooling of the lands covered by the Lease into the subject pooled unit is the only practical process to produce the mineral estate under the lands covered by the Lease; WHEREAS, the City Council finds that the method utilized to solicit the Lease is appropriate and in the best interest of the City of Denton, as prescribed in Resolution No. 2006- 027; WHEREAS, the City Council finds that the Oil and Gas Lease is in the public interest; NOW, THEREFORE, THE COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS: SECTION 1. The findings and recitations contained in the recitals of this ordinance are incorporated herein by reference. SECTION 2. The City Manager of the City of Denton is hereby authorized to execute the Lease on behalf of the City with Eagleridge. SECTION 3. The City Manager is hereby authorized to carry out the rights and duties of the City under the Lease. s:llegal\our documents \ordinances\13 \eagleridge lease.doc SECTION 4. This ordinance shall become effective immediately upon its passage and approval. PASSED AND APPROVED this the �h day of 12013. Gam, MARK A. BURROUGHS, MAYOR ATTEST: JENNIFER WALTERS, CITY SECRETARY BY: APPR ED At rTO LEGAL FORM: ANITA BURGESS, CITY ATTORNEY Page 2 s; \legal \our documents \contracts \13 \eagleridge -city of denton lease - edited.doc OIL, AND GAS LEASE THIS AGREEMENT (the "Lease ") made and entered into this eay of Ate-, 2013 between City of Denton, Texas, whose address is 215 E. McKinney, Denton, Texas 76201 (hereinafter called "Lessor ") and EagleRidge Energy, LLC, whose address is 3500 Oak Lawn, Suite 300, Dallas, Texas 75219 (hereinafter called "Lessee "). WITNESSETH: 1. Lessor hereby grants, leases, and lets exclusively unto Lessee for the sole purposes of exploring, prospecting, and drilling for and producing oil, gas and associated hydrocarbons in and under the land in Denton County, Texas, described on Exhibit A, attached hereto (the "Leased Premises "). Lessor herein leases only the rights to explore and produce oil, gas and other liquid and gaseous hydrocarbons which can be produced through a wellbore. 2. Subject to the other provisions herein contained, this Lease shall be for a term of twelve (12) months from the date hereof (called "primary term ") and as long thereafter as oil or gas is produced from the Leased Premises in paying quantities or this Lease is maintained in force by virtue of some other provisions hereof. Lessee shall pay or cause to be paid: (a) As used herein, the term "oil' shall mean and refer to any hydrocarbons produced from the Leased Premises as metered and measured at the wells, regardless of gravity, capable of being produced in liquid form at the well by ordinary production methods, including without limitation, condensate, distillate and other liquid hydrocarbons recovered from oil or gas run through a separator or other equipment on the Leased Premises, As royalty on any and all oil produced from the Leased Premises pursuant to this Lease, Lessee shall pay to Lessor twenty -two and one -half percent (22,5 %) of the value of gross oil production. The value of oil production shall be based on the highest posted price, plus premium, if any, paid for oil, condensate, distillate, or other liquid hydrocarbons, respectively, of similar gravity and type in the general area, or the prevailing market price thereof in the general area, or the proceeds of the sale thereof, whichever is greater. Unless otherwise approved in writing by Lessor, Lessee shall assure that gas produced from the Leased Premises that contains liquid hydrocarbons recoverable in commercial quantities is run through an adequate oil and gas separator of conventional type or other equipment at least as efficient to the end that liquid hydrocarbons recoverable from the gas by such means will be recovered before the gas is sold, used, or processed in a plant, and royalty is paid thereon. (b) As used herein, the term "gas" shall mean and refer to all natural gas produced from the Leased Premises (including casinghead gas) as metered and measured at the wells and all of its constituent elements, including but not limited to, sulfur contained in the gas, and natural gasoline, condensate, distillate, butanes, propanes, and other hydrocarbons condensed, absorbed, or separated out of or fi•om the gas after it leaves the Leased Premises, including without limitation, casinghead gas and flared or vented gas. Royalty shall be payable under this Section 3(b) on all hydrocarbons produced from the Leased Premises other than oil. As royalty on any and all gas produced from the Leased Premises pursuant to this Lease, if Lessee sells all gas produced prior to any processing (other than running the gas through a field separator) at the wells to a purchaser that is not an affiliate of any owner of an interest in this Lease, Lessee shall pay to Lessor the amount due (determined on a monthly basis) under Method I, and if all gas is not sold in such manner, then the greater of Method I and Method I1 below: Method I (1) Twenty -two and one -half percent (22.5 %) of the value at the point of final delivery to the first purchaser of the gross production of gas produced and saved from the Leased Premises, sold or used off the premises, or lands pooled therewith, and not processed in a plant for the extraction of liquid hydrocarbons or other products. The value of such gas production shall be determined on the basis of the total value accruing to the producer from the sale or use of the production, including proceeds and any other thing of value received by Lessee or the operator from the sale of such gas. (2) Twenty -two and one -half percent (22.5 %) of the value at the point of final delivery to the first purchaser of the gross production of gas produced and saved from the Leased Premises, sold or used off the premises and processed in a plant for the extraction of liquid hydrocarbons or other products or the value thereof, such value to be determined on the basis of (a) the highest value reasonably available to Lessee if Lessee sells and delivers the gas at a point before the inlet to the processing plant to an unaffiliated third party processor; (b) if Lessee owns the processing plant in which the gas is processed or trades the gas for gas that is processed in a plant owned by Lessee, then the value of the gas shall be the value, determined as in Section 3(b)(1), above, of 100% of the residue gas and 100% of the liquids attributable to the gas produced from the Leased Premises; or (c) if Lessee sells the gas at or beyond the tailgate of the plant, but Lessee does not own the processing plant in which the gas is processed and does not trade the gas for gas that is processed in a plant owned by Lessee, then the value of the gas shall be the highest value, determined as in Section 3(b)(1), above, of the fraction of residue gas and liquids attributable to the gas produced from the Leased Premises to which Lessee is entitled. For purposes of this Lease, Lessee shall be deemed to own the processing plant if Lessee or Lessee's affiliate owns a five percent or greater interest in the plant. An "affiliate" includes, but is not limited to, the parent company or a subsidiary of Lessee, a corporation or other entity having common ownership with Lessee, a partner or joint venturer of Lessee with respect to the ownership or operation of the processing plant, a corporation or other entity in which Lessee owns a ten percent or greater interest, or any individual, corporation or other entity that owns a ten percent or greater interest in Lessee. Upon written request by Lessor, Lessee shall submit to Lessor a disclosure statement regarding whether the Lessee or an affiliate of Lessee owns the processing plant. If oil or gas production from the Leased Premises is processed in a plant for the extraction of liquid hydrocarbons or other products, the value of the gross production shall, for purposes of determining royalty due, never be less than if such gas had not been processed. Lessee shall pay or cause to be paid royalties due under this Lease without deduction for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, transporting, and otherwise making the oil, gas and other products hereunder ready for sale or use, except for those costs and expenses incurred after the point of sale and final delivery charged by a third party purchaser that is not owned by Lessee, as that concept is provided above in regard to ownership of a processing plant, unless such costs and expenses are specifically identified in this Method I as to not be deducted. For purposes of determining the royalty due, the gross production shall be valued at the point of sale and delivery from Lessee to' an unaffiliated third party. Lessee shall exercise due diligence and use all reasonable efforts in marketing any and all production from the Leased Premises to obtain the best price reasonably available for the oil and gas. Lessee shall pay cash royalties based on the value of the gross production from the premises, as described herein, unless Lessor elects to receive royalty in kind. Lessee shall pay oil or gas royalty, or both, in kind at the option of Lessor. When Lessor has a purchaser of production, Lessor may exercise its option to take oil or gas royalty in kind, or if royalty is taken in kind, Lessor may elect to take cash royalties, at any time or from time to time by giving Lessee notice of such election not less than sixty (60) days in advance. If Lessor elects to take its royalty production in kind, Lessor or its authorized representative may elect to have the royalty production delivered in kind at the wellhead, at the oil and gas separator, or at another location mutually acceptable to Lessor and Lessee. Lessor shall reimburse Lessee for all reasonable costs incurred by Lessee to install, operate, or maintain additional facilities solely necessary for Lessor's royalty and processed liquids to be separately metered, stored, accounted for and delivered to Lessor's third party purchaser. Notwithstanding any of the provisions of this Method I, the royalty paid Lessor per produced MMBtu for any month under Method I shall never be less than the highest price received by any royalty owner in a lease in Denton County, Texas in which Lessee owns an interest. Method II Twenty -two and one -half percent (22.5 %) royalty of all gas produced and saved from or allocable to the Leased Premises measured and sold on a dry heating content basis, 1000 mmbtu /dry, as herein described. Because Method I above requires complicated calculations, Lessor and Lessee have negotiated and hereby mutually agree on this alternative method as a minimum that is due for gas, the price shall be a defined price, less a deduct to pay for gathering and transmission to a transparent gas to a market hub where large quantities of gas are freely sold, and prices of transactions known and reported in the trade press. That agreed price shall be defined as the "first of each month's price" listed in the well known, national industry publication, Platts Inside FERC's Gas Market Report (hereinafter called "Platts ") for the first of each month column titled "Index" price listed for Waha, a large gas pipeline /marketing /sales interchange, minus, or less a deduct of $0.45 per MMBtu /dry. If Waha is not reported that month, then an index agreed upon by Lessor and Lessee which is reasonable and customarily used by Barnett Shale operators shall be used. In consideration for this simple method of gas pricing, Lessor gives up any right or claim to any natural gas liquids (NGL) run thru a cryogenic gas liquids plant or fractionator to extract, propane, butane, etc. However, Lessor will not be charged or suffer any gas shrink at any plant for lost and unaccounted for gas, or compression or other fuel or other charges at any gas plant whatsoever. Further Lessor's account and volumes of gas will not be charged or deducted for any field production or gathering, treating, separation, blending, compression or transmission pipelines, fuel, compression or lost and unaccounted for gas or similar fees. If Lessee negotiates a bona fide contract for gas purchases with an independent third party, then it will have the right to furnish Lessor the particulars of the contract pricing and including any charges to move the gas, and request the Lessor ratify and accept that contract in lieu of the pricing outlined above. It will be the sole option of the Lessor as to whether to accept and sell its gas under that proposed pricing arrangement or the pricing outlined above. It is the expressed intent of the parties that the provisions of Sections 3(a) and (b) are to be fully enforceable and effective and not to be construed, in any event, as "surplusage" under the principles set forth in Heritage Resources, Inc.,-v. NationsBank, 939 S.W.2d 118 (1997). (c) Lessee may inject gas into any oil or gas producing formation in the Leased Premises after the liquid hydrocarbons contained in the gas have been removed, and no royalties shall be payable on the gas so injected until such time as the same may thereafter be produced and sold or used. (d) Lessee shall prevent the underground or above ground waste of oil or gas and the physical waste, flaring or venting of gas produced from the Leased Premises except for flaring or venting conducted for put-poses of determining the feasibility of a pipeline. (e) Lessee shall pay to Lessor royalty at the applicable royalty rate on any monetary settlement received by Lessee related to a purported breach of contract by Lessee's purchaser relating to the marketing, pricing or taking of oil or gas production from the Leased Premises. (f) If at any time after the expiration of the primary term, Lessee shall complete a well or wells on the Leased Premises or acreage pooled therewith, which well or wells are capable of producing gas in commercial quantities but are shut -in resulting in gas not being produced and sold or used, such well or wells shall nevertheless be deemed to be producing in paying quantities for the purpose of maintaining this Lease, as provided herein, so long as Lessee is in strict compliance with the terms herein. If for a period of 90 consecutive days such well or wells are shut in or production therefrom is not sold by Lessee, Lessee may pay as royalty to Lessor an amount gqual to One Hundred dollars ($100.00) per net mineral acre for the portion of the Leased Premises then held in effect by this Lease, and upon making said payment, it will be considered that such well is producing gas hi paying quantities within the meaning of this Lease for a period of one (1) year after the expiration of said ninety (90) day period, and the intermittent production of gas from any well during such year shall not render necessary any new or additional payments of shut -in royalty with respect to such well or the acreage ascribed thereto, but Lessee shall account to Lessor for the royalty on such gas produced during such year in accordance with the other provisions of Section 3. This provision shall not be effective to continue this Lease in force and effect as to acreage assigned to a shut -in gas well for a period of more than two (2) consecutive years after the date of first payment (or for shorter periods from time -to -time after the date of completion or shut -in which aggregate two (2) years in all). All shut -in royalty payments under this Lease shall be paid or tendered directly to Lessor, as described below. All payments or tenders shall be made by check and such payments or tenders to Lessor by Federal Express or other overnight delivery service to the Lessor at 215 E. McKinney, Denton, Texas 76201 Attn: City Manager. Lessee's failure to properly pay shut -in royalty shall result in the automatic termination of this Lease. (g) Lessee is obligated to Lessor to make, and shall be liable for, the payment of royalties hereunder irrespective of the failure or bankruptcy of any third party crude oil or gas purchaser, and irrespective of the execution by Lessor of a division order or any similar agreement in favor of any such thud party purchaser. Accounting and payments to Lessor of royalties from the production of oil and gas from any well shall commence no later than ninety (90) days after the first sales of production. Thereafter, unless otherwise specifically provided herein, all accounting and payments for royalties shall be made on or before the 25th day of the second calendar month following the calendar month in which production occurred. Should Lessee at any time fail to make royalty payments to Lessor on or before the last day of the second calendar month following the calendar month in which the production occurred, Lessor may, at Lessor's election, charge interest on any unpaid sums at the variable rate of interest announced by Bank of America, in Dallas, Texas, or its successor, from time to time as its general reference rate of interest, plus two percent (2 %). Acceptance by Lessor of royalties which are past due shall not act as a waiver or estoppel of Lessor's right to recover any and all interest due thereon under the provisions hereof unless the written acceptance of acknowledgment by Lessor to Lessee expressly so provides. Any tender or payment to Lessor of a sum less than the total amount due Lessor hereunder which is made or intended to be made as an offer of settlement or an accord and satisfaction by or on behalf of Lessee, must be accompanied by a "Notice of Settlement Offer ", so denominated, addressed to Lessor. Any such offer of settlement submitted solely by the tender of a check containing language of settlement or accord and satisfaction, printed or otherwise inserted thereon, shall not be deemed to be an offer of settlement or accord and satisfaction unless accompanied by such Notice of Settlement Offer. Lessee shall pay all reasonable attorney's fees incurred by Lessor in connection with any lawsuit in which Lessor is successful in recovering any royalties or interest due to Lessee's failure to pay royalties as provided in this Lease, including without limitation, failure to pay royalties within the period set forth herein. Lessee further agrees to be solely responsible for the payment of royalties as provided for herein. Lessee agrees that it will not allow said royalty payments to be made by joint working interest owners or permitted assigns unless specifically agreed to by Lessor. (h) The provisions above requiring the Lessee to meter and measure oil and gas production at the wells relates strictly to measurement of production and does not relate to the valuation of production, and the point at which the value of production is determined (arid the allocation of post - production expenses) for royalty calculations shall be as provided above, in this Section 3, 4. (a) In the event oil and /or gas is discovered on the Leased Premises, Lessee agrees to further develop the Leased Premises as would a reasonable and prudent operator under the same or similar circumstances. (b) Lessee shall adequately protect the oil and gas under the Leased Premises from drainage from adjacent lands or leases, without regard to any ownership interest Lessor may have in such adjacent land. If oil or gas should be produced in paying quantities from a well draining the Leased Premises (a "Draining Well "), Lessee shall, within one hundred twenty (120) days after completion of such well, begin in good faith and pursue diligently drilling operations on an offset well and such offset well shall be drilled to such depth as may be necessary to prevent drainage of the Leased Premises and Lessee shall use all means necessary in a good faith effort to make such offset well produce oil or gas in paying quantities. Any well whereby the perforations in such well are located within three hundred thirty (330) feet of the Leased Premises shall be presumed to be a Draining Well; provided, however, in no way does the 330 feet distance stipulation relieve Lessee of the obligation to protect the Leased Premises from drainage in cases where there is an offsetting well situated greater than 330 feet and draining the Leased Premises. Payment of the bonus, delay rentals, royalties paid or to be paid, shut -in royalty, or other amounts due hereunder shall not relieve Lessee from its obligations under this Section 4(b). The restrictions on surface usage imposed by this Lease shall not affect any of Lessee's obligations under this Section 4(b) or any other provision of this Lease. Lessee may, at its option, instead of drilling an offsetting well, as provided above, pay to Lessor compensatory royalty in the form of a monthly payment which is no less than the amount of royalty which would be payable hereunder to Lessor if the Draining Well requiring payment of the compensatory royalty were situated on the Leased Premises and such lands were not included in a pooled unit. Lessee shall be deemed to have agreed to pay the compensatory royalty provided for above if Lessee has not commenced drilling operations for an offsetting well on the Leased Premises within one hundred twenty (120) days after the commencement of actual production from a Draining Well; provided, however, that compensatory royalties shall be paid on all production beginning with first runs from the Draining Well. 5. The rights of Lessor herein may be assigned in whole or in part, but no sale or assignment by Lessor shall operate to enlarge the obligations or diminish the rights and privileges of Lessee. The rights of Lessee and of any assignee of Lessee may be assigned in whole or in part to a proposed assignee, whom Lessor is satisfied is financially capable and has demonstrable experience at horizontal drilling in the Barnett Shale, or other operationally similar shale plays, with the prior written consent of Lessor as to such proposed assignment, which consent shall not be unreasonably withheld; provided, however, that Lessor's prior written consent shall not be required for any assignment of this Lease to an energy company having a market capital or net worth in excess of $100,000,000 and which company has horizontal drilling experience in the Barnett Shale or operationally similar shale plays. Each and every assignee of this Lease, when assignment is permitted under the terms hereof, shall assume all of the terms and provisions hereof, and the terms of this paragraph shall apply to and bind any approved assignee to submit any subsequent assignments to Lessor for review and approval pursuant to this paragraph, Any approved assignment (or assignment which does not require Lessor's prior written consent) shall relieve the original Lessee from its duties and obligations hereunder to the extent such duties and obligations occurred or arose after the effective date of such permitted assignment. A true copy of any assignments made by Lessee or assignee of Lessee shall be furnished to Lessor. No change in ownership of Lessor in the Leased Premises or in the royalties or other payments herein mentioned, however brought about, shall be binding on Lessee for any purpose until Lessee shall be furnished with a true copy of the instrument of transfer evidencing such change of ownership. 6. Should Lessee be prevented from complying with any express or implied covenant of this Lease (other than a requirement to pay money ), from conducting drilling or reworking operations thereon, or from producing oil or gas therefrom, by reason of federal or state law or any rule or regulation of governmental authority or other similar cause (other than financial reasons) or by act of God, then while so prevented, Lessee's obligation to comply with such covenant shall be suspended for a period not to exceed two (2) years (or shorter periods from time to time which aggregate two (2) years in all), and Lessee shall not be liable in damages for failure to comply therewith, and this Lease shall be extended for a period not to exceed two (2) years (or shorter periods from time to time which aggregate two (2) years in all), while and so long as Lessee is prevented by any such cause from conducting drilling or reworking operations on, or producing oil and gas from, the Leased Premises; and the time while Lessee is so prevented shall not be counted against Lessee, subject to the term limitation herein prescribed. Before the provisions of this Section 6 are to be effective, Lessee must furnish written notice to Lessor, within 30 days after the first day of the provisions hereof are relied upon, of such event, giving the beginning date thereof, and, within a reasonable time after such event ceases, notify Lessor of the resumption of activities, and Lessee shall be obligated to seek exceptions from any order, rule, or regulation of any governmental authority if the facts would raise reasonable grounds for seeking exceptions, 7. Lessee agrees to furnish Lessor a daily drilling report with respect to all wells being drilled on the Leased Premises. Upon written request of Lessor, Lessee shall furnish to Lessor, two copies of: the driller's log and all electric logs and surveys; all well electric logs, porosity logs, mud logs, stimulation reports, directional surveys, geologic reports, cased -hole logs, and pressure data; all such data to be received by Lessor within 6 weeks of receipt of such written request. Following 30 days prior written notice, and during regular office hours, Lessor shall have access to all information concerning the drilling, coring, testing and completing of all wells (all information provided shall specifically exclude interpretive data), and to all accounting books and records, production charts, records and information concerning the production and marketing of oil and gas from lands covered by this Lease. Upon written request by Lessor, Lessee shall provide copies of all applications and reports filed by Lessee with the Texas Railroad Commission in connection with Lessee's operations hereunder to Lessor, simultaneously with Lessee's mailing of such applications and reports to the Texas Railroad Commission. Upon written request of Lessor, Lessee shall advise Lessor of the sizes of chokes installed on all producing wells on the Leased Premises (and further advise Lessor of all changes made from time to time in such chokes), together with appropriate pressure information to permit Lessor to check the rate of production from all such wells. Lessor, at its sole risk and expense, shall have the right to strap all storage tanks and read and /or check all meters and charts affixed to producing wells at reasonable times with prior written notice to Lessee, such consent to be not unreasonably withheld, however, this does not give Lessor the right of access absent such consent. Lessor may, at Lessor's sole risk and expense, install check meters on or otherwise check any producing well or wells located on the Leased Premises. The obligations of Lessee, and the rights of Lessor, provided in this Section 7, shall apply to all wells on the Leased Premises and lands pooled therewith. 8. If Lessor's interest in the minerals covered by this Lease in, on and under the Leased Premises is less than the undivided fee interest to the entirety thereof, then Lessor agrees that all royalties provided for in this Lease shall be paid to Lessor in the proportion which Lessor's interest bears to the entire and undivided fee estate therein, With the exception of any existing installment federal estate tax liens, Lessee at its option, may discharge any tax lien upon Lessor's interest in the land covered by this Lease (unless such tax lien is being contested in good faith by Lessor by appropriate proceedings instituted for such purpose) and, in that event, Lessee shall have the right to apply royalties hereunder to reimburse such payment. If this Lease now or hereafter covers separate tracts, no pooling or unitization of royalty interest as between any such separate tracts is intended or shall be implied or result merely from, and no offer to pool is made by, the inclusion of such separate tracts within this Lease. As used in this Section 8, the words "separate tract" mean any tract with royalty ownership differing, now or hereafter, either as to parties or amounts, from that as to any other part of the Leased Premises. Notwithstanding anything to the contrary herein, this Lease is made by Lessor, and, accepted by Lessee, without warranty or representation of any kind, express or implied, including without limitation, warranties of title and further including, without limitation, all warranties under Section 5.023 of the Texas Property Code, and all such warranties are expressly disclaimed by Lessor. 9. It is agreed that neither this Lease nor any terms or provisions hereof shall be altered, amended, extended or ratified by any division order or transfer order executed by Lessor, its successors, agents or assigns, but that any division orders or transfer orders shall be. solely for the purpose of confirming the extent of Lessor's interest in production of oil and gas from the Leased Premises. Any amendment, alteration, extension or ratification of this Lease or of any term or provision thereof shall be made by an instrument in writing clearly denominated as to its purpose and effect, describing the specific terms or provisions of the Lease affected and the proposed change or modification thereof, and executed by the party against whom any such amendment, alteration, extension or ratification is sought to be enforced, and any purported amendment, alteration, extension or ratification not so drafted and executed shall be of no force or effect. 10, Any notice or other communication permitted or required under the terms hereof shall be in writing and, unless otherwise specified, be deemed properly given on the date personally delivered, or on the date postmarked, if mailed, postage prepaid United States Mail, addressed to Lessor or Lessee at the address set forth at the commencement of this Lease, or to other such address as may hereafter be designated by either party to the other by notice. Notice given in other manner shall be effective only if and when received. 11. Upon expiration or termination of this Lease, Lessee shall be obligated at its expense promptly to prepare, execute and file in the public records in the county in which the Leased Premises are located, an appropriate release instrument covering all of the Leased Premises, and to forward the original recorded release or a certified copy of the release to Lessor. 12. Except as provided hereinafter to the contrary, Lessee shall not enter, use or occupy any portion of the surface of the Leased Premises for any purpose whatsoever; provided, however, Lessee shall have the limited right to enter the Leased Premises with a subsurface horizontal or directional wellbore in an effort to explore for and develop oil and gas under the Leased Premises and lands pooled therewith, provided that such operations do not interfere with, in any way, the surface of, or subsurface support of any improvements constructed on, the Leased Premises or the activities conducted on the surface of the Leased Premises. 13. Lessee will comply with all applicable laws, regulations and ordinances, including without limitation, all applicable ordinances of the City of Denton, Texas, in conducting all operations under this Lease. Lessee will fully and promptly comply with all relevant laws relating to oil and gas leases and the various related commercial transactions which are the sole underlying purpose of this Lease and its provisions and, without limitation, its other responsibilities and obligations under the rules and regulations of the Railroad Commission, Texas Commission on Environmental Quality and Environmental Protection Agency, and all court rulings relating to the Lessor/Lessee relationship and the related commercial obligations of Lessee and Lessor. Lessee will at all times act as a reasonably prudent operator in performing its statutory and common law responsibilities in a bona fide manner under this Lease with no self - dealing or conduct that disadvantages Lessor financially. 7 14. Lessee shall provide to Lessor a copy of each application to the Railroad Commission of Texas for a permit to drill on the Leased Premises, or land pooled therewith, within 30 days from the filing of the application or other document. If requested in writing, during the term of this Lease, Lessee agrees to provide Lessor with full information as to production and runs, and copies of all run tickets and copies of all reports, applications, or other communications or filings to or from the Railroad Commission of Texas, concerning wells on the Leased Premises and land pooled therewith. Further, if requested in writing, during the term of this Lease, Lessee agrees to furnish Lessor a copy of all gas sales /exchange, buy /sell, or backhaul contracts, gathering, processing agreements and transportation agreements, plant construction agreements and any other agreements pursuant to which Lessee shall sell, use, transfer or dispose of any oil or gas, or product extracted therefrom, and produced from the Leased Premises or land pooled therewith or extracted from any substance produced from the Leased Premises or land pooled therewith, notwithstanding any purported confidentiality clauses. Upon request, Lessee agrees to furnish Lessor with copies of the portions of title opinions, abstracts, curative materials and supplemental title opinions that are pertinent to the Leased Premises, or the Unit (as defined below), insofar as such materials apply to the Leased Premises. Upon written request and approval by Lessee, such consent to not be unreasonably withheld, Lessor shall be notified and have the right to be present when wells and /or tanks are gauged and measured and shall have full information as to production and runs. Upon written request, but not more than once a year, Lessor shall promptly provide Lessee the most recent gas sample with Btu values and a complete gas analysis (and dew point) as well as a mole sample and GPM calculation. As to oil and condensate, Lessee shall provide an oil condensate analysis and gravity and viscosity and quality analysis; and all potential oil purchasers in the Tarrant/Dallas/Denton /Wise County areas, that are purchasing oil/condensate by truck, railcar, pipeline or otherwise, 15. If, during the term of this Lease, Lessee acquires an oil and gas lease or an interest in a lease (directly or indirectly, including through the use of an agent or an affiliate, and without regard to whether record title is taken), for an equal or greater royalty fraction and covering at least three (3) net acres within Denton County, Texas, and the lessor under such a lease is paid a larger bonus per net mineral acre (i.e., more than $2,500 per acre), or the royalty fraction reserved by such a lessor is greater than 22.5 %, then Lessor shall be entitled to such larger bonus and /or a larger royalty fraction to correspond to the fraction used in the triggering lease, and this Lease will be amended to incorporate the new royalty fraction, but without any other changes in the royalty provisions herein. The additional' bonus per net acre will be paid to Lessor immediately upon the triggering acquisition. Lessor shall have the right to inspect Lessor's records to verify bonus and royalty fraction amounts. 16. It is understood and agreed that at the expiration of the primary term of this Lease, Lessee shall release the Leased Premises as to all rights lying below the stratigraphic equivalent of the base of the deepest formation producing or capable of producing in any well drilled on the Leased Premises or Unit. 17. Lessee hereby releases and discharges Lessor, its elected officials, directors, officers, employees, partners, agents, contractors, subcontractors, guests, invitees, and their respective successors and assigns ( "Lessor Group "), of and from all and any actions and causes of action of every nature, or other harm or damage of any kind, including environmental halm, for which recovery of damages or other remedy is sought, including, but not limited to, all losses and expenses which are caused by or related to the activities of Lessee, its directors, officers, employees, partneis, agents, contractors, subcontractors, guests, invitees, and their respective successors and assigns ( "Lessee Group "), arising out of, incidental to, related to or resulting from, the operations of, by or for Lessee or member of the Lessee Group, on the Leased Premises, the occupation of the Leased Premises, whether or not authorized by Lessor, by Lessee or any member of the Lessee Group, or that may arise out of or be occasioned by Lessee's breach of any of the terms or provisions of this Lease, or by any other negligent or strictly liable act or omission of Lessee or of any member of the Lessee Group. Further, Lessee hereby agrees to be liable for, exonerate, indemnify, defend and hold harmless Lessor Group, from and against any and all claims, liabilities, losses, damages, actions, personal injury (including death), costs and expenses, or any other harm for which recovery of damages or other remedy is sought, under any theory, including without limitation, tort, contract, or strict liability, including attorneys' fees, and all fees, court costs and expenses related thereto, including, without limitation, those related to environmental hazards on the Leased Premises or lands pooled therewith, or in any way related to Lessee's, or any member of the Lessee Group's, failure to comply with any and all applicable environmental laws; those arising from or in any way related to Lessee's, or any member of the Lessee Group's, operations, activities on or occupation or use of (whether or not authorized by Lessor) the Leased Premises; and those that may arise out of or be occasioned by Lessee's breach of any of the terms or provisions of this Lease or any other act or omission of Lessee, or any member of the Lessee Group. Each assignee of this Lease, or an interest therein, agrees to be liable for, exonerate, indemnify, defend and hold harmless Lessor Group, in the same manner provided above in connection with the activities of Lessee; its officers, employees, and agents as described above. EXCEPT AS OTHERWISE EXPRESSLY LIMITED HEREIN, ALL OF THE INDEMNITY OBLIGATIONS AND10R LIABILITIES ASSUMED UNDER THE TERMS OF THIS LEASE SHALL BE WITHOUT LIMITS AND WITHOUT REGARD TO THE CAUSE OR CAUSES TI EREOF (EXCLUDING GROSS NEGLIGENCE OR INTENTIONAL ACT BY LESSOR GROUP), STRICT LIABILITY, OR THE NEGLIGENCE OF ANY PARTY OR PARTIES (INCLUDING THE NEGLIGENCE, OF ANY DEGREE, OF THE INDEMNIFIED PARTY). Lessee shall provide insurance coverage as required by the applicable ordinances of Subchapter 22 of the Denton Development Code and shall provide to Lessor a certificate of insurance, which shall name Lessor as an additional insured on Lessee's insurance, on all such policies wherein such endorsement is permitted by law, covering all matters to which Lessee is obligated to indemnify Lessor Group, as prescribed in Section 16 and 17 of this Lease, and provide Lessor with the certificate of insurance prior to the commencement of any operations on the Leased Premises or lands pooled therewith. 18. Lessee shall exercise the highest degree of care and its state of the art safeguards to prevent contamination or pollution of any environmental medium, including soil, surface waters, groundwater, sediments, and surface or subsurface strata, ambient air or any other environmental medium in, on, or under the Leased Premises, by any waste, pollutant, or contaminant. Lessee shall not bring or permit to remain on the Leased Premises, any asbestos containing materials, explosives, toxic materials, or substances regulated as hazardous wastes, hazardous materials, or hazardous substances as such terms may be defined in the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C.A. §9601, et seq., the Oil Pollution Act (OPA), 33 U.S.C.A. §431, et. seq., the Resource Conservation and Recovery Act (RCRA), 42 U.S.C.A. §6901, et. seq., the Clean Water Act, 33 U.S.C.A. §1251, et. seq., the Texas Solid Waste Disposal Act (TSWDA), Tex. Health & Safety Code Ann §361.001, et, seq,, and any federal, state and local rules, regulations, ordinances, orders and governmental directives implementing such statutes, or toxic or hazardous substances, materials or wastes under any other federal, state, or local law or regulation (collectively, "Hazardous Materials "), except ordinary products commonly used in connection with oil and gas exploration and development operations and stored in a legal manner and in legal and usual quantities. LESSEE SHALL INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR GROUP FROM AND AGAINST ANY CLAIMS, DAMAGES, COSTS OF REMEDIATION OR CLEANUP, JUDGMENTS, PENALTIES, LIABILITIES, AND COSTS (INCLUDING REASONABLE ATTORNEYS' FEES, OTHER FEES AND EXPENSES RELATED THERETO, INCLUDING WITHOUT LIMITATION, COURT COSTS), CAUSED BY, RELATED TO, OR ARISING OUT OF, (1) A VIOLATION OF THE FOREGOING PROHIBITION; OR (2) THE PRESENCE, RELEASE, OR DISPOSAL OF ANY HAZARDOUS MATERIALS IN, ON, UNDER OR ABOUT THE LEASED PREMISES DURING THE TERM OF THIS LEASE, AND /OR LESSEE'S OCCUPANCY OR CONTROL OF THE LEASED PREMISES OR LANDS POOLED THEREWITH. LESSEE SHALL CLEAN UP, REMOVE, REMEDY AND REPAIR ANY SOIL OR GROUND WATER CONTAMINATION AND DAMAGE CAUSED BY THE PRESENCE OR RELEASE OF ANY HAZARDOUS MATERIALS IN, ON, UNDER, OR ABOUT THE LEASED PREMISES DURING THE TERM OF THIS LEASE AND /OR LESSEE'S OCCUPANCY OF THE LEASED PREMISES OR LANDS POOLED THEREWITH, IN CONFORMANCE WITH THE REQUIREMENTS OF ALL APPLICABLE LAW. THIS INDEMNIFICATION AND ASSUMPTION SHALL APPLY, BUT IS NOT LIMITED TO, LIABILITY FOR RESPONSE ACTIONS UNDERTAKEN PURSUANT TO CERCLA, RCRA, OPA, TSWDA, THE TEXAS WATER CODE, OR ANY OTHER APPLICABLE FEDERAL, STATE OR LOCAL ENVIRONMENTAL LAW, REGULATION OR ORDINANCE. LESSEE SHALL IMMEDIATELY GIVE LESSOR WRITTEN NOTICE OF ANY BREACH OR SUSPECTED BREACH OF THIS SECTION, UPON LEARNING OF THE PRESENCE OF ANY HAZARDOUS MATERIALS, OR UPON RECEIVING A NOTICE FROM ANY GOVERNMENTAL AGENCY PERTAINING TO HAZARDOUS MATERIALS WHICH MAY AFFECT THE LEASED PREMISES. ALL INDEMNITY OBLIGATIONS OF LESSEE UNDER THIS LEASE SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE. Lessor shall notify Lessee in writing of any claim asserted against Lessor within one hundred twenty (120) days after such claim is asserted. Lessee shall have the right at any time to take over the defense of any such claim, and in such event, Lessee shall keep Lessor fully advised of the status of the claim. In the event Lessee shall not so take over the defense of any such claims, Lessor shall keep Lessee fully advised of the status of the claim and no settlement of any claim shall be made without Lessee's written consent. 19. Lessee shall have the right, but not the obligation, to pool or unitize the Leased Premises or any interest therein with any other lands or interests, as to any or all depths or zones, and as to any or all substances covered by this Lease, either before or after the commencement of drilling or production, whenever Lessee deems it necessary or proper to do so in order to prudently develop or operate the Leased Premises. The creation of a pooled unit (a "Unit ") for an oil well shall not exceed 40 acres and the Unit for a gas well shall not exceed 320 acres, plus 10 %, and Lessee is not authorized to pool or unitize any part of the Leased Premises unless all of the Leased Premises is included in the Unit, In exercising its pooling and /or unitization rights hereunder, Lessee shall provide to Lessor and file of record a written declaration describing the Unit. Production, drilling or reworking operations anywhere on the Unit which includes the Leased Premises shall be treated as if it were production, drilling or reworking operations on the Leased Premises, except that the production on which Lessor's royalty is calculated shall be that proportion of the total Unit production which the acreage covered by this Lease and included in the Unit bears to the total acreage, on a surface acre basis, in the Unit. Pooling in one or more instances shall not exhaust. Lessee's pooling rights hereunder. Pooling or unitization hereunder shall not constitute a cross - conveyance of interests. 20. If, at the expiration of the primary term hereof, oil or gas is not being produced from the Leased Premises but Lessee is then engaged in drilling, completion or other operations on the Leased Premises, this Lease shall remain in force so long as drilling, completion or other operations are being continuously prosecuted and if they result in the production of oil and gas, so long thereafter as oil and gas is produced from the Leased Premises, or if, either before or after the expiration of the primary term, production of oil or gas after once obtained should cease ftom any cause and this Lease is not being maintained in force and effect under some other provision hereof, this Lease shall remain in force so long as drilling or completion or other operations are prosecuted with no cessation of more than sixty (60) consecutive days, and if they result in production of oil or gas, so long thereafter as oil or gas is produced in paying quantities from the Leased Premises. For the purposes of this Section 20, (a) the term "drilling" means the actual entry of a rotating drillbit of a drilling rig, capable of achieving the total depth permitted and approved by the Texas Railroad Commission of Texas, into the soil; (b) the terms "completion" shall mean activities or operations, commenced after a drilling rig is moved off location, that are intended to complete a well as a producer of oil and gas including, but not limited to, the setting of production casing, perforating, well stimulation, hydraulic fracturing, and production testing conducted in such operations; 10 and (c) the term "operations" shall mean any activity conducted on the Leased Premises that is reasonably calculated to obtain or restore production of oil and gas, including without limitation, reworking, plugging back, deepening, treating, stimulating, refitting, installing any artificial lift or production - enhancement equipment or technique. 21. It is agreed and understood that a Memorandum of Oil and Gas Lease will be filed of record for the purpose of providing record notice of the existence of this Lease in lieu of recording the executed original. Said Memorandum of Oil and Gas Lease shall be recorded in the Official Public Records of Denton County, Texas, within a reasonable period of time by Lessee and a copy thereof will be furnished to Lessor. 22. This Lease constitutes the entire agreement of the parties with respect to subject matter hereof and supersedes all prior or contemporaneous agreements or understandings. This Lease shall not be changed or modified except by written agreement that (i) is executed by all parties, and (ii) explicitly references this Lease and the changes that are agreed to by the parties. 23. This instrument may be executed in multiple counterparts which shall be construed together as a single instrument as though all parties had signed one instrument and, when executed; each counterpart shall be binding upon and inure to the benefit of each of the parties executing the same, their respective, heirs, successors and assigns. IN WITNESS WHEREOF, this instrument is executed as of the day and year first above written. Lessor; ATTEST: JENNIFER WALTERS, CITY SECRETARY BY, _k� _ / I )A � fi A W-.,) VEDAS LEGAL FORM: ANITA BURGESS, CITY ATTORNEY BY: 11 CITY OF DENTON r_ GEO GE t. CAMPBELL, CITY MANAGER Lessee: EAGLERIDGE ENERGY, LLC, a limited li ' i company r BY: /t Z4'�' NAME: m o r IC L. l—'re' -w-r— TITLE: ACKNOWLEDGMENTS THE STATE OF TEXAS § COUNTY OF DENTON § This instrument was aclalowledged before me on the Vii? day of , ' 2013 by George C, Campbell, City Manager of the City of Denton, Texas, on behalf of aid municipality, �J,pPY PUB , JANE E. RICHARDSON Notary Public, State of Texas My Commission Expires June 27, 2017 hh,11,11P THE STATE OF TEXAS § COUNTY OF DENTON § N (YTARY PUBLIC, STATE OF TEXAS ACKNOWLEDGMENTS This instrument was aelmowled ed before me on the ISM day of .. k , 2013 by Dark L. Otepj1e , rcile&A%K )iU Vk-e%i cj of EagleRidge Energy, LLC, a cxas limited liability company, on behalf of said limited liability company. JUNIOR 6LA = Notary Public, Ss My CommissiDecemi w V" PUBLIC, STATE OF TEXAS 12 Exhibit "A" Attachment to Oil & Gas Lease Leased Premises: A total of 10.0513 acres of land, more or less, being a part of the Eugene Puchalski Survey, A -996, Denton County, Texas, and being more particularly described in the following four tracts: Tract 1: 10.00 acres of land, more or less, being apart of the Eugene Puchalski Survey, A -996, Denton County, Texas, and being more particularly described in that certain Warranty Deed dated December 18, 1952, by and between W.C. Potter and wife, Maydell Wallace Porter, as Grantors, and the City of Denton and County of Denton, as Grantees, and being recorded in Volume 383, Page 187 of the Official Public Records of Denton County, Texas, SAVE AND EXCEPT 2.93 acres of land, more or less, being a part of the Eugene Puchalski Survey, A -996, Denton County, Texas, and being more particularly described in that certain Special Warranty Deed dated April 30, 2003, by and between Denton County, Texas, as Grantor, and the City of Denton, Texas, as Grantee, and being recorded in Volume 5350, Page 5504 of the Official Public Records of Denton County, Texas, LEAVING A TOTAL OF 7.07 ACRES OF LAND, MORE OR LESS. Tract 2: 0.8163 acres of land, more or less, being a part of the Eugene Puchalski Survey, A -996, Denton County, Texas, and being more particularly described in that certain Special Warranty Deed dated December 29, 2006, by and between Rayzor Investments, Ltd., a Texas limited partnership, as Grantor and The City of Denton, a Texas municipal corporation of the County of Denton, State of Texas, as Grantee, and being recorded as Document No. 2007 -20909 in the Official Records of Denton County, Texas. Tract 3: 1.48 acres of land, more or less, being a part of the Eugene Puchalski Survey, A -996, Denton County, Texas, and being more particularly described in that certain Warranty Deed dated December 18, 1952, by and between W.C. Potter and wife, Maydell Wallace Porter, as Grantors, and the City of Denton, as Grantees, and being recorded in Volume 383, Page 186 of the Official Public Records of Denton County, Texas, SAVE AND EXCEPT 0.315 acres of land, more or less, being a part of the Eugene Puchalski Survey, A -996, Denton County, Texas, and being more particularly described in that certain Special Warranty Deed dated December 31, 2006, by and between the City of Denton, a Texas municipal corporation, as Grantor, and Rayzor Investments, Ltd., a Texas limited partnership, as Grantee, and being recorded as Document #2007 -20904 in the Official Records of Denton County, Texas, LEAVING A TOTAL OF 1.165 ACRES OF LAND, MORE OR LESS, Tract 4: 1.00 acres of land, more or less, being a part of the Eugene Puchalski Survey, A -996, Denton County, Texas, and being more particularly described in that certain Warranty Deed dated May 3, 1960, by and between W.C. Potter and wife, Maydell Wallace Porter, as Grantors, and the City of Denton and County of Denton, as Grantees, and being recorded in Volume 456, Page 26 of the Official Public Records of Denton County, Texas.