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2001-425S \Our Docume~ts\Ordmances\Ol~Bid Process for Off & Gas Lease Ord doc ORDINANCE NO 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 Nd oil and gas mineral interests at the C~ty of Denton Municipal Airport pursuant to the Texas Natural Resources Code, and WHEREAS, the City Council desires to approve smd documents and authorize the C~ty Manager or bas designee to bid mmeral interests at the mrport 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 Mumclpal Airport and approves the oil and gas bid documents, wbach are attached hereto and incorporated by reference herein SECTION 2 That this ordinance shall become effective ~mmedmtely upon its passage and approval PASSED AND APPROVED tbas the ~-'-~.dayof 2/~(~ ,2001 EUL1NE BROCK, MAYOR ATTEST JENNIFER WALTERS, CITY SECRETARY APPROVED AS TO LEGAL FORM HERBERT L PROUTY, CITY ATTORNEY S \Our Documents\Contraets\O1Lt~lrport B~d 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 1 The land described in condemnation proceedings identified by Cause No 3922 filed on November 30, 1943 between the C~ty of Denton and R M Evers, et al and subsequently filed ~n Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, contmmng 147 26 acres, 2 26 acres of which ~s ~n a pubhc road, ~n the Wdham Wdburn Survey, Abstract Number 1419 TRACT 2 The land described m that Warranty Deed dated December 23, 1943 between P T Underwood and wife Jimmle Underwood and the City of Denton recorded ~n Volume 304, Page 503 of the Real Property Records of Denton County, Texas, contalmng 74 94 acres, 1 75 acres of which is tn a public road, ~n the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described m that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corbm, a widow, Hugh C Corbln and wife, Sue Lou Corbln, John S Corbln, Alice Corbln Brown and husband W O Brown, Grace Corbln, a feme sole, Georgia Corbm, a feme sole, James E Corb~n and wife, Johnme Corbln, Mrs Gert~e Corbln 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, contmmng 331 94 acres, 2 61 acres ofwhmh is m a public road, ~n the Wm Smith Survey, Abstract Number 1188, and the Wm Nelll Survey, Abstract Number 970 Minimum Standards of the Bid Please check each ~tem that will be ~ncluded ~n 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 (1/5) of all oil and gas produced from smd land (If greater than 1/5, please specify The royalty to be prod at the highest prme ~n the area A statement by the Lessee that the royalty to be prod the C~ty ~s equal to the h~ghest price prod by the Lessee to any m~neral owner m Denton, County, and that if the Lessee pays a m~neral owner in Denton County, Texas a higher royalty pementage dunng the term of th~s lease, the Lessee shall ~ncrease the royalty paid to the C~ty 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 $1000 per acre, specify) (This is a 3 year Prod Up Lease) Shut-in payment of not less than twenty and no/100 dollars ($20 00) per acre (ff greater -2- than $20 00 per acre, spemfy). Bonus money as specffied by bxdder acres X $ = total bonus money For bonus money as specified m the b~d and wxth the mxmmmn to be $175 00 per acre A Development Plat showing a drill plan and drill s~tes must be submitted w~th this b~d The City reserves the right to award this b~d based on both price and the most advantageous location of the dnllmg locations and s~tes ca pursuant to the Surface Use Agreement B~dders shall submit ~nformat~on of the b~dder's reputanon and quahty of the b~dder's oll and gas services ~ncludmg but not hm~ted to the b~dder's financial abthty to provide the od and gas services, safety record, comphance h~story and any other relevant ~nformat~on that the b~dder submits to the c~ty for the determ~nanon of best value The successful bidder shall comply with all reqmrements ~n the Code of Ordinances for the City of Denton, Texas A copy may be obtatned ~n the C~ty Secretary's office or on the C~ty ofDenton's webs~te, www c~tvotdenton corn n A b~dder's conference wdl be held on November 26, 2001 An off and Gas lease, Surface Use Agreement and R~ght of Way Use Agreement w~ll be negotmted within thirty (30) days after the successful b~dder ~s selected rn Upon request, the C~ty shall m wrmng allow the successful b~dder to pool the lease, the land or minerals ~ncluded m the lease, or any part of these w~th any other land, leases, minerals estates or parts of any of these to form a dnlhng or spamng tm~t for the exploranon, development, and producnon of o~1 and gas By submitting a b~d, each b~dder agrees to wmve and does hereby wmve any clmm the bidder has or may have agmnst the City of Denton, Texas, and the C~ty's respecnve employees and representatives for the award of attorney fees, arising out of or ~n connecnon w~th the adm~mstrat~on, evaluanon, or recommendation of any b~d, wmver of any reqmrements under the B~d Documents, or the Contract Documents, acceptance or rejection of any b~ds, and award of the B~d By submitting a b~d, the bidder spemfically wmves any right to recover or be prod attorney's fees from the C~ty of Denton, Texas, or any of the C~ty's employees and representatives under any of the prows~ons of the Texas Uniform Declaratory Judgments Act (Texas C~wl Pracnce and Remedies Code, Secnon 37 001, et seq, as amended) The b~dder agrees that this ~s the ~ntennonal rehnqmshment of a presently existing known -3- By execution and subm~smon 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 ~s made in accordance with the Bid Documents Bidder ack~nowledges that at understands all terms within the bid documents, which include the waiver prowslons, and that it had the right to consult with counsel regarding all of the above documents By submitting a bid, each bidder agrees to wmve and does hereby waive any claim the b~dder has or may have against the City of Denton, Texas and the City's employees, agents and officers, arising out of or in any way connected with the following 1 the admlmstratlon, evaluation or recommendation of any b~d, 2 wmver 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 b~d, the bidder acknowledges that the bidder understands all terms of the bidding documents and consents to the b~ddmg process and the possibility of a negative assessment By submitting a bid, the bidder acknowledges and agrees that there was and ~s no disparity of bargmmng power between the bidder and the C~ty of Denton, Texas The bidder agrees that this is the intentional rehnqmshment of the above listed presently existing rights The City reserves the right to wmve, delete or amend any of the requirements connected with this bid and to reject any and all bids Certfficatlon of Bidder -4- OILAND GAS LEASE BID INSTRUCTIONS The Caty of Denton ~ntends to lease property for oal and gas development only, as described below TRACT 1 The land described an condemnataon proceedings adentffied by Cause No 3922 filed on November 30, 1943 between the City of Denton and R M Evers, et al and subsequently filed m Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, contaamng 147 26 acres, 2 26 acres of whmh ~s m a pubhc road, an the Wfllmm Walburn Survey, Abstract Number 1419 TRACT 2 The land described an that Warranty Deed dated December 23, 1943 between P T Underwood and wife Jlmmle Underwood and the Caty of Denton recorded ~n Volume 304, Page 503 of the Real Property Records of Denton County, Texas, contmmng 74 94 acres, 1 75 acres of which as an a pubhc road, ~n the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described an that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corban, a wadow, Hugh C Corb~n and w~fe, Sue Lou Corbm, John S Corbm, Ahce Corbm Brown and husband W O Brown, Grace Corban, a feme sole, Georgm Corban, a feme sole, James E Corbln and wife, Johnnle Corban, Mrs Gertae Corbm Hurst and husband, G E Hurst, and the City of Denton, recorded an Volume 305, Page 216 of the Real Property Records of Denton County, Texas, contmmng 331 94 acres, 2 61 acres of which ts ~n a pubhc road, ~n the Wm Smath Survey, Abstract Number 1188, and the Wm Nedl Survey, Abstract Number 970 Sa~d lease shall be awarded, at the dascretaon of the C~ty Council, to the haghest and best badder submattang a b~d m accordance w~th terms as outhned below It as the lntentaon of the Councd to award the lease to the haghest and best bidder submitting a bad at such pubhc heanng on December 18, 2001, prowded that, ffan the judgment of the Councal the bads submatted do not represent the fair value of such lease, the Councal wall reject all ~>~ds, No b~ds wall be considered unless submatted at smd heanng The Council reserves the right to reject any and all b~ds for such lease However, should any b~d be accepted, such lease shall be executed upon a form acceptable to the Counml and the Lessee-there~n and shall provade The Couned shall determine the haghest and best b~dder according to the terms subrmtted for the mineral lease, the reputation and quahty of the badder's oll and gas servaces ancludmg but not hmlted to the badder's financaal abdaty to provide the off and gas servaces, safety record, comphance hastory and any other relevant anformataon that the badder submats to the caty for consaderatlon 1 for a primary term of not more than three (3) years from date of execution 2 for a royalty to be ptud Lessor not less than one-fifth (1/5) of all oll and gas produced from smd land, 3 a statement by the Lessee that the royalty to be prod the City IS equal to the highest pnce prod by the Lessee to any mineral owner an Denton, County, and that ffthe Lessee pays a m~neral owner m Denton County, Texas a Ingher royalty percentage dunng the term of this lease, the Lessee shall increase the royalty paid to the C~ty so as to equal tins Ingher amount 4 for an annual delay rental of not less than Ten and No/I00 Dollars ($10 00) per acre (This as a 3 year Prod Up Lease), 5 for a shut-in payment of not less than twenty and no/100 dollars ($20 00) per acre, 6 for bonus money as spemfied ~n the bid and wath the mammum to be $175 00 per acre, and 7 the following prows~ons A Lessee agrees and obligates ~tself to restore the surface of all land that m~ght be damaged by its operation hereunder as nearly as possible to ~ts original conditions as soon as ~t has fimshed with the use of the area where such damages occur Lessee must further agree to ~ndemmfy Lessor agmnst any and all claims upon the part of tinrd persons for damages or ~njunes of any k~nd or character that m~ght arise from the Lessee's operations hereunder, B Lessor prohlints the surface d~sposal of salt water or off field waste on the heremabove described tract of land C The use of potable water from the leased premases for water floothng or secondary recovery ~s expressly proininted and the use of such water ~s restricted solely to ordinary explorataon and production activities D Lessee must conform to all ordinances regulating off and gas dnlhng contained an the Code of the City of Denton, Texas E Ingress and egress to drill s~tes must be approved by the Darector of Airport and Transit Operations or Ins designee and the FAA F Lessee must satisfy themselves as to t~tle and acqmre all necessary abstracts and other t~tle information solely at their own expense, the lease form shall contmn no general warranty of title by Lessor G A Development Plat showmg the drill plan and drill sites must be submitted w~th the bid Addat~onal gas well s~tes may be avmlable on the west sade of the mrport 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 dnlhng locations and sites Proposed site locations are shown on Attachement A The final site locations will be approved by the Director of A~rport and the FAA H An Oil and Gas lease, Surface Use Agreement and Right of Way Use Agreement will be negotiated w~thln thirty (30) days after the successful bidder ~s 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 m~nerals mcluded m the lease, or any part of these with any other land, leases, minerals estates or parts of any of these to form a dnlhng or spacing unit for the exploration, development, and production of oil and gas J By submlttmg a bid, each bidder agrees to wmve and does hereby wmve any clmm the bidder has or may have against the City of Denton, Texas, and the C~ty's respective employees and representatives for the award of attorney fees, anmng out of or m connection w~th the administration, evaluation, or recommendation of any bid, wmver 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 Clwl Practice and Remedies Code, Section 37 001, et seq, as amended) The bidder agrees that this is the ~ntentlonal rellnqmshment 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 prommons, 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 clmm the b~dder has or may have against the City of Denton, Texas and the City's employees, agents and officers, arising out of or m any way connected with the following 1 the administration, evaluation or recommendation of any bid, -7- 2 wmver or deletion of any of the mqmrements under the B~d Documents or the Contract Documents, 3 acceptance or rejection of any b~ds, and 4 award of the B~d or Lease By submitting a b~d, the b~dder acknowledges that the b~dder understands all terms of the b~ddmg documents and consents to the b~dd~ng process and the possibility of a negative assessment By subm~ttmg a b~d, the b~dder acknowledges and agrees that there was and is no d~spanty of bargatmng power between the b~dder and the C~ty of Denton, Texas The b~dder agrees that thru ~s the ~ntent~onal rehnqmshment of the above hsted presently ex~st~ng rights L The C~ty reserves the right to wmve, delete or amend any of the reqmrements connected w~th th~s b~d M B~ds shall be received by the Purchasing Agent, City of Denton Service Center, 90lB Texas Street, Denton, Texas 76201 on December 6, 2001 Any b~d received after the specffied ttme of 2 00 p m wall not be considered N B~ds shall be submitted on the C~ty of Denton B~d Form The bidder may attach as many additional pages as they deem necessary O B~dders may contact the C~ty of Denton, Tom Shaw, D~rector of Purchasing Agent, C~ty of Denton Servme Center, 90lB Texas Street, Denton, Texas 76201 at (940) 349-7100, for clarfficatmns and questions A b~dder's conference w~ll be held on November 26, 2001 -8- SURFACE USE AGREEMENT CITY OF DENTON AIRPORT This Agreement is made and entered into effective this , by and among. 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 m condemnation proceedings identified by Cause No 3922 filed on November 30, 1943 between the City of Denton and RM Evers, et al and subsequently filed m Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, containing 147 26 acres, 2 26 acres of which is m a public road, m the William Wllbum Survey, Abstract Number 1419 TRACT 2 The land described m that Warranty Deed dated December 23, 1943 between P T Underwood and wife Jlmmie 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, 1 75 acres of which is m a pubhe road, m the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described m that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corbm, a w~dow, Hugh C Corbm and w~fe, Sue Leu Corbm, John S Corbm, Alice Corbm Brown and husband W O Brown, Grace Corbm, a feme sole, Georgia Corbm, a feme sole, James E Corbln and wife, Johnme Corbm, Mrs Gertle Corbm 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 331 94 acres, 2 61 acres of which is in a public road, in the Wm Smith Survey, Abstract Number 1188, and the Wm Ne~ll 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 o~1 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 Promslons herein after contained, Operator shall have the right (a) to construct and use a dnlhng 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 dnlhng for, equipping, operating and producing oil, gas and other mmerals from the Well 0ncludlng, but not hmlted to, the installation and mmntenance of a tank battery, heater treater, separator, and other equipment on the dnlhng pad), and (b) to install flowhnes and pipelines to and from the Site, to install electric poles on the Site 2 Drilling Operations For purposes of this Agreement, the dnlhng pad shall be constructed m the approximate d~menslons and configuration depleted on a gas well development plat as approved by the City No well shall be drilled w~thln 500 feet of any structure on the land without the written consent of the Surface Owner Dunng dnlhng operations, the perimeter of the drill s~te shall be fenced by Operator at its sole expense w~th a fence sufficient to turn hvestock, thereafter, in the event of production, smd fence shall be mmntatned around the perimeter of the well site and tank battery area actually utilized by Operator Operator shall use only the entrances and roadways for entermg upon and leaving the land and will use only the routes in gomg upon, over or about the land as are designated by Surface Owner in writing for Operator's use ~n accessing the drill 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 malntmn all roads, cresting or new, used by Operator ~n good repair free of rocks and ruts to the reasonable satisfaction of Surface Owner Annual mmntenance must include, as a mlmmum, addition of at least two roches of caliche 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 obtmn or assist anyone to obtain or have das~gnated 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 centerhne description All new roads shall be stratght and parallel to survey lines to the extent the terrain permits No interior gate or opening m 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 ~s permitted 3 Refineries prohibited. Operator is prohibited from constructing an oil or gas rofinery or a plant for cleaning up gas or removing H2S on the leased premised without first obtmmng a separate written lease agreement w~th 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 flowhne constructed off the dnlhng pad Such payment for flowlines to be payable upon completion of construction and each year anniversary thereafter until removal. Operator shah remit the payments reqmred m this uaragranh 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, dnlhng, h~ghllne or p~pellne construction operations on the land, specifying the apprommate date of commencement, and the nature and location of the operataons No facilities reqmred 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 s~te or sites for location of the factht~es, taking ~nto consideration the use of the land for mrport operations 7 P~pellnes and Fiowlmes. Prior to constructing p~pellnes and flowhnes on the Lands, Operator shall consult w~th Surface Owner so that the p~pehnes and flowhnes shall be located, insofar as reasonably practmal, to cause munmum interference with Surface Owner's surface operations and use of the land P~pehnes and flowhnes shall be hmlted to natural gas transported through such p~pehne to natural gas produced under the terms of the lease from the leased premises Operator agrees that all flowhnes and gas sales p~pehnes shall be constructed as near as practical to pubhc right of ways and shall be buried to a depth as the Catv determines or as may be reqmred u~der applicable laws, including FAA rules and regulations A plot plan showing proposed p~pehnes shall be filed with the Director of the A~rport "As bmlt" plans shall be filed w~th the Director of the Atrport on completion 8. Abandonmant 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 ~n order to assist Surface Owner ~n determlmng whether water sands have been encountered to such depths Operator shall provide Surface Owner or surface owner w~th a copy of such log and, without any warranty whatsoever, Operator's opinion as to whether such log ~ndmates water beanng sands and ~f so, the location or depth thereof Prior to abandomng a well, Operator agrees to g~ve Surface Owner prior not,ce of such ~ntended plugging and Surface Owner shall have twenty (20) days after not,ce within whmh 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 obhgatlon to plug the remmnmg, unplugged portion of such well when surface owner abandons same Surface owner agrees to execute the appropriate forms reqmred by the Railroad Commission of Texas and other regulatory authority In order to transfer operations and ownerslup 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 wmves, in wntmg, 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 cahche will be removed from the site or mad 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 ftuls 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 m 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 smd security deposit toward unpmd penalties, clmms 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 mamtmn same, within 20 days after notice from Surface Owner to tender same, then this lease shall terminate Surface Owner shall have a first lien agmnst 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 obttun elsewhere, any water, sand, gravel or cahche or any one of them, whleh 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 m 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, contmnment, remechal 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 remedaal 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 prod 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 momtonng or review of remedial work If Operator shall fall to timely commence or cause to be commenced, or fall 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 mmdent Operator agrees to indemnify, pay and protect, defend and save Surface Owner harmless from all clmms, 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 sl~all include costs in connectaon with any remedial work when performed by Surface Owner or any tlurd party m response to any federal, state or local governmental atlthonty, 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 clmm for use, injury and damage to mrport operators surface area or improvements on said premises occasioned by or arising from Operator's operations or other activity on the said promises In regard to notice of surface use, the surface owner affected by such operations shall be entitled to pnor 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 pnmlege 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 tlus 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 mjunes, accidental death, property damage, losses, and expense of any character whatsoever including attomey's fees brought for or on account of any injuries or damages received or sustmned 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 operataons growing out of or in any way connected wath th~s Agreement and Operator will be reqmred to pay any judgment, w~th costs, whmh may be obtmned agmnst Surface Owner or any of thear officers, agents or employees, ~ncludmg attorney's fees 18 Insurance. Operator shall file ewdence an the form of a certfficate of ~nsurance w~th the Caty Secretary for the Clty of Denton, acceptable to the Caty Attorney, that ~t has obtmned habflaty ~nsurance an accordance w~th the Off and Gas Mineral Lease, C~ty's Gas Well Ordanance and wath the Caty of Denton as an add~taonal ~nsured and covenng ars operatmns on the Lands Operator shall also file ewdence m the form of a certfficate of ansurance with the C~ty Secretary for the City of Denton, acceptable to the Caty Attorney, that ats workers' compensation and general habfl~ty coverage includes ~n ats prowsmns a wawer of any rights of subrogatmn as agmnst the Caty of Denton, Texas an accordance wath the Caty's Off and Gas Regulatmns 19 Operator shall follow FAA rules and regulations prior to the commencement of drflhng operatmns under thas agreement Operator shall file a aeronautmal study request form (Form 7460) before commencing dnlhng operatmns and shall obtmn all prior consents, approvals or wmver of FAA regulatmns Operator shall ~ndemmfy and hold Surface Owner harmless for any FAA orders requmng Operator to cease operataons 20 Thas agreement shall be construed under the laws of the State of Texas, wathout reference to conflmt of law pnncaples which would reqmre the apphcatlon of the law of another junsdactmn, and exclusive venue shall be m Denton County, Texas fo__~r any elmms lawsmts or actions an connection with thas Agreement. 21 In the event of any conflmt between the part, cs hereto such that either party brings or commences any legal actmn or procecdang related to thru hcense, including but not hmated to, any actmn pursuant to thc prowslons of the Texas Uniform Declaratory Judgments Act (Tex Cw Prac& Rem Code § 37 001, et seq, as amended), the partaes hereto agree to wmve any and all rights to recovery of attorneys fees to which the prevathng party nnght otherwise be entatled 22 Th~s Agreement shall never be construed to constitute the parttes hereto as partners or joant venturers, or to create a relationship of pnnc~pal-agent, employer-employee, trustee beneficmry, an association for bus,ness or profit, or any other relationship, legal or eqmtable, among the part,es hereto In all respects, each party shall be responsable for ~ts own conduct an connection wath the subject matter of thas Agreement as though ~t were an independent contractor, free from all control and d~rectaon of the others 23 Thts Agreement may be executed ~n multiple counterparts, each of whmh when taken to~ether shall constitute but one and the same ~nstrument, but none of whmh shall be effective until and unless executed by all part, es named herein Additionally, th~s Agreement may also be executed ~n multiple originals, any one of which, when fully executed as hereto prowded, shall be effective for all purposes 'When fully executed as here~n prowded, the terms and conditions of th~s Agreement shall be b~nd~ng upon, and inure to the benefit of, the part,es hereto, their he~rs, successors and assigns 24 EXECUTED by each party hereto as of the date mdmated beside its s~gnature, to be effective for all purposes as of the Effective date Surface Owner. Mmhael A Conduff, C~ty Manager Date CITY OF DENTON, TEXAS ATTEST Jermlfer Walters, C~ty Secretary Date APPROVED AS TO FORM Herbert L Prouty, C~ty Attorney Operator' By ACKNOWLEDGMENTS STATE OF TEXAS § COUNTY OF DENTON § Before me, the undersigned authority, on th~s day personally appeared M~chael A Conduff, CITY MANAGER OF THE CITY OF DENTON, TEXAS, known to me to be the person and officml whose name ~s subscribed to the foregoing ~nstrument and acknowledged to me that the same was the act of smd C~ty, and for tile purposes and conslderat~on thereto expressed, and ~n the capamty there~n 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 corporatmn Notary Pubhc, 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 ~s being executed for the purpose of g~wng notice of the exmtence of that certmn 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 Jemll~rWalters, CltySecretary 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 here~n by and through ~ts Mayor, Eulme Brock, duly authorized by resolution to execute th~s Lease ("LESSOR"), whose address ~s 215 East McKmney, Denton, Texas 76201 and ("LESSEE"), whose address is Z~p Code , WlTNESSETH 1. Lease of Land LESSOR m consideration of Dollars ($. ), ~n hand pard, of the royalties herein provided, and of the agreements of LESSEE hemm contmned, hereby leases and lets exclusively unto LESSEE for the purpose of ~nvest~gatlng, explonng, prospecting, dnlhng and m~mng for and producing oil, gas and all assocmted m~nerals, conducting exploration, geologm and geophysical surveys by seismograph, core test, gravity and magnetm methods, ~njectmg gas, water and other flmds ~nto subsurface strata, laying p~pe hnes, bmld~ng roads, tanks power stations, telephone hnes and other structures thereon and on, over and across lands owned or clmmed by LESSOR, to produce, save, take care of, treat, transport and own smd products, the following described land in Denton County, Texas, to-w~t TRACT 1 The land described ~n condemnatmn proceedings ldentffied by Cause No 3922 filed on November 30, 1943 between the City of Denton and R M Evers, et al and subsequently filed ~n Volume 1675, Page 546 of the Real Property Records of Denton County, Texas, conttumng 147 26 acres, 2 26 acres of which ~s ~n a pubhc road, ~n the Wflham Wflburn Survey, Abstract Number 1419 TRACT 2 The land described m that Warranty Deed dated December 23, 1943 between P T Underwood and wife J~mm~e Underwood and the C~ty of Denton recorded ~n Volume 304, Page 503 of the Real Property Records of Denton County, Texas, contmmng 74 94 acres, 1 75 acres of whmh ~s m a pubhc road, ~n the Thomas Toby Survey, Abstract Number 1285 TRACT 3 The land described in that Warranty Deed dated January 18, 1944 between Mrs Ellen Pearl Corb~n, a w~dow, Hugh C Corb~n and w~fe, Sue Lou Corb~n, John S Corbln, Ahce Corb~n Brown and husband W O Brown, Grace Corb~n, a feme sole, Georgia Corbm, a feme sole, James E Corb~n and w~fe, Johnme Corb~n, Mrs Gert~e Corbln Hurst and husband, G E Hurst, and the C~ty of Denton, recorded ~n Volume 305, Page 216 of the Real Property Records of Denton County, Texas, contmmng 331 94 acres, 2 61 acres ofwhmh is m a pubhc road, m the Wm Smith Survey, Abstract Number 1188, and the Wm Nedl Survey, Abstract Number 970 For all purposes of this Lease, smd land ~s estimated to comprise 554 14 acres, whether ~t actually comprises more or less 642660 2/SP3/2g121/0103/103101 However, there is expressly excepted from this Lease and reserved to LESSOR, its successors and assigns, all vanathum, uranium, plutomum, thorium, fissionable minerals and all other minerals of every land and character m, 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 ml and gas, or either of them 2 R~servatlon. There ~s 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 ~s a prod up lease and subject to the other provisions here contmned, this Lease shall be for a term of three (3) years from the Effective Date (the "Primary Term") and as long thereafter as off, gas and other minerals are produced in paying quant~ties from smd land or land with which smd land is pooled hereunder 4 Royalty As royalty, LESSEE covenants and agrees to pay a As a royalty on o~1 (mcludmg all hydrocarbons produced in liquid form at the mouth of the well and also condensate, dmtlllate, and other hqmd hydrocarbons recovered from off or gas run through a separator or similar equipment) one-fifth (1/5) of the gross production or the market value thereof, at the option of LESSOR, the value to be determined by 0) the highest posted price, plus premium, if any, offered or prod for oil, condensate, distillate, or other hqmd hydrocarbons, respectively, of a like type and gravity for the field where produced and when run, or (u) the h~ghest market price offered or prod for the field where produced and when run, or (m) the gross proceeds of the sale whichever is greater LESSEE agrees that before any gas produced from the land is sold, used or processed m a plant, ~t 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 effiment to the end that all hqmd hydrocarbons recoverable from the gas by such means will be recovered Upon written consent of the royalty owners, the reqmrement that gas be run through a separator or other eqmprnent may be wmved 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 oll m subparagraph 4 b above, produced from any well on the land (except as prowded in th~s 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 prod or offered to a thard 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 prod or offered to the producer, whichever ~s greater c As a royalty on any gas processed ~n a plant, one-fifth (1/5) of the residue gas and the hqmd 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 2/5P3/29121/0103/103101 2 attributable to the gas produced from this Lease, except if hqmd hydrocarbons are recovered from gas processed m a plant m which LESSEE or an affihate 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 hqmd 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 0I) the gross price paid or offered for such residual gas, or the weighted average gross selhng price for the respective grades of hqmd hydrocarbons, F O B the plant an which the gas is processed, whichever is greater d On all substances, including, but not hmlted to carbon d~oxlde and sulfur, perrmtted to be produced from the land by wrtue of this Lease, and products, except liquid hydrocarbons, produced or manufactured from gas, and for which no royalty as otherwise specified an 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 tame, 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 (0 the highest market price of each product for the same month m which the product is produced, or (la) the average gross sale price of each product for the same m e Accounting and payment to LESSOR of royalties from the production of off 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 fad 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 withm thirty (30) days after written not,ce is given to LESSEE Any royalties provided for m this Lease which are not paid to LESSOR within the apphcable t~me 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 wtuver or estoppel of LESSOR'S right to receive or recover any and all interest due under the provisions of th~s 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 ~n which LESSOR ~s successful an recovering royalties or interest or an terminating this Lease due to LESSEE'S failure to pay royalties w~thxn the periods set forth above LESSOR'S royalty shall never bear, either directly or indirectly, any part of the costs or expenses of producing, gathenng, dehydrating, compressing, transporting, manufactunng, 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 Shat-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 flus Lease is not being mmntmned otherwise as prowded herein, this Lease shall not terminate, whether it being dunng 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 t~mes thereafter, the Lease ts continued in force m 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 ~s 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 ~s made The first payment of such sum shall be on or before the first day of the calendar month at the expiration of mnety (90) days from the date the Lease is not otherwise mmntmned, 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 ~n this Lease, ~t is expressly agreed and prowded 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 s~ngle period of more than two (2) consecutive years or more than three (3) years ~n the aggregate 7 Pooline 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 partic~pate in the fomed 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 TermlnaUon a If, at the explratmn of the Primary Term, LESSEE ~s not engaged in the actual drflhng of a well on the land or ~f 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 mnety (90) days after the date or completion or abandonment of the well, engaged in the actual dnlhng 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 roles 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 prod 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 Umt or Gas Unit shall be in as near the form of a square as reasonably practicable consldenng 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 role or order prescribes a larger or a smaller number of acres for the purposes of secunng the maximum allowable production, each umt shall be mcreased or decreased m 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 umt 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 dnlhng of a well on the land or if LESSEE has completed or abandoned a well on the land within thmy (30) days prior to expiration of the Primary Term and is, at the expiration of mnety (90) days after completion or abandonment of the well, engaged m the actual dnthng of another well on the land, this Lease shall not terminate so long as LESSEE pursues the drilhng of the well with reasonable dihgenee to completion or abandonment and so long as LESSEE commences the actual dnlhng of additional and successive wells on the land at intervals not exceeding nmety (90) days between completion ora well as a producer or dry hole and commencement of actual dnlhng of the next well on the land If and when LESSEE fads to commence the actual dnlhng of a well within the apphcable interval (or wlthm the extended time provided ~n subparagraph 9 d below, this Lease shall then terminate to all of the land, save and except the Oil Units and Gas Umts provided an subparagraph 8 a above Upon expiration of the Primary Term or the cessation of the continuous dnlhng 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, an the conduct of actual dnlhng operations under this Lease after the expiration of the Primary Term, commences the actual drilling of any next succeeding well within less than the mnety (90) day t~me ~nterval specified in subparagraph 8 c and thus speeds up the development of the land, LESSEE shall have credit an time for the accelerated development and may, an the conduct of subsequent actual dnlhng operations, take advantage of the credit in time on a cumulative basis and thus extend the tnne for the commencement of actual dnlhng of any subsequent well or wells reqmred to be dulled under the provisions of this Lease in order to prevent termination of th~s Lease Wlthxn ten (10) days of the commencement of the actual dulling 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 compleUon or abandonment and also of the t~me credit, if any claimed by LESSEE as a result of having commenced the actual dulling of the well within less than the required interval If LESSEE fads 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 ansxng by imphcatlon or under the terms of this Lease, but any well dulled by LESSEE to satisfy an offset obligation will entitle LESSEE to the privileges of this paragraph 9 Removal of Eqmpment. LESSEE shall have the right at any tame dunng and for one hundred eighty (180) days after the expiration of this Lease to remove all property, casing and fixtures placed by LESSEE on smd land, includmg the right to draw and remove all casing Thereafter, it shall be deemed abandoned to LESSOR If LESSEE fails to remove such property, 642660 2/SP312912110103/103~01 5 casing ,a~n~ fixtures wittun such 180 day period, ownership of the same will vest ~n LESSOR, LESSOR'S successors and assigns or LESSOR, at its option, may require the removal of smd equipment in addlQOn to all other remedies to which LESSOR is entitled under law 10 ~ The rights of e~ther party hereunder may be assigned in whole or m part, and the provisions hereof shall extend to their respective heirs, successors and asmgns, but no change or division m ownership of the land, rentals or royalties, however accomplished, shall operate to enlarge the obligations or diminish the nghts of LESSEE 11. Tffie. LESSOR does not warrant or agree to defend the t~tle of the lands covered hereby LESSEE takes th~s Lease without warranty of title e~ther express or Implied This Lease and the activities to be conducted thereunder are subject to approval of the Federal Aviation Admlmstratlon If LESSOR owns an interest in the o11, gas and m~nerals 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 prod to LESSOR only m the proportion which LESSOR'S interest therein, ~f any, bears to the whole and undivided fee simple mineral estate therein It ~s the sole responsibility of LESSEE to determine the LESSOR's mineral llaterest The bonus payment pard for th~s Lease shall be deemed to be final if no title problems, are submitted for resolution within ninety (90) days of the Effective Date 12 Force Maleure When dnlhng, production or other operations on smd land or land pooled with such land, or any part thereof are prevented, delayed or interrupted by fire, storm, flood, war, rebellion, msttrrectlon, sabotage, not, strike, or as a result of some law, order, role, regulation or necessity of governmental authority, e~ther State or Federal, the Lease shall nevertheless continue in full force and effect and be extended for the period such dnlhng, production and other operations are so prevented, delayed or interrupted LESSEE shall not be liable fo~ breach of any express or implied covenants of th~s Lease when dnlhng, 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 Desk,nation of Gas Umt. 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 dnlhng 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 ~n paying quantities, LESSEE ~hall agtun designate an approxunately sized dnlhng unit around smd second producing well, all out of the above described property, by fihng a written designation ~n the Deed Records of Denton County, Texas and shall provide LESSOR with a copy of such unit designation LESSEE shall destgnate all dnlhng units ~n a fmr and reasonable manner so that the remammg acreage not ~ncluded ~n the dnlhng units is capable of being drilled or pooled with other lands 642660 2 I~P3/29121/0103/103101 6 All destgnatmns of umts as provtded m this paragraph 14 shall be in accordance with and subject to the provistons of paragraph 9 above 14 R ad Const uetion If LESSEE completes a well as a producer, LESSEE agrees to construct a good and substanUal road to satd well at least twenty (20) feet tn wtdth, and with base material equivalent to Texas Htghway Department No 1 flexible base material and being six (6) inches in depth and built for proper and natural drainage LESSEE agrees to enter ~nto a Road Maintenance Agreement w~th the City of Denton for damage to the road as a result of LESSEE'S activities 15. FAA Rules and Regulations: No dnlhng activity or any other acttvlty shall be conducted on any portion of the above described land in contravention of any Federal Aviation Admlmstratlon ("FAA") rule or regulation or which tnterferes with any future expanston plan for runways or taxtways LESSEE shall make tnqulry wtth the proper offictals of the FAA and obtain ali necessary approvals, consents or waivers prior to the locaUon of any dnll stte on the subject property to venfy comphance with all applicable FAA rules or regulations LESSEE shall provide LESSOR with cop~es of all watvers or other documentation issued by the FAA indicating approval of well site locations or any other operanons prior to the commencement of operattons 16 Indemnifications and Insurance LESSEE shall provide or cause to be provtded the insurance descnbed below for each well dulled under the terms of this Lease, such insurance to continue until the well is abandoned and the stte restored Such insurance shall provtde that LESSOR shall be a co-insured, wzthout cost, and that satd insurance can not be canceled or terminated wzthout thirty (30) days prior notice to LESSOR and ten (10) days nottce to LESSOR for nonpayment o f premiums a General Requirements. Indemnification and Express Negligence Provistons LESSEE shall expressly release and discharge, all clatms, demands, actions, judgments, and execntzons which it ever had, or now have or may have, or asmgns may have, or claim to have, against the LESSOR, it agents, officers, servants, successors, assigns, sponsors, volunteers, or employees, created by, or arzslng out of personal injuries, known or unknown, and injuries to property, real or personal, or tn any way mctdental to or tn connection with the performance of the oil and gas dnthng and productton performed by the LESSEE under thzs lease and the LESSEE shall fully defend, protect, mdemmfy, and hold harmless the LESSOR, and/or tts departments, agents, officers, servants, employees, successors, asstgns, sponsors, or volunteers from and agamst each and every claim, demand, or cause of action and any and all hablhty, damages, obhgattons, judgments, losses, fines, penalties, costs, fees, and expenses mcmred tn defense of the LESSOR, and/or tts departments, agents, officers, servants, or employees, tncludmg, wtthont hmttatton, personal injuries and death m connectton therewtth whtch may be made or asserted by LESSEE, its agents, assigns, or any third part~es on account of, arising out of, or m any way incidental to or m connection w~th the performance of the off and gas well drilling:and productton performed by the LESSEE under this lease and, the LESSEE agrees to indemnify and hold hanuless the LESSOR, and/or tts departments, and/or tts officers, agents, servantS, employees, successors, asstgns, sponsors, or volunteers from any llabfllttes or damages suffered as a result of claims, demands, costs, or judgments agatnst the LESSOR and/or, its departments, it's officers, agents, servants, or employees, created by, or arising out of the acts or omtsslons of the LESSOR occurring on the drill stte or operation stte tn the course and scope of 642660 2/SP3/29121/0103/103101 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 1N 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 pohmes 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 L~abd~ty pohc~es shall be written by canners hcensed to do business ~n Texas and w~th companies w~th A VIII or better rating ~n accordance with the current Best Key Rating Grade, or with nonadmltted earners that have a financial rating comparable to canners hcensed to do bus~ness m Texas approved by the C~ty d Lmbd~ty pollmes shall name as "Additional Insured" the city and its offiemls, agents, employees, and volunteers e Certfficates of insurance must be presented to the C~ty ewdenc~ng all coverages and endorsements reqmred by th~s Section 35-508, and the acceptance of a certificate w~thout the reqmred hm~ts and/or coverages shall not be deemed a wmver of these reqmrements f Claims made pohcles wall not be accepted except for excess pohc~es or unless otherwise provided by thru Article g Required Insurance Coverages 1 Commercml General L~abdlty Insurance Coverage should be a mlmmum Combined Single L~m~t of $1,000,000 per occurrence for Bodily Injury and Property Damage Thas coverage must ~nclude prermses, operations, blowout or explosion, products, completed operations, blanket contractual habdlty, underground property damage, broad form property damage, independent contractors protective habdlty and personal injury 2 Environmental Impmrment (or Seepage and Pollution) shall be either included m the coverage or written as separate coverage Such coverage shall not exclude damage to the lease site If Environmental Impmrment (or Seepage and Pollution) Coverage is written on a "clmms made" bas~s, the pohcy must prowde that any retroactive date apphcable precedes the effective date of the issuance of 642660 2/SP3/29121[0103/103101 8 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, hqmds or gases, waste material or other lmtants, 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 ~nclude Employer's L~abthty hrmts of at least $100,000 for each accident, $100,000 for each employee, and a $500,000 pohcy hm~t for occupational dmease, and the insurer agrees to waive rights of subrogation agmnst the city, its officials, agents, employees, and volunteers for any work performed for the city by the LESSEE 5 Excess (or Umbrella) Lmbfllty Insurance Minimum hrmt of $10,000,000 covenng m excess of the preceding insurance pohcles 6 Control of Well Insurance a Minimum hm~t of $5,000,000 per occurrence b Pohcy shall cover the Cost of controlling a well that is out of control, Rednlhng or Restoration expenses, Seepage and Pollution Damage Damage to Property in the LESSEE's Care, Custody, and Control w~th a sub-hmlt 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 clmumstances 18 Location of Drllhn~ Activity, Plpehnes and Equipment No drflhng activity shall be conducted on and no p~pellnes, eqmpment or other structures shall be placed on or under any pavement, concrete or asphalt or any other improved surface area s~tuated on the above descrabed land The location of any papehnes installed by LESSEE shall be approved ~n advance by LESSOR and shall be situated along routes that least interfere with LESSOR's exlmng or future use of the surface m accordance w~th the Surface Use Agreement When reqmred by LESSOR, LESSEE will bury all p~pehnes at a depth of six feet (6'), and the location of wells shall comply with Chapter 29, F~re Code, of the Code of Ordinances of the City of Denton, as amended, and all other apphcable laws 19 Constrnet~on of Fences: Should production be obtmned, LESSEE shall promptly construct a good and substantml fence, eqmvalent to at least a SlX (6) foot chmn hnk fence (man proof), enclosing the well and related equapment and thereafter mmntain such fence m good condmon dunng the hfe of the well and until such time as the surface is restored to ~ts present 642660 2/Sp3/29121/0103/103101 9 condition, LESSEE agrees to properly maintain the fenced area In good condmon, including, wtthout limitation, the mowing of grass m accordance with the Surface Use Agreement 20 Surface Damaees: LESSEE agrees to pay for all actual damages caused by LESSEE's operations hereunder to fences, roads, personal property, underground utlhtles and services, buildings or other improvements on smd land Wlthtn a reasonable time after LESSEE's need therefor has ceased, LESSEE shall remove the leasehold debris, fill all tts and other excavations made by LESSEE on the above described land, and restore the surface of the land to its condltton prior to the commencement of drflhng operations insofar as may be reasonably practical 21 C0mphance with Laws' LESSEE shall comply with all applicable rules, regulations, ordinances, statutes and other laws in eonnectton with any drlllmg, producing or other operattons under the terms of this Lease, mcludlng, wtthout hmttatton, the off and gas well regulations of the Ctty of Denton 22 ~nment: The assignment of this Lease by LESSEE, or any successor LESSEE, shall not relieve LESSEE, or any such successor, from its obhgatlons 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 tn accordance with the Surface Use Agreement 24 Dilb, ent. Good Faith Operations Each well drilled under thru Lease shall be drilled with reasonable dlhgence and ~n good fath and tn a good and workmanhke manner in a bona fide attempt to product oil, gas and associated minerals therefrom 25 Captions and Headings: The capttons and headtngs in this Lease are for convenience only and shall not modtfy, change, amend, alter, or affect the true meaning of any paragraph, sentence, clause, phrase, or words herem 26. Subordination and Stipulations Reamred by FAA: This Lease recognizes that the Denton Municipal 3arport was acquired and developed with md and/or grant of land from the United States Copies of such grants are available for review at the office of the Ctty Manager in Denton These grants mclude a number of obhgatlons 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 promstons, stlpulattons, covenants, and agreements m that certatn mdenture by and between the United States of America and the LESSOR and tt is understood that the LESSEE agrees to abide by and enforce all of the provisions, stipulations, covenants, and agreements incorporated tn the foregoing instrument the same as ff set out tn 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 mad understandings are specifically enumerated to comply wtth FAA snpulattons b It is further especially agreed by the pames hereto that no structures or obstructions, temporary or otherwise, shall be erected which will be ~n violation of the Federal Aviation Regulations Part 77 (Criteria for Determining Obstractlons to Air Nawgatlon), unless otherwise approved mwnttng by the FAA 6426602/$P3/29121/0103/10310! lO 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, mcludmg ingress and egress of vehicular traffic c It ~s 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 regress and egress to such well on the above- described land and that if neither the FAA nor City of Denton objects to said location w~thm a penod 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 m said notice, provided same does not contravene other provisions of this Lease or the further restrictions and obhgatlons imposed by the C~ty of Denton d This written notice shall not rehve the LESSEE from obligation for fihng a Not,ce of Proposed Construction or Alteration, FAA Form 7460-1, required by Federal Amat~on Regulations, Part 77, Subpart B e Also it ~s agreed, that m the event a well ~s drilled on the above-described land, then such drilling operations shall be prosecuted continuously, with due dthgence, until same results in production or a dry hole All temporary structures used in such dnlhng operations shall be painted and lighted ~n 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 ~n such manner as to interfere w~th or introduce hazard to the operation of the aircraf~ f Further, it ~s agreed that in the event any dnlhng operations for oil, gas, or other minerals result m production, LESSEE at its own expense shall ~mmed~ately 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 dnllmg operations result in a dry hole, then LESSEE shall at ~ts own expense tmmethately remove all temporary structures used in such landing operation and level the area so that it may be safely used for landing or taxung mrcraft g LESSEE shall not interfere with the access roads to the C~ty of Denton Airport, and shall not interfere with any other person or agency hawng a lawful right to use the above-described land, or with any bmld~ng or improvements of any kind thereon belonging to any other person or agency, nor w~th their right to enter thereon and remove said bmld~ngs or ~mprovements therefrom h Dunng 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 md~tary or naval use, and if such lease is executed w~th the Umted States Government, the provmions of this Lease insofar as they are inconsistent with the provisions of the Lease to the Government, shall be suspended 642660 2/SP3/29121/0103/103101 1 1 27 Memorandum of Lease. LESSOR and LESSEE agree that a memorandum of lease shall be filed of record m the Officml Records of Denton County, Texas, ewdencmg th~s Lease and the prows~ons contmned m such memorandum to the part~es hereto, the land covered by the Lease, tho term of the Lease and notme prows~ons reforming the pubhc of the existence of the Lease 28 ~reement. Th~s Lease states the entire contract between the part, es, and no representatmn or promise, verbal or written, on behalf of e~ther party shall be binding unless contained hereto, and th~s Lease shall be binding upon each party executmg 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", th~s term as used m th~s Lease shall mean and refer only to such part,es as execute th~s Lease and their successors m ~nterest IN WITNESS WHEREOF, th~s instrument ~s executed on the date first above written EULINE BROCK, MAYOR ATTEST JENNIFER WALTERS, CITY SECRETARY BY APPROVED AS TO LEGAL FORM HERBERT L PROUTY, CITY ATTORNEY BY CORPORATION BY 642660 2/SP3/2912~/0103/103101 12 STATE OF TEXAS § COUNTY OF DENTON § Before me, , the understgned notary pubhc, on th~s day personally appeared Eulme Brock, the Mayor of the C~ty 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 ~nstmment for the purposes and consideration there~n expressed G~ven under my hand and seal of office th~s day of ,2001 Notary Pubhc STATE OF TEXAS § COUNTYOF DENTON § Before me, ., the undersagned notary pubhc, on th~s day personally appeared , the of Off Corporation known to me, proved to me on the oath of , or proved to me through h~s/her current {description of ~dentfficat~on card or other document ~ssued by the federal government or any state government that contmns the photograph and s~gnature 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 ~nstmment for the purposes and consideration there~n expressed G~ven under my hand and seal of office th~s __ day of ,2001 Notary Pubhc 6426602/SP3/20121/0103/~03101 13