GEOTHERMAL
LEASE AND AGREEMENT
This Lease and Agreement is made
and entered into as of this ______ day of January, 2006, by and
between:
Philip Glover , Party of the first part,
hereinafter referred to as “Lessor”
and
US Geothermal Inc. , an Idaho corporation,
Party of the second part,
hereinafter referred to as “Lessee”
who are referred to in the plural as the
“Parties”.
Recitals
WHEREAS
Lessor is the owner of certain land
and geothermal rights situated in Cassia County, in the State of
Idaho, which the Parties believe are suited for the development of
Hot Water, Steam and Thermal Energy for use as such and/or the
conversion of such geothermal energy to the production of electric
power, or for any purpose other than the generation of electric
power, and
WHEREAS
It is the desire of Lessor and
Lessee to enter into an agreement which will enable the development
of said Hot Water, Steam and Thermal Energy for any of the
aforesaid purposes for the mutual profit of the Parties,
BE IT THEREFORE HEREBY AGREED AS
FOLLOWS:
1. Purpose.
For and in consideration of the sum of Ten Dollars ($10.00) and
other valuable consideration set forth in clauses (4.) and (5.)
below, receipt of which initial sum and sufficiency of which is
hereby acknowledged, and in consideration of the covenants and
agreements hereinafter contained, Lessor has granted, leased, let
and demised to Lessee, its grantees, successors and assigns, upon
and subject to the terms and conditions contained herein, the
geothermal rights hereinafter described, including but not limited
to the sole and exclusive right to drill for, produce, extract,
take, remove and sell geothermal heat energy including , Hot Water,
Steam, or Thermal Energy therefrom, and to store, utilize, process,
convert and otherwise treat such geothermal energy, during the term
hereof.
2. Lands.
The geothermal rights which are the subject of this lease are
situated in the county and state above first named, consisting of
approximately 160 acres and which is described in Exhibit A
attached hereto and incorporated as if more fully set forth herein
(hereinafter referred to as “Lands”).
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3. Term.
This Lease shall be for a term of ten (10) years from and after the
date hereof (hereinafter referred to as the “Primary
Term”) and so long thereafter as Leased Substances, or any of
them, are derived or produced in commercial quantities from the
leased geothermal rights or any geothermal resource pooled,
unitized or combined therewith, and for so long as Lessee is
prevented from producing same, or the obligations of Lessee
hereunder are suspended, for the causes hereinafter set forth, or
this Lease is continued in force by reason of any other provision
hereof.
If at the expiration of the
Primary Term, Lessee has not completed one or more wells utilizing
the leased geothermal rights or any geothermal resource pooled,
unitized or combined therewith, which well or wells separately or
collectively are either producing, or capable of producing, Hot
Water, Steam or Thermal Energy of Sufficient Power Potential in
Commercial quantities, but lessee is then engaged in operations for
drilling, reworking, recompleting, redrilling or enhancement of any
well utilizing the leased geothermal rights or any geothermal
resource pooled, unitized or combined therewith, this Lease shall
remain in force so long as drilling, reworking, recompleting,
redrilling or enhancement operations are prosecuted (whether on the
same or different wells) utilizing the leased geothermal rights or
any geothermal resource pooled, unitized or combined therewith with
no cessation of such operations for more than six (6) months, and
if such operations result in production or the establishment to the
satisfaction of the lessee of the existence of Sufficient Power
Potential in Commercial quantities, such well or wells will be
deemed to have been completed and such existence is established
during the primary term of this Lease.
4. Primary
Term Consideration. It is understood and agreed that the initial
consideration paid, TWO THOUSAND ONE HUNDRED DOLLARS ($2.100.00),
upon the execution hereof, covers both a signing bonus of $500.00,
the rental in full hereunder for a period of one (1) year from the
date of this Lease and for all other rights conferred hereunder.
Thereafter, for the first five (5) years of the lease, on or before
said anniversary date, Lessee shall pay or tender to Lessor an
annual rental in the amount of ONE THOUSAND SIX HUNDRED DOLLARS
($1,600.00) , which shall constitute rental until the next
anniversary date hereof. For the second five (5) year period of the
lease, Lessee shall, on or before each succeeding anniversary date
during the primary term hereunder, pay or tender to Lessor an
annual rental in the amount of TWO THOUSAND FOUR HUNDRED DOLLARS
($2,400.00), until such time as from the drilling of a well or
wells utilizing the leased geothermal rights or any geothermal
resource pooled, unitized or combined therewith, there has been
established to the satisfaction of the Lessee the existence of
Sufficient Power Potential in Commercial quantities. Upon such
establishing as aforesaid, Lessee may nevertheless continue to pay
or tender annual rental payments on or before each anniversary
date, until Lessee has commenced the actual sale of one or more
Leased Substances, and so long as such annual rental payments to be
paid or tendered, whether beyond the primary term or not, this
lease shall remain in force and effect. Rental payments made after
the primary term shall increase each year thereafter at the rate of
5% per year. All payments so paid or tendered after the expiration
of said primary term shall be deemed advance royalties. So long as
such payments are paid or tendered each well or wells shall be
deemed to be actually
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producing
one or more Leased Substances in Commercial quantities under the
terms hereof; provided, however, that if within five (5) years
after the date of expiration of the primary term hereof Lessee
shall have failed to make, or make arrangements for (by executed
contract or contracts) a bona fide Commercial sale of one or more
Leased Substances (or electric energy generated therefrom) than
Lessor, at its option, may consider Lessee in default hereunder.
Additionally, should lessee fail to make any annual payment herein
provided for on or before a particular anniversary date, Lessor
may, at its option, consider lessee in default
hereunder.
5.
Geothermal Royalties. Royalties shall be payable as
follows:
(a)
With respect to Hot Water, Steam or Thermal Energy produced, saved
and sold by Lessee and then used by the purchaser for the
generation of electric power, Lessee shall pay to Lessor as a
royalty Ten Percent (10%) of the market value of such Hot Water,
Steam or Thermal Energy produced utilizing the leased geothermal
rights at and as of the point of origin on the land which is
subject to the leased geothermal rights, which market value shall
be deemed to be the gross proceeds received by Lessee from such
sale at the point of origin on the land which is subject to the
leased geothermal rights, unless the sale occurs at a location
other than such point of origin, in which case the market value
shall be deemed to be the gross proceeds received by Lessee from
such sale less all costs and expenses of extraction, production,
storage, processing, reinjection, and transportation between such
point of origin and the actual point of sale.
(b) With
respect to Hot Water, Steam or Thermal Energy produced
(collectively to be referred to as “Energy Produced”),
saved and used for the generation of electric power which is then
sold by Lessee, Lessee shall pay to Lessor as a royalty Ten Percent
(10%) of the Net Proceeds from the sale of Energy Produced
utilizing the leased geothermal rights, at and as of the point of
origin on the land which is subject to the leased geothermal rights
in accordance with the definition of Net Proceeds from the sale of
Energy Produced as defined in paragraph 21, subparagraph (g),
unless the sale occurs at a location other than such point of
origin, in which case the Net Proceeds shall also take into account
all costs and expenses of storage and transportation between such
point of origin and the actual point of sale.
(c)
With respect to Energy Produced, saved and sold by Lessee and which
is used for any purpose other than the generation of electric
power, Lessee shall pay to Lessor as a royalty Five Percent (5%) of
the gross proceeds received by Lessee from the sale of Energy
Produced, as such, produced utilizing the leased geothermal rights
at and as of the point of origin on the land which is subject to
the leased geothermal rights, unless the sale occurs at a location
other than such point of origin, in which case the royalty shall be
based on the gross proceeds received by Lessee from such sale less
all costs and expenses of extraction, production, storage,
processing, reinjection, and transportation between such point of
origin and the actual point of sale.
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(d) With
respect to Extractable Minerals, Lessee shall pay as royalty to
Lessor Five Percent (5%) of the net proceeds received by Lessee
from the sale of any gases (as herein defined) and from the sale of
effluence (containing minerals and/or minerals in solution)
produced and sold from any well or wells utilizing the leased
geothermal rights, or, in the event Lessee extracts from the
effluence minerals and/or minerals in solution, Five Percent (5%)
of the proceeds received by Lessee from the sale of minerals and/or
minerals in solution contained in and extracted from the effluence
produced and sold from such well or wells less costs of
transportation and extraction.
Lessee
shall pay to Lessor on or before the twenty-fifth day of each month
the royalties accrued and payable for the preceding calendar month,
or on or before the twenty-fifth day of the month next following
that in which Lessee receives payment therefore from the purchaser
thereof, whichever method may be chosen by Lessee from time to
time, and in making such royalty payments Lessee shall deliver to
Lessor statements setting forth the basis for computation and
determination of such royalty.
Lessee
shall not be required to account to Lessor for or to pay any
royalty on Hot Water, Steam, Thermal Energy produced by Lessee
utilizing the leased geothermal rights which is not utilized, saved
and sold, or which is used by Lessee in its operations for or in
connection with the developing, recovering, producing, extracting
and/or processing of Hot Water, Steam, or Thermal Energy or in
facilities for the generation of electric power, or which are
unavoidably lost.
Lessee
shall have the right from time to time and at any time to commingle
(for purposes of storing, transporting, utilizing, selling and
processing, or any of them) the Leased Substances, or any of them,
that are produced or extracted utilizing the leased geothermal
rights or any geothermal resource pooled, unitized or combined
therewith, with Geothermal Resources, or any of them, produced from
other lands or units in the vicinity of the land which is subject
to the leased geothermal rights, and in the event of such
commingling, Lessee shall meter, gauge, or measure the production
occurring directly from utilization of the leased geothermal
rights, or from the unit or units, including leased and other units
or lands, as the case may be, and compute and pay Lessor’s
royalty payable under the provisions hereof on the basis of such
production so determined or allocated, as the case may
be.
From the time when Lessor shall
commence Commercial production utilizing the leased geothermal
rights, Lessee shall then pay Lessor the geothermal royalty set
forth herein, or the initial term annual payments, whichever shall
be the larger. This change from annual lease payments to geothermal
royalty payments shall occur at the time when geothermal royalties
exceed annual lease payments in any given month.
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6. Commingled
and Unit Operations. Lessee shall have the right to commingle, or
unitize said leased geothermal rights, for the purpose of
utilizing, selling, processing, the Leased Substances produced
utilizing the leased geothermal rights with the steam or heat
energy produced from other lands or geothermal resources, and to
meter or gauge the production of steam or heat energy utilizing the
leased geothermal rights and to compute and pay Lessor royalty on
the basis of such production as so determined. Such unit shall be
deemed created either upon Lessee recording in the office of the
county recorder in the county in which the land which is subject to
the leased geothermal rights is situated a written declaration of
such unit or upon Lessee giving written notice of such unit to
Lessor. Any well (whether or not Lessee’s well) commenced,
drilled, drilling and/or
