GEOTHERMAL
LEASE AND AGREEMENT
This Lease and Agreement is made
and entered into as of this _____ day of _______, 2005, by and
between:
Bighorn Mortgage Corporation
, 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
land hereinafter described, 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 upon said land, during the term hereof, with the
right of entry thereon and use and occupancy thereof at all times
for said purposes and the furtherance thereof, including the right
to construct, use and maintain thereon and to remove therefrom
structures, facilities and installations, pipelines, utility and
power transmission lines.
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The
possession by Lessee of said land shall be sole and exclusive for
the purposes hereof and for the purposes incident or related
thereto, excepting that Lessor reserves the right to use and occupy
said land, or to lease or otherwise deal with the same, without
interference with Lessee rights, for residential, agricultural,
commercial, or grazing uses, or for any and all uses other than the
uses and rights permitted to Lessee herein.
2. Lands.
The land which is the subject of this lease is situated in the
county and state above first named, consisting of approximately
280.00 acres and which is described in Exhibit A attached hereto
and incorporated as if more fully set forth herein, including also
in the leased land all rights of Lessor, presently owned or
hereafter acquired, in and under roads, ditches, and rights of way
traversing or adjacent to said land, (hereinafter referred to as
“Lands”).
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 land or lands 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 on the
leased land or lands 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 on the leased land or lands
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) on the leased land or lands 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 upon the execution hereof ($1,400.00), covers
both 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 FIVE DOLLARS ($5.00) per
acre, 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 SEVEN DOLLARS AND FIFTY CENTS ($7.50) per acre, until
such time as from the drilling of a well or wells on the leased
land, or lands pooled, unitized or combined therewith, there has
been established to the
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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. 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 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 from the leased land at and as of
the point of origin on the leased land, which market value shall be
deemed to be the gross proceeds received by Lessee from such sale
at the point of origin on the leased land, unless the sale occurs
at a location other than the point of origin on the leased land, 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 the point of origin on the
leased land and the 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 from the leased land, at and as of the
point of origin on the leased land in accordance with the
definition of Net Proceeds from the sale of Energy Produced as
defined in paragraph 21, subparagraph (g).
(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 from the leased land at and as of the point of origin on
the leased land.
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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 on the leased land, 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 on
the leased land which is not utilized, saved and sold, or which is
used by Lessee in its operations on or with respect to the leased
land 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 from the leased land or
lands pooled, unitized or combined therewith, with Geothermal
Resources, or any of them, produced from other lands or units in
the vicinity of the leased land, and in the event of such
commingling, Lessee shall meter, gauge, or measure the production
from the leased land, 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 from said Lands, 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.
6.
Commingled and Unit Operations. Lessee shall have the right to
commingle, or unitize said leased land, for the purpose of
utilizing, selling, processing, the Leased Substances produced from
the lease land with the steam or heat energy produced from other
lands, and to meter or gauge the production of steam or heat energy
from leased
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land and to
compute and pay Lessor royalty on the basis of such production as
so determined. The total acreage to be embraced within any such
unit shall not exceed 1,920 acres, plus an acreage tolerance of Ten
Percent (10%), except that a larger unit may be created to conform
to State or Federal regulations. Such unit shall be deemed created
either upon Lessee recording in the office of the county recorder
in the county in which the leased land 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 producing or being capable of
producing in any part of such unit shall for all purposes of this
Lease be deemed a well commenced, drilled, drilling and/or
producing on the leased land, and Lessee shall have the same rights
and obligations with respect thereto and to drilling and producing
operations upon the lands from time to time included within any
such unit as Lessee would have if such lands constituted the leased
land; provided, however, that notwithstanding this or any other
provision or provisions of this Lease to the contrary:
(a)
production as to which royalty is payable from any such well or
wells drilled upon any such unit, whether located upon the leased
land or other lands, shall be allocated to the leased land in the
proportion that the acreage of geothermal rights of the leased land
in such unit bears to the total acreage of geothermal rights of
such unit, and such allocated portion thereof shall for all
purposes of this Lease be considered as having been produced from
the leased land and the royalty payable under this Lease with
respect to the leased land included in such unit shall be payable
only upon that proportion of such production so allocated thereto,
and
(b) if any taxes of any kind
are levied or assessed (other than taxes on the land and on
Lessor’s improvements), any portion of which is chargeable to
Lessor under paragraph 15 hereof, then the share of such taxes to
be borne by Lessor as provided in the Lease, shall be in proportion
to the share of the production from such unit allocated to the
leased land.
Allocation of unit production
whether to the leased land or to other lands therein, shall
continue after any termination of all or any part of this or any
other lease covering lands in the unit until any exploration,
drilling, remedial drilling or production operations are begun on
the lands so terminated, or until contracts regarding any such
operations are entered into, whereupon all such terminated lands
shall be excluded in the production to be allocated to the
respective lands in such unit. In the event of the failure of
Lessor’s, or any other owner’s, title as to any portion
of the land included in any such unit, such portion of
