GEOTHERMAL
LEASE AND AGREEMENT
This Lease and Agreement is made
and entered into as of this _____ day of _______, 2005, by and
between:
Dale Doman and Ronda B. Doman, husband and
wife , 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
640.00 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 ($1,600.00), 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 TWO DOLLARS AND FIFTY
CENTS (2.50) 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 FIVE DOLLARS ($5.00) 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 satisfaction of
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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 from the
Lands, 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 from the
Lands (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 Two (2.0%) of the market value of such electric power which
is sold by Lessee, which market value shall be deemed to be the
gross proceeds received by Lessee from such sale. Electric power is
computed and paid for on the basis of kilowatt- hours
(“Kw-h”) and the royalty shall be calculated on a basis
of cents per Kw-h.
(c) With
respect to Energy Produced from the Lands, 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
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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 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
explorat
