GEOTHERMAL
LEASE AND AGREEMENT
This Lease and Agreement is made
and entered into as of this 22nd day of June, 2005, by and
between:
R. Michael Griffin and Cleo S.
Griffin, husband and wife; Harlow R. Griffin and Pauline Griffin,
husband and wife; Douglas Griffin and Margaret Griffin, husband and
wife; J Terry Griffin and Sue Griffin, husband and wife; Vincent
Jorgensen and Phyllis Jorgensen, husband and wife; and Alice Mae
Griffin Shorts, a widow , 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
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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.
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 one
hundred sixty (160) 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 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
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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 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.
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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 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 such land
shall likewise be excluded in allocating production from such unit,
provided, however, Lessee shall not be held to account for any
production allocated to any lands excluded from any such operating
unit unless and until Lessee has actual knowledge of the
circumstances requiring such exclusion. Any exclusion shall
be
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deemed
effective the first day of the month next following the date upon
which such exclusion becomes finally established.
Lessee
may, at its sole option, at any time when there is no Commercial
production in such unit, terminate, enlarge or diminish such unit
either by Lessee recording in the office of the county recorder in
the county in which the leased land is situated a written
declaration thereof, or by Lessee giving written notice thereof to
Lessor.
In the event that the production
of Leased Substances from the leased lands or from lands in the
general area of the leased land should at any time exceed the
demand for the facility use thereof in the opinion of Lessee and
the Lessee elects to reduce the total amount of steam produced or
consumed, then in that event each well participating on a
commingling basis shall be reduced in percentage amount equal to
its proportion of the whole.
7. Use
Of Lease. Lessee shall have the right to drill such wells on leased
land as Lessee may deem desirable for the purposes hereof including
the exploration and production of Geothermal Resources for heat or
electric power production purposes and any reinjection of fluids
thereof. Lessee shall have the right to construct upon leased land
such equipment and structures as Lessee may deem desirable for the
purpose of utilizing Leased Substances including geothermal power
plants, access and piping and transmission equipment related
thereto. No well shall be drilled on the leased land within 300
feet of any residence or 100 feet of any barn now on leased land
without Lessor’s consent.
8. Minimize
Use. Notwithstanding any provisions of this lease
