OIL AND GAS LEASE
STATE OF TEXAS
ss.
COUNTY OF CALHOUN
ss.
THIS OIL AND GAS LEASE is
made this 31st day of August, 2004, by and between The
Northern Trust Bank of Texas,
N.A., as Successor Trustee of the Leila Clark Wynn
Mineral Trust, whose address is 2121 San Jacinto Street, P.O. Box 226270,
Dallas, Texas 75222,
hereinafter "Lessor,"
and Petrogen, Inc.
whose address is
3200 Southwest Freeway, Suite
3300, Houston, Texas 77027, hereinafter "Lessee."
WITNESSETH
1. That Lessor,
in consideration of Ten Dollars ($10.00) and other
valuable consideration,
the receipt of which
is hereby acknowledged, and of the
covenants and agreements of Lessee hereinafter contained, does hereby grant,
lease and let unto Lessee the
land covered hereby
for the purposes
hereinafter
described and with the exclusive right of exploring, drilling, mining and
operating for, producing and
owning oil, gas and sulphur, together with right to
make surveys on said land,
lay pipe lines,
establish and utilize facilities for
surface or subsurface
disposal of salt water, construct roads and bridges,
build
tanks, power stations,
telephone lines,
employee houses and other structures on
said land, necessary or useful in Lessee's
operations in
exploring,
drilling
for, producing, treating, storing and transporting
minerals produced from
the
land covered hereby or adjacent thereto. The land covered hereby and herein
referred to as the "land" or "said
land" is located in
the County of
Calboun,
State of Texas, and is
described as follows:
TRACT ONE: Being all of the ISAAC W. BOONE SURVEY No. 15,
Abstract
No.
56, Calhoun County, Texas, containing approximately 801.26 acres,
more
or less, and being a
part of that certain
land described in a Deed
dated July 15, 1949,
Edwin Hawes. Jr., et
al to George Rust Hawes. as
recorded in Volume 70, Page 209, Deed Records of Calhoun County,
Texas.
TRACT TWO: Being all of the ISAAC W. BOONE SURVEY No. 16,
Abstract
No.
57, Calhoun County, Texas, containing approximately 770.24 acres,
more
or less, and being the
same land described in
that certain Deed dated
July 15, 1949,
Edwin Hawes, Jr., et al to George Rust Hawes, as
recorded in Volume 70, Page 211, Deed Records of Calhoun County,
Texas.
For the purposes
of determining the amount of any bonus or other
payment hereunder,
said land shall be
deemed to contain, 1,571,3 acres, whether
actually containing more or less, arid. the above recital of acreage in
any
tract shall be deemed to be
the true acreage
thereof. Lessor
accepts the bonus
as lump sum consideration for
this lease and all rights and options hereunder.
2. Unless sooner terminated or longer kept in force under other
provision hereof,
this lease shall
remain in force for a term of six (6) months
from the effective date
hereof, hereinafter
called "primary term",
and as long
thereafter as oil, gas and/or sulphur is produced from the land or other
land
pooled therewith in
commercial quantities or operations, as hereinafter
defined,
are conducted upon said laud with no cessation for more than ninety (90)
consecutive days.
OIL AND GAS LEASE, PAGE I OF 7 PAGES
08-23-04
<PAGE>
3. As royalty, Lessee covenants and agrees:
(a) To deliver to the credit of Lessor, in the pipe line to
which
Lessee may connect its wells, the equal 1/5th part of all oil
produced
and saved by Lessee from said land, or from time to time, at the
option
of Lessee, to pay
Lessor the average posted market price of such l/5th
part of such oil at the wells as of the day it is run to
the pipe line
or storage tanks;
(b) To pay Lessor on gas and casinghead gas produced from said
land (1) when sold by Lessee, I/5tli of the amount realized by
Lessee,
computed at the mouth of the well, or (2) when used by Lessee off
said
land or in the
manufacture of gasoline or other products, the market
value, at the mouth of
the well, of l/5th of
such gas and
casinghead
gas;
(c) To pay Lessor
on all other
minerals mined or marketed or
utilized by Lessee from said land, one-tenth either in kind or
value at
the well or mine at Lessee's election, except that on sulphur mined
and
marketed the royalty shall be $2.50 per long ton. If at the
expiration
of the primary term or
at any time or times
thereafter, there is
any
well on said land or
on lands with
which said land or any portion
thereof has been pooled, capable of producing oil and gas. and all
each
wells are shut-in, this lease shall, nevertheless, continue in
force as
though operations were being conducted on said land for so long as
said
wells are shut-in, and
thereafter this lease may be continued in force
as if no shut-in
had occurred. Lessee covenants and agrees to use
reasonable diligence
to produce, utilize, or market the minerals
capable of being produced from said wells, but in the exercise of
such
diligence, Lessee
shall not be obligated to install or furnish
facilities other than
well facilities and ordinary lease facilities of
flow lines, separator,
and lease tank, and shall not be required
to
settle labor
trouble or to market gas upon terms unacceptable to
Lessee. If at any time
or times after the
expiration
of the
primary
term, all such wells
are shut-in
for a period of ninety
consecutive
days, and during such
time there are no operations on said land, then
at or before the expiration of said ninety day-period, Lessee shall
pay
or tender by check or draft of Lessee, as royalty, the sum of
$7,857.50. Upon making
said payment, it will
be considered that
each
such well is producing gas in paying quantities within the meaning of
this lease for a
period of one (I) year after the expiration of said
ninety (90) day period, In like manner and upon like payment being
made
annually on or before the expiration of the last preceding year for
which such payment or tender has been made, it will be considered
that
said well or wells are
producing gas in commercial quantities for
successive periods of
one (I) year each.
Each such payment or
tender
shall be made to the
parties who at the time of payment would be
entitled to receive the royalties which would be paid under this
lease
if the wells were
producing, and may be
deposited in the
depository
bank provided for below. Nothing herein shall impair
Lessee's right to
release as provided in paragraph 4 hereof. In event of assignment of
this lease in whole or in part, liability for payment hereunder shall
rest exclusively on
the then owner or owners of this lease, severally
as to acreage owned by each.
4. If at any time or times during the primary term operations are
conducted on said land and if
all operations are discontinued, this lease shall
thereafter terminate on the date next
following the ninetieth day after
such
discontinuance unless on or before such date Lessee conducts operations;
provided, however, if such date is at the end of the
primary term, this
lease
shall terminate at the end of such term or on the ninetieth day after
discontinuance of all operations, whichever is the later date,
unless on
such
late date either (1) Lessee
is conducting
operations
or (2) the shut-in
well
provisions of paragraph 3 or the provisions of paragraph 10 are applicable.
Whenever used in this lease
the word "operations"
shall mean operations for and
any of the following:
drilling, testing,
completing, reworking,
recompleting,
deepening, plugging back or
repairing of a well in search for or in an. endeavor
to obtain production of oil, gas or sulphur, whether or not in paying
quantities.
OIL AND GAS LEASE. PAGE 2 OF 7 PAGES
08-23-04
<PAGE>
5. Lessee shall have the use, free from royalty, of oil and gas
produced from said land in
ail operations hereunder. Lessee shall have the right
at any time to remove all
machinery and fixtures placed on said land, including
the right to draw and remove
casing. No well shall be drilled
nearer than
200
feet to the house or barn now
on said land without
the consent of the Lessor.
Lessee shall pay for damages caused by its operations to growing crops and
timber on said
land.
6. The rights and estate of any party hereto may be assigned
from time
to time in whole or in part and as to any minerals or horizon. AH of the
covenants, obligations, and considerations of
this lease shall extend to and be
binding upon the parties hereto, their heirs, successors, assigns, and
successive assigns, No change or division in the ownership of said land,
royalties, or other moneys, or any part thereof, howsoever effected, shall
increase the obligations or diminish the rights
of Lessee, including,
but not
limited to, the location and drilling of wells and the measurement of
production. Notwithstanding
any Other actual or constructive knowledge or notice
hereof or to Lessee,
its successors or assigns, no change or division in
the
ownership of said lands of the royalties, or other moneys, or the right to
receive the same, howsoever effected, shall be binding upon the then record
owner of this lease until
thirty (30) days after
there has been
furnished to
such record owner at his or its principal place of business by Lessor or
Lessor's heirs, successors, or assigns, notice of such change or division,
supported by either originals
or duly certified copies of the instruments which
have been property
filed for record and
which evidence such change or division,
and of such court records and
proceedings,
transcripts,
or other documents
as
shall be necessary in the
opinion of such record owner to establish the validity
of such change or division,
If any such change in
ownership occurs by reason of
death of the owner,
Lessee may
nevertheless
pay or tender such
royalties,
or
other moneys, or part thereof, to the credit of the decedent in a
depository
bank provided for
above.
7. In the event Lessor
considers that Lessee has not complied with all
its obligations hereunder,
both express and implied, Lessor shall, notify Lessee
in writing, setting out specifically in what respects
Lessee has breached this
contract. Lessee shall then have sixty (60) days after the receipt: of said
notice within which to meet or commence
to meet all or any part of the breaches
alleged by Lessor. The
service of said notice shall be precedent to the
bringing
of any action by Lessor on
said lease for any cause, and no such action shall be
brought until the lapse of sixty
(60) days after service of such notice on
Lessee. Neither the service of said notice nor the
doing of any acts by Lessee
aimed to meet all or any of
the alleged breaches shall be deemed an admission or
presumption: that Lessee has
failed to perform all its obligations hereunder. If
this lease is cancelled for
any cause, it shall nevertheless remain in force and
effect as to (I) sufficient acreage around each well as to which there are
operations to constitute a
drilling or maximum
allowable unit under
applicable
governmental regulations,
(but in no event less
than forty acres), such acreage
to be designated by Lessee as nearly as practicable in the form of a square
centered at the well, or in
such shape as then existing spacing rules require;
and (2) any part of said
land included in a pooled unit on which there are
operations. Lessee shall also have such
easements on said land as are necessary
to operations on the acreage
so retained.
8. Lessor's rights and interests hereunder shall be charged
primarily
with any mortgages,
taxes or other liens,
or interest and other charges on said
land, bat Lessor agrees that Lessee shall have the
right at any time to pay or
reduce same for Lessor,
either before, or
after maturity, and be
surrogated to
the rights of the bolder
thereof and to deduct amounts so paid from royalties or
other payments payable or which may become
payable to Lessor
and/or assigns
under this lease. If this lease covers a less interest in the oil, gas and
sulphur in all or any part of
said land than the entire
