Exhibit
10.38
FORM
50451-A 8-97 PROT
PAID-UP
OIL, GAS AND
MINERAL LEASE
THIS
AGREEMENT made and entered into this 1st day of
November, 2006 between Mike Studdard,
Individually and as President of Wentworth Energy, Inc. a
Oklahoma Corporation. hereinafter called "Lessor" (whether
one or more), whose post
office address is
112 E. Oak Street, Suite 102, Palestine, Texas 75801
and Marathon Oil (East Texas) LP, hereinafter
called "Lessee", whose post office address is P. 0. Box 3128,
Houston, Texas 77253:
1.
Lessor, in consideration of ten and no/100's and other valuable
consideration Dollars ($10.00) in hand paid, receipt of which is
hereby acknowledged, of the royalties herein provided and of the
agreements of the Lessee herein contained, hereby grants, leases
and lets, exclusively unto Lessee for the purpose of investigating,
exploring, prospecting, drilling, mining and operating for and
producing oil , gas and all other minerals, injecting gas, waters,
other fluids, air and other gaseous substances into subsurface
strata, laying pipe lines, storing oil, building tanks, power
stations, electric transmission lines, telephone lines, and other
structures and things thereon to produce, save, take care of,
treat, process, store and transport said minerals and other
products manufactured therefrom, and housing and otherwise caring
for its employees, the following described land in Freestone
County, Texas, to-wit:
SEE
EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF. SEE EXHIBIT "B"
ATTACHED HERETO AND MADE A PART HEREOF.
Notice of
Confidentiality Rights: If you are a natural person, you may remove
or strike any of the following information from this instrument
before it is filed for record in the public records: Your Social
Security Number or your Driver's License Number.
Notwithstanding
any particular description, it is nevertheless the intention of
Lessor to include within this lease, and Lessor does hereby lease,
not only the land so described but also any and all other land
owned or claimed by Lessor in the herein named survey or surveys,
or in adjoining surveys, and adjoining the herein described land up
to the boundaries of the abutting landowners, the leased lands
being hereinafter referred to as "said land." For the purpose
of
determining the
amount of any bonus or other payment hereunder, said land shall be
deemed to contain 9197.83 acres, whether actually containing
more or less. Lessor agrees to execute any supplemental
instrument(s) requested by Lessee for a more complete or accurate
description of said land or instrument(s) to perfect title
deficiencies.
2.
Subject
to the other provisions herein contained, this lease shall remain
in force for a term of 3
years
from this date (called "primary term"), and as long thereafter as
oil, gas or other mineral is produced from said physical land or
land with which said land or any part thereof is pooled, or this
lease is maintained by virtue of some other provision
hereof.
3.
This is
a PAID-UP LEASE. In consideration of the down cash payment, Lessor
agrees that Lessee shall not be obligated, except as otherwise
provided herein, to commence or continue any operations during the
primary term.
4.
The
royalties to be paid by Lessee are: (a) on oil and on other liquid
hydrocarbons saved at the well,23.0 of that produced and saved from
said land, same to be delivered at the wells or to the credit of
Lessor in the pipeline to which the wells may be connected with
Lessor's interest in either case bearing its proportion of any
expense for treating oil to make it marketable as crude and Lessee
having the option, at any time or from time to time, to purchase
Lessor's oil at the well, paying therefore the lawful market price
on the date of purchase for oil of like grade and gravity
prevailing for the field nearest where such oil is produced; (b) on
gas, including casinghead gas and all gaseous substances, produced
from said land and sold by Lessee, 23.0% of the amount
realized from such sale thereof; after deduction of a proportionate
part of the production, severance and other excise taxes and the
cost incurred by Lessee in delivering, processing, compressing, or
otherwise making such gas or other substances merchantable; (c) on
gas, including casinghead gas and all gaseous substances, produced
from said land and used off said land by Lessee and not benefiting
Lessor, the market value at the mouth of the well of 23.0%
of the gas so used off said land; (d) on all minerals
mined and marketed23.0%, either in kind or value at the well or
mine, at Lessee's election, except that on sulphur the royalty
shall be One Dollar ($1.00) per long ton; and (e) if at any time
while there is a gas well or wells on the said land or land pooled
therewith (for the purposes of this clause (e) the term "gas well"
shall include wells capable of producing natural gas, condensate,
distillate or any gaseous substance and wells classified as gas
wells by any governmental authority) and such well or wells are
shut-in, and this lease is not being maintained otherwise as
provided herein, this lease shall nevertheless remain in force and
effect following the shutting-in of the well(s), whether it be
during or after the primary term (unless released by Lessee), and
it shall be considered that gas is being produced from the land
covered by this lease. When the lease is continued in force in this
manner and the well or wells are shut-in for a period of at least
ninety (90) consecutive days, Lessee shall pay or tender as an
advanced annual royalty to the parties who at the time of such
payment would be entitled to receive royalty hereunder if the well
were producing, or deposit to their credit in the Directly to
Lessor bank (Account No. ), at $1.00 per net acre
for the acreage then held under this lease by the party making such
payment or tender. The first payment of such sum shall be made on
or before either; (1) ninety (90) days from the date such well or
wells are shut-in; (2) ninety (90) days from the effective date for
inclusion of said land or a portion thereof within a unit on which
is located a shut-in gas well; or (3) ninety (90) days from the
date this lease ceases to be otherwise maintained as provided
herein, whichever is the later date, and it shall be considered
that gas is being produced from said land in paying quantities
within the meaning of Paragraph 2 hereof for one (1) year from the
date of such payment, and in like manner subsequent advance annual
royalty payments may be made or tendered and it will be considered
that gas is being produced from said land in paying quantities
within the meaning of said Paragraph 2 during any annual period for
which such royalty is so paid or tendered; such advanced annual
royalty payment shall be credited against any royalty accruing to
the owners thereof on any production from said land during any
annual period for which such advanced annual payment has been made.
Lessee's failure to pay or tender or to pay or tender properly or
timely any such sum as royalty shall render Lessee liable for the
amount due but it shall not operate to terminate this lease. All
royalty interests, whether or not owned by the undersigned, shall
be paid out of the royalty as provided for in said
lease.
5.
Lessee
shall have the right but not the obligation to pool all or any part
of the leased premises or interest therein with any other lands or
interests, as to any or all depths or zones, and as to any or all
substances covered by this lease, either before or after the
commencement of production, whenever Lessee at its sole discretion
deems it necessary or proper to do in order to develop or operate
prudently the leased premises, whether or not similar pooling
authority exists with respect to such other lands or interests. The
unit formed by such pooling for an oil well which is not a
horizontal completion shall not exceed 80 acres plus a maximum
acreage tolerance of 10%, and for a gas well or a horizontal
completion shall not exceed 640 acres plus a maximum acreage
tolerance of 10%; provided that a larger unit may be formed for an
oil well or gas well or horizontal completion to conform to any
well spacing or density pattern that may be prescribed or permitted
by any governmental authority having jurisdiction to do so. For the
purpose of the foregoing, the term "horizontal completion" means a
well in which the horizontal component of the gross completion
interval in the reservoir is at least one hundred (100) feet. In
exercising its pooling rights hereunder, Lessee shall file of
record a written declaration describing the unit and stating the
effective date of pooling. Production, drilling, completion, or
reworking operations anywhere on a unit which includes all or any
part of the leased premises shall be treated as if it were
production, drilling, completion or reworking operations on the
leased premises, except that the production on which Lessor's
royalty is calculated shall be that proportion of the total unit
production which the net acreage covered by this lease and included
in the unit bears to the total gross acreage in the unit. Pooling
in one or more instances shall not exhaust Lessee's pooling rights
hereunder, and Lessee shall have the recurring right but not the
obligation to revise any unit formed hereunder by expansion or
contraction or both, either before or after commencement of
production, in order to conform to the well spacing or density
pattern prescribed or permitted by the governmental authority
having jurisdiction, or to conform to any productive acreage
determination made by such governmental authority. Also each such
drilling or production unit, when limited to any one or more
formations and to any one
or
more of the minerals therein or produced therefrom, may from time
to time be enlarged and extended by Lessee to include additionally
any other formation or formations and any other mineral or minerals
therein or produced therefrom. In making such a revision, Lessee
shall file or record a written declaration describing the revised
unit and stating the effective date of revision. To the extent any
portion of the leased premises is included in or excluded from the
unit by virtue of such revision, the proportion of unit production
on which royalties are payable hereunder shall thereafter be
adjusted accordingly. Lessee may place and use on each unit created
hereunder common measuring and reworking tanks for production from
such unit. In the absence of production in paying quantities from a
unit, or upon permanent cessation thereof, Lessee may terminate the
unit by filing of record a written declaration describing the unit
and stating the date of termination. Pooling hereunder shall not
constitute a cross-conveyance of interests.
6.
If, at
the expiration of the primary term, oil, gas or other mineral is
not being produced from said land or land pooled therewith but
Lessee is then engaged in operations for drilling, mining or
reworking of any well or mine thereon or shall have completed a dry
hole thereon within ninety (90) days prior to the end of the
primary term, this lease shall remain in force so long as
operations on said well or for the drilling or reworking of an
additional well are commenced and prosecuted (whether on the same
or successive wells) with no cessation of more than ninety (90)
consecutive days, and, if they result in production, so long
thereafter as oil, gas or other mineral is produced from said land
or land pooled therewith. If, after the expiration of the primary
term of this lease and after oil, gas or other mineral is produced
from said land or land pooled therewith, production thereof should
cease from any cause, this lease shall not terminate if Lessee
commences operations for drilling or reworking within ninety (90)
days after the cessation of such production, but shall remain in
force and effect so long as such operations are prosecuted with no
cessation of more than ninety (90) consecutive days, and if they
result in the production of oil, gas or other mineral, so long
thereafter as oil, gas or other mineral is produced from said land
or land pooled therewith. In the event a well or wells producing
oil or gas in paying quantities should be brought in on adjacent
land and within two hundred (200) feet of and draining said land,
Lessee agrees to drill such offset wells as a reasonably prudent
operator would drill under the same or similar circumstances. The
judgment of the Lessee, when not fraudulently exercised, in
carrying out the purpose of this lease shall be
conclusive.
7.
Lessee
shall have free use of oil, gas and water from said land, except
water from Lessor's wells and tanks, for all operations hereunder
including repressuring, pressure maintenance, cycling and secondary
recovery operations, and the royalty shall be computed after
deducting any so used. Any structures and facilities placed on said
land by Lessee for operations hereunder and any well or wells on
said land drilled or used for the injection of salt water or other
fluids may also be used for Lessee's operations on other lands in
the same area. Lessee shall have the right at any time during or
after the expiration of this lease to remove all property and
fixtures placed by Lessee on said land, including the right to draw
and remove all casing. When required by Lessor, Lessee will bury
all pipe lines below ordinary plow depth, and no well shall be
drilled within two hundred (200) feet of any residence or barn now
on said land without Lessor's consent.
8.
The
rights of either party hereunder may be assigned in whole or in
part and the provisions hereof shall extend to the heirs,
representatives, successors and assigns, but no change or division
in ownership of the land or royalties, however accomplished, shall
operate to enlarge the obligations or diminish the rights of
Lessee. No such change or division in the ownership of the land or
royalties shall be binding upon Lessee for any purpose until such
person acquiring any interest has furnished Lessee with the
instrument or instruments, or certified copies thereof,
constituting the chain of title from the original Lessor. An
assignment of this lease, in whole, or in part, shall, to the
extent of such assignment, relieve and discharge Lessee of any
obligations hereunder, and, if Lessee or assignee of part or parts
hereof shall fail to comply with any provision of this lease, such
default shall not affect this lease insofar as it covers a part of
said land upon which Lessee or any assignee thereof shall not be in
default. Should more than six parties become entitled to royalties
hereunder, Lessee may require the appointment of a single agent to
receive payment for all and may withhold payment until such
appointment has been made.
9.
When
drilling or other operations are delayed or interrupted by storm,
flood or other act of God, fire, war, rebellion, insurrection,
riot, strikes, differences with workmen, unavailability of material
or equipment, failure of carriers to transport or furnish
facilities for transportation, some order, requisition or necessity
of the government or as a result of any cause whatsoever beyond the
control of the Lessee, the time of such delay or interruption shall
not be counted against Lessee, anything in this lease to the
contrary notwithstanding. All express or implied covenants of this
lease shall be subject to all Federal and State laws. Executive
orders, rules or regulations and this lease shall not be
terminated, in whole or in part, nor Lessee held liable in damages
for failure to comply therewith if compliance is prevented by, or
if such f
