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HomeMy WebLinkAboutRES 00-240 RESOLUTION NO.�°tea S�0 BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BEAUMONT: THAT the City Manager be and he is hereby authorized to grant an Oil, Gas and Mineral Lease to Centennial Oil & Gas Investments, Ltd. The lease agreement is substantially in the form attached hereto as Exhibit "A". PASSED BY THE CITY COUNCIL of the City of Beaumont this the day of 2000. - Mayor - GAMWESOIUTMGENDA.00 OIL. AND GAS LEASE THE STATE OF TEXAS § COUNTY OF JEFFERSON § THIS AGREEMENT made and entered into this the day of , 2000 by and between the City of Beaumont, a municipal corporation, domiciled in Jefferson County, Texas,hereinafter called Lessor, and Centennial Oil & Gas Investments, Ltd., 2626 Calder Avenue, Suite 104, Beaumont, Texas, Jefferson County,Texas 77702, hereinafter called Lessee, Nvhether one or more, WITNESSETH: 1. GRAN. TTNG CLAUSE: Lessor,for and in consideration of the sum of TEN AND N01100 DOLLARS (S 10.00) cash in hand paid, and other valuable consideration, receipt of which is hereby acknowledged, hereby grants, leases and lets exclusively unto Lessee for the purpose of exploring for and producing oil and gas and other liquid hydrocarbons upon the following terms and conditions, the following described land, to wit: As fully described in Exhibit "A" attached hereto and made a part hereof. Due to the nature of the present use of the surface of the herein leased premises, Lessee shall make no surface use whatsoever without the prior written consent of Lessor and all other governmental authorities having jurisdiction hereof. There is expressly reserved and excepted unto Lessor (except as hereinabove provided) all other mineral substances (except those expressly covered in this lease) owned by Lessor in, under, or upon the leased premises,together with the rights of ingress and egress for purposes of exploration for and production of those mineral substances and forms of energy hereby reserved and excepted unto Lessor. There is further reserved unto Lessor the right to authorize any and all geophysical and geological tests on the leased premises reasonably necessary and incident to the exploration for such mineral substances and forms of energy. Such exploration and production shall not unreasonably interfere with the operations of the Lessee herein. For the purpose of calculating payments hereinafter provided(except royalties), the land described in Exhibit "A," attached hereto is considered to constitute three hundred(300) acres, whether actually more or less. 2. LEASE TERN-1: Subject to the other provisions herein contained, this lease shall be for a term of three (3) years from this date (called primary term) and as long thereafter as oil, gas, other liquid hydrocarbons are produced in paying quantities (herein defined) from the leased premises,or this lease is otherwise maintained in effect as hereinafter provided. -1- EXHIBIT "A" 3. This lease shall terminate as to all the leased premises lying outside of a producing we11 tract or unit one year from this date unless on or before such anniversary date Lessee shall pay or tender to Lessor at 184)1 'Main Street, Beaumont. Texas, regardless of changes in ownership of said land or the rentals,the sum of I•IFTY DOLLARS AND NO/100 (550.00)per acre (herein called rentals) for all the leased pTemises lying outside of a designated producing unit well tract or unit, which shall continue this lease in force and effect as to all such land for a period of twelve (12) months. In like manner and upon like payment or tender annually, such termination of all the leased premises lying outside of a de:ign,ted producing unit well tract may be further deferred for successive periods of twelve (12) months each during the primary terra. The payment or tender of rental under this paragraph and of royaty under or,any gas well from which gas is not being sold or used may be made by the check or draft of Lessee mailed or delivered to the parties entitled thereto on or before the date of payment. 4. ROYALTY: The royalties to be paid by Lessee to Lessor are: (1) On oil and condensate or other liquid hydrocarbons produced at the well or at an oil and gas separator of the conventional type twenty-five percent(25%)of the entire eight-eights(8/8%)of that produced and saved from the land described herein, free of any expense to Lessor, to be, at Lessor's option either (1) delivered into the pipelines, tanks or other receptacles to which Lessee may connect Lessee's well or wells for the purpose of storage and/or sale of the oil produced, (2)delivered at the well into tanks or other receptacles provided by Lessor,at Lessor's own expense,(3)purchased by Lessee or any affiliate of Lessee,at the market price being paid on the date of purchase, or (4) sold by Lessee (for Lessor's account) to the purchaser of Lessee's oil if sold by Lessee at the well or on the lease, for the price received by Lessee,or any affiliate of Lessee, for its own oil produced from said land. In no event shall the price paid be less than the market value on the date produced or the price received by Lessee, or any affiliate of Lessee, for its own oil produced from said land. In no event shall the price paid be less than the market value on the date produced or the price received by Lessee or an affiliate of Lessee,whichever is greater. Provided,however, if the oil and condensate or other liquid hydrocarbons be run through or processed in a plant of the type authorized below, the royalty thereon shall be calculated and paid under the terms and provisions as herein provided. (ii) Lessee agrees that before any gas containing recoverable liquid hydrocarbons(except gas run through an absorption plant or other type of plant for the extraction of hydrocarbon products as hereinafter authorized below) produced from said land is sold or used, it will be run through an adequate oil and gas separator of the conventional type or other equipment at least as efficient, so that as much of such liquid hydrocarbons as can be reasonably recovered from the gas by such means will be recovered, without diminishing the BTU rating below the prevailing minimums of the industry for the sale of such gas in the area. (iii) If gas, casinghead gas or the gaseous substances produced from said land is sold at the well or at a delivery point on or off the leased land, the royalty on same shall be twenty-five percent(25%) of the market value of the gas at the time it is produced, provided that in no event shall the price paid be less than twenty-five percent(25%) of the amount realized therefrom by Lessee or an affiliate of Lessee. (iv) If Lessee, or an affiliate of Lessee shall themselves, or by arrangement with others, run oil, condensate, other liquid hydrocarbons, gas, casinghead gas, or other gaseous substances produced from said land through a processing absorption or extraction plant, or use such production from said land in the manufacture, extraction or separation of gasoline, condensate, distillate, butanes, propanes, chemicals, chemical compounds, or other liquid or gaseous hydrocarbons, or products manufactured, processed, separated, or extracted therefrom, the royalty therefore shall be, at the option of Lessor, either twenty-five percent(25%)of the market value of such oil,condensate,other liquid hydrocarbons, gas, casinghead gas, or -2- other gaseous substances at the well or delivery point on the leased premises,or twenty-five percent (25%) of the market value of the gross production of products and components derived therefrom by such processing and manufacturing at such plant, and Lessor shall be paid on residue gas twenty-five (25%) percent of the market value at the tai gate of the pliant, but in no event less than the proportionate amount realized by Lessee or an affiliate of Lessee for such residue gas. The market value paid hereunder for gasoline, condensate, distillate, butane$, propanes, chesrticals, chemical compounds or other liquid or gaseous hydrocarbons, or - products man of"actured,processed, so separated or extracted, shall be not less than the average selling price of the respecu%e grades thereof f.o.b. at the plant for the month in which same is delivered and shall be not less than the average puce quoted (if prices are quoted) in two of the leading periodicals of the industry for similar grades of the products enumerated above. (v) The royalty on any gas,casinghead gas or other gaseous substances, produced from the land herein described and used,sold or delivered in any w•ay other than specifically provided above shall be twenty- five percent (25%) of the market value at the well at the time it is produced, except that if the same is run through an oil and gas separator as hereinabove provided, the royalty shall be twenty-five percent(25%)of the market value at the downstream outlet of such separator, but not less than the amount realized by the Lessee, or an affiliate of Lessee. (vi) Should Lessee or an affiliate of Lessee use, sell, deliver, or contract with others for the use, sale, delivery or processing of gas, oil or other hydrocarbons from said land for any purposes or under any condition not specifically covered by this Paragraph 4, then Lessor shall have the option at any time,and from time to time, to elect as to the royalty thereon to (1) either receive the royalty herein provided for gas, oil or other liquid hydrocarbons produced and saved or sold, or (2) to be paid twenty-five percent (25%) of the amount realized by Lessee or Lessee's affiliate from the use, sale, delivery or processing of such gas, oil or other liquid hydrocarbons produced from said land or received by Lessee or an affiliate of Lessee in exchange for or in lieu of gas, oil or other liquid hydrocarbons produced from the said land,or any components thereof. (vii) Lessee shall not have the right to reinject or store oil, gas or other hydrocarbons produced from said land into any underground reservoir or formation in or under the land described herein. (viii) The term "affiliate of Lessee" as herein used, means and includes any partner,joint venturer, creditor,agent or representative of Lessee; any firm or corporation that,at the time in question,is a subsidiary or part firm of Lessee; any firm or corporation which has the same parent firm or corporation as or substantially the same officers or directors as Lessee; any firm or corporation in which any officers, directors, stockholders, partners,joint venturers, agents or representatives of Lessee own controlling interest; or any person, firm or corporation which owns a controlling interest in the capital stock or interest of Lessee. In addition to the foregoing definition of"affiliate of Lessee," it is understood and agreed that if any oil gas or other liquid hydrocarbons of any portion thereof produced from the land described herein is delivered or sold to any person or entity and subsequently the same or any portion thereof is redelivered or resold to Lessee, or an affiliate of Lessee, then within the meaning of this lease, and for the purposes of calculating the royalty hereunder,the person or entity to which such oil gas or other liquid hydrocarbons are delivered or sold, shall be regarded as an "affiliate of Lessee." If Lessee or an affiliate of Lessee receives, purchases or uses all or any portion of the oil, gas or other liquid hydrocarbons which were produced from the land covered by this lease which were obtained after Lessee, or an affiliate of Lessee, has sold, transferred or delivered to a party, not an affiliate of Lessee, at such time; or if Lessee,or an affiliate of Lessee, obtains by purchase or exchange or in a trade out or exchange, gas, oil or other liquid hydrocarbons of a similar nature to those produced or reasonably suited to the use to which the production from the land covered hereby could be put,then in that event, the gas, oil or other liquid hydrocarbons obtained shall be treated for all purposes under this Paragraph as if same had remained in the hands of Lessee, or an affiliate of Lessee. -3- (ix) Notwithstanding anything herein to the contrary contained, it is expressly stipulated that Lessor, at Lessor's option, and from time to time, upon thirty (30) days prior written notice to Lessee, may elect to take in kind any of its royalty share of gas, oil or other hydrocarbons produced hereunder, and to separately sell,use or dispose of same or any po.- an thereof. In the event Lessor so elects to take in kind all or a portion of its royalty share of any rr iiwrs? or production, Lessor shall install the necessary additional facilities at Lessors cost and expense. Any contract entered into by the Lessee for the sale of gas, oil or other liquid hydrocarbons produce¢;hall be subject to and express that it is subject to Lessor's right to take in kind. Lessor may exercise such right to take in kind from time to time, and also may countermand same from time to time on like written notice. Lessee shall forthwith furnish Lessor true copies of all contracts entered into by Lessee for the sale or disposition of any gas, oil or other liquid hydrocarbons produced under this lease. Unless and until and at all times, except when Lessor is receiving and separately disposing of Lessor's royalty portion of gas, oil and other liquid hydrocarbons, Lessee will be obligated to receive and dispose of same under the royalty provisions of this lease. (x) Lessee agrees that division order or other such documents shall not constitute a valid amendment, alteration or addition to the provisions of this lease. (xi) Notwithstanding any provisions of Paragraph 4 of this lease to the contrary, it is specifically agreed that no gathering, dehydration, compression, separating, processing, treating and marketing or other charges of any kind,either directly or indirectly, to make the gas ready for sale or use, except transportation, shall be assessed against the royalty interest of the Lessor resulting from the sale or use of minerals produced from the land covered by this lease or from land pooled therewith. In regard to transportation costs and expenses, Lessee may not, either directly or indirectly, charge Lessors royalty for any costs or expenses of transportation where such gas is sold at the wellhead. Where gas is sold off the premises, Lessee may deduct from the gross proceeds received for the sale of such gas, a reasonable transportation fee or expense so long as the resulting price for such gas,after deduction for a reasonable transportation fee, is greater than the then prevailing price being paid for gas at the wellhead in the field. Said prevailing price shall be defined as that price published in the first issue of each month of"Natural Gas Weekly" under the heading"Gas Price Report" for "Texas Gulf Coast, On Shore, Spot Wellhead." Upon written request by Lessor, Lessee shall furnish a quote of the then current "Natural Gas Weekly" publication and any documents supporting the transportation charges. Lessee will make all reasonable efforts to obtain the highest prices for gas sales. (xii) It is expressly provided that Lessee and any affiliate of Lessee shall at all times exercise due diligence as the fiduciary agent for Lessor in the marketing of all products produced under the terms of this lease. (xiii) Royalties payable on production hereunder shall be due within sixty (60) days after the sale of such production provided,however, it is agreed that the royalty payment due on the first sale of a product produced hereunder shall not be due until one hundred twenty (120) days a such sale. Any royalties not paid as herein provided, including suspended royalties shall b interest at the rate of ten percent(10%)per annum until paid. 5. SHUT-IN GAS PROVISION ON CAS: Notwithstanding anything to the contrary herein, it is agreed that if and while there is a gas well or wells on the leased premises (the term "gas well" shall be wells capable of producing natural gas which are classified as gas wells by the governmental authority having jurisdiction)and such well or wells are shut-in,then Lessee shall pay Lessor monthly an amount equal to FIVE HUNDRED DOLLARS AND NO/100 (S 500.00) per well. This amount shall be paid monthly, the first payment being due no later than sixty (60) days after completion of such shut-in well or wells, and shall continue until such gas is produced and sold. Provided,however, Lessee may maintain this lease in force and -4- effect solely by the tender of shut-in payments in accordance with this paraa�raph for a period not to exceed twenty-four (24) consecutive months for the first and twelve (12) consecutive months for any subsequent occurrence during the term of this lease. It is expressly understood and agreed that such shut-in payments shall be considered a renta, and s�a 3 not const',me adviace royalty. It is U;;de-s;,�"{-)d ghat-shu:-in ga-, payments are additional delay rental payments and must be timely 6. MDMNIUAI ROYAL: After the end of the primary term, should the total payments made under this lease for the preceding lease year be less than SEVENTY-FIVE DOLLARS AND NO/100(575.00) per acre for each acre covered by this lease on the first day such lease year, then within 60 days after the end of such lease year Lessee shall pay to Lessor the difference between that amount and the payments actually made. The term "lease year" shall mean each year commencing on the anniversary date of this lease. Should this minimum royalty payment not be timely made to Lessor, then it shall be considered that this lease is not producing in paying quantities. A minimum royalty payment shall be allowed for no longer than two (2) consecutive years, and after that time if the well is not providing production so that the actual royalty due lessor equals the minimum royalty, then this lease shall terminate. 7. PARTIAL L OWNERSHIP OF NEENTRAT. .STAY • It is agreed that if Lessor owns an interest in said land less than the entire mineral estate royalties then rentals or other payments herein to be paid or delivered to Lessor shall be reduced proportionately and all outstanding royalties shall be deducted from those herein provided. 8. CESSATION OF PRODUCTION AND CONTIN ?O JS OPERATIONS• After discovery and production of oil, gas or other liquid hydrocarbons on the leased premises, and after the expiration of the primary term of this lease, if production thereof should cease from any cause,this lease shall not terminate if Lessee commences operations for drilling or reworking an existing or new well within sixty (60) days thereafter. If at the expiration of the primary term Lessee is then engaged in any drilling or reworking operations thereon or shall have completed a dry hole thereon within sixty (60) 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 any well are prosecuted with no cessation of more than sixty(60)consecutive days,and if they result in the production of oil,gas, or other liquid hydrocarbons,this lease shall remain in force as hereinabove provided so long thereafter as oil, gas or other liquid hydrocarbons are produced from said land,or on acreage pooled therewith (if so provided for in this lease). In the event, and during such period of time, this lease is being continued in effect under the provisions of this paragraph, Lessee upon written request of Lessor shall render to Lessor weekly reports of all operations begun. conducted or terminated by Lessee upon the leased premises, including,but not limited to, daily progress information regarding each well until oil, gas or other liquid hydrocarbons are produced and royalties paid thereon, or until the lease is surrendered to Lessor. Reworking operations hereunder shall be deemed to be commenced when the first work is commenced and prosecuted with reasonable diligence and drilling operations on a new well shall be deemed to be commenced on the date when the well is spudded in with a rig capable of reaching the permitted depth. 9. PARTIAL S1 TEREN-DER: Should any part of this lease be pooled,as provided in paragraph 22 hereof,with an adjoining tract of land during the primary term of this lease and a well actually drilled on said unit, then Lessee shall reasonably develop the acreage hereunder. In complying with this provision, it is agreed that in the event more than 180 days elapse between the completion of the unit well and the commencement of actual drilling operations on the next unit well, Lessee shall upon written demand of Lessor forthwith execute and place of record in the county of which such land is located a release of all the premises -5- covered by this lease save and except that Lessee may retain under the terms hereof the minimum number of acres as provided in paragraph 22. To comply with the requirement of"commencement of actual drilling operations" as used herein Lessee shall have a drilling rig capable of drilling to the permitted depth on the location of the wr ll and on a unit designated of record. Shall Lessee fail br refuse to place of record in the proper county the necessary release of lease as required herein Lessor shall have the right to recover from Lessee all reasonable and necessary expenses of obtaining and filing such release including attorneys fees and costs of cowl. ' 10. i)FFSFT OD .IGATIONS: After discovery of oil, gas, or other liquid hydrocarbons upon the leased prcmises, in addition to the other provisions of this lease, Lessee agrees to conduct such further operations as a reasonably prudent operator would do under the same or similar circumstances in order to reasonably develop the leased premises. In the event a well or wells producing oil in paying quantities should be brought in on adjoining lands within six hundred sixty (660) feet from the leased premises, or draining the leased premises, or in the event a well or wells producing gas in paying quantities should be brought in on adjoining lands within one thousand three hundred twenty (1,320) feet from the leased premises, or draining the leased premises, Lessee agrees to commence actual drilling operations on the leased premises of an offset well within one hundred twenty(120)days from the date production commences from said well or wells and Lessee receives all necessary permission from the Lessor and other governmental authorities having jurisdiction over the surface and mineral use of the leased premises. In lieu of drilling such well or wells, Lessee may,at Lessee's option,pay Lessor, as compensatory royalty, a sum equal to the royalty which would be payable under this lease on the volume of production from a well or wells on other lands or covered by this lease had same been produced hereunder. Notwithstanding anything to the contrary herein contained, Lessee shall not be obligated to drill such well or wells or to pay such compensatory royalty if Lessee already has a producing well on these leased premises which may reasonably be held to provide drainage protection. 11. DAM A G .S: Lessee will bury and maintain all pipelines a minimum of forty-eight(48)inches below the surface of the ground. Lessee will pay to Lessor actual damages to timber, to crops, to improvements and to the surface of the leased lands suffered by Lessor and any tenant of Lessor caused by or arising out of operations under this lease. Pits and excavations made during drilling operations will be filled by Lessee and the surface restored, as nearly as reasonably possible, to its original condition; and if Lessee shall fail to do so, the cost to Lessor of such filling and restoration shall be paid by Lessee. Lessee's obligations under this paragraph shall be in addition to, and shall not in any way modify or diminish, its obligations under any other paragraph thereof. 12. SURRENDER: Except as herein otherwise provided, Lessee may, at any time, execute and deliver to Lessor, a release covering any portion of the above described premises, and thereby surrender the lease to such portion,. and be relieved of all obligations as to the acreage surrendered; provided, however, nothing herein contained shall be construed to relieve the Lessee of any obligations or payment already then assumed or incurred. 13. REMOVAL OF LESSEE'S PROPERTY:Lessee shall have the duty,during or within one hundred twenty (120) days after the expiration of this lease, to remove all property and fixtures placed by Lessee on the leased premises, including the right to draw and remove casing. Property and fixtures not removed within such one hundred twenty(1 20)day period will become the property of the Lessor,except that if Lessor requires that any of such property be removed,Lessee shall remove the same property,or in the event Lessee fails to do so, Lessor may remove the same at the sole cost,risk and expense of Lessee. -6- 14. TERMINATION: Any well or wells shall be abandoned in accordance with all rules and regulations of the railroad Commission of the State of Texas and any other environmental or regulatory governmental body having jurisdiction thereof. All Pipelines shall be removed and the surface restored and leveled. Any pipeline, pits or other excavations sisall be dug using the two-step method as understood in the " pipeline business. t pon abandlonmmi top soil shall be placed an the surface to its original depth. Any ground contamination caused by Lessee shall be corrected within a reasonable time to conform with tlien existing environmental rules and regulations. 15. FORCE i<IAJELiRF: The covenants and agreements herein expressed or implied in this agreement shall be subject to all valid 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 it such failure is the result of any such law, order, rule or regulation. If after the primary term, from such cause, Lessee is prevented from conducting drilling or reworking operations on, or producing oil or gas from the leased premises, the time while Lessee is so prevented shall not be counted against Lessee, and this lease shall be extended for a period of time equal to that during which Lessee is so prevented from conducting such drilling or reworking operations on, or producing oil or gas from the leased premises,notwithstanding any other provision thereof. Similarly, when drilling or other operations are delayed or interrupted by storm, flood,or other acts of God, fire,war,rebellion, insurrection,riot, strikes, differences with workmen, or failure of carrier to transport or furnish facilities for transportation, or as a result of some order,requisition,or necessity of the government,the time of such delay or interruption shall not be counted against Lessee, anything in this lease to the contrary notwithstanding, and in such event this lease shall be extended for a period of time equal to that during which such Lessee is so prevented from conducting drilling or reworking operations on, or producing oil or gas from such leased premises, notwithstanding any other provision hereof. Lessee shall within thirty (30) days after receiving notice of any such Federal or State law, executive order,rule or regulation, act or event contemplated under this section, notify Lessor thereof and advise Lessor of the effect of such upon this lease. Lessee shall similarly notify Lessor promptly of the termination thereof. Provided, however, the provisions of this paragraph shall in no way abridge the right of Lessor to receive,or relieve Lessee of the obligation to pay, any minimum sums herein described and provided. Anything to the contrary notwithstanding, this lease shall not be suspended by reason of this paragraph for longer than one year per occurrence. 16. BREACH OF TERMS: Except as herein otherwise provided,the material breach by Lessee of any obligation arising hereunder shall not work a forfeiture or a termination of this lease or cause a termination or reversion of the estate hereby created nor be grounds for cancellation hereof in whole or in part unless Lessor has first given to Lessee notice in writing specifying the particulars in which, in the opinion of Lessor, Lessee has failed or beached this lease, and unless Lessee (if Lessee, in fact, be in default in the particulars specified) shall fail to proceed within thirty(30) days after receipt of such notice to comply with the obligations of said lease specified in said notice. If Lessee be of the opinion that it is not in default in the particulars specified,Lessee shall reply to Lessor in writing within thirty(30)days of the receipt of such notice by Lessor, -specifying how, in the opinion of Lessee, Lessee is not in breach of this lease. If Lessor brings suits to compel performance of, or to recover for breach of any covenant or condition herein contained, or for declaratory relief, and prevails therein,Lessee agrees to pay to Lessor reasonable attorney and consultant fees in addition to the amount of judgment and costs. -7- 17. WFi i INFORN14TIOiY / INSPECTIONe Lessee shall furnish Lessor with true copies of each application and report made by Lessee to the governmental authority asserting jurisdiction pertaining to operations on the leased premises or on land pooled therewith simultaneously with Lessee's filing of each application and repunt vAith&=h governmental authority. Lessee shall promptly furnish Lessor with final and complete copies of all logs and electrical surveys run in each well located on the leased premises or on land pooled therewith, showing formations encountered and the identification of such formations as determined by Lessee or Lessee's gculogists or paleontologists. Lessee shall promptly furnish Lessor with copies of daily drilling reports, core analyses and paleontological reports when available and all other technical information readily available which Lessor deems necessary to be informed of the condition and status of all wells drilled, reworked,recompleted or otherwise operated on the leased premises or on land pooled therewith. Lessor shall have the right,personally or through any agent or representative authorized by Lessor,at Lessor's risk,to have derrick floor, well site and logging truck or trailer privileges during operations on the leased premises or on land pooled therewith. Upon written request, Lessee shall promptly furnish Lessor with full information on the metering of production and production runs, together with full information regarding the calculation of all royalties payable under this lease. 18. ASSIGNMENT: The rights of Lessee hereunder may be assigned only with the written consent of Lessor. The rights of Lessor hereunder may be assigned as to all or any part of the land or as to any minerals thereunder, and the provisions hereof shall extend to the heirs, successors and assigns, but no change or division in ownership of the lands, rentals or royalties, however accomplished, shall operate to enlarge the obligation or diminish the rights of Lessee. Likewise, no change in ownership of the leasehold rights hereby conveyed, however accomplished, shall operate to enlarge the obligations or diminish the rights of Lessor hereunder. No sale or assignment by either party hereto shall be binding on the other party until such other parry or an authorized agent thereof shall be fumished with a certified copy of recorded instrument evidencing same. 19. I.IABII.ITY FOR DAMAGES- It is agreed that the terms and provisions of this agreement shall insure to and be binding upon the respective successors, heirs, and assigns of Lessor and Lessee. Notwithstanding that this lease may be assigned in whole or in part, it is understood and agreed that the Lessee,both the original Lessee and such assignees shall nevertheless be jointly and severally liable to Lessor, their heirs, successors, and assigns, for all damages to the surface and subsurface of the lands covered hereby, for any and all pollution caused by operations hereunder, for the non-compliance with all Federal, State or other governmental or regulatory body's or agency's laws, rules and regulations, either now in effect or hereinafter enacted or promulgated, and also without limitation by enumeration, any and all other causes of such action which may be asserted against Lessor, their heirs, successors, and assigns, for acts or omissions caused by operations hereunder by any Lessee, and in connection with all of these, Lessee and all such assignees shall be obligated to indemnify and hold harmless the Lessor, their heirs, successors and assigns. 20. PAYINTENTS. NOTICES, ETC:All payments of monies payable to Lessor under the terms and provisions hereof may be paid or tendered to Lessor or to the credit of Lessor in a bank as set forth by Lessor, which bank and its successors shall continue as the depository for all monies payable hereunder, regardless of changes in ownership of said land or said minimum royalties, unless and until Lessor shall execute and deliver to Lessee a recordable instrument naming and designating another and different bank for such payments or tenders. If such bank (or any successor bank) should fail, liquidate or be succeeded by another bank,or for any reason fail or refuse to accept said payments, Lessee shall immediately notify Lessor thereof and shall not be held in default for failure to make such payment or tender until thirty(30) days after Lessor shall deliver to Lessee a proper recordable instrument naming another bank to receive such payment or tender. Any notices,reports,maps,logs,requests or any other communications herein provided to be made to Lessor by Lessee shall be made to the City Manager or his designee, City of Beaumont, 801 Main Street, -8- Beaumont, Texas 77701. Any notices or communications specified in this lease to be given to Lessee by Lessor shall be made to Centennial Oil &Gas Investments, Ltd., 2626 Calder Avenue, Suite 104, Beaumont, Texas, Jefferson County,Texas 77702. 21, SEr'�N H>F AD1_N fxS-Pamgmph and section headings and titles are for convenience only, and do not r pn- s�-,nt interpretation or intent of the substance of the terms and provisions of this agreement. 22. p C At the expirdttion of the primary term and after all continuous development operations have ceased, this lease ­al; temlinate as to all depths 100 feet below the deepest depth drilled in any unit containing.all or part of the above described lands. Lessor reserves the fight of ingress and egress throuei3 all foiiuiationz for the purpose of drilling to and producing oil or gas from the formations which may revert to i_e33or and the right to use as much of said surface as is necessary for the drilling for,production of rind storage of oil and gas from such formations. It is expressly agreed and understood Lessee is hereby granted the right, at its option,to pool or unitize any land covered by this lease, with any other land covered by this lease, and/or with any other land, lease, or leases, as to any or all minerals or horizons, so as to establish units, the size of which shall be limited in the same manner described herein below for limiting producing acreage retained after the expiration of the primary term. The size of any established unit may be changed from time to time as required by any governmental ruling or order to conform to the size required by such governmental order or ruling. There shall be allocated to the land covered by this lease within each such unit that proportion of the total production of unitized minerals from the unit, after deducting any production used in lease or unit operations, which the number of surface acres in the land covered by this lease that is put in the unit bears to the total number of surface acres in the unit. Lessee shall establish all such units by filing an instrument identifying such unit for record in the Office Public Records of Real Property in Jefferson County,Texas. HOWEVER, after the expiration of the primary term, and after the discovery and production of oil, gas or other liquid hydrocarbons in paying quantities on the leased premises,Lessee shall reasonably develop the acreage retained hereunder, and in complying with this provision, it is agreed that in the event more than one hundred eighty (180) days elapse between the completion of one well and the commencement of actual drilling operations on the next well, Lessee shall upon written demand of Lessors, forthwith execute and deliver to the Lessors, or place of record in the county in which said land is located, a release of all the premises covered by this lease, save and except that Lessee may retain under the terms hereof not more than forty (40) acres surrounding each producing oil well or oil well then being reworked; not more than one hundred sixty(160)acres surrounding each producing gas well,shut-in gas well,gas well then being reworked, or the acres included in any pooled gas unit capable of producing from a depth of less than nine thousand feet (9,000') subsurface; or not more than three hundred twenty(320) acres surrounding each producing gas well, shut-in gas well, gas well then being reworked, or the acres included in any pooled gas unit capable of producing from a depth of nine thousand feet (9,000') or more but less than twelve thousand feet(12,000') subsurface; or not more than six hundred forty (640) acres surrounding each producing gas well, shut-in gas well, gas well then being reworked, or the acres,.included in any pooled gas unit capable of producing from a depth of twelve thousand feet(12,000')or more subsurface; each such tract (except the tracts in pooled gas units, if any), to be centered by said well, to be in as nearly a square form as is reasonably possible, unless otherwise agreed to by Lessors,provided that if at any time the foregoing arises, the Railroad Commission of Texas or any government authority asserting jurisdiction has prescribed a spacing pattern for the orderly development of the field or allocates a producing allowable for a well with acreage content as a factor which is in greater than or less than the above-described acreage,this lease shall remain in force and effect as to the tract or tracts of land designated by Lessee in the manner herein provided containing the maximum number of acres so prescribed or allocated and in effect at the time, such tracts around each such well and in each -9- pooled gas unit being hereinafter referred to as "well tracts." 23. Lessee shall anan ka any well or wells on lands covered by this lease within 120 days after such well ceases to produce or at such.tintte as that part of this lease containing such well or wells terminates, whichever is the earlier date. 24. Notwithstanding anything to the contrary herein contained, this lease is granted without warranty of title of any kind whatsoever,expressed or implied. The Lessors warranty of title herein is limited to the refund to Lessee of the original per acre bonus paid for each mineral acre on which title fails. This shall be the only recourse against the Lessor in the event of any failure of title. 25. Wherever the term "Lessor" is used it shall mean the named "Lessor," its successors, or assigns. Wherever the term "Lessee" is used, it shall mean the named "Lessee," its successors,heirs, devisees or assigns. 26. All development of this lease shall be by directional drilling from adjacent tracts or by pooling with adjacent tracts unless there is a specific written agreement approved by both the City of Beaumont and Centennial Oil &Gas Investments, Ltd. Witness our hands on the date first above written. LESSOR: CITY OF BEAUMONT By: Stephen J. Bonczek, City Manager LESSEE: CENTENNIAL OIL& GAS INVESTMENTS, LTD. By: Printed Name: Title: -10- THE STATE OF TEXAS § COUNTY OF JEFFERSON Before me, the undersigned authority, personally appeared STEPHEN J. BONCZEK, City Manager of the City,of Beaumont,known to me to be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged to me that the same was the act of the City of Beaumont, a municipal comorntion and that he executed the same by appropriate resolution of the City Council for the purpose and consideration therein expressed and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of A.D. 2000. Notary Public, State of Texas THE STATE OF TEXAS § COUNTY OF JEFFERSON § Before me, the undersigned authority, personally appeared , for Centennial Oil R Gas Investments, Ltd. known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of A.D. 2000. Notary Public, State of Texas lease.oil -11-