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ORD 2004-13TOWN OF TROPHY CLUB, TEXAS ORDINANCE NO. 2004- 13 AN ORDINANCE OF THE TOWN OF TROPHY CLUB, TEXAS, APPROVING THE SUBSURFACE USE OR TAKING OF HARMONY PARK THROUGH A OIL, GAS, AND MINERAL LEASE NON -DRILL SITE/POOLING AGREEMENT BY AND BETWEEN THE TOWN OF TROPHY CLUB, TEXAS AND STAR OF TEXAS ENERGY SERVICES, INC.; DETERMINING NO FEASIBLE AND PRUDENT ALTERNATIVE TO THE PROPOSED SUBSURFACE USE OR TAKING OF THE PARK LAND EXISTS; FINDING THE PROPOSED PROJECT INCLUDES ALL REASONABLE PLANNING TO MINIMIZE THE HARM RESULTING FROM THE USE TO BOTH THE LAND AND THE PARK AND RECREATION AREA; PROVIDING FOR ENGROSSMENT AND ENROLLMENT; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Town of Trophy Club and the Community Development Department jointly seek approval of a project to allow Star of Texas Energy Services, Inc. (Star of Texas) to engage in operations to develop the Town's mineral interest in Harmony Park pursuant to the terms and conditions outlined in the Oil, Gas, and Mineral Lease Non -Drill Site/Pooling Agreement (hereinafter "Project"), a substantial copy of which Non -Drill Site/Pooling Agreement is attached hereto and incorporated herein as Exhibit "A"; and WHEREAS, Chapter 26 of the Texas Parks and Wildlife Code requires a public hearing for the use or taking of public park land, at which the governing body must determine whether any feasible and prudent alternative to the use or taking of public park land exists, and whether the proposed use or taking includes all reasonable planning to minimize harm to the park land; and WHEREAS, Notices of the Public Hearing for the Project were duly served and published in conformity with Chapter 26 of the Texas Parks and Wildlife Code; and WHEREAS, the Town Council held a public hearing on May 3, 2004, regarding the Project during which all interested persons had the opportunity to testify and present relevant evidence before the Town Council. NOW, THEREFORE, BE IT ORDAINED BY THE TOWN COUNCIL OF THE TOWN OF TROPHY CLUB, TEXAS: Section 1. After hearing and review of all the testimony, evidence, and other relevant information at the Public Hearing, the Town Council hereby finds and determines that: 1) There is no feasible and prudent alternative to the use or taking of subsurface portion of public park land at Harmony Park as proposed for the Project in Exhibit "A"; and 2) The Project includes all reasonable planning to minimize the harm to Harmony Park resulting from the use or taking. Section 2. The Town Council further finds that the Project is in the public interest generally, and in the best interests of the citizens of the Town of Trophy Club, Texas. Accordingly, the Town Council approves the use or taking of that portion of Harmony Park by Star of Texas in accordance with the terms and conditions of the Oil, Gas, and Mineral Lease Non -Drill Site/Pooling Agreement, a substantial copy of which is attached hereto and incorporated herein as Exhibit "A." Section 3. The Town Secretary is hereby directed to engross and enroll this Ordinance and take all other actions necessary to record this Ordinance as provided by law. Section 4. This Ordinance shall take effect from and after its date of passage, in accordance with law, and it is so ordained. PASSED AND APPROVED by the Town Cour} il of t ie Town of 1 Trophy Club, Texas, this 3r1 day of May, 2004. ,f ATTEST; Town Secretary Town of Trophy Club, Texas APPROVED AS TO FORM: J I A -d:rua V�U"-J Town Attorney Town of Trophy Club, Texas mayor Town of Lby Club, Texas EXHIBIT "A" OIL, GAS AND MINERAL LEASE NON -DRILL SITE/POOLING AGREEMENT THIS OIL, GAS AND MINERAL LEASE AND NON -DRILL SITE POOLING AGREEMENT (the "Lease") is made this day of , 2004 (the "Effective Date"), between The Town of Trophy Club, Denton and Tarrant Counties, Texas, acting herein by and through its Mayor, Scott Smith, duly authorized by resolution to execute this Lease ("LESSOR"), whose address is: 100 Municipal Drive, Trophy Club, Texas 76262 and ("LESSEE"), whose address is: p Code WITNESSETH: 1. Lease of Land. LESSOR in consideration of Dollars ($ ), in hand paid, of the royalties herein provided, and of the agreements of LESSEE herein contained, hereby leases and lets exclusively unto LESSEE for the purpose of a non -drill site/pooling agreement for investigating, exploring, prospecting, drilling and mining for and producing oil, gas and all associated minerals, to produce, save, take care of, treat, transport and own said products, the following described land in Denton County, Texas, to -wit: The Land know and designated as Harmony Park — Non -Drill Site Pooling Agreement: An approximate 13.1998 acre tract of land situated in the JOHN R. MICHAEL SURVEY, Abstract No. 821, in the Town of Trophy Club, Denton County, Texas, and being a part of a tract of land described in a deed from Johnson-Loggins, Inc. to Gibraltar Savings Association as recorded in Volume 837, Page 16, of the Deed Records of Denton County, Texas. For all purposes of this Lease, said land is estimated to comprise 13.1998 acres, whether it actually comprises more or less. However, there is expressly excepted from this Lease and reserved to LESSOR, its successors and assigns, all vanadium, uranium, plutonium, thorium, fissionable minerals and all other minerals of every Idnd and character in, on and under the land, except only oil, gas, casinghead gas and their byproducts and such other hydrocarbon substances, carbon dioxide and sulfur as are necessarily produced with and incidental to the production of oil and gas, or either of them. 2. Reservation and Surface Use Prohibition / Seismic Testing. There is hereby excepted and reserved to LESSOR the full use of the land covered hereby and all rights with respect to the surface and subsurface thereof for any and all purposes and all minerals except those specifically identified in Paragraph 1. LESSOR reserves and excepts from this Lease all of the surface of the land described in Paragraph 1 and those corresponding depths lying between the surface of the land and a subsurface depth of one hundred feet (100'), and LESSEE agrees that it will not locate any wells, conduct any drilling operations, set any surface equipment, utility lines, road or other surface facilities, or conduct any other operations or activities of any nature on the surface of such land. Drilling operations under this lease shall be conducted by means of a well or wells, the surface location of which are not located on the lands subject to this lease. This lease does not grant or include any right of access to the land covered hereby for any purpose. LESSEE has no rights under this lease to conduct geophysical seismic surveys on the leased premises. During the term of this lease, LESSOR shall not allow any other party to conduct geophysical surveys on the lands covered by the lease without first allowing LESSEE the first opportunity to do so. In the event LESSEE wishes to conduct geophysical seismic operations on the leased premises, LESSEE must obtain a separate seismic permit from LESSOR, which permit shall include among other things restrictions for surface use, predetermined locations of shot holes, payments for damages to the Surface Lessees, and other restrictions placed on LESSEE by LESSOR. LESSOR may withhold granting a seismic permit to any and all of the leased premises if in the sole opinion of LESSOR such operations may cause undue surface damages or disturbances to the Surface Owners, or such operations may create potentially hazardous conditions to LESSOR'S facilities or properties. 3. Primary Term: This is a "Paid Up" lease in that no delay rentals or operations are necessary to perpetuate this lease during the primary term, and subject to the other provisions here contained, this Lease shall be for a term of three (3) years from the Effective Date (the "Primary Term") and as long thereafter as oil, gas and other minerals are produced in commercial quantities from said land or land with which said land is pooled hereunder, or this lease is held by some other provision herein. 4. Royalty: As royalty, LESSEE covenants and agrees to pay: a. As a royalty on oil (including all hydrocarbons produced in liquid form at the mouth of the well and also condensate, distillate, and other liquid hydrocarbons recovered from oil or gas run through a separator or similar equipment produced and saved by LESSEE from the leased premises or lands pooled therewith), of the gross production or the market value thereof, at the option of LESSOR, the value to be determined by (i) the highest posted price, plus premium, if any, offered or paid for oil, condensate, distillate, or other liquid hydrocarbons, respectively, of a like type and gravity for the field where produced and when run, or (ii) the highest market price offered or paid for the field where produced and when run, or (iii) the gross proceeds of the sale whichever is greater. LESSEE agrees that before any gas produced from the land is sold, used or processed in a plant, it will be run, free of cost to the parties entitled to royalties, through an adequate oil and gas separator of conventional type, or other equipment at least as efficient, to the end that all liquid hydrocarbons recoverable from the gas by such means will be recovered. Upon written consent of the royalty owners, the requirement that gas be run through a separator or other equipment may be waived upon terms and conditions as prescribed by them. b. As a royalty on any gas, which is defined as all hydrocarbons and gaseous substances not defined as oil in subparagraph 4.a. above, produced from the leased premises or lands pooled therewith (except as provided in this Lease with respect to gas processed in a plant), of the gross production or the market value thereof, at the option of LESSOR, the value to be based on the highest market price paid or offered to a third party LESSEE under a gas purchase agreement negotiated at arms' length for gas of comparable quality and quantity in the general area where produced and when run, or the gross price paid or offered to the producer, whichever is greater. c. As a royalty on any gas processed in a plant, of the residue gas and the liquid hydrocarbons extracted or the market value thereof, at the option of LESSOR. The royalty percentage shall be applied to 100% of the total plant production of residue gas attributable to gas produced from this Lease, and on 50% or that percent accruing to LESSEE, whichever is greater, of the total plant production of liquid hydrocarbons attributable to the gas produced from this Lease; except if liquid hydrocarbons are recovered from gas processed in a plant in which LESSEE or an affiliate owns an interest, then the royalty percentage for liquid hydrocarbons shall be 50% or the highest percent accruing to a third party processing gas through the plant under a processing agreement negotiated at arms' length. The respective royalties on residue gas and on liquid hydrocarbons shall be determined by (i) the highest market price paid or offered for any gas (or liquid hydrocarbons) of a comparable quality in the general area or (ii) the gross price paid or offered for such residual gas, or the weighted average gross selling price for the respective grades of liquid hydrocarbons, F.Q.B. the plant in which the gas is processed, whichever is greater. d. On all substances, including, but not Iimited to carbon dioxide and sulfur, permitted to be produced from the land by virtue of this Lease, and products, except liquid hydrocarbons, produced or manufactured from gas, and for which no royalty is otherwise specified in this Lease, LESSOR shall have and be entitled to the royalty percentage of that produced or saved to be delivered to LESSOR, free of all costs, or, at the option of LESSOR, which may be exercised from time to time, LESSEE shall account to LESSOR for the royalty percentage of the market value thereof, which market value shall be deemed to be the greater of (i) the highest market price of each product for the same month in which the product is produced, or (ii) the average gross sale price of each product for the same month in which the product is produced. C. Accounting and payment to LESSOR of royalties from the production of oil and gas from any well shall commence no later than ninety (90) days after the date the well commences first production. Thereafter, all accountings and payments of royalties shall be made in accordance with the Proceeds Payment Act of the State of Texas, found in Texas Natural Resources Code §91.401, et seq. Should LESSEE at any time fail to make royalty payments to LESSOR on or before the last day of the third calendar month following the calendar month in which the production occurred, this Lease shall automatically terminate unless the payments are made within thirty (30) days after written notice is given to LESSEE. Any royalties provided for in this Lease which are not paid to LESSOR within the applicable time periods specified in this paragraph shall accrue interest at the same rate as judgments under the laws of the State of Texas from due date until paid. Acceptance by LESSOR of royalties which are past due shall not act as a waiver or estoppel of LESSOR'S right to receive or recover any and all interest due under the provisions of this paragraph unless the written acceptance or acknowledgment by LESSOR to LESSEE expressly so provides. LESSEE shall pay all reasonable attorney's fees incurred by LESSOR in connection with any lawsuit in which LESSOR is successful in recovering royalties or interest or in terminating this Lease due to LESSEE'S failure to pay royalties within the periods set forth above. f. Minimum Royalties: On each anniversary date of the first sale of oil and gas, or either, produced from the leased premises or from lands pooled therewith, and for so long as LESSEE is retaining all or any portion of the Iands covered hereby by the production of oil and/or gas, if the royalties (including shut-in payments) accrued hereunder, during the preceding twelve (12) months shall not have equaled at least the amount of fifteen dollars ($15.00) per acre for each net mineral acre of land subject to the terms hereof at the commencement of said twelve (12) months, LESSEE covenants and agrees that, within thirty (30 days after the receipt from LESSOR of written notice to such effect, LESSEE will promptly pay to LESSOR as an additional royalty the amount of the difference between such accrued royalties and the sum to fifteen dollars ($15.00) per acre for each net mineral acre subject to the terms hereof at the commencement of said twelve (12) months. This additional royalty provision, when applicable, shall be in effect for an during the life of this lease after the primary term. LESSOR'S royalty shall never bear, either directly or indirectly, any part of the costs or expenses of producing, gathering, dehydrating, compressing, transporting, manufacturing, processing, treating, marketing or otherwise making the oil, gas and other products produced hereunder ready for sale, nor any part of the costs of constructing, operating or depreciating any plant or other facilities or equipment for processing or treating oil or gas produced from the land or lands pooled therewith. 5. Shut -In Gas. If LESSEE drills a well on land which the LESSOR has permitted to be pooled herewith, which well is capable of producing gas but such well is not being produced, and this Lease is not being maintained otherwise as provided herein, this Lease shall not terminate, whether it being during or after the Primary Term (unless released by LESSEE) and it nevertheless shall be considered that oil and gas is being produced from the land covered by this Lease. When, at the expiration of the Primary Term or any time or times thereafter, the Lease is continued in force in this matter, LESSEE shall pay or tender as royalty to the parties who at the time of such payment would be entitled to receive royalty hereunder if the well is producing, or deposit directly with LESSOR at its address shown herein, a sum equal to for each gross acre of land subject to this Lease at the time such payment is made. The first payment of such sum shall be on or before the first day of the calendar month after the expiration of ninety (90) days from the date the Lease is not otherwise maintained, and thereafter subsequent payments may be made at annual intervals. LESSEE'S failure to pay or tender or properly or timely pay or tender such sum as royalty shall render LESSEE liable for the amount due and shall operate to terminate this Lease automatically. 6. Limit of Shut -In: Notwithstanding anything to the contrary in this Lease, it is expressly agreed and provided that this Lease cannot and shall not be extended beyond the Primary Term by reason of the shut-in well provisions of Paragraph 5 for any single period of more than two (2) consecutive years or more than three (3) years in the aggregate. 7. Compensatory Royalties: If, during the period the lease is kept in effect by payment of the shut-in gas royalty, gas is sold and delivered in paying quantities from a well located within six hundred sixty (660) feet of the leased premises and completed in the same producing reservoir, or in any case in which drainage is occurring, the right to continue to maintain the lease by paying the shut-in gas royalty shall cease, but the lease shall remain effective for the remainder of the year for which the shut-in payment has been paid. The LESSEE may maintain the lease for two (2) more successive years by LESSEE paying compensatory royalty at the royalty rate provided in this lease as if the well creating this obligation was drilled on the leased premises. The compensatory royalty is to be paid monthly to the LESSOR beginning on or before the last day of the month following the month in which the gas, along with any substances produced in association therewith, is produced from the well creating this obligation; if the compensatory royalty paid in any 12 -month period is in an amount less than the annual shut-in payment, LESSEE shall pay an amount equal to the difference within thirty (30) days from the end of the 12 -month period; provided however none of these provisions will relieve LESSEE of the obligation of reasonable development; provided further, however, with the LESSOR'S written approval, the payment of compensatory royalties shall satisfy the obligation to drill offset wells to the well creating the obligation herein. Compensatory royalty payments that are not timely paid will accrue penalty and interest in accordance with Paragraph 4 of this lease. 8. Pooling: Subject to the reservations and surface use prohibitions of paragraph 2 of this Lease, LESSEE, at its option, is hereby given the right and power to pool or combine the acreage covered by this lease or any portion thereof as to oil and gas, or either of them, with any other land covered by this lease, and/or with any other land, lease or Ieases in the immediate vicinity thereof to the extent hereinafter stipulated, when in LESSEE'S judgment it is necessary or advisable to do so in order properly to explore, or to develop and operate said leased premises in compliance with the spacing rules of the Railroad Commission of Texas, or other Iawful authority, or when to do so would, in the judgment of LESSEE, promote the conservation of oil and gas in and under and that may be produced from said premises. Units pooled for oil hereunder shall not exceed forty (40) acres, plus a tolerance of 10 percent (10%) thereof, each in area, and units pooled for gas hereunder shall not exceed in area 160 acres each plus a tolerance of ten percent (10%) thereof, provided that should governmental authority having jurisdiction prescribe the creation of units larger than those specified, for the drilling or operation of a well at a regular location or for obtaining maximum allowable from any well to be drilled, drilling or already drilled, units thereafter created may conform in size with those prescribed by governmental regulations. LESSEE under the provisions hereof, may pool or combine acreage covered by this lease or any portion thereof as above provided as to oil in any one or more strata and as to gas in any one or more strata. The units formed by pooling as to any stratum or strata need not conform in size or area with the unit or units in to which the lease is pooled or combined as to any other stratum or strata, and oil units need not conform as to area with gas units. The pooling in one or more instances shall not exhaust the rights of the LESSEE hereunder to pool this lease or portions thereof into other units. LESSEE shall file for record in the appropriate records of the county in which the leased premises are situated an instrument describing and designating the pooled acreage as a pooled unit; and upon such recordation the unit shall be effective as to all parties hereto, their heirs, successors, and assigns, irrespective of whether or not the unit is likewise effective as to all other owners of surface mineral, royalty or other rights in land included in such unit. LESSEE may at its election exercise its pooling option before or after commencing operations for or completing an oil or gas well on the leased premises, and the pooled unit may include but is not required to include, land or leases upon which a well capable of producing oil or gas in paying quantities has theretofore been completed or upon which operations for the drilling of a well for oil and gas have theretofore been commenced. In the event of operations for drilling on or production of oil or gas from any part of a pooled unit which includes all or a portion of the land covered by this lease, regardless of whether such operations for drilling were commenced or such production was secured before or after the execution of this instrument or the instrument designating the pooled unit, such operations shall be considered as operations for drilling on or production of oil or gas from land covered by this lease whether or not the well or wells be located on the premises covered by this lease and in such event operations for drilling shall be deemed to have been commenced on said land within the meaning of paragraph 9 of this lease; and the entire acreage constituting such unit or units, as to oil and gas, or either of them, as herein provided, shall be treated for all purposes, except the payment of royalties on production from the pooled unit, as if the same were included in this lease. For the purpose of computing the royalties to which owners of royalties and payments out of production and each of them shall be entitled on production of oil and gas, or either of them, from the pooled unit, there shall be allocated to the land covered by this lease and included in said unit (or to each separate tract within the unit if this lease covers separate tracts within the unit) a pro rata portion of the oil and gas, or either of them, produced from the pooled unit after deducting that used for operations on the pooled unit. Such allocations shall be on an acreage basis --that is to say, there shall be allocated to the acreage covered by this lease and included in the pooled unit (or to each separate tract within the unit if this lease covers separate tracts within the unit) that pro rata portion of the oil and gas, or either of them, produced from the pooled unit which the number of surface acres covered by this lease (or in each such separate tract) and included in the pooled unit bears to the total number of surface acres included in the pooled unit. Royalties hereunder shall be computed on the portion of such production, whether it be oil and gas, or either of them, so allocated to the land covered by this lease and included in the unit just as though such production was from such land. The production from an oil well will be considered as production from the lease or oil pooled unit from which it is producing and not as production from a gas pooled unit; and production from a gas well will be considered as production from the lease or gas pooled unit from which it is producing and not from an oil pooled unit. The formation of any unit hereunder shall not have the effect of changing the ownership of any shut-in production royalty which may become payable under this lease. If this lease now or hereafter covers separate tracts, no pooling or unitization of royalty interest as between any such separate tracts is intended or shall be implied or result merely from the inclusion of such separate tracts within this lease, but LESSEE shall nevertheless have the right to pool as provided above with consequent allocation of production as above provided. As used in this paragraph 8, the words "separate tract" mean any tract with royalty ownership differing, now or hereinafter, either as to parties or amounts from that as to any other part of the leased premises. 9. Termination. a. If, at the expiration of the Primary Term, LESSEE is not engaged in the actual drilling of a well under the terms of this Lease or if LESSEE has completed or abandoned a well on the land or lands pooled therewith within thirty (30) days prior to expiration of the Primary Term and is not, at the expiration of ninety (90) days after the date of completion or abandonment of the well, engaged in the actual drilling of another well under the terms of this Lease, this Lease shall then terminate as to all of the land, save and except the following: (1) Each well producing oil or being reworked, and classified as an oil well under the rules and regulations of the Railroad Commission of Texas, together with forty (40) acres around each such well (an "Oil Unit"), (2) Each well producing gas (or capable of producing gas with all shut-in royalty having been paid thereon) or being reworked, and classified as a gas well under the rules and regulations of the Railroad Commission of Texas, together with the one hundred sixty (160) acres around each such well (a "Gas Unit"). b. Each Oil Unit or Gas Unit shall be in as near the form of a square as reasonably practicable considering the boundary of the land and the necessity of a legal location of the well on the unit. Notwithstanding the foregoing, if the Railroad Commission of Texas or other authority having jurisdiction, by rule or order prescribes a larger or a smaller number of acres for the purposes of securing the maximum allowable production, each unit shall be increased or decreased in size as necessary to conform to the number of acres prescribed by the rule or order, but if the rule or order provides for or permits optional sized tracts or spacing, the unit shall be the smallest tract permitted by the rule or order. c. If, at the expiration of the Primary Term, LESSEE is engaged in the actual drilling of a well under the terms of this Lease or if LESSEE has completed or abandoned a well on the land or lands pooled therewith within thirty (30) days prior to expiration of the Primary Term and is, at the expiration of ninety (90) days after completion or abandonment of the well, engaged in the actual drilling of another well under the terms of this Lease this Lease shall not terminate so long as LESSEE pursues the drilling of the well with reasonable diligence to completion or abandonment and so long as LESSEE commences the actual drilling of additional and successive wells under the terms of this Lease at intervals not exceeding ninety (90) days between completion of a well as a producer or dry hole and commencement of actual drilling of the next well under the terms of this Lease. If and when LESSEE fails to commence the actual drilling of a well within the applicable interval (or within the extended time provided in subparagraph 9.d. below, this Lease shall then terminate to all of the land, save and except the Oil Units and Gas Units provided in subparagraph 9a. above. Upon expiration of the Primary Term or the cessation of the continuous drilling program set forth herein, whichever is later, this Lease shall also terminate as to all depths below each unit retained as to depths below a depth of one hundred feet (100') beneath the stratigraphic equivalent of the deepest producing horizon or zone for each unit. d. If LESSEE, in the conduct of actual drilling operations under this Lease after the expiration of the Primary Term, commences the actual drilling of any next succeeding well within less than the ninety (90) day time interval specified in subparagraph 9.c. and thus speeds up the development of the land, LESSEE shall have credit in time for the accelerated development and may, in the conduct of subsequent actual drilling operations, take advantage of the credit in time on a cumulative basis and thus extend the time for the commencement of actual drilling of any subsequent well or wells required to be drilled under the provisions of this Lease in order to prevent termination of this Lease. Within ten (10) days of the commencement of the actual drilling of each well under the terms of this Lease, LESSEE shall give LESSOR written notice of the date of commencement. Within ten (10) days after the completion or abandonment of each well under the terms of this Lease, LESSEE shall give LESSOR written notice of the date of completion or abandonment and also of the time credit, if any claimed by LESSEE as a result of having commenced the actual drilling of the well within less than the required interval. If LESSEE fails to timely so notify LESSOR in any of these respects, LESSEE shall not be entitled to any credit in time for accelerated development. Nothing contained in this paragraph shall relieve LESSEE of any offset obligation arising by implication or under the terms of this Lease, but any well drilled by LESSEE to satisfy an offset obligation will entitle LESSEE to the privileges of this paragraph. 10. Dry Hole Cessation of Production During Primary Term: If, during the primary term hereof, and prior to discovery and production of oil or gas on said land, LESSEE should drill a dry hole or holes thereon, or if during the primary term hereof and after the discovery and actual production of oil or gas from the leased premises such production thereof should cease from any cause, this lease shall not terminate but instead be maintained until the end of the primary term. If, within sixty (60) days prior to the end of the primary term, a dry hole should be completed and abandoned, or the production of oil or gas should cease for any cause, LESSEE'S rights shall remain in full force and effect without further operations until the expiration of the primary term; and if LESSEE has not resumed production in paying quantities at the expiration of the primary term, LESSEE may maintain this lease by conducting additional drilling or reworking operations pursuant to Paragraph 11, using the expiration of the primary term as the date of cessation of production under Paragraph 11. If at the expiration of the primary term or any time thereafter a shut-in oil or gas well is to located on the leased premises or lands pooled therewith, payments may be made in accordance with the shut-in provisions hereof. 11. Cessation, Drilling, and Reworking Following the Primary Term: If, after the expiration of the primary term, production of oil or gas from the Ieased premises or lands pooled therewith, after once obtained, should cease from any cause, this lease shall not terminate if LESSEE commences additional drilling or reworking operations within sixty (60) days after such cessation, and this lease shall or in full force and effect for so long as such operations continue in good faith and in workmanlike manner without interruptions totaling more than sixty (60) days. If such drilling or reworlung operations result in the production of oil or gas, the lease shall remain in full force and effect for so long as oil or gas is produced from the leased premises in paying quantities or payment of shut-in gas well royalties or payment of compensatory royalties is made as provided herein or as provided by law. If the drilling or reworking operations result in the completion of a well as a dry hole, the lease as to the unit established for such well will not terminate if the LESSEE commences additional drilling or reworking operations within sixty (60) days after the completion of the well as a dry hole, and this lease as to the unit established for such well shall remain in effect so Long as LESSEE continues drilling or reworking operations in good faith and in a workmanlike manner without interruptions totaling more than sixty (60) days until production in paying quantities is re- established. 12. Removal of Eguipment. Subject to the surface use prohibitions of paragraph 2, LESSEE shall have the right at any time during and for one hundred eighty (180) days after the expiration of this Lease to remove all casing. Thereafter, it shall be deemed abandoned to LESSOR. If LESSEE fails to remove such property, casing and fixtures within such 180 day period, at Lessor's option, ownership of the same will vest in LESSOR, LESSOR'S successors and assigns or LESSOR, at its option, may require the removal of said equipment in addition to all other remedies to which LESSOR is entitled under law. 13. Assignment. The rights of either party hereunder may be assigned in whole or in part, and the provisions hereof shall extend to and bind their respective heirs, successors and assigns; but no change or division in ownership of the land, rentals or royalties, however accomplished, shall operate to enlarge the obligations or diminish the rights of LESSEE. 14. Title. LESSOR does not warrant or agree to defend the title of the lands covered hereby. LESSEE takes this Lease without warranty of title either express or implied. If LESSOR owns an interest in the oil, gas and minerals leased hereby less than the entire fee simple estate, then the royalties, or other monies accruing from any part of the land to which this Lease covers less than such full interest shall be paid to LESSOR only in the proportion which LESSOR'S interest therein, if any, bears to the whole and undivided fee simple mineral estate therein. It is the sole responsibility of LESSEE to determine the LESSOR's mineral interest. The bonus payment paid for this Lease shall be deemed to be final if no title problems are submitted for resolution within ninety (90) days of the Effective Date. 15. Force Majeure: When drilling, production or other operations under the terms of this Lease or land pooled with such land, or any part thereof are prevented, delayed or interrupted by fire, storm, flood, war, rebellion, insurrection, sabotage, riot, strike, or as a result of some law, order, rule, regulation or necessity of governmental authority, either State or Federal, the Lease shall nevertheless continue in full force and effect and be extended for the period such drilling, production and other operations are so prevented, delayed or interrupted. LESSEE shall not be liable for breach of any express or implied covenants of this Lease when drilling, production or other operations are so prevented, delayed or interrupted, except that nothing in this paragraph 12 shall be construed to suspend the payment of delay rentals, shut-in royalty or any other amount otherwise required to maintain this Lease in effect. 16. Designation of Gas Unit. a. Upon completion of the first well as a producer of oil and/or gas in paying quantities (whether the first or a subsequent well driIled), LESSEE shall designate an approximately sized drilling unit around said first producing well, out of the above described property, by filing a written designation in the Deed Records of Denton County Texas and shall provide LESSOR with a copy of such unit designation. b.. If an additional well is completed as a producer of gas in paying quantities, LESSEE shall again designate an approximately sized drilling unit around said additional producing well, out of the above described property, by filing a written designation in the Deed Records of Denton County, Texas and shall provide LESSOR with a copy of such unit designation. LESSEE shall designate all drilling units in a fair and reasonable manner so that the remaining acreage not included in the drilling units is capable of being drilled or pooled with other lands. All designations of units as provided in this paragraph 13 shall be in accordance with and subject to the provisions of paragraph S above. 17. Indemnifications and Insurance I Hazards. LESSEE shall inform the LESSOR of any potential or existing dangers and to warn the LESSOR of any and all hazards that may arise or exist as a result of the LESSEE'S operations, including but not limited to hazards upon the surface of the property due to the subsurface operations. LESSEE shall provide or cause to be provided the insurance described below for each well drilled under the terms of this Lease, such insurance to continue until the well is abandoned and the site restored. Such insurance shall provide that LESSOR shall be a co-insured, without cost, and that said insurance can not be canceled or terminated without thirty (30) days prior notice to LESSOR and ten (10) days notice to LESSOR for nonpayment of premiums. a. General Requirements. Indemnification and Express Negligence Provisions. LESSEE shall expressly release and discharge, all claims, demands, actions, judgments, and executions which it ever had, or now have or may have, or assigns may have, or claim to have, against the LESSOR, it agents, officers, servants, successors, assigns, sponsors, volunteers, or employees, created by, or arising out of personal injuries, known or unknown, and injuries to property, real or personal, or in any way incidental to or in connection with the performance of the oil and gas drilling and production performed by the LESSEE under this lease and the LESSEE shall fully defend, protect, indemnify, and hold harmless the LESSOR, and/or its departments, agents, officers, servants, employees, successors, assigns, sponsors, or volunteers from and against each and every claim, demand, or cause of action and any and all liability, damages, obligations, judgments, losses, fines, penalties, costs, fees, and expenses incurred in defense of the LESSOR, and/or its departments, agents, officers, servants, or employees, including, without limitation, personal injuries and death in connection therewith which may be made or asserted by LESSEE, its agents, assigns, or any third parties on account of, arising out of, or in any way incidental to or in connection with the performance of the oil and gas well drilling and production performed by the LESSEE under this lease and, the LESSEE agrees to indemnify and hold harmless the LESSOR, and/or its departments, and/or its officers, agents, servants, employees, successors, assigns, sponsors, or volunteers from any liabilities or damages suffered as a result of claims, demands, costs, or judgments against the LESSOR and/or, its departments, it's officers, agents, servants, or employees, created by, or arising out of the acts or omissions of the LESSOR occurring on the drill site or operation site in the course and scope of inspecting and permitting the gas wells INCLUDING, BUT NOT LIMITED TO, CLAIMS AND DAMAGES ARISING IN WHOLE OR IN PART FROM THE NEGLIGENCE OF THE LESSOR OCCURRING ON THE DRILL SITE OR OPERATION SITE IN THE COURSE AND SCOPE OF ITS DUTIES UNDER THIS LEASE. IT IS UNDERSTOOD AND AGREED THAT THE INDEMNITY PROVIDED FOR IN THIS SECTION IS AN INDEMNITY EXTENDED BY THE LESSEE TO INDEMNIFY AND PROTECT THE LESSOR AND/OR ITS DEPARMENTS, AGENTS, OFFICERS, SERVANTS, OR EMPLOYEES FROM THE CONSEQUENCES OF THE NEGLIGENCE OF THE TOWN OF TROPHY CLUB, TEXAS AND/OR ITS DEPARTMENTS, AGENTS, OFFICERS, SERVANTS, OR EMPLOYEES, WHETHER THAT NEGLIGENCE IS THE SOLE OR CONTRIBUTING CAUSE OF THE RESULTANTANT INJURY, DEATH, AND/OR DAMAGE. b. All policies shall be endorsed to read "THIS POLICY WILL NOT BE CANCELLED OR NON -RENEWED WITHOUT 30 DAYS ADVANCED WRITTEN NOTICE TO THE OWNER AND THE TOWN EXCEPT WHEN THIS POLICY IS BEING CANCELLED FOR NONPAYMENT OF PREMIUM, IN WHICH CASE 10 DAYS ADVANCE WRITTEN NOTICE IS REQUIRED". c, Liability policies shall be written by carriers licensed to do business in Texas and with companies with A; VIII or better rating in accordance with the current Best Key Rating Guide, or with nonadmitted carriers that have a financial rating comparable to carriers licensed to do business in Texas approved by the Town. d. Liability policies shall name as "Additional Insured" the Town and its officials, agents, employees, and volunteers. C. Certificates of insurance must be presented to the Town evidencing all coverages and endorsements required by this Section 35-508, and the acceptance of a certificate without the required limits and/or coverages shall not be deemed a waiver of these requirements. f. Claims made policies will not be accepted except for excess policies or unless otherwise provided by this Article. g. Required Insurance Coverages 1. Commercial General Liability Insurance. Coverage should be a minimum Combined Single Limit of $1,000,000 per occurrence for Bodily Injury and Property Damage. This coverage must include premises, operations, blowout or explosion, products, completed operations, blanket contractual liability, underground property damage, broad form property damage, independent contractors protective liability and personal injury. 2. Environmental Impairment (or Seepage and Pollution) shall be either included in the coverage or written as separate coverage. Such coverage shall not exclude damage to the lease site. If Environmental Impairment (or Seepage and Pollution) Coverage is written on a "claims made" basis, the policy must provide that any retroactive date applicable precedes the effective date of the issuance of the permit. Coverage shall apply to sudden and non -sudden pollution conditions resulting from the escape or release of smoke, vapors, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste material or other irritants, contaminants or pollutants. 3. Automobile Liability Insurance. Minimum Combined Single Limit of $500,000 per occurrence for Bodily Injury and Property Damage. Such coverage shall include owned, non -owned, and hired vehicles. 4. Worker's Compensation Insurance. In addition to the minimum statutory requirements, coverage shall include Employer's Liability limits of at least $100,000 for each accident, $100,000 for each employee, and a $500,000 policy limit for occupational disease, and the insurer agrees to waive rights of subrogation against the Town, its officials, agents, employees, and volunteers for any work performed for the Town by the LESSEE. 5. Excess (or Umbrella) Liability Insurance. Minimum limit of $10,000,000 covering in excess of the preceding insurance policies. 6. Control of Well Insurance. a. Minimum limit of $5,000,000 per occurrence. b. Policy shall cover the Cost of controlling a well that is out of control, Redrilling or Restoration expenses, Seepage and Pollution Damage. Damage to Property in the LESSEE's Care, Custody, and Control with a sub -limit of $500,000 may be added. 18. Offset Well Requirement. In the event a well or wells producing oil and gas in any quantities should be brought in by LESSEE or any other LESSEE on adjacent lands and within 660 feet of the land or lands pooled, by permission of LESSOR, with such lands, LESSEE agrees to drill such offset wells as a reasonably prudent LESSEE would drill under the same or similar circumstances. 19. Location of Drilling Activity,Pipelines and Equipment: No drilling activity shall be conducted on and no pipelines, equipment or other structures shall be placed on the above described land. The Iocation of any pipelines installed by LESSEE shall be approved in advance by LESSOR, shall not be located on the lands covered by this Lease, and shall be situated along; routes that least interfere with LESSOR's existing or future use of the surface. No equipment or roads shall be placed or built on Town property. When required by LESSOR, LESSEE will bury all pipelines at a depth of six feet (b'), and the location of wells shall comply with Chapter 29, Fire Code, of the Code of Ordinances of the Town of Trophy Club, as amended, and all other applicable laws; provided, however, in no event will any such activities or operations be conducted on the surface of the lands covered by this Lease. 20. RESERVES, CONTRACTS AND OTHER RECORDS: (A) LESSEE shall within thirty (30) days after receiving written notice from LESSOR furnish the LESSOR with copies of all contracts under which gas is sold or processed and all subsequent agreements and amendments to such contracts. If LESSEE obtains or creates internally for itself any reserve estimates for the oil and/or gas underlying the lease, then LESSEE shall provide such estimates to LESSOR within thirty (30) days of obtaining or creating such reports. Such contracts and agreements when received by the LESSOR shall be held in confidence by the LESSOR to the extent allowed by law unless otherwise authorized by LESSEE. All other contracts and records pertaining to the production, transportation, sale and marketing of the oil and gas produced on said premises, including the books and accounts, receipts and discharges of all royalties to LESSOR, wells, tanks, pools, meters, and pipelines shall at all times be subject to inspection and examination. (B) DRILLING RECORDS: LESSEE shall, within thirty (30) days after receiving written notice from LESSOR, furnish the LESSOR with actual dates of all operations on this lease such as but not limited to, spud date, work over, re-entry, temporary abandonment or plug and abandonment of any well or wells. Such written notice to the LESSOR when requested shall include copies of Railroad Commission forms for application to drill. If requested by LESSOR in writing, copies of well tests, completion reports and plugging reports shall be supplied to the LESSOR at the time they are filed with the Texas Railroad Commission. LESSEE shall supply the LESSOR with any records, memoranda, accounts, reports, or other reasonable information relative to the operation of the above-described premises, which may be requested by the LESSOR, in addition to those herein expressly provided for. LESSOR shall be entitled to receive copies of all well logs obtained from wells drilled on the leased premises, such logs to given to LESSOR within sixty (60) days from the date such logs were created. LESSOR shall hold in confidence all such information to the extent allowed by Iaw provided to LESSOR unless otherwise authorized by LESSEE. (C) PENALTIES: LESSEE shall incur a penalty whenever reports, documents or other materials are not filed with the LESSOR when due. The penalty for late filing shall be an amount of fifty ($50) dollars per month effective on the date when the affidavits or supporting documents were due based upon the written notification stated herein. 21. Compliance with Laws: LESSEE shall comply with all applicable rules, regulations, ordinances, statutes and other laws in connection with any drilling, producing or other operations under the terms of this Lease, including, without limitation, the oil and gas well regulations of the Town of Trophy Club. 22. Notices: Any notices, communications or payment to a party hereunder may be given, sent, paid or tendered by pre -paid mail, certified mail, return receipt requested or commercial courier service addressed to said party at the address shown below or such other address as may hereinafter be designated in writing: NOTICES/PAYMENTS TO LESSOR: Mayor Attn: Scott Smith NOTICES TO LESSEE: Phone: Fax: Attn: Phone: Fax: Town of Trophy Club 100 Municipal Drive Trophy Club, Texas 76262 23. Reduction of Payments: If, during the primary term, a portion of the land covered by this lease is included within the boundaries of a pooled unit, or if, at any time after the expiration of the primary term or the extended terra, this lease covers a lesser number of acres than the total amount described herein, payments that are made on a per acre basis hereunder shall be reduced according to the number of acres pooled, released, surrendered, or otherwise severed, so that payments determined on a per acre basis under the terms of this lease during the primary term shall be calculated based upon the number of acres outside the boundaries of a pooled unit, or, if after the expiration of the primary tern, the number of acres actually retained and covered by this lease. If LESSOR owns less than the full mineral interest in the leased premises, then the royalty and shut-in payments may be reduced to reflect the interest that LESSOR owns in such minerals. 24. Lease Assi nment: The assignment of this Lease by LESSEE, or any successor LESSEE, shall not relieve LESSEE, or any such successor, from its obligations hereunder. LESSOR may, unless it agrees to the contrary, look to the LESSEE and/or any successor of LESSEE for performance of any one or more of such obligations. 25. Water: LESSEE shall not use any water in, on, or under the above-described land. All water used by LESSEE in its operations shall be purchased by LESSEE from LESSOR. 26. Diluent, Good Faith Operations. Each well drilled under this Lease shall be drilled with reasonable diligence and in good faith and in a good and workmanlike manner in a bona fide attempt to product oil, gas and associated minerals therefrom. 27. Captions and Headings: The captions and headings in this Lease are for convenience only and shall not modify, change, amend, alter, or affect the true meaning of any paragraph, sentence, clause, phrase, or words herein. 28. Memorandum of Lease. LESSOR and LESSEE agree that a memorandum of lease shall be filed of record in the Official Records of Denton County, Texas, evidencing this Lease and the provisions contained in such memorandum to the parties hereto, the land covered by the Lease, the term of the Lease and notice provisions informing the public of the existence of the Lease. 29. Entire Agreement. This Lease states the entire contract between the parties, and no representation or promise, verbal or written, on behalf of either party shall be binding unless contained herein; and this Lease shall be binding upon each party executing the same, regardless of whether or not executed by all owners of the above described land or by all persons above named as "LESSOR", and, notwithstanding the inclusion above of other names as "LESSOR", this term as used in this Lease shall mean and refer only to such parties as execute this Lease and their successors in interest