OIL AND GAS LEASE 

(PAID-UP) 

  

AGREEMENT, Made and entered into this        day of                                 , 2007, by and between Farmers National Company, Agent for  , located at 403 S. Cheyenne, Suite, 800, Tulsa, OK 74103-3842, party of the first part, hereinafter called lessor, (whether one or more), and     , located at                                                                                  , party of the second part, hereinafter called lessee.  

  

WITNESSETH, That the said lessor, for and in consideration of TEN AND MORE ($10.00) DOLLARS, cash in hand paid, receipt of which is hereby acknowledged and of the covenants and agreements hereinafter contained on the part of lessee to be paid, kept and performed, has granted, demised, leased and let and by these presents does grant, demise, lease and let exclusively unto the said lessee, for the sole and only purpose of exploring by geophysical and other methods, mining and operating for oil (including but not limited to distillate and condensate), gas (including casinghead gas), coal gas and helium and all other constituents, and for laying pipe lines, and building tanks, power stations and structures thereon, to produce, save and take care of said products, all that certain tract of land, together  with any reversionary rights  therein, situated in the County of                       , State of          , described as follows, to wit: 

  

of Section             ,  Township              ,  Range               , containing            acres, more or less. 

  

   It is agreed that this lease shall remain in force for a term of three (3) years from date (herein called primary term) and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee. 

   In consideration of the premises the said lessee covenants and agrees: 

   1st.  To deliver to the credit of lessor free of cost, in the pipe line to which it may connect its wells, the________________________ part of all oil (including but not limited to condensate and distillate) produced and saved from the leased premises. 

   2nd. To pay lessor for gas of whatsoever nature or kind (with all of its constituents) produced and sold or used off the leased premises, or used in the manufacture of products therefrom, ________________________of the gross proceeds received for the gas sold, used off the premises, or in the manufacture of products therefrom but in no event more than ________________________of the actual amount received by the lessee, said payments to be made monthly.  During any period (whether before or after expiration of the primary term hereof) when gas is not being so sold or used and the well or wells are shut in and there is no current production of oil or operations on said leased premises sufficient to keep this lease in force, lessee shall pay or tender a royalty of One Dollar ($1.00) per year per net royalty acre retained hereunder, such payment or tender to be made, on or before the anniversary date of this lease next ensuing after the expiration of ninety (90) days from the date such well is shut in and thereafter on the anniversary date of this lease during the period such well is shut in, to the royalty owners.  When such payment or tender is made it will be considered that gas is being produced within the meaning of the entire lease. 

   3rd.  To pay lessor for gas produced from any oil well and used off the premises, or for the manufacture of casinghead gasoline or dry commercial gas, ________________________of the gross proceeds, at the mouth of the well, received by lessee for the gas during the time such gas shall be used, said payments to be made monthly. 

   If the lessee shall commence to drill a well or commence reworking operations on an existing well within the term of this lease or any extension thereof, or on acreage pooled therewith, the lessee shall have the right to drill such well to completion or complete reworking operations with reasonable diligence and dispatch, and if oil or gas, or either of them, be found in paying quantities, this lease shall continue and be in force with like effect as if such well had been completed within the term of years first mentioned. 

   Lessee is hereby granted the right at any time and from time to time to unitize the leased premises or any portion or portions thereof, as to all strata or any stratum or strata, with any other lands as to all strata or any stratum or strata, for the production primarily of oil or primarily of gas with or without distillate.  However, no unit for the production primarily of oil shall embrace more than 40 acres, or for the production primarily of gas with or without distillate more than 640 acres; provided that if any governmental regulation shall prescribe a spacing pattern for the development of the field or allocate a producing allowable based on acreage per well, then any such unit may embrace as much additional acreage as may be so prescribed or as may be used in such allocation of allowable.  Lessee shall file written unit designations in the county in which the lease premises are located.  Operations upon and production from the unit shall be treated as if such operations were upon or such production were from the leased premises whether or not the well or wells are located thereon.  The entire acreage within a unit shall be treated for all purposes as if it were covered by and included in this lease except that the royalty on production from the unit shall be as below provided, and except that in calculating the amount of any shut in gas royalties, only the part of the acreage originally leased and then actually embraced by this lease shall be counted.  In respect to production from the unit, Lessee shall pay Lessor, in lieu of other royalties thereon, only such proportion of the royalties stipulated therein as the amount of his acreage placed in the unit, or his royalty interest therein on an acreage basis bears to the total acreage in the unit. 

   If said lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, then the royalties herein provided shall be paid to the lessor only in the proportion which his interest bears to the whole and undivided fee. 

   Lessee shall have the right to use, free of cost, gas, oil and water produced on said land for its operations hereon, except water from wells of lessor. 

   When requested by the lessor, lessee shall bury his pipelines below plow depth. 

   No well shall be drilled nearer than 200 feet to the house or barn now on said premises, without the written consent of the lessor. 

   Lessee shall pay for all damages caused by its operations to growing crops on said land. 

     Lessee shall have the right at any time to remove all machinery and fixtures placed on said premises, including the right to draw and remove casing. 

   If the estate of either party hereto is assigned, and the privilege of assigning in whole or in part is expressly allowed, the covenants hereof shall extend to their heirs, executors, administrators, successors or assigns.  However, no change or division in ownership of the land or royalties shall enlarge the obligations or diminish the rights of lessee.  No change in the ownership of the land or royalties shall be binding on the lessee until after the lessee has been furnished with a written transfer or assignment or a true copy thereof.  In case lessee assigns this lease, in whole or in part, lessee shall be relieved of all obligations with respect to the assigned portion or portions arising subsequent to the date of assignment. 

  All express or implied covenants of this lease shall be subject to all Federal and State Laws, Executive Orders, Rules and 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 such failure is the result of any such Law, Order, Rule or Regulation. 

   This lease shall be effective as to each lessor on execution hereof as to his or her interest and shall be binding on those signing; notwithstanding some of the lessors above named may not join in the execution hereof.  The word "lessor" as used in this lease means the party or parties who execute this lease as lessor, although not named above. 

   Lessee may at any time and from time to time surrender this lease as to any part or parts of the leased premises by delivering or mailing a release thereof to lessor, or by placing a release of record in the proper County. 

   Lessor hereby warrants and agrees to defend the title to the land herein described, and agrees that the lessee shall have the right at any time to redeem for lessor by payment any mortgages, taxes or other liens on the above described lands, in the event of default of payment by lessor, and be subrogated to the rights of the holder thereof. 

     Notwithstanding any provisions of this Oil and Gas Lease to the contrary, it is understood that this Oil and Gas Lease shall be subject to the terms and provisions on Exhibit "A", attached to and made a part hereof. 

  

IN TESTIMONY WHEREOF, we sign this the    day of _____, 2007. 

  

  

____________________________      ___________ 

David Smith, Vice President 

Farmers National Company, Agent for ________________________ (Lessor) 

  

  

  

  

ACKNOWLEDGMENT 

  

STATE OF OKLAHOMA             ) 

                                           )§ 

COUNTY OF TULSA        ) 

  

  

On this _ day of _ , 2007 before me, _______________________________ Notary Public in and for said County and State, personally appeared David Smith, VP, Farmers National Company, Agent for     , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he executed the same in his authorized capacity and that by his signature on the instrument in person, or the entity upon behalf of which the person acted, executed the instrument. 

  

WITNESS my hand and official seal. 

  

_____________________________________ 

Notary Public 

(SEAL) 

  

  

  

  

  

  

  

  

  

  

  

 

EXHIBIT "A"

  

This Exhibit "A" attached to and made a part hereof this Oil & Gas Lease dated   2007, between Farmers National Company, Agent for, hereinafter called Lessor (whether one or more) and  , hereinafter called Lessee, covering: 

  

  

of Section, Township, Range, containing                 acres, more or less.  

  

Notwithstanding any provisions of the STANDARD LEASE FORM, which is the first page of this lease, any of which may conflict with the following provisions, it is understood and agreed that the following provisions, conditions and limitations shall be controlling and shall modify and amend the first page of this lease to the extent necessary to make them effective. 

  

1.       It is expressly agreed and provided that this lease cannot and shall not be maintained after the expiration of the primary term solely by the payment of shut-in gas royalties for a longer period than two (2) consecutive years provided, however, this right to maintain this lease after the expiration of the primary term for said two (2) year period shall be a recurring right and may be exercised from time to time whenever the Lessee deems it necessary or expedient to shut-in such a well. Following any such two  (2) year shut-in period, production shall resume and continue for a minimum period of six (6) months before said right to maintain lease shall recur. 

  

2.       The pooled acreage shall be all abutting and contiguous to the minerals herein listed. 

  

3.       Shut-in payments shall be $5.00 per acre. 

  

4.       Lessee shall pay monthly to Lessor as royalty on gas, including casinghead gas, liquid hydrocarbons and other gaseous substances, produced at the wellhead or produced from said land and sold or used off the premises, or used for the manufacture of gasoline or other products, the agreed to royalty amount of the gross proceeds at the wellhead of such gas sold or used.  In no event shall royalty be based on an amount less than the gross proceeds of the sale thereof. 

  

5.       All royalty payments due under this lease shall be made by Lessee on or before the last day of the month following the month in which payment is received from the purchaser. All delinquent royalty payments shall bear interest at the rate of twelve percent (12%) per annum until paid. 

  

6.       Lessors reserve all rights to grant, lease, mine and/or produce any minerals from said lands except interests in gas and oil and their constituent products herein leased to lessee. Lessors specifically reserve the ownership of all radioactive substances, including those which may be produced with or derived and/or extracted from any gas or liquid produced by the Lessee under the terms of this lease. 

  

7.       Lessee, his successors and assigns, hereby agree that, for the purpose of calculating royalty payments hereunder on all production from the leased premises, such calculations shall be made at the point of sale and shall be free of any and all delivery costs and shall not be burdened by any costs of production, including but not limited to, transportation expenses or any expenses associated with or attributable to treatment, gathering, trucking, processing or pipeline construction and maintenance.  The value of the oil shall be based on the highest posted price, plus premium if any, paid for oil of like gravity in the field from which the oil is produced. 

  

8.       Lessee shall IDEMNIFY AND HOLD LESSORS HARMLESS from any claims, damages, actions or causes of action from any environmental damage or contamination caused or contributed to by Lessee subsequent to the commencement of this lease. 

  

9.       In the event oil or gas production is encountered and the marketing agreement consummated with a reputable purchaser, Lessee hereby agrees, upon written request to furnish pertinent details of the terms of the purchase contract. 

  

10.   Lessee agrees to make a diligent effort to obtain the highest price available in this immediate area for oil and/or gas. 

  

11.   This lease contemplates the full prospecting and development for oil and gas of the land hereby leased, including the obligation to offset producing wells on the leased premises, commensurate with practices of the oil and gas industry. Lessee agrees to drill as many offset wells as may be necessary to prevent any undue drainage of oil and gas from the land included herein, which drainage  may be caused by the drilling of wells producing oil and gas in paying quantities on adjacent lands. Failing to do so, Lessee agrees to release this lease as to those offset lands upon written demand. 

  

12.   It is contemplated and agreed by both Lessor and Lessee that this lease shall, at all times and in all respects, be subject to valid orders, rules and regulations of any duly constituted authority having jurisdiction of the subject matter hereof. 

  

13.   In the event a portion or portions of the leased premises is pooled or unitized with other land so as to form a pooled unit or units, operations on, completion of a well upon, or production from such unit or units will not maintain this lease in force as to that portion of the leased premises not included in such unit or units.  The lease may be maintained in force as to any portion of the leased premises covered hereby and not included in such unit or units in any manner provided for herein; provided, however, if at the end of the primary term or after the expiration of the primary term, Lessee is then engaged in   drilling or reworking operations on the leased premises or on acreage pooled therewith, or if Lessee has completed a well as a producer or a dry hole anywhere on the leased premises or lands pooled therewith within ninety (90) days prior to the expiration of the primary term, this lease shall remain in full force and effect as to all non-unitized acreage so long as Lessee commences drilling operations  on the leased premises or on acreage pooled therewith within ninety (90) days of the completion of such well as a producer or a dry hole and conducts continuous operations thereon with no cessation of longer than ninety (90) days between the completion of drilling or reworking operations on a well and the commencement of such operations for the next succeeding well. 

  

14.   Should a well be drilled and subsequently be a producing well, then and in that event Lessee agrees at the end of the primary term to release all zones 100 feet below the total depth drilled on the above described land or lands unitized therewith. Lessee shall be obligated, subject to other terms of this paragraph to file of record in the courthouse a release of this lease, thereby releasing all zones of formations 100 feet below the total depth drilled. Said release shall be filed within sixty (60) days following the expiration of the primary term of the lease. If such release is not filed within said sixty (60) day period, then Lessee shall be subject to damages and for attorney fees incurred by Lessor in obtaining such release. 

  

15.   Lessee agrees to promptly provide Lessor with a copy of the recorded lease document. 

  

16.   Lessee represents that they are not an officer, director, or employee of the bank or agent, their subsidiaries, or any of their affiliated entities, nor does Lessee anticipate assigning this lease to any of these parties. 

  

17.   This lease is given and granted without warranty, express or implied, in law or in equity. 

  

18.   Lessee shall notify Lessor of any assignment of Lessee's rights hereunder, stating the name and current mailing address of the Assignee, and shall furnish a copy of such assignment within 60 days of its recording in the county records. 

  

19.   Lessee is unconditionally obligated to Lessor to make the payment of royalties hereunder, irrespective of the failure or bankruptcy of any third party oil and gas purchaser and without the necessity of Lessor executing a division order or transfer order.  Further, Lessee shall bear full responsibility for payment of all royalties hereunder, irrespective of any split-stream marketing of production. 

  

20.   Lessee agrees that before any gas produced from the leased premises is used or sold off the leased premises, it will run, free of cost to Lessor, through a conventional separator or other comparable equipment, so that all liquid hydrocarbons recoverable from gas by such means will be recovered on the leased premises.  Distillate and condensate produced from gas strata shall be extracted by ordinary mechanical means on the leased premises. Such distillate and condensate shall be accounted for by the barrel as oil. 

  

21. Lessee represents that the Premises are not currently producing oil, gas, casinghead gas or other gaseous substances; and that no portion of said Premises is currently held by an active oil and gas lease or is in a producing unit.  Also, Lessee represents that production revenue from the Premises is not being held in suspense for the benefit of the Lessor or its predecessors in title.  

  

  

IN TESTIMONY WHEREOF, signed this                    day of , 2007. 

  

  

  

________________________        ______________ 

David Smith, Vice President 

Farmers National Company, Agent for  

 (Lessor) 

             

  

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End of Exhibit