SOUTH DAKOTA OFFICE OF SCHOOL AND PUBLIC LANDS LEASE NO.: OIL AND GAS LEASE This Agreement is made and entered into this _____ day of _________, 20__, by and between the State of South Dakota, acting through its Commissioner of School and Public Lands, Pierre, South Dakota, hereinafter referred to as Lessor, and ______________________________, whose address is ______________________________, hereinafter called Lessee, pursuant to the provisions of SDCL ch. 5-7. WITNESSETH: 1. Granting Clause. In consideration of a bonus of __________ dollars, and the annual rental of ________ dollars, the receipt of which for the first year of this lease is hereby acknowledged; and in consideration of the covenants to be kept and performed by the Lessee which are hereinafter set forth; the Lessor hereby leases to the Lessee, the mineral lands described as follows: County of ____________ Township______Range______Section______________________________________ __________ Total number of acres, more or less, ___________________; for the sole and only purpose of exploring by geophysical and other methods; mining, producing and operating for oil, gas and casinghead gas; laying of pipeline; building tanks, power stations, and other structures necessary to produce, save, care for, dispose of, and remove oil and gas; all in accordance with SDCL chs. 5-7 and 45-9 and ARSD ch. 4:01:01 and article 74:10. 2. Term. This lease is granted for a primary term of five years from the date of this agreement, and as long thereafter as oil, gas, casinghead gas, or any of them, is being commercially produced from the land, subject to the terms and conditions set forth in this lease. If oil, gas or casinghead gas is not being commercially produced on the leased premises at the expiration of the primary term of this lease, but Lessee is actively engaged in drilling a well for oil or gas, then this lease shall continue in force so long as the drilling operations are being continuously pursued on the leased premises. If oil or gas is discovered and produced from a well that was being drilled at the expiration of the primary term, the lease shall continue in force so long as oil, gas, or casinghead gas is commercially produced. 3. Royalties. The Lessee shall pay in money to the Lessor during the full term of this lease, a royalty of one-eighth, free of all costs and deductions, on the oil produced from the wells under this lease. The Lessee shall also pay in money to the Lessor during the full term of this lease, a royalty of one-eighth, free of costs and deductions, on the gas produced from the wells under this lease, whether the wells produce oil and casinghead gas or gas alone. All royalties shall be calculated upon the total amount produced, saved and marketed under this lease based on the fair market value of oil or gas or casinghead gas of like quality prevailing on the day the substance is sold. 4. Annual Rental. This lease shall automatically terminate if a well is not commenced on the leased property on or before one year from the date of this agreement, unless the Lessee on or before that date pays or tenders to the Lessor the sum of _____ dollars, which shall operate as annual rental and allow Lessee the privilege of deferring the commencement of a well for twelve months. The commencement of a well may be further deferred for successive annual periods during the primary term of the lease upon payment of the annual rental. 5. Dry hole Provision. If, during the primary term of this lease, Lessee drills or abandons a dry hole, or if after the discovery of oil or gas the production ceases due to any cause, this lease shall not terminate so long as Lessee commences additional drilling or reworking operations within 12 months after abandonment or cessation, or commences or resumes the payment and tender of annual rentals in the amount and manner provided above. Upon the resumption of payment of annual
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rentals, this lease shall continue in force as if there had been no interruption in the rental payments. 6. Shut-in Gas Royalty. Upon annual written approval of Lessor, this lease shall not expire at the end of its primary term if there is a well capable of producing gas in paying quantities upon the leased lands, which has been shut-in due to the inability of Lessee to obtain a pipeline connection or to market the gas from the well. However, in this event, the Lessee shall pay a shut-in gas royalty equal to the annual rental paid by the owner under the terms of this lease in the same manner and date on which the annual rental payment is due. The payment of the shut-in gas royalty shall be considered for all purposes the same as if gas was being produced in paying quantities from the well, and upon the commencement of marketing of the gas from the shut-in well, the shut-in gas royalty paid for the lease year in which the gas is first marketed shall be credited against the gas royalty paid to the Lessor for that year. The provisions of this section shall also apply where gas is being marketed under the lease, and, through no fault of the Lessee, the pipeline connection or market is lost or ceases, in which case this lease shall not expire so long as the shut-in gas royalty is paid. 7. Pooling and Unitization. Upon receiving the written consent of the Lessor, the Lessee shall have the right to commit the lands hereby leased to a unit, pooling unit, cooperative or other plan of development or operation. This commitment shall not change the percentage of royalties to be paid to the Lessor as fixed in this lease. Oil or gas or casinghead gas produced from leased lands included in pooling or unitization commitments are considered produced under this lease. 8. Due diligence. Upon completion of a commercially produced oil or gas well upon the leased premises, the Lessee shall proceed with reasonable diligence to drill such additional wells to the depth of the formation found commercially productive, or to such depth as may be necessary, to economically test, develop and produce the deposits discovered. 9. Waste Prohibited. In conducting all exploration, mining or drilling operations under this lease, the Lessee shall exercise all reasonable care and precautions in order to prevent the waste of oil and gas. The Lessee shall also at all times use reasonable care and precautions to prevent the entrance of water into the oil or gas bearing strata, or any destruction or injury thereto. 10. Logs Required. The Lessee agrees to keep a correct log of each well drilled under this lease, showing the formations passed through, the depth at which the formations were reached, the thickness of each formation, the water bearing formations, the number of feet of casing set in the well and where placed, its size and the total depth to which the well was drilled. Upon request, a copy of this log shall be provided to the Lessor. 11. Progress Reports Required. Upon request, the Lessee shall file progress reports with the Lessor before the completion or abandonment of any well. 12. Completion Reports Required. When the Lessee is required by the rules of the Board of Minerals and Environment of the Department of Environment and Natural Resources, to file a well completion report with that Department, the Lessee shall also file one copy of that report with the Lessor. 13. Lessor's Right to Inspect. Representatives of the Lessor shall at all times have the right to enter upon the leased premises for the purpose of inspecting and examining activities conducted under this lease. Representatives of the Lessor shall at all reasonable hours and upon reasonable notice have free access to and the right to copy all books, accounts, records and papers of the Lessee insofar as they may contain information relating to the production obtained under this lease, the price obtained therefore, and the fair market value of the production. Lessor shall also have free access to agreements relating to production under this lease. 14. Surface Owners or Surface Lessees Rights. The Lessee agrees to provide the surface owner or surface lessee with a plan for the location of all facilities, and to consult with the surface owner or surface lessee regarding a reasonable location for access roads. Lessee agrees to interfere as little as possible with the use of the surface of the leased premises. The Lessee shall not drill any well upon the leased lands within 200 feet of a residence or barn now or hereafter erected, without the written consent of the owner of the building. The Lessee hereby agrees to make satisfactory adjustment with the surface owner or surface lessee for damages sustained 2
to them by reason of Lessee's entry upon, use, and occupancy of the surface of the land. 15. Pipeline Burial. Upon request by the Lessor, the Lessee shall bury its pipelines below plow depths. 16. Archeological Materials. The Lessor hereby reserves and retains title to any and all historical, archeological, and paleontological materials found upon the leased premises. If the Lessee discovers a historical, archeological, or paleontological resource during its operation on the leased premises, the Lessee shall not disturb or alter the resource. The Lessee shall notify the Lessor and undertake protective measures, if any, Lessor requires to preserve or protect the resource. 17. Assignments. The Lessee may assign this lease, either in whole or as to any regular sub-division thereof embracing forty acres or more, to any qualified assignee, with the prior written approval of Lessor. 18. Amendments. The provisions of this lease may be amended only by written agreement, executed by Lessor and Lessee, to the extent provided by law. 19. Relinquishments. The Lessee shall have the right during any rental year, upon thirty days written notice to the Lessor, to surrender and relinquish the whole or any legal sub-division of the lands hereby leased, and thereupon be discharged from any further obligation under this lease as to those lands. 20. Cancellation. It is understood and agreed that the Lessor reserves the right to declare this lease forfeited and to cancel it upon failure of the Lessee to fully discharge all the obligations provided in the lease. The Lessor shall provide Lessee with written notice of the cancellation, specifying a reasonable time for Lessee to perform the undertaking or obligation with which Lessee is in default. Upon written request, the Lessee may have a hearing before the Commissioner of School & Public Lands on the alleged default. The provisions of this cancellation clause shall not in any way apply to an automatic termination of this lease caused by Lessee's failure to pay annual rental when due. 21. Surrender Possession. Upon the termination of this lease for any cause, the Lessee shall surrender possession of the leased premises to the Lessor, subject to Lessee's right to re-enter the leased premises at any time within six months after the date of termination for the purpose of removing all machinery, fixtures, improvements, buildings and equipment belonging to Lessee. Any property of the Lessee not removed from the leased premises within six months of the termination date of the lease will, at the sole option of Lessor, be deemed forfeited to Lessor. Solid, hazardous, or other waste products will remain the exclusive property of Lessee at all times. 22. Compliance with Laws, Rules and Regulations. The Lessee agrees to comply with all applicable laws, rules and regulations in effect at the date of this lease and which may from time to time be adopted, which do not impair the obligation of this contract or deprive the Lessee of an existing property right recognized by law. 23. Legal Fees. In the event Lessor shall institute and prevail in any action or suit for the enforcement of any of the provisions of this lease, Lessee will pay to Lessor all attorney's fees and legal costs incurred in the action. 24. Indemnification. Lessee agrees to indemnify Lessor from any and all lawful claims against Lessor for loss, injury or damage resulting from activities of Lessee under this lease. 25. Executing Parties Bound. All covenants and agreements herein set forth between the parties, shall extend to and bind their successors, heirs, executors, and assigns. Signed this ____ day of ____________, 19__.
_____________________________________________ State of South Dakota Commissioner School/Public Lands
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Signed this ____ day of ____________, 20__.
________________________________________________ Lessee
STATE OF __________________________} }ss. COUNTY OF________________________} On this __________day of ______________20___, before me, _________________, the undersigned officer, personally appeared______________________________, known to me or satisfactorily proven to be the person whose name is subscribed to the within instrument and acknowledge that he executed the same for the purpose therein contained. In witness whereof I hereunto set my hand and official seal. (SEAL) My commission expires______________. 20____ ________________________________________________ Notary Public
LEASE NUMBER:
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