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Ce: Will Ylitalofwylitalo@rgep.com]
To: Nora Lee Notzon{nnotzon@notzonadvisors com]; Roberto Cassofrme@ eooil.com]
Fro Slenn Han{/O=EXCHANGELABS/OU-EXCHANGE ADMINISTRATIVE GROUP (FYDIBOHEF23SPDLT)CN=RECIPIENTS/CN=2198393980D84E72BCCOEFB8DIF9C166-GHART]
Sent: Mon 3/11/2019 5:47:08 PM Coordinated Universal Time
Subject: Final Clean BFMT OGL docx
Attachment: Final_Clean_ BFMT OGL.docx
Attachment: ATTOQOOL txt
Rio Grande MSJ
EX 54
2022-23621
Confidential RIO GRANDE 00002474
OIL AND GAS LEASE
STATE OF TEXAS §
COUNTY OF WEBB §
THIS AGREEMENT made this day of i
2019, by and between ARTURO TOMAS BENAVIDES, ANNA BENAVIDES GALO and
CARLOS Y. BENAVIDES, Ill, Co-Trustees of the BENAVIDES FAMILY MINERAL
TRUST, under Trust Conveyance dated March 22, 1990, appearing of record in Volume
1413, Pages 356-380 of the Real Property Records of Webb County, Texas, whose
mailing address is P. O. Box 217, Laredo, Texas 78041, hereinafter called “LESSOR”,
and RIO GRANDE E&P, LLC., whose address is 10000 Memorial Drive, Suite #500,
Houston, Texas 77024, hereinafter called “LESSEE”,
WITNESSETH:
DEFINITIONS: The parties hereto agree that for purposes of this Lease, the following
definitions shall be applicable:
a “production”, “production in paying quantities" "production in commercial
quantities" and "production in paying or commercial quantities" shall have the same
meaning for purposes of this Lease, namely production in quantities sufficient to yield a
return to the holders of the working interest excluding severance taxes, in excess of
operating and equipping expenses (but excluding any capital expenditures such as drilling
or reworking) and costs including overhead and depreciation of assets (as indicated on
Lessee’s depreciation schedule for this Lease and for its federal income tax return), even
though drilling costs may never be recouped by working interest owners. The review
period for purposes of determining whether production..is in paying or commercial
quantities shall be twelve (12) consecutive months. There shall be no review period
where production ceases. Production in less than paying or commercial quantities shall
never be considered as production for purposes of this Lease.
c. “operations for. drilling” “drilling operations", "“commencement_of
operations", "commence operations", “commence drilling operations", “commences
drilling operations", "commencement of a well" and "actual drilling operations" shall have
the same meaning being (1) the actual entry of the rotating drill bit of a drilling rig, capable
of achieving the total depth permitted and approved by the Railroad Commission of
Texas, into the soil of Leased Premises or lands pooled therewith and the timely
prosecution of such actual drilling operations in good faith and with reasonable diligence
to the completion of same as a dry hole or commercial well and (2) the actual re-entry
into an existing wellbore with a drilling or workover rig capable of re-entering such well for
the purpose of completing such well in previously uncompleted and unproduced zones
and the timely prosecution of such actual re-entry operations in good faith and with
reasonable diligence, toward the completion of such previously uncompleted and
unproduced zone or zones encountered in such wellbore, as either producing or dry
zones.
d “operations for reworking", “reworking operations", “commencement_of
reworking operations", "commence reworking operations", "commences reworking
Operations" and "actual reworking operations" shall have the same meaning being the
actual re-entry into an existing wellbore with a drilling or workover rig capable of re-
entering and reworking such well and the timely prosecution of such actual reworking
operations in good faith and with reasonable diligence and without cessation of more than
thirty (30) days, toward the re-establishment of commercial production of oil or gas from
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a previously producing zone or zones.
e. "operations" and "other operations" shall be defined as all other lease operations
which may be conducted by LESSEE under this Lease except those defined in c. and d.
above. "Operations" and "other operations" as defined in this section e. shall never be
the basis for perpetuation of this Lease.
f. “completed or completion" as used herein, as regards any well drilled on this
Lease, shall have the following meanings: (a) as to a dry hole, shall mean the date
plugging operations are concluded on said wellbore; (b) as to a producer of oil or gas,
shall mean the date of first sales after fracture stimulation operations have been
performed on said well.
g. "shut-in": A well shall be considered and defined as "shut-in" on the day that
well capable of producing in paying quantities ceases actual production (or is prevented
from commencing production in paying quantities) solely as a result of Lessee shutting in
the valve.
h. ‘injection well’: as used herein shall mean a well into which saltwater produced
from the lease is being injected into a porous formation productive of oil and gas for the
purpose of enhancing recovery of said oil and gas in surrounding lease wells.
i “horizontal well”: as used herein shall mean a well in which the horizontal
component of the gross length of.lateral displacement of the well bore is at least five
thousand (5,000’) linear feet from the. vertical portion of the well bore. In the event of
multilateral wells, as defined below, each. lateral from the same vertical portion of the
subject well bore shall constitute and be counted as a separate “horizontal well” for all
purposes herein, so long as each such lateral satisfies the requirements stated in this
definition.
J “multilateral well’: as used herein shall mean a well with two or more laterals
from the same vertical portion of the well bore.
k. “vertical. well”: as used herein shall mean any oil or gas well that is not
defined as a horizontal well or a multilateral well.
GRANTING CLAUSE ano PROPERTY DESCRIPTION
Subject to all terms and provisions of this Lease, LESSOR, in consideration of TEN
($10.00) DOLLARS in hand paid, the additional Lease Bonus payments to be paid (See
Section IV below), the royalties herein provided for, and the agreements of LESSEE
herein stated, hereby LEASES, and LETS exclusively unto LESSEE an Oil and Gas
Leasehold Estate, from the lands hereafter described, for the purpose of investigating,
exploring, drilling for and producing OIL and/or GAS, (the term “oil and/or gas” as used
herein is defined as to include all liquid or gaseous hydrocarbons together with any sulfur
produced in association with the production of oil or gas and excluding all other
substances of value), and subject to the specific surface use provisions of this Lease, to
construct and emplace such pipelines, flowlines, construct roads, pads, production
facilities, power lines and related structures, tanks and well equipment on the surface of
the lands covered hereby which are necessary to produce, save, treat, process, store and
sell said OIL and/or GAS production from this Lease.
The aforementioned lands and depths covered by this Lease (hereinafter, the
“Leased Premises”) are situated in Webb County, Texas and are described as follows:
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3,920.31 acres of land, more or less, out of the Antonio Gonzales Survey
1450, A-57, also known as the Santo Tomas Grant, Original Grantee
Antonio Gonzales, containing 53,136 acres more or less, being described
in metes and bounds in that certain Letter Patent recorded in Volume 22
Page 389 Deed Records, Webb County, Texas, and consisting of those two
(2) certain non-contiguous tracts as follows:
FIRST TRACT: 640 acres of land, more or less, as depicted and described
on Exhibit “A” in that certain Lease Amendment and Ratification recorded
in Volume 3332 Page 480 Official Public Records, Webb County, Texas and
being described in metes and bounds therein insofar and only insofar as to
all depths and horizons encountered above the base of the Pearsall
Formation, defined as the stratigraphic equivalent of the depth of feet
measured depth as shown in the log dated
SECOND TRACT: 3,280.31 acres of land, more or less, as depicted and
described on Exhibit “B” in that certain Lease Amendment and Ratification
recorded in Volume 3332 Page 480 Official Public Records, Webb County,
Texas and being described in metes and bounds therein, insofar and only
insofar as to those depths and horizons encountered below 8500 below the
surface of the earth and above the base of the Pearsall Formation as
defined above.
For the purposes of calculating the payments hereinafter provided for, said land
shall be considered to comprise 3,920.31 acres.
i.
HABENDUM CLAUSE AND RESERVATIONS
a) HABENDUM CLAUSE: Subject to the specific special limitations herein
contained, this Lease shall. be for a term of three (3) years from date hereof (“Primary
Term’), and aslong thereafter as oil or gas.is produced from said land in paying quantities.
b) RESERVATIONS: There is EXCEPTED from this Lease and LESSOR
RESERVES unto LESSOR and LESSOR’s successors, administrators and assigns:
i) All. minerals except oil, gas and all other liquid, solid and gaseous
hydrocarbons and sulphur that are necessarily produced with such oil or gas;
(ii) Equal and concurrent rights of occupancy, use and possession of the
surface estate by LESSOR, LESSOR’s other mineral lessees, surface owner and its
lessees or assigns, together with the right of ingress to and egress from the above
described lands for all purposes including exploring, developing and operating said lands
for oil, gas and other minerals of whatever nature which are not covered by this Lease or
which may hereafter be released from this Lease and equal and concurrent rights to
complete water source wells on the Leased Premises and in any reservoir not productive
of oil or gas for the purpose of obtaining water for domestic and agricultural use and
consumption and for the exploration, development and operation of LESSOR’s reserved
rights; provided, however, LESSOR or Surface Owner, if different from LESSOR, agrees
not to use the surface of the premises affected hereby in any manner that will interfere
unduly with any of LESSEE’s rights in exploring, developing, producing, treating,
processing, transporting, marketing and caring for oil, gas and other hydrocarbons under
said lands. As between mineral LESSEE’s, access to the surface shall be based on first-
3
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in-time, first-in-right, but as between LESSEE herein and subsequent mineral LESSEEs,
this Leasehold estate shall be considered dominant.
(iii) All rights granted to LESSEE in this Lease shall be limited to the
lands and depths described and covered by this Lease together with such ingress to and
egress from Leased Premises as designated by LESSOR and shall not extend to (and
LESSOR expressly reserves) all rights, privileges and usage which relate to lands not
described herein or which may be released herefrom. Notwithstanding the foregoing
sentence, it being understood that LESSEE shall retain the right to reasonable ingress to
and egress from the Leased Premises in order to conduct operations under the terms of
this Lease. Specifically, but not by way of limitation, LESSEE is prohibited from utilizing
any right or privilege granted under this Lease for use or benefit of or as a convenience
in operating on lands not covered by this Lease, whether such other lands are owned by
LESSOR or the owner of the surface of Leased Premises or third parties, unless such
right is granted in writing by Surface Owner.
(iv) LESSOR reserves unto itself and its successors, assignees,
contractors, agents and LESSEEs, the concurrent right to use any access to and from the
above lands and to conduct operations on the surface of the above land in order to explore
for, drill to, produce, develop, transport, store; treat and market oil, gas and other minerals
from (1) depths not covered hereby from time to time; (2) other lands of LESSOR or any
one or more of LESSOR; and (3) other lands not owned by LESSOR, and to drill through
said above described property and depths held under this Lease from time to time in order
to explore for, develop, produce and market oil, gas or other minerals from below the
above property or from any other lands of LESSOR or from any other lands not owned
by LESSOR. In this regard, itis agreed that surface use shall be such that will not interfere
unduly with LESSEE’s operations but LESSEE agrees to cooperate with any other
operator in regard to surface operations.
(v) In regard to. geophysical and/or geologic surveys by seismograph,
core tests or other magnetic tests conducted on Leased Premises, LESSOR shall not be
paid for such operations and the Surface Owner shall be paid TWENTY-FIVE ($25.00)
DOLLARS per acre, limited to the number of acres upon which such tests are conducted,
for surface damages. if such operations occur during the Primary Term and FIFTY
($50.00) DOLLARS per acre, limited to the number of acres upon which such tests are
conducted, as surface damages for any seismic operation conducted on the Leased
Premises after the expiration of the primary term. This paragraph shall in no way be
applicable to microseismic monitoring.
(vi) Except as otherwise provided in Section XV., LESSEE shall not grant
permission for seismographic or other "shooting operations" on the premises to others
(except a contractor conducing seismographic or other "shooting operations" on behalf of
LESSEE) nor may others who do not own any legal or equitable interest in this Lease
participate in the costs of such seismic operations in exchange for such data, as LESSEE
shall only conduct or cause to be conducted such operations for its own use. LESSEE
with LESSOR’s written consent may grant such permission in each instance where
LESSEE participates with others or is in a joint venture with others in conducting such
seismic survey. However, LESSOR reserves the right to grant permission to others to
conduct such operations in which event LESSEE may negotiate with such seismic
operator for copies of data obtained. LESSOR shall be entitled to a copy of all seismic
data and/or information owned and/or under the control of LESSEE as further covered by
Section XV. below.
(vii) Lessee shall not have the right to reenter any wells or well bores
heretofore drilled on the Leased Premises. Further, Lessee shall not acquire any rights to
any property now on the Leased Premises.
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mM.
ROYALTY CLAUSE
ROYALTY CLAUSE: LESSOR reserves from this Lease, one-fourth (1/4th) royalty
on all oil and gas production from this Oil and Gas Lease and LESSEE herein does hereby
covenant and agree to pay such reserved oil and gas royalties unto LESSOR, which oil
and gas royalties shall be calculated and timely paid or delivered to LESSOR, in the
following manner:
(a) OIL, CONDENSATE AND OTHER LIQUID HYDROCARBONS: On all oil,
condensate and other liquid hydrocarbons produced from this Lease, LESSEE shall be
required to pay to LESSOR, one-fourth (1/4!) of all oil, condensate and other liquid
hydrocarbons produced from this Lease, which royalties shall be calculated and paid to
LESSOR based upon the highest of: (i) the posted price for similar type of oil produced in
the north one-half (1/2) of Webb County, Texas, or for similar type of oil produced from
this Lease; (ii) the current market value of oil produced or (iii) the GROSS PROCEEDS
RECEIVED BY LESSEE as defined in Section (b) (iii) below.
(b) GAS, CASINGHEAD GAS AND OTHER GASEOUS HYDROCARBONS:
On all gas production from this Lease, including casinghead gas or other gaseous
substances, and all other products derived therefrom or in the manufacture of gasoline or
other product therefrom, LESSEE shall calculate and pay royalties to. LESSOR, on One-
Fourth (1/4th) of all gas produced from this Lease and its constituents and products sold
or used therefrom, which royalties. shall be calculated and paid to LESSOR based upon
the highest of (i) the CURRENT MARKET VALUE of such gas production from this Lease
which is sold by, through or under LESSEE or used by, through or under LESSEE, (ii) the
HOUSTON SHIP CHANNEL PRICE, as hereinafter defined, for such gas production
LESS a geographic adjustment as indicated in this paragraph below, or (iii) the GROSS
PROCEEDS REALIZED BY LESSEE for such gas production, without deduction of any
costs or expense except as hereinafter stipulated. All gas production from this Lease
shall be measured at each wellhead at Standard Measurement, as prescribed by the
Natural Resources Code, Section 91.052, Texas Revised Civil Statutes. LESSOR’s
royalties shall be paid on all. gas production produced by this Lease. The term "current"
or "currently", as used herein, shall mean the time at which production of oil or gas is
actually produced from this Lease. The geographic adjustment from the HOUSTON SHIP
CHANNEL. PRICES addressed above shall not exceed the lesser of (a) 4% of the
HOUSTON SHIP CHANNEL PRICE; or (b) $0.20/MMBtu. However, if this Lease is
transferred or assigned (as the words are defined in Section Vill (a) below), the
geographic adjustment shall not exceed $0.10/MMBtu (or $0.05/MMButu if the HOUSTON
SHIP CHANNEL PRICE is less than $3.00/MMBtu)
(i) The term “CURRENT MARKET VALUE” shall mean the current
market value of gas sold or used during each applicable month of production based upon
comparable sales of gas from the north one-half (1/2) of Webb County, Texas.
“Comparable sales of gas” shall be those sales of gas that are comparable in quantity,
quality, time and availability to marketing outlets, as those terms are defined in the Texas
Supreme Court case of Exxon Corp. v. Middleton, 613 SW2d, 240-252 (Tex. 1981) and
other subsequent cases addressing the matters hereinabove addressed If comparable
sales are unavailable, then appropriate adjustments shall be made to other sales of gas
production to make them comparable to the sale of gas production from this Lease.
Comparable sales of gas shall not include prices paid by a purchaser to a producer as
part of a settlement of past claims or disputes with a purchaser. If any of the contracts
utilized in determining comparable sales of gas shall expressly or impliedly provide for
and include any deduction for the expense of producing, dehydrating, compressing,
treating or marketing of the gas or for transporting or gathering the gas to the point of
sale, then such deductions shall be added to the market value of such gas, so that
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LESSOR’s royalty shall not be chargeable, directly or indirectly, with any of such post
production expenses notwithstanding anything to the contrary contained in Heritage
Resources, Inc. v. Nations Bank 939 S.W.2d 118 (Tex. 1996) or in similar judicial
decisions respecting post production expenses.
(ii) The term "HOUSTON SHIP CHANNEL PRICE" shall be construed to
mean the price first reported monthly on an MMBtu basis under the Index column for gas
delivered to pipelines at the Houston Ship Channel in East Texas, as reported in the
publication entitled “Inside F.E.R.C’s Gas Market Report” published by McGraw-Hill, as
applicable to the monthly gas production from this Lease, which Houston Ship Channel
price has been adjusted as to gas produced from this Lease, for its MMBtu content, and
without any other deduction by LESSEE save unreimbursed severance taxes actually
paid by the LESSEE on behalf of LESSOR to the taxing authority. In the event the above-
designated gas price index publication ceases to exist, (or ceases to report such “Houston
Ship Channel Price” hereinabove referred to), the LESSOR and LESSEE shall agree on
another publication generally acceptable as providing comparable accurate current data
as to current on-shore spot prices for gas delivered into pipelines by purchasers in said
area, which substituted publication shall be used in lieu of the above-described
publication as part of the foregoing standard, of the higher of the three (3) standards
referred to above, upon which LESSOR's royalty shall be calculated and paid. In the
event no price index publication can be agreed upon as reliable, then a reliable
governmental or other non-partisan publication evaluating the same information shall be
used, with current payments to be made on the most current information available and
then adjusted, as necessary, within thirty (30) days following the availability of the
governmental data or other non-partisan publication, or if no such publication is available
for purposes hereof, this standard, as an element for calculation of LESSOR’s royalties,
shall cease to exist.
(iii) The term "GROSS PROCEEDS REALIZED BY LESSEE" shall be
construed to mean the price or value which is equal to all purchase consideration,
revenue, benefits, premiums, commissions, fees, incentives, commitments, gathering
fees and items of value or similar import which either Lessee or Lessee’s related entities,
affiliates and/or subsidiaries receive from the first non-affiliated or non-related purchaser.
(c) SULPHUR AND OTHER ASSOCIATED PRODUCTS: On sulphur and any
other associated products incidentally produced with oil and/or gas under this Lease
(other than liquid or gaseous hydrocarbons), the royalty shall be One-Fourth (1/4th) of the
market value of each of such products if such products are sold or used. Such market
value shall be determined by the greater of (i) the market price of each product for the
month in which the product is produced;(ii) the average gross sales price of each product
for the month in which the product is sold; or (iii) the GROSS PROCEEDS REALIZED BY
LESSEE as defined in Section (b) (iii) above.
(d) LEASE SEPARATED GAS: If gas from any gas well should be sufficiently
impregnated with gasoline, condensate or other liquid hydrocarbons in suspension so
that such gasoline, condensate or other liquid hydrocarbons can be separated and
liquefied as a practical and economical lease operation, then LESSEE shall separate and
recover as much of such gasoline, condensate and other liquid hydrocarbons as
practicable by the installation of separators or other devices ordinarily used in the industry
for such purpose on the leased premises. In such event, LESSOR shall receive
LESSOR'S royalty on such gasoline, condensate and other liquid hydrocarbons in the
same manner provided in Section I|l(a) above, plus LESSOR’S royalty on the residue gas
after separation determined in the same manner provided in Section |II(b) above.
(e) CONTRACT PAYMENTS: If LESSEE enters into a gas purchase contract
which contains what is commonly referred to as a "take or pay" provision (whereby the
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gas purchaser agrees to take delivery of a certain minimum volume of gas overa specified
term at a specified price and, failing to take such required delivery, agrees to make
payment to the producer) and the purchaser under such gas purchase contract makes
payments to LESSEE by virtue of such purchaser's failure to take delivery of such
minimum volume or quantity of gas, then LESSOR shall be entitled to One-Fourth (1/4th)
of all such sums paid to LESSEE or producer under the "pay" provisions of such gas
purchase contract. Such royalty payments shall be due and owing to LESSOR within
sixty (60) days after receipt of such payments by LESSEE. Any royalty payments made
to LESSOR under the "pay" obligation of any "take or pay" gas contract shall be applied
as a credit toward LESSEE’s minimum royalty obligation. If the gas purchaser "makes
ip" such gas within the period called for in the gas contract and LESSEE is required to
give such purchaser a credit for gas previously paid for but not taken, then LESSOR shall
not be entitled to royalty on such "make up" gas, except to the extent of any price
differential applicable to such "make-up" volumes as provided for in the applicable gas
purchase contract.
If LESSEE is not producing any quantities of gas from Leased
Premises but is receiving payments under the "pay" portion of such "take or pay" gas
purchase contract provision, such payments shall not relieve LESSEE of the duty to make
shut-in royalty payments if LESSEE desires to continue this Lease, but such "take or pay"
royalty payments shall be applied as a credit against any shut-in royalty obligation of the
LESSEE
LESSOR shall be a third-party beneficiary of any gas purchase
contract and/or transportation agreement entered into by LESSEE and any purchaser
and/or transporter or pipeline company of LESSOR’s gas, irrespective of any provision of
said contracts to the contrary. Further, LESSOR shall be entitled to One-Fourth (1/4th)
of the value of any benefits obtained by or granted to LESSEE from any gas purchaser
and/or transporter for the amendment, modification, extension, alteration, consolidation,
transfer, cancellation or settlement of any gas purchase contract and/or transportation
agreement.
(f) METER, MEASUREMENT AND TESTING CLAUSE: LESSEE specifically
agrees to install, maintain and operate a properly calibrated gas metering device at each
gas wellhead for the purpose of accurate measurement of all gas production produced
from each gas well on this Lease; which gas measurement shall be made pursuant to the
Measurement law referred to under Section Iil(b) of this Lease. Such gas meter shall be
available for inspection as to its calibration, orifice size and measurements at any time or
times by LESSOR and/or LESSOR’s agent and no “by-pass” valves or connections shall
be authorized to be made which do not provide for proper and accurate metering of all
gas production from any such gas well. Each such gas metering device and orifice plate
shall be installed and maintained in accordance with the provisions of the current
American Gas Association Report No. 3 (A.G.A. Report #3), as now existing. Further, to
assure compliance with American Gas Association Report No. 3 (A.G.A. #3), as now
published, such meters shall be inspected and re-calibrated quarterly by LESSEE after
notice to LESSOR with sufficient time for LESSOR to arrange to be present, either
personally and/or through LESSOR’s agent. In addition, LESSEE agrees to provide to
LESSOR the orifice size, (stated in inches or fractions thereof) of the plate inserted for
measurement of gas production, on a current basis so that LESSOR will always know
throughout the production history of this Lease, the size of the orifice plate used for gas
measurement purposes. Any change in such plate size, shall be provided to LESSOR
prior to making such change. LESSEE may provide this information to LESSOR by
insertion of such orifice plate size on its statement of production referred to under section
(j) of this Section Ill. LESSEE shall be required to perform an accurate gas analysis on
all gas production, on a well-by-well basis, periodically, but at least quarterly from date of
first production of each gas well drilled and completed hereunder, which analysis shall
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extend to the Btu content of such gas production and other commercial constituents
thereof. A copy of such gas analysis shall be furnished to LESSOR as obtained by
LESSEE It is furthered agreed and recognized that the gas quality (Btu) will be
considered “as delivered” and the gross heating value will be determined by a non-
affiliated service company, through the use of gas chromatography equipment on an “as
delivered” Btu basis, except that for all gas that is dehydrated, the gas quality will be
considered “dry” and the “dry” basis Btu factor will be used in calculating royalty on such
dehydrated gas. LESSEE will take samples by continuous use of an automatic or
composite sampler. Samples will be analyzed by a non-affiliated company according to
the technical standards recommended at the time by the Gas Processors Association.
The compositional analysis and heating value determination will be according to GPA
standards 2172, 2261, 2145 and RB 181. This includes adjustments for temperature,
pressure, water content and compressibility to reflect the actual conditions of the gas at
the relevant meter. In the event that any distillate or other liquid hydrocarbons are
contained in the gas stream of any gas well on this Lease, in commercial quantities, then
LESSEE is required to extract such liquid hydrocarbons on this Lease and to store and
to purchase the same separately from the gas production, paying LESSOR’s royalties
thereon. In the event that the gas production contains distillate, condensate, or other
liquid hydrocarbons, or water, such gas production shall first be separated at the wellhead
prior to measurement of such gas production as provided above, All liquid hydrocarbons
removed from the gas stream through such separator shall be stored in steel distillate or
condensate tanks at each well site and such liquid hydrocarbons shall be purchased by
LESSEE and paid to LESSOR pursuant to section (a) of this Section II] on a monthly
basis along with LESSEE’s payment to LESSOR of gas royalties, which shall be
calculated and paid for pursuant to Section III(b). LESSEE shall be required to pay and
account to LESSOR for LESSOR’s royalties on all of such separated and stored liquid
hydrocarbons. In the event that LESSEE drills and completes several wells on this Lease,
LESSEE may provide for one or more central facilities for heating, separation,
dehydration and compression. of such gas production with storage tanks for distillate or
condensate being also located at each central facility, which central facility or central
facilities, must in all events be located at a location upon this Lease, to be reasonably
agreed upon by Surface Owner and LESSEE. LESSEE shall be prohibited from
commingling of third party gas production through such processing or central facilities
herein required to be located on this Lease. As to any central facilities located on this
Lease, LESSEE shall only commingle gas production from this Lease.
LESSEE shall accurately meter, measure and test production from each well on a
well-by-well basis, prior to such production leaving this Lease and/or prior to comingling
such production with other production from this Lease. Custody transfer meters and gas
samplers may or may not be located on the Lease. If custody transfer meters and gas
samplers are located outside of the Lease, then LESSEE shall provide LESSOR complete
and unfettered access to such custody transfer meters and gas samplers unless
production from the Lease has been comingled with production from lease or leases other
than this Lease prior to reaching the custody transfer meters and gas samplers.
(9) CHECK METERS CLAUSE: In addition, LESSOR shall be authorized to
install and maintain their own check meter on any oil or gas well upon such Leased
Premises, or on the sales meter (affixed to the pipeline transporting gas production from
this Lease at its point of exit from this Lease if such meter exists), or wheresoever the
custody transfer meter is located (if located outside of the Lease) unless production from
the Lease has been comingled with production from lease or leases other than this Lease
prior to reaching the custody transfer meter, in order to satisfy themselves (LESSEE) of
the amount of production from any well or wells on this Lease, and/or on all gas production
transported off of this Lease; provided that if LESSOR elects to install their own check
meter or meters, such shall be installed under the supervision of an engineer and after
thirty (30) days’ written notice to LESSEE. In this connection, LESSEE shall have the right
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to make such installation itself of LESSOR’s check meter or meters, in order that such
installation does not interfere with LESSEE’s operations, provided such installation is
performed by LESSEE pursuant to LESSOR’s specifications within a reasonable time,
not exceeding thirty (30) days following written request of LESSOR. Calibration of such
meter (whether one or more), its maintenance, its charts, and computation of production,
shall be performed by LESSOR at LESSOR’s sole cost and expense. In this connection,
if requested by LESSEE, LESSOR shall calibrate any such meter in the presence of
LESSEE. If LESSOR’S check meter, installed per the above limitations, is located outside
of the Lease, then LESSEE shall provide LESSOR complete and unfettered access to
such custody transfer meters.
(h) GAS PLANT PROCESSING: LESSEE agrees that all other gas and its
constituents and products which does not extend to condensate covered by the preceding
sections (a) or (d) of this Section Ill, may be further processed by LESSEE at a gas
processing plant located off of this Lease and in such event, LESSEE shall calculate and
pay to LESSOR, its herein reserved royalties, based upon the higher of the market value
thereof or the GROSS PROCEEDS REALIZED BY LESSEE, as defined in Section
III(b)(iii) above, for constituents and products extracted from the gas stream with royalties
on such residue gas being paid pursuant to the provisions of Section Ill, section (b.). In
no event shall the total royalty to be paid to LESSOR on gas and gas products
produced from the Leased Premises and processed by LESSEE, or on behalf o!
LESSEE, ever be less than the total royalty which would have been paid to LESSOR
on all gas produced from the premises if the gas stream had been sold without
being processed.
(i) SPLIT STREAMING: LESSOR’s reserved royalty shall never be reduced
by partial production from any well on this Lease or by production by one working interest
owner but not another (whether one or more), nor shall such royalty obligation be divided
among one or more working interest owners, as it is agreed that the royalties reserved by
LESSOR shall be applied wholly to any production produced from the well bore of any
well or wells on this Lease and shall remain the responsibility of all working interest
owners (whether one or more, jointly and severally).
@ REIMBURSEMENT/DEDUCTIONS AGAINST ROYALTIES: In accounting
to LESSOR for royalties upon oil.and gas production payable hereunder, LESSEE shall
be required, on a monthly basis, to account to LESSOR separately for each oil and gas
well on Leased Premises based upon the volume of such production, with a statement
reflecting the gross production of each well, the gross price per unit of production (gas
being expressed in thousand cubic feet and oil being expressed in barrels of 42 gals.),
the Btu (British Thermal Unit) content of such production, the royalty interest in such
production and the amount owed and paid to LESSOR. Except as provided for herein,
LESSEE shall not be authorized to make deductions from LESSOR’s royalties without
first notifying LESSOR with a full explanation therefore, giving LESSOR at least fifteen
(15) days to respond thereto. LESSOR, at all reasonable times, shall have the right of
inspection of LESSEE’s records relating to computation and payment of the royalties
reserved hereunder. In the event LESSOR, upon written notice to LESSEE, disputes the
legitimacy of any deduction or adjustment to LESSOR’s royalty payments, LESSEE shall
not be entitled to make such deductions or adjustments against LESSOR’s royalty (and
LESSOR’s full-royalty payments shall not be interrupted) until such dispute is resolved. If
it is agreed by LESSOR that LESSOR was overpaid, then LESSOR has the option of
repaying such overpayment or allowing LESSEE to recoup such overpayment out of
future royalty payments on a schedule and in monthly amounts agreed to by LESSOR
and LESSEE. LESSOR shall not be charged interest on any overpaid sums. Further,
LESSOR shall be entitled, upon request in writing, to be furnished with copies of all gas
purchase or gas sales agreements made for the sale of oil or gas or any of its constituents
from this Leased Premises, together with any and all subsequent amendments thereto;
ATB ABG CYBIII
DSY 07/20/2018
Confidential RIO GRANDE 00002483,
provided, however, that LESSOR shall keep such agreements confidential except to the
extent of their use by LESSOR in connection with LESSEE’s obligations hereunder. In
the event LESSEE withholds any windfall profits tax (or any other similar tax type of tax
by any governmental authority) from any royalty payment payable hereunder, from and
after a period of six (6) months following initial production and upon request in writing,
LESSOR shall be entitled to be furnished by LESSEE with full facts and information
respecting the calculation and deduction of such windfall profit tax or other tax upon
production, together with evidence of payment of such tax by LESSEE. LESSEE shall be
authorized to withhold from such royalty payment only that windfall profit tax
proportionately related to such royalty interest, which is legally owed to governmental
authority and actually paid by LESSEE on behalf of LESSOR, as the sole royalty interest
owner hereunder. Severance taxes directly and indirectly paid by LESSEE to the State
of Texas, which are not reimbursed to LESSEE, shall be deducted by LESSEE in
proportion to LESSOR’s royalty interest, on a month-by-month basis, from its payment of
such royalties to LESSOR. It is agreed that any severance tax on production from this
Lease, which is paid by the Purchaser of oil or gas production and/or reimbursed to
LESSEE, shall not be charged or deducted from LESSOR's royalties.
(k) PRICING COMPLIANCE: On LESSOR’s written request, LESSEE shall
furnish LESSOR with all information that was used or should have been used under this
Lease in calculating the royalties to be paid to LESSOR under this Lease. After reviewing
the information, if LESSOR reasonably believes there to be an error in the calculating of
the royalties owed to LESSOR, LESSOR may request in writing on or before January 31
of any year during the term of this Lease, and LESSEE shall, on or before March 31 of
such year, review the prices and production volumes used by LESSEE in calculation of
LESSOR’s royalties against the price and production volume required to be paid to
LESSOR under the terms of this Lease for the calendar year ending December 31 of the
immediate prior year. In the event the prices and/or volumes used by LESSEE in
calculating and payment of production royalties paid to LESSOR was less than those
required to be paid, LESSEE shall issue its check to make up the difference on or before
March 31% of each review year. LESSEE shall submit a report to LESSOR on March 31%
of each review year stating that it has complied with the terms of this Lease relating to the
calculation.and payment of royalties and any deductions therefrom. If LESSOR does not
timely make a written request pursuantto the second sentence of this subsection (k), then
LESSEE shall be under.no obligation pursuant to this subsection (k) for the immediate
prior calendar year.
() RIGHT TO AUDIT: LESSOR expressly reserves the right and LESSEE
expressly grants to. LESSOR the right to audit all records related to transportation, sale,
marketing, pricing, revenue and the calculation and payment of royalties related to all
production from this Lease to LESSOR by notice of LESSOR giving LESSEE notice of
the exercise of this right and, within thirty (30) days after receipt of such notice, LESSEE
shall make available to LESSOR or its representatives, all books, accounts and records
(together with copies thereof if requested by LESSOR) along with all other data necessary
for LESSOR or its agent to audit such matters relating to the calculation and payment of
royalties under this Lease. LESSOR and LESSEE shall mutually select the accounting
procedure to be utilized in such audit and such procedure selected shall be binding on
LESSEE so long as such procedure is accepted under general accounting practice and
standards. However, LESSEE expressly reserves the right, on a reasonable basis, to
dispute any and all findings reached by LESSOR utilizing such procedures. If it is
determined that royalty owners were not correctly paid for their herein reserved oil and
gas royalties and such deficiency exceeds the cost and expenses of such audit, then
LESSEE shall reimburse the LESSOR for all costs and expenses incurred by LESSOR
for such audit, together with all unpaid royalties and interest thereon as provided for in
this Lease for delinquent royalties. Such audit shall take place at LESSEE’s office or at
such other place as may be mutually agreed upon by the parties. LESSOR
Preview
Ce: Will Ylitalofwylitalo@rgep.com] To: Nora Lee Notzon{nnotzon@notzonadvisors com]; Roberto Cassofrme@ eooil.com] Fro Slenn Han{/O=EXCHANGELABS/OU-EXCHANGE ADMINISTRATIVE GROUP (FYDIBOHEF23SPDLT)CN=RECIPIENTS/CN=2198393980D84E72BCCOEFB8DIF9C166-GHART] Sent: Mon 3/11/2019 5:47:08 PM Coordinated Universal Time Subject: Final Clean BFMT OGL docx Attachment: Final_Clean_ BFMT OGL.docx Attachment: ATTOQOOL txt Rio Grande MSJ EX 54 2022-23621 Confidential RIO GRANDE 00002474 OIL AND GAS LEASE STATE OF TEXAS § COUNTY OF WEBB § THIS AGREEMENT made this day of i 2019, by and between ARTURO TOMAS BENAVIDES, ANNA BENAVIDES GALO and CARLOS Y. BENAVIDES, Ill, Co-Trustees of the BENAVIDES FAMILY MINERAL TRUST, under Trust Conveyance dated March 22, 1990, appearing of record in Volume 1413, Pages 356-380 of the Real Property Records of Webb County, Texas, whose mailing address is P. O. Box 217, Laredo, Texas 78041, hereinafter called “LESSOR”, and RIO GRANDE E&P, LLC., whose address is 10000 Memorial Drive, Suite #500, Houston, Texas 77024, hereinafter called “LESSEE”, WITNESSETH: DEFINITIONS: The parties hereto agree that for purposes of this Lease, the following definitions shall be applicable: a “production”, “production in paying quantities" "production in commercial quantities" and "production in paying or commercial quantities" shall have the same meaning for purposes of this Lease, namely production in quantities sufficient to yield a return to the holders of the working interest excluding severance taxes, in excess of operating and equipping expenses (but excluding any capital expenditures such as drilling or reworking) and costs including overhead and depreciation of assets (as indicated on Lessee’s depreciation schedule for this Lease and for its federal income tax return), even though drilling costs may never be recouped by working interest owners. The review period for purposes of determining whether production..is in paying or commercial quantities shall be twelve (12) consecutive months. There shall be no review period where production ceases. Production in less than paying or commercial quantities shall never be considered as production for purposes of this Lease. c. “operations for. drilling” “drilling operations", "“commencement_of operations", "commence operations", “commence drilling operations", “commences drilling operations", "commencement of a well" and "actual drilling operations" shall have the same meaning being (1) the actual entry of the rotating drill bit of a drilling rig, capable of achieving the total depth permitted and approved by the Railroad Commission of Texas, into the soil of Leased Premises or lands pooled therewith and the timely prosecution of such actual drilling operations in good faith and with reasonable diligence to the completion of same as a dry hole or commercial well and (2) the actual re-entry into an existing wellbore with a drilling or workover rig capable of re-entering such well for the purpose of completing such well in previously uncompleted and unproduced zones and the timely prosecution of such actual re-entry operations in good faith and with reasonable diligence, toward the completion of such previously uncompleted and unproduced zone or zones encountered in such wellbore, as either producing or dry zones. d “operations for reworking", “reworking operations", “commencement_of reworking operations", "commence reworking operations", "commences reworking Operations" and "actual reworking operations" shall have the same meaning being the actual re-entry into an existing wellbore with a drilling or workover rig capable of re- entering and reworking such well and the timely prosecution of such actual reworking operations in good faith and with reasonable diligence and without cessation of more than thirty (30) days, toward the re-establishment of commercial production of oil or gas from ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002475, a previously producing zone or zones. e. "operations" and "other operations" shall be defined as all other lease operations which may be conducted by LESSEE under this Lease except those defined in c. and d. above. "Operations" and "other operations" as defined in this section e. shall never be the basis for perpetuation of this Lease. f. “completed or completion" as used herein, as regards any well drilled on this Lease, shall have the following meanings: (a) as to a dry hole, shall mean the date plugging operations are concluded on said wellbore; (b) as to a producer of oil or gas, shall mean the date of first sales after fracture stimulation operations have been performed on said well. g. "shut-in": A well shall be considered and defined as "shut-in" on the day that well capable of producing in paying quantities ceases actual production (or is prevented from commencing production in paying quantities) solely as a result of Lessee shutting in the valve. h. ‘injection well’: as used herein shall mean a well into which saltwater produced from the lease is being injected into a porous formation productive of oil and gas for the purpose of enhancing recovery of said oil and gas in surrounding lease wells. i “horizontal well”: as used herein shall mean a well in which the horizontal component of the gross length of.lateral displacement of the well bore is at least five thousand (5,000’) linear feet from the. vertical portion of the well bore. In the event of multilateral wells, as defined below, each. lateral from the same vertical portion of the subject well bore shall constitute and be counted as a separate “horizontal well” for all purposes herein, so long as each such lateral satisfies the requirements stated in this definition. J “multilateral well’: as used herein shall mean a well with two or more laterals from the same vertical portion of the well bore. k. “vertical. well”: as used herein shall mean any oil or gas well that is not defined as a horizontal well or a multilateral well. GRANTING CLAUSE ano PROPERTY DESCRIPTION Subject to all terms and provisions of this Lease, LESSOR, in consideration of TEN ($10.00) DOLLARS in hand paid, the additional Lease Bonus payments to be paid (See Section IV below), the royalties herein provided for, and the agreements of LESSEE herein stated, hereby LEASES, and LETS exclusively unto LESSEE an Oil and Gas Leasehold Estate, from the lands hereafter described, for the purpose of investigating, exploring, drilling for and producing OIL and/or GAS, (the term “oil and/or gas” as used herein is defined as to include all liquid or gaseous hydrocarbons together with any sulfur produced in association with the production of oil or gas and excluding all other substances of value), and subject to the specific surface use provisions of this Lease, to construct and emplace such pipelines, flowlines, construct roads, pads, production facilities, power lines and related structures, tanks and well equipment on the surface of the lands covered hereby which are necessary to produce, save, treat, process, store and sell said OIL and/or GAS production from this Lease. The aforementioned lands and depths covered by this Lease (hereinafter, the “Leased Premises”) are situated in Webb County, Texas and are described as follows: ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002476 3,920.31 acres of land, more or less, out of the Antonio Gonzales Survey 1450, A-57, also known as the Santo Tomas Grant, Original Grantee Antonio Gonzales, containing 53,136 acres more or less, being described in metes and bounds in that certain Letter Patent recorded in Volume 22 Page 389 Deed Records, Webb County, Texas, and consisting of those two (2) certain non-contiguous tracts as follows: FIRST TRACT: 640 acres of land, more or less, as depicted and described on Exhibit “A” in that certain Lease Amendment and Ratification recorded in Volume 3332 Page 480 Official Public Records, Webb County, Texas and being described in metes and bounds therein insofar and only insofar as to all depths and horizons encountered above the base of the Pearsall Formation, defined as the stratigraphic equivalent of the depth of feet measured depth as shown in the log dated SECOND TRACT: 3,280.31 acres of land, more or less, as depicted and described on Exhibit “B” in that certain Lease Amendment and Ratification recorded in Volume 3332 Page 480 Official Public Records, Webb County, Texas and being described in metes and bounds therein, insofar and only insofar as to those depths and horizons encountered below 8500 below the surface of the earth and above the base of the Pearsall Formation as defined above. For the purposes of calculating the payments hereinafter provided for, said land shall be considered to comprise 3,920.31 acres. i. HABENDUM CLAUSE AND RESERVATIONS a) HABENDUM CLAUSE: Subject to the specific special limitations herein contained, this Lease shall. be for a term of three (3) years from date hereof (“Primary Term’), and aslong thereafter as oil or gas.is produced from said land in paying quantities. b) RESERVATIONS: There is EXCEPTED from this Lease and LESSOR RESERVES unto LESSOR and LESSOR’s successors, administrators and assigns: i) All. minerals except oil, gas and all other liquid, solid and gaseous hydrocarbons and sulphur that are necessarily produced with such oil or gas; (ii) Equal and concurrent rights of occupancy, use and possession of the surface estate by LESSOR, LESSOR’s other mineral lessees, surface owner and its lessees or assigns, together with the right of ingress to and egress from the above described lands for all purposes including exploring, developing and operating said lands for oil, gas and other minerals of whatever nature which are not covered by this Lease or which may hereafter be released from this Lease and equal and concurrent rights to complete water source wells on the Leased Premises and in any reservoir not productive of oil or gas for the purpose of obtaining water for domestic and agricultural use and consumption and for the exploration, development and operation of LESSOR’s reserved rights; provided, however, LESSOR or Surface Owner, if different from LESSOR, agrees not to use the surface of the premises affected hereby in any manner that will interfere unduly with any of LESSEE’s rights in exploring, developing, producing, treating, processing, transporting, marketing and caring for oil, gas and other hydrocarbons under said lands. As between mineral LESSEE’s, access to the surface shall be based on first- 3 ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002477 in-time, first-in-right, but as between LESSEE herein and subsequent mineral LESSEEs, this Leasehold estate shall be considered dominant. (iii) All rights granted to LESSEE in this Lease shall be limited to the lands and depths described and covered by this Lease together with such ingress to and egress from Leased Premises as designated by LESSOR and shall not extend to (and LESSOR expressly reserves) all rights, privileges and usage which relate to lands not described herein or which may be released herefrom. Notwithstanding the foregoing sentence, it being understood that LESSEE shall retain the right to reasonable ingress to and egress from the Leased Premises in order to conduct operations under the terms of this Lease. Specifically, but not by way of limitation, LESSEE is prohibited from utilizing any right or privilege granted under this Lease for use or benefit of or as a convenience in operating on lands not covered by this Lease, whether such other lands are owned by LESSOR or the owner of the surface of Leased Premises or third parties, unless such right is granted in writing by Surface Owner. (iv) LESSOR reserves unto itself and its successors, assignees, contractors, agents and LESSEEs, the concurrent right to use any access to and from the above lands and to conduct operations on the surface of the above land in order to explore for, drill to, produce, develop, transport, store; treat and market oil, gas and other minerals from (1) depths not covered hereby from time to time; (2) other lands of LESSOR or any one or more of LESSOR; and (3) other lands not owned by LESSOR, and to drill through said above described property and depths held under this Lease from time to time in order to explore for, develop, produce and market oil, gas or other minerals from below the above property or from any other lands of LESSOR or from any other lands not owned by LESSOR. In this regard, itis agreed that surface use shall be such that will not interfere unduly with LESSEE’s operations but LESSEE agrees to cooperate with any other operator in regard to surface operations. (v) In regard to. geophysical and/or geologic surveys by seismograph, core tests or other magnetic tests conducted on Leased Premises, LESSOR shall not be paid for such operations and the Surface Owner shall be paid TWENTY-FIVE ($25.00) DOLLARS per acre, limited to the number of acres upon which such tests are conducted, for surface damages. if such operations occur during the Primary Term and FIFTY ($50.00) DOLLARS per acre, limited to the number of acres upon which such tests are conducted, as surface damages for any seismic operation conducted on the Leased Premises after the expiration of the primary term. This paragraph shall in no way be applicable to microseismic monitoring. (vi) Except as otherwise provided in Section XV., LESSEE shall not grant permission for seismographic or other "shooting operations" on the premises to others (except a contractor conducing seismographic or other "shooting operations" on behalf of LESSEE) nor may others who do not own any legal or equitable interest in this Lease participate in the costs of such seismic operations in exchange for such data, as LESSEE shall only conduct or cause to be conducted such operations for its own use. LESSEE with LESSOR’s written consent may grant such permission in each instance where LESSEE participates with others or is in a joint venture with others in conducting such seismic survey. However, LESSOR reserves the right to grant permission to others to conduct such operations in which event LESSEE may negotiate with such seismic operator for copies of data obtained. LESSOR shall be entitled to a copy of all seismic data and/or information owned and/or under the control of LESSEE as further covered by Section XV. below. (vii) Lessee shall not have the right to reenter any wells or well bores heretofore drilled on the Leased Premises. Further, Lessee shall not acquire any rights to any property now on the Leased Premises. ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002478 mM. ROYALTY CLAUSE ROYALTY CLAUSE: LESSOR reserves from this Lease, one-fourth (1/4th) royalty on all oil and gas production from this Oil and Gas Lease and LESSEE herein does hereby covenant and agree to pay such reserved oil and gas royalties unto LESSOR, which oil and gas royalties shall be calculated and timely paid or delivered to LESSOR, in the following manner: (a) OIL, CONDENSATE AND OTHER LIQUID HYDROCARBONS: On all oil, condensate and other liquid hydrocarbons produced from this Lease, LESSEE shall be required to pay to LESSOR, one-fourth (1/4!) of all oil, condensate and other liquid hydrocarbons produced from this Lease, which royalties shall be calculated and paid to LESSOR based upon the highest of: (i) the posted price for similar type of oil produced in the north one-half (1/2) of Webb County, Texas, or for similar type of oil produced from this Lease; (ii) the current market value of oil produced or (iii) the GROSS PROCEEDS RECEIVED BY LESSEE as defined in Section (b) (iii) below. (b) GAS, CASINGHEAD GAS AND OTHER GASEOUS HYDROCARBONS: On all gas production from this Lease, including casinghead gas or other gaseous substances, and all other products derived therefrom or in the manufacture of gasoline or other product therefrom, LESSEE shall calculate and pay royalties to. LESSOR, on One- Fourth (1/4th) of all gas produced from this Lease and its constituents and products sold or used therefrom, which royalties. shall be calculated and paid to LESSOR based upon the highest of (i) the CURRENT MARKET VALUE of such gas production from this Lease which is sold by, through or under LESSEE or used by, through or under LESSEE, (ii) the HOUSTON SHIP CHANNEL PRICE, as hereinafter defined, for such gas production LESS a geographic adjustment as indicated in this paragraph below, or (iii) the GROSS PROCEEDS REALIZED BY LESSEE for such gas production, without deduction of any costs or expense except as hereinafter stipulated. All gas production from this Lease shall be measured at each wellhead at Standard Measurement, as prescribed by the Natural Resources Code, Section 91.052, Texas Revised Civil Statutes. LESSOR’s royalties shall be paid on all. gas production produced by this Lease. The term "current" or "currently", as used herein, shall mean the time at which production of oil or gas is actually produced from this Lease. The geographic adjustment from the HOUSTON SHIP CHANNEL. PRICES addressed above shall not exceed the lesser of (a) 4% of the HOUSTON SHIP CHANNEL PRICE; or (b) $0.20/MMBtu. However, if this Lease is transferred or assigned (as the words are defined in Section Vill (a) below), the geographic adjustment shall not exceed $0.10/MMBtu (or $0.05/MMButu if the HOUSTON SHIP CHANNEL PRICE is less than $3.00/MMBtu) (i) The term “CURRENT MARKET VALUE” shall mean the current market value of gas sold or used during each applicable month of production based upon comparable sales of gas from the north one-half (1/2) of Webb County, Texas. “Comparable sales of gas” shall be those sales of gas that are comparable in quantity, quality, time and availability to marketing outlets, as those terms are defined in the Texas Supreme Court case of Exxon Corp. v. Middleton, 613 SW2d, 240-252 (Tex. 1981) and other subsequent cases addressing the matters hereinabove addressed If comparable sales are unavailable, then appropriate adjustments shall be made to other sales of gas production to make them comparable to the sale of gas production from this Lease. Comparable sales of gas shall not include prices paid by a purchaser to a producer as part of a settlement of past claims or disputes with a purchaser. If any of the contracts utilized in determining comparable sales of gas shall expressly or impliedly provide for and include any deduction for the expense of producing, dehydrating, compressing, treating or marketing of the gas or for transporting or gathering the gas to the point of sale, then such deductions shall be added to the market value of such gas, so that ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002479 LESSOR’s royalty shall not be chargeable, directly or indirectly, with any of such post production expenses notwithstanding anything to the contrary contained in Heritage Resources, Inc. v. Nations Bank 939 S.W.2d 118 (Tex. 1996) or in similar judicial decisions respecting post production expenses. (ii) The term "HOUSTON SHIP CHANNEL PRICE" shall be construed to mean the price first reported monthly on an MMBtu basis under the Index column for gas delivered to pipelines at the Houston Ship Channel in East Texas, as reported in the publication entitled “Inside F.E.R.C’s Gas Market Report” published by McGraw-Hill, as applicable to the monthly gas production from this Lease, which Houston Ship Channel price has been adjusted as to gas produced from this Lease, for its MMBtu content, and without any other deduction by LESSEE save unreimbursed severance taxes actually paid by the LESSEE on behalf of LESSOR to the taxing authority. In the event the above- designated gas price index publication ceases to exist, (or ceases to report such “Houston Ship Channel Price” hereinabove referred to), the LESSOR and LESSEE shall agree on another publication generally acceptable as providing comparable accurate current data as to current on-shore spot prices for gas delivered into pipelines by purchasers in said area, which substituted publication shall be used in lieu of the above-described publication as part of the foregoing standard, of the higher of the three (3) standards referred to above, upon which LESSOR's royalty shall be calculated and paid. In the event no price index publication can be agreed upon as reliable, then a reliable governmental or other non-partisan publication evaluating the same information shall be used, with current payments to be made on the most current information available and then adjusted, as necessary, within thirty (30) days following the availability of the governmental data or other non-partisan publication, or if no such publication is available for purposes hereof, this standard, as an element for calculation of LESSOR’s royalties, shall cease to exist. (iii) The term "GROSS PROCEEDS REALIZED BY LESSEE" shall be construed to mean the price or value which is equal to all purchase consideration, revenue, benefits, premiums, commissions, fees, incentives, commitments, gathering fees and items of value or similar import which either Lessee or Lessee’s related entities, affiliates and/or subsidiaries receive from the first non-affiliated or non-related purchaser. (c) SULPHUR AND OTHER ASSOCIATED PRODUCTS: On sulphur and any other associated products incidentally produced with oil and/or gas under this Lease (other than liquid or gaseous hydrocarbons), the royalty shall be One-Fourth (1/4th) of the market value of each of such products if such products are sold or used. Such market value shall be determined by the greater of (i) the market price of each product for the month in which the product is produced;(ii) the average gross sales price of each product for the month in which the product is sold; or (iii) the GROSS PROCEEDS REALIZED BY LESSEE as defined in Section (b) (iii) above. (d) LEASE SEPARATED GAS: If gas from any gas well should be sufficiently impregnated with gasoline, condensate or other liquid hydrocarbons in suspension so that such gasoline, condensate or other liquid hydrocarbons can be separated and liquefied as a practical and economical lease operation, then LESSEE shall separate and recover as much of such gasoline, condensate and other liquid hydrocarbons as practicable by the installation of separators or other devices ordinarily used in the industry for such purpose on the leased premises. In such event, LESSOR shall receive LESSOR'S royalty on such gasoline, condensate and other liquid hydrocarbons in the same manner provided in Section I|l(a) above, plus LESSOR’S royalty on the residue gas after separation determined in the same manner provided in Section |II(b) above. (e) CONTRACT PAYMENTS: If LESSEE enters into a gas purchase contract which contains what is commonly referred to as a "take or pay" provision (whereby the ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002480 gas purchaser agrees to take delivery of a certain minimum volume of gas overa specified term at a specified price and, failing to take such required delivery, agrees to make payment to the producer) and the purchaser under such gas purchase contract makes payments to LESSEE by virtue of such purchaser's failure to take delivery of such minimum volume or quantity of gas, then LESSOR shall be entitled to One-Fourth (1/4th) of all such sums paid to LESSEE or producer under the "pay" provisions of such gas purchase contract. Such royalty payments shall be due and owing to LESSOR within sixty (60) days after receipt of such payments by LESSEE. Any royalty payments made to LESSOR under the "pay" obligation of any "take or pay" gas contract shall be applied as a credit toward LESSEE’s minimum royalty obligation. If the gas purchaser "makes ip" such gas within the period called for in the gas contract and LESSEE is required to give such purchaser a credit for gas previously paid for but not taken, then LESSOR shall not be entitled to royalty on such "make up" gas, except to the extent of any price differential applicable to such "make-up" volumes as provided for in the applicable gas purchase contract. If LESSEE is not producing any quantities of gas from Leased Premises but is receiving payments under the "pay" portion of such "take or pay" gas purchase contract provision, such payments shall not relieve LESSEE of the duty to make shut-in royalty payments if LESSEE desires to continue this Lease, but such "take or pay" royalty payments shall be applied as a credit against any shut-in royalty obligation of the LESSEE LESSOR shall be a third-party beneficiary of any gas purchase contract and/or transportation agreement entered into by LESSEE and any purchaser and/or transporter or pipeline company of LESSOR’s gas, irrespective of any provision of said contracts to the contrary. Further, LESSOR shall be entitled to One-Fourth (1/4th) of the value of any benefits obtained by or granted to LESSEE from any gas purchaser and/or transporter for the amendment, modification, extension, alteration, consolidation, transfer, cancellation or settlement of any gas purchase contract and/or transportation agreement. (f) METER, MEASUREMENT AND TESTING CLAUSE: LESSEE specifically agrees to install, maintain and operate a properly calibrated gas metering device at each gas wellhead for the purpose of accurate measurement of all gas production produced from each gas well on this Lease; which gas measurement shall be made pursuant to the Measurement law referred to under Section Iil(b) of this Lease. Such gas meter shall be available for inspection as to its calibration, orifice size and measurements at any time or times by LESSOR and/or LESSOR’s agent and no “by-pass” valves or connections shall be authorized to be made which do not provide for proper and accurate metering of all gas production from any such gas well. Each such gas metering device and orifice plate shall be installed and maintained in accordance with the provisions of the current American Gas Association Report No. 3 (A.G.A. Report #3), as now existing. Further, to assure compliance with American Gas Association Report No. 3 (A.G.A. #3), as now published, such meters shall be inspected and re-calibrated quarterly by LESSEE after notice to LESSOR with sufficient time for LESSOR to arrange to be present, either personally and/or through LESSOR’s agent. In addition, LESSEE agrees to provide to LESSOR the orifice size, (stated in inches or fractions thereof) of the plate inserted for measurement of gas production, on a current basis so that LESSOR will always know throughout the production history of this Lease, the size of the orifice plate used for gas measurement purposes. Any change in such plate size, shall be provided to LESSOR prior to making such change. LESSEE may provide this information to LESSOR by insertion of such orifice plate size on its statement of production referred to under section (j) of this Section Ill. LESSEE shall be required to perform an accurate gas analysis on all gas production, on a well-by-well basis, periodically, but at least quarterly from date of first production of each gas well drilled and completed hereunder, which analysis shall ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002481 extend to the Btu content of such gas production and other commercial constituents thereof. A copy of such gas analysis shall be furnished to LESSOR as obtained by LESSEE It is furthered agreed and recognized that the gas quality (Btu) will be considered “as delivered” and the gross heating value will be determined by a non- affiliated service company, through the use of gas chromatography equipment on an “as delivered” Btu basis, except that for all gas that is dehydrated, the gas quality will be considered “dry” and the “dry” basis Btu factor will be used in calculating royalty on such dehydrated gas. LESSEE will take samples by continuous use of an automatic or composite sampler. Samples will be analyzed by a non-affiliated company according to the technical standards recommended at the time by the Gas Processors Association. The compositional analysis and heating value determination will be according to GPA standards 2172, 2261, 2145 and RB 181. This includes adjustments for temperature, pressure, water content and compressibility to reflect the actual conditions of the gas at the relevant meter. In the event that any distillate or other liquid hydrocarbons are contained in the gas stream of any gas well on this Lease, in commercial quantities, then LESSEE is required to extract such liquid hydrocarbons on this Lease and to store and to purchase the same separately from the gas production, paying LESSOR’s royalties thereon. In the event that the gas production contains distillate, condensate, or other liquid hydrocarbons, or water, such gas production shall first be separated at the wellhead prior to measurement of such gas production as provided above, All liquid hydrocarbons removed from the gas stream through such separator shall be stored in steel distillate or condensate tanks at each well site and such liquid hydrocarbons shall be purchased by LESSEE and paid to LESSOR pursuant to section (a) of this Section II] on a monthly basis along with LESSEE’s payment to LESSOR of gas royalties, which shall be calculated and paid for pursuant to Section III(b). LESSEE shall be required to pay and account to LESSOR for LESSOR’s royalties on all of such separated and stored liquid hydrocarbons. In the event that LESSEE drills and completes several wells on this Lease, LESSEE may provide for one or more central facilities for heating, separation, dehydration and compression. of such gas production with storage tanks for distillate or condensate being also located at each central facility, which central facility or central facilities, must in all events be located at a location upon this Lease, to be reasonably agreed upon by Surface Owner and LESSEE. LESSEE shall be prohibited from commingling of third party gas production through such processing or central facilities herein required to be located on this Lease. As to any central facilities located on this Lease, LESSEE shall only commingle gas production from this Lease. LESSEE shall accurately meter, measure and test production from each well on a well-by-well basis, prior to such production leaving this Lease and/or prior to comingling such production with other production from this Lease. Custody transfer meters and gas samplers may or may not be located on the Lease. If custody transfer meters and gas samplers are located outside of the Lease, then LESSEE shall provide LESSOR complete and unfettered access to such custody transfer meters and gas samplers unless production from the Lease has been comingled with production from lease or leases other than this Lease prior to reaching the custody transfer meters and gas samplers. (9) CHECK METERS CLAUSE: In addition, LESSOR shall be authorized to install and maintain their own check meter on any oil or gas well upon such Leased Premises, or on the sales meter (affixed to the pipeline transporting gas production from this Lease at its point of exit from this Lease if such meter exists), or wheresoever the custody transfer meter is located (if located outside of the Lease) unless production from the Lease has been comingled with production from lease or leases other than this Lease prior to reaching the custody transfer meter, in order to satisfy themselves (LESSEE) of the amount of production from any well or wells on this Lease, and/or on all gas production transported off of this Lease; provided that if LESSOR elects to install their own check meter or meters, such shall be installed under the supervision of an engineer and after thirty (30) days’ written notice to LESSEE. In this connection, LESSEE shall have the right ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002482 to make such installation itself of LESSOR’s check meter or meters, in order that such installation does not interfere with LESSEE’s operations, provided such installation is performed by LESSEE pursuant to LESSOR’s specifications within a reasonable time, not exceeding thirty (30) days following written request of LESSOR. Calibration of such meter (whether one or more), its maintenance, its charts, and computation of production, shall be performed by LESSOR at LESSOR’s sole cost and expense. In this connection, if requested by LESSEE, LESSOR shall calibrate any such meter in the presence of LESSEE. If LESSOR’S check meter, installed per the above limitations, is located outside of the Lease, then LESSEE shall provide LESSOR complete and unfettered access to such custody transfer meters. (h) GAS PLANT PROCESSING: LESSEE agrees that all other gas and its constituents and products which does not extend to condensate covered by the preceding sections (a) or (d) of this Section Ill, may be further processed by LESSEE at a gas processing plant located off of this Lease and in such event, LESSEE shall calculate and pay to LESSOR, its herein reserved royalties, based upon the higher of the market value thereof or the GROSS PROCEEDS REALIZED BY LESSEE, as defined in Section III(b)(iii) above, for constituents and products extracted from the gas stream with royalties on such residue gas being paid pursuant to the provisions of Section Ill, section (b.). In no event shall the total royalty to be paid to LESSOR on gas and gas products produced from the Leased Premises and processed by LESSEE, or on behalf o! LESSEE, ever be less than the total royalty which would have been paid to LESSOR on all gas produced from the premises if the gas stream had been sold without being processed. (i) SPLIT STREAMING: LESSOR’s reserved royalty shall never be reduced by partial production from any well on this Lease or by production by one working interest owner but not another (whether one or more), nor shall such royalty obligation be divided among one or more working interest owners, as it is agreed that the royalties reserved by LESSOR shall be applied wholly to any production produced from the well bore of any well or wells on this Lease and shall remain the responsibility of all working interest owners (whether one or more, jointly and severally). @ REIMBURSEMENT/DEDUCTIONS AGAINST ROYALTIES: In accounting to LESSOR for royalties upon oil.and gas production payable hereunder, LESSEE shall be required, on a monthly basis, to account to LESSOR separately for each oil and gas well on Leased Premises based upon the volume of such production, with a statement reflecting the gross production of each well, the gross price per unit of production (gas being expressed in thousand cubic feet and oil being expressed in barrels of 42 gals.), the Btu (British Thermal Unit) content of such production, the royalty interest in such production and the amount owed and paid to LESSOR. Except as provided for herein, LESSEE shall not be authorized to make deductions from LESSOR’s royalties without first notifying LESSOR with a full explanation therefore, giving LESSOR at least fifteen (15) days to respond thereto. LESSOR, at all reasonable times, shall have the right of inspection of LESSEE’s records relating to computation and payment of the royalties reserved hereunder. In the event LESSOR, upon written notice to LESSEE, disputes the legitimacy of any deduction or adjustment to LESSOR’s royalty payments, LESSEE shall not be entitled to make such deductions or adjustments against LESSOR’s royalty (and LESSOR’s full-royalty payments shall not be interrupted) until such dispute is resolved. If it is agreed by LESSOR that LESSOR was overpaid, then LESSOR has the option of repaying such overpayment or allowing LESSEE to recoup such overpayment out of future royalty payments on a schedule and in monthly amounts agreed to by LESSOR and LESSEE. LESSOR shall not be charged interest on any overpaid sums. Further, LESSOR shall be entitled, upon request in writing, to be furnished with copies of all gas purchase or gas sales agreements made for the sale of oil or gas or any of its constituents from this Leased Premises, together with any and all subsequent amendments thereto; ATB ABG CYBIII DSY 07/20/2018 Confidential RIO GRANDE 00002483, provided, however, that LESSOR shall keep such agreements confidential except to the extent of their use by LESSOR in connection with LESSEE’s obligations hereunder. In the event LESSEE withholds any windfall profits tax (or any other similar tax type of tax by any governmental authority) from any royalty payment payable hereunder, from and after a period of six (6) months following initial production and upon request in writing, LESSOR shall be entitled to be furnished by LESSEE with full facts and information respecting the calculation and deduction of such windfall profit tax or other tax upon production, together with evidence of payment of such tax by LESSEE. LESSEE shall be authorized to withhold from such royalty payment only that windfall profit tax proportionately related to such royalty interest, which is legally owed to governmental authority and actually paid by LESSEE on behalf of LESSOR, as the sole royalty interest owner hereunder. Severance taxes directly and indirectly paid by LESSEE to the State of Texas, which are not reimbursed to LESSEE, shall be deducted by LESSEE in proportion to LESSOR’s royalty interest, on a month-by-month basis, from its payment of such royalties to LESSOR. It is agreed that any severance tax on production from this Lease, which is paid by the Purchaser of oil or gas production and/or reimbursed to LESSEE, shall not be charged or deducted from LESSOR's royalties. (k) PRICING COMPLIANCE: On LESSOR’s written request, LESSEE shall furnish LESSOR with all information that was used or should have been used under this Lease in calculating the royalties to be paid to LESSOR under this Lease. After reviewing the information, if LESSOR reasonably believes there to be an error in the calculating of the royalties owed to LESSOR, LESSOR may request in writing on or before January 31 of any year during the term of this Lease, and LESSEE shall, on or before March 31 of such year, review the prices and production volumes used by LESSEE in calculation of LESSOR’s royalties against the price and production volume required to be paid to LESSOR under the terms of this Lease for the calendar year ending December 31 of the immediate prior year. In the event the prices and/or volumes used by LESSEE in calculating and payment of production royalties paid to LESSOR was less than those required to be paid, LESSEE shall issue its check to make up the difference on or before March 31% of each review year. LESSEE shall submit a report to LESSOR on March 31% of each review year stating that it has complied with the terms of this Lease relating to the calculation.and payment of royalties and any deductions therefrom. If LESSOR does not timely make a written request pursuantto the second sentence of this subsection (k), then LESSEE shall be under.no obligation pursuant to this subsection (k) for the immediate prior calendar year. () RIGHT TO AUDIT: LESSOR expressly reserves the right and LESSEE expressly grants to. LESSOR the right to audit all records related to transportation, sale, marketing, pricing, revenue and the calculation and payment of royalties related to all production from this Lease to LESSOR by notice of LESSOR giving LESSEE notice of the exercise of this right and, within thirty (30) days after receipt of such notice, LESSEE shall make available to LESSOR or its representatives, all books, accounts and records (together with copies thereof if requested by LESSOR) along with all other data necessary for LESSOR or its agent to audit such matters relating to the calculation and payment of royalties under this Lease. LESSOR and LESSEE shall mutually select the accounting procedure to be utilized in such audit and such procedure selected shall be binding on LESSEE so long as such procedure is accepted under general accounting practice and standards. However, LESSEE expressly reserves the right, on a reasonable basis, to dispute any and all findings reached by LESSOR utilizing such procedures. If it is determined that royalty owners were not correctly paid for their herein reserved oil and gas royalties and such deficiency exceeds the cost and expenses of such audit, then LESSEE shall reimburse the LESSOR for all costs and expenses incurred by LESSOR for such audit, together with all unpaid royalties and interest thereon as provided for in this Lease for delinquent royalties. Such audit shall take place at LESSEE’s office or at such other place as may be mutually agreed upon by the parties. LESSOR