New Mexico § 19-10-4.1 - Exploratory form of lease; nonrestricted; regular restricted or premium restricted lands

§ 19-10-4.1. Exploratory form of lease; nonrestricted; regular restricted or premium restricted lands

The following form is designated as the “Exploratory Form”. It shall be used for all oil and gas leases on lands classified as nonrestricted

lands. At the discretion of the commissioner, it may be used for lands classified as restricted,

whether categorized as regular or premium: This agreement, dated ․․․․․․․․․․, 19․․․, between the state of New Mexico, acting by and through its commissioner of public

lands, hereinafter called the “lessor”, and ․․․․․․․․․․, whose address is ․․․․․․․․․․, hereinafter called the “lessee”, Witnesseth: Whereas, the lessee has filed in the office of the commissioner of public lands an

application for an oil and gas lease covering the lands hereinafter described and

has tendered therewith the required first payment; and Whereas, all of the requirements of law relative to the application and tender have

been duly complied with; Therefore, in consideration of the premises as well as the sum of ․․․․․․․․․․ dollars ($ ․․․․․․․․․․), the same being the amount of the tender above mentioned, and the further sum of

$ ․․․․․․․․․․ filing fee, and of the covenants and agreements hereinafter contained, the lessor

does hereby grant, demise, lease and let unto the said lessee, exclusively, for the

sole and only purpose of exploration, development and production of oil or gas (including

carbon dioxide and helium), or both thereon and therefrom with the right to own all

oil and gas so produced and saved therefrom and not reserved as royalty by the lessor

under the terms of this lease, together with rights-of-way, easements and servitudes

for pipelines, telephone lines, tanks, power houses, stations, gasoline plants and

fixtures for producing, treating and caring for such products, and housing and boarding

employees, and any and all rights and privileges necessary, incident to or convenient

for the economical operation of said land, for oil and gas, with right for such purposes

to the free use of oil, gas, casing-head gas or water from said lands, but not from

lessor's water wells, and with the rights of removing either during or after the term

hereof, all and any improvements placed or erected on the premises by the lessee,

including the right to pull all casing, subject, however, to the covenants and conditions

hereinafter set out, the following described land situated in the county of ․․․․․․․․․․, state of New Mexico, and more particularly described as follows: Said lands having been awarded to lessee and designated as Tract No.․․․ at a public sale held by the commissioner of public lands on ․․․․․․․․․․, 19․․․ (To be filled in only where lands are offered at public sale.) To have and to hold said land, and all the rights and privileges granted hereunder,

to and unto the lessee for a primary term of five years from the date hereof, and

as long thereafter as oil and gas, or either of them, is produced in paying quantities

from said land by lessee, subject to all of the terms and conditions as hereinafter

set forth. In consideration of the premises the parties covenant and agree as follows: 1. Subject to the free use without royalty, as hereinbefore provided, the lessee shall

pay the lessor as royalty one-eighth part of the oil produced and saved from the leased

premises or the cash value thereof, at the option of the lessor, such value to be

the price prevailing the day oil is run into a pipeline, if the oil be run into a

pipeline, or into storage tanks, if the oil is stored. 2. Subject to the free use without royalty, as hereinbefore provided, at the option

of the lessor at any time and from time to time, the lessee shall pay the lessor as

royalty one-eighth part of the gas produced and saved from the leased premises, including

casing-head gas. Unless said option is exercised by lessor, the lessee shall pay the lessor as royalty

one-eighth of the cash value of the gas, including casing-head gas, produced and saved

from the leased premises and marketed or utilized, such value to be equal to the net

proceeds derived from the sale of such gas in the field; provided, however, the cash

value for royalty purposes of carbon dioxide gas and of hydrocarbon gas delivered

to a gasoline plant for extraction of liquid hydrocarbons shall be equal to the net

proceeds derived from the sale of such gas, including any liquid hydrocarbons recovered

therefrom. Notwithstanding the foregoing provisions, the lessor may require the payment of royalty

for all or any part of the gas produced and saved under this lease and marketed or

utilized at a price per m.c.f. equal to the maximum price being paid for gas of like

kind and quality and under like conditions in the same field or area or may reduce

the royalty value of any such gas (to any amount not less than the net proceeds of

sale thereof, in the field) if the commissioner of public lands shall determine such

action to be necessary to the successful operation of the lands for oil or gas purposes

or to encouragement of the greatest ultimate recovery of oil or gas or to the promotion

of conservation of oil or gas or in the public interest. This lease shall not expire at the end of either the primary or secondary term hereof

if there is a well capable of producing gas in paying quantities located upon some

part of the lands embraced herein, or upon lands pooled or communitized herewith,

where such well is shut-in due to the inability of the lessee to obtain a pipeline

connection or to market the gas therefrom and if the lessee timely pays an annual

royalty on or before the annual rental paying date next ensuing after the expiration

of ninety days from the date said well was shut-in and on or before said rental date

thereafter. The payment of said annual royalty shall be considered for all purposes the same

as if gas were being produced in paying quantities and upon the commencement of marketing

of gas from said well or wells the royalty paid for the lease year in which the gas

is first marketed shall be credited upon the royalty payable hereunder to the lessor

for such year. The provisions of this section shall also apply where gas is being marketed from

said leasehold premises 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

said annual royalty is paid as herein provided. The amount of any annual royalty payable under this section shall equal twice the

annual rental due by the lessee under the terms of this lease but not less than three

hundred twenty dollars ($320) per well per year; provided, however, that any such

annual royalty for any year beginning on or after fifteen years from the date hereof

shall equal four times the annual rental due by the lessee under the terms of this

lease but not less than two thousand dollars ($2,000) per well per year; and provided

further that no annual royalty shall be payable under this section if equivalent amounts

are timely paid pursuant to another lease issued by lessor and if such other lease

includes lands communitized with lands granted hereunder for the purpose of prorationally

sharing in the shut-in well. Notwithstanding the provisions of this section to the contrary, this lease shall

not be continued after ten years from the date hereof for any period of more than

ten years by the payment of said annual royalty unless, for good cause shown, the

commissioner of public lands, in his discretion, grants such a continuance. 3. Lessee agrees to make full settlement on the twentieth day of each month for all

royalties due the lessor for the preceding month, under this lease, and to permit

the lessor or its agents, at all reasonable hours, to examine lessee's books relating

to the production and disposition of oil and gas produced. Lessee further agrees to submit to lessor annually upon forms furnished by lessor,

verified reports showing lessee's operations for the preceding year. 4. An annual rental at the rate of $․․․․․․․․․․ per acre shall become due and payable to the lessor by the lessee upon each acre

of the land above described and then claimed by such lessee, and the same shall be

due and payable in advance to the lessor on the successive anniversary dates of this

lease, but the annual rental on any assignment shall in no event be less than forty

dollars ($40.00). In the event the lessee shall elect to surrender any or all of said acreage, he shall

deliver to the lessor a duly executed release thereof and in event said lease has

been recorded then he shall upon request furnish and deliver to the lessor a certified

copy of a duly recorded release. 5. The lessee may at any time by paying to the lessor all amounts then due as provided

herein and the further sum of forty dollars ($40.00), surrender and cancel this lease

insofar as the same covers all or any portion of the lands herein leased and be relieved

from further obligations or liability hereunder, in the manner as hereinbefore provided. Provided, this surrender clause and the option herein reserved to the lessee shall

cease and become absolutely inoperative immediately and concurrently with the institution

of any suit in any court of law or equity by the lessee, lessor or any assignee, to

enforce this lease, or any of its terms expressed or implied. 6. All payments due hereunder shall be made on or before the day such payment is due,

at the office of the commissioner of public lands in Santa Fe, New Mexico. 7. The lessee with the consent of the lessor shall have the rights to assign this

lease in whole or in part. Provided, however, that no assignment of an undivided interest in the lease or in

any part thereof nor any assignment of less than a legal subdivision shall be recognized

or approved by the lessor. Upon approval in writing by the lessor of an assignment, the assignor shall stand

relieved from all obligations to the lessor with respect to the lands embraced in

the assignment and the lessor shall likewise be relieved from all obligations to the

assignor as to such tracts, and the assignee shall succeed to all of the rights and

privileges of the assignor with respect to such tracts and shall be held to have assumed

all of the duties and obligations of the assignor to the lessor as to such tracts. 8. In the event a well or wells producing oil or gas in paying quantities should be

brought in on adjacent land which is draining the leased premises, lessee shall drill

such offset well or wells as a reasonably prudent operator would drill under the same

or similar circumstances, provided that no such offset well shall be required if compensatory

royalties are paid pursuant to an agreement between the lessor and the lessee. 9. The lessee agrees to notify the lessor of the location of each well before commencing

drilling thereon, to keep a complete and accurate log of each well drilled and to

furnish a copy thereof, verified by some person having actual knowledge of the facts,

to the lessor upon the completion of any well, and to furnish the log of any unfinished

well at any time when requested to do so by the lessor. If any lands embraced in this lease shall be included in any deed or contract of purchase

outstanding and subsisting issued pursuant to any sale made of the surface of such

lands prior to the date of this lease, it is agreed and understood that no drilling

operation shall be commenced on any such lands so sold unless and until the lessee

shall have filed a good and sufficient bond with the lessor as required by law, to

secure the payment for such damage to the livestock, range, water, crops or tangible

improvements on such lands as may be suffered by the purchaser holding such deed or

contract of purchase, or his successors, by reason of the developments, use and occupation

of such lands by such lessee. Provided, however, that no such bond shall be required if such purchaser shall waive

the right to require such bond to be given in the manner provided by law. 10. In drilling wells all water-bearing strata shall be noted in the log, and the

lessor reserves the right to require that all or any part of the casing shall be left

in any nonproductive well when lessor deems it to the interest of the beneficiaries

of the lands granted hereunder to maintain said well or wells for water. For such casing so left in wells the lessor shall pay to the lessee the reasonable

value thereof. 11. Lessee shall be liable and agree to pay for all damages to the range, livestock,

growing crops or improvements caused by lessee's operations on said lands. When requested by the lessor the lessee shall bury pipelines below plow depth. 12. The lessee shall not remove any machinery or fixtures placed on said premises,

nor draw the casing from any well unless and until all payments and obligations due

the lessor under the terms of this agreement shall have been paid or satisfied. The lessee's right to remove the casing is subject to the provision of Paragraph

10 above. 13. Upon failure or default of the lessee to comply with any of the provisions or

covenants hereof, the lessor is hereby authorized to cancel this lease and such cancellation

shall extend to and include all rights hereunder as to the whole of the tract so claimed,

or possessed by the lessee, but shall not extend to, nor affect the rights of any

other lessee or assignee claiming any portion of the lands upon which no default has

been made; provided, however, that before any such cancellation shall be made, the

lessor shall mail to the lessee so defaulting, by registered or certified mail, addressed

to the post-office address of such lessee as shown by the records of the state land

office, a notice of intention of cancellation specifying the default for which cancellation

is to be made, and if within thirty days from the date of mailing said notice the

said lessee shall remedy the default specified in said notice, cancellation shall

not be made. 14. If the lessee shall have failed to make discovery of oil or gas in paying quantities

during the primary term hereof or if such discovery shall have been made and production

shall have ceased for any reason, the lessee may continue this lease in full force

and effect for an additional term of five years and as long thereafter as oil and

gas in paying quantities or either of them is produced from the leased premises by

paying each year in advance, as herein provided, double the rental provided herein

for the primary term, or the highest rental prevailing at the commencement of the

secondary term in any rental district, or districts in which the lands, or any part

thereof, may be situated, if it be greater than double the rental provided for the

primary term; provided, however, such rental shall be paid within the time provided

by Section 13 hereof. If oil or gas in paying quantities should be discovered during the secondary term

hereof but production should cease during said secondary term, this lease shall continue

for the remainder of said secondary term of five years so long as said rental is paid

and if oil or gas in paying quantities is being produced at the end of the secondary

term of five years so long thereafter as oil and gas in paying quantities or either

of them is produced from the leased premises. 15. If this lease shall have been maintained in accordance with the provisions hereof

and if at the expiration of the secondary term provided for herein oil or gas is not

being produced on said land but lessee is then engaged in bona fide drilling or reworking

operations thereon, this lease shall remain in full force and effect so long as such

operations are diligently prosecuted and, if they result in the production of oil

or gas, so long thereafter as oil and gas in paying quantities, or either of them,

is produced from said land; provided, however, such operations extending beyond the

secondary term shall be approved by the lessor upon written application filed with

the lessor on or before the expiration of said secondary term, and a report of the

status of all of such operations shall be made by the lessee to the lessor every thirty

days and a cessation of such operations for more than twenty consecutive days shall

be considered as an abandonment of such operations and this lease shall thereupon

terminate. If during the drilling or reworking of any well under this section, lessee loses or

junks the hole or well and after diligent efforts in good faith is unable to complete

said operations, then within twenty days after the abandonment of said operations,

lessee may commence another well within three hundred thirty feet of the lost or junked

hole or well and drill the same with due diligence. Operations commenced and continued as herein provided shall extend this lease as to

all lands as to which the same is in full force and effect as of the time said drilling

operations are commenced; provided, however, this lease shall be subject to cancellation

in accordance with Paragraph 13 hereof for failure to pay rentals or file reports

which may become due while operations are being conducted hereunder. 16. Should production of oil and gas or either of them in paying quantities be obtained

while this lease is in force and effect and should thereafter cease from any cause

after the expiration of ten years from the date hereof this lease shall not terminate

if lessee commences additional drilling or reworking operations within sixty days

after the cessation of such production and shall remain in full force and effect so

long as such operations are prosecuted in good faith with no cessation of more than

twenty consecutive days, and if such operations result in the production of oil or

gas in paying quantities, so long thereafter as oil or gas in paying quantities is

produced from said land; provided, however, written notice of intention to commence

such operations shall be filed with the lessor within thirty days after the cessation

of such production, and a report of the status of such operations shall be made by

the lessee to the lessor every thirty days, and the cessation of such operations for

more than twenty consecutive days shall be considered as an abandonment of such operations

and this lease shall thereupon terminate. 17. Lessees, including their heirs, assigns, agents and contractors shall at their

own expense fully comply with all laws, regulations, rules, ordinances and requirements

of the city, county, state, federal authorities and agencies, in all matters and things

affecting the premises and operations thereon which may be enacted or promulgated

under the governmental police powers pertaining to public health and welfare, including

but not limited to conservation, sanitation, aesthetics, pollution, cultural properties,

fire and ecology. Such agencies are not to be deemed third party beneficiaries hereunder, however,

this clause is enforceable by the lessor in any manner provided in this lease or by

law. 18. Should lessor desire to exercise its rights to take in-kind its royalty share

of oil, gas or associated substances or purchase all or any part of the oil, gas or

associated substances produced from the lands covered by this lease, the lessee hereby

irrevocably consents to the lessor exercising its right. Such consent is a consent to the termination of any supplier/purchaser relationship

between the lessor and the lessee deemed to exist under federal regulations. Lessee further agrees that it will require any purchaser of oil, gas or associated

substances to likewise waive any such rights. 19. Lessor reserves a continuing option to purchase at any time and from time to time,

at the market price prevailing in the area on the date of purchase, all or any part

of the minerals (oil and gas) that will be produced from the lands covered by this

lease. 20. Lessor reserves the right to execute leases for geothermal resource development

and operation thereon; the right to sell or dispose of the geothermal resources of

such lands; and the right to grant rights of way and easements for these purposes. 21. All terms of this agreement shall extend to and bind the heirs, executors, administrators,

successors and assigns of the parties hereto. In witness whereof, the party of the first part has hereunto signed and caused its

name to be signed by its commissioner of public lands thereunto duly authorized, with

the seal of his office affixed, and the lessee has signed this agreement the day and

year first above written.