Notice of confidentiality rights: if you are a natural person, you may remove or strike any of the following information from this instrument before it is filed for record in the public records – your social security number or your driver’s license number


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NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS – YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

Producers 88 (4/76) Revised Paid Up

with 640 Acres Pooling Provision

OIL & GAS LEASE

THIS AGREEMENT dated __________, 2012 between _______________, whose address is __________________, TX ___________, as Lessor (whether one or more), and PetroVista Resources, LLC, as Lessee, whose address is P.O. Box 51568, Midland, TX 79710.

WITNESSETH:

1. Lessor in consideration of Ten Dollars and other good and valuable consideration ($10.00) Dollars, in hand paid, of the royalties herein provided, and of the agreements of Lessee herein contained, hereby grants, leases and lets exclusively unto Lessee for the purpose of investigating, exploring, prospecting, drilling for and producing oil and gas, conducting exploration, geologic and geophysical surveys by seismograph, core test, gravity and magnetic methods, injecting gas, water and other fluids, and air into subsurface strata, laying pipe lines, building roads, tanks, power stations, telephone lines and other structures thereon, to produce, save, take care of, treat, transport and own said products, the following described land in _________________Counties, Texas, to wit:

Legal Descriptions

For the purposes of determining the number of acres covered by this lease covering the above described land shall be deemed to be ______.00 gross acres, and the number of acres in each tract shall be number of acres shown by such tract above, whether actually more or less.

2. This is a paid up lease and subject to the other provisions herein contained, this lease shall be for a term of three (3) years from this date (called “primary term”) and as long thereafter as oil or gas is produced from said land. Oil or gas produced in violation of an order of the Texas Railroad Commission or other governmental agency having jurisdiction in the premises prohibiting production shall never be considered production for the purpose of maintaining this lease in force. This lease is a paid-up lease and shall continue in force and effect for the entire primary term, regardless of whether operations are conducted or ceased, or production is obtained or ceased during the primary term.

3. The royalties to be paid by lessee are:

(a) On oil, and on other liquid hydrocarbons saved at the well, Twenty-four percent (20.0%) of that produced and saved from said land, same to be delivered at the wells or to the credit of Lessor in the pipe line to which the wells may be connected;

(b) On gas, including casinghead gas and all gaseous substances, produced from said land and sold or used off the premises or in the manufacture of gasoline or other products therefrom, the market value at the mouth of the well of Twenty-four percent (20.0%) of the gas so sold or used, provided that on gas sold at the wells the royalty shall be Twenty-four percent (20.0%) of the amount realized from such sale.
Notwithstanding the above, when gas is sold to an Affiliate of Lessee, the royalty shall be twenty-five percent (20.0%) of the Gross Proceeds, computed at the point of sale, from the sale of such gas by such Affiliate of Lessee.

For purposes of this lease, an "Affiliate of Lessee" is any corporation, firm or other entity in which Lessee, or any parent company, subsidiary or affiliate of Lessee, owns an interest of more than ten percent (10%), whether by stock ownership or otherwise, or over which Lessee or any parent company or Affiliate of Lessee exercises any degree of control, directly or indirectly, by ownership, interlocking directorate, or in any other manner; and any corporation, firm or other entity which owns any interest in Lessee, whether by stock ownership or otherwise, or which exercises any degree of control, directly or indirectly, over Lessee, by stock ownership, interlocking directorate, or in any other manner. For purposes of this lease, "Gross Proceeds" means the total consideration paid for oil and gas produced from the premises, with the following exceptions:
(i) Lessor's royalty shall bear its proportionate part of severance taxes actually paid by Lessee attributable to production from the leased premises.

(ii) If gas or casinghead gas produced from the premises is processed for the recovery of liquefiable hydrocarbon products prior to sale, and if such processing plant is not owned by Lessee or any Affiliate of Lessee, Lessor's royalty shall be calculated based upon the consideration received by Lessee (or any Affiliate of Lessee) from Lessee's (or Lessee's Affiliate's) sale of such liquefiable hydrocarbons and residue gas, less Lessee's proportionate part of severance taxes thereon.

(iii) If gas or casinghead gas produced from the premises is processed for the recovery of liquefiable hydrocarbon products prior to sale, and if such processing plant is owned by Lessee or an Affiliate of Lessee, Lessor's royalty shall be calculated based on (a) 80% of the consideration received by Lessee (or any Affiliate of Lessee) from the sale of all products extracted from such gas, plus (b) the total consideration received by Lessee (or any Affiliate of Lessee) from the sale of all residue gas, less Lessee's proportionate part of severance taxes thereon.
(c) This lease covers only oil and gas, but the terms “oil” and “gas” as used in this lease, shall include all of the other substances produced in liquid or gaseous form with oil or gas. The royalties applicable to oil shall apply to all such substances produced in liquid form and the royalties applicable to gas shall apply to all such substances produced in gaseous form.

(d) At any time, after the expiration of the primary term of this lease, if there is a well or wells on the above land capable of producing gas only, in paying quantities, and not oil, or a well which is classified by the Railroad Commission of Texas or any other governmental party having jurisdiction in the premises as a gas well, although it may produce some other substances, and such well or all such wells are shut-in before or after production therefrom, and there is no well on the land not classified as a gas well which is capable of producing oil in paying quantities, this lease shall continue in force for a period of either: (1) ninety (90) days from the date such well or wells are shut-in; (2) ninety (90) days from the effective date for inclusion of said land or a portion thereof within a unit on which is located a shut-in gas well; or (3) ninety (90) days from the date this lease ceases to be otherwise maintained as provided herein, whichever is the later date, and before the expiration of any such period Lessee or any assignee hereunder may pay or tender an advance annual royalty ("gas shut-in royalty") of ten ($10.00)dollars per acre for the acreage then held under this lease by the party making such payment or tender to the owners of royalty hereunder within the time provided above and in the manner provided below. If such payment or tender is made, this lease shall continue in force and it shall be considered that gas is being produced from said land in paying quantities within the meaning of Paragraph 2 hereof for one (1) year from the date of such payment, and in like manner subsequent advance annual royalty payments may be made or tendered and this lease shall continue in force and it will be considered that gas is being produced from said land in paying quantities within the meaning of said Paragraph 2 during any annual period for which such gas shut-in royalty is so paid or tendered. Notwithstanding anything herein to the contrary however, Lessee may not pay a gas shut-in royalty in order to maintain this lease in force for a period or periods of more than two consecutive years at any one time, provided that Lessee shall have actually marketed gas in paying quantities from the land in good faith after the end of each prior period during which the lease has been maintained in force by a shut-in gas well and payment of the gas shut-in royalty provided above. A well which cannot be currently operated because of mechanical problems or problems with the tubing or casing or any other problem which could be cured by expenditure of money, which, if such problem or problems were corrected, would produce oil, shall be deemed a well capable of producing oil in paying quantities for the purposes of this paragraph. A well capable of producing gas which cannot be currently operated because of mechanical problems or problems with the tubing or casing or any other problem which could be cured by expenditure of money but which, if such problem were cured, would produce gas, shall not be deemed a well capable of producing gas for the purpose of this paragraph and the existence of such a well will not cause the lease to remain in force unless and until the well is restored to the condition to which, if it were turned on, it would produce gas in paying quantities.

(e) The payment or tender of gas shut-in royalty may be made by check or draft of Lessee, mailed or delivered directly to said royalty owner or owners if more than one, on or before the due date, and the payment or tender will be deemed made when the check or draft is so delivered or mailed to Lessor at the address provided above or the latest different address with which Lessor shall have furnished Lessee in writing prior to ten (10) days prior to such payment or tender. If Lessee shall, on or before a gas shut-in royalty payment day, make a bona fide attempt to pay a gas shut-in royalty payment to a royalty owner entitled thereto under this lease according to Lessee’s records at the address shown above or at the latest address which shall have been furnished to Lessee by such royalty owner in writing more than ten (10) days prior to the date of such check, and if such payment is erroneous because the party entitled to such payment has changed address and not notified Lessee of such change more than ten (10) days prior to the date of such payment, Lessee shall be obligated to pay such royalty owner the gas shut-in royalty payment property payable for the period involved, but this lease shall be maintained in force in the same manner if such erroneous payment had been properly made, provided that Lessee corrects such erroneous payment within sixty (60) days following receipt by Lessee of a written notice from such royalty owner that such royalty owner has not received payment of the gas shut-in royalty payment which was due on the date on which such erroneous payment was attempted, accompanied by any documents or other evidence necessary to enable Lessee to make proper payment.


(f) Without limiting Lessor's rights or Lessee's obligations under any other provision of this lease, commencing on the completion date of the first well drilled on the leased premises as a producing well, no more often than once in any two-year period during the term of this lease Lessor shall have the right to have an audit of the books, in Lessee’s offices during normal business hours at Lessor’s expense, accounts, contracts, records, and data of Lessee pertaining to the development, production, saving, transportation, sale, and marketing of the oil, gas, and sulphur produced from or attributable to the leased premises conducted. If the exceptions or deficiencies in royalty payments by Lessee as revealed by the audit (the "audit exceptions") are, either by agreement of Lessor and Lessee or by a final, non-appealable judgment binding on the parties, determined to be more than the cost and expense of such audit, then Lessee shall reimburse Lessor for the cost of such audit within thirty (30) days after the earlier of (i) the date of the agreement of the parties respecting the amount or amounts of the audit exceptions or (ii) the date upon which a judgment binding on the parties and determining the amount or amounts of the audit exceptions becomes final and non-appealable. If the audit exceptions are, either by agreement of Lessor and Lessee or by a final, non-appealable judgment binding on the parties, determined to be less than the cost and expense of the audit, such cost and expense shall be borne by Lessor.
(g) Lessee agrees that all royalties accruing and payable under this lease shall be without deduction for any costs attributable to producing, gathering, storing, compressing, separating, treating, dehydrating, processing, transporting, marketing or making oil, gas or other hydrocarbons produced from said land merchantable and/or ready for sale or use (which costs are hereinafter collectively referred to as "Marketing Costs"), or any other costs or expenses whatsoever except only the proportionate part of severance taxes for the royalties so produced. For purposes of this paragraph, if gas is sold or used off the land and the "market value" definition of royalty in Paragraph 4 above is used to determine royalty, "market value" shall mean the amount received by the Lessee plus any amount incurred by Lessee as "marketing costs" except as expressly provided herein. It is intended and agreed that the terms of this paragraph be controlling, and not merely "surplusage," regardless of any court decisions to the contrary.


(h) In the event Lessee enters into a gas purchase price which contains what is commonly known as a “take or pay provision” (such provision meaning that the gas purchaser agrees to take delivery of a specified minimum volume or quantity of gas over a specified term at a fixed price or make minimum periodic payments to the producer even though gas is not being delivered to the purchaser) and the purchaser under such gas purchase contract makes payment to the producer by virtue of such purchaser’s failure to take delivery of such minimum volume of gas, or in the event a purchaser of gas produced from the land pays to the Lessee any type of payment or bonus or advanced royalty for entering into a contract for the sale of the gas in addition to the amount for MCF paid for the gas under the contract, or in the event the Lessee receives any payment for terminating or reducing the price or changing the terms of any contract for the sale of gas, all sums so received by the Lessee in any of such circumstances shall be deemed part of the proceeds of the sale of the gas and Lessor shall be entitled to 25% of all such payments, whatever they may be called.
(i) Royalty is due on any oil or gas lost as the result of leaks, spillage, flaring or other loss after the product comes out of the mouth of the well. Lessor is entitled to install its own metering or measuring system to measure the production coming from the mouth of the well, at its sole risk, expense and liability .

4. No pooling shall be allowed with respect to a vertical well without Lessor's written consent. Lessee may pool or combine portions of the land covered by this lease as is deemed necessary, in Lessee's reasonable judgment, for development of horizontal wells. Nothing in this provision shall be deemed to affect the obligations of Lessee under Paragraph ___ of this lease relating to continuous development or the partial termination of this lease, even as to land within such unit, resulting from failure to commence or complete a continuous development well under the provisions of such paragraph. The pooling in one or more instances shall not exhaust the rights of Lessee hereunder to pool this lease or portions thereof into other units in accordance with the provisions of this paragraph. Lessee shall file for record in the appropriate records of Howard and Borden Counties, Texas an instrument describing and designating the pooled acreage of a pooled unit, and upon such recordation the unit shall be effective as to all parties hereto, their heirs, successors and assigns, irrespective of whether or not the unit is likewise effective as to all other owners of surface, minerals, royalty, or other rights in the land included in such unit. Lessee may, at its election, exercise its pooling option before or after commencing operations for or completing an oil or gas well on the leased premises, and the pooled unit may include, but is not required to include, land or leases upon which a well capable of producing oil or gas in paying quantities has theretofore been completed or upon which operations for the drilling of a well for oil or gas have theretofore been commenced. If less than all of the land covered by this lease is pooled with other lands pursuant to the provisions of this paragraph, the land pooled shall be deemed a separate lease from the lease on any other land under this lease included in such pool or unit for the purpose of maintaining any lease in force, and maintenance of all leases involved in force shall be determined in the same manner as if the land included in such pool or unit, were a separate lease from all other separate leases created by this lease, except that Lessee shall continue to have all surface rights and easements in all other portions of the lease or leases out of which such pool or unit was carved as it would have had had there been no such pool or unit and had the well on such pool or unit been located on each of the separate tracts constituting separate leases under the provisions of this lease.
In the event of operations for drilling from any part of a pooled unit which includes all or a portion of land covered by this lease, regardless of whether such operations for drilling were commenced or such production was secured before or after the execution of the instrument designating the pooled unit, such operation shall be considered as operations for drilling on or production from the land covered by this lease consisting of all land, included in such unit, regardless of where such well or such operations shall be located and such operations and/or production shall be deemed operations and/or production from lands covered by this lease as to, but only as to, the deemed separate lease consisting of the land included in such unit, and in such event all operations which have actually been commenced shall be deemed to have been commenced on land included within such unit within the meaning of paragraph 5 of this lease, and the entire acreage consisting of such unit shall be treated for all purposes except payment of royalties on production from the pooled unit, as if the same were included in the lease on each of the separate tracts land out of which is included in such unit, but only as to the land so included in such pool or unit. For the purposes of determining the royalties to which the owners of royalties and payments out of production and each of them shall be entitled on production from the pooled unit, there shall be allocated to the land which is included in such pool or unit a pro rata portion of the production from the lands included in such pooled unit after deducting that used for operations on the pooled unit. Such allocation shall be on an net mineral acreage basis – that is to say, there shall be allocated to the net mineral acreage covered by this lease and included in the pooled unit that pro rata portion of production from the pooled lands included in the pooled unit which the number of net mineral acres in such pool or unit bears to the total number of net mineral acres in such pool or unit. Royalties on shall be computed on the portion of such production so allocated to the land included just as though such production were from the deemed separate lease covering such portion of the lands covered by this lease included in such unit only. The formation of any unit hereunder shall not have the effect of changing the ownership of any gas shut-in royalty which may become payable under this lease.

If this lease now or hereafter covers tracts in which the royalty ownership differs, now or hereafter, either as to part or amounts, from that as to any other part of the deemed separate lease on one of the separate tracts described above, no pooling or unitization of royalty as between any of such tracts and no offer to any royalty owner to ratify such lease or to take any other action which will result in pooling because of inclusion of such tracts with differing royalty ownership in the lease on such separate tract is intended or shall be implied or result merely from the inclusion of such tracts with differently owned royalties within such lease, but Lessee shall nevertheless have the right to pool such tracts as provided above with the consequent allocation of production as provided above, in the manner provided for pooling in this paragraph.

It is recognized that a horizontally drilled well (hereinafter a “horizontal well”) may require more acreage than a vertical well. It is therefore agreed that land covered by the lease on any of the separate tracts described above may be pooled with land on any of the other separate tracts described above for the purpose of drilling, operating and producing a horizontal well into a unit of the minimum size allowed by Rule 86 promulgated by the Texas Railroad Commission or any equivalent rule in the future. Operations or production from the unitized land containing the horizontal well shall not be considered operations on or production from any portion of the lands covered by this lease except the lease on the tract unitized as provided above on which the well is drilled for the purpose of holding said land in the unit, and maintenance of each of the leases of land included in such unit.
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