IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re ) Chapter 11

PACIFIC ENERGY RESOURCES LTD., et al., 1 ) Case No. 09-10785 (KJC) ) (Jointly Administered)
)

Debtors.

Related to Docket Nos. 1895 and 1921

Hearing Date: October 12, 2009 at 1:00 p.m. prevailing Eastern time

REPLY TO OBJECTION OF UNION OIL COMPANY OF CALIFORNIA TO DEBTORS MOTION FOR ORDER APPROVING STIPULATION RESOLVING CLAIMS OF THE STATE OF ALASKA AGAINST THE DEBTORS The debtors and debtors in possession in the above-captioned cases (collectively, the "Debtors") hereby reply ("Reply") to the objection (Docket No. 1921) (the "Objection") of Union Oil Company of California ("Union") to the Debtors Motion for Order Approving Stipulation Resolving Claims of the State ofAlaska Against the Debtors, filed September 21, 2010 (Docket No. 1895) (the "Motion"), which seeks approval of a global settlement (the "Settlement") with the State of Alaska ("Alaska"). The Debtors have also received a limited objection to the Motion from Forest Oil Corporation, but expect to resolve such objection prior to the hearing. This Reply is focused solely on objections to the Settlement raised by Union. In support of this Reply, the Debtors respectfully represent as follows: 2

The Debtors in these cases, along with the last four digits of each Debtors federal tax identification number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings LLC (tax I.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The address for all of the Debtors is 11] W. Ocean Boulevard, Suite 1240, Long Beach, CA.
2

Capitalized terms not expressly defined herein shall have the meanings ascribed to such terms in the Motion.

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Introduction Union primarily objects to the Settlement on the basis that Union has valid liens against assets that the Debtors propose to compromise with Alaska. Specifically, Union asserts a lien against: (1) royalty overpayments in an amount asserted by the Debtors of $2,869,468.16 due to Pacific Energy Alaska Operating LLC ("PEAO") from Alaska (the "Royalty Credit"), and (2) production tax credits in an amount asserted by the Debtors of $5,666,807.00 due to PEAO from Alaska (the "Production Tax Credits" and, together with the Royalty Credit, the "Credits"). 3 Union also takes issue with the proposed resolution of Alaskas general unsecured claim against PEAO in the amount of $40,000,000.00, presumably wanting a higher allowed amount so that Unions own obligations to Alaska will be reduced. 2. Unions objection is wholly without merit because Union does not have a

lien or security interest, much less a perfected lien or security interest, in the Credits (and even if it did, any such liens would be junior to the liens and security interests of the Debtors senior lenders). 4 The Credits simply do not arise from, or constitute proceeds of, Unions limited lien rights in an area called Trading Bay. Further, even assuming Union was determined to have a valid lien in the Credits, such lien is essentially valueless because the Credits would be subject to offsetting claims by Alaska totaling in excess of $200,000,000.00. 3. As to Unions objection to the merits of reducing and allowing Alaskas

claim in the amount of $40,000,000.00, Union cannot seriously expect the Debtors to accept a higher claim amount from Alaska just so that Union will have to pay less. The Debtors goal

The Debtors submitted an application for the Production Tax Credits to Alaska, but Alaska has not yet approved or denied the application. The Debtors senior lenders have not objected to the Settlement.

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here is to protect and maximize the value of these estates (regardless of how this may affect Union), and that is precisely what the Settlement accomplishes. Background 4. As set forth in the Motion, PEAO entered into numerous oil and gas leases

and easement agreements (the "Leases") with Alaska. Under the Leases, PEAO was obligated to pay rent, royalties, and taxes to Alaska, as well as to perform any plugging, abandonment, decommissioning, and other obligations, to the extent set forth in the Leases and applicable state statutes and regulations. The Leases are attached to the Declaration of Gerald A. Tywoniuk filed in support hereof. 5. Although PEAO sold and assigned certain of the Leases as part of a Court-

approved sale, PEAOs interests in the Leases affecting Union (referenced in the Motion as the Trading Bay Interests) were abandoned and rejected by separate order of the Court. As to the various abandoned and rejected Leases, Alaska asserts claims exceeding $200,000,000.000. 6. Under the Settlement, Alaskas general unsecured claims against PEAO

would be substantially reduced and allowed in the amount of $40,000,000.00. The Debtors, in turn, would release (on behalf of their estates) all rights in the Credits. 7. The Royalty Credit relates to overpayment of royalties by PEAO to

Alaska in 2007 and 2008. As is customary practice, such royalties were paid out of PEAOs general operating funds to Alaska. PEAO did not pay royalties directly out of the proceeds of production. Rather, PEAO received funds from the purchaser of production (generally, Tesoro), and all such proceeds were then commingled in PEAOs accounts with other funds. The royalties paid to Alaska are now long gone, and have not been set aside by Alaska in any 3
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segregated or identifiable account. The Debtors simply have a claim against, or right to payment from, Alaska to the extent of the overpayment of royalties. 8. The Debtors submitted an application to Alaska for the Production Tax

Credits, which represent a tax attribute of PEAOs estate that may be owing to PEAO by Alaska. The Production Tax Credits arise as a matter of Alaska law based on: (1) qualifying capital expenditures on PEAOs operating properties and PEAOs share of Trading Bay; and (2) annual losses (if any) for PEAOs entire business in Alaska, including PEAOs operated properties and its share of Trading Bay. The Production Tax Credits do not constitute a portion of the Trading Bay Interests, or the proceeds thereof. The Production Tax Credits are simply credits that may be payable to PEAO by Alaska, just like any other tax credit, refund or other general intangible. Incidentally, Alaska contests the amount of the Production Tax Credits asserted by PEAO and has not yet approved or denied the Debtors application. It also bears mention that only $728,038.00 of the Production Tax Credits relate to the postpetition time period, and of this amount, only $134,584 has anything to do with the Trading Bay Interests. 9. Significantly, the Credits fall within the category of "Excluded Interests"

as to which the Debtors senior lenders have valid and senior liens per the Courts Order (I) Approving Sale of the Debtors Beta Assets Free and Clear of All Liens, Claims, Encumbrances and Other Interests Pursuant to Sections 363(b), and (m) of the Bankruptcy Code, (II) Assuming and Assigning Certain Executory Contracts and Unexpired Leases, and (III) Granting Related Relief, entered on December 23, 2009 (Docket No. 123 9) (the "Beta Sale Order"). The Debtors senior lenders have not objected to the Settlement.

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Reply to Objection A. Union Does Not Have a Valid Lien in the Credits. Union Has the Burden to Prove the Validity, Priority, and Extent of a Lien. 10. The Motion was brought under section 363 of the Bankruptcy Code (as

well as section 502(b) of the Bankruptcy Code and Rule 9019 of the Federal Rules of Bankruptcy Procedure). Motion at 3. Therefore, Union has the burden to prove the validity, priority and extent of its claimed lien. 11 U.S.C. 363(p)(2) ("In any hearing under this section [363] -... (2) the entity asserting an interest in property has the burden of proof on the issue of the validity, priority, or extent of such interest.") 2. Union Has Failed to Establish a Valid Contractual Lien in the Credits. 11. Union asserts lien rights in the Credits pursuant to the following two

agreements: (a) the Unit Operating Agreement - Trading Bay Unit ("TBUOA"), and (b) the Trading Bay Field Joint Operating Agreement ("TBFJOA"). 5 The TBUOA and TBFJOA both relate to the Trading Bay Interests that were abandoned by PEAO. However, neither of these agreements grants Union lien rights against general intangibles, such the Credits, and Union has taken no steps whatsoever to perfect a security interest against PEAOs general intangibles.

Copies of the TBUOA and TBFJOA are attached as Exhibits A and B, respectively, to the Affidavit of Shannon W. Martin (the "Martin Affidavit"), a Land Representative of Union, filed December 4, 2009 (Docket No. 15), in an adversary proceeding related to these cases, styled Union Oil Company of California v. Pacific Energy Alaska Operating, LLC and Silver Point Finance, LLC (In re Pacific Energy Resources Ltd., et al), Adv. Proc. No. 09-51 066-KJC. The Debtors request that this Court take judicial notice of the Martin Affidavit and its exhibits as filed in this Courts docket, Fed. R. Evid. 201, which affidavit is also an admission by Union, Fed. R. Evid. 801(d)(2).

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12.

Union relies on the recording of the TBUOA and the TBFJOA in the

applicable real property records in the State of Alaska (i.e., the Anchorage Recording District) on January 26, 1999. Martin Affidavit at 14. 13. Section 19.5 of the TBUOA entitled "Lien of Unit Operator and Sub-

Operator" states in its entirety as follows: Each Party grants to Unit Operator [Union] and the Sub-Operators a lien upon its oil and gas rights in each Tract, its share of Production, and its interest in all Unit property, as security for payment of its share of Costs, together with interest thereon at the rate of six per cent (6%) per annum. Unit Operator and each SubOperator shall have the right to bring suit to enforce collection of such indebtedness with or without seeking foreclosure of the lien. In addition, upon default by any Party in the payment of its share of Costs, Unit Operator and each sub-Operator shall have the right to collect from the purchaser the proceeds from the sale of such Partys share of Production until the amount owed by such Party, plus interest as aforesaid, has been paid. Each purchaser shall be entitled to rely upon Unit Operators or Sub-Operators written statement concerning the amount of any default. TBUOA at 19.5. 14. Similarly, section 11.4 of the of the TBFJOA entitled "Lien of Operator"

states in its entirety as follows: Each Party grants to the Operator [Union] a lien upon its Working Interests in the Area, and its interest in all property, as security for payment of its share of Costs, together with interest thereon at the rate of twelve per cent (12%) per annum or, if lower, at the highest rate allowed by law. Operator shall have the right to bring suit to enforce collection of such indebtedness with or without seeking foreclosure of the lien. In addition, upon default by any Party in the payment of its share of Costs, Operator shall have the right to collect from the purchaser the proceeds from the sale of such Partys share of Production until the amount owed by such Party, plus interest as aforesaid, has been paid. Each purchaser shall be entitled to rely upon Operators written statement concerning the amount due hereunder.

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TBFJOA at 11.4. 15. Nothing in the foregoing provisions grants Union, as operator, a lien on

Credits that may be owed to PEAO by a third party such as Alaska. Such Credits are not oil and gas rights in the Trading Bay Interests, or a share of production, or an interest in any property associated with the Trading Bay Interests. The Credits are simply amounts owed to PEAO by Alaska, no different than any other receivables payable to PEAO. 16. Further, even if Union had valid contractual liens under the TBUOA and

the TBFJOA in the Credits, the filing of these agreements in the Anchorage Recording District would have perfected such liens (at most) in the Trading Bay Interests only, and not in any of PEAOs personal property. 17. Union argues that the Credits constitute the proceeds of its collateral.

However, the provisions of the TBUOA and TBFJOA are extremely limited in scope when it comes to proceeds. Union, as operator, has the right to collect from the purchaser the proceeds of PEAOs share of production, and that is the extent of Unions rights to proceeds of its collateral under the TBUOA and TBFJOA. The purchaser is the party buying the production from the Trading Bay Interests. Alaska is not, and has never been, the purchaser of any production from Trading Bay. Hence, the Credits owed by Alaska to PEAO cannot possibly fall within the scope of the liens granted in favor of Union under the TBUOA and the TBFJOA. 18. Union contends that the Royalty Credit was paid out of the production

from Trading Bay, but this is not the case. The Royalty Credit was paid out of PEAOs general funds, independent of any rights or liens of Union. To the extent any proceeds of production from Trading Bay were used to pay such royalties, they certainly cannot be traced now two to 7
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three years after the fact, and into the hands of a transferee (Alaska), which has not segregated the funds in any identifiable account. It is simply over-reaching for Union at this late stage to assert a lien against amounts that happen to be owed by an independent third party (Alaska) to

19.

Because production from the Trading Bay Interests constitutes "as

extracted collateral" as defined in Alaska Statutes section 45.29.1 02(a)(7), 6 security interests in such collateral are perfected by filing under the rules of Article 9 of the Uniform Commercial Code. See Alaska Stat. 45.29.109(a)(1); 45.29.501(a)(1)(A); 45.29.502(c). 20. On June 5, 2008, Union filed a "UCC Financing Statement - Fixture

Filing" against PEAO in the Anchorage Recording District (the "Fixture Filing"). 7 The Fixture Filing covered only: "Interests in, and all oil and gas before or after extraction from, the Trading Bay Field or Trading Bay Unit, in the Cook Inlet area of Alaska; as set forth in the attachment hereto."8 21. The Fixture Filing did not cover general intangibles, such as the Credits.

See In re American Home Furnishings Corp., 48 B.R. 905, 908-09 (Bankr. W.D. Wash. 1985) (tax refunds are general intangibles); In re Neuenschwander, 73 B.R. 327, 328 (Bankr. S.D. Fla. 1987) (same); Cossitt v. First Am. State Bank (In re Fort Dodge Creamery Co.), 121 B.R. 831,
6

Alaska Statutes 45.29.102(a)(7) defines "as-extracted collateral" as either of the following: (A) oil, gas, or other minerals that are subject to a security interest that (i) is created by a debtor having an interest in the minerals before extraction. (ii) attaches to the minerals as extracted; or (B) accounts arising out of the sale at the wellhead or the minehead of oil, gas, or other minerals in which the debtor had an interest before extraction. Martin Affidavit at Exhibit B. Id.

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833 (Bankr. N.D. Iowa 1990) (same). Nor did Union take any other action to perfect its purported interests in PEAOs general intangibles or the Credits specifically. 22. Based on the foregoing, Union has completely ignored the limitations of

its own documents in asserting liens in assets that have no direct connection to the Trading Bay Interests previously abandoned by these estates. Union does not have any valid contractual liens in the Credits. 3. Union Has Failed to Establish a Valid Statutory Lien in the Credits. 23. Union, as operator of Trading Bay, asserts a statutory lien under Alaska

Statutes section 31.05.1 10(h). Objection at J 14, 15, 19 and 26. However, much like the limitations in the TBUOA and the TBFJOA addressed above, the Alaska statute is limited in scope and certainly does not extend to payment obligations of a third party. 24. Section 31.05.110(h) provides as follows:

Subject to such reasonable limitations as may be set out in the plan of unitization, the unit has a first and prior lien upon the leasehold estate and all other oil and gas rights (exclusive of a landowners royalty interest) in and to each separately owned tract, the interest of the owners in and to the unit production and all equipment in the possession of the unit, to secure the payment of the amount of the unit expense charged to and assessed against such separately owned tract. Alaska Stat. 31.05.110(h) (emphasis added). 9 25. Nothing in the foregoing provision grants Union, as operator, a lien on

Credits that may be owed to PEAO by Alaska. Such Credits are not oil and gas rights in the Trading Bay Interests, or an interest of the owners in and to the unit production or the equipment
Under the applicable Alaska regulation, a "unit" is "a group of leases covering all or part of one or more potential hydrocarbon accumulations, or all or part of one or more adjacent or vertically separate oil or gas reservoirs, which are subject to a unit agreement." Alaska Admin. Code tit. 11, 83.895(7).

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of the unit. The Credits are a right to payment from Alaska to PEAO, and as such, are not covered by the express terms of the Alaska statute. Moreover, even if the Court were to deem Union as having a valid statutory lien, Alaska -- as the landowner -- would have senior rights to Union. The Senior Lenders Have a Senior Lien on the Credits. 26. Even in the unlikely event that it were determined that Union has a valid

lien on the Credits, such lien is subordinate to the liens of the Debtors senior lenders pursuant to the Beta Sale Order, and for the reasons set forth in Silver Point Finance LLC s Reply to (I) Objection of Union Oil Company of California to Debtors Motion for Order Implementing Prior Orders of This Court by Authorizing Debtors to Pay Net Proceeds of Certain Collateral to the Debtors Postpetition Lenders and (II) Objection of Union Oil Company of California to First Amended Chapter 11 Plan of Liquidation for Pacific Energy Resources Ltd., Et Al, filed October 6, 2010 (Docket No. 1932). The Debtors senior lenders have not objected to the Settlement. B. Alaska Has Recoupment and Offset Rights Against the Credits. 27. Assuming in the alternative that Union has a valid senior lien on the

Credits or some portion thereof, Unions objection to the Settlement should be overruled because such lien would have no material value. As noted above, Alaska asserts claims against these estates exceeding $200,000,000.00, far more than the amount of the Credits. Indeed, Alaska has

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already recouped the Royalty Credit against its much larger claims in these cases, and would be entitled to do the same with the bulk of the Production Tax Credits if they were ever allowed. 0 1. Alaska Has a Valid Right of Recoupment or Setoff Against the Credits. 28. Union argues that the doctrine of recoupment does not apply to the

Royalty Credit, and that the doctrine of setoff does not apply to the Production Tax Credits attributable to year 2009. In fact, given that the Production Tax Credits relating to the Trading Bay Interests total only $134,584 as to the postpetition time period, Unions arguments on this point make little practical difference, not to mention that Alaska contests the Production Tax Credits in any event. 29. As stated by the Third Circuit in Lee v. Schweiker, 739 F.2d 870,875 (3d

Cir. 1984), setoff, in effect, elevates an unsecured claim to secured status, to the extent that the debtor has a mutual, prepetition claim against the creditor. See 11 U.S.C. 506(a). Setoff is limited, however, by the provisions of section 553 of the Bankruptcy Code. Among those limitations is that prepetition claims against the debtor cannot be setoff against postpetition debts to the debtor. Recoupment, on the other hand, allows the creditor to assert that certain mutual claims extinguish one another in bankruptcy, in spite of the fact that they could not be set off under section 553 of the Bankruptcy Code. The justification for the recoupment doctrine is that where the creditors claim against the debtor arises from the same transaction as the debtors claim, it is essentially a defense to the debtors claim against the creditor rather than a mutual obligation, and application of the limitations on setoff in bankruptcy would be inequitable.

Contrary to Unions assertions, Alaska has not recouped the Production Tax Credits, and in fact, Alaska has not even approved the Debtors application for the Production Tax Credits. Rather, the Settlement provides that the Debtors are releasing their rights to the Production Tax Credits and agree not to pursue recovery thereof. 11
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30.

Union relies on University Med. Ctr. v. Sullivan (In re University Med.

Ctr.), 973 F.2d 1065 (3d Cir. 1992), for the proposition that recoupment of royalties is not supported by applicable law. The decision in University Medical Center, however, is inapposite given that it was limited to a unique set of facts, and did not even involve royalty payments. University Med. Ctr. involved Medicare payments under a provider agreement, which was described as "a unique type of contract. It does not provide for a defined transaction or even a series of transactions. It simply establishes a relationship between the parties." University Med. Ctr. v. Sullivan, 122 B.R. 919, 930 (E.D. Pa. 1990), affd, 973 F.2d 1065. 31. Both the Third Circuit and the District Court decisions in University Med.

Ctr. cite to Ashland Petroleum Co. v. Appel (In re B&L Oil Co.), 732 F.2d 155, 156 (10th Cir 1986), which held that recoupment applied to overpayments under a prepetition oil division order. See University Med. Ctr., 973 F.2d at 1081; 122 B.R. at 930 (citing B&L Oil). B&L Oil is much more analogous to the facts here. 32. Alaskas rights to royalties and its claims for decommissioning costs arise University

under the same Leases and are part and parcel of the same integrated transaction.

Med. Ctr., 973 F.2d at 1081 ("both debts must arise out of a single integrated transaction so that it would be inequitable for the debtor to enjoy the benefits of that transaction without also meeting its obligations."). Therefore, Alaska has a right of recoupment here -- or if not a right of recoupment, certainly a right of setoff, given that the entirety of the Royalty Credit arose prepetition. 33. As to the Production Tax Credits that arose prepetition, there can be no

question that Alaska has setoff rights against PEAO on account of its prepetition obligations 12
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under the Leases. Arguably, however, the Production Tax Credits are not subject to recoupment as they do not necessarily arise out of the Leases. However, the postpetition portion of the Production Tax Credits is disputed by Alaska and so small ($134,584) that the point is not even worth arguing, in light of many other tangible benefits that will be realized by the Estates under the Settlement. 2. Unions Asserted Lien Does Not Trump Alaskas Right to Recoupment or Setoff. 34. Contrary to Unions assertions, Unions purported liens do not

automatically trump Alaskas rights to recoupment or offset. 35. Union cites to Native Am. Fin. Inc. v. Tecumseh Constr. Co. (In re

Tecumseh Constr. Co.), 157 B.R. 471, 472 (Bankr. E.D. Cal. 1993), for the proposition that recoupment cannot be used to defeat a secured creditors rights to its collateral. Tecumseh, however, has been severely criticized as having been decided with "little analysis and no discussion of UCC 9-31 8(1)(a) [now 9-404] . . . ." Frank v. ITT Comm. Fin. Corp. (In re

Thompson Boat Co.), 230 B.R. 815, 827 (Bankr. E.D. Mich. 1995). 36. Indeed, in this District, courts generally permit recoupment and setoff

without regard to the interests of senior lienholder. See, e.g., In re Communication Dynamics, Inc., 300 B.R. 220, 227 (Bankr. D. Del. 2003) ("A right of recoupment, because it is a defense to sums due by the creditor, is not subordinate to the security interest that a lender may have in the debtors inventory."); In re Telephone Warehouse, Inc., 259 B.R. 64, 70 (Bankr. D. Del. 2001) ("Thus, under section 9-318 of the UCC [now 9-404], the Movants right of setoff has priority over any lien of the Lenders in the accounts receivable"); see also Newbery Corp. v. Firemans Fund Ins. Co., 95 F.3d 1392, 1403-04 (9th Cir. 1996) ("[W]hen a third party has a security 13
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interest in that very claim, application of the recoupment doctrine does not impair the security interest, but merely serves to determine the value of the claim in which the third party holds its interest...."); Security Pacific Natl Bank v. United States (In re Siebert Trailers, Inc.), 132 B.R. 37, 41 (Bankr. E.D. Cal. 1991 ) (IRSs right to reduce a tax overpayment is superior to that of a creditor with a perfected security interest in the debtors general intangibles, including tax refunds); accord, Folger Adams Security, Inc. v. Dematteis/MacGregor, JV 209 F.3d 252, 261 (3d Cir. 2000) ("the right of recoupment is a defense, not a claim"). This approach makes sense because the lienholder should have no greater rights in its collateral than those possessed by the owner of the property (i.e., the debtor). 37. Therefore, in the absence of the Settlement and notwithstanding any valid

lien rights of Union or anyone else, Alaska would be permitted to exercise its rights of recoupment or offset against the Credits, thereby rendering them as essentially valueless from the perspective of these estates. C. The Impact of the Settlement on Unions Claims is Irrelevant. 38. Finally, Union objects to the Settlement on the basis that reduction and

allowance of Alaskas claims in the amount of $40,000,000.00 somehow prejudices Union. Even if that were the case, this is not an issue relevant to the Settlement. 39. The Debtors strived to reach the best possible deal with Alaska for the

benefit of these estates. If that resolution negatively impacts Union, that issue can be addressed in a separate proceeding, but it is certainly no reason to disavow the Settlement.

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WHEREFORE, the Debtors respectfully request that this Court (a) overrule the Objection; (b) grant the Motion; and (c) grant such other and further relief as is just and proper. Dated: October 8, 2010 PACHULSKI STANG ZIEHL & JONES LLP

Ira (harasch (CA Bar No. 109084) Ma*ph B. Litvak (CA Bar No. 215852) James E. ONeill (Bar No. 4042) Robert M. Saunders (CA Bar No. 226172) 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705 Telephone: 302/652-4100 Facsimile: 310/652-4400 ikharasch@pszjlaw.com Email: mlitvakpszyjlaw.com j oneill@pszyjlaw.com rsaunderspszj law. corn Counsel for Debtors and Debtors in Possession

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EXHIBIT A

STATE OF ALASKA
TMENT OF NATURAL RESO

. LL1

UWS
LEASE NO. ACIL-

,]Division of Lands

Bobi-)Jb4
,
.. . -

ACE

KENAI
Sedal No,

19 S LEASE dated the day of is made by and between the State ting by and through the Director of the Division of Lands, Department of Natural Resources or his author. zcrcinafter called "lessor", and

. ?a. . or I ana Petro3e2 Corp"

INDEX . hereinjter called "Lessee", whether one or more. B & Lr GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby

. 71,bo raoA1a
....

acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease Unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production processing and marketing of oil, gas, and associated substances produced therewith, and of Installing pipe lines an ci structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use In Its operations thein ilfrr hnin and boarding employees in its operation thereon, the following described tract of land In Alaska: i.

13"12u3

t1

containing..5! 20. ........... acres, more or less, hereinafter called "said land". For the purposes of this lease, said land contains legal subdivisions as showii tt. land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided In Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 0, 7, and & hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the interest .of concrvation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary terki will be extended by adding the period of suspension thereto. 5. EXTENIKON BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreementapproved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production Is allocated to said land under the agreement. In such event this lease shall continue in effect so lore as it remains subject to such agreement and action production under said agreement Is allocated to said land; (b) The commissioner may, in his discretion provide for the extension of the term of this lease, if such lease Is on the expirationjlate thereof Included In an approved unit plan or If it is included in a program of secondary recovery operation designel to bring about or restore production, provided, however, that if any lease or portion thereof is ohmmated from such unit plan or recovery program, or if such unit plan or recovery program Is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to Include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (9(1) days after such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (C) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production Is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such suspension is made under any order or with the consent of Lessor.
I

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etlon on said )and of a well capable of D. RENTAL. This 1%RO shall teImt on any anniversary dnto forcor prior to the producing oil or in paying qtant1ttc5, tin so On OV before atd ann(vcrsIry (late hcho hy or tenIer to Lessor as annual rental a aum equal to $1.00 per acre. or fraction thereof, then Included In thin cr%SO, or UflIoS such annual rental has been waived or suspended as provided In Pnrngrftph 13 or this lease. It Lessors office Is not open for business o,, the anniversary date the time for payment Is extended to Include the next day on which said office in open for business. Any rental paid for tiny one lease year efiall be credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said land of a well capable of prodLlctng ofl or gas In paying quantities,Lessee shall pay Lessor, at the Pxpiration of each lease year, In lion of rental a minimum royalty equal to *1,00 par acre. or fraction thcreof, then Included n this lease, or the difference between the nctual royalLy paid on production during the year r Iea than 1.00 per acre and the prescribed minimum royalty. . 11. ROYALTY ON PRODUCTION. Except for on and gas used on iuild lnnI for development and production or unavoidably lost, Lessee shall pay Josaorjts royalty the following: (a) On ou11.i/ per cent In amount or value or the all produced nfld mvci ond removed or ioId from said land. (b) On ga2i/2.. per cent In amount or value of the gas produced ond Raved anti Field or used off said land or used for the extraction of natural gasoline or other proiot. tMrefrom. (c) On associated aibatanocIL/ per cent Iii omount or vnlue of such substances produced and Raved and removed or sold from said lands. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. If l.csoe shalt drill on airl land and mnleo the first discovery of nfl or gas n commercI (irnntItIOs in any geolcg1ca structure. the royalty rate onder thisleasehn)I, InMcnl of the rates proscribed In Paragraph 11. be five per cent for ft period or ten years following the date of Ruch discovery, and thereafter the royalty rates shall be those prescribed In Fararaph ii. II thIs Iene Is committed to a unit agreement approved or rircrII,ccI by Lessor as provided In the regulations, tile five per cent royalty rate shiffl apply to all. but only, the production allocated In this Ic:ie llTlcJcr such agreement. 13. REDUCTION 010 RENTAL AND ROYALTY. Rental or mlrtlmurn r03-IIIY may be waived, suspended, or rdncet, or royalty mey be reduced on all of snld land or any tract or portion thereof segrcatLcl for loyalty pIri,00s If Lessor finds lhLt Such relief is necessary for the purpose of encouraging the grentest ultimate recovery of oil or ga, and Is In the Interest of conservation of natural resources and either that auch relict Is necessary In order to promote development or thot tho tease connot be successfully operated under the terms provided herein. 14. ROYATJFY IN KIND. Whenever, at the option of Lessor. which may he excrcici from time to time upon not less than nix monthR notice to Lessee, Lessor clecta to tahe Its royalty In kind, Lessee Shall deliver rree of cttiirge (on aIc1 lanri or nt such pliP,e as Lessor and Lessee mutually agree upon) to Lessor or to auch Incllvldiiel. fIrm, or rorpriratloli 09 Lessor rviny (lesInttte all royalty oil nnd/nr gas prodticocl and silverl from said land. Such oil and/or gas shall be In good and merchantable condition. Lessee shall. If neeeSary furnish storage for . royatty oil free of charge for thirty days after the end of the colendar month In which the oil is produced from said land: provided. that Lessee shall not be held liablefor loss or destruction of royalty oil and/or ena from causes heyoiul Lessees reasonable nontrol. Should Lessee dehydrate or clean the oil or gas produced from said land. Lessee shall be enllilrd to an allowance of the actual Coat of dehydrating or cleanIng said royalty oil or gas. 15. ROYALTY IN VALUE. At the option of Jesaor which may he exercised fioin time to time upon not less than six months notice to. Lessee, and in lieu of royalty In kind, Lessee shall pay to Iesaor the fll<l market 1)rl0 or value at the well of all royally oil and/or gas. All % royalty that may become payable in money to Lessor shall be poici on or before the last (lay of the calendar month following the month In I which the nil or gas Is produced. The payments shall be accompanied by copio Of run tickets or other satisfactory evidence of salee, shipments, and amounts or gross production. 16. PRICE. The field market price or value of royalty oil or gas ,hall not he less than the highest of: (1) The price actually paid or agreed to be paid to Lese at the well by the purchaser thereof, if any; or (2) The posted price of i.cSFCO in the field for such nil or gas at the-well, It nay: or, (3) The prevailing price received by tither producers In Ihp thid at the well for oil of like grade and gravity or gas of 111cc lorid and quality at the time such oil or gas is removed from said land or run into storage, or such-gas is delivered to an extraction plant. W. PAYSITtNTS. All payments to Lessor cinder this lease shall be made payable to the Department of Revenue of the State of Alaska and shall he tendered to Lessor at the place designated under Paragraph 41 for giving notices to Lessor. 18. OFFSET WELLS. Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from less by reason of drainage resulting from production on other land. Witiici"t. limiting the generality of the foregoing sentence, If oil or gas should be produced in a well on utter leach not owned by Lessor or on which l.ptaj,r ruur:oives a lower rate of royally than the royally under this lease, which well is within 100 feet in the case of an oil well or 1,500 feel, in the casri of a gas well of lands then subject to this lease, and such Well shall produce oil or gas in paying quantities for a period of thirty consecutive days, and If, alter notice to Lessee and an opportuIly t0 be heard, l.eor rinds that production from such Well is draining nods liien scilciect to this lease. Lessee shall within 120 days after written demand by lessor begin in good faith and prosecute diligently drilling operation" for en offret well on sold land. In lie,, of drilling any well required by this paragraph. Lessee may with Lessors conrent compensate Lessor in full each month for the estimated loss of royalty through drainage in the amount determined by lessor. 19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to thc destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to tin, Lessor shall have the right together with any other recourse available to It to enter on said land to repair damage or prevent waste at Lessors expense; and shall abide by and conform to valid applir.aolc rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on.the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. 21. WEJL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose.of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, if taken, and a record of all tests run for each well drilled on said land together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days aftesuch well has been completed, suspended, or abanr doned. Any and all Information filed by Lessee with Lessor in connection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employ(24) ees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four months after the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof, Including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its Possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessen to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169 S.L.A., 1859, as amended, provides in part that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor or Its Lssetl until provision has been made to pay to the owner of the land upon which the reserved rights are sought to be exercised full payment for all dan"ges sustained by said owner by reason of "ering upon said land; provided, that if said .Ther for anY cause whate ,essor or its Lcsseo,j sha. have the refuses or neglects to settle said damage. rightto, iniitute such legal proceedi,s in a court of competent jurisdiction whfein the land is situated - zid may be. necessary to determine the damage which the owner of supth land may suffer. Lessee hereby agrees to pay any dam-

PAGE District

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W U to , intute sucn egai prcceeis in court of competent iur1sdCtlOfl vfl.te1fl uc lana iS JU*eU neeosary to determine the damage which the owner of such land may suffer. Lessee hereby agrees to pay any darn.-.- age that may become payable undr said statutory provisions and to indemnify Lessor and bold it harmless from and : with such damage. The furn1shin. against any claims, demands, liabl9and expenses arising from or in connec - ot a bone. iOmp1iance with this will be regarded by Lossor as a suffljWt provision for thepaym?nt of all damage that may beiome payable u .. said statutory provisions. ier tT . 0 .. 26. BONDS. . . 0 ( a ) Lessee shall maintain the bond furnished prior to the issuance of this lease in an amount equal to at least $2.00 per acre or fraction thereof contained in said land but not less than $1,000.00. (b) I3I)fore beginning drilling operations on said land Lessee must have furnished and shall maintain a bond In an amount of at least $5,000.00. (c) , Lfssee may, in lieti of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amOunt specified above in this paragraph where such greater amount is Justified by the nature of the surface and its uses and improvements In the vicinity of said land and the degree of the risks involved in the types of operations being or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond : Imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed in whole or in part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee . need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots, acts of God, severe weather In the area of said land, acts of governth mental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter with- 0 0 In which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking operations are suspended by virtueix $ of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration o termination of this lease, then this lease shall not terminate during the period which the obligation to perform such,. operations is suspended under this paragraph; provided, however, that nothing In this paragraph shall be construed r to suspend the payment of rentals or of minimum royalties. 28. SU?N510N, Lessor ma from time to time direct or assent to the suspension of production or other operations or both under this lease If aueI action Is necessary or justified in the interest of consrvtion. 2, RESERVATIONS Lessor reserves the right to dispose of the surface of said land to others stibjet to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as wilJ 0 C) prevent unnecessary or unreasonable Interference with the rights of Lessee and operations under this lease, to enter upon and use sad land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or strati- . graphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances On or from said land. (e) For nonexclusive easements and rights of way for any lawful purpose including shafts and trnneis necessary or appropriate for the working of said land or other lands for naturalresources other than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substances in and from other lands. (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee under this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressuring, or other similar operations designed to Increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the. right to authorize the subsurface storage of oil or gas in said, land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a le,se. No transfer of any interest in this lease including assignments of working or royalty interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shell remain liable for all obligations tinder this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (I) for failure to comply with the regulations, (2) in the discretion of Lessor, where the transfer covers any dis1irict zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage In said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public Interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof. Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others. jointly or separately, in collectively adopting and operating tinder a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated Into a separate and distinct lease having the same effective date as this lease. 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal . subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered zones or horizons In condition satisfactory to Lessor for suspension or abandonment thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.

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of the provisions of this lease other s n%)th 34. DEAUI2; Whenever ]?i than the payment of rental and Less fails within sixty days after written notic such default to commence to remedy TERMINATJ and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there Is no well on said land capable of producing oil or gas in paying quantities. if at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted niaxinitim. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days alter such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. RIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of said lands Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested In Lessee by this lease shall constitute an interest in real property In said land. 38. LESSOR INTEREST. If Lessor owns a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only in the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty pay ments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and in due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of drilling in the ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or in the vicinity of said land In any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drillixl/ or spudding with equipmei$t o! sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used In this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph hcadingi.are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be In writing and shall be given by registered or. certified mall, return receipt requested, addressed as follows: To Lessor: To Lessee: Director, Division of Lands .4CP.in Fotro-- Corporatio State of Alaska 344 Sixth Avenue .............................. Anchorage, Alaska Cbag,..i11Jk4. .................... Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given In accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or assigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease is subject to such stipulations as are attached. IN WITNESS WHEREOF the parties have executed this lease. ...............
OF
...................

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PAGE 3 -

Lt.tory..ia
LESSEE

By Title..

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LESSOR

THE UNITED STATES OF AMERICA STATE OF ALASKA This certifies that on tiieL...! .......... day ot.,;/.L.L.? ..i... ...... 19....before me, a notary public in and for the State of Alaska, duly commissioned Anti tiwon,, personally appeared..:! .......................RSCo. ........... ..........._. to ins known and known to me to ii the person dacrIbed in And Who executed the/orogotrig lease on behalf or the State of Alaska as Direcior of the Division of Lands, Department of Natural Rest.ir as, or his authorized agent. The H;ti,i ... ............ .......... ............ executed said lease In my prese, , ce and, after bei,i sworn according to atatod to me ui,ior that he i the the of Lands, Department or Ntitural ltCao,rcce, or dub authorized agent and law,authority pursucflt tooath to execute theDirector ofleaseDivisionDtretor, or authorized , his has law foregoing as such agent, on behalf of the Stale of Alaska, acting through No i)lvIIo,, of Lands Department of Natural Resources and that he executed the same freely and v01,n(arjiy as the tree and voluntary net and deed of the said bate of Alaska and for the Division of Lands, DepqXtnlent of Natural Reiwuruos. WI7N,IS& my han# offia-unicialseut the day and ycitr In tithi certificate above Wr1tte/ " 1;t.kh: ............................................ Notary roche in and for Alauka.\Cfy Commission eplras.. ... ...

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5-13-12-3

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All Section Al]. Section All section All Section All Section

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STATE OF ALASKA
FORM E NO aL-i
(REVISED APRIL. 1951)

O DTMENT OF NATURAL ItESTIIS

Division of Lands Competitive Oil and Gas Lease
LEASE NO,

---- is made by and between the State THIS LEASE, dated the .... , -----day of .................................l9.. of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and
,

Pan American Petroleum 09~;-.ppr~ion. P. OBox--- 7,A]..a 8ka

hereinafter called "Lessee", whether one or more, 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport take care of and market all such substances, and for drilling water wells and taking underground and surface water ior use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska

3 - 13 -12-3
containing ... i2O. .......... acres, more or less, hereinafter called "said land". For the purposes of this lease, said land contains ........... - ...................... legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and not defined heroin as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included in an approved Unit plan or if it is Included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redruhing operations are being conducted thereon and so long thereafter as oil or gas is produced irk paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect SO long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to Include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue In full force and effect until ninety (90) days after such drilling ned ceased and for so long thereafter as oil or gas is produced in paying quantities; (c) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee falls to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such suspension is made under any order or with the consent... of Lessor.
.

. 9. RENTAL, This tease shall terminate on any anniversary dto hereof prior to the completion on said and of a well capable of producing oil or gas In paying quantiLIe, unions on or before said anniversary d1l.te Lessee shall pay or tender to. Lessor a. annual rental ft um equal to $1.O per acre, or fraction thereof, then Included in this lease, or unless such annual rental has been waived or suspended as provided in Fnragrapfl 13 of this lease. If Lessors ofricele not open for business on the anniversary date the time.for payment is extended to include the next day on which said office Is open for business. Any rental paid for any one lease year shall be credited on any royalty for that year. 10. MNZMUM ROYALTY. Commencing with the lease year beginning an or after completion on said land of a well capable of producing oil or gas In paying quantities, Lessee shall pay Lessor. at the expiration of each lease year, in lieu of rental a minimum royalty equal to $1.00 per acre, or fraction thereof, then included in this lea.e, or the difference between the ietual royalty paidon produotlon during the year If less than $1.00 per acre and the prescribed minimum royalty. . 11. ROYALTY ON HtODUCTION. Exept for oil and gas used on said land for development and production or unavoidably lost. .. Lessee shall pay Lessors royalty the following: . . . (a) On oiil2l/2 per cent in amount or value of the oil produced aind saved and removed or sold from said land. (b) On ga3 2i4J2- per cent In amount or value of the gas produced and saved and sold or used off said land or used for the extraction of nature) gasolinor other products Uerefrom. (C) On associated shstances124/2 per cent in amount or value of such substances produced and saved and removed or sold from said lands. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. If Lessee shall drill on said hand and make the first discovery of Oil or in commercial quantities in any geological structure, the royalty rato under this letise shall, instead of the rates prescribed in Paragraph be five per cent for a period of ten years following the date of such discovery, and thereafter the royalty rates shall be those prescribed in Paragraph 11. if this lease is committed to a unit agreement approvrd or prescribed by Lessor as provided In the regulations, the five per cent royalty rate shall apply to all, but only, the production allocatod to this lease tlnilcr such agreement. IS, REDUCTION OF RENTAL AND ROYALTY. Rental or miolnitirn royalty may be svalved, suspended, or reduced, or royalty may be reduced on all of said land or any tract or portion thereof segregated for royalty purpose, IT Lessor finds that such relief is accessary for the purpose of encouraging the greatest Ultimate recovery of oil or gas and is in the Interest of conservation of natural resources and either that such relief Is necessary in order to promote development or that the lease cannoL be successfully operated tinder the terms provided heroin. 14. ROYALTY IN KIND. Whenever, at the option of Lessor, which may be exercised from time to time upon not less than six months notice to Lessee, Lessor elects to take us royalty in kind, Lessee shall deliver free of charge (on Said land or at such place as Lessor and Lessee mutually agree upon) to Lessor or to such individual, firm, or corporation as Lessor may designate all royalty oil and/or gas produced and saved from said land. Such oil and/or gas shall be in good and more hatahle Condit !on. T..esc shall, if necessary, furnish storage for royalty oil free of charge for thirty days after the end of the calendar month In whjoh the oil is produced from said land; provided, that Lessee shall not he held liable for loss or destruction of royalty oil and/or gas from causes beyond L ess ees reasonable control. Should Lessee dehydrate or clean the oil or gas produced from said land, Lessee shall be entitled to an rillowance of the actual cost of dehydrating or cleanlog said royalty oil or gee. 15. ROYALTY IN VALUE. At the option of Lessor, which may be exercised froiii time to time upon not less than six months notice to Lessee, and in lieu of royalty in kind Lessee shall pay to Lessor the field market Price or value at the well of all royally oil and/or gas. All royalty that. may become payable in money to Lessor shall be paid on or before the last day of the calendar month following the month in which the oil or gas Is produced. he payments shall be accompanied by copies of run tickets or other satisfactory evidence of sales, shipinents, and amounts or gross production. 16. PRtCE. The field market price or value of royalty oil or gas shtll not ho less than the highest of: (1) The price actually paid or agreed to be paid to Lessee at the well tiy the purchaser thereof, if iLIi or (2) The PUsttd p11cc or Lessee in the field for SUch Ott or gas at the woll, if any; or, (3) The prevailing price reccived by other prodictra In the field at the well for oil of like grade and gravity or gee of like kind and quality at the time such oil or gee is removed from said land or run into slorago, or Sticli gas is delivered to all extraction plant. 17. PAYMENTS-All payments to Lessor under this lease shall be mode payable to Vic Department of icvenue of the State of Alaska and shall be tendered to Lessor at the place designated under Paragraph 43 for giVIng notices 10 Lessor. 18. OFFSET WELLS. Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from loss by reason of drainage resulting from production on other land. Wittiotit lilruitl,nt the generality of the foregoing sentence, if oil or gas should be produced in a well on other 15013 not owned 1)31 Lessor or on which ).ess<,r recrisss S IOWCr rate of rOya1t ttuzn the royalty under this lease, Which well Is within 500 feet in the case of an oil well or 7,000 feel in the e;ise of a gas well of lands then subject to this tense, and such well shall produce oil or gas in paying quantittps for a poiiod of thirty consecutive days, and it, after notice to Lessee and an opportunity to be heard, Lessor finds that production from such well is draining lands then subject to this lease, f.eee shall within 120 days after written demand by Lessor begin In good faith and prosecute diligently drilling operations for an offset well on said land. In lieu of drilling any well required by this paragraph. Lessee may with Lessors consent conipenente Lessor in full each month for the ostinittteci loss of royalty through drainage in the amount doterraineci by lessor.

fr

19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, hav ing due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before ahandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense: and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisiohs of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place Into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, If taken, and a descriptive geologic sample log, if taken, and a record of all tests run for each well drilled on said land, together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed, suspended, or abandoned. Any and all information filed by Lessee with Lessor In connection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers., or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof, including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservations contained in certain leases or grants of Alaska land sh all be exercised by Lessor or its Lessee until provision has been madj& pay to the owner of the land uponw the reserved rights are sought to be exercised full payment for all d sustained by said owner by reason o ring upon said land; provided, that If said owner for any cause whate .ef uses or neglects to settle said dama essor or Its Lessee shall have the right to institute such 3s,. legal proceedings in a Court of competent jurisdiction w em the land is situated as may be 4-, +_.___:_-,
,.4vtnl, +5.,,, .0
,,nl, lenil n,v miffpr. T,pscpp

hereby agrees to pay anydam-

Lecome payaoie unaer saia statutory provisions ana zo inaemniy ievi tILIU JIVIU against any claims, demands 1iabillti and expenses arising from or in connecti fl with such damage. The furnishing provision for the payment of all of abond In compliance With this 4 Wil1 be regarded by Lessor as a suffi damage .that may become payable said statutory provisions. 26. BONDS. . .. (a) Lessee shall maintain the bond furnished prior to the issuance of this Jease in an amount equal to at least $2: QO per acreor fration thereof contained in said land but not less than $1,000-00 , (h). B&fore beginning drilling operations on said land Lessee must have furnished and shall maintain a bond in an amount of at least $5,000.00. .. .(c) Lessee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount Of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amount specified above in this paragraph where such greater amount is justified by the nature of the surface and its uses and improvements in the vicinity of said land and the degree of the risks involved in the types of operations being or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed in whole or in part to a cooperative or Unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots, acts of God, severe weather in the area of said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter withIn which to resume operations. Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations is suspended under this paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and operations under this lease, to enter upon and use sn:d land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or stratigraphic tests to a depth-of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (c) For nonexclusive easements and rights of way for any lawful purpose including shafts and twinels necessary or appropriate for the working of said land or other lands for natural resources ether than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substances in and from other lands. (c) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee under this lease. 20. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to. recycling pressure maintenance, repressuring, or other similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by othersin order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and oueratiofls of Lessee under this lease, Including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a lease. No transfer of any interest In this lease including assignments of working or royalty Interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the regulations, (2) In the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof : Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part Thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reascruable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease If committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee In connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective dote as this lease. 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a Surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or In the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.
de LFILI. Judy
. .

41

34. DEFAULT; TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter posecute diligently operations to remedy such default, Lessor may cancel this lease If at that time there Is no well on said land capable of producing oil or gas in paying quantities. if at such time there is on said land a well capable of producing oil or gas In paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included In said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. RIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subjecV to - removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested in Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR INTEREST. If Lessor owns a lesser interest in the oil and gas deposits In said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only In the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land Is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purposeof carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and in due course.by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas.well, and by the actual operation of drilling In the ground. Any such work or operations preliminary to drilling In the ground may be undertaken. either on said land or in the vicinity of said land In any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used in this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be in writing and shal be given by registered or certified mail, return receipt requested, addressed as follows: To Lessor; To Lessee: P.11 American .?! t19]UIU...Corporation Director, Division of Lands . State of Alaka -.--- ..4J01 ................................... 344 Sixth Avenue . Anchorage, Alaska .................... Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given In accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained In this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or assigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease is subject to such stipulations as are attached.
IN WITNESS WHEREOF the parties have executed this lease.

STATE OF ALASKA
.

................... ItsAt.toriet.-iF LESSEE

TNE. UNITED STATES OF AMERICA STATE OP ALASICA I This certif Las that on the, .?._..day of ............ ,

Title

.P..-t0. ,D.v

J4P ....... LESSOR

the State
of Alaska, duly

. BE cotnxnls local and sworn, personally appearcd.-.4 ------- ................- ........---- ....- -----.------ .... the person descIbed In and who executed the.foregoing lease on behalf of the S

k_.-.-_..-_.. or of the Division known to me to be j , to me known and of Lands, Depart-

notary public in and for

ment of Natrai Resources, or his authorized agent. The . .....-- ....... .......... . -.............execuIcd SO id lease In my presence and, after being duly sworn according to law, stated to me under oath that he 1 the Director of the Division of Lands, Department of Natural Resources, or his authorized agent, and has authority pursuant to law to execute the foregoing lease as such Director, or atithorized agent, on behalf of the State of Alaska, acting through the thviCion of Lands Deportment of Watural Resources and that ito executed the same freely and yoiuntarliy as the free, and ntary act and deed of the said atate of Alaska for the Division of Lands, Department of Natural ltesonr,eb. WX!lRESSmy ha1aitd oft.(ejal ae e day and year In this certificate above writte , / -b-.. 0 -, -y... (.(__.7" _.t1.-..tt,/ ............................ ,, .................. Notary Public in and for Alaska, Commission expires------../ ..-........

(7

: . .....J.

S-13-12-3 :

5120. Ac.

S-0-12

..

ALj.Setiou --3 T.8, R. 13W., L4. ,. 640. All Section All Section _20.__.!.____- All S.ctlon .21 - .." . 640 640. 0. 9, 640.

5120 Acres

2
STATE OF ALASKA
(REV 1518D APRIL.

1759
LEASE NO. ADL

.VPARTMENT OF NATURAL RES. 4t(ES

Division of Lands Competitive Oil and Gas Lease

THIS LEASE, dated the ..... .: Lst. ... day of ........ March ............... .......... 19..... L, is made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called lessor", and The.. .Ohio .Oil..Compa..oipra.tj ........................................................................................................ hereinafter called "Lessee", whether one or more. 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska:

5-13-5-50
containing..5.,.Q.Q ... aeres, more or less, hereinafter called "said land"
For the purposes of this lease, said land contains ................8.. ................. legal subdivisions, as shown on the pint of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is described above by protracted legal sudivijons, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and net defined heroin as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 5, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the Interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. & EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program Is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrillirig operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) U production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas is produced In paying quantities; (c) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times. thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee falls to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee falls to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such spspesion is made under any order or with the consent of Lessor. .

9. RENTAL. This lease shall terminate on any anniversary date hereof prior to the completion on said land of a well capable of producing oil or gas in paying quantities, unless on or before sald anniversary date Lessee shall pay or tender to Lessor as annual rental a Sum equal to $1.00 per acre, or fraction thereof, then Included In this lease, or unless such annual rental has been waived or S u.51pend6d as provided in Paragraph 13 of this lease. If Lessors office is not open for business on the anniversary date the time for payment Is extended to include the next day on which said office Is open for business. Any rental paid for any one lease year siall be credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said land or a well capable.of producing oil or gas In paying quantIties, Lessee shall pay Lesor, at the expiration of each lease year, In lieu of rental a minimum royalty equal to $1.00 per acre, or fraction thereof, then included In this lease, or the difference between the actual royalty paid on production during the year If less than $1.00 per acre and the prescribed minimum royalty. Ii. ROYALTY ON PTtODUOTION. Except for oil and gas used on said land for development and production or unavoidably lost, Lessee shall pay Lessor as royalty the following: (a) On oil pei cent In amount or value of the oil produced and saved and removed or soul from said land. (Ii) On gas .. Per cent In amount or value of the gas produced and saved end sold or used off said land or used for the extraction of natural gasolin or oter products 4iiarefrom. . r (c) On associated Subs tances 12.... per cent in amount or value of such substances produced and saved and removed or sold front ; saJands. 12. REDUCTION 011 ROYAITY RATES FOR DISCOVERY. It Lessee shall drill on said land and make the first dlecovery of oil or gas in commercial quantities in any geological structure. the royalty rate untor this lease shall, Instead ot the rates prescribeil in Paragraph Ii, lc five per cent for a period of ten years following the date of such discoveiy, and thereafter the royalty rates shall be those prescribed in ( Or preciibed by Lessor as provided In the regulations the five per Paragraph 11. 1! this lease is committed to a unit agreement approv-d _ cenroya1ty rate shall aply to all, but only, the production allocated te this ?can! cinder such airenet. ....- 1. TtJtl)t(CTION OF RENTAL AND }IOA[.TY, lioriLal or mixlrnum royalty may be wiived, usjiCiided, or reduced, or royalty may be reduced on all of said land or any tract or portion thereof segregated !or royalty purpoeei if Lessor fIndS that such reliot is necesbary for the purpose of encouraging the greatest ultimate recovery of oil or as and Is In the Interest of conservation ot natural resources and either that such relief Is necessary In order to promote cievelopment or that hr 1as cnnnot be successfully operated under the lerCia provided herein. Ji. ROYALTY IN KiND. Whenever, at the option of Lessor, which may be exercted from time to time upon not less thun six months notice to Lessee, Lessor elects to take Its royalty In bind, Lessee shall deliver free of charge (on said lend or at. such place as Lessor and Lessee mutually a -ree upon) to Lessor or to such Individual, firrO, or corporation as Lessor may ciesigniLte all royalty oil and/or gas produced and saved from said land. Such oil and/or gas shall be in good and merchantable condition. Lessee shall, If necessary, furnish storage for royalty oil free of charge for thirty days after the nd a? the calendar month ci which the oil is produced from said land; provided that h Lessee shall not be held liable for loss or destruction of royalty oil and/or gas from causes beyond Lessees reasonable control. Should Lessee dehydrate or clean the oil or gas produced from said land, Lessee shall be entitled to an allowance of the actual cost or dehydrating or cleanjog said royalty oil or gas. 15. ROYALTY TN VALUE. At the option or Lessoi, which may be exercised from time to time upon not less than six months notice to Lessee, and in lieu of royalty in kind, Lessee shall pay to T.essoi the rield niorkot price or value at the well of Fill royalty oil anti/or gas. All royalty that tony become payable in money to Lessor shall be paid on ct beror the last lay of the calendar month following the month to which the oil or gas is produced. The payments shall be accompu.nied by copies of tun tickets or other satislartory evidence of sales, shipmania, and amounts or gross production. l& PRICE. The field market price or value or royalty oil or gas slI;til not he less than tile highest of: (1) The price actually paid or agreed to he paid to Lessee at th well by the purchaser 1)trenI, 1 any; ot (a) Tint Posted price of Lsace in the field for such oil or gas at the well if arty; or. hi) The prevailing price received by other procticers in tho fit.ld at the vell br oil of lute grade and gravity or gas of like kind and quality ut the time such oil or gas is removed from said land or run into storage, or such gas is delivered to an extraction plant. 17. PAYMENTS. All payments to Lcaor under this lease altull be made payable to the r>i,tirtrrieitt nt tievenue of the state of Alaska and shall be tendered to Letsor at the place designated under Paragraph It For giving notices to Lessor. 18. OFFSET - ETrs. Lessee shall drill such wells as a reasonably prudent operator Would drill to protect Lessor adequately from loss by reason of drainage resulting from production on other land. Without lirititing the generality of the foregoing sentence, if oil or gas hot.ilcl be produced in a well on other land TIOL owned by Lessor or on Witiub Lessor rcct:-tv,,s it lower rate or rriyalty than the royalty tnder this lease, which well is within 500 feet In the ease of an oil well or 1,100 feet in the ease of a gas welt of lands then subject to this lease, and such well shall produce. oil or gas in paying quantIties for a period of thirty conseCutive days, and if, after notico to T.essne and an opportunily to be heard, Lessor finds that production from such well is dyalmog l.itds then subject to this lease, Lessee shall within 120 Jays after written derriand by Lessor begin in good faith and prosecute dill gently drilling oIerattcns Ito an tf.et well on said land. In lieu of drilling any well required by this Paragraph. Lesieo may with Lessors consent compensate Lessor Iii full each month for the estimated loss of royalty through drainage itt the amount determined by lessor.

30. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors( expense; and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods In common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, if taken, and a record of all tests run for each well drilled on said land, together with a pint showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed, suspended, or abani doned. Any and all information filed by Lessee with Lessor in connection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its Possession books and records showing the production and dispoion of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservation. ontained in certain leases or grants of A1a a land shall be exercised by Lessor or its Lessee until provision has been e to pay to the owner of the land upo ch the reserved rights are sought to ,be exercised full payment for astained by said owner by re-is ent upon said land; provided, that if said owner for any cause w. er es or neglects to settle said ci . . es, L r or its Lessee shall have the right to institute such legal pr edlngs a court of competent jurisdiction wherein the land Is situated as may be - necessary to determine the drn)gt which the owner of such land may suffor. Lessee hereby agrees to pay any dam-

against anyclaims. demands, 1bties, and expenses arising from orfnconntion with such damage. The furnishing of a bond in compliance with U ) case1 be regarded by Lessor as a sufutcien tvision for the payment O all damage. that may become pay unde d statutory provisions. 2(3. BONDS. ase in an amount equal to at least Lessee shall maifltai}bofld furnished prior to the issua nee 0 $2.00 per acre or fraction thereoi contained in said land but not less than $1,000.00. (b) Before beginning drilling operations on said ]and Lessee must have furnished and shall maintain a bond In an Amount of at least $5,000.00. (C) Lessee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amount specified above in this paragraph where such greater amount is justified by the nature of the surface and its uses and improvements in the vicinity of said land and the degree of the risks Involved in the types of operations being or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed in whole or in part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots, acts of God, severe weather in the area of said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be suspcnded and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations is suspended under this paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and operations under this lease, to enter upon and use said land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or stratigraphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (c) For nonexclusive easements and rights of way for any lawful purpose including shafts and trnnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substances in and from other lands. (e) For any other purpose now or hereafter authorized by low and not inconsistent with the rights of Lessee under this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressuring, or other similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the. subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and onerations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions Included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified. to hold a lease. No transfer of any interest in this lease including assignments of working or royalty interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the regulations, (2) in the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public interest for the Purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof, Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke driUing, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated Into a separate and distinct lease having the same effective date as this lease. 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.

34. DEFAULT; TERMINATION, Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there is no well on said-land -capable of producing oil or gas in paying quantities. if at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and a],l drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be elim inated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. RIGHTS ON TERMINATION, Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested in Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR INTEREST. If Lessor owns a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only in the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land Is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditioriallease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and in due course by the construction, of a road or derrick and/or other necessary structures for the drilling of an oil or..gas-well, and by the actual operation of drilling in the ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or in the vicinity of said land In any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used in this lease words which are defined In the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be in writing and shall be given by registered or certified mail, return receipt requested, addressed as follows: To Lessor: To Lessee: c Director, Division of Lands .J.IP.1.....O 1 C9uIpaZPJ of .California te Al aska
-

344 Sixth Avenue

..a6o..Dist

Anchorage, Alaska Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given in accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or assigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease is subject to such stipulations as are attached. IN WITNESS WHEREOF the parties have executed this lease.

QIQ. ................. BL.J DINision Manager /

..STATE OF ALASKA
/

cs
Attorney-, n- act
THE UNITED STATES OF AMERICA STATE OF ALASKA This certtfiea that on the..

By LESSEE

.*

.4

Title_ .. Mineral ..Leasing..Qfficar.... LESSOR

)
day

l9..i(. before me, notary public in and f o r the State of Alaska, duly commissioned and sworn, personally appeared ........ .., to known and the person. described In and Who executed the foregoing lease on behalf of th, State of Alaska,as Director of methe Division known to me to to of Lands, Department of Natural Resources, or his authorized agent. The said ............... . . ..LLL ..1 cc~J lease in my presence end, after being duly sworn a"cording to law, stated to me under oath that he is le Director.... . executed said Department of the Division of Lands, of Natural Resources, or S authorizeil his tnt. and has authority pursuant to law to execute foro1ng lease as such Director, or authorized agent, on behalf of the tate of Ala ting through the Division of Lands Departw Nati I Res ources and that lie executed the same freely and voluntarily as the f vol y act and deed of the said tate of and he Division if Lands, L)epitrtment of Natural Jfesources.1 WIESS iy har.dd or-siol.. of ii .ay and year In this certificate above wr ten. ............................................................Notary Public In and for Als}.a. My Commission Oxpjr,,a,. r4-

9 ot..7f2-.....

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16

...

20

-637 Ac. 29

514 6 t
639A. 31 32

All Section . 1) s-13-5-50 S-13-------------------------All-SecttOTT All Setun -

[6, T. 9, iLl3. S1
-

640. 640. 640 640. 637. 639.

5116 Ace. - -

All Section
All Section All Section All ScttOii

20, 21, T. 29, T. 30, T. 31, T.

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17594

3W, SM

STATE OF ALASKA
FORM NO 0L.1 (REVISED APRIL. 1951)

D ARTMENT OF NATURAL RESOURCES Division of Lands

Competitive Oil and Gas Lease

LEASE NO. AOl___________

is made by and between the State THIS LEASE, dated the ---- 15.t - .... day of .. Fuary---------------------- of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and ....PanAericanpetro1em .orporat1onP..O.Box .712, Anchorage
j.

hereinafter called "Lessee", whether one or more. 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska:

S-13-12-4
containing ..... .3840 acres, more or less, hereinafter called "said land". For the purposes of this lease, said land contains ........... 6. ...................... legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. 11 said land is described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire unclr the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) H production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to include redrilling. sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days, after such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (c) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times. thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such suspension is made under any order or with the consent of Lessor.

9. RPNTAL. This lease shall terminate on any anniversary date hereof prior to the completion on said land of a well capable of producing oil or gar, In paying quantities, unless on or before said anniversary date Lessee shall pay or tender to Lessor as annual rental a sum equal to $1.00 per acre, 01 fraction thereof, then Included In this lease, or unless such .annual rental has been Waived Or suspended as provlclea ill Paragraph 13 of this leasa If Lessors office Is not open for business oft the anniversary date.the time fcrpayment Is extended to Include the next clay on which said office Is open for business. Any rental paid for any one lease year shall he credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said land of a well capable of producing cil or gas In paying quantities, Lessee shall pay Les;or, at the expiration of each lease year, In lieu of rent&.a minimum royalty equal to $1.01) per acre, or frantlon thereof, then Included In this lease, or the difference between the actual royalty paid on prothiction during the year it less than $1.00 per acre and the prescribed minimum royalty. . 11. ROYALTY ON PRODUCTION. Except for oil and aas used on said land fOr development and production or unavoidably lost. Lessee shall pay Lessor as royalty the following: (a) On per cent in amount or value of the oil produced and saved and removed or sold from said land. On gas12nI./2per cent in O.flkouflt or value of the gas produced and saved and sold or used off said land or used for the extrac(b) tion of natural gasoline or other products therefrom. Cc) On associated substances .1.21/er cent in amount or value of such substances produced and saved and removed or sold from said lands. 12, REDUCTION OF ROYALTY RATES FOR DISCOVERY. If Lessee shall drill on said land and make the first discovery of oil or gas in commercial quantities in any geological structure, the royalty rate under this lease shall, instead of the rates prescribed In Paragraph 11, be five per cent for a period of ten years following the date of such discovery, and thereafter the royalty rates shall he those prescribed in Paragraph II. If this lease is committed to a unit agreement approved or proscribed by Lessor as provided in the regulations, the five per cent royalty rate shall apply to all, but only, the production allocated to this lease under such agreement. 18. REDUCTION OF RENTAL AND ROYALTY. Rental or minimum royalty may be waived, suspended, or reduced, or loyalty may be reduced on all of said land or any tract or portion thereof segregated for royalty purposes if Lessor finds that such relief is neccasary for the purpose of encouraging the greatest ultimate recovery of oil or gas and is in the interest of conservation of natural resources and either that such relief is necessary in order to promote development or that the lease cannot be successfully operated under the terms provided herein. 14. ROYALTY IN KIND. Whenever, at the option of Lessor, which may be exercised from time to time upon not less than six months notice to Lessee, Lessor elects to take its royalty In kind, Lessee qball deliver free of cuiarge (n said )nI or at such place as Lessor and Lessee mutually agree upon) to Lessor or to such individual, firm, or corporation as Lessor may designate all royalty oil and/or gas produced and saved from said land. Such oil and/or gas shall be in good and merchantable condition. Lessee shall, if necessary, furnish storage for royalty oil tree of charge for thirty days after the end of the calendar month in Which the oil is produced from said land: provided, that Lessee Shall not be held liable for loss or destruction of royalty oil and/or gas from causes beyond Lessees reasonable eootrql. Should Lessee dehydrate or clean the oil or gas produced from said land, Lessee shall be entitled to an allowance of the actual cost of dehydrating or cleanJog said royalty oil or gas. 25. ROYALTY IN VALt7P. At the option of Lessor, which maybe exercised from time to tinle upon hoc less than six months notice to Lessee, and In lieu of royalty in kind, Lessee shall ay to Lessor the field market price or value at the well or all royalty oil and/or gas. All royalty that may become payable in money to LesSor shall he paid on or before 11e last day of the calendar month following tile month In which the oil or gas is produced. The payments shall be accompsnled by copies of run tickets or other satisfactory evidence of sales, shipments. and amounts or gross Production. 16, PRICE. Tile field market price or value of royalty oil or gas shall not be less than the highest 01: (1) The price actually paid or agreed to be paid to Lessee at the well by the purchaser thereof. it any; or (2) The Posted price or Teases in the field for Such oil or gas at the well, if any; or, (3) The prevailing price received by other Producers in the field at the well for oil of lute grade and gravity or gas of Me kind and quality at the time sticit oil or gas Is removed from said land or run Into storage, or such gas Is delivered to an extraction plant17. PAYMENTS. All payments to Lessor under this lease shall be made payable to the Department of Revenue of the State of Alaska and shall be tendered to Lessor at the place designated unilni Paragraph i:i for giving notices to T..cssor. 18. OFFSET WELLS. Lessee shall drill such wells as a reasonably Prudent operator Would drill to Protect Lessor adequately from loss by reason of drainage resulting from production on other Without linilting the generality of the foregoing aenteitCe, if oil or gas should be produced In a well on other land not owned by Lessor or on Which Lessor ratei 08 lower rate Of royalty than the royalty tinder a this lease, which well is within 500 feet In the ease of an oil well or 1.000 feet In the cose of it gas well of lands then subject to this lease, and such well shall produce oil or gas in paying quantities for a periodof thirty consecutive days and if, after notice to Lessee and an opportunity to be heard, Lessor finds that production from such well Is draining lands then subject to this lease, Lessee shall within 120 days after written demand by Lessor begin in good faith and, prosecute diligently drilling Operations for no r,ffeet well on said land. In lieu of drilling any well required by this paragraph. Lessee may with Lessors consent compensate Leesor In full each month for the estimated loss of royalty through drainage In the amount determined by lessor.

ou124./2

19. OTHER WELLS. This lease contemplates the reasonable developrtcnt of said land for oil and gas as the facts may justify, Upon discovery of oil or gas in paying quantities on said land Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lesser as well as the interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations: shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or Prevent waste at Lessors expense; and shall abide by and conform to valid applicable rulesand regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter In effect if not inconsistent with any specific provisions of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, if taken, and a record of all tests run for each well drilled on said land, together with a pint showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed, suspended, or abandoned. Any and all information filed by Lessee with Lessor in connection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons pet-forming any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure Is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 2. RECORDS. Lessee shall keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor or its Lessee until provision has JJMto pay to the owner of the land upon which the reserved rights are sought to be exercised full payment for all ges sustained by said owner by reason jfttering upon said land; provided, that if said owner for any cause whatWer refuses or neglects to settle said dam Lessor or its Lessee shall have the right to institute such legal proceedings in a court of competent jurisdiction erein the land is situated as may be In iiofarrni,p the r1nMnr g A wblr.h the nwnp- of such land may suffer. Lessee hereby agrees to pay any dam-

age nai may Decolne payaoie unier said statutory provisions anci to inaemnuy ijessm iitiu LIU1U IL rn" against any claims, demands, liabilities, and expenses arising from or in Conn on with such damage. The furnishing it provision for the payment of all of a bond in compliance with thie will be regarded by Lessor as a su damage that may.become payabl er said statutory provisions. 26. :BONDS (a) Lessee shall maintain the bond furnished prior to the issuance of this lease in an amount equal to at least $2.00 per acre or fraction thereof contained in said land but not less than $1,000.00. (b) Before beginning drilling operations on said land Lessee must have furnished and shall maintain a bond In an amount of at least $5,000.00. (c) Leee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100.000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amount specified above in this paragraph where such greater amount is justified by the nature of the surface and itsuses and improvements in the vicinity of said land and the degree of the risks involved in the types of operations being or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) rf said land is committed in whole or In part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a tmlt bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots, acts of God, severe weather in the area of said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the affect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations is suspended under this paragraph; provided, however, that nothing In this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and operations under this lease, to enter upon and use sad land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or stratigraphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (C) For nonexclusive easements and rights of way for any lawful purpose including shafts and tunnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substances in and from other Inds. (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee under this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressuring, or other similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, Including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a lease. No transfer of any interest in this lease including assignments of working or royalty interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the regulations, (2) In the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage In said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public Interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof, Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.

34. DEFAULT; TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there is no well on said land capable of producing oil or gas in paying quantities. if at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land Includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating tills lease as to the parcel or parcels described in such notice. 36, RIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shill have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition, 37. INTEREST IN LAND. It is the intention of the parties that the rights vested in Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR INTEREST. If Lessor owns a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only in the proportion which Its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and in due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of drilling In the ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or in the vicinity of said land in any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used In this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be in writing and shall be given by registered or certified mail, return receipt requested, addressed as follows: To Lessor: To Lessee; Pan Petroleum ,, Corporation Director, Division of Lands State of Alaska P 0. Box fl 2 4 Sixth A :

X nU

Anchorage, Alaska

Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given in accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors administrators successors or assigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease Is subject to such stipulations as are attached. IN WITNESS WHEREOF the parties have executed this lease.

.PamAeriQan..PetaQJ,.wn

-- STATE OF ALASKA
.By............................... Title.fl1rtor.,.Div..f.. Landa---------LESSOR

Its..Attore..in..Ft .................
LESSEE
TilE UNITED STATES OF AMERICA STATE Oil ALASKA )
..., - )

/ This certifies thet on the..L...D./ ...day sco..before me, a notary public lit and for the State of Alaska, duly commissioned and sworn, personally appeare4 ............ ................. to me known and known to me to he the person cTesmil,ed in and Who executed ti foregoin g lease on bebsif of the .... Ste of Alaska as Director 01 the Division of Lands, T)opartmont of Natural Besouccs, or his authorized agent. The said ............................. ...._._ _ ............ executed said lease in toy presence and, after t)e.liig duly sworn according to law, stated to me under oath that he is the Director of the Division of Lands, Department of Natural Resources, or h;s authorized agent, and has authority pursuant to law to execute the foregoing lease us such Dircetur, or ILuthUrized agent, on behalf of the State of Alaska, acting through the Division of Lands Department of Natural Resources and that he executed the same freely and volnntarj:y as the frcea iuntary act and decd of the said tate of Alaska and for the Division of Lands, Department of Natural asojfrces. WT1SS my divt fuictal the clay and year In this certificate above wri
.

as.

........................................................Notary Public in and for

AlaVmy Commission expires .....

2.

543-12 1 L

S.13-1Z-4 .

:A!.1 Section Al]. Section All A11Sectiofl 11, 12, -14," --- -

8W, R.14 WS_ 640. I 640. 64 640, 3840 -

:
-

I-

STATE OF ALASKA
(RKVISED APRIL, 1961)

QD

DEPARTMENT OF NATURAL RESOURCES Division of Lands

Competitive Oil and Gas Lease

LEASE NO. ADL2_

THIS LEASE, dated the ----- .t:day of ..... .. , 19.....62.., is made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and

us.

.. 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of Installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and mar at all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in Its operation thereon, the following described tract of land In Alaska;

hereinafter called "Lessee", whether one or more.

Ir

3-13-12-30
containing .... ... 3.... ....... acres, more or less, hereinafter called "said land" For the purposes of tlls lease, said land contains ........... 5. ...................... legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is describ;d above by protracted legal sudivisions, or by officially designated trait numbers, and Lessor hereafter causes said land 0 be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hyd.roearbons produced at the well not defined herein as oil. "Associated substances" means all substanes produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS, If, prior to the expiration of the primary term Lessor, in the interest of conservation, directs or assents to the suspension of all operations and production, If any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease Is on the expiration date thereof included in an approved unit plan or If it is included In a program of secondary recovery operation designed to bring about or restore production, provided, however, that If any lease or pbrtion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain In full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof;, and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect o bug as oil or , gas is produced. therefrom In paying quantities; (b) if actual drihinhas commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence sucn operations to include redrilling sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (C) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such suspension Is made under any order-. or with the consent of Lessor.

I. RTAL This lesae iball termiuMs on any anniversary date. hereof prior to. the completion on said 1O of a well capable of prodooIn oil r .s In paying quantities, unless on or before said anniversary date Leauee shall pay or tender to Lessor a annual rent.1 a or, fraction thereof, then Included in this lease, or un.ee such annual rental has been waived or suspended an .uIn quAi to 11.10 lease. If eneore office I. not open for business on the anniversary date the U for pymCut Is extended Lessors 1 ne provided In ParagrZ to include the next lay on which eald offico In open for business. Any rental paid for any one lea8e year shall be credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said land of a well capable of . producing on or gas in paying quantities, I.eeeee shall pay Lessor, at the expiration of each lease year, in lieu of rental a mizdmu3o royalty equal to 91.00 per acre or fraction theref, then Included in this lease or the difference between the actual royalty paid on production during r the year If 1. than ei.00 pe acre and the prescribed minimum royalty. 11. ROYALTY ON PRODUCTION. except for oil and gas used on said land for development and production or unavoidably bat. IAI5ee shall pay Le an royalty the following: Less cent in amount or value of the oil produced and saved end removed or sold from said land. On oil (a) per cent in amount or value of the gas produced and saved and sold or used off said land or used for the extrac(b) On a.B tion of natural gasoline or other products therefrom. On associated substances - A -2 4- -- per cent in amount or value of such substances produced aadid and removed or sold from (c) said bands. If Lessee shall drill on said band and make the first discovery of oil or 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. as in commercial quantlUea in any geological structure, the royalty rate under this lease ,shall, Instead of the rates prescribed In Paragraph I be five per cent for 5, period of ten yearn following the dateof.sh dizeovery.astd thereafter the royal y rates shall be those prescribed In t Paragraph II. If this lease 18 commItted to a unit agreement approved or prescribed by Lessor as provided in the regulations. the five per cent royalty rate BbaII apply to a]!, but only, the production allocated to this lease under such agreement. it. REDUCTION OF RENTAL AND ROYALTY. Rental or minimum royalty may be waived, suspended, or reduced, or royalty may be reduced on an of said land or any tract or portion thereof segregated for royalty purposes If Lessor finds that such relief Is necessary for the purpose of encouraging the greatest ultimate recovery of oil or gee and Is in the Interest of conservation of natural resources and either that such relief is necessary In order to promote development or that the Irene cannot be successfully operated under the terms provided herein. 14. ROYALTY IN KIND. Whenever, at the option of Lessor r which may be exercised from time to time upon not less than six months notice to Leesee. Lessor elects to take Its royalty In kind, Losses shall deliver free of charge (on said land or et such place as Lessor and Lead.e mutually agree upon to Lessor or to such individual, firm, or corporation as Lessor may designate all royalty oil and/or gam produced and saved from said laud. ouch oil and/or gas shall be in good and merchantable condition. Lessee shall, it peosseary, furnish storage for royalty oil free of charge for thirty days after the end of the calendar month in which the oil Is produced from said land prtrviden, that Lessee shall not be held liable for Loss or destruction of royalty oil anl/or gas from causes beyond Losaeen reasonable conti - of. Should Losses dehydrate or clean the oil or gas produced from said land. Lessee EbalL be entitled to an allowance of the actual cost of dehydrating or cleantug said royalty oil or gas. 15. ROYALTY IN VALUE. At the option of Lessor, which may be exercised from time to time upon not ICBB than six months notice to Leaee. and in lieu of royalty in kind, Lessee shall pay to Lessor the field market price or value at the well or all royalty oil and/or gas. All royalty that may become payable In money to Lessor shall be paid on or before the beat day of the calendar month following the month In which the oil or can is produced. The payments shall be accompanied by copies of run tickets or other satisfactory evidence of sales, shipmeats, and amounts or groan production. 16. PRICE. The field market price or value of royalty oil or gas shall not be less than the highest of: (1) The price actually paid or agreed to be paid to Lessee at the well by the purchaser thereof, if any; or (2) The posted price of Lessee In the field for such oil or can at the well, If any; or. (3) The prevailing price received by other producers in the field at the well for oil of like grade and gravity or gas of like kind and quality at the time such OIL Or gas Is removed from said laud or run into storage, or such gas is delivered to an extraction plant, 17. PAYMENTS. All payments to Lessor under this lonEr shall be made payable to the Department of Revenue of the State of Alaska and shall be tendered to Lessor at the place designated under Paragraph 43 for giving notices to Lessor. 18. OFFSET WELLS. Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from loss by reason of drainage resulting from production on other land. Without limiting the generality of the foregoing sentence, if oil or gas should be produced in a well on other land not owned by Lessor or on which Lessor receives a lower rate of royalty than the royalty under this lease, which well is within 500 feet in the case of an oil well or 1,500 feet In the Case of a gas well of lands then subject to this lease, and such well shall produce oil or gas In paying quantities for a period of thirty consecutive days; and If, after notice to Lessee and an opportunity to be heard, Lessor finds that production from such well is draining lands then subject to this lease, Lessee Shall within 120 days after written demand by Lessor begin in good faith and prosecute diligently drilling operations for an offset well on said land, in lieu of drilling any well required by this paragraph. Lessee may with Lessors consent compensate Lessor in full each month for the estimated loss of royalty through drainage In the amount determined by lessor.

- ng,$hnt

19. OTHER WELLS. ThIs lease contemplates the reasonable development of said land for. oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill quch wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence In drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, hav ing due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all, proper safeguards to prevent the pollution of water; shall plug securely in an approved-manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; Shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of isaid land, and on failure of Lessee so to do. Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense; and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations-of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. Lessee shall within five days after spudding in a well advise Lessor in writing of the 21. WELL LOCATIONS. , location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods In common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, If taken, and a record of all tests run for each well drilled on said land, together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed suspended, or abandoned. Any and all information filed by Lessee with Lessor in coniiection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenantsl and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor Iota period of twenty four (24) months after the thirty (30) day filing period, except upon wHtten consent of Lesie. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or In the Division of Lsnds,r the Director ther.eof, Including but not limited to functions, responsibilities, and duties arising in connection withny litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor or its Lessee until provision has been nto pay to the owner of the land uponh the reserved rights are sought to tering upon said land; provided, that be exercised full payment for all ges sustained by said owner by reason if said owner for any cause whalWr refuses or neglects to settle said danIM, Lessor or its Lessee shall have the right to institute such legal proceedings in a court of cranpetent jurisdictionlWerein the land Is situated as may be necessary to determine the damage .._,. which the owner of such land may suffer. - Lessee hereby agrees to pay any darn,-...,-1--. .._3.._

against any claims, demands, liabilities, and expenses arising from orJnconnection with such damage. The fUrflb111fl of all of a bond In compliance with this Lease will be regarded by Lessor as a st provision for the payment damage that may become payabl der said statutory provisions. 26. BONDS. . (a) Lessee , hal1 maintain t,nd furnished prior to the issuance of this lease in an amount equal to at least $2.00 per acre or fraction thereof contained in said land but not less than $1,000.00. (b) Before beginning drilling operations on said land Lessee must have furnished and shall maintain a bond In an amount of at least $5,000.00. (C) Lessee may,in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amount specified above in this paragraph where such greater amount is justified by the nature of the Surface and its uses and improvements In the vicinity of said land and the degree of the risks involved in the types of operations beng or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond Imposed under this subparagraph but will be considered . by..Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed In whole or in part to a cooperative or unit-agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished In . accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said, land after efforts made in good faith, by reason of war, riots, acts of God, severe weather in the area of said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter withIn which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations Is suspended under this paragraph; provided, however, that nothing In this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease If such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable Interference with the rights of Lessee and operations under this lease, to enter upon and use sad land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or stratigraphic tests to a depth of not more than I,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (C) For nonexclusive easements and rights of way for any lawful purpose including shafts and .t.mnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or assoCLitrd substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas. and associated substances in and from other lands. (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee undr this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressuring, or other similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said Land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a lease. No transfer of any interest in this lease including assignments of working or royalty interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the regulations, (2) in the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrumentof transfer. Where a transfer is made of all or a part of Lessees Interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public Interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof. Lessee may unite with other Lesseed of Lessor or with others owning or operating lands, not belonging to Lessor Including lands belonging to the United States and with others, jointly or separately,, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including ,Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental. minimum royalty, and royalty requirements of this lease If committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public Interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 83. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon. Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.

34. DEFAULT; TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails-within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently bperations to remedy such default, Lessor may cancel this lease If at that time there is no well on said land capable of producing oil or gas in paying quantities. If at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes , more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal, subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender Is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of termin5tlng this lease as to the parcel or parcels described In such notice. 38. RIGHTS Olt TERM1NATON. Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall, have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It Is the intention of the parties that the rights vested In Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR INTEREST. If Lessor owns a lesser Interest in the oil and gas deposits In said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only In the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land is land that has been selected by the Lessor under law; of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease Is a conditional lease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and In due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of drilling in the ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or In the vicinity of said land In any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used In this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be In writing and shall be given by registered or certified mail, return receipt requested, addressed as follows: To Lessor: To Lessee: LlOYD Director, Division of Lands State of Alaska 855 So, Garfi.eJ4 344 Sixth Avenue Anchorage, Alaska ........ QCO1orap Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given In accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or assigns of Lessor and Lessee 45. WILDLIFE STIPULATIONS. This lease is subject to such stipulations as are attached.
.

IN W

WHEREOF the rtleg have executed this lease. STATE OF ALASKA / LESSEE
a.. . .ay of ..... before me, a notary public in and for the State of Alaska, duly

By Title/

C4
)(orris C. Bakke, Jr.
LESSOR

THE UNITED STATES OF AMERICA STATE OF ALASKA This certifies that on the-

to me known and known to me to be aof the Division of Lands, Department of Natural Resource., or his authorized agent. The said ................... .............................?. .......................... executed said lease in my presence and, after being duly sworn according to law, stated to me underoath that he 1. ih -e -Dlnoe4si- of the Division of Lands, Department of Natural Resources; or his authorized agent, and has authority pursuant to law to execute the foregoing lease as such Ireease,.or authorized agent, on behalf of the State of Mask1ng th rough the ivision ot Lands Department of Natural Resources and that he executed the same freely and voluntarily as the free oluntary act and deed of the said Mate of Alaslind for the Division of Lands, Department or Natural Re t the day and year in this certificate above wr .. ..............................Notary Public In and for Ala . .. . . ......_ ....................... . My Commission expires "..

missioned and sworn, personally appeared ............ ..... ....."... person described in and who executed the foregoing lease on

5""

ERRATUM RE COMPETITIVE 011. AND GAS LEASE FORM DL-1

This erratum Applies to the corrections of three typographical errors in the State of Alaska Competitive Oil and Gas Lease Form, DL-t, two of which are noted in Provision 5, EXTENSION BY UNIT PRODUCTION, and the one which is noted in Provision 39, CONDITIONAL LEASE. The present provisions are hereby modified by changing the word "action" to line number live (5), word number fourteen (14) in Provision 5 to be "active"; by changing the word "no" in line number nine (9), word number twenty (20) In Provision 5 to be "any"; and by changing the word "and" In line number Four (4), word number fourteen (14) in Provision 39 to be "any". Provision 5 and Provision 39 are hereby amended to incornorate the above, end will therefore read as follows 5. EXTENSION BY LJH!T PRODUCTION (a) This lease shall without application be extended beyond its primary term it upon or prior to the expiration date of Such term the lease is committed to a unit agreement approved or prescribed by Lessor an provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement, In such event this lease shall continue in effect so long as it remains subject to such aireemont end "active" production under said agreement is allocated to said lend; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included in an approved unit plan or ii it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from ouch unit plan or recovery program, of if such unit plan or recovery program Is terminated, then "ge" such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as all or gas is produced In paying quantities 39. CONDITIONAL LEASE 11 all or a part of said land Is land that has been selected by the Lessor under laws of the United State, granting lands to lessor, but such land has not been patented to Lessor by the United States, then this lease is e conditional teea as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent dome not become effective. 1. any " rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded.

Phil R. lloldsworrh, Cnms[asjoner Department of Natural Resources

Roscoe P. Bell, Director Djvisin of Lands

o.
Wfl.I)LlFN_STIlUI.ilTlON, Uje lee shall:
Oil

(I) Obra In the written approval of tin Dep;irtmenr. of Na LUral Resources for the location an,l type of each st.ruchire before
it

In erected

tide or icubmtrgeii land. Department acriori on nppllr.nrlons for such ture., qhi II be caken within 30 .iuyn of toceipt of such applications. (2) Appoint iii;iJ me I ntal ii a r all times during tii cone tract Loft

o true

or operations on the tide anti subisargmd lands a Local agent upon whom may Ill served written ordeta or nilticito respecting matters contained in these

atipatlRtluna and to provide the Coevnlualrner of the State of Alaska Departineflt

of Natural Resources wifhi the name and iddreua of such efe,at.

(3) ASS.JVL

Chat all coujarruci.lon or dyilopmnt activities

rat - rio1 on undat - tie loner shall be entitle; nj in a manlier eatle rectIry to the State of Aitik; I)pzrL;ncnL of Natural Rea;urcea with die regard for

fish and pane c,nnOivijtIo, and shall itt II eo proper ipsoChock In tirti I Lii: end completing wells, (4) Initial] adequate blowout prevent-Ion control equipment and line tons it wan Len

take at-her a a! L p pr laurie pt owl did l.or In the cli and

reg,lar.i one It ,,rJCrc:tl by the CeinJ ,,i loner of rho Start! of A lanka DepCrtmcni of fin Lilt I KCaouircen () Maintain vi (shove ph ar.I,,i is or bergen in nuch a manner that all all by-products may I.: drahici tiiroih aculpare and disposed of in a na000r bHLitilari;ury to tue St-Le
01

Alaska i)epartesnI ri Natural Reaoiircca

with de regard (p Li::l r ci ftr.ti ui 1:! cli and giCe (6) Re In;iursi: ti, S tel
0

el A I ink for any loan or damAge to flab

or Xw:e resu lting fr om any opera? lot or core t.roc t ton under this lease or teaultluj1 ftiiia city VitlaihTi of or failure to comply with any vaitd law, regulation, or litriom of any appt italic liic. Tht Inaane responsibility shall also cocoepean llcrr. or on in tractela oil:; of Its a; en rn , cap! oyce a and err -

Oil R.

Hohdeworch, Coineisaloner Dp1weut of Natural Resopircea

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STATE OF ALASKA
FOF
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(REVISED APRIL, I61)

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Division of Lands

LEASE NO. AD

-729

Competitive Oil and Gas Lease

THIS LEASE, dated the ..... l,t .... day 0 ------Qtob.er- .................. ----- 19 .... -62..., is made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and

UIUON..OTh. an

.... .Aid..........................................................

hereinafter called "Lessee", whether one or more. 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska:

Tract S-13-12-28
containing.LQ5 ... ........ acres, more or less, hereinafter called "said land" For the purposes of this lease, said land contains..... ...... 5. ...................... legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land I.., described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided In Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease Is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease Is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof Is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to Include redrifling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas Is produced in paying quantities; (c) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee falls to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land If such suspension is made under any order or with the consent of Lessor,

L RENTAL, This leaso shall torminato on any anniversary date hereof prior to the completion on said land of a well capable of producing oil or gni in paying quantities.. unless on or before said anniversary date Lessee shall ay or tender to Lessor a annual rental & Burn oqua to $1.00 per acre or fraction thereof, then included In this lease, or unless such annual rental has been waived or eUBpOndSd as provided In Paragraph 13 oi this lease. If Lessors office is not open for buMnesfi on the anniversary date the time for payment to extended to Include the next day on which said office Is open for business. Any rental paid for any one lease year shall be credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said Iuzd of a well capable of producing oil or gas in paying quantit1e, Lessee shall pa Lessor, at the expiration of each leae year, in lieu of rental a minimum royalty equal to $1.00 per acre, or fraction thereof, then included in this lease, or the difference between the actual royalty paid on production during the year it ieee than $1.00 per acre and the prescribed minimum royalty. It. ROYALTY ON PRODUCTION. Except for oil and gas used on said land for development and production or unavoidably bat, L.eaaee shall pay Lee,ors royalty the following; On oil per cent in amount or value of the oil produced and saved and removed or sold from said band. (a) per cent In amount or value of the ran produced and saved and sold or used off said land or used for the extracOn gas (b) tion of natural gasoline or other prodtcAe trherefrom. On associated substances ..i.-,---- per cent in amount or value of such substances produced and saved and removed or sold from (c) said lands. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. If Lessee shall drill on said band and make the first discovery of oil or geaIn commercial quantities In any geological structure, the royalty rate under this lease shall, Instead of the rates prescribed in Paragraph Ii. be five per cent for a period of ten years following the date of such discovery. and thereafter the royalty rates shall be those prescribed In Paragraph ii. It this lease Is committed to a unit (Lgreement approved or proscribed by Lessor as provided In the regulations. the five per cent royalty rate shall apply to all, but only, the production aiboca.ted to this lease under such agreement. bb. REDUCTION OF RENTAL AND ROYALTY. Rental or minimum royalty may be waived. suspended, or reduced, or royalty may be reduced on all of said land or any tract or portion thereof segregated for royalty purposes if Lessor finds that such relief is necessary for the purpose of encouraging the greatest ultimate recovery of oil or gas and is in the Interest of conservation of natural resources and either that such relief Is necessary In order to promote development or that the lease cannot be successfully operated under the terms provided herein. 14. ROYALTY IN KIND. Whenever, at the option of Lessor, which may be exercised from time to time upon not less than six months notice to Lessee, Lessor elects to take its royalty In kind. Lessee shall deliver free of charge (on said band or at such place as Lessor and Lessee mutually agree upon) to Lessor or to such Individual. firm, or corporation as Lessor may designate all royalty oil and/or gas produced and saved from said land, Such oil and/or gas shall be in good and merchantable condition. Lessee shall, if pecessary, furnish storage for royalty oil free of charge for thirty days after the end of the calendar month in which the oil Is produced from said land provided that Lessee shall not be held lIRble for loss or destruction of royalty oil and/or gas from causes beyond Lessees reasonable controL houId Lessee dehydrate or clean the oil or gas produced from said land. Lessee shall be entitled to an allowance of the actual cost of dehydrating or cleanlog said royalty oil or gas. 15. ROYALTY IN VALUE. At the option of Lessor, which may be exercised rtom time to time uponnot less than six months notice to Lessee, and In lieu of royalty In kind, Lessee shall pay to Lessor the field market price or value at the well or all royalty oil and/or gas. All royalty that may become payable in money to Lessor shell be paid on or before the last day of the calendar month following the month In which the oil or gas 10 produced. The payments shall be accompanied by copies of run tickets or other satisfactory evidence of sales, shIpmentS. and amounts or gross production. Is. PRICE. The field market price or value of royalty oil or gas shall not be less than the highest of: (1) The price actually paid or agreed to be paid to Lessee at the well by the purchaser thereof. If any; or (2) The posted price of Lessee in the field for Such oil or gas at the well If any; or, (3) The prevailing received by other producers in the field at the well for oil of like grade and gravity or gas of bike kind and quality at the time such oil or gas is removed from said land or run into storage, or Such gas is delivered to an extraction plant. 17. PAYMENTS. All payments to Lessor under this lease shall be made payable to the Department of Revenue of the State of Alaska and oball be tendered to Lessor at the place designated under Paragraph 41 for giving notices to Lessor. 18. OFFSET WELLS, Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from loss by reason of drainage resulting from production on other land. Without limiting the generality of the foregoing sentence, it oil or gas Should be produced in a well on other land not owned by Lessor or on which Lessor receives a lower rate of royalty than the royalty under this lease, which well Is within 600 feet in the case of an oil well or 1,500 feet In the case of a gas well of lands then subject to this lease and such well shall produce oil or gas In paying quantities for a period of thirty consecutive days and it, after notice t Lessee sail an opportunity to be heard. Lessor finds that production from such well Is draining lands then subject to this lease, Lessee shall Within 120 days after written demand by Lessor begin in good faith and prosecute diligently drilling operations for an offset well on said band. In lieu of drilling any well required by this paragraph. Lessee may with Lessors consent compensate Lessor in full each month for the estimated loss of royalty through drainage In the amount determined by lessor.

19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas In paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the Interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, haylug due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense; and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, If taken, and a descriptive geologic sample log, if taken, and a record of all tests run for each well drilled on said land, together with a pint showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed suspended, or abandoned. Any and all information filed by Lessee with Lessor in connection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months alter the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may he disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor or Its Lessee until provision has been mac to pay to the owner of the land upon which the reserved rights are sought to be exercised full payment for all_les sustained by said owner by reason otering upon said land; provided, that if said owner for any cause wh xefuses or neglects to settle said da,Lessor or its Lessee shall have the right to institute such legal pro cls in a court of competent jurisdictioi ______ em the land Is situated as may be necessary- to determine the damage which the owner of such land may suffessee hereby agrees to pay any damaee that may become nnvhle iin,tpr ,esjvi tf,i+n,-v v, icjn, s.,ri in jrnIrn,iify T.esnr ond hnl,l if hnrr,,les #rnm enil

.J dU1L1t, dlIU expenses arising Irom or in Conni:tiori WIL1I SU1i UOLU5W. A&M LUI1.U6 ofabond in compliance with this Lease will be regarded by Lessor as a aProvision for the payment of ali t damage that. may become payab.euler said statutory provisions. 2G. BON DS.. _____ (a) Lessee shall maintain L..-...id furnished prior to the issuance of sft se in an amount equal to at least thl $2.00 per acre or fraction thereof contained in said land but not less than $1,000.00. (b) Before beginning drilling operations on said land Lessee must have furnished and shall maintain a bond In an amount of - at least $5,000.00. (c) Lessee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amount specified above in this paragraph where such greater amount is justified by the nature of the surface and its uses and improvement In the vicinity of said land and the degree of the risks involved in the types of operations beng or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed in whole or in part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing o1lorgas from said land after efforts made in good faith, by reason of war, riots, acts of God, severe weather In the area of said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. 11 drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of presenting the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations is suspended under this paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease If such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and operations under this lease, to enter upon and use sa:d land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or stratigraphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (e) For nonexclusive easements and rights of way for any lawful purpose including shafts and tinnels necessary or appropriate for tI$e.,working of said land or other lands for natural resources other than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore, for or produce oil, gas, and associated substances in and from other lands. (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee undr this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressuring, or other similar operations designed to Increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including Conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided Interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a lease. No transfer of any interest in this lease including assignments of working or royalty Interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the regulations,. (2) in the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under thisparagraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer Is made of all or a part of Lessees Interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public interest fof the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof. Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area orpart thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agre&ment shall be reasonable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee In connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated Into a separate and distinct lease having the same effective date as this lease. 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any nortion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or In the surrendered zones or horizons In Condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.
-.

34. DEFAULT; TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there is no well on said land capable of producing oil or gas in paying quantities. If at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included In said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eUmmated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or p,rcels described In such notice. 36. RIGHTS ON TERMINATION. Upon fie expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all jnachinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall becoine.theproperty of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested In Lessee by this lease shall constitute an interest inreal property in said land. 38. LESSOR INTEREST. If Lessor owns a lesser interest in the oil and gas deposit In" said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only In the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If idr:any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty, or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, priyileges or duties of Lessee under this lease, followed diligently and in due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of drilling in tht, ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or hi the vicinity of said land in any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease,. "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS, As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used in this lease words which are defined in the regulations have the meaning assigned by such defInition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be in writing and shall be given by registered or certified mall, return receipt requested, addressed as follows: To Lessor: To Lessee: Union Oil Company of .94fornia Director, Division of Lands oI:hIrtreet rState of Alaska 344 Sixth Avenue Anchorage Anchorage, Alaska Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given in accordance with this paragraph. 44. HEIRS AND ASSIGNS Subject to the other provisions of this lease, the covenants conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or aigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease is subject to such stipulations as are attach e d. IN WITNESS WHEJ EOF the parties have executed this lease. QNIA STATE OF ALASKA
-

By

By

..:1:OOILC.QMPA1Y
D,ivis ion Manager

By
:...: ,

N.is C. Bakke,Jr. Title....

LE S E

lOfLcer .................... LESSOR

THE UNITED STATES OF AMERICA STATE OF ALASKA This certifies that on the.
.. day of

.....

to m known and known to me to be of the Division or Lands, Department or Natural R esources , o r his a ....... ized a gent. The said ... . . . . . . . . b uthor T s ..........................................................................executed said ]case in my presence and. a!t.er being duly sworn according to law, sifted to me under oath that .of the Division of tands. Department of Natural Resoi,rceg, or his authorized agent. and has authority pursuant to law to execute the foregoing lea s e as such rsotrpr authorized agent, on behalf of the State of Alaska, acting through the Division of Lands. Depurtment of Natural Reso,,rC,, and that lie executed the same freely and voluntarily us the free oluntary act and deed of the said State of Alask" and for the Division of Lands, Department of Natural ceS ireas. the clay and year In this certificate above bove ................................................................Notary Public in and for A Commission expires .. ./?".. J ....

~ N QR S Q. commissioned and sworn, personally appeared........... . Itc e the person described in and who executed the foregoing lease an behalf of the State of Alaska

before me, a no ta ry public in and for the State of Alaska, duly

N. ORB1S ..C..B

hilly

187p,f)

18729

7QAC7-

5-/3/2-28

3,085

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,4

Sri iL)pArJoN.S

The iesiiait ahiiil (I) ObtainUic writlen i1iproaaJ if tbe l)epnrtiaent at Natural anuurci.n for the )ocal),,i and typo of m.di ditruclure before it is erected on tide or ulubmerHed land, hiajnrri.ent fiction on ippliratlona for each trurturea chill be tnkt:i vi ilriii 10 lays of receipt of A oichaj)pItcscLOns.

(2) Appoint and uuaiuLnlri at all dccc duririi the cuntructiOfl or U rdttoflc on the dliii. tind aullmeriged lnda a local aieiit
IIIO whom way

he nerved written o,deia

or noLlce rrap.crtr,g niattora contained in these

Liii. Cunmiaaioner of dliii State of Alaska Depart-

aLipLilatlana aini to IirovILJa

wend of Natural Raaourcei wI tli liii none mud u.Jdr.ua

of aii.li agent.

0)

MalLEn Ihod all cojuincrurtloru or development nctivittes cQuLd,Lc! .J in .i mennt.r astictticliry to

carried on oder the lep.un aiiafl be the State of Alak.

Deiartuent of Nidital

iiL,AnaLc.n,$ with tine regard for

fish and yuiiil CfluEeuliVaL I.n, iind what) titillre propli IneLilLICIN in .ini I dci itd camp IntiriM well.. () lout-all adequate Imtvoi.i. prevent On control
P.latp.rflI

and

tithe oiler Safet y i lleoldilren provi.Jrl for In tie LII and gan c0nrveni0fl regulatIoue or oi- d,rrul hy the COoniaNjonir of
the Stole of *lank Department

of NI-.i iii big oircm..

(5)

Mi intai H oil elore pI nt fin. Or hi.

in auth

1 manner that

all oil

by-prdmmcre may I. tbrninut thlo,tiu ecoiPele and d.Lspn,uCd of ill a

Of

after autIiiic;ury to (Iii Sliule of A)a ,okn with duo re5a ni ti lime I r (ii) Kmnthutnmn or 5aine realm Ii
ii

NnlurI Ranoisrcea

hl tm I a oil I I iii. itOd gnitie.

ilIr

SL,,ta ut filnitic, Ion cy Lc,aa or damitMe to Hal

eLi,: rICO tilde r this lease Or
Imply

(rim

buy ijdri,son or tofu L

liii
UI

,aauitlm1 tsull , ally vI,ltrL i tjiul.ii but,, ot

eflli II

i,,Ilnrr

I.

with any valid law,

any

uppi I ruble P.o... - Tin I u.aa.ci. a re.apofl, Ihi liLy limiuminmia it IC..

..bmalI also allilmIpatul Itt,. or

ui-role. empioyeg,a and con -

(Laclotu

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I rv.

ThU R . Koldaworrh, Coicntauic.war

Dpartmaiut of Natural Ilecuorce..

ERRATIM P.f. C0Wlrjfivi OIL AND OAS LEASE YORM

This erratum applies to the corrections of three typographical errors in the State of Aleaka Cou,netitive Oil and Ccc Lease Form, DL-1, two of which are noted in Provision 5, EXTENSION BY UNIT PRODUCTION, and The present the one which is noted in Provision 39, CONDITIONAL LEASE. provisions nrc hereby modified by changing the word "action" in tine number five (5), word number fourteen (14) in Provision 5 to be "active"; by chnnging the word "no" Lis line number dine (9), word number twenty (20) In Provision 5 to be "any"; and by changing the word "and" in line number four (4), word number fourteen (hi) in Provision 39 to be "any". Provision 5 and Provision 39 arc hereby amended to incornorote the shove, and will therefore teed as follows:
5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon ot prior to time expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the egreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such nreee,ant sitU "tcL I ye" production under said agreement Is allocated to said land; (b) The Commissioner way, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof In eliminated from such unit plan or recovery program, of if such unit plan or recovery program is terminated, then "" such lease or portion thereof shall car,tinue fit full force and eifect for ninety (90) days tram the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities.

39. CONDJTTONAI. l.r.ASE ii all or a mart of said land Is land thsL has been selected by the Lessor under laws of the united Stater granting lands to Lessor, but such land has not been patented to ltsa,mr by the United States, thCn this lease is a conditional lease as provided by Jaw until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, "" rental, royalty or minimum royalty payments made to Lessor under this lease will not he refunded.

Phil R. lfoldsworth, Commiasioner Department 01 Natural Resources

Rnscoe B. Bell, Director Division of Lands

STATE OF ALASKA
(REVISED APL.t96T)

OF NATURAL RESO Division of Lands Competitive 011 and Gas Lease

ES
LEASE NO. ADL

4 0

THIS LEASE, dated the ...... LSt...day of ...QQt.Qbi. ......................... 19......6.2.., is made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and ...U1I.QN..Q.I.L ........c Q.A.,...cr.o.i&.ciQtpQ1Qn ..... Ikfld. ............................................... Q1UO..QIL ... ... hereinafter called "Lessee", whether one or more. 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of whith is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska:

Tract S-13-5-58
containing3.,.8.J..lLQ ....... acres, more or less, hereinafter called "said land". For the purposes of this lease, said land contains .......... . ........................ legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land li; described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is Issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and B hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas Is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease Is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof Is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (C) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such suspension is made under any order or with the consent of Lessor.

L RENTAL.. This lease shall terminate on any anniversary date hereof prior CO the completion on said land of a well capable of producing oil or gas in paying quantities,. unless on or before said anniversary date. Lessee shall pay or tender to Lasuor as aauu0j rental a stem equal to 11.00 per acre or fraction thereof, then Included in this lease, or unless such annual rental has been waived or suspended as provided In Paragraph 13 of this lease. IT Lessors office is not open for business on the anniversary dale the Clips for payment to extended to Include the next day on which said office Is open for business. Any rental paid for any One lease year shall be credited on any royalty for th&t year. 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said land of a well capable of producing oil or gas in paying quantities. Lessee shall pay Lessor, at the expiration of each lease year, in lieu of rental a minimum royalty equal to ;1.00 per acre, or fraction thereof, than Included in this lease or the difference between the actual royalty paid on production during the year if less than $1.00 per acre and the prescribed mtnimuni royalty. 11. ROYALTY ON PRODUCTION. Except for oil and gas used on said land for development and production or unavoidably bat. Lessee shall pay Lessor as royalty the following: (a) On oil L2... per cent In amount or value of the oil produced and saved and removed or sold from said land. per cent In amount or value of the gas produced and Bayed and sold or used oft said land orused for (b) On gas the eltracUon of natural gasdlmdr other products therefrom. (o) On associated substances ..... 12_.5 per cent in amount or value of such substances produced and saved and removed or sold from said lands. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. If Lessee shall drill on saId land and make the first discovery of oil or an in commercial quantities In any geological structure, the royalty rate under this lease shall, instead of the rates prescribed In Paragraph 1. be five per Cent for a period of ten years following the date of such discovery, and thereafter the royalty rates shall be those prescribed in Paragraph 11. If this lease is committed to a unit agreement approved or lireacribed by Lessor as provided in the regulations, the five per Cent royalty rate shall apply to all, but only, the production allocated to this lease under such agreement. 13. REDUCTION OF RENTAL AND ROYALTY. Rental or mInimum royalty may be waived, suspended, or reduced, Or royalty may be reduced on all of said land or any tract or portion thereof segregated for royalty purposes if Lessor finds that such relief Is necessary for the purpose of encouraging the greatest ultimata recovery of oil or gas and is In the interest of conservation of natural resources and either that such relief Is necessary In order to promote development or that the lease cannot be successfully operated under the terms provided herein. 14. ROYALTY IN KIND, Whenever, at the option of Lessor, which may be exercised from time to time upon not legs than six months notice to Lessee, Lessor elects to take its royalty in kind, Lessee shall deliver free of charge (on said land or at such place as Lessor and Lessee mutually- agree upon) to Lessor or to such individual, firm, or corporation as Lessor may designate all royalty oil and/or gas produced and saved from said land. Such oil and/or gas shall be in good and merchantable condition. Lessee shall, if pecessary, furnish storage for royalty oil free of charge for thirty days after the and of the calendar manth in which the oil is produced from said land; provided that Lessee shall not be held liable for loss or destruction of royalty oil and/or gas from causes beyond Lessees reasonable control. Should Lessee dehydrate or clean the oil or gas produced from said land, Lessee shall be entitled to an allowance of the actual cost of dehydrating or cleaning said royalty oil or gas. 15. ROYALTY IN VALUE. At the option of Lessor, which may be exercised from time to time upon not less than six months notice to Lessee, and in lieu of royalty in kind. Lessee shall pay to Lessor the field market price or value at the well of all royalty oil and/or gas. All royalty that may become payable In money to Lessor shall be paid on or before the last day of the calendar month following the month in which the oil or gas Is produced. The payments shall be accompanied by copies of run tickets or other satisfactory evidence of sales, shipments, and amounts or gross production. . ii. PRICE. The field market price or value of royalty oil or gas shall not be less than the highest of: (1) The price actually paid or agreed to be paid to Lessee at the well by the purchaser thereof, It any, or (2) The posted price of Lessee in the field for such oil or gas at the well if any; or (3) The prevailing price received by Other producers in the field at the well for oil of like grade and gravity or gas of like kind and quality at the time such oil or gas is removed from said land or run into storage, or such gas Is delivered to an extraction plant. I?. PAYMENTS. All payments to Lessor under this lease shall be made payable to the Department of Revenue of the State of Alaska and shall be tendered to Lessor at the place designated under Paragraph 43 for giving notices to Lessor. 18. OFFSET WELLS. Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from loss by reason of drainage resulting from production on other lend. Without limiting the generality of the foregoing sentence, if oil or gas should be produced in a well on Other land not owned by Lessor or on which Lessor receives a lower rate of royalty than the royalty under this lease, which well is within 600 feet In the case of an oil well or 1,500 feet in the case of a gas well of lands then subject to this lease, and such well shall produce oil or 558 in payiPg quantities for a period of thirty consecutive days and if, after notice to Lessee arid an Opportunity to be heard, Lessor finds that production from such well Is draining lands then subject to this lease, Lessee shall Within 120 days after written demand by Lessor begin In good faith and prosecute diligently drilling operations for an of feet well on said land. In lieu of drilling any well required by this paragraph. Lessee may with Lessors consent compensate Lessor in full each month for the estimated loss of royalty through drainage In the amount determined by lessor. 19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land. Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the interests of Lessee. 20, DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense; and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, If taken, and a record of all tests run for each well drilled on said land, together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed, suspended, or abandoned. Any and all information filed by Lessee with Lessor in connection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for Inspection by any person other than officers, or employees of Lessor and persons-performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure Is reasonably necessary for the administration of the junctions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor or it Lessee until provision has been mad to pay to the owner of the land upon w - h the reserved rights are sought to be exercised full payment for al es sustained by said owner by reaso ering upon said land; provided, that if said owner for any cause w essor or Its Lessee shall have the efuses or neglects to settle said d right to institute such legal pro .dLgs In a court of competent jurisdictio - .thefein the land is situated as may be necessary to determine the damage which the owner of such land may suffer. Lessee hereby agrees to pay any damage that may become uavable under said statttnrv nrovisionq and to Indemnify Lessor and hold it harmless from and

Ofa bond inComp1iancejtja this Le se will be regarded by Lessor as a sufficient provision for the payment of all damage that, maybecome payable under said statutory provisions. 26. BONDS. least ase in an amount equal to (a) Lessee shal maintain 0. d furnished prior to the Issuance o $2.00 pr acre or fraction thereained in said land but not less than (b) Before beginning drilling operations on said land Lessee must have furnished and shall maintain a bond In an amount of at least $5,000.00, (e) Lessee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) . Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than 1 the amount specified above in this paragraph where such greater amount is justified by the nature of the surface and its uses and improvements In the vicinity of said ]and and the degree of the risks Involved In the types of operations beng or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed in whole or In part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to-such-agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots, acts of Cod, severe weather in the area of said land, acts of governmental authorities, failure or 1ackpf adequate transportatioa facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking opeations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations is suspended under this paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and operations under this lease, to enter upon and use sad land I (a) To explore for oil or gas by geological or geophysical means including the drliing of shallow core holes or stratigraphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (c) For nonexclusive easements and rights of way for any lawful purpose including shafts and tinnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or assocatd substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substanes in and from other lands. (e) For any othr purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee under this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary Incident to rrecycling pressure maintenance, repressurir.g, or other similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas In said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will preveqt unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided Interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to bri)f person or persons qualified to hold a lease. No transfer of any interest in this lease including assignments of working or royalty interests and operating agreements and sublases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations udder this lease accruing pdor to the approval of such transfer. Appral of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the , regulations, (2) in the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof, Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including Lessor, Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease, 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any Portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.
.

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as." co,

Gnu cpcaiaea @1 1bILt

LI UXLI US III CU1L11CLUIn WI I

U.4I

34. DEFAULT; TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there is no well on said land capable of producing oil or gas in paying quantities. If at such time there is on said land a well capable of producing oil or, gas In paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. RIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested in Lessee by this lease shall constitute an interest in real property in said land. 35. LESSOR INTEREST. If Lessor owns a lesser Interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only In the proportion which its interest bears to the whole and undivided fee. ., 39. CONDITIONAL lEASE: If all or aart of said land is land that has been selected by the Lessor under laws of the United States "granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this Lease, followed diligently and in due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of drilling in the ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or in the vicinity of said land in any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill td the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulationsof the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless othecise specified. 42. INTERPRETATION. As used in this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be in writing and shall be given by registered or certified mail, return receipt requested, addressed as follows: To Lessor: To Lessee: Director, Division of Lands JThlI ........QMP.....QF .ALBOFdIA State of Alaska 344 --Sixth Avenue . ............... Anchorage, Alaska Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given In accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or assigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease is subject to such Stipulations as are attached. IN WITNESS WHEREOF the parties have executed this lease, UUOli..OILL,PA ..0E .ALIFDBNIA By................ 4(.
4 ..... . ................. .................

V 77
STATE OF ALASKA

By

.OEIOII.CONPAD

c.t

Division Manager LESSEE

By ....... ...... (...,J... Norris C. Bakke, Jr.

Title LESSOR
S

THE 7NITED STATES OF AMERICA )

STATE OF ALASKA
This certifies that on the. day of . public in and for the State of Alseka, duly ) commisetoneil arid sworn, personally appeared ....................................................... ...- ................ ........ .......... .....to me known and known to me to be the person described 1St and who executed the foregoing lease on behelt of tIt St tear -Dti-cct-or of the Division of Lands. Depart. .a merit, of Natural Resoutcea, or his authorized agent. The said .............. ....................................................... exeeute soul lease in my Presence and, tft.er being duly sworn according to law. slntil Ic me under oath that he ,.,f the Division of Lends. Departm ent of Natural Re-snurcos, or his authorized agent, and has authority pursuant to low to execute the foiogoing lease as such PeQtoeror authorized 2L5erjt, on behalf of the State of Alaska. ar iror through the Division of Lands. Deportment, Natural Resources and that he executed the same M vciuntriiy as the tr ee. luuttary actand teed of the said State of ":k I for the Division of Lands, Department of es.

Y99_OiRRI9*

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id

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Notary iubiic In and for Alaska My Commission expires

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rL- 9111ALIOna or orde, ed by tile Cisu.s,i s toner of tilt- Since of Al suiko Department Of N,uI.u, ,l Kcenuiicus (5) llstlnLtits .4 hoIrnie plusi.tssruiis or h.ur 5 ;suu in uuu,ch a muinner that In a

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Phil P.. Holduu.orch,

ERRATUM RE COMPETITIVE Oil. AND GAS

LEASE

FORM

DL-1

This erratum applies to the corrections of three typographical errors in the State of Alaska Coinnetitive Oil and Can Lease Form, DL-1, two of which tire noted In Provision 5, EXTENSION BY UNIT PRODUCTION, and the one whi.chJ.s noted in Provision 39, CONDITIONAL LEASE. The present provisions are hereby modified by changing the word "action" in line number live (5), word number lourLuen (14) In Provision 5 to be "active"; by changing the word no" in line itumber nine (9), word number twenty (20) in Provision 5 to be "soy"; and by changing the word "and" I,, line number four (4) word number fourteen (14) in Provision 39 to be "any". Provision 5 and Provision 39 arc hereby ,,mended to incorr,nrate tl,e above, and will therefore read as follows: 5, EXTENSION BY LIMIT PRODUCTION (a) This lease shall without application he extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production Is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to n;reeulentand "nctive" production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program, of if such unit plan or recovery program is terminated, then g," such le a se or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and BO long thereafter as drilling or redrilling operations are being conducted thereon and an lone, thereafter as oil or gas is produced in paying quantities.

CUCIL

39. CONDITIONAL. LEASE if all or a part of said lend Is land that has been selected by the Lessor under laws of the United States granting lands to lessor, ht such land has not been patented to Lessor by the Unir,d States, tl,e,j thin lease Is a conditional lease as provided by law until such patent become effective, 11 tor any reason LlJcIl a selection is noL finally approved or such a patent does not become effective, "" rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded.

Phil R. lboidaworth, ComnLssionr Department of Natural Resource,

Roacoe. E. Bell, Director Diviajon of Lands

r
)
NO. eLi
REVI D APRIL. 1961) iZ

STATE OF ALASKA W .TMENT OF NATURAL RES

Division of Lands
Competitive Oil and Gas Lease
LEASE

NO. ADL____________

THIS LEASE, dated the-- ----.tday of ------- -Qqq,r l92------is made by and between the Stat of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and

LQW.OLQMAN3 ... Qp.tipp.---------------------------------------------------------------------------------------------------------hereinafter called "Lessee", whether one or more, I. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska!

Tract S-13-5-5
containing.3AQ.,.Q ...... acres, more or less, hereinafter called "said land". For the purposes of this lease, said land contains ......... . ........................ legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land i described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and not defined herein as oil or gas. . TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, In the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. I 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease Is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement Is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included In an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restOre production, provided, however, that if any lease or portion thereof is elim mated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6 EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas Is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (c) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire b& cause Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land If such suspension is made under any order or with the consent of Lessor.

9. RENTAL This lease shall terminate on any anniversary date hereof prior to the completion on said land of s. well capable of producing oil or giu In paying quantities unless on or before said anniversary date Lessee shall pay or tender to Lessor as anuu1 rental * um equal to $1.00 per acre &r fraction ihersof, then Included In this lease, or unless such annual rental has been waived or suspended as provtded In Paragraph 13 of this lease. If Lessors office to not open for business on the anniversary date the time for paymeRt Is extended toI nclude the next day on which said office Is open for business. Any rental paid for any one lease year shall be credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the Ieaee year beginning on or after completion on said land of a well capable of producing oil or gas In paying quantities, Lessee shall pay Lessor, at the expiration of each lease year, In lieu of rental a minimum royalty equal to $1.00 per acre, or fraction thereof, then Included In this lease or the difference between the actual royalty paid on production during the year If lees than p1.00 per acre and the prescribed minimum royafty. U. ROYALTY ON PRODUCTION. Except for oil and gas used on said land for development and production or unavoidably lost, Leecee shall pay Lessor as royalty - the following; On oil ...Lt5per cent In amount or value of the oil produced and saved and removed or Bold from said land. (a) (b) On gas per cent in amount or value of the gas produced and saved and sold or used off said land or used for the extraction of natural gasoline or other products therefrom. On associated substances 12.... per cent in amount or value of such substances produced and caved and removed or sold from (c) said lands. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. If Lessee shall drill on said land and make the first discovery of oil or as In commercial quantities in any geological structure, the royalty rate under this lease ehall. Instead of the rates prescribed in Paragraph I. be five per cent for a period of ten years following the date of such discovery, and thereafter the royalty rates shall be those prescribed In Paragraph 11. If this lease Is committed to a unit agreement approved or prescribed by Lessor as provided In the regulations, the five per cent royalty rate shall apply to all, but only, the production allocated to this lease under such agreement. 18. REDUCTION OF RENTAL AND ROYALTY. Rental or minimum royalty may be waived, suspended, or reduced, or royalty may be reduced on all of said land or any tract or portion thereof segregated for royalty purposes if Lessor finds that such relief is necessary for the purpose of encouraging the greatest ultimate recovery or oil or gas and Is In the interest of conservation of natural resources and either that such relief is necessary In order to promote development or that the lease cannot be successfully operated under the terms provided herein. 14. ROYALTY IN KIND. Whenever, at the option of Lessor, which may be exercised from time to time upon not lees than six months notice to Lessee, Lessor elects to take Its royalty in kind, Lessee shall deliver free of charge (on said land or at such place as Lessor and Lessee mutually agree upon) t Lessor or to such individual, firm, or corporation as Lessor may designate all royalty 0i1 arid/or gum produced and saved from said land. Such oil and/or gas shall be in good and merchantable condition. Lessee shall, if pecessary, furnish storage for royalty oil free of charge for thirty days after the end of the calendar month In which the oil is produced from said land: provided, that Lessee shall not be held liable for loss or destruction of royalty oil and/or gas from causes beyond Lessees reasonable control. should Lessee dehydrate or clean the oil or gas produced from said land, Lessee shall be entitled to an allowance of the actual cost of dehydrating or cleaning said royalty oil or gas. Ii. ROYALTY IN VALUE. At the option of Lessor, which may be exercised from time to time upon not lees than six months notice to Lessee, and In lieu of royalty In kind, Lessee shall pay to Lessor the field market price or value at the well of all royalty oil and/or gas. All royalty that may become payable In money to Lessor shall be paid on or before the last day of the calendar month following the month which the oil or gas Is produced. The payments shall be accompanied by copies of run tickets or other satisfactory evidence of sales, ship- in ments, and amounts or gross production 16. PRICE. The field market price or value of royalty oil or gas shall not be lees than the highest of: (3) The price actually paid or agreed to be paid to Lessee at the well by the purchaser thereof, If any: or (2) The posted price of Lessee in the field for such oil or gas at the well, if any; or, () The prevailing price received by other producers in the fIeld at the well for oil of like grade and gravity or gas of like kind and quality at the time such oil or gas is removed from said land or run into storage, or such gas is delivered to an extraction plant. 17. PAYMENTS. All payments to Lessor under this lease shall be made payable to the Department of Revenue of the State of Alaska and shall be tendered to Lessor at the place designated under Paragraph 42 for giving notices to Lessor. IS. OFFSET WELLS. Lessee shalt drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from loss by reason of drainage resulting from production on other land. Without limiting the generality of the foregoing Sentence, If oil or gas should be produced in a well on other land not owned by Lessor or on which Lessor receives a lower rate of royalty than the royalty under this lease, which well Is within 500 feet In the case of an oil well or 1,500 feet in the case of a gas well of lands then subject to this lease, and such well shall produce oil or gas in paying quantities for a period of thirty consecutive days and if, after notice to Lessee and an opprtunity to be heard, Lessor finds that production from such well is draining lands then subject to this lease, Lessee shall within 120 days after written demand by Lessor begin In good faith and prosecute diligently drilling operations for an offset well on said land. In lieu of drillIng any Well required by this paragraph. Lessee may with Lessors consent compensato Lessor in full each month for the estimated loss ol royalty through drainage in the amount determined by lessor.

19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the Interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or Injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense; and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, If taken, and a record of all tests run for each well drilled on said land, together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed, suspended, or abandoned. Any and all information filed by Lessee with Lessor in connection with this lease shall be available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor or its Lessee until provision has been mae to pay to the owner of the land upon wWk the reserved rights are sought to be exercised full payment for all es sustained by said owner by reason o ring upon said land; provided, that If said owner for any cause wh efuses or neglects to settle said da. - essor or Its Lessee shall have the right to institute such legal procegs in a court of competent jurisdiction . terein the land is situated as may be necessary to determine the damage which the owner of such land may suffer. Lessee hereby agrees to pay any damage that may beenm 7iVilile iinrlpr . esj4
I

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of a bond IncoflTpTzic with thisLeaewi11be regarded by Lessor as a sufficient provision for the payment of all damage that. may become payable under said statutory provisions. 26. BONDS _____ (a) Lessee shall maintain t. d furnished prior to the issuance of base in an amount equal to at least $2.00 per acre or faction thereof ned in said land but not less than $1,00L.,O. (b) Before beginning drilling operations on said land Lessee must have furnished and shall maintain a bond in an amount of at least $5,000.00. (c) Lessee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, alter notice to Lessee and an Opportunity to be heard, require a bond in a reasonable amount greater than the -amount specified above in this paragraph where such greater amount is justified by the nature of the surface and its uses and improvements In the vicinity of said land and the degree of the risks involved in the types of operations b&ng or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond Imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed in whole or in part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of saidAand so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made In good faith, by reason of war, riots, acts of God, severe weather in the area of said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. U drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations Is suspended under this paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties, 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable Interference with the rights of Lessee and operations under this lease, to enter upon and use sad land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or stratigraphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (e) For nonexclusive easements and rights of way for any lawful purpose including shafts and tunnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas. and associated substances in and from other lands, (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee undr this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressurir.g, or other similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS, This lease or any undivided Interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal. subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a lease. No transfer of any interest in this lease including assignments of working or royalty interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the regulations, (2) in the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public , interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof, Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease withthe like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with date as this lease. the approval of Lessor be segregated into a separate and distinct lease having the same effective 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of-liling subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.

34. DEFAULT; TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there Is no well on said land capable of producing oil or gas in paying quantities. If at such time there is on said land a well capable of producing oil 6z- gas iii paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. if for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amoui49f acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. RIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested in Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR INTEREST. If Lessor owns a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only In the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE, If all or a part of said land is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If for any reason such a selection Is not finally approved or such at patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and in due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of drilling in the ground. Any such work or operations preliminary to drilling In the ground may be undertaken either on said land or in the vicinity of said land in any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used In this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES, Any notice required or permitted under this lease shall be in writing and shall be given by registered or certified mail, return receipt requested, addressed as follows: To Lessor: To Lessee; California Director, Division of Lands State of Alaska 289 Denali Street 344 Sixth Avenue Anchorae Alaska Anchorage, Alaska Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given In accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors or assigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease is subject to such stipulations as are attached. IN WITNESS WHEREOF the parties have executed this lease. By................... ................tY.:ct STATE OF ALASKA .................... LESSOR

By

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ISSEE
as. of...

By............. Title...

N ris C. Bakke, Jr.

!IHE UNITED STATES OF AISERJCA

STATE OF ALASKA This certifies that on the..-

1day

before me, a notary public in and for the State of Alaska. duly

.. commissioned and sworn, personally appeared ........................................ . to me known and known to me to be the parson described in and who executed the foregoing lease on behalf Of the State of Alaska asS4ea,rot the Division of Lands, Depart. meat of Naairai Resources, or his authorized agent. The said .. executed anti lease In ray presence and, after being duly sworn according to law, staid to me tinder oath that. bets aa-B4eee*.ee of the Division of Lands, Department of Natural Resources, or his authorized agent, and has authority pursuant to law to exec.iite the foregoing lease as 2rch 1 F4eoee,1-or authorized agent, on behalf of the. State of Alaska, - ring through the Division of t.,,nls, Department o Natural Resources and that he exee.uted the same freely and voluntarily as the free luntary Oct intl deed of the said State of Alaska for the Division of Lands. Department, of

KE

P..... . ... ....................... ...........

tZ 1XY commission expires

2s-...C.t$

ERRAttDl RE coNpgriTivE OIL AND GAS LEASE FORM DL-!

This erratum applies to the corrections of three typographical errors in the State of Alaska Competitive Oil and Gas l,ea,ie Form, DL-1, two of which are noted in Provision 5, EXTENSION BY UNIT PRODUCTION, and the one whichie noted in Provision 39, CONDITIONAL LEASE. The present provisions are hereby modified by changing the word "action in line number five (5), word number fourteen (14) in Provision 5 to be "active; by chnniting the word "no In I jite number nine (9), word itumber twenty (20) in Provision 5 to be any; and by changing the word and" in line number four (4), word number fourteen (14) In Provision 39 LO ha any". Provision .S and Provision 39are hereby amended to imcornorate the above, and will therefore read as follows: 5, EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production Is allocated to said land under the agreement. In such event title lease shall continue in effect so long as it remains subject to such n,,i "acilve" production under said agreement is allocated to 1ree ,.:nnt said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is an the expiration date thereof included in an approved unit plan or if it Is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program, of if such unit plan or recovery pragrsn, is terminated. then "t" such lease or portion thereof slisil continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redril!inp operations are being conducted thereon and so long thereafter as oil or gas to produced in paying quantities. 39. CONDITIONAl. LEASE If all or a part of said land is tend that bas been selected by the Lessor under laws of the United State, granting lands to L,-ssor, hut such land has not l,eer, patented to Lessor by the Jolted Stales, then this lease is a conditional lease as provided by law until such parent become effective. if br any reason such a selection is not finally approved or such a patent does not become effective, "j" rental, royalty or ml,i.Lisum royalty payments made to Lessor under this lease will not be refunded.

./4
Phil R. lloidsworrh, Cunsslesio,,er Department 01 Natural Resources Roscoe E. hell, Director Division of Lands

tdlI.ULIFh STJ tIJI,AiFjUNS

The I .Iaqci,, uiigih I (I) OIteJn the wi itt iii cipprovi. I of the Department Of Natural Keaourc.es fcni rh.. iocptuu and type of encil structure before It to craned

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of the State of 06lasks Departof ..i.ch, agent,

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the Slate of Alcuaki. Department of N,.tujrai Thnnaucceu with die reparcl for tieh und pence cnnucrueuloui, and thnil
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STATE OF ALASKA
FORM NO. DL-1 (REVISED APRIL. 19611

TMENT OF NATURAL RES Division of Lands

Competitive Oil and Gas Lease
LEASc NO. AOL___
.

THIS LEASE, dated the.. .... 1st day of ...... $ptembr----------------- , 19......6.2.., is made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called lessor", and SHELL OH. coMY, Delaware corp., 1008 W. Sixth Street,

LOE

Corp., 225 Bush 54.CaJ,i----ADL-QF#3; ST.NDARD -OIL -C CALIFORNIA, L Street, San Francisco 20, Calif., ADL-QF #2, and RICfIFIELD OIL CORPORATION, a Delaware corp., hereinafter called "Lessee", whether one or more. 555 S. Plower Street, Los Angeles 17, Calif., ADL-QF 44
1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska: S-13-5-59 containing..J2.Q.y.QO. .... acres, more or less, hereinafter called "said land" For the purposes of this lease, said land contains .................. .---------------- legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said lend to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocar bons produced at the well not defined herein as oil, "Associated substances" means all substances produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4, EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, fi such lease is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences driliing or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result In the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days alter such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (C) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was Issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee falls to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be do so; provided, that less than sixty days, after such notice to place the well on a producing status, and Lessee fails to after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such suspension Is made under any order or with the consent of Lessor.

9.. TUTAL, This lease shall terminate on any anniversary date hereof prior to the completion on said land of a well capable of producing oil or gas in paying quantities, unless on or before said anniversary date Lessee shall pay or tender to Lessor as annual rental ,a sum equal to $1.00 per acre, or fraction thereof. then Included in this lease, or unless such annual rental has been waived or suspended as provided in Paragraph 13 of this lease. If Lessors office is not open for business on the anniversary date, the time mr payment is extended to Include the next day on which said office is open for business, Any rental paid for any one Jease year shall he credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the lease year beginnin on or after completion on said land of a well capable of producing oil or gas in paying quantities, Lessee shall pay Lessor, at the expiration of each lease year, in lieu of rental a minimum royalty equal to $1.00 per acre, or fraction thereof, then included in this lease, or the difference between the nctual royalty paid on production during the year If less than $1.0& per acre and the prescribed minimum royalty. H. ROYALTY ON P}tODuCTroN. Except for oil and gas used on said land for development and production or unavoidably loSt, Lessee shall pay Lessor as royalty the following: (a) On oil 12 ...... per cent in amount or velue of the oil produced and saved Cfl(i removed or sold from said land. (b) On gas 12 ....per cent in amount or value of the gas produced and saved and sold or used off said land or used for the extraction of natural gasoline or other i)rOdicejerefrom. (c) On associated substances ......2... per cent in amount or value of suchsubstances produced and saved and removed or sold from said lands. 12 REDUCTION OF ROYALTY RATES FOR DISCOV1RY. If T.eesoe shall drill on said land and make the first discovery of oil or as in commercial quantities in any geological structure, the royalty rate under this lease shall, instead of the rates prescribed in Paragraph 11, be five per cent for a period of ten years following the (late of such discovery, and thereafter the royalty rates shall be those prescribed in Paragraph U. If this lease is committed to a unit agreement approved or prescribed by Lessor a provided in the regulations, the five per cent royalty rate shall apply to all, but only, the production allocated to this lease unilel such agreement, 13.REIJ1JCTION OF RENTAL AND ROYALTY. Rental or minimum royalty may be waived, suspendel, or reduced, or royalty may be reduced on all of said land or any tract or portion thereof se;regated for royally purposes it Lessor finds that such relief is necessary for the purpose of encouraging the greatest ultimate recovery of oil or gas and is In the interest of conservation of natural resources and either that such relief Is necessary in order to promote development or that the lease cannot be sflcCeSSuiilly Operated under the terms provided herein. 14. ROYALTY IN KIND. Whenever, at the option 01 Lessor, which may be exercii1 From time to time upon not less than six months notice to Lessee, Lessor elects to take Its royalty in Ind, Lessee Sliaul deliver free of charge (on said land or at such place is Lessor and Lessee mutually agree upon) to Lessor or to such individual, firm, or corporation as Lessor may designate all royalty oil and/or gas produced and saved from said land. Such oil and/or gas shall, be in good and merchantable condition. Lesseo shall, if necessary, furnish storage for royalty oil free of charge for thirty days after the end of the calendar month in which the oil Is produced from said land; provided, that Lessee shall not he held liable for loss or destruction of royalty oil and/or gas from causes beyond Lessees reasonable control. Should Lessee dehydrate or clean the oil or gas produced from said land, Lessee shall be entitled to no allowanco of the actual coat of dehydrating or cleanIng said royalty oil or gas. 15. ROYALTY IN VALUE, At the option of Lessor, which may be exercised from time to time upon not less than six months notice to Lessee, and In lieu of royalty In kind, Lessee shall pay to Lessor the field market price or value at the well of all royalty oil and/or gas. All royalty that may become pu.yahle in money to Lessor shall be paid on or before the last day of the calendar month following the month In Which the oil or gas Is produced. The payments shall be accompanied by uopte5 of ion tiCkl.s Or oilier satisfactory evidence of sales, shipments, and amounts or gross production. 15. PRICE. The field market price or value of royalty oil or ga shun not be less tlinnthe highest of: (1) The price actually paid or agreed to hi. paid to T,essec at the we]] by the purchaser thereof, If any; or (21 The posted price of Le.see in the ilald for Such oil or gas at the well, if any; or, (1) The prevailing price received by r,tllcr iroc3ucers in the field at the well For oil of lihograde and gravity or gas of like kind and quality at the time such oil or gas is removed from said land or run into slorag -e, or jch gas is delivered to an extraction plant. 11. PAyaIENTS All payments to Lessor under this lease. shuil he oath payable to the Department of Revenue of the Slate of Alaska and shall be tendered to Lessor at the place designated under Paragrap 43 for giving notices to Lessor. is. C.>iTSET WELLS. Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from loss by reason of drainage resulting from production in other laWithout limitin the generality of the forgoing sentence, if oil or gas land. Wi e ei.ou1d be produced in a well on other land not owned by Le ss or ui on which Lessoi receives , lower rah of royalty than the royalty under tills lease, which well is within 000 feet in the case of an oil well or 1,550 lent in its cone of a gm, welt of lands then subject to tlu lease, and such well shall produce oil or gas in paying Quantities for a period of thirty consecutive days, and if, after notice lo Lessee and an opportunity to be heard, Lessor finds that production from siic:lr well is draining lands thee, subject to this lease. Lessee liliull within 120 days after .10 Oliet mdl on said land. in lieu of drilling written demand by Lessor begin in good faith and prosecute diligenily drilling oJlerotinrlS Fur any wli required by this paragraph. Lessee may with Lessors consent compensate Lessor in full each month for the estimated loss of royalty through drainage in the amount determined by lessor. 19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense; and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, if taken, and a record of all tests run for each well drilled on said land, together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed suspended. or abandoned. Any and all information filed by Lessee with Lessor in connection with this lease shall be available at all tunes for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function ..or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filing period, except upon Written consent of Lessee. Notwithstanding any other provision hereof, said information may be - disclosed to any person where such disclosure is reasonably necessary for the admini stration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have In its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under reservations coal ned in certain leases or grants of Alaska is d shall be exercised by Lessor or its Lessee until provision has been mad= pay to the owner of the land upon w the reserved rights are sought to be exercised full payment for all da e stained by said owner by reason of r upon said land; provided, that if said owner for any cause whatever r s or neglects to settle said damages, L or its Lessee shall have the right to institute such legal proceedings court of competent jurisdiction wherein e land is situated as may be necessary to determine the damage which the owner of such land may suffer. Lessee hereby agrees to pay any dam-

.J

"-

.1u

against any claims, demands liabilities, a,exenses arising from or in connection with such damage. The furnishing of bond In compliance with this Lease be regarded by Lessor as a sufficient vislon for the payment of all damage that may become payable ur d statutory provisions. . ... 26. BONDS. .. (a) Lessee shall maintain the b d furnished prior to the issuance of thisase in an amount equal to at least ..- , . $2.00 per acre or fraction thereof contained in said land but not less than $1,000.00. (b) Before beginning drilling operations on said land Lessee must have furnished and shall maintain a bond in -. an amount of at least $5,000.00. . , (C) Lessee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount gteater than the. amount specified above in this paragraph where such greater amount Is justified by the nature of the surface ind its uses and improvements In the vicinity of said land and the degree of the risks involved in the types of operations being or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond imposed under this subparagraph but will be considered by Lessor. in determining the need for and the amount of any additional bond under this subparagraph. ( e ) If said land is committed in whole or in part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD, Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots, acts of God, severe weather in the area of said land acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be sispnded and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations is suspended under tWs paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and operations under this lease, to enter upon and use sad land: (a) To explore for oil or gas by geological or geophysical means including the drilling of shallow core holes or stratigraphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (c) For nonexclusive easements and rights of way for any lawful purpose including shafts and tinnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or associated substances. (ci) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substances in and from other lands. (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee under this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressuring, or oil -mr similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a lease. No transfer of any interest in this lease including assignments of working or royalty interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (1) for failure to comply with the regulations, (2) in the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lesser determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the pubIi interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof, Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect P-11 parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest, if a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.

ZtdLULUVY pI. (JVIsloIis dilu LU

L11AWA1L1I1 J_eJ aLiu

34. DEFAULT; TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there is no well on said land capable of producing oil or gas In paying quantities. If at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 3, EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. RIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested in Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR INTEREST, If Lessor owns a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only in the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and in due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of drilling in the ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or in the vicinity of said land in any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS, As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used In this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are Inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be in writing and shalT be given by registered or certified mail, return receipt requested, addressed as follows; To Lessor: To Lessee: SHELL ... COMPAIN Director, Division of Lands State of Alaska 1008 VEST SIXTH STREET

LOS ANGELS .54, CALIIORII Anchorage, Alaska Any such notice shall be deemed given when delivered to the foregoing address, Either party may change the address to which such notices are to be sent, by a notice given in accordance with this paragraph. 44. 1-IEmS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators successors or assigns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS. This lease is subject to such stipulations as are attached.
IN WITNESS WHEREOF the parties have executed this lease. STATE OF ALASKA ....

LESSEE
THE UNITED STATES OF AMERICA STATE OF ALASKA
)

Ti

,/ Norris C. Bakke, Jr. .........Minerais-O-fter ................LESSOR

so. before me, a notary public in and for the State of Alaska, duly

This certifies that on the21_21ay of commissioned and sworn, personally appeared ................. ... ...... ..... the person described in and who executed the foregoing lease on behalf of the

-...._ to me known and known to me to be - State of ,Uka as as e4e of the Division of Lands, Depart. ment of Natural Ronrces, or his avthorized agent. The said .............. executed said lease in my presence and, after being duly sworn according to law, stated to me under oath that he IS t4ceGto of the Division of Lands, Department of Natural Resources, or his authorized age t and has authority pursuant to law to execute the oregoing lease as such or authorized - - agent, on behalf of the State of Alaska. g through the Division of Lands Department atural Resources and that he executed the same freely and voluntarily as the free a iuntary act and deed of the said Ctate of Alas] for the Division of Lands, Department of Natural Resources. WITNES n ,.- and a of I alof ay and year in this certificate above written.

sc .-. ........_.. ........

..................,. ............... ...........................................

Notary Public in and for Alaska. My Commission expires..........:..

5.

q
NORY

IN WITNESS WHEREOF the parties have executed this lease. STANDARD OIL COMPANY OF CALIFORNIA By Qac By Assistant Getter By Assistant Secretary
RICHFIELD OIL CORPORATION .
S ;

nagerof .Production Dept

Assistant Secretary

~1 2 AA,4,41e!~ ==
_

SHELL OIL COMPANY By cA{torney in Fact

LESSEE

of
L STATE OF CALIFORNIA ) , COUNTY OF LOS ANGELES) On this day of
__

:18?5S
I
___, .

_, 19_ 2 before me ivniureu lvi. rwiuru j, a IN ary Public in and for said County and State, residing therein,- duly cotmaissi Oied and sworn, personally appeared J. E. MOUR , known to me to be the person whose naine is subscribed to the within -instrument as the Attorney In Fact of Shell Oil Company, and acknowledged to me that he subscribed the name of Shell Oil Company. thereto as principal, and his own name as Attorney In Fact. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal, at my-office, in said County and State, the day and year in this certificate first above written. My Commission expires:
December II, 195
Mildred M. Crawford

Notary Public in and for said County andState STATE OF CALIFORNIA ) CITY. AND COUNTY OF SAN FRANCISCO) On this Int day of , in ih e44 our Lord One Thousand Nine Hundred and Sixty Two \efor \iiJJ,. a Notary Public in and for said City and County and State, residing thereint.du1y commissioned and sworn, personally appeareEO. D. FNGLJSH and E A. HANSEN known to me to be the CONTRACT AGENT and-ASSISTANT SECRETARY, respectively of STANDARD OIL COMPANY OF CALIFORNIA the corporation described in and that executed the within instrument, and also known to me to be the persons who executed it on behalf of the said Corporation therein named, and they acknowledged to me that such Corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my Official Seal, at my office in the City and County State aforesaid the dayfiand year in this certificate above written.

AL
DMOND L
KELLI

Notary Public in and for said Cit and County of San Francisco, State of California STATE OF CALIFORNIA ) ss. COUNTY OF LOS ANGELES) On this
SUE M. MASON

My m3!on Ex
RESIDING AT SAN
Pr r,r -

day of in the year 19, before me, - , a No4y Pub ic in and for said County and State, F. E. MP(ILLIPS personally appeared known to me to-be the 0 .kaitant General Manager of Production Dept. R. G. NELSgi and Assistant known to me to be the Secretary of .RICHFIELD OIL CORPORATION, the corporation that executed the within instrument, known to me to be the persons who executed the within instrument on behalf of the corporation therein named, and acknowledged to me that such corporation executed the same.
.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above-written., /1 My Commission expires "nv4.i9M Notary public in aiid for said County-and State
SUE M. MASON

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EXHIBIT A

STATE LANDS
COOK INLET

.1
. CJP WITNOUT *C$ SN . DIISOTC 0 *GNII. AWEa IN COLO*. DESIGNATES LAND *FENID TO IN ATTAChED LEASE

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Wll.UUlI_SlXPLfl.ATWf1S -

The I cni,oe sPoil I (I) Obtain the written approval of the Department at Natural Resourcne for the location and type of evl, errcccLuc - e before It Ii erected on tide or submerged land. Departinint acl:icin on applications for such etrucrures shall he taken wit-bin 30 $iiya Of rireipt of such icypitiotia

() Appoint and msintnln it all timec diction the construction or operations oil the tiiJc, and nulccnsrgicd lands a local agent upon whom may he served written orders or notjcv roepecr.ing tatters contained. In theae stl pill iciioics and to provide the Cociciesinner

of the Scare of Alaska Departof Such agent.

macit of Netcirci). Reicriufeei wIth the nrc/c and cillcirocca

(3) Aseiric that all cccnnirucl.Jccn or d aclopmenut nctivltics carried no tinder the lease shall h. cuxicicicrod in a manner ajtl:lnfcictory to the State of Alnnks Department of Natural Ricsoiircea with clue regard for fish And Ka e tins e cvii I [liii and shall null ci proper rue ticocis icc cind Completing wells. (ti) insunli auic)uaIcc blowout prevention control rcii.tpcnent nnd take other 9af,,ty u.uluccrcrc pruvldcrd- for fit dcci oil and gee conservation tigccl a Lioria or orcicrcud by the (;ecuni ice Ion,r Of Nat cccii ilecu. urn,
(ci)

ci

r 1. J 1 trig

of

Liii

itu Ca of Alaska Departmcr

Plaint

cciii

ci tnIiOc:cr

plut.icccccc Or icucren In vuch a aciriner that

all oil by-prodc,ctcr cay In drained rhci - ocigic ec:icppercu and disposed of in cc manner eatiefactory to the Sl.icl.e u Alsiclia (Jepartenit with dice regard to their c1tecu:a on 1 hilt end (fj) or Khrudcccrsi the Stil
cc
/iuifllC.

of Natural Resources

of Alccikci iccr any loba or damage to fish

game.

rc cccli I ni tn

cccry operations or conic t runt! ocr iicctler this I eaa a or

resulting icon any violation of or iciihcr. to i-nicply with any valid low, regulation, or Icifics of any ppIlc;chLe l.ae. The Ieeuicce reepucnatbihity ucliall iclico ecccuuccpcciccc riern or to nil
onian crOci

Of

its icrenLe employees slid con-

Plill R. Ilotdnworth, Coirasianioner Operiment of Natural Kesourcea

ERRATUM RE COI4IIiTITIVE OIL AND GAS LEASE PORN DL-1

This erratum applies to the corrections of three typographical errora.in the State of Alaslca Competitive Oil and Gas Lease Form, DL-1, two of which are noted in Provision 5, EXTENSION BY UNIT PRODUCTION, and the one whithie noted in Provision 39, CONDITIONAL LEASE. The present provisions are hereby modified by changing the word "action" in line number five (5), word number fourteen (14) in Provision 5 to be "Active"; by changing the word "no" in line number nine (9), word number twenty (20) in Provision S to be any"; and by changing the word and" in line number four (4), word number fourteen (14) in Provlsinn 39 to be any. Provision 5 and Provieio,, 39 ire hereby amended to incorr,orate the above, and will therefore read as follows: (a) This lease shall wIthout 5. EXTENSION BY UNIT PRODUCTION application be extended beyond Its primary term 11 upon or prior to the expiration date of such term the lease Is comaitted to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production to allocated to said Land under the agreement. In such event this lease shall continue In effect so long an it romaine subject to such agreement and ";,ct1v" production under said agreement Is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the terra of this lease, if such lease is on the expiration date thereof included In an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that If any lease or portion thereof is eliminated from such unit plan or recovery program, of if such unit plan or recovery program Is terraLnated, them, gy" such lease or portion thereof shall continue In full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrillfog operations are being conducted thereon and an lung t%iCyeC (ter as oil Or gas is produced In paying quantities. 39. CONDITIONAl. LEASE If all or a part of said land is iand that has been selected by the Lessor under laws of the United Statep granting lands to Lessor, but such land has not been patented to Lessor by the United States, timer, this lease is a conditional Isaac as provided by law until such patent become effective. If for airy reason such a selection Is not finally approved or such a patent does not becotw. effective, any" rental, royalty or minliuu,i, royalty payments made to Lessor under this lease will not be refunded.

Phil R. iloidsworrh, Coireafyionr Department of Natural Resources

Ros coe E. Bell, Director Division at Lands

STATE OF ALASKA
FORM NO DL-1 APRIL, 19ol)

DL ARTMENT OF NATURAL RESO Division of Lands

Competitive Oil and Gas Lease

ES
LEASE NO. AD____________

62 September THIS LEASE dated the let day of made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and .............. THE ATLANTIC Alaska ...! ....

.NcP

hereinafter called "Lessee", whether one or more. 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska:

5-13-5-57 T9N, R13W, SM - All Sections 13, 14, 15, 22, 23, 24 .-. - 3 . 8k0 containing...................acres, more or less, hereinafter6ca d1 "said land".

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For the purposes of this lease, said land contains .................................legal subdivisions, as shown on the plat of said . land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocar _ - - bons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil - and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, If such lease is on the expiration date thereof included in an approved Unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any.lease or portion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days - from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter - - as oil or gas is produced in paying quantities. 6. EXTENSION BY. DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the cod of the primary term, such production shall - / h6ve ceased from any cause, or in the eventproduction shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the.expiration date of the primary terms of the lease and Is continued with reasonable diligence, such operations to include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas is produced.in paying quantities; (C) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditionallease was issued thereon; the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7.- EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce th same,unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any 8USDenslon Of operations in or upon or production from said land If such suspension is made under any order or with the consent of Lessor. -

. S. RENTAL. This lease shall terminate on any anniversary date hereof prior to the completion on said land of a well capable of producing oil or gas In paying quantities,. unless on or before maid anniversary date Lessee shall , pay or tender to Lessor as annual ront8 Gum equal to 81.00 per acre or fraction thereof, then Included In this lease, or ufliosa such annual rental has been watv.d or .suspended provided in Paragraph iS of this tease. It Lessors office in not open for business on . the anniversary date the time for payment in extendedis to Include the next afty on which said office is open for business. Ally rental paid for any one lease year shall be credited on any royalty for MIA year, 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said prodUcit1 oil or gas In paying quantities. Lessee shall ay Leeeor, at the expiration of each lease year, In lieu of land of a well capable of rental a minimum royalty equal to 1. per acre. or fraction thereof, then included In this lease or the difference between the actual royalty paid on production during the year t lttB than ;i.00 per acre and the,rescr1bed minimum royalty. 11. ROYALTY ON P}tODVCTtON. Except for oil an gas used on said land for developmentand production or unavoidably bat, Lessee shall pay Lesr1as royaltythe following: (a) On oil per Cent in amount or value or the oil produced and saved and removed or sold fro said band. (b) On gas ....2. per Cent in amount or value of the gas produced and saved and sold or used off, eald land or used for the extraction of natural gasoline or other product tbqrefrom. On associated substances . (c) 2 per cent In amount or Value of such substances produced and eared and removed or iold from said laide. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. It Lessee shall drill on said land and make the first discovery of oil or In commercial cuant1tiea In any geological structure, the royalty rate under this lease haIl, instead of the rates prescribed in Paragraph be five per cent or a period of ten years following the date of such discovery, and thereafter the royalty rates sha)l be those prescribed in Paragraph ii. If this lease 18 committed to a xinit agretmeit approved or prescribed by Lessor as provided In the regulations, the five per cent royalty rate shall apply to all but only, the production allocated to this lease under such agreement. 13. REIDUCTiON OF RENTAL AND ROYALTY. Rental or minimum royalty may be waived, suspender], or reduced, or royalty may be reduced on all of said land or any tract or portion thereof segregated for royalty purposes If Lessor finds that such relief is nece$aary for the purpose Of encouraging the greatest ultimate recovery of cli or gas Is In the interest of conservation of natural resources and either . that such- relief Is necessary In order to promote development or that the lease cannot be successfully operated under the terms provided heroin. 14. ROYALTY IN KTND. option of Lessor, which may be exercised from Lime to six - .-...--. . -ncL.e to Lessee, Lessor elects toWhenever, at the In kind, Lessee shall deliver free of charge (on eald time upon not less thanas months take its royalty land or at such place I.eeaor and Lessee mutually agree upon) to Lessor or to such individual, firm, or corporation as Lessor may designate allroyalty oil and/or gas produced and saved from said land, Such oil and/or gas shall b in good and merchantable condition. Lesaee shall. If pecesaary, furnish storage for royalty oil free of charge for thirty days after the end of the calendar month in which the oil is produced from said land:provided that Lessee shall not be held liable for loss or destruction of royalty oil and/or gas from causes beyond Lessees reasonable control, Should Lessee dehydrate or clean the oil or gas produced from said band. Lessee shall be entitled to an allowance of the actual cost of dehydrating or oleaning said royalty oil or gas. 15. ROYALTY IN VALUE. At the option of Lessor which may be exercised from time to time upon not less than six months notice to Lessee, and In lieu of royalty in kind, Lessee shall pay to Lessor the field market pric or value at the well of all royalty oil and/or gas. All royalty that may become payable in money to Lessor shall be paid on or before the last day of the calendar month following the month in which the oil or gas Is produced. The payments shall be accompanied by copies of run tickets or other satisfactory evidence of sales, shipments, and amounts or gross production. 16. PRICE. The field market price or value of royalty oil or gas shall not be less than the highest of: (1) The price actually paid or agTeed to be paid to Lessee at the well by the purchaser thereof, If any; or (2) The posted price of Lessee in the field for such oil or gas at the well, If any; or, (2) The prevailing price received by other producers in the field at the well for oil of like grade and gravity or gas of like kind and quality at the time such oil or gas is removed from said land or run into storage, or such gas is delivered to an extraction plant. 11- PAYMENTS. All payments to Lessor under this lease shall be njtLde payable to the Department of Revenue of the State of Alaska and chall be tendered to Lessor at the place designated under Paragraph 4% for giving notices to Lessor. 18. OFFSET WELLS. Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately troni lose by reason of drainage resulting from production on other land. Wittuict limiting the generality of the foregoing sentence, if oil or gas should be produced in a well on other land not owned by Lessor or on which Lessor receives a lower rate of royalty than the royalty under this lease, which welt is within 590 feet in the case of an nil well or 1,500 fact in the case of a gas well of lambs then subject to this lease, and such well shall produce oil or gas In paying Quantities for a period of thirty cnnsoeuLive days; and If, after notice to Lessee and an opportunity to be heard. Lessor rinds that production from such Well Is draining lends then subject to this lease, Lessee shall within 120 days after writtep demand by Lessor begin In good faith and prosecute diligently drilling operations for an offset well on said lend. In lieu of drilling any well required by this paragraph. Lessee may with Lessors consent compensate Lessor in full each month for the estimated loss of . royalty through drainage in the amount determined by lessor.

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19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE. Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do, Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense; and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the -reguln.tions of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect If not inconsistent with any - specific provisions of this lease. 21.. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said welt. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23. LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, If taken, and a record of all tests run for each well drilled on said land, together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such welt has been completed, suspended, or abandoned. Any and all information filed by Lessee with Lessor in connection with this lease shall he available at all times for the confidential use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department* of Natural Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, responsibilities, and duties arising In connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS, Lessee shall -keep and have in its possesim books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon sueh methods and techniques as shall insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article Vii of the Alaska Land Act, Chapt. 109, S.L.A., 1919, as amended, provides In part or Its that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor Lessee until proviion has been madii to pay to the owner of the land upon wh(ch the reserved rights are sought to be exercised full payment for all d1jsustained by said owner by reason of%na upon said land; provided, that if said owner for any cause whate ssor or Its Lessee shell have the ses or neglects to settle said damag right to institute such legal proceedn the land Is situated as may be a court of competent jurisdiction whe necessary to determine the damage which the owner of such land may suffer. L e hereby agrees to pay any damage that may become.payable under said statutory provisions and to indemnify Lessor and hold it harmless from and
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kJcfloca flhsDIU5 of -a bondAn nee with tsLeaewTlle regarded by Lessor as aSuffirovision for the payment of all damage -that. may- become payable una1d statutory provisions. .26.-BONDS. . . (a) Les.eshh maintain the r furnished prior to the Issuance of thi se in an amount equal to at least $2.00 peracreori1raetjon thereof coniatned in said land but not less than $1,00 . 0. (b)l _-B&f6f61 6giiinlng drilling operations on said land Lessee must have furnished and shall maintain a bond In an amount.of at least:$ 5 ,000.00. (c) Lessee;may; in lieu of the foregoing, furnish and maintain a. statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amount specified above In this paragraph where such greater amount Is justified by the nature of the surface and its uses and improvements In the vicinity of said land and the degree of the risks involved in the types of operationsb&ng or to be carried out under this lease. A statewide bond will not satisfy any requirement Of a bond Imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed in whole or in part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with$ the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so cpmmittedto such agrment. 27. ACTS:OF GOD, Should Lessee-be prevented from complyingth any pressed or implied covenant, of this lease, from . conductii drilling operations thereon, or from producir(or marketing oilor gas from said land after efforts made in good faith,. by reason of war, riots, acts of God, severe weather in the area 5f said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any otherause beyond Lssees reasonable ,. control whether similar to those enumerated or not then while so prevented and forIa reasonable time. thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith. If drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such operations is suspended under this paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVAT1ONS, Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right tauthorize others by rant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and oparations under this lease, to enter upon and use sad land: . . . . .... . (a) To explore for oil or gas by geological or geophysical means including the thilhing of shallow core holesor stratigraphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (c) For nonexclusive easements and rights of way for any lawful purpose including shafts and tinnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substances in and from other lands. (e) For any othr purpose now or. hereafter authorized by law and not inconsistent with the rights of Lessee unrhr this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storajof oil or gas except as a necessary Incident to recycling pressure maintenance, repressuring, or other.. similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface sto3ge of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lesse inariy reservoir covered V by this lease capable ofroducing oil or gas in paying quantities. 1 31. ASSIGNMENTS, This lease or any undivided interest herein may with the aiidsia1 of Lessor be assigned or subleased as to saidThncl or any one or more legal subdivisions included therein,, oapy separate and distinct zone geological horizon upderlying said land or such one or ore legal subdivisions, to any. person. or persons qualified more to hold a lease. Nd-transfe, of any interest in this lease including assignments of workingior royalty interests and opr. erating agreements andsu1ease1Thl1be binding upon Lessor unless approv&l by Lessor. Lessee shall remain liable for all obligations under thjslease accruing prior to the approval of such transfer. Appro3i of transfer of this lease or an interest therein ikill nobe denied except (1) for failure to comply with the regulations, (2) In the discretion of Lessor, where the transfer .covcrs any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessorjustif such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer Is made of all or a part of Lessees interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. i IJNITrZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof. Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated Into a separate and distinct lease having the same effective date as this lease.: 33, SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any nortiori thereof comprising one or more legal subdivisions" or, with. .thebonsent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered released zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.
LIULSI US ILL VL1LZt..I.tS .

34. ]DEFAULT, TERMINATION. Whenever Lessee fails to comply with any of the provisions of this lease other than the payment of rental ai.d Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there is no well on said land capable of producing oil or gas in paying quantities, if at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all . drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be. reasonablynecessarTlB enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. RIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as toall or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof Shaizecome the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It is the intention of the parties that the rights vested in Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR lNTEREST.If.Lessor owns a lesser interest in the oil and gas deposits In said land than the entire and undivided fee simple sttethen the royalties and rentals herein provided shall be paid Lessor only In the proportion which its interest &ears tothe whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land is land that has been e1eted by the Lessor under laws of the United States ..grantingratLessor, buteh land has not been patented to Lessor by the United States, then this lease is a condftioil Jeaseas provided by lawuntil such patent become effective.If(for.any..reason such a selection is not finally apptoved or such a patent does not become effective, and rentaI,,yalty,orthlflimuin royalty payments made to Lessorithder, this lease will not be refunded. 40. DRILLING: QR .TIONS. As used in this lease "drilling operations" .meaEaiiewcrk or actual per undertaken or comrnP.E. in good faith for the purpose of carrying out any of the rights, tprlvileges or duties of Lessee under this lease, .d diligently and in duecourse by the construction of a road or dcrrickand/or other necessary structures for the-;..;;aing of an oil or gas well, and by the actual operation of drilling in the groud: Any such work . or operations preliminary to drilling in the ground may be undertaken either on said land oln the vicinity. of said land in any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used In this lease, "actual drilling" means anyaridlall operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. It 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulation of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used in this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this leasdand are inserted only for convenience. ny notice required or permitted under this lease shall be in writing and shall be given by reg43. NOTICES. istered or certified mail, return receipt requested, addressed as follows To Lessor: To Leee . ,. The A....jit......J.r.... nin9ornparly Director, Division of Lands State of Alaska . .. Box .3,44 Sixth Anchorage,Aaska eeAXa Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given In accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or assigns of Lessor and Lessee, 45. WILDLIFEISTIPULATIONS. This lease is subject to such stipulations as are attached.
.11

IN WITNESS WHEREOF he parti4s have execu d this lease. I.

STAT4 OF ALASKA . ., By Titl1 is -kerah-z..Officer. .................. .LESSOR

rrTs r. H C Asst Vi!c.e Frs i

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LESSEE
THE UNITED sTATuS OF AMERICA

STATE OF ALASKA

85.

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This eerttttes that on te2eay of is..2, before me, a notary Public in and for the State of Alaska, duly commissioned and sworn, personally appeared .............................. N.QBBIS...G..BAKKE,..j.& ........- ......, to me known and known to me to be the person described in:and who executed the foregoing lease on heheif of the Stoof .tjaska as Director of the Division of Lands, Department or Neutral Rsoures, or his authorized agent. The Said .................................................... ,t ....- ........... executed sold lease in i -ny Presence and, after twtng duly sworn according to law. stead to me ,,,ider oath that he Is the Director of the Division of Lancis.Depa,tment . of Natural flesoureex. or his authorized agent, and has authority pursuant to law to execute the foregoing lease as such Directdr or authorized agent. on-behalf .of.tLe tAste of Alaska, OCtiOC through theDivision of Lands, Department of Natural Resources and that exehutid the same freely and voluntarily as the free ar luntary act and deed of the said State of MaskI for the Division of Lands, Department of Natural Roso y hc a d fi a day and veer In thia certificate above writle. WIT f

............................................................
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cercfe,l on tender the urine shall hi, eosrdncr rd in is manner al.1n hit-tory to the Stale of Atinikin J)iperiniii.nL of Niticrirril keniiiicna with dlie regard for I sib rind game rind cm)inipletiiig
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PS,

ERRATUM RE COMPETITIVE OIL AND GAS LEASE FORM DL -I

This erratum applies to the corrections of three typographical errors in the State of Alaska Competitive Oil and . Ong Lease Form . DL -1, tWo of which are not in Provision 5 EXTENSION BY UNIT PRODUCTION and thea one which is noted in -Provision 39, CONDITIONAL LEASE. The present provisions are hereby modified by changing the word "action" in line number five (s), word number fourteen (14). In Provisions to be "active"; by changing the word "no" in line number nine (9),.word number twenty (20) In Provision 5 to be "any";, and by changing.the. word "and" in line number four (4) word number fourteen (14) In frovtdion 39 to be any
- Provision ,5 and Provision 39 are hereby aiiionded Co Incornorate the above, and . will.therefore read as followa;

S EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond its primary term if upon or prior, to the expiration date of such term the lease is committed to -aunit agreement approved or prescribed by J.eseor as provided in the regulations production of oil or gas is had in paying quantities under the agreemeset and a portion of such production 14 allocated to said land under the agreement In such event this lease shall Continue in effect so long as- it rfmains spbject to such nreeabent and "ccive production under said agreement is allocated to said land (b) The Commissioner my.. in his discretion provide for the extension of the term of this lease if such lease is on the expiratiofr date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring a bout or rite tore produc e tionj provided however that if any leas:f. or portion thereof is eliminated . or recovery program, from such unit plan if such unit plan or recovery program is terminated, then "" such lease or. portion thereof shall, continue in full force and effect for ninety (90) days from the date of such ellaiinstien.or termination and so long-thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 39. CONDITIONAL LEASE If all or a part of said land im jand . that has been selected by the Lessor under laws of the United State,. granting lands to Leasoi but such land has not been patented to Lessor by the Ukited States then this lease is a conditional lease as provided by law until such patent become eflective If for any reason uch a selection is not finally Approved.or such a patent does not become effective rental royalty or minimum royalty payments made Co Lessor under this lease will not be refunded

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Phil it... Holdsvorth CoemisionerDepartment of Natural Resources Roscoe E flelli Director Dvteion of Lands

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S
roRM NO. DL-1 (REVISED APRIL.

STATE OF ALASKA

D ARTMENT OF NATURAL RESOCES Division of Lands

Competitive Oil and Gas Lease

i877
LSASE NO. AOL

THIS LEASE, dated the....]St ..... day of , 19-----62, is made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and IN. ... . A1T--... hereinafter called "Lessee", whether one or more. 1. GRANT. For and in consideration of a cash bonus and the first years rental, the receipt of which is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska:

S-13-5-56 T9N, R1 3W, SM All Sections 7, 18, 19

containing ......... 19 02 acres, more or less, hereinafter called "said land" For the purposes of this lease, said land contains .......... 3-aJ..1 .............. legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is described above by protracted legal sudivisioris, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocar bons produced at the well not defined herein as oil. "Associated substances" means all substances produced in association with oil or gas and riot defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, In the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto. 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond Its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided In the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production Is allocated to said land under the agreement. In such event this lease shall continue in effect so long as It remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof included in an approved unit plan or If it is included in a program of secondary recovery operation designed to bring about or restore production, provided however, that If any lease or portion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilhing operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained In paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate If the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result In the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom its paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and Is continued with reasonable diligence, such operations to include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue in full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (c) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shaU not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. a. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land If such suspension is made under any order or with the consent of Lessor.

. RENTAL. This lease shall terminate on any anniversary date hereof prior to the completion on BaJd land Of a well capable of producing oil or gas In paying quantities,. UUIOBU On or before said anniversary date Lessee shall pay or tender to Lessor as aAuupLl rental sum equal to $1.00 per aCTs or fraction thereof, then included in this lease, or unless such axrnat mnthl has been waived or suspended provided In Paragraph 13 o this lease. If Lessors office I not open for business on the anniversary date the time for Payment t extended to Include the next day on which said office is open for business. Any rental paid for any one lease year shall be credited on any royalty for that year. 10. MINIMUM ROYALTY. Commencing with the lease year beginning on or after completion on said land of a well capable of profucItg oil or gals in paying quantities, Lessee shall pay Lessor, at the expiration of each lease yeer, in 11ev of reta1 a mtn%mu oysty equal to $1.00 per acre, or fraction thereof, then Included to this lease or the difference between the actual royalty paid on production during the year if boa than $1.00 per acre and the Prescribed minimum royalty. 11. ROYALTY ON PRODUCTION. Except for oil and gas used on said land for development and production or unavoidably bat, l4eeee shall pay Lesorfa royalty the following: a) On oil per cent In amount or value of the oil produced and saved and removed or sold from said land. (b) On gaa .-..3_2w.-. per cent In amount or value of the gas produced and saved and sold or used off said land or used for the extrac. tton of flatural gasoliYte 6r other produW herofrom. (C) On associated substances per cent In amount or value of such substances produced and saved and removed or sold from said lands. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY. If Lessee shall drill on said land and make the first discovery of oil or In commercial quantities In any geological structure, the royalty rate under this lease shall, Instead of the rates prescribed In Paragraph be five per cent for a period of ten years following the date of such discovery, and thereafter the royalty rates shall be those prescribed In Paragrapti 11. It this lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, the five per coat royalty rate shan apply to alt, but only. the production allocated to this lease under such agreement. 23. REDUCTION OF RENTAL AND ROYALTY. Rental or minimum royalty may be waived, suepended, or reduced. or royalty may be reduced on all of said land or any tract or portion thereof segregated for royalty purposes If Lessor finds that such relief Is necessary for the purpose of encouraging the greatest ultimate recovery of oil or gas and Is in the interest of conservation of natural resources and either that such relief Is necessary in order to promote development or that the lease cannot be successfully operated under the terms provided herein. 14. ROYALTY IN KIND. Whenever, at the option of Lessor, which may be exercised from time to time upon not less than six months notice to Lessee, Lessor elects to take its royalty in kind. Lessee shall deliver free of chnrge (on said land or at such place as Lessor and Lessee mutually agree upon) to Lessor or to such individual, firm, or corporation us Lessor may designate all royalty oil and/or gas produced and caved from said land. Such oil and/or gas shall be in good and morchantahbe condition. Lessee shall, if pecessary, furnish storage for royalty all free of charge for thirty days after the end of the calendar month in which the oil Is produced from said land; provided that Lessee shall not be held liable for lose or destruction of royalty oil and/or gns from causes beyond Lessees reasonable control. should L.eesee dehydrate or clean the oil or gas prpduced from said land, Lessee shall be entitled to an allowance of the actual coat of dehydrating or cleanhig said royalty oil or gas. 15. ROYALTY IN VALUE. At the option of Lessor, which may be exercised from time to time upon not leas than 1x months notice to Lessee. and In lieu of royalty In kind, Lessee shall pay to Lessor the field market price or value at the well or all royalty oil and/or gas. royalty that may become Payable in money to Lessor shalt be paid on or before the last day or the calendar month following the month in All which the oil or gas Is produced, The payments shall be accompanied by copies of run tickets or other satisfactory evidence of sales. shipments, and amounts or gross production. 16. PRICE. The field market price or value of royalty oil or gas shall not be less than the highest of (I) The price actually paid or well agreed to be paid to Lessee at the by the purchaser thereof, if any; or (2) The posted price or Lessee in the field for such oil or gas at the well if any; or, (3) Theprevailing price received by other iroduoera in the Yield at the well for oil of like grade and gravity or gas or like kln and quality at the time such oil or gas is removed from said land or run into storage, or such gas Is delivered to an extraction plant. 17. PAYMENTS. All payments to Lessor under this base shall be mode payable to the Department Or Revenue of the State of Alaska and shall be tendered to Lessor at the place designated under Paragraph 43 for giving notices to Lessor. 15. OFFSET WELLS. Lessee shall drill such wells as a reasonably prudent operator would drill to protect Lessor adequately from lose by reason of drainage resulting from production on other land. Without limiting the generality of the foregoing sentence, if oil or gas should be produced In a well on other land not Owned by Lessor or on which Lessor receives a lower rate or royalty than the royalty under this lease, which well Is within 500 feet in the case of an all Well or 1,500 feet in the Case of a gas well of lands then subject to this lease, and such well shall produce oil or gas in paying quantitIes for a period of thirty consecutive days; and if, after notice to Lessee and an oppor tunity to be heard, Lessor finds that production from Such well is draining lands then subject to this lease, Lessee shall within 120 days after written demand by Lessor begin in good faith and prosecute diligently drilling operations for an ofleet well on said land. In lieu of drilling any well required by this paragraph. Lessee may with Lessors consent Compensate Lessor In full each month for the estimated lose of royalty through drainage in the amount determined by lessor.

Ra

19. OTHER WELLS. This lease contemplates the reasonable development of said land for oil and gas as the facts may justify. Upon discovery of oil or gas in paying quantities on said land, Lessee shall drill such wells as a reasonably prudent operator would drill having due regard for the interests of Lessor as well as the Interests of Lessee. 20. DILIGENCE; PREVENTION OF WASTE, Lessee shall exercise reasonable diligence in drilling, producing, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall carry on all operations hereunder in a good and workmanlike mariner in accordance with approved methods and practices, having due regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or strata to the destruction or injury of such deposits and the preservation and conservation of the property for future productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug securely in an approved manner any well before abandoningit; shall allow Lessor to inspect all operations at any time; shall carry out at Lessees expense all reasonable orders and requirements of Lessor relative to the prevention of waste and the preservation of said land, and on failure of Lessee so to do. Lessor shall have the right together with any other recourse available to it to enter on said land to repair damage or prevent waste at Lessors expense: and shall abide by and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conservation Commission and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in effect if not inconsistent with any specific provisions of this lease. 21. WELL LOCATIONS. Lessee shall within five days after spudding In a well advise Lessor in writing of the location and date of spudding of said well. 22. APPROVAL OF PLANS. Lessee shall not place into actual operation any plan or method for the purpose of stimulating or increasing production on said land other than plans and methods in common use without first having obtained the written approval of Lessor. 23, LOGS AND RECORDS. An electric log or radioactive log, if taken, and a descriptive geologic sample log, if taken, and a record of all tests run for each well drilled on said land, together with a plat showing the exact location of each such well, shall be filed with Lessor within thirty (30) days after such well has been completed, suspended, or abandoned. Any and all Information filed by Lessee with Lessor in connection with this lease shall be available at all times for the confidei, tial use of Lessor for the purpose of enforcing compliance with the terms, covenants, and conditions of this lease and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (SO) clay filing period, except upon written consent of Lessee. Notwithstanding any other provision hereof, said information may be disclosed to any person where such disclosure is reasonably necessary for the administration of the functions, responsibilities, and duties vested by law in the Commissioner of the Department of Natural Resources or In the Division of Lands or the Director thereof. including but not limited to functions, responsibilities, and duties arising in connection with any litigation or administrative adjudication relating to this lease or to the rights, duties, and obligations arising hereunder. 24. RECORDS. Lessee shall keep and have in its pOssession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hours to examine the same. Such records and reports of production shall be based upon such methods and techniques as shall Insure the most accurate figures reasonably available without requiring the Lessee to provide separate tankage for each well. 25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act, Chapt. 169, S.L.A., 1959, as amended, provides In part that no rights under reservations contained in certain leases or grants of Alaska land shall be exercised by Lessor or Its Lessee until provision has been madg. to pay to the owner of the land upon whith the reserved rights are sought to be exercised full payment for all d es sustained by said owner by reason upon said land; provided, that it said owner for any cause what efuses or neglects to settle said dama Lessor or its Lessee shall have the right to institute such legal proccedwgs In a court of competent jurisdiction ..ein the land is situated as may be necessary to determine the damage w1ft the owner of such land may suffer. e hereby agrees to pay any damage that may become payable under .saAWatutory provisions and to indemnify LeW and hold It harmless from and

OAK

_______" u in compliance with this Leaill be regarded b I.es-urds a sufficIerovislon for the payment of all 11W IM may become payable undlWaid statutory provisions. 26. BONDS. (a) Lessee shall maintain thd furnished prior to the issuance of t a se in an amount equal to at least $2.00 per acre or fraction thereof $ined in said land but not less than $1,00. (b) Before beginning drilling operations on said land Lessee must have furnished and shall maintain a bond in an amount of at least $5,000.00. (c) Lessee may, in lieu of the foregoing, furnish and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an opportunity to be heard, require a bond in a reasonable amount greater than the amount specified above in this paragraph where such greater amount is justified by the nature of the surface and its uses and improvements in the vicinity of said land and the degree of the risks involved in the types of operations heng or to be carried out under this lease. A statewide bond will not satisfy any requirement of a bond Imposed under this subparagraph but will be considered by Lessor in determining the need for and the amount of any additional bond under this subparagraph. (e) If said land is committed In whole or in part to a cooperative or unit agreement approved or prescribed by Lessor pursuant to law and the regulations and a unit bond is furnished in accordance with the regulations, Lessee need not thereafter maintain any bond with respect to the portion of said land so committed to such agreement. 27. ACTS OF GOD. Should Lessee be prevented from complying with any expressed or implied covenant of this lease, from conducting drilling operations thereon, or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots, acts of God, severe weather in the area of said land, acts of governmental authorities, failure or lack of adequate transportation facilities, or any other cause beyond Lessees reasonable control whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter within which to resume operations, Lessees obligation to comply with such covenant shall be suspended and Lessee shall not be liable for damages for failure to comply therewith, If drilling or reworking operations are suspended by virtue of this paragraph and the prosecution of such operations would have had the effect of preventing the expiration or termination of this lease, then this lease shall not terminate during the period which the obligation to perform such Operations is suspended under this paragraph; provided, however, that nothing in this paragraph shall be construed to suspend the payment of rentals or of minimum royalties. 28. SUSPENSION. Lessor may from time to time direct or assent to the suspension of production or other oper ations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor reserves the right to dispose of the surface of said land to others subject to this lease, and the right to authorize others by grant, lease, or permit subject to this lease and under such conditions as will prevent unnecessary or unreasonable interference with the rights of Lessee and operations under this lease, to enter upon and use sad land: (a) To explore for oil or gas by geological or geophysical means including the thilling of shallow core holes or strati. graphic tests to a depth of not more than 1,000 feet. (b) To explore for, develop and remove natural resources other than oil, gas, and associated substances on or from said land. (c) For nonexclu.ive easements and rights of way for any lawful purpose Including shafts and tinnels necessary or appropriate for the working of said land or other lands for natural resources other than oil, gas or associated substances. (d) For well sites and well bores of wells drilled from or through said land to explore for or produce oil, gas, and associated substances in and from other lands. (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee under this lease. 30. UNDERGROUND STORAGE. This lease does not authorize the subsurface storage of oil or gas except as a necessary incident to recycling pressure maintenance, repressuring, or other similar operations designed to increase the ultimate recovery of oil or gas or prevent the waste of oil or gas produced from said land or from any unit area of which the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such conditions as will prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, including conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered by this lease capable of producing oil or gas in paying quantities. 31. ASSIGNMENTS. This lease or any undivided interest herein may with the approval of Lessor be assigned or subleased as to said land or any one or more legal subdivisions included therein, or any separate and distinct zone or geological horizon underlying said land or such one or more legal subdivisions, to any person or persons qualified to hold a lease. No transfer of any interest In this lease including assignments of working or royalty interests and operating agreements and subleases shall be binding upon Lessor unless approved by Lessor. Lessee shall remain liable for all obligations under this lease accruing prior to the approval of such transfer. Approval of transfer of this lease or an interest therein will not be denied except (I) for failure to comply with the regulations, (2) in the discretion of Lessor, where the transfer covers any distinct zone or geological horizon, or (3) where Lessor determines that the best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply with the regulations and must be filed within ninety days after the date of final execution of the instrument of transfer. Where a transfer is made of all or a part of Lessees interest in and to a portion of the acreage in said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessor be segregated Into a separate and distinct lease having the same effective date as this lease. 32. UNITIZATION. Whenever determined and certified by Lessor to be necessary or advisable in the public interest for the purpose of properly conserving the natural resources of any oil or gas pool, field or like area or any part thereof, which includes or underlies said land or any part thereof. Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lessor including lands belonging to the United States and with others, jointly or separately, in collectively adopting and operating under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessor subscribe to such a cooperative or unit agreement, which agreement shall be reasonable and shall adequately protect all parties in interest including Lessor. Lessor may with the consent of Lessee establish, alter, change, or revoke drilling, producing, rental, minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with reference to this lease with the like consent of Lessee in connection with the institution and operation of any such cooperative or unit agreement as Lessor may determine to be necessary or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and may upon the request of Lessee and with the approval of Lessor be segregated into a separate and distinct lease having the same effective date as this lease. 33. SURRENDER. Lessee may at any time make and file with Lessor a written surrender of all rights under this lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Lessor, of any separate and distinct Zone or geological horizon underlying said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of filing subject to the continued obligations of Lessee and his surety to make payment of all royalties theretofore accrued and to place all wells on the surrendered land or In the surrendered zones or horizons in condition satisfactory to Lessor for suspension or abandonment; thereupon, Lessee shall be released from all other obligations accrued or to accrue under this lease with respect to the surrendered lands, zones, or horizons.

34. DEFAULT; TERMINATION. Whenever Lessee fads to comply with any of the provisions of Uiis lease other than the payment of rental and Lessee fails within sixty days after written notice of such default to commence to remedy and thereafter prosecute diligently operations to remedy such default, Lessor may cancel this lease if at that time there is no well on said land capable of producing oil or gas in paying quantities. if at such time there is on said land a well capable of producing oil or gas in paying quantities, this lease may be cancelled only by Judicial proceedings. In the event of any cancellation under this paragraph, Lessee shall have the right to retain under this lease any and all drilling or producing wells as to which no default exists together with a parcel of land surrounding each such well or wells and such rights of way through said land as may be reasonably necessary to enable Lessee to drill and operate such retained well or wells. 35. EXCESS AREA. If for any reason said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, this lease shall not be void but the acreage included in said land shall be reduced to the permitted maximum. Whenever Lessor determines that this lease so exceeds the permitted acreage and notifies Lessee stating the amount of acreage that must be eliminated, Lessee may within sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreage that must be eliminated. If such a surrender Is not filed within such sixty days Lessor may terminate this lease as to the acreage that must be eliminated by mailing notice of such termination to Lessee describing the parcel or parcels eliminated. Such a notice shall have the effect of terminating this lease as to the parcel or parcels described in such notice. 36. BIGHTS ON TERMINATION. Upon the expiration or earlier termination of this lease as to all or any portion of said lands, Lessee shall have the privilege at any time within a period of six months thereafter, or such extension thereof as may be granted by Lessor, of removing from said land or portion thereof all machinery, equipment, tools, and materials other than improvements needed for producing wells. Any materials, tools, appliances, machinery, structures, and equipment subject to removal as above provided which are allowed to remain on said land or portion thereof shall become the property of Lessor upon expiration of such period; provided, that Lessee shall remove any and all of such properties when so directed by Lessor. Subject to the foregoing, Lessee shall deliver up said lands or such portion or portions thereof in good order and condition. 37. INTEREST IN LAND. It Is the intention of the parties that the rights vested In Lessee by this lease shall constitute an interest in real property in said land. 38. LESSOR INTEREST. If Lessor owns a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only In the proportion which its interest bears to the whole and undivided fee. 39. CONDITIONAL LEASE. If all or a part of said land is land that has been selected by the Lessor under laws of the United States granting lands to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent become effective. If for any reason such a selection is not finally approved or such a patent does not become effective, and rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded. 40. DRILLING OPERATIONS. As used in this lease "drilling operations" mean any work or actual operations undertaken or commenced in good faith for the purpose of carrying out any of the rights, privileges or duties of Lessee under this lease, followed diligently and in due course by the construction of a road or derrick and/or other necessary structures for the drilling of an oil or gas well, and by the actual operation of. drilling In the ground. Any such work or operations preliminary to drilling in the ground may be undertaken either on said land or in the vicinity of said land In any order Lessee shall see fit. 40. (a) ACTUAL DRILLING. As used in this lease, "actual drilling" means any and all operations necessary or convenient to the drilling of a well in the ground after the first drilling or spudding with equipment of sufficient size and capacity to drill to the total depth proposed for the well. 41. RULES AND REGULATIONS. As used in this lease "regulations" mean the applicable and valid oil and gas leasing regulations of the Commissioner of the Department of Natural Resources in effect on the effective date of this lease unless otherwise specified. 42. INTERPRETATION. As used In this lease words which are defined in the regulations have the meaning assigned by such definition except where the context clearly requires a different meaning. The paragraph headings are not a part of this lease and are inserted only for convenience. 43. NOTICES. Any notice required or permitted under this lease shall be in writing and shal be given by registered or certified mail, return receipt requested, addressed as follows: To Lessor: To Lessee S... AL 9,qany Director, Division of Lands State of Alaska Box ik1i6 344 Sixth AX cie a Anchorage, Alaska
.

Any such notice shall be deemed given when delivered to the foregoing address. Either party may change the address to which such notices are to be sent, by a notice given In accordance with this paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease, the covenants, conditions, and agreements contained in this lease shall extend to and be binding upon the heirs, executors, administrators, successors, or algns of Lessor and Lessee. 45. WILDLIFE STIPULATIONS This lease is subject to such stipulations as are attached. IN WITNESS WHEREOF the p" 4ies have executed this lease. STATE OF ALASKA

Aas...1!icersiden.t .................. .. -------------LESSEE

THE UNITED STATES OF AMERICA STATE OF ALASKA
)

....................

.L/

By ....... ....
Title ------

rip. t?.L --- Qft Ir. er. ................ LESSOR i

SS.

This certifies that on the.2 ayof ..... before me, a notary public in and for the State of Alaska, duly Vi4.Z:. . o commissioned and worri, personally appeareiS ................................ NORMS .C,.BAxKE,..jfi ........................ to me known and known to me to be the person described In and who executed the foregoing lease on behalf of the State of Alaska as Director of the Division of Lands. Department of Natural Rcsources, or his authorized agent. The said ........................ ...... ......S. ..c...BA E5.. .- ........... executed said lease in ray presence and, after being duly sworn accordin g law, stated to me und to under oath that be la the Director a tie Division of Lands, Department of Natural Resources, or his authorized agent, and has authority pursuant to law to execute the foregoing lease as such Director, or-authorized agent, on behalf of the State of Alaska, -ing through the Division of Lands, Department n Natural Resources and that lie executed the oluntary act and deed of the said State of Alas same freely ajid V otarily as the free a ii for the Division of Lands, Department of Natural ltesyifrc WIT the day and year In this certificate above wri d -- y h

......................................

Notary Pubjin o rid

Alaska.

Commission expires

....

I
W1l.DUL StJPliiI0NS The lace ihall: (I) Ohcatn the wiitI:..!n approval of tho Departineiit. Resourcu-8 for the on tide or

of Natural

location anti type of each structure before it In erected

land. Dcpnrtiarnt act Lop in applicatfone for auch

submerged

6 tructures shall he taken within 30 days of rOCO I pt ci such applications.. () Appoint nnd tnnLnLaLn at all times donna nit construction or operations en the tide and otibineryLod lands ii local agent upon whom may he nerved written orders or notices reopecring matters contained in these stIpulatIons and to provide the CnsoiJs1nner of the State , of Alaska Department of Natural Reiiouirei wltil the nama and address of suii:hi agent. (3) Marts thin all construction or development nctivi thee

carried on tinder the )aaaa shall he conditcred in a canner eiir.tafactory no the State of Alaska DaparLnuent of Natural Resources with due regard for fish and game coflCrivtt tin, and shall in. Ii lit and ComJil tiLing wilini. (4) Install niluiete blowout prevention control equipment and proper methofla In drilling

take other safety meilSurea provided for in the oil and gaa conservation rigmilatloips or ordered by the ;iniesion,r ul Natural Noinurcea. () Maintain oil where platforms or lmlirnea in such a ianfli!r that all oil by-products may be drniiith throtigh actippera and disposed of In a naniiar aatiefscrory to the SimiLe of Alaska Department of Natural Re5ouirccmt wEdS dun regard to their cii em I.e on ii h and gale (6) Keiimmburao tin Srale nt Ahitika for arty baa or damage to fish or game retiolvinp, from any operations or c.onhLrucE.iOn tinder this lease Or resulting frujim tiny viulatinni of or fillure to comply with any valid Jew, regulation, or rarmmi of any eppltci,IsIe hase. The IaeieCa responsibility shall also enciap1mpsa acts or mmmmlaalijnia of its agents, empinyee6 and contractors,

of the StOne of Alnaka Department

Itill E Holdawotch, Commissioner Depaniunent of Natural Resources

.*
ERRATUM RE COMPETITIVE Oil. AND GAS LEASE PORN DL1 This erratum applies to the corrections of three typographical errors in the State of Alaska Competitive Oil and Gas Leone Form, DL-1, two of which are noted in Provision 5, EXTENSION BY UNIT PRODUCTION, and hc one which is noted in Provision :19, CONDITIONAL LEASE. TA present provisions are hereby modified by chnglng the word "action " Vh line number five (5), word number fourteen (14) in Prevision 5 to be "active"; p changing the word no" in line number nine (9), word number twenty (20) Provision 5 to be "any"; end by chaiigin; the word "and" in I e number four (4), word number fourteen (14) in Provision 39 to be "soy". Prov1olo 5 and Pro1slon 39 are hereby amended to 1ncorpotat lie above, and will therefore read as follows: 5,EXTENSION BY UNIT PRODUCTION (a) This lease shall without pplication b aextended beyond its primary term If upon or prior to the expiration date of such term the lease is committed to a unit agreement 1gopproved or prescribed by lessor as provided in the regulationsjrc ,4uct1on of oil or gas is had in paying quantities under the agreement, portion m ol such production La allocated to said land under the agreementIn auch event tills leaae shalt continue in effect so long as it remain, ject to such arcenant sod ",,cLIve" production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such tease is on the expiration date thereof included in an approved unit plan or if it is included in a prc>gran, of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof Is eliminated from such unit plan or recovery program, of if such unit pLa!r recovery program Is terminated, then "" such lease or portion theredf aliaIl continue In full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilltng perationa are heing cui,ductecj thereon and a,, long thereafter oil or gas produced in paying quantities. 39. CONDITIONAl. LEASE ii all or a part of said la!d is land that has been selected by the lessor under laws of the tJ,,ltcd SLateS granting land, to Lessor, but such land I,aa nor been patented to Lessor by the i1St.ctea. then this lease is a conditional lease as provided by la unDt.l such patent become cilective. If lot any reason such a selection is not finally approved or such a patOnt does not become effective, "g" rental, rYrminimum royalty paymes made to Lessor tinder this lease will not be Telued.

80

Phil R. Iholdawnrth, Commissioner Department of Natural Resources

Roscoe E. Bell, Director Division of Lands

5

.m"

ease WI:
FORM NO. DL-1 (kEVISED APRIL. L91)

STATE OF ALASKA
Division of Lantis

" WL

cient pr

DEWFMENT OF NATURAL RESOURIAS

LEASE NO. AOL

21068

Competitive Oil and Gas Lease

THIS LEASE, dated the day of .....U.1y .. ............ , is made by and between the State of Alaska, acting by and through the Director of the Division of Lands, Department of Natural Resources or his authorized agent, hereinafter called "lessor", and N COMPANY ..................... THEANT BOX 59, ANCHORAGE S ALASKA hereinafter called "Lessee". whether one or more. 1. GRANT. For and in consideration of a cash bonus and the first years rental. the receipt of whith is hereby acknowledged, and of the rentals, royalties, covenants, and conditions herein contained on the part of the Lessee to be paid, kept and performed, and subject to the conditions and reservations herein contained, Lessor does hereby grant and lease unto Lessee, exclusively, without warranty, for the sole and only purposes of exploration, development, production, processing and marketing of oil, gas, and associated substances produced therewith, and of installing pipe lines and structures thereon to find, produce, save, store, treat, process, transport, take care of and market all such substances, and for drilling water wells and taking underground and surface water for use in its operations thereon, and for housing and boarding employees in its operation thereon, the following described tract of land in Alaska:

S-13-5-99 All Section 12, T9N-R14W, S.M. All Section i3, T9N-R14W, S.M. / All Section 23, T9N-R14W, S.M. All Section 14, T9N-R14W, S.M. All Section 24, T9N-R14W, S.M. containing ... 34.20.0 ........ acres, more or less, hereinafter called "said land".
For the purposes of this lease, said land contains......... the ..................legal subdivisions, as shown on the plat of said land attached hereto, marked Exhibit A and by this reference made a part of this lease. If said land is described above by protracted legal sudivisions, or by officially designated tract numbers, and Lessor hereafter causes said land to be surveyed under the public land rectangular system, the boundaries of said land shall be those established by such survey, when approved, subject, however, to the provisions of the regulations relating to such surveys. 2. "OIL AND GAS". "Oil" means crude petroleum oil and other hydrocarbons regardless of gravity which are produced and saved in liquid form at the well by ordinary production methods. "Gas" means all natural gas and all hydrocarbons produced at the well not defined herein as oil. "Associated substances" moans all substances produced in association with oil or gas and not defined herein as oil or gas. 3. TERM. This lease is issued for an initial primary term of five years from the date hereof, subject to extension as provided in Paragraph 4 hereof, and shall continue so long thereafter as oil and gas or either or any of them are produced in paying quantities from said land; provided, that this lease may be extended beyond its primary term as provided in Paragraph 5 hereof and shall not expire under the conditions set forth in Paragraphs 6, 7, and 8 hereof. 4. EXTENSION BY SUSPENSION OF OPERATIONS. If, prior to the expiration of the primary term, Lessor, in, the interest of conservation, directs or assents to the suspension of all operations and production, if any, hereunder, the primary term will be extended by adding the period of suspension thereto 5. EXTENSION BY UNIT PRODUCTION (a) This lease shall without application be extended beyond Its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and action production under said agreement is allocated to said land; (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease Is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program or if such unit plan or recovery program is terminated, then no such rogram, lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and so long thereafter as drilling or redrilling operations are being conducted thereon and so long thereafter as oil or gas is produced in paying quantities. 6. EXTENSION BY DRILLING. (a) If production shall have been obtained in paying quantities during the primary term, and if, at the end of the primary term, or at any time prior to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any time or times after the expiration of the primary term cease from any cause, then this lease shall not terminate if the Lessee commences drilling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production, and the lease shall remain in full force and effect so long as such operations are prosecuted with reasonable diligence or are suspended under Paragraph 27 hereof; and, if such drilling or reworking operations result in the production of oil or gas, the lease shall remain in full force and effect so long as oil or gas is produced therefrom in paying quantities; (b) if actual drilling has commenced on the expiration date of the primary terms of the lease and is continued with reasonable diligence, such operations to Include redrilling, sidetracking or other means necessary to reach the originally proposed bottom hole location, the lease shall continue In full force and effect until ninety (90) days after such drilling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (c) if all or part of the lands covered by the lease are lands that have been selected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was issued thereon, the term of the lease shall be extended for a period equal to the period during which the lease was conditional. 7. EXTENSION BY SHUT-IN PRODUCTION. If, upon the expiration of the primary term or at any time or times thereafter, there is on said land a well capable of producing oil or gas in paying quantities, this lease shall not expire because Lessee fails to produce the same unless Lessor gives notice to Lessee allowing a reasonable time, which shall not be less than sixty days, after such notice to place the well on a producing status, and Lessee fails to do so; provided, that after such status is established such production shall continue on the said land unless and until suspension of production is allowed by Lessor. 8. EXTENSION BY SUSPENSION OF PRODUCTION. This lease shall not expire because of any suspension of operations in or upon or production from said land if such suspension is made under any order or with the censentU of Lessor.

0
April 1963 (Revised)

ERRATUM RE COMPETITIVE OIL AND GAS LEASE FORM DL-1 This erratum applies to the correction of typographical errors

In the State of Alaska Competitive Oil and Gas Lease Porn, DL-1, two of
which are noted in Provision 5, EXTENSION BY UNIT PRODUCTION, and one each noted in Provision 12, REDUCTION OF ROYALTY RATES FOR DISCOVERY, Provision 38, LESSOR INTEREST, and Provision 39, CONDITIONAL LEASE. The present provisions are hereby modified by changing the word "action" in line number five (5), word number fourteen (14) in Provision 5 to be "actual"; by changing the word "no" in line number nine (9), word number twenty (20) in Provision 5 to be "any"; by adding the word "not" to line number five (5), between word number four (4) and word number five (5); by changing the word "LESSOR" in the title of Provision 36 to be "LESSER"; and by changing the word "and" in line number four (4), word number fourteen (14) in Provision 39 to be 5nyU. The four above mentioned Provisions are hereby amended to incorporate the changes as noted, and will therefore read as follows: 5. EXTENSION BY UNIT PRODUCTION (a) This lease shell without application be extended beyond its primary term if upon or prior to the expiration date of such term the lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had in paying quantities under the agreement, and a portion of such production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such agreement and "actual" production under said agreement is allocated to said land; (b) The Commissioner slay, in his discretion provide for the extension of the term of this lease, if such tease is on the expiration date thereof included in an approved unit plan or if it is included in a program of secondary recovery operation designed Co bring about or restore production, provided, however, that if any lease or portion thereof is eliminated from such unit plan or recovery program, or if such unit plan or recovery program is terminated, then "a" such lease or portion thereof shall continue in full force and effect for ninety (90) days from the date of such elimination or termination and no long thereafter as drilling or redrilling operations are being conducted thereon and no long thereafter as oil or gas is produced in paying quantities. 12. REDUCTION OF ROYALTY RATES FOR DISCOVERY, If Lessee shell drill on said land and make the first discovery of oil or gas in commercial quantities in any geological structure, the royalty rate under this lease shall, instead of the rates prescribed in Paragraph 11, be five per cent for a period of ten years following the date of such discovery, and thereafter the royalty races shall be those prescribed in Paragraph II. If this lease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, the five per cent royalty rate shall "" apply to all, but only, the production allocated to this lease under such agreement. 36. "LESSER" INTEREST. If Lessor owns a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate, then the royalties and rentals herein provided shall be paid Lessor only in the proportion which its interest beers to the whole and undivided fee. 39. CONDITIONAL LEASE. It all or a part of said land in lend that has been selected by the Lessor under laws of the United States granting lends to Lessor, but such land has not been patented to Lessor by the United States, then this lease is a conditional lease as provided by law until such patent becomes effective. If for any reason such a selection is not finally approved or such a patent does not become effective, "g" rental, royalty or minimum royalty payments made to Lessor under this lease will not be refunded.

(e
PHIL R. HOLDSWORTR, Commissioner Department of Natural Resources ROSCOE E. BELL, Director Division of Lands

ERRATUM RE COHIETITIVR 011. AND CAI LEASE P0101 IlL-I

This erratum cipy] lea to the corrections of three typographical errors in the State of Alaska Competitive DII and Gas vnae Focus, 01-1, BY DM11 PilOriucTioN, and two of which .ire noted in Prowls ion 5, EXTENSION the one which Is noted in ProvisIon 39, CONDITIONAL LEASI.. Il.presuatt provisions are hereby uu,udiUeit by tinging the word ";1ct16 In line number five (5), tuord number fourteen (I/i) in Provision S to be "active"; by changing the word "no" In tine number nine (9), word number twenty (20) in Provision 5 to be "any"; and by changing the word "ad" In line number four (4), word number fourteen (14) in Provision $9 to be "any". Provision S and Provision 39 are hereby amended to tncornorate the above, and will therefore read as follows: (a) This lease shall without 5. EXTENSION BY UNIT PRODUCTION application be extended beyond its primary term it upon or prior to the expiration date of such term the tease is committed to a unit agreement approved or prescribed by Lessor as provided in the regulations, production of oil or gas is had In paying quantities under the agreement, and a portion of ouch production is allocated to said land under the agreement. In such event this lease shall continue in effect so long as it remains subject to such a!r,ent a,u,I "ucLive" production under bald agreement is allocated to said land, (b) The Commissioner may, in his discretion provide for the extension of the term of this lease, if such lease is on the expiration date thereof Included in an approved unit plan or if it 15 included in a program of secondary recovery operation designed to bring about or restore production, provided, however, that it any lease or portion thereof is eliminated from such unit plan or recovery program, of if such unit plan or recovery program Is terminated, dim "E!iX" such lease or portion thereuf shall Continue in full force and effect for ninety (90) days from the date 01 audi elimination or termination and an long thereafter as drilling or redrilling operations are being conducted thereon and ec, long therentter as all cur gas is produced in paying quantities. 39. CONDITIONAL l..JASX If all or a 1u,- t of said land is 4and that has been selacted by the Lessor under laws of the United State, granting Inds to Lessor, but such land has not been patented to l.essor by the United States, then this lease is ii conditional lease as provided by law until such patent become effective. If for any reason such a selection Is not finally approved or such a patent does not become effective, aui" rental, royalty or minimum ruyalty payments made tu Lessor under this lease will not be refunded.

)i;.)

Phil R. Holdsworth, Comaiasioner Department of Natural Resources

Roscoe E. hell, Director Diviaton of Lands

0
OFFSHORE TRACT

i J..
14

3209 Ac.

23

24

Grid #

&!inR Block #. .nl Description S-13.5-99

AcTeag

iota1

S-13.5

All

Sectjcn

12, 9R, RI4W, SN 13 0 14 23:

640 640 640 640

WILDLIFE STIPULATIONS The lessee shall: (1) Obtain the written approval of the Department of Natural Resources for the location and type of each structure before it is erected on tide or submerged land. Department action on applications for such structures shall be taken within 30 days of receipt of such applications. (2) Appoint and maintain at all times during the construction or operations on the tide and submerged lands a local agent upon whom may be served written orders or notices respecting matters contained in these stipulations and to provide the Commissioner of the State of Alaska Department of Natural Resources with the name and address of such agent. (3) Assure that all construction or development activities carried on under the lease shall be conducted in a manner satisfactory to the State of Alaska Department of Natural Resources with due regard for fish and game conservation, and shall utilize proper methods in drilling and completing wells. (4) Install adequate blowout prevention control equipment and take other safety measures provided for in the oil and gas conservation regulations or ordered by the Commissioner of the State of Alaska Department of Natural Resources. (5) Maintain offshore platforms or barges in such a manner that all oil by-products may be drained through scuppers and disposed of in a manner satisfactory to the State of Alaska Department of Natural resources with due regard to their effects on fish and game. (6) Reimburse the State of Alaska for any loss or damage to fish or game resulting from any operation or construction under this lease or resulting from any violation of or failure to comply with any valid law, regulation, or terms of any applicable lease. The lessees responsibility shall also encompass acts or omissions of its agents, employees, and contractors.

Phil R, Holdaworth K, Commissioner

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: PACIFIC ENERGY RESOURCES LTD., et al., Debtors.

) ) )
)

Chapter 11 Case No. 09-10785 (KJC) (Jointly Administered) Related to Docket Nos. 1895 and 1921

DECLARATION OF GERALD A. TYWONIUK IN SUPPORT OF REPLY TO OBJECTION OF UNION OIL COMPANY OF CALIFORNIA TO DEBTORS MOTION FOR ORDER APPROVING STIPULATION RESOLVING CLAIMS OF THE STATE OF ALASKA AGAINST THE DEBTORS I, Gerald A. Tywoniuk, hereby declare and state as follows: 1. I am the Acting Chief Executive Officer and Chief Financial Officer of

Pacific Energy Resources Ltd. ("PERL"), one of the above-captioned debtors (together, the "Debtors"). I have held the position of Chief Financial Officer at the various Pacific Energy subsidiaries, including Pacific Energy Alaska Operating, LLC ("PBAO"), since August, 13, 2008. I was also appointed the Acting Chief Executive Officer on September 15, 2009. 2. In my capacity as Acting Chief Executive Officer and Chief Financial

Officer of the Debtors, I am familiar with the Debtors day-to-day operations, business affairs, and books and records. 3. I submit this affidavit (the "Affidavit") in support of the Debtors reply

("Reply") to the objection (Docket No. 1921) (the "Objection") of Union Oil Company of
The Debtors in these cases, along with the last four digits of each of the Debtors federal tax identification number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax I.D. # not available); Carneros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The mailing address for all of the Debtors is Ill W. Ocean Boulevard, Suite 1240, Long Beach, CA 90802.

68773-002\DOCSSF:743 11.1

California ("Union") to the Debtors Motion for Order Approving Stipulation Resolving Claims of the State ofAlaska Against the Debtors, filed September 21, 2010 (Docket No. 1895) (the "Motion"), which seeks approval of a global settlement (the "Settlement") with the State of Alaska ("Alaska"). The Reply is being filed concurrently herewith. All capitalized terms that are not expressly defined herein have the meanings ascribed to such terms in the Motion. 4. Except as otherwise indicated, all statements set forth in this affidavit are

based upon: (a) my personal knowledge, (b) documents and other information prepared or collected by other members of the Debtors management, their employees, or their professionals, or (c) my review of relevant documents. If I were called upon to testify, I could and would testify competently to the facts set forth herein based upon my personal knowledge, review of documents, or opinion. I am authorized to submit this Declaration on behalf of the Debtors. 5. Union primarily objects to the Settlement on the basis that Union has valid

liens against assets that the Debtors propose to compromise with Alaska, Specifically, Union asserts a lien against: (1) royalty overpayments in an amount asserted by the Debtors of $2,869,468.16 due to Pacific Energy Alaska Operating LLC ("PEAO") from Alaska (the "Royalty Credit"), and (2) production tax credits in an amount asserted by the Debtors of $5,666,807.00 due to PEAO from Alaska (the "Production Tax Credits" and, together with the Royalty Credit, the "Credits"). 2 Union also takes issue with the proposed resolution of Alaskas general unsecured claim against PEAO in the amount of $40,000,000.00, presumably wanting a higher allowed amount so that Unions own obligations to Alaska will be reduced.

The Debtors submitted an application for the Production Tax Credits to Alaska, but Alaska has not yet approved or denied the application.

2
68773-002\DOCS_SF:743 11.1

6.

As set forth in the Motion, PEAO entered into numerous oil and gas leases

and easement agreements (the "Leases") with Alaska. Under the Leases and associated Alaska statutes, PEAO was obligated to pay rent, royalties, and taxes to Alaska, as well as to perform any plugging, abandonment, decommissioning, and other obligations, to the extent set forth in the Leases and applicable state statutes and regulations. Copies of the Leases are attached hereto as Exhibit A. 7. Although PEAO sold and assigned certain of the Leases as part of a Court-

approved sale, PEAOs interests in the Leases affecting Union (referenced in the Motion as the Trading Bay Interests) were abandoned and rejected by separate order of the Court. As to the various abandoned and rejected Leases, Alaska asserts claims exceeding $200,000,000.000. 8. Under the Settlement, Alaskas general unsecured claims against PBAO

would be substantially reduced and allowed in the amount of $40,000,000.00. The Debtors, in turn, would release (on behalf of their estates) all rights in the Credits. 9. The Royalty Credit relates to overpayment of royalties by PBAO to

Alaska in 2007 and 2008. As is customary practice, such royalties were paid out of PEAOs general operating funds to Alaska. PEAO did not pay royalties directly out of the proceeds of production. Rather, PEAO received funds from the purchaser of production (generally, Tesoro), and all such proceeds were then commingled in PEAOs accounts with other funds. The royalties paid to Alaska are now long gone, and have not been set aside by Alaska in any segregated or identifiable account. The Debtors simply have a claim against, or right to payment from, Alaska to the extent of the overpayment of royalties.

3
68773-0021DOCS .SF:743 1.1

10.

The Debtors submitted an application to Alaska for the Production Tax

Credits, which represent a tax attribute of PBAOs estate that may be owing to PEAO by Alaska. The Production Tax Credits arise as a matter of Alaska law based on: (1) qualifying capital expenditures on PEAOs operating properties and PEAOs share of Trading Bay; and (2) annual losses (if any) for PBAOs entire business in Alaska, including PEAOs operated properties and
its share of Trading Bay. The Production Tax Credits do not constitute a portion of the Trading

Bay Interests, or the proceeds thereof. The Production Tax Credits are simply credits that may be payable to PEAO by Alaska, just like any other tax credit, refund or other general intangible. Incidentally, Alaska contests the amount of the Production Tax Credits asserted by PEAO and has not yet approved or denied the Debtors application. It also bears mention that only $728,038.00 of the Production Tax Credits relate to the postpetition time period, and of this amount, only $134,584 has anything to do with the Trading Bay Interests. 11. In light of Alaskas substantial offsetting claims in these cases, the

Debtors believe that the Settlement represents a positive resolution for these estates that is supported by the paramount interests of creditors, and should be approved by the Court. I declare under penalty of perjury under the laws of the United States that the foregoing is true and correct and that this declaration is executed on October 8, 2010 at Los Angeles, California.

Geral ~/A.

Yywt

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