OIL, GAS AND MINERAL LEASE
  

THE STATE OF NEW MEXICO §      § COUNTY OF BERNALILLO §

 

This Oil, Gas and Mineral Lease (this “Lease”) is made and entered into on this
20th day of August, 2007 (the “Effective Date”) by and between the Atrisco Oil
and Gas, LLC, a New Mexico limited liability company, whose address is 1730
Montano NW, Suite B, Albuquerque, New Mexico 87107 (hereinafter referred to as
“Lessor”) and Tecton Energy, LLC, a Texas limited liability company, whose
address is 3000 Wilcrest, Suite 300, Houston, Texas 77042 (hereinafter referred
to as “Lessee”).  

1.     GRANTING CLAUSE

  

Lessor, in consideration of Ten Dollars ($10.00) in hand paid, of the royalties
herein provided and of the covenants and representations of Lessee herein
contained, hereby Grants, Leases and Lets exclusively unto Lessee for the sole
and only purposes of investigating, exploring, prospecting, drilling and
operating for, and producing, oil, gas and all other liquid or gaseous minerals
(including sulfur produced as a component of oil and gas) from the real property
described in Exhibit A attached hereto (the “Leased Premises”) (such oil, gas,
and/or liquid and/or gaseous minerals produced from the Leased Premises or lands
pooled therewith being herein collectively referred to as the “Minerals”),
subject, however, to all of the terms, conditions, provisions, covenants, and
obligations of Lessee under this Lease. The Leased Premises shall specifically
exclude the lands embraced in the SunValley Lease and the Great Northern Lease
(both defined in Section 9 below). However, this Lease shall also include in the
Leased Premises all land located within the Town of Atrisco Land Grant that is
determined to be owned or claimed by Lessor and is not otherwise committed to
Lessee in this Lease; except that any such land located within the Town of the
Atrisco Land Grant that is hereafter purchased by Lessor shall not be included
in the Leased Premises. 

All mineral rights other than the Minerals are expressly reserved to Lessor.
These reserved mineral rights include the rights to lignite, coal and sulfur not
produced as a component of oil and gas.

  

For the purpose of determining the amount of any bonus or other payment
hereunder, said Leased Premises shall be deemed to contain 50,000 acres, whether
actually containing more or less.

  

2. PRIMARY TERM  

Simultaneously with the execution of this Lease and as a condition to the
existence of this Lease, Lessee shall make a bonus payment to Lessor in
immediately available funds of United States currency, by wire transfer to
Lessor’s bank account, in the amount of Two Hundred Forty Thousand and No/00
Dollars ($240,000.00). Such payment together with the Ten Thousand and No/00
Dollars($10,000.00) already paid by Lessee to Lessor shall equal a “Total Bonus
Payment” of Two Hundred Fifty Thousand and No/00Dollars ($250,000.00). Lessee’s
failure to make such Total Bonus Payment shall, at the option of Lessor and
without notice from Lessor to Lessee, result in the immediate termination of
this Lease in its entirety. Subject to the other provisions herein contained,
this Lease shall be for a term of five (5) years from the Effective Date
(hereinafter called “Primary Term”) and so long thereafter as Minerals are
produced from the Leased Premises or lands pooled therewith, in paying
quantities, or drilling operations are in progress thereon as hereinafter
provided. Lessee agrees to obtain all governmental approvals and permits
required in order to allow the exploration and production of the Minerals.
Lessor agrees to cooperate with Lessee and participate to the extent reasonably
necessary to assist Lessee, but at Lessee’s sole cost and expense, in obtaining
all governmental approval and permits necessary to allow the exploration and
production of the minerals.

  

Lessee, as further consideration for this Lease, commits to commence within the
first year of the Primary Term of this Lease, the drilling or re-entering of two
(2) wells to a depth sufficient to test the Cretaceous formation. At least one
of these two wells shall be the re-entry of the UTex#1Well on the Leased
Premises. If Lessee is precluded from commencing drilling operations on the
UTex#1 Well prior to the end of the first year of the Primary Term of this Lease
due to the actions of third parties, including the grantor, or its successors in
title, in the Quitclaim Mineral Deed and Assignment of Oil and Gas Leases, dated
December 4, 2006, from Westland Development Co., Inc. to Lessor, recorded in
BookA128, Page 8482 in the Office of the County Clerk of Bernalillo County, New
Mexico (herein called “Quitclaim Mineral Deed”), such actions will constitute a
condition of Force Majeure (as defined in Section 7). Lessee agrees that the
condition of Force Majeure applicable to the drilling or re-entering of the
UTex#1 Well during the first year of the Primary Term shall be limited to a
period of six (6) months following the end of the first year of the Primary Term
of the Lease. Thereafter, Lessee shall drill the UTex#1 Well or a substitute
well elsewhere on the Leased Premises.

  

After the year and for the following four (4) years of the Primary Term of the
Lease, Lessee agrees to drill or re-enter one (1) well to a depth sufficient to
test the Cretaceous formation each year or pay Lessor an amount equal to Six
Dollars and No/IOO Dollars ($6.00) per acre each year for all acreage committed
to this Lease up to and including the end of the (5) year Primary Term thereof;
provided, however, in determining the total amount of such payment, the acreage
committed to this Lease shall be proportionately reduced. Should Lessee fail to
the obligation to drill or pay contained in this Section 2, Lessor shall have
the right to sue Lessee to collect any payments owed hereunder.

  

3. POOLING  

Other than as provided in this Section 3, Lessee shall have no right to pool or
combine any portion of the Leased Premises with other lands without obtaining
the prior written consent of Lessor. Lessee may pool as follows:

 

A.     Limitations on Pooling. Lessee may not pool the Leased Premises with any
acreage outside of the boundaries of the Leased Premises, unless written consent
is obtained from Lessor. Lessee may pool so long as no less than fifty percent
(50%) of the land comprising the pooled unit for such well shall be from the
Leased Premises, unless written consent is obtained from Lessor or such pooling
is required pursuant to a rule or order issued by the Oil Conservation Division
of the Energy and Minerals Department of the State of New Mexico or by any other
lawful authority for the pool or area in which the Leased Premises are situated.

 

B.     Pooled Unit Size. Units pooled hereunder shall not exceed the standard
proration unit by law or by the Oil Conservation Division of the Energy and
Minerals Department of the State of New Mexico or by any other lawful authority
for the pool or area in which the Leased Premises are situated, plus a tolerance
often percent (10%).

 

C.     Recordation of Pooled Unit Declaration. In the exercise of its pooling
rights hereunder, Lessee shall file of record in the Official Public Records of
Bernalillo County, New Mexico a written declaration describing the unit and
stating the effective date of pooling (which effective date in no event can be
more than thirty days prior to the date of filing). Lessee shall promptly
provide Lessor a copy of such recorded written declaration. Lessee may file such
declaration at any time while this Lease is in effect and whether before or
after production has been established on the pooled unit lands.

 

D.     Termination of Pooled Unit. Upon termination of the pooled unit, Lessee
must file of record in the Official Public Records of Bernalillo County, New
Mexico a written instrument declaring the dissolution of said pooled unit.

 

E.     Allocation of Pooled Unit Production. In the event of such pooling,
subject to other terms and provisions contained in this Section 3.E, there shall
be allocated to the land covered by this Lease within such pooled unit that
proportion of the total production from the producing well applicable to such
pooled unit which the number of surface acres in such land covered by this Lease
within such pooled unit bears to the total number of surface acres in such
pooled unit.

 

F.     Outstanding Royalty Interests. If there are royalty interests in Minerals
in the Leased Premises now owned by parties other than Lessor and if pooling
occurs, Lessor makes no warranty or representation that this Lease grants Lessee
the power or authority to pool such royalty interests.

  

4. REWORKING AND CONTINUOUS DRILLING OF WELLS  

In the event production of Minerals from the Leased Premises or lands pooled
therewith, once obtained, shall cease for any cause within one hundred fifty
(150) days before the expiration of the Primary Term of this Lease or at any
time or times thereafter, this Lease shall not terminate (i) if Lessee commences
reworking operations within one hundred fifty (150) days thereafter, and this
Lease shall remain in full force and effect so long as such operations continue
in good faith and in a workmanlike manner without an interruption totaling more
than one hundred fifty (150) days; and if such reworking operations result in
the production of Minerals, this Lease shall remain in full force and effect so
long as Minerals are produced therefrom in paying quantities or shut-in payments
are tendered to Lessor as provided herein or (ii) if production in paying
quantities is restored within one hundred fifty (150) days after such cessation
of operations.  

5. CONTINUOUS DEVELOPMENT  

A.          Extension of Primary Term. Notwithstanding any provision contained
herein to the contrary, whether or not Minerals are being produced on the Leased
Premises at the expiration of the Primary Term, if Lessee (i) is engaged at the
expiration of the Primary Term in drilling or reworking operations on the Leased
Premises or lands pooled therewith or (ii) has completed a well either as a dry
hole or as a producer on the Leased Premises within one hundred fifty (150) days
before the expiration of the Primary Term, the Primary Term of this Lease shall
be extended and remain in full force and effect as to all of the Leased Premises
for so long as operations for drilling are conducted on the Leased Premises or
lands pooled therewith with no more than one hundred fifty days elapsing between
the completion or abandonment of one well and the commencement of actual
drilling operations of another well. Upon the expiration of such extended
Primary Term, this Lease shall terminate as to: (1) all lands which are not
included within (i) a pooled unit created pursuant to Section 3 or (ii) a
proration unit established by Lessee and approved by the New Mexico Oil and Gas
Conservation Division applicable to each producing well located on the Leased
Premises or on lands pooled therewith (it being understood that each such
proration unit shall contain no more acreage than the minimum number of acres
required to obtain approval of the drilling unit size applicable to a well under
the applicable density rules adopted by a governmental authority having
jurisdiction, and (2) all depths and horizons 100 feet below the stratigraphic
equivalent of the deepest depth producing or capable of producing Minerals in
paying quantities, in each well which is included within the boundaries of such
proration unit. After the expiration of the Primary Term, as extended if
applicable, (i) Lessee shall release all of the Leased Premises not otherwise
held hereunder, and (ii) this Lease as to each pooled unit or proration unit
held by a producing well shall be considered a separate Lease from the lease
covering any other such pooled unit or proration units, so that this Lease
shall, thereafter, as to each such pooled unit or proration unit, remain in
force as to each such pooled unit or proration unit only so long as oil or gas
is produced from such pooled unit or proration unit or the lease as to such
pooled unit or proration unit is maintained in force under some other provision
o f this Lease and (iii) if the deepest depth producing oil or gas in paying
quantities in a well ceases to produce oil or gas in paying quantities, and
Lessee obtains production of oil or gas in paying quantities from a depth that
is closer to the surface than said deepest depth, all depths below 100 feet
below such depth which is closer to the surface shall be released from this
Lease, it being intended that after the expiration of the Primary Term, as
extended if applicable, this Lease shall never cover any subsurface depths below
100 feet below the deepest depth then producing or capable of producing Minerals
in paying quantities.  

B.           150 day rework. If production should thereafter cease as to acreage
included in a proration unit or pooled unit, this Lease will terminate as to
such acreage unless Lessee commences reworking or additional drilling operations
on such acreage within one hundred fifty (150) days thereafter and continues
such reworking or additional drilling operations until such production is
restored thereon, provided that if more than one-hundred fifty (150) days pass
between the abandonment of such well and the commencement of actual drilling
operations for an additional well, or more than one hundred fifty (150) days
pass since the commencement of reworking operations without the restoration of
production of Minerals in paying quantities, this Lease shall terminate as to
the applicable proration unit and the pooled unit.  

C.           Release and Survival of Lessee Obligations. At any time or times
that this Lease terminates as to all or any portion of the acreage of the Leased
Premises, Lessee shall promptly execute and record in the Official Public
Records of Bernalillo County, New Mexico, a proper release of such terminated
acreage and all depths thereunder and shall furnish executed counterparts of
each such release to Lessor at the address shown in Section 17 hereof. All
obligations of Lessee contained in this Lease that are to be performed by Lessee
regardless of the execution and delivery of releases of this Lease by Lessee
shall continue in force and effect and survive the execution and delivery of
such releases.  

D.           Definition. “Completion of drilling” as used herein means, as to
dry holes, the date Lessee releases the drilling rig used to drill such well or
the date such rig is moved off of the location, whichever date occurs first, and
as to producing wells, the date Lessee has run casing and production casing or
tubing and has perforated and/or tested the well, except for producing wells
which are “fraced” by Lessee, “completion of drilling” shall mean the earlier to
occur of (i) thirty (30) days from the date Lessee releases the drilling rig
used to drill such well or the date such rig is moved off of the location,
whichever date occurs first, or (ii) the date Lessee completes such “fracing”
operations and conducts a flow test on the well. “Commencement of drilling” as
used herein means either (i) the date Lessee commences actual drilling with
rotary drilling tools of a suitable size necessary to reach the object depth or
(ii) the date the Lessee spuds the well, so long as such spudding operations are
initiated and prosecuted in good faith and with reasonable diligence toward
drilling and completion of the object depth.

   

6. OFFSET OBLIGATIONS
  

A.           Offset Obligation. In the event one or more wells producing oil or
gas should be brought in on land outside the Leased Premises but within 330 feet
from any boundary of the Leased Premises (the “Lease Boundary”), or are brought
in elsewhere and are draining the Leased Premises, or a portion thereof (said
wells located within 330 feet of the Lease Boundary, or which are draining the
Leased Premises or portion thereof being hereinafter referred to singularly as
the “Draining Well”) and there is then no well with a bottom hole location on
the Leased Premises or lands pooled therewith producing oil or gas, as the case
may be, in commercial quantities from the same geological formation as the
Draining Well, then Lessee agrees to drill such well as a reasonably prudent
operator would drill under the same or similar circumstances.

  

B.           Implied Duty to Protect from Drainage. The foregoing offset
obligation shall be in addition to the duty the Lessee has to protect the Leased
Premises from drainage which is implied in the absence of any express provisions
dealing with drainage, and Lessee shall owe such duty to Lessor in addition to
the contractual provisions hereof.
   

7. FORCE MAJEURE  

A.           Force Majeure. The term “Force Majeure” as used herein shall mean
and include: requisition, order, regulation, or control by governmental
authority or commission; exercise of rights or priority or control by
governmental authority or third parties resulting in delay in obtaining or
inability to obtain either material, equipment or means of transportation
normally necessary in prospecting or drilling for Minerals, or in producing,
handling or transporting same from the Leased Premises or lands pooled
therewith; war; acts of God; insurrection; flood; or strike. Should Lessee be
prevented from complying with any express or implied covenant of this Lease, or
from conducting drilling or reworking operations hereunder, or from producing
oil or gas hereunder due to delays encountered in obtaining approval of permits
or drill sites on the Leased Premises, by governmental authority or by third
parties including grantor in the Quit Claim Mineral deed as referenced in
Paragraph 2 of this lease it shall be deemed that “Force Majeure” has occurred;
provided, however, that such Force Majeure shall be limited to a period of six
(6) months and so long thereafter as Lessee shall make a Good Faith Effort to
resolve to obtain the necessary permits. For purposes of this Section 7.A., a
“Good Faith Effort” shall mean that the Lessee is actively and in good faith
pursuing approval of such permits by taking all measures to obtain such
approvals as a reasonably prudent operator would under the same or similar
circumstances.

   

B.           Not Grounds for Termination. Notwithstanding any other provisions
of this Lease, but subject to the conditions hereinafter set forth in this
Section should Lessee be prevented by Force Majeure as defined above, from
conducting drilling, completion or reworking operations on, or producing
Minerals from, the Leased Premises or lands pooled therewith, such failure shall
not constitute a ground for the termination of this Lease or subject said Lessee
to damages therefor; and the period of time during which Lessee is so prevented
shall not be counted against Lessee, but this Lease shall be extended for a
period of time equal to that during which such Lessee is so prevented from
conducting such drilling or reworking operations on, or producing Minerals from,
such Leased Premises or lands pooled therewith, plus, at Lessor’s sole
discretion, a reasonable amount of time thereafter. All of the provisions of
this Section 7 are subject to each of the following express conditions:  

C.           Limitations. The terms and conditions of this Section 7 shall not
extend beyond the expiration date of any law, order, rule or regulation invoked
under this Section 7, and shall be applicable and effective only during the
following periods:  

(1)           If the Force Majeure shall occur during the Primary Term of this
Lease, as the same may be extended pursuant to Section 5 hereof, Force Majeure
shall not operate to extend this Lease more than two (2) year beyond the
expiration of such Primary Term; provided, however, that if the event of Force
Majeure is any form of injunction granted pursuant to a mineral partition
lawsuit or similar action brought against Lessee, then such Force Majeure shall
not operate to extend this Lease more than the lesser of six (6) months or the
period of time during which such injunction is effective.
  

(2)           If the Force Majeure shall occur during a drilling or reworking
period provided for in Section 5 hereof, after the Primary Term has expired,
then Force Majeure shall not operate to extend this Lease more than two (2)
years beyond the expiration of such period.
  

D.           Notice. None of the provisions of this Section 7 shall ever be or
become effective and applicable unless Lessee shall, within a reasonable time
(not to exceed sixty (60) days in any event) after occurrence of the claimed
event of Force Majeure above referred to, notify Lessor, in writing, of such
occurrence with full particulars thereof.  

E.           Not Applicable to Monetary Payments. The terms of this Section do
not apply to monetary payments due under the terms of this Lease.

   

F.           Time of the Essence. Time is of the essence with respect to each
provision of this Lease.  

8. SHUT-IN GAS WELL PROVISIONS

   

If at any time there is a well on the Leased Premises or land pooled therewith
which is capable of producing gas in paying quantities, but the production
thereof is shut-in or suspended due to lack of market for such gas, and if this
Lease is not then continued in force by some other provision hereof, then this
Lease shall nevertheless continue in force as to such well and the pooled unit
or proration unit allocated to it for a period of sixty (60) days from the date
such well is shut-in. Before the expiration of any such sixty (60) day period,
Lessee may pay to Lessor an advance annual royalty equal to Ten and NO/100
Dollars ($10.00) per net mineral acre for the acreage under this Lease committed
to the proration unit for such well and if such payment or tender is timely
made, this Lease shall continue in force but only as to said well or wells and
the proration unit allocated to it or them and it shall be considered that gas
is being produced from said well or wells in paying quantities for one (1) year
from the date such well or wells are shut-in, and in like manner subsequent
advance annual royalty payment may be made or tendered and it will be considered
that gas is being produced from said well or wells in paying quantities for such
additional one (1) year period as well, but in no event shall Lessee be entitled
to pay shut-ins for more than four (4) years cumulative, per well, during the
term of this lease.

   

Should such shut-in royalty payments not be made in a timely manner as provided
in this Section 8, it will be considered for all purposes that there is no
production and no excuse for delayed production of gas from any such well or
wells, and unless there is then in effect other preservation provisions of this
Lease, Lessor may, at Lessor’s option, elect to terminate this Lease as to the
proration unit for such well by sending written notice to Lessee. Lessee shall
have fifteen (15) days from receipt of Lessor’s notice to cure such breach by
paying the shut-in royalty. If Lessee has not paid the shut-in royalty by the
end of the 15-day curative period, Lessor shall have the right to terminate the
Lease as to the proration unit for such well by filing a Notice of Termination
in the Official Public Records of Bernalillo County, New Mexico. The effective
date of said termination shall be the date said Notice of Termination is filed
with the said County Clerk.  

9. ROYALTIES
   

Lessee shall pay to Lessor the following royalties:

   

(i)   for a period of ten (10) years following the date of first production of
the first well drilled and completed on the Leased Premises, a Royalty
Percentage (as defined below) which shall be free of all costs of gathering,
production, transportation, compression, dehydration, separating, marketing,
trucking or other pre and post production expenses, directly or indirectly
incurred by Lessee, whether as a direct charge or a reduced price or otherwise.
In the event Lessee processes any of the gas produced from the Leased Premises,
contracts to have any of the gas produced from the Leased Premises processed, or
otherwise participates in the processing of any of the gas produced from the
Leased Premises, in any absorption plant, extraction plant, or other type plant
or plants, whether similar or dissimilar, for the recovery of the liquid and/or
liquefiable hydrocarbons, sulfur, or other products there from, such Royalty
Percentage shall bear Lessor’s proportionate share of any such processing fees;
provided, however, that if such processing fees exceed ten percent (10%) of the
market value (as defined in Section 9.D.) of the gas, then Lessor’s Royalty
Percentage shall only bear its proportionate share of processing fees equal to
ten percent (10%) of the market value of the gas.       (ii)   following the
termination of ten (10) year period described in subsection (i), a Royalty
Percentage which shall be free of all costs of any kind, including, but not
limited to, costs of gathering, production, transportation, treating,
compression, dehydration, separating, processing, marketing, trucking or other
pre and post production expenses, directly or indirectly incurred by Lessee,
whether as a direct charge or a reduced price or otherwise. In this regard,
Lessee agrees to bear one hundred percent (100%) of all costs and expenses
incurred in rendering Minerals produced on or from the Leased Premises or lands
pooled therewith marketable and delivering the same into the purchaser’s
pipeline for immediate transportation to an end user or storage facility.

  

It is the intent of the parties that the provisions of this Section 9 are to be
fully effective and enforceable and are not to be construed as “surplusage”
under the holding set forth in Creson v. Amoco Production Co., 10 P.3d 853 (N.M.
App. 2000). Additionally, said Royalty Percentage shall never bear, either
directly or indirectly, under any circumstances, the costs or expenses
(including depreciation) to construct, repair, renovate or operate any pipeline,
plant, or other facilities or equipment used in connection with the treating,
separation, extraction, gathering, processing, refining, transporting,
manufacturing or marketing of Minerals produced from the Leased Premises or
lands pooled therewith. Lessor shall be paid its Royalty Percentage on all oil
or gas produced, including without limitation oil or gas used by Lessee for
operations off the Leased Premises or lands pooled therewith. Lessor’s Royalty
Percentage shall bear Lessor’s proportionate part of all ad valorem, excise,
state severance, wind-fall profits, or like and similar taxes imposed on
Minerals or on the value thereof that is attributable to Lessor’s Royalty
Percentage, if any, paid by Lessee, which proportionate part may be deducted
from Lessor’s Royalty Percentage before payment to Lessor.  

 

For purposes of this Section 9, the following definitions shall be used:
  

“SunValley Lease” means that certain Oil and Gas Lease, dated June 6, 2000, from
Westland Development Co., Inc. to SunValley Energy Corporation, recorded in Book
A6, Page 7854, Official Public Records of Bernalillo County, New Mexico, as the
same has been amended through Fifth Amendment to Oil and Gas Lease between the
same parties, acknowledged by Lessor on April21, 2006, recorded in Book Al15,
Page 7121.

  

“Great Northern Lease” means that certain Oil and Gas Lease, dated September 17,
2001,from Westland Development Co., Inc. to Great Northern Gas Company, recorded
in Book A25, Page 1245, Official Public Records of Bernalillo County, New
Mexico, as amended, and all subsequent oil and gas leases covering a portion of
the leased premises therein issued under the terms thereof.  

“Atrisco Leases” means this Lease, the SunValley Lease, and the Great Northern
Lease.  

“Royalty Percentage” means a royalty equal to fifteen percent (15%) until such
time as the net total production from the Atrisco Leases equals a rate of 3000
MCFD for a one (1) day period, at which time, the royalty shall be increased to
seventeen and one-half percent (17.5%); when the net total production from the
Atrisco Leases equals a rate of 6000 MCFD for a one (1) day period, the royalty
shall be increased to eighteen and one-half percent (18.5%); payment of such
escalated Royalty Percentage to commence on the first day of the month following
the month in which the applicable production rate threshold is attained.

  

A.           Royalty. On oil, gas and casinghead gas, together with any other
liquid or gaseous hydrocarbons recovered by lease operations such as drips or
separators, and on any other type of Minerals, the Royalty Percentage of the
proceeds of the sale or of the gross market value thereof, whichever is higher,
(provided that with respect to oil, gas, casinghead gas, or any other liquid or
gaseous hydrocarbons recovered by lease operations and used by Lessee for
operations on or off the Leased Premises or lands pooled therewith, royalty
shall be equal to the Royalty Percentage of the gross market value thereof) oil,
gas and casinghead gas, together with any other liquid or gaseous hydrocarbons
recovered by lease operations, is to be delivered free of cost to the credit of
Lessor into pipelines, gathering lines, or other facilities to which the wells
and tanks on the property may be connected; or to be delivered in kind into
tanks, gathering lines, or other shipping facilities provided by Lessor, at
Lessor’s option and at Lessor’s expense, such option to be exercised by Lessor
from time to time, but for periods of not less than six (6) months at a time
after ninety (90) days written notice to Lessee of Lessor’s intention to take in
kind such oil, gas or other hydrocarbons. No royalty shall be due on any gas
that is flared or tested, or any oil and or gas that is produced from the Leased
Premises or lands pooled therewith and used as fuel for lease operation,
compression, separation, dehydration, transportation or other ordinary and
customary Lessee operations.

  

B.           Products. On products resulting from such oil, gas, casinghead gas,
or other Minerals, the Royalty Percentage of the proceeds of sale thereof.

  

C.           Residue Gas. On residue gas or gas remaining after separation,
extraction or processing operations, the Royalty Percentage of the proceeds of
sale.

  

D.           Meaning of Market Value. For purposes of this Section 9 the term
“market value” shall mean for such oil, gas, casinghead gas, other Minerals, and
products therefrom (i) the gross price at which such oil, gas, casinghead gas,
other Minerals or products there from are sold pursuant to a “Production Sales
Contract,” as defined below, or (ii) if not sold pursuant to a Production Sales
Contract, the highest gross price paid for oil, gas, casinghead gas, other
Minerals and/or products there from of comparable physical characteristics,
within Bernalillo County, New Mexico, such calculations of price to be made as
of the time such oil, gas, casinghead gas, other Minerals or products there from
are produced and saved, or separated, processed or extracted. Included within
the definition of “market value” as used herein is the presumption that
Production Sales Contracts have been negotiated by Lessee in good faith at
arms-length contracts with bona fide purchasers who are not subsidiaries or
affiliates of Lessee, and contain adequate provisions for redetermination of
price at reasonable and customary intervals. In no event, however, shall “market
value” ever be less than the amount actually received by the Lessee and/or any
affiliate for the sale of Minerals, plus the value of all other consideration
and benefits of whatsoever kind and amount received, directly or indirectly, by
Lessee and/or any affiliate or subsidiary of Lessee, for the sale of Minerals.

  

E.           Payment of Royalty. All royalties provided in this Lease shall be
payable in cash (unless Lessor elects to take such royalty Minerals in kind) to
Lessor within one hundred twenty (120) days following the commercial sale of
production and thereafter no more than sixty(60) days after the end of the month
during which production takes place. Subject to the provisions of Section 8 of
this Lease concerning shut-in wells, royalties shall be paid to Lessor by Lessee
and/or its assigns or by the product purchaser for Minerals. Any alleged failure
by Lessee or any production purchaser to timely pay royalty to Lessor shall give
rise to the remedies set forth in the New Mexico Oil and Gas Proceeds Payment
Act, as the same may be amended from time to time. Any alleged failure by Lessee
or any production purchaser to properly calculate Lessor’s royalty shall be
subject to arbitration as set forth in Section l8B. below

  

F.           Marketing; Production Sales Contracts. If Lessor is not taking its
royalty production in kind, Lessee agrees that it will use its best efforts as
are reasonable under the circumstances to market and sell Minerals at the
highest price and on the most favorable terms possible. Lessee agrees that it
will not enter into any contract for the sale, delivery, transporting or
processing of any type of Minerals produced from the Leased Premises or lands
pooled therewith (i) with any subsidiary or affiliate of Lessee and (ii) which
shall extend more than (5) years from the effective date of such sales contract
unless such contract has adequate provisions for redetermination of price at
reasonable and customary intervals. In the event Lessor elects to take and
separately dispose of its royalty share of Minerals, an appropriate balancing
agreement shall be entered into between Lessor and Lessee. At least thirty(30)
days subsequent to the execution of any contract for the sale, delivery,
transporting or processing of any type of Minerals produced from the Leased
Premises (each a “Production Sales Contract”), Lessee shall provide Lessor with
the pertinent portions of such Production Sales Contract.. If any Production
Sales Contract, or any other contract pursuant to which any Minerals produced
hereunder are sold, makes any express deductions for the expenses of production,
gathering, dehydration, compression, transportation, manufacture, processing,
treatment or marketing of any such Minerals, then all such deductions shall be
added to the price received by Lessee for such Minerals for the purpose of the
calculation and payments of royalties to Lessor, so that Lessor’s royalty shall
not bear, directly or indirectly, any of such expenses, subject to part (ii) of
this section.

  

G.           Take or Pay. In the event Lessee enters into a Mineral purchase
contract which contains what is commonly referred to as a”take or pay provision”
(such provision meaning that the Mineral purchaser agrees to take delivery of a
specified minimum volume or quantity of Minerals over a specified term at a
specified price or to make minimum periodic payments to the producer for
Minerals not taken by the purchaser) and the purchaser under such Mineral
purchase contract makes payment to Lessee by virtue of such purchaser’s failure
to take delivery of such minimum volume or quantity of Minerals, then Lessor
shall be entitled to the Royalty Percentage of all such sums paid to Lessee or
producer under the “pay” provisions of such Mineral purchase contract. Such
royalty payments shall be due and owing to Lessor within sixty (60) days after
the receipt of such payments by Lessee. Any royalty payments made to Lessor
under the “pay” obligation of any “take or pay” Mineral contract shall be
applied as a credit toward Lessee’s minimum royalty obligation. If the Mineral
purchaser “makes up” such Minerals within the period called for in the Mineral
contract and Lessee is required to give such purchaser a credit for Minerals
previously paid for but not taken, then Lessor shall not be entitled to royalty
on such “makeup” Minerals. If Lessee is not producing any quantities of Minerals
from the Leased Premises or lands pooled therewith but is receiving payments
under the “pay” portion of such “take or pay” Mineral purchase contract
provision, such payments shall not relieve Lessee of the duty to make shut-in
royalty payments if Lessee desires to continue this Lease, but such “take or
pay” royalty payments shall be applied as a credit against any shut-in royalty
obligation of the Lessee. Lessor shall be a third-party beneficiary of any
Mineral purchase contract and/or transportation agreement entered into between
Lessee and any purchaser and/or transporter of Lessor’s Minerals, irrespective
of any provision of said contracts to the contrary, and such Mineral purchase
contract and/or transportation agreement will expressly so provide. Further,
Lessor shall be entitled to the Royalty Percentage of the value of any benefits
obtained by or granted to Lessee from any Mineral purchaser and/or transporter
for the amendment, modification, extension, alteration, consolidation, transfer,
cancellation or settlement of any Mineral purchase contract and/or
transportation agreement.  

H.           Use of Separator. If a reasonable and prudent operator would do so
under similar circumstances, Lessee agrees that before any gas produced from the
Leased Premises is used or sold off the Leased Premises, it will be run, free of
cost to Lessor, through an adequate oil and gas separator of a conventional type
or equipment that will ensure that all liquid hydrocarbons recoverable from the
gas by such means will be recovered on this Lease and Lessor properly
compensated therefor.  

J.           Division Orders. Regardless of the contents of any division order
executed by Lessor, the terms of this Lease may not be amended by any division
order and the signing of a division order by any mineral owner may not be made a
prerequisite to payment of royalty hereunder.

   

M.           Right to Audit. Lessor expressly reserves the right and Lessee
expressly grants to Lessor the right to audit production, revenue, and the
calculation and payment of revenues to Lessor by giving Lessee notice of the
exercise of this right. Within thirty (30) days after receipt of such notice,
Lessee shall make available to Lessor all books and records (together with
copies thereof ifrequested by Lessor) along with all other data necessary for
Lessor to audit such production, revenue, and/or royalty payments. Such audit
shall take place at Lessee’s office or at such other place as may be mutually
agreed upon by the parties.

   

10. INFORMATION ACCESS AND REPORTS

    

A.      Access to Information. Lessee agrees to make available, at Lessee’s
offices, to Lessor or Lessor’s nominee, all well information, including cores,
cuttings, samples, logs (including Schlumberger and other electrical logs),
results of deviation tests and directional surveys, results of seismic and
geologic surveys (unless a licensing agreement prohibits Lessee from sharing
such seismic data) and the results of all drill stem tests and other tests of
other kind or character that may be made with respect to the Leased Premises or
lands pooled therewith or wells on the Leased Premises or lands pooled
therewith. Any examination by Lessor of any licensed seismic data shall be
subject to strict compliance with the applicable license agreement under which
Lessee acquired such data and shall remain confidential, even after termination
of this Lease, or portions thereof, despite the provisions of Section 10.A.3.
below. Lessor or Lessor’s nominee shall have free access during normal business
hours to Lessee’s books and records relative to the production and sale of
Minerals from the Leased Premises or lands pooled therewith, including reports
of every kind and character to governmental authorities, State or Federal.
Lessor shall have the right at its own election and risk, and its sole cost and
expense, to employ gaugers or install meters to gauge or measure the production
of all Minerals produced from the Leased Premises or lands pooled therewith, and
Lessee agrees to make available, at Lessee’s offices, to Lessor or Lessor’s
gauger or nominee run or gauge tickets for all Minerals removed from the Leased
Premises or lands pooled therewith. Lessee shall furnish to Lessor daily
drilling reports on each well drilled or provide Lessor with website and
password information to permit Lessor to access drilling reports. Lessor agrees
to keep confidential the information obtained by Lessor pursuant to this Section
10.A, in accordance with the following provisions:  

 

1. Without the prior written consent of Lessee, the information will not be
disclosed by Lessor or its officers, directors, partners, employees, affiliates,
agents or representatives (collectively “Representatives”), unless the
information is covered by a Confidentiality Exception, and will not be used by
Lessor or its Representatives other than in connection with the matters covered
by or concerning this Lease or the Leased Premises.   2. Notwithstanding
anything herein to the contrary, no obligation or liability shall accrue
hereunder with respect to any information that is a Confidentiality Exception.
As used herein, the term “Confidentiality Exception” shall mean information
described in Sections 10.A and 10.A.3 that (a) is or becomes publicly available
other than as a result of acts by Lessor or by its Representatives in violation
of this Lease, (b) is in the possession of Lessor or its Representatives prior
to disclosure by Lessee (c) is or becomes available to Lessor from a source
that, to Lessor’s knowledge, is not bound by a confidentiality agreement with
Lessee prohibiting such disclosure, (d) required to be disclosed by law or by
legal process, including a subpoena or court order, or (e) Lessor discloses to
its legal counsel, accountants, bankers and lenders. At the time Lessor
discloses any information it obtains pursuant to Section 10.A to parties
described in part (e) immediately preceding, it will require the party to whom
it discloses such information to abide by the provisions of this Section 10.  
3. As to information which relates to particular lands and subsurface depths
covered by this Lease, Lessor agrees to keep such information confidential
(subject, however, to the Confidentiality Exceptions) for as long as this Lease
remains in force and effect as to such particular lands and subsurface depths,
it being understood that (i) as particular lands and subsurface depths are
released from this Lease, Lessor’s obligation to keep information which relates
to such lands and subsurface depths confidential shall cease and (ii) Lessor
shall not have any obligation whatsoever to keep information confidential once
this Lease is no longer in force and effect.

   

B.           Gas and Oil Purchase Contracts. Lessee shall furnish to Lessor,
within a reasonable time after execution, a copy of any Mineral purchase
contract or transportation agreement entered into in connection with the Leased
Premises or lands pooled therewith, or if there is already a Mineral purchase
contract or transportation agreement in effect due to Lessee’s operations in the
field, then a copy of that contract. Furthermore, a copy of any amendments to
the Mineral purchase contract or transportation agreement shall be furnished to
said Lessor within thirty (30) days after execution thereof. Lessee agrees to
make available, at Lessee’s offices, to Lessor or Lessor’s nominee, all core
records, core analyses, well completion, bottom hole pressure measurement,
directional survey records, electrical and induction surveys and logs, gas and
oil ratio reports, paleontological reports pertaining to the paleontology of the
formations encountered in the drilling of any wells on the Leased Premises or
lands pooled therewith, and all other reports which pertain to the drilling,
completing or operating of the wells located on the Leased Premises. The
technical data in this Section 10.A and this Section 10.B and Mineral contract
information (but not including production volumes or prices paid for Minerals)
shall be solely for Lessor’s use, and Lessor shall in good faith attempt to keep
same confidential after acquiring same from Lessee, subject, however, to the
Confidentiality Exceptions.  

11. SURVEYS, ABSTRACTS, TITLE OPINIONS AND CURATIVE WORK  

A.           Surveys and Maps. If either party shall cause any of the exterior
or interior lines of the property covered by this Lease to be surveyed, the
surveying party shall furnish the other party a copy of such survey.  

B.           Abstracts of Title. In the event either party causes an abstract of
title to be prepared covering the Leased Premises or lands pooled therewith, or
any portion thereof, the other party shall have access to said abstract at any
reasonable time. In the event either party shall cause the title to be examined
or should obtain a title opinion or title certificate upon the property herein
leased, such party agrees to furnish the other party a copy or photostatic copy
thereof within a reasonable time of receipt of the same, with the understanding
that neither the party obtaining the opinion or certificate nor the attorney or
firm of attorneys rendering the opinion or certificate shall be responsible to
the other party for its correctness, the said opinion or certificate being
furnished to the other party simply for the other party’s own convenience,
information and personal use. Similarly, if any curative material is obtained by
either party, a copy there of shall immediately be furnished to the other party
under the same conditions of non-liability on the part of the obtaining party or
the persons who may have obtained or prepared the same.  

12. USE OF THE SURFACE AND SUBSURFACE
  

A.           Surface and Subsurface Operations. This Lease is made expressly
subject to the terms and conditions of Exhibit B to the Quitclaim Mineral
Deed-attached hereto as Exhibit B and made a part hereof. Lessee expressly
agrees to conduct all surface and subsurface operations pursuant to the terms
and conditions of Exhibit B.  

B.           Reservation of Rights. Lessor expressly reserves all rights with
respect to the subsurface of the Leased Premises (the ownership of which shall
remain vested in Lessor) for any and all purposes except those specifically
granted to Lessee under this Lease. Without limiting the foregoing, Lessor
expressly reserves the right to explore by any method, drill for, mine, produce,
treat and store and transport any and all minerals other than those covered by
this Lease, but the rights of Lessee under this Lease shall always take priority
over Lessor’s right to explore reserved mineral rights for and during the entire
term of this Lease as to all lands and depths then covered thereby. Lessor also
expressly reserves the right to use the Leased Premises for the purposes of,
without limitation, commercial, industrial, and or mixed use development, and
for the purpose of ingress and egress to and from other tracts of land owned by
Lessor in the vicinity, to the extent Lessor is legally vested such rights.

  

13. ASSIGNABILITY AND SURRENDER BY LESSEE

          

A.           Lessee’s Right to Transfer. Subject to Section 13.B, Lessee may
assign or transfer up to fifty percent (50%) of this Lease to an affiliate of
Lessee or to a non-operating person or entity which invests in Lessee or
provides equity to Lessee within the first ninety (90) days after the effective
date of this Lease, provided, however, such right shall be conditioned on Lessee
delivering to Lessor at least thirty (30) days prior notice of such assignment
or transfer, which notice shall include the identity of such non-operator and
include a copy of the assignment and transfer documents. Otherwise, Lessee may
not transfer, assign, deliver, set over, or convey, whether by individual
purchase, package/bundle sale or merger, an undivided interest in this Lease or
any portion thereof without the prior express written consent of Lessor, such
consent shall not unreasonably be withheld.

  

B.           Assumption Obligations. All transfers (including assignments,
sales, subleases, overriding royalty conveyances, or production payment
arrangements) must (i) contain a provision reflecting that the transferee or
assignee has specifically assumed all of the Lessee’s obligations under this
Lease, (ii) be recorded in Official Public Records of Bernalillo County, New
Mexico, and (iii) the recorded transfer or a copy certified by the County Clerk
of Bernalillo County, New Mexico must be delivered to Lessor within ninety (90)
days of the execution date. Every transferee shall succeed to all rights and be
subject to all obligations, liabilities, and penalties owed to Lessor by the
original Lessee or any prior transferee of this Lease, including any liabilities
to Lessor for unpaid royalties; provided, however, the grantor, assignor or
transferor in such transfer or assignment shall also continue to be liable for
all such obligations, liabilities, and penalties owed to Lessor by such grantor,
assignor or transferor prior to the transfer of this Lease, insofar and only
insofar as such grantor, assignor, or transferor was responsible for said
obligation, liability or penalty. If Lessee or assignee of part or parts hereof
shall fail or make default in the payment of the proportionate part of the
royalty, shut-in royalty or drill or pay payments provided in Section 2 hereof
due from such Lessee or assignee or fail to comply with any of the provisions of
this lease, such default shall not affect this Lease insofar as it covers the
part of the lands upon which Lessee or assignee thereof shall properly comply or
make such payments.  

C.           Surrender. Lessee, or its successors, heirs and assigns, shall have
the right at any time to surrender this Lease, in whole or in part, to Lessor,
or its successors, heirs and assigns, by delivering or mailing a release thereof
to Lessor, and by placing a release thereof in the county in which said land is
situated; thereupon Lessee shall be relieved from all obligations, expressed or
implied, of this Lease as to acreage so surrendered, and thereafter the payment,
if any, payable hereunder attributable to the released lands shall be reduced in
the proportion that the acreage covered hereby is reduced by said release or
releases. Notwithstanding anything to the contrary herein, Lessee’s indemnity
obligations in Section 16 shall survive the termination of this lease
indefinitely.  

14. ASSIGNABILITY BY LESSOR

             

The rights of Lessor hereunder may be assigned or delegated in whole or in part
to any party, and the provisions hereof shall extend to Lessor’s heirs,
successors, assigns and delegatees, but no change or division in the ownership
of the land or royalties, however accomplished, shall operate to enlarge the
obligations or diminish the rights of Lessee. Upon any assignment or delegation
of all of Lessor’s rights and/or obligations under this Lease, the
assignee/delegatee will be deemed to be substituted for Lessor under this Lease
and the assignee/delegatee will be entitled to exercise all of the rights and
shall be subject to all of the obligations of Lessor under this Lease. Upon any
such assignment or delegation of all of Lessor’s rights and/or obligations, all
references to Lessor in this Lease will thereafter be deemed to be references to
the assignee or delegatee as applicable. Upon any partial assignment or
delegation of Lessor’s rights and/or obligations under this Lease, the
assignee/delegatee will be entitled to exercise its prorata portion of the
rights of Lessor under this Lease and shall be subject to a prorata portion of
the obligations of Lessor under this Lease. Upon any such assignment or
delegation of a portion of Lessor’s rights and/or obligations, all references to
Lessor in this Lease will thereafter be deemed to be references to the Lessor,
assignee and/or delegatee in accordance with their respective rights and
obligations under this Lease. Should Lessor assign or delegate its rights
hereunder to more than five (5) assignees and/or delegatees, Lessor shall
designate one of said assignees and/or delegatees as the representative of all
assignees and/or delegatees; Lessee shall send all payments, notifications, or
other communications as required hereunder to said representative. All such
notifications and payments made to the designated representative shall be deemed
to have been timely made as to all assignees and/or delegatees, and Lessee shall
not be liable for any failure of the designated representative to distribute
such payments or notifications to other assignees and/or de1egatees.
  

15. NO WARRANTY
  

A.           No Warranties. This Lease is given and granted without warranty,
express or implied, in law or in equity.

  

B.           Proportionate Reduction. If Lessor owns a mineral interest in the
Leased Premises less than the entire mineral estate, the royalties, including
shut-in royalties, and the drill or pay obligation to be paid Lessor shall be
reduced proportionately.

  

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6. INDEMNITY

             

A. Indemnity. LESSEE SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS THE INDEMNIFIED
PARTIES (AS HEREINAFTER DEFINED) FROM ANY AND ALL LIABILITIES, LIENS, DEMANDS,
JUDGMENTS, COSTS, EXPENSES, SUITS AND CLAIMS OF ANY KIND OR CHARACTER ARISING
OUT OF, IN CONNECTION WITH, OR RELATING TO ANY OPERATION OR ACTIVITY CONDUCTED
BY LESSEE, OR ITS AGENTS, CONTRACTORS, SUBCONTRACTORS, EMPLOYEES, LICENSEES OR
INVITEES, ON OR UNDER THE LEASED PREMISES, OR ANY BREACH OF THIS LEASE BY
LESSEE, INCLUDING BUT NOT LIMITED TO CLAIMS FOR INJURY OR DEATH OF ANY PERSONS
OR DAMAGE, LOSS OR DESTRUCTION OF ANY PROPERTY, REAL OR PERSONAL, UNDER ANY
THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHERWISE. LESSEE FURTHER
COVENANTS AND AGREES TO DEFEND ANY SUITS BROUGHT AGAINST ANY OF THE INDEMNIFIED
PARTIES ON ACCOUNT OF SAID CLAIMS AND TO PAY ANY JUDGMENTS AGAINST ANY OR ALL OF
THE INDEMNIFIED PARTIES RESULTING FROM ANY SUCH SUIT OR SUITS, TOGETHER WITH ALL
COSTS AND EXPENSES RELATIVE TO ANY SUCH CLAIMS, INCLUDING BUT NOT LIMITED TO
ATTORNEYS’ FEES. EACH OF THE INDEMNIFIED PARTIES SHALL HAVE THE RIGHT TO
PARTICIPATE IN THE DEFENSE OF ANY SUIT OR CLAIM IN WHICH THEY (OR ANY OF THEM)
MAY BE A PARTY WITHOUT RELIEVING LESSEE OF ITS OBLIGATIONS HEREUNDER.   

B. Nature of Indemnity. THE FOREGOING INDEMNITY SHALL APPLY WHETHER OR NOT
ARISING OUT OF THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
LIABILITY OF LESSOR OR ANY OF THE INDEMNIFIED PARTIES AND SHALL APPLY, WITHOUT
LIMITATION, TO ANY LIABILITY IMPOSED UPON ANY OF THE INDEMNIFIED PARTIES AS A
RESULT OF ANY THEORY OF STRICT LIABILITY OR ANY OTHER DOCTRINE OF LAW OR EQUITY,
PROVIDED THAT THE FOREGOING INDEMNITY SHALL NOT APPLY TO ANY COSTS, EXPENSES,
LOSSES OR LIABILITIES INCURRED BY LESSOR TO THE EXTENT PROXIMATELY CAUSED BY THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR. THE FOREGOING INDEMNITY AND
ALL OTHER INDEMNITIES OF LESSEE CONTAINED IN THIS LEASE SHALL SURVIVE ANY
TERMINATION OF THIS LEASE AND SHALL INURE TO THE BENEFIT OF LESSOR AND EACH OF
THE INDEMNIFIED PARTIES. AS USED IN THIS LEASE, THE TERM “INDEMNIFIED PARTIES”
REFERS TO (i) LESSOR, ITS AFFILIATES, AND ALL OF THE OFFICERS, DIRECTORS,
PARTNERS, MEMBERS, EMPLOYEES AND AGENTS OF LESSOR AND ITS AFFILIATES, (ii)
LESSOR’S MORTGAGEES, AND (iii) THE SUCCESSORS AND ASSIGNS OF THE PERSONS AND
ENTITIES DESCRIBED IN (i). LESSEE HEREBY AGREES AND DECLARES THAT THE PROVISIONS
CONTAINED IN PARAGRAPHS A AND B OF THIS SECTION 16 ARE CONSPICUOUS AND COMPLY
WITH THE EXPRESS NEGLIGENCE RULE.

          

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17. NOTICES
   

A. Lessor’s Address. All notices, information, letters, surveys, reports,
material , and all other documents required or permitted to be sent to Lessor by
Lessee will be deemed to have been given and received when delivered personally,
or on the date following the day sent by overnight courier, or on the third
(3rd) Business Day after the same is sent by certified United States mail,
postage prepaid, return receipt requested, to the following persons at the
following addresses:   

Atrisco Oil and Gas, LLC

1730 Montano NW Suite B

Albuquerque, New Mexico 87107

Attn: Peter Sanchez

Tel. No.: 505-836-0306
Fax. No.:          

With a copy of notices only to:          
          

Gaye White

Thompson & Knight LLP

98 San Jacinto Blvd., Suite 1900

Austin, Texas 78701          
          

B. Lessee’s Address. All notices required or permitted to be sent to Lessee by
Lessor will be deemed to have been given and received when delivered personally,
or on the date following the day sent by overnight courier, or on the third
(3rd) Business Day after the same is sent to Lessee by certified United States
mail, postage prepaid, return receipt requested, to the following address:  

Tecton Energy, LLC

3000 Wilcrest, Suite 300
Houston, Texas 77042
Attn: Chris Fling

Tel. No.: 281-668-8068

Fax.No.: 713 -974-1004

C. Business Day. As used herein, the term “Business Day” means a day other than
a Saturday, Sunday or day on which commercial banks in the State of New Mexico
are authorized or required to be closed for business.  

D. Change of Address. Any party hereto shall have the right to change the name
or address of the person or persons required to receive notices and other
documents by so notifying the other party in writing.

   

18. BREACH BY LESSEE       

A. General Compliance Obligation. Lessee shall conduct Lessee’s operations in
strict compliance with all of the terms and provisions of this Lease and with
all applicable Laws and the regulations of any regulatory body having
jurisdiction of such operations including, but not limited to, all local, state
and federal environmental rules and regulations. Lessee shall bear all costs and
other burdens of complying with all applicable Laws and the rules and
regulations promulgated thereunder governing Lessee’s operations, including
without limitation all costs and burdens associated with obtaining drilling
permits and other approvals for those operations from all applicable
governmental authorities and complying with the restrictions of all applicable
governmental authority drilling ordinances and regulations.  

B. Lessee’s Cure Rights. In the event Lessor considers that operations are not,
at any time, being conducted in compliance with this Lease, or any implied
covenant of this Lease, Lessor may notify Lessee in writing of the facts relied
upon as constituting an alleged breach of any express or implied covenant or
obligation of, or any provision pertaining to, Lessee hereunder and, Lessee, if
in breach, shall have sixty (60) Business Days after receipt of such notice in
which to commence compliance with its obligations hereunder. Failure on the part
of Lessee to timely commence efforts to rectify any such alleged breach and to
exercise diligence in remedying any such alleged breach shall operate as a
forfeiture of this Lease as to the portion there of effected by such alleged
breach; provided that if Lessee, in good faith, disputes any alleged grounds of
breach set forth in such notice, Lessee may, within said sixty (60) Business Day
period, deliver a written response, setting forth in reasonable detail its views
of the facts alleged to give rise to such alleged breach, any relevant
contractual provisions, the nature of the claimed default or breach and a
statement of the manner in which the Lessee believes the dispute should be
resolved.

     

If the parties do not agree on the manner in which the dispute should be
resolved, they will arrange to hold a meeting within ten (10) days after
delivery of the response. Each party will have in attendance at such meeting an
officer or manager with the authority to resolve such dispute. At the meeting
(and any adjournments thereof), the parties will negotiate in an attempt to
confirm that a dispute exists, the exact nature of the dispute and the manner in
which the dispute should be resolved. If deemed appropriate by the parties, a
professional mediator may be engaged to assist in resolving the dispute. Any
resolution of the dispute will be evidenced by a written agreement. If no such
written agreement is reached within fifteen (10) Business Days after the first
meeting (“Negotiation Period”), upon notice by either party (“Arbitration
Notice”), the dispute shall be resolved solely and exclusively by arbitration in
accordance with the Federal Arbitration Act and using the Commercial Arbitration
Rules of the American Arbitration Association (“AAA”) or any success or thereof
when not in conflict with such act. The arbitration will be conducted on a
confidential basis strictly in accordance with the terms of this Lease. The
arbitration shall be conducted before a panel of three independent and impartial
arbitrators. Each party will be entitled to select one arbitrator within ten
(10) Business Days of the date of the Arbitration Notice. If a Party fails to
select an arbitrator within such ten (10) Business Day period, the Houston
office of the AAA shall appoint an arbitrator for such party. The two
individuals so selected will then select the third arbitrator within ten (10)
Business Days. If the two individuals selected fail to select a third arbitrator
within such ten (10) Business Day period, the Houston office of the AAA shall
appoint a third arbitrator. The panel of arbitrators will be selected no later
than twenty (20) Business Days after the date of the Arbitration Notice. Each
member of the arbitration panel, must be an attorney that is experienced in
legal and operational matters related to oil and gas properties.  

The arbitration shall take place at a time and place determined by the
arbitrators. Discovery shall be made pursuant to the Federal Rules of Civil
Procedure and completed within forty-five (45) days of selection of the panel of
arbitrators. Final hearing on the matter shall be had within sixty (60) days of
the selection of the panel of arbitrators and a formal decision (which may
include the award of attorney’s fees and costs), with a written opinion stating
the reasons there for, shall be rendered within seventy-five (75) days of
selection of the panel of arbitrators. Judgment upon an award of the majority of
the arbitrators shall be binding. The arbitrators shall not have the authority
to award either party any punitive or exemplary damages. The arbitrators
decision shall be made in compliance with the substantive law of New Mexico and
not ex aequo et bona (“in justice and fairness”) or as amicables compositeurs
(the concept that allows arbitrators to disregard strictness of law in favor of
natural equity). The arbitrators’ decision will be considered as a final and
binding resolution of the dispute and will not be subject to appeal.  

C. Express Covenants. All express covenants of Lessee contained in this Lease
are in addition to, and not in the place of, the covenants of a lessee under an
oil and gas lease that are implied under applicable law.  

19. FAVORED NATIONS  

If at any time or times prior or subsequent to the date of execution of this
Lease, Lessee shall obtain a lease from or make a contract with an owner of one
percent (1 %) or more of the Minerals in the Leased Premises other than Lessor,
then Lessor shall be entitled to any benefits paid for, granted or reserved in
such lease or contract which are more favorable to said owner than those paid
for, granted or reserved to Lessor in this Lease. Lessee shall pay Lessor
immediately Lessor’s pro rata share of such benefit, including without
limitation, bonus, royalty, rental or shut-in payment or any other benefit more
favorable to such mineral owner than the payment for the benefits of this Lease.
If necessary in the opinion of Lessor, then Lessee shall amend this Lease to
confer such benefits upon Lessor. If Lessor is entitled to additional benefits
under the terms of this Section 19, Lessee shall receive a credit with respect
to any additional payments made to Lessor equal to the entire cost and expenses
Lessee has incurred related to its public relations activities pertaining to its
operations under this Lease, its employment of Atrisco Heirs, its employment of
firms owned and/or managed by Atrisco Heirs, its sponsorships pertaining to
Atrisco Heirs and similar benefits given by Lessee to Lessor or Atrisco Heirs.
Atrisco Heirs includes shareholders and members of Lessor and their family
members. This duty upon Lessee shall extend to where Lessee has agreed to
contribute this Lease to a drilling unit with a lessee from a Mineral co-tenant
of Lessor and in such event if the lease contributed from the lessee of a
Mineral co-tenant of Lessor is more favorable to the Lessor in any respect than
this Lease, Lessee shall pay Lessor immediately, Lessor’s pro rata share of such
benefit as aforesaid.  

20. ADDITIONAL NOTICE  

Lessee agrees to use good faith effort to give notice to Lessor of the need, if
any, to bring a claim or lawsuit against a third party who is draining,
damaging, overproducing, unlawfully depleting, or otherwise damaging any
reservoir underlying the Leased Premises, in a timely fashion so that Lessor may
assert Lessor’s own claim or lawsuit in a court of appropriate jurisdiction, or
before a regulatory agency. Lessee shall give such notice to Lessor within sixty
(60) days of the date that Lessee becomes aware of the need to assert such claim
or lawsuit.  

21. TERMS HERITABLE  

All of the terms and provisions of this Lease shall extend to and be binding
upon the heirs, executors, administrators, successors and authorized assigns of
the parties hereto.  

22. CAPTIONS  

The captions to the various Sections of this Lease are for convenience only, to
be used primarily to more readily locate specific provisions. They shall not be
considered a part of the Lease, nor shall they be used to interpret any of the
provisions of this Lease.  

23. COUNTERPARTS

  

This Lease may be executed in multiple counterparts, each of which shall be
deemed an original, with the same effect as if the signature thereto and hereto
were upon the same instrument.

 

24. FACSIMILE EXECUTION  

The parties agree that this Agreement may be transmitted between them by
facsimile machine. The parties intend that faxed signatures constitute original
signatures and that a faxed agreement containing the signatures original or
faxed) of all the parties is binding on the parties.
  

25. LESSOR’S CONSENT  

With respect to any provision of this Lease which provides for or requires
Lessor’s consent, approval or acceptance, Lessor my give or withhold such
consent, approval or acceptance in Lessor’s sole and absolute discretion, except
with respect to those provisions which expressly provide that Lessor’s consent
or approval must be reasonable or may not be unreasonably withheld and/or
unreasonably delayed.  

26. SEVERABILITY  

If any provision of this Lease or the application thereof to any person or
circumstances shall be invalid or unenforceable to any extent, the remainder of
this Lease and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.  

27. APPLICABLE LAW  

This Lease shall be governed by and construed in accordance with the laws of the
State of New Mexico.  

28. EXAMINATION OF LEASE  

Submission of this instrument for examination or signature by Lessee does not
constitute a reservation of or option for lease, and it is not effective as a
lease or otherwise until execution by and delivery to both Lessor and Lessee.  

29. INTEREST ON LESSEE’S OBLIGATIONS  

Except as otherwise expressly provided herein, any amount due from Lessee to
Lessor (other than interest) which is not paid when due shall bear annual
interest at prime rate, but not to exceed the highest rate allowed by law, from
the date such payment is due until paid, but the payment of such interest shall
not excuse or cure the default. Such interest shall be in addition to, and not
in lieu of, any damages payable to Lessor as a result of Lessee’s failure to
timely pay to Lessor all amounts when and as required under this Lease.  

30. AUTHORITY  

If Lessee executes this Lease as a corporation, Lessee does hereby covenant and
warrant that Lessee is a duly authorized and existing corporation, that Lessee
has and is qualified to do business in New Mexico, that Lessee has full right
and authority to enter into this Lease, and that each person signing on behalf
of Lessee was and is authorized to do so. If Lessee executes this Lease as a
partnership, Lessee does hereby warrant that Lessee is a duly authorized and
existing partnership, that Lessee, if a foreign partnership, is qualified to do
business in New Mexico, Lessee has full right and authority to enter into this
Lease, and that each person signing on behalf of Lessee was and is authorized to
do so. If Lessee executes this Lease as a limited liability company, Lessee does
hereby warrant that Lessee is a duly authorized and existing limited liability
company, that Lessee is qualified to do business in New Mexico, Lessee has full
right and authority to enter into this Lease, and that each person signing on
behalf of Lessee was and is authorized to do so.  

  

31 . WAIVER OF UNFAIR PRACTICES ACT  

LESSOR AND LESSEE EACH HEREBY WAIVE ALL OF ITS RIGHTS UNDER THE NEW MEXICO
UNFAIR PRACTICES ACT, SECTION 57-12-1 ET.SEQ. OF THE NEW MEXICO STATUTES,

A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION
WITH AN ATTORNEY OF THEIR OWN SELECTION, LESSOR AND LESSEE EACH VOLUNTARILY
CONSENTS AND GIVES THIS WAIVER.  

32. BANKRUPTCY  

If this Lease is assigned to any person or entity pursuant to the provisions of
the Federal Bankruptcy Code, Title 11 U.S.C. Section 101, et seq., as
subsequently amended (the “Bankruptcy Code”), any and all monies or other
considerations payable or otherwise to be delivered in connection with such
assignment will be paid or delivered to Lessor (which shall include the cure of
any existing monetary defaults by payment of same to Lessor and the cure of any
non-monetary defaults by performance within ten (l0) business days of the
assumption of this Lease by the assignee), and will be and remain the exclusive
property of Lessor and will not constitute property of Lessee within the meaning
of the Bankruptcy Code. Any and all monies or other considerations constituting
Lessor’s property under the preceding sentence not paid or delivered to Lessor
will be held in trust for the benefit of Lessor and be promptly paid to or
turned over to Lessor. For purposes of Section 365(f) (2) of the Bankruptcy Code
“adequate assurances of future performance” will include, but not be limited to,
net worth, and creditworthiness equal to that of Lessee on the date of this
Lease. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, will be deemed without further act or deed to
have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee will upon demand execute and deliver
to Lessor an instrument confirming such assumption.  

33. WAIVER  

The failure of Lessor at any time or times to require performance of any
provision of this Lease shall not affect its right at a later time to enforce
such provision. No waiver by Lessor of any condition, or of any breach of any
covenant, agreement, representation or warranty contained in or implied under
this Lease, in any one or more instances, shall be deemed to be or construed as
a further or continuing waiver of any such condition or breach or waiver of any
other condition or of any breach of any other covenant, agreement,
representation or warranty. Lessor’s consent to or approval of any act by Lessee
requiring Lessor’s consent or approval shall not be deemed to render unnecessary
the obtaining of Lessor’s consent to or approval of any subsequent act of
Lessee. No act or thing done by Lessor or Lessor’s agents during the term of
this Lease shall be deemed an acceptance of a surrender of the Leased Premises,
unless done in writing signed by Lessor. The acceptance of any royalty or other
payment by Lessor following a breach of this Lease by Lessee shall not
constitute a waiver by Lessor of such breach or any other breach unless such
waiver is expressly stated in writing signed by Lessor.  

34. ENTIRE AGREEMENT  

This Lease contains all of the agreements of the parties hereto with respect to
any matter covered or mentioned in this Lease, and no prior agreement,
understanding or representation pertaining to any such matter shall be effective
for any purpose. No provision of this Lease may be amended or added to except by
an agreement in writing signed by the parties hereto or their respective
successors in interest.  

35. INSURANCE  

At all times while this Lease is in force, (a) Lessee shall carry and provide
insurance in the amounts and as set forth on the Exhibit “C” attached hereto and
made a part hereof, and (b) Lessee shall require all contractors engaged in work
pertaining to the Leased Premises to comply with the Workers’ Compensation Law
of the State of New Mexico and to maintain liability insurance and other types
of insurance in amounts which are typical and usual in the oil and gas
exploration, development and transportation industry for oil and gas
contractors. Lessee shall provide copies of such insurance policies or
certificates of same to Lessor upon written request to Lessee.  

36. COALBED METHANE

   

All references in this lease to production of Minerals or wells capable of
producing Minerals shall be satisfied by production of water from a well drilled
to and completed in any coal bearing sand under the Leased Premises (a “CBM
Well”) for a period of time up to thirty-six (36) months after commencement of
the dewatering of any such well. The parties recognize that a CBM Well may
require dewatering for an extended period of time prior to the actual production
of gas or liquid hydrocarbons in significant quantities. Therefore, Lessee’s
continued operations of a CBM Well for such purpose and production of water from
such well for a period of time (not to exceed thirty-six(36) months, unless
actual production of Minerals in paying quantities is established within such
period), will be deemed to be production of Minerals in paying quantities during
such period of time for all purposes of this Lease.  

[Remainder of Page Intentionally Left Blank]

     

--------------------------------------------------------------------------------

EXECUTED on this the 20th day of August. 2007  
  

LESSOR:

  

ATRISCO OIL AND GAS, LLC
By: /s/ Peter Sanchez

Name: Peter Sanchez

Title: Chief Executive Officer    

  
LESSEE:

  

TECTON ENERGY, LLC
By: /s/William K. Dirks

Name: William K. Dirks

Its: Managing Partner

     

--------------------------------------------------------------------------------

State of New Mexico

  

County of Bernalillo

  

This instrument was acknowledged before me on August 20, 2007 by Peter Sanchez,
CEO of Atrisco Oil and Gas, LLC, a New Mexico limited liability company, as the
act and deed of said company.

  

/s/ Linda J. Blair

Notary Public for the State of New Mexico
Linda J. Blair
Printed name of Notary
My Commission Expires August 5, 2009

  

State of Texas

  

County of Harris

  

This instrument was acknowledged before me on August 22, 2007 by William K.
Dirks, Managing Partner of Tecton Energy, LLC, a Texas limited liability
company, on behalf said company.

  

/s/ Libby Rivas

Notary Public for the State of Texas
Libby Rivas
Printed name of Notary
My Commission Expires February 24, 2010

     

--------------------------------------------------------------------------------

EXHIBIT “A”

  

Attached to and made a part of that certain Oil, Gas and Mineral Lease dated
August 20, 2007, between Atrisco Oil and Gas, LLC (“Lessor”) and Tecton Energy,
LLC (“Lessee”)  

  

The Legal Description of Leased Premises is as follows:  

  

This Lease shall include all land located within the Town of Atrisco Land Grant
that is determined to be owned or claimed by Lessor, and being more specific in
the Exhibit A in the Quitclaim Mineral Deed and Assignment of Oil and Gas
Leases, dated December 4, 2006, from Westland Development Co., Inc. to Lessor,
recorded in Book A128, Page 8482 in the Office of the County Clerk of Bernalillo
County, New Mexico. It is the intent of the Lessor to lease unto the Lessee all
of the Lessor’s lands within Bernalillo County.

     

--------------------------------------------------------------------------------

EXHIBIT “B”

  

Attached to and made a part of that certain Oil, Gas and Mineral Lease dated
August 20, 2007, between Atrisco Oil and Gas, LLC (“Lessor”) and Tecton Energy,
LLC (“Lessee”)  

Exhibit B to

Quitclaim Mineral Deed and Assignment of Oil and Gas Leases

Dated                     , 2006
  

1. General.
 

(a) The terms and provisions of this Exhibit B are incorporated into and made a
part of the Quitclaim Mineral Deed and Assignment of Oil and Gas Leases dated
December        , 2006 (“ Deed and Assignment “). In the event of any conflict
between the terms and provisions of the Deed and Assignment and terms and
provisions of this Exhibit, the terms and provisions of this Exhibit shall
control.

 

(b) The provisions in this Deed and Assignment shall be applicable to operations
to explore for and develop oil, gas or other hydrocarbons conducted on the
Subject Lands (“ Operations “) except for operations conducted pursuant to the
Sun Valley Lease and the Great Northern Lease. All Operations shall be conducted
with reasonable accommodation of Grantor, its proposed development of the
surface estate of the Subject Lands and the uses and enjoyment attendant
thereto. In connection with the activities and operations to be conducted upon
the Subject Lands pursuant to the development rights of Grantee or those granted
pursuant to an oil and gas lease (“ Lease”) , the lessee under any such oil and
gas lease (or Grantee if Grantee elects to conduct Operations on the Subject
Lands) (collectively, “ Operator “) shall act reasonably, at all times, to limit
and reduce the injury of or damage to the Subject Lands and any improvements
thereon and thereunder.

 

2. Drillsite, Pipeline and Road Locations on the Subject Lands.

 

(a) All wells to be drilled on the Subject Lands and associated operations shall
be limited to those specific drillsite locations that shall be agreed to by
Grantor and Operator (each such drillsite location, a “ Drillsite “). Thirty
(30) days prior to commencement of any operations, Operator will propose the
location of all Drillsites, roads and pipelines and submit to Grantor for its
review and consideration. Within thirty (30) days of receipt of such information
from Operator, Grantor shall either approve the surface locations proposed by
Operator or propose alternatives. The location of all Drillsites, roads and
pipelines shall be by mutual agreement of Operator and Grantor taking into
consideration the interests of both the Operator and Grantor. Operator and
Grantor shall negotiate in good faith to reach an agreement on the location of
all Drillsites, roads and pipelines. If Grantor and Operator are unable to agree
as to the location of any Drillsite, road and pipeline, such dispute shall be
submitted to a court of competent jurisdiction for resolution of such dispute,
keeping in mind the intent of the parties set forth in paragraph 1(b) above.

 

(b) Upon the agreement of Grantor and Operator as to the location of any
Drillsite, road and pipeline, Operator shall prepare a plat (“Plat”) of the
Subject Lands indicating the location of all Drillsites, roads and pipelines. If
Grantor or Operator subsequently desires to relocate a prospective Drillsite,
road or easement that has not yet been constructed, the party proposing such
relocation shall provide written notice to the other party of the proposed
relocation site and the reasons for such relocation. The non-proposing party
shall have thirty (30) days after receipt of such notice to either approve of
the relocation or propose an alternative. The parties shall negotiate in good
faith in an attempt to satisfy the proposing party’s need to relocate the
Drillsite, road or pipeline. If the parties agree to such relocation, the Plat
shall be amended to show the new surface location of the Drillsite, road or
pipeline, however, if the parties cannot, in good faith, agree on the
relocation, the original Plat shall control.

 

(c) Except for Operations to be conducted on the approved Drillsite, Operator
shall not drill any well or conduct Operations on any other drillsite locations
on the Subject Lands without the prior written approval of Grantor.

 

(d) Drillsites shall be limited to no more than four (4) acres. Except for
drilling, completing, recompleting and workover operations, Operator shall
confine its Operations to one (1) acre within each Drillsite.  

 

3. Access Routes and Other Facilities.

 

(a) All roads providing access from the exterior boundary of the Subject Lands
to the Drillsites shall be constructed by Operator at its sole cost and expense.
The location of all roads and other access routes located on the Subject Lands
(“ Access Routes “) to be used and constructed by Operator for ingress and
egress to each Drillsite shall be approved in writing by Grantor as provided in
paragraph 2 above. All ingress and egress by Operator (and its contractors,
sub-contractors and permitted invitees) over the Subject Lands or to and from
the Drillsites shall occur only on the approved Access Routes.

 

(b) Any road constructed by Operator on any Access Route shall be crushed
limestone or caliche, shall have a compacted six inch base of crushed limestone
or caliche, and shall otherwise comply with normal oilfield standards in the
vicinity. All roads constructed by Operator on the Subject Lands shall be
maintained by Operator at Operator’s sole cost and expense. Grantor may, at its
cost and expense, pave any roads along the Access Routes that are constructed by
Operator, however, after any road on an Access Route is paved, whether by
Grantor, Operator or a third party, and, as a result of such use or otherwise,
Operator causes any damage whatsoever to such road and surrounding area,
Operator shall repair such damage.

 

(c) The Access Routes herein granted are for the sole purpose of granting
Operator access to and from any Drillsite for the sole purpose of Operations
pursuant to a Lease. The Access Routes shall not be used by Operator for ingress
or egress to or from any land other than the Subject Lands without the prior
written consent of Grantor. Any gate or fence constructed or maintained on the
Access Routes shall be of material and design approved in writing by Grantor.
Grantor reserves the right for Grantor, and its successors and assigns and
invitees, to use the Access Routes as a means of access to and from the Subject
Lands and otherwise as long as such use does not unreasonably interfere with
Operator’s use.

 

(d) Other than on Drillsites, Operator shall not construct any pipelines (except
as provided in paragraph 4 below), pits, roads, and other aboveground and
underground facilities (collectively, “ Facilities “) without the prior written
consent of Grantor. Operator shall locate its Facilities only on the Drillsites
and those other areas of the Subject Lands approved in writing by Grantor. Any
Facilities approved by Grantor and constructed by Operator shall be constructed
and maintained by Operator in accordance with industry standards for equivalent
facilities. Operator shall use reasonable efforts to prevent all persons engaged
in Operations from operating vehicles and equipment on any part of the Subject
Lands other than upon Drillsites, Facilities or Access Routes approved by
Grantor. Notwithstanding anything herein the contrary, and other than on
Drillsites, without the prior written consent of the Grantor, no Facilities
shall be within 1,000 feet of any building, residence, or lake larger than five
(5) acres located upon the Subject Lands at the time such Facilities are built.

 

4. Pipelines. Operator agrees that all pipelines, flowlines, saltwater disposal
lines, or utility lines relating to a lease or Operator’s operations on the
Subject Lands (collectively “ Pipelines “) shall be buried by Operator at a
minimum depth of forty-eight (48) inches. In addition, all Pipelines shall be
buried and cased, at Operator’s expense, to the extent required to comply with
all applicable laws and all rules and regulations or governmental authorities
having or asserting jurisdiction of the surface of the Subject Lands. Any
ditches dug during installation of the Pipeline shall be filled and tamped until
the original contour is restored as is reasonably practicable under the
circumstances. Pipelines shall be grounded and anodized and shall not adversely
affect any other utility lines or equipment in or on the Subject Lands.
Pipelines shall only be constructed at locations in accordance with paragraph 2
above. Additionally, Operator shall advise Grantor in writing at least five
(5) days prior to entrance upon the Subject Lands by Operator to begin actual
construction of any Pipeline. During the installation of a Pipeline, Operator
shall make reasonable efforts to prevent and minimize water infiltration of the
soil during installation and ensure that compaction of the soil around the
Pipeline after installation is the equivalent to the compaction of such soil
prior to installation. If the soil is not compacted to the satisfaction of
Grantor, then in addition to any other remedies available to Grantor, Operator
shall return, when reasonably requested by Grantor, to compact the soil to
Grantor’s satisfaction. After installation of a Pipeline, Operator shall restore
the surface of the Subject Lands disturbed by construction of the Pipeline to as
near its original condition as is reasonably practicable under the
circumstances, including without limitation restoring pavement and landscaping,
if applicable. If Operator receives written notice from Grantor that Operator
has failed to repair or replace all sections or portions of Grantor’s irrigation
system and facilities that are damaged or destroyed as a result of Operator’s
installation of such Pipeline, and Operator does not remedy the matter within
thirty (30) days of receipt by Operator of said written notice, then in addition
to all other rights and remedies available to Grantor, Grantor may perform such
repair or replacement at Operator’s expense, and Operator shall repay upon
demand all amounts so incurred by Grantor, together with interest thereon at the
rate of eighteen percent (18%) per annum, compounded monthly, until paid. If any
Pipelines cross any of the Access Routes or other roads that may be paved by
Grantor, then such Pipelines must be bored underneath such roads. Unless
otherwise agreed in writing by Grantor in its sole discretion, any Pipeline
placed on the Subject Lands shall be in the nature of a gathering or flowline
and shall be used only for the purpose of transporting any oil, gas, water,
saltwater or waste material to or from the Drillsite. Operator shall abide by
any and all federal, state, county, municipal, or other governmental rules,
regulations and safety precautions now or thereafter applicable to the
construction, operation, maintenance, repair and removal of Pipelines. In no
event shall Grantor be responsible in any way for any defects in any pipeline or
any other plans and specifications approved by Grantor relating to Operator’s
operations, or any structure or improvement erected, placed or maintained
according to the plans or specifications. By approving any such plans and
specifications, Grantor does not assume any liability or responsibility for
compliance with any laws, ordinances, requirements of governmental authorities,
industry standards or otherwise, all of which remain Operator’s responsibility.
If requested by Grantor to accommodate its development of the surface of the
Subject Lands, Operator, at its cost and expense, shall construct any new
pipelines lower than the 48 inches set forth above to such depths reasonably
requested by Grantor.

 

5. Other Activities. Operator shall cause each person entering the Subject Lands
on Operator’s behalf to refrain from any activity except activities reasonably
necessary to Operations. Operator shall cause each such person to refrain from
using for recreation any part of the Subject Lands. Operator shall not allow the
possession or consumption of alcoholic beverages on the Subject Lands and no
firearms, weapons, dogs or other animals shall be brought onto the Subject Lands
by Operator or its employees, invitees, contractors or their subcontractors.
Grantor may exclude from the Subject Lands any individual or entity who has
violated this provision, and Operator shall notify any such individual or entity
that it or he will not be allowed to enter or remain upon the Subject Lands.

 

6. Pipelines and Other Lines. Operator shall not install any permanent pipelines
on the Subject Lands except those utilized to gather, handle and market
production from a well located upon the Subject Lands and producing from the
Subject Lands. Operator shall cause all pipelines, electrical lines and
telephone lines constructed either by it, or by any third party acting (a) at
its request, (b) in concert with Operator, or (c) pursuant to the Lease, even if
said party is considered a common carrier, upon the Subject Lands that are of a
permanent nature and which are in excess of one hundred (100) feet in length, to
be buried at least 48 inches below the surface of the earth. Operator shall
cause stakes to be placed at each point where a pipeline route crosses beneath a
road or fence and shall furnish Grantor a plat reflecting the location of all
pipeline routes located upon the Subject Lands.

 

7. Gates. Grantor shall possess the unqualified right to deny erection of a gate
or gates upon the Subject Lands, except to provide for access to a Drillsite.
Any gate erected shall conform to existing or planned gates upon the Subject
Lands as to construction materials, construction methods, paint colors, and
other technical specifications presently employed or planned upon the Subject
Lands.

 

8. Cutting of Fences. Operator shall not cut any fence lines or remove or
relocate any fence posts located upon the Subject Lands without the prior
consent of Grantor, which shall not be unreasonably withheld, and any such
actions shall be taken only in accordance with reasonable instructions of, and
in coordination with, Grantor.

 

9. Drillsite Appearance. Operator shall maintain each Drillsite and any
Facilities in a neat and orderly fashion, including all equipment and materials
located thereon. Operator shall remove all casing, tubing, pipe, equipment and
other materials within sixty (60) days of the cessation of its active use in
connection with Operations. In no event shall Operator place upon a Drillsite
any structures or equipment, including without limitation structures of a
permanent nature, that exceed ten feet (10) in height, except for drilling,
completion and workover rigs which may exceed such height if necessary.

 

10. Discharges. Operator shall not discharge any oil, condensate, saltwater, or
any substance used in drilling or production onto the Subject Lands under any
circumstances (except drilling mud in a reserve pit under paragraph 11). Prior
to commencing production from any well on the Subject Lands, the tanks and other
storage vessels shall be enclosed by an earthen berm of sufficient height to
contain any discharge which might occur. If there is a discharge, Operator shall
restore the affected area to its original condition insofar as reasonably
practicable. Operator agrees that such restoration shall include correction of
any erosion damage, remediation of any contaminated soil, and the removal of
contaminated soil containing Hazardous Materials (as hereinafter defined) and
replacement with uncontaminated soil, regardless of whether the discharge
occurred through its negligence or otherwise. For purposes of this Deed and
Assignment, “ Hazardous Materials “ means “hazardous substances” (as defined by
the Comprehensive Environmental Response, Compensation, and Liability Act, as
amended), “hazardous waste” (as defined by the Resource Conservation and
Recovery Act, as amended), pesticides, petroleum, refined crude oil or any
fraction thereof, radioactive material, and any pollutant, oil contaminant,
hazardous, dangerous or toxic chemical, material, waste or any other substance
within the meaning of any environmental law or that could pose a hazard to the
environment or health and safety of any person.

 

11. Surface Pits and Restoration. With the exception of reserve pits used during
drilling operations (which shall be contained within the Drillsite), Operator
shall not dig pits on the Subject Lands without first obtaining the written
consent of Grantor, which consent may be withheld by Grantor in its sole and
absolute discretion, and if such consent is not given, Operator shall use a
closed containment system of artificial tankage and portable tanks for the use
and storage of all mud, drilling fluids, chemicals, liquid waste, and other
liquids used or produced in connection with all operations by Operator on the
Drillsites. If Operator is allowed to dig pits, all such pits must be lined, so
that none of the elements contained in said pits shall ever come into contact
with the soil. Upon the digging of any pits, topsoil shall remain separate from
the subsoil. Upon the covering of any pits, subsoil shall be used first and then
the separated topsoil shall be spread evenly on top of the subsoil. Upon
completion of drilling operations on each location, all of such mud and drilling
fluids containing Hazardous Materials, chemicals, liquid waste and other liquids
shall be removed from the Operations Sites by vacuum truck or other means.
Within thirty (30) days after Operator’s need for a particular Drillsite has
ceased, Operator shall fill all pits and other excavations made by Operator on
such Operations Site, level off all mounds made by Operator on such Drillsite,
remove all debris and rubbish placed by Operator on such Operations Site, and
restore the area of such Drillsite, to its original condition, as near as
practical. Operator shall provide sanitary facilities for all of its employees,
agents and/or contractors which come upon the Subject Lands and shall provide
containers for scrap, trash, and rubbish so that it is not scattered about the
Drillsite or Subject Lands.

 

12. Drillsite Restoration. Within sixty (60) days of the completion and
equipping by Operator of a well as a producing well or the plugging and
abandonment thereof, Operator, at its sole cost and expense, shall:

 

(a) remove from the Drillsite upon which such well is located all unnecessary
surface equipment, flow lines and tankage, all drilling mud and chemical mud
containing Hazardous Substances, saltwater, surface oil and other materials;

 

(b) remediate all materials stored in any earthen pits, together with any
contaminated soil, and refill any such pits, provided that any such materials
containing Hazardous Materials shall be removed from the Subject Lands; and

 

(c) remove from such Drillsite all caliche, return the Drillsite to its original
contour, and replow and replant such Drillsite; provided, however, should such
well be completed and equipped as a producing well, or should Operator intend to
drill additional wells on the Drillsite, then such portion of the Drillsite as
is necessary for the operation and maintenance of such well or any additional
wells may retain its original caliche and/or be otherwise surfaced for use as a
producing well site.

 

In addition, following the construction of any Drillsite, road or pipeline and
the completion, of any geophysical operations, Operator shall remove from the
Subject Lands all trees, stumps, brush, debris, topsoil, rocks and other
materials that are removed, cleared or disturbed as a result of the construction
of such road or pipeline or geophysical operations.

 

13. Noise Attenuation. All Operations shall comply with the noise restrictions
imposed by any governmental authority.

 

14. Permanent Structures and Equipment. Operator shall cause all tank batteries
and other equipment located upon a Drillsite to be maintained in good repair and
all such items which are of a permanent nature to be painted to match existing
paint grade and color employed by Grantor upon the Subject Lands. All buildings
and structures of a permanent nature constructed by Operator within the
boundaries of a Drillsite shall be maintained in good repair.

 

15. Litter. Operator shall construct and place permanent trash containers at
each Drillsite. Operator shall cause each trash container constructed and placed
by it upon a Drillsite to be serviced, maintained and emptied at least monthly.

 

16. Safety Equipment. Operator shall install and utilize on each Drillsite and
all Facilities all safety equipment reasonably necessary in accord with industry
standards, including emergency shut-off valves.

 

17. Time and Location of Operations. Operator shall conduct all Operations
within the boundaries of the Drillsites. Operator shall not conduct any
Operations (including the removal of saltwater and produced fluids) on a
Drillsite within 1,000 feet of any existing residence on the Subject Lands
except between the hours of 7:00 a.m. and 9:00 p.m., except for any initial
drilling and completion Operations, routine pumping and maintenance Operations,
emergencies, and any Operations that, according to the industry standards and
good oilfield practices require longer than fourteen (14) consecutive hours to
complete. All lights on Drillsites within 1,200 feet of any residence shall be
extinguished between 9:00 p.m. and 7:00 a.m. except those required by law or for
safety purposes.

 

18. Operations Sites and Landscaping.

 

(a) Upon termination of a Lease as to some, but not all, of the Subject Lands
(“Partial Termination”), Operator shall only have access to those Drillsites and
Access Routes being used by Operator at Partial Termination to obtain and store
production of oil or gas, and other hydrocarbon substances produced in
connection therewith, from the Subject Lands, it being intended that after
Partial Termination, Operator shall have no rights or access to any Drillsite or
Access Routes that are not being used by Operator to obtain or store production
of oil or gas or other substances from the Subject Lands at the time of Partial
Termination. Subsequent to Partial Termination, if a Drillsite no longer has an
oil or gas well producing in commercially paying quantities located in or on
such Drillsite, and Operator does not otherwise maintain the Lease in force and
effect as to the acreage covered by or allocated to such well, all rights of
Operator to use or have access to such Drillsite shall cease, except that
Operator shall continue to have access to such Drillsite to comply with
Operator’s obligations to properly plug and abandon such well and restore the
surface of the Drillsite as required by law and this Deed and Assignment.

 

(b) Operator shall construct, at its expense, around the perimeter of a
producing well and any Facilities a fence at least eight feet in height with
substantial screening and constructed with masonry-like materials. Privet, trees
or other landscape material that are evergreen and approved by Grantor shall be
planted densely along the exterior of the fence to obscure the fence from
outside view. No element of the permanent production equipment within the
Drillsite shall be higher than the fence or, when standing outside the fence, be
visible above the fence. Additionally, without Grantor’s consent, the fence
shall not exceed in height ten feet above the grade of the surrounding property.
Operator shall construct a steel ring around the production equipment to prevent
any damage to adjoining acreage. Except during drilling, completion,
recompletion, workover or maintenance operations, the only structures allowed
within the perimeter of a producing well shall be the Christmas tree, line
heater, gas meter, cathodic protection equipment, tank battery, separator and
pipeline necessary to transport production from the Drillsite.

 

(c) All landscaping shall be contoured so as to prevent water drainage from the
Drillsite from accumulating on other acreage contiguous thereto. After
installation of such landscaping in a manner approved by Grantor, maintenance of
the landscaping shall be conducted by and at the expense of Operator. All
Drillsites shall be maintained in good order and appearance by painting,
clearing and removing brush, trash, and scrap from the area at Operator’s cost,
and Operator shall take such other actions as are necessary to maintain said
sites in clean and neat appearance. If Operator receives written notice from
Grantor that Operator has failed to maintain any portion of the Subject Lands as
required by the lease or this Deed and Assignment, and Operator does not remedy
the matter within thirty (30) days of receipt by Operator of said written
notice, then in addition to all other rights and remedies available to Grantor,
Grantor may perform such maintenance at Operator’s expense, and Operator shall
repay upon demand all amounts so incurred by Grantor, together with interest
thereon at the rate of eighteen percent (18%) per annum, compounded monthly,
until paid.

 

19. Notice of Operations. Except in emergency situations, Operator must notify
Grantor in writing ten (10) days prior to commencement of any Operations on the
Subject Lands. In emergency situations, Operator shall give verbal notice to
Grantor as soon as is reasonably possible under the circumstances.

 

20. Water Wells. For each and every well drilled on the Subject Lands by Grantee
or its lessee, Grantee shall, or shall cause its lessee to, note in the drilling
log all water-bearing strata and inform Grantor of the same. If any well is
nonproductive of oil or gas, Grantee shall, or shall cause its lessee to, notify
Grantor prior to plugging and abandonment of such well, and Grantor shall have
the option to assume such well for the purpose of producing freshwater if, in
Grantor’s opinion such well can safely be used as a fresh water well. Grantor
will notify Grantee that Grantor wishes to take over the well for such purpose.
If so notified, Grantee shall, or shall cause its lessee to, plug said well
below the fresh water formation and transfer the well to Grantor. Upon the
transfer of any such well to Grantor, Grantor shall assume all further plugging
liability for such well.

 

21. Geophysical Operations. At all times Operator shall consult with and inform
Grantor as to the nature, timing and scope of all geophysical operations to be
conducted upon the Subject Lands.

 

22. Specific Limitations on Geophysical Operations. Operator shall comply with
the following restrictions in connection with any geophysical operations;

 

(a) All geophysical operations conducted upon the Subject Lands shall be
conducted in a manner so as to reasonably limit and reduce their impact upon and
disturbance of the use and enjoyment of the Subject Lands, and no bulldozers
shall be used without the prior consent of Grantor;

 

(b) Only vibroseise-type geophysical operations shall be conducted and no
dynamite or other explosives shall be used in conducting geophysical operations
without the prior consent of Grantor; and

 

(c) No trees having a caliper diameter in excess of three (3) inches shall be
damaged or destroyed without the prior consent of Grantor; and

 

23. Geophysical Restorations. Operator shall promptly plug all shot holes and
coring holes drilled in connection with the geophysical operations with good and
sufficient bentonite plugs. All such holes shall be drilled and plugged so as to
avoid damage to any aquifers. Operator shall advise Grantor in writing when
geophysical operations have been completed. Operator shall restore the surface
area impacted by the geophysical operations to the same condition as existing
before such geophysical operations, as near as practical. If Operator fails to
properly restore the surface, Grantor shall give Operator written notice of the
deficiencies of the restoration and Operator shall have thirty (30) days to
complete the restoration operations. If Operator fails to properly restore the
surface, Grantor may perform such restoration at Operator’s cost and expense.

 

24. Damages. Before commencing any of the Operations herein provided, Operator
shall pay Grantor reasonable compensation for the usual and ordinary damage to
the surface of the Subject Lands caused by the operations hereafter set forth in
the following amounts:  

         

         

(a)

 

Each Drillsite

 

$5,000 per acre

        

(b)

 

Road (not to exceed 30 feet in width)

 

$150 per rod

        

(c)

 

Pipelines (single not to exceed 20 feet in width)

 

$150 per rod

        

(d)

 

Geophysical operations

 

$500 per linear mile

            

(e)

 

Grass or surface damage from leaks or otherwise per acre damaged

 

$5,000 per acre

           

(f)

 

Compressor sites

 

$5,000 per acre

  

25. Access to Derrick. Grantor shall have access at all reasonable times at
Grantor’s sole risk to inspect the derrick floor of all wells drilled on the
Subject Lands as well as all other operational areas and equipment and
structures located thereon.

 

26. Indemnification. GRANTEE SHALL INDEMNIFY, DEFEND, PAY AND PROTECT AND HOLD
HARMLESS THE INDEMNIFIED PARTIES (AS HEREINAFTER DEFINED) FROM (A) ANY AND ALL
LIABILITIES, LIENS, DEMANDS, JUDGMENTS, SUITS AND CLAIMS OF ANY KIND OR
CHARACTER ARISING OUT OF, IN CONNECTION WITH, OR RELATING TO ANY OPERATION OR
ACTIVITY CONDUCTED BY GRANTEE OR OPERATOR, OR THEIR AGENTS, CONTRACTORS,
EMPLOYEES, LICENSEES OR INVITEES, ON OR UNDER THE SUBJECT LANDS, INCLUDING BUT
NOT LIMITED TO CLAIMS FOR INJURY OR DEATH OF ANY PERSONS OR DAMAGE, LOSS OR
DESTRUCTION OF ANY PROPERTY, REAL OR PERSONAL, UNDER ANY THEORY OF TORT,
CONTRACT, STRICT LIABILITY OR OTHERWISE (WHICH SHALL INCLUDE ANY OF SUCH
LIABILITIES, LIENS, DEMANDS, JUDGMENTS, SUITS AND CLAIMS OF ANY KIND THAT ARE
ASSERTED BY ANY PROPERTY OWNER OF LANDS ADJACENT TO OR WITHIN THE VICINITY OF
THE SUBJECT LANDS, AND (B) ANY AND ALL CLAIMS, LIABILITIES, DAMAGES, FEES AND
EXPENSES THAT ARISE EITHER DURING THE TERM OF ANY LEASE OR THEREAFTER, DIRECTLY
OR INDIRECTLY, FROM THE ACTUAL OR ALLEGED PRESENCE OR RELEASE OF ANY HAZARDOUS
MATERIAL IN CONNECTION WITH THE USE, MANAGEMENT, OR OPERATIONS BY GRANTEE OR
OPERATOR ON THE SUBJECT LANDS, SUCH INDEMNIFICATION SHALL INCLUDE, BUT IS NOT
LIMITED TO, COSTS IN CONNECTION WITH ANY REMEDIAL WORK WHEN PERFORMED BY GRANTOR
OR ANY THIRD PARTY IN RESPONSE TO ANY FEDERAL, STATE OR LOCAL GOVERNMENTAL
AUTHORITY AND ANY FINES, PENALTIES OR ASSESSMENTS LEVIED OR CHARGED BY ANY
FEDERAL, STATE OR LOCAL GOVERNMENTAL AUTHORITY.

 

GRANTEE FURTHER COVENANTS AND AGREES TO DEFEND ANY SUITS BROUGHT AGAINST ANY OF
THE INDEMNIFIED PARTIES ON ACCOUNT OF SUCH CLAIMS AND TO PAY ANY JUDGMENTS
AGAINST ANY OR ALL OF THE INDEMNIFIED PARTIES RESULTING FROM ANY SUCH SUIT OR
SUITS, TOGETHER WITH ALL COSTS AND EXPENSES RELATIVE TO ANY SUCH CLAIMS,
INCLUDING BUT NOT LIMITED TO ATTORNEYS’ FEES. EACH OF THE INDEMNIFIED PARTIES
MAY PARTICIPATE IN THE DEFENSE OF ANY SUIT OR CLAIM IN WHICH THEY (OR ANY OF
THEM) MAY BE A PARTY, AT SUCH PARTICIPATING PARTY’S SOLE EXPENSE, WITHOUT
RELIEVING GRANTEE OF ITS OBLIGATIONS HEREUNDER.

 

GRANTEE’S OBLIGATIONS HEREUNDER SHALL BE REDUCED TO THE PROPORTION THAT
GRANTEE’S MINERAL INTEREST IN THE SUBJECT LANDS BEARS TO THE FULL MINERAL
ESTATE.

 

The foregoing indemnity and all other indemnities shall survive any termination
of a Lease and shall inure to the benefit of Grantor and each of the Indemnified
Parties. As used herein, the term “Indemnified Parties” refers to Grantor and
any and all partners, employees, officers, directors, shareholders, agents,
tenants, invitees and affiliates of Grantor, and the successors and assigns of
Grantor to the ownership of the Subject Lands or any portion thereof. As used
herein, an “affiliate” of Grantor shall mean any person, firm, or corporation
that at the time in question is a subsidiary or parent corporation of Grantor,
or any company which has the same parent company as Grantor, or in which Grantor
or any affiliate of Grantor owns as much as 50% of any class of the capital
stock of such Grantor or any affiliate of Grantor.

 

27. Subsequent Conveyance. Any assignment or Lease by any party subsequent to
the date hereof shall be made subject to this Deed and Assignment.

     

--------------------------------------------------------------------------------

EXHIBIT “C”
  

INSURANCE PROVISIONS
  

Attached to and made a part of that certain Oil, Gas and Mineral Lease dated
August 20th , 2007, between Atrisco Oil and Gas, LLC (“Lessor”) and Tecton
Energy, LLC (“Lessee”), covering the lands described in Exhibit A above.
  

1.           General. To protect Lessor against liability, loss or expense
arising from damage to property or injury to any person arising out of, in
connection with or resulting from the exercise of its rights and privileges
under this Lease, Lessee agrees during the term of the Lease to carry, at its
own expense, with insurance companies reasonably acceptable to Lessor and
authorized to do business in the State of New Mexico, insurance covering all of
its operations pertaining to the Leased Premises, including any work performed
on its behalf by contractors, subcontractors, and others, naming Lessor and
related individuals and entities designated by Lessor as additional insureds.
The insurance policies shall include coverage for comprehensive general
liability for bodily injury and property damage, blowout and loss of well
coverage, and coverage for any damage to the environment, including coverage for
the cost of cleanup and remediation. The coverage shall be in the minimum
amounts described below, and Lessee shall furnish a certificate from the issuing
insurance company or companies evidencing the coverage:  

A.           Workers’ Compensation and Employees Liability Insurance to cover
and include any liability (up to the maximum recoverable under applicable
statutes) under or for the workers’ compensation laws of the state of New
Mexico, including provisions that claims in rem will be treated as in personam;

  

B.           Automobile Liability with a minimum combined single limit of
$l,000,000 for Bodily Injury and Leased Premises Damage and including coverage
for all owned, non-owned and leased vehicles;  

C.           Comprehensive General Liability Insurance, including contractual
liability insuring the indemnity from Lessee to Lessor set forth in this Lease,
with minimum Bodily Injury, Sickness or Death limits of one million dollars
($1,000,000) each person and one million dollars ($1,000,000) per occurrence and
Leased Premises Loss or Damage limits of one million dollars ($1,000,000) per
occurrence and two million dollars ($2,000,000) aggregate operations,
protective, and products (including completed operations);

    

D.           Umbrella Liability Insurance with a minimum limit of ten million
dollars ($10,000,000) per occurrence;  

E.           The Pollution and Clean Up Liability insurance with a minimum of
ten million dollars ($10,000,000) and,  

F.           Well Control and Extra Expense Insurance with a minimum limit of
ten million dollars ($10,000,000).  

2.           Policy Requirements. All insurance policies shall:  

A.           Include coverage for those risks assumed under the Lease and this
Exhibit C;  

B.           Provide for thirty (30) days prior written notice to Lessor of the
cancellation, expiration or reduction of coverage under, or a material change
in, any policy;  

C.          Contain waivers of subrogation and right of recovery by Lessee’s
insurance underwriters against Lessor for injuries, death, losses or damages
covered by those policies: and  

D.           Secure for Lessor the status of additional insured under the
policy.

   

3.           Certificates of Insurance. Lessee shall furnish Lessor with
Lessee’s certificates of insurance (on ACCORD form 27) evidencing the
above-described coverages prior to conducting any Operations under the Lease and
reflecting that Lessor is an additional insured under the policies described in
clauses (B) through (F) of Section 1 of this Exhibit C. Thereafter, Lessee shall
provide its certificates of insurance at least thirty (30) days prior to the
earlier of (1) the expiration of previously certificated insurance coverage or
(2) the occurrence of any event for which prior notice is required by the terms
of this Exhibit C. In lieu of providing its certificates of insurance, Lessee
may provide copies of applicable insurance policies. To the extent that any of
the insurance requirements of this Exhibit C are not evidenced by Lessee’s
certificates of insurance, Lessee represents and warrants that the requirements
are nonetheless fulfilled by the applicable policies of insurance.  

     

--------------------------------------------------------------------------------

MEMORANDUM OF EXISTENCE OF OIL AND GAS LEASE  

State of New Mexico  

County of Bernalillo  

Atrisco Oil and Gas, LLC, a New Mexico limited liability company, whose address
is 1730 Montano NW, Suite B, Albuquerque, New Mexico 87121, as “Lessor” has
granted, executed and delivered an Oil and Gas Lease (the “Lease”) to Tecton
Energy, LLC, as “Lessee,” whose address is 3000 Wilcrest #300, Houston, Texas
77042. Lessor does hereby acknowledge and give notice that the Lease, covers the
following described lands and premises in Bernalillo County, New Mexico:

  

This Lease shall include all land located within the Town of Atrisco Land Grant
that is determined to be owned or claimed by Lessor, and being more specific in
the Exhibit A in the Quitclaim Mineral Deed and Assignment of oil and Gas
Leases, dated December 4, 2006, from Westland Development Co., Inc. to Lessor,
recorded in Book A128, Page 8482 in the Office of the County Clerk of Bernalillo
County, New Mexico. It is the intent of the Lessor to lease unto the Lessee all
of the lands within Bernalillo County.  

The Lease is dated August 20, 2007 and provides for a primary term of five (5)
years, subject to all the terms, conditions and provisions as set out in the
Lease.  

A fully executed copy of the Lease is in the possession of the Lessor and Lessee
at their respectice addresses.  

This notice is given to place persons on notice of the existence of the Lease,
and all of the terms, provisions and conditions thereof; and this notice is in
lieu of filing the original of the Lease for record in the County in which the
land is located.  

Dated August 20, 2007  

LESSOR:  

ATRISCO OIL AND GAS, LLC
A New Mexico limited liability company
  
By: /s/ Peter Sanchez

Name: Peter Sanchez

Title: Chief Executive Officer

  
  
  
LESSEE:

TECTON ENERGY, LLC
A Texas limited liability company
  
By: /s/William K. Dirks

Name: William K. Dirks

Its: Managing Partner

State of New Mexico
  
County of Bernalillo
  

This instrument was acknowledged before me on August 20, 2007 by Peter Sanchez,
CEO of Atrisco Oil and Gas, LLC, a New Mexico limited liability company, as the
act and deed of said company.

  

/s/ Linda J. Blair

Notary Public for the State of New Mexico

  

Linda J. Blair
Printed name of Notary
My Commission Expires August 5, 2009

  
  
State of Texas
  
County of Harris
  

This instrument was acknowledged before me on August 22, 2007 by William K.
Dirks, President of Tecton Energy, LLC, a Texas limited liability company, on
behalf said company.

  

/s/ Linda Lindsay

Notary Public for the State of Texas

  

Linda Lindsay
Printed name of Notary
My Commission Expires February 24, 2010