Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - U.S. Geothermal Inc. - Exhibit 10.11

GEOTHERMAL 
LEASE AND AGREEMENT 

This Lease and Agreement is made and entered into as of this
_____ day of _______, 2005, by and between: 

Bighorn Mortgage Corporation, Party of the first
part,
 hereinafter referred to as “Lessor” 

and 

US Geothermal Inc., an Idaho corporation, 
Party of
the second part, 
hereinafter referred to as “Lessee” 

who are referred to in the plural as the “Parties”. 

Recitals 

WHEREAS Lessor is the owner of certain land and
geothermal rights situated in Cassia County, in the State of Idaho, which the
Parties believe are suited for the development of Hot Water, Steam and Thermal
Energy for use as such and/or the conversion of such geothermal energy to the
production of electric power, or for any purpose other than the generation of
electric power, and

WHEREAS It is the desire of Lessor and Lessee to enter
into an agreement which will enable the development of said Hot Water, Steam and
Thermal Energy for any of the aforesaid purposes for the mutual profit of the
Parties, 

BE IT THEREFORE HEREBY AGREED AS FOLLOWS: 

1.      Purpose. For and in
consideration of the sum of Ten Dollars ($10.00) and other valuable
consideration set forth in clauses (4.) and (5.) below, receipt of which initial
sum and sufficiency of which is hereby acknowledged, and in consideration of the
covenants and agreements hereinafter contained, Lessor has granted, leased, let
and demised to Lessee, its grantees, successors and assigns, upon and subject to
the terms and conditions contained herein, the land hereinafter described, the
sole and exclusive right to drill for, produce, extract, take, remove and sell
geothermal heat energy including , Hot Water, Steam, or Thermal Energy
therefrom, and to store, utilize, process, convert and otherwise treat such
geothermal energy upon said land, during the term hereof, with the right of
entry thereon and use and occupancy thereof at all times for said purposes and
the furtherance thereof, including the right to construct, use and maintain
thereon and to remove therefrom structures, facilities and installations,
pipelines, utility and power transmission lines. 

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The possession by Lessee of said land shall be sole and
exclusive for the purposes hereof and for the purposes incident or related
thereto, excepting that Lessor reserves the right to use and occupy said land,
or to lease or otherwise deal with the same, without interference with Lessee
rights, for residential, agricultural, commercial, or grazing uses, or for any
and all uses other than the uses and rights permitted to Lessee herein.

2.       Lands. The land which is
the subject of this lease is situated in the county and state above first named,
consisting of approximately 280.00 acres and which is described in Exhibit A
attached hereto and incorporated as if more fully set forth herein, including
also in the leased land all rights of Lessor, presently owned or hereafter
acquired, in and under roads, ditches, and rights of way traversing or adjacent
to said land, (hereinafter referred to as “Lands”).

3.       Term. This Lease shall
be for a term of ten (10) years from and after the date hereof (hereinafter
referred to as the “Primary Term”) and so long thereafter as Leased Substances,
or any of them, are derived or produced in commercial quantities from the leased
land or lands pooled, unitized or combined therewith, and for so long as Lessee
is prevented from producing same, or the obligations of Lessee hereunder are
suspended, for the causes hereinafter set forth, or this Lease is continued in
force by reason of any other provision hereof. 

If at the expiration of the Primary Term, Lessee has not
completed one or more wells on the leased land or lands pooled, unitized or
combined therewith, which well or wells separately or collectively are either
producing, or capable of producing, Hot Water, Steam or Thermal Energy of
Sufficient Power Potential in Commercial quantities, but lessee is then engaged
in operations for drilling, reworking, recompleting, redrilling or enhancement
of any well on the leased land or lands pooled, unitized or combined therewith,
this Lease shall remain in force so long as drilling, reworking, recompleting,
redrilling or enhancement operations are prosecuted (whether on the same or
different wells) on the leased land or lands pooled, unitized or combined
therewith with no cessation of such operations for more than six (6) months, and
if such operations result in production or the establishment to the satisfaction
of the lessee of the existence of Sufficient Power Potential in Commercial
quantities, such well or wells will be deemed to have been completed and such
existence is established during the primary term of this Lease. 

4.       Primary Term
Consideration. It is understood and agreed that the initial consideration paid
upon the execution hereof ($1,400.00), covers both the rental in full hereunder
for a period of one (1) year from the date of this Lease and for all other
rights conferred hereunder. Thereafter, for the first five (5) years of the
lease, on or before said anniversary date, Lessee shall pay or tender to Lessor
an annual rental in the amount of FIVE DOLLARS ($5.00) per acre, which shall
constitute rental until the next anniversary date hereof. For the second five
(5) year period of the lease, Lessee shall, on or before each succeeding
anniversary date during the primary term hereunder, pay or tender to Lessor an
annual rental in the amount of SEVEN DOLLARS AND FIFTY CENTS ($7.50) per acre,
until such time as from the drilling of a well or wells on the leased land, or
lands pooled, unitized or combined therewith, there has been established to the

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satisfaction of the Lessee the existence of Sufficient Power
Potential in Commercial quantities. Upon such establishing as aforesaid, Lessee
may nevertheless continue to pay or tender annual rental payments on or before
each anniversary date, until Lessee has commenced the actual sale of one or more
Leased Substances, and so long as such annual rental payments to be paid or
tendered, whether beyond the primary term or not, this lease shall remain in
force and effect. All payments so paid or tendered after the expiration of said
primary term shall be deemed advance royalties. So long as such payments are
paid or tendered each well or wells shall be deemed to be actually producing one
or more Leased Substances in Commercial quantities under the terms hereof;
provided, however, that if within five (5) years after the date of expiration of
the primary term hereof Lessee shall have failed to make, or make arrangements
for (by executed contract or contracts) a bona fide Commercial sale of one or
more Leased Substances (or electric energy generated therefrom) than Lessor, at
its option, may consider Lessee in default hereunder. Additionally, should
lessee fail to make any annual payment herein provided for on or before a
particular anniversary date, Lessor may, at its option, consider lessee in
default hereunder. 

5.       Geothermal Royalties.
Royalties shall be payable as follows: 

           (a)      
With respect to Hot Water, Steam or Thermal Energy produced, saved and sold by
Lessee and then used by the purchaser for the generation of electric power,
Lessee shall pay to Lessor as a royalty Ten Percent (10%) of the market value of
such Hot Water, Steam or Thermal Energy produced from the leased land at and as
of the point of origin on the leased land, which market value shall be deemed to
be the gross proceeds received by Lessee from such sale at the point of origin
on the leased land, unless the sale occurs at a location other than the point of
origin on the leased land, in which case the market value shall be deemed to be
the gross proceeds received by Lessee from such sale less all costs and expenses
of extraction, production, storage, processing, reinjection, and transportation
between the point of origin on the leased land and the point of sale. 

          
(b)       With respect to Hot Water, Steam or
Thermal Energy produced (collectively to be referred to as “Energy Produced”),
saved and used for the generation of electric power which is then sold by
Lessee, Lessee shall pay to Lessor as a royalty Ten Percent (10%) of the Net
Proceeds from the sale of Energy Produced from the leased land, at and as of the
point of origin on the leased land in accordance with the definition of Net
Proceeds from the sale of Energy Produced as defined in paragraph 21,
subparagraph (g). 

           
(c)       With respect to Energy Produced, saved
and sold by Lessee and which is used for any purpose other than the generation
of electric power, Lessee shall pay to Lessor as a royalty Five Percent (5%) of
the gross proceeds received by Lessee from the sale of Energy Produced, as such,
produced from the leased land at and as of the point of origin on the leased
land.

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           (d)      
With respect to Extractable Minerals, Lessee shall pay as royalty to Lessor Five
Percent (5%) of the net proceeds received by Lessee from the sale of any gases
(as herein defined) and from the sale of effluence (containing minerals and/or
minerals in solution) produced and sold from any well or wells on the leased
land, or, in the event Lessee extracts from the effluence minerals and/or
minerals in solution, Five Percent (5%) of the proceeds received by Lessee from
the sale of minerals and/or minerals in solution contained in and extracted from
the effluence produced and sold from such well or wells less costs of
transportation and extraction. 

          
Lessee shall pay to Lessor on or before the twenty-fifth day of each month the
royalties accrued and payable for the preceding calendar month, or on or before
the twenty-fifth day of the month next following that in which Lessee receives
payment therefore from the purchaser thereof, whichever method may be chosen by
Lessee from time to time, and in making such royalty payments Lessee shall
deliver to Lessor statements setting forth the basis for computation and
determination of such royalty. 

           Lessee
shall not be required to account to Lessor for or to pay any royalty on Hot
Water, Steam, Thermal Energy produced by Lessee on the leased land which is not
utilized, saved and sold, or which is used by Lessee in its operations on or
with respect to the leased land for or in connection with the developing,
recovering, producing, extracting and/or processing of Hot Water, Steam, or
Thermal Energy or in facilities for the generation of electric power, or which
are unavoidably lost. 

          
Lessee shall have the right from time to time and at any time to commingle (for
purposes of storing, transporting, utilizing, selling and processing, or any of
them) the Leased Substances, or any of them, that are produced or extracted from
the leased land or lands pooled, unitized or combined therewith, with Geothermal
Resources, or any of them, produced from other lands or units in the vicinity of
the leased land, and in the event of such commingling, Lessee shall meter,
gauge, or measure the production from the leased land, or from the unit or
units, including leased and other units or lands, as the case may be, and
compute and pay Lessor’s royalty payable under the provisions hereof on the
basis of such production so determined or allocated, as the case may be. 

From the time when Lessor shall commence Commercial production
from said Lands, Lessee shall then pay Lessor the geothermal royalty set forth
herein, or the initial term annual payments, whichever shall be the larger. This
change from annual lease payments to geothermal royalty payments shall occur at
the time when geothermal royalties exceed annual lease payments in any given
month. 

6.       Commingled and Unit
Operations. Lessee shall have the right to commingle, or unitize said leased
land, for the purpose of utilizing, selling, processing, the Leased Substances
produced from the lease land with the steam or heat energy produced from other
lands, and to meter or gauge the production of steam or heat energy from leased

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land and to compute and pay Lessor royalty on the basis of such
production as so determined. The total acreage to be embraced within any such
unit shall not exceed 1,920 acres, plus an acreage tolerance of Ten Percent
(10%), except that a larger unit may be created to conform to State or Federal
regulations. Such unit shall be deemed created either upon Lessee recording in
the office of the county recorder in the county in which the leased land is
situated a written declaration of such unit or upon Lessee giving written notice
of such unit to Lessor. Any well (whether or not Lessee’s well) commenced,
drilled, drilling and/or producing or being capable of producing in any part of
such unit shall for all purposes of this Lease be deemed a well commenced,
drilled, drilling and/or producing on the leased land, and Lessee shall have the
same rights and obligations with respect thereto and to drilling and producing
operations upon the lands from time to time included within any such unit as
Lessee would have if such lands constituted the leased land; provided, however,
that notwithstanding this or any other provision or provisions of this Lease to
the contrary: 

           (a)      
production as to which royalty is payable from any such well or wells drilled
upon any such unit, whether located upon the leased land or other lands, shall
be allocated to the leased land in the proportion that the acreage of geothermal
rights of the leased land in such unit bears to the total acreage of geothermal
rights of such unit, and such allocated portion thereof shall for all purposes
of this Lease be considered as having been produced from the leased land and the
royalty payable under this Lease with respect to the leased land included in
such unit shall be payable only upon that proportion of such production so
allocated thereto, and

           
(b)       if any taxes of any kind are levied or
assessed (other than taxes on the land and on Lessor’s improvements), any
portion of which is chargeable to Lessor under paragraph 15 hereof, then the
share of such taxes to be borne by Lessor as provided in the Lease, shall be in
proportion to the share of the production from such unit allocated to the leased
land. 

Allocation of unit production whether to the leased land or to
other lands therein, shall continue after any termination of all or any part of
this or any other lease covering lands in the unit until any exploration,
drilling, remedial drilling or production operations are begun on the lands so
terminated, or until contracts regarding any such operations are entered into,
whereupon all such terminated lands shall be excluded in the production to be
allocated to the respective lands in such unit. In the event of the failure of
Lessor’s, or any other owner’s, title as to any portion of the land included in
any such unit, such portion of such land shall likewise be excluded in
allocating production from such unit, provided, however, Lessee shall not be
held to account for any production allocated to any lands excluded from any such
operating unit unless and until Lessee has actual knowledge of the circumstances
requiring such exclusion. Any exclusion shall be deemed effective the first day
of the month next following the date upon which such exclusion becomes finally
established. 

           Lessee
may, at its sole option, at any time when there is no Commercial production in
such unit, terminate, enlarge or diminish such unit either by Lessee 

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recording in the office of the county recorder in the county in
which the leased land is situated a written declaration thereof, or by Lessee
giving written notice thereof to Lessor. 

In the event that the production of Leased Substances from the
leased lands or from lands in the general area of the leased land should at any
time exceed the demand for the facility use thereof in the opinion of Lessee and
the Lessee elects to reduce the total amount of steam produced or consumed, then
in that event each well participating on a commingling basis shall be reduced in
percentage amount equal to its proportion of the whole.

7.       Use Of Lease. Lessee
shall have the right to drill such wells on leased land as Lessee may deem
desirable for the purposes hereof including the exploration and production of
Geothermal Resources for heat or electric power production purposes and any
reinjection of fluids thereof. Lessee shall have the right to construct upon
leased land such equipment and structures as Lessee may deem desirable for the
purpose of utilizing Leased Substances including geothermal power plants, access
and piping and transmission equipment related thereto. No well shall be drilled
on the leased land within 300 feet of any residence or 100 feet of any barn now
on leased land without Lessor’s consent. 

8.       Minimize Use.
Notwithstanding any provisions of this lease to the contrary, Lessee shall
utilize for such purpose only so much of the leased land as shall be reasonably
necessary for Lessee activities and operations thereon and shall interfere as
little as reasonably possible with the use and occupancy of the leased land by
the Lessor. 

Lessee agrees, upon written request of Lessor, to fence all
excavations (including sumps and setting ponds, and, upon the termination of the
Lease, Lessee shall level and fill all sump holes and excavations, shall remove
all debris and shall leave the locations or premises used by Lessee in a clean
and sanitary condition. 

Lessee agrees to replace all fences which the Lessee may have
removed for its purposes and repair all fences which Lessee may have damaged,
and if and when so required by the Lessor, will provide a proper livestock guard
at any point of entry upon lands used by Lessee. 

In the event this Lease terminates as to a portion of either
the leased land or rights granted hereunder, it shall continue in full force and
effect as to those facilities necessary to the permitted use of the remaining
leased lands or rights hereunder. 

Lessee shall have the right at any time and from time to time
to remove from the leased land any and all casing, machinery, equipment,
structures, installations and property of every kind and character placed upon
said leased land by or pursuant to permission of Lessee, provided that if such
removal should occur after termination of all rights granted herein, it shall be
completed within a reasonable time thereafter. 

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9.       Exclusive Rights. Lessee
shall have exclusively the rights to all Leased Substances and to all power
production from Leased Substances on and/or from leased land during the term
hereof, subject only to payment of the royalties to Lessor as is set forth
herein.

10.      Water. Lessee shall have
reasonable access to and use of water from the leased land for Lessee’s
drilling, testing and exploration operations thereon, in the vicinity thereof,
or on land or lands pooled, unitized or combined therewith. Lessee shall
purchase such water owned by Lessor at standard commercial rates for the area
and will reimburse Lessor for the use of any water which is being purchased by
Lessor. Lessor shall be allowed to enter on to the Lands during the term of the
lease for regular water monitoring activities of all wells or water sources.

Lessee agrees to and shall indemnify and hold Lessor free and
harmless from any and all damages, repairs, causes of action, costs or expense,
arising or resulting from any significant decrease or interruption of well or
water source flow, or contamination of potable water source such that the water
produced from such source has been degraded below the existing water quality
found in the well or water source, or it no longer meets Idaho Department of
Environmental Quality minimum drinking water standards (if the well or source
previously met the minimum drinking water standards),, to the extent such
significant decrease, interruption or contamination is caused by Lessee’s
drilling or geothermal resource extraction operations on the Premises.

In the event any significant decrease, interruption or
contamination is documented by Lessor, Lessor must immediately notify and
provide all available documentation to Lessee, and Lessee shall be allowed to
examine, measure and/or test the well or water source. If it is determined that
Lessor’s activities have caused the injury, Lessee shall, within seven business
days after that determination, commence and direct all necessary repair,
redrilling or rehabilitation of any such affected well or water source.

In the event repair, redrilling or rehabilitation of any such
affected well or water source is not possible and a decrease, interruption or
contamination is permanent, Lessee shall compensate Lessor for the fair market
value of the permanently lost water by purchasing Lessor’s affected water
rights, and certain damages arising from the loss of such water. If crops are
planted and growing, such damages are limited to one season of crop loss equal
to the average net value of the previous 3 years of documented crop sales from
the Lands, less any current year crop sales. Such damages will be in proportion
to the Lands so affected. 

11.      Permits. Any wells
drilled by Lessee hereunder shall only be drilled after first obtaining any
relevant governmental agency permits regarding geothermal well drilling on the
leased land and in conformance with approved well design by relevant agencies.
Power plant structures shall be engineered and constructed in conformance with
and only after obtaining any relevant governmental agency permits regarding
geothermal or biomass power plants. Lessor agrees to cooperate with Lessee’s
application for governmental licenses, permits, and approvals, the cost of which
shall be borne by Lessee.

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12.      Partial Ownership
Interests. In the event Lessor at the time of making this Lease owns an interest
in the leased land less than One Hundred Percent (100%) of the right, title and
interest purportedly granted or leased hereby to Lessee, then any payments due
Lessor hereunder shall be paid to Lessor only in the proportion which Lessor’s
Interest bears to a One Hundred Percent (100%) interest in the leased land.
Notwithstanding the foregoing, should Lessor hereafter acquire any additional
right, title or interest in or to the leased land, it shall be subject to the
provisions hereof to the same extent as if owned by Lessor at the date hereof,
and any increase in payments of money hereunder necessitated thereby shall
commence with the payment next following receipt by Lessee of satisfactory
evidence of Lessor’s acquisition of such additional interest 

13.      Assignment. There is hereby
expressly reserved to Lessor and to Lessee the right and privilege to convey,
transfer or assign, in whole or in part, or to deal with in any manner, subject
to the provisions hereof, their respective rights and interests in and under
this Lease and Agreement or in the leased land, or the Leased Substances
produced on or from the leased land but in the event Lessor shall sell or
transfer any part or parts of the leased land or any interest in the aforesaid
Leased Substances therefrom, then Lessees obligations hereunder shall not
thereby be altered, increased or enlarged, but Lessee may continue to operate
the leased land and to pay and settle rents and royalties as an entirety.

14.      Force Majeure. The obligation
of the Lessee hereunder shall be suspended and the terms of this Lease shall be
extended as the case may be, while Lessee is prevented from complying therewith,
in whole or in part, by strikes, lockouts, riots, war or the results thereof,
acts of God or the elements, fire, flood, accidents, delays in transportation,
inability to secure labor or material in the open market, laws, orders, rules,
or regulations of Federal, State, County, Municipal, or other governmental
agencies, authority, or representative, or any other matter or condition beyond
reasonable control of Lessee, whether or not similar to the conditions or
matters herein specifically enumerated, or while litigation contesting Lessor’s
title to the leased land or the rights granted Lessee hereunder or litigation
involving Lessee’s operations hereunder shall be pending and undetermined or
during any period when Lessee has no market for the products it is then capable
of producing from the leased land or the market price then available for such
products will not produce an acceptable profit. For so long as any of the above
circumstances continue to exist, Lessee, without impairment of its rights
hereunder, shall be excused from performance of all obligations hereunder except
payment of taxes and protection of the leased land. It is expressly agreed that
the prevention of settlement of any litigation or strike or labor disturbance
shall not be considered a matter subject to Lessee’s control within the meaning
of this Paragraph.

15.      Tax Payments. Lessee shall
pay all taxes on Lessee structures and improvements placed upon the leased land
by Lessee and shall pay taxes levied and assessed against products of Lessee
operations hereunder and taxes levied and assessed against the right to produce
steam and heat energy from leased lands. Lessor shall pay all taxes levied and
assessed against leased land not covered by this lease and/or Lessee tax payment
requirements herein. 

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16.      Project Costs. All labor
to be performed and materials to be furnished in operations of Lessee hereunder
shall be at the cost and expense of Lessee, and Lessor shall not be chargeable
with, or liable for, any part thereof. Lessee shall protect the leased land
against liens arising from its operations thereon. Upon commencement of
operations upon leased land, Lessee shall protect Lessor against damages of
every kind and character which may be occasioned to any of the parties hereto or
to any other person by reason of the operations or workings of the Lessee upon
said leased land. The protection of Lessor shall include maintenance of
workman’s compensation insurance typical for geothermal drilling and power plant
construction projects and good and safe drilling, construction and power plant
operations designed by competent drilling and power plant engineering
experts.

17.       Land Compensation.
In return for actual surface use of leased land required for well site,
pipeline, transmission and plant operations hereunder, Lessee shall compensate
Lessor at the annual rate of $100.00 per acre for such lands so affected for the
duration of their use. For these purposes, any pipelines or transmission lines
shall be deemed to require a 10 foot wide ground area. All pipelines shall be
insulated as per typical project specifications and shall be colored according
to industry norms or permit requirements as may be imposed. 

18.       Default Notice.
Upon violation of any of the terms and conditions of this lease by Lessee and
the failure of Lessee to begin in good faith to remedy same within 30 days after
written notice from Lessor to do so, specifying in said notice the nature of
such default, then at the option of Lessor this lease shall forthwith cease and
terminate and all rights of Lessee in and to said leased land shall be at an
end, except that in the event of such termination Lessee shall have the right to
remove from the leased land all surface facilities and improvements of
whatsoever kind and character placed upon leased land by Lessee. Upon default,
if any, Lessee shall remove from leased land any and all machinery and
structures placed upon leased land within one hundred twenty (120) days
thereof.

19.       Title. Lessor
hereby warrants and agrees to defend title to the leased land and agrees that
Lessee, at its option, may pay and discharge any taxes, mortgages, trust deeds
or other liens or encumbrances existing, levied or assessed on or against leased
land, and in the event Lessee exercises such option, Lessee shall be subrogated
to the rights of any holder or holders thereof, and shall have the right to
reimburse itself by applying to the discharge of any such mortgage, tax or other
lien or encumbrance any royalties or rentals accruing to Lessor hereunder.

20.       Notice. Any notice
or other communication hereunder from Lessor to Lessee shall be given in writing
by delivering same personally to Lessee or by sending same by registered or
certified mail postage prepaid or Federal Express to Lessee at 1509 Tyrell Lane,
Suite B, Boise, Idaho 83706. Any notice or other communication hereunder from
Lessee to Lessor shall be given in writing by delivering same personally to
Lessor or by sending same by registered or certified mail postage prepaid or
Federal Express to Lessor at the Lessor address set forth on the signature page
of this lease. Any notice so sent shall be deemed to have been given and
received within 96 hours of deposit thereof in the United States mail or within
48 hours of deposit thereof with Federal Express, providing 

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that Lessor has provided and street address and telephone
number. The parties may upon written notice to the other party, at any time and
from time to time change their respective addresses for the purposes hereof.

21.       Definitions. For
the purposes of this Lease the following definitions shall apply:

                  (a)       The
terms “Hot Water”, “Steam” and “Thermal Energy”, collectively referred to as
Energy Produced, each shall mean natural geothermal water and/or steam, and
shall also mean the natural heat of the earth and the energy present in,
resulting from or created by, or which may be extracted from, the natural heat
of the earth or the heat present below the surface of the earth, in whatever
form such heat or energy naturally occurs;

                  (b)       The
term “Leased Substances” shall collectively mean the matter, substances and
resources defined in subparagraph 21(a) that are subject to this Lease;

                  (c)      
The term “Geothermal Resources” shall collectively mean the matter, substances
and resources defined in subparagraph 21(a) that are not subject to this Lease
but are located on adjacent land or lands in reasonable proximity thereto;

                  (d)      
The term “Power Potential” shall mean, when used herein with respect to any well
or wells, the quantity, or units, of energy capable of being recovered from the
Hot Water, Steam or Thermal Energy produced therefrom by means of any energy
conversion or utilization facility (including, but not limited to, electrical
generating facilities) or equipment designed for use thereof;

                  (e)       The
term “Sufficient Power Potential” shall mean that Power Potential which, in the
sole judgment of Lessee shall be sufficient for the Commercial sale or
utilization thereof, or shall warrant the construction of facilities for the
Commercial sale or other utilization thereof, or shall justify additional
drilling or other operations on the leased land;

                  (f)      
The term “Commercial” shall mean those qualities of Leased Substances produced,
sold or used, the value of which, after determining Lessee’s direct operating
costs will be capable of providing a sufficient return to cause Lessee, in its
sole judgment, to continue production thereof or to elect to proceed with
further development or exploratory operations on the leased land. 

                  (g)      
The term “Net Proceeds” is defined as proceeds from the sale of generated
electric power to a third party, independent of the Lessor or Lessee, less
deductions of the sum of all direct operating costs, financing costs, interest
expense on capital, property taxes, franchise and other taxes, administration
and marketing expenses and the depreciation of production wells, reinjection
wells, monitoring wells, pipelines, all production facilities, power generation
facilities, electrical distribution equipment and power lines through to the
sales delivery point. Depreciation shall be on a fifteen (15) year straight-line
basis with asset capitalization in accordance with generally accepted 

10

accounting principles. Electric power is computed and paid for
on the basis of kilowatt- hours (“Kw-h”) and the royalty shall be calculated on
a basis of cents per Kw-h.

                  (h)       The
term “Extractable Minerals” shall mean any minerals in solution in the well
effluence and all minerals and gases produced from or by means of any well or
wells on the leased land or by means of condensing steam or processing water
produced from the effluence from any such well or wells. Said terms shall also
include any water so produced or obtained from condensation or steam; provided,
however, that the term “gases” shall not include hydrocarbon gases that can be
produced separately from the well effluents;

22.       Termination.
Notwithstanding any other provisions of this Lease, and in consideration of the
payment made by the Lessee to the Lessor for the execution of this Lease, Lessee
shall have the right at any time prior to or after default hereunder, to
quitclaim and surrender to Lessor all right, title and interest of Lessee in the
leased rights, and thereupon all rights and obligations of the parties hereto
one to the other shall cease and terminate, save and except as to any then
accrued royalty obligations of Lessee then payable as to which Lessee shall
remain liable to Lessor, and save and except the rights, rights of way and
easements which may be retained by Lessee by virtue of the granting clause of
this Lease.

23.       Severability. In
the event that any part or portion or provision of this instrument shall be
found or declared to be null, void, or unenforceable for any reason whatsoever
by any court of competent jurisdiction or any governmental agency having
authority thereover, then and in such event only such part, portion or provision
shall be affected thereby, and such finding, ruling or decision shall not in any
way affect the remainder of this instrument or any of the other terms or
conditions hereof, or any Lessor rights or obligations are not, or would not be
so held to be, void or unenforceable, which said remaining terms and conditions
and such Lessor rights or obligations, as aforesaid, of this instrument shall
remain binding, valid and subsisting and in full force and effect between the
parties hereto, it being specifically understood and agreed that the provisions
hereof, and the Lessor rights or obligations embraced within such provisions,
are severable for the purposes of the provisions of this clause.

24.       Governing Law. This
lease and agreement shall be interpreted, governed by and construed under the
laws of the state of Idaho, without consideration of any conflicts of law
between the location of the parties or states of domicile thereof.

25.       Execution
Authority. The signatories hereto represent that they are the proper person to
execute this Lease and Agreement on behalf of the parties hereto.

26.       Binding Effect.
This Lease and Agreement and all of the terms, covenants and conditions hereof
shall extend to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. 

IN WITNESS WHEREOF, the parties have caused this instrument to
be duly executed as of the date hereinabove first written. 

11

	U. S. Geothermal Inc. 	 	Bighorn Mortgage Corporation 
	 	 	 
	 	 	 
	By: Douglas J. Glaspey, COO – Lessee 	 	Howard E. Conrad, President-Lessor
  

	State of ________________
	) 	On this ____________ day of
      _____________________________ 2005, before me, 
	  	) 	    
	County of ________________	) 	    

	      	     	the undersigned Notary Public, personally
      appeared Howard E. Conrad, President of Bighorn Mortgage Corporation 

	  	 	(    ) personally known to me 
	  	 	(    ) proved to me on the basis
      of satisfactory evidence to be the person(s) whole name(s) subscribed to
      the within instrument, and acknowledged that they executed it. 
	  	 	  
	  	 	WITNESS my hand and official seal. 
	  	 	  
	  	 	  
	  	 	
	  	 	Notary’s Signature 
	  	 	  
	  	 	  
	  	 	  
	State of Idaho 	)	On this ____________ day of _______________________
      2005, before me, 
	  	)	
	County of Ada 	)	
	    	   	the undersigned Notary Public, personally
      appeared Douglas J. Glaspey 

	  	 	(   ) personally known to me 
	        	       	(   ) proved to me on the basis
      of satisfactory evidence to be the person(s) whole name Douglas J. Glaspey
      subscribed to the within Instrument, and acknowledged that he executed it.
    

	  	 	  
	  	 	WITNESS my hand and official seal. 
	  	 	  
	  	 	  
	  	 	  
	  	 	Notary’s Signature 

12

Exhibit A 

The following lands containing 280.00 acres, more or less,
located in Cassia County, Idaho. 

100% Surface, Minerals and
Geothermal: 

Township 15 South, Range 26 East

Section
32:            
S1⁄2NE1⁄4, NE1⁄4SW1⁄4, N1⁄2SE1⁄4 
Section
33:            
N1⁄2SW1⁄4 

13Filed by Automated Filing Services Inc. (604) 609-0244 - U.S. Geothermal Inc. - Exhibit 10.13

GEOTHERMAL 
LEASE AND AGREEMENT 

This Lease and Agreement is made and entered into as of this
_____ day of _______, 2005, by and between: 

Dale Doman and Ronda B. Doman, husband and wife, Party of
the first part, 
hereinafter referred to as “Lessor” 

and 

US Geothermal Inc., an Idaho corporation, 
Party of
the second part, 
hereinafter referred to as “Lessee” 

who are referred to in the plural as the “Parties”. 

Recitals 

WHEREAS Lessor is the owner of certain land and
geothermal rights situated in Cassia County, in the State of Idaho, which the
Parties believe are suited for the development of Hot Water, Steam and Thermal
Energy for use as such and/or the conversion of such geothermal energy to the
production of electric power, or for any purpose other than the generation of
electric power, and

WHEREAS It is the desire of Lessor and Lessee to enter
into an agreement which will enable the development of said Hot Water, Steam and
Thermal Energy for any of the aforesaid purposes for the mutual profit of the
Parties, 

BE IT THEREFORE HEREBY AGREED AS FOLLOWS: 

1.      Purpose. For and in
consideration of the sum of Ten Dollars ($10.00) and other valuable
consideration set forth in clauses (4.) and (5.) below, receipt of which initial
sum and sufficiency of which is hereby acknowledged, and in consideration of the
covenants and agreements hereinafter contained, Lessor has granted, leased, let
and demised to Lessee, its grantees, successors and assigns, upon and subject to
the terms and conditions contained herein, the land hereinafter described, the
sole and exclusive right to drill for, produce, extract, take, remove and sell
geothermal heat energy including , Hot Water, Steam, or Thermal Energy
therefrom, and to store, utilize, process, convert and otherwise treat such
geothermal energy upon said land, during the term hereof, with the right of
entry thereon and use and occupancy thereof at all times for said purposes and
the furtherance thereof, including the right to construct, use and maintain
thereon and to remove therefrom structures, facilities and installations,
pipelines, utility and power transmission lines. 

1

The possession by Lessee of said land shall be sole and
exclusive for the purposes hereof and for the purposes incident or related
thereto, excepting that Lessor reserves the right to use and occupy said land,
or to lease or otherwise deal with the same, without interference with Lessee
rights, for residential, agricultural, commercial, or grazing uses, or for any
and all uses other than the uses and rights permitted to Lessee herein.

2.       Lands. The land
which is the subject of this lease is situated in the county and state above
first named, consisting of approximately 640.00 acres and which is described in
Exhibit A attached hereto and incorporated as if more fully set forth herein,
including also in the leased land all rights of Lessor, presently owned or
hereafter acquired, in and under roads, ditches, and rights of way traversing or
adjacent to said land, (hereinafter referred to as “Lands”).

3.       Term. This Lease
shall be for a term of ten (10) years from and after the date hereof
(hereinafter referred to as the “Primary Term”) and so long thereafter as Leased
Substances, or any of them, are derived or produced in commercial quantities
from the leased land or lands pooled, unitized or combined therewith, and for so
long as Lessee is prevented from producing same, or the obligations of Lessee
hereunder are suspended, for the causes hereinafter set forth, or this Lease is
continued in force by reason of any other provision hereof. 

If at the expiration of the Primary Term, Lessee has not
completed one or more wells on the leased land or lands pooled, unitized or
combined therewith, which well or wells separately or collectively are either
producing, or capable of producing, Hot Water, Steam or Thermal Energy of
Sufficient Power Potential in Commercial quantities, but lessee is then engaged
in operations for drilling, reworking, recompleting, redrilling or enhancement
of any well on the leased land or lands pooled, unitized or combined therewith,
this Lease shall remain in force so long as drilling, reworking, recompleting,
redrilling or enhancement operations are prosecuted (whether on the same or
different wells) on the leased land or lands pooled, unitized or combined
therewith with no cessation of such operations for more than six (6) months, and
if such operations result in production or the establishment to the satisfaction
of the lessee of the existence of Sufficient Power Potential in Commercial
quantities, such well or wells will be deemed to have been completed and such
existence is established during the primary term of this Lease. 

4.       Primary Term
Consideration. It is understood and agreed that the initial consideration paid
upon the execution hereof ($1,600.00), covers both the rental in full hereunder
for a period of one (1) year from the date of this Lease and for all other
rights conferred hereunder. Thereafter, for the first five (5) years of the
lease, on or before said anniversary date, Lessee shall pay or tender to Lessor
an annual rental in the amount of TWO DOLLARS AND FIFTY CENTS (2.50) per acre,
which shall constitute rental until the next anniversary date hereof. For the
second five (5) year period of the lease, Lessee shall, on or before each
succeeding anniversary date during the primary term hereunder, pay or tender to
Lessor an annual rental in the amount of FIVE DOLLARS ($5.00) per acre, until
such time as from the drilling of a well or wells on the leased land, or lands
pooled, unitized or combined therewith, there has been established to the
satisfaction of 

2

the Lessee the existence of Sufficient Power Potential in
Commercial quantities. Upon such establishing as aforesaid, Lessee may
nevertheless continue to pay or tender annual rental payments on or before each
anniversary date, until Lessee has commenced the actual sale of one or more
Leased Substances, and so long as such annual rental payments to be paid or
tendered, whether beyond the primary term or not, this lease shall remain in
force and effect. All payments so paid or tendered after the expiration of said
primary term shall be deemed advance royalties. So long as such payments are
paid or tendered each well or wells shall be deemed to be actually producing one
or more Leased Substances in Commercial quantities under the terms hereof;
provided, however, that if within five (5) years after the date of expiration of
the primary term hereof Lessee shall have failed to make, or make arrangements
for (by executed contract or contracts) a bona fide Commercial sale of one or
more Leased Substances (or electric energy generated therefrom) than Lessor, at
its option, may consider Lessee in default hereunder. Additionally, should
lessee fail to make any annual payment herein provided for on or before a
particular anniversary date, Lessor may, at its option, consider lessee in
default hereunder. 

5.       Geothermal
Royalties. Royalties shall be payable as follows: 

           (a)       With
respect to Hot Water, Steam or Thermal Energy produced from the Lands, saved and
sold by Lessee and then used by the purchaser for the generation of electric
power, Lessee shall pay to Lessor as a royalty Ten Percent (10%) of the market
value of such Hot Water, Steam or Thermal Energy produced from the leased land
at and as of the point of origin on the leased land, which market value shall be
deemed to be the gross proceeds received by Lessee from such sale at the point
of origin on the leased land, unless the sale occurs at a location other than
the point of origin on the leased land, in which case the market value shall be
deemed to be the gross proceeds received by Lessee from such sale less all costs
and expenses of extraction, production, storage, processing, reinjection, and
transportation between the point of origin on the leased land and the point of
sale. 

           (b)       With
respect to Hot Water, Steam or Thermal energy produced from the Lands
(collectively to be referred to as “Energy Produced”), saved and used for the
generation of electric power which is then sold by Lessee, Lessee shall pay to
Lessor as a royalty Two (2.0%) of the market value of such electric power which
is sold by Lessee, which market value shall be deemed to be the gross proceeds
received by Lessee from such sale. Electric power is computed and paid for on
the basis of kilowatt- hours (“Kw-h”) and the royalty shall be calculated on a
basis of cents per Kw-h. 

           (c)       With
respect to Energy Produced from the Lands, saved and sold by Lessee and which is
used for any purpose other than the generation of electric power, Lessee shall
pay to Lessor as a royalty Five Percent (5%) of the gross proceeds received by
Lessee from the sale of Energy Produced, as such, produced from the leased land
at and as of the point of origin on the leased land.

3

           (d)       With
respect to Extractable Minerals, Lessee shall pay as royalty to Lessor Five
Percent (5%) of the net proceeds received by Lessee from the sale of any gases
(as herein defined) and from the sale of effluence (containing minerals and/or
minerals in solution) produced and sold from any well or wells on the leased
land, or, in the event Lessee extracts from the effluence minerals and/or
minerals in solution, Five Percent (5%) of the proceeds received by Lessee from
the sale of minerals and/or minerals in solution contained in and extracted from
the effluence produced and sold from such well or wells less costs of
transportation and extraction. 

           Lessee
shall pay to Lessor on or before the twenty-fifth day of each month the
royalties accrued and payable for the preceding calendar month, or on or before
the twenty-fifth day of the month next following that in which Lessee receives
payment therefore from the purchaser thereof, whichever method may be chosen by
Lessee from time to time, and in making such royalty payments Lessee shall
deliver to Lessor statements setting forth the basis for computation and
determination of such royalty. 

           Lessee
shall not be required to account to Lessor for or to pay any royalty on Hot
Water, Steam, Thermal Energy produced by Lessee on the leased land which is not
utilized, saved and sold, or which is used by Lessee in its operations on or
with respect to the leased land for or in connection with the developing,
recovering, producing, extracting and/or processing of Hot Water, Steam, or
Thermal Energy or in facilities for the generation of electric power, or which
are unavoidably lost. 

           Lessee
shall have the right from time to time and at any time to commingle (for
purposes of storing, transporting, utilizing, selling and processing, or any of
them) the Leased Substances, or any of them, that are produced or extracted from
the leased land or lands pooled, unitized or combined therewith, with Geothermal
Resources, or any of them, produced from other lands or units in the vicinity of
the leased land, and in the event of such commingling, Lessee shall meter,
gauge, or measure the production from the leased land, or from the unit or
units, including leased and other units or lands, as the case may be, and
compute and pay Lessor’s royalty payable under the provisions hereof on the
basis of such production so determined or allocated, as the case may be. 

From the time when Lessor shall commence Commercial production
from said Lands, Lessee shall then pay Lessor the geothermal royalty set forth
herein, or the initial term annual payments, whichever shall be the larger. This
change from annual lease payments to geothermal royalty payments shall occur at
the time when geothermal royalties exceed annual lease payments in any given
month. 

6.       Commingled and Unit
Operations. Lessee shall have the right to commingle, or unitize said leased
land, for the purpose of utilizing, selling, processing, the Leased 

4

Substances produced from the lease land with the steam or heat
energy produced from other lands, and to meter or gauge the production of steam
or heat energy from leased land and to compute and pay Lessor royalty on the
basis of such production as so determined. The total acreage to be embraced
within any such unit shall not exceed 1,920 acres, plus an acreage tolerance of
Ten Percent (10%), except that a larger unit may be created to conform to State
or Federal regulations. Such unit shall be deemed created either upon Lessee
recording in the office of the county recorder in the county in which the leased
land is situated a written declaration of such unit or upon Lessee giving
written notice of such unit to Lessor. Any well (whether or not Lessee’s well)
commenced, drilled, drilling and/or producing or being capable of producing in
any part of such unit shall for all purposes of this Lease be deemed a well
commenced, drilled, drilling and/or producing on the leased land, and Lessee
shall have the same rights and obligations with respect thereto and to drilling
and producing operations upon the lands from time to time included within any
such unit as Lessee would have if such lands constituted the leased land;
provided, however, that notwithstanding this or any other provision or
provisions of this Lease to the contrary: 

           (a)      
production as to which royalty is payable from any such well or wells drilled
upon any such unit, whether located upon the leased land or other lands, shall
be allocated to the leased land in the proportion that the acreage of geothermal
rights of the leased land in such unit bears to the total acreage of geothermal
rights of such unit, and such allocated portion thereof shall for all purposes
of this Lease be considered as having been produced from the leased land and the
royalty payable under this Lease with respect to the leased land included in
such unit shall be payable only upon that proportion of such production so
allocated thereto, and

           
(b)       if any taxes of any kind are levied or
assessed (other than taxes on the land and on Lessor’s improvements), any
portion of which is chargeable to Lessor under paragraph 15 hereof, then the
share of such taxes to be borne by Lessor as provided in the Lease, shall be in
proportion to the share of the production from such unit allocated to the leased
land. 

Allocation of unit production whether to the leased land or to
other lands therein, shall continue after any termination of all or any part of
this or any other lease covering lands in the unit until any exploration,
drilling, remedial drilling or production operations are begun on the lands so
terminated, or until contracts regarding any such operations are entered into,
whereupon all such terminated lands shall be excluded in the production to be
allocated to the respective lands in such unit. In the event of the failure of
Lessor’s, or any other owner’s, title as to any portion of the land included in
any such unit, such portion of such land shall likewise be excluded in
allocating production from such unit, provided, however, Lessee shall not be
held to account for any production allocated to any lands excluded from any such
operating unit unless and until Lessee has actual knowledge of the circumstances
requiring such exclusion. Any exclusion shall be deemed effective the first day
of the month next following the date upon which such exclusion becomes finally
established. 

5

           Lessee
may, at its sole option, at any time when there is no Commercial production in
such unit, terminate, enlarge or diminish such unit either by Lessee recording
in the office of the county recorder in the county in which the leased land is
situated a written declaration thereof, or by Lessee giving written notice
thereof to Lessor. 

In the event that the production of Leased Substances from the
leased lands or from lands in the general area of the leased land should at any
time exceed the demand for the facility use thereof in the opinion of Lessee and
the Lessee elects to reduce the total amount of steam produced or consumed, then
in that event each well participating on a commingling basis shall be reduced in
percentage amount equal to its proportion of the whole.

7.       Use Of Lease.
Lessee shall have the right to drill such wells on leased land as Lessee may
deem desirable for the purposes hereof including the exploration and production
of Geothermal Resources for heat or electric power production purposes and any
reinjection of fluids thereof. Lessee shall have the right to construct upon
leased land such equipment and structures as Lessee may deem desirable for the
purpose of utilizing Leased Substances including geothermal power plants, access
and piping and transmission equipment related thereto. No well shall be drilled
on the leased land within 300 feet of any residence or 100 feet of any barn now
on leased land without Lessor’s consent. 

8.       Minimize Use.
Notwithstanding any provisions of this lease to the contrary, Lessee shall
utilize for such purpose only so much of the leased land as shall be reasonably
necessary for Lessee activities and operations thereon and shall interfere as
little as reasonably possible with the use and occupancy of the leased land by
the Lessor. 

Lessee agrees, upon written request of Lessor, to fence all
excavations (including sumps and setting ponds, and, upon the termination of the
Lease, Lessee shall level and fill all sump holes and excavations, shall remove
all debris and shall leave the locations or premises used by Lessee in a clean
and sanitary condition. 

Lessee agrees to replace all fences which the Lessee may have
removed for its purposes and repair all fences which Lessee may have damaged,
and if and when so required by the Lessor, will provide a proper livestock guard
at any point of entry upon lands used by Lessee. 

In the event this Lease terminates as to a portion of either
the leased land or rights granted hereunder, it shall continue in full force and
effect as to those facilities necessary to the permitted use of the remaining
leased lands or rights hereunder. 

Lessee shall have the right at any time and from time to time
to remove from the leased land any and all casing, machinery, equipment,
structures, installations and property of every kind and character placed upon
said leased land by or pursuant to permission of Lessee, provided that if such
removal should occur after termination of all rights granted herein, it shall be
completed within a reasonable time thereafter. 

6

9.       Exclusive Rights. Lessee
shall have exclusively the rights to all Leased Substances and to all power
production from Leased Substances on and/or from leased land during the term
hereof, subject only to payment of the royalties to Lessor as is set forth
herein.

10.      Water. Lessee shall have
reasonable access to and use of water from the leased land for Lessee’s
drilling, testing and exploration operations thereon, in the vicinity thereof,
or on land or lands pooled, unitized or combined therewith. Lessee shall
purchase such water owned by Lessor at standard commercial rates for the area
and will reimburse Lessor for the use of any water which is being purchased by
Lessor. Lessor shall be allowed to enter on to the Lands during the term of the
lease for regular water monitoring activities of all wells or water sources.

Lessee agrees to and shall indemnify and hold Lessor free and
harmless from any and all damages, repairs, causes of action, costs or expense,
arising or resulting from any significant decrease or interruption of well or
water source flow, or contamination of potable water source such that the water
produced from such source has been degraded below the existing water quality
found in the well or water source, or it no longer meets Idaho Department of
Environmental Quality minimum drinking water standards (if the well or source
previously met the minimum drinking water standards),, to the extent such
significant decrease, interruption or contamination is caused by Lessee’s
drilling or geothermal resource extraction operations on the Premises.

In the event any significant decrease, interruption or
contamination is documented by Lessor, Lessor must immediately notify and
provide all available documentation to Lessee, and Lessee shall be allowed to
examine, measure and/or test the well or water source. If it is determined that
Lessee’s activities have caused the injury, Lessee shall, within seven business
days after that determination, commence and direct all necessary repair,
redrilling or rehabilitation of any such affected well or water source.

In the event repair, redrilling or rehabilitation of any such
affected well or water source is not possible and a decrease, interruption or
contamination is permanent, Lessee shall compensate Lessor for the fair market
value of the permanently lost water by purchasing Lessor’s affected water
rights, and certain damages arising from the loss of such water. If crops are
planted and growing, such damages are limited to one season of crop loss equal
to the average net value of the previous 3 years of documented crop sales from
the Lands, less any current year crop sales. Such damages will be in proportion
to the Lands so affected. 

11.      Permits. Any wells
drilled by Lessee hereunder shall only be drilled after first obtaining any
relevant governmental agency permits regarding geothermal well drilling on the
leased land and in conformance with approved well design by relevant agencies.
Power plant structures shall be engineered and constructed in conformance with
and only after obtaining any relevant governmental agency permits regarding
geothermal or biomass power plants. Lessor agrees to cooperate with Lessee’s
application for 

7

governmental licenses, permits, and approvals, the cost of
which shall be borne by Lessee.

12.      Partial Ownership
Interests. In the event Lessor at the time of making this Lease owns an interest
in the leased land less than One Hundred Percent (100%) of the right, title and
interest purportedly granted or leased hereby to Lessee, then any payments due
Lessor hereunder shall be paid to Lessor only in the proportion which Lessor’s
Interest bears to a One Hundred Percent (100%) interest in the leased land.
Notwithstanding the foregoing, should Lessor hereafter acquire any additional
right, title or interest in or to the leased land, it shall be subject to the
provisions hereof to the same extent as if owned by Lessor at the date hereof,
and any increase in payments of money hereunder necessitated thereby shall
commence with the payment next following receipt by Lessee of satisfactory
evidence of Lessor’s acquisition of such additional interest 

13.      Assignment. There is
hereby expressly reserved to Lessor and to Lessee the right and privilege to
convey, transfer or assign, in whole or in part, or to deal with in any manner,
subject to the provisions hereof, their respective rights and interests in and
under this Lease and Agreement or in the leased land, or the Leased Substances
produced on or from the leased land but in the event Lessor shall sell or
transfer any part or parts of the leased land or any interest in the aforesaid
Leased Substances therefrom, then Lessees obligations hereunder shall not
thereby be altered, increased or enlarged, but Lessee may continue to operate
the leased land and to pay and settle rents and royalties as an entirety.

14.      Force Majeure. The
obligation of the Lessee hereunder shall be suspended and the terms of this
Lease shall be extended as the case may be, while Lessee is prevented from
complying therewith, in whole or in part, by strikes, lockouts, riots, war or
the results thereof, acts of God or the elements, fire, flood, accidents, delays
in transportation, inability to secure labor or material in the open market,
laws, orders, rules, or regulations of Federal, State, County, Municipal, or
other governmental agencies, authority, or representative, or any other matter
or condition beyond reasonable control of Lessee, whether or not similar to the
conditions or matters herein specifically enumerated, or while litigation
contesting Lessor’s title to the leased land or the rights granted Lessee
hereunder or litigation involving Lessee’s operations hereunder shall be pending
and undetermined or during any period when Lessee has no market for the products
it is then capable of producing from the leased land or the market price then
available for such products will not produce an acceptable profit. For so long
as any of the above circumstances continue to exist, Lessee, without impairment
of its rights hereunder, shall be excused from performance of all obligations
hereunder except payment of taxes and protection of the leased land. It is
expressly agreed that the prevention of settlement of any litigation or strike
or labor disturbance shall not be considered a matter subject to Lessee’s
control within the meaning of this Paragraph.

15.      Tax Payments. Lessee
shall pay all taxes on Lessee structures and improvements placed upon the leased
land by Lessee and shall pay taxes levied and assessed against products of
Lessee operations hereunder and taxes levied and assessed against the right to
produce steam and heat energy from leased lands. Lessor shall pay all taxes
levied and 

8

assessed against leased land not covered by this lease and/or
Lessee tax payment requirements herein. 

16.      Project Costs. All labor
to be performed and materials to be furnished in operations of Lessee hereunder
shall be at the cost and expense of Lessee, and Lessor shall not be chargeable
with, or liable for, any part thereof. Lessee shall protect the leased land
against liens arising from its operations thereon. Upon commencement of
operations upon leased land, Lessee shall protect Lessor against damages of
every kind and character which may be occasioned to any of the parties hereto or
to any other person by reason of the operations or workings of the Lessee upon
said leased land. The protection of Lessor shall include maintenance of
workman’s compensation insurance typical for geothermal drilling and power plant
construction projects and good and safe drilling, construction and power plant
operations designed by competent drilling and power plant engineering
experts.

17.      Land Compensation. In
return for actual surface use of leased land required for well site, pipeline,
transmission and plant operations hereunder, Lessee shall compensate Lessor at
the annual rate of $100.00 per acre for such lands so affected for the duration
of their use. For these purposes, any pipelines or transmission lines shall be
deemed to require a 10 foot wide ground area. All pipelines shall be insulated
as per typical project specifications and shall be colored according to industry
norms or permit requirements as may be imposed. 

18.      Default Notice. Upon
violation of any of the terms and conditions of this lease by Lessee and the
failure of Lessee to begin in good faith to remedy same within 30 days after
written notice from Lessor to do so, specifying in said notice the nature of
such default, then at the option of Lessor this lease shall forthwith cease and
terminate and all rights of Lessee in and to said leased land shall be at an
end, except that in the event of such termination Lessee shall have the right to
remove from the leased land all surface facilities and improvements of
whatsoever kind and character placed upon leased land by Lessee. Upon default,
if any, Lessee shall remove from leased land any and all machinery and
structures placed upon leased land within one hundred twenty (120) days
thereof.

19.      Title. Lessor hereby
warrants and agrees to defend title to the leased land and agrees that Lessee,
at its option, may pay and discharge any taxes, mortgages, trust deeds or other
liens or encumbrances existing, levied or assessed on or against leased land,
and in the event Lessee exercises such option, Lessee shall be subrogated to the
rights of any holder or holders thereof, and shall have the right to reimburse
itself by applying to the discharge of any such mortgage, tax or other lien or
encumbrance any royalties or rentals accruing to Lessor hereunder.

20.      Notice. Any notice or
other communication hereunder from Lessor to Lessee shall be given in writing by
delivering same personally to Lessee or by sending same by registered or
certified mail postage prepaid or Federal Express to Lessee at 1509 Tyrell Lane,
Suite B, Boise, Idaho 83706. Any notice or other communication hereunder from
Lessee to Lessor shall be given in writing by delivering same personally to
Lessor or by sending same by registered or certified mail postage prepaid or
Federal Express to Lessor 

9

at the Lessor address set forth on the signature page of this
lease. Any notice so sent shall be deemed to have been given and received within
96 hours of deposit thereof in the United States mail or within 48 hours of
deposit thereof with Federal Express, providing that Lessor has provided and
street address and telephone number. The parties may upon written notice to the
other party, at any time and from time to time change their respective addresses
for the purposes hereof.

21.      Definitions. For the
purposes of this Lease the following definitions shall apply:

                  (a)       The
terms “Hot Water”, “Steam” and “Thermal Energy”, collectively referred to as
Energy Produced, each shall mean natural geothermal water and/or steam, and
shall also mean the natural heat of the earth and the energy present in,
resulting from or created by, or which may be extracted from, the natural heat
of the earth or the heat present below the surface of the earth, in whatever
form such heat or energy naturally occurs;

                  (b)       The
term “Leased Substances” shall collectively mean the matter, substances and
resources defined in subparagraph 21(a) that are subject to this Lease;

                  (c)      
The term “Geothermal Resources” shall collectively mean the matter, substances
and resources defined in subparagraph 21(a) that are not subject to this Lease
but are located on adjacent land or lands in reasonable proximity thereto;

                  (d)      
The term “Power Potential” shall mean, when used herein with respect to any well
or wells, the quantity, or units, of energy capable of being recovered from the
Hot Water, Steam or Thermal Energy produced therefrom by means of any energy
conversion or utilization facility (including, but not limited to, electrical
generating facilities) or equipment designed for use thereof;

                  (e)       The
term “Sufficient Power Potential” shall mean that Power Potential which, in the
sole judgment of Lessee shall be sufficient for the Commercial sale or
utilization thereof, or shall warrant the construction of facilities for the
Commercial sale or other utilization thereof, or shall justify additional
drilling or other operations on the leased land;

                  (f)       The
term “Commercial” shall mean those qualities of Leased Substances produced, sold
or used, the value of which, after determining Lessee’s direct operating costs
will be capable of providing a sufficient return to cause Lessee, in its sole
judgment, to continue production thereof or to elect to proceed with further
development or exploratory operations on the leased land. 

                  (g)       The
term “Extractable Minerals” shall mean any minerals in solution in the well
effluence and all minerals and gases produced from or by means of any well or
wells on the leased land or by means of condensing steam or processing water
produced from the effluence from any such well or wells. Said terms shall also
include any water so produced or obtained from condensation or steam; provided,
however, that 

10

the term “gases” shall not include hydrocarbon gases that can
be produced separately from the well effluents;

22.      Termination.
Notwithstanding any other provisions of this Lease, and in consideration of the
payment made by the Lessee to the Lessor for the execution of this Lease, Lessee
shall have the right at any time prior to or after default hereunder, to
quitclaim and surrender to Lessor all right, title and interest of Lessee in the
leased rights, and thereupon all rights and obligations of the parties hereto
one to the other shall cease and terminate, save and except as to any then
accrued royalty obligations of Lessee then payable as to which Lessee shall
remain liable to Lessor, and save and except the rights, rights of way and
easements which may be retained by Lessee by virtue of the granting clause of
this Lease.

23.      Severability. In the
event that any part or portion or provision of this instrument shall be found or
declared to be null, void, or unenforceable for any reason whatsoever by any
court of competent jurisdiction or any governmental agency having authority
thereover, then and in such event only such part, portion or provision shall be
affected thereby, and such finding, ruling or decision shall not in any way
affect the remainder of this instrument or any of the other terms or conditions
hereof, or any Lessor rights or obligations are not, or would not be so held to
be, void or unenforceable, which said remaining terms and conditions and such
Lessor rights or obligations, as aforesaid, of this instrument shall remain
binding, valid and subsisting and in full force and effect between the parties
hereto, it being specifically understood and agreed that the provisions hereof,
and the Lessor rights or obligations embraced within such provisions, are
severable for the purposes of the provisions of this clause.

24.      Governing Law. This
lease and agreement shall be interpreted, governed by and construed under the
laws of the state of Idaho, without consideration of any conflicts of law
between the location of the parties or states of domicile thereof.

25.      Execution Authority. The
signatories hereto represent that they are the proper person to execute this
Lease and Agreement on behalf of the parties hereto.

26.      Binding Effect. This
Lease and Agreement and all of the terms, covenants and conditions hereof shall
extend to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. 

IN WITNESS WHEREOF, the parties have caused this instrument to
be duly executed as of the date hereinabove first written. 

	U. S. Geothermal Inc. 	 	 
    
	  	 	Ronda B. Doman 
	  	 	  
	 	 	 
	By: Douglas J. Glaspey, COO – Lessee 	 	Dale Doman 

11

	State of ________________
	) 	On this ____________ day of _____________________________
      2005, before me, 
	  	) 	    
	County of ________________	) 	    

	      	     	the undersigned Notary Public, personally
      appeared Dale Doman and Rhonda B. Doman, husband and wife

	  	 	(    ) personally known to me 
	  	 	(    ) proved to me on the basis
      of satisfactory evidence to be the person(s) whole name(s) subscribed to
      the within instrument, and acknowledged that they executed it. 
	  	 	  
	  	 	WITNESS my hand and official seal. 
	  	 	  
	  	 	  
	  	 	 
	  	 	Notary’s Signature 
	  	 	  
	  	 	  
	  	 	  
	State of Idaho 	)	On this ____________ day of _______________________
      2005, before me, 
	  	)	
	County of Ada 	)	
	    	   	the undersigned Notary Public, personally
      appeared Douglas J. Glaspey 

	  	 	(   ) personally known to me 
	        	       	(   ) proved to me on the basis
      of satisfactory evidence to be the person(s) whole name Douglas J. Glaspey
      subscribed to the within Instrument, and acknowledged that he executed it.
    

	  	 	  
	  	 	WITNESS my hand and official seal. 
	  	 	  
	  	 	  
	  	 	  
	  	 	Notary’s Signature 

12

Exhibit A 

The following lands containing 640.00 acres, more or less,
located in Cassia County, Idaho. 

100% Surface, Minerals and
Geothermal: 

Township 15 South, Range 26 East

Section 36: All 

Excluding Oil and Gas rights to the property 

13

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