Document:

exv10w16

EXHIBIT 10.16

AMENDMENT TO AMENDED COAL MINING LEASE

OF

INDIAN LANDS

     THIS IS AN AMENDMENT to the amended coal mining lease of Indian lands between the Crow Tribe
of Indians of the Crow Reservation (“Lessor”) and Westmoreland Resources, Inc. (“Lessee”), which
was entered into on the 26th day of November, 1974.

     THIS AMENDMENT results from the scheduled renegotiation of the royalty rates set forth in said
Amended Coal Lease pursuant to Section II.b., page 3 of said Amended Lease.

     WHEREAS, the parties to said Lease have renegotiated the royalty rate to be paid by Lessee to
Lessor under said Lease, and have agreed to the royalty rate set forth below, and further agree
that said negotiations and the resulting royalty agreement fully conform with the requirements of
said Amended Coal Lease, and any subsequent amendments thereto,

     NOW, THEREFORE, the parties agree that said Amended Lease and any amendments thereto shall be
amended by this Agreement to provide that the royalty payable by Lessee to Lessor pursuant to said
Lease for the period from December 1, 1994, to November 30, 2004, shall be as follows:

1. Northern States Power: Lessor shall receive a royalty of 6% of the f.o.b. mine
price for all coal purchased by Northern States Power during the ten year period noted
above.

2. Existing Contracts: Other than Northern States Power, there are three existing
contracts, Western Fuels Association, Inc. (“WF”), Otter Tail Power (“OTP”) Contract, and
Wisconsin Electric Power Co. (“WEPCO”). The royalty rate for WEPCO’s 1995 tonnage will be
12.5% of the f.o.b. mine price less all production taxes. The WF and OTP contracts have
minimum and maximum annual tonnage requirements. The royalty rate for the WF’s and OTP’s
minimum annual tonnage requirements, 700,000 and 1,200,000 respectively, will be 12.5% of
the f.o.b. mine price less all production taxes. For tonnage in excess of the minimum, the
royalty rate will be 6% of the f.o.b. mine price.

3. New Term Contracts (i.e., contracts for a term longer than one year): There will
be a three-tier royalty structure depending on the f.o.b. mine price when the contract
is signed for coal sale contracts bid and signed after December 1, 1994.

	 	a.	 	For f.o.b. mine price less than $6.00 per ton: The royalty
rate will be 6% of the f.o.b. mine price.
	 
	 	b.	 	For f.o.b. mine price between $6.00 and $6.50 per ton: The
royalty rate will be 8% of the f.o.b. mine price.

 

 

	 	c.	 	For f.o.b. mine price over $6.50 per ton: The royalty rate
will be 12.5% of the f.o.b. mine price less production taxes.
	 
	 	d.	 	Inflation index: The Consumer Price Index – Urban (CPI-U) will
be used to adjust the prices in a, b, and c above annually. The base CPI-U will be
the November, 1994 index. In November of each subsequent year the CPI-U for
November will be determined and the percentage change from the base calculated.
The percentage change added to one (1.0) will be multiplied times the prices in a,
b, and c above to determine the prices in these sub-sections for the subsequent
year.
	 
	 	e.	 	Spot sales (one year or less): The royalty rate for spot sales
will be 12.5% of the f.o.b. mine price less production taxes.

The parties agree that the royalty rates set forth above shall become effective on December
1, 1994, and continue thereafter for the term set forth above, regardless of the date of the
signatures provided for below. The parties further agree that the terms of the Amended Coal
Lease referenced first above relating to renegotiation, and/or arbitration to arrive at a
new royalty rate for the ten year period succeeding the ten year period provided for by this
Amendment shall remain in full force and effect.

Dated this 2nd day of December, 1994.

CROW TRIBE OF THE CROW

INDIAN RESERVATION

Attest:

	 	 	 
	Dennis Big Horn, Sr.

	 	Clara Nomee
	Secretary Crow Tribal Council

	 	Chairman of the Crow Tribe of Indiansexv10w17

EXHIBIT 10.17

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EXPLORATION AND OPTION TO LEASE AGREEMENT

     This EXPLORATION AND OPTION TO LEASE AGREEMENT (hereinafter “Exploration Agreement”), made and
entered on this 13th of February, 2004, between the CROW TRIBE OF INDIANS, Crow Agency,
Montana 59022, (hereinafter “Crow Tribe”), and WESTMORELAND RESOURCES, INC., a corporation
organized under the laws of the State of Delaware, with its principal place of business at P.O. Box
449, Hardin, Big Horn County, Montana (hereinafter “Westmoreland”).

RECITALS

	A.	 	The Crow Tribe owns, and is in possession of, mineral properties underlying land commonly
referred to as the “South Extension” as shown on Exhibit “B.” The Crow Tribe also owns some
limited surface interests in the South Extension.
	 
	B.	 	The Crow Tribe represents the South Extension contains evidence of coal deposits of value and
offers potential for the development of coal.
	 
	C.	 	The proper exploration and evaluation of the coal deposits, and their proper development and
sale, will require the expenditure of large sums of capital and adequate time.
	 
	D.	 	Westmoreland is able and willing to furnish the capital required for the development of the
coal deposits located in the Mining Area, but only in accordance with, and subject to, the
conditions set forth in this Exploration Agreement.
	 
	E.	 	The Minerals Management Service of the United States Department of the Interior has made
demand on Westmoreland for payment of additional royalties and interest on revenue received by
Westmoreland from Northern States Power (now Xcel) relating to the 1986 NSP Coal Reserve
Option payments. The parties desire to settle said claim as provided herein.
	 
	F.	 	Westmoreland currently mines coal owned by the Crow Tribe pursuant to the Amended Coal Mining
Lease Indian Lands (“Tract III Lease”) entered into on November 26, 1974, and subsequently
amended. The terms of the Tract III Lease may be amended by this Exploration Agreement if
certain contingencies occur.
	 
	G.	 	The Crow Tribe wishes to obtain the assistance of Westmoreland in connection with the Crow
Tribe’s desire to obtain an aerial photographic survey of the Crow Reservation.
	 
	H.	 	The Crow Tribe wishes to expand the amount of surface rights owned by the Tribe within the
boundaries of the Crow Reservation.
	 
	I.	 	This Agreement and the Coal Lease are entered into pursuant to the Indian Mineral Development
Act of 1982.

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     THEREFORE, based on the foregoing, and for good and valuable consideration, the parties
represent, covenant, state, and agree as follows:

SECTION 1 DEFINITIONS

     1.1 Allotted Land: All allotted trust land, as well as all allotted fee land, owned by
individual Crow Indians whether or not subject to federal restraints on alienation.

     1.2 Regional Director: The Regional Director of the Bureau of Indian Affairs, Rocky Mountain
Regional Office, Billings, Montana, or any of that individual’s successors.

     1.3 Carrier: Trucks, railroads, conveyor belts, pipelines, or any instrumentality or
machinery used to deliver Coal after sale.

     1.4 Coal: Any combustible carbonaceous rock, whether classified as anthracite, bituminous,
subbituminous, or lignite, as defined by ASTM Standard D-388-77, along with all substances mixed
with Coal.

     1.5 Coal Delivery or Delivered Coal: Coal loaded into a Carrier at the load out facility
operated by Westmoreland on the Tract III Lease for movement to another location for commercial
use.

     1.6 Coal Lease: The document attached hereto as Exhibit A, which was executed concurrently
with execution of this Exploration Agreement, by the Crow Tribe and Westmoreland.

     1.7 Crow Indian: An individual who is properly enrolled as a member of the Crow Tribe.

     1.8 Crow Reservation: All lands lying within the exterior boundaries of the Crow Indian
Reservation in the state of Montana. For the purposes of this Exploration Agreement, the “Crow
Reservation” is further divided into: (i) Allotted Land; (ii) Tribal Land; and (iii) Fee Land,
as those terms are defined herein.

     1.9 Exercise Date: The date on which Westmoreland exercises its option to lease pursuant to
Section 3.2.

     1.10 Exploration Agreement: This document and the exhibits and attachments hereto.

     1.11 Exploration Rights: The exclusive right to enter in and upon the Prospect Area or Mining
Area for the purpose of conducting drilling, exploration, environmental testing, monitoring, data
gathering, and other incidental rights relating thereto, including the right to remove and test
samples of Coal. These Exploration Rights shall be limited in scope and only pertain to Coal
exploration.

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     1.12 Facilities Area: The area within the Tract III Lease that will be utilized and is
necessary for the production of Coal under this Exploration Agreement, including, but not limited
to, haul roads, access roads, buildings, water drainage courses, dams, ponds, water wells and
storage facilities, Coal processing facilities, railroads, sidetracks, switches, storage
facilities, conveyors, and other structures and improvements.

     1.13 Fee Land: Any land except Tribal Land and/or Allotted Land.

     1.14 Mining Activities: All functions and activities, whether performed on or off the Crow
Reservation, required to prepare for and conduct the mining, preparation, transportation, and
marketing of Coal, by any method, from the Mining Area covered by this Exploration Agreement;
including, but not limited to:

	 	a.	 	Pre-development drilling, sampling, testing, and data gathering
activities;
	 
	 	b.	 	Environmental and permitting activities;
	 
	 	c.	 	Design, construction, and operation of the mine and related
facilities such as buildings, power lines, access roads, railroads, and other
transportation facilities;
	 
	 	d.	 	Hauling Coal, Coal processing, or delivery to a Carrier and all
equipment, machinery, and workers related thereto;
	 
	 	e.	 	Related administrative activities;
	 
	 	f.	 	Termination activities; and
	 
	 	g.	 	Reclamation.

     1.15 Mining Area: The tract of the South Extension Area selected and identified pursuant to
Section 8 of this Exploration Agreement.

     1.16 Mining Permits: All permits, plans, licenses, and approvals required by the Surface
Mining Control and Reclamation Act of 1977; the Clean Air Act of 1990; the Federal Water Pollution
Control Act, as amended; and all other applicable governmental permits, plans, approvals, and
licenses required in order to conduct Mining Activities as contemplated by this Exploration
Agreement.

     1.17 Operating Subsidiary: A wholly owned subsidiary of Westmoreland to which Westmoreland
may sublease or assign all or a portion of the lands leased pursuant to this Exploration Agreement
and the Mining Area.

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     1.18 Prospect Area: The area of land identified on the map or maps attached hereto as Exhibit
B.

     1.19 Secretary of Interior or Secretary: The Secretary of Interior of the United States or
his duly authorized representative.

     1.20 South Extension: An area of land on the Crow Reservation south of the existing Tract III
Lease, shown on Exhibit “B.”

     1.21 Superintendent: The Superintendent of the Bureau of Indian Affairs at Crow Agency,
Montana.

     1.22 Ton: A measure of weight of 2000 pounds avoirdupois.

     1.23 Tract III Lease: The existing Coal Mining Lease (United States Department of the
Interior Bureau of Indian Affairs, Contract No. 1420-0252-4088, Tract 3, Sale 3), together with all
amendments and exhibits thereto, entered into between the Crow Tribe and Westmoreland.

     1.24 Tribal Attorney: An attorney retained by the Crow Tribe to represent and act as the
legal representative for the Crow Tribe with regard to this Exploration Agreement.

     1.25 Tribal Land: All land, whether now owned or hereafter acquired, held in trust by the
United States of America for the Crow Tribe, as well as all Fee Land owned by the Crow Tribe,
including Fee Land subject to federal restrictions on alienation.

     1.26 Tribal Coal: All Coal, any interest in which is owned by the Crow Tribe, whether held in
fee or in trust by the United States for the benefit of the Crow Tribe, or in fee subject to a
restriction on alienation.

     1.27 Trust Land: All land held in trust by the United States of America for individual Crow
Indians or for the Crow Tribe.

SECTION 2 EXPLORATION LICENSE

     2.1 Grant. The Crow Tribe grants to Westmoreland, for a term commencing on the date of
approval of this Exploration Agreement by both parties and ending on April 1, 2005 (unless extended
pursuant to Section 5.4), Exploration Rights in and on the Prospect Area for all Tribal Land and
Tribal Coal located within the Prospect Area. Approval by the Crow Tribe shall be given by
signature of the Chairman and approval as provided in Section 5.1. Approval by Westmoreland shall
be upon approval by its Board and execution of this Agreement by its executive.

     2.2 Exploration Rights. Westmoreland, as licensee, shall have the right to exercise all
Exploration Rights, including the right to drill, prospect, explore, test, develop, and work at its
own discretion and at its own expense, on all or any part of the Prospect Area on the condition all
work

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and all improvements made by Westmoreland on the Prospect Area, or any part of the Crow
Reservation, under the terms of this Exploration Agreement and during the period of this
Exploration Agreement, shall be done in a miner-like and proper manner, so that the Prospect Area
shall be carefully operated and the minerals contained in the Prospect Area may be sampled and
evaluated in an economical and environmentally responsible manner.

	 	a.	 	Roads. Westmoreland may use existing roads, if any, on the
South Extension and may construct and maintain at its own expense any
additional roads within the Prospect Area that are necessary in carrying on
prospecting and exploration work. The Crow Tribe consents to the construction
and use of such roads and will cooperate in obtaining any needed consents or
approvals from any government entity, including the BIA.
	 
	 	b.	 	No Public Right. The public shall obtain no rights to any
roads constructed by Westmoreland, nor shall Westmoreland be obliged to
maintain said roads for use by any other person, or permit any other persons to
use them, and on termination of this Exploration Agreement, or if at any time
it becomes unnecessary for Westmoreland to use any roads for conducting
authorized operations, the right to use and any obligation to maintain the
roads shall cease and, subject to any need to use roads to complete
reclamation, all rights shall revest in the surface owner.
	 
	 	 	 	Installations made by Westmoreland in connection with roads may be removed
by Westmoreland.
	 
	 	c.	 	Removal and Reclamation. Installations made by Westmoreland
in connection with roads may be removed by Westmoreland. If Westmoreland does
not exercise its option, and subject to all terms and conditions of its
governmental permits, Westmoreland will reclaim and restore all roads and
related installations it has constructed, except to the extent that the surface
owners (including the Crow Tribe) wish them to remain in place.

     2.3 Licensing and Permits. Prior to exercising the exploration rights set forth in this
Exploration Agreement, Westmoreland shall obtain all necessary licenses and permits from the
federal government. The parties recognize that time is of the essence in Westmoreland’s ability to
conduct exploration within the Prospect Area, and it is contemplated that Westmoreland will be able
to obtain a federal approval of a prospecting permit for the limited purpose of conducting those
exploration activities immediately after the Crow Tribe’s approval of this Agreement, and prior to
federal approval pursuant to the requirements of the IMDA. The Crow Tribe shall cooperate fully
with Westmoreland in Westmoreland’s attempt to obtain all requisite licenses and permits, and the
Crow Tribe shall impose no charges for same.

     2.4 Exploration Results. Upon exercise of its option to lease as provided for in Section 3 of
this Exploration Agreement, or if Westmoreland elects not to lease, Westmoreland shall provide

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one
copy each to the Crow Tribe, MMS, and the Regional Director of logs, tests, and other raw data
obtained through the exploration efforts of Westmoreland on the Prospect Area, which the Crow
Tribe, MMS, and the Regional Director agree to keep strictly confidential. If Westmoreland elects
not to lease, all data developed hereunder shall be provided to the Crow Tribe as additional
consideration for the right of first refusal provided in Section 3.3. Westmoreland shall not
provide or disclose the data to any other party. The data provided to the Tribe may be used
without restriction by the Tribe and its consultants for planning a Tribally-owned mine or provided
by the Tribe to other potential lessors, developers, operators, or partners at the Tribe’s sole
discretion.

     2.5 Reservation of Right to Grant Additional Exploration Licenses. The Crow Tribe retains the
right to grant exploration rights for minerals other than Coal, on the Prospect Area designated by
Westmoreland, but the parties agree any exploration rights so granted shall not interfere with the
exploration rights of Westmoreland. Any exploration rights granted to parties other than
Westmoreland covering the Prospect Area shall provide that activities conducted pursuant to such
rights are subordinate to the exploration rights of Westmoreland and thus shall not interfere with
Westmoreland’s exploration rights and shall further provide any selection of a mining (including
drilling for hydrocarbons) area by such third parties shall be made only after Westmoreland has
selected its Mining Area in accordance with Section 8 of this Exploration Agreement, and after
selection, Westmoreland shall have the exclusive use of said Mining Area. To the extent
practicable, Westmoreland shall conduct its exploration activities so as not to diminish the
quantity or value of the Tribe’s Coal or coal bed methane resources in seams that Westmoreland does
not intend to mine under this Agreement.

SECTION 3 OPTION TO LEASE

     3.1 Exclusive Option to Lease. Westmoreland shall have the exclusive option to lease the Crow
Tribe’s Coal in the Prospect Area. Said option shall be exercised, if at all, upon completion of
Westmoreland’s exploration and reserve analysis in the Prospect Area or no later than April 1,
2005, unless Westmoreland elects the extension provided in provision 5.4 of this Exploration
Agreement.

     3.2 Exercise of Option. If Westmoreland elects to exercise the option granted and receive a
Coal Lease to the Mining Area, it shall notify the Crow Tribe in a manner in accordance with
provision 25.3 of this Exploration Agreement. On giving such notice, Westmoreland shall be
entitled to receive, in accordance with and subject to the terms of this Exploration Agreement, a
lease in the form of the Coal Lease attached hereto as Exhibit A. The Crow Tribe shall, on the
receipt of the notice of Westmoreland’s intention to exercise its option, deliver the fully
executed lease to Westmoreland.

     3.3 Conversion of Option into Right of First Refusal. The option to demand and receive a Coal
Lease, if not exercised, shall convert into a right of first refusal for as long as Westmoreland
operates the Absaloka Mine. If the Crow Tribe receives an offer to lease Coal in the Prospect Area
from any party other than Westmoreland during the right of first refusal period, it

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must present to
Westmoreland an offer to lease said Coal on the same terms as said offer, and Westmoreland shall
have sixty (60) days within which to accept or reject.

          This right of first refusal shall not apply if, after Westmoreland fails to exercise its
option, the Crow Tribe decides to develop the Coal in the Prospect Area itself, or through any
entity or joint venture of which the Crow Tribes owns not less than one-half (i.e., a
Tribally-owned mine); provided, however, that Westmoreland will be given the opportunity to bid on
any general contract for operating a Tribally-owned mine in the Prospect Area.

          The Crow Tribe must inform any offeror no later than five (5) days after receiving any offer
of Westmoreland’s right of first refusal.

     3.4 Machinery and Equipment. No equipment, tools, machinery, improvements, or personal
property of any nature or description brought or placed in the property prior to the exercise of
this option by Westmoreland for use in the work shall become a fixture.

          All the equipment, structures, improvements, and other property shall remain the property of
Westmoreland, subject to removal by Westmoreland. If Westmoreland does not exercise this option,
it shall be entitled to remove all equipment, tools, machinery, structures, improvements, and
personal property from the property within ninety (90) days after the expiration of this option.

     3.5 Title of Owner. The Crow Tribe represents that it is the lawful owner of all minerals
located in the Mining Area, as specifically described herein, and such Tribal Land as is located in
the Mining Area. The Crow Tribe further represents the minerals covered by this Exploration
Agreement are each free from all liens and encumbrances of every nature and description.

          During the period of this option, the Crow Tribe shall protect all of its property in the
Mining Area from any and all liens except those arising from the acts of Westmoreland on the Mining
Area.

          The Crow Tribe shall not encumber any of its property in the Mining Area or any part of it and
shall furnish to Westmoreland satisfactory evidence of good title to same not less than ninety (90)
days after any written request from Westmoreland to do so.

          Nothing herein shall be construed as prohibiting the Tribe from pledging or assigning payments
due the Tribe under this Agreement, including lump sum payments, royalties, and taxes.

     3.6 Unavoidable Delays. Any time lost by Westmoreland in the event of Force Majeure, as that
term is defined in Section 11 of this Exploration Agreement, shall not run against the time
specified in this Exploration Agreement for exercise of this option.

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SECTION 4 SETTLEMENT WITH MMS

     As additional consideration for this Exploration Agreement, the parties agree to settle the
matters recited in the Settlement Agreement attached hereto as Exhibit C by executing same and
carrying out its terms.

     Except for the Exploration License granted in Section 2, the Crow Tribe’s performance of this
Exploration and Option to Lease Agreement is contingent upon the Tribe’s receipt of the payment due
under said Settlement Agreement as provided in Section 5.2 below.

SECTION 5 LUMP SUM PAYMENTS

     Payments. In consideration for the execution of this Exploration Agreement, as well as the
grant of the rights and obligations contained in this Exploration Agreement, and the agreement to
settle the MMS dispute per Section 4, Westmoreland shall make lump sum payments as follows:

     5.1 [*****] upon final approval of this Exploration Agreement, including the Coal Lease and
the MMS Settlement Agreement. For purposes of this contingency, the term “final approval” shall
mean binding approval of this Exploration Agreement and Coal Lease, and all exhibits and agreements
attached thereto, by the Crow Tribe by signed approval of the Executive Branch of the governing
body of the Crow Tribe of Indians and final and binding approval by the legislature of the Crow
Tribe pursuant to Article V, Section 2(d), of the Constitution of the Crow Tribe. A true and
correct copy of the Crow Tribal Legislative Act No. CLB 0402, enacted February 10, 2004, and
approved February 12, 2004, approving this Exploration Agreement and the Coal Lease, and all
exhibits and attachments, and authorizing the Executive of the Crow Government to execute said
agreements on behalf of the Crow Tribe is attached hereto as Exhibit “D.”

          If Westmoreland elects not to exercise its option, or if this Exploration Agreement is not
approved by the Secretary as provided in Section 21, then the [*****], paid pursuant to this, shall
be treated as an advance of royalty and taxes under the existing Tract III Lease and shall be
reimbursed pro rata over the next twenty-four (24) months following expiration of the term of the
option.

     5.2 One Million Five Hundred Thousand Dollars and 0/100 ($1,500,000), following approval per
Section 5.1, and upon approval and execution of the Settlement Agreement attached as Exhibit C,
according to its terms, releasing Westmoreland from any further royalties, assessments, or taxes of
any kind based on option payments received from Xcel Energy (formerly NSP), from the period from
1986 to 1999, as full, final and complete settlement of the MMS dispute. Following approval,
execution, and payment as provided herein, the MMS Settlement Agreement shall survive any of the
following: termination of this Exploration Agreement or the Coal Lease, or failure or refusal of
the Secretary to approve same, and shall be permanent and binding according to its terms.

          This lump sum payment for the MMS Settlement Agreement is not contingent upon federal approval
of this Exploration and Option to Lease Agreement or associated prospecting permit or Coal Mining
Lease and is non-recoupable according to the terms of the Settlement Agreement, as long as it has
been separately approved according to its terms.

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     5.3 If Westmoreland elects to exercise the option specified in Section 3 of this Exploration
Agreement, Westmoreland shall pay the Crow Tribe the sum of [*****], which shall be paid, less any
advance payment as provided in Section 5.4 below, within ten (10) days of exercising the option.

     5.4 Westmoreland may extend its exploration rights and the date for exercising its option from
April 1, 2005, to June 1, 2006, by paying an additional [*****] to the Crow Tribe on or before
April 1, 2005. If Westmoreland subsequently elects to exercise its right to mine, said [*****]
shall be an advance on the consideration required for Westmoreland’s right to elect its option as
specified in provision 5.3. If Westmoreland elects not to exercise its option, then [*****] of
this payment shall be treated as an additional advancement on royalty and taxes under the existing
Tract III Lease to be reimbursed over the next eight (8) quarters.

     5.5 With the exception of the contingencies outlined in Sections 5.1 and 5.4 of this
Exploration Agreement, the above described lump sum payments shall not be recoupable against future
royalties, taxes, or any other amounts Westmoreland owes the Crow Tribe.

     5.6 All lump sum payments to the Crow Tribe shall be made to the Superintendent in trust for
the use and benefit of the Crow Tribe.

     5.7 All lump sum payments shall be paid by electronic funds transfer to an account or accounts
designated by the Crow Tribe and approved by the Superintendent.

SECTION 6 AMENDMENT TO TRACT III LEASE

     6.1 Royalty Renegotiation. Lessor and Lessee agree that the royalty renegotiation provided
for in the Tract III Lease, which is scheduled for November of 2004, shall be resolved as follows:
Lessor and Lessee agree that the tax and royalty terms of the Coal Lease shall be amended into, and
shall apply, to the Tract III Lease from and after December 1, 2004, for new Coal sales (new sales
made or contracted after December 1, 2004). Current Tract III Lease Royalty Rates shall remain in
effect on all sales made under contracts existing on December 1, 2004, through their term, or any
price renegotiation date, whichever comes first, but Westmoreland shall agree that on such sales,
the Crow Tribe will realize an overall royalty of not less than that provided in Article 7 of the
Coal Lease.

     6.2 Extension of Tract III Lease. If Westmoreland exercises its option to lease under this
Exploration Agreement, the parties recognize that Westmoreland must use its current Tract III
Facilities Area for the efficient production of Coal from the Mining Area for the entire period
during which Westmoreland conducts Mining Activities in the Mining Area. The parties further
recognize that it is to their mutual interest and benefit to maintain Westmoreland’s Tract III
facilities area beyond the end of the current projected Tract III production to provide the means
for future production should market conditions warrant. Therefore, if Westmoreland exercises its
option to lease hereunder, the Tract III Lease shall be amended to provide that Westmoreland shall
have the

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option to extend the term of the Tract III Lease beyond production of Coal in paying
quantities for a term equal to the term of the Coal Lease by the payment of One Dollar and 0/100
cents ($1.00) per acre per year as minimum royalty under the Tract III Lease.

     6.3 Tribal Employment. The Tribal employment provisions in Article 36 of the Coal Lease
shall also apply to the Tract III Lease effective upon the Tribe’s approval of this Agreement.

     6.4 Amendment to Tract III Lease. The parties will amend the Tract III Lease to reflect the
terms of this Section 6.

SECTION 7 PHOTOGRAPHIC SURVEY

     As additional consideration for the promises herein, following execution of this Exploration
Agreement and approval by the Secretary, Westmoreland shall actively assist the Crow Tribe in its
plan to obtain and create a photographic survey of the Crow Reservation. Westmoreland will provide
technical advice and support to the Crow Tribe’s project manager. Westmoreland’s staff, time, and
availability will be contingent upon and limited by Westmoreland’s own work load. In addition,
Westmoreland will provide One Hundred Twenty-Five Thousand Dollars and 0/100 cents ($125,000.00) to
the Crow Tribe to help fund this project. Said fund shall be available thirty (30) days after the
date upon which final approval of this Exploration Agreement is granted by the Secretary. At the
Tribe’s option and request at any time thereafter, the remaining balance of the fund shall be paid
directly to the Tribe.

SECTION 8 SELECTION OF MINING AREA

     8.1 Mining Tract Designation. On or before the Exercise Date, Westmoreland shall select, from
the Prospect Area, the Mining Area. Selection of the Mining Area shall not itself constitute
exercise of the option, and the Mining Area may be amended by Westmoreland prior to the Exercise
Date.

     8.2 Selection Notice. Westmoreland shall select the Mining Area by delivering to the Crow
Tribe written notice, in the manner set forth herein, providing the legal description of the tract
selected. The mining tract described in the notice shall constitute the Mining Area. The Mining
Area shall be identified and by addendum attached to the Coal Lease.

SECTION 9 COAL LEASE

     9.1 Execution and Approval of Lease Form. The parties will execute and the Crow Tribe will
approve the Coal Lease in the manner provided in Section 5.1 at the same time as this Exploration
Agreement. In addition, the parties shall request that approval of the attached Coal Lease be
simultaneous with approval of this Exploration Agreement by the Secretary. The parties agree to
cooperate to seek approval of all terms of this Exploration Agreement and Coal Lease by the
Secretary as expeditiously as possible. Approval of the Coal Lease is subject to the limitations
in Section 21.6.

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     9.2 Effective Date of Lease. In the event Westmoreland elects to exercise its option to
lease, the Coal Lease shall take effect thirty (30) days following Westmoreland’s notice of its
election to lease.

     9.3 Limitation of Mining Area. Notwithstanding any provision in this Exploration Agreement
or the Coal Lease, any grant of rights from the Crow Tribe to Westmoreland to use or lease land, or
to explore for and/or mine Coal is limited to Tribal Land and Tribal Coal. To the extent there is
other land and/or Coal located in the Prospect Area and/or the Mining Area, Westmoreland shall be
responsible for obtaining any necessary right to enter, explore for, and mine Coal on said land or
to use and occupy said land, including the acquisition of any necessary surface rights.

     9.4 Acreage Under Lease. Lessee currently leases Coal owned by Lessor outside the boundaries
of the Crow Reservation pursuant to the terms of the Tract III lease. Lessee may identify and
lease a Mining Area in excess of 2,560 acres, but not more than 3,400 acres, in a single,
reasonably compact block. Approval of the Exploration Agreement and Coal Lease shall constitute
consent of the Crow Tribe and approval by the Secretary of the Interior, pursuant to applicable law
(including 25 C.F.R. §211.25) of: (a) Lessee holding both the Tract III lease and the Coal Lease;
and (b) Lessee leasing more than 2,560 acres, but not more than 3,400 acres under the Coal Lease.

SECTION 10 ACQUISITION OF SURFACE RIGHTS

     10.1 The parties recognize that Exploration Rights and Mining Activities will require
acquisition of surface rights and/or payment for use and/or damage to surface owners. The parties
also recognize that without the ability to conduct Mining Activities in the Mining Area, the Crow
Tribe will be unable to realize financial returns of significant benefit to the Crow people.

     10.2 Westmoreland will be solely responsible for the cost of paying surface property owners
for interests acquired, including grants of ownership, easements, or leases, and for payment of any
loss of use or surface damage incurred.

     10.3 The Crow Tribe will cooperate and reasonably assist Westmoreland in gaining access to the
surface as required to conduct Mining Activities. The Crow Tribe acknowledges that, according to
the law, custom, and usage of the Crow Tribe, it has the right, particularly within the boundaries
of the Crow Reservation, but also elsewhere, to use and disturb the surface and subsurface of
lands, including lands owned by others, to explore for and evaluate mineral deposits, to extract
minerals owned by the Crow Tribe, and to convey these rights to a mineral lessee, subject only to
the obligation of the Crow Tribe, or the mineral lessee as the case may be, to compensate the
property owner for any loss of use or damage to the property. The Crow Tribe agrees to fully
support Westmoreland’s efforts in accord with this principle, to obtain such surface rights as may
be required to conduct Mining Activities under this Exploration Agreement, or to enforce said right
to mine subject to said obligation to reasonably compensate surface owners for loss of use and
damage to property.

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     10.4 If Westmoreland’s acquisition of surface title within the Crow Reservation would
otherwise be prevented as a practical matter by the operation of Section 2 of the 1920 Crow
Allotment Act, 41 Stat. 751, 752, and initial acquisition of such lands in the name of the Crow
Tribe would lawfully avoid the impediment, the Tribe agrees to cooperate with Westmoreland by
taking title to (and, as applicable, exchanging) such lands as are necessary for the purposes of
this Agreement in its name and subject to Westmoreland’s rights to use and possess them or to use
them for exchange purposes pursuant to Sections 16.2 and 16.3. Nothing in this Agreement shall
affect any rights of individual Crow allottees or their heirs or successors arising under Section
2.

SECTION 11 FORCE MAJEURE

     11.1 Suspension of Obligations. In the event of Force Majeure, as defined in this section,
the obligations of Westmoreland pursuant to this Exploration Agreement and the documents executed
pursuant to this Exploration Agreement, including deadlines for exercising options, shall be
suspended, and the term of this Exploration Agreement and all time periods provided for herein
shall be extended during the period of Force Majeure, but for no longer period, except as otherwise
provided by this Exploration Agreement. However, this provision shall not apply to the settlement
with MMS addressed in Section 4.

     11.2 Definition. The term “Force Majeure”, as used in this Exploration Agreement, means any
cause beyond the control of Westmoreland, including, but not limited to: acts of God, labor
disputes, insurrections, riots, labor or material shortages, break downs of or damage to equipment
or facilities, interruption of transportation of Coal, (including rail car shortages), embargoes,
fires, explosions, floods, litigation of any nature preventing Westmoreland from exercising any
rights outlined in this Exploration Agreement, the elements, casualties not attributable to
Westmoreland, an administrative delay in a governmental agency (including Tribal Government), which
is not caused by Westmoreland’s action, newly enacted or mandatory legislation or administrative
regulations or changes in the interpretation thereof, orders of civil or military authority or of
anybody having jurisdiction over the parties, the Prospect Area or the Mining Area, and
extraordinary circumstances not attributable to and not reasonably foreseeable by a reasonably
prudent operator, whether such situations affect Westmoreland directly or by reason of their effect
on a subsidiary, customer, contractor, shipper, or supplier, which wholly or partly prevent the
exercise of the Exploration Rights or the mining or delivery of Coal at a reasonable profit.

          The examples enumerated above are by way of example, and not limitation. Force Majeure shall
not include any condition arising out of business risks such as fluctuations in prices, sales, or
costs, including costs of compliance with requirements for environmental protection; commonly
experienced delays in delivery of supplies or equipment; or inability to obtain sufficient sales.

     11.3 Mitigation. Westmoreland shall diligently attempt to remedy, as soon as possible, any
Force Majeure and to mitigate its effects on the implementation of this Exploration Agreement

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and
on the payments due the Crow Tribe hereunder; provided, that nothing contained herein shall require
the settlement of strikes, lockouts, or other labor difficulties by Westmoreland contrary to its
wishes, and the disposition or manner of handling or remedying any and all such labor difficulties
is hereby expressly acknowledged to be entirely within the discretion of Westmoreland.

     11.4 Procedures. If a period of Force Majeure is incurred, Westmoreland will notify the Crow
Tribe within thirty (30) days from the beginning of such period of Force Majeure. The notice will
include descriptions of the circumstances that prevent Westmoreland’s performance and
Westmoreland’s plans and efforts to remedy or mitigate the Force Majeure, and an estimate of the
expected duration of the period of Force Majeure. When the period of Force Majeure has ended,
Westmoreland will also notify the Crow Tribe. Notice of the commencement of and cessation of Force
Majeure periods will be given to the Crow Tribe in writing in accordance with provision 25.3 of
this Exploration Agreement. Notice shall also be given to the Regional Director and to the Tribal
Attorney.

SECTION 12 CROW REPRESENTATIVES

     Authorized Representative. Crow Tribal Chairperson, who is recognized as such by the BIA, or
the said Chairperson’s designee (“Designated Official”), shall be the sole party authorized to deal
with Westmoreland on any matters related to this Exploration Agreement, excluding regulatory
matters and any action taken or authorized by the Tribal Chairperson or the Designated Official
shall
be deemed to be action taken or authorized by the Crow Tribe unless the authority of the
Tribal Chairperson or the Designated Official has been called into question or otherwise been
diminished or withdrawn by a properly adopted Tribal resolution delivered to Westmoreland.
Westmoreland may otherwise rely upon the authority of the Tribal Chairperson or the Designated
Official in conducting any transactions, negotiations, or dealings involving the Crow Tribe, to the
full extent of the Chairperson’s powers as head of the Executive Branch of the Crow Tribal
Government as provided in Article IV of the Constitution and Bylaws of the Crow Tribe.

SECTION 13 EMPLOYMENT STANDARDS

     Employment Rights. Tribal employment rights are provided in Article 36 of the Coal Lease.

SECTION 14 ASSIGNMENT

     14.1 Assignment of Rights. Each right and obligation hereunder shall extend to and be
binding upon, and every benefit hereof shall inure to the heirs, executors, administrators,
successors, or assigns of the respective parties.

     14.2 Restriction on Assignment. Westmoreland agrees not to assign this Exploration
Agreement, by an operating agreement or otherwise, not to sublet any portion of the lands under
this Exploration Agreement except with the approval of the Crow Tribe and the Secretary, provided,
however, such approval shall not be unreasonably withheld. It is further provided such approval

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shall not be required in the event the assignment or sublease is to an Operating Subsidiary of
Westmoreland. Westmoreland shall, however, provide notice of such assignment to the Crow Tribe,
the Tribal Attorney, and the Regional Director.

SECTION 15 CROW REGULATION

     15.1 Recognition of Tribal Sovereignty. Westmoreland recognizes the sovereignty of the Crow
Tribe as established by treaty and recognized by federal law. The parties recognize the Crow
Tribe, as a sovereign, is concerned with the protection of the health and general welfare of the
Crow Tribe and its members, the quality of the environment, the protection, and conservation of
tribal resources as well as concerns for the Crow Tribe’s unique cultural interests. The rights
provided by this Section 15 are in addition to, and do not diminish, the rights provided in Section
18.

     15.2 Tribal Recognition of Competitive Nature of Mining. The Crow Tribe recognizes the
competitive nature of mining and the need for Crow Tribal Coal to be competitive in the marketplace
with other Coal mines located within and without Montana. The Crow Tribe also recognizes the Coal
mined from the property covered by this Exploration Agreement will compete with low-cost
incremental Coal production from existing operations, including non-tribal operations.

     15.3 Notification of Increased Government Costs. The Crow Tribe agrees that while it may
adopt laws or regulations that affect the conduct of Westmoreland’s business and exploration
and Mining Activities pursuant to this Exploration Agreement, such laws or regulations will
not be effective, as to Westmoreland, until one hundred and twenty (120) days after Westmoreland
has been provided with a copy of such regulation or law. Westmoreland shall then have the right to
determine whether the law results in any increased governmental costs to Westmoreland.

	 	a.	 	Definition. For purposes of this Exploration Agreement,
“Governmental Costs” shall include all externally imposed costs on
Westmoreland, including, but not limited to, costs incurred by an Operating
Subsidiary and other costs associated with Mining Activities (excluding the
costs of Westmoreland’s regular staff required for reporting to the Crow Tribe
as a government), whether imposed by the Crow Tribe, the United States, or some
other governmental entity.
	 
	 	b.	 	Governmental Costs, as used herein, shall not include state,
county, local, or tribal taxes, which are addressed elsewhere in this
Exploration Agreement.

     15.4 Objection Procedure. If Westmoreland determines the new law or regulation will increase
Westmoreland’s total current Governmental Costs, Westmoreland shall notify the Crow Tribe, in
writing, detailing the basis of Westmoreland’s belief. Westmoreland and the Crow Tribe shall
thereafter meet within thirty (30) days after the Crow Tribe’s receipt of Westmoreland’s notice to
discuss the matter. If, after that meeting, Westmoreland maintains its position and the Crow Tribe
does not amend or modify the Tribal Law to remove Westmoreland’s objection, Westmoreland may seek
arbitration regarding such law or regulation and its economic impact on Westmoreland.

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     15.5 Effect of Arbitrator’s Determination. If the arbitrators rule that the law does not
increase Westmoreland’s Governmental Costs, then Westmoreland shall comply with such law, unless
otherwise provided for herein, including Section 18. If the arbitrators determine the new law or
regulation results in an increase in Governmental Costs, then Westmoreland shall comply with the
new law or regulation but the Crow Tribe shall, at its option, either subsidize the increased
Governmental Costs through a tribal tax credit or waive the applicability of the new law or
regulation to the extent it results in Westmoreland’s Governmental Costs.

          If the arbitrators have not ruled within the one hundred and twenty (120) day period prior to
the new tribal law or regulation taking effect, Westmoreland will comply with the new law or
regulation as provided above until a ruling is made, provided, however, that in the event the
arbitrators subsequently rule that the tribal law under review causes the total Governmental Costs
of mining Crow Coal to increase, then Westmoreland shall be entitled to recover the difference in
such costs incurred from the end of the one hundred and twenty day (120) period provided for above
until the date the arbitrators’ ruling goes into effect. Such recovery shall be paid by the Crow
Tribe by giving Westmoreland a deduction in tribal taxes due or to become due from Westmoreland.

     15.6 Arbitrators Standard of Review. In determining whether the tribal law under review
causes the Governmental Costs of mining Crow Coal to increase, the arbitrators shall compare the
Governmental Costs applicable to mining under this Exploration Agreement and the Coal Lease
prior to enactment to said Governmental Costs after enactment. Such costs shall include, but
not be limited to, fees, operating expenses, safety requirements and reclamation costs. In making
this comparison, the arbitrators shall take into account all relevant factors they consider
reasonable and necessary to permit a valid comparison. In addition, the arbitrator may consider
any savings or reduction in Governmental Costs of mining Crow Coal which have resulted from the
passage of other tribal laws, and those savings shall be utilized as offsets in considering the
Governmental Costs associated with the tribal law under review.

     15.7 Prohibition Against Regulatory Takings. While making no representations as to the
quality, quantity, or location of any Coal reserves subject to this Exploration Agreement, the Crow
Tribe agrees it will take no action which precludes Westmoreland from mining Crow Coal covered by
this Exploration Agreement where such Coal could otherwise be mined under state or federal law, nor
will the Crow Tribe enact, as to Westmoreland, any law, ordinance, or regulation which would result
in a regulatory taking of the rights and permits granted to Westmoreland under this Exploration
Agreement. The Crow Tribe further agrees not to unreasonably withhold or delay any licenses,
permits, or other concurrences required by Westmoreland pursuant to any law enacted by the Crow
Tribe.

     15.8 Procedure. Arbitration shall be conducted in accord with Section 26, except as
otherwise provided in this section.

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SECTION 16 TRIBAL LAND

     16.1 Conveyance of Tribal Land. Notwithstanding any provision of this Exploration Agreement
or the Coal Lease to the contrary, no lease of coal or option to lease by the Crow Tribe provided
for herein, shall be construed by any court or regulatory agency, for any purpose, as a conveyance
of Tribal Land in fee. Any such conveyance shall be considered a conveyance of a possessory
interest only, and shall in no way be construed to divest the Crow Tribe of its jurisdiction over
its land and activities occurring thereon. Except as expressly and unequivocally provided in this
Exploration Agreement and Coal Lease (including, without limitation, the limited waivers of
sovereign immunity contained therein), the Crow Tribe retains all attributes of its sovereignty and
jurisdiction over the lands encumbered by this Exploration Agreement or any right-of-way granted
hereunder, and over any activities occurring thereon.

     16.2 Conveyance of Acquired Property. Westmoreland recognizes the Crow Tribe’s interest in
obtaining title to property it may acquire within the boundaries of the Crow Reservation as part of
its South Extension Project. Westmoreland agrees to convey to the Crow Tribe title to any property
interest acquired within the boundary of the Crow Reservation pursuant to the Coal Lease at the
conclusion of Mining Activities. Westmoreland shall retain the exclusive and entire right to use
and possession of properties within the lease boundaries for the duration of its Mining Activities,
including reclamation activities (through final bond release).

     16.3 Property Acquired to Trade. This provision will not prevent Westmoreland from acquiring
property within the boundaries of the Crow Reservation for the purpose of swapping or
trading for other property, to allow Westmoreland to acquire title to surface within the
Mining Area. Property acquired by Westmoreland for that purpose, and eventually used for that
purpose, shall not be conveyed to the Crow Tribe. Further, to facilitate acquisition of property
needed for Mining Activities, Westmoreland may encumber any property it acquires within the Crow
Reservation or any property acquired by it for or in the name of the Crow Tribe with access road
easements in favor of Westmoreland (for Mining Activities) or private owners as may be needed to
arrange land swaps or purchases, for acquisition by Westmoreland of surface rights needed for
Mining Activities. Westmoreland will not increase the number of acres owned on the Crow
Reservation in fee by non-tribal members.

SECTION 17 TRIBAL TAXES

     17.1 Tribal Severance and Gross Proceeds Taxes. The parties recognize the economic
difficulties that will be encountered in developing a new mine in the proposed Mining Area which
will be economically competitive in the marketplace, and that taxes on Coal mined hereunder have a
negative effect on Westmoreland’s ability to market Tribal Coal and maximize the Crow Tribe’s
royalties and Westmoreland’s profits. The parties further recognize this Exploration Agreement and
the Coal Lease include provisions which will assist in making Crow Coal produced under the
Exploration Agreement more marketable. Thus, except as otherwise provided in this Exploration
Agreement or the Coal Lease, the parties hereto agree the activities of Westmoreland on the Crow
Reservation pursuant to this Exploration Agreement shall only be subject to the Crow Tribe
severance tax and gross proceeds tax calculated as provided in the Coal Lease and as further
limited by its terms.

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     17.2 Exclusion of Additional Taxes. It is the intent of the Crow Tribe that the taxes
provided for in this section and the Coal Lease shall be in lieu of all other ad valorem real or
personal property taxes, or other taxes of any kind or character, including sales taxes, resource
indemnity trust taxes, real, personal, or business property taxes, or income taxes the Crow Tribe
might otherwise be empowered to levy against Westmoreland.

     17.3 Preemption. It is the intent of the parties that the taxes imposed by the Crow Tribe
will preempt all state and local taxes, since it is the finding and conclusion of the parties
hereto that any additional or dual taxes will place the Coal produced under this Exploration
Agreement and Coal Lease at a competitive disadvantage in the marketplace, thus frustrating the
Crow Tribe’s efforts to market Crow Coal and improve the Crow Reservation’s economy. In
particular, the parties acknowledge Westmoreland is unwilling to enter into this Exploration
Agreement and Coal Lease without the tax incentives and protections provided herein and in the Coal
Lease, and that Coal cannot be mined profitably if Westmoreland is required to pay dual state and
tribal taxes.

SECTION 18 JURISDICTIONAL DISPUTES

     If Westmoreland should, in good faith, question any tribal law or regulation on the basis the
Crow Tribe does not have jurisdiction to pass such law, Westmoreland shall, subject to the other
provisions of this Exploration Agreement, comply with such tribal law or regulation where there is
no conflicting federal law, and such compliance shall continue until there is a determination by a
court of competent jurisdiction that the Crow Tribe lacks jurisdiction to enforce such law. If
there exists a conflict between the tribal law or regulation and a law or regulation of the United
States or the state of Montana, Westmoreland shall comply with the tribal law unless Westmoreland
obtains an opinion of counsel which provides Westmoreland with a good faith basis for believing
that said law or regulation is preempted by conflicting state or federal law and that compliance
with the conflicting state or federal law or regulation is appropriate. In such a situation,
Westmoreland need only comply with the conflicting state or federal law or regulation until such
time as a court of competent jurisdiction determines the state or federal law has no application to
Westmoreland. Thereafter, Westmoreland shall, subject to other provisions of this Exploration
Agreement, comply with the applicable tribal law or regulation.

SECTION 19 LIMITED WAIVER OF SOVEREIGN IMMUNITY

     The Crow Tribe specifically and unequivocally waives its sovereign immunity from suit and
hereby consents to being named as a party in any litigation between Westmoreland, an Operating
Subsidiary and the Crow Tribe involving the construction, execution, interpretation, validity,
enforcement, performance, or any dispute arising under this Exploration Agreement and the Coal
Lease, including any dispute concerning the rights, responsibilities, and obligations of the
parties hereto relating to the mining of Crow Coal under this Exploration Agreement and the Coal
Lease. It is agreed that this waiver of sovereign immunity is limited and extends only to
Westmoreland and an Operating Subsidiary and to no other parties, and that the waiver is further
limited to only those matters referenced in this provision.

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     This waiver shall be effective such that both parties shall comply with the binding
arbitration provisions of the Exploration Agreement and Coal Lease and either party may have
recourse to federal court to fully enforce the parties’ agreement to arbitrate and the arbitration
result pursuant to the Federal Arbitration Act found at 9 U.S.C. § 1, et seq.

     This waiver of sovereign immunity is based upon the Crow Tribe’s opinion, belief and
considered finding that the assertion of the Crow Tribe’s sovereign immunity in any dispute
involving Westmoreland concerning this Exploration Agreement or the Coal Lease would be
inappropriate. The parties expressly recognize this waiver shall not extend to or apply to any
claim which might be brought against the Crow Tribe for punitive damages. Further, the parties
expressly recognize this waiver shall not permit or authorize the sale or transfer of any property
held by the United States in trust for the Crow Tribe. Except for an award of costs and attorneys’
fees of or for any arbitration proceedings, the Crow Tribe’s monetary liability resulting from any
dispute arising under the referenced agreements and the waiver of sovereign immunity herein is
limited to an award against the Tribe of offsets or withholding of future royalties and taxes
otherwise payable by Westmoreland to
the Crow Tribe, and/or injunctive relief providing for enforcement of Westmoreland’s right to
explore, lease, and mine according to the referenced agreements.

     A true and correct copy of Crow Tribal Legislative Act No. CLB 0402, enacted February 10,
2004, and approved February 12, 2004, approving this limited waiver of sovereign immunity as to
matters arising in conjunction with this Exploration Agreement and Coal Lease, is attached hereto
as Exhibit “D.”

SECTION 20 AUTHORIZATIONS

     20.1 Crow Tribe Authorizations. The Crow Tribe warrants the execution of this Exploration
Agreement has been validly authorized by the Crow Tribal Legislature and Executive Branch and that
the execution by the Chairman of the Crow Tribe has been duly authorized and approved. A certified
copy of a validly adopted resolution of the Crow Tribal Legislature approving this Exploration
Agreement and Coal Lease and authorizing its execution by the officers whose signatures are set
forth below is attached hereto as Exhibit D.

     20.2 Opinion of Tribal Attorney. The Tribal Attorney has, simultaneously with the execution
of this Exploration Agreement, delivered to Westmoreland an opinion that this Exploration Agreement
is duly authorized and validly executed by the Crow Tribe in accordance with the Tribal
Constitution and Bylaws, which opinion is attached hereto as Exhibit E.

     20.3 Corporate Existence of Westmoreland. Westmoreland is a corporation duly incorporated,
validly existing, and in good standing under the laws of the state of Delaware, is registered to do
business in Montana, and its registration status in Montana is active and in good standing.
Westmoreland has full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder.

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     20.4 Authority. The execution and delivery by Westmoreland of this Agreement, and the
performance by Westmoreland of its obligations hereunder, have been duly and validly authorized by
Westmoreland and no other corporate action on the part of Westmoreland is necessary. Upon
execution by the President of Westmoreland, and delivery by Westmoreland, and upon due execution by
the Crow Tribe, and by governmental approval as provided herein, this Agreement shall be valid and
binding upon Westmoreland and enforceable against Westmoreland in accordance with its terms.

     20.5 Opinion of Counsel of Westmoreland. The legal counsel of Westmoreland has
simultaneously, with the execution of this Exploration Agreement, delivered to the Crow Tribe an
opinion that this Exploration Agreement is duly authorized and validly executed by Westmoreland,
which opinion is attached hereto as Exhibit F.

SECTION 21 APPROVAL BY SECRETARY AND BY THE TRIBE

     21.1 Approval by Crow Tribe. The Crow Tribe shall approve this and all attached and related
exhibits and agreements in the manner provided in Section 5.1.

     21.2 Approval by the Secretary. Approval by the Secretary is required. Westmoreland and the
Crow Tribe shall cooperate in seeking prompt approval of this Exploration Agreement and the Coal
Lease and all other agreements and exhibits attached or incorporated therein. Failure to obtain
approval of the Secretary shall result in cancellation of this Agreement or related agreements as
provided herein. It is understood that after approval by the Crow Tribe, further approval of the
MMS Settlement Agreement by the Secretary (including the MMS) shall be independent from the
Secretary’s approval of the remainder of the Exploration and Option to Lease Agreement.

     21.3 Deadline for Secretarial Approval. The Secretary shall approve the agreements as
provided in Section 21.2 within six (6) months of the date of the payment of the sum described in
Section 5.1. If said approval does not occur within six (6) months, Westmoreland may, at its sole
option, cancel this and all related agreements or extend the time provided for such secretarial
approval. The parties anticipate and request that the separate approvals by the Secretary of the
MMS Settlement Agreement (Exhibit C) and the Prospecting Permit referred to in Section 2.3 occur as
soon after the Tribe’s approval of this Agreement as is reasonably practical.

     21.4 Payments Prior to Secretarial Approval. The payment described in Section 5.1 shall be
made upon the approval described therein, but shall be refunded as provided therein if the
Secretary does not provide approval as provided in this Section 21. The payment described in
Section 5.2 shall not be refunded to Westmoreland if the Secretary does not provide approval of the
Exploration Agreement and Coal Lease, as long as the MMS Settlement Agreement referenced in Section
5.2 has been fully approved according to its separate terms.

     21.5 Approval of This and Related Agreements. Approval of this Exploration Agreement by the
Secretary, the Crow Tribe, and Westmoreland constitutes approval of all other agreements and
exhibits attached or incorporated herein, specifically including the Coal Lease, and

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further
secretarial approval of those agreements shall be unnecessary. It is the finding of the Secretary,
by the approval of this Exploration Agreement, that such approval is in the best interests of the
Crow Indian Tribe, and any regulations that are, in any way, inconsistent with the rights granted
herein, are waived.

     21.6 Approval of Agreements Does Not Constitute Permission to Mine. The Secretary’s approval
of the Exploration Agreement and the Coal Lease do not constitute approval or authorization of any
surface disturbing activities from an environmental perspective. All parties acknowledge that
future NEPA (National Environmental Policy Act, 42 U.S.C. § 4321, et seq.) compliance will be
necessary for exploration/development, drilling, and mining. it is contemplated that future NEPA
compliance will involve environmental analysis satisfactory to the BIA, BLM, and OSM prior to
authorization and permitting for mining. Therefore, the approval provided by this
section does not constitute issuance or approval of any required exploration, drilling, or
mining permit or plan.

SECTION 22 FEDERAL TRUST AND SUPERVISION

     22.1 Federal Trust Responsibilities. While the mineral interests and certain lands covered
by this Exploration Agreement and the Coal Lease are in trust or restricted status, all of
Westmoreland’s obligations under this Exploration Agreement and the Coal Lease, and the obligations
of its sureties, are to the United States as well as to the Crow Tribe, and all payments to the
Crow Tribe provided herein or therein will be made to the Superintendent for the use and benefit of
the Crow Tribe, and payments shall be made according to applicable federal regulations. Nothing
contained in this Exploration Agreement or the Coal Lease shall operate to delay or prevent a
termination of Federal trust responsibilities with respect to the lands covered by this Exploration
Agreement or the Coal Lease; however, such termination shall not serve to abrogate this Mining Area
Agreement or the Coal Lease.

     22.2 Relinquishment of Supervision. Should the Secretary, at any time during the term of
this Exploration Agreement or the Coal Lease, relinquish supervision as to all or part of the lands
covered by this Exploration Agreement or the Coal Lease, the relinquishment shall not bind
Westmoreland until it has received from the Secretary thirty (30) days written notice of such
relinquishment. After notice of relinquishment has been received, this Exploration Agreement and
the Coal Lease are subject to the following further conditions:

	 	a.	 	Payments. All payments payable after such notice attributable
to tribally owned Coal relinquished from supervision shall be paid directly to
the Crow Tribe.
	 
	 	b.	 	Effect on Bonding Requirements. If at the time supervision is
relinquished by the Secretary as to all the tribally-owned Coal within the
Mining Area or Facilities Area, Westmoreland has made all payments due under
this Exploration Agreement or the Coal Lease and has fully performed all
obligations to be performed up to the time of such relinquishment, then any

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bond given to secure the performance of this Exploration Agreement or the Coal
Lease and on file in the office of the Bureau of Indian Affairs shall be
cancelled and released.

If at the time of any such relinquishment of supervision by the Bureau,
Westmoreland has not performed all obligations imposed upon it hereunder or
under the Coal Lease, Westmoreland shall file with the Crow Tribe a bond
(“New Bond”) in favor of the Crow Tribe in a principal amount equal to that
immediately theretofore in force with the Bureau of Indian Affairs and
conditioned upon the performance by Westmoreland of those undertakings
provided for in the bond (“Old Bond”) immediately theretofore in force with
the Bureau. The new Bond shall be continued in force until Westmoreland
performs all obligations secured thereby, provided, however, that such New
Bond shall not be required until the Old Bond filed with the Bureau has been
released.

SECTION 23 DEFAULT

     23.1 Conditions of Default. The breach by Westmoreland or the Crow Tribe of any of the terms
and conditions of this Exploration Agreement of the Coal Lease shall constitute a default
hereunder.

     23.2 Default Procedures. If a party believes a default has occurred, it may notify the other
party in writing of such alleged default, specifying its nature. The parties shall meet within
thirty (30) days to attempt to agree in whether there is such a default and, if so, on an
appropriate remedy. If the parties are unable to agree, the complaining party may, within sixty
(60) days after giving notice of such default, begin arbitration proceedings as provided for in
this Exploration Agreement.

	 	a.	 	Non-Monetary Default. If the arbitrator decides that a
non-monetary default has occurred, the defaulting party shall have one hundred
and eighty (180) days after receipt of the decision finding a default to cure
such default, provided, however, such one hundred and eighty (180) day period
shall be extended to include any period during which the defaulting party
prosecutes with diligence and to completion an attempt to cure such
non-monetary default, if it cannot be cured within one hundred and eighty (180)
days.
	 
	 	b.	 	Monetary Default. If the arbitrator decides a monetary
default has occurred, the defaulting party shall have sixty (60) days after
receipt of the decision finding such a default to cure that default. If such
default is not cured as required, the complaining party, in addition to seeking
other remedies available at law, may ask the arbitrator to impose penalties or
sanctions; provided, any sanction that involves termination of all or part of
this Exploration Agreement or the Coal Lease because such uncured default

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shall
be effective only after a determination by the arbitrators that the defaulting
party has acted willfully in failing to cure the default.

     23.3 Remedies for Westmoreland’s Default. If default by Westmoreland is not cured as
required by the arbitrators, the Crow Tribe may request, and the arbitrators may order, a
termination of this Exploration Agreement or the Coal Lease as to the Prospect Area or the Mining
Area with respect to which the default occurred.

     23.4 Remedies of Secretary. The parties hereto expressly recognize this section does not
limit the options of the Secretary, in the exercise of the Secretary’s trust responsibilities,
under this Exploration Agreement.

SECTION 24 TERMINATION

     Termination Rights. At any time prior to the effective date of the Coal Lease as provided in
Section 9.2 herein, Westmoreland may terminate this Exploration Agreement. In the event of
termination, any payments made pursuant to Section 5 which are refundable in the event the option
to lease is not exercised, shall be refunded according to the terms of Section 5.

SECTION 25 MISCELLANEOUS

     25.1 Operating Subsidiaries. Westmoreland may assign any portion of the Exploration Agreement
or Coal Lease to an Operating Subsidiary, or sublease any portion of the Coal Lease to an Operating
Subsidiary. Westmoreland guarantees the performance of any Operating Subsidiary to which any
portion of the Exploration Agreement or Coal Lease is assigned or to which any lands covered
therein are subleased.

     25.2 Waiver. No failure by either party to insist upon the strict performance of the terms
or conditions of this Exploration Agreement or to exercise any right or remedy consequent upon the
breach thereof, or to complain of any act or omission by the other party and no acceptance of full
or partial payments during the continuance of such breach constitutes a waiver of any terms or
conditions of this Exploration Agreement to be performed or observed by the parties.

     25.3 Notices. Unless otherwise specified, all notices, requests, statements, and other
information shall be in writing and delivered to or sent by registered or certified mail, with
return receipt requested, postage prepaid, to the address of the party as set out below, and shall
be effective upon receipt.

          If to the Crow Tribe:

Chairperson

The Crow Tribe of Indians

Crow Tribal Council

Crow Agency, Montana 59022

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and

Crow Tribe Legal Department

P.O. Box 340

Crow Agency, MT 59022

          If to Westmoreland:

President

Westmoreland Resources, Inc.

P.O. Box 449

Hardin, MT 59034

and

General Counsel

Westmoreland Coal Company

2 North Cascade Avenue, Third Floor

Colorado Springs, CO 80903-1614

          And if to the Bureau of Indian Affairs:

Superintendent

Bureau of Indian Affairs

Crow Agency

P.O. Box 69

Crow Agency, MT 59022

     25.4 Applicable Law. This Exploration Agreement shall be construed in accordance with the
laws of the state of Montana. It is the intention of the parties that this provision shall relate
only to matters of contract construction, and that such provision shall in no way be construed to
authorize the imposition of Montana regulatory law relative to Mining Activities undertaken by
Westmoreland within the exterior boundaries of the Crow Reservation.

     25.5 Headings. The captions of sections and underlying provisions in this Exploration
Agreement are for convenience of reference only and are not to be considered a part of the text or
to be used to interpret any provision of this Exploration Agreement.

     25.6 Invalidity. If any court shall hold any part of this Exploration Agreement to be
invalid, such holding shall not invalidate any other part of this Exploration Agreement.

     25.7 Legal Counsel. Each party acknowledges it has had the advice and representation of
legal counsel in negotiating and entering into this Exploration Agreement, and the parties
recognize that each party has been actively involved in drafting such Exploration Agreement.

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     25.8 Interest. Except as otherwise specifically provided, any sums payable under this
Exploration Agreement which are not paid when due shall thereafter bear simple interest, from the
date due until paid, at the fixed rate of prime plus two percent (2%).

     25.9 Transfer of Lands Subject to This Exploration Agreement. The Crow Tribe shall retain
the right to sell, trade, transfer, or otherwise convey any surface it owns of the Prospect Area,
Mining Area, or Facilities Areas, as the case may be. Any such conveyance shall, however, be
subject at all times to the rights acquired by Westmoreland in such lands pursuant to this
Exploration Agreement and the Coal Lease.

SECTION 26 ARBITRATION

     26.1 Exclusive Mechanism for Settlement of Disputes. Except as otherwise provided herein,
all disputes as to the application or interpretation of this Exploration Agreement, or the breach,
default, termination, or invalidity thereof, shall be settled by arbitration as provided for in
this section. The arbitrators shall not have the authority to add to, delete from, or otherwise
change this Exploration Agreement. The decision of the arbitrators shall be final and binding upon
the parties. The Commercial Arbitration Rules of the American Arbitration Association shall be
applicable, except as modified herein.

     26.2 Arbitration Process.

	 	a.	 	Commencement of Arbitration. Arbitration shall be commenced
by written notice of the existence of a dispute and a demand for arbitration.
	 
	 	b.	 	Selection of Arbitrators. In the event of arbitration,
Westmoreland shall select one arbitrator, the Crow Tribe shall select one
arbitrator, and those two arbitrators shall select a mutually satisfactory
third arbitrator. Westmoreland and the Crow Tribe shall select their
respective arbitrators within thirty (30) days of receipt of the arbitration
demand. The two arbitrators the parties select shall select a third, or
announce their inability to do so, within thirty (30) days of their selection.
In the event the two arbitrators selected by the parties are unable to agree on
a third arbitrator, the parties agree that they shall request the federal judge
for the United States Federal District Court for the District of Montana to
appoint a third arbitrator from lists provided by the parties.
	 
	 	c.	 	Arbitrator Requirements. All arbitrators shall be competent
and professionally experienced in the technical and/or legal matters in dispute
in the arbitration. The parties agree that none of the arbitrators shall be
enrolled members of the Crow Tribe or employees, advisors, stockholders, or
bondholders of Westmoreland or any organization affiliated with Westmoreland.

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	 	d.	 	Schedule. Within thirty (30) days of selection of the full
panel of arbitrators, the arbitrators will select a chairperson and hold a
conference by telephone with representatives of the parties to calendar
discovery, information or briefing submittal dates, a hearing date, and address such other issues as
shall ensure an economical, efficient, and timely resolution of the dispute.
The hearing shall be scheduled no more than one hundred eighty (180) days
from the date of this conference. The arbitrators shall issue their
decision no more than thirty (30) days following the hearing.
	 
	 	e.	 	Discovery. Deposition and written discovery shall be
reasonably limited by the arbitrators to achieve economical resolution of the
dispute. Except in exceptional circumstances, or by mutual agreement of the
parties, two sets of not more than sixty (60) interrogatories and ten (10)
document requests and depositions of opposing experts and no more than five (5)
fact depositions shall be deemed adequate.
	 
	 	f.	 	Arbitration Hearings and Costs. Unless mutually agreed,
arbitration hearings shall be held in Billings, Montana. At such hearings, the
parties may present evidence and may cross-examine the witnesses of the other
party. After hearing both parties, the arbitrator shall promptly make a
decision in writing upon the question or questions submitted and serve a copy
of such award upon each party hereto.
	 
	 	 	 	The cost of arbitration proceedings shall initially be paid by the party
requesting the arbitration, but if that party prevails in the proceedings,
it shall be reimbursed by the other party. Any question of cost shall be
determined by the arbitrators in the course of their decision and/or award.

     26.3 Procedure for Noncompliance. If either party fails to comply with the arbitrators’
decision, the other party shall file and serve a complaint against the party in noncompliance with
the arbitrators’ decision in federal district court to enforce the arbitrator’s decision in
accordance with that court’s rules of procedure.

     26.4 Recognition of Secretary’s Authority. The parties specifically recognize that the
Secretary’s authority herein shall not be infringed upon or diminished pursuant to this section.

SECTION 27 SURVIVAL OF CONTRACT PROVISIONS

     27.1 Upon Termination. Upon termination of this Agreement pursuant to Section 24, or if the
Agreement expires without exercise by Westmoreland of its option to lease, the obligations in
Section 3.3 and Sections 4 and 5.2 survive; and the provisions of Sections 19 and 26 shall survive
and be applicable to any disputes which may arise with respect to this Agreement.

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     27.2 Upon Exercise of Option. Upon exercise by Westmoreland of its option to lease provided
herein, all provisions of this Exploration Agreement applicable to any activities related to the
Coal Lease, including all Mining Activities, all efforts to acquire permits, property, surface
rights or
easement accesses, licenses, or any other activities necessary or convenient to engage in
Mining Activities pursuant to the Coal Lease, including, without limitation, the definitions and
Sections 4 and 10 through 26 survive and apply as provided herein and in the Coal Lease to the Coal
Lease. Any conflict between the Exploration Agreement and the Coal Lease shall be resolved in
favor of the Coal Lease. Further, Section 6 shall survive and amend the Tract III Lease as
provided therein.

     IN WITNESS WHEREOF, the parties have executed this Exploration Agreement on the day and year
first above mentioned.

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	CROW TRIBE OF INDIANS	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 

Chairperson
	 	 
	 
	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	WESTMORELAND RESOURCES, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 

            Secretary
	 	 	 	 

President & Chief Executive Officer
	 	 
	 
	 	 	 	 	 	 	 	 
	APPROVED:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	            Secretary of Interior	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	            Date of Approval	 	 	 	 	 	 

26

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