R850-27-300. Geothermal Steam Lease Provisions

1. Rentals and Rental Credits.

(a) The director shall establish the rental rate, not less than $1.00 per acre per year, at the time the lease is offered. The minimum annual rental on any lease shall not be less than $40.

(b) Rental payments shall be paid in advance each year on or before the lease anniversary date, unless otherwise stated in the lease.

(c) The rental payment for a lease year shall be credited against production royalties only as they accrue for that lease year, unless otherwise provided for in the lease.

(d) Any overpayment of advance rental occurring from the lease applicant's incorrect listing of acreage of lands described in the application shall be credited toward the applicant's rental account.

(e) The agency may accept rental payments made by any party, provided however, that the acceptance of such payment(s) shall not be deemed to be recognition of any interest of the payee in the lease.

2. Royalty Rate.

(a) The director shall establish the production royalty rate, not to be less than 10%, unless otherwise established by the director, at the time the lease is offered.

3. Primary Geothermal Steam Lease Term.

(a) The director shall establish the lease primary term, not to exceed ten (10) years, at the time the lease is offered.

4. Continuance of a Geothermal Steam Lease After Expiration of Primary Term.

(a) A lease shall be continued after the primary term has expired so long as:

(i) the leased substance is being produced in paying quantities from the leased premises, from lands pooled, communitized, or unitized with the leased premises or from an approved drilling unit with respect to the leased premises; or

(b) the agency determines that the lessee:

(i) is engaged in operations, exploration, or development which are diligent and are reasonably calculated to advance development or production of the leased substance from the leased premises, from lands pooled, communitized, or unitized with the leased premises, or lands constituting an approved drilling unit with respect to the leased premises (diligent operations may include cessation of operations not in excess of 90 days in duration), and

(ii) pays the annual minimum royalty set forth in the lease.

5. Readjustment.

All geothermal leases shall contain a provision setting forth the agency's right to readjust the terms and provisions of the lease on a periodic basis, and such adjustment shall be made in accordance with R850-24-1000.

6. Unitization of Geothermal Leases.

(a) Lessees, upon prior written authorization of the director, may commit leased trust lands to unit, cooperative, or other plans of development with other lands.

(b) The director may, with the consent of the lessee, modify any term of a lease for lands that are committed to a unit, cooperative, or other plan of development.

(c) Production allocated to leased trust lands under the terms of a unit, cooperative, or other plan of development shall be considered produced from the leased lands whether or not the point of production is located on the leased trust lands.

(d) The term of all leases included in any cooperative or unit plan of geothermal steam development or operation in which the agency has joined, or shall hereafter join, shall be extended automatically for the term of the unit or cooperative agreement. Rentals on leases so extended shall be at the rate specified in the lease, subject to change in rates at the discretion of the director or as may be prescribed in the terms of the lease.

(e) Any lease eliminated from any cooperative or unit plan of development or operation, or any such lease which is in effect at the termination of a cooperative or unit plan of development or operation, unless relinquished, shall continue in effect for the fixed term of the lease, or for two years after its elimination from the plan or agreement or the termination thereof, whichever is longer, and so long thereafter as the leased substances are produced in paying quantities.

(f) Rentals under such leases shall continue at the rate specified in the lease.

7. Shut-In Geothermal Wells Considered to be Producing in Paying Quantities

(a) The director shall establish the minimum rental, not to be less than $1.00 per acre per year nor more than twice the annual lease rental provided for in the lease, for a shut-in geothermal well.

(b) The director shall establish the minimum royalty, to be not less than 10% nor more than twice the annual lease rental provided for in the lease, for a shut-in geothermal well.

(c) The terms of the lease shall provide the basis upon which the minimum rental or minimum royalty is to be paid by the lessee for a shut-in geothermal well.

(d) The director may, at any time, require written verification from the lessee that a geothermal well qualifies as a shut-in geothermal well.

8. Other Lease Provisions.

The agency may require, in addition to the lease provisions required by these rules, any other provisions to be included in the lease as it deems necessary.