NOTE: This form contract is a suggested guide only and use ofthis form or any variation thereof shall be at the sole discretion and risk ofthe user parties. Users of the form contract or any portion or variation thereofare encouraged to seek the advice of counsel to ensure that their contractreflects the complete agreement of the parties and applicable law. TheInternational Association of Drilling Contractors disclaims any liabilitywhatsoever for loss or damages which may result from use of the form contract orportions or variations thereof.

Revised July, 1998

TO:          Union Drilling, Inc.

Please submit bid on this drilling contract form for performingthe work outlined below, upon the terms and for the consideration set forth,with the understanding that if the bid is accepted by U. S. Geothermal,Inc., this instrument will constitute a contract between us. Yourbid should be mailed or delivered not later than 4:00 P.M. onApril 20, 2006 to the following address: 1509 Tyrell Lane,Suite B, Boise, ID 83706.

*  *  * *  *  *  * 


THIS AGREEMENT (The “Contract”) is made and entered intoon the date hereinafter set forth by and between the parties herein designatedas “Operator” and “Contractor”.

  OPERATOR: U. S. Geothermal, Inc.  
  Address: 1509 Tyrell Lane, Suite B  
    Boise, ID 83706 Attn: Kevin Kitz
      208-424-1027 – Fax 208-724-1030
  CONTRACTOR: Union Drilling, Inc.  
  Address: P.O. Drawer 40  
    Buckhannon, WV 26201 Attn: Byron “Doc” Musselman
      304-472-4610 – Fax: 304-473-3476

IN CONSIDERATION of the mutual promises, conditions andagreements herein contained and the specifications and special provisions setforth in Exhibit “A” and Exhibit “B” attached hereto and made a part hereof,Operator engages Contractor as an Independent Contractor to drill thehereinafter designated well or wells in search of oil or gas on a dayworkbasis.

For purposes hereof, the term “daywork basis” means Contractorshall furnish equipment, labor, and perform services as herein provided, for aspecified sum per day under the direction, supervision and control of Operator(inclusive of any employee, agent, consultant or subcontractor engaged byOperator to direct drilling operations). When operating on a daywork basis,Contractor shall be fully paid at the applicable rates of payment and assumesonly the obligations and liabilities stated herein. Except for such obligationsand liabilities specifically assumed by Contractor, Operator shall be solelyresponsible and assumes liability for all consequences of operations by bothparties while on a daywork basis, including results and all other risks orliabilities incurred in or incident to such operations.

  Well Name  
  and Number: 4 Wells-RRG3, RRG6, RRG7, and RRG4.  
  County: Cassia County State: ID Field Name: Raft River Geothermal Field
  Well Location and land description: Sections 23 – 26, Range 26E, T15S  
  1.1 Additional Well Locations or Areas:  
  Up to 7 additional redrills or new wells in same area.  

Locations described above are for well and Contractidentification only and Contractor assumes no liability whatsoever for a propersurvey or location stake on Operator’s lease.


Contractor agrees to use reasonable efforts tocommence operations for the drilling of the well by theOperator at the conclusion of one well forFortuna US,LP., expected to be completed toward the end of June, 2006,with at least two weeks advance notice to Operator, ifpossible.


3.1 Well Depth: The well(s)shall be drilled to a depth of approximately 6,500’ MD +/- feet,or N/A formation, whichever is deeper, but the Contractor shall not berequired hereunder to drill said well(s) below a maximum depth of 7,000feet, unless Contractor and Operator mutually agree to drill to agreater depth.


Contractor shall be paid at thefollowing rates for the work performed hereunder.

  4.1 Mobilization: Operator shall pay Contractor a mobilization fee of $ 12,600.00 per day. This sum shall be due and payable in full at the time the rig is rigged up or positioned at the well site ready to spud. Mobilization does not include: Actual trucking, permits, dozer(s), cranes, fork lifts, etc., which will be billed directly to the Operator.
  4.2 Demobilization: Operator shall pay Contractor a demobilization fee $ 12,600.00 per day. This sum shall be due and payable in full at the time the rig is rigged up or positioned at the well site ready to spud. Demobilization does not include: Actual trucking, permits, dozer(s), cranes, fork lifts, etc., to UDI Vernal UT yard, which will be billed directly to the Operator.
  4.3 Infield Moving Rate: Operator shall pay Contractor a Infield Moving fee of $ 12,600.00 per day. This sum shall be due and payable in full at the time the rig is rigged up or positioned at the well site ready to spud. Mobilization does not include: Actual trucking, permits, dozer(s), cranes, fork lifts, etc., which will be billed directly to the Operator.
  4.4 Operating Day Rate: For work performed per twenty-four (24) hour day with (2) – 5-man crews working 12-hour shifts, consisting of (1) driller and (4) crew members with (1) Tool Pusher, the operating day rate shall be:

  Depth Intervals    
From To Without Drill Pipe With Drill Pipe
0 6,500’ MD+/-    $15,000.00 per day plus fuel     $15,000.00 per day plus fuel
    $_        _ per day plus fuel $_        _ per day plus fuel
  $_        _ per day               $_        _ per day              
Using Operator’s drill pipe $15,000.00 per day.  

(U.S. Daywork Contract Page 1)

Revised July 1998

If under the above column “With Drill Pipe” no day rates arespecified, the daywork rate per twenty-four hour day when drill pipe is in useshall be the applicable daywork rate specified in the column “Without DrillPipe” plus compensation for any drill pipe actually used at the rates specifiedbelow, computed on the basis of the maximum drill pipe In use at any time duringeach twenty-four hour day.

           Directional or    
Straight Hole N/A Size        Grade Uncontrollable Deviated Hole Size Grade
per ft.     $  per ft.    
per ft.     $  per ft.    
per ft.     $  per ft.    

Directional or uncontrolled deviated hole will be deemed toexist when deviation exceeds N/A  degrees or when the changeof angle exceeds N/A degrees per one hundredfeet.

          Drillpipe shall be considered in use not only when in actual use but also while it isbeing picked up or laid down, When drill pipe is standing in the derrick, itshall not be considered in use, provided, however, that if Contractor furnishesspecial strings of drill pipe, drill collars, and handling tools as provided forin Exhibit “A”, the same shall be considered in use at all times when onlocation or until released by Operator. In no event shall fractions of an hourbe considered in computing the amount of time drill pipe is in use but such timeshall be computed to the nearest hour, with thirty minutes or more beingconsidered a full hour and less than thirty minutes not to be counted.

          Operatingrate will begin when the drilling unit is rigged up at the drilling location andready to commence operations; and will cease when the rig is ready to be movedoff the location.

          4.5 Repair Rate: In the event it is necessary to shut down Contractor’s rig for repairs, excluding routine rig servicing, Contractor shall be allowed compensation at the applicable daywork rate for such shut down time up to a maximum of 4 hours for any one rig repair job or 24 hours for any calendar month. Thereafter, Contractor shall be compensated at a rate of $ 0 per twenty-four (24) hour day. Routine rig servicing shall include, but not limited to, cutting and slipping drilling line, changing pump or swivel expendables, lubricating rig.

          4.6Standby Time Rate with Crews: $15,000.00 per twenty-four (24)hour day. Standby time shall be defined to include time when the rig is shutdown although in readiness to begin or resume operations but Contractor iswaiting on orders of Operator or on materials, services or other items to befurnished by Operator.

          4.7Force Majeure Rate: $15,000.00 per twenty-four (24) hour day for 1st 3days, and $10,000.00 for additional days thereafter, for any continuousperiod that normal operations are suspended or cannot be carried on due toconditions of force majeure as defined in Paragraph 17 hereof, It is, however,understood that subject to Subparagraph 6.3 below, Operator can release the rigin accordance with Operator’s right to direct stoppage of the work, effectivewhen conditions will permit the rig to be moved from the location.

          4.8Reimbursable Costs: Operator shall reimburse Contractor for the costs ofmaterial, equipment, work or services which are to be furnished by Operator asprovided for herein but which for convenience are actually furnished byContractor at Operator’s request, plus 10 percent for suchcost of handling,

          4.9Revision In Rates: The rates and/or payments herein set forth due toContractor from Operator shall be revised to reflect the change in costs if thecosts of any of the items hereinafter listed shall vary by more than 5percent from the costs thereof on the date of this Contract or by thesame percent after the date of any revision pursuant to this Subparagraph:


Labor costs, including all benefits, of Contractor’s personnel;


Contractor’s cost of fuel, including all taxes and fees; the cost per gallon/MCF being N/A (Fuel supplied by operator)


Contractor’s cost of catering, when applicable;


Contractor’s cost of spare parts and supplies with the understanding that such spare parts and supplies constitute N/A percent of the Operating Rate and that the parties shall use the U.S. Bureau of Labor Statistics Oilfield Drilling Machinery and Equipment Wholesale Price Index (Code No. 1191-02) to determine to what extent a price variance has occurred in said spare parts and supplies;


If there is any change in legislation or regulations in the area in which Contractor is working or other unforeseen, unusual event that alters Contractor’s financial burden,


          Paymentis due by Operator to Contractor as follows:

          5.1Payment for mobilization, drilling and other work performed at applicableday rates, and all other applicable charges shall be due, upon presentation ofinvoice therefor, upon completion of mobilization, demobilization, rig releaseor at the end of the month in which such work was performed or other charges areincurred, whichever shall first occur. All invoices may be mailed to Operator atthe address hereinabove shown, unless Operator does hereby designatethat such invoices shall be mailed as follows:

          5.2Disputed Invoices and Late Payment: Operator shall pay all invoices within30 days after receipt except that if Operator disputes an invoiceor any part thereof, Operator shall, within fifteen(15) days after receipt ofthe invoice, notify Contractor of the item disputed, specifying the reasontherefor, and payment of the disputed item may be withheld until settlement ofthe dispute, but timely payment shall be made of any undisputed portion. Anysums (including amounts ultimately paid with respect to a disputed invoice) notpaid within the above specified days shall bear interest at the rate of 11/2 percent or the maximum legal rate, whichever is less, per month fromthe due date until paid. If Operator does not pay undisputed items within theabove stated time, Contractor may terminate this Contract as specified underSubparagraph 6.3.

6. TERM:

     6.1 Duration of Contract:This Contract shall remain in full force and effect until drillingoperations are completed on the well or wells specified in Paragraph 1 above, orfor a term of 60 days, commencing on the date specified:

     6.2 Extension of Term:Operator may extend the term of this Contract for additionalwell(s) by providing Contractor 45 days notice of intentto extend the term of the contract by a specified number ofwells for the first 6 months of the contract, and by 25 days advancenotice thereafter, or by mutual agreement with Contractor.Every 6 months after the commencement date of the contract, the Contractormay adjust prices per the provisions of Subparagraph4.9.

     6.3 EarlyTermination:
     (a) By Either Party: Upongiving of written notice, either party may terminate this Contract when totalloss or destruction of the rig, or a major breakdown with indefinite repair timenecessitates stopping operations hereunder. Such event shall result in noearly termination payment. Demobilization would stillapply, providing the loss was not caused by Contractor’s grossnegligence or willfulmisconduct.
     (b) By Operator:Notwithstanding the provisions of Paragraph 3 with respect to the depth tobe drilled, Operator shall have the right to direct the stoppage of the work tobe performed by Contractor hereunder at any time prior to reaching the specifieddepth, and even though Contractor has made no default hereunder. In such eventOperator shall reimburse Contractor as set forth in Subparagraph 6.4hereof.
     (c) By Contractor:Notwithstanding the provisions of Paragraph 3 with respect to the depth tobe drilled, in the event Operator shall become insolvent, or be adjudicated abankrupt, or file, by way of petition or answer, a debtor’s petition or otherpleading seeking adjustment of Operator’s debts, under any bankruptcy ordebtor’s relief laws now or hereafter prevailing, or if any such be filedagainst Operator, or in case a receiver be appointed of Operator or Operator’sproperty, or any part thereof, or Operator’s affairs be placed in the hands of aCreditor’s Committee, or, following ten days prior written notice to Operator IfOperator does not pay Contractor within the time specified in Subparagraph 6.2all undisputed items due and owing, Contractor may, at its option, elect toterminate further performance of any work under this Contract and Contractor’sright to compensation shall be as set forth in Subparagraph 6.4 hereof. Inaddition to Contractor’s right to terminate performance hereunder. Operatorhereby expressly agrees to protect, defend and indemnify Contractor from andagainst any claims, demands and causes of action, including all costs ofdefense, in favor of Operator, Operator’s joint venturers, or other partiesarising out of any drilling commitments or obligations contained in any lease,farmout agreement or other agreement, which may be affected by such terminationof performance hereunder.

(U.S. Daywork Contract- Page 2)

Revised July 1998

6.4 Early Termination Compensation:

     (a) Prior to Commencement:In the event Operator terminates this Contract prior to commencement ofoperations hereunder, Operator shall pay Contractor as liquidated damagesand not as a penalty a sum equal to the Standby Rate with Crews(Subparagraph 4.6) for a period of 0 days or a lump sum ofN/A.

     (b) Prior to Spudding: Ifsuch termination occurs after commencement of operations but prior to thespudding of the well, Operator shall pay to Contractor the sum of the following:(1) all expenses reasonably and necessarily incurred and to be incurred byContractor by reason of the Contract and by reason of the premature terminationof the work, including the expense of drilling or other crew members andsupervision directly assigned to the rig; (2) ten percent (10%) of the amount ofsuch reimbursable expenses; and (3) a sum calculated at the standby rate for alltime from the date upon which Contractor commences any operations hereunder downto such date subsequent to the date of termination as will afford Contractorreasonable time to dismantle its rig and equipment provided, however, if thisContract is for a term of more than one well or for a period of time, Operatorshall pay Contractor, in addition to the above, the force majeure rate, less anyunnecessary labor, from that date subsequent to termination upon whichContractor completes dismantling its rig and equipment until the end of the termor until Contractor commences operation with anotherOperator, whichever occurs first.

     (c) Subsequent toSpudding: If such termination occurs after the spudding of the well,Operator shall pay Contractor ( 1 ) the amount for allapplicable daywork rates and all other charges andreimbursements due to Contractor; but in no event shall such sum, exclusive ofreimbursements due, be less than would have been earned forN/A days at the applicable dayrate “Without Drill Pipe” and the actual amount due for drill pipe used inaccordance with the above rates; or (2) at the election of Contractorand in lieu of the foregoing, Operator shall pay Contractor for all expensesreasonably and necessarily incurred and to be incurred by reason of thisContract and by reason of such premature termination plus a lump sum of $Actual Costs. If the termination subsequent to spudding is for theconvenience of the Operator, and not due to documented substandardperformance of the Contractor. provided, however, if thisContract is for a term of more than one well or for a period oftime, Operator shall pay Contractor, in addition to the above, theforce majeure rate less any unnecessary labor from the date of termination untilthe end of the term or until Contractor commences operation with anotherOperator, whichever occurs first.


     Operator shall have the right todesignate the points at which casing will be set and the manner of setting,cementing and testing. Operator may modify the casing program, however, any suchmodification which materially increases Contractor’s hazards or costs can onlybe made by mutual consent of Operator and Contractor and upon agreement as tothe additional compensation to be paid Contractor as a result thereof.


     8.1 Contractor shallmaintain well control equipment in good condition at all times and shall use allreasonable means to prevent and control fires and blowouts and to protect thehole.
     8.2 Subject to the terms hereof,and at Operator’s cost, at all times during the drilling of the well, Operatorshall have the right to control the mud program, and the drilling fluid must beof a type and have characteristics and be maintained by Contractor in accordancewith the specifications shown in Exhibit“A”.
     8.3 Each party hereto agrees tocomply with all laws, rules, and regulations of any federal, state or localgovernmental authority which are now or may become applicable to that party’sOperations covered by or arising out of the performance of this Contract. Whenrequired by law, the terms of Exhibit “B” shall apply to this Contract. In theevent any provision of this Contract is inconsistent with or contrary to anyapplicable federal, state or local law, rule or regulation, said provision shallbe deemed to be modified to the extent required to comply with said law, rule orregulation, and as so modified said provision and this Contract shall continuein full force and effect.
     8.4 Contractorshall keep and furnish to Operator an accurate record of the work performed andformations drilled on the IADC-API Daily Drilling Report Form or other formacceptable to Operator. A legible copy of said form signed by Contractor’srepresentative shall be furnished by Contractor toOperator.
     8.5 If requested by Operator,Contractor shall furnish Operator with a copy of delivery tickets covering anymateriel or supplies provided by Operator and received by Contractor,


     Operator hereby assigns toContractor all necessary rights of ingress and egress with respect to the tracton which the well is to be located for the performance by Contractor of all workcontemplated by this Contract. Should Contractor be denied free access to thelocation for any reason not reasonably within Contractor’s control, any timelost by Contractor as a result of such denial shall be paid for at theapplicable rate. Operator agrees at all times to maintain the road and locationin such a condition that will allow free access and movement to and from thedrilling site in an ordinarily equipped highway type vehicle. If Contractor isrequired to use bulldozers, tractors, four-wheel drive vehicles, or any otherspecialized transportation equipment for the movement of necessary personnel,machinery, or equipment over access roads or on the drilling location, Operatorshall furnish the same at its expense and without cost to Contractor. The actualcost of repairs to any transportation equipment furnished by Contractor or itspersonnel damaged as a result of improperly maintained access roads or locationwill be charged to Operator. Operator shall reimburse Contractor for all amountsreasonably expended by Contractor for repairs and/or reinforcement of roads,bridges and related or similar facilities (public and private) required as adirect result of a rig move pursuant to performance hereunder.


     Operator shall prepare a soundlocation adequate in size and capable of properly supporting the drilling rig,and shall be responsible for a conductor pipe program adequate to prevent soiland subsoil wash out. It is recognized that Operator has superior knowledge ofthe location and access routes to the location, and must advise Contractor ofany subsurface conditions, or obstructions (including, but not limited to,mines, caverns, sink holes, streams, pipelines, power lines and telephone lines)which Contractor might encounter while en route to the location or duringoperations hereunder. In the event subsurface conditions cause a cratering orshifting of the location surface, or if seabed conditions prove unsatisfactoryto properly support the rig during marine operations hereunder, and loss ordamage to the rig or its associated equipment results therefrom, Operator shall,without regard to other provisions of this Contract, including Subparagraph 14.1hereof, reimburse Contractor to the extent not covered by Contractor’sinsurance, for all such loss or damage including payment of force majeure rateduring repair and/or demobilization if applicable.


     If applicable hereunder,operations shall not be attempted under any conditions, which exceed thecapacity of the equipment, specified to be used hereunder. Contractor shall makefinal decision as to when an operation or attempted operation would exceed thecapacity of specified equipment.


     When Contractor has complied withall obligations of the Contract regarding restoration of Operator’s location,Operator shall thereafter be liable for damage to property, personal injury ordeath of any person which occurs as a result of conditions of the location andContractor shall be relieved of such liability; provided, however, if Contractorshall subsequently reenter upon the location for any reason, including removalof the rig, any term of the Contract relating to such reentry activity shallbecome applicable during such period.


     During the life of this Contract,Contractor shall at Contractor’s expense maintain, with an insurance company orcompanies authorized to do business in the state where the work is to beperformed or through a self-insurance program, insurance coverage’s of the kindand in the amounts set forth in Exhibit ‘A”, insuring the liabilitiesspecifically assumed by Contractor in Paragraph 14 of this Contract. Contractorshall, if requested to do so by Operator, procure from the company or companieswriting said insurance a certificate or certificates that said insurance is infull force and effect and that the same shall not be canceled or materiallychanged without ten (10) days prior written notice to Operator. For liabilitiesassumed hereunder by Contractor, its insurance shall be endorsed to provide thatthe underwriters waive their right of subrogation against Operator. Operatorwill, as well, cause its insurer to waive subrogation against Contractor forliability it assumes and shall maintain, at Operator’s expense, or shall selfinsure, insurance coverage of the same kind and in the same amount as isrequired of Contractor, insuring the liabilities specifically assumed byOperator in Paragraph 14 of this Contract.

(U.S. Daywork Contract- Page 3)

Revised July 1998


     14.1 Contractor’s SurfaceEquipment: Contractor shall assume liability at all times for damage to ordestruction of Contractor’s surface equipment, regardless of when or how suchdamage or destruction occurs, and Contractor shall release Operator of anyliability for any such loss, except loss or damage under the provisions ofParagraph 10 or Subparagraph 14.3.
     14.2Contractor’s In-Hole Equipment: Operator shall assume liability at all timesfor damage to or destruction of Contractor’s in-hole equipment, including, butnot limited to, drill pipe, drill collars, and tool joints, and Operator shallreimburse Contractor for the value of any such loss or damage; the value to bedetermined by agreement between Contractor and Operator as current repair costsor 100 percent of current “like condition” replacement cost ofsuch equipment delivered to the wellsite.
     14.3 Contractor’sEquipment-Environmental Loss or Damage: Notwithstanding the provisions ofSubparagraph 14.1 above, Operator shall assume liability at all times for damageto or destruction of Contractor’s equipment caused by exposure to highlycorrosive or otherwise destructive elements, including those introduced into thedrilling fluid.
     14.4 Operator’s Equipment:Operator shall assume liability at all times for damage to or destruction ofOperator’s equipment, including, but not limited to, casing, tubing, well headequipment, and platform if applicable, regardless of when or how such damage ordestruction occurs, and Operator shall release Contractor of any liability forany such loss or damage.
     14.5 The Hole:In the event the hole should be lost or damaged, Operator shall be solelyresponsible for such damage to or loss of the hole, including the casingtherein. Operator shall release Contractor of any liability for damage to orloss of the hole, and shall protect, defend and indemnify Contractor from andagainst any and all claims, liability, and expense relating to such damage to orloss of the hole.
     14.6 Underground Damage:Operator shall release Contractor of any liability for, and shall protect,defend and indemnify Contractor from and against any and all claims, liability,and expense resulting from operations under this Contract on account of injuryto, destruction of, or loss or impairment of any property right in or to oil,gas, or other mineral substance or water, if at the time of the act or omissioncausing such injury, destruction, loss, or impairment, said substance had notbeen reduced to physical possession above the surface of the earth, and for anyloss or damage to any formation, strata, or reservoir beneath the surface of theearth.
     14.7 Inspection of MaterialsFurnished by Operator: Contractor agrees to visually inspect all materialsfurnished by Operator before using same and to notify Operator of any apparentdefects therein. Contractor shall not be liable for any loss or damage resultingfrom the use of materials furnished by Operator, and Operator shall releaseContractor from, and shall protect, defend and indemnify Contractor from andagainst, any such liability.
     14.8Contractor’s Indemnification of Operator: Contractor shall release Operatorof any liability for, and shall protect, defend and indemnify Operator, itsofficers, directors, employees and joint owners and its third partycontractors and subcontractors, from and against all claims, demands,and causes of action of every kind and character, without limit and withoutregard to the cause or causes thereof or the negligence of any party or parties,arising in connection herewith in favor of Contractor’s employees orContractor’s subcontractors or their employees, or Contractor’s invitees, onaccount of bodily injury, death or damage to property. Contractor’s indemnityunder this paragraph shall be without regard to and without any right tocontribution from any insurance maintained by Operator pursuant to paragraph 13.If it is judicially determined that the monetary limits of insurance requiredhereunder or of the indemnities voluntarily assumed under Subparagraph 14.8(which Contractor and Operator hereby agree will be supported either byavailable liability insurance, under which the insurer has no right ofsubrogation against the indemnities, or voluntarily self-insured, in part orwhole) exceed the maximum limits permitted under applicable law, it is agreedthat said insurance requirements or indemnities shall automatically be amendedto conform to the maximum monetary limits permitted under suchlaw.
     14.9 Operator’s Indemnification ofContractor: Operator shall release Contractor of any liability for, andshall protect, defend and indemnify Contractor, its officers, directors,employees and joint owners and its third party contractors andsubcontractors, from and against all claims, demands, and causes ofaction of every kind and character, without limit and without regard to thecause or causes thereof or the negligence of any party or parties, arising inconnection herewith in favor of Operator’s employees or Operator’s contractorsor their employees, or Operator’s invitees, other than those parties identifiedin Subparagraph 14.8 on account of bodily injury, death or damage to property.Operator’s indemnity under this paragraph shall be without regard to and withoutany right to contribution from any insurance maintained by Contractor pursuantto paragraph 13. If it is judicially determined that the monetary limits ofinsurance required hereunder or of the indemnities voluntarily assumed underSubparagraph 14.9 (which Contractor and Operator hereby agree will be supportedeither by available liability insurance, under which the insurer has no right ofsubrogation against the indemnities, or voluntarily self-insured, in part orwhole) exceed the maximum limits permitted under applicable law, it is agreedthat said insurance requirements or indemnities shall automatically be amendedto conform to the maximum monetary limits permitted under suchlaw.
     14.10 Liability for Wild Well:Operator shall be liable for the cost of regaining control of any wild well,as well as for cost of removal of any debris, and shall release Contractor of,and Operator shall protect, defend and indemnify Contractor from and against anyliability for such cost.
     14.11 Pollution andContamination: Notwithstanding anything to the contrary contained herein,except the provisions of Paragraphs 10 and 12, it is understood and agreed byand between Contractor and Operator that the responsibility for pollution andcontamination shall be as follows:
      (a)Unless otherwise provided herein, Contractor shall assume all responsibilityfor, including control and removal of, and shall protect, defend and indemnifyOperator from and against all claims, demands and causes of action of every kindand character arising from pollution or contamination, which originates abovethe surface of the land or water from spills of fuels, lubricants, motor oils,pipe dope, paints, solvents, ballast, bilge and garbage, except unavoidablepollution from reserve pits, wholly in Contractor’s possession and control anddirectly associated with Contractor’s equipment andfacilities.
     (b) Operator shall assumeall responsibility for, including control and removal of, and shall protect,defend and indemnify Contractor from and against all claims, demands, and causesof action of every kind and character arising directly or indirectly from allother pollution or contamination which may occur during the conduct ofoperations hereunder, including, but not limited to, that which may result fromfire, blowout, cratering, seepage or any other uncontrolled flow of oil, gas,water or other substance, as well as the use or disposition of all drillingfluids, including, but not limited to, oil emulsion, oil base or chemicallytreated drilling fluids, contaminated cuttings or cavings, lost circulation andfish recovery materials and fluids. Operator shall release Contractor of anyliability for the foregoing.
     (c) In theevent a third party commits an act or omission which results in pollution orcontamination for which either Contractor or Operator, for whom such party isperforming work, is held to be legally liable, the responsibility therefor shallbe considered, as between Contractor and Operator, to be the same as if theparty for whom the work was performed had performed the same and all of theobligations respecting protection, defense, indemnity and limitation ofresponsibility and liability, as set forth in (a) and (b) above, shall bespecifically applied.
     14.12 ConsequentialDamages: Neither party shall be liable to the other for special, indirect orconsequential damages resulting from or arising out of this Contract, including,without limitation, loss of profit or business interruptions including loss ordelay of production, however same may becaused.
     14.13 Indemnity Obligation:Except as otherwise expressly limited herein, it is the intent of partieshereto that all indemnity obligations and/or liabilities assumed by such partiesunder terms of this Contract,(including, without limitation),Subparagraphs 14.1 through 14.12 hereof, be without limit and without regard tothe cause or causes thereof (including preexisting conditions), strictliability, regulatory or statutory liability, breach of warranty (express orimplied), any theory of tort, breach of contract or the negligence of any partyor parties, whether such negligence be sole, joint or concurrent, active orpassive. The indemnities, and releases and assumptions of liability extended bythe parties hereto under the provisions of Paragraph 14 shall inure to thebenefit of the parties, their parent, holding and affiliated companies and theirrespective officers, directors, employees, agents and servants and its thirdparty contractors and subcontractors. The terms and provisions ofSubparagraphs 14.1 through 14.12 shall have no application to claims or causesof action asserted against Operator or Contractor by reason of any agreement ofindemnity with a person or entity not a party hereto.


     If any payment provided forhereunder is made on the basis of Contractor’s costs, Operator shall have theright to audit Contractor’s books and records relating to such costs. Contractoragrees to maintain such books and records for a period of two (2) years from thedate such costs were incurred and to make such books and records available toOperator at any reasonable time or times within the period.


     It is fully understood and agreedthat none of the requirements of this Contract shall be considered as waived byeither party unless the same is done in writing, and then only by the personsexecuting this Contract, or other duly authorized agent or representative of theparty.


     Except for the duty to makepayments hereunder when due, and the indemnification provisions under thisContract, neither Operator nor Contractor shall be responsible to the other forany delay, damage, or failure caused by or occasioned by a Force Majeure Event.As used in this Contract, “Force Majeure Event” includes: acts of God, action ofthe elements, warlike action, insurrection, revolution or civil strife, piracy,civil war or hostile action, strikes, differences with workmen, acts of publicenemies, federal or state laws, rules and regulations of any governmentalauthorities having jurisdiction in the premises or of any other group,organization or informal association (whether or not formally recognized as agovernment), inability to procure material, equipment or necessary labor in theopen market, acute and unusual labor or material or equipment shortages, or anyother causes (except financial) beyond the control of either party. NeitherOperator nor Contractor shall be required against its will to adjust any laboror similar disputes except in accordance with applicable law. In the event thateither party hereto is rendered unable, wholly or in part, by any of thesecauses to carry out its obligation under this Contract, it is agreed that suchparty shall give notice and details of Force Majeure in writing so the otherparty as promptly as possible after its occurrence. In such cases, theobligations of the party giving the notice shall be suspended during thecontinuance of any inability so caused except that Operator shall be obligatedto pay to Contractor the Force Majeure Rate provided for in Subparagraph 4.7above.

(U.S. Daywork Contract Page 4)

Revised July 1998


     This Contract shall be construed, governed, interpreted, enforced and litigated, and the relations between the parties determined in accordance with the laws of the state of Idaho.


     Any and allUpon written request by Operator, information obtainedby Contractor in the conduct of drilling operations on this well, including, butnot limited to, depth, formations penetrated, the results of coring, testing andsurveying, shall be considered confidential and shall not be divulged byContractor or its employees, to any person, firm, or corporation other thanOperator’s designated representatives,


     Operator may employ other contractors to perform any of the operations or services to be provided or performed by it according to Exhibit “A’ –


     If this Contract is placed in thehands of an attorney for collection of any sums due hereunder, or suit isbrought on same, or sums due hereunder are collected through bankruptcy orarbitration proceedings, the prevailing party shall be entitled to recoverreasonable attorney’s fees and costs.


     Contractor agrees to pay allvalid claims for labor, material, services, and supplies to be furnished byContractor hereunder, and agrees to allow no lien by such third parties to befixed upon the lease, the well, or other property of the Operator or the landupon which said well is located.


     Neither party may assign thisContract without the prior written consent of the other, and prompt notice ofany such intent to assign shall be given to the other party. In the event ofsuch assignment, the assigning party shall remain liable so the other party as aguarantor of the performance by the assignee of the terms of this Contract. Ifany assignment is made that materially alters Contractor’s financial burden,Contractor’s compensation shall be adjusted to give effect to any increase ordecrease in Contractor’s operating costs.


     Notices, reports, and othercommunications required or permitted by this Contract to be given or sent by oneparty to the other shall be delivered by hand, mailed or telecopied to theaddress hereinabove shown. All sums payable hereunder to Contractor shall bepayable at its address hereinabove shown unless otherwise specified herein.

25. SPECIAL PROVISIONS: Operator agrees to pay a dailybottom-hole bonus, plus 38% payroll per employee to help retain crews, asoutlined below:

  Crew Members $75.00/day
  Driller $75.00/day
  Tool pusher $75.00/day

25.1 Understaffed Rates: Contractor will credit Operator at a rate of $60.00 per hour for each man-hour short on the tour. (see paragraph 4.4, page 1.)
     The foregoing Contract is agreed to and accepted by Operator this 25th day of May, 2006.

  Operator: U. S. Geothermal, Inc.
  By: /s/ Daniel Kunz
            Dan Kunz
  Title: President

     The foregoing Contract is accepted by the undersigned as Contractor this 20th day of April, 2006 which is the effective date of this agreement, subject to rig availability, and subject to all of its terms and provisions, with the understanding that unless said Contract is thus executed by Operator within 30 days of the above date, Contractor shall be in no manner bound by its signature thereto.

  Contractor: Union Drilling, Inc.
  By: /s/ Byron L. Musselman
            Byron “Doc” Musselman
  Title: General Manager

(U.S. Daywork Contract Page 5)

Revised July 1998


To Daywork Contract dated: April 20, 2006

Operator: U. S. Geothermal,Inc.                                                                                    Contractor: Union Drilling, Inc.

Well Name and Number: 4 Wells-RRG3, RRG6, RRG7, RRG4,
And possible 7 un-named
                                                Cassia County, ID


1. CASING PROGRAM (See Paragraph 7) As Designatedby Operator.

  Hole Casing     Approximate Wait on
  Size Size Weight Grade Setting Depth Cement Time
Conductor in. ___in. lbs/ft.   ___ft. N/A hrs.       
Surface in. ___in. lbs/ft.   ___ft. N/A hrs.       
Protection in. in. lbs/ft.   ft. N/A hrs.       
  In. in. lbs/ft.   ft. hrs.
Production in. in. lbs/ft.   ft. N/A hrs.       
Liner in. in. lbs/ft.   ft. hrs.
  In. in. lbs/ft.   ft. hrs.

2. MUD CONTROL PROGRAM (See Subparagraph 8.2) AsDesignated by Operator.

Depth Interval (ft)        
From To Type Mud Weight (lbs./gal.) Viscosity (Secs) Water Loss (cc)



Other mud specifications: As determined by Operator’srepresentatives.


3. INSURANCE (See Paragraph 13) See attached–Exhibit “D”.


Adequate Workers’ Compensation: Insurance complying with State Laws applicable or Employers’ Liability Insurance with limits of $1,000,000.00 – covering all of Contractor’s employees working under this Contract.


Commercial (or Comprehensive) General Liability Insurance, including contractual obligations as respects this Contract and proper coverage for all other obligations assumed in this Contract. The limits shall be $5,000,000.00 combined single limit per occurrence for Bodily Injury and Property Damage.


Automobile Public Liability Insurance with limits of $ 1,000,000 for the death or injury of each person and $ 1,000,000 for each accident; and Automobile Public Liability Property Damage Insurance with limits of $ 1,000,000 for each accident.


In the event operations are over water, Contractor shall carry in addition to the Statutory Workers’ Compensation Insurance, endorsements covering liability under the Longshoremen’s & Harbor Workers’ Compensation Act and Maritime liability including maintenance and cure with limits of $ N/A for each death or injury to one person and $ N/A for any one accident.


Other Insurance: As deemed necessary by the Contractor to provide adequate property protection of its equipment and other assets.


     The machinery, equipment, tools,materials, supplies, instruments, services and labor hereinafter listed,including any transportation required for such items, shall be provided at thewell location at the expense of Contractor unless Otherwise noted by thisContract.

     4.1 DrillingRig:

          Completedrilling rig, designated by Contractor as its Rig No. 32 the majoritems of equipment being: See attached inventory-Exhibit “C”, page 1.

Drawworks:       Make andModel:

Engines:            Make, Model, and H.P.

                  No. on Rig

Pumps: No. 1 Make, Size, and Power 

                  No. 2 Make. Size, and Power

Mud Mixing Pump: Make, Size, and Power

Boilers:           Number. Make, H.P. and W.P.

Derrick or Mast: Make. Size, and Capacity


Substructure: Size and Capacity

Rotary Drive: Type

Drill Pipe: Size                                    in.                    ft.                    Size                                     in.                    ft.

Drill Collars: Number and Size –

(U.S. Daywork Contract – Exhibit “A” Page1)

Revised July 1998

Blowout Preventers: See attached inventory-Exhibit “C”,page 1.

Size Series or Test Pr. Make & Model Number


B.O.P. Closing Unit:Hydraulic
B.O.P. Accumulator:


Derrick timbers


Normal strings of drill pipe and drill collars specified above.


Conventional drift indicator. ( Sureshot Totco type )


Circulating mud pits.


Necessary pipe racks and rigging up material.


Normal storage for mud and chemicals.


Shale Shaker.











     The machinery, equipment, tools,materials, supplies, instruments, services and labor hereinafter listed,including any transportation required for such items, shall be provided as thewell location at the expense of Operator unless otherwise noted by thisContract.


Furnish and maintain adequate roadway and/or canal to location, right-of-way, including rights-of-way_ for fuel and water lines, river crossings, highway crossings, gates and cattle guards.


Stake location, clear and grade location, and provide turnaround, including surfacing when necessary.


Test tanks with pipe and fittings


Mud storage tanks with pipe and fittings.


Separator with pipe and fittings.


Labor to connect and disconnect mud tank, test tank, and separator.


Labor to disconnect and clean test tanks and separator.


Drilling mud, chemicals, lost circulation materials and other additives.


Pipe and connections for oil circulating lines.


Labor to lay, bury and recover oil-circulating lines.


Drilling bits, reamers, reamer cutters, stabilizers and special tools.


Contract fishing tool services and tool rental.


Wire line core bits or heads, core barrels and wire line core catchers if required.


Conventional core bits, core catchers and core barrels.


Diamond core barrel with head.


Cement and cementing service.


Electrical wireline logging services.


Directional, caliper, or other specialservices.


Gun or jet perforating services,


Explosives and shooting devices.


Formation testing, hydraulic fracturing, acidizing and other related services.


Equipment for drill stem testing.


Mud logging services.


Sidewall coring service.


Welding service for welding bottom joints of casing, guide shoe, float shoe, float collar and in connection with installing of well head equipment if required.


Casing, tubing, liners, screen, float collars, guide and float shoes and associated equipment.


Casing scratchers and centralizers.


Well head connections and all equipment to be installed in or on well or on the premises for use in connection with testing, completion and operation of well.


Special or added storage for mud and chemicals.


Casinghead, API series, to conform to that shown for the blowout preventers specified in Subparagraph 4.1 above.


Blowout preventer testing packoff.


Casing Thread Protectors and Casing Lubricants.


H2S training and equipment as necessary or as required by law.









(U.S. Daywork Contract – Exhibit “A” Page2)

Revised July 1998


     The machinery, equipment, tools,materials, supplies, instruments, services, and labor listed as thefollowing numbered items, including any transportation required for such itemsunless otherwise specified, shall be provided at the well location and at theexpense of the party hereto as designated by an X mark in the appropriatecolumn.

    To Be Provided By and
    At The Expense Of
  Item Operator    Contractor
6.1 Cellar and runways  X    
6.2 Fuel (located at Rig Storage Tank)  X    
6.3 Fuel Lines (length – on location)     X
6.4 Water at source, including required permits X    
6.5 Water well, including required permits X    
6.6 Water lines, on location X    
6.7 Water storage tanks 500 Bbls capacity     X
6.8 Labor to operate water pump (on location)     X
6.9 Maintenance of water well, if required   N/A  
6.10 Water Pump     X
6.11 Fuel for water pump X    
6.12 Mats for engines and boilers, or motors and mud pumps     X
6.13 Transportation of Contractor’s property:      
             Move in Expense of    
             Move Out Expense of    
             Infield Moves Expense of    
6.14 Materials for “boxing in” rig and derrick   N/A  
6.15 Special strings of drill pipe and drill collars as follows:      
6.16 Kelly joints, subs, elevators, tongs and slips for use with special drill pipe X    
6.17 Drill pipe protectors for Kelly joint and each joint      
  of drill pipe running inside of Surface Casing as required,      
  for use with normal strings of drill pipe X    
6.18 Drill pipe protectors for Kelly joint and drill pipe running      
  inside of Protection Casing X    
6.19 Rate of penetration recording device (single pen) X    
6.20 Extra labor for running and cementing casing (Casing crews) X    
6.21 Casing tools   X    
6.22 Power casing tongs X    
6.23 Laydown and pickup machine X    
6.24 Tubing tools X    
6.25 Power tubing tong X    
6.26 Crew Boats, Number:……   N/A  
6.27 Service Barge   N/A  
6.28 Service Tug Boat   N/A  
6.29 Rat Hole X    
6.30 Mouse Hole X    
6.31 Reserve Pits X    
6.32 Upper Kelly Cock (4 ½” string only)     X
6.33 Lower Kelly Valve (4 1/2 “ string only)   X
6.34 Drill Pipe Safety Valve (Bit Float) (4 ½” string only)     X
6.35 Inside Blowout Preventer X    
6.36 Drilling hole for or driving for conductor pipe X    
6.37 Charges, cost of bonds for public roads X    
6.38 Portable Toilet X    
6.39 Trash Receptacle X    
6.40 Linear Motion Shale Shaker      X
6.41 Shale Shaker Screens X    
6.42 Mud Cleaner   X    
6.43 Mud/Gas Separator(if required ) Expense of   Provided by
6.44 Desander X    
6.45 Desilter X    
6.46 Degasser X    
6.47 Centrifuge X    
6.48 Rotating Head     X
6.49 Rotating Head Rubbers X    
6.50 Hydraulic Adjustable Choke X    
6.51 Pit Volume Totalizer X    
6.52 Communications, type (CELLULAR TELEPHONE ) X    
6.53 Forklift, Expense of   Provided by
6.54 Corrosion Inhibitor for protecting drill string X    
6.55 Mud pump expendables (see other provisions). Expense of   Provided by
6.56 Inspection and repair of drill string X    
6.57 Cleaning of steel pits and mud pumps Expense of Provided by
6.58 Boiler Charge @ $35.00 per hour utilized Expense of   Provided by
6.59 Extra labor or over 5 men per crew @ $60.00 per hour / man   Expense of   Provided by

(U.S. Daywork Contract – Exhibit “A” Page3)

Revised July 1998



Mud pumps are provided with standard size 6 inch liners and pistons. If other size of liners and pistons are requested or necessary, Operator will be responsible for the costs of acquiring and installing such liners and pistons.


Operator is responsible for the cost of any replacement mud pump expendables (pistons, rods, liners, valves, valve seats) damaged or replaced.


Labor hourly rate is $60.00 per man-hour in excess of 5-man crew.


Mobilization / demobilization operations: trucking charges will be invoiced directly to Operator.


Union Drilling, Inc. will provide 8,000’ of 4 ½” Premium drill pipe for drilling. U. S. Geothermal, Inc. will be responsible for all corrosion control additives and for maintaining the drill string in “like condition” during drilling operations.


Operator will be responsible for drill pipe and drill collar inspection and repairs at the completion of project. All downgrading of drill string will be invoiced using current “like condition” as the basis of charges. Contractor agrees to provide a certified inspection report on all drill pipe and drill collars setting the current “like conditions”.


An additional rate of $35.00 per hour will be charged for every hour the boiler is operated.


Operator will provide all mud, drilling soap and drilling chemicals including drill pipe corrosion.


Operator will be responsible for the moving costs and services of Tool Pusher quarters, rental of man-camps and related costs, if required.


Contractor will provide Forklift at $150.00 per day, which includes all maintenance and repairs.




Signed by the
Parties as correct:
  For Contractor          /s/ Byron L. Musselman
  Union Drilling, Inc.
  For Operator                 /s/ Daniel Kunz
       U. S. Geothermal, Inc.

(U.S. Daywork Contract – Exhibit “A” Page4)

Revised July, 1998

(See Paragraph 8.3)

The following clauses, when required by law, areincorporated in the Contract by reference as if fully set out:


The Equal Opportunity Clause prescribed in 41 CFR 60-1.4.


The Affirmative Action Clause prescribed in 41 CFR 60-250.4 regarding veterans and veterans of the Vietnam era.


The Affirmative Action Clause for handicapped workers prescribed in 41 CFR 60-741 .4.


The Certification of Compliance With Environmental Laws prescribed in 40 CFR 15.20.




(U.S. Daywork Contract – Exhibit “B” Page1)

Exhibit “C”

Union Drilling, Inc

Rig 32 Inventory

Year 1982 Model – Skytop Brewster BIR 4610 – 5 axle
  Depth rating w/4 ½” DP-10,000′
Drawworks Skytop Brewster 650 p/b Detroit 60 Series @ 475 h/p
Derrick Skytop 109’ x 310,000# capacity
Substructure 10’ x 300,000# capacity
Pony Sub 5 ½” x 300,000# capacity
Rotary Table Ideco 23” x 44”
Traveling Blocks Ideco UTB 160 Ton 4 – sheaves w/ 1 1/8” line
Rotary Hose 3” x 55”L x 3500 PSI
Kelly & Bushings 5 ¼” hex w/varco drive bushings
Kelly spinner Foster Type 77
Drill pipe spinners Graychain model 3570 hydraulic operated
Manual rig tongs Web Wilson type “B” with hydraulic makeup with torque gauge
Swivel Ideco 200T
Rotating Head & Air Bowl 10” x 5M, 12” x 3M
Soap Pump Myers C-20 p/b hydraulic pump
Generator #1 CAT SR4 320kw p/b Cat 3456E
Generator # 2 Cat SR4 250kw p/b Cat 3408
Fuel Trailer 1972 Trailmobile 2-axle 8’x38’L
Doghouse 1964 Trailmobile 2-axle 8’x38’L
Water Tank (1) 500 bbl. sq. tank,skidded
Pipe Tubs 4-(6) DP( (1) DC (1) junk
Center Tub 1-8’W x 32’L w/v-door
Mud Pump #1 CE F-800 triplex p/b Cat 398 @800 h/p
Mud Pump #2 CE F-800 triplex p/b cat 398 @800 h/p
Yellow dog pump (1) 5×6 centrifugal pump p/b 50 hp electric motor
Mud Pit #1 (suction) 11’W x 40’L 380 bbL. capacity w/two 10 hp electric agitators and (1) 50
  hp electric 5×6 centrifucal mixing pump
Mud Pit #2 (shale) 11’W x 40’L 400bbL. capacity
Premix tank (Rental) 12’W x 34’L 400bbl. cap. W/10 hp elec agitator & 60 h/p mixing pump
Shale Shaker Brandt Cobra linear motion w/three screens
Gas Buster(Rental)  
Wireline Unit 10,000’ x .072 p/b electric mtr.
Blowout Preventors 11” x 3M Shaffer Type E doubleram w/ 4 ½” rams (or)
  11” X 3M Shaffer Annular
Choke Manifold 3” x 3M PSI w/dual adjustable chokes
Accumulator Koomey 3- station
Boiler Abco 80 psi w/steam heaters
Drill Pipe 8,000’ – 4 ½ Grade X-95 16.60# premium w/4 ½” XH connections
Drill Collars 14- 6 1/2” with 4 ½” H-90 connections
  2-7 ½” with 6 5/8” regular connections
Weight Indicator Behr
Auto Driller Satellite
Forklift (Rental) Cat TH-103 12,000#
Updated 5-20-06  

(U.S. Daywork Contract – Exhibit “C” Page1)

Exhibit “D”

(U.S. Daywork Contract – Exhibit “D” Page1)

Exhibit “E”

(U.S. Daywork Contract – Exhibit “E” Page1)

Exhibit “F”

U.S. Daywork Contract – Exhibit “F” Page1)

Exhibit “G”

U.S. Daywork Contract – Exhibit “G” Page1)