BY: Drew Blackburn, CPL
Mineral Manager
Argent Mineral Management
The push for additional power sources has created an exciting time in the energy industry. We (Argent) believe that oil and gas are here to stay, and recent record production continues to demonstrate the strength of the fossil fuel industry in the United States. With the growth of the Liquid Natural Gas (LNG) industry along the Gulf States, many of our clients stand to benefit from future natural gas exploration and production. One of our clients recently had a new gas well come into production on their property at a daily rate of 65 million cubic feet. At the start of my career, operators were pleased with initial production rates of 2 million cubic feet a day. The continued improvements in natural gas production are very impressive.
Though we do not see an “energy transition” away from oil and gas, we appreciate how author Alex Epstein frames it as the “energy addition” of renewables to the quest for alternate power sources. Solar, wind, and other alternatives can create significant opportunities for landowners.
Power storage has become a critical issue regarding renewable energy sources, and lithium-ion batteries provide a great solution. Additionally, the trend toward electric vehicles has caused increased demand for lithium-ion batteries. According to Benchmark Source, “lithium-ion battery demand is forecast to grow almost four-fold between 2023 and 2030.”
A significant lithium supply happens to be in our backyard in SW Arkansas and East Texas. The Smackover Formation, previously targeted for oil and gas production, extends from East Texas, across Southern Arkansas/North Louisiana, and down through Mississippi, Alabama, and Florida. Brine in this formation contains various lithium concentration levels, with SW Arkansas and East Texas showing the highest concentrations. Brine production in the Smackover has existed for many decades in SW Arkansas as elements found therein are used to manufacture fire retardants, plastics, pharmaceuticals, and many other applications.
Direct Lithium Extraction (DLE) is a process whereby lithium is removed from the brine, resulting in a pure form of the metal. Standard Lithium is a company, among others, at the forefront of this charge as it is fine-tuning DLE technology by tapping into the existing brine production infrastructure at a pilot facility near El Dorado, Arkansas.
We expect a slow DLE development process amongst the various operators, especially for projects outside the existing brine production facilities. Companies like Standard Lithium, Exxon, and Albemarle are investing hundreds of millions of dollars in technology and infrastructure to make these DLE projects work. Additionally, legislators and public officials in Arkansas and Texas are scrambling to put rules and regulations into place for lithium production.
There has been a recent debate before the Arkansas Oil and Gas Commission (AOGC) regarding the royalty rate for mineral owners from lithium extraction. In Arkansas, the AOGC establishes the royalty rates for brine production rather than private party contracts. Standard Lithium initially proposed a royalty rate of ~1-2%, and certain landowners have pushed for a 12.5% rate. In April, Standard Lithium withdrew its application for the setting of the royalty rate, and it has plans to submit a revised application to the AOGC. We are staying abreast of this issue and advocating for a fair rate for mineral owners.
In Texas, the issue is more complicated as it is unclear whether the surface owner or the mineral owner has the rights to lithium. We will keep you informed as this becomes defined.
Meanwhile, we are watching the developments at the Lanxess South Plant depicted in the map below. Operated by Standard Lithium, this is the first DLE project slated to go into production in 2026. The unit for this project, lying southwest of El Dorado, comprises approximately 38,000 acres. Additional projects by Standard Lithium, Exxon, Albemarle, and others are anticipated in the region in the next several years as new test wells confirm the presence of strong levels of lithium.
(Map Source: https://www.standardlithium.com/projects/arkansas-smackover)
Companies continue to acquire new brine leases in SW Arkansas and East Texas. We have active lease negotiations occurring as of the writing of this article. If you receive any offers for a brine lease, we would be glad to help navigate the negotiations and ensure that you have a landowner-friendly lease form. We are glad to see our clients benefit from this opportunity and hope for the success of these projects.
If you have questions, Argent’s mineral management team is here to assist you.
[1] https://source.benchmarkminerals.com/article/sustainability-now-a-critical-metric-for-lithium-supply-agreements
