Direct Lithium Extraction (DLE) from brine resources in the Smackover Formation in SW Arkansas and East Texas appears to continue to indicate gains in momentum. In this update, we will take a quick look at Arkansas’s ongoing royalty rate battle and then highlight some recent industry developments.
Royalty Rate
On July 26, 2024, Albemarle Corporation, Saltwerx, LLC (subsidiary of Exxon Mobil), SWA Lithium, LLC (subsidiary of Standard Lithium), LANXESS Corporation, and Tetra Technologies (all referred to as the “Industry” in this update) made a Joint Application to the Arkansas Oil and Gas Commission (AOGC) to the set the royalty rate on lithium at 1.82% for mineral owners. Argent Mineral Management and many other landowners submitted objection letters to the AOGC for this application.
The AOGC’s statutory duty is to determine a fair and equitable royalty for substances “which are found by the commission to be profitably extracted from brine by a producer and which were not extracted by a producer on January 1, 1979.”[1] Essentially, this applies to all brine products other than bromine.
The order for setting the royalty rate is clear:
1. Profitable extraction must be established by a producer, then
2. The AOGC is to set the royalty rate on a unit basis.
The Industry attempted to circumvent this process by seeking a blanket royalty rate for lithium across four counties (Miller, Lafayette, Columbia, and Union).
On November 4th and 5th, the AOGC held a highly attended hearing on the application. The lead landowner group opposing the royalty rate, the Southwest Arkansas Minerals Association, represented by attorney Alan Perkins, made a strong case on behalf of mineral owners. This two-day hearing resulted in a unanimous decision by the AOGC to reject the Industry application. A significant win for landowners!
A fair and equitable royalty rate determination remains elusive as the Industry withholds financial information that would allow the AOGC to understand the economics of the proposed DLE projects. Some landowners are pushing for 8-12% based on limited projected costs and revenues made public by Standard Lithium. In a recent article in Reuters, a reporter noted: “Officials hinted a 2.5% rate could be acceptable, which Howarth [head of Exxon’s lithium business] said would be ‘in the range that we would be able to move forward.’ Exxon would need to formally propose a new rate, which is likely in the near future, he added.”[2] Our office has reviewed lease offers for lands in nearby Cass County, Texas with rates between 4.00-6.25%. In Australia, where lithium mining is well established, albeit from open pit mines rather than brine, the royalty rate for landowners is 5%.
We anticipate a new application to the AOGC with a higher royalty rate and, perhaps, limited to a reduced area.
Activity Update
Commercial scale DLE from any existing brine units in SW Arkansas appears to be at least a year away. In the meantime, leasing continues in full force in both Arkansas and Texas. Big players are now involved, with hundreds of millions of dollars being pumped into these projects.
Recent Highlights
• Occidental Petroleum, a global oil producer, began acquiring leases in SW Arkansas[3]
• Equinor, another global oil producer, entered into a partnership agreement with Standard Lithium (which is backed by Koch Industries) for projects in Arkansas and East Texas[4]
• The U.S. Department of Energy awarded Standard Lithium with a grant of up to $225MM for its South West Arkansas Project[5]
• ExxonMobil signed a “non-binding lithium supply deal with battery parts maker LG Chem, the oil giant’s second agreement to supply the electric vehicle battery metal from its proposed Arkansas project.”[6]
In October, the U.S. Geological Survey announced that it estimates “that between 5 and 19 million tons of lithium reserves are located beneath southwestern Arkansas. If commercially recoverable, the amount of lithium present would meet projected 2030 world demand for lithium in car batteries nine times over.”[7]
Though the price of lithium tanked this year due to oversupply, companies are moving ahead with these projects as developing a lithium supply chain for battery manufacturing on U.S. soil is a priority and an opportunity. Given the projected demand for batteries, coupled with national security concerns, DLE from the Smackover Formation appears to be a key solution.
In our next update, we will provide an overview of the leasing activity in Arkansas and Texas, test wells, and potential DLE facilities.
References
¹ Letter dated September 10, 2024, from attorney Alan Perkins representing the South Arkansas Minerals Association to the Arkansas Oil and Gas Commission.
² https://www.reuters.com/business/energy/exxon-mobil-signs-non-binding-lithium-supply-deal-with-lg-chem-2024-11-20/
³ https://www.hartenergy.com/ep/exclusives/oxy-aims-expand-lithium-tech-arkansas-211205
⁴ https://www.standardlithium.com/investors/news-events/press-releases/detail/171/standard-lithium-and-equinor-form-partnership-to-develop
⁵ https://www.standardlithium.com/investors/news-events/press-releases/detail/175/u-s-department-of-energy-selects-standard-lithium-and
⁶ https://www.reuters.com/business/energy/exxon-mobil-signs-non-binding-lithium-supply-deal-with-lg-chem-2024-11-20/
⁷ https://www.usgs.gov/news/national-news-release/unlocking-arkansas-hidden-treasure-usgs-uses-machine-learning-show-large
