Standard Lithium signage at offices on East Elm Street in downtown El Dorado. (John Sykes/Arkansas Advocate)
On Wednesday Arkansas’ Oil and Gas Commission will for the third time in 18 months consider what lithium extractors should pay mineral rights holders in royalties.
On the agenda tomorrow is an application filed by SWA Lithium, a joint venture between Canada-based Standard Lithium and Norwegian energy giant Equinor, known for its Empire Wind offshore wind farm off the coast of New York.
Standard Lithium has already gone before the commission twice for a royalty determination first in December 2023 and then again in November 2024. Both times, questions were raised as to whether Standard Lithium and its co-applicants in 2023, Lanxess; in 2024, Lanxess, Albemarle, Tetra Tech and ExxonMobil-subsidiary Saltwerx had provided enough data to justify the proposed royalty rates.
Neither time resulted in a royalty being set.
The commission will have to decide if Standard Lithium’s new proposed 2.5% royalty rate and royalty structure are fair and equitable.
You can read more about the application itself here.
What’s the deal with lithium, anyway?
Multiple companies from oil and gas behemoths like ExxonMobil, to major chemical companies like Lanxess and Albemarle, to relative-newcomers like Standard Lithium are trying to get in on the valuable lithium reserves trapped in South Arkansas’ subterranean brine, thousands of feet below the earth.
Arkansas state officials have touted the economic benefits such industrial investments could bring to the state while passing legislation to incentivize it.
Albemarle, Lanxess and their predecessors have extracted this brine for decades, as bromine is also abundant in the fluid. Brine is also extracted as a byproduct of the region’s century-old oil and gas industry.
Companies have cited Arkansas’ extensive and unique regulatory structures as one of the points that makes the state attractive for developing a U.S. lithium industry. Now-retired AOGC director and current AOGC Commissioner Larry Bengal previously told the Advocate he believed Arkansas is the only state in the U.S. with a brine statute.
A widely reported study from the U.S. Geological Survey last year estimated that the brines in the parts of the Smackover formation under South Arkansas held enough lithium to meet U.S. demand for decades. The study used machine learning to predict lithium quantities for the region using existing well data. However, one of the authors of the study told the Arkansas Democrat-Gazette that the report said nothing on whether that much lithium could feasibly be extracted from the formation, saying the study was meant to provide a birds-eye view of the potential of the region as a whole.
Geologists have known about the high lithium content of South Arkansas’ brine for decades, but until recently, the technology to extract it profitably wasn’t there. Companies said they’ve already spent millions in pursuit of lithium in the state, even though those companies haven’t yet given the final green light for large-scale extraction projects.
Standard Lithium and Equinor’s SWA Lithium project has already been awarded hundreds of millions in federal funding to build up a lithium extraction operation in South Arkansas as part of federal investments into critical minerals and other supply chains that have increasingly become concentrated in China. Lithium is a key component of rechargeable batteries, including those used in electric vehicles.
That’s great and all, but how are they going to get lithium out of water?
In short, it’s a process called “direct lithium extraction,” or DLE. It’s similar to the process used to treat hard water, just on a much larger scale. It hasn’t been used at commercial scale to extract lithium in the U.S. before, but some companies in China already use it. It’s different from other lithium mining methods, such as hard-rock mining and evaporation pond methods.
Why does the royalty matter?
There are a few reasons. The first is that none of the companies that have expressed interest in growing a lithium extraction industry in South Arkansas can actually begin extracting lithium from brine for profit before the AOGC approves a royalty. They have said previously that having a set royalty is crucial in order to know how much a full-scale extraction project will cost.
The royalty is required by the Arkansas Brine Conservation Act (ABCA), which first passed in the 1970s as a result of court cases that saw mineral rights owners demanding compensation from big chemical companies for diminishing the value of their owned mineral rights through the companies’ bromine operations, which would sometimes push spent brine towards their owned tracts and unextracted brine away from them. An amendment was added in the 1990s establishing the “other substances” provision, which sets the framework to determine royalties for substances extracted from brine other than bromine, such as lithium.
The second reason is that some, like former AOGC commissioner Mike Davis, believe the only real economic benefit many ordinary Arkansans will get from lithium extraction will come from royalty payments.
“When the drilling rigs are gone, when the completion process is complete, you’ve got two things left. You have the maintenance and you have the royalty income,” Davis said at the November hearing. “For the majority of the citizens and for the state of Arkansas itself, the real benefit to the mineral owners and royalty owners and citizens of the state of Arkansas will be the royalty that you gentlemen determine.”
Other issues affecting the 2024 royalty decision
The commission agreed with the opinion of Administrative Law Judge Charles Moulton that a royalty could be applied only to existing brine units geographic areas approved by the commission for mineral extraction. However, the November applicants wished to apply their proposed royalty to “existing units and proposed future units” within certain counties but only after amending their application. Originally, they asked for a royalty determination for the entire Smackover Formation within specific counties.
Since then, both Standard Lithium and Saltwerx have applied for and received permission to create new brine units. You can read more about the brine units here.
Why wasn’t a royalty determined in the last two hearings?
The AOGC unanimously rejected the application it heard in November for a few reasons.
The state brine law says a royalty must be “fair and equitable,” and that a substance must be “profitably extracted” in order for a royalty to be paid. The commission must determine if a company’s proposed royalty meets that bar.
One of the key hang-ups last year was that many people, the AOGC commissioners included, felt the royalty proposed by the so-called “Big 5” Albemarle, Lanxess, Tetra Tech, Standard Lithium and Saltwerx was not fair and equitable. The companies, for the most part, refused to provide any project data to justify the proposed royalty, citing antitrust concerns.
Multiple commissioners cited that refusal as the key reason they voted to reject the application in November, even as they said they believed the proposed royalty at the time, 1.82%, was not fair and equitable in the first place.
Similarly, the 2023 application filed by Standard Lithium and Lanxess ran into justification issues, with commissioners requesting the companies return with further documentation to support the proposal before they made a decision. Instead, the two companies withdrew the application and eventually signed onto the second application last summer.
Are all of the same companies involved in the royalty the commission is hearing this week?
No. Only Standard Lithium and Equinor, its partner in the SWA Project, are party to this royalty hearing. That means that if the commission decides to approve the proposed royalty, it would apply only to Standard Lithium’s and Equinor’s Reynolds Unit, which encompasses parts of Columbia, Lafayette and Miller Counties. It would not apply to Saltwerx’s Pine Unit, Tetra Tech’s Evergreen Unit, or any of Lanxess’ long-established brine units in Union County.
If the joint venture decides it wants to expand the royalty’s applicability to other units it establishes in the future, it would need to go back before the commission for another royalty determination.
What else should we know about the November 2024 royalty hearing?
The run-up to tomorrow’s hearing has been much quieter than last year’s hearing. Dozens of people objected to the 1.82% royalty proposed in the Big Five application last year.
The South Arkansas Minerals Association, a group representing mineral-rights holders, objected to the first proposed royalty in December 2023, and their objection led to the hearing being delayed from September to November so that the administrative law judge could hold a hearing on certain legal matters. Moulton’s recommendations to the commission after that hearing were largely adopted and played a role in why the Big Five application was rejected.
As of Friday, only one person had filed an objection to the Standard Lithium-Equinor royalty application. Robert Reynolds, the president of SAMA, has not filed an objection, but told the Advocate he would be watching carefully to see if the applicants brought forward sufficient evidence to support their royalty proposal this time around. Until they did, he said, he had no way of knowing if 2.5% is “fair and equitable.”
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