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Permalink Reply by Skip Peel - Mineral Consultant on November 8, 2024 at 4:34

The fight over lithium royalties continues in SW Arkansas, 1.82% now off the table

• BY LIZ SWAINE | Staff writer shreveportbossieradvocate.com

After nearly a day and a half of hearings, it took less than five minutes for members of the Arkansas Oil and Gas Commission to unanimously deny a royalty request made by a group of companies that have become known as the "Big 5."

Standard Lithium, Lanxess, ExxonMobil/Saltwerx LLC, Albemarle Corp. and Tetra Technologies Inc. had filed jointly to set the royalties on lithium-containing brine in the state at 1.82%. Landowners countered with 12.5%.

A royalty decision is needed before the companies can begin extracting brine in southwest Arkansas that contains economically feasible amounts of lithium. Lithium is used in a variety of commercial purposes but is currently needed in large supply for EV batteries.

According to the U.S. Geological Survey, an arm of the U.S. Department of the Interior, the lithium in southern Arkansas could meet nine times the expected global demand for the element in car batteries in 2030.

While not back at square one, there is a deep chasm between what landowners believe the brine is worth and what the companies are willing to pay, says Shreveport-based mineral consultant Skip Peel.

In the Arkansas landowners' favor, Peel says, is their knowledge of what some of the companies are paying East Texas landowners for brine royalty and leases — a significantly higher amount than the 1.82% rate offered to Arkansas landowners.

The East Texas leases need context, the companies said, as many of them come with deductions that the companies said would ultimately net the owners the same 1.82%.

Peel says southwestern Arkansas landowners are also familiar with the Haynesville Shale gas play in Louisiana and Texas in which leases of $5,000 to $10,000 an acre and 25% royalties were not uncommon.

There is a significant difference in the East Texas and Arkansas brine, Peel says.

"Most of what we've got in southwest Arkansas is basically 250 to 300 (milligrams per liter)." In East Texas, "There's a range, basically 600 to 800, it's twice or better than the concentration per liter than southwest Arkansas has."

He says the Big 5 used that in what he heard as an implied threat to build their facilities in Texas.

"It's hard to really understand, or for me to understand, just how the veiled threat of 'We'll just take our ball and leave Arkansas and go to East Texas' landed with those commissioners," he said.

Attorney G. Alan Perkins in Little Rock has been representing the South Arkansas Mineral Association. He says the group is pleased that the AOGC rejected the proposed 1.82%, because it was not "fair and equitable."

"The Commissioners sent a firm message to the industry applicants that they need to disclose more economic information about their projects to support a future royalty application," he said. "Our clients are supportive of extracting lithium from the rich brine resources of the Smackover formation in south Arkansas, so long as it is fair to the mineral owners as well as the industry."

So what happens next?

Perkins thinks the companies are anxious to move forward, but the process is ultimately a slow one because of notice and regulatory requirements, and even a quick response might not come before the AOGC until early next year.

Peel agrees, and said he believes the Big 5 are "huddled up" for a quick response.

"They're going to pay the $65 an acre they have to, because that's part of the existing regulations," he said. "The question is, what will they pay over and above that as a royalty on the lithium?"

Email Liz Swaine at Liz.Swaine@theadvocate.com.

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Permalink Reply by Rock Man on November 8, 2024 at 4:52

Good summary article of this situation. It will be interesting to see how this whole issue evolves over time not only in Arkansas but in NE Texas (Cass County et al).

As I reviewed comments about these hearings, I was surprised to hear nothing (or next to nothing) about H2S issues associated with any Smackover related lithium extraction operations.

I am not very familiar with H2S concentrations in Smackover waters in Arkansas, but I know that this inert and noxious compound is present in variable and oftentimes high concentrations in NE Texas. 

Anyone researching H2S will find out that it doesn't take very high concentrations (in ppm) to be dangerous or even fatal.

But even in VERY small concentrations (technically not dangerous), the rotten eggs odor associated with this compound is extreme and pervasive. Just ask the residents of Luling (Tx) as well as various Permian Basin areas about this omnipresent smell (which over time tends to numb one's olfactory nerves).

Any lithium extraction method will involve moving a LOT of Smackover formation water from source wells through extraction processing equipment and then back to injection wells. Lots of fluid being moved - and is there such a thing as a totally "closed" system that contains 100% of all H2S related compounds (and odors)?

Anyone leasing their minerals for brine extraction in this area needs to be aware of this issue.

Are you trading your clean air / non stinky air for a royalty check? And negatively impacting one's property values due to "gee, it stinks in this area" reaction of potential buyers?

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Permalink Reply by Skip Peel - Mineral Consultant on November 8, 2024 at 8:38

Thanks for the reminder, Rock Man.  H2S is an extreme danger to those in close proximity to the source.  Usually that means employees of the operator or someone trespassing on a production location.  Also in this specific case, pipelines and re-injection locations  As Rock Man states, it can be fatal.  The much greater concern for anyone living in the vicinity is the noxious odor and the impact on someones ability to smell not to mention the impact on their property values.  Landowners need to know the risks and the consequences.

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Permalink Reply by Skip Peel - Mineral Consultant on November 21, 2024 at 4:30

Exxon Mobil signs non-binding lithium supply deal with LG Chem

Wed, November 20, 2024  By Ernest Scheyder

HOUSTON (Reuters) - Exxon Mobil said on Wednesday it has 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.

Exxon last year announced plans to extract lithium from the Smackover Formation, an underground deposit of salty water known as brine that stretches from Florida through Arkansas and into Texas, using at least one type of direct lithium extraction (DLE) technology.

Exxon and other oil companies such as Occidental Petroleum and Equinor are increasingly investing in lithium projects, partly due to their belief that extracting the metal from brine involves similar processes as petroleum extraction.

The LG Chem agreement, which would require Arkansas officials to set a state lithium royalty rate to be finalized, is for up to 100,000 metric tons of the ultralight metal over several years.

The move allows Exxon - which plans to self-fund its Arkansas project - to incorporate LG Chem's lithium quality specifications into its design plans. South Korea-based LG Chem plans to use the lithium at its Tennessee cathode facility, slated to open next year.

"This is about building a relationship with a company that has the same ambitions as building out the North American (battery) supply chain as us," Patrick Howarth, head of Exxon's lithium business, told Reuters.

Exxon expects lithium demand to rise despite U.S. President-elect Donald Trump's campaign vow to end the "EV mandate," Howarth said.

"We know that the world's going to need a lot more lithium than it's producing today," he said.

Financial terms of the deal - including the price per metric ton of lithium that LG Chem would pay Exxon - would be negotiated as part of any final contract. SK On, a unit of SK Innovation, signed a non-binding lithium supply deal with Exxon in June.

Despite recent lithium market turbulence, Howarth said Exxon has "seen really strong support from our potential customer base."

ROYALTY

Arkansas officials earlier this month rejected a proposed lithium royalty rate of 1.82% from Exxon and others.

Officials have been debating a lithium royalty since at least 2018, with tension centering on how the metal should be valued given the cost for equipment to filter it from brine, which unlike oil typically has no intrinsic market value.

Landowners want a higher rate, noting that most U.S. oil royalties pay between 8% and 12%.

"It's one of the key regulatory issues that we need to resolve to bring these projects to market," Howarth said, adding that Exxon could leave Arkansas - where it has invested more than $100 million - if the rate was too high.

 

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Permalink Reply by Skip Peel - Mineral Consultant on November 21, 2024 at 7:09

Some interesting basic financial statements on the Standard Lithium website.

https://www.standardlithium.com/projects/arkansas-smackover

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Permalink Reply by Lisa on November 21, 2024 at 8:53

“H2S is an extreme danger to those in close proximity to the source.”

Again showing my ignorance. What is H2S? When does it affect landowners— like those living on the property or having cattle on the property?

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Permalink Reply by Skip Peel - Mineral Consultant on November 21, 2024 at 9:12

Hydrogen sulfide gas is a colorless, flammable gas with a strong odor resembling rotten eggs, often referred to as "sewer gas" or "stink damp," which is produced naturally by the bacterial breakdown of organic matter and can be found in sources like sewage, landfills, natural gas, and volcanic emissions; exposure to high concentrations can be extremely dangerous due to its toxicity and ability to quickly overwhelm the sense of smell through olfactory fatigue. 

Key points about hydrogen sulfide:

• Chemical formula: H2S 

    Odor: Characteristic rotten egg smell 

    Sources: Bacterial decomposition of organic matter (sewage, landfills), natural gas, volcanic gases, hot springs 

    Health effects: Eye irritation, respiratory irritation, headaches, dizziness, nausea, unconsciousness, death at high concentrations 

    Important consideration: Olfactory fatigue - the smell can become undetectable at high concentrations, making exposure even more dangerous 

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Permalink Reply by Rock Man on November 21, 2024 at 16:25

Hydrogen Sulfide. A gas.

• It is associated with the water that is being produced from Smackover for lithium extraction.

Unless there is a totally closed system that is moving the water around from well to processing plant to injection wells via pipelines, even very small concentrations will create a rotten egg smell.

• Not the most pleasant odor for anyone in the area.

Higher concentrations progressively lead to making people feel ill /cause headaches.

• At a point, certain concentrations will incapacitate people (and animals) and can kill.

H2S is heavier than air - so it will collect in low spots (e.g. along creek valleys).

Nasty stuff

Attached file (PDF) summarizes H2S effects / impact as to concentrations (in parts per million / ppm).

Other attached file (H2S Luling Area) is about an area east of San Antonio where H2S gas is an issue for surface owners.

Attached EXCEL file lists H2S concentrations in PPM is NE Texas area.

• Note the high degree of variability

Attachments:

• H2S.pdf, 77 KB
• Tx RRC District 6 H2S concentrations.xlsx, 12 KB
• H2S Luling Area Sept 29 2024.pdf, 6.5 MB

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Permalink Reply by Skip Peel - Mineral Consultant on November 21, 2024 at 16:41

Thanks for the details, Rock Man.  Anyone who is considering a brine lease should be aware of this potential danger.  I may have to discuss this with my attorneys.  Damage clauses may be important and production activities may have to be curtailed when H2S concentrations reach set mandatory levels.  Monitoring should be required in addition to signage.

https://www.mysafetysign.com/hydrogen-sulfide-signs?srsltid=AfmBOop...

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Permalink Reply by Lisa on November 21, 2024 at 9:51

Was the H2S related to lithium extraction?

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Permalink Reply by Skip Peel - Mineral Consultant on November 21, 2024 at 10:20

The H2S is contained in the Smackover brine from which the lithium is extracted.

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Permalink Reply by Rock Man on November 21, 2024 at 10:30

Note that HWS concentrations across the Smackover can be highly variable.

But only a small concentration results in the "rotten eggs" odor.

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