Update: Companies Withdraw Plan to Set Arkansas Lithium Royalties

Arkansas Business

April 8, 2024

Update: Companies Withdraw Plan to Set Arkansas Lithium Royalties


Lanxess Corp. and Standard Lithium Ltd., companies that have partnered to make test batches of battery-quality lithium by extracting the metal from underground brines in south Arkansas, have withdrawn their application for the state to establish a royalty to be paid to the brine’s mineral rights owners.
The topic had been scheduled for discussion at an April 23 meeting of the Arkansas Oil and Gas Commission in El Dorado, but that hearing may be canceled, according to a letter dated April 1 from the companies’ law firm to members of the Oil and Gas Commission and its director, Lawrence E. Bengal.
Lanxess and Standard had previously proposed royalties for mineral rights owners of up to $900 per ton for lithium carbonate selling at $60,000 a ton, but prices for the element have tumbled since hitting record heights in 2022.
In the April 1 letter, attorney Robert M. Honea of Hardin, Jesson & Terry PLC of Fort Smith and Little Rock, noted that the companies were granted ongoing authority to operate their El Dorado test extraction plant by the commission late last year. At that time, their request to establish a royalty was put off.
“Please be advised that the Applicants have decided to withdraw their Application for the establishment of a royalty on lithium,” Honea wrote. “The hearing on this matter presently scheduled for April 23, 2024, may therefore be canceled.” The letter gave no reason for the companies’ decision to withdraw the application,
Bengal told Arkansas Business via email that the April 23 meeting will go on as scheduled, though it may be abbreviated.
“The application has been withdrawn on request of the Applicant for reasons I am unaware of at this point,” Bengal said. “The Commission will still have a hearing as this is the regularly scheduled monthly hearing for April and other matters and applications will be heard.”
Original story: Late last month, Reuters reported that a complex mix of state regulations could impede America’s push to become a global lithium source.
The news service said doubts about mineral rights to underground brines — like those Standard Lithium Ltd. and Lanxess AG are using to produce test batches of powdered lithium in south Arkansas — could pose problems for companies working to create a multibillion-dollar new pipeline for battery material.
Gov. Sarah Huckabee Sanders says south Arkansas could become a global capital of lithium production as companies like Exxon Mobil, Tetra Technologies and Albemarle start work on a vast infrastructure to pump brine to the earth’s surface, strip it of precious elements and pump it back deep underground.
But as Reuters reported, questions about who owns the brine rights and what they should be paid in royalties remain unanswered in Arkansas and other lithium-rich states.
Landowners have been waiting years for the Arkansas Oil & Gas Commission to establish a royalty on lithium brine, even though the state has long had a royalty for brine used in bromine production. The commission is set to address lithium royalties in an April 23 meeting, but no definite answer is likely right away.
Lanxess and Standard had proposed royalties for mineral rights owners of up to $900 per ton for lithium carbonate selling at $60,000 a ton, but prices for the element tumbled after that proposal. Goldman Sachs estimates an average price of about $13,500 per ton for lithium carbonate this year, and about $14,300 per ton for lithium hydroxide. Both compounds are used in making lithium ion batteries, key to the emerging electric vehicle market. But prices could still skyrocket by 2030, just about the time lithium production in Arkansas could be taking off.
“Global lithium demand is expected to outpace supply by 500,000 metric tons annually by 2030,” Reuters reported, and if the U.S. can’t boost domestic production, battery makers will have to turn to China. Still, price clarity is elusive.
Texas’ lack of a royalty price has put off both Standard Lithium, which is backed by Koch Industries of Wichita, Kansas, and Tetra, Exxon’s partner in an Arkansas lithium project. “We’re taking a measured approach to Texas,” Robert Mintak, Standard’s CEO, told Reuters. He is far more optimistic about Arkansas’ regulatory environment, but again, there are those pesky doubts on royalties.
State officials have been working on a formula for mineral rights owners since 2018, but the devil is in the details. One suggestion has been to set different royalty rates for brines holding various concentrations of lithium.
Dave Gibbs, president and CEO of Mission Creek Resources LLC, which has an operations center in Magnolia, told Arkansas Business that the oil and gas industry had “a very long run in establishing what is fair and reasonable in royalties.”
But he said that when a barrel of oil is pumped up, the industry pays royalties based on the value of crude oil, not on the gallons of jet fuel or motor oil or lighter fluid that refinement produces.
“Right now all the conversations about lithium are all based on the final refined value as lithium carbonate,” Gibbs said. South Arkansas brines are 200 to 500 parts per million lithium, a tiny fraction compared with a whole barrel of water. “People are running around saying that lithium is worth tens of thousands of dollars per ton, but that’s refined lithium, which is a very far thing from a barrel of brine. That’s going to be the big battle: How do you set a royalty on the unrefined brine?”

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Thanks, Sam.  The current depressed price of lithium is an excellent opportunity for companies to attempt to depress royalty on brine going forward.  Since major production of the finished product is years in the future, there is plenty of time for investors to lobby for advantageous royalty regulation.  Yes, there are significant differences between oil, which must be processed into a saleable end product, and brine which must be stripped of the lithium content and other valuable elements but what we are seeing if the usual lobbying by big business to enhance their bottom line.

In this period of uncertainty, no one should enter a lease for their brine rights.  They should be patient and wait for  more certainty on regulations and competitive lease terms.  Unfortunately far too many land owners in areas of industry interest are likely to sign leases with less than fair market terms yet to be established.  This period of uncertainty will likely last for a year or two.


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