Lithium royalty rate still not set; Arkansas Oil and Gas Commission expected to rule by noon Tuesday

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On the first day of an Arkansas Oil and Gas Commission hearing to decide whether a joint royalty application by five lithium companies will be accepted, the companies made the case for their application while avoiding questions about the potential profits of their projects.

The lithium companies (Standard Lithium, Exxon Mobil, Albemarle, Tetra Technologies, and Lanxess Corporation) are asking the Oil and Gas Commission to establish a 1.82% royalty payout for all of their leased land across four counties in south Arkansas. In their application, the companies say they have over half a million acres of land leased for their proposed lithium extraction projects.

The much-anticipated Oil and Gas Commission meeting was held Monday in El Dorado and will continue Tuesday as the commission is tasked with making a decision that could determine the fate of a massive economic opportunity for Arkansas.

At the hearing Monday, the companies were unwilling to share financial information over their projected profits and leasing activity, saying they were afraid of running afoul of federal antitrust laws by revealing confidential and proprietary information. They seek to make south Arkansas the center of a global lithium rush to power electric vehicles and the renewable energy transition. The United States Geological Survey has projected that south Arkansas has enough lithium in underground brine reservoirs to more than meet global demand by 2030.

The companies have been in a protracted legal conflict over their application with property owners who have leased their lithium brine rights to the companies. The companies cannot begin large-scale extraction until a royalty rate is set for their projects.

The mineral rights owners are represented by South Arkansas Minerals Association and Alan Perkins with PPGMR Law. According to Perkins, his clients have over 100,000 acres leased to the companies. Perkins argued to have the application thrown out as unlawful in October, and succeeded in getting the Oil and Gas Commission to push the companies to revise their application to provide more details on their potential projects last week.

Property owners have put forth a royalty rate closer to 12.5%, but the companies say that rate would make them uncompetitive in the global lithium market and effectively shut the Arkansas’s lithium industry down.

To comply with subpoenas issued by the Oil and Gas Commission, the companies produced five witnesses to testify on the merits of their application, including company representatives such as Jesse Edmondson with Standard Lithium, Remy Loiseau with ExxonMobil, and Henry Landry with Tetra Technologies.

The representatives aimed to convince the commissioners of their key argument that the royalty rate must be 1.82% so the companies can remain globally competitive. In their hours-long presentation Monday, each representative presented while hundreds of attendees and the Oil and Gas commissioners listened in El Dorado Convention Center.

Dr. Robert Ylagln, a geologist and subject matter expert for commercial operation for Exxon Mobil, presented a report from investment firm Ernst & Young that said the average royalty of a lithium project is between 2.1% and 2.5%. The financial firm came to that conclusion after reviewing lithium royalties globally.

“In producing jurisdictions, the average of those jurisdictions was 2.1%. If you look at the weighted average of those, it’s about 2.2%. So these are active producers that have ongoing operations, that are subject to an average of a 2.1% royalty,” said Ylagln, referring to the Ernst & Young study. “In the emerging jurisdictions where production may or may not have occurred but where investment is moving forward, the average royalty is about 2.6%.”

But when Ylagln was asked whether he could testify on the financial prospects of Exxon Mobil’s Arkansas project, he declined. Loiseau spoke the most during company presentations. He repeatedly refused to answer questions from both the mineral rights owners and the commissioners, saying they would not release “confidential, proprietary information.”

BMO Capital Markets has corroborated Ylagln’s assessment that a 12.5% royalty rate would “strain cash flows” for the companies and that a rate in the range of 2.5% was much more reasonable.

After the companies presented, the South Arkansas Minerals Association began their rebuttal. Robert Reynolds, president of South Arkansas Minerals Association, was the first witness for the mineral rights owners. Reynolds is an El Dorado resident who has worked in the community for 45 years as an engineer and well operator, and he told the Arkansas Times that he owns about 900 acres of mineral rights. Other mineral rights owners in the South Arkansas Minerals Association own thousands of acres.

Reynolds said his family has over 100 years of history in Union County. He presented on five brine leases that showed royalties of 10% being offered to mineral rights holders. Those leases were attached to the objections submitted by Perkins on behalf of the South Arkansas Minerals Association.

Perkins also presented on lithium brine leases they found in Texas that showed royalties between 6.25% and 10%. The main argument was that other companies have offered higher royalties than the Arkansas lithium extractors.

Robert Honea, an attorney representing the lithium companies, said the 10% leases that South Arkansas Minerals Association found could have been outliers instead of broad indicators that the market price of lithium brine leases should be 10% royalties.

Perkins chided the companies over their lack of financial disclosure toward the end of the meeting.

“We don’t believe that a one size fits all royalty rate is appropriate,” Perkins said. “It’s never been based on some benchmark from other countries, it’s always been based on ‘tell us about this project,’ provide some financial information to give us the knowledge we need to determine what is fair and reasonable. They haven’t provided anything else.”

Reynolds wasn’t the only mineral rights owner in attendance who opposed the lithium companies’ application.

“We operate several land management companies with over 20,000 acres of mineral and surface ownership in Columbia, Lafayette and Union counties,” Elizabeth Andersen, another landowner, said at Monday’s hearing. “It’s really important to my family and the businesses that we run that this opportunity is not shut down. If you look at Arkansas, there’s been lots of economic development in Northwest Arkansas, Northeast Arkansas and Central Arkansas. But this is a once in a lifetime opportunity to provide economic development for this part of our state.”

“But at the same time as a mineral owner, say you grew a watermelon in your backyard and with that one watermelon you could feed the entire world. But someone wanted to come into your backyard and take your watermelon for only $1.82. But it’s yours, it’s in your backyard, you grew up around it and managed it. Why wouldn’t you want a fair and equitable price for that one watermelon that is in your backyard?” Andersen said. “These minerals are on property that five generations of my family have been on.”

A handful of other south Arkansas locals also spoke against the application during the public comments period while a representative of multinational energy company Equinor, which is partnering with Standard Lithium, spoke in favor of the 1.82% royalty rate.

The marathon royalty hearing will continue into Election Day tomorrow, with the Oil and Gas Commission expected to decide on the application by noon.

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