South Arkansas landowners fire back at lithium companies, call proposed royalty structure ‘unlawful’

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Landowners are urging the Arkansas Oil and Gas Commission to throw out five lithium companies’ joint application to establish a royalty rate on extracting lithium-rich brine in south Arkansas, arguing that the companies’ proposal would illegally skirt the state’s rulemaking process.

The lithium industry in Arkansas is just getting off the ground, but property owners are already clashing with companies over how much they should be paid to lease the mineral rights on their land. The five major companies active in the nascent industry — Albemarle Corporation, ExxonMobil, Standard Lithium, Lanxess and Tetra Technologies Inc. — filed a joint application with the Oil and Gas Commission on July 26 to set a royalty rate of 1.82%. The commission, which regulates the developing industry, will consider that application at a meeting on Sept. 24.

The companies cannot move forward with extracting lithium for profit until a royalty rate is set by the commission, but there is considerable distance between the numbers proposed by lithium companies and those proposed by landowners.

In October, when Lanxess and Standard Lithium suggested a rate of 1.25-1.67% for a specific lithium extraction project, landowners countered with a 12.5% rate. The two companies later withdrew their application. They joined with Exxon, Albemarle and Tetra to file the joint application in July, which attempts to set a blanket rate for all operators and all leased lands.

But in a letter sent Tuesday to the Oil and Gas Commission, a lawyer for the landowners argues the application should be thrown out entirely.

“Yes, we are aware of the objection filed yesterday. We believe it is up to the [Arkansas Oil and Gas Commission] to make a decision as to the merits of the objection,” said Jesse Edmondson, a spokesman for Standard Lithium. “It is our opinion that the application we have filed meets statute requirements, and presents a fair and equitable royalty for all parties.”

ExxonMobil also defended the joint application.

“[The Arkansas Oil and Gas Commission] is tasked with setting the standard for a fair and equitable royalty structure that appropriately balances the contributions of all parties involved,” a spokesperson said. “The joint proposal that was submitted meets this objective, importantly giving mineral owners a direct benefit from potential lithium development in Southern Arkansas.”

The South Arkansas Minerals Association, a collection of landowners in the area, call the five major companies in the developing industry “the Big Five.” The association mostly represents large, landowning companies, including south Arkansas businesses like Murphy Oil Corporation, Mahony Corporation, Triangle Industries, and others.

“As much as everyone would like to see some progress on determining a lithium royalty rate, the Commission cannot grant the application before it,” attorney Alan Perkins, who represents the South Arkansas Minerals Association, wrote in the Tuesday letter. “The Big 5’s coordinated attempt to steamroll a minimal royalty rate through for the entire brine production area irreconcilably conflicts with Arkansas law.”

Joint application illegal, landowners say The landowners argue that if the Oil and Gas Commission accepts the lithium companies’ joint application, they will be effectively creating a new rule without going through the lengthy “rulemaking” process laid out in state law.

In their joint application, the companies ask the commission to approve an order allowing them to establish one royalty rate for all future lithium extraction in the Smackover formation, a subterranean geological region in south Arkansas.

Perkins cited the Arkansas Administrative Procedure Act, the law that governs actions by state agencies like the Oil and Gas Commission, which defines a rule as any “agency statement of general applicability and future effect.” His argument is that the lithium companies’ joint application would in effect create a rule applied to all potential instances where lithium is extracted and sold in Arkansas.

When state agencies make a new rule to implement a law passed by the Legislature, they must go through a formal process. That process typically requires a series of public notices, hearings and a public comment period, along with legislative review.

“The first application was made in the way it should be made,” Perkins said to the Arkansas Times. “They said we are applying for a royalty for these units and here is our financial information for these units. We were able to analyze that and by using that information, propose what we were proposing as a fair and equitable royalty as opposed to what they wanted to have. In this instance [the joint-application], they’ve not done any of that. They have not designated any specific unit, they haven’t presented any financial information at all in the financial application, and so we were really unable to do that.”

Perkins argues that royalty rates are legally required to be established on a case by case basis, saying “there is no statutory basis” for a joint royalty application that does not consider each company and project separately.

Perkins also said the joint application lacks transparency. Though the lithium companies are asking the Oil and Gas Commission to set a blanket royalty rate, they only included financial information and economic forecasts from one company, Standard Lithium.

“They’ve shown an aversion to sharing their financial projections about how profitable their projects will be, they don’t want to do that,” Perkins said.

In the joint application, the lithium companies say details concerning their costs, extraction methods and expected sales “constitute valuable trade secrets of [each] company which must not be shared with other Co-Applicants or released into the public domain.”

Standard Lithium is the only lithium company to make a pre-feasibility study or economic projections public so far. In the joint application, only Standard Lithium submitted economic projections and data regarding a specific project.

At the December 2023 Oil and Gas Commission meeting, the commissioners were convinced to table Standard Lithium and Lanxess’ royalty application due to a lack of financial disclosure. Lanxess and Standard Lithium voluntarily withdrew that application in April.

Representatives from Standard Lithium and Exxon told the Arkansas Times they believe in the validity of the joint application. It’ll be up to the Oil and Gas Commission to decide whether Perkins’ legal objections are correct.

How we got here The heart of the royalty conflict is whether rates will look more like a traditional brine royalty of 1-2%, or if they will be closer to a traditional oil and gas royalty of 11-12%. Standard Lithium has argued to the Oil and Gas Commission that risks associated with the new industry and the expensive, experimental technology used for lithium extraction mean the company cannot afford to pay high royalties to landowners.

From the lithium companies’ perspective, the landowners’ lithium-rich brine by itself is not valuable without their technology. A high royalty rate will stifle their ability to invest in lithium production, they argue. At the December 2023 Oil and Gas Commission meeting, representatives from Tetra Technologies and Standard Lithium said a 12.5% royalty rate would discourage investment and innovation.

The lithium rush in Arkansas is part of the broader transition to renewable energy and efforts to bring control of the supply chain for critical minerals to the U.S. The technology that companies hope to use in south Arkansas has never been used before commercially.

But landowners represented by the South Arkansas Minerals Association want a fair payout. In the letter Tuesday, the group cited several recent examples of Arkansas landowners being offered 10% royalty deals for lithium brine extracted beneath their lands — far more than the 1.82% rate proposed by the lithium companies.

As the Arkansas Times reported a month ago, based on Standard Lithium’s pre-feasibility study, the company expects to receive more than double the return on their investment with their South Arkansas Lithium Project than most mining operations receive, even if the lithium company owed landowners a royalty payout of 12.5%. Standard Lithium is the only lithium company to make a pre-feasibility study or economic projections public so far.

Read and download the South Arkansas Minerals Association Objection below:

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South Arkansas landowners fire back at lithium companies, call proposed royalty structure ‘unlawful’

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