Standard Lithium gets royalty rate greenlight from state Oil and Gas Commission
A state regulatory panel sided with Standard Lithium over a group representing south Arkansas landowners at a hearing in Magnolia on Wednesday, voting unanimously to set a 2.5% royalty rate for mineral rights owners — much lower than the 12.5% rate the landowners previously had argued for.
The decision is the first time the Arkansas Oil and Gas Commission has established a royalty rate for lithium brine production in the state and marks a crucial step in the development of the industry. In April, the commission established lithium brine “production units” for Standard Lithium and ExxonMobil, which also hopes to extract lithium in south Arkansas. Standard Lithium’s production unit — a plot of land that the company intends to pump lithium rich brine from — is over 20,000 acres. The company is partnering with Norwegian energy giant Equinor to get the project off the ground and has received a massive federal grant to build in Arkansas.
The 2.5% royalty rate will base payouts on the quantity of the lithium produced and the global price of lithium. When the price of lithium is low, the payout to mineral rights owners will be low; when the price rises, payouts will rise. Mineral rights owners will also receive a so-called brine production fee, which Standard Lithium argued made the royalty rate effectively 3%.
The rush to extract lithium from beneath south Arkansas has drawn national and international attention after the United States Geological Survey found that the region’s lithium reserves could meet 2030 global demand for the mineral in car batteries “nine times over.” Those reserves lie in a geological formation that extends across south Arkansas and into eastern Texas called the Smackover Formation.
Standard Lithium and others hope to meet the growing demand for lithium ion batteries, which power everything from cellphones to electric vehicles to energy storage for renewable energy sources like solar panels and wind turbines. National security hawks and environmentalists alike are aligned on boosting American production of “critical minerals” like lithium in the grand competition between the U.S. and China.
Both the Biden administration and the Trump administration have looked favorably upon Standard Lithium’s proposal to use a new technology called direct lithium extraction to produce lithium carbonate from brine deep beneath Lafayette, Columbia, Union, and Miller counties, providing the company with federal benefits and incentives. But the technology is largely untested at a commercial scale, making Standard Lithium a guinea pig of sorts.
Standard Lithium’s previous two attempts to establish a royalty rate encountered major pushback from the Oil and Gas Commission — the state regulatory body charged with regulating the emerging lithium industry — and a group of landowners called the South Arkansas Minerals Association.
Last year, Standard Lithium and four other prospective lithium companies submitted a joint proposal to set a blanket royalty rate of 1.82%. The commission shot down that proposal due to a lack of economic transparency and opposition from landowners, who countered with a rate of 12.5%. That would be closer to a traditional oil and gas royalty, but lithium companies have said such a high rate would make them globally uncompetitive.
The decision Wednesday will allow Standard Lithium to move toward finishing the build out of its lithium extraction project. But other companies, like Exxon Mobil and Albemarle, have yet to get royalty proposals approved by the Oil and Gas Commission.
At the hearing Wednesday, which was hosted at South Arkansas University, the South Arkansas Minerals Association again opposed Standard Lithium’s royalty rate application, arguing that the 2.5% proposed was still not fair and equitable.
Lawyers for the association pressed Standard Lithium executives on whether they thought the price of lithium may go higher in the near future. From the perspective of the landowners, the company was trying to keep its payouts to landowners low, even while planning to reap large profits if the price rises. The company argued the rate had to be so low to keep it globally competitive, because the price of lithium is currently down.
“We are disappointed but consoled by the knowledge that my colleagues did a good job of making the right case in the right manner and the oil and gas commissioners worked hard on the matter,” Robert Reynolds, president of South Arkansas Minerals Association, told the Arkansas Times after the hearing.
Standard Lithium director of government relations Jesse Edmondson, an Arkansas native, led the presentation in front of the Oil and Gas Commission. He warned the commissioners that east Texas also has lithium resources, and said Standard Lithium — despite being in Arkansas for the last seven years and receiving federal money to build in Arkansas — could end up not operating in the state depending on the regulatory environment.
“We are confident that lithium can be commercially extracted in the Smackover Formation at a profit,” Edmondson said. “However, this opportunity also faces significant challenges that must be overcome, the most significant of which is that we have to compete in a global market place where our largest competitor is China.” He urged the commissioners “to vote yes on our proposal so we can continue to develop this project and put southwest Arkansas on the map as a top domestic producer of lithium for America’s energy future.”
By a vote of 9-0, the commissioners agreed.
Edmondson also presented a study from the University of Arkansas Walton College of Business that projected that Standard Lithium’s operation would create over $5 billion in value over its life, creating over 800 operations jobs in the area, and over 8,000 temporary construction jobs. And he touted Standard Lithium’s efforts to invest in the community through volunteer work and professional development opportunities.
South Arkansas University will be benefitting from some of that investment. The university launched a program called “Lithium Learns” earlier this year to partner with lithium companies on training and educational opportunities for students.
