Tapping the massive underground resource will hinge on landowner royalty agreement.

The promise of lithium beneath Arkansas and five neighboring states cannot be overstated. Arkansas' little corner of the Smackover Formation – a massive permeable limestone geological extending from Florida to Texas – was estimated earlier this month by the U.S. Geological Survey to host between five and 19 million tons of lithium reserves.

With such a massive lithium discovery and big names eager to break ground, the state is now the battleground between multinationals and local landowners over royalties.

In July of this year, five lithium companies – Albemarle, ExxonMobil, Standard Lithium, Lanxess, and Tetra Technologies Inc. – filed a joint application with the Arkansas Oil and Gas Commission (AOGC) to propose a royalty rate for extracting lithium-rich brine in south Arkansas. The application was based on four factors, including the volume of lithium carbonate equivalent produced, the price of lithium, and the percentage of an individual mineral rights owner's stake in the brine area.

Push and pull

The AOGC hearing officer and administrative law judge Charles Moulton released a written recommendation for how to proceed with the dispute, with the next hearing slated for Nov. 4 in El Dorado. Moulton also recommended that the Oil and Gas Commission deny the motion by lithium companies to throw out subpoenas, asking them to testify on their financial information and projected profits.

These companies are already collectively leasing thousands of acres of mineral rights from landowners in four south Arkansas counties, and before they can begin profitable extraction of lithium brine, compensation must be established.

The original application was immediately met with opposition from landowners, who have countered with a 12.5% royalty rate, arguing that the joint proposal is unlawful and lacks transparency, such as providing financial information for each company and project separately. Landowners are urging the AOGC to throw out any joint application, arguing that such a proposal would illegally skirt the state's rulemaking process.

The landowners' proposal is "a level that would strain project cash flows based on our modelling," according to BMO Capital Markets mining analyst Greg Jones.

"We assume a 2.5% royalty in our base case, within the range of royalties applied in other jurisdictions. We anticipate the commission will take a balanced approach to support development of Arkansas's lithium industry," the financial analysts added.

While the resources beneath Arkansas alone are suspected of hosting enough lithium to meet global demand for nine years at projected 2030 levels, the formation stretches from Texas to Florida, suggesting much more.

U.S. Geological Survey

USGS sampled the southwestern Arkansas portion of the much larger Smackover Formation.

Royalties by rote

Every jurisdiction has its own mineral royalty rates based on numerous factors. With lithium demand expected to rise and today's prices plummeting, squaring equitable royalties in southern Arkansas isn't so easy.

In their joint application, the companies wanted approval of an order allowing them to establish one overarching royalty rate payout for all future lithium extraction in the Smackover Formation.

California charges from $400 to $800 per ton of lithium carbonate-equivalent, depending on production totals; Nevada has a 5% tax on net lithium sales; Western Australia levies a 5% royalty on revenue from sales of spodumene concentrate – which is from hard rock ore, not brine; Argentinian provinces apply a 3% royalty to extracted minerals; and Brazil charges a 2% royalty on gross income from lithium sales with deductions allowed for taxes paid on commercial sales.

The South Arkansas Minerals Association, which represents the landowners, says companies hoping to extract lithium from the Smackover Formation haven't provided enough financial information to justify their proposed rate.

An Oct. 11 pre-hearing referenced some of the measures in state law for calculating the rate, such as requiring a profitable extraction of brine before a rate can be applied, but even the hearing officer noted it was unclear what evidence the commission would require to ensure a fair and equitable rate.

The companies' proposed 1.82% royalty per acre of extracted value for Arkansas landowners is based on precedent from a 2007 commission order, including a ruling that determined additional compensation of 5.65 cents per barrel of brine. However, times and costs are rapidly changing.

Direct lithium extraction

Direct lithium extraction (DLE) costs more than conventional brine evaporation, but the benefits of this nascent technology are expected to easily compensate for the higher cost – as the process occupies a much smaller environmental footprint and can produce results in hours instead of months as well as doubling the recovered amounts.

In other locations with underground brine reserve production, such as Chile and Alberta, the use of DLE is an emerging technology with great promise and steadily growing adoption worldwide, which the projects in Arkansas are keen to adopt.

With DLE processes akin to extracting crude oil, fossil fuel companies like Standard Lithium's partner Equinor, Norway's state-owned petroleum company, and ExxonMobil, with years of comparable experience, are especially intent on expanding their portfolios to lithium brines by way of this method.

Petroleum companies may also be able to benefit from mineral-rich brines with potentially economically viable percentages of lithium pumped to the surface as a byproduct of oil and gas production in Southern Arkansas.

ExxonMobil is specifically evaluating potential production costs after drilling exploratory wells at the 486-square kilometer Mobil Lithium project in the southern Arkansas portion of the Smackover Formation this year, planning for initial production in 2027.

"If commercially recoverable, the amount of lithium present would meet projected 2030 world demand for lithium in car batteries nine times over," USGS penned in a news release on its estimate of lithium reserves in the Arkansas portion of the Smackover Formation.