The five companies seeking to extract lithium-rich brine from the Smackover Basin may have to revise their royalty rate application before a November hearing when the state Oil and Gas Commission could decide how much south Arkansas landowners will be paid for the companies to access the mineral rights to their land.
Those companies, including Albemarle Corporation, ExxonMobil, Standard Lithium, Lanxess and Tetra Technologies Inc., joined the South Arkansas Minerals Association, a coalition of landowners, at a hearing Friday with the Oil and Gas Commission.
During that preliminary hearing, both sides presented legal arguments concerning a royalty rate application submitted at the end of July that, if approved, would set a blanket rate of 1.82%.
Friday’s pre-hearing was the latest in an ongoing negotiation between the lithium extraction industry, which is planning to start operations in south Arkansas, and landowners there. The two sides have been going back and forth over the royalty rates. That debate has since moved to the question of whether the joint application submitted by the lithium companies to regulators is against Arkansas law.
Lithium companies and landowners are scheduled to meet again at a Nov. 4 hearing to debate the merits of the joint application. The South Arkansas Minerals Association, represented by attorney Alan Perkins and PPGMR Law, believe a royalty of 1.82% is far below adequate compensation. Along with their objections to the legality of the application, they would like to see a royalty rate closer to 12.5%.
Perkins argued in South Arkansas Minerals Associations objections to the joint application that the application constitutes “unlawful rulemaking” in violation of the Administrative Procedures Act. The law governs actions by state agencies and defines a rule as any “agency statement of general applicability and future effect.”
He also argued during Friday’s meeting that a lithium brine royalty must be established on each “unit” of brine production, meaning each individual lithium project operated by a company.
The companies rejected those legal arguments, and filed motions with the Oil and Gas Commission to provide clarity on the potential legal issues that Perkins brought up.
“I think the co-applicants [the lithium companies] need to amend their application to include the existing brine units that are contained in the Smackover formation,” Charles Moulton, the hearing officer for the Oil and Gas Commission, said. He advised the companies to include specific royalty requests for the lithium extraction projects that already exist, even if the companies could not include their future plans for projects.
Moulton said that he did not agree with the argument by Perkins, the South Arkansas Minerals Association lawyer, that the joint application was “unlawful rulemaking” and violating the Administrative Procedures Act. If Moulton had agreed with that argument, the joint application likely would not have had a route forward.
After the hearing, Perkins said he thought the rulings tilted in favor of the property owners. “Win is a strong word, but certainly both the commission lawyer and the hearing officer agreed that this was a unit-by-unit determination,” Perkins said. “He didn’t decide exactly what evidence they needed to produce about profitability, but he didn’t knock that out. The commission will have to decide that.”
If Moulton’s recommendations are taken by the companies, they may look to withdraw and revise their joint royalty application in the coming days to fit with Moulton’s reading of the law. That means the companies would request a royalty be established for each of their existing projects, instead of requesting a royalty be established for all projects and potential projects within their leased acres in the Smackover formation. They could still request a royalty of 1.82% for each of their projects, but it would require some revision of their current application.
But the Oil and Gas commissioners also do not have to accept Moulton’s recommendations, and the companies have the option to plow ahead and make their case to the commission in November.
The companies also tried to convince Moulton that they should not have to disclose financial information and produce witnesses to talk about their leasing activity at a hearing over their applications. That argument was in response to subpoenas issued by Moulton at the request of the South Arkansas Minerals Association.
Lawyers representing the lithium companies argued to Moulton on Friday that they could run afoul of federal antitrust laws if the companies release information on their costs, projected profits and other internal financial info. They fear they will be accused of “horizontal price fixing” by making their financial data publicly available for the commission to consider.
On the other hand, Perkins said the companies were not offering enough financial information to even prove they would profitably extract lithium brine. He said financial disclosure was key to letting the Oil and Gas Commission establish royalties, and that Standard Lithium and Lanxess ran into problems on their previous royalty application because of their lack of disclosure.
In the joint application, the companies only included financial information about two Standard Lithium projects.
Ultimately, Moulton did not recommend that the Oil and Gas Commission accept the companies’ arguments that the requested evidence and subpoenas be rejected. He cautioned the companies that the Oil and Gas Commission could not enforce its own subpoenas, so the companies should do their best to comply with the subpoenas without disclosing information that would get them in trouble with antitrust regulators.
Moulton said he intended for his final recommendations to be released in writing by Tuesday. He cautioned that his recommendations could change. He will deliver the recommendations to the Oil and Gas Commissioners in writing.
Moulton told the Arkansas Times earlier this week that the Oil and Gas Commission may vote on his recommendations at the start of the Nov. 4 hearing over the royalty application.
The companies cannot begin profitable extraction until a lithium royalty is established for their projects. Each company is leasing thousands of acres of mineral rights from landowners in four south Arkansas counties, and those mineral rights holders will be owed royalties when the companies begin commercial extraction of lithium brine.
