The push to produce commercial lithium from Arkansas’ underground brines took a big step forward Wednesday when regulators set a royalty rate for landowners.
The Arkansas Oil & Gas Commission unanimously set a 2.5% royalty for mineral rights holders, disappointing many who had hoped for a bigger percentage.
The ruling, which came during a four-hour hearing at Southern Arkansas University in Magnolia, favored Standard Lithium. The Canadian company has been working to produce battery-quality lithium through direct extraction of the metal from Smackover Formation brine for more than seven years.
Standard’s joint venture with Equinor of Norway seeks to build a $1.5 billion lithium plant near Lewisville in Lafayette County. It argued in the hearing that a 2.5% return to mineral rights owners would let Arkansas keep its head start in the direct extraction industry. A higher rate would drive producers to Texas, Standard Lithium’s Jesse Edmondson told commissioners.
China Competition Cited
“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 argued that a yes vote on the 2.5% royalty would “put southwest Arkansas on the map as a top domestic producer of lithium for America’s energy future.”
Commissioner Charles Wohlford called the royalty compromise, up from a 1.82% rate that commissioners rejected last year, was “fair” and “consistent.” The decision ties the 2.5% rate to a pricing index pegged to current market prices for battery-quality lithium products.
The South Arkansas Minerals Association aggressively fought the 1.82% rate, considering it far too low. It thought the 2.5% rate was still too stingy, and proposed a sliding scale with a low point of 4%. But it seemed far more accepting of the rate the commission approved.
Robert Reynolds, president of Shuler Drilling Co. in El Dorado and president of the minerals group, believes that Standard Lithium never produced enough evidence to prove that a higher royalty would stifle profitability.
“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,” he told an Arkansas Times reporter after the hearing.
Extraction Plant Plans
Edmondson told commissioners that the extraction plant, on 118 acres about seven miles south of Lewisville, will be a job generator. Construction, expected to begin this year or next, will create 300 construction jobs and then 100 permanent positions. He expects it to open in 2028.
Edmondson also said 65% of the mineral rights owners involved in Standard’s operations live out of state.
Eamon Mahoney, a longtime El Dorado oil and businessman, accused Standard of playing a stalling game to wear down commissioners to get a low royalty.
But it was clear that commissioners considered the proposal a workable compromise.
A royalty decision was a pre-requisite for the production and sale of lithium products made in Arkansas.
Standard attorney Bob Honea warned commissioners that Arkansas would risk killing “the goose that laid the golden egg” if it stalled too long on setting a royalty. The state’s head start in direct extraction “is going to evaporate if we don’t move fast,” he argued.
But mineral association lawyer James Rankin said Standard’s threat to take its business elsewhere was empty. “That’s not going to happen,” he said, noting that the southwest Arkansas project received a $225 million infusion from the United States Department of Energy.
The Trump administration gave the project priority because lithium is a vital mineral for domestic production.
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