Pay To Play: The Effect Of The Brine Conservation Act’s Statutory “In-Lieu” Royalty Provision On The Long-Term Economic Viability of Arkansas’s Brine-Lithium Industry
Summer 2024 By Tyler C. Gillespie |
In her remarks delivered at the 2023 Energy Council Meeting held on September 15, 2023, Arkansas Governor Sarah Huckabee Sanders claimed that “Arkansas is moving at breakneck speed to become the lithium capital of America.” While the Governor’s claim may sound bold and even hyperbolic, there is merit to her statement; since 2022, at least four natural resource producers have announced plans for lithium production projects in Southwest Arkansas’s Smackover Formation. All this activity, and money, surrounding the oddly-named Smackover—a geological formation that runs across most of Southern Arkansas and extends from Texas to Florida—heralds a potential economic boom for small towns like Magnolia and El Dorado. These rural communities—historically at the center of oil and natural gas production—hope the prospect of lithium will mean financial prosperity and jobs.
However, booms devolve into busts all the time because potential disruptions lead to uneconomic and unprofitable natural resource production. While professionals—familiar with the ebbs and flows of the industry—can typically see a problem on the horizon, locals rarely see the problem until the capital investments in the community stop flowing or people lose jobs and businesses close down.
Whether Arkansas, on the whole, is prepared for the rush of the lithium industry remains yet to be seen, but there already exists a statutory basis to oversee and regulate its production since lithium is a derivative of brine salt water. The Arkansas Brine Conservation Act of 1979 (the “Brine Act,” or the “Act”) authorizes the Arkansas Oil and Gas Commission to regulate the production of brine, including lithium, However, the Brine Act’s “in-lieu” royalty provision could inadvertently strain long-term profitability of the Arkansas lithium boom, leading to a bust that brings about a premature end to lithium production in Arkansas’s Smackover formation. As such, the Arkansas General Assembly needs to amend those subsections of the Brine Act related to the in-lieu royalty provision to alleviate an unnecessary economic risk to Arkansas’s brine-lithium development.
The above is a summary of an article by Tyler C. Gillespie published in the Summer 2024 edition of the University of Arkansas at Little Rock Law Review. A third-year law student at the University of Arkansas at Little Rock William H. Bowen School of Law, Tyler will join Quattlebaum, Grooms & Tull as a transactional associate upon graduation. You may click the link below to read the full article, including citations and attribution.