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The lithium rush is on, and in the U.S. the Smackover Formation is making headlines.
While many other basins familiar to E&Ps hold the element critical for battery technology that could help lower emissions, the Smackover hype is justified, according to Galen Huling, geologist for Grounded Energy. Looking at the Arkansas Smackover, brine concentrations average from 150 parts per million (ppm) to 400 ppm.
Wells drilled by Standard Lithium, which is working to bring commercial-scale direct lithium extraction projects online, have even reached 600 ppm.
“If you’re comparing that to other brines in the U.S, you’ve got the Salton Sea averaging in the low 200s. Clayton Valley is up to 300. So, these are exceeding a lot of the other regions of the country,” Huling said at the Feb. 7 NAPE Energy Business Conference.
Huling explored a range of hypothetical economics to highlight the potential monetary value of lithium extraction. A standard 640-acre section with an average net reservoir thickness of 100 ft, 11% porosity and a lithium concentration of 250 mg/L could translate to $290 million per section. That’s assuming 100% recovery and a lithium carbonate price of $25,000 per tonne, he said.
“That’s nothing to shrug at,” Huling said. Plus, the Smackover’s location in an industry-friendly region with a strong oil and gas presence and infrastructure in place, enables the element to be moved to domestic and global markets.
The Smackover, which along the U.S. Gulf Coast from Texas to Florida, has attracted interest from oil giant Exxon Mobil Corp., lithium powerhouse Albemarle and iron ore company Pantera Minerals. The companies are among those aiming to boost U.S. supplies of lithium, a key ingredient of batteries used to power electric vehicles and to provide energy storage to strengthen electric grids.
While the Smackover has attracted many companies, Huling noted that lithium deposits are located across the U.S.—including Appalachia, Salton Sea, Powder River Basin, Williston Basin and Nevada. At some point during their geologic history, the areas have had geologic subsidence that has exposed basement rock with lithium being sourced from volcanic, or igneous rocks. However, it takes time—millions of years—for lithium to concentrate.
Getting it out of the ground from brine requires some geothermal activation and a closed basin system for water to accumulate and concentrate, among other requirements, he said.
In Utah, the Paradox Basin has always been known as a minerals basin, said Tom Smith, founder and CEO of GeoBrines International. There, miners explore for uranium, potash and lithium, as well as oil.
“The brine fluids out here typically have high TDS; total dissolved solids are very high. … You’ve got a lot of mineral load dissolved in that brine. That’s a clue where to look,” Smith said.
But is it the next Smackover?
“No, flat out, no,” Smith said.
Australia-based Anson Resources is perhaps the furthest along in lithium extraction efforts in the Paradox, he said. The company has more than 1,000 placer claims, a processing site near Green River, Utah, and a pre-feasibility study underway as part of a lithium carbonate project. However, the company requires 300,000 bbl/d of freshwater.
“But this is the Colorado River Basin,” Smith said. Water resources are scarce. "You’re not going to get 30,000 barrels a day out here,” Smith said.
Plus, the numbers don’t add up when it comes to hauling fluids. Costs run from $3/bbl to $5/bbl, he said. When drilling a well in the region, salt has to be removed because the brines aren’t stable, Smith explained.
“You actually have to haul fresh water to the well to keep that salt dissolved and moving. Otherwise, your tubing gets scaled up or salted up, and it’s just a nightmare,” Smith said. “So, there’s a lot of financial risk here, to say the least.” Stable brines are easier to process.
To illustrate the challenging economics, Smith gave an example of a commercial-scale direct lithium extraction (DLE) project in the Paradox Basin.
Processing about 2,800 bbl/d of source brine material with mixed lithium contaminants produces about 268 lbs of lithium per day (200 ppm lithium).
That haul would generate an annual revenue from sales of about $5.7 million. That’s based on a lithium carbonate equivalent basis of $30,000 per metric tonne.
“The cost of processing is about a third of that, [about] $10,000 per metric ton. So, your profit before tax is about $3.8 million. But really you spend $25 million to do this—to drill the well and get the facilities. Your payoff is greater than six years. It’s a 2X ROI.
“This doesn’t really float the boat.”
Blackbuck Resources, a Permian Basin-focused water midstream company, has jumped into lithium. Blackbuck CEO Justin Love shared a cautionary tale on lithium development. While the Permian is considered the place to be for oil production, it may not be the best for lithium from produced water. During the COVID-19 pandemic, the company started looking for value—particularly lithium—in the water it treats.
“I don’t think produced water in the Permian Basin is going to be a viable resource,” Lowe said, reflecting on the company’s learnings. Challenges include the need to have access to hundreds of thousands of barrels per day of water, he said. Water quality is also an issue, considering the water is coming from various benches.
“It might be Bone Spring produced water. It might be Wolfcamp. It could be really from anywhere, right, depending on where your pipeline network is,” Love said. “God forbid if a truck driver drops it off. … You’re seeing very large variability in your water quality. I think in the Permian, on average, it’s somewhere around 20 ppm, which is not very competitive. And then, there’s a technical challenge.”
It is not only difficult to remove hydrocarbons from the water, it is also expensive, Love said.
“Even the geothermal projects like in the Salton Sea are having a ton of trouble. It’s primordial soup coming up very hot. It depressurizes. They’re having a lot of issues with scale,” Love said.
Blackbuck, instead, sought a North American pure-play brine outside any viable oil and gas window.
“We’re on track by the end of this month to have somewhere around 30,000 acres under control and growing. So, we’re really excited about it,” Love said.
Lithium and the law
Besides economic and technical considerations, attorney Tom Daily of Daily & Woods pointed out the legalities around the definition of mineral and how challenges may arise from separate ownership of different elements within brine.
“Texas is pretty confused about who or what owns brine,” Daily said.
Brine produced along with oil may belong to the mineral owner and the oil operator, he said. “But if someone just goes out and drills a brine well, they may be dealing with the surface owner,” he said.
Referring to brine as a mineral—versus lithium as a mineral—may have different legal implications for ownership. “And that can lead us to places we don’t want to go. So, we need to be real careful about what is a mineral.”
Obtaining rights to produce brine and extract lithium requires getting a brine lease, which differs from an oil and gas lease. It also requires carefully drafted royalty provisions. Developers of lithium resources should also keep in mind the permissions required when reinjecting spent brine to avoid underground trespass, Daily said.
Forced pooling is a solution to dealing with a lease owner who doesn’t want to participate. Forming units is “the only way to avoid this trespass liability while still being able to inject and produce in concert with what is actually a giant water flood,” Daily said. “And within the units you acquire the right to force pool.”
Arkansas is currently sorting out royalty payments for lease owners who have refused to sign a lease.
“It’s going to be a very heated discussion,” Daily said, “because you have, as you can imagine, royalty owners who think they ought to get 12.5% of the sale value of battery-grade lithium carbonate as opposed to something based on the value of brine.”