Texas Oil and Gas Attorney Blog
Lithium mining is apparently becoming the next boom activity in Northeast Texas, particularly in Cass, Franklin, Morris and Titus Counties. There are a few things to know about lithium leasing.
First, be aware that Northeast Texas is becoming Ground Zero for lithium production. It is estimated that the lithium contained in brine from the Smackover Formation that underlies Southwest Arkansas and Northeast Texas contains some of the highest lithium concentrations in the country.
Historically, lithium mining involved pumping the brine into huge evaporation ponds on the leased property and retrieving the lithium once the brine evaporated. Brine is much more saline than saltwater, and these ponds were incredibly destructive of property. However, there is a new technique called Direct Lithium Extraction in which the brine is processed in small tanks, either on the property or at another site, to remove the lithium. The leftover brine water is then pumped back into the formation. It is critical that lithium leases prohibit the evaporation pond technique and require the newer Direct Lithium Extraction technique in order to prevent irreparable damage to the property. It is also critical that your lease contain appropriate language that helps prevent other damage to your property and that contains indemnities by the lessee for any damage that does occur.
Direct Lithium Extraction equipment is not yet commercially available. Thus, lithium and oil and gas companies are requesting long terms in their leases with the hope that the equipment will be available before the lease term expires.
The second issue to be aware of is that lithium leasing in Northeast Texas has become incredibly competitive. There are many companies, fronting for other companies, trying to lease up as much property as possible so as to have it under lease when Direct Lithium Extraction becomes commercially available. Two of the companies doing a lot of leasing are Standard Lithium out of Canada and ExxonMobil, although ExxonMobil currently appears to be pulling back from Texas leasing and shifting leasing efforts to Arkansas.
The third issue to be aware of is that the oil and gas/lithium companies don’t really know what they’re doing right now because this field is so new. Often, they take one of their old form leases for oil and gas and stick on a paragraph about brine or lithium extraction and send that to you as their “lithium lease”. These leases, in my experience, are uniformly unacceptable for the complete lack of owner protections. When I am retained to negotiate an oil/gas/lithium lease, I prepare an addendum to be added to the form lease which includes the necessary protections.
This protective language is not always popular with the oil/gas/lithium mining companies. Therefore, if the company that is presenting us with the lease will not agree to basic protective language, both for oil and gas production and for lithium/brine extraction, as well as other language to make the lease fair, it is possible that you may want to decline a lease with them. Remember, these are early days in terms of lithium mining in Northeast Texas. If you decline one offer, the chances are excellent that you will be presented with several others within a short period of time.
Finally, there may be potential legal issues regarding ownership of the brine. Surface owners generally own groundwater under their property, and the Water Code defines groundwater as “water percolating below the surface of the earth.” Tex. Water Code § 35.0029(5). CACTUS WATER SERVICES, LLC, Appellant, v. COG OPERATING, LLC, Appellee, No. 08-22-00037-CV (July 28, 2023) held that “produced water” incidental to oil and gas production is oil and gas waste and belongs to the lessee. Is brine “produced water” or groundwater? Furthermore, a measure passed by the 2013 Legislature (HB 2767, enacting new Section 122 of the Texas Natural Resources Code) and then updated in 2019 (HB 3246, amending Section 122.002) provides that any party that takes possession of produced water to treat it for a subsequent beneficial use takes title to that water. These are going to be somewhat complex issues that future court decisions will hopefully clarify.