Mineral Rights in Lithium Extraction

As the demand for lithium continues to grow, oil and midstream companies are presented with a unique opportunity to leverage their existing assets for lithium extraction from produced water. However, one critical factor that plays a pivotal role in these ventures is mineral rights. Understanding how mineral rights apply to lithium extraction is essential for companies looking to diversify into this rapidly expanding market. This post will explore the importance of mineral rights in lithium extraction and what it means for oil and midstream companies.

Mineral rights are typically divided into two categories: surface rights and subsurface rights. In most cases, oil and gas companies operate under subsurface mineral rights agreements, which cover the extraction of hydrocarbons. The question for lithium extraction from produced water is whether those rights also extend to minerals dissolved in water, such as lithium.

This depends on the specific language in the agreements. In some cases, the rights to extract lithium may already be included under existing mineral rights agreements, while in others, new negotiations may be necessary to secure those rights.

For midstream companies handling produced water, understanding whether they have the legal authority to extract lithium as part of their operations can open up significant revenue streams. However, they must ensure that their contracts allow lithium extraction and that all stakeholders, including landowners and government bodies, are in agreement.

For oil and midstream companies, the shift toward lithium extraction from produced water offers exciting opportunities, but it also comes with challenges. One key challenge is navigating the legal complexities of mineral rights agreements. These agreements were often made without lithium in mind, so companies must review and potentially renegotiate their contracts to include lithium extraction rights.

In most cases, the mineral rights holder owns subsurface minerals, including lithium, whether in rock or dissolved in produced water. If a law designates an entity other than the mineral rights holder as the owner of the produced water (such as an oil and gas operator), that entity controls the water's management but does not automatically own the minerals within it. Ownership of lithium can vary depending on contracts or state laws. For instance, if an agreement gives the water owner rights to dissolved minerals, ownership could shift to them. Let us look at a few state-specific examples:

• Texas: Ownership of produced water is determined by a 2019 measure (HB 3246, amending Section 122.002). When a person takes possession of fluid oil and gas waste for the purpose of treating it for beneficial use and transfers the treated product or byproduct, ownership transfers to the recipient. However, under Texas PROPERTY CODE, TITLE 6, CHAPTER 75, lithium may still be considered a mineral, and the mineral rights owner could dispute ownership and be entitled to the lithium, regardless of the produced water being owned by its handler.
• Oklahoma: Under the Oil and Gas Produced Water and Waste Recycling Reuse Act, produced water remains the property of the oil and gas producer until it is officially transferred. However, Oklahoma SENATE BILL NO. 184 defines "mineral" as a range of substances, potentially including lithium. As a result, mineral rights holders could claim ownership of the lithium within the produced water and be entitled to the lithium.

Another challenge is ensuring compliance with local regulations, which vary by region or state. Some areas may have specific rules governing lithium extraction, while others may not fully address the issue in their regulatory frameworks. Staying informed about these developments and working with legal and regulatory experts is essential for companies looking to integrate lithium extraction into their operations.