An overview of the South Arkansas brine industry and how to include it in an estate plan
By Ledly Jennings, L. Jennings Law
Arkansas stands at a pivotal juncture in its natural resource history. As an attorney in South Arkansas, I have observed our region’s transformation from traditional oil fields to a hopeful, innovative brine production hub. The recent developments in brine and lithium extraction, steered by rulings from the Arkansas Oil and Gas Commission (AOGC), signal a new era with far-reaching implications. This (non-comprehensive by any means) analysis delves into these changes, offering insights for stakeholders and exploring estate planning strategies for mineral rights.
I do not pretend to be an expert on mineral rights, oil & gas law, or deeds regarding those matters. In fact, it causes my eyes to gloss over when I think about diving into courthouse records searching for mineral rights. The entire premise and hope of this article is to in fact avoid that. With proper planning, there should be no arguing over mineral rights or heirs’ property. I am an attorney in South Arkansas specializing in estate planning. I plan to be in South Arkansas for the foreseeable future and hope to see this entire “lithium boom” play out. That also means that I will be the attorney tasked with cleaning up the mess of mineral inheritance thirty years from now, and I will do all I can to make that as little of a mess as possible for all involved. Our goal as a firm is to provide quality legal advice that enables good stewardship of mineral assets and a smooth succession process for the next generation.
That begs a few questions:
- What is an estate planning attorney doing writing about brine?
- What is brine and where does Arkansas law stand regarding it?
- How do we plan for brine inheritances in a quality estate plan?
We should start with the first question. What business do I have writing about this? Well, I was raised in the oil fields of South Arkansas. My father is a fishing tool company operator and has been in the industry since he first entered the workforce. During the summers of my high school and college years, I worked in those very oil fields. That job consisted mostly of physical labor: cleaning tools and repairing blow out preventors. On the good days, however, it meant driving in the AC to workover rig locations all over the Ark-La-Tex. This exposed me to almost every backroad and dirt rig road there is. I know the area. I have seen firsthand the lifespan of these fields.
These same wells that were discovered and drilled in the 1920s in the Smackover shale are still providing career opportunities for the region today. The life of a well is not over when drilled. They are consistently worked over and re drilled for numerous years. That is evidenced by the workover rig and tool companies that keep the South Arkansas economy afloat. Because of the similar processes that the brine and bromine fields have with the oil fields, brine and bromine potentially will have an even larger impact. With new regulations and guidelines that open the door for many residents in our area to reap the benefits of their mineral rights, it allows us, the Southern Arkansas Community, to grow and prosper in ways that we have not seen in many years. With the manufacturing facilities of Albemarle and LANXESS providing most of the careers in our area, along with ancillary jobs throughout Southern Arkansas, there is ample room for growth and prosperity. The nature of work in the oil fields would typically have roughnecks chasing the next boom throughout the United States, whether it be West Texas or North Dakota. However, due to the consistency of unique minerals, a roughnecks entire career can be and has been right here in South Arkansas. The uniqueness and consistency of other minerals found in South Arkansas provides stability for the region.
The Legacy of Brine in Arkansas
Moving on to the second question, “what is brine and where does Arkansas law stand regarding it”? Arkansas has a storied legacy in brine production, deeply rooted in its oil industry. The Arkansas Brine Production Act, pivotal in this legacy, was enacted to promote brine development, ensuring optimal recovery and safeguarding owners’ rights. Brine, defined distinctively from traditional oil and gas, is recognized as a standalone mineral, setting the foundation for a regulated and sustainable industry.
The Emergence of Lithium from Brine
Brine is water with high levels of saline, often found in geological formations, containing various dissolved minerals, including lithium. The extraction of lithium from brine typically involves pumping the brine to the surface, where the lithium is separated through a series of chemical processes or by using advanced filtration technology. This process concentrates the lithium, which is then converted into commercial forms like lithium carbonate or lithium hydroxide, used primarily in battery production and other industrial applications. The shift to lithium extraction represents a significant transition in Arkansas’s resource sector. Lithium, found in Smackover shale brine, is gaining prominence due to its critical role in battery technology, positioning Arkansas as a potential leader in the lithium market.
The Pilot Plant Initiative
A critical development in this transition was the establishment of a pilot plant to evaluate the commercial viability of lithium extraction from brine. Supervised by the AOGC, the plant’s operations are crucial for assessing lithium extraction’s feasibility. The pilot plant initiative was enacted by a joint venture between Arkansas Lithium Corporation (a subsidiary of Standard Lithium Ltd.) and LANXESS Corporation. This initiative took place in Union County, Arkansas. The AOGC intended the initiative to last 18 months following the first operation date, March 16, 2020. It was then extended to December 6, 2022. The plan was established to test the commercial viability of extracting lithium. On September 26, 2023, the AOGC approved an application of Tetra Technologies, Inc. to establish a brine unit for certain lands in Lafayette and Columbia Counties.
The industry eagerly awaits the AOGC’s decision on whether lithium extraction is “profitably extracted,” a ruling that will influence royalty calculations and distribution, impacting a broad range of stakeholders. It certainly seems likely so far, with recent developments of larger companies like Exxon entering the field and the rising need for lithium batteries, that lithium can be profitably extracted.
Legal and Economic Implications
The Strohacker doctrine, essential in Arkansas mineral law, plays a crucial role in determining brine ownership. This doctrine, recognizing mineral rights based on historical context, sets January 1, 1955, as a significant date for acknowledging brine’s potential. Essentially, if a deed executed after the 1955 date only mentions “minerals” generically, it would not automatically include brine. This is due to the Arkansas brine industry’s adoption by first recognizing brine’s potential as a distinct source of chemical. Prior to that date, the commercial value and distinct nature of brine were not widely acknowledged.
With that being said, practically, brine needs to be listed as a separate mineral in deeds dated after the year 1955 for it to be included in the mineral transfer.
The Brine Conservation Act stipulates a minimum statutory royalty for brine production, initially set at $25 per net brine acre, later increased to $32 per acre, adjusted based on inflation indices.
Estate Planning for Mineral Rights
And finally, the third question, how do we plan for brine inheritances in a quality estate plan?
For mineral rights owners, estate planning is vital. Organizing these rights for heirs ensures the continuation of benefits and the preservation of wealth. Establishing LLCs and Revocable Trusts can provide structured management, liability protection, and potentially favorable tax treatment. These entities allow for efficient transfer of ownership, clear delineation of rights, and simplified administration, ensuring that future generations can manage and benefit from these assets effectively. I believe a two-step process is most effective for successful estate planning as it relates to mineral rights. First, create an LLC to own the mineral interests. Second, create a trust to own the LLC interest.
- LLCs for Mineral Rights: Forming a Limited Liability Company (LLC) to hold mineral rights can offer operational flexibility, liability protection, and potential tax benefits. An LLC can facilitate the pooling of rights, streamline management, and provide a clear framework for revenue distribution among heirs.
- Revocable Trusts: Establishing a Revocable Trust for mineral rights ensures a smooth transition of these assets upon the owner’s demise. Trusts can provide clear instructions on asset distribution, minimize estate taxes, and avoid probate. They also allow the grantor to retain control over the assets during their lifetime.
One of the toughest parts of mineral inheritance is communicating with the operating companies after the death of a loved one. When a loved one passes and the entire long probate process has been completed, there still must be communication with the operating companies to transfer payments from the deceased to the heirs. This continually becomes a source of headache for families.
We have found that the creation of an LLC to own mineral interests from day one simplifies the entire process. The payments from the operating company are made to the LLC. When a loved one passes, the payments are still made to the LLC. Nothing changes. The heirs now have a simplified management structure that accepts and distributes payments or property.
Secondarily, the implementation of a revocable trust to own the LLC interests enables beneficiaries to receive property outside of probate, thereby avoiding large legal costs, long waiting periods, and disputes among heirs.
A lot goes into the decision and the overall estate planning process; however, this basic framework is a good start for mineral owners. Each trust and estate plan must then be tailored specifically to the needs of each family.
The Future Landscape
As Arkansas anticipates the results from the pilot plant and AOGC rulings, it is evident that the brine and lithium production industry is on the verge of transformation. The potential success in lithium extraction could herald a new age of economic prosperity and technological advancement for the state. The developments in brine and lithium production in Arkansas represent a significant turning point. The decisions made in the coming months and years will shape the future of this industry and have lasting impacts on our state’s economy and resource management.
At L. Jennings Law, we remain committed to providing legal expertise and guidance to all stakeholders as we navigate this exciting and evolving landscape together. Our goal is to provide quality and expert estate planning advice to South Arkansas. A successful transition of anything, whether it be land, minerals, money, or business interests is our top priority.