Brian Zinchuk is editor and owner of Pipeline Online
The Duperow formation, as seen here in its core, is the current focus for lithium exploration. Photo by Brian Zinchuk
Saskatchewan is facing a curious and perhaps perplexing dilemma. In addition to oil and gas, it is now seeing development of helium and soon lithium production, too. And in one area near Torquay, geothermal power production is also in development.
The issue then arises of who owns the rights to what. Oil and gas rights are one thing, but in recent years the province has been holding Crown land sales auctions for lithium, too. And helium’s lease rates are ridiculously low, at five cents per hectare, having been established in the 1960s and not changed since.
In many ways, it could be an embarrassment of riches. But then it can also lead to serious conflicts in ownership. That’s because some of these wells could see not just the targeted resource, but several others coming up from the very same wellbore.
This is something Pipeline Online is calling “primacy of rights.” Whose rights trump whom?
It’s a question we asked Premier Scott Moe in December of 2021. He said, “We’re working on it.” And at the Lloydminster Heavy Oil Show, Pipeline Online raised the question again. Energy and Resources Minister Jim Reiter expressed the ministry is indeed working on it.
Here’s Moe talking about it in December, 2021:
Note: the above video was shot in December, 2021. Watch for this year’s coming soon.
Here are some examples:
Royal Helium has already announced that in one of their wells at Climax, there’s a 25 per cent methane cut. And it also is prospective for some lithium, too. So they’ve had to go about acquiring the petroleum rights to that land. At a time of methane emission reductions, venting or flaring it isn’t much of an option.
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And because of the extraordinarily low land costs for helium, could a company buy helium rights, and use that as a backdoor into obtaining other rights, such as lithium or oil and gas?
This rig, Panther Drilling Rig 2, drilled a geothermal exploratory well due south of Torquay in the summer of 2021. Its next well was just a few kilometres to the north drilling the first targeted lithium well. And note how it is immediately adjacent existing oil wells. Photo by Brian Zinchuk
Geothermal developer Deep Earth Energy Production (DEEP) is talking about lithium production from its wells. As the very hot brines will come out of those geothermal wells, the drop in temperature (the entire point of the geothermal power production process) may lead to dissolved solids precipitating out. Those solids may contain lithium. So DEEP and Prairie Lithium announced an arrangement last year dividing up geothermal and lithium rights on the lands they have permitted.
Most lithium developers in Saskatchewan are currently focused on drilling their own wells into the Duperow formation (or deepening existing wells) and producing brine without concerning themselves with oil production at this time.
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But what happens if an oil company is already producing vast quantities of brine as produced water, and owns the oil and gas rights, but not the rights to the lithium in that water? That oil company is already paying to pump the water up, and eventually dispose of it by pumping it down. It may have been doing that for many years. Could a lithium producer then try to assert access to that brine?
For example, could a lithium explorer who purchased the lithium rights in the Viewfield Bakken area demand that Crescent Point provide access to the produced water it has been handling for years, and for a pretty penny at that?
On this front, Pipeline Online spoke to three of the companies seeking to explore for lithium in Saskathcewan.
These are LithiumBank’s lithium permits in the Kindersley area. They overlay numerous oil and gas leases, as the green area is essentially the heart of the Viking play. Map courtesy LithiumBank
LithiumBank
This is a key question when it comes to primacy of mineral rights. LithiumBank COO Kevin Piepgrass said on Dec. 9, “We run into this in Alberta (issue) as well.”
He explained Alberta is currently revamping their rights with this regard. “They’re taking brine minerals outside of the metallic and industrial minerals tenure program. And they’re separating out just brine minerals as a separate lease or permit.
“That same question is asked from a couple oil companies. ‘So if we pull out the water, we’ve paid for it to come out. Don’t we own that water?’
“And the answer is, ‘No.’ To produce a profit from the minerals in that wastewater would be trespassing, it would be illegal. You don’t have a rights or tenure for those minerals,” Piepgrass said.
“So if a PNG company is producing 90 per cent water, and all of a sudden their wastewater has value to another party, that presents several potential synergies there that can happen. And those synergies will need to be hashed out over time. But I see this as an opportunity for both industries. This is a very young industry and the oil and gas industry, government and lithium-brine developers are all climbing a learning curve.”
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Piepgrass said, “In order to produce a sizeable enough amount of lithium, you will need to pump even more water that is produced during typical PNG production and will require dedicated brine production wells. And then any extra water from an oil and gas company with lithium concentrations presents an opportunity where we may be able to do produce lithium from that water, too.”
He pointed out that with very high lithium prices right now, and with an expectation they will come down, the prices will still be high enough to be stand alone projects. “We don’t necessarily need oil and gas, or to be reliant on their infrastructure to produce. There’s enough value in the ground to drill our own wells, produce our own brine, and be self sufficient. But the fact that oil and gas infrastructure is ubiquitous throughout several of our projects presents huge opportunity.”
Piepgrass added, “Working with them is the best way forward. Where there are overlapping PNG rights and brine minerals, cooperation will be essential so that neither the petroleum resource nor the lithium resource are negatively affected by overlapping activities. The tides are turning and there is more and more interest from the oil and gas side and a willingness to cooperate. I think as the lithium-brine industry progresses opportunities between the two industries will be more apparent and we will start to see continued interest in the lithium-brine space.”
Prairie Lithium’s first targeted lithium well, seen here, is right across the road from an oil well. The rig was Independent Well Servicing. Photo by Brian Zinchuk
Prairie Lithium
Indeed, for Prairie Lithium, seeking the highest concentration of brine from a non-oil producing formation was a driving factor for them to drill their own initial first well.
From his perspective, Prairie Lithium president and CEO Zach Maurer said on Sept. 13 and by email on Nov. 26, “I think we are fortunate that although all these resources occur in the subsurface, the most economic concentrations of each resource appear to be in different geographic areas and contained in different geologic formations. I think at the end of the day it comes down to common sense and building good business relationships in the areas of competing rights.
He added, “I’ve experienced nothing but support and good things from the helium operators, geothermal operators and oil operators in our area, so this hasn’t been an issue for us yet.
“The different process and different rental prices don’t currently bother me all that much. Each resource needs to be developed differently, so different price and process makes sense from an economic perspective. Different price and process also allows for feedback on that process for that resource without impacting the other resources. It doesn’t mean I support the way everything is currently being done, but pragmatically speaking, I think it is necessary to have different process for different resource from a management perspective, and I applaud the Ministry on how they’ve handled most of this,” Maurer said.
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“For the process, the land sale system was challenging early on for us, as a first mover with very limited funding, the sales were few and far between. It made it tough on investors, because we did our homework, knew what parcels we wanted, but we had to wait 6-8 months to maybe be the highest bidder. This went on for us, for 2.5 years until we were able to complete our acquisition strategy. Ultimately, we were able to bid successfully and put together a globally competitive project, but if we weren’t, we likely wouldn’t be writing these articles. I am glad those days are, for the most part, behind us.
He continued, “It’s a fair system that allows anybody to buy land, and as such we are seeing the results. Currently, there’s more lithium land sale dates, then lithium spud dates, that’s an issue in my opinion. It’s easy to buy land, and hence, it means groups are buying without near term drilling intention. This does not benefit the industry. To properly understand what the true productivity potential of the Duperow is, so that we can start to determine as a province what the true economic opportunity is, I’d like to see more high-risk wild cat wells drilled. I’ve been very happy to see other companies start putting drill bits to the ground this past year. It’s a young industry, so I’m confident we’ll get through this and see increased drilling activity over the next few years.
Maurer said, “For the cost, in the Preliminary Economic Assessment (PEA) of our project, the current/proposed annual lease and rental rates for lithium for our project represent roughly 0.001% of our projected annual cost, so there are bigger levers to pull. Obviously cheaper is always better, but in the grand scheme of things, these costs are not significant so aren’t a focal point for us right now. This cost can be very prohibitive for early-stage companies, we felt the pain significantly early on, and I still don’t enjoy seeing that money leave the account, but having gone through it, in my opinion, it’s up to companies to put forth good projects that can attract funding, and persevere through these growing pains and focus on the bigger ticket items like DLE and well field modelling to optimize long term project costs.”
“I think in the lithium/oil co-production scenario, the lithium is not allowed to interfere with existing oil operations. At least that is what I think all of our permits say, but our operations don’t currently interfere with oil operations, so this hasn’t been an issue for us yet.”
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“As we learn more about project economics, knowing what I know right now, I doubt very little, if any lithium will be produced from an oil co-production scenario in the next 10 years, especially if the oil company is not on board. Both companies have to be on board with the co-production for the project to work, because at the end of the day, it’s a partnership. A lot of companies are interested, but are also waiting until we have our own project to point at and say, here’s what it looks like, here’s what it does, and this is what it means economically. Once we get to that point, we’ll likely see more co-production projects being proposed. Again, I think this could be 10 years away because the economic prize on the Duperow right now is so much bigger and consuming everyone’s focus, as it should. I hope we see co-production sooner, and we’ll push for a co-production project that makes economic sense sooner, but these things take time.”
That appears to be an evolution in Maurer’s thoughts on the lithium/oil co-production over the course of a year, because in September, 2021, he was talking with greater interest about co-production.
Living Skies Lithium’s Trent Jordens, left, and Ed Dancsok, are the company’s two principals. Photo by Brian Zinchuk
Living Skies Lithium
Ed Dancsok’s perspective on this is different than most, because for ten years, he was the assistant deputy minister for Energy and Resources who regulated the industry. Dancsok is co-founder of Living Skies Lithium and the technical and regulatory advisor of the company.
“Certainty, in any industry is huge. Especially a fledgling industry like lithium, you need certainty to move forward.”
“And attract investment,” said Trent Jordens, Living Skies CEO, finishing Dancsok’s sentence.
“It needs to be resolved,” Dancsok said.
Jordens said, “A fledgling industry requires clarity from the government for basic security in start up and then attracting investment, local and international. In many chats with provincial regulators it appears it is well understood but lets see it in writing to alleviate confusion and the unknowns.”
Regarding co-production as a “bolt-on” to oil and gas industry, Jordens said, “Let’s use Griffin, as an example. There’s oil and gas. There could be potash. There’s definitely a high concentration of lithium. There’s methane, butane and propane.”
“The Duperow wells are drilled already. So that’s the only area, really, in Saskatchewan where you’ve got Duperow wells we can potentially access with re-entry and re-equipping for testing and production. A good example is Crescent Point or Vermillion own those wells. If they’re willing to sign them over to us, we have to pay $50,000 to $60,000 upfront liability for the LLR and abandonment program. So we can keep things quite amicable there because those have been depleted. They were never big oil producers, but high lithium producers.”
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Oil companies are okay with the lithium explorers taking them off their hands, Jordens explained. “And what part can we play, if you want to do a bolt-on? So there’s different relationships.
“But as soon as we get into the helium side of it, or drilling through other company’s zones that you’re going to be producing, that’s where things kind of get hairy, right? If helium is going to be deeper, you’re going through our zone, that we’re producing lithium. Or we could be in the exact same zone. Who has those rights? Is it a five cent per hectare (helium) permit to explore, that can take our rights away? Or is it we whom expend $400,000 or a million dollars on lithium rights, subsurface rights?”
“So for us, and for the government, it’s a tough situation,” Jordens said. “If we can be poached, basically, because that’s what this becomes now. If you can permit for five cents a hectare, and a postage stamp, and basically map, almost like gold claims, the entire southeast for $20,000, where oil and gas rights, lithium, have spent hundreds of millions through history now in the southeast.”
Dancsok added, “And acquired through open, public and competitive tendering, fair and equitable.”
Jordens said, “We get along really well, with O&G companies, as we ourselves, are oil and gas companies transitioning. We’re just small. We’re blending, and we’re pivoting, and we think there’s an opportunity. But all of a sudden you get some sort of archaic system that supports a resource that’s very unfair to the rest. It needs to be a level playing field.”
Please note the sidebar for this article, Lithium in SK: Part 7b: The rent’s due, and so is the LLR
found here:
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