Brian Zinchuk is editor and owner of Pipeline Online
So far, the Duperow formation which underlays much of southern Saskatchewan, has shown the most promise for lithium development. But as seen from this set of Duperow core, there is great variety within the formation itself. In other words, it’s “heterogenous.” Photo by Brian ZinchukAs outlined in Part 7: Primacy of Rights, Saskatchewan is experiencing something of an embarrassment of riches, with the development of several commodities underway. Beyond the usual oil and gas, helium, lithium and geothermal potential are all being explored, with the possibility of several of these commodities being produced from the same formations, or even the same well.
Pipeline Online had initially asked Premier Scott Moe about this in December, 2021, and Energy and Resources Minister Jim Reiter at the Lloydminster Heavy Oil Show in September. Both had noted the province is working on the issue. In early December, Pipeline Online sent a detailed list of questions. These are the responses from Scott Kistner, Assistant Deputy Minister of Energy and Resources:
Pipeline Online: What is the royalty structure for lithium?
Scott Kistner:
- Unlike our long-term producing mining sectors like potash and uranium, the royalties for lithium production in Saskatchewan are not currently defined in legislation as it is still an emerging industry. To address this, over the past year the Ministry of Energy and Resources has been consulting with industry on the development of a lithium specific royalty system.
- While this process is ongoing, the Ministry of Energy and Resources is presently specifying a competitive Crown royalty for lithium production of three per cent of the value of sales with a two-year holiday for new capacity. These rates were chosen to be consistent with the Crown royalties for potash, salt, and sodium sulphate, while the incentive is being included to reduce the risk for new investment in this sector which is still in early stages with no commercial production.
- Once a lithium royalty is incorporated into regulation, this will replace the current system and become standard for all production.
- As with all commodities produced in Saskatchewan, the Ministry will review the royalty to ensure it is set at an appropriate level to continue to attract investment, while providing a fair return to provincial residents
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Pipeline Online: Does the province see an issue here, with possibly competing rights for various minerals?
Kistner:
- The matter of competing rights for diverse mineral commodities within the same geological formation is not new to the Government of Saskatchewan.
- Regarding the matter of interest in lithium and helium within the same geological zone, the Duperow Formation, the Ministry is aware that the policy of not allowing subsurface mineral and helium dispositions to overlap is creating challenges in the southwest and west-central areas of the province.
- The Ministry of Energy and Resources will be engaging with industry on these matters to determine a fair, balanced and transparent path forward.
Pipeline Online: Whose rights trump whose? How do you establish who has primacy of rights? Is it first come, first served, or by commodity – oil before helium before lithium, as an example?
Kistner:
- Depending on the area and depth, rights can be acquired for a commodity based on a number of factors, including the development potential for that commodity.
- As an example, helium rights are only issued within zones that do not have the potential for oil.
Here’s a closeup of some Duperow formation core, as seen at the Saskatchewan Subsurface Geological Laboratory, in Regina. Photo by Brian Zinchuk
Pipeline Online: What happens if multiple resources can be developed from the same well?
Kistner:
- As long as mineral rights have been acquired through the public offering or application process, industry can develop the resource.
- At this time, there are instances where the Government of Saskatchewan will not permit overlapping rights, such as helium and lithium.
- The Ministry of Energy and Resources acknowledges this is a concern and will be consulting with industry and stakeholders to come to a fair and transparent outcome.
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Pipeline Online: If an explorer is looking for helium, and finds natural gas, and potentially lithium, what happens then?
Kistner:
- If natural gas is discovered in the same geological zone that the explorer has a helium disposition for, the disposition holder can negotiate with the Ministry of Energy and Resources for the right to produce the natural gas if they have proven commercial production for both helium and natural gas simultaneously from that zone. The negotiation process is outlined in the Ministry of Energy and Resources’ Oil and Gas Tenure Registry Regulations.
- The holder of a helium dispositions cannot explore or test for lithium. If the disposition holder is interested in exploring for lithium, they would need to surrender their helium disposition and request the lands for posting on the next available subsurface mineral sale.
Pipeline Online: 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?
Kistner:
- No, the Ministry of Energy and Resources attaches a restriction to subsurface mineral permits that advise the holder that they do not have access to the lithium in water that is produced from an oil or gas well, unless the holder of an oil and gas mineral lease is agreeable to the lithium permittee accessing the produced water.
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Pipeline Online: In particular when it comes to produced water from oil production, shouldn’t the oil company that is producing that water already have the rights to the minerals in the brine they are already producing, currently as a waste product?
Kistner:
- No, in order to acquire the rights to the lithium they would need to follow the public offering process as outlined in the Crown Minerals Act.
This well was originally drilled for Deep Earth Energy Production, a geothermal project. It was tested for lithium potential by Prairie Lithium late in 2021. The service rig was Eagle Sky Ventures LP. Photo by Brian Zinchuk
Pipeline Online: Where does geothermal fit in all this?
Kistner:
- Geothermal projects are managed under Lease of Spaces Agreements and companies can apply for a lease of space acquisition for geothermal.
- If the company is interested in acquiring the lithium rights, they would also be subject to the public offering process.
Pipeline Online: Right now, there are three different processes to acquire rights – one for oil and gas, one for minerals, and one for helium. Has there been any thought of bringing these all together, as in one land sale at a time, where you can bid on separate resources, but in the same sale?
Kistner:
- The Ministry is currently reviewing the various options to ensure we provide industry with a clear and concise approach to acquiring rights.
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Pipeline Online: It may be too late for this, but has there ever been consideration of essentially one type of rights – you buy mineral rights, you get everything, from the basement to the surface?
Kistner:
- The concept of a multi-commodity tenure disposition offering free rein to explore for any and all commodities has been a topic of discussions in the past, but there are many complexities that would need to be addressed.
- The Ministry continues to evaluate this as an option, but currently have no timelines for a potential multi-commodity disposition.
Pipeline Online: By splitting the process for PNG rights and minerals like lithium, with separate land sales and rights, has the province simplified matters or set the stage for legal conflicts?
Kistner:
- The Government of Saskatchewan encourages companies to do their due diligence when acquiring tenure and preparing exploration and development plans.
- The Ministry of Energy and Resources has a reputation among industry as responsive and open to discussion and consultation.
- Companies should ensure they are aware of Government of Saskatchewan regulations and policies in advance of making decisions that impact their bottom line so there are no misunderstandings from the outset of their project.
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Pipeline Online: If legal conflicts do arise from these complicated rights structures, is the Province looking at some sort of dispute resolution mechanism as opposed to lengthy court battles?
Kistner:
- At this time there is no dispute mechanism in the Crown Minerals Act.
Pipeline Online: The quest for lithium is currently focused on the Duperow formation, which is present basically from Prince Albert to the U.S. border, from Alberta to Manitoba. This includes the entire potash zone. Will that zone continue to be exclusionary to all other minerals, or would it be possible some day for lithium, and perhaps oil and gas, to be produced from those areas?
Kistner:
- The area described as the Potash Area is currently under a Crown Reserve for all minerals other than subsurface minerals.
- Currently, dispositions within the Potash Area that were issued under The Subsurface Mineral Regulations, 1960, the predecessor to The Subsurface Mineral Tenure Regulations, include the rights from surface to basement, and allow for lithium development within the Potash Area.
Pipeline Online: What happens if we get this wrong? And what could happen if we get this right?
Kistner:
- If the wrong approach is taken, the Government risks stranding commodities that could otherwise be produced and generate revenues for the Government of Saskatchewan, and the exploration and development rights holder.
- The Ministry of Energy and Resources is collaborating with industry with a goal to get it right, ensuring that the sustainability of resources remains a focus, and generating economic growth and long-term revenue for the benefit of everyone in the province of Saskatchewan.
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Pipeline Online: Is there anything you’d like to add?
Kistner:
- The Government of Saskatchewan, as stewards of Saskatchewan’s mineral resources, continues to advance responsible resource development that enhances economic growth for the benefit of everyone in Saskatchewan and that the Government remains optimistic that commercial lithium extraction will become a reality in the near future.
- The Government of Saskatchewan has issued tenure to over 600,000 hectares (64 townships) of Crown minerals to companies interested in the exploration and development of lithium from formation water.
- The Government also recognizes that as the lithium industry evolves the Government must continue to monitor existing regulations and policy to ensure that resources do not become stranded and that maximizing resource development in a fair and transparent manner remains a priority.
- Whether lithium, helium, hydrogen or other, there will need to be liability management programs in place to ensure that proponents of these new industries meet their end-of-life closure obligations and that these costs do not get passed on to tax payers.
- As these industries are still fairly new, the design of liability management frameworks have not been fully studied or developed; however, the Ministry of Energy and Resources will continue to engage with proponents to ensure that their voice is heard.
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