Who owns produced water in Texas? And what is produced water anyway – oil and gas waste and part of the mineral estate, or groundwater and part of the surface estate? We may be closer to an answer to these questions now that the Texas Supreme Court has agreed to hear a highly anticipated case out of Reeves County.
Produced water, a byproduct of oil and gas activities, has historically been treated as waste and disposed. However, recycling technologies have made produced water a potentially valuable commodity.
In Cactus Water Services, LLC v. COG Operating, LLC, COG acquired oil and gas leasehold rights covering 37,000 acres in Reeves County. Thereafter, Cactus Water entered “Produced Water Lease Agreements” with a surface owner covering the same property and included the produced water generated from COG’s oil and gas activities. The agreements provide that Cactus has “the right to sell all water produced from oil and gas wells” under the property. COG sued, seeking a declaratory judgment that it has the sole right to the produced water through its mineral leases and common law. Cactus countersued, claiming its right to the produced water because it is groundwater, which belongs to the surface owner. The district court agreed with COG; Cactus has “no rights in or to the product stream from COG’s wells.” Cactus appealed and the El Paso Court of Appeals, in a 2 to 1 decision, affirmed the district court decision. COG asserts that it owns all matter incidental to the product stream, including produced water, so it is part of the mineral estate. Cactus Water asserts that groundwater is groundwater, no matter how dirty it is – and it is well-established that groundwater is part of the surface estate.
With the evolution of treatment and recycling technologies, this conflict was inevitable. This case could have extraordinary implications for the oil and gas industry, water transactions, water resources and of course to landowners with oil and gas operations on their property. This continues a line of monumental water law cases the Texas Supreme Court has heard and ruled on in just the last 15 years. See Gray Reed’s articles and blog posts on this topic here:
Who Owns Produced Water in Texas? – Energy & the Law Blog post, September 2023, in which we discuss the opinion and he dissent in the court of appeals decision.
Produced Water – Groundwater or Waste? – Gray Reed Legal Alert, August 2023
Produced Water in Texas – Waste or Groundwater? Who Owns It? – Gray Reed Insights, February 2020