In what was described as “a significant decision for Texas property and energy law,” Texas Supreme Court affirmed a lower court ruling that produced water belongs to the mineral estate unless expressly conveyed to the surface estate owner. The opinion in Cactus Water Services v. COG Operating announced June 27 resolves a contentious dispute between surface estate owners and mineral estate holders “with far reaching implications for the water midstream sector and upstream oil and gas industry.”
The case arose from a disagreement between Cactus Water Services representing surface estate interests and COG Operating, mineral lessee, over ownership of produced water extracted during oil and gas operations on 37,000 acres in Reeves County. The Eighth Court of Appeals in El Paso on July 28, 2023, sided with COG – ruling that produced water is not groundwater in the traditional sense but rather a byproduct of mineral extraction, vesting ownership with the mineral estate.
Texas Supreme Court upheld the appeals court by affirming that “a deed or lease using typical language to convey oil and gas rights, though not expressly addressing produced water, includes that substance as part of the conveyance whether the parties knew of its prospective value or not.” The court added, “If the surface owner actually wants to retain ownership of constituent water incidentally and necessarily produced with hydrocarbons, the reservation or exception from the mineral conveyances must be express and cannot be implied.”
The four leases were granted by two surface owners, the Colliers, between 2005 and 2014, and COG drilled 72 horizontal wells that generated nearly 52 million barrels of produced water. In 2019 and 2020 the Colliers signed “produced water lease agreements” with Cactus Water Services, conveying produced water to Cactus. COG said it owned the produced water and sued, the trial court agreed with COG, and the court of appeals affirmed.