Whose Water Is It Anyway? Supreme Court Addresses Produced Water 

When a mineral lessee drills for oil, large quantities of water, mixed with some other chemicals and “proppants,” such as sand, are forced down the well in a process known as fracking. During “flowback,” the water flows back through the well, bringing oil, gas, and other substances with it. The water that flows back is called “produced water,” and has long been viewed as a waste product to be handled by the lessee. Indeed, the safe disposal of produced water comes with considerable cost and potential liability. 

Today, technological improvements offer a new potential for recycling and reuse of produced water. What was once only a cost and potential liability may become a substance with commercial value. That’s what brought Cactus Water Services, LLC (“Cactus”) and COG Operating, LLC (“COG”) to the Texas Supreme Court. 

COG is the operator of the leases in question. The oil and gas leases do not expressly address the ownership of produced water and other oil and gas waste. While the minerals were already leased and in production, the surface owners executed “produced water lease agreements” (PWLA) with Cactus, purporting to convey the water from oil- and gas-producing formations and flowback water to Cactus. Thus, Cactus claims to own the produced water. The PWLAs expressly exclude water unrelated to oil and gas production. 

The dispute, then, was simple: Who owns produced water when the lease doesn’t say? COG alleged that produced water is waste, and the rights to it were included in the conveyance of the oil and gas rights. Cactus, on the other hand, argued that produced water is water, and because the produced water was not conveyed to COG, it remained part of the surface estate and was conveyed to Cactus. 

The court observed that Cactus had no permits, infrastructure, or ability to handle, transport, or dispose of the produced water, and had taken no steps toward doing so. On the other hand, COG had permits, infrastructure, and contracts in place. In fact, COG was already disposing of the waste at great expense, which  was necessary to do for production to continue.  

The court examined the existing case law and the longstanding industry practices surrounding it, as well as relevant statutes and the language of the lease. It noted that water is not considered part of the mineral estate, and that unless expressly severed, subsurface water remains part of the surface estate. It also noted, however, that it is subject to the mineral estate’s implied right to use the surface—including water—as reasonably necessary to produce and remove the minerals. 

The court further observed that the lease did not expressly convey water, but also did not specifically address oil and gas waste. The reason is that groundwater and produced water are not the same. “Produced water” is not “water.” It contains molecules of water, both from injected fluid and subsurface formations, but the solution itself is waste. Statutes and regulations treat water and produced water differently because they are different. 

Parties are presumed to contract in reference to the law, and in this case, the law is well-established in case law and statutory definitions. Oil and gas waste includes produced water, and production and management of waste is included in the grant of the oil and gas lease, unless the lease expressly provides otherwise. Because produced water is waste, it is part and parcel of an oil and gas conveyance. It was not mentioned separately because there was no need to do so. 

The court made clear that if the parties want to contract for the surface owner to retain ownership of produced water, they may do so in the lease, but the reservation or exception from the mineral conveyance must be expressed and cannot be implied. In this case, there was no such reservation or exception here. COG owns the produced water. 

Cactus Water Services, LLC v. COG Operating, LLC, No. 23-0676, 2025 WL 1783686 (Tex. June 27, 2025). 

Nothing in this article should be considered legal advice. For advice or representation on a specific situation, consult an attorney. 

Views expressed on The 338 are those of the authors and do not imply endorsement by the Texas Real Estate Research Center, Division of Research, or Texas A&M University.