On June 27, 2025, the Supreme Court of Texas issued an opinion in a closely watched case addressing the ownership of produced water — the byproduct of drilling, fracking and formation fluids. In Cactus Water Services v. COG Operating, the Supreme Court affirmed the court of appeals’ judgment that produced water constitutes oil-and-gas waste rather than water. 23-0676 (Tex. Jun. 27, 2025). This means that absent an express reservation to the contrary, produced water in Texas belongs to the mineral lessee, not the surface owner. While the Supreme Court’s decision resolved an important issue of first impression in Texas, a concurring opinion authored by Justice Brett Busby may prompt future disputes over oil-and-gas conveyances that do not expressly address produced-water ownership rights.
The case stems from COG Operating’s acquisition of four mineral leases from two surface owners in Reeves County, Texas. The leases granted COG the exclusive right to explore for, produce and keep “oil and gas” or “oil, gas, and other hydrocarbons” on the leased land. They also gave COG the right to conduct comprehensive oil-and-gas operations on the land but did not address oil-and-gas waste. Three of the leases prohibited COG’s use of water except in limited circumstances, and the fourth lease was silent about water use.
Cactus Water Services later executed “produced water lease agreements” with the surface owners. As a result, Cactus retained “all right, title and interest in and to … water from oil and gas producing formations and flowback water produced from oil and gas operations.” The produced-water lease agreements also covered the same lands implicated by COG’s mineral leases.
When Cactus notified COG of its claimed rights to produced water from COG’s oil wells, a dispute arose. COG sued Cactus and sought a declaratory judgment that COG had the sole right to the produced water through its mineral leases and agreements and at common law. Cactus responded with its own lawsuit. The lower court and the Court of Appeals for the Eighth District sided with COG.
The Supreme Court initially observed that the oil and gas industry has long considered produced water a burdensome and costly byproduct presenting disposal challenges. But with the industry exploring beneficial uses of produced water including reuse, produced water is now a “potentially lucrative commodity.” This new reality resulted in question that found its way to the Supreme Court: “[W]ho owns produced water under an oil-and-gas conveyance that does not expressly address the matter?”
The Supreme Court sided with COG and concluded that despite its moniker, produced water is not water. Instead, “[p]roduced water is an inherent and inescapable byproduct of oil-and-gas production.” The Supreme Court also recognized that “Texas law has long recognized that the hydrocarbon producer’s possession and control over the disposition of liquid-waste byproduct is necessarily incidental to, and therefore encompassed in, a conveyance of oil-and-gas rights.” Surface estate owners in Texas must now expressly reserve produced-water property rights if they intended to retain ownership.
While the Supreme Court’s decision is a win for COG and other hydrocarbon producers, Busby’s concurring opinion foreshadows future disputes over produced-water rights. Busby agreed with the Supreme Court’s conclusion that “[u]nless expressly severed, subsurface water remains part of the surface estate subject to the mineral [lessee’s] implied right to use the surface — including water — as reasonably necessary to produce and remove the minerals.” But he also noted the opinion’s shortcomings that left important issues unanswered.
First, Busby noted that landowners and hydrocarbon lessees can contract around the Supreme Court’s decision and place other parameters on produced-water ownership rights. He also noted that the opinion did not apply to the production of any unleased minerals or those incidental to the leased minerals (i.e., minerals in addition to “oil and gas” or “oil, gas, and other hydrocarbons”). Finally, Busby raised the issue of a mineral lessee’s financial obligations to a surface owner with respect the leased produced water, asking: “[W]ill the lessee owe royalties on the produced groundwater it leased?”
Only time will tell whether the concerns raised in Busby’s concurrence spurs additional disputes and litigation over produced water. But for now, surface owners and mineral lessees in Texas should be aware that produced water is not water. It is an important commodity possessed by the mineral lessee absent an agreement to the contrary.
The Texas Legislature is also paying attention to produced water. On June 20, 2025, Gov. Greg Abbott signed House Bill 49 into law, which provides legal protections to companies that sell produced water treated and released into the state’s waters. The new law provides a broad limitation of liability for oil and gas companies and surface estate owners in lawsuits alleging damages for personal injury, death or property damage arising from exposure to produced water. As of Sept. 1, 2025, companies can only be sued for gross negligence, the failure to comply with applicable laws and standards, and other wrongful acts. The new law also creates a handling-and-discharge permitting system that the Texas Commission on Environmental Quality oversees.
