Texas Supreme Court weighs who owns "produced water" in Cactus Water Services v. COG Operating

A sharply contested property question over so-called "produced water" occupied the Texas Supreme Court at oral argument in Cactus Water Services v. COG Operating (No. 230676). The court heard competing legal theories about whether naturally occurring water that comes up with oil and gas is owned by the surface/landowner or by the oil-and-gas lessee and operator.

Miss Livingston, counsel for petitioner Cactus Water Services, told the court that “the issue here is who owns the naturally occurring water that comes up when oil and gas is produced.” She argued that longstanding precedent treating mineral-bearing water as an incident of surface ownership supports treating the produced water as belonging to the landowner unless a conveyance says otherwise.

Miss Stokes, counsel for respondent COG Operating, countered that “this case is about oil and gas, not water.” Stokes said COG’s leases grant the lessee “the wet black stuff that comes out of the ground, all of the production from an oil and gas well,” and invoked cases the company contends recognize the oil-and-gas lessee’s grant of the entire production stream in its natural, raw form.

The justices pressed both sides on how the court’s prior opinions—particularly Robinson and other decisions cited by counsel—should control. The court and counsel debated whether Robinson and related precedents create a background rule that water in the subsurface is normally part of surface ownership unless the parties expressly conveyed it, or whether a separate rule applies when water is produced as part of an oil-and-gas product stream.

Counsel and the justices also discussed the regulatory context. Petitioner's counsel and several amici invoke Railroad Commission regulations that place disposal duties on operators; respondent’s counsel said the regulatory scheme and statutes such as Natural Resources Code chapter 122 bear on practical allocation of rights and liabilities. Miss Livingston noted chapter 122’s text appears to treat a person who takes possession of produced fluid for reuse as owning that material, but she added the statute “doesn’t actually say who owns the water to begin with.”

Economic and practical consequences featured prominently. COG told the court that it has “spent over $20,000,000 disposing of it safely in disposal wells” during the summary-judgment record and continues to incur disposal costs, a financial burden the company said could change well economics. Counsel for COG said the Railroad Commission’s regulatory duties mean operators remain responsible for proper handling even when a third party takes possession, and that liability concerns would follow any rule change.

Justices raised hypotheticals about trace constituents such as lithium or gold, whether technology could ever separate water without impairing mineral production, and whether the presence of hazardous substances (e.g., hydrogen sulfide, chloride, benzene) changes the character of the substance at issue. Miss Stokes told the court the field at issue contains hazardous constituents regulated by the Railroad Commission and that “nobody assumes…this as water” in the ordinary sense.

Both sides referenced amici briefs. Counsel for Cactus pointed to an industry brief that describes how declaring ownership could operate under an accommodation or dominant-estate framework. COG cited amici including the Produced Water Association, which described current industry practice and reuse prospects, and Standard Lithium, which warned about potential interference with brine mining for lithium.

The court did not issue a ruling at argument. After extended questioning of counsel and discussion of precedents and statutes, the court submitted the case and took a brief recess.

The case will determine whether title to produced water in the subsurface—or to water once separated and taken for reuse—belongs to surface owners or to oil-and-gas lessees under Texas property law, and how regulatory duties and potential liability interact with that allocation of rights.