Texas high court hears dispute over ownership of water produced with oil and gas

The Supreme Court of Texas heard argument in Cactus Water Services v. COG Operating over whether naturally occurring water that appears during oil and gas production is owned by the surface owner or by the oil and gas lessee.

The question matters because produced water can contain valuable trace elements, hazardous constituents, and large disposal costs. Counsel for petitioner Cactus Water Services said the central dispute is “who owns the naturally occurring water that comes up when oil and gas is produced.” Counsel for respondent, COG Operating, urged the court to treat the dispute as an oil-and-gas question: “This case is about oil and gas, not water.”

The case tests whether Robinson and related precedent, which treat mineral-bearing water as an incident of surface ownership absent specific conveying language, govern produced water that appears in the oil-and-gas production stream; or whether COG’s long‑standing leases and the court’s product‑stream precedents (Bowdoin, Lone Star Gas) give the lessee ownership of the entire wet production as it comes from the well. The argument also probed how ownership would interact with statutory and regulatory duties on operators to manage and safely dispose of produced water under the Natural Resources Code and Railroad Commission rules.

Petitioner’s counsel asked the court to rely on the instrument language and older precedent establishing a background rule that water in the ground belongs to the surface owner unless conveyed otherwise. Respondent’s counsel pointed to this court’s product‑stream decisions and industry practice, arguing that leases granting the oil-and‑gas stream historically were understood to include the “wet black stuff” that comes out of wells and “all their constituent elements.”

Justices and counsel explored several practical consequences depending on the outcome: who would receive any future value if produced water were recycled or mined for lithium or other trace elements; whether royalties would be owed and to whom; how disposal obligations and potential regulatory liability would be allocated if the surface owner were the titleholder; and how the dominant‑estate/accommodation doctrines would operate if two dominant estates were recognized. Respondent’s counsel said COG has spent more than $20,000,000 disposing of produced water safely in disposal wells and that operators routinely bear disposal costs under existing regulatory obligations. Petitioner’s counsel warned that recognizing operator ownership by implication would improperly expand lessee rights without clear conveyancing language.

Both sides discussed Natural Resources Code chapter 122 and a statutory provision (cited in argument as section 122.002) that declares a person who takes possession of produced fluid for treatment or reuse may be considered the owner of that treated water for subsequent beneficial use; counsel disputed how broadly that statute resolves title questions and whether it applies retroactively to leases executed before the statute’s enactment. Amici briefs were cited, including industry briefs addressing potential lithium recovery scenarios and regulatory adjustments the Railroad Commission might need to make.

The court pressed counsel on line-drawing issues in unconventional formations (tight sands, brines with mixed minerals), on whether the court should adopt an intent/targeting test or a textual rule grounded in conveyancing language, and on the practical limits of operator liability when disposal is delegated to midstream companies.

The case was submitted after argument and will be decided on briefing and the court’s internal deliberations. Absent a ruling, the status quo—operators’ regulatory duties to manage produced water and the parties’ existing leases—remains in effect.