Between 2005 and 2014 COG Operating acquired four hydrocarbon leases covering about 37,000 acres in Reeves County that grant the exclusive right to produce "oil and gas" or "oil, gas, and other hydrocarbons" and say nothing directly about oil-and-gas waste; three restrict COG's use of water. COG has drilled 72 horizontal wells that have produced nearly 52 million barrels of produced water, a hazardous mixture of fracking fluid, brine and residual hydrocarbons that it must dispose of, paid nearly $21 million in disposal fees over about two years and cannot cease disposal without stopping production. In 2019 and 2020 the surface owners signed "produced water lease agreements" with Cactus Water Services, which has no permits, pipelines or disposal facilities.¹

COG sued for a declaration that it owns and has the exclusive right to possess and dispose of its product stream including produced water, and Cactus counterclaimed for a declaration that it alone owns the produced water; on cross-motions the trial court ruled for COG and the parties nonsuited other claims. A divided Eighth Court of Appeals affirmed, holding produced water is oil-and-gas waste belonging to the mineral lessee, not groundwater belonging to the surface estate (676 S.W.3d 733). The Court granted Cactus's petition, and the case was argued March 18, 2025.¹

Petition for review from the Eighth Court of Appeals after cross-motions for summary judgment in a declaratory-judgment action; argued March 18, 2025.²

Whether produced water is included in an oil-and-gas conveyance that does not mention it or remains groundwater belonging to the surface estate that the surface owners could lease to Cactus.¹

Interpreting the unambiguous leases is a question of law reviewed on cross-motions by rendering the judgment the trial court should have rendered.¹

Cactus (Petitioner): produced water contains molecules of surface-estate groundwater, so under Edwards Aquifer Authority v. Day, Robinson and Sun Oil the surface owner keeps it, and the mineral lessee holds only an implied usufructuary right to use it as needed.

COG (Respondent): produced water is liquid oil-and-gas waste that is inevitably produced with the hydrocarbons and conveyed with them, and the lessee alone bears the burden of disposing of it.¹

Not applicable to the Court's decision; the opinion does not recite the petition's cert-worthiness arguments.

• Background rule. Asked whether the water-belongs-to-the-landowner rule is a default rule, Cactus's counsel said yes, a background rule expressed in Robinson, which discusses a mineral in solution. (Oral Argument, 0:04:14)
• Liability if owner acts. Asked whether the operator stays liable if the owner exercises its rights improperly, Cactus's counsel said not under the statutes, which set when liability reaches someone other than the generator. (Oral Argument, 0:10:43)
• Extraction technology. Asked whether the surface owner could extract the water without interfering, using imagined technology, COG's counsel said no, because it would require drilling into the same strata and affect production. (Oral Argument, 0:37:38)

None noted

Holding

COG, not Cactus, has the right to possession, custody, control, and disposition of the constituent water in the liquid waste from its hydrocarbon production.¹

Reasoning

Water is not part of the mineral estate and is not conveyed by implication, but an unnamed substance that is part and parcel of an oil-and-gas conveyance need not be listed, and the general intent of a mineral conveyance is to convey all valuable substances and preserve the uses incident to each estate, with any reservation requiring clear language. Produced water was oil-and-gas waste at the time of the conveyances, as Texas statutes and regulations long defined it, and granting the right to produce hydrocarbons necessarily encompasses the right to produce and manage the resulting waste (Brown v. Lundell; Turner v. Big Lake Oil; Guffey v. Stroud). Cactus's groundwater cases do not address waste byproducts, and a right to dispose of or consume property is inconsistent with a merely usufructuary right, so COG holds the entrained water as an owner. The leases' water-use limits, the lack of any provision transferring produced water to the surface owner, and the lessee's regulatory burdens all confirm this reading; Robinson involved saltwater from a water well and its dictum does not control, and technology enabling reuse cannot change the scope of conveyances made years earlier.²

Disposition

Court of appeals' judgment affirmed.³

Vote Breakdown

Opinion by Justice Devine. Justice Busby, joined by Justices Lehrmann and Sullivan, concurred to stress that the holding is only a default rule the parties may contract around, that groundwater is both water and waste, that the Court does not decide ownership of unleased minerals or the lessee's obligations to landowners (such as royalties or implied covenants) as to the produced groundwater, and that the Court did not adopt COG's "product stream" theory.⁴ Justice Young did not participate.⁵