Key takeaways:
- Ownership Defined: The Court concluded that produced water is legally classified as oil-and-gas waste, not "water" belonging to the surface estate. Because it is an unavoidable byproduct of hydrocarbon extraction, ownership rights reside with the mineral lessee absent express contractual language to the contrary.
- Implications for Energy Clients: The decision provides long-awaited clarity on a crucial issue in energy development, confirming that produced water is not a separate property right that can be conveyed by the surface owner. This ruling supports the status quo understanding that disposal rights—and any potential commercial opportunities associated with produced water—belong to the operator.
- Implications for Environmental Clients: The Court's classification of produced water as waste reinforces its distinct regulatory status. Despite emerging reuse and recycling technologies, produced water remains a hazardous substance under Texas law, subject to stringent disposal and environmental protection standards. Classification as "waste" will also impact and may limit insurance coverage for releases of this material.
In a first-of-its-kind ruling with major implications for both the energy and environmental sectors, the Texas Supreme Court, in Cactus Water Services v. COG Operating, LLC (June 27, 2025), definitively held that "produced water"—the liquid waste byproduct generated during oil and gas production—belongs to the mineral lessee, not the surface owner, unless expressly reserved.
The dispute arose when a surface-estate lessee, Cactus Water Services, claimed ownership of produced water from wells operated by COG under oil-and-gas leases that did not specifically address the issue. The Court rejected that claim, holding that the right to produced water is included in the mineral lease and flows from the mineral lessee's statutory duty to manage and dispose of oil-and-gas waste.
The decision underscores the importance of clear lease language in addressing evolving technologies and new commercial uses of production byproducts. Parties wishing to reserve or allocate rights in produced water must do so explicitly.
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