Cactus Water Services, LLC v. COG Operating, LLC:
Default Ownership and Control of Groundwater Produced with Hydrocarbons in Texas Oil-and-Gas Leases

1. Introduction

The Supreme Court of Texas’s decision in Cactus Water Services, LLC v. COG Operating, LLC addresses a rapidly emerging question in Texas oil-and-gas law: when groundwater comes out of the ground mixed with oil and gas, who owns it and who controls its disposition?

The case arises against the backdrop of two important and somewhat competing realities:

• Texas common law has, for more than a century, treated groundwater as part of the surface estate, owned by the surface owner unless expressly severed.
• Modern oil-and-gas operations routinely bring large volumes of water to the surface as “produced water” or “flowback,” which is heavily regulated as “oil and gas waste” and can itself be a commercially valuable resource for treatment and reuse.

The central question framed in Justice Busby’s concurring opinion is:

When a landowner has leased its “oil and gas” or “oil, gas, and other hydrocarbons,” and those leases limit the lessee’s right to use water, who owns groundwater that is mixed with oil when it is produced: the landowner or the lessee?

The Court’s main opinion (which Justice Busby joins) holds that, as a default rule, incidentally produced groundwater is included in the hydrocarbon conveyance and falls under the lessee’s possession and control once it is brought to the surface as part of the production stream. Justice Busby’s concurrence is significant because it:

• Reaffirms the longstanding rule that groundwater is part of the surface estate absent an express severance.
• Clarifies that the Court’s ruling establishes a default rule, which parties are free to alter by contract.
• Carefully delineates what the Court does not decide—especially regarding unleased minerals and the royalty or implied-covenant implications of treating produced groundwater as leased.

The dispute in Cactus Water Services thus sits at the intersection of oil-and-gas leasing, groundwater property rights, and environmental/regulatory controls on oil-and-gas waste, with substantial implications for surface owners, mineral lessees, and water midstream companies.

2. Summary of the Opinion

2.1 The Court’s Core Holding (as described in the concurrence)

Justice Busby agrees with the Court’s central holding that:

• “Unless 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.”
• “Incidentally produced” subsurface water “was included in the hydrocarbon conveyances.”
• Accordingly, “an oil-and-gas conveyance that does not expressly address the matter” conveys to the hydrocarbon lessee “possession and control over the disposition of liquid-waste byproduct,” including the “constituent water.”

In plainer terms: even though the surface owner owns groundwater as a matter of property law, once that groundwater is brought to the surface mixed with produced hydrocarbons, and the parties’ oil-and-gas lease is silent on the point, the lessee—who is producing the hydrocarbons—controls that fluid mixture (and the separated water) as part of the leasehold interest and its accompanying waste-disposal obligations.

The Court rejects the lower court’s framing that asked whether the produced fluid is “water or waste.” It is “both”:

• It is, at bottom, groundwater originally owned by the surface owner; and
• It is also statutorily and regulatorily classified as “oil-and-gas waste,” which the lessee must manage and dispose of safely.

The key question is therefore not classification as “water” versus “waste,” but whether the parties’ lease transferred to the lessee the burden and control of that fluid as an incident of the hydrocarbon grant.

2.2 The Default Nature of the Rule

Justice Busby emphasizes that the Court’s holding is a default rule:

“[A]n oil-and-gas conveyance that does not expressly address the matter” conveys to the hydrocarbon lessee “possession and control over the disposition of liquid-waste byproduct,” including “constituent water.” … The landowners and the hydrocarbon lessee “are free to strike a different deal” regarding ownership of groundwater produced with and then separated from hydrocarbons.

Neither the Texas Water Code, the Texas Natural Resources Code, nor related regulations are construed as divesting landowners of their groundwater or prohibiting them from contracting with lessees about produced water ownership and use.

2.3 Issues Expressly Left Open

Justice Busby’s concurrence is particularly important for delineating what the Court does not decide:

1. Alternative arrangements between landowners and lessees. Parties are free to agree that the landowner retains ownership of the groundwater component of produced fluids, subject to practical allocation and permitting questions.
2. Unleased minerals or other substances produced with leased minerals. The decision does not alter the established rule that unleased minerals produced along with leased minerals remain owned by whoever owns those unleased substances.
3. Lessor–lessee financial relationships regarding produced water. The Court does not address:
   • Whether the lessee owes royalties on the value of produced water that has been “leased” as an incident of the hydrocarbon conveyance.
   • How profits or losses from beneficial reuse or sale of produced water should be shared between lessor and lessee.
   • Whether any implied covenants apply to the management or marketing of produced water.

All of these questions are explicitly reserved for future litigation.

3. Precedents and Authorities Cited

Justice Busby’s concurrence is grounded in a long line of Texas cases and statutory provisions dealing with:

• Groundwater ownership as part of the surface estate.
• The mineral lessee’s implied right to use water.
• The effect of mineral leases on unleased minerals and other substances.
• Oil-and-gas waste and its statutory treatment.

3.1 Groundwater as Surface Estate Property

Numerous cases reaffirm that groundwater, particularly “ordinary percolating waters,” belongs to the surface owner unless expressly severed:

• Houston & Tex. Cent. R.R. v. East, 81 S.W. 279 (Tex. 1904):
  • Early articulation that the “owner of land is the absolute owner of the soil and of percolating water, which is a part of, and not different from, the soil.”
  • Recognized the rule of capture but simultaneously treated groundwater as an incident of surface ownership.
• Texas Co. v. Burkett, 296 S.W. 273 (Tex. 1927):
  • Confirmed that “ordinary percolating waters … are the exclusive property of the owner of the surface of the soil.”
  • Illustrated that the surface owner can contract concerning water use without necessarily transferring title.
• City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798 (Tex. 1955) and City of Sherman v. Public Utility Commission of Texas, 643 S.W.2d 681 (Tex. 1983):
  • Confirmed municipal and surface-owner rights to develop and sell groundwater.
• Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972):
  • Held that “[w]ater, unsevered expressly by conveyance or reservation, has been held to be a part of the surface estate.”
  • Nonetheless recognized the mineral lessee’s implied right to use water reasonably necessary for mineral development.
• Robinson v. Robbins Petroleum Co., 501 S.W.2d 865 (Tex. 1973):
  • Held that even if briny subsurface water is produced “for the extraction and use of the mineral content” by a mineral lessee, “the water itself is an incident of surface ownership in the absence of specific conveyancing language to the contrary.”
• Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984):
  • Discussed groundwater within the broader context of mineral and surface estates.
  • Affirmed that unsevered groundwater is part of the surface estate.
• Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53 (Tex. 2016):
  • Recognized a severed groundwater estate and applied oil-and-gas-style implied surface-use rights to groundwater development.
  • Highlighted the structural similarity between groundwater estates and mineral estates.

Justice Busby echoes and consolidates these authorities when he states that Texas has “held for more than a century that the surface owner owns groundwater, which includes the percolating, mineral-laden native water found in many subsurface strata.”

3.2 Constitutional Protection and Regulatory Backdrop

The concurrence ties groundwater ownership to constitutional takings protections and the statutory/regulatory framework:

• Texas Water Code §§ 36.001(5), 36.002(a):
  • Recognize that landowners own the groundwater beneath their land.
  • Set the stage for regulation by groundwater conservation districts without necessarily changing underlying ownership.
• 30 Tex. Admin. Code § 297.1(22):
  • Regulatory recognition of ownership consistent with the Water Code.
• Edwards Aquifer Authority v. Day, 369 S.W.3d 814 (Tex. 2012):
  • Held that landowners have a constitutionally protected property interest in groundwater in place comparable to oil and gas.
  • Clarified how regulations may effect a compensable taking under the Texas Constitution.
• Amarillo Oil Co. v. Energy-Agri Products, Inc., 794 S.W.2d 20 (Tex. 1990):
  • Stated that statutes and regulations do not themselves alter common-law property rights absent clear indication—“Such rights form the background against which courts evaluate any allegation that government action amounts to an unlawful taking.”
• Cedar Point Nursery v. Hassid, 594 U.S. 139 (2021) and Tex. Dep’t of Transp. v. Self, 690 S.W.3d 12 (Tex. 2024):
  • Cited to reinforce the general principle that private property rights form the baseline in takings analysis, and that certain regulations may fall short of requiring compensation even if they impose obligations or limitations.

These authorities collectively underpin the Court’s insistence that government regulation of fluid oil-and-gas waste (or groundwater generally) does not itself strip landowners of their groundwater ownership. Rather, what is at issue in Cactus Water is what the landowner has voluntarily transferred via private lease.

3.3 Oil-and-Gas Conveyances and Unleased Substances

The Court also situates its reasoning within a line of cases dealing with how mineral leases interact with substances other than the specifically leased hydrocarbons.

• Moser v. U.S. Steel Corp. (again):
  • Explained that a grant of “all minerals” or “oil, gas, and other minerals” generally indicates an intent to “convey all valuable [mineral] substances to the mineral owner”—i.e., all substances within the ordinary and natural meaning of “mineral.”
• Myers–Woodward, LLC v. Underground Services Markham, LLC, ___ S.W.3d ___, 2025 WL 1415892 (Tex. May 16, 2025):
  • Held that a lease of salt did not convey “ownership of non-salt substances or spaces adjacent to the salt.”
  • Used here to underscore that the scope of a lease is defined by its terms (e.g., “salt,” or here “oil and gas”/“other hydrocarbons”), and does not automatically extend to every other substance.
• Guffey v. Stroud, 16 S.W.2d 527 (Tex. Comm’n Op. 1929):
  • Recognized that a “grant of the oil carried with it a grant of the … water … essential to the enjoyment of the actual grant of the oil.”
  • Also held, in a different aspect, that an oil lessee does not acquire the gas when the land is separately subject to a gas lease.
• Amarillo Oil Co. v. Energy–Agri Products, Inc., 794 S.W.2d 20 (Tex. 1990):
  • Involved a lease of only oil and casinghead gas; the Court held that this did not convey ownership of other gas or liquids mixed into the production stream.
  • This supports the principle that production of unleased substances along with leased minerals does not shift ownership of the unleased materials to the lessee.

Justice Busby stresses that Cactus Water does not change these rules: ownership of unleased minerals remains unaffected even if they are physically commingled in production with leased minerals. What is distinctive here is that the groundwater at issue is not an unleased “mineral” but part of the surface estate, and the question is whether it is functionally “leased” when it is produced incidentally with hydrocarbons.

3.4 Statutory Treatment of Fluid Oil-and-Gas Waste

The concurrence also discusses Section 122.002 of the Texas Natural Resources Code, a relatively recent enactment that provides default rules for ownership of “fluid oil and gas waste”:

• Tex. Nat. Res. Code § 122.001(2):
  • Defines “fluid oil and gas waste” to include “waste containing salt or other mineralized substances, brine, hydraulic fracturing fluid, flowback water, produced water, or other fluid that arises out of … production of oil or gas.”
  • Notably, the covered fluid arises after the oil or gas is separated from it.
• Tex. Nat. Res. Code § 122.002(1):
  • Provides that, absent contrary agreement, ownership of the fluid oil and gas waste changes hands when it is used by or transferred to a person who takes possession for the purpose of treating it for a subsequent beneficial use.
  • This is a statutory default rule between the producer/lessee and downstream parties who assume responsibility for treatment and beneficial use.

Justice Busby underscores that this statute operates at a different stage and between different actors than the lease question before the Court:

• The statute does not dictate the original ownership arrangement between landowner and lessee regarding the groundwater component of produced fluids.
• It only allocates ownership after a person (often a third party) takes possession for beneficial reuse purposes.
• It is a default rule that can itself be altered by contract.

Thus, Section 122.002 neither:

• Deprives landowners of groundwater ownership; nor
• Prevents landowners and lessees from structuring their own allocation of produced-water ownership and profits.

3.5 The “Developed Water” Analogy

Justice Busby notes an analogy from the surface-water context—the doctrine of “developed water”—cited in various intermediate appellate decisions:

• Guelker v. Hidalgo County Water Improvement Dist. No. 6, 269 S.W.2d 551 (Tex. App.—San Antonio 1954, writ ref’d n.r.e.)
• Harrell v. F.H. Vahlsing, Inc., 248 S.W.2d 762 (Tex. App.—San Antonio 1952, writ ref’d n.r.e.)
• Scholarship by Edmond R. McCarthy, Jr. and Frank R. Booth.

Under the “developed water” doctrine:

• A permittee that diverts surface water at its own expense generally has the exclusive right to control that water for permissible uses.
• The doctrine protects that right against interference by third parties.

Busby suggests this doctrine is “analogous” to the Court’s rule here: a lessee that produces hydrocarbons (and incidentally produces groundwater as waste) at its own expense should have exclusive control over that fluid, including the produced water, to carry out safe disposal or beneficial use, free from interference by third parties who lack contractual rights.

3.6 Other Cited Cases on Implied Covenants and Accounting

Justice Busby points to several decisions not to apply them directly, but to signal unresolved questions:

• Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726 (Tex. 1981):
  • Addressed royalty provisions where the substance or pricing basis was not expressly named.
  • Cited here to illustrate that one might analogously ask what royalty, if any, is owed on produced water when the lease is silent.
• French v. Occidental Permian Ltd., 440 S.W.3d 1 (Tex. 2014):
  • Dealt with accounting and benefit allocation in the context of CO₂ injection and secondary recovery operations.
  • Referenced as a potential analog for how profits or losses from beneficial reuse of water might be shared.
• Cabot Corp. v. Brown, 754 S.W.2d 104 (Tex. 1987):
  • Discussed implied covenants in oil-and-gas leases (such as covenants to develop, protect, and market).
  • Cited to raise, but not resolve, whether an implied covenant may exist regarding management or marketing of produced groundwater.
• Humble Oil & Refining Co. v. West, 508 S.W.2d 812 (Tex. 1974):
  • Discussed evidentiary burdens and accounting when a lessee injects non-native substances into a reservoir (e.g., for secondary recovery).
  • Cited as an analogy for the potential complexity of quantifying the surface owner’s retained share of fluids if ownership of some portion of produced water were reserved.

Collectively, these citations show the Court’s awareness that recognizing produced groundwater as “leased” raises important, but presently unresolved, royalty and implied-covenant issues.

4. The Court’s Legal Reasoning

4.1 Framing the Problem: “Water or Waste” Is the Wrong Question

The court of appeals had framed the issue in terms of whether the fluid produced with hydrocarbons was “water or … waste.” Justice Busby, echoing the majority, criticizes this framing as analytically unhelpful:

• The fluid is both groundwater and statutorily defined oil-and-gas waste.
• The dual character does not by itself answer the ownership question.

Instead, the real inquiry is:

“[O]ur focus must be on whether the landowners leased this groundwater to the lessee.”

That reframing is critical. It shifts analysis from classification to contractual intent: what did the parties to the oil-and-gas lease intend to convey, and what rights are implied as necessary to the enjoyment of the grant?

4.2 Step One: Affirm Surface-Owner Groundwater Rights

The Court begins from the firmly established baseline that:

• Groundwater is part of the surface estate unless expressly severed.
• The surface owner owns “percolating, mineral-laden native water found in many subsurface strata.”
• This ownership is preserved in the Water Code and recognized as a constitutionally protected property interest (Day).

At this stage, nothing in the Court’s reasoning diminishes the surface owner’s title to groundwater in place. Nor does the opinion reinterpret statutes or regulations as transferring that title to someone else by operation of law.

4.3 Step Two: The Mineral Lessee’s Implied Right to Use Water

Separately, longstanding Texas law recognizes that:

• The mineral estate is the “dominant estate” as to the surface, with implied rights to use the surface (including water) as reasonably necessary to develop and produce minerals.
• This includes the right of an oil-and-gas lessee to use water from the leased premises for operations, subject to reasonableness and express lease limitations (as in Whitaker and Robinson).

In Cactus Water, the leases at issue also contained express limitations on the lessee’s use of water. Yet the core issue is not simply how much groundwater the lessee may consume in operations, but who owns and controls groundwater after it has been produced from the formation along with hydrocarbons.

4.4 Step Three: Characterizing Incidentally Produced Groundwater

The Court recognizes that:

• When oil and gas are produced, they typically come to the surface with formation water (often salty, mineral-laden groundwater).
• This mixture is statutorily categorized as “fluid oil and gas waste” once separated from hydrocarbons, but physically it remains water plus various constituents.

The majority, as described by Justice Busby, concludes:

“[T]he common and ordinary meaning of a grant of hydrocarbons includes the water incidentally produced with those substances at the mineral lessee’s expense, which the lessee is required to properly dispose of free from third-party interference.”

This conclusion is anchored in:

• Industry practice and common understanding of what is conveyed in an oil-and-gas lease.
• Guffey v. Stroud, which held that a grant of oil “carried with it” a grant of the water necessary to the enjoyment of the oil grant.
• The doctrine of “developed water” in the surface-water context, by analogy.

In effect, when a leasing instrument conveys “oil and gas” or “oil, gas, and other hydrocarbons” without addressing produced water, the Court interprets that conveyance to include:

• The hydrocarbons themselves; and
• The incidentally produced water, to the extent necessary for the lessee to manage, dispose of, or beneficially use that water as part of its operations.

4.5 Step Four: Default Rule and Contractual Freedom

The Court is careful to cabin its holding as a default interpretive rule for silent leases:

• If the lease is silent, incidentally produced groundwater is treated as leased to the hydrocarbon lessee, who holds possession and control over its disposition as part of the leasehold.
• If the lease expressly addresses the matter (for example, reserving produced water ownership to the lessor, splitting revenues from beneficial reuse, or granting produced water rights to a third party), that express allocation will control.

Justice Busby highlights that nothing in the Water Code, the Natural Resources Code, or implementing regulations:

• Precludes such private arrangements; or
• Divests landowners of their underlying groundwater ownership by statute.

He also notes that, if the landowner retains ownership of produced water, the parties should ideally:

• Agree on a practical method for measuring the landowner’s water share (e.g., through metering, sampling, or agreed allocation formulas).
• Account for any injected or non-native fluids (as in Humble Oil v. West).
• Arrange for necessary permits to transport, treat, and/or sell the water, either directly or through contractors.

4.6 Step Five: Rejecting the “Product Stream” Theory

Justice Busby notes that the Court does not adopt the broad “product stream” theory advanced by COG and accepted by the court of appeals majority. Under that theory, the lessee effectively would own everything in the production stream, regardless of lease scope.

Instead, the Court:

• Maintains the distinction between leased and unleased substances:
  • Unleased minerals produced with leased minerals (e.g., gas produced under an oil lease, or non-salt substances under a salt lease) remain the property of their owners.
• Confines its holding to the specific context where:
  • The lease covers “oil and gas” or “oil, gas, and other hydrocarbons;”
  • Groundwater (a part of the surface estate) is produced incidentally with those leased hydrocarbons; and
  • The lease is silent on produced-water ownership and use.

In such cases, the incidentally produced groundwater is treated as functionally “leased” to the hydrocarbon lessee as an incident of the grant—not because the lessee owns “everything in the stream,” but because the grant of hydrocarbons includes the burdens and rights necessary to handle their associated waste fluids.

4.7 Step Six: Unresolved Lessor–Lessee Accounting Issues

Finally, Justice Busby emphasizes that, once we accept that produced groundwater is included in the hydrocarbon conveyance (for silent leases), it does not automatically resolve the financial relationship between lessor and lessee regarding that water. He poses, without answering, several important questions:

• Royalties: If produced water is leased, does the lessee owe royalties on:
  • Any revenues realized from sale of treated produced water?
  • Cost savings from reusing produced water in operations instead of fresh water or purchased supplies?
• Profit and loss allocation: How should profits or losses from beneficial reuse or sale of produced water be accounted for between lessor and lessee? (He cites French v. Occidental Permian as a potential analog.)
• Implied covenants: Are there implied covenants concerning:
  • Prudent management of produced water?
  • Reasonable marketing of its value?
  • Minimization of costs associated with its disposal?
  (He references Cabot Corp. v. Brown in this regard.)

Justice Busby is clear that none of these questions are before the Court in Cactus Water, and the opinion should not be read to answer them. They are left open for future cases.

5. Impact and Implications

5.1 For Surface Owners

For Texas surface owners, Cactus Water carries several practical consequences:

• Groundwater in place is still theirs. Nothing in the decision erodes their basic property right in groundwater beneath their land.
• But produced groundwater is, by default, “leased” if the lease is silent.
  • Once groundwater is produced with hydrocarbons, the lessee controls that fluid’s disposition as part of the leasehold, subject to regulatory requirements.
  • The surface owner cannot, without a contractual arrangement, unilaterally sell or grant rights to that produced water in a way that interferes with the lessee’s operations.
• Leasing strategy becomes critical.
  • Surface owners who wish to retain rights in produced water—especially in areas where produced-water treatment and reuse are commercially valuable—must negotiate explicit lease terms.
  • These might include:
    • Express reservations of ownership in produced water.
    • Revenue sharing or royalty clauses tied to produced water sales or beneficial reuse.
    • Operational cooperation clauses for handling, measuring, and transporting produced water.

5.2 For Mineral Lessees and Operators

For lessees, the decision provides:

• Clarity and security.
  • Absent contrary lease language, operators can rely on having possession and control of produced fluids, including water, for purposes of compliance with waste-disposal regulations and for potential beneficial reuse.
  • This reduces legal risk from third-party claims that could interfere with water-handling arrangements.
• Responsibility and potential upside.
  • As the party controlling produced water, the lessee remains responsible for safe disposal and regulatory compliance.
  • At the same time, lessees may capture economic value from reuse or sale of produced water, subject to whatever royalty or covenant obligations courts may later recognize.
• Heightened importance of lease drafting.
  • Where operators anticipate significant value from produced-water projects, they will likely seek to:
    • Confirm their rights to treat, reuse, and commercialize produced water.
    • Address whether (and how) they share economic benefits with lessors.

5.3 For Water Midstream and Service Companies

Companies like Cactus Water Services—whose business model frequently involves acquiring, transporting, treating, and marketing produced water—must be especially attentive to Cactus Water’s default rule:

• Source of title matters.
  • Acquiring “produced water rights” from the surface owner alone may be insufficient if the oil-and-gas lease is silent and therefore vests control in the lessee.
  • Midstream water companies will need to contract directly with operators/lessees or ensure lease language empowers the surface owner to grant the necessary rights.
• Statutory default under § 122.002.
  • Once an operator transfers produced water to a company for treatment and beneficial use, ownership may shift under the statute absent contrary agreement.
  • But this statutory shift presupposes that the operator had legal authority to transfer control in the first place.

5.4 Regulatory and Takings Context

By reaffirming groundwater as a protected property interest while recognizing lessees’ default control over produced water, the Court:

• Maintains the Day framework.
  • Day recognized a takings-based limit on how far groundwater regulation can go without compensation.
  • Cactus Water does not alter that; it deals with private ordering via leases, not state confiscation.
• Clarifies interaction with oil-and-gas waste regulation.
  • Classifying produced water as “waste” does not extinguish underlying property rights, but it does impose safety and environmental obligations on the operator.
  • Designating the hydrocarbon lessee as the default party in possession and control simplifies enforcement and compliance.
• Leaves room for legislative evolution.
  • Future legislation might further encourage beneficial reuse of produced water or clarify revenue-sharing, but such statutes must respect background property rights or provide for compensation where required.

5.5 Anticipated Future Litigation

Given the explicit questions Justice Busby leaves open, we can anticipate future disputes over:

• Royalties on produced water.
  • Whether lease royalty clauses, particularly those tied to “amount realized” or “proceeds” from production, encompass revenues from produced-water sales or reuse.
• Implied covenants relating to water.
  • Whether operators must act as reasonably prudent operators in managing and marketing produced water in ways that protect and enhance the lessor’s economic interests.
• Allocation of costs and benefits.
  • Whether, and how, operators must credit lessors for savings or profits arising from substitution of produced water for fresh water, sale of treated water, or participation in water midstream ventures.

The Court’s deliberate restraint in addressing these issues signals that future cases will likely develop a more detailed doctrine of “produced water law” within the broader corpus of Texas oil-and-gas jurisprudence.

6. Complex Concepts Explained in Plain Terms

6.1 Surface Estate vs. Mineral Estate

• Surface estate: The rights to the land’s surface and all that is not specifically granted as a mineral estate. This includes:
  • Use and enjoyment of the surface.
  • Groundwater, unless expressly severed.
• Mineral estate: The rights to specified subsurface minerals (often “oil, gas, and other minerals”), plus implied surface-use rights reasonably necessary to explore, drill, and produce those minerals.
• The mineral estate is often called “dominant” because the mineral owner/lessee can use the surface as reasonably necessary for mineral development, but must not use it in a way that is negligent or excessive.

6.2 Groundwater vs. Surface Water

• Groundwater: Water beneath the ground, generally in aquifers, considered part of the surface estate and owned by the landowner (subject to the rule of capture and regulatory overlay).
• Surface water: Water in lakes, rivers, and streams, which is generally owned by the State of Texas and subject to permitting and allocation; private rights are typically usufructuary (rights of use).

6.3 “Incidentally Produced” Groundwater / Produced Water

• In oil-and-gas operations, production often brings up not only hydrocarbons but also formation water.
• This water:
  • Is physically groundwater that migrated into the wellbore with the oil and gas.
  • Contains salts, minerals, and sometimes chemicals from hydraulic fracturing or drilling processes.
  • Is commonly called “produced water” or “flowback” and is heavily regulated as “oil-and-gas waste.”

6.4 Oil-and-Gas “Waste”

• Under Texas law and regulation, “oil-and-gas waste” includes fluids like:
  • Produced water.
  • Flowback water.
  • Brine and other mineralized fluids.
  • Used drilling and completion fluids.
• Classifying something as “waste” doesn’t inherently answer who owns it; it primarily triggers regulatory obligations about how it must be handled, transported, stored, treated, or disposed of.

6.5 The “Product Stream” Theory

• Some operators have argued that a lease gives them ownership of everything in the production stream once it enters the wellbore—hydrocarbons, water, and any other substances.
• Cactus Water rejects this broad theory. Instead, the Court:
  • Limits the lessee’s default rights to what is reasonably included in the grant (hydrocarbons and incidentally produced water necessary to their enjoyment and safe disposal).
  • Preserves the rule that unleased minerals and other distinct substances remain owned by their rightful owners.

6.6 Implied Covenants in Oil-and-Gas Leases

• Implied covenants are duties that are not expressly written in the lease but are read into it by courts to effectuate the parties’ presumed intent, such as:
  • Covenant to test and develop the leased premises.
  • Covenant to protect the lease from drainage.
  • Covenant to market production reasonably.
• Cactus Water does not decide whether there is an implied covenant to prudently manage or market produced water, but flags this as a question for future cases.

7. Conclusion: The Significance of Cactus Water Services v. COG Operating

Cactus Water Services, LLC v. COG Operating, LLC establishes a key default principle for Texas oil-and-gas law:

When a landowner leases “oil and gas” or “oil, gas, and other hydrocarbons,” and the lease is silent about produced water, incidentally produced groundwater is included in the hydrocarbon conveyance. The hydrocarbon lessee has possession and control over the disposition of the liquid-waste byproduct, including constituent water, subject to regulatory obligations and free from third-party interference.

At the same time, the Court—through Justice Busby’s concurrence—emphasizes:

• This is a default rule, open to contractual modification.
• It does not:
  • Alter the surface owner’s basic property right in groundwater in place.
  • Change the established rules governing unleased minerals or other substances produced with leased minerals.
  • Resolve complex questions about royalties, profit sharing, or implied covenants related to produced water.

The decision therefore:

• Provides much-needed clarity for operators and regulators about who controls produced water under a typical, silent oil-and-gas lease.
• Highlights the importance of express lease drafting to allocate produced-water rights and economic benefits in a rapidly evolving water-reuse economy.
• Sets the stage for a new generation of Texas cases that will grapple with how royalties, implied covenants, and profit-sharing principles apply to the increasingly valuable resource of produced groundwater.

In sum, Cactus Water represents a significant but carefully limited doctrinal step: it integrates long-standing groundwater property principles with the practical realities of modern oil-and-gas operations, while leaving ample room for private ordering and future judicial development in the law of produced water.