Default Rule: Oil-and-Gas Conveyances Include Control of Incidentally Produced Groundwater as Liquid-Waste Byproduct (Absent Contrary Lease Language)

1. Introduction

Cactus Water Services, LLC v. COG Operating, LLC (Supreme Court of Texas) addresses a recurring and economically significant question in modern oil-and-gas operations: when groundwater comes to the surface mixed with hydrocarbons during production, who owns (and who controls disposition of) that water—the surface owner/lessor or the mineral lessee?

The dispute arose against the backdrop of Texas’s long-settled rule that, in place, groundwater is owned by the surface estate, while mineral lessees hold an implied right to use the surface (including water) as reasonably necessary to produce minerals. The complication here is that oil-and-gas production commonly generates large volumes of “produced water” that must be handled and disposed of as regulated oil-and-gas waste, and—more recently—may have potential reuse value.

Justice Busby (joined by Justice Lehrmann and Justice Sullivan) concurred to emphasize both (i) the Court’s core default rule and (ii) the limits of what the Court did not decide.

2. Summary of the Opinion

The Court adopted a default rule: where an oil-and-gas conveyance does not expressly address ownership/control of water produced with hydrocarbons, the conveyance includes the mineral lessee’s possession and control over the disposition of the liquid-waste byproduct of production, including its “constituent water.” The concurrence agrees with two central propositions:

  • Baseline ownership in place: 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 minerals.
  • Produced-byproduct default: Absent express lease language to the contrary, groundwater that is incidentally produced with hydrocarbons is treated as included in the hydrocarbon conveyance for purposes of possession/control of disposition (including disposal obligations and protection against third-party interference).

Justice Busby underscores that the decision is narrow: it supplies a default allocation where the parties did not expressly contract for a different arrangement, and it leaves substantial follow-on questions for future cases.

3. Analysis

A. Precedents Cited

1) Groundwater ownership and the surface estate

The concurrence situates the case within a century-plus line of Texas authority recognizing that groundwater is owned by the surface estate unless expressly severed:

  • Houston & Tex. Cent. R.R. v. East, 81 S.W. 279 (Tex. 1904): discussed the rule treating percolating water as part of the land.
  • Texas Co. v. Burkett, 296 S.W. 273 (Tex. 1927): stated that ordinary percolating waters are the exclusive property of the surface owner.
  • City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798 (Tex. 1955): reflected the surface owner’s entitlement to groundwater.
  • Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972): reiterated that unsevered water is part of the surface estate.
  • Robinson v. Robbins Petroleum Co., 501 S.W.2d 865 (Tex. 1973): crucially recognized that even briny subsurface water produced for its mineral content is “an incident of surface ownership in the absence of specific conveyancing language to the contrary.”
  • City of Sherman v. Pub. Util. Comm'n of Tex., 643 S.W.2d 681 (Tex. 1983), and Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984): confirm the broader architecture of Texas property and mineral law, including how conveyances are interpreted.
  • Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53 (Tex. 2016): reflects modern treatment of groundwater rights and surface protections.

These cases support the concurrence’s starting point: groundwater ownership remains with the surface owner in place, and can be altered only by “specific conveyancing language.”

2) Constitutional and statutory backdrop (property rights and regulation)

  • Edwards Aquifer Auth. v. Day, 369 S.W.3d 814 (Tex. 2012): grounded groundwater ownership as a constitutionally protected property interest and discussed takings constraints.
  • Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20 (Tex. 1990): emphasized that statutes/regulations generally do not alter common-law property rights absent clear intent, reinforcing that the default rule remains contract-sensitive.
  • 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 for modern takings framework and the role of background property principles in evaluating regulation.

The concurrence uses these authorities to clarify that oil-and-gas waste regulation and water regulation may impose duties (safe handling/disposal) without necessarily reallocating title between private parties.

3) “Incidentally produced” water as part of the hydrocarbon grant

The decisive interpretive move is supported by:

  • Guffey v. Stroud, 16 S.W.2d 527 (Tex. [Comm'n Op.] 1929): recognized that a grant of oil carries with it a grant of water essential to enjoyment of the oil grant—supporting the idea that production necessarily entails control of certain associated substances.

Justice Busby also notes an analogy in surface-water law: Harrell v. F.H. Vahlsing, Inc., 248 S.W.2d 762 (Tex. App.—San Antonio 1952, writ ref'd n.r.e.) and 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.), which protect a permittee’s control over “developed water” created at its expense—used here as a conceptual parallel for protecting lessee-controlled byproduct against third-party interference.

4) Limits: unleased substances and narrow conveyances

The concurrence stresses the Court did not change established rules for unleased minerals/substances:

  • Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984): explains how broad “all minerals” language is construed to include valuable mineral substances within the term’s ordinary meaning.
  • Myers-Woodward, LLC v. Underground Servs. Markham, LLC, ___ S.W.3d ___, 2025 WL 1415892 (Tex. May 16, 2025): a narrow mineral lease (salt) does not convey adjacent substances/spaces—reinforcing the primacy of the instrument’s scope.
  • Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20 (Tex. 1990), and Guffey v. Stroud, 16 S.W.2d 527 (Tex. [Comm'n Op.] 1929): production of unleased minerals along with leased minerals does not transfer ownership of unleased minerals to the lessee.

This matters because the leases at issue were limited to “oil and gas” or “oil, gas, and other hydrocarbons,” not “all minerals”—so the decision is framed as a hydrocarbon-conveyance default about an incidentally produced byproduct, not a sweeping redefinition of mineral ownership.

5) Operational and remedial questions reserved for future litigation

The concurrence flags (without deciding) issues that will likely drive the next wave of disputes:

  • Humble Oil & Ref. Co. v. West, 508 S.W.2d 812 (Tex. 1974): referenced as an example of evidentiary/accounting burdens when non-native substances are injected—relevant to measuring/allocating produced fluids.
  • Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726 (Tex. 1981): cited by analogy on royalty classification for unnamed substances.
  • French v. Occidental Permian Ltd., 440 S.W.3d 1 (Tex. 2014): referenced for potential disputes about profits/losses realized from related production activities.
  • Cabot Corp. v. Brown, 754 S.W.2d 104 (Tex. 1987): cited on implied covenants, foreshadowing disputes about whether the lessee has implied duties regarding management or monetization of produced water.

B. Legal Reasoning

The concurrence’s reasoning (tracking the Court’s opinion) proceeds in three main steps:

  1. Separate “in-place ownership” from “produced-byproduct control.” The surface owner owns groundwater in place, but production creates a distinct practical problem: the water becomes part of a regulated waste stream that the operator must manage. The court of appeals’ “water vs. waste” framing was rejected as a false dichotomy: it is both groundwater (as to origin) and oil-and-gas waste (as to regulatory classification and handling duties).
  2. Interpret the hydrocarbon conveyance in light of what production necessarily entails. Relying on Guffey v. Stroud and ordinary-meaning principles, the Court treats a grant/lease of hydrocarbons as ordinarily encompassing possession and control over the incidentally produced liquid-waste byproduct at the lessee’s expense—particularly because the lessee bears legal obligations to manage and dispose of that waste and must be protected from third-party interference while doing so.
  3. Preserve freedom of contract; treat the rule as a default. The concurrence highlights the decision’s contractual nature: parties “are free to strike a different deal.” Critically, the concurrence reads the statutory/regulatory scheme as not preventing such contracting and not automatically divesting landowners of groundwater ownership “by operation of law.”

C. Impact

The immediate doctrinal impact is a clearer default allocation in Texas for produced water disputes: absent explicit lease language, the mineral lessee controls disposition of incidentally produced groundwater as part of the liquid-waste byproduct of hydrocarbon production.

Likely downstream effects include:

  • Lease drafting will change. Lessors and lessees can be expected to negotiate explicit “produced water” clauses addressing ownership, measurement, handling, permitting responsibility, beneficial reuse revenues, and indemnities.
  • Litigation will move from “who owns it?” to “what duties attach?” The concurrence explicitly reserves questions about royalties, profit allocation, and implied covenants—suggesting future cases will test whether and how traditional lease doctrines apply to produced-water monetization and disposal economics.
  • Statutory default rules will be read narrowly. The concurrence’s discussion of Section 122.002 (ownership rules triggered by transfer/possession for treatment for beneficial use) signals that the Court does not view the statute as automatically reallocating rights between lessor and lessee at the moment hydrocarbons are separated, leaving room for private ordering.
  • Operational certainty for compliance. By tying control to the party already burdened with disposal obligations, the rule reduces the risk that third-party claims obstruct waste management—an important practical concern in regulated oilfield operations.

4. Complex Concepts Simplified

  • Surface estate vs. mineral estate: Texas treats land ownership as divisible. The surface owner typically owns groundwater; the mineral owner/lessee has rights needed to produce minerals.
  • Implied right to use the surface: Even if a lease is silent, a mineral lessee may use as much of the surface (including water) as is reasonably necessary to produce and remove minerals, subject to limits.
  • Produced water / liquid-waste byproduct: Water that comes up during oil-and-gas production, often mixed with hydrocarbons and other substances; it is heavily regulated as oil-and-gas waste and must be handled/disposed of safely.
  • Default rule (gap-filler): A legal rule that applies only when the contract does not specify a different arrangement. The parties can “contract around” it with explicit language.
  • Implied covenants: Judge-made duties read into oil-and-gas leases (e.g., to reasonably develop, protect against drainage, market production). The concurrence notes—but does not decide—whether similar duties could apply to produced-water management.

5. Conclusion

The concurrence in Cactus Water Services, LLC v. COG Operating, LLC crystallizes the case’s significance: Texas continues to recognize surface ownership of groundwater in place, but—absent express lease language—an “oil and gas” or “oil, gas, and other hydrocarbons” conveyance includes the mineral lessee’s possession and control over the incidentally produced liquid-waste byproduct, including its water component.

Equally important are the boundaries Justice Busby draws: the ruling is a default, does not rewrite rules on unleased substances, and leaves open the hardest economic questions—royalties, profit allocation, and implied duties—which are poised to shape future Texas produced-water litigation and lease drafting.