Default Rule in Texas: Silent Oil-and-Gas Leases Convey Possession and Control of Incidentally Produced Groundwater (Produced-Water Byproduct) to the Mineral Lessee

I. Introduction

In Cactus Water Services, LLC v. COG Operating, LLC (Supreme Court of Texas; concurrence by Justice Busby, joined by Justice Lehrmann and Justice Sullivan), the Court confronted a recurring, high-stakes question in modern oil-and-gas operations: when groundwater is produced commingled with hydrocarbons and later separated, who owns the water—the surface owner (who ordinarily owns groundwater) or the mineral lessee (who bears operational duties and costs to handle produced fluids)?

Justice Busby agreed with the Court’s core holding and wrote separately to emphasize the decision’s limited scope. The concurrence frames the case as a dispute about what the parties’ hydrocarbon leases convey by default when they are silent on produced groundwater, not a dispute about whether the fluid is “water” versus “waste.”

II. Summary of the Opinion (Concurrence and the Holding It Joins)

Justice Busby concurs in the Court’s “narrow” holding establishing a default rule: where an oil-and-gas conveyance (e.g., “oil and gas” or “oil, gas, and other hydrocarbons”) does not expressly address produced water, it conveys to the mineral lessee possession and control over the disposition of the liquid-waste byproduct of production, including its constituent groundwater.

At the same time, the concurrence reiterates long-settled Texas law that groundwater in place is owned by the surface estate unless expressly severed. The key move is distinguishing ownership in situ from the right to possess and control water that is incidentally produced as part of hydrocarbon production operations.

The concurrence also flags what the Court does not decide: royalties and accounting for produced water value, implied covenants concerning water management, and broader theories (such as a lessee-owned “product stream” concept).

III. Analysis

A. Precedents Cited

1. Groundwater belongs to the surface estate (baseline rule)

Justice Busby situates the dispute against a century of Texas groundwater ownership law. The concurrence cites cases recognizing that, absent express severance, subsurface water is part of the surface estate:

  • Houston & Tex. Cent. R.R. v. East, 81 S.W. 279, 281 (Tex. 1904) (landowner as “absolute owner” of percolating water as part of the soil).
  • Texas Co. v. Burkett, 296 S.W. 273, 278 (Tex. 1927) (ordinary percolating waters are the exclusive property of the surface owner).
  • City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798, 802 (Tex. 1955).
  • Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 811 (Tex. 1972) (“Water, unsevered expressly … part of the surface estate.”).
  • Robinson v. Robbins Petroleum Co., 501 S.W.2d 865, 867 (Tex. 1973) (even mineral-laden subsurface water is incident of surface ownership absent “specific conveyancing language to the contrary”).
  • City of Sherman v. Pub. Util. Comm'n of Tex., 643 S.W.2d 681, 686 (Tex. 1983).
  • Moser v. U.S. Steel Corp., 676 S.W.2d 99, 101-02 (Tex. 1984).
  • Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53, 63 & n.43 (Tex. 2016).

This baseline is reinforced by constitutional takings jurisprudence and statutory recognition of groundwater ownership, anchored by Edwards Aquifer Auth. v. Day, 369 S.W.3d 814, 823-838 (Tex. 2012), which the concurrence cites for the proposition that groundwater ownership is a protected property interest. The concurrence also references the “background principles” approach to takings analysis reflected in Cedar Point Nursery v. Hassid, 594 U.S. 139, 160, 161 (2021) and Tex. Dep't of Transp. v. Self, 690 S.W.3d 12, 27 (Tex. 2024).

2. The implied right to use surface resources—and “incidentally produced” water

The concurrence agrees with the Court that, while the surface owner owns groundwater in place, a mineral lessee has an implied right to use the surface (including water) as reasonably necessary to produce and remove minerals. That concept is consistent with the line of cases acknowledging that a mineral grant can carry necessary incidents.

The key authority Justice Busby highlights for the default conveyance of incidentally produced water is Guffey v. Stroud, 16 S.W.2d 527, 528 (Tex. [Comm'n Op.] 1929), which recognized that a grant of oil carried with it water “essential to the enjoyment” of the oil grant. The concurrence treats Guffey as support for the idea that water inseparably implicated in production operations can fall within the practical scope of a hydrocarbon conveyance.

3. Distinguishing leased hydrocarbons from unleased substances produced along with them

Justice Busby emphasizes that the Court’s holding does not alter rules about ownership of unleased minerals or other substances. The concurrence relies on:

  • Moser v. U.S. Steel Corp., 676 S.W.2d 99, 102 (Tex. 1984) (intent behind “all minerals” and the ordinary meaning of “mineral”).
  • Myers-Woodward, LLC v. Underground Servs. Markham, LLC, ___ S.W.3d ___, 2025 WL 1415892, at *6 (Tex. May 16, 2025) (lease of salt did not convey ownership of adjacent non-salt substances or spaces).
  • Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20, 25-27 & n.6 (Tex. 1990) (lease of only oil and casinghead gas did not convey ownership of other gas or liquids that became mixed during production).
  • Guffey v. Stroud, 16 S.W.2d 527, 528-29 (Tex. [Comm'n Op.] 1929) (oil lessee not entitled to gas where gas lease held by different entity).

These authorities are used to cabin the decision: produced water may be “included” for purposes of possession/control as an incident of hydrocarbon production, but that does not imply a general rule that whatever comes up the wellbore becomes lessee-owned.

4. Operational burdens and regulatory classification (waste vs. water)

The concurrence criticizes the court of appeals’ focus on whether produced fluid is “water or … waste” (citing the court below at 676 S.W.3d 733, 738 (Tex. App.—El Paso 2023)). Justice Busby frames the proper analysis as whether the leases conveyed the groundwater component—not whether regulators classify the fluid as oil-and-gas waste.

Relatedly, the concurrence stresses that statutes and regulations recognize groundwater ownership but do not themselves reallocate it absent agreement, citing Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20, 26 (Tex. 1990) for the principle that statutes/regulations do not alter common-law property rights unless they clearly do so.

5. Analogies to surface-water “developed water” doctrine

Justice Busby notes an analogy: some courts protect a permittee’s exclusive control over “developed water” created by diversion efforts, citing:

  • Guelker v. Hidalgo County Water Improvement Dist. No. 6, 269 S.W.2d 551, 553 (Tex. App.—San Antonio 1954, writ ref'd n.r.e.).
  • Harrell v. F.H. Vahlsing, Inc., 248 S.W.2d 762, 768-770 (Tex. App.—San Antonio 1952, writ ref'd n.r.e.).

The concurrence does not adopt that doctrine for groundwater, but uses it to illustrate a familiar legal pattern: when a party invests in capturing/managing water, the law often protects control against third-party interference.

6. Questions left open: royalties, accounting, implied covenants

Justice Busby points to future disputes the Court’s narrow holding may generate, referencing:

  • Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 728 n.1 (Tex. 1981) (royalty analysis for unnamed substances).
  • French v. Occidental Permian Ltd., 440 S.W.3d 1, 8-10 (Tex. 2014) (accounting concepts in the oil-and-gas context).
  • Cabot Corp. v. Brown, 754 S.W.2d 104, 106 (Tex. 1987) (implied covenants context).
  • Humble Oil & Ref. Co. v. West, 508 S.W.2d 812, 818-19 (Tex. 1974) (burdens concerning injection of non-native substances; referenced as an analogy for evidentiary/accounting burdens).

These citations support the concurrence’s central caution: today’s rule answers “who controls disposition by default,” not “who pays whom what, and under what implied duties.”

B. Legal Reasoning

Justice Busby’s reasoning proceeds in three steps:

  1. Start with the property baseline: absent express severance, groundwater is owned by the surface estate, including mineral-laden native water.
  2. Reframe the classification issue: produced fluids can be both “groundwater” (as to origin and baseline ownership) and “oil-and-gas waste” (as to regulatory handling duties). That dual status does not resolve the conveyancing question.
  3. Apply a conveyancing default tied to operational necessity and ordinary meaning: when groundwater is “incidentally produced” with hydrocarbons, the default meaning of an oil-and-gas/hydrocarbon conveyance includes the right of possession and control necessary for the lessee to manage and dispose of that byproduct at the lessee’s expense and without third-party interference.

Critically, the concurrence stresses the rule’s default nature: sophisticated parties can “strike a different deal” in the lease, and nothing in the identified statutes/regulations forbids doing so.

C. Statutory and Regulatory Context (and Why It Does Not Control the Outcome)

The concurrence references the Texas Water Code’s recognition of groundwater ownership (TEX. WATER CODE §§ 36.001(5), 36.002(a)) and a related definition in 30 TEX. ADMIN. CODE § 297.1(22), while insisting these do not themselves reassign ownership in private disputes.

Justice Busby also discusses the later-enacted default ownership framework for “fluid oil-and-gas waste” in TEX. NAT. RES. CODE §§ 122.001(2), 122.002(1). The concurrence reads that statute narrowly: it addresses ownership changes when such fluid is taken for treatment for subsequent beneficial use, and it does not prevent landowner–lessee agreements allocating ownership of the groundwater component after separation.

D. Impact

  • Clarified default drafting consequence: In leases that do not expressly address produced groundwater, the mineral lessee will generally have the right to possess and control produced water as a waste byproduct, reducing the ability of third parties (including surface-interest successors) to interfere with disposal/reuse pathways.
  • Incentive to contract explicitly: The concurrence underscores that parties can allocate produced-water ownership/value differently, so the practical impact will be an increase in bespoke “produced water” clauses, measurement/accounting provisions, and operational-control provisions.
  • Future litigation shifted to remedies and economics: By highlighting open questions (royalties, profits/losses from reuse, implied covenants), the concurrence signals that the next wave of disputes will likely focus on (i) lease interpretation for royalty/accounting, (ii) implied duties in water handling, and (iii) evidentiary methods to quantify “how much water” is at issue.
  • Regulatory-compliance alignment: Treating the lessee as holding default control over disposition aligns with the reality that the lessee bears legal obligations for safe handling/disposal of oil-and-gas waste, though the concurrence is careful not to make regulation itself the source of property reallocation.

IV. Complex Concepts Simplified

  • Surface estate vs. mineral estate: Texas often treats the surface and minerals as separable property interests. The surface owner typically owns groundwater, but the mineral owner/lessee has implied rights to use the surface reasonably to extract minerals.
  • “Incidentally produced” water: Water that comes to the surface as an unavoidable byproduct of producing oil/gas. It is not produced because the operator is “mining water,” but because it accompanies hydrocarbons in the reservoir.
  • “Produced water” / “fluid oil-and-gas waste”: A regulatory category covering water and other fluids brought up during oil-and-gas operations. Calling it “waste” regulates handling/disposal; it does not automatically answer who owns it under private conveyances.
  • Default rule (not a mandatory rule): A legal rule that applies only when the contract is silent. Parties can override it with clear language.
  • Implied covenants: Judge-made duties read into oil-and-gas leases (e.g., to act reasonably as an operator). The concurrence notes possible future debates about whether such implied duties apply to produced-water management.
  • Takings (property protection against government): The concurrence references cases like Edwards Aquifer Auth. v. Day to underscore that groundwater ownership is a protected property right against uncompensated governmental appropriation—distinct from private lease-allocation questions.

V. Conclusion

Justice Busby’s concurrence in Cactus Water Services, LLC v. COG Operating, LLC reinforces two propositions at once: (1) groundwater in place is owned by the surface estate unless expressly severed, and (2) when a hydrocarbon lease is silent, groundwater that is incidentally produced with hydrocarbons is included in the conveyance for purposes of the lessee’s possession and control over its disposition as a liquid-waste byproduct.

Equally important is the concurrence’s limiting message: this is a default conveyancing rule, not a comprehensive settlement of produced-water economics. By expressly reserving questions of royalties, profit/loss allocation, and implied duties, the concurrence both narrows the decision’s immediate reach and maps the next set of disputes that Texas courts and drafters will need to address.