Put simply: if a lease is silent, the operator gets the right to possess, control, and dispose of produced water as part of the hydrocarbon estate, but the underlying groundwater ownership framework remains intact, and parties may contract around this allocation.

III. Background and Procedural Context

A. The Physical and Commercial Context: Produced Water

Oil-and-gas wells almost always bring up some combination of:

• hydrocarbons (oil, gas, condensate), and
• formation water – often saline, mineral-laden groundwater that was originally part of the subsurface strata.

This water, once brought to the surface and separated from oil and gas, is typically termed:

• “Produced water”, or more broadly,
• “fluid oil-and-gas waste”, a statutory category under Texas Natural Resources Code § 122.001(2) that includes brine, flowback, produced water, and other fluids arising from oil-and-gas operations.

Historically, produced water was a disposal liability, regulated as industrial waste. Today, advances in treatment and reuse technologies – for example, for reuse in drilling and completion, dust suppression, or even, in more advanced contexts, industrial or agricultural use – have created a significant market for produced water. That market has in turn sparked conflicts about:

• who owns the produced water, and
• who can sell it or profit from its reuse.

B. The Parties and Their Likely Positions

Although the concurring opinion does not recite detailed facts, the posture is clear enough for legal analysis:

• COG Operating, LLC – an oil-and-gas lessee and operator – claims that produced water is part of the bundle of rights granted under its oil-and-gas leases, and therefore that it has the right to possess, manage, and potentially monetize this water as “oil-and-gas waste.”
• Cactus Water Services, LLC – a produced-water or water-midstream company – appears to have derived its claimed rights from the landowners (surface owners), who traditionally own the groundwater and may have entered into water sale or management contracts with Cactus.

The conflict therefore centers on competing chains of title:

• Landowner → Cactus (via groundwater or water-supply agreements), versus
• Landowner → COG (via oil-and-gas leases granting “oil and gas” or “oil, gas, and other hydrocarbons”).

C. The Court of Appeals Decision

The Eighth Court of Appeals in El Paso (676 S.W.3d 733 (Tex. App.—El Paso 2023)) framed the issue in terms of whether the produced fluids should be classified as “water” or “waste,” and concluded in favor of the operator. Justice Busby notes that the court of appeals majority focused on whether the fluids were “water or . . . waste” (id. at 738) – a framing he criticizes as unhelpful, because the fluids are both:

• they are groundwater originally owned by the surface owner, and
• they are statutorily and regulatorily classified as “oil-and-gas waste,” which the operator is obligated to handle and dispose of.

The Supreme Court’s majority affirms at least in substance the operator’s entitlement, but on a more precise doctrinal basis: the scope of the conveyance in the oil-and-gas lease, not merely the classification of the fluid as “waste.”

IV. Detailed Analysis of the Opinion

A. Groundwater Ownership in Texas: The Baseline Rule

Justice Busby begins by reaffirming a fundamental principle: groundwater belongs to the surface estate unless expressly severed. This proposition is deeply rooted in Texas common law and statutory law:

• Common-law cases:
  • Houston & Tex. Cent. R.R. v. East, 81 S.W. 279 (Tex. 1904) – recognized that the landowner is the “absolute owner of the soil and of percolating water, which is a part of, and not different from, the soil,” and adopted the rule of capture for groundwater.
  • Texas Co. v. Burkett, 296 S.W. 273 (Tex. 1927) – reaffirmed that ordinary percolating water is the exclusive property of the surface owner.
  • City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798 (Tex. 1955) – again recognized percolating water as part of the surface estate.
  • Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972) – treated water, unless expressly severed, as part of the surface estate, while recognizing the mineral lessee’s implied right to use water as reasonably necessary for production.
  • Robinson v. Robbins Petroleum Co., 501 S.W.2d 865 (Tex. 1973) – held that briny subsurface water itself is an incident of surface ownership, even though a mineral lessee may produce it to extract minerals from it, absent specific conveyance language to the contrary.
  • Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984) – confirmed that groundwater is not a “mineral” under the typical mineral severance and remains with the surface unless otherwise specified.
  • Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53 (Tex. 2016) – applied the oil-and-gas accommodation doctrine to groundwater estates, reinforcing that groundwater rights, like minerals, can be severed and separately owned but begin in the surface owner.
• Statutory and regulatory recognition:
  • Texas Water Code §§ 36.001(5) and 36.002(a) – expressly recognize that landowners own the groundwater beneath their land as real property.
  • 30 Tex. Admin. Code § 297.1(22) – aligns regulatory definitions with this ownership framework.
• Constitutional protection:
  • Edwards Aquifer Auth. v. Day, 369 S.W.3d 814 (Tex. 2012) – held that groundwater in place is a form of real property akin to oil and gas, and that government regulation of groundwater is subject to constitutional takings constraints.

Justice Busby emphasizes that statutes and regulations “do not alter common-law property rights” (Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20, 26 (Tex. 1990)). Instead, those property rights form the background against which any alleged regulatory taking is judged (Day; Cedar Point Nursery v. Hassid, 594 U.S. 139 (2021); Tex. Dep’t of Transp. v. Self, 690 S.W.3d 12 (Tex. 2024)).

This baseline is crucial: the Court does not hold that landowners lose their groundwater ownership “by operation of law” just because water is produced with oil and gas or because statutes call it “oil-and-gas waste.” Instead, the shift in rights arises, if at all, from private conveyancing – the terms of the oil-and-gas lease itself.

B. From Groundwater in Place to Produced Water: The Core Default Rule

1. The interpretive question

Once we accept that groundwater belongs to the surface owner unless severed, the next question is what the landowner conveyed when it granted an oil-and-gas lease. Specifically:

• Does a conveyance of “oil and gas” or “oil, gas, and other hydrocarbons” include the groundwater that will inevitably be brought to the surface with those hydrocarbons?
• Or does the landowner retain ownership of that groundwater even after production, such that it could contract separately (for example, with Cactus) regarding its treatment and sale?

Justice Busby agrees with the Court that the proper focus is not a semantic debate over whether the fluid is “water” or “waste,” but rather a contract-construction question: what bundle of rights did the landowner grant or reserve?

2. The grant of hydrocarbons includes incidental water

The Court, as described by the concurrence, answers that question by applying established oil-and-gas conveyancing principles:

• In Guffey v. Stroud, 16 S.W.2d 527 (Tex. Comm’n App. 1929, op. adopted), the Court recognized that a “grant of the oil” carries with it a grant of the things necessary to enjoy that grant, including gas and water if they are “essential to the enjoyment of the actual grant of the oil.”
• Building on this idea, the Court now holds that, in the context of modern production, the “common and ordinary meaning” of a grant of hydrocarbons includes “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.”

Justice Busby summarizes the majority’s conclusion as:

“‘Incidentally produced’ subsurface water ‘was included in the hydrocarbon conveyances.’”

In other words, once the leaseholder produces oil and gas, the water that inevitably comes up with them is treated, by default, as part of the granted hydrocarbon estate for purposes of possession and control.

3. Possession and control of liquid-waste byproduct

The Court’s key operational holding, quoted by Justice Busby, is:

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 its constituent water.

Several features of this formulation are important:

• The Court speaks in terms of “possession and control” and the lessee’s duty to dispose of waste properly. This aligns closely with oil-and-gas and environmental regulation, which treat fluid oil-and-gas waste as the operator’s responsibility and regulate its handling, disposal, and reuse.
• At the same time, Justice Busby characterizes the water as having been “included in the hydrocarbon conveyances,” indicating that the lessee’s control is grounded in the lease itself, not merely regulatory obligation. The produced water is not just something the lessee must “deal with”; it is something it holds rights in by virtue of the grant.

4. The “developed water” analogy from surface-water law

Justice Busby notes that Texas surface-water law has adopted a similar idea under the doctrine of “developed water”:

• Cases such as 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.), and Harrell v. F.H. Vahlsing, Inc., 248 S.W.2d 762 (Tex. App.—San Antonio 1952, writ ref’d n.r.e.) recognize that a permittee who diverts surface water at its own expense has an exclusive right to control and use that water against third-party interference.

By analogy, an oil-and-gas operator who produces oil, gas, and water from a well – at its own cost and risk, and under regulatory obligations – acquires exclusive control over that produced fluid stream for purposes of managing, disposing, or lawfully reusing it.

C. The Limits: What the Court Does Not Decide

Justice Busby’s concurrence is devoted largely to cabining the Court’s opinion and clarifying what remains open. He identifies three principal limitations.

1. This is a default rule; parties can contract around it

The first and most important limitation: the Court has articulated a default rule of lease construction, not a mandatory reallocation of property rights. Busby stresses:

• The holding is limited to “an oil-and-gas conveyance that does not expressly address the matter.”
• Landowners and hydrocarbon lessees “are free to strike a different deal” regarding the ownership and economic treatment of produced groundwater.
• None of the statutes and regulations identified by the Court prevent such alternative agreements or automatically divest landowners of their groundwater ownership.

Practically, this means:

• Leases can expressly reserve produced-water rights to the surface owner, grant them to a third party, or create sharing or royalty arrangements on produced water or its reuse.
• If parties do so, the Court’s default rule is displaced by their express bargain.

Justice Busby notes, however, that if landowners retain ownership of the water in a lease, they would be “well advised” to agree on a practical method for determining how much of the liquid-waste byproduct the landowner continues to own. This signals recognition that:

• Produced fluid streams may be commingled,
• the composition of the stream may change over time, and
• complex measurement and allocation problems may arise, analogous to the allocation issues in Humble Oil & Ref. Co. v. West, 508 S.W.2d 812 (Tex. 1974), where the lessee injected non-native substances into a reservoir and bore the burden of segregating them for accounting purposes.

2. No change to unleased mineral or “product stream” doctrine

Second, the Court expressly disclaims any intention to change the law regarding unleased minerals or substances produced alongside leased minerals.

Justice Busby recalls that:

• Under Moser v. U.S. Steel Corp., the general intent behind a grant of “all minerals” or “oil, gas, and other minerals” is to convey “all valuable [mineral] substances” within the ordinary meaning of “mineral.”
• But the leases in this case are narrower: they convey only “oil and gas” or “oil, gas, and other hydrocarbons.” That narrower formulation does not include non-hydrocarbon minerals.
• In cases such as Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20 (Tex. 1990), and Guffey v. Stroud, the Court held that:
  • a lease of “oil and casinghead gas” did not convey ownership of other gas or liquids that later became commingled with the stream during production, and
  • an oil lessee who produces gas from an oil well does not thereby acquire title to the gas if a separate gas lease exists.

Justice Busby cites Myers-Woodward, LLC v. Underground Servs. Markham, LLC, ___ S.W.3d ___, 2025 WL 1415892 (Tex. May 16, 2025), where a lease of “salt” was held not to convey ownership of “non-salt substances or spaces adjacent to the salt.” This reinforces the idea that:

• The scope of a mineral grant is constrained by the words used – a salt lease is a salt lease, an oil-and-gas lease is an oil-and-gas lease.

Accordingly, the Court does not endorse the broad “product stream” theory advanced by COG and embraced by the court of appeals majority – namely, that the operator owns all components of the produced fluid stream simply because they emerge from the well. Busby explicitly notes that “the Court also does not adopt the contrary theory . . . that the lessee owns the entire ‘product stream.’”

Instead, the Court’s holding is a targeted contract-construction rule for the special case of groundwater produced incidentally with hydrocarbons under leases that grant “oil and gas” or “oil, gas, and other hydrocarbons.”

3. No decision on royalties, implied covenants, or economic allocation

Third, Justice Busby emphasizes that the Court does not decide, and the present posture does not present, the operator’s obligations to landowners concerning the produced groundwater that is now deemed part of the hydrocarbon leasehold. He flags several open questions:

• Are royalties owed on produced groundwater?
  In Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726 (Tex. 1981), the Court analyzed royalty obligations on substances not specifically named in the lease. Similar analysis may be needed here:
  • If water is now part of what is “leased,” does that make it subject to royalty as a “production” for which the lessor is entitled to a share?
    
  • Or is the water viewed as a cost, a burden of production, such that the lessee’s duty is only proper disposal or regulatory compliance, not sharing of profit if valuable reuse opportunities arise?
• How are profit or loss from beneficial reuse or disposal allocated?
  In French v. Occidental Permian Ltd., 440 S.W.3d 1 (Tex. 2014), the Court dealt with accounting and cost-allocation issues in CO₂-flood operations. Similar questions will arise for produced water:
  • If water is treated and sold at a profit, who shares in that profit (if anyone)?
  • How are treatment, transportation, and disposal costs allocated between lessor and lessee?
• What implied covenants govern produced water?
  Oil-and-gas leases are subject to various implied covenants, such as the covenant to reasonably develop, to protect the lease from drainage, and to market production (Cabot Corp. v. Brown, 754 S.W.2d 104 (Tex. 1987)). But here:
  • Is there any implied covenant to manage produced water in a way that maximizes economic benefit for both parties?
  • Or is the operator’s obligation limited to regulatory compliance and avoidance of waste or nuisance?

Justice Busby underscores that “[t]hese questions and more remain to be answered in future cases” and that the opinion “should not be read to settle them.”

D. The Role of Natural Resources Code § 122.002

Justice Busby also clarifies the interaction between the Court’s new default rule and Texas Natural Resources Code § 122.002, a statute enacted after the leases at issue and later amended to regulate ownership of fluid oil-and-gas waste for beneficial reuse.

• Section 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.”
• Section 122.002(1) creates default rules for when ownership of fluid oil-and-gas waste passes:
  • As Justice Busby describes it, “the statute provides that ownership of this fluid changes hands not at [the] point of separation [from oil or gas], but (absent contrary agreement) when it is used by or transferred to a person who takes possession of it for the purpose of treating it for a subsequent beneficial use.”

The concurring opinion stresses that this statutory regime:

• Addresses fluid arising from production after separation,
• Applies only as a default rule when “a lease, contract, or other legally binding document” does not provide otherwise, and
• Does not displace private agreements between landowners and lessees about the groundwater component of that fluid.

Thus, the Court’s holding about what the lease conveys (grounded in private contract) coexists with Section 122.002’s default allocation of ownership as between the generator of waste and the beneficial-use treater. The statute does not implicitly strip landowners of groundwater ownership or prevent them from bargained-for variations in leases or contracts.

V. Precedents and Doctrines in Detail

A. Historic Groundwater and Surface-Estate Cases

• Houston & Tex. Cent. R.R. v. East, 81 S.W. 279 (Tex. 1904)
  Established that percolating groundwater is part of the realty owned by the surface owner and adopted the rule of capture: a landowner may pump groundwater from beneath his land without liability for draining his neighbor’s water, subject only to limited exceptions that developed later through statute and case law.
• Texas Co. v. Burkett, 296 S.W. 273 (Tex. 1927)
  Reaffirmed that ordinary percolating waters are the “exclusive property of the owner of the surface of the soil,” reinforcing that groundwater is initially a surface-estate asset, not a mineral.
• City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798 (Tex. 1955)
  Treated percolating groundwater as part of the surface estate and applied the rule of capture in the context of municipal pumping and export of groundwater.
• Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972)
  Recognized that, absent severance, water is part of the surface estate, but also that the mineral lessee has a right to use water as reasonably necessary for production. Whitaker sits at the intersection of groundwater ownership and mineral lessee surface-use rights, anticipating the issues in Cactus Water.
• Robinson v. Robbins Petroleum Co., 501 S.W.2d 865 (Tex. 1973)
  Held that subsurface briny water remains an incident of surface ownership even where produced by a mineral lessee for its mineral content; only explicit conveyancing language can sever that water from the surface estate.
• Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984)
  Defined the scope of “minerals” in mineral reservations, holding that certain near-surface substances are “minerals” as a matter of law but confirming that groundwater is not treated as a mineral for purposes of severance and remains with the surface estate.
• Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53 (Tex. 2016)
  Applied the accommodation doctrine to groundwater estates, underscoring that groundwater can be severed and owned separately but rests presumptively in the surface owner. It also further harmonized groundwater law with oil-and-gas principles.

B. Oil-and-Gas Lease and Unleased Mineral Cases

• Guffey v. Stroud, 16 S.W.2d 527 (Tex. Comm’n App. 1929, op. adopted)
  Held that a grant of oil carried with it a grant of gas and water “essential to the enjoyment of the actual grant of the oil.” This underpins the Court’s conclusion that incidentally produced water is included in a hydrocarbon conveyance as a matter of ordinary meaning and implied grant.
• Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20 (Tex. 1990)
  Dealt with a lease of “oil and casinghead gas” and held that it did not convey ownership of other gas or liquids that became mixed into the product stream. The case confirms that unleased minerals or substances are not silently conveyed just because they become commingled with leased production.
• Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726 (Tex. 1981)
  Addressed construction of a royalty clause and how to treat an unnamed substance for royalty purposes. It is cited here as a template for how courts might approach whether produced water is royalty-bearing.
• French v. Occidental Permian Ltd., 440 S.W.3d 1 (Tex. 2014)
  Considered complex allocation of costs and benefits in CO₂-enhanced recovery operations. Its approach to economic allocation is analogized as a potential model for future disputes concerning produced water commercialization.
• Humble Oil & Ref. Co. v. West, 508 S.W.2d 812 (Tex. 1974)
  Discussed the burdens and proof issues when a lessee injects non-native substances into a formation. The Court’s reference suggests that similar allocation and proof issues may arise if landowners reserve rights in portions of the produced fluid.
• Myers-Woodward, LLC v. Underground Servs. Markham, LLC, ___ S.W.3d ___, 2025 WL 1415892 (Tex. May 16, 2025)
  Held that a salt lease did not convey “ownership of non-salt substances or spaces adjacent to the salt.” This reinforces the textual limits on mineral grants and supports the Court’s rejection of a broad “product stream” theory.
• Cabot Corp. v. Brown, 754 S.W.2d 104 (Tex. 1987)
  A leading case on implied covenants in oil-and-gas leases; it is cited to emphasize that implied obligations may, in future cases, be extended or adapted to issues surrounding produced water.

C. Regulatory and Takings Cases

• Edwards Aquifer Auth. v. Day, 369 S.W.3d 814 (Tex. 2012)
  Landmark decision holding that groundwater in place is a constitutionally protected property right, similar to oil and gas, and that groundwater regulations are subject to takings analysis. This case anchors the Court’s insistence that statutory and regulatory schemes do not themselves reallocate groundwater ownership.
• Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20 (Tex. 1990)
  Also stands for the principle that legislation and regulation do not, without more, alter existing property-rights baselines.
• Cedar Point Nursery v. Hassid, 594 U.S. 139 (2021)
  U.S. Supreme Court decision articulating that government-authorized physical invasions (such as access mandates) can be per se takings. Cited to underscore that property rights, such as groundwater rights, provide the baseline against which regulatory intrusions are measured.
• Tex. Dep’t of Transp. v. Self, 690 S.W.3d 12 (Tex. 2024)
  A recent Texas case further refining state takings doctrine; cited for the proposition that common-law property rights form the backdrop for evaluating government action.

VI. Complex Concepts Simplified

• Surface estate vs. Mineral estate
  In Texas, land can be split into:
  • Surface estate: rights to use and enjoy the surface, including soil, buildings, and – unless severed – groundwater.
  • Mineral estate: rights to explore for and produce minerals, such as oil and gas (and, in some instruments, other minerals like coal or lignite).
  The mineral estate is often described as “dominant” because the mineral owner or lessee has implied rights to use as much of the surface as reasonably necessary to explore, drill, and produce.
• Groundwater vs. Surface water
  
  • Groundwater: Water beneath the surface, usually percolating through soil and rock. In Texas, it belongs to the landowner as real property, subject to the rule of capture and groundwater-district regulations.
  • Surface water: Water in defined watercourses or state-owned surface waters. Use typically requires a state permit.
  Cactus Water involves groundwater, but the concurrence analogizes to surface-water “developed water” doctrine.
• Produced water
  Water that is brought to the surface as part of oil-and-gas production, typically saline and mixed with hydrocarbons and other substances. Once separated from hydrocarbons, it falls within “fluid oil and gas waste” under Natural Resources Code § 122.001(2).
• Fluid oil-and-gas waste
  A statutory category including brine, hydraulic fracturing fluid, flowback water, produced water, and similar fluids arising out of oil-and-gas operations. Section 122.002 provides default rules about when ownership of such waste passes from the generator to a person who treats it for beneficial reuse.
• Developed water (surface-water context)
  A doctrine under which a person who diverts, stores, or otherwise “develops” water at their own expense has an exclusive right to control and use that water against third parties. It protects the investment and infrastructure the developer has placed into capturing and managing the water. The Court uses the concept by analogy for produced water.
• Implied surface-use rights
  The mineral lessee’s inherent right, even if not stated in the lease, to use the surface (including reasonable amounts of water) as necessary to explore for and produce the minerals. This right is limited by reasonableness, accommodation of existing surface uses, and express lease provisions.
• Implied covenants in oil-and-gas leases
  Judicially recognized obligations that are read into oil-and-gas leases in the absence of express terms, such as the duty:
  • to reasonably develop the lease,
  • to protect against drainage, and
  • to market production diligently and in good faith.
  Whether similar implied duties apply specifically to produced water and its reuse is unresolved.
• “Product stream” theory
  A theory (rejected here) that an operator automatically owns all substances in the produced fluid stream from a well. Texas law, as clarified in Cactus Water, preserves the distinction between:
  • leased substances (like oil and gas), and
  • unleased substances (other minerals, certain fluids) that may be produced incidentally but are not necessarily conveyed.
  Produced groundwater is treated as included in the hydrocarbon lease only under a specific default rule of construction, not under an all-encompassing “product stream” concept.
• Rule of capture
  The doctrine that a landowner (or lessee) owns the oil, gas, or groundwater they lawfully capture, even if it migrated from beneath neighboring lands. This doctrine underlies both oil-and-gas and groundwater ownership but is subject to lease terms and statutory regulation.
• Regulatory takings
  When government regulation goes “too far” in restricting private property rights, it may amount to a taking requiring compensation under the Texas and U.S. Constitutions. Decisions such as Day, Cedar Point, and Self frame groundwater and related rights as protected property interests.

VII. Practical and Doctrinal Impact

A. Impact on Landowners

For landowners, Cactus Water has both reassuring and cautionary elements:

• Reassuring:
  • The Court reaffirms that groundwater in place is part of the surface estate and is constitutionally protected property.
  • Statutes and regulations do not strip landowners of groundwater ownership simply by labeling produced fluid as “waste.”
  • Landowners remain free to negotiate lease terms that reserve ownership or economic interests in produced water.
• Cautionary:
  • Under the default rule, if a lease is silent, landowners should assume that the operator will control produced water as part of the hydrocarbon estate and will have the power to exclude third parties like Cactus from interfering with its handling, disposal, or reuse.
  • Landowners who wish to monetize produced water directly must negotiate express contractual provisions in oil-and-gas leases or in separate agreements that are consistent with those leases.
  • Lease drafters should now consider:
    • express reservations or grants of produced-water rights,
    • measurement and allocation mechanisms for produced water, and
    • royalty or profit-sharing arrangements for beneficial reuse.

B. Impact on Oil-and-Gas Lessees and Operators

For operators like COG, the decision provides important clarity and leverage:

• Clarified default entitlement:
  • Absent contrary lease language, operators have possession and control over produced water as part of the hydrocarbon conveyance.
  • This control is grounded in property and contract law, supplementing and reinforcing regulatory obligations to handle oil-and-gas waste safely and lawfully.
• Protection from third-party interference:
  • Third-party water companies cannot, by contracting solely with the surface owner, override the operator’s rights to manage and dispose of produced water.
  • Operators can negotiate directly with water-midstream companies for treatment and reuse, confident that their right to transfer and control the waste stream is secure under the default rule.
• New business opportunities and responsibilities:
  • Produced water, once a pure liability, now represents a potential asset class. Operators may develop or monetize treatment and recycling infrastructure.
  • At the same time, operators must anticipate future litigation over:
    • whether produced water is royalty-bearing,
    • how profits from beneficial reuse are shared (if at all), and
    • whether implied covenants or environmental duties constrain their choices about produced-water management.

C. Impact on Water-Midstream and Produced-Water Companies

For companies like Cactus, the case is especially significant:

• Contracts must align with the lease chain of title:
  • Produced-water companies can no longer assume that a contract with the surface owner suffices to grant them rights to produced water if the lease is silent.
  • They must ensure that their agreements:
    • are consistent with the terms of the oil-and-gas lease, and
    • ideally, include the operator (lessee) as a contracting party or obtain express recognition from the operator.
• Need for careful transactional structuring:
  • Water-midstream deals should explicitly address:
    • who owns title to the produced water at various stages (at the wellhead, at central facilities, at transfer for beneficial use),
    • how Section 122.002’s default rules are modified or confirmed by contract, and
    • how economic benefits and liabilities (treatment costs, disposal fees, reuse revenues) are allocated between operator, surface owner, and water-midstream company.

D. Impact on Regulators and Future Litigation

Finally, the decision has implications for:

• Groundwater and environmental regulators:
  • Regulators must continue to respect the baseline rule that groundwater in place is private property, as underscored in Day.
  • At the same time, they can continue to treat produced water as regulated oil-and-gas waste and to rely on operators as the primary responsible parties for its handling and disposal.
• Court dockets and doctrinal development:
  • Cactus Water effectively sets the stage for a wave of follow-on litigation over:
    • lease-drafting disputes concerning produced water,
    • royalty and accounting claims tied to beneficial reuse, and
    • the scope of implied covenants applicable to produced water.
  • Courts will likely look to authorities like Madeley, French, Cabot, and Humble Oil v. West for analogies in resolving these issues.

VIII. Conclusion

Cactus Water Services, LLC v. COG Operating, LLC, as illuminated by Justice Busby’s concurrence, marks an important but carefully limited development in Texas oil-and-gas and water law.

The Court:

• Reaffirms that groundwater in place belongs to the surface estate and is protected as a form of real property under Texas law and the Constitution.
• Holds that, where oil-and-gas leases grant “oil and gas” or “oil, gas, and other hydrocarbons” and are silent on produced water, the ordinary meaning of that grant includes the incidentally produced subsurface water that comes up with hydrocarbons.
• Establishes a default rule that the hydrocarbon lessee has possession and control of the liquid-waste byproduct of production, including its water, and is entitled to dispose of it properly without third-party interference.
• Clarifies that this default allocation is grounded in private conveyancing, not statutory reallocation of property rights, and that parties remain free to negotiate different arrangements regarding produced water.
• Explicitly preserves existing doctrine on unleased minerals produced with leased minerals, refusing to adopt a wholesale “product stream” theory, and instead limiting the holding to groundwater as a special case governed by contract interpretation.
• Leaves unresolved critical economic and contractual questions – including royalties, profit allocation from beneficial reuse, and implied covenants relating to produced water – to be addressed in future litigation.

In the broader legal context, the decision harmonizes three strands of Texas law:

1. The surface owner’s property right in groundwater,
2. The mineral lessee’s implied right to use the surface and water as reasonably necessary for production, and
3. The emerging economic and regulatory reality that produced water is both a regulated waste and a potentially valuable resource.

By framing its rule as a default principle of lease construction and by carefully identifying what remains undecided, the Court both clarifies immediate disputes like that between Cactus and COG and invites parties to address produced water explicitly in their agreements, shaping future doctrine through contract rather than broad judicial fiat.