Incidentally Produced Groundwater as Part of the Hydrocarbon Grant: The New Default Rule in Cactus Water Services, LLC v. COG Operating, LLC

I. Introduction

The Supreme Court of Texas’s decision in Cactus Water Services, LLC v. COG Operating, LLC addresses a question that has become increasingly important in a water-scarce, oil‑rich state: who owns groundwater that comes to the surface mixed with oil and gas—so‑called “produced water”—when the governing documents are standard oil-and-gas leases that say nothing explicit about water?

Justice Busby’s concurring opinion (joined by Justices Lehrmann and Sullivan) is especially significant because it situates the Court’s holding within more than a century of Texas groundwater and oil-and-gas jurisprudence, and because it carefully marks the boundaries of what the Court did not decide.

At stake is the intersection of two powerful bodies of Texas law:

The rule that groundwater is a privately owned part of the surface estate, strongly protected as property; and
The rule that a mineral lessee has broad implied rights to use the surface—and associated substances—reasonably necessary to produce hydrocarbons.

In modern practice, “produced water” is both: (1) groundwater that originally belonged to the surface owner; and (2) “oil and gas waste” that the operator is legally responsible to handle, dispose of, or beneficially reuse. That dual character has given rise to disputes, such as the one in this case between Cactus Water Services, LLC and COG Operating, LLC, over who owns and may commercially exploit that water once it has been separated from the hydrocarbons.

The Court’s opinion (which Justice Busby joins) creates an important default rule: under a typical Texas oil-and-gas lease conveying “oil and gas” or “oil, gas, and other hydrocarbons,” and silent about water, the lessee acquires possession and control of the incidentally produced groundwater that comes up with the hydrocarbons as liquid-waste byproduct. But the opinion also strongly emphasizes that this rule is default and contractual, not a legislative or regulatory confiscation of groundwater rights.

II. Summary of the Opinion and the Concurrence

A. The Core Question

Justice Busby frames the underlying question this way:

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 answer has two stages:

Who owns groundwater in place? and
Who owns or controls that water after it is produced and separated from the oil and gas?

On the first question, longstanding Texas law is unchanged: unless expressly severed, subsurface water is part of the surface estate and belongs to the surface owner, subject to the mineral lessee’s implied right to use water reasonably necessary for production.

On the second question—the ownership and control of groundwater after it has been produced with hydrocarbons and separated at the surface—the Court adopts a new, but narrow, default rule of lease construction.

B. The Court’s Holding (as Described in the Concurrence)

From Justice Busby’s description of the majority opinion, the key holdings are:

Groundwater in place remains part of the surface estate. Unless expressly severed, subsurface water is owned by the surface owner, subject to the mineral lessee’s implied right to use it as reasonably necessary to produce and remove the minerals.
Under a standard hydrocarbon lease that is silent on water, “incidentally produced” groundwater is included in the grant. The Court holds that an oil‑and‑gas conveyance of “oil and gas” or “oil, gas, and other hydrocarbons” that does not expressly address water “conveys to the hydrocarbon lessee possession and control over the disposition of liquid-waste byproduct,” including the constituent water, when that water is produced incidentally with hydrocarbons.
The lessee must handle that fluid at its own expense and free from third‑party interference. The Court emphasizes that the lessee, already charged by statute and regulation with safely handling “oil-and-gas waste,” has the right to possess and control the produced water needed to fulfill those obligations.
This is a default contractual rule, not a statutory or regulatory divestiture of property. Landowners and lessees “are free to strike a different deal” about groundwater produced with hydrocarbons, and nothing in the cited statutes or regulations prevents them from allocating ownership or economic benefit differently by contract.
The Court rejects the broader “product stream” theory. The Court does not adopt the theory advanced by COG and the court of appeals majority that the lessee owns all substances in the “product stream” merely because they are commingled during production. Instead, it grounds its holding in the scope of the hydrocarbon grant and the incidental nature of the produced water.

C. The Concurrence’s Emphases

Justice Busby fully joins the Court’s opinion but writes separately to stress three clarifications:

The Court’s ruling is a narrow, default rule only.
It governs only when the lease is silent and concerns water incidentally produced with hydrocarbons. It does not prevent parties from expressly reserving or reallocating ownership or economic interests in produced water.
The Court does not change the law of “unleased” minerals or non-hydrocarbon substances produced with leased minerals.
The opinion addresses only leases of “oil and gas” or “oil, gas, and other hydrocarbons”; it does not alter cases holding that other valuable minerals (or other non-hydrocarbon substances) are not conveyed unless within the ordinary meaning of “minerals” or otherwise expressly granted.
The Court does not decide the economic and covenant consequences between landowner and lessee.
Although the leases are construed to include produced groundwater, the opinion does not address:
- whether royalties are owed on that water;
- how profits or losses from beneficial reuse or disposal are to be allocated; or
- whether the lessee owes new implied covenants with respect to management of produced water.
Those questions are left open for future litigation.

III. Doctrinal Background: Groundwater and Minerals in Texas

A. Groundwater as Private Property of the Surface Owner

Justice Busby begins by reaffirming a fundamental principle:

We have 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.

Key authorities he cites include:

Houston & Tex. Cent. R.R. v. East, 81 S.W. 279 (Tex. 1904)
Texas Co. v. Burkett, 296 S.W. 273 (Tex. 1927)
City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798 (Tex. 1955)
Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972)
Robinson v. Robbins Petroleum Co., 501 S.W.2d 865 (Tex. 1973)
City of Sherman v. Public Utility Commission, 643 S.W.2d 681 (Tex. 1983)
Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984)
Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53 (Tex. 2016)

These cases establish that:

“Ordinary percolating waters” are an integral part of the land and belong to the surface owner (Burkett, East).
Water, unless expressly severed, is part of the surface estate (Whitaker, Pleasanton).
Even where a mineral lessee can produce briny or mineral-laden water to extract minerals, “the water itself is an incident of surface ownership in the absence of specific conveyancing language to the contrary” (Robinson).
The Water Code codifies this principle: TEX. WATER CODE §§ 36.001(5), 36.002(a); 30 TEX. ADMIN. CODE § 297.1(22) (defining groundwater and recognizing landowner ownership).

In Edwards Aquifer Authority v. Day, 369 S.W.3d 814 (Tex. 2012), the Court held that landowners have a constitutionally protected property interest in groundwater in place, analogous to ownership of oil and gas. Justice Busby emphasizes that statutes and regulations governing groundwater use and conservation “do not alter common-law property rights” but instead operate against that background for purposes of takings analysis.

B. Mineral Estate and the Lessee’s Implied Surface Use Right

Parallel to groundwater doctrine, Texas oil-and-gas law recognizes that the mineral estate (often severed from the surface estate) carries with it certain implied rights, including:

The right of the mineral owner or lessee to use as much of the surface (including water) as is reasonably necessary to explore for, produce, and transport minerals.
The duty to exercise those rights with due regard for the surface owner (reflected in doctrines like reasonable use and accommodation).

The critical tension addressed in Cactus Water Services is how these doctrines interact when the resource in question—groundwater—is both: (1) owned by the surface owner in place; and (2) inexorably brought to the surface as part of the process of producing the minerals granted to the lessee.

IV. The Court’s Approach: From “Water vs. Waste” to “What Did the Lease Convey?”

A. Rejecting the “Water or Waste?” Framing

The El Paso Court of Appeals had focused heavily on whether the fluids produced with the hydrocarbons were “water” or “waste.” Justice Busby finds that framing unhelpful:

The answer, of course, is both: the fluids include groundwater originally belonging to the landowners, and they are also classified by statute and rule as oil-and-gas waste, which the lessee has a duty to handle and dispose of safely.

In other words:

As a matter of property law, produced water is groundwater that originally belonged to the surface owner.
As a matter of public law and regulation, that same fluid is “oil-and-gas waste,” subject to strict handling, disposal, and reuse requirements placed on the operator.

The Court thus refuses to let regulatory classifications (such as “waste”) answer a private-law ownership question. Instead, it refocuses the analysis on what the parties’ lease actually conveyed.

B. Focusing on the Scope of the Hydrocarbon Grant

Justice Busby agrees with the Court that the key inquiry is: Did the landowners lease this groundwater to the hydrocarbon lessee—at least to the extent it is produced incidentally with hydrocarbons—under the general grant of “oil and gas” or “oil, gas, and other hydrocarbons”?

The Court, drawing on Guffey v. Stroud, concludes that it did. In Guffey, the Commission of Appeals had 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."

Updating this concept to modern regulatory and operational realities, the Court reasons that:

The “common and ordinary meaning” of a grant of hydrocarbons includes the rights necessary to produce and market those hydrocarbons.
Because water is unavoidably produced with oil and gas and because the lessee is legally obligated to manage that water as waste, the lessee must have possession and control of that incidentally produced water, absent contractual language to the contrary.

Thus, the Court holds that the incidental produced water was included in the hydrocarbon conveyances—again, as a default rule when the leases are silent.

C. Distinguishing the “Product Stream” Theory

Importantly, Justice Busby notes that the Court does not endorse the broader “product stream” theory advanced by COG and the court of appeals majority:

The Court also does not adopt the contrary theory advanced by COG and the court of appeals majority—that the lessee owns the entire "product stream."

While the majority recognizes that some substances are conveyed because they are incidentally and necessarily produced with hydrocarbons (such as produced water), it does not hold that everything mingled in the flow of production automatically belongs to the lessee regardless of the underlying property rights or grant language.

V. Precedents and Authorities Shaping the Decision

A. Groundwater Ownership and Constitutional Protection

Houston & Tex. Cent. R.R. v. East, 81 S.W. 279 (Tex. 1904)
Established the “absolute ownership” doctrine for percolating groundwater: 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.
Texas Co. v. Burkett, 296 S.W. 273 (Tex. 1927)
Reiterated 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)
Confirmed that unsevered underground water is part of the surface estate.
Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972)
Held that water belongs to the surface estate but that the mineral lessee has an implied right to use water from the land as reasonably necessary for mineral operations.
Robinson v. Robbins Petroleum Co., 501 S.W.2d 865 (Tex. 1973)
Addressed briny subsurface water produced for its mineral content, holding that the water itself remains an incident of surface ownership absent specific conveyancing language, while allowing the mineral lessee to extract and use the mineral content.
Edwards Aquifer Auth. v. Day, 369 S.W.3d 814 (Tex. 2012)
Recognized groundwater in place as a constitutionally protected property right, analogous to oil and gas. Regulations may limit use, but they do not erase the underlying property interest; excessive regulation can amount to a taking.
Coyote Lake Ranch, LLC v. City of Lubbock, 498 S.W.3d 53 (Tex. 2016)
Examined the groundwater estate and held that the accommodation doctrine applies to conflicts between groundwater development and surface uses, reinforcing that groundwater is treated much like a severable mineral estate.

These authorities together provide the backbone for Justice Busby’s insistence that nothing in the Court’s opinion—or in statutes like the Water Code or Chapter 122 of the Natural Resources Code—should be read as divesting the surface owner of groundwater ownership “by operation of law.” Any transfer of rights in produced groundwater occurs through the private lease, not through regulatory fiat.

B. Statutory Framework: Water Code and Natural Resources Code

TEX. WATER CODE §§ 36.001(5), 36.002(a)
Expressly recognize the landowner’s ownership of groundwater beneath the surface as a property right.
30 TEX. ADMIN. CODE § 297.1(22)
Defines “groundwater” in a manner consistent with this ownership recognition.
TEX. NAT. RES. CODE §§ 122.001(2), 122.002
Chapter 122 defines “fluid oil and gas waste” as:
“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 then provides a separate default rule: when such fluid-waste is used by or transferred to another person for the purpose of treating it for a subsequent beneficial use, ownership of that fluid—absent a contrary agreement—passes to the person taking possession for the beneficial use.

Justice Busby makes a crucial interpretive point: Chapter 122’s default ownership transfer occurs downstream, at the point of beneficial use and transfer to a handler or recycler. It does not determine the initial allocation of rights between the landowner and the hydrocarbon lessee at the moment of production. The Court’s default rule on lease construction fills that earlier gap.

C. Mineral-Lease Interpretation and Unleased Minerals

Moser v. U.S. Steel Corp., 676 S.W.2d 99 (Tex. 1984)
Held that, in general, grants of “all minerals” or “oil, gas, and other minerals” are intended to convey all valuable mineral substances within the ordinary meaning of “mineral,” setting a framework for classifying substances under mineral grants.
Amarillo Oil Co. v. Energy-Agri Prods., Inc., 794 S.W.2d 20 (Tex. 1990)
Held that a lease of “oil and casinghead gas” did not convey ownership of other gas or liquids that became mixed with the product stream during production. This case underscores that unleased minerals produced along with leased minerals do not automatically become the lessee’s property.
Guffey v. Stroud, 16 S.W.2d 527 (Tex. Comm’n App. 1929, judgm’t adopted)
Two distinct points are drawn from Guffey:
- A grant of oil includes water essential to enjoying the grant—the basis for including incidentally produced water in the hydrocarbon conveyance.
- When both oil and gas leases exist on the same tract and a well produces gas under an oil lease, the oil lessee is not entitled to the gas; unleased minerals produced with leased minerals remain with the appropriate mineral owner.
Myers-Woodward, LLC v. Underground Servs. Markham, LLC, ___ S.W.3d ___, 2025 WL 1415892 (Tex. May 16, 2025)
The Court recently held that a lease of “salt” did not convey “ownership of non-salt substances or spaces adjacent to the salt,” underscoring a careful textual approach to what is actually conveyed.

Justice Busby highlights these cases to make clear that Cactus Water Services does not change the rule that:

production of unleased minerals along with leased minerals does not transfer ownership of the unleased minerals to the lessee.

The point is that only those substances reasonably encompassed by the “oil and gas” or “oil, gas, and other hydrocarbons” grant—together with incidental rights essential to that grant—are conveyed. Non-hydrocarbon minerals remain with their owners unless expressly leased.

D. Developed Water Analogy

Justice Busby briefly references the “developed water” doctrine in the surface-water context, citing:

Harrell v. F.H. Vahlsing, Inc., 248 S.W.2d 762 (Tex. App.—San Antonio 1952, writ ref’d n.r.e.)
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.)

Under that doctrine, a party who diverts and develops surface water at its own expense acquires an exclusive right to control and apply that water to permitted uses, protected against third-party interference. The concurrence suggests an analogy: the hydrocarbon lessee, who at its own expense produces, separates, and handles water arising from oil-and-gas operations, should have exclusive control over that developed fluid against third‑party interference—even though the underlying resource (groundwater in place) originally belonged to the surface owner.

E. Implied Covenants and Accounting Cases

Justice Busby flags future issues using several key precedents:

Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726 (Tex. 1981)
Addressed how royalties apply to substances not explicitly listed in a lease, showing that royalty obligations can extend beyond traditional oil and gas, depending on lease language.
French v. Occidental Permian Ltd., 440 S.W.3d 1 (Tex. 2014)
Dealt with CO₂ flooding and complex accounting between operator and royalty owners, including cost-sharing and beneficial uses—relevant by analogy to monetization and cost allocation for produced water.
Cabot Corp. v. Brown, 754 S.W.2d 104 (Tex. 1987)
Examined implied covenants in oil-and-gas leases (such as the duty to reasonably develop), raising the prospect of analogous implied duties regarding water management.
Humble Oil & Ref. Co. v. West, 508 S.W.2d 812 (Tex. 1974)
Discussed the lessee’s evidentiary burden where non-native substances are injected into a stratum— relevant for future disputes over how to quantify what portion of a fluid mixture is native groundwater versus injected or foreign fluid.

These cases will likely provide the building blocks for future decisions on royalties, implied covenants, and accounting involving produced water.

VI. Legal Reasoning: Why Incidentally Produced Water Is Part of the Hydrocarbon Grant

A. Step 1: Preserve Groundwater Ownership in Place

The Court and concurrence carefully begin from a non-controversial starting point:

Groundwater in place belongs to the surface owner unless severed.
The lessee has only an implied right to use surface (and water) reasonably necessary for mineral development.
Statutes such as the Water Code and regulatory regimes do not by themselves reallocate those property rights or effect a taking.

This ensures that the decision is not misread as eroding the strong property-rights regime confirmed in Day and similar cases.

B. Step 2: Ask What the Lease Conveys Once Water Is Produced with Oil and Gas

The dispute arises only after the hydrocarbons and groundwater mix are brought to the surface and separated. At that point, two competing views exist:

The surface-owner view: groundwater remains the surface owner’s property even after production; only the hydrocarbons were leased.
The lessee view: the entire fluid stream (hydrocarbons plus water) is part of what the lessee is entitled to control, either as part of the “product stream” or as “oil-and-gas waste.”

The Court rejects the extremes of both views:

It will not say that classification as “waste” or mere mingling in the stream automatically erases surface-owner property rights.
But it also refuses to treat produced water wholly apart from the hydrocarbon grant, given the essential role of water management in production.

Instead, the Court asks the orthodox contract question: What is the “common and ordinary meaning” of a grant of “oil and gas” or “oil, gas, and other hydrocarbons” in the context of modern operations, statutes, and regulations?

C. Step 3: Apply the “Incidental Rights Essential to Enjoyment of the Grant” Principle

Relying on Guffey and general principles of mineral-leasing, the Court concludes:

A grant of hydrocarbons carries with it certain incidental components and rights that are essential to the enjoyment and exercise of the grant.
In the era of intensive regulatory oversight and produced-water management, produced water is both inevitable and central to hydrocarbon operations.
The lessee is responsible for safe handling and disposal (or beneficial reuse) of that fluid, which would be impossible if the lessee lacked possession and control of the water component.

Therefore, as a matter of default interpretation, the 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 does not mean the lessee has acquired all rights in all groundwater under the tract. Rather, it means that the parties, by entering into a standard hydrocarbon lease, have agreed that any groundwater that comes up solely as an incident of producing those hydrocarbons is part of what the lessee may possess and control.

D. Step 4: Maintain the Freedom to Contract Around the Default Rule

Justice Busby emphasizes that the holding is “simply a default rule.” The landowners and lessee:

"are free to strike a different deal" regarding ownership of groundwater produced with and then separated from hydrocarbons.

Nothing in the Water Code, Chapter 122, or the Constitution prevents parties from:

Reserving ownership of produced water to the surface owner;
Allocating economic benefits (e.g., proceeds from sale or reuse) differently from outright ownership;
Creating cost-sharing and risk-sharing arrangements for water treatment; or
Granting third parties (like Cactus Water Services) particular rights in produced water.

The concurrence even notes that parties “would be well advised” to agree on a practical method for determining how much of the liquid waste the landowner continues to own if some proprietary interest in water is retained. This presages technical disputes of allocation and measurement reminiscent of Humble Oil v. West.

E. Step 5: Clarify What Is Not Affected—Unleased Minerals and Non-Hydrocarbon Substances

The Court takes pains not to disturb the line of cases awarding unleased minerals produced with leased minerals to the owners of those unleased substances. Justice Busby reiterates that:

The leases here cover only “oil and gas” or “oil, gas, and other hydrocarbons.”
They do not purport to lease other minerals or non-hydrocarbon substances.
Cases like Amarillo Oil and Guffey remain fully in force: if other minerals are produced along with oil and gas, ownership of those other minerals does not automatically shift to the oil-and-gas lessee.

This exacting focus underscores the Court’s intent to issue a narrow rule tailored to the special status of incidentally produced groundwater, not a broad reallocation of subsurface property rights.

VII. Impact and Future Implications

A. Implications for Landowners

For Texas landowners, the decision has at least two immediate consequences:

Default loss of control over incidentally produced water unless the lease says otherwise.
Under standard hydrocarbon grants that are silent on water, landowners should expect that any groundwater that comes up with oil and gas is part of the lessee’s domain for handling, disposal, and potential beneficial reuse.
Increased importance of express produced-water clauses in leases.
Landowners who wish to:
- retain ownership of produced water,
- share in profits from beneficial reuse or sale, or
- control whether produced water may be re-injected or exported
must now negotiate those rights explicitly in the lease.

The concurrence strongly suggests that such tailored agreements are both permissible and practically advisable, especially if the landowner wishes to collaborate with third-party water service companies.

B. Implications for Operators and Lessees

For operators like COG:

The decision provides greater legal certainty that, absent contrary lease language, they possess and control the produced water necessary to comply with Railroad Commission and other regulatory mandates.
It reduces the risk that surface owners or their assignees (like Cactus Water Services) can assert ownership claims to interfere with disposal or reuse arrangements driven by the operator.
It encourages operators to consider the economic potential of produced water—for example, selling treated water for reuse—while recognizing that future cases may define royalty and accounting obligations to the lessor.

C. Implications for Water Service Companies

Entities such as Cactus Water Services that specialize in produced-water handling, transportation, and treatment must adapt their business models to this clarified legal landscape:

They can no longer rely solely on the surface owner’s groundwater rights to justify control over produced water that comes up in oil-and-gas operations, at least under leases silent on water.
They will need to:
- contract directly with operators/lessees; or
- base their rights on express lease terms in which the landowner has reserved or shared ownership of produced water.
The interplay with Chapter 122 means that they can still acquire ownership of “fluid oil-and-gas waste” when it is transferred to them for beneficial reuse, but this will generally occur downstream of the initial operator’s possession and control.

D. Implications for Regulatory and Takings Law

By clearly separating:

common-law property rights (groundwater belongs to the surface owner in place); and
contractual reallocations (leases and contracts that include produced water as incidental to hydrocarbons);

the Court aligns its default rule with Day, 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), which hold that:

Government can regulate property, but cannot reassign ownership without compensation;
Background common-law property rules form the baseline for determining whether a regulation effects a taking.

In Cactus Water Services, any shift of control over produced groundwater from surface owner to lessee is grounded in private-contractual consent (the lease), not in unilateral legislative or regulatory action. This reduces the risk of takings challenges to Chapter 122 or similar regulatory schemes as they apply to produced water.

E. Open Questions for Future Litigation

Justice Busby explicitly flags several issues the Court leaves for later:

Are royalties owed on produced groundwater?
If produced water is included in the leased substances, is it “production” for which the lessor is entitled to a royalty—especially when sold or beneficially reused? This will likely depend on:
- how the royalty clause defines the subject of the royalty (e.g., “all oil, gas, and other hydrocarbons” vs. “all minerals produced and sold”); and
- how courts analogize to cases like Madeley.
How should profits and losses from beneficial reuse be allocated?
If the lessee profits from selling treated produced water (after recouping substantial treatment and transportation costs), how is that profit shared with the lessor, if at all? French v. Occidental Permian suggests complex, fact‑specific accounting disputes may arise.
Are there implied covenants regarding water management?
Could courts recognize:
- an implied covenant to manage produced water in a reasonably prudent way; or
- an implied duty to pursue beneficial reuse when it is economically reasonable,
mirroring existing implied covenants to reasonably develop, protect against drainage, and market production? Cabot Corp. v. Brown provides the doctrinal template, but the Court has not yet extended these covenants to water.
How do we quantify “how much” water belongs to whom if rights are shared?
In arrangements where the landowner retains or shares ownership, measurement issues arise: How much of the fluid is native groundwater versus injected or foreign fluid (like frac water or previously produced water)? Humble Oil v. West shows that courts may place evidentiary burdens on the party claiming special treatment of injected or non-native substances.

These unresolved questions ensure that Cactus Water Services will be a starting point, not an endpoint, for future water-and-oil-and-gas litigation.

VIII. Simplifying Key Legal Concepts

A. Surface Estate vs. Mineral Estate

The surface estate includes the physical surface of the land and, by default, water beneath it (groundwater), unless that water has been expressly severed.
The mineral estate includes oil, gas, and other minerals granted or reserved. It is often severed from the surface estate and can be leased to an operator.
The mineral owner (or lessee) has an implied right to use so much of the surface, including water, as is reasonably necessary to develop the minerals.

B. Produced Water and Fluid Oil-and-Gas Waste

Produced water is groundwater (and sometimes other fluids) that comes to the surface as a byproduct when oil and gas are produced. It often contains salt, minerals, hydrocarbons, and chemical additives.
Under Texas law, much of this fluid is classified as “fluid oil and gas waste”—a regulatory term covering brine, flowback water, produced water, and similar fluids arising out of oil-and-gas production (TEX. NAT. RES. CODE § 122.001(2)).
Operators must manage this waste in compliance with Railroad Commission and environmental regulations—through injection, treatment, reuse, or other disposal methods.

C. “Incidentally Produced” vs. Intentional Water Production

The Court’s default rule applies to water that is:

produced unintentionally and unavoidably with oil and gas; and
handled as part of the operator’s waste-management obligations.

It does not necessarily apply to:

water wells drilled primarily to produce groundwater (for irrigation, municipal supply, etc.); or
other deliberate groundwater production activities, whether by the surface owner or a groundwater lessee.

Those remain governed by standard groundwater and leasing rules.

D. The “Product Stream” Theory

The “product stream” theory—rejected by the Court—would have treated the entire stream of fluids coming out of the well as belonging to the lessee simply by virtue of commingling. This could have swept in:

unleased minerals;
groundwater; and
possibly other substances owned by others.

New law could have been created that significantly expanded operator ownership at the expense of surface owners and other mineral owners. The Court’s narrower rule avoids that broad reallocation.

E. Developed Water Doctrine (Surface Water)

In surface-water law, the “developed water” doctrine gives the person who captures or develops water (for example, by building a reservoir or diversion works) the right to control that developed water and protect it from interference.

By analogy, the hydrocarbon lessee who:

drills and operates wells,
separates hydrocarbons from water, and
bears the cost of safely handling the resulting waste fluid

is granted, by the Court’s default rule, exclusive possession and control over that produced water for purposes of disposal and beneficial reuse.

F. Implied Covenants in Oil-and-Gas Leases

“Implied covenants” are duties not spelled out in the lease but read into it by law to give effect to what the parties reasonably expected. Examples include:

the implied covenant to reasonably develop the lease;
the implied covenant to protect against drainage; and
the implied covenant to market production.

Justice Busby raises, without resolving, whether similar implied covenants could arise regarding produced water—for example, a duty to manage it prudently or to consider beneficial reuse when reasonable.

IX. Conclusion: The Significance of Cactus Water Services in Texas Law

Cactus Water Services, LLC v. COG Operating, LLC stands at a critical junction of Texas groundwater law and oil-and-gas law. Justice Busby’s concurrence underscores that the Court has:

Reaffirmed the traditional rule that groundwater in place belongs to the surface owner, subject to regulation and to the mineral lessee’s implied right of reasonable use.
Articulated a new, narrow default rule that a standard grant of hydrocarbons includes incidentally produced groundwater—conveying to the lessee possession and control of the resulting fluid waste for purposes of disposal and reuse, free from third‑party interference.
Carefully avoided altering the law regarding unleased minerals and non-hydrocarbon substances produced along with leased minerals, or endorsing an overbroad “product stream” theory.
Emphasized contractual freedom, making clear that private parties remain free to negotiate different allocations of ownership, control, and economic benefit in produced water.
Identified, but left unresolved, important questions about royalties, profit allocation, and implied covenants relating to produced water, which will shape future litigation and transactions.

In practical terms, the decision gives operators greater security in managing produced water while signaling to landowners and water service companies that careful drafting of leases and contracts is now essential if they wish to reserve or share rights in this increasingly valuable resource. In doctrinal terms, it harmonizes groundwater property rights, mineral leasing principles, and the modern regulatory regime governing oil-and-gas waste, all without triggering the takings concerns that have framed recent groundwater jurisprudence.

As water reuse, recycling, and cross‑sector water markets expand in Texas, Cactus Water Services will likely become a foundational case, guiding how courts and practitioners balance the competing claims of surface owners, mineral lessees, and third‑party water companies to the economic value embedded in produced groundwater.