Texas Supreme Court Clarifies Produced Water Ownership

The Texas Supreme Court recently clarified who owns the rights to produced water in the state. The opinion, Cactus Water Services, LLC v. COG Operating, LLC (Case No. 23-0676), issued June 27, 2025, confirms what has long been understood by those in the oil and gas industry: absent an express agreement otherwise, a conveyance of the right to produce oil and gas includes the right to use the produced water that results from those oil and gas operations. The court’s conclusion is consistent with the default rule established by statute in 2019.

Produced water is a byproduct of oil and gas production and has historically been viewed as a costly waste product. More recently, though, the industry has focused on developing beneficial uses for recycled produced water, which has given the substance some potential economic value. The Texas Legislature has supported this shift, recently passing a series of bills related to handling and reuse of produced water. Recycled produced water has been put to use across the country, including for purposes like crop irrigation in agricultural hotspots such as California’s Central Valley. 

Against this backdrop, Cactus Water Services took the novel position that surface-estate owners, not the mineral lessees, hold title to the produced water that emerges from an oil and gas well. This position threatened to upend the industry’s existing system for treating produced water, which was built on the long-held understanding that both the rights and legal obligations associated with produced water are included in the conveyance of mineral rights to the mineral-estate lessee.

The Texas Supreme Court rejected Cactus’s position, observing that “Texas law has long recognized that the hydrocarbon producer’s possession and control over the disposition of liquid-waste byproduct is necessarily incidental to, and therefore encompassed in, a conveyance of oil-and-gas rights.” The Court declined to disrupt this state of the law, and went on to conclude:

“The conveying parties, who are presumed to contract in reference to the law, understood that disposal of liquid waste meant consumption of the capital value, if any, of constituent water. That being so, it would have been incumbent on the surface-estate owners to expressly reserve property rights in that incidentally produced liquid-waste byproduct if they intended to retain ownership. They did not.”

The Court thus affirmed the lower court’s holding that “the right to produced water was included in the conveyances to the hydrocarbon lessee.” The Court rejected Cactus’s reliance on groundwater cases as inapposite, noting that although “produced water contains molecules of water…the solution itself is waste—a horse of an entirely different color.” The ruling thus affirms existing legal frameworks supporting both upstream and midstream oil and gas operations. The outcome is notable for both the oil and gas industry across the country, and other industries that use, or could potentially use, produced water, such as the agriculture sector. 

Three Justices filed a concurring opinion noting that the majority opinion establishes a default rule, does not alter existing law about production of non-leased minerals, and leaves open various questions about the mineral lessee’s obligation to the landowner. No dissent was filed. Cactus has noted that it intends to file a motion for rehearing. 

The concurrence highlights areas of potential future litigation and regulatory activity. For instance, surface owners could seek royalties for produced water leases or sales. Produced water is also a target source for mining of critical minerals, such as lithium. Although some oil and gas leases extend to all minerals, the ones at issue in Cactus Water Services covered only “oil, gas, and other hydrocarbons,” and the Court’s opinion specifically noted in a footnote that it was not resolving any ownership questions related to non-hydrocarbon minerals. Proposed Texas legislation directed at clarifying ownership of minerals like lithium produced from brine (defined to exclude produced water) failed to advance this session, but highlights the potential for future related disputes. 

This is the second Texas Supreme Court opinion in two months addressing a significant issue relating to mineral rights. In late May 2025, the court issued its opinion in Myers-Woodward, LLC v. Underground Services Markham, LLC (Case No. 22-0878), which examined the question of who owns the underground pore space created as a result of salt mining. The case involved a dispute between the surface owner and the mineral owner over the ownership of the empty pore space created by the mineral owner’s salt production. The Court concluded that, because “empty space is not a mineral,” the holder of the surface estate owned the pore space, absent an agreement otherwise. 

This conclusion is in tension with caselaw from other states, such as Colorado, which treats pore space as a public resource. See Bd. of Cnty. Comm’rs of Cnty. of Park v. Park Cty. Sportsmen's Ranch, LLP, 45 P.3d 693, 696 (Colo. 2002) (holding that “Colorado law does not recognize a land ownership right by which the Landowners can claim control of the aquifers” underlying their land). The California Court of Appeal has reached a similar conclusion, determining that the underground space where groundwater is stored is a public resource. See Cent. & W. Basin Replenishment Dist. v. S. Cal. Water Co., 109 Cal. App. 4th 891, 905 (2003). These latter decisions are consistent with the approach courts have taken in other contexts to balance landowners’ property rights against the need for public access to the space above and below the earth’s surface. For example, modern courts treat the airspace above private property as a “public highway” for purposes of aviation, although landowners otherwise generally own and have the right to control the airspace above their land at common law. See United States v. Causby, 328 U.S. 256, 264 (1946). As underground storage of resources like groundwater and carbon capture continue to develop in the western United States, courts will likely face more of these thorny questions.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Heather Welles, an O'Melveny counsel licensed to practice law in California; Matt Kline, an O'Melveny partner licensed to practice law in California; Jason Schumacher, an O'Melveny partner licensed to practice law in Texas; and Kristin Cope, an O'Melveny partner licensed to practice law in Texas, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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