Texas Supreme Court rules oil and gas producers hold rights to produced water

The Texas Supreme Court ruled June 27 that oil and gas producers – not landowners – hold the rights to the water produced during extraction unless expressly stated otherwise in a lease agreement.

The high-court’s ruling in COG Operating LLC vs. Cactus Water Services LLC gives drillers the potential to commercialize 'produced water,' the briny mix of drilling, hydraulic fracturing and formation fluid, if properly processed and treated.

Producers typically inject produced water into disposal wells. But links between disposal wells and earthquakes have spurred new technologies that offer the potential for recycling, reuse, and a possible new revenue stream.

The case, which the court described as a first-of-its-kind dispute, pitted a Permian basin producer against a water services company that both claimed rights to the produced water, long considered a costly and unwanted burden of oil and gas production.  

The court ruled that the 52 million bbl of produced water from COG's 72 horizontal oil and gas wells in the Permian basin was waste, making it the oil producer's property. Cactus Water Services, which had entered into produced water lease agreements with the two surface landowners that sold leases to COG from 2004 and 2014, claimed the produced water was "water" because it contained water molecules. Under Texas law, the surface owner holds the rights to groundwater.

The court rejected Cactus’ arguments, noting that statutes and regulations treat water and produced water differently and distinctly because they are "distinct and different."

"It is not in genuine dispute, that produced water is…oil-and-gas waste," Justice John Devine wrote for the court. "The production of liquid waste is an inevitable and unavoidable byproduct of oil-and-gas operations; one cannot occur without the other. Accordingly, it goes without saying that granting the right to produce hydrocarbons necessarily contemplates and encompasses the right to produce and manage the resulting waste."

The court noted that COG bore all costs associated with disposal of its produced water, paying nearly $21 million in disposal fees to a third-party contractor.

"Since the dawn of the petroleum era, the burden and expense of liquid-waste disposal has been an unwanted, but quotidian, fact of oil-and-gas production," Devine wrote, noting that produced-water disposal is "one of the largest operation costs for an oil well and a significant factor in well profitability."

The Court concluded that if surface owners wish to retain ownership of produced water, they must do so explicitly in the lease agreement. 

On July 3, the Court granted a motion filed by Cactus Water Services for extension of time to file motion for rehearing in the case. The motion for rehearing is due to be filed on or before Aug. 13, 2025.  

Earlier this year, The Texas Railroad Commission tightened the rules regarding permitting of saltwater disposal wells in the Permian basin, promulgating a series of changes intended to make sure that "injected fluids remain confined to the disposal formations to safeguard ground and surface fresh water." Modifications included a site-specific capping of injection pressures and an expansion of the area-of-review to a half-mile radius from new completions from the previous quarter-mile radius. The new rules took effect June 1, 2025.