Background and Parties

This declaratory-judgment action arose from competing claims to produced water generated from oil-and-gas wells in the Permian Basin. COG Operating, LLC, the mineral lessee and well operator under traditional oil-and-gas leases, brought suit against Cactus Water Services, LLC, which had entered into "produced water lease agreements" with the surface estate owners. The dispute centered on whether produced water—the liquid waste from hydrocarbon production—belongs to the mineral estate or remains with the surface estate. The 143rd District Court in Reeves County granted summary judgment for COG Operating, and the El Paso Court of Appeals affirmed. The Supreme Court granted Cactus's petition for review.

The Legal Issue

The case presented a question of first impression: as between a mineral lessee and a surface estate lessee holding produced-water agreements, who has the right to possession, custody, control, and disposition of produced water from oil-and-gas wells? The parties filed cross-motions for summary judgment. When a trial court grants one cross-motion and denies the other, the Supreme Court determines all questions presented and renders the judgment the trial court should have rendered.

The Court's Holding and Analysis

Justice Devine, writing for the Court, held that the mineral rights lessee had the right to the produced water. The Court affirmed the summary judgment in favor of COG Operating.

The Court applied established principles governing mineral conveyances. Water, unlike oil and gas, is not considered part of the mineral estate. Unless expressly severed, subsurface water remains part of the surface estate subject to the mineral estate's implied right to use the surface, including water, as reasonably necessary to produce and remove the minerals. A conveyance of water is not effected by implication in a conveyance of the mineral estate.

The Court emphasized that if an unnamed substance is part and parcel of an oil-and-gas conveyance, there is no need to list it separately because any such substance would already be included in what was clearly and expressly conveyed in the mineral estate. The general intent of parties executing a mineral deed or lease is presumed to be an intent to sever the mineral and surface estates, convey all valuable substances to the mineral owner regardless of whether their presence or value was known at the time of conveyance, and to preserve the uses incident to each estate.

Applying these principles, the Court determined that produced water—as an inherent and inescapable byproduct of hydrocarbon production—falls within the rights conveyed to the mineral lessee. Absent a special definition, the scope of a conveyance depends on the common and legal meaning of its language, and any reservation or exception must be by clear language and cannot be implied.

Concurring Opinion

Justice Busby issued a concurring opinion, joined by Justices Lehrmann and Sullivan.