Background and Parties

This case arose from competing claims to produced water in Reeves County, where COG Operating, LLC held mineral leases authorizing hydrocarbon production, while Cactus Water Services, LLC held separate "produced water lease agreements" with the surface estate owners. The dispute centered on whether the mineral lessee or the surface estate lessee had superior rights to the constituent water in liquid waste generated during oil and gas operations—a question of first impression for the Texas Supreme Court. The 143rd District Court granted summary judgment for COG Operating, and the El Paso Court of Appeals affirmed at 676 S.W.3d 733.

The Ownership Dispute

Cactus Water Services argued that because water is not considered part of the mineral estate under Texas law, and because the mineral leases did not expressly convey produced water, the surface estate retained ownership of the water molecules entrained in produced water. COG Operating countered that its mineral leases necessarily included the right to possess, control, and dispose of produced water as an incident of hydrocarbon production, even if the leases did not specifically mention produced water. The parties filed cross-motions for summary judgment on the declaratory judgment claims.

The Court's Analysis

Justice Devine's opinion for the court began with established principles. The court confirmed that

Water, unlike oil and gas, is not considered part of the "mineral estate."

However, the court also recognized that

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.

The critical question was whether produced water—water necessarily extracted with hydrocarbons—remained with the surface estate or passed to the mineral lessee's control.

The court emphasized that

A conveyance of water is not effected by implication in a conveyance of the mineral estate.

Despite this principle, the Supreme Court held that the mineral lessee had the right to possession, custody, control, and disposition of the constituent water in produced water from hydrocarbon production. The court reasoned that these rights existed as an incident of the mineral estate's production rights, regardless of whether the parties knew of produced water's prospective value at the time the leases were executed.

Procedural Standards

The court applied standard summary judgment principles. On cross-motions for summary judgment,

each party bears the burden of proving its entitlement to judgment as a matter of law.

When the 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.

Holding and Concurrence

The Supreme Court affirmed the lower courts' judgments in favor of COG Operating, holding that the mineral lessee possessed superior rights to the produced water. Justice Busby issued a concurring opinion joined by Justices Lehrmann and Sullivan. The court's decision establishes that mineral lessees control produced water as an incident of hydrocarbon production, even though water itself is not part of the mineral estate, and even absent express lease language addressing produced water.