Since we first addressed this topic on August 8th, 2024, the case has gone before the Texas Supreme Court. Click here to read the original article.

July 9, 2025

By Buffie Campbell, Senior Manager, Energy Mineral Management, Whitley Penn

Closely watched litigation regarding the definition and ownership of water has percolated up to the Texas Supreme Court.  Interestingly, Cactus Water Services, LLC v. COG Operating, LLC, No. 23-0676, has received amicus curiae briefs from associations across the state representing farmers, ranchers, land, and mineral owners requesting the Court to uphold one of the fundamental foundations of Texas land rights – that groundwater belongs to the surface owner.  Water is essential to oil and gas extraction, but as the produced water returns to the surface, the right to claim it has become a little murky.

A quick dive into the facts.  COG Operating, LLC (COG) held four leases, executed in 2005, 2010 and 2014, encompassing approximately 37,000 acres in Reeves County, Texas.  COG also acquired surface use and right-of-way agreements.  In 2019 and 2020, the surface owner executed leases with Cactus Water Services, LLC (Cactus) for the right to sell produced water from oil and gas wells on the property.  COG sued arguing it owned the produced water by and through the terms in the leases, surface agreements and common law practice.  Summary Judgment in the Reeves County District Court ruled in favor of COG.  Cactus appealed to the Court of Appeals for the Eighth District of Texas (El Paso) who upheld the judgment stating that the produced water was “waste” with ownership falling to the mineral lessee.  The Court of Appeals relied on the definition of “oil and gas waste” as defined in the Texas Natural Resources Code, the Texas Water Code, and by the Texas Railroad Commission, all of which include produced water.  In addition, the RRC places liability for disposal of produced water on the operator. 

The Texas Supreme Court took up the case for review, hearing oral arguments on March 18, 2025.

The amicus briefs filed with the Texas Supreme Court disagree with COG’s claim that through the drilling process, water becomes purely waste within the operator’s product stream.  Essentially, these briefs argue that using the water for drilling may change its purpose and usefulness, but not its ownership.    

Produced water is the fluid byproduct brought back to the surface when an oil well is drilled and fractured.  It generally has a high salinity and contains a mix of organic materials, suspended and dissolved solids, and drilling chemicals.  Oil wells can produce 3 to 6 barrels of water for every 1 barrel of oil, but that ratio varies by location with some wells as high as 500:1.  Energy.gov states that produced water in the Appalachian Basin can be 5-10 times saltier than seawater.  Produced water has historically been deemed wastewater, with operators either (1) re-injecting and storing underground or (2) recycling and re-using for additional drilling processes. 

An increase in seismic activity tied to saltwater disposal wells has created a whole new problem. According to the Texas Railroad Commission, seven (7) earthquakes with magnitudes of 3.6 to 5.2 hit Culberson and Reeves Counties between November 8 and December 17, 2023.  As a result, the RRC suspended 23 saltwater disposal permits.  Obviously, re-using produced water will become more of a necessity, and the ownership debate presented in Cactus allows for it to be even more lucrative.

But what if there’s more to produced water than just waste?  A recent study by Texas A&M University researcher Dr. Hamidreza Samouei found that nearly every element in the periodic table could be recovered from produced water.  He calls it “a veritable treasure trove…”  One mineral extracted from produced water is making quite the splash.  Lithium is used in batteries and in almost every form of technology, including cell phones, televisions, computers, toys, and electric cars.  Recovering lithium from produced water can vastly increase the overall economic value of drilling. 

As of May 2024, lithium traded around $14,500 per metric ton.  Produced water can contain anywhere from a few to over 200 metric tons of lithium.  A 2022 study with the US Geological Survey and Arkansas Department of Energy & Environment estimated that produced water from oil, gas and bromine drilling operations in the Smackover Formation in southern Arkansas contained 5,000 tons of dissolved lithium.  Currently being mined from limestone brine aquifers using a technique known as Direct Lithium Extraction (DLE), the quality and quantity of Smackover lithium is far exceeding other formations.  DLE is a process where the lithium is adsorbed (gathered or layered) onto a lithium-selective membrane allowing the lithium to separate from the brine water.  This process reduces the carbon impact of traditional lithium mining while also reducing time and energy associated with evaporation techniques used in Chile, Bolivia, and Argentina.

As a new potential revenue stream stemming from oil and gas production, ownership of produced water and the additional minerals contained within create new legal questions.  Who owns the lithium extracted from produced water?  How should royalties and expenses be allocated?  What about tax credits and incentives?  Oil and gas leases and surface agreements will need to adjust to account for technological advances surrounding produced water. 

The Justices in the Texas Supreme Court asked these same questions of Cactus Water and COG during oral arguments, specifically asking about gold or lithium that may be extracted alongside the oil, gas and water produced during drilling operations.  Further discussing the specific language in the Oil and Gas Lease’s Habendum Clause or Granting Clause that often limits the lease to oil, gas and other hydrocarbons.  Hopefully, these questions will be resolved when the Supreme Court’s Opinion is released this year.

Water is already a fundamental part of Texas property rights.  Whether used for consumption, farming, ranching, or as an essential element of oil and gas drilling, the ownership of water provides continued revenue streams and long-term contractual opportunities.  As the tides turn, produced water is evolving beyond being just waste and into the extraction of lithium and other significant minerals.  By clearing up the ownership issue presented in Cactus, surface owners, mineral owners, and operators will be left with a clear path for continued development.

Disclaimer: This document is designed only to provide general information regarding the subject matter discussed. The standards, statutes, authorities, and other laws cited are subject to change.

This document is not intended to provide tax, accounting, legal, or other professional advice to any specific person or entity. Any advice or opinion regarding the application of the subject matter for a specific person or entity should be provided by a competent professional advisor based on an application of the appropriate law and authorities to the facts and circumstances applicable to that person or entity.