Who Gets the Money? Texas Supreme Court Weighs In on Oil Wastewater Profits
In a high-stakes case with implications for Texas’ booming oil and gas industry, the Texas Supreme Court ruled that energy companies—not landowners—own the wastewater generated during drilling operations, known as produced water. The decision, issued June 27 in Cactus Water Services v. COG Operating, clarifies ownership rights over what was once viewed as waste but is now being eyed as a valuable resource.
The court sided with Midland-based COG Operating LLC, affirming that produced water falls under the domain of mineral rights rather than surface ownership. Writing for the court, Justice John Devine emphasized that while the fluid may contain water molecules, it qualifies as oil and gas waste, not groundwater. “[P]roduced water is not water,” the court wrote. “It’s a horse of an entirely different color.”
What Is Produced Water and Why Does It Matter?
Produced water is the byproduct of hydraulic fracturing (fracking) and oil drilling. To extract oil and gas, companies inject a high-pressure mix of water, sand, and chemicals into underground formations. The process forces hydrocarbons—and subsurface water—back to the surface. This mix, laced with heavy metals, salts, and sometimes toxic substances like hydrogen sulfide, is then disposed of or, increasingly, repurposed.
In recent years, researchers and energy companies have explored using treated produced water in agriculture, or mining it for valuable minerals like lithium—potentially turning waste into wealth.
The Legal Battle: Surface Rights vs. Mineral Rights
At the heart of the case was a lease agreement involving 37,000 acres of land in Reeves County. The Collier family, surface owners, leased the mineral rights to COG Operating, which drilled over 70 wells and generated more than 52 million barrels of produced water—spending $21 million on its disposal.
Seeing potential in this “hazardous brew,” the Colliers later signed a separate agreement with Cactus Water Services, giving them rights to the water. COG sued in 2020, arguing that it, not the Colliers or Cactus, retained ownership of the waste through its mineral lease.
Both the trial court and appeals court ruled in favor of COG. Now, the Texas Supreme Court has upheld those decisions, ruling that unless otherwise specified in the lease, produced water is part of the mineral estate.
Industry Impact and Ongoing Questions
Legal experts say the ruling is a victory for oil and gas operators who have long been concerned about liability and regulatory control over produced water. The Texas Oil and Gas Association praised the decision, arguing that an opposite ruling would have disrupted the state’s oilfield waste management system.
“This is a practical and expected outcome,” said John McFarland, an Austin-based attorney specializing in oil and gas law. “It reflects how the industry has historically treated produced water—as waste under the control of the operator.”
However, McFarland also noted the case leaves some critical questions unanswered. Chief among them: Who owns the valuable minerals—like lithium—that might be extracted from produced water?
“Oil and gas leases typically cover hydrocarbons,” McFarland said. “If lithium and other rare elements are not explicitly included, surface owners could still have a claim. This issue is far from settled.”
New Law Shields Companies From Liability
Adding a new layer to the debate, Texas Governor Greg Abbott recently signed House Bill 49 into law. It provides legal protection to oil companies that sell produced water, shielding them from liability if that water is repurposed or causes harm after leaving their control.
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While the law may encourage the reuse of produced water, it also raises environmental and regulatory questions, especially as more companies seek to monetize what was once seen purely as industrial waste.
A Wake-Up Call for Landowners
Attorneys say the ruling underscores the importance of clearly defining rights in oil and gas leases. Raleigh Hart of the Fort Worth firm Harris, Finley & Bogle called it a “definitive win for operators,” adding that landowners must be explicit if they want to retain rights to any byproducts.
“Produced water may no longer be just a disposal issue—it could be a source of revenue,” Hart said. “And this decision shows that if you don’t spell that out in the lease, you may be leaving money on the table.”
Looking Ahead
As technology advances and water reuse becomes more viable, the economic value of produced water will likely increase. Legal frameworks and lease agreements will need to evolve to address these emerging issues—including who profits from water reuse and mineral extraction.
For now, the court has spoken: in Texas, unless otherwise stated, produced water belongs to the holders of the mineral rights.
