Texas Appellate Court: Water Created During Fracking Is Oil and Gas Waste, Not Water

February 21, 2024

In July 2023, the El Paso Court of Appeals held that produced water created in the fracking process is considered an oil and gas waste rather than water — meaning it belonged to the mineral lessee, not the surface owners. See Cactus Water Services, LLC v. COG Operating, LLC, 676 S.W.3d 733 (Tex. App.—El Paso 2023, pet. filed).

COG Operating LLC (COG) leased minerals from two surface owners on the land at issue pursuant to four leases. COG’s mineral leases gave it the exclusive right to explore and produce oil and gas on the leased lands. The leases also provided that COG had no right to use water that was on or under the land. Cactus, on the other hand, retained all the surface estates’ water rights, including ownership and right to sell all water “produced from oil and gas wells and formations on or under the [covered properties],” which it proposed to do pursuant to new leases. Id. at 737. Cactus informed COG of these new water rights leases in March 2020, and COG sued, seeking a declaratory judgment that it had the sole right to the produced water through its mineral leases, agreements and at common law.

Cactus’ leases specifically defined water but COG’s mineral leases did not. The dispute arose out of this discrepancy and whether COG’s mineral leases conveyed produced water to COG. The court recognized that the dispute, ultimately, depended on whether “‘produced water’ is, as a matter of law, water or if it is waste.” Id. at 738.

After perusing the Texas Natural Resources Code, Texas Water Code, the Railroad Commission Rules and the industry practices, the court found a clear distinction between produced water and groundwater — and that the relevant legal definitions of oil and gas waste include produced water. It agreed with COG’s petroleum engineering expert that “the term ‘produced water’ is essentially a misnomer, as it bears little resemblance to water given the ‘numerous constituents’ it contains other than water.” Id. at 739. The court surmised that the burden of safe disposal of produced water has rested with the operators for years. Thus, the court held that the mineral leases were negotiated against this backdrop and with this understanding, and found that no provisions of COG’s mineral leases indicated the parties intended to contradict this industry norm.

This decision may come into play in any future perfluoroalkyl and polyfluoroalkyl (also known as PFAS) litigation as it provides insight on the issue of ownership and who may be deemed responsible for its disposal.