Recommended citation: Collins G. 2020. Produced Water in Texas: No Dedication Without Compensation. Texas Water Intelligence. 11 June 2020.
Download presentation here: Collins_Texas Water Intelligence_No Dedication Without Compensation_11 June 2020
This presentation argues that oil & gas operators selling oilfield water acreage dedications generally must share the sale proceeds with the water owners.
I wrote at length on the ownership of water from oil & gas-bearing formations earlier this year– Collins G. 2020. In Texas The Surface Estate Owns the Produced Water. Texas Water Intelligence. 27 February 2020. https://texaswaterintelligence.files.wordpress.com/2020/02/collins_twi_produced-water-ownership-in-texas_27-february-2020.pdf
A. Translating Caselaw and Statute into Practice
This presentation builds on the February 2020 memo and offers a first step into how to think about translating caselaw and statute into practice. Oilfield water dedication transactions to date have affected hundreds of thousands of acres across the Texas Permian Basin and hundreds of millions of dollars of consideration have changed hands—but the water owners to the best of my awareness have not shared in the economic upside generated by these transactions. More such transactions are likely in coming months and years as E&Ps look to raise cash and focus capital expenditures on the drillbit.
The lack of compensation is almost certainly not due to lack of awareness: the first signature piece discussing produced water ownership in Texas was published in 2013 and circulated for years before the first “cash for dedication” transactions occurred.**
B. Impacts on Private Property Rights and Social License to Operate
The oilfield water dedication question directly impacts private property rights in water as well as social license to operate. With few exceptions, Texas oil & gas production occurs on private surface, where by default, the surface estate owns the rights to all subsurface water. In the Permian Basin and other active play areas property owners are concerned about water rights issues and want to ensure that (1) their property is not being taken without appropriate compensation and (2) private ownership rights in underground water are not confiscated for the economic convenience of powerful interests.
Maintaining landowner buy-in is critical to the industry’s long-term social license to operate. Reasonable compensation to water owners for produced water monetization would help maintain this license, and ultimately, would protect investments in the domestic oil & gas production activity that Texas leads the nation in.
**Peter E. Hosey and Jesse S. Lotay, “Quench My Thirst: Water Rights in the Context of Water Treatment Technologies,” (presented at 23rd Annual Robert C. Sneed Texas Land Title Institute, December 5-6, 2013, Hyatt Regency Hill Country Resort, San Antonio, Texas)
Disclosure Statement: The author holds an ownership interest in Cactus Water Services, LLC, an entity with business activities related to oilfield water ownership and management.