Pragmatism can be found throughout a recent decision of the Texas Supreme Court that has significant repercussions for oil and gas activity throughout the state. The court, in the case of Cactus Water Services v. COG Operating, ruled June 27 by a 6-0 vote that produced water, a byproduct of oil and gas production, belongs to the mineral lessee, not the surface owner, unless the lease specifies otherwise, Fig. 1.
Signed by Justice John Devine, the ruling declared that produced water is oil and gas waste and therefore part of the mineral rights estate, not the surface estate. As noted by four partners in the Austin and San Antonio offices of the Jackson Walker law firm, “the court concluded that produced water is oil-and-gas waste, an ‘inevitable and unavoidable byproduct of oil-and-gas operations,’ and dismissed arguments that Texas groundwater precedent should control.”
The Texas Supreme Court ruling finishes off a lengthy process that began in March 2020, when COG initially sued Cactus, arguing that it owns the produced water. The state district trial court ruled in favor of COG. declaring that COG owns the produced water and has exclusive rights to its possession, custody, control and disposition.
The court of appeals affirmed this decision, holding that produced water is oil-and-gas waste that belongs to the mineral lessee, not groundwater that belongs to the surface estate. The appeals panel noted that the leases did not suggest an intent to reserve rights to oil-and-gas waste for the surface owner. The case then progressed to the Texas Supreme Court, which heard oral arguments on March 18 and rendered its decision on June 27. From start to finish, the case took over five years to resolve.
As the four Jackson Walker partners explained, “The court noted that, while it contains molecules of water, produced water is ‘not water;’ the solution is ‘waste – a horse of an entirely different color.’ As a result, the mineral lessee has the right to possession, control and disposition of produced water. While the court’s opinion provides clarity on the default rule for ownership of produced water, the concurring opinion identifies significant issues left open by the court’s ruling, highlighting three key areas where future litigation and client questions are likely to arise”:
The court’s holding is a default rule only; parties remain free to contract otherwise;
There was no ruling on ownership of unleased minerals or other substances;
The court did not address what obligations, if any, the mineral lessee owes to the lessor with respect to produced water. This includes such questions as whether royalties are owed on produced water that is recycled or sold, how profits or losses from beneficial reuse should be accounted for, and whether any implied covenants apply to the management of produced water.
As the Jackson Walker partners conclude, this decision provides valuable guidance for drafting and interpreting Texas oil and gas leases, particularly as regards the evolving commercial value of produced water. However, the open questions remain.
Guyana and Suriname keep moving along. While other issues steal the headlines, the upstream industry’s work offshore Guyana and Suriname continues to progress at a steady clip. There are now six sanctioned oil and gas projects underway on the Stabroek Block offshore Guyana. These projects, developed by a consortium of ExxonMobil, Hess, and CNOOC, should increase production capacity to over 1.3 MMbopd by the end of 2027. The first three projects (Liza Phase 1, Liza Phase 2, and Payara) are already producing over 650,000 bopd. In addition, three more projects from the consortium (Yellowtail, Uaru and Whiptail) are due to go onstream between second-half 2025 (Fig. 2) and the end of 2027. Finally, ExxonMobil has submitted an environmental impact assessment with Guyana’s government for a seventh project, Hammerhead. Of course, things may be more interesting, now that Chevron’s acquisition of Hess has been completed. It will be interesting to see how the consortium companies interact from this point forward.
Meanwhile, Suriname can finally look forward to its first deepwater oil production. Operator TotalEnergies’ first FID offshore Suriname was approved in October 2024 for Block 58, targeting first oil by 2028. The GranMorgu project’s FPSO unit, with a capacity of 220,000 bopd, is based on the design principles of tried-and-tested units in Guyana in the same type of environment.
Details on these projects, as well as regulatory moves and infrastructure concerns, can be found in Contributing Editor Gordon Feller’s annual regional report. Please turn to his article, farther back in this issue.
IADC heads toward 85 years. We’ve had a number of industry organizations hitting milestones over the last several years, and IADC is about to join the list. The association will officially celebrate 85 years of operation in representing drilling contractors when it holds its Annual General Meeting on Sept. 23-24 at the Ritz Carlton Hotel in Naples, Fla.
IADC was founded in 1940 by a group of industry leaders, who believed that drilling contractors needed a collective voice to advocate for their interests, whether with governments or other business entities. From that small but auspicious start, IADC has weathered massive industry changes to become the modern, influential association it is today.
IADC operates on six continents, and its members comprise the largest global leaders in the drilling industry, as well as medium-sized and smaller contractors. IADC is recognized worldwide for its accreditation programs, publications, conferences, and advocacy work.
Leading up to its Annual General Meeting, IADC has been soliciting personal stories from its members about their interaction and involvement with the association over the years. Members can contribute stories in a variety of formats, including text/words, videos, audio recordings, photos, and artwork. In addition, we at World Oil will feature additional material about IADC’s history, leading up to the Annual General Meeting. Congratulations to IADC on 85 years! WO
IN THIS ISSUE
Special focus: Permian Basin Technology. Among the four articles in this issue is a feature from a Halliburton expert, who describes the rise of geomechanics in the Permian basin. He says that with advanced geomechanics modeling, Halliburton is helping operators in the Permian to drill smarter, safer, and with greater efficiency—to turn subsurface uncertainty into predictable results. A second feature from Neo Oiltools discusses breaking the status quo for drilling speeds in the Permian. As a company expert explains, the drive for greater drilling speeds increases the dysfunctions encountered downhole. Successfully suppressing downhole vibrations enables companies to surpass previous speed limitations, without damaging equipment. In a third feature, a Siemens author explains that when upgrading its newest rigs to AC power, a Texas drilling contractor turned to the vendor’s Solution Partner Current Power for highly reliable, packaged electric buildings, all standardized on electrical, control and automation components. This ensured reliability, availability and higher asset utilization. Finally, several NOV specialists describe two new drill bit technologies that address the region’s formation-specific challenges: A custom blade architecture for intermediate salts and a cutter orientation system that enhances tool face stability and ROP in shale laterals.
Well interventions: Smarter well interventions accelerate productivity. Authors from Weatherford and Global Dynamics discuss how the SMART-LINK system integrates advanced digital technology and real-time data analytics for enhanced insight into operational wellbore conditions. The system integrates into existing coiled tubing procedures, operations and equipment and makes them smarter.
Completions technology: Record-breaking stage count. A Packers Plus engineer says that a new Middle Eastern record was set with a 29-stage StackFRAC® system in a tight carbonate, extended-reach well. Despite severe doglegs and a 6,700-ft lateral, the system deployed flawlessly—every sleeve shifted, and every stage completed in this multistage performance.
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