Who Owns All This Fracking Water?

October 29, 2015

By Maxwell B. Kallenger, Senior Associate

Introduction

An excited landowner grants a mineral lease to an oil and gas company. The mineral lease states that the lessee has the right to explore for and produce oil, gas, and other minerals on the leased premises. The lessee begins fracking operations and produces—along with oil and gas—a large amount of groundwater. The operator, having no use for this water, gives the water to a water treatment company that recycles and sells the water for a profit. The landowner, envious of the water treatment company’s profit, demands a portion of the proceeds from the lessee, claiming that the operator never had the right to take and dispose of the water. Who wins?

The water treatment industry has slowly developed to keep pace with the amount of water that oil and gas companies have used for and produced from fracking.[1] Even with the recent decline in oil prices and a drop in hydraulic fracturing activities across the country, however, the water treatment industry has grown to a $1.9 billion industry annually.[2] The development of treatment and recycling technologies is increasingly important because many areas of the country are suffering through droughts.[3] As treatment technologies continue to improve, however, one issue that remains unclear is which party really owns this produced water. Whether the water still belongs to the landowner, or whether the mineral lease or the lessee’s implied right of use transferred ownership to the lessee, is uncertain. As recycling and treating this water becomes more profitable, courts will need to determine the answer to this issue.

I. What is Fracking Water?

Water treatment services recycle two different types of water: produced water and fracking water. Produced water is a naturally occurring brine water found in oil and gas reservoirs that is generated—along with hydrocarbons—from a well.[4] Wastewater from hydraulic fracturing, which is known as fracking water, is water purposefully mixed with sand and chemical additives injected into the ground at high pressures, causing fractures to open. These fractures allow trapped hydrocarbons in shale formations to more readily escape and flow to the surface.[5]

Because fracking produces so much water, operators must have a plan to dispose of the water. Generally, an operator has two options: inject the wastewater back into the earth through a wastewater disposal well or have the water treated and recycled for future use.[6] The majority of wastewater is injected back into the earth, as operators find “it more cost-effective to permanently dispose of the water in the ground rather than to treat and recycle it.”[7] Water treatment and recycling, however, is becoming more and more popular and cost-effective.

II. Groundwater Rights in Louisiana

The United States has several groundwater management and ownership systems.[8] Louisiana utilizes an absolute ownership system,[9] which permits “a landowner [to] extract any quantity [of water] he wishes and use it for whatever purpose he desires without incurring any liability, even though he may cause injury to adjacent landowners by, for example, drawing water away from their wells.”[10] Article 490 of the Louisiana Civil Code, which states that a landowner owns everything on, above, or below his land, supports this determination.[11] Additionally, because the Louisiana Mineral Code treats groundwater as a mineral,[12] a person owns the groundwater once it is reduced to their possession.[13] If groundwater is not expressly granted in a mineral lease, however, the landowner may have reserved his right to the water, rather than passing ownership of the water to a lessee.

III. What’s All the Fuss?

The lessee has the right to use as much of the surface and subsurface as is reasonably necessary to explore for and produce minerals.[14] When using the surface and subsurface, the lessee does not have to ask for permission or pay for its use of the minerals.[15] Allowing the use of water, however, is vastly different from granting title to the water.[16] Though the surface use right grants the lessee the right to use the water, the surface use right does not necessarily grant title to the water, creating a problem for what happens to the water post-production.[17] Thus, whether an operator can give this produced water to a treatment company to recycle is questionable, as the operator may have never had proper title to the water.[18] Additionally, if the lessee itself treats and sells the water, the proceeds will likely belong to the surface owner rather than the operator.[19]

IV. How to Combat the Problem

A call for Louisiana to enact a water code has persisted for quite some time.[20] The addition of a water code would clarify and stabilize groundwater ownership laws.[21] To combat this problem in Texas, the Texas legislature enacted Chapter 122 of the Texas Natural Resources Code, which makes the person in possession of the water the owner.[22] The statute enables a lessee to transfer the water to another party for treatment, which makes the transferee the person liable for the water.[23]

While the Texas statute is a step in the right direction, it is not technically a “solution.” The statute does not address the issue of the lessee taking the water without the right being granted originally from the landowner.[24] A better solution would be to enact a statute granting ownership to a lessee who pumps the water out of the ground. Although statutory answers may eventually prove fruitful, a lessee’s best assurance currently is to negotiate a water ownership transfer in the lease. Doing so will ensure that an operator is free to recycle or dispose of the water as the operator sees fit. There are many different options available to combat this problem; however, until selling recycled water becomes more profitable and lessors believe they deserve a piece of the pie, the problem will likely continued to be ignored.

[1] Martin LaMonica, Fracking: The Surprising New Proving Ground for Water Technologies, The Guardian (Mar. 17, 2014), http://www.theguardian.com/sustainable-business/fracking-oil-gas-energy-water-tech [http://perma.cc/Q5XJ-72LL].

[2] Sara Jerome, Frac Water Management Industry Still Worth $1.9 Billion, Water Online (Aug. 26, 2015), http://www.wateronline.com/doc/frac-water-management-industry-still-worth-billion-0001 [http://perma.cc/54V3-TTNR]. Between October 2014 and February 2015, fracking activity declined from roughly 2,300 frack jobs to 1,350, but the market for water treatment services “is still ripe with opportunity.” Id.

[3] See Reuters Media, Study: Fracking Needs Less than 1% of Water Used in U.S., Grand Forks Herald (Sept. 15, 2015, 5:16 PM), http://www.grandforksherald.com/news/region/3839670-study-fracking-needs-less-1-percent-water-used-us [http://perma.cc/YV37-EELK] (noting that the fracking industry has faced heavy criticism for water use in California where there is a current drought); Harold D. Hunt, What to do About all this Fracking Water, Water Pol’y, Oct. 2014, at 2, available at https://www.recenter.tamu.edu/pdf/2074.pdf [https://perma.cc/96Q6-927V] (stating that as of August 2014, more than 60% of the state of Texas was facing moderate to severe drought conditions).

[4] Austin C. Whitmore, Oilfield Recycling in Texas: Why Command and Control Regulations are Stifling the End Goal, 44 Tex. Envtl. L.J. 287, 291 (2014). Produced water is generated at about a 10:1 ratio to oil. Id.

[5] Id. Roughly 15% to 80% of this fracking water returns to the surface through production. Id. at 292. The focus of this post is on produced water, as the operator typically owns the fracking water.

[6] Id. at 292–93.

[7] Id. at 292.

[8] See generally Water Law: An Overview, Nat’l. Agricultural Law Center http://nationalaglawcenter.org/overview/water-law/ [http://perma.cc/E3Z3-4WYP] (last visited October 27, 2015).

[9] James M. Klebba, Water Rights and Water Policy in Louisiana: Laissez Faire Riparianism, Market Based Approaches, or a New Managerialism? 53 La. L. Rev. 1779, 1824–28 (1993).

[10] Id. at 1821.

[11] La. Civ. Code Ann. art. 490 (2015).

[12] La. Rev. Stat. Ann. § 31:4 (West 2014).

[13] Gerald Torres, Liquid Assets: Groundwater in Texas, 122 Yale L.J. Online 143 (2012).

[14] See generally Caskey v. Kelly Oil Co., 737 So. 2d 1257, 1265–67 (La. 1999) (recognizing a lessee’s right to reasonable surface use of the leased premises). One Texas Supreme Court decision stated that a lessee’s surface use right includes the use of groundwater from the surface owner’s estate to engage in water-flooding operations as a secondary means of oil and gas recovery. Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 811 (Tex. 1972). The court stated that a lessee’s reasonable surface use of the land included the rights to use water from the leased premises as may be reasonably necessary to extract minerals from the lease. Id. at 811.

[15] Hunt, supra note 3, at 4.

[16] Id.

[17] Id.

[18] This issue is particularly important in an absolute ownership state—like Louisiana—where groundwater will likely remain with the surface estate owner even when the minerals are granted in a servitude. Id. “The only exception is when the mineral reservation specifically mentions the groundwater.” Id.

[19] Id.

[20] Stephanie Riegel, Louisiana Must Develop a ‘Water Budget’ and ‘Water Code’ to Address Future Challenges, Expert Says, Greater Baton Rouge Bus. Rep. (Sept. 17, 2015), https://www.businessreport.com/article/louisiana-must-develop-water-budget-water-code-address-future-challenges-expert-says.

[21] Id.

[22] Tex. Nat. Res. Code Ann. § 122.002 (West 2015).

[23] Hunt, supra note 3, at 4.

[24] Id.

2 thoughts on “Who Owns All This Fracking Water?

  1. Question is the property owner responsible for damages if the dam bursts on a frac pond? Situation is after heavy spring rains the dam busted on neighbors frack pond which damaged neighbor to Souths property. Pond owner states it’s a act of god.

  2. This is pretty interesting. Many people don’t consider the water, but rather only the minerals on their land when looking to lease it. It’s good that the law is beginning to catch up so there is no confusion when it comes to fracking water. Thanks for investigating this.

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