Like Grandma Said, “Oil and Water Don’t Mix”

Water is probably the most vital resource in our world. It is important to all forms of life, and to industry and commerce. In Texas, surface water belongs to the State. Surface water is defined as the water of the ordinary flow, underflow, and tides of every flowing river, natural stream, and lake, and of every bay or arm of the Gulf of Mexico, and the storm water, floodwater, and rainwater of every river, natural stream, canyon, ravine, depression, and watershed in the State (Section 11.02 Texas Water Code). Groundwater is water that occurs under the surface of land, regardless of the source, and may consist of percolating or artesian water.

The use of water in the drilling and completion of oil and gas wells today has dramatically changed almost exclusively as a result of the use of hydraulic fracturing, or “fracking.” The value of water has risen dramatically in the areas where current production is ongoing because of the essential need for water in the fracking process. If water is not available on-site, oil companies must purchase the water from landowners, hopefully nearby, to be delivered either by pipe or truck to the well site.

A recent Oil & Gas Journal Article discussed the scarcity of water in the shale plays across the country with a particular emphasis on the Eagle Ford Shale. Paula Dittrick, Drought Raising Water Costs, Scarcity Concerns for Shale Plays, OIL & GAS J. (July 30, 2012). A particular oil and gas producer in the Eagle Ford Shale was formerly able to purchase water at fifty cents a gallon, but now some farmers will not even sell water to them at seventy-five cents a gallon. Id. Additionally, some oil and gas producers have to transport purchased water over seventy-five miles. Id.

Many landowners are accumulating wealth through the sale of water. While not nearly as lucrative as owning minerals, water-sellers are commanding relatively top dollar for their commodity, especially if they can prove that their water source is reliable, sustainable and in sufficient quantities. While many issues concerning the use of the water are still unresolved, land owners and producers must be ready to negotiate water sale and lease agreements.

Of course, this is not an exhaustive discussion of the law applicable to these issues. For more information on this topic, please email Rhonda Jolley at rjolley@branscomblaw.com or call her at (210) 598-5400.