Does “Use of Water” in an Oil & Gas Lease Constitute FREE Use

by Kenneth E. DuBose on December 13, 2011

In arid regions of the U.S. (e.g. Texas in 2011), water is becoming a precious commodity. Many of us have leased our mineral rights and granted oil and gas companies the right to use water from our property.  The problem is many land owners did not stipulate a price.

While this has been commonplace for many years, it is coming to light due to the recent drought conditions in South Texas where water is being produced for use in drilling and hydraulic fracturing. The implied assumption was the mineral owner was granting the use of water to aid in the production of his/her minerals.

The question being raised now is – Does the right to water mean a FREE right? I suspect we’ll see this language challenged in the near future. There are already grumblings of court cases and I suspect this will be an issue that effects more areas than just the Eagle Ford Shale.

One issue is that oil & gas companies pay sophisticated mineral owners for water. When I say sophisticated, I mean the ones that negotiated to be paid and had the language put into their lease. We’re now in a position where the guys that aren’t getting paid aren’t happy about it and will likely challenge the language in their leases.

If water production on your property is important to the value of your property going forward, be sure to negotiate and describe the planned arrangement in any mineral lease you sign. You might not have much bargaining power if you are a small landowner, but those who farm and ranch need to address the issue to prevent future problems.

Many of issues of this kind boil down to a common denominator. Land owners have to consider leasing as a business decision and need to evaluate all potential ramifications. Many oil & gas wells produce for decades and some…centuries. You want to have your bases covered before entering an agreement that binds your grandkids grandkids.

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