WATER USE AND CONSERVATION: A LANDOWNER S PERSPECTIVE. Written by:

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1 WATER USE AND CONSERVATION: A LANDOWNER S PERSPECTIVE Written by: JOSEPH B.C. FITZSIMONS ROBERT M. PARK Uhl, Fitzsimons & Jewett, PLLC 4040 Broadway, Ste. 430 San Antonio, Texas jfitzsimons@ufjlaw.com rpark@ufjlaw.com Presented by: JOSEPH B.C. FITZSIMONS Uhl, Fitzsimons & Jewett, PLLC {8010\001\ DOC;1 } State Bar of Texas CHANGING FACE OF WATER RIGHTS 2012 February 23-24, 2012 San Antonio CHAPTER 14

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3 CURRICULUM VITAE JOSEPH B.C. FITZSIMONS Uhl, Fitzsimons & Jewett, PLLC 4040 Broadway, Suite 430 San Antonio, Texas Phone: (210) Fax: (210) Joseph B.C. Fitzsimons is a natural resources, oil and gas and water law attorney and third-generation South Texas rancher. He and his sister, Pamela Fitzsimons Howard, operate the San Pedro Ranch in Dimmit and Maverick Counties, Texas, raising registered Beefmaster cattle. He and his wife, Blair, have three children, Fay, Jonny and Kate. He has served as Vice-President of the Texas Wildlife Association and is a Director of the Texas and Southwestern Cattle Raisers Association. He is a former Chairman of the Parks and Wildlife Department s Private Lands Advisory Board and, in 1999, was named by then Governor George W. Bush to serve on the Governor s Task Force on Conservation. In May of 2001, Governor Rick Perry appointed Mr. Fitzsimons to the Texas Parks and Wildlife Commission for a six year term, and Mr. Fitzsimons is now a Past Chairman of that agency. In January of 2002, he was named to represent the Texas Parks and Wildlife Commission on the Texas Water Advisory Council, which has the statutory responsibility to advise the Office of the Governor, Speaker of the House and the Lieutenant Governor on issues affecting Texas water policy. In October 2003, Governor Perry appointed him as Chairman. Recently, Governor Perry appointed Mr. Fitzsimons to represent the interest of fish and wildlife on the Environmental Flows Advisory Committee. Chairman Fitzsimons identified environmental flow as a priority for his term on the Committee, and continues to work to ensure water for wildlife. Representative Oil, Gas and Mineral Experience Representation of mineral trust in the negotiation of Geophysical Survey Agreement, Option and Right of First Refusal Agreement, Surface Use Agreements, and Oil and Gas Lease on over 53,000 mineral acres in Dimmit and Maverick Counties. Representation of mineral owners in matters pertaining to Oil and Gas Lease in Robertson County, Texas, considered to be one of the most productive natural gas leases in the continental United States during the past decade. Representation of numerous royalty owners and landowners in complex oil and gas litigation and oil and gas lease negotiations and audits. Representation of landowners in negotiation of Surface Use Agreements and Oil and Gas Leases on over 44,000 acres in Zavala County. Representation of landowners in litigation involving the termination of a Pipeline Easement covering 35,000 acres in LaSalle and Webb Counties, resulting in settlement favorable to client. Representation of non-profit landowner in the negotiation of Geophysical Survey Agreements, Surface Use Agreements, and Oil and Gas Leases on over 10,000 acres in Val Verde and Crockett Counties. Representation of numerous landowners in Oil and Gas Lease negotiations, as well as litigation involving the termination of easements, in the Lobo gas trend of Zapata County. Representation of landowners in negotiation of in-situ Uranium Mining Leases in Bee and Duval Counties. Representation of owners of water rights in matters before the Texas Commission on Environmental Quality and various water districts, as well as in the purchase and sale of water rights. {8010\001\ DOC;1 }

4 Professional Qualifications Admitted: State Bar of Texas, Education: Deerfield Academy; Lewis and Clark College (B.A., History 1979); University of Texas School of Law (J.D. 1985). Awards, Honors and Leadership Positions Texas Wildlife Association (Vice-President). Texas and Southwestern Cattle Raisers Association (Director). Parks and Wildlife Department s Private Lands Advisory Board (Chairman). Governor s Task Force on Conservation. Texas Parks and Wildlife Commission (Past Chairman). Texas Water Advisory Council (Past Chairman). Environmental Flows Advisory Committee. Conservation Awards Fort Worth Star Telegram, 1997 Farm and Ranch Awards for Resource Management Environmental Stewardship Award for Innovative Management of Natural Resources Wildlife Conservation Award, Texas Chapter of the Wildlife Society Soil and Water Conservation Districts of Texas Conservation Rancher of the Year Rangeland Stewardship Award, Society for Range Management Environmental Stewardship Awards, National Cattleman Beef Association. {8010\001\ DOC;1 }

5 TABLE OF CONTENTS I. INTRODUCTION... 1 II. GROUNDWATER... 1 A. Ownership The Common Law Statutory Law... 2 B. Groundwater and the Oil and Gas Lease The Implied Easement Limitations on the Implied Easement... 3 a. reasonable use and the accommodation doctrine... 4 b. The use must not benefit off lease tracts Landowner Solutions... 5 C. Groundwater Conservation Districts Overview Exceptions Landowner issues Landowner Solutions... 9 D. Purchase or Lease of Groundwater... 9 III. SURFACE WATER... 9 A. State Water Texas Prior Appropriation Doctrine Exceptions to Permitting Purchase or Lease of Permits Other Sources of Surface Water a. Texas Water Bank b. Irrigation Districts and Canal Companies B. Diffused Surface Water C. Developed Water and Beds-n-Banks Permits D. Federal Regulation of Surface Water IV. CONSERVATION AND BEST MANAGEMENT PRACTICES A. Agricultural Best Management Practices General BMPs a. Irrigation Scheduling b. Volumetric Measurement of Irrigation Water Use c. Conservation Tillage d. Irrigation Audits Land Management Systems a. Furrow Dikes b. Land Leveling c. Contour Farming d. Conversion of Supplemental Irrigated Farmland to Dry-Land Farmland e. Brush Management f. Lining of On-Farm Irrigation Ditches g. Replacement of On-Farm Irrigation Ditches with Pipelines h. Low Pressure Center Pivot Sprinkler Irrigation Systems i. Drip/Micro-Irrigation Systems j. Linear Move Sprinkler Irrigation Systems B. Grazing/Rangeland Best Management Practices a. Livestock Exclusion and Fencing b. Alternate Water Supplies and Artificial Shade c. Vegetation Management i

6 C. Other Conservation Techniques Conservation Easements Appropriation of Water for Instream Uses V. CONCLUSION ii

7 WATER USE AND CONSERVATION: A LANDOWNER S PERSEPCTIVE I. INTRODUCTION There are few things more valuable to Texas landowners than water. Apart from domestic necessity, water is sine qua non for most beneficial uses of land, such as agriculture, grazing, wildlife management activities, and oil and gas development. But as water demand steadily increases as supply drops, landowners face some challenging questions, the most urgent of which are 1) how to acquire water; and 2) how to use any water acquired in an economic manner that conserves a finite resource while protecting future water quality and supply. This paper attempts to give a cursory answer to these questions. This paper is divided into three main sections. The first two deal with how to get water, and cover ownership and regulation of groundwater and surface water respectively. 1 The final section outlines conservation and best management practices a landowner can employ once the water has been acquired. 2 II. GROUNDWATER In Texas, groundwater is defined as water percolating below the surface of the earth. 3 Tex. Water Code (5). Texas groundwater resides in 9 major, 21 minor, and countless smaller aquifers, scattered throughout the state. In many dry parts of Texas, groundwater is relied on almost exclusively to meet all water needs. However, groundwater supply is not infinite, and some aquifers, such as the Ogallala, which supplies the panhandle with 91 percent of its water, do not recharge. To acquire groundwater, a landowner can either produce their own, subject to the limitations discussed in this section, or buy or lease rights from others. With various entities and individuals scrambling for a share in the aquifers, 1 While intimately connected in the hydrological cycle, Texas law continues to treat surface water and groundwater as if they existed independently of one another. 2 This paper is written primarily for the agricultural and rangeland landowner, and attempts to address the most important water issues from that perspective, but most of the first 2 sections have a general application. 3 Groundwater makes up only three-quarters of 1 percent of the total volume of fresh and saltwater found in nature but it makes up nearly 97 percent of the fresh water readily available on earth for consumption. Gabriel Eckstein and Amy Hardberger, Scientific, Legal, and Ethical Foundations for Texas Water Law, in Essentials of Texas Water Resources (Mary K. Sahs ed., 2009). 1 landowners need to know their rights, and what they can do to help preserve and conserve this important resource. A. Ownership In Texas, a landowner is absolute owner of all groundwater beneath the land, and can drill a well and pump as much water as the landowner can use, subject only to the rule of capture 4, the common law restrictions against waste and subsidence, 5 and where applicable, regulation by Groundwater Conservation Districts. There has been great debate of recently over the exact nature of the landowner s absolute ownership, 6 spurred in large part by the question of Groundwater Conservation District regulation, which is discussed below. 7 From a conservation standpoint, this debate is strange in a way. If a landowner does not own his groundwater, what motivation is there to preserve or conserve it? A usufructory right encourages only production not conservation. This debate has not been settled as of the date of this article, though the common law, and now statutory law, 4 The doctrine of absolute ownership is often hopelessly confused with the rule of capture. The Texas rule of capture does not equate with the English doctrine of ferae naturae, which applies only to unowned or abandoned property. The Texas rule of capture is simply a limitation on absolute ownership, as it allows a neighboring landowner to drain water from beneath the landowner s tract. Under the [Texas] rule of capture, a person owns all of the oil and gas [or water] produced by a well bottomed on his own land, even though the well may be draining the substances from beneath other property. Further, the rule of capture denies the landowner whose property is being drained any judicial remedy. Thus, the rule as developed was a doctrine of nonliability for drainage, not a rule of property. 1 ERNEST E. SMITH & JACQUELINE LANG WEAVER, TEXAS LAW OF OIL & GAS 1.1(A) (2d ed. 2007). 5 Though the doctrine of waste exists now more in theory than in actual practice. See City of Corpus Christi v. City of Pleasanton, 276 S.W.2d 798 (Tex. 1955). For the subsidence exception, see Friendswood Development co. v. Smith-Southwest Industries, Inc., 576 S.W.2d 21 (Tex. 1978), stating that for the exception to apply there must be future subsidence proximately caused by future withdrawals of ground water from wells which are either produced or drilled in a negligent manner. Id at The debate usually focuses on whether or not a landowner s ownership of groundwater is vested in the ground, or vested upon production. If the landowner does not have a vested interest in groundwater in the ground, then it can be regulated and taken with impunity. Or so goes the theory. 7 See generally, Marvin W. Jones and Andrew Little, The Ownership of Groundwater in Texas: A Contrived Battle for State Control of Groundwater, 61 Baylor L. Rev. 578 (2009).

8 recognizes the rights of a landowner to their groundwater. 1. The Common Law For more than a century, Texas courts have recognized landowners absolute ownership of groundwater beneath their property. The Texas Supreme Court first announced the rule in Houston & Texas Railway Co. v. East, 8 and stated An owner of soil may divert percolating water, consume or cut it off, with impunity. It is the same as land, and cannot be distinguished in law from land. So the owner of the land is the absolute owner of the soil and of percolating water, which is a part of, and not different from, the soil. 9 In the time since East was decided, Texas courts have revisited groundwater ownership many times, and have consistently upheld the ruling in East. 10 This common law doctrine was even recognized by Chapter 36 of the Texas Water Code, Tex. 146, 81 S.W. 279 (Tex. 1904). 9 Id at In 1927 the Court wrote Groundwater is the exclusive property of the owner of the surface and subject to barter and sale as any other species of property. By 1978, the Court in Friendswood Development Co. v. Smith-Southwest Industries, Inc. 576 S.W.2d 21 (Tex. 1978) could state with long authority that The Court [has] adopted the common law rule that [water] rights are not correlative, but are absolute, and thus are not subject to the conflicting reasonable use rule, and [groundwater property rights] established by East have become an established rule of property in this State, under which many citizens own land and water rights. The rule has been relied on by thousands of farmers, industries, and municipalities in purchasing and developing vast tracts of land overlying aquifers of underground water. Id. at 29. See also, City of Sherman v. Pub. Util. Comm n, 643 S.W.2d 681, 686 (Tex. 1983) ( The absolute ownership theory regarding groundwater was adopted by this Court in [East] ). The East ruling was reaffirmed again in 1984 in Moser v. United States Steel Corp, 10 when the court ruled that groundwater belongs to the surface estate as a matter of law. Texas courts have also ruled that because the landowner owns groundwater as a real property interest, a landowner can sever groundwater from the surface by a reservation in a deed. See City of Del Rio v. Clayton Sam Colt Hamilton Trust, 269 S.W.3d 613 (Tex.App. San Antonio, 2008, pet denied) ( Under the absolute ownership theory, the Trust was entitled to sever the groundwater from the surface estate by reservation when it conveyed the surface estate to the City of Del Rio ); Fain v. Great Springs Waters of Am., Inc., 973 S.W.2d 327, (Tex.App. Tyler 1998) (holding that groundwater can be severed from the surface estate). 11 Chapter 36 of the water code, which governs the creation and power of groundwater districts, provides: OWNERSHIP OF GROUNDWATER. The ownership and rights of the owners of the land and their lessees and assigns 2 which the Texas Supreme Court stated confirms private rights in underground water. 12 The long line of cases have been summed up with an apt quote from one commentator: The rule of capture has been applied to groundwater in Texas for over a century, and landowners do have rights in the water beneath their property, and constitutional protections do apply to those rights. The only surprise is that anyone could, in this last century at least, still seriously contest these truths. 13 However, the Supreme Court has continued to dance around the issue of whether or not such ownership interest is vested, 14 leaving open questions regarding regulation and takings. 2. Statutory Law In response to the debate over landowner ownership in groundwater, and continuous regulatory encroachment by the GCDs, the Texas legislature passed Senate Bill 332. S.B. 332 amended Section of the Water Code to read, in part, as follows: OWNERSHIP OF GROUNDWATER. (a) The legislature recognizes that a landowner owns the groundwater below the surface of the landowner s land as real property S.B. 332 also reaffirmed the rule of capture, and the ability of Groundwater Conservation Districts to regulate groundwater. However, this effort by the legislature has not completely clarified the situation, nor has it ended the debate. Early drafts of the bill stated the landowner had a vested interest in the groundwater below the surface 15. The word vested was eventually eliminated and replaced with as real property, a distinction without a real change in meaning. Real property must always be vested somewhere, and if the groundwater in place is not in groundwater are hereby recognized, and nothing in this code shall be construed as depriving or divesting the owners or their lessees and assigns of the ownership or rights, except as those rights may be limited or altered by rules promulgated by a district. Tex. Water Code Ann (Vernon 2011). 12 Friendswood, 576 S.W.2d at 27; City of Sherman 643 S.W.2d at 686. aff d sub nom., Sipriano v. Great Spring Waters of Am, Inc., 1 S.W.3d 75, 82 (Tex. 1999). 13 Marvin W. Jones and Andrew Little, The Ownership of Groundwater in Texas: A Contrived Battle for State Control of Groundwater, 61 Baylor L. Rev. 578, They currently have another chance to address the ownership issue. Edwards Aquifer Authority v. Day, 274 S.W.3d 742 (Tex.App. San Antonio, 2008 pet granted) ruled that Appellants vested right in the groundwater beneath their property is entitled to constitutional protection. However, in keeping with precedent, it is likely the issue will not be directly addressed. 15 The author was among those who testified for its inclusion.

9 vested in the landowner, then where is it vested? If the water in place is vested in the State, then what does the landowner have? A RAP defying springing executory interest in groundwater? This novel and unsupported concept has no basis in Texas law, and it is clear that any serious interpretation of S.B. 332 gives landowners a vested fee simple right to groundwater in place, though it is still too soon to judge the effects of the bill. B. Groundwater and the Oil and Gas Lease Oil and gas development has the potential to bring a mineral owning landowner great profit, but a lease signed in haste without the benefit of a surface use agreement can have disastrous consequences. In Texas the mineral estate is dominant over the surface estate, and carries with it an implied easement to unlimited use of any surface estate resource, including water, needed to reasonably develop the minerals. This section outlines the hardships that can result when provisions for surface and water use are not included in a lease, and provides some advise on how to avoid these results. 1. The Implied Easement Because the oil and gas lessee s estate is the dominant estate, the lessee has an implied grant, absent an express provision for payment, of free use of such part and so much of the premises, including the surface estate, as is reasonably necessary to effectuate the purposes of the lease, having due regard for the rights of the owner of the surface estate. This includes water, as water is part of the surface estate and owned absolutely by the surface owner. Humbel Oil & Refining Co. v. Williams, 420 S.W.2d 133 (Tex. 1967); Warren Petroleum Corp. v. Martin 153 Tex. 465, 271 S.W.2d 410 (1954). The rights implied from the grant are implied in law in all conveyances of the mineral estate and, absent an express limitation thereon, are not to be altered by evidence that the parties to a particular instrument of conveyance did not intent the legal consequences of the grant. Sun Oil Co. v. Whitaker, 483 S.W.2d 808 (Tex. 1972). The implied grant of reasonable use extends to and includes the right to use water from the leased premises in such amount as may be reasonably necessary to carry out the lessee s operations under the lease. 16 This holding has been reiterated by many 16 Water, unsevered expressly by conveyance or reservation, has been held to be a part of the surface estate. However, that decision expressly recognized the right of the oil and gas lessee to drill water wells on said land and to use water from such wells to the extent reasonably necessary for the development and production of such minerals. Sun Oil at Texas cases. 17 An important point for landowners is that the courts have also stated that if the lessee s reasonable use excludes or impinges upon the use of the surface owner, then the dominant (mineral) estate will prevail. Since the lessee was the owner of the dominant estate he had the right to use so much of the premises as was reasonably necessary to the exclusion of the lessor in order to carry out the purposes of the mineral grant. James G. Brown et al v. Martha Lundell et al 162 Tex. 84, 344 S.W.2d 863 (Tex. 1961) (italics added). The implied easement to use as much water as necessary does not have to be expressly reserved. It is a part of the mineral estate, and passes automatically with any conveyance of the mineral estate unless expressly withheld Limitations on the Implied Easement There are a few common law exceptions to the implied easement, but they are narrow in scope and difficult to secure. They are outlined below, but a landowner should never rely on any of these exceptions to protect their water interests. 17 See, e.g., Ball v. Dillard, 602 S.W.2d 521, 523, 23 Tex. Sup. Ct. J. 457 (Tex. 1980) ( The granting of a mineral estate would be worthless if the grantee could not enter upon the land to explore for and extract the minerals granted. ); Ottis v. Haas, 569 S.W.2d 508, 513 (Tex. Civ. App. Corpus Christi 1978, writ ref d n.r.e.) (holding that a surface owner had no legal right to deny the mineral lessee access to the land for mineral development); Guffrey v. Stroud, 16 S.W.2d 527, 528 (Tex. Comm n App. 1929, judgm t adopted) ( in absence of express reservation to surface owner, mineral estate owner may use surface water or groundwater to the extent necessary to the enjoyment of the mineral estate ). One of the most recent cases is Stanley H. Rosenthal v. R.R. Comm n of Tex., 2009 Tex. App. LEXIS 6522, pet denied. [groundwater], which has been held to be part of the surface estate, is subject to the mineral leasehold estate s right to use the groundwater to the extent necessary for the enjoyment of the mineral estate. 18 As the court in Chambers-Liberty Counties Navigation District v. David A. Banta, et al, stated, The reservation in the trial court s judgment expressly reserves unto the [lessees] the right of ingress and egress for the purpose of or incidental to the exploration, development, production, and transportation of such oil, gas and other minerals. We construe this right of ingress and egress as being a mere statement of [lessee s] common law right to the reasonable use of the surface estate. The right of ingress and egress for the expressed purposes adds nothing to the common law right, nor do we construe such right of ingress and egress as being a limitation upon the common law right. 453 S.W.2d 134 (Tex. 1970).

10 a. reasonable use and the accommodation doctrine Texas courts have stated that while the mineral estate has an implied right to use the surface, including groundwater, this right must be exercised reasonably and with due regard to the rights of the owner of the surface. The rule of reasonable use has two distinct, though closely related, parts: (1) a prohibition against negligence and waste, and (2) what is known as the accommodation doctrine The first part of the reasonable use doctrine prohibits the lessee from negligent and wasteful operation of the surface estate. 19 If the lessee negligently and unnecessarily damages the lessor s land, including the lessor s water, the lessee s liability to the lessor is no different from what it would be under the same circumstances to an adjoining landowner. and the lessee can use only so much of the lessor s land as is reasonably necessary to effectuate the purpose of the lease, and to be used in a non-negligent manner. Id. 20 The burden of proof is on the party claiming that the use is unreasonable. 21 Therefore it is technically possible for a lessee to be liable for damages if the lessee produces more water than necessary for operations, or otherwise damages the wells or aquifer, but the landowner has the heavy burden (and by heavy, read impossible) of proving unreasonable use. The second part of the rule of reasonable use states that in certain circumstances a surface owner s 19 As the Texas supreme court stated, We agree that the owner-operator of the lease has the right to use so much of the land, both surface and subsurface, as is reasonably necessary to comply with the terms of the lease contract and to carry out the purposes and intentions of the parties. It does not follow, however, that the operator may use either the surface or the subsurface in a negligent manner so as to damage the landowner. Lundell, 334 S.W.2d at 87 (italics added). 20 See also, R.O. Robbinson v. Robbins Petroleum Corp., Inc., 501 S.W.2d 865 (Tex. 1973) ( the mineral lessee holds the dominant estate, and as such has the right of ingress and egress upon the land, but in doing so he must not make an unreasonable use of the surface. If he does he can be held accountable in damages. ). 21 A person who seeks to recover from the lessee for damages to the surface has the burden of alleging and proving either specific acts of negligence or that more of the land was used by the lessee than was reasonably necessary. Oryx Energy Co., 942 S.W.2d at 641 citing Humble Oil & Refining Company v. Williams, 420 S.W.2d 133, 134 (Tex. 1967). See also, Pharaoh Oil & Gas, Inc., v. Ranchero Esperanza, Ltd. 343 S.W.3d 875 (Tex. App. El Paso, 2011, no pet) ( The burden is on the plaintiff to adduce evidence that the actions of an oil and gas operator were not reasonably necessary ). 4 prior use of the surface trumps the lessee s implied easement. While the dominant mineral estate has the right to use the surface estate to produce minerals, this right is to be exercised with due regard for the rights of the surface owner. This concept of due regard, known as the accommodation doctrine, was first articulated in Getty Oil Co.v. Jones, 470 S.W.2d 618, 621 (Tex. 1971). The doctrine states that Where there is an existing use by the surface owner which would otherwise be precluded or impaired, and where under the established practices in the industry there are alternatives available to the mineral owner whereby the minerals can be recovered, the rules of reasonable usage of the surface may require the adoption of an alternative by the mineral owner. 22 Tarrant County Water Control & Improvement Dist. No. 1 v. Haupt, Inc., 854 S.W.2d 909, 911 (Tex. 1993). However, the accommodation doctrine is limited to situations in which there are reasonable alternative methods that may be employed on the leased premises to accomplish the purposes of the lease. Sun Oil Co. v. Whitaker, 483 S.W.2d 808, 812 (Tex. 1972). This means that a lessee can drain a surface owner s water wells, even if the surface owner had a prior use that would be destroyed by lack of water, and the lessee could obtain off lease water cheaper and more easily. Sun Oil stated very clearly that a lessee can use as much groundwater as needed without having to accommodate the surface owner by buying water from off the lease. Id. 23 However, there have been a few steps forward in landowner protection under the accommodation doctrine, such as in Tarrant County Water Control and Improvement District Number One v. Haupt, Inc., 854 S.W.2d 909 (Tex. 1993) and Valence Operating Company v. Texas Genco, LP, 255 S.W.3d 210 (Tex.App. Waco 2008, no pet) in which the accommodation doctrine was expanded from the protection of existing uses of the surface owner to planned future uses of the surface owner. But although the courts might be slowly expanding the accommodation doctrine, landowners should never rely on it exclusively to protect them from the implied easement. 22 However, the surface owner must have no other alternative surface use available- mere inconvenience is not enough- See Meriman v. ETO Energy, Inc. No CV, 2011 WL (Tex.App. Waco May 11, 2011, no pet.)(mem.op.)( the convenience of the surface owner is not the sole issue. ). 23 See also Valence Operating Company v. Texas Genco, LP, 255 S.W.3d 210 (Tex.App. Waco 2008, no pet) (refusing to expand accommodation doctrine to embrace off lease accommodations).

11 b. The use must not benefit off lease tracts Texas courts have ruled that lessees cannot use water from a piece of land to benefit off lease lands under the implied easement, absent express contractual permission. In R.O. Robinson v. Robbins Petroleum Corp., Inc., 501 S.W.2d 865 (Tex. 1973) the owner of a piece of land entered into an oil and gas lease and then sold the surface to a third party, subject to the lease. The lessee then pumped water from the surface owner s land for use in a large waterflooding unit. The surface owner sued. The court stated that [the owner of the surface] is entitled to protection from uses thereof, without his consent, for the benefit of owners outside of and beyond premises and terms of the lease. Id. at 868. The court went on to state that if permission to use water off site had been in the lease or pooling agreement, the use would have been allowed. 24 However, in cases where the surface owner acquired his interest before the mineral owner entered into a lease, a provision in the lease or pooling clause might not be adequate, as there would be no privity with the surface owner. Because the surface owner is the absolute owner of the groundwater, subject only to the right to reasonable use, in such situations the lessee would have to contract directly with the surface owner in order to use water for acreage in a pooled unit or otherwise off the lease. If the lessee failed to get such an agreement, the surface owner would be entitled to recover the value of that portion of the water which has been consumed for the production of oil for owners of lands outside the lease. Id. 3. Landowner Solutions If the landowner is also owner of the mineral estate, or holds the executive right, the problems associated with oil and gas development can be entirely avoided by a surface use agreement that includes specific water provisions. The agreement should state that all water rights are reserved, and that no water well can be drilled on the property without consent. The agreement should provide for a payment structure per barrel of water used from any allowed well. The agreement should also prohibit the lessee from using water off lease, and should charge for water imported from off lease. The surface use agreement should also prohibit salt water injection wells and provide for adequate disposal of hazardous waste materials. If the landowner does not own the mineral estate, they are at the mercy of the mineral owner and the 24 Nothing in the... lease or the reservation contained in Robinson s deed authorized the mineral owner to increase the burden on the surface estate for the benefit of additional lands. Id. 5 lessee. A landowner should never rely on the common law exceptions to the implied easement for protection, but should do everything in their power to convince the mineral owner to include a surface use agreement or water provision in the lease. Or better yet, the landowner should enter into a covenant with the mineral owner stating that if the mineral owner ever leases the land, they will include a surface use agreement in the form attached. Consideration is necessary to make it enforceable, but in most instances the cost will be well worth it. If the property is already leased, it comes down to the landowner s negotiating skill with the lessee. Most lessees will work with the surface owner up to a point, but when the lease has been signed the landowner has little if any leverage. At that point wrestling concessions from a lessee who has free, unlimited water from the surface estate is a Sisyphean task, to say the least. Landowners, if you don t own your minerals, here is some sound advice: find out who does, then make some new friends. C. Groundwater Conservation Districts 1. Overview Groundwater Conservation Districts ( GCDs ) are authorized under section 59, article XVI, of the Texas Constitution 25, and are governed by Section 36 of the Texas Water Code. 26 The first GCD was created in 1951, and there are currently 97 GCDs operating in Texas, each with unique rules and permitting requirements. The Water Code gives each GCD power to conserve, preserve, and protect groundwater; to recharge groundwater resources and prevent waste; and to control subsidence. Tex Water Code While GCD do not technically alter the rule of absolute ownership, they impose government regulation over groundwater, which can restrict a landowner s ability to drill wells and produce water. 27 If the landowner 25 Tex. Const. art. XVI, 59(b) There may be created within the State of Texas, or the State may be divided into, such number of conservation and reclamation districts as may be determined to be essential to the accomplishment of the purposes of this amendment to the constitution, which districts shall be governmental agencies and bodies politic and corporate with such powers of government and with the authority to exercise such rights, privileges and functions concerning the subject matter of this amendment as may be conferred by law. 26 See Tex. Water Code ( Groundwater conservation districts created as provided by this chapter are the state's preferred method of groundwater management through rules developed, adopted, and promulgated by a district in accordance with the provisions of this chapter. ). 27 [GCD regulations] are conceptually similar to zoning regulation. Zoning does not prohibit a landowner from using the land, but it may restrict the activities the landowner may conduct on that land. Mark McPherson, Frac Me With

12 does not follow the GCD s rules, they can be subject to staggering civil penalties 28 and suit by neighboring landowners for damages due to illegal drainage. 29 Until recently, each GCD was subservient to the state water planning process, and each GCD plan had to be approved by the Texas Water Development Board (TWDB), and consistent with the regional water plan. S.B. 1 (1997). However, in 2005 the 79 th legislative session passed H.B. 1763, which radically changed the relationship of GCDs with each other and with the TWDB. Each GCD is now part of one of the 16 Groundwater Management Areas ( GMA ) in Texas, created by the TWDB to facilitate the management of the state s groundwater resources. The officers or representatives of each GCD in a GMA must meet annually to conduct joint planning and to review groundwater management plans and accomplishments in the groundwater management area. At these meetings, each GMA then comes up with Desired Future Conditions ( DFCs ) for each aquifer in the GMA 30, which the TWDB defines as The desired, quantified condition of groundwater resources (such as water levels, water quality, spring flows, or volumes) for a specified aquifer within a management area at a specified time or times in the future... as defined by participating groundwater conservation districts within a groundwater management area as part of the joint planning process Tex Admin. Code 356.2(8). The DFC statements are then submitted to the TWDB, which uses them to compute the Managed Available Groundwater ( MAG ) for each GCD. MAG is defined as the amount of water that may be permitted by a district for beneficial use in accordance with the desired future condition of the aquifer established through joint planning in each groundwater management area. Tex. Water Code (25). This: The Challenges of Obtaining Water for Production 28 th Annual Advanced Oil, Gas and Energy Resources Law Course (2010). 28 A GCD may set reasonable civil penalties for breach of any rule of the district, not to exceed $10,000 per day per violation, and each day of a continuing violation constitutes a separate violation. Tex. Water Code (b). 29 Tex. Water Code (a)(2). See also, City of Amarillo v. Premium Standard Farms, Inc., No CV, 2007 WL (Tex. App. Amarillo July 24, 2007, no pet.). 30 See Tex Water Code In essence, a desired future condition is a management goal that captures the philosophy and policies addressing how an aquifer will be managed. What do you want your aquifer to look like in the future? Robert E. Mace, et al, A Streetcar Named Desired Future Conditions: The New Groundwater Availability for Texas 7 th Annual the Changing Face of Water Rights in Texas (2006). 6 The GCD must use the MAG in implementing its groundwater management plan ( GMP ), and must include estimates of the MAG available, the amount being used, the amount of recharge, and the projected water supply and demand. Tex.Water Code (h). H.B and the concept of DFCs and MAGs have switched the relationship of GCDs and the regional planning groups. Now the GCDs have the ultimate authority, and the regional planning groups must accommodate the districts by basing their plans on the MAG. 32 GCD control of planning can have adverse impacts on landowners, as will be discussed below. While the specific rules of each GCD can vary significantly, GCD powers fall into three broad categories: planning; data collection and dissemination; and well regulation. Well regulation is the most troubling for a landowner, and is accomplished, in the main, by imposing permitting requirements, and spacing/production limitations on production of groundwater 33. Before discussing these methods in depth, a few exceptions should be noted. 2. Exceptions All GCDs must require a permit for the drilling, equipping, operating, or completing of wells or for substantially altering the size of wells or well pumps. 34 And no one may drill, alter, or operate a well without first obtaining a permit from the GCD. Tex. Water Code However, the Water 32 Senate Bill 660, passed this past legislative session also allows each GMA that overlaps a regional planning district to be represented by a voting member in the regional planning district 33 See Marvin W. Jones, Dealing with Groundwater Districts, 33 rd Annual Advanced Real Estate Law (2011) ( Most districts impose some sort of limitation... Panhandle GCD, for example, imposes a limitation of 1 acre feet per acre per year. At the other end of the spectrum, Llano Estacado UWCD s production limit is acre feet per acre per year. ) 34 Michael Booth et al Chapter 36 Groundwater Conservation Districts and Subsidence Districts in Essentials of Texas Water Resources (Mary K. Sahs ed., 2009). 35 The GCD considers many different factors in deciding whether to issue a permit, such as whether (1) the application conforms to the requirements prescribed by chapter 36 of the Texas Water Code and is accompanied by the prescribed fees; (2) the proposed use of water unreasonably affects existing groundwater and surface water resources or existing permit holders (3) the proposed use of water is dedicated to any beneficial use; (4) the proposed use of water is consistent with the district s certified groundwater management plan, (5) the applicant has agreed to avoid waste and achieve water conservation (6) the

13 Code provides for two important exemptions from the permitting process. First, a GCD must exempt wells that are used solely for domestic purposes or for providing water for livestock or poultry, if the property is greater than 10 acres and the well is incapable of producing more than 25,000 gallons of water a day. Tex. Water Code (b)(1). This allows landowners to bypass the sometimes rigorous permitting process for most home and farm uses. However, landowners should be aware that if they begin selling water to oil and gas producers, or otherwise use the water in a manner not covered by the exemption, the GCD can demand the well be permitted or impose civil penalties on the landowner. The landowner should also consult the rules of their water district, as the GCD is free to promulgate more liberal exceptions. 36 The second exemption is the oil and gas exemption, and has been the source of some controversy. 37 The exemption states that chapter 36 of the Water Code does not apply to the drilling of a water well used solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well permitted by the Railroad Commission of Texas.... Tex Water Code (b)(2). This exception on its face exempts only wells that are used solely to supply a rig that is actively engaged in drilling. It would seem not to apply to any post drilling activity, or situation in which the operator is sharing water from the well with a landowner. Also, specifically states that a GCD cannot limit production from a well exempt under the domestic/livestock exception, but has no similar provision for the oil and gas exemption. This suggests that even though the oil and gas water wells may be exempt from permitting, they are not exempt from spacing and production limitations. However, this issue has yet to be addressed. 3. Landowner issues GCDs pose serious threats to the water rights of landowners who live within them 38, especially under applicant will plug. Tex. Water Code (d)(1)-(4). With all permits, the applicant is entitled to a hearing. Tex Water Code For instance, the Edwards Aquifer Authority s domestic/livestock exception does not include an acreage requirement. 37 For an in depth discussion see Mark McPherson, Frac Me With This: The Challenges of Obtaining Water for Production 28 th Annual Advanced Oil, Gas and Energy Resources Law Course (2010). 38 Landowners in the so called white areas can still withdraw with relative impunity, but the expansion and creation of GCDs continues, and landowners who live 7 the expanded power granted in H.B These problems stem from the expansive power granted to GCDs in determining the DFC of an aquifer, and the inherently reactive and politicized nature of GCDs in general. 39 GCDs are free to set their DFC in any manner they see fit, usually with the intent to minimize future withdrawals and preserve the status quo of the aquifer. Once the DFC is sent to the TWDB, the TWDB must return a MAG computed on that DFC, basically giving the GCD the power to set their own MAG. Section of the Water Code states a district, to the extent possible, shall issue permits up to the point that the total volume of groundwater permitted equals the managed available groundwater. Taken together, this means that GCDs in a GMA can set their own MAG via DFC, then refuse to issue any new permits once the MAG has been reached. More troubling still is the power given by Section (b) which states, [GCDs] may preserve historic or existing use before the effective date of the rules to the maximum of extent practicable. GCDs use this provision to grandfather in existing uses, usually defined by an arbitrary date set by the GCD. 40 These existing uses can effectively eat up the entire MAG, leaving no room for new users, or landowners who have failed to continuously use their groundwater resources. In fact, one commentator has compared the current situation to an expost facto prior appropriations regime. 41 This protectionism is to be expected when independent political subdivisions are left to fend for their own interests without any kind of overarching authority or check. Another looming issue for landowners is the oil and gas exception. Water outside a GCD are already endangered, and may soon be extinct. 39 See Russell S. Johnson, Groundwater Issues Affecting Property Owners in Texas, 4 th Annual John Huffaker Agricultural Law Course (2010) Nearly every new resident in the pristine hill country in central Texas, upon becoming a resident, immediately desires that the influx of urbanites to the country stop. The desired future condition is that the hill country not change for the foreseeable future. There is an inherent objection or resistance to change, particularly when the change necessarily has an impact on an existing situation. Put another way, districts are reluctant to adopt desired future conditions substantially different than current conditions. 40 See e.g., Guitar Holding Co. v. Hudspeth County Underground Water Conservation District No. 1, 263 S.W.3d 910 (Tex. 2008). 41 Most groundwater districts intend to apply a permit cap, and create a prior appropriation system expost facto. In short, without knowing it, landowners will either be awarded some of the available production based on previous use and other landowners who conserve the resource will be forever foreclosed from using groundwater. Id. at 7.

14 produced from exempt wells is still counted against the MAG. If it turns out that GCDs cannot limit production from exempt oil and gas water wells, which is still an open question, then in areas of high oil and gas development these exempt wells could quickly run through any portion of the MAG not already given over to historic uses, leaving landowners high and dry. Are there defenses for the landowner? A landowner can challenge the reasonableness of the DFC, but if the landowner does not prevail they must pay the GCD s attorneys fees 42, and even if successful, cases have shown that the TWDB can only issue a recommendation, and has no authority to actually change the DFC 43. However, new laws passed last legislative session suggest that petitions may be easier and more effective in the future, but whether that is true remains to be seen. 44 There have been a few constitutional challenges to GCD action in the recent past, with mixed results. In Barshop v. Medina County Underground Water Conservation District, 925 S.W.2d 618 (Tex. 1996), various plaintiffs challenged the Edwards Aquifer Authority Act, which limited withdrawals from the Edwards Aquifer to 450,000 acre-feet per year. The plaintiffs claimed that the limitation was a taking of a vested property right without compensation, and facially unconstitutional. The court did not address the issue of whether or not landowners have a vested right in groundwater, and ruled for the defendant, as the Act was not facially unconstitutional because it specifically provided for compensation for any taking. In South Plains Lamesa Railroad, Ltd. v. High Plains Underground Water Conservation District No. 1, 52 S.W.3d 770 (Tex.App. Amarillo 2001, no pet), landowners challenged GCD action that limited production and revoked permits to prevent disproportionate taking. The court ruled for the landowners, stating that GCD must base all their actions on explicit legislative authority. This led to the amendment of the Water Code to grant more specific power to GCDs to modify the rule of absolute ownership. 45 Arguably the most important recent decision from a landowner perspective is Guitar Holding Co. v. Hudspeth County Underground Water Conservation District No. 1, 263 S.W.3d 910 (Tex. 2008). This case revolved around the actions of the Hudspeth County Underground Water Conservation 42 Tex. Water Code (d). 43 See Mesa Water, L.P. v. Texas Water Development Board, Cause No. D-1-GN See Senate Bill Act of May 27, 2001, 77 th Leg., R.S., ch. 966, 2.31, 2001 Tex. Gen. Laws 1880, 1897, eff. Sept. 1, District, which regulates the Bone Spring-Victorio Peak Aquifer. After entering into negotiations to sell water from the district to El Paso, the Hudspeth WCD developed a new management plan that limited groundwater withdrawals to 63,000 acre-feet per year. It then exclusively granted this permitted water to historic users who had been producing water during the past 10 years, giving them the sole right not only to continue the historic use, but to begin new uses, such selling water out of district to El Paso. The Guitar family sued, claiming their water had been taken, and the district s actions were ultra vires. The court agreed, and ruled that while the Water Code gives the GCD the power to protect historic uses, the GCD must treat all permits for new uses equally, and cannot give a perpetual franchise to historic users to sell water. The court stated the District s transfer rules, in essence, grant franchises to some landowners to export water while denying that right to others. Because the limitations are not uniformly applied to these new applications and are not necessary to protect existing use, the District s transfer rules exceed the statutory authorization and are thus invalid. Id. at 918. The Guitar case is a small victory for landowners outside the circle of the GCD oligarchy, but is of little help if the MAG has already been met and no new water can be permitted. However, these cases leave unanswered basic questions of ultimate water ownership, and the extent a GCD can regulate before such regulation becomes an unconstitutional taking, giving little insight to the landowner. Some of these questions may be answered by a case currently pending before the Supreme Court. Edwards Aquifer Authority v. Day, 274 S.W.3d 742 (Tex.App. San Antonio, 2008, pet granted), is an interesting and frustrating case that raises several concerns for landowners. In Day, the landowners applied for a groundwater permit from the Edwards Aquifer Authority. Under the Edwards Aquifer Act, the landowners were entitled to the amount of water they could show was put to beneficial use on the property during any calendar year during the historical period between June 1, 1972 and May 31, During the historical period, landowner s predecessors had an artesian well in the Edwards Aquifer that produced a steady flow of water that fed into a lake on their property. The lake was also supplied by water from a small stream. The landowners then used water from the lake for irrigation purposes. The landowners applied for a permit based upon this use. The permit as requested was ultimately denied. The landowner sued, claiming its due process rights had been violated, its vested property had been taken without compensation, and argued that the Authority s conclusion that the water withdrawn from the lake was state water was erroneous. The trial court ruled for the landowner on the water issue, and stated that the water withdrawn from the lake was not