On June 27, 2025, the Texas Supreme Court ruled in Cactus Water Services, LLC v. COG Operating, LLC. It declared that produced water is oil & gas waste and therefore belongs to the hydrocarbon lessee i.e. oil & gas operator typically. This landmark decision clarifies that the right to produce oil & gas inherently includes managing its liquid byproducts, unless explicitly reserved by the surface owner. Historically, produced water has been a costly byproduct of oil & gas production, COG for instance, spent ~$21 million for wastewater disposal from its oil & gas operations between December 2018 and March 2021. So why is the right to a waste byproduct stream a contentious topic now?
The answer lies in the escalating demand for critical minerals, such as lithium, which is projected to grow dramatically in the U.S. The growth will be driven by the expansion of electric vehicle (EV) batteries, energy storage solutions, and other clean technologies. The U.S. heavily relies on lithium imports, as the majority of the world’s lithium refining capacity is concentrated in China, followed by Argentina and Chile. This import dependency exposes the U.S. to increased geopolitical risks. Consequently, produced water from oil & gas wells is now being viewed as the next frontier for lithium extraction. Produced water, separated from oil & gas at the surface, contains residual hydrocarbons, production chemicals, inorganic salts (such as calcium and barium sulfites), heavy metals (such as iron, zinc, lead, and magnesium), and, importantly, critical minerals such as lithium.
Exhibit 1 sourced from the U.S. Department of Energy demonstrates concentrations of select critical minerals including lithium (Li), nickel (Ni), cobalt (Co), manganese (Mn), barium (Ba), and magnesium (Mg) in produced water from major shale plays in the U.S. As seen in the exhibit, produced water the Permian and Bakken contains over 10 ppm (parts per million or milligrams per liter) of lithium, while the Appalachia shows significant concentration of manganese. These high concentrations of critical minerals are quickly transforming produced water into a hot commodity.
Exhibit 1. Produced water samples with concentrations of select critical minerals
A natural question arises: are the volumes of produced water and recoverable lithium sufficient to justify the additional costs associated with recovery, transportation, storage, treatment, and lithium extraction? Our research suggests that produced water volumes in the Permian are projected to increase from approximately 8.0 billion barrels in 2024 to between 8.5 and 8.9 billion barrels by 2030. Additionally, as we have previously noted, significant growth in produced water volumes due to aging wells and rapid industry consolidation have created economies of scale for large operators, making lithium extraction from produced water an increasingly attractive prospect. Supporting this, Tetra Technologies, a water management services provider, recently stated that during produced water desalination, a highly concentrated portion becomes available for extracting minerals such as iodine, lithium chloride, lithium carbonate, bromine, calcium chloride, manganese, and magnesium.
Ultimately, although the Cactus Water Services, LLC v. COG Operating, LLC ruling does not address future disputes over new mineral extraction methods or specific royalty arrangements, it carries significant implications for the oil & gas industry that are summarized below:
- First, oil & gas operators now have legal backing, even if currently limited, to pursue critical mineral extraction from produced water, currently classified as a “waste byproduct” of oil & gas production.
- Second, capitalizing on this opportunity will drive increased collaboration and partnerships between oil & gas operators and oilfield services (OFSE) companies, including those specializing in water management, to handle the complex processes of recovery, transportation, storage, treatment, and mineral extraction.
- Finally, both oil & gas operators and OFSEs must invest in and develop new technologies and solutions for efficient produced water treatment and critical minerals extraction where ADI can help them with technoeconomic analyses and benchmarking.
ADI Analytics is closely tracking trends and developments in the Permian and the upstream oil & gas and leverages its findings to help players across the value chain with their needs around market sizing, M&A due diligence, technoeconomic analysis, competitive landscaping, and commercialization and growth strategy.
– Panuswee Dwivedi
About ADI Analytics
ADI is a prestigious, boutique consulting firm specializing in oil and gas, energy, and chemicals since 2009. We bring deep expertise in a broad range of markets where we support Fortune 500, mid-sized and early-stage companies, and investors with consulting services, research reports, and data and analytics, with the goal of delivering actionable outcomes to help our clients achieve tangible results.
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