II. Ownership and Property Rights

The question of who owns lithium, and the royalty interests arising out of DLE, turns on whether the lithium-bearing substance is properly characterized as belonging to the mineral estate or the surface estate. 

a. Severance of the Estates

Since 1862, Texas law has allowed for the severance of the mineral and surface estates.⁸ The fact of severance determines whether certain minerals, and rights and proceeds arising out of those minerals, belong to the mineral estate or the surface estate. In Texas, certain substances like coal, building materials (e.g., clay or caliche), and saltwater are part of the surface estate as a matter of law.⁹ For other subsurface resources, the question under Texas’ legal framework becomes whether the estate severance occurred before June 8, 1983. For severances prior to June 8, 1983, courts apply the “Surface Destruction Test”: if the deposit lies near the surface and any reasonable method of production would destroy or deplete the surface, the substance is part of the surface estate.¹⁰ For severances after June 8, 1983, the “Ordinary and Natural Meaning Test” applies: a severance of the mineral estate includes all substances within the ordinary and natural meaning of “mineral.”¹¹

Under both tests in Texas, lithium would likely be characterized as part of the mineral estate. Certainly, lithium is largely considered to be a “mineral” within the ordinary and natural meaning of the word. And although current lithium extraction methods employed outside of Texas significantly impact the surface, lithium processing in Texas seems positioned to employ DLE at the surface of an existing wellbore, impacting the surface substantially less than traditional extraction methods.

However, the intersection of this framework with Texas water law could quickly muddy the waters, depending on the particular circumstances involved in DLE activities.

b. Brine – groundwater or produced water?

Under Texas law, underground water belongs to the surface owner, regardless of the minerals contained in solution.¹²  

In contrast, produced water generated during oil and gas operations has recently been held to belong to the mineral estate.   In Cactus Water Services, LLC v. COG Operating, LLC, 676 S.W.3d 733 (Tex. App.—El Paso, pet. filed), the El Paso Court of Appeals was asked to decide whether a typical oil and gas lease conveys to the mineral lessee the right to possess and dispose of produced water. The dispute arose when the surface owner entered into leases purporting to transfer “Water”—narrowly defined as water produced through wellbores drilled for hydrocarbon production—covering acreage previously leased to COG for oil and gas operations. The court of appeals ultimately sided with COG, relying on the distinction between “produced water” and “groundwater” under Texas law: “[t]he relevant legal definitions of oil and gas waste include produced water” and “because the Legislature defines produced water as oil and gas waste, it cannot also be groundwater.” The case has been appealed to the Texas Supreme Court.

The Texas Legislature has also addressed produced water ownership. Under Section 122 of the Texas Natural Resources Code, produced water used by or transferred to a person for the purpose of treating it for subsequent beneficial use is the property of that person, until it is transferred again for disposal or use.

Separate from ownership, DLE raises unique accommodation-doctrine issues. For example, in Coyote Lake Ranch v. City of Lubbock, the Texas Supreme Court confirmed that certain surface-estate use obligations exist as between a landowner and a groundwater interest owner. 498 S.W.3d 53 (Tex. 2016). This raises implications for producers seeking to extract lithium from water-bearing reservoirs, particularly if the same acreage is subject to a separate oil and gas lease. The surface owner would need to accommodate use by the dominant mineral estate, and it remains an open question on how Texas courts would employ the accommodation doctrine to resolve disputes regarding such competing use of the surface.

c. Lithium Royalties

Determining the legal status of produced water is just one challenge the expanding DLE industry must face. Establishing the appropriate royalty rates for the extracted lithium remains another obstacle. In Arkansas, for example, the Arkansas Oil and Gas Commission denied companies’ application for a 1.82% lithium royalty in early November, 2024, where landowners had proposed royalty rates of 12.5%, on the basis that the companies should offer higher royalty payouts and more project transparency.¹³  

In Texas, mineral royalty rates range from 12.5% to 25% of the sale of the oil, gas, or other substances under most mineral rights leases.¹⁴ Rates for produced water disposal leases are often below this range, but negotiating the proper royalty rate, especially where leases are entered into with the primary objective of extracting lithium is key. Establishing a market royalty rate for a valuable mineral bound up in produced water, a previously undesirable commodity will take time.

III. Regulatory Framework

a. Texas Railroad Commission

Historically in Texas, most of the water produced with hydrocarbon operations has been disposed of by deep well injection through disposal wells permitted by the Texas Railroad Commission (“RRC”).¹⁵ These wells, or Class II wells, must be permitted by the RRC before construction can begin, and the wells must be cased and cemented so the injected fluids are placed only in designated subsurface areas.¹⁶