Quizzes

Test Your Knowledge of Water Rights and Water Leasing

  1. All water located on the surface belongs to the property (surface) owner.
    TrueExplanation »
    FalseExplanation »

    False. Surface water is divided into two categories: diffused surface water and water in a natural body of water or watercourse. Diffused surface water is water running over the ground after a rain or snow melt but before it enters a natural body of water or watercourse. It belongs to the surface owner if it can be captured. Once the water enters a lake or watercourse, the water belongs to the state of Texas, and a permit is required for its use.

  2. A watercourse is defined as a channel with a well-defined bed, visible banks and a permanent water source.
    TrueExplanation »
    FalseExplanation »

    True. The Texas Supreme Court originated this definition in 1925. The court qualified the definition by adding that the "permanent source of water" does not have to be continuous.

  3. In all likelihood, percolating water beneath the surface belongs to the surface owner, not the mineral owner.
    TrueExplanation »
    FalseExplanation »

    True. Groundwater is divided into two categories, percolating groundwater and water in an underground lake or stream. Percolating water is water oozing or filtering through the soil. This belongs to the surface owner even though it is in the ground. All underground water is presumed to be percolating water, thus privately owned. Underground water in a lake or stream belongs to the state. Percolating groundwater belongs to the mineral owner only when it is specifically mentioned in the mineral reservation. Otherwise it belongs to the surface owner.

  4. The rule of capture, which allows landowners unlimited pumping rights, applies both to groundwater and to oil and gas.
    TrueExplanation »
    FalseExplanation »

    True. The common law rule of capture applies both to groundwater and to oil and gas. The Texas Supreme Court reaffirmed this fact. The rule of capture is sometimes said to be the rule legalizing drainage in Texas.

  5. Common carrier cross-country pipelines transporting oil and gas have the power of eminent domain in Texas. However, only municipalities (and possibly water supply districts) have the power to condemn property for water pipeline easements.
    TrueExplanation »
    FalseExplanation »

    True. One of the problems confronting water producers is how to get the water to the purchaser. Either the municipality must condemn a pipeline right-of-way or the water producer must purchase an easement. The estimated cost is $1 million per mile.

  6. Most, if not all, groundwater lease forms being used in Texas are patterned after Producers 88 Lease forms used to lease minerals.
    TrueExplanation »
    FalseExplanation »

    True. Because oil and gas leasing has been prevalent in this state for many years, the Producers 88 Lease form serves as the basis for drafting groundwater leases. Evidently, groundwater producers expect Texas courts to construe the language in groundwater leases in the same manner as they have interpreted oil and gas leases.

  7. When negotiating a groundwater lease, the landowner receives better protection negotiating a covenant rather than a condition.
    TrueExplanation »
    FalseExplanation »

    False. The difference between a covenant and a condition lies in the remedy for a breach. The only remedy for breach of covenant is to sue. The remedy for breach of a condition is automatic lease termination. No litigation is necessary. Groundwater producers are more apt to agree to a covenant than a condition. However, unless the provision specifically states the breach terminates the lease, courts presume the provision is a covenant.

  8. As with mineral leases, the groundwater lessee (the company taking the lease) has the implied right to use as much of the surface as is reasonably needed to explore for and produce the groundwater. The lessee need not clean up nor pay for surface damages.
    TrueExplanation »
    FalseExplanation »

    False. Because groundwater is not a mineral, the groundwater lessee must get the permission to use the surface in the lease. There is no implied right to use the surface. Even if these rights are secured in the lease agreement, the groundwater lessee is not exempt from cleanup and payment of surface damages.

  9. The calculation of surface damages in an oil and gas lease is, to a large extent, based on the number of acres needed for the drill site. The same criteria applies to surface damages under a groundwater lease.
    TrueExplanation »
    FalseExplanation »

    False. While the calculation of surface damages is primarily determined by the size of the drill site in oil and gas leases, the same is not true of groundwater leases. According to the Texas Administrative Code, any water well supplying water to the public is subject to Sanitary Control Easement. The easement restricts, to some degree, the uses of the land up to a 500-foot radius around the well site. Consequently, the area impacted by the water well is 18 acres, not just the area used for the drill site. Damages should be calculated accordingly.

  10. A Memorandum of Lease should never be filed in the deed records in lieu of the actual lease.
    TrueExplanation »
    FalseExplanation »

    False. Filing the memorandum of lease favors the landowner for two reasons. First, the lease remains confidential and the lessees are more likely to grant more favorable provisions. Second, should the landowner negotiate another groundwater lease, the prior lease does not serve as a model.

  11. "Time is of the essence" means the lessee must perform on or before a specific date or be in breach of the lease. Time is of the essence is implied both in mineral and groundwater leases.
    TrueExplanation »
    FalseExplanation »

    False. Time is of the essence is implied in mineral leases but not in groundwater leases. Landowners must have the provision inserted in a groundwater lease to make the lessee comply with deadlines.

  12. Any limitation on the rule of capture as applied to the production of groundwater comes primarily through the creation of a local underground conservation district.
    TrueExplanation »
    FalseExplanation »

    True. The state of Texas has few regulations that apply to groundwater leasing and production. The Texas Supreme Court has stated that it prefers local control of groundwater through the creation of underground conservation districts. by law, the districts have the authority to regulate the spacing and pumping of water wells capable of producing more than 25,000 gallons per day.

  13. The criteria for converting production into its monetary equivalent for purposes of paying royalty in groundwater leases is based on market price (or value).
    TrueExplanation »
    FalseExplanation »

    False. While two ways exist to convert production into its monetary equivalent for payment of royalties, groundwater leases use proceeds, not market price or value, to make the determination. Proceeds means the price at which the lessee can sell the water, not necessarily what it is worth based on fair market value.

  14. Unless the landowner limits the water production to a specific depth or to a specific aquifer in the lease, the groundwater lessee may produce from any depth or formation to the center of the earth.
    TrueExplanation »
    FalseExplanation »

    True. Unless the landowner restricts where the groundwater lessee may produce, the lessee may produce from any depth or formation. This could intrude on the landowner's personal sources of water.

  15. Unless the landowner specifies otherwise when negotiating the groundwater lease, he or she shares in all costs necessary to make the water marketable and to transport it to market. The landowner's percentage of these costs is based on the size of the royalty.
    TrueExplanation »
    FalseExplanation »

    True. When the lease sets royalty payments at the well or wellhead, the royalty owner shares in all costs after the water is removed from the ground. This sharing is based on the size of the lease royalty. Transportation costs may include pipeline costs.

  

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