Historically, Texas water law has distinguished between two types of water - surface water and groundwater. Surface water, the water in rivers, streams and lakes, is owned by the State of Texas and may be used by persons only after obtaining a permit from the State. On the other hand, groundwater, the water percolating in aquifers beneath the surface of the State, has been held to be essentially private property, and the right to use the water is a part of the surface owner’s rights. Generally, the surface owner has been entitled to use any groundwater he can obtain by drilling a well on his property. This law, known as the rule of capture, is much like oil and gas law at its inception. Slowly, however, particularly over the last fifty years, Texas has begun to create local districts to regulate the amount of groundwater a landowner may capture, thus encroaching on the rule of capture in certain local districts where groundwater supplies have been diminishing or are threatened.

Historically, the water resource market in Texas has been dominated by government - cities and water districts. This is especially true in the area of municipal and, for that matter, industrial use. With the exception of Houston, San Antonio and areas in far west Texas, including El Paso, most cities rely on surface water supplies. Even in Houston and San Antonio, however, where groundwater supplies have been prolific, recent regulatory developments have forced the development of plans to obtain alternative sources other than the local groundwater resources. In Houston, the problem has been caused by subsidence from groundwater pumping in the local aquifer; in San Antonio, the problem has been caused by the Endangered Species Act requirements that spring flows from the Edwards Aquifer at New Braunfels and San Marcos be continued, thereby limiting access to the Aquifer underlying San Antonio.

At this point in the State’s development, Texas can basically be divided in half, between east and west, along a line divided by IH-35 which runs north and south from Laredo to Dallas and into Oklahoma. Areas west of IH-35 generally have no or very limited supplies available for development of new municipal and industrial use projects. Areas east of IH-35 generally do have supplies available. However, in the area immediately surrounding IH-35, a high-growth corridor, surface water supplies are extremely limited. There is essentially no (or very limited) surface water available in the Trinity River (Dallas-Fort Worth), the Brazos River (Waco), the Guadalupe and San Marcos Rivers (San Antonio/New Braunfels/San Marcos) and the Rio Grande (Laredo/El Paso) for commitment to new projects.