Oil-Patch Renaissance Means More Money for UT, A&M

By Amy Madden
For Reporting Texas and the Dallas Morning News

Oil and gas royalties are pumping a record amount of money into the endowment that supports the University of Texas and Texas A&M University systems, helping push the fund to a record $14.8 billion.

In fiscal 2013, which ended Aug. 31, oil and gas royalties from state land pumped $648 million into the Permanent University Fund, up from  $506 million a year earlier and $279 million in fiscal 2009. Along with investment returns, the PUF is up nearly 9 percent over fiscal 2012 and is 53 percent higher than it was at the end of fiscal 2009, according to UT system officials.

“The last four years, it’s been significant,” said Randy Wallace, chief budget officer for the UT System, referring to the increasing royalty revenue.

The UT System manages about 2.1 million acres of state-owned land in the Permian Basin, 75,000 square miles in West Texas and eastern New Mexico where oil was discovered in the 1920s. New technologies such as horizontal drilling and hydraulic fracturing have unleashed a new oil boom there. The basin accounts for 14 percent of total U.S. oil production.

“With horizontal drilling and its improvement in completion technologies, some formations that previously we couldn’t get to produce are now very productive,” said Jim Benson, executive director of University Lands, which manages the PUF land holdings.

Oil production on that land has more than doubled, from about 1.5 million barrels a month in 2010 to more than 3 million barrels a month in 2013, Benson said. He added that he expects production to keep rising, likely to 4 million barrels a month within the next two years.

The PUF also gets money from lease sales, in which oil companies bid for the right to drill on university lands. Though lease sales peaked at $457 million in fiscal 2011, Wallace said the $115 million that flowed into the PUF in 2013 was more than double 2009’s $49 million.

“We have more higher-producing wells than we had, and that’s been made possible by the higher oil price,” he said. “Companies are willing to invest revenue to generate increased oil and gas production.”

Wallace said companies’ interest is largely due to higher oil prices, which have shot up from about $40 a barrel in 2008 to approximately $95 now.

Revenue from oil production and lease sales does not go directly to university operations; by law, it goes into the PUF, which is invested by the University of Texas Investment Management Co., a private, nonprofit company. The PUF earned 8.8 percent in the year ended Aug. 31, according to the company’s website.

The UT System Board of Regents can distribute 4.75 percent of a three-year average of the Permanent University Fund’s asset value into the Available University Fund. The money in the AUF can then be used for specified purposes, including paying off debt and system administration.

“Two-thirds of the return goes to the University of Texas [System], and one-third goes to Texas A&M,” said Jenny LaCoste-Caputo, spokesperson for the UT System.

For fiscal 2014, which started Sept. 1, the Available University Fund made up $478.2 million, or about 3 percent, of the UT System’s $15 billion budget. At UT-Austin, which gets the biggest share of the distribution, the fund accounted for $233.3 million, or nearly 10 percent, of the university’s total revenue.

At Texas A&M, the $90.8 million from the AUF accounted for a little more than 6 percent of the school’s fiscal 2014 revenue budget.

“With the increased oil and gas production and the lease bonus sales, it’s obviously had a positive impact on the Available University Fund,” Wallace said.

Wallace added that that money has provided benefits for the entire UT System.

“The board has committed money to the Dell Medical Center, for example,” he said, referring to UT’s new medical school. “It means additional money that the board also committed to help reduce tuition … at [UT] System institutions.”

UT regents recently approved $196 million in PUF capital to establish a new university and medical school in the Rio Grande Valley and provide financial support to four UT institutions, according to a news release issued on Nov. 14.

LaCoste-Caputo said higher revenue into the PUF gives university officials options that wouldn’t be there otherwise.

“It certainly does mean some flexibility in AUF spending in the near future, but we don’t have any specifics on what that might be at this time,” she said.

Benson said drilling activity in the Permian Basin – and the money for the PUF – is likely to continue increasing, possibly for 50 years or more.

“All of the parameters staying in place, I think the production is sustainable,” Benson said. “I’m fairly confident that drilling could go on for a long, long time and be a sustainable revenue to the Permanent University Fund.”