University Lands: How Oil Fuels Higher Ed in Texas

University Issue

Given the escalating costs that are essentially synonymous with higher education these days, college endowments are becoming increasingly important.

Texas hopped onto this bandwagon long, long ago.

Not surprisingly, this entailed land – and oil.

The activity leading to the creation of a fund of this sort essentially kicked off in 1839, however, long before oil became a part of the picture.

This was the year the Congress of the Republic of Texas granted 220,000 acres of land for the establishment and endowment of a university. Additional grants added another couple million acres by 1883, and the Texas legislators gave the land to the University of Texas when it opened that same year.

Known as University Lands, this acreage sits for the most part in the Permian Basin in West Texas, famous today for its prolific oil and gas production.

Revenue from the Lands, which comprise 2.1 million acres in 19 counties, is under the aegis of the Permanent University Fund, which is one of the largest university endowments in the United States. It manages both the surface and mineral interests derived from the properties.

The revenue stream benefits more than 20 educational and health institutions across both the UT and Texas A&M systems.

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Given the escalating costs that are essentially synonymous with higher education these days, college endowments are becoming increasingly important.

Texas hopped onto this bandwagon long, long ago.

Not surprisingly, this entailed land – and oil.

The activity leading to the creation of a fund of this sort essentially kicked off in 1839, however, long before oil became a part of the picture.

This was the year the Congress of the Republic of Texas granted 220,000 acres of land for the establishment and endowment of a university. Additional grants added another couple million acres by 1883, and the Texas legislators gave the land to the University of Texas when it opened that same year.

Known as University Lands, this acreage sits for the most part in the Permian Basin in West Texas, famous today for its prolific oil and gas production.

Revenue from the Lands, which comprise 2.1 million acres in 19 counties, is under the aegis of the Permanent University Fund, which is one of the largest university endowments in the United States. It manages both the surface and mineral interests derived from the properties.

The revenue stream benefits more than 20 educational and health institutions across both the UT and Texas A&M systems.

Income from the PUF is divvied up two-thirds to UT and one-third to A&M.

This discrepancy stems from the so-called “divorce” between the two in the 1880s, with the latter being the offspring and UT being larger, according to David DeFelice, senior vice president for oil and gas development at the UL office in Houston.

Oil and gas price volatility always lurks in the oil patch, so operators are eager to jump onto the next new advance in technology and production methods. Indeed, the much welcome onset of hydraulic fracturing in wells in this region played a big role in revving up well drilling on the Lands and, in turn, revenue.

Managing UL with Geoscience

It’s unlikely there will ever be a dearth of greenbacks to go around, with the Lands harboring large accumulations of now-familiar, hydrocarbon-rich productive reservoirs. Think horizontal drilling target industry darlings such as Spraberry and Wolfcamp, for example.

In 2017, the Texas Tribune reported the value of the PUF to be $19.5 billion, notably more than the $10.7 billion in 2010. Prior to the most recent crash in prices, the Lands were kicking out a mega-amount of $1 billion annually.

Contrast this to the beginning stage of the Lands oil production when the initial well – the Santa Rita-1 well in Reagan County – kicked off production in May 1923. The first royalty payment on Aug. 24, 1923, tallied $516.63 (see sidebar).

Surface income from varied sources on the Lands, such as grazing leases, wind power generation and a commercial vineyard and winery goes into the Available University Fund. The AUF distributes the monies according to provisions laid out initially by the 1876 Texas Constitution and some later amendments.

The UT system revamped its approach to managing the Lands in 2015 when it organized a development team skilled in geologic and engineering expertise and located in Houston. Another office sits in Midland.

This gear switching in 2015 coincided with the appearance of Mark Houser, former president and CEO of EV Energy Partners LP. Houser came on board as the first CEO of the University Lands Office.

He hired geoscience and engineering staff and brought in a legal team to the Houston office.

DeFelice noted, “We have two geologists, a geoscience manager, engineering manager and a few engineers.”

“We cover a lot of ground,” he emphasized. “There are several large companies who operate here, and we also have 200-plus operators we refer to as ‘partners,’ which is a win-win situation.”

He mentioned that more than 20,000 wells have been drilled on the Lands. When horizontal drilling into shale became the next new development inaugurating a whole new era, especially in the Permian, the properties took on even more allure for operators. About 2,000 horizontal wells were initiated on the properties.

Easy access to vast amounts of well and log data stored in the UL library, in addition to other online information, aid the action considerably.

“The roles off our staff members are to add as much value to the Lands as possible,” DeFelice said. “That translates to having a good understanding of the subsurface from a geoscience and engineering perspective, employing best practices in terms of completions.”

Leasing Opportunities

With that goal as a focus, a forum was scheduled for late April, with a number of active companies on the invitee list. Several were on deck to present on best practices.

If you’re wanting a piece of the action, the next lease sale is set to occur Sept. 19.

Just don’t expect this to be a slam-dunk deal with drilling targets virtually shouting at you.

“Last year, most of the bidding was where people were comfortable,” DeFelice said, “but we did sell riskier.”

When complete, the Sept. 2017 sale generated more than $118 million in total revenue, according to UT. About 43,724 acres were leased via the sale process, with some acres garnering more than $12,000. The average price per acre lease was $2,700.

“There’s even more acreage now that we think is underexplored, and a lot of this coming up this year may be underexplored,” DeFelice commented.

He noted, for example, that although their Delaware Basin acreage for the Wolfcamp is fairly leased up, the possibility exists to exploit some new ideas on the northern Central Basin Platform. This includes the potential for new horizontals in the San Andres.

Given the action in the Permian, it’s easy to overlook that the Lands are causing a bit of a stir to the immediate west in the Orogrande Basin, which extends into southeastern New Mexico and hosts a plethora of Pennsylvanian and older rocks.

Torchlight Energy Resources is at work on the University Founders A 25-1H well, targeting 1,300 feet of pay dubbed “WolfPenn.” The kickoff date for hydraulic fracturing was set for April 23. According to Torchlight’s web site, its lease covers the majority of the Orogrande in Texas.