Mineral rights might abound in Texas Tech University’s backyard, but the privilege to milk the Permian Basin has long been granted to The University of Texas and The Texas A&M University Systems.
With more than 500 rigs, comprising 56 percent of the total rig count in Texas, the Permian Basin is ground zero for the state’s oil boom. Education has also been enriched. Ever since the Public University Fund was set up in 1876, the UT and A&M Systems have been the only beneficiaries, thus forming a duopoly in that revenue stream.
“If you drive through there, oil wells owned by them dot the landscape, even owning mineral rights above the ground,” said Micah Malouf, the general counsel for Institutional Advancement and the Texas Tech Foundation.
Source: Eric Kounce
Early last month, Texas Tech professors reported that the production had an immense impact on the state’s economy. It stated that 444,000 jobs had been sustained by its activity in Texas’ swath of the basin and contributed more than $60.2 in gross state product, so both PUF schools have seen the windfall from the oil boom. In May, the Dallas Morning News reported that the surge in production across the 2.1 million acres allotted to UT and A&M gave the school systems over $1 billion between them.
For universities outside the state fund, some have to rely on the generosity of donors who sell their land to a university system, which is then leased out to petroleum companies.
Discretionary spending is another huge difference in how the PUF and non-PUF universities can tap into their funds. The revenue generated from Tech’s arrangement is bound by the donor’s will to be spent according to their interests, whereas PUF schools have been able to spend money freely.
“Revenue is allocated according to the donor’s wishes at the time of their gift, which commonly supports the institutions in the areas of undergraduate scholarships, graduate fellowship, research and faculty support,” said Ronny Wall, associate general counsel at Texas Tech.
From June 2010 to June 2014, Tech’s total revenue from mineral rights was just shy of $11.7 million dollars, boosted by two huge sales of mineral interests—$1.6 million in 2012 and $4.2 million in 2013.
The size of profit among Tech’s mineral properties can vary widely. For example, wells held by Houston-based Occidental Petroleum Company in the Permian Basin in West Texas contributed the most to 2013’s royalty revenue — $181,504 of $714,901 — according to revenue records from Texas Tech University. Linn Energy in Pecos County struck gold at $0.06.
“As the property gets further divided among children inheriting it, one of them might decide to give a fraction of their mineral rights to the university,” said Malouf. “(The $0.06) probably sticks out compared to what other wells are producing, but we’re always thankful for any donations.”
Outside of the state fund in which schools rely on donors as middlemen for mineral rights revenue, Tech’s system of wells is relatively expansive compared to other universities. It currently holds approximately 650 wells across 34 counties, according to estimates given by Malouf. While $11.6 million might seem like chump change when held against the profit made from UT & A&M, its proximity and connection to West Texas could be why it’s ahead of other non-PUF universities.
For comparison purposes, Texas State University pulled in a paltry amount of $13,543 from June 2010-June 2014, from only two wells in Live Oak County. Tarleton University, which is part of the A&M System and subsidiary to its PUF privileges, generated $1,705,255. The net revenue for the University of Houston was $1.56 million in 2012 and 2013 and projected to get $636,068 in 2014.
Texas’ past is a huge part of its future. Petroleum revenue has given campuses like the Univeristy of Texas at Dallas a modern face, such as their new arts and technology building designed by a San Francisco firm. (Photo credit: Holly Lynn)
UT’s control of surface and subterranean mineral rights in the Permian Basin and other petroleum regions have made it able to attenuate rising tuition costs.
“What the Board of Regents has done in the past year or so is to increase their share of PUF revenue when being told by their institutions that tuition costs will be increasing,” said Jenny Lacoste-Caputo, the executive director at UT’s Office of Public Affairs. “Suppose I get $100 from an oil well, the Board of Regents would get 5% of that. When faced with an increase in tuition, they might bump that up to 5.3% and divide it.”
While Tech might not be at an advantage in attenuating tuition costs with rising prices in oil, it has seen more success than other public universities in the last few years. Revenue more than doubled in 2011, from $735,603 to $2.5 million, and then repeated that in 2013. The trend may be an aberration, though, as Debbie Aguirre, executive associate at the Office of General Counsel, said they were “isolated, extraordinary events” set for liquidation.
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