Ninety-nine years ago this week, the University of Texas System received a check for $516.63. It was a royalty payment – the first dividend from the famous Santa Rita #1, an oil well that drilled on university-owned lands in West Texas.
Almost a century later, Santa Rita has been decommissioned for some time, but revenue from the UT System’s oil and gas holdings has only grown. A recent report from Bloomberg shows that the system has benefited so much from a recent surge in oil prices that it now threatens to overtake Harvard as America’s richest college.
Sergio Chapa, Houston-based energy reporter for Bloomberg, talked to Texas Standard about the future of oil and gas on university lands.
This transcript has been edited lightly for clarity:
Texas Standard: Quite a distinction there: Richest college in America — except for Harvard. Harvard still holds the No. 1 slot, right?
Sergio Chapa: Yeah. Harvard is the oldest university in the U.S. and the wealthiest. It sets a high bar to beat in terms of their endowment, which at last count was listed at $53.2 billion. So UT’s endowment at the last count was only $42.9 billion. But given everything that is happening with the economy, given how Harvard divested from fossil fuels, given that we spent four months roughly, give or take, at $100 per barrel oil prices, you know, analysts and experts expect things to flip-flop for the schools.
That’s pretty incredible, and clearly tied to current events and what’s been happening in the energy marketplace. But a lot of folks likely don’t have a good sense of the scale of UT’s landholdings out in West Texas, which is a big part of the story.
Oh, definitely. Now, all of this was set up in the 1800s with the State of Texas setting aside land that could produce revenue for higher education. And these days, the University Lands system, which benefits both the UT System and the Texas A&M System, they have 2.1 million acres. And that land is in the Permian Basin of West Texas, the nation’s largest and most prolific oil field.
Harvard is certainly not alone in shedding fossil fuel investments. Is UT inclined to do something similar right now?
UT is is staying the course with these University Lands. They have, I’d say, thousands of oil wells out there. And every once in a while they roll out new leases. But that’s not to say that the UT System is not involved in renewables. In fact, they have hundreds of thousands of acres dedicated to solar and wind energy projects. But just at the moment, who’s producing the lion’s share of the revenue right now is oil and gas.
How much pressure is the UT System facing to change its mix of investments? I mean, there must be a lot of folks who are concerned about socially and environmentally responsible investing bringing some pressure on the regents.
So yes, in the past, environmental groups such as Environment Texas, they put social pressure on University Lands and the UT System. But given the revenue and the history of oil and gas with the State of Texas, that hasn’t happened. But that’s not to say that the university system hasn’t done anything. What they’ve said is that they’ve they’ve used infrared cameras, you know, implemented programs that help operators clean up their operations and emissions.
They also want to get a handle on this oil field wastewater; when you inject it underground, it causes earthquakes. It’s another issue that the UT System is trying to get a handle on by encouraging more water recycling. That way, you use it again for drilling and fracking, instead of injecting it underground and causing an earthquake.
Whenever this issue of UT endowment comes up, and especially in the context of its growth and the money being raised by oil and natural gas, a lot of people who support UT point to the foresight of those who set up these landholdings in the first place. At the same time, you fast-forward to today, and a lot of people are saying, well, the future is probably not carbon-based energy. Are there people talking about laying the groundwork today for the future of energy and for sustaining UT past the the carbon era of fuel?
Yeah, and it’s interesting that you ask that. Originally, the idea for these lands was that they would just lease them for grazing rights for cattle and sheep grazing. You know, at the time it was just West Texas desert. But then oil was discovered underneath it. And that was a game changer, if you will. But, you know, looking ahead, these lands, they’re not just rich in oil and gas. They’re some of the best lands for solar in the entire United States. They’re some of the best lands for wind energy. There’s a lot going on out there. And, yes, the overall plan — one of the things being implemented, and this is a policy set by the system and University Lands overall — is to capitalize on that eventually. And, you know, as the world makes a transition to cleaner sources of fuel, I think you’ll see that happening on these University Lands as well.
But in the meantime, there’s this windfall from oil and gas. It’s a boom and bust cycle. You know, in 1986, during the oil price crash, the university saw a revenue hit. The same thing happened in 2020 during the pandemic, if you recall that time that oil prices went negative. But this time around, it’s a $2 billion windfall for revenue.
We’re talking about the size and scale of UT’s endowment being as big as it is. What does that mean as a practical matter for students, teachers, for the system? I mean, is anyone talking about what’s going to be done with this windfall?
Yes. So this oil revenue, it goes into a pot of money known as the Permanent University Fund. And typically, this revenue from oil and gas, it goes for capital expenditure projects — building and other projects. And then once it’s in that fund, it’s managed by a group called the University of Texas Investment Management Company. And what they do is they take that money from oil and gas and they invest it in stocks and bonds and all types of things.
And then, at the end of the year, there’s kind of a financial distribution to both the UT System and Texas A&M. The UT System gets two-thirds, and the A&M System gets one-third. The schools use that money for support and maintenance and things like that. So you get a windfall like this, it’s not going to go for like tuition or salaries or anything like that. It’s just for like, you know, buildings, operation, maintenance support.
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