Profits from oil and gas drilling on the UT System's 2.1 million acres in West Texas have risen 80 percent from the same time in the last fiscal year.
At the end of June, the land had produced $166.7 million in oil royalties and $133.5 million in gas royalties from drilling, with two months remaining in the current fiscal year. Since drilling first began on the West Texas lands, they have generated $4.4 billion in royalties for the Permanent University Fund, a pool of money divided between UT System and Texas A&M System universities.
Randy Wallace, chief budget officer for the UT System, said that while higher oil and gas prices will certainly produce an increase in the system's budget, the benefit will be blunted by a "smoothing effect" in the distribution of funds. UTIMCO, the UT System Investment Management Company, reinvests the permanent fund's drilling revenues before they are deposited into the spendable Available University Fund.
The 1876 Texas Constitution donated the lands to the UT System. Two-thirds of the Permanent University Fund is devoted to the UT System and, by law, one-third to the Texas A&M System.
Wallace said profits from high oil prices come with higher utility costs. For the system as a whole, utility costs through May 2008 are up 13 percent from May 2007, he said.
UT-Austin uses natural gas to produce much of its own energy on campus. Juan Ontiveros, director of Utilities and Energy Management, said UT has been largely unaffected by rising fuel prices because of a deal that locks in gas prices for the year.
"We've insulated ourselves by the way we purchase our gas through the General Land Office," Ontiveros said. "It's good through August, and then we're working on trying to procure the gas price for next year, which isn't tied down yet."
Ontiveros also said the campus has spent about $38 million on natural gas over the course of its current contract.
The Board for Lease of University Lands holds land sales twice a year, after which the winner can explore for oil and natural gas, said Steve Hartmann, executive director of University Lands. The two sales this year took in $33 million in bonuses, which is what companies pay for the right to explore.
These companies must begin drilling by the end of the first term in their lease, or they must pay an extension fee. The permanent fund has taken in $2.4 million from these fees in the year to date.
Hartmann said 1.4 million acres have been leased to oil and gas companies for drilling.
"Having 1.4 million acres under lease is the highest percentage in our entire history. We don't have near as much acreage available as we used to," Hartmann said. "The level of drilling activity is up, and all the things you might expect because of the prices."
Be the first to comment on this article!