West Texas oil builds revenue for A&M and UT

West Texas oil lands, once viewed as played out, are contributing to sharply rising revenue in a fund that helps support the University of Texas and Texas A&M University systems.

"Our revenue is up considerably," said Jim Benson, executive director of University Lands, which manages 2.1 million acres, much of it in West Texas. "We are at $968 million with two months to go" in the fiscal year.

"We will break $1 billion for this year for the first time ever."

Benson said a year ago he didn't expect revenue to reach $1 billion for two or three years. "I did forecast an increase that was substantially less than that," he said. "It's good to be wrong."

Oil and gas royalties could range from $1.1 billion to $1.5 billion for fiscal 2014, which ends Aug. 31, he said.

While University Lands' revenue includes smaller sources, such as grazing leases and even a vineyard, "the big revenue is from oil and gas," Benson said.

University Lands receives a 25 percent royalty for oil and gas production on its holdings.

In 2013, University Lands' oil production jumped to 41.8 million barrels, up from 23.7 million barrels in 2011.

"We have made a lot of revenue since 2011," Benson said. "We've been in the $800 to $900 million range in all those years."

The funds flow to the Permanent University Fund, an endowment set up by the Texas Constitution, the principal of which can't be spent.

On June 30, the fund's market value was $17.24 bil- lion, up almost 20 percent from $14.4 billion a year earlier, according to the University of Texas Investment Management Co., which invests money for the UT and A&M systems.

The $17.24 billion is a record level, said Bruce Zimmerman, CEO of the investment manage- ment company.

"We don't raise or spend the money," he said.

While a UT System official has said the increased drilling activity in West Texas is benefiting the UT and A&M systems, only a portion of the money ends up in the universities' coffers.

Distribution rates

The distribution is set by the UT Board of Regents and can change year to year. For fiscal 2014, the distribution rate is 5.5 percent. "That's the money that gets distributed for current spending," Zimmerman said.

The UT System receives two-thirds of the distribution and the Texas A&M System one-third.

For fiscal 2014, the UT System expects to receive $475.9 million, up from $440 million in 2013.

The Texas A&M system expects a 2014 distribution of almost $238 million, up from $220.1 million for 2013.

Use of money

The two systems can only use the money for construction, renovations, major library acquisitions and "significant educational and research equipment and academic excellence programs," according to University Lands' website.

The outlook is rosy for rising royalty monies flowing to the Permanent University Fund and to the university systems. University Lands' revenue is shifting from large lease sales to greater oil production and longer-term royalty dollars.

"We're just beginning to get to the brunt of the drilling activity," Benson said, "which is really having an impact on royalty revenue."