Oil and Gas Made the University of Texas Rich. Can Green Energy Make It Richer?

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1:17And Michigan delivers on that promise. From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work-life balance. With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. Bloomberg Audio Studios. Podcasts. Radio. News. In recent months, as the Trump administration has gone after Harvard University, we've heard a lot about the size of that school's endowment.

1:58Some lawmakers have said they want to do away with its tax-exempt status. Bloomberg puts the value of Harvard's endowment at$53 billion, which makes it the largest in the U.S. But the University of Texas is not far behind. Everything, of course, is bigger in Texas. How big is the University of Texas's endowment? Well, if you're going to round it, it's almost$50 billion, a little more exact,$47 billion and a half. So this is now the number two endowment. Yes. It surpassed Yale a couple of years ago. Janet Lauren covers finance in higher education for Bloomberg. and she says that unlike Harvard's and Yale's endowments, which largely come from donations and investment returns, the University of Texas has a resource that sets it apart.

2:48Oil and gas.

2:54I'm David Gura, and this is The Big Take from Bloomberg News. Today on the show, how the University of Texas harnessed land and oil to power higher ed and why it's now shifting to new kinds of energy.

3:09Lots of universities have fossil fuel investments in their portfolios. In fact, some have even divested from those industries in recent years. But Bloomberg's Janet Lauren says the way the University of Texas profits from oil and gas is very different. Nobody has anything like this. Unless you're, you know, a handful of schools in Texas and Oklahoma. You know, everybody in Texas and Oklahoma knows don't ever sell your mineral rights. But most schools don't have anything remotely like this. Janet says the roots of UT's oil wealth date back to the 1800s. When the state of Texas set aside land to benefit higher education, and the land is in West Texas.

3:49And in the 1800s, West Texas was just this arid land, and it was assumed that it probably wouldn't generate a ton of money. You could get some money for things like cattle grazing. And then the idea was at some point it probably would have been sold. And then something happened in 1923, 100 years ago. It feels like out of the Beverly Hillbillies. It practically is. They struck oil. They struck oil. And that changed not only higher education financing forever, but it changed West Texas. Could you just describe this tract? And I'm just curious how big it is. Is there kind of a point of comparison that would illustrate how much land the university is drawing from?

4:32So in our story, we describe it as 3 ,300 square miles. I love the number 2.1 million acres because it just seems so big and vast. It's about the size of Rhode Island and Delaware put together. And when I went out to Midland and we drove around, you know, it's quite arid. So historically, what have they done with this land from the 1920s until a few years ago? What was this land predominantly used for? So oil and gas is the main driver of revenue. Today, more than 20 ,000 wells have been drilled across lands belonging to the University of Texas, which are dotted with drilling rigs, frack ponds, and pump jacks.

5:15UT doesn't own these operations. It just leases its land to private companies and gets a cut of the oil and gas they produce. The revenue gets divvied up between the UT system and the Texas A &M system. There's a formula. Two-thirds goes to the UT system. One-third goes to Texas A &M systems. And that benefits, you know, something like 350 ,000 students total. So it really helps a lot of people. The state constitution restricts how that oil and gas money can be spent. It can only be used on capital expenses. So if hospitals need new buildings, a business school, that helps build buildings. It's not going for operating money.

5:56Revenue from the land's surface, like leasing rights for roads, power lines, pipelines and cattle grazing, has different rules. That goes into a different fund. It's valuable because it's cash that could be spent right away. And that surface income has historically been dwarfed by all the oil and gas money. But Janet says the managers of the University of Texas' land holdings know they can't count on oil and gas forever. that one day the resources of the Permian Basin aren't going to be as plentiful, may not be as valuable as they are now. So the university is expanding into renewables. That's next.

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8:45The University of Texas has managed to make a lot of money from land that seemed to have little value back in the 19th century. For much of the last hundred years, the value has come from the oil and gas deep underground. Bloomberg's Janet Lauren says the university is diversifying, thinking long term. And that means figuring out how to better use the land for its above ground resources. They're looking for 30, 50 years. maybe the next century. And at some point, the Permian Basin will not be generating the same kind of oil. Once it's drilled, it's not being replaced. But with wind and solar, it's an asset that could be generating, you know, for years.

9:27In addition to wind and solar, Janet says UT has also started renting land for battery storage and data centers for crypto, creating an income stream that barely existed five years ago. You described seeing this tract of land for the first time. You've gone back now to report on what they're doing now and what they hope to do in the future. How different does it look? What are the landmarks now that are there that wouldn't have been there the first time you visited? Well, when I was there a few years ago, we mostly focused on seeing what the oil production looks like. And this time we went to see wind and solar.

10:00Are we talking about huge solar arrays, a lot of windmills? Just physically, what does it look like now that they're opening it up to more investment in that? Well, they now have five wind and solar sites each. And, you know, they started signing these contracts several years ago. And it takes a long time to build these. So you're really starting to see this revenue come in finally. But they're quite big. You know, one section of solar, you know, I describe it as something like 800 ,000 panels. It's a lot. What does that look like? Did you see that? Yes. You look one way and the other way and the other way, and it's quite vast.

10:36All told, these surface-oriented ventures generated almost$130 million in the year that ended last August. That's the largest amount ever, and about five times as much as they produced 15 years ago. It's still a small fraction of the income the school generates from fossil fuels, but it's an especially valuable fraction. Because unlike the fossil fuel funds, which the state's constitution restricts for capital projects, The surface-oriented funds come with more flexibility. It's all managed through an entity called University Lands. You have looked at some of the deals that University Lands has signed recently.

11:14What can you tell us just about sort of what they're looking at? Who's coming to them hoping to lease land? Well, they've gotten a flood of requests in, and that's something that they had to do was evaluate what is coming in. Because, you know, it was everything from Uncle Charlie wants to flip this land versus large companies. And they have a preliminary agreement with a company for about 200 ,000 acres, which is pretty significant. And the idea is that they would generate wind and solar for electricity. Are we in early days yet? Or is it possible to say sort of how well this is working out for them?

11:48Are they making a substantial amount of money by getting into these new types of energy? Well, they're sort of, you know, dipping their toe. As the CEO of University Lands described, you know, they were initially looking for some singles. And now, you know, they're looking for home runs, which is multi-uses on one site. Tell us about CEO William Murphy. You sat down with him. What's his background? What's his perspective on what the future looks like for these lands? Well, he's sort of looking across a chessboard. And, you know, some things may be ready to be signed now. And again, these things take years to build.

12:21But he's thinking about, you know, a long time away. His early career was as an oil and gas attorney, and then he oversaw a place called King Ranch, which is one of the largest cattle ranches, if not the largest cattle ranch in the state of Texas. I think it's over 800 ,000 acres. So he had sort of uniquely qualified to do this, and part of his strategy with oil and gas was to increase production. So that spectacular year in 2022, when they had over$2 billion in oil revenue, was partly because of price, but also production. We've talked about wind power and solar power. I know that there's this push to build huge data centers on open land like this.

13:04Are they embracing that as well? Are companies coming to then hoping to build large data centers? Yes. The Public Utility Commission of Texas in April announced a pretty big project, $10 billion for three transmission lines in West Texas. Explain why that's so important. So they can lease all of this land. Companies can have these aspirations of putting in data centers or finding new ways to get solar energy or wind energy, but they need this infrastructure. They need transmission lines because you need to get the energy from East Texas to go back and forth from East and West Texas. So if you have wind and solar, you have to get the energy it's producing to go through some sort of transmission line.

13:44If someone's listening to this and wonders if Texas is giving up on oil and natural gas, what would you say to them? Not a chance. They are not even remotely thinking of that. This is adding to their income. And they're very clear about that. They see oil and gas in their future for a very long time. This is The Big Take from Bloomberg News. I'm David Gurra. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show.

14:23Thanks for listening. We'll be back tomorrow.

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