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Table of Contents Fiscal Year 2021 Annual Report
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At-A-Glance
At-A-Glance
University Lands (UL) manages the surface and mineral interests of 2.1 million acres of land across 19 counties in West Texas for the benefit of the Permanent University Fund (PUF). The PUF is the largest public university endowment in the U.S. and benefits more than 20 educational and health institutions across both The University of Texas System and The Texas A&M University System.
2.1MM Acres of grazing lands
1.24MM Acres leased for mineral development
24,400 Oil & gas wells drilled to-date 9,800 Producing oil & gas wells 19,000 Acres of surface leases 22,000 Miles of pipeline & powerline easements 79,000 Acres of renewable energy leases
PRINCIPAL BUSINESS LINES
Oil & Gas Royalty
Energy Transition
Water Supply & Logistics
Grazing
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History
Fiscal Year 2021 Annual Report
History
2021
University Lands restores the historic site of the Santa Rita #1 well
2019
University Lands records the highest production of oil and gas from PUF Lands in its history
2009
The Permian Basin shale boom begins
1929
The Board for Lease of University Lands is created
1923
Oil is discovered at the Santa Rita #1 well on PUF Lands in Reagan County, and the PUF endowment receives its first royalty check for $516.53
1839 1883
An additional 1 million acres are added to PUF Lands
1876
The State of Texas Constitution appropriates 1 million acres of land in West Texas to the Permanent University Fund (PUF). These lands would become known as PUF Lands The Congress of the Republic of Texas sets aside fifty leagues (220,000 acres) of land for the establishment and endowment of a university
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Table of Contents
Table of Contents
2
UL At-A-Glance
3
History
6
FY21 Highlights
7
FY21 Performance
8
CEO Message
10
Governance
12
Management
14
Mission & Goals
16
Financials
18
Oil & Gas Management
22
Surface Management
28
Environmental Stewardship
38
The PUF Explained
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Table of Contents Fiscal Year 2021 Annual Report
welcome UL’s new ceo
UT System appoints new CEO for University Lands December 22, 2021 University of Texas System Chancellor James B. Milliken announced today that William R. “Billy” Murphy, Jr., vice president and executive officer of King Ranch, Inc., will be the new CEO of University Lands. Murphy has more than 15 years of legal and land management experience, including in the oil, gas, and mineral sector, as well as renewable resources. At King Ranch, he manages the sustained development of roughly 1 million acres that includes the largest privately owned surface and mineral operation in Texas. University Lands, which comprises 2.1 million acres of land in West Texas, was established by the Texas Constitution in 1876 for the benefit of the UT and Texas A&M systems of higher education. Leases on the oil, gas, mineral rights, as well as solar and wind energy development and livestock grazing on University Lands generate about $1 billion annually for the Permanent University Fund, an endowment that benefits 26 UT and A&M institutions. “University Lands has been an extraordinary resource for the UT and A&M institutions for almost a century, and it’s our responsibility to ensure it continues to benefit these huge university systems and the state of Texas into the future,” Chancellor Milliken said. “Billy Murphy is an expert in his field who understands the unique dynamic of managing substantial and significant acreage in perpetuity. He comes to us with a deep knowledge of Texas’ most precious and storied assets, and we’re delighted he’ll be leading the University Lands team.”
Billy Murphy
Murphy will begin his new position with the University Lands Office in early February. He will take the reins from Joseph Quoyeser, currently interim CEO. Under Quoyeser’s leadership, University Lands had a very successful fiscal year 2021, and is poised to generate even higher revenues in FY 2022. Both Chancellor Milliken and University Lands Advisory Board Chairman Rad Weaver lauded Quoyeser’s stewardship of University Lands over the past year. “We are deeply grateful to Joe Quoyeser for his solid leadership over the last year, and we are confident Billy Murphy will hit the ground running and advance the effective management of University Lands for the benefit of UT and A&M institutions,” said Weaver, who is also Vice Chairman of the UT System Board of Regents. Prior to his decade-long tenure with King Ranch, Murphy practiced law with Bracewell LLP with a focus on oil and gas transactions. He earned a law degree from South Texas College of Law and a bachelor’s degree from Texas Tech University. “I am humbled and honored to work alongside the talented professionals at University Lands in managing this unique and important asset,” Murphy said. “It has benefited so many in Texas higher education. I look forward to continuing that legacy and will strive to make University Lands a leader in energy transition and long-term sustainability for generations to come. I am thankful to the Board of Regents, the University Lands Advisory Board, the Chancellor and the many companies that partner with University Lands.”
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FY21 Highlights
fy21 highlights
Revenue Gross revenues totaled $1.043 billion with PUF revenue coming in at $979 million and AUF revenue at $64 million. Oil and gas royalty income increased by 27% over FY2020. Expenses Annual expenses were 14% below budget at $20.7 million and represented 1.98% of gross revenue or $0.89 per barrel of equivalent production unit cost. Production Production rates averaged around 284,000 gross barrels of oil equivalent (BOE) per day. UL’s mineral royalty averaged 22.3% for both oil & gas, equaling a cumulative net royalty volume of 23 million BOE. Asset Value The FY2021 total value of proved reserves was up 47% year-over-year primarily due to higher commodity prices, resulting in more active development activities. On a price neutral basis, the value- per-acre of proved reserves is up 21% year-over-year.
Industry Restructuring Performed due diligence on three new operators and consented the assignment of three development agreements in connection with A&D transactions. Reclaimed more than 100,000 undeveloped acres as part of agreement modifications connected to these transactions. Navigated M&A activity that impacted more than 50% of our production—Diamondback acquired QEP, Pioneer acquired Parsley, and WPX merged with Devon. These transactions created a larger, stronger set of public companies leading the development of University Lands. Environment UL performed 324 optical gas imaging (OGI) camera inspections (82 facility fugitive emission inspections and 242 flare inspections) and 1,100 oil & gas lease inspections. Approximately 119 unproductive oil & gas wells were plugged with the surrounding areas remediated and returned to pastureland. Renewable Energy Expanded renewable energy portfolio with 3 new solar and wind projects across 46,000 acres, putting our current portfolio at a total of 9 clean energy projects across 66,000 acres of PUF Lands.
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FY21 Net Performance
Fiscal Year 2021 Annual Report
fy21 Net performance
$1.043B Gross Revenue
$979M Permanent University Fund Revenue (Minerals) $64M Available University Fund Revenue (Surface)
2,090MMBOE
326 MMBOE Net Proved Reserves
Net Total Resource
1.98% of Gross Revenue $0.89 Expenses/BOE
Expenses $20.7M
2.23MM
220 Wells Put-on-Production
Lateral Feet Put-on-Production
23,000MBOE
Net Royalty Production
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Governance
Governance
UT SYSTEM BOARD OF REGENTS
The University of Texas System Board of Regents manages the strategic direction, development activities and stewardship of the Permanent University Fund (PUF) Lands.
UT SYSTEM ADMINISTRATION
The University of Texas System Administration is responsible for operations at all UT educational and health institutions. University Lands is a part of the UT System Administration Business Affairs division.
BOARD FOR LEASE OF UNIVERSITY LANDS
BFL 2 UT Regents 1 Texas A&M Regent
The Board for Lease of University Lands, chaired by the Commissioner of the Texas General Land Office, provides statutory oversight and governance for agreements to develop oil and gas located under PUF Lands.
UNIVERSITY LANDS ADVISORY BOARD
ULAB 5 UT Representatives 3 Texas A&M Representatives Texas Land Commissioner
The University Lands Advisory Board (ULAB) is charged with providing guidance to the University Lands leadership team to help determine strategy and provide guidance and recommendations to the UT System Board of Regents to ensure responsible stewardship of PUF Lands. ULAB members are appointed by both the University of Texas and Texas A&M University Systems and includes a standing position for the Texas Land Commissioner.
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Governance
Fiscal Year 2021 Annual Report
BOARD FOR LEASE OF UNIVERSITY LANDS
Michael A. Hernandez III Regent, Texas A&M University System
George P. Bush Commissioner, Texas General Land Office
Christina Melton Crain Regent, The University of Texas System
Nolan Perez Regent, The University of Texas System
UNIVERSITY LANDS ADVISORY BOARD
Eli Jones Professor of Marketing, Mays Business School Texas A&M University
Jay C. Graham Regent, TAMU System CEO & Chairman, Spur Energy Partners
George P. Bush Commissioner, Texas General Land Office
Thomas L. Carter, Jr. CEO & Chairman, Black Stone Minerals
James C. Weaver, Chair Regent, The University of Texas System CEO, McCombs Partners
Stuart Stedman Regent, The University of Texas System President of Stedman West Interests, Inc.
Janeen Judah Independent Director, Patterson-UTI, Crestwood Equity Partners & Aethon
Dee J. Kelly Law Partner, Kelly Hart & Hallman
John L. Zogg, Jr. Managing Director, Crescent Real Estate, LLC.
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Management
Management
Maryam Schellstede Senior Vice President, Planning & Development
Amber Jackson Manager, Budget & Revenue
Richard Brantley Senior Vice President, Operations
John Tackett Geoscience Manager & Chief Geologist
Cindy Brooks Director, Accounting, Audit & Regulatory
Danielle Jeter Land Manager, Minerals
Corey Means Manager, IT Infrastructure & Operations
Wil Vark Manager, Bus Solutions & App Development
James Buice Manager, Sustainability
Jeff White Manager, Surface Interests
Billy Murphy Chief Executive Officer
Sonya Csaszar Interim Chief Legal Officer
Jenna Gibbins Senior Reservoir Engineer & Engineering Lead
Brian Owen Senior Vice President, Land
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Table of Contents Fiscal Year 2021 Annual Report
Mission
To maximize the revenue from the Permanent University Fund (PUF) Lands, protect the interests of The University of Texas System and promote awareness and sensitivity for the environment.
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Table of Contents
santa rita #1 well restoration
University Lands commissioned a
complete restoration of the Santa Rita #1 well site, preserving its historical significance as the well that launched the Permian Basin. The restoration project was completed in the fourth quarter of 2020.
Before
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Table of Contents Fiscal Year 2021 Annual Report
Before
After
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Table of Contents
The puf at work
SCHOOL OF MEDICINE INSTITUTE OF NEUROSCIENCE THE UNIVERSITY OF TEXAS RIO GRANDE VALLEY Funded by the Permanent University Fund Located in Harlingen, Texas on 35 acres of land near the UTRGV Clinical Education Building, this facility opened in the Fall of 2021 and houses dry research labs, core imaging, a therapy center, administrative, support and collaborative areas, and community focused spaces. This campus serves as a world-class site for the departments of neurology, psychiatry, and neurosciences and houses clinics and diagnostic centers for numerous neuropsychiatric and aging disorders. The project is expected to be a designated center for research on brain health and other aspects of neurosciences.
Table of Contents Fiscal Year 2021 Annual Report 15 SCHOOL OF DATA SCIENCE AND NATIONAL SECURITY COLLABORATION CENTER THE UNIVERSITY OF TEXAS AT SAN ANTONIO Funded by the Permanent University Fund This project will co-locate the university’s 70-plus faculty members and advance collaborative research and development, education, and workforce development in cybersecurity , cloud computing, data and analytics, and artificial intelligence under one highly collaborative roof. With this new six-floor facility housing classrooms, laboratories and research space, the school will support bachelor’s, master’s, and doctoral degrees, as well as certificate programs and other professional credential educational opportunities. The School of Data Science will be home to the departments of Computer Science, Computer Engineering, Statistics and Data Sciences, Information Systems and Cyber Security, and the Open Cloud Institute. The NSCC will specifically build a collaborative and impactful government, university, and industry ecosystem engaging federal agencies, contractor and industry leaders, and academia to solve the nation’s greatest issues surrounding cybersecurity. The SDS/NSCC will also be equipped with a Secure Compartmentalized Information Facility (SCIF) capable of safeguarding matters of national security.
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CEO Message
ROY G. PERRY COLLEGE OF ENGINEERING PRAIRIE VIEW A&M UNIVERSITY, TEXAS A&M UNIVERSITY SYSTEM Funded by the Permanent University Fund The Roy G. Perry College of Engineering project broke ground June 2021. This three-story, 106,000-square-foot building, located at the intersection of Reda Bland Evans Street and E.E. O’Bannion Street on the north end of the Prairie View A&M campus, will incorporate student and focused research spaces. Two-thirds of the space will be dedicated for direct instruction and one-third for faculty and graduate student research lab space. The direct instruction portion will include six generalized instructional spaces and 14 specialized labs. The building will feature lab spaces designed for multidisciplinary research and will support work in 3-D manufacturing, space exploration, data analytics and artificial intelligence, robotics, structural analysis and more. There will also be a maker space area for students to collaborate across engineering disciplines.
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Table of Contents Fiscal Year 2021 Annual Report
rocks and minerals which now lie idle because unknown, resources of incalculable industrial utility, of wealth and power. Smite the earth, smite the rocks with the rod of knowledge and fountains of unstinted wealth will gush forth”
Ashbel Smith, M.D. First UTBoard of RegentsChairman at the dedication of theUniversity of Texas, 1881
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Financials
financials
FY2019 Actuals
FY2020 Actuals
FY2021 Actuals
Variance
FY20 vs FY21
$ millions, subject to rounding
Net Annual Volumes Oil (MBBL) Gas + NGLs (MMCF)
14,973 52,136 23,662
14,854 50,042 23,194
15,362 47,753 23,321
3%
-5%
Million Barrels of Oil Equivalent (MBOE)
1%
Commodity Pricing West Texas Intermediate (WTI)
$60.78 $53.15
$46.86 $45.22
$48.45 $52.61
3%
Avg. Oil Price Received
16%
Avg. Gas Price Received (including NGLs)
$3.05
$1.68
$3.49
108%
Permanent University Fund (Minerals) Oil Revenue
825 160
677
808 167
19% 85% 16% 27%
Gas Revenue
90
Bonuses, Unitization Payments
39
4
4
Total
$1,024
$771
$979
Available University Fund (Surface) Water, Caliche, Damages
23
23
19
-18%
Grazing
4
5
5
7%
Easements, Renewables & Salt Water Interest, Penalty, Assignment Fees
80
48
37
-23% 55% -18%
3
2
3
Total
$111
$78
$64
Total Revenue (Gross)
$1,135
$849
$1,043
23%
Expenses General & Administrative + Operating $/Barrel of Oil Equivalent Production
22
22
21
-6% -6%
0.93
0.94
0.89
Net Revenue
$1,113
$827
$1,023
24%
Fiscal Year 2021 Annual Report 19
Financials
Gas 17.1%
2021 Permanent University Fund $979M
Lease Bonus 0.4%
Oil Gas Lease Bonus
Oil 82.5%
Interest & Penalty 4.7%
Water, Caliche & Damages 29.7%
2021 Available University Fund $64M
Surface Leases & Easements 57.8%
Surface Leases & Easements Grazing Water, Caliche & Damages Interest & Penalty
Grazing 7.8%
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Oil & Gas Development
Oil & Gas development
University Lands’ Mineral & Surface Land team and the Natural Resource Development team strategically focus on maximizing development of oil and gas minerals on PUF Lands. The teams are comprised of experienced land, geoscience, engineering, and data professionals whose work combine deep technical understanding of resources and effective contracting strategies. The team promotes optimized full-field development to retain and attract value to the PUF lands by: Identifying best practices in completion designs, landing depth and development strategies Working with operators towards continuous and well-paced development Performing comprehensive subsurface studies to understand recoverable resource potential Improving compliance and accuracy of data retrieval, and the application of innovative data analytics Working with operators where opportunities exists for growth and/or improved economics, including the testing of new formations and the piloting of varying well spacing and completions methods
Negotiating agreements and other contracts that maximize the development value of the minerals Ensuring rights under existing contracts and state statutes are being met
Identifying opportunities to repatriate acreage
Initiating and helping direct acreage swaps between operators to maximize horizontal development opportunities
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Oil & Gas Development
Fiscal Year 2021 Annual Report
University Lands’ top oil & gas operators represent ~90% of production volumes on PUF Lands. 2021 TOP PRODUCERS
>
Largest Producers 70% of total production
>
Substantial Producers 20% of total production
*pro forma for M&A transactions and based on exit rate for FY2021
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Oil & Gas Development
KEY OIL & GAS DEVELOPMENT ACTIVITY
The PUF Lands span the Delaware Basin, Northern Midland Basin, Southern Midland Basin, and the Central Basin Platform with more than 200 companies operating 10,000 producing wells. New development in FY2021 saw 218 wells come online and 1.74 million lateral feet drilled. Production from PUF Lands hit 290,000 million barrels of oil equivalent per day, and UL’s cumulative net royalty production for the fiscal year was 23 million barrels of oil equivalent. To ensure continued development and value creation, University Lands’ Oil & Gas Mineral Management team negotiated five significant agreements with operators to secure an additional 1 million feet of future lateral footage obligations.
Northern Midland Basin Central Basin Platform
DAWSON
GAINES
Central Basin Platform
ANDREWS
Andrews
MARTIN
Lea
Midland
Goldsmith
ECTOR
MIDLAND
WINKLER
Odessa
Kermit
0
225
450
DEVELOPMENT ACTIVITY
Southern Midland Basin/Pecos/VVB
WARD
Crane
QEP
ConocoPhillips
CRANE
Grandfalls
UPTON
IRION
REAGAN
Imperial
Mertzon
RRP
Devon/Felix/WPX
Rankin
Big Lake
McCamey
Diamondback
Sable Sequitur Zarvona
Elevation Pioneer
Fort Stockton
Iraan
SCHLEICHER
PECOS
CROCKETT
Ozona
Sheffield
Oxy
SUTTON
TERRELL
WELL ACTIVITY
0
225
450
900
Miles
BREWSTER
Delaware Central Basin Platform
Drilled
M
Permited Producing
Odessa
Kermit
WINKLER
LOVING
ECTOR
MID
Wink
PERMIAN ACTIVITY ~36% in Delaware Basin ~40% Northern Midland Basin ~20% in Southern Midland Basin ~4% Central Basin Platform
Monahans
Wickett
Pyote
WARD
Barstow
CRANE
Pecos
UPTO
Crane
Grandfalls
REEVES
Imperial
PECOS
Coyanosa
0
225
450
McC
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Oil & Gas Development
Fiscal Year 2021 Annual Report
ACTIVITY SUMMARY
ACTIVITY BY BASIN
3 major oil and gas development agreements that add ~2MM lateral feet per year over the next 5 years on ~80,000 acres of leasehold 2 major oil and gas development ag reements under current negotiation on ~25,000 acres in the Delaware Basin ~20,000 acres of leasehold wer e returned as part of 2 development agreements UL allowed to terminate 218 w ells began producing 1.74 million lateral feet drilled on PUF acreage
NORTHERN MIDLAND BASIN
FY2021
Wells
Lateral Ft
Hz Spud
58
634,170
Hz 1 st Prod
87
944,690
DELAWARE BASIN
FY2021
Wells
Lateral Ft
OIL & GAS LEASE SALE #130
Hz Spud
43
434,430
Hz 1 st Prod
79
787,150
~36,000 acres leased $88.5MM in lease bonus ~$2,500 per acre average bonus Leases sold as “blocks” to promote horizontal development
CENTRAL BASIN PLATFORM
FY2021
Wells
Lateral Ft
Hz Spud
15
105,960
Hz 1 st Prod
10
59,830
SOUTHERN MIDLAND BASIN
FY2021
Wells
Lateral Ft
Hz Spud
56
566,880
Hz 1 st Prod
44
442,380
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Water Supply & Logistics
water supply & logistics University Lands plays a key role in Permian Basin groundwater management. The PUF Lands’ geographic positioning over several of the region’s major and minor aquifers - coupled with University Lands’ long-term management horizon - necessitates that water use across PUF Lands be monitored and conserved. At the same time, University Lands works to promote prudent commercial opportunities and support the success of water-related commercial ventures on PUF Lands. University Lands monitors groundwater utilization by requiring all mineral developers to meter and report water sources from PUF lands and imported water. Collectively 622 operator owned water meters and 9 water import meters are reported monthly.
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Water Supply & Logistics
Fiscal Year 2021 Annual Report
1 Water well drilling & usage reporting guidelines
2 Groundwater data management system
UL Groundwater Management Plan
4 Develop short-term & long-term groundwater usage policies
3 Assess role in local & state water planning agencies
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Energy Transition
Energy transition “Energy Transition” is the umbrella term for market forces, public policy choices, and technological innovations that will move the United States and the entire globe to a lower carbon energy mix. Its most visible indicators today are rapid growth in manufacture of battery electric vehicles and construction of wind and solar power generation plants. But its scope is much broader.
University Lands has hosted rapid growth in solar energy production on the Lands. But the future of energy transition will also include:
Battery storage of power generated by wind and solar “Green hydrogen” production—electrolysis of water using renewable electricity Carbon storage, both in depleted pore space and in the soil on PUF Lands Fiscal year 2021 was a landmark year for renewable power on PUF Lands. Two new facilities came online, the Prospero solar project and the White Mesa wind project with 600MW of solar energy beginning production. Looking forward, energy transition offers great opportunities for University Lands. All of the energy transition technologies require vast amounts of surface area to achieve economic scale. The PUF Lands are well positioned geographically in terms of location and their large contiguous blocks, making University Lands the landlord of choice for project developers.
RENEWABLE ENERGY PROJECTS ON PUF LANDS
NUMBER OF PROJECTS (Active/In-construction)
TECHNOLOGY
TOTAL ACRES LEASED MEGAWATTS PRODUCED
Solar Wind
5 4
14,750 54,750
1,820
388
Battery Storage
16 battery projects under contract, not yet developed
Fiscal Year 2021 Annual Report 27
Energy Transition
PUF LANDS RENEWABLE ENERGY MAP
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Grazing & Agriculture
Grazing & agriculture Range & wildlife management has been an integral part of UL since its inception. This aspect of managing the PUF Lands retains a rich history that spans many generations of ranching families who have settled the area and raised families on the lands. In the last 50 years, UL has increased its awareness and purposeful management of range and wildlife. UL’s 110 grazing lessees maintain the rights to graze livestock and manage wildlife resources. UL monitors livestock stocking rates to ensure grazing leases maintain good range conditions. Good grazing management helps maintain other natural processes including groundwater management and recharging aquifers for future consumption. UL also encourages and enforces conservative management of PUF Lands wildlife. There are many huntable species on PUF Lands, including white-tailed and mule deer, pronghorn antelope, dove and quail. UL conducts aerial surveys to monitor the wildlife population to determine the overall health of each species and to provide harvest recommendations to ensure the resource will be there for generations to come. UL invests in these natural resources by putting money back into the lands. Various projects are completed annually such as installation of new fencing to protect our boundaries and new interior fencing to promote proper livestock grazing management. New water wells, pipelines, storage tanks and troughs are installed to increase water for livestock and grazing management. Different methods of brush control are implemented on the land to encourage more grass production, which also increases the water quantity and quality that is captured. Water improvements, along with brush control, aid in distributing livestock to all areas of a lease, maximizing the full potential of all 2.1 million acres and increasing stocking capacity.
$3.25M
Invested back into PUF Lands ( by University Lands, grazing lessees, United States Department of Agriculture - Natural Resources Conservation Service and Texas Parks and Wildlife)
21,000 88 74 3
Acres of brush control employed
Miles of fencing installed
Ranch water improvements
Ranch water wells plugged
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Table of Contents Fiscal Year 2021 Annual Report
Livestock water installation
Fence installation
Brush control
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Environmental Stewardship
Environmental stewardship
University Lands’ mission to manage the resources of the PUF Lands for the long-term benefit of Texans necessitates assertive and proactive environmental management. UL continuously assesses and evaluates the risk of all commercial activity occurring on the Lands, including oil and gas development, renewable energy development, pipeline construction, ranching, retail, and industrial processes. Staff work to identify best practices and requires that these best practices be implemented by those companies doing business on PUF Lands. UL facilitates communications and compliance through its relationships with regulatory agencies that include the Texas Commission on Environmental Quality, Railroad Commission of Texas, Environmental Protection Agency, Texas Parks and Wildlife, Natural Resources Conservation Service, and U.S. Fish & Wildlife Service. Staff coordinate and monitor the multiple uses of the Lands by performing inspections and overseeing prescribed corrective actions. All construction is monitored to ensure cooperative co-existence for all users of acreage. UL terminates unproductive oil and gas leases and issues lease restoration requirements described in restoration demand letters to the lessee. UL ensures oil and gas wells on the terminated leases are plugged and abandoned in a timely manner according to regulations of the Railroad Commission of Texas. Proper plugging procedures ensure protection of usable quality groundwater resources on UL. Water Well Plugging UL maintains a water well inventory of all water wells owned by our O&G and grazing lessees. UL ensures that water wells no longer beneficial to the well owner are plugged in compliance with the technical requirements of the Texas Administrative Code by a water well driller licensed by the State of Texas. Proper plugging procedures ensure protection of usable quality groundwater resources on UL. WELL PLUGGING Oil & Gas Well Plugging
Fiscal Year 2021 Annual Report 31
Environmental Stewardship
BY THE NUMBERS
Oil & Gas Lease Audit
Lease Inspections
Water Wells
622 O&G water wells metered daily
1,100 O&G lease inspections
60 Leases expired at primary term end 115 O&G production wells plugged 150K Acres returned to inventory
265 Commercial lease & easement inspections
20 O&G water well plugged
7 Grazing lease inspections
33 Low or no production leases terminated
32
Environmental Stewardship
SOIL & GROUNDWATER
All spills, leaks or releases of crude oil, condensate, or produced water are reported to UL and to regulatory agencies. Our staff geologists provide remedial guidance and field oversight ensuring remediation is completed in a thorough and timely manner. UL staff geologists require remedial standards exceeding or equivalent to regulatory requirements and provide final determination of completed remediation. UL range management specialists reclaim abandoned caliche (borrow) pits by grading pit walls to an erosion-resistant gentle slope, reseeding, and returning to pastureland. UL issues restoration demand letters for surface leases that have expired or terminated and monitors clean up activity to ensure the lease premises are reclaimed and returned to pastureland.
Soil remediation
Produced water release
Fiscal Year 2021 Annual Report 33
Environmental Stewardship
AIR
242 2.3% OGI flare inspections conducted Gas flared/MCF produced
Flaring
University Lands supports the goal of minimizing overall flaring on the Lands and industry-wide. Through regular communications with operators and regulatory bodies, UL encourages best practices to safely reduce routine flaring. These include bringing wells online only when adequate takeaway capacity is connected and shutting in production during prolonged upsets. UL monitors a real-time (based on production reporting deadlines) graphical interface of flared volumes by lease and operator. UL contacts operators reporting atypical flared volumes to discuss contributing factors and corrective actions. Operators owe royalty payments to UL for all gas produced on PUF Lands, even if flared or combusted for lease fuel, and as a result, the frequency of flaring on UL has been lower than for the total Permian Basin for six consecutive years. In 2021 University Lands established an OGI flare inspection program to inspect the performance of flares, thermal oxidizers and combustors. The operator is notified when unlit or otherwise malfunctioning flares are observed, and corrective action is documented. University Lands performed 242 flare inspections in the first year of this program.
OGi camera inspection
34
Environmental Stewardship
Greenhouse Gas Emissions (GHG) Management Optical Gas Imaging Inspections
OGI emission compliance inspections conducted 82
University Lands engages in continuous dialogue with its largest operators on the topic of reducing greenhouse gas emissions. As fiscal year 2021 closed, approximately 80% of oil production on PUF Lands was operated by large public companies. These producers have made ambitious public commitments to eliminate routine flaring and make substantial reductions in methane emissions and are meeting these commitments by continuously installing and/or upgrading production facilities. University Lands supports our operators’ objectives and strive to lead the Permian Basin in overall emission reduction through the continuous performance of air inspections performed by University Lands staff.
Emission Inspections Conducted by UL
20
52
Advanced thief hatch & tank level installation
82
High-volume vapor recovery installation
Production facility with redundant emissions controls
Fiscal Year 2021 Annual Report 35
Environmental Stewardship
WHAT WE ARE DOING
Contractual requirements and state and federal law Oil & gas operators on PUF Lands are required by contract to comply with all state and federal laws and regulations. UL also requires use of best operating practices to minimize releases to the environment.
Fugitive emission and flare inspections UL performs routine leak detection facility and flare inspections using an optical gas imaging camera and ensures appropriate corrective actions are performed when emissions are observed.
Non-productive/marginal well initiative UL’s routine inspections of oil & gas operations ensures marginal wells are properly plugged and any associated emissions are eliminated.
Royalty payments required on all gas Royalty is due and payable on flared gas, incentivizing operators to minimize the practice.
Collaboration with experts and industry UL engages in regular dialogue, collaboration and sharing of best practices with scientists and engineers and industry associations and shares these learnings with operators.
Commitment to best practices and technology UL encourages operators’ adoption of reliable control technologies and proactive inspection and repair.
Commitment to research UL seeks opportunities to support and/or participate in government, industry, and academic collaborative research projects.
Best practices recommendations UL publishes recommended best operating practices to help ensure reductions in emissions continue.
Reporting and transparency UL publishes its environmental performance data on-line and in its annual report.
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The PUF Explained
The puf explained
P U F L A N D S M A N A G E R
2.1 million acres that produce two income streams: mineral income, which comes mainly from oil and gas bonuses, rentals and royalties, and surface income such as income from grazing leases, easements, wind power generation and a commercial vineyard and winery.
MINERAL INCOME
SURFACE INCOME
The constitution permits the UT System and Texas A&M University System to each sell a limited amount of bonds (a type of borrowing) to fund construction and other capital expenses at system institutions. The bonds are secured by the AUF, which gives the systems the lowest interest rates available, saving the state money. Bond proceeds may not be used for operational expenses.
PUF income and investment assets are managed by UTIMCO, a nonpro t corporation operating under the authority of the UT System Board of Regents.
Fiscal Year 2021 Annual Report 37
The PUF Explained
U N D E R S T A N D I N G
Established in the Texas Constitution of 1876 through the appropriation of land.
PERMANENT UNIVERSITY FUND
CONST I TUT I ON S T A T E O F T E X A S
UTSYSTEM.EDU/PUF
A constitutional permanent endowment that supports excellence in the The University of Texas and Texas A&M University Systems.
KEY FACTS CONSTITUTION GIVESMANAGEMENT TO UT SYSTEM BOARD;
THE UN I VERS I TY OF T EXAS SYST EM
GROWS FROMOIL AND GAS PRODUCTION AND INVESTMENT INCOME;
SUPPORTS CONSTRUCTION AND CAPITAL EXPENSES AT INSTITUTIONS OF UT AND TAMU SYSTEMS; CORPUS IS NOT SPENT EXCEPT FOR EXPENSES OF MANAGING THE LAND AND THE INVESTMENT ASSETS; CONSTITUTION DOES NOT PERMIT UT SYSTEMTO USE AUF FOR OPERATIONAL EXPENSES AT INSTITUTIONS OTHER THAN UT AUSTIN;
CONSTITUTIONAL USES OF AUF:
Support and maintenance of UT System Administration
Support and maintenance of UT Austin
Payment of principal and
interest on PUF bonds
2021 VALUE OF ~$32 BILLION
AUF
T EXAS A&M UN I VERS I TY SYST EM
The Available University Fund is PUF surface income plus an annual distribution from the total return on PUF investments, constitutionally allocated 2/3 to UT System and 1/3 to Texas A&M University System.
The Texas A&M University System has similar constitutional restrictions on use of AUF. Some Texas A&M institutions are not eligible for PUF bonds.
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Midland 704 W. Dengar Ave. Midland, TX 79705 432-684-4404
Houston 825 Town & Country Ln. Suite 1100 Houston, TX 77024 713-352-3808
FISCAL YEAR 2021 ANNUAL REPORT
www.universitylands.utsystem.edu
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