oil and gas production

The flow of investments between five companies links an oil and gas production company that drills on university land to the UT System’s investment company and to UT System Regent Alex Cranberg.

In 2011, the University of Texas Investment Management Company committed $200 million to a private investment firm that has a financial stake in an oil and gas production company that operates on University land — B C Operating Inc. Cranberg, an energy investor, is chairman of a holding company that is partially owned by another investor with a financial stake in B C Operating. 

UT System spokeswoman Jenny LaCoste-Caputo said UTIMCO CEO Bruce Zimmerman confirmed UTIMCO is aware of the connection to B C Operating, but it presents no investment conflict.

UTIMCO’s $200 million commitment was to Post Oak Energy Capital, a private investment firm. Post Oak then committed $60 million to oil and gas company Crown Oil Partners IV, LP. The owner of Crown Oil owns half of B C Operating. B C Operating drills on part of the 2.1 million acres of land that make up the Permanent University Fund and has transferred ownership of some of its leases to Crown Oil.

Mark Warner, UTIMCO’s managing director of natural resources investments, said UTIMCO is involved in its partners’ investment decisions, but he would not elaborate on Post
Oak’s investments. 

“I will say in any of these partnerships there is a very thorough discussion on strategy and approach,” Warner said. “We certainly had that discussion with Post Oak. This is an
ongoing conversation.”

UTIMCO, a nonprofit corporation established by the System, invests profits from leasing the land for projects ranging from oil and gas production to cattle herding. Through the Available University Fund, the UT System receives two-thirds of profits from those investments and the Texas A&M University System receives one-third. UT-Austin received $200 million from the fund, which made up about 9 percent of the University’s 2012-2013 operating budget.

B C Operating is a long-time University land lease owner, with records of oil production dating back to the 1950s, according to University Lands Office records. Through the lease sales, B C Operating has contributed more than $921,000 to the Permanent University Fund, not including production royalties. 

Post Oak was two years old when it entered a limited partnership with UTIMCO. Limited partnerships are one of multiple investment arrangements UTIMCO makes.

Warner said Post Oak presented an opportunity to create a private equity partnership with a smaller, middle-market company that invests specifically in the energy sectors.

“They were well known to many people known by us,” Warner said. “It was easy to do diligence on them.”

Warner said UTIMCO’s portfolio had a gap that Post Oak’s market could fill.

Cranberg, appointed by Gov. Rick Perry to the UT System Board of Regents in 2011, is connected to Crump Energy Partners, whose owner also owns the other half of B C Operating. Like Crown Oil, Crump Energy has partial ownership of some land leases originally obtained by B C Operating from University Lands. Crump Energy received a $100 million commitment from energy equity company Quantum Energy Partners.

In a statement to The Daily Texan, Cranberg said Quantum Energy Partners owns 11 percent of his company, Aspect Holdings. Aspect Holdings, a private exploration and energy investment company, is also an investment portfolio company for Quantum Energy Partners, according to Quantum Energy.

However, Cranberg said he does not receive any compensation from Quantum Energy Partners. Quantum Energy continues to have a financial stake in Aspect Holdings. Cranberg also has other connections to the founders of Quantum Energy through the creation of a hybrid investment fund and an oil and gas operating company called Quantum Resources Management, but it does not have investments in B C Operating or its affiliated companies. 

The UT System recently laid out a new disclosure system to avoid conflicts of interest by requiring faculty, administrators and staff who serve on boards of other organizations or participate in businesses beyond their university to disclose their involvement.

LaCoste-Caputo said this policy does not apply to the regents because they are governed by state conflict of interest laws.

As a regent, Cranberg is required to file a personal financial statement with the Texas Ethics Commission, which was obtained by The Daily Texan. But the financial statements do not require public officials to report who has financial ties to their businesses.

Published on March 8, 2013 as "Web of investments". 

Photo Credit: Natasha Smith | Daily Texan Staff

University Lands, operated through the UT System’s Office of Business Affairs, sold a combined $72 million in oil and gas leases during its 2012 semiannual sales.

The leases come on the heels of University Lands’ most lucrative sales in history in 2011, when lease sales totaled $560 million.

Jim Benson, executive director of University Lands, said total sales were less this year because less acreage was available to lease.

“Of our total land mass of 2.1 million acres, 1.6 million are in production in the Permian Basin, and of that 1.4 million are under leased or currently in production,” he said.

The September 2012 sale offered 49,007 acres, just a little more than an eighth of the September 2011 sale when University Lands offered 372,163 acres for lease to oil and gas companies.

University Lands is responsible for the 2.1 million acres of land that make up the Permanent University Fund, a state endowment funded by the investment of lease sale profits and revenue from production on the land. The land is leased for multiple purposes, including oil and gas production and for surface uses. 

The UT System and the Texas A&M University System are beneficiaries of the PUF.

The UT Investment Management Company invests sale profits and lease revenue in various industries including oil, gas and gold on behalf of the System. Returns on investment go straight into the Available University Fund, which usually makes up about 8 percent of UT’s operating budget.

The UT System receives two-thirds of returns on investment while the A&M System receives one-third.

The University received $205 million in returns through the Available University Fund for the 2012 fiscal year operating budget — up almost $26 million from 2011.

Mary Knight, associate vice president and UT budget director, said fluctuations in lease sale profits are smoothed over time because Available University Fund estimates are based on 12 previous financial quarters rather than only the previous year.

“Long-term declines could have a major impact on the recurring budget and could require budget reductions across all colleges, schools and departments, including research and student scholarships,” she said.

Bruce Zimmerman, CEO of the UT Investment Management Company, said the company is not looking to invest in new industries.

The bulk of revenue generated from the lands is from oil production, Benson said. University Lands receives 25 percent of royalties from all oil and gas production on its leased land and produced almost $1 billion in revenue last year. He said $600 million was from oil and gas.

“While it’s kind of exciting to see big oil and gas lease sales, the real revenue comes from long-term production on the land,” Benson said. “Of all these new leases companies buy, the ultimate goal is to get them to drill.”

The sale is a sealed bid process in which companies bid on land where they think they can hit oil. Permanent University Fund lands are primarily located in 24 counties, mostly in West Texas.

Benson said many major companies have production operations on University Land tracts.

“We get newcomers every year, but a lot of the same companies are consistently drilling and producing on our land in the Permian Basin for years,” he said.

ConocoPhillips Company, Approach Oil & Gas Inc. and Angelle & Donohue Oil & Gas Properties Inc. are among the leaseholders.

Oil was first discovered on Permanent University Fund land in 1923 in Reagan County, according to University Lands.

Printed on Friday, October 12, 2012 as: University Lands' revenue dereases