Bloomberg: The University of Texas, which made its fortune on oil, wants to make money in Crypto and AI

Author: Janet Lorin

Compiled by: Luffy, Foresight News

A cryptocurrency data center in the small town of Piot, Texas, located on land leased from the University of Texas system

Dozens of wind turbines stand under the desert sky, each as high as 50 floors. A total of 800,000 solar panels cover a bushland, almost the same area as London Heathrow Airport. In a refrigerated cryptocurrency data warehouse, rows of computer servers buzz noisy, covering two blocks of New York City. The University of Texas systematically manages the land beneath all these new programs, which are generating income for hundreds of thousands of students.

The University of Texas system has long relied on renting out its vast mineral underground resources in the Permian Basin to make money: oil and gas are mined from North America's richest mineral deposits. And under windmills and solar farms, the pipeline that stretches for miles to transport "liquid gold" remains the key to its wealth. Thanks to record fossil fuel production and investment returns over the years, the University of Texas has a $47.5 billion endowment, ranking second in colleges and universities, behind Harvard University.

But the University of Texas system (and also manages land for Texas A&M) is now increasingly seeking to generate more revenue on the ground. In addition to ground development projects that began decades ago: construction rights for leased roads, power lines and pipelines, and land use rights for grazing. The school now has a new attempt: renting land for renewable energy, battery storage and cryptocurrency data centers, creating a revenue stream that almost didn’t exist five years ago.

A wind farm in Rankin, Texas

In total, these ground-oriented projects generated nearly $130 million in revenue in the 1 year ended last August. This is the highest amount ever, about 5 times that of 15 years ago. The income exceeded half of the amount of scholarships and grants grants from the University of Texas at Austin, the state’s flagship campus.

University of Texas System Land Holding Income (for the years ended August 31)

In May, the University of Texas reached a preliminary agreement to lease 200,000 acres (10% of its land holdings) to Virginia-based Apex Clean Energy for wind and solar power generation. The company's clients include Facebook's parent company Meta and the U.S. Army. Although financial details have not been released yet, this will be the largest ground project deal at the University of Texas to date.

If such programs are successful, the University of Texas expects to increase revenue by tens of millions of dollars a year over the next few decades. The calibration seeks to provide sites for large AI data centers, companies that help utilities and other agencies prevent carbon emissions from entering the atmosphere, and gas power plants.

William Murphy Jr., CEO of University Lands, is trying to diversify revenues in the system. Some oil companies' CEOs recently said that U.S. production in the Permian Basin has reached or approached its peak. "Our mission is to generate permanent income for the institution. We have a long-term perspective, 30 to 50 years," Murphy said. "We think it's a long-term run and we're at the starting point."

William Murphy Jr., CEO of University Lands of University Lands in his Houston office

The University of Texas’ strategy comes as renewable energy is under fire in Washington, D.C. To reverse the Biden administration’s support for renewable energy, fossil fuel advocate President Donald Trump slammed the wind turbines, calling it ugly and unreliable. "Huge, ugly windmills - they ruin your community," he said in January.

Texas’ own love-hate relationship with renewable energy could present challenges to the University of Texas’s plans. The state is the largest wind power producer in the United States, with solar energy ranked second only after California. "We believe in an 'all-round' approach to energy development," Greg Abbott, the state's Republican Governor, said in December.

To support this strategy in the Permian Basin, the Texas Public Utilities Commission approved a $10.1 billion plan in April to build three transmission lines to help meet the needs of oil rigs, new data centers, cryptocurrency mines and hydrogen plants. “Without these new transmission lines, no one would want to expand wind and solar supplies in West Texas,” said Ed Hirs, an energy economist at the University of Houston.

However, in 2021, Republicans in the state blamed the grid’s dependence on wind and solar power after a devastating winter storm caused a massive power outage. Research has found that failures in natural gas power plants are the main cause of power outages. Still, the Republican-controlled Texas legislature is considering bills that will make building solar and wind projects more expensive and difficult.

Murphy said the University of Texas could change its strategy if Texas officials stay away from renewable energy. For example, the University of Texas could support projects powered by natural gas. "If these incentives change, it could change the status quo in West Texas," he said. "We are not a political entity and we are not pushing anything."

Murphy's Houston office walls are hung with black and white photos of early oil rigs, close to ConocoPhillips headquarters and London Shell's main outpost in the United States. A wooden wheel on an old oil pump takes the main position in the office, which is twice as high as Murphy, suggesting that the University of Texas still attaches great importance to making money from fossil fuels. "We plan to keep oil and gas for a long time," said Murphy, 47, a fifth-generation Texan who was an oil and gas lawyer who once managed one of the largest cattle farms in the state.

An operator burns excess gas in a well on a land managed by the University of Texas in Piot, Texas

The University of Texas oversees the 3,300 square miles of land in the Permian Basin, almost the same area as the states of Delaware and Rhode Island combined, spanning 19 counties and centering on the famous oil town of Midland. In the 19th century, the state constitution granted the rights of mineral and surface mining to the University of Texas. At that time, the arid land was considered to be of little value besides grazing. But drillers discovered oil in 1923, bringing wealth to higher education in Texas.

The University of Texas itself does not explore oil or gas, nor does it develop any projects on state land. It rents out the land and charges royalties based on oil and gas production. Over the past 15 years, land leased to oil and gas companies has generated $15.8 billion in revenue. Amid rising prices and output, royalties have surged recently, with revenues of more than $2 billion per year.

Renewable energy and energy storage projects on land managed by the University of Texas System

All of this money flows into a fund that supports two large public universities in Texas. Two-thirds of this goes to the University of Texas and one-third goes to Texas A&M, which has a $20 billion endowment. The two systems educate about approximately 350,000 students in total. They also operate hospitals, including the University of Texas’s MD Anderson Cancer Center in Houston.

The state constitution states that oil and gas revenue must be used for capital expenditures, such as building classrooms, hospitals and laboratories, rather than day-to-day operations. The wealth has led to a construction boom, with a recent allocation of $50 million to the new Cancer and Surgery Center at the University of Texas at Rio Grande Valley, $60 million to fund the construction of a "smart hospital" equipped with a virtual reality lab at the University of Texas at Arlington, and $54 million to support the construction of a new site at the Texas A&M flagship campus.

New ground project revenues can be used in categories such as “Academic Excellence” and support special programs. Although it remains small compared to fossil fuel revenue, non-oil and gas revenues have totaled $1.2 billion in the past 15 years and have been rising dramatically. Last November, the University of Texas System announced that it would waive tuition fees for all undergraduates with household income of $100,000 or less on nine campuses using its endowment, non-fossil fuel funding and other sources.

These types of funds are particularly valuable to universities today because they have flexibility in the context of adverse conditions in which higher education faces. The Trump administration has been fighting elite universities, cutting off federal funding in areas it dislikes, including anything seen as related to diversity, equity, and inclusion. A Republican bill is seeking to impose a tax of up to 21% on investment income from the largest private university endowment. As a public school system, the University of Texas is not among the targets, and its per capita donation (the government’s measure of wealth) is too low, at about $230,000, while Harvard is over $2 million.

Given the growing population and higher education enrollment, Texas is still eager to gain more resources. Through partnerships with NextEra Energy, a renewable energy supplier based in Juneau Beach, Florida, the University of Texas has signed five wind and five solar lease agreements. It also has four protocols for cryptocurrency mining, and 14 protocols for battery storage systems that are either running or under construction. Of the record $127 million non-oil source revenues in the last fiscal year, only $7 million came from renewable energy sources.

A cryptocurrency data center in Piott, Texas, located on land leased from the University of Texas system

The biggest benefit may be the lease of land for large data centers that have sparked controversy over their enormous energy consumption. Tech companies promise to spend hundreds of billions of dollars to build them to meet the computing needs of artificial intelligence. “Texas is getting everyone’s attention,” said Brant Bernet, senior vice president of CBRE Group’s search for data center land for the company.

Murphy is making these deals cautiously because he doesn’t want to take up too much land and give up more profitable opportunities. "We need to maximize profits, but we can't rush it," he said. "We understand the future, and we understand its potential."