Bloomberg: The University of Texas, which made its fortune from oil, aims to profit in the fields of Crypto and AI

Author: Janet Lorin

Compiled by: Luffy, Foresight News

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

Dozens of wind turbines stand tall under the desert sky, each as high as a 50-story building. A total of 800,000 solar panels cover a patch of scrubland nearly the size of London Heathrow Airport. In a refrigerated cryptocurrency data warehouse, rows of computer servers emit a noisy hum, occupying an area equivalent to two city blocks in New York City. The University of Texas System manages the land beneath all these new projects, generating revenue for hundreds of thousands of students.

For a long time, the University of Texas System has relied on leasing rights to its vast mineral underground resources in the Permian Basin to generate income: extracting oil and gas from North America's richest deposits. And beneath the windmills and solar farms, pipelines stretching for miles that transport "liquid gold" remain key to its wealth. Thanks to years of record fossil fuel production and investment returns, the University of Texas boasts a $47.5 billion endowment, ranking second in the higher education sector, just behind Harvard University.

However, the University of Texas System (which also manages land for Texas A&M University) is increasingly seeking to generate more income from the land itself. In addition to ground development projects that began decades ago: leasing rights for roads, power lines, and pipeline construction, as well as land use rights for grazing. The university now has new initiatives: leasing land for renewable energy, battery storage, and cryptocurrency data centers, creating revenue streams that barely existed five years ago.

A wind farm in Rankin, Texas

In the year ending last August, these ground-based projects generated nearly $130 million in revenue. This is the highest amount ever, about five times that of 15 years ago. This revenue exceeds half of the scholarship and grant funding amount for the University of Texas at Austin (the state's flagship campus) for that year.

Revenue from University Lands (for the years ending August 31)

In May of this year, 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 Meta, the parent company of Facebook, and the U.S. Army. Although financial details have not been disclosed, this will be the largest ground project deal the University of Texas has made to date.

If these types of projects succeed, the University of Texas expects to add tens of millions of dollars in revenue annually over the coming decades. The university is seeking sites for large AI data centers, companies that help utilities and other entities prevent carbon emissions from entering the atmosphere, and natural gas power plants.

William Murphy Jr., CEO of University Lands (the department managing state-owned properties for the University of Texas), is trying to diversify the system's revenue. Some oil company CEOs have recently stated that production in the Permian Basin has reached or is nearing its peak. "Our mission is to create permanent income for the institution. We have a long-term vision, 30 to 50 years," Murphy said, "We see this as a marathon, and we are at the starting line."

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

The University of Texas's strategy comes at a time when renewable energy is facing criticism in Washington, D.C. To reverse the Biden administration's support for renewable energy, fossil fuel advocates, including President Donald Trump, have harshly criticized wind turbines, calling them unsightly and unreliable. "Huge, ugly windmills -- they ruin your community," he said in January.

Texas's mixed feelings about renewable energy may pose challenges for the University of Texas's plans. The state is the largest producer of wind energy in the U.S., with solar ranking second, just behind California. "We believe in an 'all-of-the-above' energy development approach," said Republican Governor Greg Abbott in December.

To support this strategy in the Permian Basin, the Texas Public Utility Commission approved a $10.1 billion plan in April to build three transmission lines to help meet the demands of oil drilling platforms, new data centers, cryptocurrency mining sites, and hydrogen plants. "Without these new transmission lines, no one would want to expand wind and solar supply in West Texas," said Ed Hirs, an energy economist at the University of Houston.

However, after a devastating winter storm in 2021 led to widespread power outages, Texas Republicans blamed the grid's reliance on wind and solar energy. Research found that failures in natural gas plants were the primary cause of the outages. Nevertheless, the Republican-controlled Texas legislature is still considering some bills that would make it more expensive and difficult to build solar and wind projects.

Murphy stated that if Texas officials move away from renewable energy, the University of Texas could change its strategy. For example, the University could support natural gas-driven projects. "If these incentives change, it could alter the landscape in West Texas," he said, "We are not a political entity, and we will not push anything."

Murphy's office in Houston is adorned with black-and-white photos of early oil drilling rigs, located near the headquarters of ConocoPhillips and Shell's major U.S. outpost. An old oil pump's wooden wheel occupies a prominent place in the office, towering twice as high as Murphy, indicating that the University of Texas still places significant value on making money from fossil fuels. "We plan to keep oil and gas around for a long time," said the 47-year-old Murphy, a fifth-generation Texan who was once an oil and gas lawyer and managed one of the state's largest cattle ranches.

In Piot, Texas, an operator burns off excess natural gas at a well on land managed by the University of Texas

The University of Texas oversees 3,300 square miles of land in the Permian Basin, an area nearly equivalent to the combined size of Delaware and Rhode Island, spanning 19 counties with the famous oil town of Midland at its center. In the 19th century, the state constitution granted mineral and surface extraction rights to the University of Texas for these lands. At that time, the arid land was considered nearly worthless except for grazing. But in 1923, drillers discovered oil, bringing wealth to Texas's higher education.

The University of Texas itself does not explore for oil or gas, nor does it develop any projects on state-owned land. It leases this 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. With rising prices and production, royalties have recently surged, generating over $2 billion annually.

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

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

The state constitution mandates that oil and gas revenues must be used for capital expenditures, such as building classrooms, hospitals, and laboratories, rather than for day-to-day operations. This wealth has contributed to a construction boom, with recent allocations of $50 million for a new cancer and surgical center at the University of Texas Rio Grande Valley, $60 million to fund a "smart hospital" equipped with virtual reality labs at the University of Texas at Arlington, and $54 million to support the construction of a new site for the Mays Business School at Texas A&M's flagship campus.

New ground project revenues can be used for categories like "academic excellence" and support special programs. Although still small compared to fossil fuel revenues, non-oil and gas income has totaled $1.2 billion over the past 15 years and has been rising sharply. Last November, the University of Texas System announced that it would waive tuition for undergraduate students from families with incomes of $100,000 or less across all nine campuses, utilizing its endowment, non-fossil fuel funds, and other sources.

Today, such funding is especially valuable to universities, as it offers flexibility in an unfavorable environment for higher education. The Trump administration has been at odds with elite universities, cutting federal funding in areas it dislikes, including anything seen as related to diversity, equity, and inclusion. A Republican bill is seeking to impose taxes of up to 21% on investment income from the largest private university endowments. As a public school system, the University of Texas is not among the targets of these attacks, and in any case, its per-student endowment (a measure of wealth by the government) is too low, at about $230,000, while Harvard's exceeds $2 million.

Given the growing population and increasing enrollment in higher education, Texas still craves more resources. By partnering with companies like NextEra Energy (a renewable energy supplier based in Juno Beach, Florida), the University of Texas has signed five wind and five solar leasing agreements. It also has four agreements for cryptocurrency mining and 14 agreements for battery storage systems, which are either operational or under construction. Of the record $127 million in non-oil revenue last fiscal year, only $7 million came from renewable energy.

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

The biggest benefit may come from leasing land for large data centers, which have sparked controversy due to their massive energy consumption. Tech companies have pledged to spend hundreds of billions of dollars to build them to meet the computing demands of artificial intelligence. "Texas is getting attention from everyone," said Brant Bernet, a senior vice president at CBRE Group, which helps companies find land for data centers.

Murphy is cautiously making these deals, as he does not want to occupy too much land while giving up more profitable opportunities. "We need to maximize returns, but we can't rush," he said, "We understand the future, and we also understand its potential."