oil and gas

Bridget Scanlon, senior research scientist at the Bureau of Economic Geology, authored a study that found unconventional gas and oil production uses about the same amount of water as conventional production. Scanlon’s results will aid future economic and policy studies about the environmental impacts of unconventional energy production methods like fracking.

Photo Credit: Xintong Guo | Daily Texan Staff

A study led by a UT researcher found that the amount of water used for unconventional gas and oil production, such as hydraulic fracturing, is about the same as is used for conventional production. 

The study, published on Sept. 18 online in the “Environmental Science & Technology Journal,” was led by Bridget Scanlon, senior research scientist in the Jackson School of Geosciences.

“We’re using more water for hydraulic fracturing because we’re producing more oil using hydraulic fracturing,” Scanlon said. “It is not because hydraulic fracturing is more water-intensive per unit of oil production.” 

Scanlon said she decided to conduct the study to answer existing questions about the vulnerability of unconventional gas and oil production because of water shortages and the use of hydraulic fracturing.

“There is a concern about using water, especially in times of drought,” said Kristine Uhlman, research engineering/scientist associate. “With this research, people can understand that the method for generating energy is not necessarily what’s causing more water use.”

According to Uhlman, hydraulic fracturing, fracking, is a process in which liquids are injected into fractures of rocks to extract natural gas and oil. Conventional oil and gas accumulates in reservoirs and is extracted through the use of conventional, vertical wells. Unconventional oil and gas is trapped in dense rock, typically shale, and cannot be extracted except through the use of unconventional, horizontal wells. Uhlman said the unconventional oil production method has been useful to reach unconventional oil. 

“Unconventional oil and gas production is helping the United Sates be energy independent,” Uhlman said. “We have enough energy to sustain ourselves because of this new unconventional development of unconventional oil and gas.”

Scanlon said the results of this study could be used in future economic and policy studies about environmental impacts of unconventional energy production. She said the research was based on a well-by-well analysis of water use in hydraulic fracturing and used a number of different databases. 

She looked at thousands of wells used for conventional and unconventional oil and gas production and came up with ranges of how much water is used to construct them. They found the same amount of water is used for both methods.

“The difference is not how much water is used, but when it is used,” Uhlman said.

Uhlman said that this study could provide people with a better understanding of the relationship between water and energy.

Research scientist associate Robert Reedy and research scientist Jean-Philippe Nicot, both with the Jackson School of Geosciences, also contributed to the study.

Decreasing international crude oil prices may affect the money available to the UT System, according to Bruce Zimmerman, CEO and CIO of the University of Texas Investment Management Company.

From June 2012 to June 2014, the market value of the Permanent University Fund, or PUF, increased from $13.1 billion to $17.2 billion, according to reports from UTIMCO, the organization that invests money for the System.

The PUF is an endowment containing 2.1 million acres in West Texas that was created by the Texas Constitution to benefit the UT and Texas A&M University systems. The proceeds from the sale of oil, gas, sulfur and water royalties are invested in the form of stocks, bonds and equity interest to establish the Available University Fund, or AUF. Two-thirds of these funds go toward the UT System, and one-third goes to the Texas A&M system.

Scott Kelley, executive vice president for business affairs at the UT System, said the PUF’s market value grew as a result of increased oil production in West Texas.

“The new technology and horizontal drilling and the ability to extract oil and gas from some of the shale that’s out there has just created a whole new wave of production,” Kelley said.

In August, United States crude oil production averaged an estimated 8.6 million barrels per day, the highest monthly production recorded since July 1986, according to a report from the U.S. Energy Information Administration. The report also said demand for oil in industrialized economies is weakening, which may be causing oil prices to drop.

As the price of oil declines, Zimmerman said the revenue contributed to the PUF is also affected.

“Rising oil prices means more money coming into the endowment,” Zimmerman said. “Falling oil and gas prices mean less revenue.”

While the government report shows declining prices, Kelley said the market price for oil has remained steady for a number of years between $80 and $100 a barrel, allowing for an increase in production.

“If it were to drop to $50 a barrel or do something dramatic, then the drilling would likely be curtailed and even some of the production may stop,” Kelley said.

Zimmerman said even though the revenue from West Texas oil affects the PUF, UTIMCO does not invest heavily in natural gas and oil companies, making it less susceptible to the volatility of oil prices.

“We have a very diversified portfolio,” Zimmerman said. “It’s diversified globally. It’s diversified across stocks, bonds and real assets. It’s diversified across private equity and public equity [and] hedge funds. We have a relatively small amount of the endowment invested in oil and gas.”

Zimmerman said about 10 percent of PUF funds are invested in natural resources across the globe. He said UTIMCO tends to invest most heavily in stocks, since the System endowments are meant to last for an indefinite period of time.

“The biggest impact on the investment returns is whether the stock markets are going up or down,” Zimmerman said.

James Dupree, BP chief operating officer of reservoir development and technology, presents a check to the Jackson School of Geosciences on Tuesday afternoon.

Photo Credit: Michael Baez | Daily Texan Staff

BP donated $120,000 to the Jackson School of Geosciences’ GeoFORCE program Tuesday, bringing the total amount the oil and gas company has donated to the program to $1 million since 2007. 

GeoFORCE is a selective outreach program through the Jackson School that focuses on at-risk high school students in the South Texas and Houston areas. The program is set up for students to apply in the eighth grade, with the goal that GeoFORCE can work with them through all four summers of their high school careers.

From the applicants, around 600 students are accepted and taken on a week-long geological trip all over the United States. During the trip, professors, researchers and other professional geologists help students discover what geology is. Along with geoscience courses, students are encouraged to take on the challenges of math and science courses. 

According to Eleanour Snow, associate director of the program, 481 students from GeoFORCE are enrolled in 85 different universities across the nation. Of those students, 97 are currently enrolled at the UT. Through the program, 97 percent of the campers have gone on to college, and 96 percent of those students returned to school the following year.

Four graduates of the GeoFORCE program attended a Tuesday ceremony in which Samuel Moore, director of outreach and diversity for the program, received the donation check from James Dupree, BP chief operating officer of reservoir development and technology.

“BP is always seeking for diversity and helping out in the communities,” Dupree said. “This is a great opportunity to get kids involved and interested in the geosciences and STEM. By reaching out to them, many of them have the opportunity to become first-generation family members to go onto college.”

Former GeoFORCE member Edgar Aguilar said he was thankful for the opportunities GeoFORCE gave him as a student, as the program helped him realize his passion for geoscience.

“A lot of people do not know about the program,” Aguilar said. “But, if more people knew about it, I guarantee more would be interested.”  

Having started in 2005, the GeoFORCE program just completed its 10th summer. Dupree said BP’s donation will ensure the program continues to inspire and educate high school students.

The Cockrell School of Engineering unveiled three new labs dedicated to oil and gas drilling technologies at a ribbon-cutting ceremony Tuesday. 

The labs were made possible by a donation of $1.7 million from Baker Hughes, an oil-field service company. The labs also feature a drill rig simulator — the only one of its kind at any American university — donated by National Oilwell Varco.

The labs, which are open to students, are each designed to focus on a different aspect of petroleum engineering. The Drilling Automation Lab, which hosts the drill rig simulator, gives students the virtual experience of actually drilling at a rig site. 

“Students will be able to get a feel for what drilling is,” said Pradeep Ashok, a research associate in the labs. “The undergraduate students will get a chance to play with [the drilling simulator] and get a feel for what a driller actually does.”  

The Zonal Isolation Lab allows researchers and students to study the effects of drilling deep underground, with a focus on the problems encountered when using hydraulic fracturing methods. Hydraulic fracturing is more commonly known as fracking. Projects in the isolation lab include the improvement of the relationship between concrete and shale and the elimination of hazardous by-products that result from drilling underground water sources.

“We were trying to find new formulations to improve the bonding between cement and shale, so that you actually have good zonal isolation,” research associate Sriramya Nair said. “[Zonal isolation] is to prevent contamination of aquifers and also to make sure you don’t have blowouts happen.” Nair said. 

The third lab houses the Real-time Operations Center. This lab allows data from wells and digging sites from around the world to be seen by students and researchers. 

“[Students] will be looking at data coming from the oil and gas sector, oil and gas drilling rigs in real-time and analyzing it, seeing if everything is going fine and if they see some issues they report back,” Ashok said. “So that’s a really good learning platform for students.” 

Eric van Oort, a petroleum and geosystems engineering professor, oversees all lab developments. Oort, who worked for Shell for more than 20 years, said he developed a number of contacts and relationships with Baker Hughes while in the field.

“When I came to UT, Baker Hughes indicated that they had opportunities for sponsorship, and they were interested in sponsoring the [petroleum engineering] program at UT.” van Oort said.

According to information provided by Baker Hughes, the total investment budget for the labs was close to $3 million.

Photo Credit: Zachary Strain | Daily Texan Staff

MIDLAND — For many years, the landscape in West Texas was mostly uniform with dusty lots and artifacts of operating machinery left behind from a previous oil boom in the area. A generation removed from that boom, new oil rigs line roadways in the Permian Basin, where increased production will help the UT System bring in close to $1 billion in oil and gas revenue this year.

With a technologically driven oil-production boom, Midland’s landscape is transforming as the city works to build an infrastructure to support thousands of new residents while reaping the economic benefits associated with increased production. The UT System is also benefiting from the economic boom, and it doesn’t show signs of slowing down as dozens of companies have showed renewed interest in chasing the oil reserves on the 1.4 million acres the System has in the region.

Last October marked the first time land managed by the UT System produced more than 3 million barrels of oil since 1972 at the peak of the last oil production boom in the Permian Basin, said Jim Benson, executive director of University Lands.

University Lands, which has a Midland-based office, is responsible for managing the System’s 2.1 million acres that make up the Permanent University Fund.

The surge in production is part of a massive oil boom under the Wolfcamp Shale formation accessible through drilling technologies and techniques — horizontal drilling and hydraulic fracturing — that were not commonly used during the last boom in the area.

“This kind of changed everybody’s mind-sets to, ‘Now, we can go produce these source rocks or unconventional plays,’” Benson said. “That is what’s happening in the resurrection of the Permian Basin.”

With 50 oil and gas rigs actively drilling, 25-50 wells being assembled and 500 more permits waiting to be built on its land, Benson said University Lands still stands to increase its profits in the next two years as oil and gas companies leasing on the System’s land in the Permian Basin move into full manufacturing mode by 2015. 

“Even though there’s not a lot of manufacturing, there is a lot of capital expense, and our revenues are increasing in terms of the royalty rate,” Benson said. “Two years down the road, provided oil and gas prices stay as they are, we’ll make more than we did in the previous years.”

The Texas Railroad Commission defines the Permian Basin as an oil and gas producing area in West Texas 250 by 300 miles in area.

Benson said he expects University Lands to receive $850 million in royalties from production on leased land on top of the $112 million the System received in lease sale profits in the last fiscal year. 

In the last five years, the number of drilling permits approved by the Railroad Commission in the Permian Basin has almost doubled, increasing from 4,703 in 2007 to 9,3335 in 2012, according to Railroad Commission figures.

Oil and gas lease sales first skyrocketed during the September 2010 sale as the boom took off with total profits increasing during the following two sales, including a record high sale in September 2011 that brought in more than $310 million in profits.

The University of Texas Investment Management Company invests the sale profits and royalties and returns on investment make up the Available University Fund, which benefits the UT and Texas A&M systems. Last year, $205 million of UT-Austin’s $2.34 billion 2012-2013 operating budget came from the fund.

Profits from subsequent sales decreased substantially because fewer acres were available to be leased as companies jumped to lease in 2010 and 2011 when the boom picked up, Benson said. The most recent sale made only $70 million with about 16 percent of the acreage up for lease during the September 2011 sale. 

Oil was first discovered on UT lands in 1923, and the lands in the Permian Basin saw high levels of production during an oil boom in in the 1960s, during which the entire area produced 607 million barrels of oil over several years, according to the Texas State Historical Association.

Overall production in the basin totaled 312 million barrels of oil just last year, according to Railroad Commission figures. Production on University Lands, which fall mostly in the Permian Basin, reached 32 million barrels of oil in 2012 alone. 

Development and challenges

In a city where pump jacks are as common in backyards as swing sets, millions of gallons of water are being used per well for fracking. Despite a long-standing drought in the area, most locals’ concerns revolve around increased traffic and the faster-paced lifestyle that has resulted from the oil-driven migration to Midland. 

In 2005, the city’s population stood at about 99,000, according to city estimates. According to the U.S. Census estimates, the population stood at about 114,000 in 2011.

Some locals complain about the lack of supplies in grocery stores. A trip to the local Wal-Mart proves that multiple aisles have completely empty sections, including bottled water, raw chicken, sports drinks and toilet paper. Others complain about increased traffic in the area as travel time increases and major streets and roadways become a caravan of large oil transportation trucks and Super Duty Ford trucks emblazoned with oil and gas company logos.

Midland Mayor Wes Perry said the technology behind the current oil boom is essential to development in the area because it has boosted sales tax revenue, which the city is using for one-time capital projects after seeing increases in sales taxes.

“At this particular time, it’s not the typical situation like we had it in the past because it is driven by technology, not so much the price of oil,” Perry said. “When the price of oil drops, things will slow down, but it’s not going to be like it used to be where it was a boom and then a big bust cycle.”

Midland is currently undergoing various development projects to improve infrastructure, including highway widening projects and waterline extensions to industrial areas.

The increase of oil workers in the area has also transformed the city’s skyline with the construction of dozens of new hotels, which bring in hundreds of thousands of dollars in revenue for the city.

Perry said private sector developers are taking advantage of the financial opportunity in the housing market, which has faced increased levels in demand. Available and upcoming housing in Midland is projected at 5,300 available units, including 2,079 apartments and 1,301 hotel rooms, according to city housing documents.

City spokeswoman Sara Higgins said hotel units are also considered part of the available housing units because companies rent out multiple rooms and floors at some hotels during the week.

Not all have benefited from the oil boom in the area though. Local resident Marc McPeters moved to the area during the previous boom and has lived on the same plot of land for decades.

Back then, McPeters said she had to purchase her mobile home from New Mexico because housing was scarce.

Today, Endeavour Energy Resources operates an oil rig on almost half of McPeters’ property, but she said she doesn’t receive royalties from production revenue because Endeavour owns the mineral rights to her land. In Texas, land rights and mineral rights are sold separately. 

When Endeavour approached her about drilling on her property, McPeters said she wasn’t aware that her property ownership didn’t include mineral rights, which would entitle her to royalty payments on any oil production on her land.

“How they got them, I don’t know,” McPeter said. “They paid me $8,500 to put that pump jack there, and I had to pay taxes on that. They said ‘This is what we’re going to give you. Get out of the way.’”

Employment

The boom has also resulted in the lowest unemployment levels in the state as new drilling corporations have set up shop offering thousands of new jobs for locals and field workers who have moved into the area. In February, the unemployment rate dropped to 3.2 percent for the Midland metropolitan area — the lowest rate in the state and one of the lowest in the nation — according to a monthly report by the Texas Workforce Commission. The state unemployment rate, which has increased slightly this year, is 6.5 percent.

Adam Chavez, field coordinator for EagleOne, an independent transportation company that does oilfield transportation, said he moved to Midland from Plainview in 2011 because of the work opportunities in the area.

Chavez, who started as a company driver and was on call 24/7, travels home to visit his family during the weekend but lives in one of multiple RV campgrounds that have emerged throughout the Permian Basin. Some RV parks rent out space to oil workers who sleep in tents on makeshift grounds that locals call “man camps.” Man camps are not permitted on System land, according to a University Lands official. 

“I’ll be here as long as there is work and if the work doesn’t move north,” Chavez said. “I’ll be here until they say it’s dried up.”

Midland became the fastest-growing metropolitan area in the nation last year with a population increase of 4.6 percent, and Midland County was ranked as the 10th-fastest growing county, according to the U.S. Census Bureau.

High employment opportunities in the oil fields have left local restaurants that offer lower-paying jobs struggling to staff their operations while demand increases.

In the last two years, Gerardo’s Casita, a local Mexican restaurant, has lost cooks and kitchen staff to the oil fields, forcing Jerry Morales, Midland City Council member and owner of the restaurant, to step into the kitchen almost four times a week.

Morales said his restaurant has benefitted from the boom with tables occupied from open to close every day as the community thrives economically, but he has also had to make changes to adapt to the staffing challenges that come along with an increased amount of patrons.

It’s not unusual to see managers and owners working hosting and busboy duties in other restaurants, Morales said.

“It’s been very hard for us in the retail business to compete with an industry where they’re working 80 hours overtime in a week at 22 years old, bringing home a $3,000 check,” Morales said. “I’m probably paying $2-3 more [an hour] than I was 24 months ago.”

Gerardo’s Casita now closes for three hours between lunch and dinner and is closed all day on Sunday because Morales said he doesn’t have the staff to cover sufficient shifts to avoid paying current employees overtime. The restaurant has also increased menu prices to make up for the increased wages.

“It took a little while for us to understand [the boom] and it took a little to see if it was really going to last,” Morales said. “I don’t really call it a problem. It’s just a challenge.”

Photo Credit: Zachary Strain | Daily Texan Staff

MIDLAND — For many years, the landscape in West Texas was mostly uniform with dusty lots and artifacts of operating machinery left behind from a previous oil boom in the area. A generation removed from that boom, new oil rigs line roadways in the Permian Basin, where increased production will help the UT System bring in close to $1 billion in oil and gas revenue this year.

With a technologically driven oil-production boom, Midland’s landscape is transforming as the city works to build an infrastructure to support thousands of new residents while reaping the economic benefits associated with increased production. The UT System is also benefiting from the economic boom, and it doesn’t show signs of slowing down as dozens of companies have showed renewed interest in chasing the oil reserves on the 1.4 million acres the System has in the region.

Last October marked the first time land managed by the UT System produced more than 3 million barrels of oil since 1972 at the peak of the last oil production boom in the Permian Basin, said Jim Benson, executive director of University Lands.

University Lands, which has a Midland-based office, is responsible for managing the System’s 2.1 million acres that make up the Permanent University Fund.

The surge in production is part of a massive oil boom under the Wolfcamp Shale formation accessible through drilling technologies and techniques — horizontal drilling and hydraulic fracturing — that were not commonly used during the last boom in the area.

“This kind of changed everybody’s mind-sets to, ‘Now, we can go produce these source rocks or unconventional plays,’” Benson said. “That is what’s happening in the resurrection of the Permian Basin.”

With 50 oil and gas rigs actively drilling, 25-50 wells being assembled and 500 more permits waiting to be built on its land, Benson said University Lands still stands to increase its profits in the next two years as oil and gas companies leasing on the System’s land in the Permian Basin move into full manufacturing mode by 2015. 

“Even though there’s not a lot of manufacturing, there is a lot of capital expense, and our revenues are increasing in terms of the royalty rate,” Benson said. “Two years down the road, provided oil and gas prices stay as they are, we’ll make more than we did in the previous years.”

The Texas Railroad Commission defines the Permian Basin as an oil and gas producing area in West Texas 250 by 300 miles in area.

Benson said he expects University Lands to receive $850 million in royalties from production on leased land on top of the $112 million the System received in lease sale profits in the last fiscal year. 

In the last five years, the number of drilling permits approved by the Railroad Commission in the Permian Basin has almost doubled, increasing from 4,703 in 2007 to 9,3335 in 2012, according to Railroad Commission figures.

Oil and gas lease sales first skyrocketed during the September 2010 sale as the boom took off with total profits increasing during the following two sales, including a record high sale in September 2011 that brought in more than $310 million in profits.

The University of Texas Investment Management Company invests the sale profits and royalties and returns on investment make up the Available University Fund, which benefits the UT and Texas A&M systems. Last year, $205 million of UT-Austin’s $2.34 billion 2012-2013 operating budget came from the fund.

Profits from subsequent sales decreased substantially because fewer acres were available to be leased as companies jumped to lease in 2010 and 2011 when the boom picked up, Benson said. The most recent sale made only $70 million with about 16 percent of the acreage up for lease during the September 2011 sale. 

Oil was first discovered on UT lands in 1923, and the lands in the Permian Basin saw high levels of production during an oil boom in in the 1960s, during which the entire area produced 607 million barrels of oil over several years, according to the Texas State Historical Association.

Overall production in the basin totaled 312 million barrels of oil just last year, according to Railroad Commission figures. Production on University Lands, which fall mostly in the Permian Basin, reached 32 million barrels of oil in 2012 alone. 

Development and challenges

In a city where pump jacks are as common in backyards as swing sets, millions of gallons of water are being used per well for fracking. Despite a long-standing drought in the area, most locals’ concerns revolve around increased traffic and the faster-paced lifestyle that has resulted from the oil-driven migration to Midland. 

In 2005, the city’s population stood at about 99,000, according to city estimates. According to the U.S. Census estimates, the population stood at about 114,000 in 2011.

Some locals complain about the lack of supplies in grocery stores. A trip to the local Wal-Mart proves that multiple aisles have completely empty sections, including bottled water, raw chicken, sports drinks and toilet paper. Others complain about increased traffic in the area as travel time increases and major streets and roadways become a caravan of large oil transportation trucks and Super Duty Ford trucks emblazoned with oil and gas company logos.

Midland Mayor Wes Perry said the technology behind the current oil boom is essential to development in the area because it has boosted sales tax revenue, which the city is using for one-time capital projects after seeing increases in sales taxes.

“At this particular time, it’s not the typical situation like we had it in the past because it is driven by technology, not so much the price of oil,” Perry said. “When the price of oil drops, things will slow down, but it’s not going to be like it used to be where it was a boom and then a big bust cycle.”

Midland is currently undergoing various development projects to improve infrastructure, including highway widening projects and waterline extensions to industrial areas.

The increase of oil workers in the area has also transformed the city’s skyline with the construction of dozens of new hotels, which bring in hundreds of thousands of dollars in revenue for the city.

Perry said private sector developers are taking advantage of the financial opportunity in the housing market, which has faced increased levels in demand. Available and upcoming housing in Midland is projected at 5,300 available units, including 2,079 apartments and 1,301 hotel rooms, according to city housing documents.

City spokeswoman Sara Higgins said hotel units are also considered part of the available housing units because companies rent out multiple rooms and floors at some hotels during the week.

Not all have benefited from the oil boom in the area though. Local resident Marc McPeters moved to the area during the previous boom and has lived on the same plot of land for decades.

Back then, McPeters said she had to purchase her mobile home from New Mexico because housing was scarce.

Today, Endeavour Energy Resources operates an oil rig on almost half of McPeters’ property, but she said she doesn’t receive royalties from production revenue because Endeavour owns the mineral rights to her land. In Texas, land rights and mineral rights are sold separately. 

When Endeavour approached her about drilling on her property, McPeters said she wasn’t aware that her property ownership didn’t include mineral rights, which would entitle her to royalty payments on any oil production on her land.

“How they got them, I don’t know,” McPeter said. “They paid me $8,500 to put that pump jack there, and I had to pay taxes on that. They said ‘This is what we’re going to give you. Get out of the way.’”

Employment

The boom has also resulted in the lowest unemployment levels in the state as new drilling corporations have set up shop offering thousands of new jobs for locals and field workers who have moved into the area. In February, the unemployment rate dropped to 3.2 percent for the Midland metropolitan area — the lowest rate in the state and one of the lowest in the nation — according to a monthly report by the Texas Workforce Commission. The state unemployment rate, which has increased slightly this year, is 6.5 percent.

Adam Chavez, field coordinator for EagleOne, an independent transportation company that does oilfield transportation, said he moved to Midland from Plainview in 2011 because of the work opportunities in the area.

Chavez, who started as a company driver and was on call 24/7, travels home to visit his family during the weekend but lives in one of multiple RV campgrounds that have emerged throughout the Permian Basin. Some RV parks rent out space to oil workers who sleep in tents on makeshift grounds that locals call “man camps.” Man camps are not permitted on System land, according to a University Lands official. 

“I’ll be here as long as there is work and if the work doesn’t move north,” Chavez said. “I’ll be here until they say it’s dried up.”

Midland became the fastest-growing metropolitan area in the nation last year with a population increase of 4.6 percent, and Midland County was ranked as the 10th-fastest growing county, according to the U.S. Census Bureau.

High employment opportunities in the oil fields have left local restaurants that offer lower-paying jobs struggling to staff their operations while demand increases.

In the last two years, Gerardo’s Casita, a local Mexican restaurant, has lost cooks and kitchen staff to the oil fields, forcing Jerry Morales, Midland City Council member and owner of the restaurant, to step into the kitchen almost four times a week.

Morales said his restaurant has benefitted from the boom with tables occupied from open to close every day as the community thrives economically, but he has also had to make changes to adapt to the staffing challenges that come along with an increased amount of patrons.

It’s not unusual to see managers and owners working hosting and busboy duties in other restaurants, Morales said.

“It’s been very hard for us in the retail business to compete with an industry where they’re working 80 hours overtime in a week at 22 years old, bringing home a $3,000 check,” Morales said. “I’m probably paying $2-3 more [an hour] than I was 24 months ago.”

Gerardo’s Casita now closes for three hours between lunch and dinner and is closed all day on Sunday because Morales said he doesn’t have the staff to cover sufficient shifts to avoid paying current employees overtime. The restaurant has also increased menu prices to make up for the increased wages.

“It took a little while for us to understand [the boom] and it took a little to see if it was really going to last,” Morales said. “I don’t really call it a problem. It’s just a challenge.”

Marc McPeters, Midland resident with an oil rig on her property.

Photo Credit: Zachary Strain | Daily Texan Staff

For many years, the landscape in West Texas was mostly uniform with dusty lots and artifacts of operating machinery left behind from a previous oil boom in the area. A generation removed from that boom, new oil rigs line roadways in the Permian Basin, where increased production will help the UT System bring in close to $1 billion in oil and gas revenue this year.

With a technologically driven oil-production boom, Midland’s landscape is transforming as the city works to build an infrastructure to support thousands of new residents while reaping the economic benefits associated with increased production. The UT System is also benefiting from the economic boom, and it doesn’t show signs of slowing down as dozens of companies have showed renewed interest in chasing the oil reserves on the 1.4 million acres the System has in the region.

Last October marked the first time land managed by the UT System produced more than 3 million barrels of oil since 1972 at the peak of the last oil production boom in the Permian Basin, said Jim Benson, executive director of University Lands.

University Lands, which has a Midland-based office, is responsible for managing the System’s 2.1 million acres that make up the Permanent University Fund.

The surge in production is part of a massive oil boom under the Wolfcamp Shale formation accessible through drilling technologies and techniques — horizontal drilling and hydraulic fracturing — that were not commonly used during the last boom in the area.

“This kind of changed everybody’s mind-sets to, ‘Now, we can go produce these source rocks or unconventional plays,’” Benson said. “That is what’s happening in the resurrection of the Permian Basin.”

With 50 oil and gas rigs actively drilling, 25-50 wells being assembled and 500 more permits waiting to be built on its land, Benson said University Lands still stands to increase its profits in the next two years as oil and gas companies leasing on the System’s land in the Permian Basin move into full manufacturing mode by 2015. 

“Even though there’s not a lot of manufacturing, there is a lot of capital expense, and our revenues are increasing in terms of the royalty rate,” Benson said. “Two years down the road, provided oil and gas prices stay as they are, we’ll make more than we did in the previous years.”

The Texas Railroad Commission defines the Permian Basin as an oil and gas producing area in West Texas 250 by 300 miles in area.

Benson said he expects University Lands to receive $850 million in royalties from production on leased land on top of the $112 million the System received in lease sale profits in the last fiscal year. 

In the last five years, the number of drilling permits approved by the Railroad Commission in the Permian Basin has almost doubled, increasing from 4,703 in 2007 to 9,3335 in 2012, according to Railroad Commission figures.

Oil and gas lease sales first skyrocketed during the September 2010 sale as the boom took off with total profits increasing during the following two sales, including a record high sale in September 2011 that brought in more than $310 million in profits.

The University of Texas Investment Management Company invests the sale profits and royalties and returns on investment make up the Available University Fund, which benefits the UT and Texas A&M systems. Last year, $205 million of UT-Austin’s $2.34 billion 2012-2013 operating budget came from the fund.

Profits from subsequent sales decreased substantially because fewer acres were available to be leased as companies jumped to lease in  2010 and 2011 when the boom picked up, Benson said. The most recent sale made only $70 million with about 16 percent of the acreage up for lease during the September 2011 sale. 

Oil was first discovered on UT lands in 1923, and the lands in the Permian Basin saw high levels of production during an oil boom in in the 1960s, during which the entire area produced 607 million barrels of oil over several years, according to the Texas State Historical Association.

Overall production in the basin totaled 312 million barrels of oil just last year, according to Railroad Commission figures. Production on University Lands, which fall mostly in the Permian Basin, reached 32 million barrels of oil in 2012 alone. 

Development and challenges

In a city where pump jacks are as common in backyards as swing sets, millions of gallons of water are being used per well for fracking. Despite a long-standing drought in the area, most locals’ concerns revolve around increased traffic and the faster-paced lifestyle that has resulted from the oil-driven migration to Midland. 

In 2005, the city’s population stood at about 99,000, according to city estimates. According to the U.S. Census estimates, the population stood at about 114,000 in 2011.

Some locals complain about the lack of supplies in grocery stores. A trip to the local Wal-Mart proves that multiple aisles have completely empty sections, including bottled water, raw chicken, sports drinks and toilet paper. Others complain about increased traffic in the area as travel time increases and major streets and roadways become a caravan of large oil transportation trucks and Super Duty Ford trucks emblazoned with oil and gas company logos.

Midland Mayor Wes Perry said the technology behind the current oil boom is essential to development in the area because it has boosted sales tax revenue, which the city is using for one-time capital projects after seeing increases in sales taxes.

“At this particular time, it’s not the typical situation like we had it in the past because it is driven by technology, not so much the price of oil,” Perry said. “When the price of oil drops, things will slow down, but it’s not going to be like it used to be where it was a boom and then a big bust cycle.”

Midland is currently undergoing various development projects to improve infrastructure, including highway widening projects and waterline extensions to industrial areas.

The increase of oil workers in the area has also transformed the city’s skyline with the construction of dozens of new hotels, which bring in hundreds of thousands of dollars in revenue for the city.

Perry said private sector developers are taking advantage of the financial opportunity in the housing market, which has faced increased levels in demand. Available and upcoming housing in Midland is projected at 5,300 available units, including 2,079 apartments and 1,301 hotel rooms, according to city housing documents.

City spokeswoman Sara Higgins said hotel units are also considered part of the available housing units because companies rent out multiple rooms and floors at some hotels during the week.

Not all have benefited from the oil boom in the area though. Local resident Marc McPeters moved to the area during the previous boom and has lived on the same plot of land for decades.

Back then, McPeters said she had to purchase her mobile home from New Mexico because housing was scarce.

Today, Endeavour Energy Resources operates an oil rig on almost half of McPeters’ property, but she said she doesn’t receive royalties from production revenue because Endeavour owns the mineral rights to her land. In Texas, land rights and mineral rights are sold separately. 

When Endeavour approached her about drilling on her property, McPeters said she wasn’t aware that her property ownership didn’t include mineral rights, which would entitle her to royalty payments on any oil production on her land.

“How they got them, I don’t know,” McPeter said. “They paid me $8,500 to put that pump jack there, and I had to pay taxes on that. They said ‘This is what we’re going to give you. Get out of the way.’”

Employment

The boom has also resulted in the lowest unemployment levels in the state as new drilling corporations have set up shop offering thousands of new jobs for locals and field workers who have moved into the area. In February, the unemployment rate dropped to 3.2 percent for the Midland metropolitan area — the lowest rate in the state and one of the lowest in the nation — according to a monthly report by the Texas Workforce Commission. The state unemployment rate, which has increased slightly this year, is 6.5 percent.

Adam Chavez, field coordinator for EagleOne, an independent transportation company that does oilfield transportation, said he moved to Midland from Plainview in 2011 because of the work opportunities in the area.

Chavez, who started as a company driver and was on call 24/7, travels home to visit his family during the weekend but lives in one of multiple RV campgrounds that have emerged throughout the Permian Basin. Some RV parks rent out space to oil workers who sleep in tents on makeshift grounds that locals call “man camps.” Man camps are not permitted on System land, according to a University Lands official. 

“I’ll be here as long as there is work and if the work doesn’t move north,” Chavez said. “I’ll be here until they say it’s dried up.”

Midland became the fastest-growing metropolitan area in the nation last year with a population increase of 4.6 percent, and Midland County was ranked as the 10th-fastest growing county, according to the U.S. Census Bureau.

High employment opportunities in the oil fields have left local restaurants that offer lower-paying jobs struggling to staff their operations while demand increases.

In the last two years, Gerardo’s Casita, a local Mexican restaurant, has lost cooks and kitchen staff to the oil fields, forcing Jerry Morales, Midland City Council member and owner of the restaurant, to step into the kitchen almost four times a week.

Morales said his restaurant has benefitted from the boom with tables occupied from open to close every day as the community thrives economically, but he has also had to make changes to adapt to the staffing challenges that come along with an increased amount of patrons.

It’s not unusual to see managers and owners working hosting and busboy duties in other restaurants, Morales said.

“It’s been very hard for us in the retail business to compete with an industry where they’re working 80 hours overtime in a week at 22 years old, bringing home a $3,000 check,” Morales said. “I’m probably paying $2-3 more [an hour] than I was 24 months ago.”

Gerardo’s Casita now closes for three hours between lunch and dinner and is closed all day on Sunday because Morales said he doesn’t have the staff to cover sufficient shifts to avoid paying current employees overtime. The restaurant has also increased menu prices to make up for the increased wages.

“It took a little while for us to understand [the boom] and it took a little to see if it was really going to last,” Morales said. “I don’t really call it a problem. It’s just a challenge.”

Deep below the dry dust surface of University Lands is groundwater that breathes life into the ranches, vineyards and oil wells that sit on top of it.

University Lands has a long history of managing its water between many divided interests, Executive Director Jim Benson said, but the recent oil boom in the region has outside regulatory entities concerned about the sustainability of water resources in the area. Bills filed in the Texas Legislature aim to impose more regulations on water extracted by oil and gas companies, while other pending bills would relax existing restrictions.  

“We’re always concerned with water in West Texas — always,” Benson said. “We don’t have any surface water on University Lands. It’s all groundwater, so we’re always concerned.”

Groundwater beneath the University Lands are part of the Ogallala, Cenozoic Pecos Alluvium and Gotham aquifers, Benson said. The exact amount of water the University Lands have in each aquifer is difficult to quantify, he said.

“We have considerable amounts of water, but I can’t tell you the exact amount we have because we haven’t spent the revenue to explore all of it,” Benson said. “As far as a massive study to explore the volumes of water, at this point it would be beyond our ability to budget that.”

The biggest consumers of University Lands water are municipalities, which Benson estimates use approximately 28 million gallons per day. The water isn’t always of the best quality, but is treatable and desirable in the climate where the resource is limited, he said.

“It’s pretty salty,” he said. “It’s fresh. You can drink it, but it doesn’t taste great.”

Up to half of the water consumed by Andrews — a town of about 11,000 people — comes from wells on University Land, said Danny Griffin, director of water production and plant management for the city. Andrews has purchased water from University Lands for more than 50 years and just signed an agreement to extend its contract for another 25 years. Although the price of water from University Lands has increased by 12 percent since 2010 and now must be mixed with surface water to dilute arsenic levels, the deal Andrews and University Lands have worked out is fairly favorable, Griffin said.

“It’s not a bad rate,” he said. “Especially because water’s a scarce resource.”

Energy companies also use freshwater in a process known as hydraulic fracturing or fracking, which uses millions of gallons of water mixed with chemicals to crack shale formations and extract oil and natural gas from deep below the earth’s surface, Benson said.

The University has tried to reduce the impact of these wells on its freshwater supply by requiring the energy companies to reuse water from fracking that would otherwise be pumped back into the ground in a disposal well at a different location. No federal or state laws or regulations force companies to reuse their wastewater if they do not operate on University Lands. 

“We’re trying to minimize the impact of oil and gas activity on the freshwater by utilizing this produced water that would otherwise be disposed of,” Benson said.

The University Lands also implemented its first groundwater management plan this year, which requires any entity drilling a water well on its property to seek approval from University Lands. 

State law requires all entities that use more than 25,000 gallons of water per day, with the exception of oil, gas and mining companies, to seek a permit from a local groundwater conservation district, if one exists, and report the amount of water they withdraw. And while oil and gas companies have to register wells with the groundwater conservation district, they don’t have to account how much water they withdraw, said Cindy Weatherby manager of the Santa Rita Groundwater Conservation District in Reagan County. 

“Oil and gas is our biggest problem right now,” Weatherby said. “There’s no way to put a finger on how much they are impacting us because they’re exempt from reporting.”

The districts are responsible for managing groundwater in the state, but that task is difficult when oil and gas companies don’t have to account for the water they use, Weatherby said. In the past year, her office has been overwhelmed by drilling registrations.

“The registrations come in so fast, I can barely keep up with putting them in the computer,” Weatherby said. “There’s some legislation that might help us. We can only pray.”

A bill, filed by state Sen. Glenn Hegar, R-Katy, and passed by the Senate Natural Resources Committee on Tuesday, would require oil and gas companies to report how much water they use for fracking to groundwater conservation districts. Lisa Craven, Hegar’s chief of staff, said current regulations on oil and gas companies drilling for fracking water were implemented before the practice was invented and need to be reformed.

“Senator Hegar believes that the oil and gas companies should have to follow the rules that apply to everyone else,” Craven said. 

Bills filed by state Rep. James Keffer, R-Eastland, and state Sen. Carlos Uresti, D-San Antonio would exempt water wells drilled for fracking purposes from the groundwater conservation district’s permitting process. 

“It’s the exact opposite of what our bill would do,” Craven said. 

The Question: Jim Benson, the executive director of University Lands, estimates the UT System’s 2.1 million acres of land will generate close to $1 billion in oil and gas revenue this fiscal year. The revenue will be invested by the University of Texas Investment Management Corporation (UTIMCO). Do you think it is ethical for a public university to so heavily fund oil and gas development for its own monetary gain?

Yes, I do. This is the first I’ve ever heard about this issue, but I think that there’s nothing inherently morally questionable with a public institution selling public assets to private companies if it’s going toward funding something in the public interest. And I think that if, for example, doing this would allow us to have more competitive programs or lower tuition for most students, I think that withholding the rights to these gas reserves — the social utility of that would not outweigh the benefit of making our University more accessible and more competitive.

—Nicholas Sanford
Asian Studies senior from Ft. Worth

My answer is “no,” because it’s a public university, and being a public university, its own monetary gain as a corporation wouldn’t be correct, because The University of Texas is part of the government. So they shouldn’t be making profit off of things that, even though they belong to them, shouldn’t be a government thing. 

—Saffan Prasla
Economics sophomore from Austin

To answer the question, it’s not a black or white answer, it’s not a yes or no, because there are so many gray areas involved — where they invest the money and all the logistics of everything that they’re acting in — but I would say that, a public university gaining money off of gas and oil ... I don’t know. I just see a public university as its own entity. It should be able to do whatever it wants. So long as it can keep track of that, and support it as to why — they’re not going to invest their money in goats because they feel like it that week. You know, they’re going to have reasons why. And so I think the student body should at least have a little bit of say, or we should at least know about it. We should have all that access to that information; they should be upfront about it. Maybe it’s an area that they can open up for the student body to get a little more involved in, that way we can make it more ethical. If we’re paying tuition to a public university, and that university is in turn able to have this land that gains the university money that they can invest, the student body who is paying tuition should have a say in where they invest this money. So that’s where I think the real ethics lies.

—Payton Williams
RTF sophomore from Dallas

Well, I’m kind of in the middle of that. I see the dilemma in getting funding from other sources. So we do have that land, and we’re able to drill on it, and get the money for our school, and we know that we definitely need that money. But at the same time, I’m kind of on the side where I’m not all supportive of drilling, so it’s definitely a gray area. The environmental issue is a big one. I think there’s a part of me that’s very strong on protecting our environment, and looking at the aspect of nature and taking care of nature and humans alike, versus just making a profit and making decisions based on business. But, there’s definitely a part of me that would see the benefit of something like drilling on our own land, no less.

—Erika Gomez
Government and linguistics junior from Dallas

It is ethical, and the reason for that is, a lot of the things that UT does buy, and being a public institution, it’s one of the things that they can invest in. It’s something that’s Texas-based. And even with the University stadium right now, a lot of it’s privately owned and separately UT-owned as well, and I know they’re selling beer for the 10,000 club seats as well. So things like that, which might be controversial, aren’t really affecting students in a negative way. So in that light, as long as it’s ethically done, I don’t think there’s a problem with it. In terms of the actual buying of those resources and using them for students’ gain, I think that’s still ethical. And beyond that, I can’t say too much in terms of what administrators or what students think as a whole, because I think this decision was probably made a long time ago, in the best interest of students and the best interest of the University, so I think as long as we are gaining revenue from that and it’s going into students’ initiatives and programs, then there’s no problem with it.

—Sunny Das
Finance sophomore from Rochester, N.Y.

I don’t think there’s a problem with them getting money from oil and gas, but I think there could be a problem with what they’re spending it on. I have a mixed relationship with oil and gas anyway, because obviously I would prefer alternative fuels, but they’re not widespread enough right now that they’re everywhere, so I feel like because we’re in Texas and oil and gas is such a major industry here, I think if they’re going to get money from anywhere, it’s smart for them to get it from oil and gas. As far as making money goes, it’s a good decision. As far as environmental stuff goes, obviously it’s not a good decision, but oil and gas in general is not a good decision as far as that goes.

—Evelyn Morgan
Archaeology junior from Houston

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".