The Office of University Lands sold UT System land in West Texas on Wednesday for $43 million, an increase from the $26 million auction bid received in March.
The office holds a semiannual auction of leases for the 2.1 million acres of land in West Texas owned by the system. Revenues from the lease of University lands and royalties from oil and gas drilling on the land are transferred to the Permanent University Fund. UT System schools divide two-thirds of the fund, and the remainder is distributed to Texas A&M System universities.
The Daily Texan reported in July that royalties from oil and gas drilling on University lands rose 80 percent from the previous fiscal year. The price of a barrel of oil continued to increase after that report to a high of $147. Prices fell below $67 per barrel Wednesday for the first time since the summer of 2007.
Steve Hartmann, director of the Office of University Lands, said recent fluctuations in the price of oil did not appear to affect the value of the land.
“If you looked at it statistically, you never would have known the price of oil has dropped,” Hartmann said after Wednesday’s auction. “I don’t think people were out here doing things on the strength of that very high price. I don’t think anybody out here expected those prices to hold.”
Paul Bommer, lecturer in the Department of Petroleum and Geosystems Engineering, said oil-producing companies cannot let short-term fluctuations in price dictate their strategies. “They must make decisions to lease land and drill wells based on economic and geologic models that they hope will be right in the long term,” he said.
Hartmann said the office sold leases for more than 200,000 acres and 260 tracts of land. In April the office sold 139,000 acres for 156 tracts. He said the per-acre average of lease revenues for Wednesday’s auction was about $400, similar to the previous auction’s average.
“We just sold more acres,” Hartmann said. “I wish I was smart enough to tell you why.”
Hartmann said consistent returns from the auction showed that producers still have confidence in the Permian Basin despite the field’s history of drilling.
UT finance professor Ehud Ronn said in an e-mail that he would be surprised if many oil companies anticipated the sharp drop in prices since July. He attributed the falling prices to lower demand in response to the summer’s high prices and expectations of an impending recession created by the recent credit crunch.
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