University Lands FY21 Annual Report

University Lands FY21 Annual Report

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Table of Contents Fiscal Year 2021 Annual Report

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At-A-Glance

At-A-Glance

University Lands (UL) manages the surface and mineral interests of 2.1 million acres of land across 19 counties in West Texas for the benefit of the Permanent University Fund (PUF). The PUF is the largest public university endowment in the U.S. and benefits more than 20 educational and health institutions across both The University of Texas System and The Texas A&M University System.

2.1MM Acres of grazing lands

1.24MM Acres leased for mineral development

24,400 Oil & gas wells drilled to-date 9,800 Producing oil & gas wells 19,000 Acres of surface leases 22,000 Miles of pipeline & powerline easements 79,000 Acres of renewable energy leases

PRINCIPAL BUSINESS LINES

Oil & Gas Royalty

Energy Transition

Water Supply & Logistics

Grazing

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History

Fiscal Year 2021 Annual Report

History

2021

University Lands restores the historic site of the Santa Rita #1 well

2019

University Lands records the highest production of oil and gas from PUF Lands in its history

2009

The Permian Basin shale boom begins

1929

The Board for Lease of University Lands is created

1923

Oil is discovered at the Santa Rita #1 well on PUF Lands in Reagan County, and the PUF endowment receives its first royalty check for $516.53

1839 1883

An additional 1 million acres are added to PUF Lands

1876

The State of Texas Constitution appropriates 1 million acres of land in West Texas to the Permanent University Fund (PUF). These lands would become known as PUF Lands The Congress of the Republic of Texas sets aside fifty leagues (220,000 acres) of land for the establishment and endowment of a university

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Table of Contents

Table of Contents

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UL At-A-Glance

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History

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FY21 Highlights

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FY21 Performance

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CEO Message

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Governance

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Management

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Mission & Goals

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Financials

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Oil & Gas Management

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Surface Management

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Environmental Stewardship

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The PUF Explained

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Table of Contents Fiscal Year 2021 Annual Report

welcome UL’s new ceo

UT System appoints new CEO for University Lands December 22, 2021 University of Texas System Chancellor James B. Milliken announced today that William R. “Billy” Murphy, Jr., vice president and executive officer of King Ranch, Inc., will be the new CEO of University Lands. Murphy has more than 15 years of legal and land management experience, including in the oil, gas, and mineral sector, as well as renewable resources. At King Ranch, he manages the sustained development of roughly 1 million acres that includes the largest privately owned surface and mineral operation in Texas. University Lands, which comprises 2.1 million acres of land in West Texas, was established by the Texas Constitution in 1876 for the benefit of the UT and Texas A&M systems of higher education. Leases on the oil, gas, mineral rights, as well as solar and wind energy development and livestock grazing on University Lands generate about $1 billion annually for the Permanent University Fund, an endowment that benefits 26 UT and A&M institutions. “University Lands has been an extraordinary resource for the UT and A&M institutions for almost a century, and it’s our responsibility to ensure it continues to benefit these huge university systems and the state of Texas into the future,” Chancellor Milliken said. “Billy Murphy is an expert in his field who understands the unique dynamic of managing substantial and significant acreage in perpetuity. He comes to us with a deep knowledge of Texas’ most precious and storied assets, and we’re delighted he’ll be leading the University Lands team.”

Billy Murphy

Murphy will begin his new position with the University Lands Office in early February. He will take the reins from Joseph Quoyeser, currently interim CEO. Under Quoyeser’s leadership, University Lands had a very successful fiscal year 2021, and is poised to generate even higher revenues in FY 2022. Both Chancellor Milliken and University Lands Advisory Board Chairman Rad Weaver lauded Quoyeser’s stewardship of University Lands over the past year. “We are deeply grateful to Joe Quoyeser for his solid leadership over the last year, and we are confident Billy Murphy will hit the ground running and advance the effective management of University Lands for the benefit of UT and A&M institutions,” said Weaver, who is also Vice Chairman of the UT System Board of Regents. Prior to his decade-long tenure with King Ranch, Murphy practiced law with Bracewell LLP with a focus on oil and gas transactions. He earned a law degree from South Texas College of Law and a bachelor’s degree from Texas Tech University. “I am humbled and honored to work alongside the talented professionals at University Lands in managing this unique and important asset,” Murphy said. “It has benefited so many in Texas higher education. I look forward to continuing that legacy and will strive to make University Lands a leader in energy transition and long-term sustainability for generations to come. I am thankful to the Board of Regents, the University Lands Advisory Board, the Chancellor and the many companies that partner with University Lands.”

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FY21 Highlights

fy21 highlights

Revenue Gross revenues totaled $1.043 billion with PUF revenue coming in at $979 million and AUF revenue at $64 million. Oil and gas royalty income increased by 27% over FY2020. Expenses Annual expenses were 14% below budget at $20.7 million and represented 1.98% of gross revenue or $0.89 per barrel of equivalent production unit cost. Production Production rates averaged around 284,000 gross barrels of oil equivalent (BOE) per day. UL’s mineral royalty averaged 22.3% for both oil & gas, equaling a cumulative net royalty volume of 23 million BOE. Asset Value The FY2021 total value of proved reserves was up 47% year-over-year primarily due to higher commodity prices, resulting in more active development activities. On a price neutral basis, the value- per-acre of proved reserves is up 21% year-over-year.

Industry Restructuring Performed due diligence on three new operators and consented the assignment of three development agreements in connection with A&D transactions. Reclaimed more than 100,000 undeveloped acres as part of agreement modifications connected to these transactions. Navigated M&A activity that impacted more than 50% of our production—Diamondback acquired QEP, Pioneer acquired Parsley, and WPX merged with Devon. These transactions created a larger, stronger set of public companies leading the development of University Lands. Environment UL performed 324 optical gas imaging (OGI) camera inspections (82 facility fugitive emission inspections and 242 flare inspections) and 1,100 oil & gas lease inspections. Approximately 119 unproductive oil & gas wells were plugged with the surrounding areas remediated and returned to pastureland. Renewable Energy Expanded renewable energy portfolio with 3 new solar and wind projects across 46,000 acres, putting our current portfolio at a total of 9 clean energy projects across 66,000 acres of PUF Lands.

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FY21 Net Performance

Fiscal Year 2021 Annual Report

fy21 Net performance

$1.043B Gross Revenue

$979M Permanent University Fund Revenue (Minerals) $64M Available University Fund Revenue (Surface)

2,090MMBOE

326 MMBOE Net Proved Reserves

Net Total Resource

1.98% of Gross Revenue $0.89 Expenses/BOE

Expenses $20.7M

2.23MM

220 Wells Put-on-Production

Lateral Feet Put-on-Production

23,000MBOE

Net Royalty Production

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Governance

Governance

UT SYSTEM BOARD OF REGENTS

The University of Texas System Board of Regents manages the strategic direction, development activities and stewardship of the Permanent University Fund (PUF) Lands.

UT SYSTEM ADMINISTRATION

The University of Texas System Administration is responsible for operations at all UT educational and health institutions. University Lands is a part of the UT System Administration Business Affairs division.

BOARD FOR LEASE OF UNIVERSITY LANDS

BFL 2 UT Regents 1 Texas A&M Regent

The Board for Lease of University Lands, chaired by the Commissioner of the Texas General Land Office, provides statutory oversight and governance for agreements to develop oil and gas located under PUF Lands.

UNIVERSITY LANDS ADVISORY BOARD

ULAB 5 UT Representatives 3 Texas A&M Representatives Texas Land Commissioner

The University Lands Advisory Board (ULAB) is charged with providing guidance to the University Lands leadership team to help determine strategy and provide guidance and recommendations to the UT System Board of Regents to ensure responsible stewardship of PUF Lands. ULAB members are appointed by both the University of Texas and Texas A&M University Systems and includes a standing position for the Texas Land Commissioner.

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Governance

Fiscal Year 2021 Annual Report

BOARD FOR LEASE OF UNIVERSITY LANDS

Michael A. Hernandez III Regent, Texas A&M University System

George P. Bush Commissioner, Texas General Land Office

Christina Melton Crain Regent, The University of Texas System

Nolan Perez Regent, The University of Texas System

UNIVERSITY LANDS ADVISORY BOARD

Eli Jones Professor of Marketing, Mays Business School Texas A&M University

Jay C. Graham Regent, TAMU System CEO & Chairman, Spur Energy Partners

George P. Bush Commissioner, Texas General Land Office

Thomas L. Carter, Jr. CEO & Chairman, Black Stone Minerals

James C. Weaver, Chair Regent, The University of Texas System CEO, McCombs Partners

Stuart Stedman Regent, The University of Texas System President of Stedman West Interests, Inc.

Janeen Judah Independent Director, Patterson-UTI, Crestwood Equity Partners & Aethon

Dee J. Kelly Law Partner, Kelly Hart & Hallman

John L. Zogg, Jr. Managing Director, Crescent Real Estate, LLC.

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Management

Management

Maryam Schellstede Senior Vice President, Planning & Development

Amber Jackson Manager, Budget & Revenue

Richard Brantley Senior Vice President, Operations

John Tackett Geoscience Manager & Chief Geologist

Cindy Brooks Director, Accounting, Audit & Regulatory

Danielle Jeter Land Manager, Minerals

Corey Means Manager, IT Infrastructure & Operations

Wil Vark Manager, Bus Solutions & App Development

James Buice Manager, Sustainability

Jeff White Manager, Surface Interests

Billy Murphy Chief Executive Officer

Sonya Csaszar Interim Chief Legal Officer

Jenna Gibbins Senior Reservoir Engineer & Engineering Lead

Brian Owen Senior Vice President, Land

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Table of Contents Fiscal Year 2021 Annual Report

Mission

To maximize the revenue from the Permanent University Fund (PUF) Lands, protect the interests of The University of Texas System and promote awareness and sensitivity for the environment.

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Table of Contents

santa rita #1 well restoration

University Lands commissioned a

complete restoration of the Santa Rita #1 well site, preserving its historical significance as the well that launched the Permian Basin. The restoration project was completed in the fourth quarter of 2020.

Before

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Table of Contents Fiscal Year 2021 Annual Report

Before

After

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Table of Contents

The puf at work

SCHOOL OF MEDICINE INSTITUTE OF NEUROSCIENCE THE UNIVERSITY OF TEXAS RIO GRANDE VALLEY Funded by the Permanent University Fund Located in Harlingen, Texas on 35 acres of land near the UTRGV Clinical Education Building, this facility opened in the Fall of 2021 and houses dry research labs, core imaging, a therapy center, administrative, support and collaborative areas, and community focused spaces. This campus serves as a world-class site for the departments of neurology, psychiatry, and neurosciences and houses clinics and diagnostic centers for numerous neuropsychiatric and aging disorders. The project is expected to be a designated center for research on brain health and other aspects of neurosciences.

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