Oil-Rich University of Texas Wants to Cash In on AI, Crypto and Power

The system—with an endowment second only to Harvard’s—is diversifying into wind and solar energy at a fraught time for renewables.

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A crypto data center in Pyote, Texas, on land leased from the University of Texas System. Photographer: Jordan Vonderhaar for Bloomberg Markets

Scores of wind turbines, each as tall as a 50-story building, rise into the desert sky. Solar panels, 800,000 in all, cover a patch of scrubland almost the size of London’s Heathrow Airport. Rows of computer servers whir loudly in a chilled cryptocurrency data warehouse that could cover two New York City blocks. The University of Texas System manages the land under all these new projects, which are generating cash for hundreds of thousands of students.

UT has long relied on the money it makes leasing the rights to what’s beneath its vast property in the Permian Basin: oil and natural gas from North America’s richest trove. And the miles of pipelines carrying liquid gold below the windmills and solar farms remain key to its wealth. Thanks to record years of fossil fuel production and investment gains, UT has a $47.5 billion endowment, ranking No. 2 in higher education, after Harvard University’s.

But UT, which also manages land for the benefit of the Texas A&M University System, is increasingly looking to generate more money aboveground. UT is adding to decades-old ventures on the surface: leasing the rights to build roads, power lines and pipelines and to gain access to fields for cattle grazing. In a new twist, the school is now renting land for renewable energy, battery storage and data centers for crypto, creating an income stream that barely existed five years ago.

All told, these surface-oriented ventures generated almost $130 million in the year ended last August. That’s the largest amount ever, and about five times as much as they produced 15 years ago. This haul amounts to more than half of that year’s scholarship and fellowship funding at the University of Texas at Austin, the flagship state campus.

Source: University of Texas System
Note: Revenue includes leases and other categories

In May, UT reached a preliminary agreement to lease 200,000 acres, or 10% of its land holdings, to Virginia-based Apex Clean Energy Inc. for generating electricity from wind and solar. The company’s customers include Facebook parent Meta Platforms Inc. and the US Army. Although financial details were unavailable, it would be UT’s biggest surface-­oriented deal yet.

If these kinds of projects succeed, UT foresees tens of millions more in annual revenue in coming decades. It’s looking to host bigger data center projects for artificial intelligence, companies that help utilities and others prevent carbon emissions from reaching the atmosphere, and natural-gas-fired plants.

William Murphy Jr., chief executive officer of University Lands, the UT unit that manages the state property, is trying to diversify the system’s income. Some oil company CEOs have recently said US production in the Permian is at or approaching a peak. “Our mission is to generate permanent revenue for the institution. We have a long view, 30 to 50 years,” Murphy says. “We think it’s a long race, and we’re at the beginning.”

UT’s strategy comes as renewable energy is under fire in Washington, DC. Seeking to reverse the Biden administration’s support for renewables, President Donald Trump, an advocate of fossil fuels, has lashed out at wind turbines, calling them unsightly and unreliable. “Big, ugly windmills—they ruin your neighborhood,” he said in January.

Texas itself has a love-hate relationship with renewables that could pose a challenge to UT’s initiatives. The state is the largest US producer of wind power and ranks second in solar, after California. “We believe in an all-of-the-above energy approach,” Greg Abbott, the state’s Republican governor, said in December.

Supporting this strategy in the Permian, the Public Utility Commission of Texas in April approved a $10.1 billion plan to build three transmission lines to help meet the needs of oil drillers, new data centers, crypto miners and hydrogen production plants. “Without these new trans­mission lines, no one would want to expand wind and solar supply in West Texas,” says Ed Hirs, an energy economist who teaches at the University of Houston.

Yet, in 2021, after a devastating winter storm led to major outages, state Republicans blamed the power grid’s reliance on wind and solar power. Studies found that failures of natural gas plants contributed more to the outages. Still, the GOP-controlled Texas Legislature has considered bills that would make it more expensive and difficult to build solar and wind projects.

Murphy says UT can shift its approach if Texas officials move away from renewable energy—for example, the system could favor projects powered by natural gas. “If those incentives change, it could change what’s going on in West Texas,” he says. “We’re not a political entity. We’re not pushing one thing or another.”

Black-and-white photos of early oil rigs line the walls of Murphy’s office in Houston, near the headquarters of ConocoPhillips and the main US outpost of London-based Shell Plc. A wood wheel from an old-school oil pump, twice his height, dominates the decor, which suggests UT is still very much committed to earning money from fossil fuels. “We’re planning for oil and gas to be around for a long time,” says Murphy, 47, a fifth-generation Texan and former oil and gas attorney who once managed one of the state’s largest cattle ranches.

UT oversees 3,300 square miles of Permian Basin land, an area almost the size of Delaware and Rhode Island combined, extending across 19 counties and centered on the famed oil boomtown of Midland. In the 1800s the state constitution granted the properties’ mineral and surface rights to UT. At the time, the land’s arid expanses were assumed to have little value, apart from grazing. But drillers struck oil in 1923, sparking a bonanza for Texas higher education.

The system doesn’t prospect for oil or gas itself, or develop any of the projects on the state land. It leases the property and, in the case of oil and gas, earns royalties based on ­production. Over the past 15 years, leases to oil and gas companies generated $15.8 billion. Amid rising prices and production, royalties have surged recently, generating more than $2 billion in a single year.

All that money flows into a fund supporting Texas’ two big public universities. Two-thirds benefits UT; one-third, the Texas A&M system, which has a $20 billion endowment of its own. Combined, the two networks educate about 350,000 students. They also operate hospitals, including UT’s MD Anderson Cancer Center in Houston.

The state constitution says the oil and gas money must be used for capital expenses such as the construction of classrooms, hospitals and labs, rather than daily operations. That wealth enabled a building spree, most recently contributing $50 million toward a new cancer and surgery center at UT Health Rio Grande Valley, $60 million to help fund a “smart hospital” with virtual-reality labs at UT Arlington, as well as $54 million in support of a new home for the Mays School of Business at the flagship Texas A&M campus in College Station.

The money from the new surface ventures can be used for categories such as “academic excellence” and to support special initiatives. Although still small compared with the fossil fuel income, non-oil and gas revenue has totaled $1.2 billion over the past 15 years and has been rising sharply, freeing up money for prized initiatives. In November—funded by its endowment, the non-­fossil fuel money and other sources—the University of Texas System announced it was making tuition free for all undergraduates at its nine campuses whose family income is $100,000 or less.

Such money is especially valuable to colleges these days because of its flexibility in a hostile environment for higher education. The Trump administration has been at war with elite universities, cutting off federal funding to areas it dislikes, including anything perceived to be related to diversity, equity and inclusion. A Republican bill is seeking to tax the investment income of the largest private university ­endowments as much as 21%. As a public school system, UT isn’t in the crosshairs, and, in any case, its endowment per student—the ­government’s yardstick for wealth—would be far too low. It’s about $230,000, versus Harvard’s more than $2 million.

Given its growing population and higher education enrollment, Texas is still eager for more resources. Working with companies including NextEra Energy Inc., a renewables provider in Juno Beach, Florida, UT has signed five wind and five solar leases. It also has four for crypto mining, or the process of recording transactions and creating new currency, and 14 for battery storage systems that contribute to grid stability and energy efficiency that are either active or under construction. Of the record $127 million from non-oil sources in its last fiscal year, only $7 million came from renewables.

The biggest prize may be leasing land for large-scale data centers, which have spurred controversy because of their intense energy usage. Tech companies are promising to spend hundreds of billions of dollars to build them and meet the computational needs of artificial intelligence. “Texas is on everyone’s radar,” says Brant Bernet, a senior vice president with real estate firm CBRE Group Inc. who works with companies to find land for data centers.

Murphy is entering into these deals cautiously because he doesn’t want to tie up too much land, forfeiting even more lucrative opportunities. “We need to maximize but not quickly,” he says. “We understand what’s coming, and we understand the potential.” —With Kevin Crowley

Lorin covers higher education finance from New York.

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