OIL AND GAS LEASING OF TEXAS STATE LANDS: SCHOOL LANDS AND UNIVERSITY LANDS

This study investigates the manner by which the responsible authorities, the Board for Lease of University Lands and the School Land Board, sell the respective oil and gas rights to University Lands and School Lands. University Lands as well as the proceeds from oil and gas sales endow the Permanent University Fund; similarly, School Lands and the monies from oil and gas sales comprise the principal endowments of the Permanent School Fund. Both these Funds support education in the state of Texas. The Permanent University Fund provides financial support to the University of Texas and Texas A&M Systems. Monies associated with the Permanent School Fund are distributed impartially to the primary and secondary public schools of the state.;Directly or inadvertently, decisions of state leasing boards impinge on three levels of leasing authority: maintaining competition in sales, protecting rent potential of state lands, and selecting the juncture in time when properties are developed. State leasing boards must maintain competition in sales in order to force companies to reveal their valuation of state lands in bid prices. A by-product of competition is that it fosters participation of companies in state sales which are efficient in oil and gas production. At least one way in which state boards can better protect the potential value of their lands is through unitization of producing reservoirs. Finally, the boards decide whether to conserve or deplete oil and gas reservoirs by decisons on when to hold sales. One way to envision this leasing decision is to look at oil and gas as assets. The opportune time to sell oil and gas is when appreciation in expected rent over the life of the reservoir falls below returns of monies in the permanent funds.;The main motivation for this study is a thorough investigation of the economic meaning of fair market value in the context of leasing and methods by which leasing authorities can enhance that value. For economists, competitive economic rent is an appropriate standard of value for guiding leasing authorities.