The investment history of the PUF originated in 1923 with the discovery of oil and gas from the legendary Santa Rita No. 1 well. In 1926, the Texas Supreme Court ruled that the proceeds from the sale of mineral production from PUF Lands should be invested as endowment corpus. These proceeds provided the foundation for the PUF Investments to grow to $10.3 billion over the ensuing 83 years, as depicted in Figure A. Since 1923, a cumulative $7,418.4 million, or approximately 54.6% of cumulative investment return generated on PUF Investments, has been distributed to the AUF in support of the UT System and TAMU System. Over this same time period, the mineral income contributed $4,136.1 million to the PUF investment portfolio.

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In more recent times, the PUF has continued to grow as depicted in Figure B. The PUF’s net assets have grown from $7,540.1 million to $10,313.4 million, an increase of 36.8% after distributions over the past five years. Fiscal year 2006 resulted in the fourth consecutive year of strong investment returns.

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In addition to strong investment returns during fiscal 2006, the PUF also benefited from the fourth consecutive year of substantial increases in PUF Lands mineral contributions. Mineral contributions reached $214.9 million in 2006, an 11.3% increase over the prior year. Mineral contributions provide a significant and valuable inflow of dollars, leading to a stronger investment portfolio.

The 11.3% increase in mineral income was due to several factors, including $105.7 million of royalties on the production of crude oil amounting to 49% of the total mineral contributions for 2006, and increasing by 32.9% over 2005. Oil prices continued their upward spiral in 2006, with average volume prices realized on oil production increasing by $13.65/barrel to $60.96/barrel. Production volume also increased by approximately 3.4% for the year.

Royalties on the production of natural gas accounted for another 33% of PUF Lands mineral income. Gas prices increased in fiscal year 2006, as average gas prices realized on royalty gas production increased by 33.9% to $6.75/mcf. Gas royalties increased by 45.7%, a result of the increase in wellhead gas prices and by a net production increase of 5.1%. Bonuses paid on the sales of oil and gas leases was $32.1 million in 2006, which represented 15% of total fiscal year mineral income. The PUF also received significant bonuses on the sales of oil and gas leases in 2005 and 2004, amounting to $57.7 million and $40.4 million, respectively.

Even with the extremely valuable PUF Lands and the continual inflow of mineral contributions, $1.5 billion credited over the past 15 years alone, preservation of PUF endowment purchasing power is still critically dependent on investment returns, as evidenced by examining the components of growth in the value of PUF Investments since 1978, depicted in Figure C. It is The University of Texas Investment Management Company’s (UTIMCO) responsibility to invest the PUF Land contributions and preserve the PUF’s purchasing power.

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