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UT System Administration Policy Library -- Policy UTS142. 6
Policy on Determining Value of Trust Minerals
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Responsible Officer: Associate Vice Chancellor – Controller and Chief Budget Officer
Sponsoring Office: Office of the Controller
Effective Date: September 8, 2005
Last Reviewed: September 8, 2005
Next Scheduled Review: June 1, 2009
Errors or changes to: policyoffice@utsystem.edu
CONTENTS
Policy Statement
Rationale
Scope
Website Address For This Policy
Related Statutes, Policies, Requirements Or Standards
Contacts
Definitions
Responsibilities
Procedures
Forms Tools/Online Processes
Appendix
POLICY STATEMENT
As permitted by the Audit Guide of Colleges and Universities, all of the UT System’s investments are reported at fair value (defined below).
The majority of UT System’s investments are managed by UTIMCO, who ascertains the fair value of the investments and passes the information to the Investment Accounting section of the Office of the Controller at System Administration, who in turn passes the information to the institutions. The mineral holdings of the System, such as the Permanent University Fund (PUF) minerals and other donated minerals, the “trust minerals” of the Separately Invested Assets, are managed by University Lands – West Texas Operations (WTO) which is responsible for collecting the revenue generated by these holdings and making timely deposits to the proper accounts.
The PUF’s minerals located primarily in west Texas make up the majority of the UT Systems minerals holdings and they are valued by WTO using a discounted future cash flow calculation. The remaining minerals, the trust minerals, because of size, distribution, and limited production histories are valued at three times the previous 12 months’ revenue. As a rule of thumb, this measure has been used historically to determine the selling price of these types of properties by willing parties.
Should the System hold trust mineral assets that are significant as determined by professional judgment, the valuation of these minerals will be addressed on a case by case basis. For example, the trust minerals conveyed to the System through the Jackson estate, are valued by the Bureau of Economic Geology, UT Austin.
This policy focuses on the trust minerals managed by WTO.
RATIONALE
This policy provides requirements and guidelines for determining the fair value of the trust minerals held by The University of Texas System.
This policy is in compliance with Audits of Colleges and Universities with Conforming Changes as of May 1, 1994, which states that “other investment” should either all be valued at cost or all be valued at fair value. “Other investments” referred to by the guide are investments not covered by GASB statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. The Mineral Trusts investments are not covered by GASB Statement No. 31. In FY 1998 the System implemented a change in accounting principle to report all other investments at fair value rather than cost.
SCOPE
All institutions and UT System Administration
WEBSITE ADDRESS FOR THIS POLICY
http://www.utsystem.edu/policy/policies/uts142_6.html
RELATED STATUTES, POLICIES, REQUIREMENTS OR STANDARDS
UT System Administration Policies & Standards |
Other Statutes, Policies & Standards |
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- Audit of Colleges and Universities with Conforming Changes as of May 1, 1994
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CONTACTS
If you have any questions about UT System Administration Policy UTS 142.6, Policy on Determining the Value of Trust Minerals, contact the following offices:
DEFINITIONS
Fair Value: The amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
PUF Minerals: Oil, gas, or mineral interests associated with the grants of land from the public domain for the benefit of The University of Texas System which are commonly referred to as the Permanent University Fund Lands.
Trust Minerals: Any interest in oil, gas, or mineral, other than PUF minerals, usually conveyed to the UT System by gift or devise.
Sustainable Revenue Stream: Revenue generated from trust mineral holding expected to continue as long as production continues. Bonus leases, rental payments and one-time royalty payments are excluded from the definition of sustainable revenue streams.
RESPONSIBILITIES
UTIMCO
- Calculates the annual revenue stream from trust minerals and values the assets monthly.
- Creates electronic voucher to transmit information to Investment Accounting.
- Provides current values to WTO annually.
WTO
- Reviews the calculations received annually from UTIMCO for accuracy and reasonableness.
- Communicates to UTIMCO in writing any discrepancies uncovered.
- Maintains documentation of this review for a minimum of three years.
The Associate Vice Chancellor – Controller and Chief Budget Office
- Interprets this policy and is responsible for revising it to comply with statutory requirements and as necessary to meet the changing needs of The University of Texas System.
PROCEDURES
1. Party Responsible for Determination of Value
Since the revenues generated by the trust minerals are received by UTIMCO, they will calculate the annual revenue stream and value the assets monthly. This information will be passed to Investment Accounting via an electronic voucher created by UTIMCO which is picked up by Define in the nightly upload job.
The annual revenue stream is defined as revenue generated from the holdings excluding lease bonuses and rental payments, and one-time royalty payments. These items are dependent upon production; therefore, there is no sustainable revenue if production ceases, thus no value.
Only assets with no sustainable revenue streams will be excluded from the calculation.
2. Review of Valuation
Annually UTIMCO will provide the current values to WTO, who will review the calculations for accuracy and reasonableness, and communicate to UTIMCO in writing of any discrepancies it uncovers, if any. If no discrepancies are uncovered, WTO will communicate this to UTIMCO. WTO will maintain documentation of this review for a minimum of three years.
FORMS AND TOOLS/ONLINE PROCESSES
None
APPENDIX
None
