Texas Permanent School Fund Comprehensive Annual Financial Report: 2015 Page: 18
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PSF(SLB) Non-Current Assets
PSF(SLB) investments in real assets represent real
property and ownership interests in externally
managed real asset investment funds, separate
accounts, and co-investment vehicles held for the
benefit of the Fund, and are carried at fair value.
Investments in sovereign lands and mineral interests
are reported at cost.
Unless determined otherwise, the PSF(SLB) deposits all
of the proceeds of mineral leases and royalties
generated from existing and future leases of the Fund's
mineral interests into a special fund (Real Estate Special
Fund Account or RESFA) at the State Treasury. These
proceeds can be used by the SLB to acquire additional
tracts of land; to acquire interests in real property for
biological, commercial, geological, cultural, or
recreational purposes; to acquire mineral and royalty
interests; to acquire interests in real estate; to pay for
reasonable fees for professional services related to
these investments; or to acquire, sell, lease, trade,
improve, maintain, protect, or use land, mineral royalty
interests, or real assets investments, an investment or
interest in public infrastructure, or other interests, all for
the use and benefit of the Fund. Note 3 of the notes to
the financial statements contain a summary of the
historical cost of the land owned by the Fund. As of
August 31, 2015 the estimated fair value of the land, real
assets investments and mineral rights (excluding cash)
was approximately $4.7 billion and the historical cost
was $2.2 billion. Sovereign lands and minerals are
reported at historical cost on the balance sheet and per
GASB Statement No. 52 the remaining real assets are
reported at fair value.
Fair values of the externally managed PSF(SLB) real
assets investments portfolio are estimated by
management using the latest valuations provided by
the investment managers, adjusted for contributions
and withdrawals subsequent to the latest available
valuation reporting date.
The fair value of the Fund's land surface value is
based on the estimated appraisal values or
independently determined by the staff in the Appraisal
Division using the data from studies conducted by the
Texas Chapter of the American Society of Farm
Managers and Rural Appraisers, Multiple Listing
Services throughout the state and CoStar commercial
sales data in certain metropolitan areas. The fair value
of the Fund's interests in oil and gas are based upon
an industry-standard 3P report (i.e., proved, possible,
and probable reserves) prepared by a third-partyexpert, W.D. Von Gonten & Co., a Houston-based
petroleum engineering firm widely recognized as an
industry expert in oil and gas reserve evaluation and
valuation. Employing a methodology for estimating
reserves that conforms to all standards established by
the Society of Petroleum Engineers, the World
Petroleum Council, the American Association of
Petroleum Geologists, and the Society of Petroleum
Evaluation Engineers, Von Gonten estimated future
revenues from those estimated reserves and
discounted those revenues at 10% to arrive at the
resulting total reserve valuation of $2,141,676,506.
The properties evaluated for the purposes of this reserve
estimate are located throughout Texas and produce from
various conventional and unconventional reservoirs.
The property set includes approximately 13,744 Proved
Developed Producing (PDP) wells with an estimated
discounted future net revenue value of $1,121,125,875;
approximately 3 Proved Developed Non-Producing
(PDNP) opportunities with an estimated discounted net
revenue value of $3,468,326; 1,022 Proved
Undeveloped (PUD) locations with an estimated
discounted future net revenue value of $448,853,594;
457 Probable Undeveloped (PROB) locations with an
estimated discounted future net revenue value of
$242,303,203; 176 Possible Undeveloped (POSS)
locations with an estimated discounted future net
revenue value of $92,476,086; and 1,965 Contingent
Resources (CONT) locations with an estimated
discounted future net revenue value of $233,449,422.
With regard to the Proved Reserves, there should be at
least a 90% probability that the quantities actually
recovered will equal or exceed the estimate; for Probable
Reserves, there should be at least a 50% probability that
the quantities actually recovered will equal or exceed the
estimate; and for Possible Reserves, there should be at
least a 10% probability that the quantities actually
recovered will equal or exceed the estimate. Contingent
Resources are potentially recoverable but are not
currently considered to be commercially recoverable due
to one or more contingencies.
Because of the inherent uncertainty of estimated
valuations, the fair values of investments that are
estimated by management may differ significantly
from the value that would have been used had a
ready market for these investments existed and such
differences could be material to the financial
statements. Actual results could differ from the
estimates.18
MANAGEMENT'S DISCUSSION ANALYSIS (UNAUDITED)
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Permanent School Fund (Texas). Texas Permanent School Fund Comprehensive Annual Financial Report: 2015, report, Autumn 2015; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth838482/m1/24/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.