The approved lease establishes royalty payments between the city and Pioneer Oil, which plans to drill on Indiana University State's campus.
Pioneer Oil now has the approval of the city and Indiana State University.
Many rural residents rely on groundwater for drinking and cooking, and many city dwellers and businesses tap into underground aquifers as well.
A judge ruled Thursday that INDOT does have a right to be on the land, even though it is owned by a private citizen.
Indiana State University Trustees said university officials can start negotiations with oil company about drilling on campus.