Bitcoin Offtake Unlocks Oil Production | Chris Alfano, Center of Hash E003

Chris Alfano, co-founder and CEO of 360 Energy, discusses his firm’s strategy as a service company in oil & gas fields, how bitcoin mining is helping to unlock oil production while reducing an environmental liability and how bitcoin is allowing owners and operators with stranded natural gas to monetize an energy asset that would otherwise be wasted or under-utilized.

Episode Transcript

(00:00):
Chris Alfano, welcome to the Center of Hash.

(00:04):
Parker Lewis, it's great to be here.
Yeah.
Before we get into the topic of the day, we co-work here out of Bitcoin Park.
It's mid-July in the Texas summer.
How's the summer been?
It's been hot, good, rainy.
You know, we've done some family trips and stuff like that, so try to get out of it.

(00:26):
We're heading to California end of this week.
so upstream mining that isn't impacted by the 4 cp you're in texas no natural gas mining
no grid no 4 cp no curtailment smu footballs on the horizon uh on the horizon and rising
you uh you were at happy valley for that i was disastrous that was a uh not our best not our

(00:52):
best effort cool experience though our expectations is high this expectations are high
coach is uh saying big things he's a good target for other schools so got to keep him happy at smu
but you know good transfer portal given texas run for the money as best team in texas i'll be uh

(01:12):
very pleased if we make it to another playoff that might not happen again in quite some time but
that's what i said last year with will cole when we were sitting here in the summer looking at the
team but you know should be better this year than we were last year so very pumped well uh hopefully
hash price is higher in come football season in a month that would be nice got to get the uh

(01:35):
ordinal people back selling uh their jpegs that's controversial we'll talk about that towards the end
but um we'll use that as a segue into um the topic of the day so in the in in the first couple
episodes we've discussed mining at a very broad high level and today we're going to go deep on a

(01:56):
specific energy strategy and mining strategy um chris is the co-founder and ceo of 360 energy
um chris just give a little bit about your background and what 360 does and kind of what
defines your strategy yeah yeah so 360 energy right before 360 uh i went to smu if it wasn't

(02:22):
obvious before um studied finance and economics there and started a company 2016 with a hedge fund
manager in dallas called keyman intelligence and built that company for four years sold that
company in 2020 and started 360 and uh what did that company do that we did a sas solutions for

(02:45):
private credit hedge funds so we would uh standardize a bunch of the reporting data from
you know these these clo's have 300 positions in private credit um so a bunch of companies that
aren't publicly traded don't adhere to gap and so uh what we would do is aggregate all the data
that all of those portfolio positions would report so like their financials um sims credit

(03:10):
agreements everything like that we'd aggregate that all into uh our platform and we'd standardize
it um so customers of ours like other hedge funds clos would have access to the platform they'd log
in they'd be able to see all their borrowers uh be able to see kind of standard financial data
across their whole portfolio, right?

(03:32):
If different borrowers report in different ways
and even in borrowers quarter to quarter.
So yeah, it was just a tool to make analysts
more efficient at actually analyzing,
kind of get them out of the monkey labor
of having to spread financials
and figure out where pieces of information were.
So it was just kind of like a database
with standardization for everything to do

(03:53):
with their portfolio positions.
And how'd you get from there to 360?
Well, sold the company, moved down to Austin, was out of a job at that point, kind of figuring out what I wanted to do next.
COVID happened.
So I'm a Bitcoin class of 2020 going down the rabbit hole at that point, kind of right after the company.

(04:17):
And obviously fell in love with Bitcoin for many of the same reasons everyone else does.
And being a finance guy, being a tech guy, really made a lot of sense in my mind.
And so I wanted to start another company.
I was kind of sick of doing software stuff.
Networked around Austin.
I met a great guy named Mike Hamilton, kind of told me all about this Bitcoin mining thing,

(04:37):
which sounded really cool.
And so kind of started going down the Bitcoin mining rabbit hole.
As anyone does, you try to figure out, okay, now I can basically plug in a Bitcoin miner
anywhere, but how do I do it, you know, cheaply for a long term to kind of protect the downside,
protect the margin, all that stuff.
So for us, that was looking at grid, looking at solar, looking at many different, you know, potential options to power our miners kind of settled on natural gas as something that's very abundant in Texas and something that's relatively cheap.

(05:11):
We wanted to take it a step further and actually vertically integrate the natural gas into the Bitcoin mining as a way of kind of controlling that future, having, you know, decade at a single location, having complete operational control.
And so built a team with Sean Milmo, my co-founder and a few other guys that had a lot more oil and gas background than I did to stand up 360 energy.

(05:34):
And at that time, the company's objective was self-mining through the ownership and operation of the natural gas assets.
So we went out and bought some old producing gas wells in the Barnett Shale right outside of Fort Worth, just 20 minutes north of downtown Fort Worth.
And that's really how we got our start. So took over those wells, put our first Bitcoin mine out there in late 21 and started, you know, mining at probably the worst possible time to be mining and buying infrastructure and stuff like that.

(06:09):
But yeah, that was really what it was all about was, you know, how do we find these old, relatively unattractive natural gas assets to traditional oil and gas people and turn that into something much more profitable, much more valuable through Bitcoin mining.
Two questions.
What initially, so you mentioned in 2020, what made you go down the Bitcoin rabbit hole just quickly?

(06:34):
And then second, you started out vertically integrated, owning the assets, but that's evolved a bit.
Yes.
Yeah.
I mean, the rabbit hole was a function of time and a function of just kind of the macroeconomic conditions in the U.S.

(06:54):
Right.
Knowing enough to know a ton of money printing is probably not good.
and seeing all the free money that was going out there was concerning.
And so, and also, you know, I'd actually been, you know, I've heard about Bitcoin.
My first experience with Bitcoin was actually in 2011.

(07:16):
I bought some Bitcoin for one function only,
which is actually purchasing some fake IDs for me and all my high school buddies.
Common amongst the youngins.
So I refuse to look back at how much Bitcoin I had at that time.
But, you know, it was purely buy Bitcoin, send it to China, get fake IDs.
And so I've kind of known about Bitcoin, but never spent the time kind of throughout college and in my first job really learning about it.

(07:39):
And so selling the company, having the time, having all of the QE infinity printing COVID madness all like, you know, put me down the rabbit hole.
Yeah. One of the things that I, if I'm explaining Bitcoin to somebody having nothing to do with energy or mining, just using the example that people can't drill an oil well and then sell, you know, in terms, it's not sustainable to do that operation and all of the capital that requires human capital, physical capital, monetary money and time and energy, and then sell it for something that can be easily printed.

(08:14):
that can be created on a computer screen in the Fed.
And today we're going to be talking a lot about natural gas,
but talk a little bit about how your strategy has evolved.
And then I want to talk about the natural gas market specifically
in terms of how you guys arrived at that part of the energy system
to be used as a fuel source for mining Bitcoin.

(08:37):
Yeah.
Yeah, so getting into natural gas Bitcoin mining,
um you know it's i like to say uh sean's background you know is finance investment
banking private equity right my background was in software so he's really good at spreadsheets i'm
really good at code and so when we built the model for 360 we're like oh you know it looks

(09:00):
good in excel i'm used to fixing problems in the real world with you know just changing lines of
code. So the first deployment we did was anything, you know, it was not what we expected at all. It
was a lot more expensive, a lot more time consuming to actually commercialize this model in the oil

(09:22):
field. There's a lot more that, you know, I naively thought, hey, you just plug a Bitcoin miner,
it's going to work, right? But there's plenty of considerations in Bitcoin mining, people would
you know, cooling server type, stuff like that. And then on the natural gas side, there's,
there's plenty of stuff there as well. So it really took us two and a half years. And so
to, to actually go from first deployment to a fully standardized, repeatable,

(09:44):
dependable gas offtake and monetization system kind of through Bitcoin mining. And during that time,
you know, gas prices had gone up tremendously after the, you know, Nord Stream, Russia,
Ukraine thing. And then they fell, you know, just as fast. And we were actually approached by a few
other upstream oil and gas companies in the Barnett Shale who had caught wind of what we were doing

(10:08):
and how much money we were making by mining Bitcoin on our assets. And they asked us
to help them do the same thing. And so that was like a big turning point for the company,
realizing, you know, that the big realization was like when we started the company,
it was, hey, oil and gas is means to an end for Bitcoin mining. Those ends are, you know,

(10:32):
sub three cent power, control, long term deployments, no counterparties, right? That's
what we were after when we started 360. Becoming an upstream oil and gas producer, talking to other
producers, talking to our field personnel, we kind of realized that the paradigm exists on the exact
the other end with Bitcoin mining being a means to an end for oil and gas outcomes.

(10:57):
And so during that two and a half years figuring this thing out, we were realizing like,
hey, you know, we have really cheap power for Bitcoin mining.
But if you look at the rewards of Bitcoin mining, how much money we're making, then
you put that in oil and gas terms like that is a much better market to monetize natural
gas than, you know, selling gas into the pipeline.
So we realized like, hey, this is actually very impactful for oil and gas companies who

(11:20):
don't really care about Bitcoin or Bitcoin mining, but care about being commercial and making money.
And then you combine that with other EMPs asking us to do the same thing for them. And that really
launched our services business, which is our main focus today. So today, 360 goes, we deploy and
operate these, you know, we call them, call it apex gas offtake is what we call it, but it's really,

(11:43):
generators, data center servers that we go deploy out for other EMPs to help them solve their natural
gas problems. The benefit to them is they're not having to go down the same school of hard knocks
we did, learning all the same things, making the same mistakes, spending all the time doing it.
They'd rather, just like an oil and gas company would hire Halberton to go frack wells because

(12:05):
it's highly technical and nuanced, they'll hire 360 to go do this gas offtake system for them.
So that's been really successful for us.
It's really interesting, you know, taking this model and selling it as a service to oil and gas companies.
And you guys don't have the capital intensity of then also having to purchase the wells.

(12:27):
Yeah, exactly. Exactly.
So now we're doing it on behalf of people who have wells.
So we're not having to go take on any of the upstream operations or the capital expenditure to actually go take down the asset.
Do you guys think of yourselves as an oil field services company?
Yeah, I think, you know, in the simplest terms, it's what we're providing is a service to the oil field. You know, I think of it maybe more as like a distributed energy infrastructure company. You know, but it's, you know, six one way, half a dozen another.

(13:01):
well let's back up and i want to talk about specific
use cases upstream you know in terms of mining at the well site leveraging natural gas i want to
just kind of zoom out to paint the picture of the of the natural gas market it's at least specific

(13:22):
to the US. And so, you know, approximately 40% of the market is of natural gas is ultimately
converted to the electric power industry. Approximately 32% is for industrial purposes.
I think like 14% is residential, 10% commercial, and then 4% transportation, just in terms of the

(13:44):
end market for natural gas. And now increasingly some of that say electric power is being used to
to mine Bitcoin and avenues are being leveraged upstream,
like what you guys are doing to monetize natural gas before it ever hits a
pipeline.
But talk a little bit just about the market for natural gas in the United

(14:04):
States,
where natural gas is typically drilled and how you guys arrived at what I think
is typically North Texas and West Texas for opportunities to monetize Bitcoin
mining or to use Bitcoin mining to create a solution in the oil field.
Yeah. Yeah. So, I mean, natural gas is extremely abundant all over the United States, really in many parts of the world.

(14:29):
You know, in the Northeast, you have the Marcellus, which I think is the biggest natural gas play in the U.S.
It's like Pennsylvania, West Virginia.
You know, then the Bakken in North Dakota, there's a bunch of oil and gas there.
Then you keep going down Powder River in Wyoming, DJ Basin in Colorado.

(14:51):
You get into New Mexico, San Juan Basin, but further south, Permian Basin, which then bleeds over into Texas.
So you start moving east through Texas.
You have the Permian Basin, which is probably the biggest oil and gas play in the U.S.
You have the Eagleford in south Texas, tons of oil and gas there.

(15:12):
You have the Haynesville, which is predominantly a gas play in East Texas.
And then you have you know the Barnett Shale North Texas you get into Oklahoma you know Scoop Stack And you keep going up There natural gas in Michigan and in Nebraska and Kansas
You know, there's a ton of oil and gas all over.

(15:33):
Now, I think what's really interesting about oil is there's effectively, you know, WTI is kind of the benchmark for oil.
You can truck oil.
You can move oil pretty much anywhere.
And there's effectively one benchmark for oil prices, whereas natural gas is highly localized markets.

(15:55):
So, you know, not all, you know, gas can have the exact same composition, can look the same, but can earn widely different prices for that gas.
Just depending on the local hub you sell that gas into and then the terms of your midstream agreement.
So in Hainesville, for example, there's a tremendous amount of gas.

(16:17):
Where's the Hainesville?
East Texas.
Okay.
Tremendous amount of gas in East Texas.
And it earns a really good price.
They're, you know, getting not far off from Henry Hub, which is kind of the benchmark or Houston Ship Channel.
Whereas you go to West Texas and the Permian, those guys are selling into Waha, which is usually trades at like a $2 discount.

(16:39):
and often goes negative to, you know, prices in East Texas and elsewhere.
San Juan Basin, you know, that gas going west earns sometimes higher than even Henry Hub.
So as we...
Explain some of those dynamics that cause that.
And then also if you said that in West Texas at the Waha Hub,

(17:03):
it might trade at a $2 discount for an order of magnitude to Henry Hub,
like give some sense of where henry hub is today just so you have an order of magnitude of what
that discount looks like yeah so henry hub is at you know three dollars fifty cents that's no
for mcf it's like the benchmark for for gas um your haynesville producers are probably after

(17:26):
midstream fees are getting maybe three dollars twenty cents an mcf so they're getting pretty
close tight a tight band to henry hub whereas in west texas you know i think waha is trading at a
two dollar discount today to henry hub so that same molecule of gas and then after midstream fees
you know might make a dollar an mcf um and not two dollars on fifty dollars like you know yeah

(17:52):
it's like a 60 70 discount and the gas can look the exact same it could be the same quantities
but widely different revenue generation potential just based on where it is.
I think, you know, why that is, right, there's a lot of gas in the Hainesville, there's a lot of gas in the Permian.
Well, the Hainesville is really close to the coast, all the LNG export terminals, a lot of industrial uses, Houston and the Gulf Coast.

(18:15):
So there's a lot of demand for natural gas in that particular demographic.
Whereas the Permian in West Texas, there's no industrial, I mean, hardly any industrial uses out there.
So it's really a function of supply and demand. There is a ton of supply of natural gas in West Texas. There's no real localized demand for it. And there's not enough takeaway capacity with pipelines to bring it to where demand centers are.

(18:42):
And so just economics 101, you have a way oversupply of natural gas compared to the ability to actually transport it to major markets.
And so that's why you have this large differential to Henry Hub.
You know, and I would say the band of like the discount that Waha gets to Henry Hub is actually a lot better today than it was this time last year.

(19:10):
I think Waha was negative for more than 20% of last year.
So Henry Hub could have been $2.50, $3 an MCF.
But the differential in Waha was more than Henry Hub.
And so if you're an oil and gas producer in West Texas and Waha is negative,
like you're selling gas into a pipeline,
but you're actually getting charged to put it into a pipeline because the price is negative.

(19:33):
You're not making revenue.
You're actually having to pay to get that gas taken away.
I think most people might be familiar with when solar power or power trades at a negative cost in West Texas because of production tax credits or various different tax incentives that might dictate an abnormal economic situation.

(19:59):
what would cause a economic scenario, obviously way more supply than there is demand, but why would the market be producing all of that if there's not similarly some tax anomaly that's causing the distortion?

(20:20):
Yeah, that's a really good distinguisher, right?
So in your Haynesville, like those are wells drilled with the intention of finding natural gas.
but those are natural gas only wells and so when they're underwriting drilling those wells it's
it's for gas economics whereas most natural gas in the permian is called associated gas
so that's gas coming out of a well that was drilled for oil and so the main economic driver

(20:43):
in the permian you're like you're not there for the gas like the gas is a byproduct that you really
wish you didn't have to deal with um you're there for oil and so you know no one is going right now
was like drilling, you know, banger gas wells in the Permian because the market is so bad for that
gas. Um, but they are drilling for oil, um, and a lot of it. And so, you know, and then getting a

(21:09):
little more technical, like a lot of that, like tier one acreage in the Permian has been, you
know, drilled up. And so now they're moving on to, you know, tier two, tier three, uh, around the
Permian basin, which is, is gassier. And so they're, you know, still after oil, you know, but they're
those wells inevitably going to produce more gas than those tier one wells are. So it's really

(21:30):
the continued growth of natural gas supply in the Permian Basin is a function of more and more
drilling for oil and more and more associated gas coming up with that oil. And, you know,
Permian's getting gassier over time as gas oil ratios widen. So if there was no oil in the Permian,

(21:52):
you wouldn't have this problem because people probably wouldn't be drilling much in the Permian
at all because again that gas market is so bad and then you know on top of that you can have
you know you can have pipelines that need maintenance that get shut in that you know
compressor stations need to be overhauled things like that that can have like temporary decreases
in the ability to move gas out of the Permian and that'll cause that differential that Waha price

(22:17):
to be worse than, you know, it's trading at today.
And with another example, something like the Marcellus,
is that more like the Haynesville where they're drilling for natural gas specifically?
Correct.
Versus in the Permian being associated gas.
The primary asset that they're trying to get out of the ground is oil
and there's this associated gas and it's highly variable.

(22:38):
Correct.
And I guess the other thing that you said is now that they're at tier two,
you know, tier one might've been wells that were expected to be
predominantly oil literal little associated natural gas that now increasingly wells oil
wells are being drilled that have more gas yeah yeah so then use that maybe to describe

(23:01):
the connection between um that dynamic and why what the why that creates an opportunity to mine
bitcoin more it being more attractive potentially in west texas versus the haynesville or the
ourselves yeah yeah so then to answer that question gets into the next like two distinctions

(23:22):
of gas it can be associated gas or not but it can also have a pipeline like associated gas can be
sold into a pipeline maybe talk a little bit about that like okay now go to a well out in west texas
and what happens from there to get gas to market conventionally?

(23:45):
Yeah.
I mean, no matter where the well is,
to get gas to market conventionally, you need a pipeline.
So whether it's a well drilled for natural gas in the Haynesville
or associated gas coming out of an oil well in the Permian,
to get that gas to market, it has to go into a pipeline.
um so people in the haynesville that are drilling wells like they're not going to go drill a gas

(24:09):
well if they don't have line of sight on offtake on a pipeline right that wouldn't make any sense
so those guys yeah again they're underwriting it all around natural gas economics and they
have a pipeline and so you do have a ton of gas in the haynesville but you also have a ton of
takeaway capacity for all that gas um whereas in the permian
ideally you are drilling wells and you have takeaway for that gas even if the terms of that

(24:36):
takeaway are pretty bad given waha um but oftentimes you're there for the oil and you'll actually go
flare the gas so the the big distinction is stranded gas versus non-stranded gas
stranded gas can occur everywhere it can occur in the haynesville and the marcellus
um you know and in the permian there's a higher propensity of stranded gas in predominantly oil

(24:58):
plays because again gas is the byproduct and they're just trying to get to the oil so um you
know you'll flare that gas off because you can't sell it into the pipeline um because there is no
pipeline or the pipeline's going maintenance or or anything like that um and that that's kind of
what creates the opportunity so if we talk about as we look at our opportunity set as a services

(25:20):
company like what assets are we chasing like who's the ideal customer profile um talking about
pipeline connected gas wells we have never done a deal in the haynesville because that gas is
pipeline connected and it's making great netbacks and so those oil and gas companies that do have
those you know pipeline connected gas wells that get good price like they don't feel the pain

(25:42):
they don't need a solution an economic solution for that gas like they're a-okay selling it into
the pipeline like there's just not a lot of value for our services there but if you look at pipeline
connected gas in the Permian, especially if you looked, you know, six, nine months ago when it was
negative, like you might as well just flare it, right? Because the pipeline's not paying you

(26:04):
anything for the gas. So like that's, you know, finding just purely talking about pipeline connected
gas wells, the opportunity lies in the worst markets. So find me the gas wells that have the
worst midstream contracts selling into the worst hub. And those are the best opportunities because
the uplift that Bitcoin mining provides over what they're getting from the pipeline, that chasm is

(26:27):
much wider. Whereas the uplift it provides in the Haynesville, you know, it's still there, but it's
just not as attractive. So purely on pipeline connected gas wells, we're targeting, you know,
the Permian Basin, the Bakken, areas where there's an oversupply of natural gas and the realized gas
price even if it does have a pipeline is bad um talking stranded gas you know that if it's

(26:54):
stranded it has no pipeline it has no market and so bitcoin mining works anywhere stranded gas
exists and so when you talk when you specifically say stranded gas it is where there's a oil and
gas well where gas is the byproduct or a gas well that doesn't have a pipeline but typically they
wouldn't drill a purely gas well if they didn't already have the pipeline correct correct so a lot

(27:19):
of like your gas wells that are stranded are older production where the pipeline company's gone away
or the pipeline company's lines 30 years old and they're not going to invest in overhauling it and
maintaining it and so that can strand those wells because you know if the pipeline goes away you
have nowhere to sell your gas um so again like it's not as common in the haynesville to have

(27:44):
you know stranded gas um but you do have pockets in the haynesville and elsewhere where
you know like in wharton county we're looking at a deal um it's like texas gulf coast like
warden county county is texas on the gulf coast um you know where you have all these producers
impacted by a pipeline decommission so you have this pocket of like nine different companies that
all produce in the same region that all sell into the same pipeline and the pipeline's going away

(28:08):
so all those guys are effectively stranded now and why would the pipeline be decommissioned just
because like the decline curve of the gas yeah decline curve of the gas the age of the pipeline
the pipeline company's cost to maintain overhaul it like eventually gets to the point where the
juice isn't worth the squeeze for the pipeline company and so they'll abandon the line effectively

(28:30):
give notice and you know the upstream producers are you know out of luck and just to map out that
picture starts at a well there's a pipeline it goes to a typically a natural gas processing plant
and then from there goes further downstream to either you know uh lng on the coast to atmos

(28:53):
power plant on course power plants um you know like the barnett gas is pipeline quality in many
parts coming out of the ground it's like you know i know our asset in the barnet like that
is literally like energy transfer transports that directly from our pad to the gas power plant that's
you know five ten miles away like doesn't touch a processor at all it's just field gas going

(29:16):
straight into power plant so not all gas is created the same however and so and like in the
Permian, like all of that gas is going through processing plants before it is reaching its end customer.
Talk about specifics in terms of the set of scenarios that create a tangible opportunity to mine Bitcoin.

(29:40):
And what incentives dictate mining upstream off of natural gas.
yeah so there's three main value propositions that bitcoin mining in the oil field provides
an oil and gas company the first two you call it environmental um slash oil related right so

(30:04):
um in in these cases think of oil and gas companies that are flaring natural gas
right so they don't have a pipeline but they have to keep producing the well to get the oil out
gas has got to go somewhere. Their best option is lighting it on fire in a flare.
Business as usual has changed over the last five years where it's becoming harder and harder,

(30:27):
more costly to flare at the federal level from the EPA, but also at the state level.
And so gone are the days of companies drilling big oil and gas wells and just flaring gas into perpetuity even in Texas large quantities of gas And not based on one political party or the other No no

(30:51):
It's just kind of been a slow burn in that direction.
And then you have states like New Mexico and Colorado that tend to be more liberal leaning
who have statewide mandates.
So it's a lot harder to flare New Mexico and Colorado than it is in Texas.
But even in Texas, you can't be flaring large quantities of gas forever.
because that hits like federal thresholds.

(31:13):
And even Texas has some state rules around that.
So if you think of an oil and gas company,
you're like, okay, I am here in New Mexico
in the Permian Basin.
I'm a big top 20 oil and gas company
producing all of this oil.
And I'm only allowed to flare this gas
for a little bit of time.
And if I don't have a pipeline,
I am in a bad spot

(31:35):
because eventually I can't flare.
And if I can't flare,
and I have nowhere for the gas to go, I have to shut my well in. But I'm not there for the gas,
I'm there for the oil. And I have to shut my well in, I'm foregoing, you know, hundreds of barrels
of oil per day. That's, you know, 7,000, 10,000, $15,000 a day of revenue that these guys are not
able to produce. And so taking a step back, I talked to value props like environmental, some,

(31:59):
you know, big public like Exxon, companies like that are, you know, by 2030, we're not going to
flare any gas at all. So even if it's not jeopardizing their oil, like they have a mandate to
reduce flaring. And so purely a company could deploy a Bitcoin mine for no other reason than,
hey, flaring is bad for the environment. Burning that gas through, you know, 360s clean burning

(32:21):
generators is better for the environment. I am not flaring anymore. I look good for my ESG score.
Like that is a very real value prop, especially your bigger companies that are worried about that.
more often is the case where that flaring is actually starting to jeopardize the well itself
and their ability to produce oil so yes it's environmental great you know we've reduced our

(32:45):
emissions by going with 360 but that's really not the primary driver the primary driver is
if i don't have a solution in two months like i'm gonna have to shut my oil well in and that's a
million dollars of revenue i'm not going to be able to produce and that's a very real very impactful
problem that that we're solving for we are giving people an outlet for natural gas so that they can

(33:06):
produce more oil uh you know we're working with you know one of the top 20 u.s onshore oil and gas
producers uh on the you just to kind of put a real example around it like it's helpful you know this
is a site in the texas gulf where you know they drilled this great oil well it's making 350 barrels
a day has been for the last you know three years um doesn't make a ton of gas makes around you know

(33:30):
two megawatts worth and they're flaring all that gas like they have this big that seems like a lot
of gas two megawatts yeah well i mean there's a lot you know go to the bakken and the permian
there's a lot more quantities of gas being flared but for this company like it was okay
you know they're flaring as much as they're able to flare but they want to go drill other wells

(33:51):
like in the on this lease because they have a great oil well but there's never going to be a
pipeline getting to the site and they're already at the capacity of what they're able to flare so
they've been kind of sitting on their hands for the past five years in with an inability to
drill more wells and so we're working with them now we've deployed um you know we've we've done

(34:14):
two different deployments with them to capture that gas so now like they're still producing the
oil and now they have a solution for the gas. Their flaring has gone way down. Their emissions
have gone way down. What does that mean? Well, now they've drilled and completed another well
and brought another, I think this new one's doing like 450 barrels of oil a day. So,
you know, yes, this Bitcoin mine is making them a little bit of money on the gas. Yes,

(34:37):
it's a feel good emission story. But what we've really done is unlocked their ability to make
another 450 barrels of oil a day. And that's worth, you know, well over a million dollars of
annual revenue and so that's where you're really starting to add value it's like that's really the
sites where after we're putting another one up in the powder river uh it'll be a little over three

(34:58):
megawatts where's the powder river powder rivers in wyoming okay and so you know you know this is a
top 50 onshore oil and gas company that you know has a very similar problem they're you know the
biggest producers in wyoming and so um you know these problems are prevalent right these are
widely like this is one site in wyoming these guys operate thousands of wells and this is not

(35:22):
a one-off thing it's you know portfolio wide across many different assets um so that's so
finishing long-winded answer your question like that's the emissions oil value problem and one
way to think about that is you're it's it's less about the bitcoin mining economics it's more about
combination of reducing a liability, flaring,

(35:45):
as well as
unlocking an asset, being able to
tap more capacity on the oil side that you wouldn't otherwise
be able to because of limitations on the environmental
side. Correct. That's exactly right. And then
where are then the opportunities

(36:09):
or how do you guys think about
where it's actually about the Bitcoin mining economics
and how does that vary from a setup
that you just described?
And if you could give some specific examples,
that would also help.
Yeah, definitely.
So then the third value prop
is an economic value prop.
So purely people saying,
I can monetize my gas in a Bitcoin mine

(36:30):
and make, you know,
I said Henry Hubbs at $3.50 in MCF,
like mining Bitcoin with new gen servers
in the oil field is $13.50.
cents. It's $10 more in MCF to go mine Bitcoin. And so you have people that again, find me like
this is a better fit for pipeline connected gas producers in the Permian that are sick of getting

(36:52):
ripped off selling gas into the pipeline for nothing. Like they can say to hell with that.
I'm going to deploy one of 360 energy systems on my site and I'm not going to sell gas to the
pipeline. I'm just going to monetize it, you know, through the Bitcoin mine.
um and so you know we've done a lot of deal like when we first launched the services company like
those first two deals in the barnet like that's what they wanted they wanted to fund all the

(37:16):
capex buy all the infrastructure and mine bitcoin at their site so they can make a lot more than
they were getting in the pipeline and we've continued to do uh deals like that i think
those deals like i mean there's just so much gas out there there's plenty of opportunity to do that
I think the challenge there is most oil and gas companies don't know anything about Bitcoin,

(37:42):
certainly don't know anything about Bitcoin mining and hash price, nor are they in the
business of spending millions of dollars of capital to, with that payback and that return
being determined by Bitcoin mining economics is very out of pattern for an oil and gas company.
And so, you know, our customers that have done that model tend to be smaller, family owned, multi-generational, independent oil and gas companies.

(38:12):
And we've deployed that particular model where they're purely chasing the economics, you know, all over Texas.
Not in the Haynesville, but we've done that in the Panhandle, in the Barnett, in the Permian, and other places.
again for those you know even if you did have that same characteristic multi-generational you
know family owned oil and gas company in the haynesville they're still probably not going to

(38:33):
do it because they're not feeling the pain they're getting you know three dollars 25 cents an mcf
that same guy in west texas you know he might be willing to go spend two five ten million dollars
on a bitcoin mine because the chasm and the uplift that this provides is is so much better
because if because functionally the revenue side of the equation for either of those mines looks

(38:54):
almost identical to each other but the cost side of the natural gas
there's a there's a material differential in terms of if you could make 320 or 350 depending on
Houston chip channel or Henry hub index versus a dollar then that would be a spread that would

(39:17):
create an economic incentive potentially to mine bitcoin yeah like bitcoin doesn't care but
hash rate's going to be created anywhere and it's going to get cleared out at hash price
so you can deploy this anywhere natural gas is available uh it's just where does it provide the
most uplift maybe walk through the like in a in a tangible way like you mentioned 1350 mcf if

(39:42):
you're mining bitcoin but it comes with additional infrastructure just maybe talk a little bit about
what the actual operation looks like.
There's infrastructure on the gas well,
but you have to bring infrastructure out
and how that, you know,
it's not, you're not just getting the benefit
of the differential between a buck

(40:04):
or a buck 50 and 1350 of,
hey, if I were to go down the traditional route,
this is what the economics would look like.
But if I brought on incremental infrastructure,
took on the capital costs,
what that incremental kind of bottom line looks like on a gas unit yeah yeah so traditionally

(40:26):
on the upstream side only on the oil and gas side they're going to drill well they're going to have
you know tank battery and facilities to separate water and oil and gas and they're going to have
storage tanks for water storage tanks for oil and they're going to have some offtake for that gas
which would there be a pipeline or it'll be a flare stack um it's like that's your traditional

(40:49):
you know that's what exists on wells all over the world right that typical facility um on the
bitcoin mining side you know to go deploy these at one of these sites you're talking big natural
gas generators that's the first component um so you're you're plumbing you're having to plumb that
natural gas generator into their system where the gas is flowing um and then downstream of that

(41:15):
generator you know so that generator is consuming all of the gas um create a bunch of electricity
right and then where's that electricity go well you know 10 feet away you wire that
generator into one of these data center boxes um and inside one of those boxes are hundreds of
servers. And so that's, you know, a very simple way of talking about the three main components.

(41:42):
You know, there's, we, you know, we have to meter the gas, you know, we put separators and volume
tanks and pressure regulation. There's a lot of other little nuanced infrastructure between all
these steps, but the three main components that you have to add to an oil and gas site is a generator,
data center servers and you know data centers are air cooled or immersion or hydro and servers

(42:03):
there's old ones new ones efficient ones different deals come together in different ways that warrant
different infrastructure for us we only deploy one type of generator that works very well on
associated gas and a wide range of natural gas right i think the hardest part about this business
is the continuous operation of converting gas into electricity for Bitcoin mining.

(42:30):
And the mining servers are relatively dumb.
You know, as long as they're getting power, they're pretty much going to run.
And as long as you have a Starlink satellite, you're good.
But the proof is in, like, the uptime is really in the power side,
the ability to consistently generate power.
And so we've, as a company, been through many different generators.
small big paralleled island mode and can go on and on but that's the typical infrastructure we're

(42:56):
putting out at every site every site's going to have generator data center servers it's just a
matter of who owns the equipment and what the servers produce in terms of hash rate
And so if you're looking at a site that is particularly attractive to actually mine for the Bitcoin economics and the mining economics versus reducing liability or unlocking an asset, like, you know, being able to drill more oil, do the scale of those differ typically?

(43:33):
or what is the traditional, like, what is the typical scale that you guys work at in terms of,
you know, the, the, the size of a generator or the ultimate conversion?
Yeah. So we only deploy one type of generator, right? We deploy Waukesha's and those are 1.3
megawatts a piece. So for us to do any type of deal, you know, it has to be at least, you know,

(43:53):
300 MCF a day of gas, which is enough to feed that Waukesha. We use the same, most of our sites
use the same air cooled data center um and then the servers can vary widely so no matter who owns
the asset like we have two different commercial models which we can get into um the ability to

(44:18):
convert gas into hash rate is really a function of what servers you have the new 2025 best in class
what's miners or or ant miners like those are what's making 1350 an mcf um they just make a
lot they're way more efficient at producing hash rate from the same amount of power um you know
some of our sites were deploying old 2020 miners used miners that are very very cheap to get and

(44:43):
you know make significantly less dollars per mcf they're three times less efficient they're you
know four times cheaper um so it really just depends for the customer you know what they're
after um you know should i talk about the commercial models yeah if you could yeah so
we have a rental model and we have a purchase model right as what i talked about earlier

(45:06):
focusing on purchase first that's where the oil and gas company will actually buy the generator
by the data center by the servers they're doing that purely for the economic value prop
of bitcoin mining of bitcoin mining the uplift that that provides versus what the pipeline will
pay them or if the gas is stranded. Typically what we've seen is those customers prefer best

(45:30):
in class miners. So they're trying to maximize the Bitcoin production in the shortest amount of time
possible before the next halving. You know, they're bullish on Bitcoin, they're bullish on hash price.
And so they'll want to deploy the best servers and hodl as much of the Bitcoin that they mine.
That product is not a great fit for your oil and gas companies that have the environmental

(45:57):
oil problem.
What we heard over and over from customers is and just from traditional oil and gas patterns right These guys don want to fund capital into anything other than drilling wells What they will do is rent compressors rent production equipment rent gas treatment facilities It like it much easier for them to spend OPEX versus CAPEX

(46:19):
And so, you know, and especially as, you know, if we're after these curtailed oil situations,
these environmental situations, those are usually bigger EMPs, like your big pubcos,
your big privates, uh, who, you know, have a lot of gas. Um, they're a better fit for rental
because one, you know, renting infrastructure is way more in pattern for them. Um, you know,

(46:44):
the, what we'll do in rental, they'll pay us a fat flat fixed monthly cost. We own all the assets.
So same exact generator, same exact data center, but we're putting in older used miners, uh, which
are a lot less capital intensive. It's more a function of getting their rental cost to be

(47:04):
achievable and not offensive, while also still giving us the ability to make a return
on our capital investment on our units. So in the rental, you know, they will pay fixed flat
monthly cost to us. They'll get the Bitcoin mining rewards. Traditionally, these are big companies,
they don't have the accounting to custody Bitcoin, they don't want to custody Bitcoin,

(47:27):
they just get cash at the end of the month and so same system different servers owned by 360 will go
deploy to capture that gas for them they'll get the u.s dollars at the end of the month it's not
1350 in mcf because we're using you know 2020 2021 servers um so net net net they're paying us 50

(47:49):
you know 50 grand 60 grand 40 grand depending on the site and how many units we're deploying and
the term length but they're coming out of that you know right now making about five grand a month
um however if hash price is that what does that translate to on a mcf basis about a dollar an mcf
right but it's highly sensitive to and realistically in those scenarios those operators care less

(48:13):
about yes exactly what the uplift is to their natural gas they are not there chasing gas
economics. If they can subsidize the rental rate with, you know, the cash they get at the end of
the month, like that's great. But the reality is like, even if they're losing 20 grand a month,
let's say hash, you know, Bitcoin goes from 120 today to 70 grand. Like all of our customers on

(48:34):
rental are not making money. They're losing money. They're paying us a rental rate. Cash they get
back at the end of the month is not more than the rental rate. Right now it is more and it comes out
to about a dollar an mcf but the point is like those guys are not there for gas economics most
leases they do in the oil field are cost centers and so this right now is great because it's you
know it's not a cost center for these guys but what they're the reason they'll still do this

(48:58):
even if they're losing money every month on our deal is because they're getting oil out of the
ground yeah it's a cost center or in in certain scenarios it's a marginal profit center but it's
really there to enable yes uh the monetization of an asset they couldn't otherwise exactly exactly
so that's that's exactly right like they're willing to lose you know call it 20 grand a month

(49:20):
on our deal because now they're making an extra 500 grand a month of oil that they wouldn't be
able to produce without us there so it's it's cost of doing business and then walk through
the economics of us of a typical site in the in the other scenario where they're actually going
after the Bitcoin, it's a stranded gas play in terms of a lot more capital, so more costs.

(49:45):
They might be getting the $13.50 in MCF, but they're investing what per MCF and what does
the uplift look like versus what they might get from selling to a pipeline like the Waha,
assuming it's not negative, but it's a dollar in MCF.
Yeah. So in that case, right, focusing on best in class, right again, same generator, you know, same data center, and then best servers cost roughly $2 million per megawatt per 300 MCF a day of gas.

(50:19):
that infrastructure stack deployed at their site turns around and makes call it 1350 an mcf
of top line revenue which comes out again you're investing 2 million and across a year that's about
1.7 million dollars of top line revenue after all your mining expenses generator maintenance expenses

(50:42):
site expenses like OPEX, you know, you're making about, call it $11 in MCF, $10 in MCF of EBITDA
per MCF, which is substantial, which rounds out to about 1.3, $1.4 million of EBITDA per year.
So our customers who are making this big investment in the infrastructure are also

(51:07):
looking at really attractive paybacks. And so, you know, they're making their money back in
in less than two years at current hash price. Um, it's a good time to do that. Miners are
obviously a lot cheaper than they were, you know, when we started the company back in 21 and hash
price was at $400 today, hash price is about $60. So, you know, and all the things hold true. Like
it's just funny. And the payback on the same well would be far longer if they were just

(51:31):
selling to a pipeline. Yeah, generally. And, and so then the next question,
because you mentioned this before, like the variability in hash price.
And I would presume that the first scenario where it's less about the mining economics
are more agnostic to the variability in hash price.

(51:53):
But talk about how you got 360, how you manage this operationally,
but then also how you manage it in evaluating target situations or target sites.
In terms of managing volatility of Bitcoin, as well as volatility in natural gas, because, you know, almost at the start, you talked about the scenario where natural gas.

(52:19):
What was the scenario where natural gas went to like nine dollars?
Yeah. Yeah. So that's a perfect example.
But just talk about that generally, but also potentially specifically to scenario planning and site planning of how you manage volatility of both of those.
The Bitcoin price and hash price, as well as the cost of natural gas, which is revenue potential.

(52:47):
Totally.
I think the best way to look at that would be like our company owned Wells and site and Bitcoin mine in Fort Worth.
Right.
So when we started the company, gas prices were at $3.
Mining Bitcoin was $40 at MCF.
So it was like worth deploying that infrastructure to realize that outsized gain.

(53:14):
Because that chasm was so wide, right?
And then kind of play it out over the next year and a half.
Operationally, we were not doing well.
Like we're trying to figure this thing out for the first time.
Like we were not, you know, having to spend way more money.
The uptime was not good, you know, and then what you had happen was, you know, FTX and
Sam Bankman freed and Bitcoin went from, you know, 63,000 to 17,000, 16,000 and hash price.

(53:40):
Yeah.
Just 22.
And like coincide, like, you know, happenstance, Russia, Ukraine happened, Nord Stream blew
up, gas prices went to $9.
At that period of time, you know, the mining rewards were $7 in MCF.
gas prices were nine dollars in mcf we had all these operational issues we actually shut our
well or shut our bitcoin mine completely down for six months hired halberton fracked three more

(54:06):
refracted recompleted three of our wells um went from you know 400 mcf a day to well over 2000 mcf
a day which is really a function of these two uncorrelated markets it was like well the hell
with the Bitcoin mine, you know, if we can sell gas for $9, let's go invest in our wells and,
you know, make a great return in natural gas. And so you do have these two uncorrelated markets,

(54:31):
you know, a lot of, some of our customers look at this as like revenue optionality.
Why have one market when you can have two? And so, yeah, there certainly is like a function.
Describe that, like just like that idea of having the optionality.
um like do people when you're talking to customers does that resonate it definitely resonates

(54:53):
it's you know the challenge is like to make a return on the bitcoin mine you need to be running
the bitcoin mine 24 7 and so it people have many different ways of thinking about it um
but generally you know having a pipeline there and having a bitcoin mine gives you optionality

(55:17):
so you can sell gas for gas prices or you can effectively sell gas into the bitcoin mining
market you know for a widely different gas price and historically the bitcoin has way outperformed
henry hub um we have a chart on our website that plots it out over five years like the only
crossover was for three months kind of during that refrac period that we had.

(55:40):
Generally, customers, if they're going to go do this, are thinking about like, it would
be very bad if I was having to sell gas to the pipeline.
You know, they're doing this thinking Bitcoin mining is going to be the sole offtake for
that gas, you know, for the foreseeable future.
And so we had a conversation previously.
My understanding, though, is that certain midstream pipeline agreements basically dictate under all scenarios they have your gas.

(56:07):
So you don't have that optionality.
So you might be looking at scenarios where they do have the option.
Correct. Yeah, correct.
I would say just overarching theme here is it's a lot harder to do any type of deal on pipeline connected gas because that gas is earning some nominal or attractive gas price.
First and foremost, to your point, you're alluding to like acreage dedication.

(56:28):
so why can we do this at our site in the barnett but maybe not at you know exxon site in the permian
right i think you know what our wells were drilled in 2007 right at that time
and these are gas wells right so traditionally when a new well is drilled in oil and gas
you have an offtake for that gas energy transfer targa or one of the big midstream companies

(56:52):
they'll say okay you know you need to get this gas sold i will build the pipeline to you i will
invest in the infrastructure so energy transfer will go pay you know a million bucks or however
far they have to build out but in return for that they're going to say and i'm going to do this for
you but you have to sell all your gas to me under all scenarios no matter what for the next 5 10

(57:14):
20 years right and so it's unfortunate because in west texas like you'd think everyone would
be doing this but a lot of guys especially last year when waha was negative uh you know if you're
dedicated to targa like you can't siphon off gas to go mine bitcoin even if gas prices are negative

(57:34):
right all that gas has to go into the pipeline company contractually because they invested to
build out to you um and so again the acreage dedications are a big there's like two main
disqualifiers in natural gas bitcoin mining acreage dedications are one they're really hard
to get out of and around. And you definitely don't want to go toe to toe with these big

(57:56):
mainstream companies and violate those terms. And then, you know, gas composition, like if you have
a lot of H2S, like sour gas, can't really do much about that. It's very cost prohibitive to treat
sour gas. And so like, if it's sour, it's really not much you can do because that's highly corrosive
will destroy your generator dangerous for people. So those are the two main deals. But, you know,
I'd say in the Permian, like there are a lot of dedications. And so you'd think a lot of pipeline

(58:18):
connected guys out there would be doing this but you know your newer wells your five year old wells
and newer like if there is a pipeline like the acreage dedicated we run into that a lot when
we're talking to your top 150 oil and gas companies you know that have newer production
they're you know tied in with the midstream and they can't do anything i would also gather that

(58:40):
even if you were someone that owned an asset and looked at this equation and understood it and
wanted the optionality that in most cases, if you want the pipeline, you don't have any leverage to
preserve optionality in just in terms of negotiating power with a midstream company.

(59:02):
Yeah. I mean, like you're every deal we've done on pipeline gas has been older production.
We've not done any like new wells because chances are it was dedicated at one point and the
dedication's rolled off. It's termed out 10 years later, five years later. So now those guys do have
optionality like they're not mandated to sell gas to the midstream companies they do have the

(59:22):
functional ability to do something else with that gas um but again it's it's asset by asset
so from a customer segmentation standpoint like when we're looking at selling the product where
the oil and gas company purchase it like we're finding we're targeting like the worst potential

(59:42):
assets from a gas realization perspective, which would imply like Permian Basin,
older conventional wells that, you know, don't have oil. It's like there's, you know, pockets of
the, you know, southeastern Permian, like Valverde, Crockett County, where you have older production

(01:00:04):
that's predominantly gas. It's old, you know, 20 years plus. They have a pipeline, but chances are
the midstream company is not taking very good care of it.
It's not dedicated.
So like those would be great targets for those companies specifically.
Like those turn,
those wells turn into cost centers,
right?
If they only produce gas and you have to pay a guy to go out there and
chemicals and everything to actually produce the gas and you're selling it

(01:00:27):
for 50 cents or a dollar,
like chances are like those wells are shut in,
not producing because they're on economic.
Like that's where this would be a great fit.
Do you just basically being in the market,
do you expect midstream companies you know it would be unlikely to to mine upstream but to
start mining at the point of aggregation and do you see that as competitive

(01:00:50):
not necessarily competitive but potentially um a competitive dynamic when evaluating sites of
what would make something an attractive site to mine bitcoin upstream yeah i think
midstream companies are very conservative they are um they like to clip their fee

(01:01:11):
just by moving molecules so i don't foresee in the near future uh you know again just like oil
and gas companies their dollars are to drill wells like midstream companies dollars are to
drill i'm not to drill but to build pipe and processing so for them to go way out of pad
And then at these gathering centers that these military companies have, I mean, shit, it's like hundreds of megawatts you could do.

(01:01:37):
So like, I don't see those companies doing this themselves and capturing the spread.
Very, very easily, like energy transfer could go do that in the Permian right now.
They have custody of the gas.
They're stripping out all of the valuable parts of the gas, like the NGLs and propane and all that.
they're left with the least valuable, which is just the methane, like the dry gas.

(01:02:03):
You know, they very easily could do that. I think what we're seeing is more
those guys facilitating, energy transfers of the world, facilitating sales to your hyperscale
data centers or your big Bitcoin miners, where they'll say, you know, look, we have all this gas,
you can buy it from me for some premium over Waha, that energy transfer, like some premium

(01:02:24):
over energy transfer would get just moving it down the pipe. So I don't see that as competitive.
I don't think that kind of runs into any of our evaluation like that particular one. I mean,
I do think it'd be, there's a future where midstream leverages Bitcoin mining as a way to
maybe win more deals. So like if you're a midstream company, you want this big Exxon pad,

(01:02:45):
right? You say, hey, Mr. Exxon, this is in New Mexico. I can help you complete these wells three
months faster than any of the other midstream companies because i can put a mobile gas offtake
solution while the pipeline's being built out i do see that as a future for for midstream
one one last question on kind of the evaluation of of sites and then i want to zoom out to

(01:03:10):
more of the bitcoin side of it how do you guys manage the client curves of wells you talked about
those scenarios where you know customers actually going to buy the infrastructure to mine they're
buying that latest high sm machine it is highly efficient but expensive

(01:03:30):
how do you guys in mining bitcoin at as high utilization as possible is most ideal if you
have those expensive machines how does that factor into evaluating the sites and then also
thinking about the duration of how long one of these solutions is at an individual site and
moving between sites yeah like those are like that's a great question to just kind of go and

(01:03:55):
going into like wow there's a lot more to this than i thought in 2021 um because you're totally
right like old conventional wells like are producing flat like new horizontal wells are
dropping off a cliff in the first two years right and so and then gas composition right is widely
different and different gas compositions will perform differently in the generator will you know

(01:04:21):
really lean dry gas low btu that's less efficient in the generator than like a richer 1200 btu gas so
moral of the story is like our customers both in rental and in the purchase model like they're
leaning on us to evaluate with them how many units how long where this makes sense which means

(01:04:42):
Are we talking about a single well? Like that's not ideal. Um, single point of failure. We're
talking multiple wells, a gathering system. What's the decline on all these wells? Show me the
production history over the last three months. Show me the gas composition. Is the gas composition
for all the wells the same? Um, the ambient conditions of the site, you know, is it high
elevation? Is it cold? Is it hot? Um, the pressure, like flowing field pressure of the gas, like,

(01:05:07):
are the wells on artificial lift? Are they free flowing? Like there's all these considerations
to really evaluate the quality of a site to put a Bitcoin mine on there and have it be a legitimate
24 seven operation. And how many units do we need and how long can they be there for?
So like that's part of every, you know, customer journey evaluating those fine details to actually

(01:05:33):
propose them something that we're confident in and something that they can be confident in.
And all of this adds up to Bitcoin mining solving an upstream energy problem.
Describing principally two different types of problem.
One, unlocking oil, reducing environmental liability.

(01:05:54):
The other side, greater monetization of natural gas than could otherwise be monetized traditionally
or conventionally.
Zooming out, for someone that's a traditional energy professional that might know less on the Bitcoin side,

(01:06:14):
how do you personally, but then also 360, think about Bitcoin, the money side,
in terms of what is actually creating this demand?
And so I'd just like to hear your views on that, of the actual source of the demand, because I can envision you're talking to customers, talking about how you can get $13 an MCF versus $1 an MCF or $10 to $11 of EBITDA, or talking to someone about eliminating environmental liability and being able to unlock oil.

(01:06:54):
and that tracking and then saying, well, how do I know this is going to exist in two years or three years
if I invest in this infrastructure? So just talk a little bit from your own perspective of how you think about
the Bitcoin side of what is actually creating the demand to make this sustainable.

(01:07:15):
So what's kind of like just Bitcoin in general? Like what am I telling customers?
Yeah. You know, I think, I mean, I'm a 360. We're very bullish on Bitcoin. Always have been and try to maximize our holdings. And so when we're talking to customers, like, you know, I tell them I don't have a crystal ball. Like, I can't tell you a Bitcoin is going to be at 200,000 at the end of the year or 50,000.

(01:07:37):
What I can tell you is, you know, it's, if you look at the last, you know, you look at
the history of Bitcoin, it's the best performing asset over the last 15 years.
And you just look at some of the macroeconomic tailwinds of the ETFs are a big one, right?
A lot of our customers are old school but when I can say look BlackRock is the biggest purchaser of Bitcoin Fidelity is buying Bitcoin Texas has a strategic reserve The US has a strategic reserve Wisconsin Pension Fund just bought you know 250 million And some of those like tangible

(01:08:12):
macroeconomic tailwinds really help people come to terms that like Bitcoin is not, you know,
fly by night, um, snake oil scam. Right. And then, you know, the fixed 21 million, uh, Bitcoin
supply. And then in light of, you know, trillions of dollars, you know, they can keep printing them,

(01:08:32):
right. It's you have, and then the deficit, I mean, you, you can get really philosophical on
Bitcoin, but I think the main diffuser for customers is like talking about Texas, talking
about BlackRock being like, look, if it's good enough for these massive institutions,
like it's not going anywhere. So I think that is how we frame it. I can't tell you what hash price

(01:08:57):
is going to be, but I can tell you that, you know, things are going to continue to get better for
Bitcoin. If you look at some of the things that are happening right now, I think that helps people,
you know, come to terms with it. Make no mistake, if someone's going to go buy
$2 million plus of our infrastructure, like they are going to have to go down the Bitcoin
rabbit hole themselves some of them already have some of them are are more new to it some of them

(01:09:20):
are more risk takers wildcatters families that know they want some bitcoin exposure and this is
a way to get it um on the rental side again like that level of evangelism like frankly doesn't
happen because they could give a shit about bitcoin it's about getting oil out of the ground
like i'm not having to like they're not worried if they make 10 grand this month or lose 10 grand

(01:09:42):
next month on our deal they're worried about getting oil out of the ground and if this works
and we have the track record and customers and backing and they know it works like they're fine
with it you know irrespective of bitcoin and in that scenario they're just renting equipment for
you so they don't really care if two years from now three years from now doesn't turn out because

(01:10:02):
they don't have a huge amount of capital investment so now now they in theory could
have gone and drilled an oil well and then if you're not able to continue to to pay because
but worst case scenario like bitcoin goes to zero like this will still function as the same service
that off takes gas that lets them produce oil so like if bitcoin's at zero like we can still run

(01:10:23):
i would challenge that well i mean you could still run the cost so you could you could i guess what
you're saying is you could still reduce the emission yeah just be i'm still unlocking oil
for them and if they're paying us you know 50 grand a month and they're getting zero dollars
back but now they're making 500 grand of oil like still you know it's less attractive but

(01:10:44):
again for them it's not really about how much money am i going to make on this bitcoin mining
deal it's about how much more oil am i getting out of the ground and then how do you think about
this is obviously in the oil field i presume even though this is people have been mining upstream
for probably a decade now.

(01:11:08):
It's still very nascent.
It's still a drop in the bucket.
Do you see, or I don't want to say, do you see,
what would Bitcoin in terms of scale
need to be to more meaningfully change
maybe how the legacy industry sees the map

(01:11:32):
such that they're more proactive about using Bitcoin to solve these problems rather than having you show up to try to educate them.
Yeah, I mean, my business partner, Sean, always says that, you know, one day the Bitcoin mining is going to be a tailwind for 360 energy, not a headwind.
Right now, it's a headwind because, you know, a lot of customers are like, can you do anything else?

(01:11:56):
Can you do AI? Can you do any? Does it have to be Bitcoin? Right.
Because they still have this phobia that Bitcoin is, you know, a scam.
So that is changing, though.
Like, it's absolutely changing.
I think the level of evangelism we're doing now is a lot less than we've been doing.
I think that's also a product of being more mature as a company, having real institutional backing, you know, track record, being producers ourselves.

(01:12:21):
Like, we come across more trustworthy, more proven.
But, you know, I don't know.
know i don't you know if it's 500 000 bitcoin i don't know if it's the u.s buying five percent of
the outstanding supply um i don't know if they'll ever do this or if they'll continue to outsource
it i mean i think you can look at as maybe as a comp is you know some of these big super major

(01:12:47):
exxon bp getting into some more the renewables and they're kind of dabbling into geothermal
which is at least more tangential on the energy side like i don't think in the next three years
and i don't even know if it's a bitcoin price signal i just don't see these big oil and gas
companies wanting to go invest a huge amount of money in bitcoin mining to go do this themselves

(01:13:11):
in the near future i think they'd rather outsource it via the rental product
to get the oil and gas value propositions
that they're looking for.
I could be wrong.
I just...
Now, when you guys look at the map,

(01:13:31):
what percentage of wells that you would say,
hey, this would be a great opportunity
to unlock oil production for an EMP company,
what percentage of them have some type of solution?
Is it 1%? Is it 0.1%? Is it, you know?
Yeah, that's a great question.

(01:13:53):
I don't want to get the statistics wrong,
but I believe about half a percent,
the 1% of natural gas in the United States was flared last year of produced
gas. I think it's a half a percent.
I think pretty sure it's half a percent,
somewhere between half a percent, 1%.

(01:14:14):
So that's all stranded gas that's creating emissions that may or may not be curtailing
oil production.
That's addressable.
What does that mean?
That over two gigawatts of electrical generation Bitcoin mining capacity just in the US of gas that specifically being flared and that not talking about gas that being sold into waha or negative that not talking about

(01:14:36):
wells that are shut in because they the market's uneconomic um that addressable market you know
is four to five times larger in the middle east it's about the same size if not bigger in south
America. Um, you know, and so for us, you know, all over Texas today, putting stuff in New Mexico,

(01:14:59):
Wyoming, you know, going to be going to North Dakota this year. Like, um, that's a huge
addressable market, you know, for us to, to go do this. And so I think that's, I don't know if
that answers your question. No, it does. And then my last, my last question on this, and I want to
pivot for the last 10 minutes is
if you're going to mine Bitcoin at the top level,

(01:15:23):
why are you guys focused from a strategy perspective,
upstream natural gas versus other potential points at where somebody could
capture some natural resource, convert to power, mine Bitcoin?
Yeah, I mean, it's, it's a good question. I think
what we're really energized about like culturally like what is exciting about

(01:15:49):
our bitcoin mining application is like it's solving real world problems and if you're going
to go plug in 500 megawatts on the grid like are you really solving any problems maybe it's the
load balancing it's you know better for the grid it's something i'm not as well versed in but i
think what we're really energized about is you know this bitcoin mining being a function of solving

(01:16:11):
real oil and gas problems for these guys that has nothing to do with Bitcoin, but it's a tool in a
toolbox to solve those problems. I think that's what really gets us excited. Um, you know, we don't
want to be a big self-mining company. Um, you know, for a variety of reasons, I think
in our future, like I definitely see us getting back on, on the upstream side. Like if, if the

(01:16:39):
right opportunity came about i could see us going and doing something larger completely vertically
integrated i don't think we're ever gonna do some big gas purchase agreement with energy transfer
and just put a bunch of bitcoin mines out there on their gas because it you know is makes sense
from a bitcoin mining side i don't know our what we're seeing right now is like is a massive problem

(01:17:01):
that we have a solution for that is growing very fast,
both in 360 size, deployment size, customer profile, and backers.
And so I think to some extent we have some really positive momentum
that we want to keep.

(01:17:22):
Why change if it's not broken sort of thing?
And we have a lot of runway ahead of us to go really make an impact
in this flare gas market.
stranded gas market now to pivot though from the energy side and um i mentioned that i wanted to go
here to the bitcoin side and even though you know certain of your target customers are more

(01:17:47):
mining bitcoin for the bitcoin side of it others are solving a different problem to mitigate
you guys are either helping others you're operating others to mine bitcoin or you're
mining bitcoin and people are renting equipment from you how do you guys think about your role

(01:18:09):
as bitcoin miners and your assets within the broader bitcoin ecosystem in terms of the
function they're providing yeah great question i think you know as a bitcoiner we are distributing
hash rate um away from your call it at a very low cost right the cost to mine the bitcoin is very

(01:18:36):
low and so that enables us to kind of distribute hash rate away from maybe your largest publicly
traded Bitcoin miners that control a lot of that hash rate. So philosophically, like that's
attractive to have these smaller distributed nodes, uh, of Bitcoin mining. And so I think
that's something that, you know, is an asset to Bitcoin in general. Um, you know, I know we talked

(01:19:00):
a lot about pool centralization, right. Which is its own problem, but I think our function in the
broader bitcoin ecosystem as like distributed nodes of hash rate is uh is pretty cool but on
that point of you know a lot of bitcoiners and then bitcoin developers talk about
mining centralization and mining incentives

(01:19:23):
do you guys think about
pool centralization as a risk to your business or a risk to bitcoin because while maybe
the further away you get from Bitcoin to the end customer,
the Bitcoin side of it doesn't come into play as much.

(01:19:46):
But the long-term integrity of Bitcoin is critical to the demand for these
solutions. And as Bitcoin grows, the demand for the solutions will grow.
And perfectly fine if you guys don't think a lot about it,
But I'm just curious if you do evaluate those risks and how you think about the risks of centralization within the mining ecosystem.

(01:20:13):
Because from my vantage point, it's not in the interest of the actual miners, the people that are distributing the hash rate like yourselves.
I'm just curious how you guys evaluate or whether or not you view it as a material risk and just how you think about that.

(01:20:33):
Yeah, you know, it's hard because like on one end we're running a business.
So it's like we're incentivized for ourselves and our customers to go with the pool option that's the most reliable from a payout perspective for the lowest fees.
Right. Trying to run a business, we need to maximize or optimize around those points.
right What does that mean It means we usually pointing hash rate at some of these big pools right Which is a conflict from your point about pool centralization And you know I think a lot of miners would say oh but you know if Boundary starts acting nefariously

(01:21:06):
we can easily just switch the pool address
on all of our miners and move our hash rate somewhere else,
which is true.
I think there's a lot more to it, right?
I think it's not, you know, a five-minute process to go do that,
especially, you know, if you're not set up on other pools
and the KYC and all the stuff that goes along with it.

(01:21:26):
So yeah, I, you know, again, our little portion of the global hash rate, you know, from our
day-to-day business, we're not optimizing around the risk of pool centralization.
We're optimizing around, you know, what's going to maximize our cashflow and the cashflow
of customers in the most predictable way.

(01:21:48):
but you know I do think there's something to be said about pool centralization as being a risk
and I'd say it's fair to say that mining Bitcoin is for all the things that we talked about in
terms of all the different variables that you have to think about in terms of evaluating sites
mining Bitcoin is difficult not for the faint of heart probably not you know similar but different

(01:22:13):
to the you know anybody who's going to drill well not for the faint of heart not for everybody
but that um you guys don't have a lot of time to think about or consider regardless of you know
the consequences of pool centralization but just as changes are being considered yeah to the bitcoin

(01:22:34):
network and your role in that you know in terms of what you know where you're pointing at hash rate
not just that like hey is centralization risk and do i want to have a second option
i'm curious if you guys have ever thought about kind of splitting hash rate across pools
to to have that solidly de-risked but then also you know is it fair to say you you know you guys

(01:23:01):
aren't you know as changes are being proposed in bitcoin or people are evaluating soft forks
that doesn't really get surfaced and you're certainly not day-to-day but rarely yeah no i
As a Bitcoiner, personally, and at the company, I'm very interested in some of the more thematic.
The quantum computing is a big one.

(01:23:22):
How do we make Bitcoin quantum resistant?
Am I active in discussions?
I don't know anything about the code base.
I can't speak competently on all the fine details, but I recognize the problem and I'm excited to hear what potential solutions are and will be.
I think as a Bitcoiner, I'm very concerned about that.
I think, you know, we have tested a couple of different pools.

(01:23:44):
One we're excited about trying is ocean.
You know, could we do a better job of that?
Absolutely.
But to your point, we're got 10,000 other things going on.
Running a pool test is not the number one objective right now.
But, you know, we do talk about that stuff.

(01:24:05):
And we certainly talk about some of the more thematic things coming down the pipe for Bitcoin
and what those mean.
And, you know, I would say both my normie friends
and customers like quantum is the one
that a lot of people are talking about right now.
So, you know, we need to be educated
on what the risks or not risks are
and what timeline and, you know,

(01:24:26):
what Bitcoin Core is, you know, doing about that.
So, all right, well, take that opportunity to wrap.
But last question,
what are you guys most strategically focused on
And what do you see maybe categorically shifting your business in the next few years?

(01:24:48):
Yeah, you know, I think our focus is on putting out as many units as possible for large oil and gas companies.
Obviously, we're trying to build the biggest, you know, business we can build, the biggest services company we can build,
which is really a function of, of putting units out in the field. I mean, you know,

(01:25:13):
we don't look at 360 like, Oh, we got to sell the company in the next three years or,
you know, we're more focused on building a company that is solving problems in the oil field,
which is a function of evangelizing people on who we are, what we do, how it works and why they
should do it. And then getting units out in the field. I think a lot of like, that's the near term

(01:25:34):
focus. Like we need to get to 20 rental units out in the field before the end of this year,
right? That unlocks our ability to go raise more money, get better cost of capital on credit
facilities to then continue doing that. We're really focused on partnerships. Like one of our
investors is Halliburton. And so, you know, continuing to work with Halliburton on strategic

(01:25:55):
initiatives together is a big driver for us and our growth. You know, I think over the next,
you know, two years, I imagine we're going to continue to be across the lower 48, potentially
Alaska. You know, we are evaluating some international opportunities as well. And so,

(01:26:16):
you know, if we're successful domestically, there's no reason this can't be successful at a much larger
scale internationally, whether that's the Middle East or South America. So, you know, we're, you
know, we're excited. The addressable market for what we're doing is massive. You know, Bitcoin
mining as a function is uniquely situated to solve the problem. Like you can't go put an AI

(01:26:36):
data center in the middle of the oil field and run it off Starlink. There's not many other things
that are so flexible like Bitcoin mining. So, um, and we're good at it and we've been doing it now
for four years and we're producers ourselves. So, uh, you know, I do think to some extent there's
lightning in a bottle right now and it's trying to just capitalize on that, grow that and, um,
you know, grow the company.

(01:26:57):
All right.
Well, last question.
What is, what SMU football game are you most,
you have starred on the calendar?
You go to virtually all of them.
Yeah, I go to most.
Clemson, SMU at Clemson.
Oh, nice.
That's going to be really exciting.
And the U is coming to.
And the U is coming to SMU.
Dallas, the big D.

(01:27:18):
Yeah.
Carson Beck, that's going to be interesting.
Yeah, I love it.
Well, appreciate you coming on.
Center of Hash.
episode three yeah thank you thanks for having me appreciate it