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sean welcome to the center of hash thank you it's good to be here your former home bitcoin

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i was gonna say it's good to be back in the common or bitcoin park we miss you guys

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i've only been away for a few weeks but i know there's a vacuum that we need to fill

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a void yep how are things going at the new office oh they're great you know it's uh

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It's sad to leave this space, but it's good to have our own space.

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We've grown the team a lot, so it's nice to have conference rooms to take calls and things like that.

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Signs of success.

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Yeah, we hope so.

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The team's grown a lot, putting deals out, so blowing and going.

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Well, Chris, your co-founder and partner at 360 Energy, recorded in July.

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and he and I were catching up

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and I suggested that we should get you on as well.

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You have a very different background from Chris

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and I wanted to start out just talking about

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the history in the oil and gas space on the finance side

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and how you came to be working on Bitcoin

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and specifically Bitcoin mining.

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You were formerly at Blackstone.

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So just talk a little bit about

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and then investment banking at Credit Suisse before that,

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both on the oil and gas side, energy side, I guess.

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But yeah, talk a little bit about your history,

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what you were doing,

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and how you ultimately decided to become interested in Bitcoin

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and then work on Bitcoin mining.

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Yeah, definitely.

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So started at Credit Suisse in the oil and gas group in Houston,

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went to school in Dallas.

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And that was what we talked about earlier,

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pledge ship or finance.

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Being an analyst in an investment bank is

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a lot of grunt work,

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but you do learn a lot over your two-year period

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there. What years was that?

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That was 16 to 18.

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I've done my pledge

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ship in investment banking as well.

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New York, 2006

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to 2009.

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That was a pretty wild time.

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I know what it's like.

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That was great, but the goal

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is always to get to the buy side.

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I did two years

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there and then moved to gso which was the credit arm of blackstone it's rebranded blackstone credit

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now um in new york 25 person team across new york and houston um and we were investing when i first

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joined in all oil and gas companies so investing across the capital stack mostly preferred equity

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down to you're up to senior secured debt um and you know day one it was all oil and gas so a lot

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of upstream deals, some midstream deals, a little bit of OFS. And it was just, if you need capital

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as a business to, you know, expand your drilling program or buy more equipment, we would be a

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capital provider to help them do that and make a return for our LPs. So that was a great experience.

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You know, it's, it's a very intense environment for sure. A lot of very smart people. And I learned

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a ton. I was there for six years overall, learned a lot my first three years. The first two years

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are almost like investment banking all over again, but with a different skill set. You're just

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working very hard, long hours as well, but your LP is capital you're investing. So the standard

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is a bit higher on, you have to be really sure you're right. At an investment bank, it's kind of,

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you're being salesy, right?

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So that was a great experience.

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So a question there.

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One, just total as an aside,

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what does GSO stand for?

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The three founders.

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So Goodman, Smith, and Ostrover.

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And that was a unit within Blackstone.

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Yeah, so those three guys were

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DLJ Credit Suisse guys back in the 90s.

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They started GSO early 2000s, I believe.

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I think 2004

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and then Blackstone bought GSO in 2008.

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And then specifically talk about

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in terms of the deals that you would work on

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where you're typically working on

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primary equity financings,

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credit financing,

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all throughout the capital structure

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and just the nature of the type of deals

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that you would have experience with.

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An example, it was mostly credit focused

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because GSO was a credit shop.

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Um, we would do minority common equity, but we wouldn't do control common equity.

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If there was anything controlled that would go to the private equity group.

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The blackstone kind of has many business segments, right?

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Private equity, real estate, and then GSO was the credit arm.

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So a typical deal, for example, um, uh, midstream or sorry, an upstream operator in the Permian

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needed a hundred million dollars to go drill 10 more wells.

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We would give them a term loan, $100 million term loan, pretty expensive capital.

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We targeted mid-teens.

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And then we might co-invest $10 million of common equity alongside.

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And were these typically, I mean, presumably if they're getting a $100 million term loan,

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these are well-established companies or really often public companies, private mix?

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It was a mix.

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I would say most of the deals were private companies.

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We would do some public stuff.

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The biggest deal I worked on was a $1.6 billion preferred equity investment into a system called Target Badlands.

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So Target is a massive midstream company publicly traded, and they wanted to monetize a part of their Bakken assets, their midstream assets there.

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So we bought a 45% interest preferred interest for $1.6 billion.

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And that's an example of a deal we would do with some public guys.

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And Bakken's North Dakota owns oil and gas.

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Yep, oil and gas in North Dakota.

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So a gathering system means they have the pipes that actually connect to the wells.

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So they're the ones that build out to the pad, connect to the actual wells, and get those hydrocarbons to market, both oil and gas.

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And so you were there for six years.

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You mentioned the first two years being very similar to an investment banking, first few years.

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but in terms of exposure to different types of the energy markets how did that look how did it evolve

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yeah yeah great question covid changed a lot for us um oil went negative that one day

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our portfolio was you know not in shambles but there was a lot of stuff breaking at negative oil

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right so we spent a lot of time triaging that that was probably a three-month period of just

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making sure all of our portfolio companies had enough cash to make it through. And then when we

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came out the backside of that, the group kind of made a pivot saying, hey, we kind of, the

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administration was very anti-oil and gas. The senior guys at Blackstone were kind of leaning

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away from oil and gas as well. So we actually rebranded the group from energy to sustainable

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resources and started doing new originations on more energy transition and related companies.

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So my background was oil and gas at Credit Suisse.

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So it was interesting to look at a whole new sector of the industry in the energy industry.

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So renewables, service companies that service those renewable projects, things like that.

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And I was really excited about it at first, you know, to kind of broaden my horizons within energy.

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But quickly became fairly jaded, frankly, with the whole renewable craze.

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I think it was overhyped.

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The asset of returns were just not attractive, frankly.

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They weren't good deals.

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But there was so much LP demand for this.

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People wanted green investments at the time.

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And ESG was all the rage.

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So that's kind of the direction the group went in.

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And that's a part of the reason I ended up leaving and making the jump to 360.

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I just didn't feel like I liked the way the group was going.

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how large within blackstone is that group just in terms of like total

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assets that are under management capital being deployed just yeah blackstone credit as a whole

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is pretty large so i'd have to look at the latest numbers but let's say blackstone is around a

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trillion or a year ago is around trillion i'm sure it's more now of total AUM i believe blackstone

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credit is around 400 billion of that 300 to 400 billion but then the energy and the energy group

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we had 25 billion of AUM okay so maybe 25 percent of the credit and then yeah two and a half if on

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that trillion dollar total two and a half percent of the total exactly and we were a bit unique

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within blackstone credit we were the only industry specific group just because energy by nature is a

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bit more technical and you need a little bit more industry knowledge.

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The rest of Blackstone Credit was more industry agnostic and covered, you know, broad parts

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of the economy.

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You mentioned the preferred equity deals to credit.

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Did you specialize on one or the other over that course?

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No, you kind of got staffed on a deal that came in as you were available and would work

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on various things.

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So I worked on anything from just vanilla senior secured term loans to Harrier preferred equity stuff.

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So now connect for folks, the transition from what you were doing, what got you originally interested in Bitcoin before even 360?

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Yeah.

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Or maybe they're intertwined.

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Yeah, no. So my origin story, if you will, in 2016, my buddy at Credit Suisse, a fellow analyst, told me to buy some Bitcoin, you know, and I did just to appease him, but didn't understand it at all. Thought it was internet fake money, as everyone kind of does in the very beginning.

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didn't really think about it again until 2020 i was at loxone at the time and saw the whole

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covid response printing trillions of dollars and i just you know the finance background in me was

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like if if they're going to print that much money something's going to go wrong like that that has

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externalities negative externalities and i had my dad kind of like gold in the past so i had some

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some gold exposure, just the ETF, and then kind of recircled around to Bitcoin.

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Marty's podcast was one of the early things that kind of started getting me down the rabbit hole.

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Read the Bitcoin standard and then just slowly fell down the rabbit hole, kind of 2020 onwards.

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It was very similar for me in 2008, 2009, which I think is fairly common for people, which was

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there's a financial crisis

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and 2020,

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2021,

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the response was different.

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I'd say it was much quicker,

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but being in the middle of,

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at the time for me,

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investment banking,

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it was that something's broken here.

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I don't know exactly what,

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but none of this makes sense.

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And then for me,

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it was at that time,

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it was,

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tail end of it i guess at the time where it was happening in 2008 early 2009 bitcoin was just

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being launched i had no way to connect it to bitcoin but later came revisited to figure out

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what exactly was broken but i think that's very logical where there's just an instinctive reaction

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that something's wrong here right and it sets you off on a course to to figure out what that is even

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if the immediate connection isn't directly there.

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No, exactly.

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And we were doing all this hard diligence,

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all this hard work in making 11% yielding loans.

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And everyone knew inflation was around that.

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It's like, what are we spending all this time on

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to make loans and make 11%

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when they're just printing all that money anyways?

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And you're going to be breaking even, really,

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on an adjusted basis.

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So, totally.

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Yeah, and that's also something that...

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I've talked about it in a couple episodes just very briefly.

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Maybe we can talk about it in more detail.

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But one of the ways that I'm describing Bitcoin to somebody that's new

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is connecting that,

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and I don't have nearly as much knowledge as someone like you might have

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in terms of the operations of an upstream oil and gas business,

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say if that was an example of a subset of the businesses that you were financing and working

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deals on, but that it doesn't make sense if you think about all the complexity that goes into

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those businesses, complexity to the supply chains, the amount of actual money required to make those

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operations work, the human capital, the physical capital, and then to sell the output of it just

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using the case of oil and gas, maybe gas that comes out of a pipeline or oil at a gathering

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station, force some money that someone can click a button and print out of thin air.

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You mentioned previously that when the COVID lockdown happened, a lot of the focus shifted

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to making sure companies that were in the portfolio had enough money to survive.

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what does that mean in practice for for some of the more like in a tangible case for the type

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of companies that you would work on yeah for a tangible example was you know we were in a debt

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position and so we are owed interest you know every quarter right we could go to them and say

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hey for two quarters we'll pick this interest we'll let you not pay cash just add to the debt

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balance to give you some breathing room proactively. We didn't have to do that, but we didn't want them

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to default because of this really black swan event. Oil going negative is very rare. So give

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them some flexibility from our capital is one thing we could do. That's an interesting... So

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just as an aside can you explain contextually why oil went negative Yeah I mean it was a bit of a freak event But from my understanding there was so much

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There's just no demand, right?

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There's no one's flying planes.

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There's no demand.

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No one's driving cars.

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So demand was so low.

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Wells are still flowing.

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And Cushing, Oklahoma, where WTI is cleared every day, for that one day, there was just no buyers and all the oil was still there.

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And there was no place to store it.

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Exactly. Storage was full, and there's a real cost to storing that.

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So people were effectively paying to have their oil go somewhere, which is a negative price.

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And there were speculators in that market that couldn't actually take delivery.

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Exactly.

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Okay.

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Exactly.

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And so would your group do the restructuring?

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essentially if you were going to work on an amendment for a credit deal,

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would your group within Blackstone work on that directly

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or would that be outsourced to restructuring shops?

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Yeah, we would work on that directly.

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We would hire restructuring attorneys

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to do the more technical document-related things,

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but our deal teams, we had some bankruptcies

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that we would have to work through.

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And so if you connected in this period of extreme money printing

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to thinking about the amount of effort and work

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that went into your deals and the type of returns

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versus how easily the money could be created to Bitcoin.

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00:16:14,268 --> 00:16:19,148
How, in a direct way, did that help inform

235
00:16:19,148 --> 00:16:20,228
your understanding of Bitcoin

236
00:16:20,228 --> 00:16:21,668
when you started to go down the rabbit hole?

237
00:16:22,087 --> 00:16:25,087
Just like how you came, how do you think about Bitcoin?

238
00:16:25,808 --> 00:16:26,447
Yeah, exactly.

239
00:16:26,628 --> 00:16:28,867
I mean, again, we're spending all this brain damage,

240
00:16:28,967 --> 00:16:31,408
all this effort on structuring creative deals,

241
00:16:31,528 --> 00:16:34,008
and trying to make alpha,

242
00:16:34,467 --> 00:16:36,207
risk-adjusted positive returns.

243
00:16:37,348 --> 00:16:38,567
But at the end of the day,

244
00:16:38,908 --> 00:16:39,388
like you said,

245
00:16:39,487 --> 00:16:41,048
someone can print money

246
00:16:41,048 --> 00:16:42,207
with the push of a button.

247
00:16:43,327 --> 00:16:44,467
So once you learn about Bitcoin

248
00:16:44,467 --> 00:16:46,668
and you ingrain in your head

249
00:16:46,668 --> 00:16:47,768
there's only 21 million,

250
00:16:48,207 --> 00:16:49,587
that's a fact.

251
00:16:50,408 --> 00:16:51,947
It really changes the way

252
00:16:51,947 --> 00:16:52,808
I thought about it.

253
00:16:53,587 --> 00:16:54,508
You can own an asset

254
00:16:54,508 --> 00:16:56,508
that can't be devalued by someone.

255
00:16:57,067 --> 00:16:58,388
I would rather own that

256
00:16:58,388 --> 00:16:59,327
than do all this work

257
00:16:59,327 --> 00:17:01,487
trying to make 10%

258
00:17:01,487 --> 00:17:03,548
in a currency that's being debased.

259
00:17:04,188 --> 00:17:07,767
It's a lot easier to just go hold an asset that can't be debased.

260
00:17:08,668 --> 00:17:12,068
So that was kind of my original path down the rabbit hole

261
00:17:12,068 --> 00:17:13,848
was informed by that thought process.

262
00:17:14,287 --> 00:17:20,368
And so when that started to click, you called Chris?

263
00:17:21,047 --> 00:17:22,908
Yeah, so I was going down the rabbit hole.

264
00:17:23,928 --> 00:17:24,807
Chris called me.

265
00:17:24,807 --> 00:17:28,168
Yeah, Chris called me and said,

266
00:17:28,307 --> 00:17:31,168
hey, I want to do this Bitcoin mining thing.

267
00:17:31,487 --> 00:17:36,807
cheap electricity is the name of the game that's how you differentiate yourself as a bitcoin miner

268
00:17:36,807 --> 00:17:41,008
i had this idea with natural gas he didn't know much about oil and gas at the time he knew i did

269
00:17:41,008 --> 00:17:46,648
we went to smue together so kind of reconnected about that i at first thought he was crazy um

270
00:17:46,648 --> 00:17:52,608
but then started running some numbers in excel and then funnily enough at the same around the

271
00:17:52,608 --> 00:17:59,188
same time at blackstone we looked at a deal for crusoe energy who was one of the first guys doing

272
00:17:59,188 --> 00:18:04,307
Bitcoin mining in the oil field. So the fact that Blackstone, you know, didn't make it through

273
00:18:04,307 --> 00:18:08,868
investment committee, but the fact that Blackstone was at least looking at doing a deal with Crusoe,

274
00:18:08,868 --> 00:18:14,148
which was doing natural gas Bitcoin mining, kind of made me think different about it too.

275
00:18:14,388 --> 00:18:17,967
So I took another look at the numbers and said, Hey, there actually might be something here.

276
00:18:18,767 --> 00:18:23,328
And Chris started the company. I was just helping him on the side in the beginning.

277
00:18:23,328 --> 00:18:30,447
and you know over the next year i started spending more time helping him and it was much more

278
00:18:30,447 --> 00:18:36,508
interesting and dynamic and exciting to work on the beginning of that company versus you know going

279
00:18:36,508 --> 00:18:44,527
to credit committee for another 11 term loan um and at the same time at blackstone we started doing

280
00:18:44,527 --> 00:18:49,487
more and more direct lending deals you know direct lending was kind of in its infancy back in 2019

281
00:18:49,487 --> 00:18:56,188
but now it's everyone's doing it and those deals are generally more boring than some of the

282
00:18:56,188 --> 00:19:02,428
carrier preferred equity mezzanine type stuff that i liked working on those deals are unique

283
00:19:02,428 --> 00:19:06,648
there's a lot of structuring involved you know you have equity kickers warrants things like that

284
00:19:06,648 --> 00:19:12,148
and your typical direct lending deal it's really just you know sofer plus six percent and that's

285
00:19:12,148 --> 00:19:17,707
the return you're going to make so the interest in my blackstone deals was going down the interest

286
00:19:17,707 --> 00:19:24,588
in 360 was going up and eventually made the decision you know i don't want to be a managing

287
00:19:24,588 --> 00:19:29,168
director at blackstone you know i respect those people they love it i didn't love the deals i was

288
00:19:29,168 --> 00:19:35,348
working on i was loving what i was doing at 360 with chris so you know decided hey now's the time

289
00:19:35,348 --> 00:19:44,768
to to make the jump well you know again difference in time periods slightly but i remember in 2008

290
00:19:44,768 --> 00:19:53,888
2009 when there were guys who were my age now that in my mind then seemed much older at the time

291
00:19:53,888 --> 00:19:59,307
but I remember having the express thought that I didn't want to be sitting around waiting for

292
00:19:59,307 --> 00:20:06,047
somebody to come tap me on the shoulder and say hey you're out after 10 years of service or 20

293
00:20:06,047 --> 00:20:13,547
years of service and realizing that you're really at the center you know again at that time my

294
00:20:13,547 --> 00:20:17,727
my reaction was just that like something's broken and I don't want to be

295
00:20:17,727 --> 00:20:18,268
that guy.

296
00:20:18,307 --> 00:20:18,648
Yep.

297
00:20:18,707 --> 00:20:19,127
Not to,

298
00:20:19,608 --> 00:20:19,867
you know,

299
00:20:19,888 --> 00:20:21,268
there were a lot of good people there.

300
00:20:21,388 --> 00:20:21,508
Right.

301
00:20:21,668 --> 00:20:26,008
Later I figured out that not necessarily investment banking,

302
00:20:26,008 --> 00:20:27,047
because it's more on the,

303
00:20:27,047 --> 00:20:28,047
the,

304
00:20:28,047 --> 00:20:31,068
the edge of the,

305
00:20:31,068 --> 00:20:34,748
the bank I'd say in terms of money creation and the problems,

306
00:20:34,848 --> 00:20:35,787
but it's all interrelated.

307
00:20:36,088 --> 00:20:36,207
Yeah.

308
00:20:37,668 --> 00:20:42,408
You mentioned looking at the economics of some of the,

309
00:20:42,408 --> 00:20:46,828
traditional deals you were doing and looking at the economics and thinking to yourself they

310
00:20:46,828 --> 00:20:53,848
weren't sustainable talk about maybe how that contrasted in your thinking looking at

311
00:20:53,848 --> 00:21:01,627
the sustainability of the economics around bitcoin and bitcoin mining yeah i mean to

312
00:21:01,627 --> 00:21:08,727
to give an example on the renewable side you know a typical renewable project has a lot of

313
00:21:08,727 --> 00:21:14,047
debt on it that you'll sign a 15-year power purchase agreement to sell your power that you make

314
00:21:14,047 --> 00:21:19,287
with hopefully an investment counterparty. So that's very financeable. You get a bunch of debt

315
00:21:19,287 --> 00:21:26,287
and then there's an equity piece like any deal. Those equity returns over the 15-year period

316
00:21:26,287 --> 00:21:31,307
were 0%. You were simply making your money back on the equity over 15 years.

317
00:21:31,668 --> 00:21:37,987
And then all of your return was some assumption on year 15 to year 25. What's the merchant power

318
00:21:37,987 --> 00:21:43,807
price going to be at that point in time so you're making a bet on power prices in 15 years and then

319
00:21:43,807 --> 00:21:48,268
even then the equity returns at that point in time i don't know what they are now but still like six

320
00:21:48,268 --> 00:21:53,068
seven percent on these deals and that just seemed crazy to me and then you look at the bitcoin mining

321
00:21:53,068 --> 00:21:59,888
economics um at the time you're making forty dollars in mcf and making you know year paybacks

322
00:21:59,888 --> 00:22:05,867
on your your infrastructure given you know granted it's a lot riskier because it's a fluctuating

323
00:22:05,867 --> 00:22:12,748
commodity price you don't have a 15-year purchase power purchase agreement to finance but in my mind

324
00:22:12,748 --> 00:22:20,287
and once you understand bitcoin it becomes a lot less risky compared to that you know 6% irr over

325
00:22:20,287 --> 00:22:28,848
25 years how much of it do you think was say long-term power purchase agreements versus

326
00:22:28,848 --> 00:22:31,787
the financing structures

327
00:22:31,787 --> 00:22:33,688
and then pipeline

328
00:22:33,688 --> 00:22:35,967
of money

329
00:22:35,967 --> 00:22:37,748
to underwrite those deals that was

330
00:22:37,748 --> 00:22:39,047
creating the

331
00:22:39,047 --> 00:22:41,487
sustainability versus lack of...

332
00:22:41,487 --> 00:22:43,227
The reason those equity returns were

333
00:22:43,227 --> 00:22:45,547
compressed so low was because how much money

334
00:22:45,547 --> 00:22:46,447
was chasing those deals.

335
00:22:46,807 --> 00:22:49,367
A lot of this printed money was

336
00:22:49,367 --> 00:22:50,568
flowing into these deals.

337
00:22:52,428 --> 00:22:53,547
The equity returns

338
00:22:53,547 --> 00:22:55,508
should not have gotten bid down that

339
00:22:55,508 --> 00:22:57,388
low, but they were because everyone

340
00:22:57,388 --> 00:22:59,148
wanted to own a solar farm.

341
00:23:00,207 --> 00:23:01,388
And now, by the way,

342
00:23:01,487 --> 00:23:03,527
those returns are after all the tax incentives.

343
00:23:04,268 --> 00:23:05,307
Without the tax incentives,

344
00:23:05,428 --> 00:23:07,108
they're negative return projects.

345
00:23:08,987 --> 00:23:10,888
And so when you

346
00:23:10,888 --> 00:23:13,547
pull it forward to what you guys

347
00:23:13,547 --> 00:23:15,627
are working on at 360,

348
00:23:16,168 --> 00:23:17,607
you went from this world

349
00:23:17,607 --> 00:23:19,328
where when you started

350
00:23:19,328 --> 00:23:21,788
a combination of Credit Suisse

351
00:23:21,788 --> 00:23:23,748
going into Blackstone,

352
00:23:25,487 --> 00:23:25,888
the

353
00:23:25,888 --> 00:23:34,148
bulk or the volume was oil and gas shifted more towards wind and solar

354
00:23:34,148 --> 00:23:40,188
wind and solar and ancillary businesses the guys who install the solar panels yeah and now

355
00:23:40,188 --> 00:23:47,047
you start to figure out bitcoin start talking to chris more helping them out on the side

356
00:23:47,047 --> 00:23:52,848
and Chris, maybe with your input

357
00:23:52,848 --> 00:23:55,987
or maybe if you can share the thinking on it

358
00:23:55,987 --> 00:23:57,328
in terms of how it evolved,

359
00:23:57,648 --> 00:24:00,328
coming back to natural gas

360
00:24:00,328 --> 00:24:06,127
and why natural gas as a long-term strategy

361
00:24:06,127 --> 00:24:08,568
for mining Bitcoin makes sense.

362
00:24:08,568 --> 00:24:09,547
Right, yeah.

363
00:24:09,768 --> 00:24:14,008
So given my experience in oil and gas finance,

364
00:24:14,127 --> 00:24:15,487
I at least knew a little bit about

365
00:24:15,487 --> 00:24:22,207
the production profile of wells and how that works financially. So the idea originally for

366
00:24:22,207 --> 00:24:26,848
the company was let's find the cheapest power. How can we do that? And the idea was let's get

367
00:24:26,848 --> 00:24:31,908
to the source. Let's buy these unattractive upstream assets that other people don't care

368
00:24:31,908 --> 00:24:38,008
about. The wells we bought originally were drilled in 2006. They're well past their flush production.

369
00:24:38,207 --> 00:24:42,547
They're on their terminal decline. They're dry gas and they're selling into a high pressure

370
00:24:42,547 --> 00:24:48,248
pipeline, meaning you're not making a lot of money. So from a traditional oil and gas standpoint,

371
00:24:48,547 --> 00:24:53,188
it's not attractive. It's a cashflow breakeven asset that people are willing to sell for very

372
00:24:53,188 --> 00:24:58,828
cheap. But we saw that as a opportunity to buy that very cheap and then monetize that gas

373
00:24:58,828 --> 00:25:03,727
through Bitcoin mining, because you can control your own power. You make your power behind the

374
00:25:03,727 --> 00:25:11,888
and you effectively have 30 years of almost fixed power costs, right?

375
00:25:11,947 --> 00:25:15,828
Your only cost at that point is maintaining your generators and producing the wells.

376
00:25:16,188 --> 00:25:18,388
You're not beholden to the market price.

377
00:25:19,047 --> 00:25:20,707
I guess you are for Bitcoin price.

378
00:25:20,828 --> 00:25:25,307
But again, at the time, it was $40 in MCF when Henry Hub was at $2 in MCF.

379
00:25:25,807 --> 00:25:30,348
But in terms of your power costs, it's the capital you have invested in the well

380
00:25:30,348 --> 00:25:33,807
plus largely fixed cost.

381
00:25:34,127 --> 00:25:34,528
Exactly.

382
00:25:34,928 --> 00:25:38,748
In any infrastructure that you need on site

383
00:25:38,748 --> 00:25:44,107
and then the efficiency of converting natural gas.

384
00:25:44,227 --> 00:25:44,568
Exactly.

385
00:25:44,668 --> 00:25:47,168
So you can model your costs in a pretty tight band.

386
00:25:47,607 --> 00:25:48,967
Unlike if you're on the grid,

387
00:25:49,168 --> 00:25:51,248
you sign a three-year power purchase agreement.

388
00:25:51,727 --> 00:25:52,328
In three years,

389
00:25:52,328 --> 00:25:54,168
you really don't know what your power price is going to be.

390
00:25:54,947 --> 00:25:56,088
And that was back in 21

391
00:25:56,088 --> 00:25:59,648
when everyone was just trying to get ASICs plugged in.

392
00:25:59,648 --> 00:26:00,908
It was, you know, bull market.

393
00:26:01,388 --> 00:26:04,928
People were paying crazy prices for ASICs and just to get powered on.

394
00:26:06,508 --> 00:26:14,627
So we at least knew that wasn't sustainable and figured, hey, let's figure out a way to get long-term power at a lower price.

395
00:26:14,627 --> 00:26:22,008
if you were to have a conversation with one of your former colleagues at blackstone

396
00:26:22,008 --> 00:26:28,867
making the case for why the economics of bitcoin mining

397
00:26:28,867 --> 00:26:34,648
say you know not necessarily what you're currently focused on upstream natural gas

398
00:26:34,648 --> 00:26:37,188
but just more generally how do you make that case

399
00:26:37,188 --> 00:26:42,807
oh man or just like how would you explain it in terms of the opportunity and why

400
00:26:42,807 --> 00:26:49,068
when i when i mean sustainable it's like why this will continue to exist yeah five years from now

401
00:26:49,068 --> 00:26:53,788
10 years from now 20 years from now yeah i think an analogy that's good to use that we use with

402
00:26:53,788 --> 00:27:00,467
customers is if you're mining bitcoin your largest cost is your electricity cost so how do you become

403
00:27:00,467 --> 00:27:07,207
the low cost producer in oil and gas the low loe producer lease operating expense producer can stay

404
00:27:07,207 --> 00:27:13,528
online when oil and gas prices go down as they all often do the same thing applies to bitcoin mining

405
00:27:13,528 --> 00:27:18,967
you know the lowest cost producer is going to be able to weather the fluctuations fluctuations of

406
00:27:18,967 --> 00:27:24,328
bitcoin so i would use that analogy but then you're going to have to explain to them why bitcoin

407
00:27:24,328 --> 00:27:29,528
will exist in five years um and that is a whole another you know rabbit hole i'm probably not the

408
00:27:29,528 --> 00:27:35,127
best person to orange pill people you know by the time i left blackstone i was the crazy bitcoin guy

409
00:27:35,127 --> 00:27:37,008
trying to tell everyone about it.

410
00:27:37,248 --> 00:27:40,627
And I found a couple other people within Blackstone

411
00:27:40,627 --> 00:27:41,627
who also loved Bitcoin,

412
00:27:42,568 --> 00:27:45,447
but there was real no way to express that

413
00:27:45,447 --> 00:27:47,307
in the work we were doing at Blackstone.

414
00:27:48,768 --> 00:27:53,328
Could you maybe elaborate on the parallels

415
00:27:53,328 --> 00:27:55,987
and then maybe differences between those market dynamics

416
00:27:55,987 --> 00:28:00,148
of being the low-cost producer in energy

417
00:28:00,148 --> 00:28:03,107
and when the price comes down,

418
00:28:03,107 --> 00:28:09,668
what happens in that market versus when the price goes up and then the parallel to Bitcoin mining.

419
00:28:09,668 --> 00:28:12,727
And maybe just talk about similarities and differences.

420
00:28:13,348 --> 00:28:18,648
Yeah, sure. So in an oil and gas well, let's just say an oil well, you have lifting costs,

421
00:28:18,768 --> 00:28:24,607
which is how much are your expenses divided by how many barrels you make. So companies will say,

422
00:28:24,688 --> 00:28:30,188
hey, for every barrel of oil I produce, my costs are $10. Some guys' costs might be $30.

423
00:28:30,188 --> 00:28:37,207
dollars other guys might might be five dollars so the guys with 30 40 dollar lifting costs when oil

424
00:28:37,207 --> 00:28:42,428
goes down to 40 dollars a barrel they're break even or cash flow negative so they have to shut

425
00:28:42,428 --> 00:28:49,768
in their well the guys that are only their costs are five dollars per barrel can still make money

426
00:28:49,768 --> 00:28:57,168
at 40 wti same exact thing happens in bitcoin if you're paying seven cents per kilowatt hour on the

427
00:28:57,168 --> 00:29:04,627
grid hash price goes down to 40 which it did and it's not too far from that now um you're going to

428
00:29:04,627 --> 00:29:08,248
be break even to cash flow negative depending on what machines you have plugged in so those guys

429
00:29:08,248 --> 00:29:11,788
shut in same thing as shutting in a well you shut down the bitcoin mine because why are you going

430
00:29:11,788 --> 00:29:21,307
to mine if you're cash flow negative um our all-in costs off the grid our loe is you know two to three

431
00:29:21,307 --> 00:29:32,875
cents a kilowatt hour so we can stay profitable with hash price a lot lower but you know there no free lunch You do have to spend capital up front on generators and things like that But that the analogy

432
00:29:33,015 --> 00:29:33,975
It's very comparable.

433
00:29:34,755 --> 00:29:39,475
And so in the oil and gas world, let's just talk oil.

434
00:29:40,135 --> 00:29:41,195
Price of oil drops.

435
00:29:42,455 --> 00:29:44,255
Certain producers become unprofitable.

436
00:29:44,795 --> 00:29:47,635
They physically have to cut off.

437
00:29:47,735 --> 00:29:48,375
Turn off the well.

438
00:29:48,755 --> 00:29:50,655
And that oil stops flowing.

439
00:29:50,655 --> 00:29:51,215
Yep.

440
00:29:52,015 --> 00:30:08,955
And the low-cost producer or those that are on the lower end that remain profitable functionally take more market share because other operators are turning off.

441
00:30:09,955 --> 00:30:13,775
And those other operators, maybe they become unprofitable overall.

442
00:30:13,975 --> 00:30:14,715
Maybe they go away.

443
00:30:14,855 --> 00:30:16,415
Maybe there's consolidation in the industry.

444
00:30:16,415 --> 00:30:29,415
I remember 2014, 2015 when I believe it was Saudi stopped or basically said they were going to continue to produce and not hold the target.

445
00:30:30,655 --> 00:30:37,195
The weakest fail, consolidation, the world of Bitcoin, a mine will shut off.

446
00:30:38,255 --> 00:30:45,295
And the amount of Bitcoin that are issued continues to remain functionally the same.

447
00:30:45,295 --> 00:30:47,235
price might be lower

448
00:30:47,235 --> 00:30:48,555
and those that

449
00:30:48,555 --> 00:30:52,235
are continuing to operate

450
00:30:52,235 --> 00:30:54,315
would get more nominal Bitcoin.

451
00:30:54,435 --> 00:30:54,855
Exactly.

452
00:30:55,295 --> 00:30:56,955
So in the oil and gas world

453
00:30:56,955 --> 00:31:00,135
the direct feedback loop

454
00:31:00,135 --> 00:31:01,315
is you're still producing

455
00:31:01,315 --> 00:31:02,235
the same amount that you were

456
00:31:02,235 --> 00:31:03,675
you're just able to continue

457
00:31:03,675 --> 00:31:04,675
to do it profitably

458
00:31:04,675 --> 00:31:06,275
albeit less profitably

459
00:31:06,275 --> 00:31:07,955
and maybe in the future

460
00:31:07,955 --> 00:31:09,155
you might be able to go

461
00:31:09,155 --> 00:31:12,155
accumulate more assets

462
00:31:12,155 --> 00:31:15,275
to expand your production footprint.

463
00:31:15,295 --> 00:31:23,775
in bitcoin it's more dynamic where you might actually produce more bitcoin at a lower price

464
00:31:23,775 --> 00:31:29,755
exactly and it's the same you know the saying goes the cure for low prices is low prices if

465
00:31:29,755 --> 00:31:36,455
oil prices go down people shut in that'll eventually cause a supply crunch and prices

466
00:31:36,455 --> 00:31:41,395
will go back up same thing in hash price you know hash price goes down people are going to unplug

467
00:31:41,395 --> 00:31:44,815
at some point, which caused hash price to come back up.

468
00:31:45,675 --> 00:31:48,515
So when you guys were looking at wells,

469
00:31:48,675 --> 00:31:50,735
and you guys were looking at gas wells,

470
00:31:50,995 --> 00:31:54,735
were they, for the initial well or set of wells

471
00:31:54,735 --> 00:31:57,395
that you invested in, were they just gas?

472
00:31:57,495 --> 00:31:58,335
They were dry gas only.

473
00:31:58,535 --> 00:31:58,675
Okay.

474
00:31:59,635 --> 00:32:04,195
And when you look at the economics,

475
00:32:04,375 --> 00:32:07,135
who were the counterparties that you were buying from?

476
00:32:07,255 --> 00:32:09,575
Were they just other individuals that you knew?

477
00:32:09,575 --> 00:32:15,975
were they larger companies no it was a privately held fairly large oil and gas operator just in

478
00:32:15,975 --> 00:32:22,455
the barnet and they were just were selling this package on energy net which is craigslist of oil

479
00:32:22,455 --> 00:32:28,795
and gas assets you could log on today and there'd be 20 assets for sale so describing your terms

480
00:32:28,795 --> 00:32:38,655
maybe this has evolved over time you come more from you wear the cfo hat at 360 energy you've

481
00:32:38,655 --> 00:32:47,675
worked in oil and gas finance, but more broadly looking at a spectrum of preferred equity to

482
00:32:47,675 --> 00:32:52,755
MES debt to term loans, you understand the financing structures of oil and gas deals

483
00:32:52,755 --> 00:33:00,015
and the underwriting and then the assets that are attached to them through the financing

484
00:33:00,015 --> 00:33:11,855
lens what do you look for in attractive assets that are particularly interesting for bitcoin

485
00:33:11,855 --> 00:33:18,315
mining yeah it's a great question so the way pdp assets prove developed producing assets so

486
00:33:18,315 --> 00:33:25,455
flowing wells are called pdp wells the way they trade on the market is a discount cash flow analysis

487
00:33:25,455 --> 00:33:30,495
this. So say I'll buy that well for PB 15.

488
00:33:30,915 --> 00:33:33,975
You model out the cash flows, the production of the well,

489
00:33:34,455 --> 00:33:37,515
you assume strip pricing, you model out your costs,

490
00:33:38,055 --> 00:33:40,935
you discount all those cash flows back by some discount rate.

491
00:33:41,215 --> 00:33:42,555
That's what the market decides.

492
00:33:43,575 --> 00:33:47,955
And you can buy it for the present value discounted back 15%, call it.

493
00:33:48,555 --> 00:33:53,775
So, um, depending on the specific asset, it might be PB 20.

494
00:33:53,775 --> 00:34:00,695
you're getting a little cheaper um but the the interesting part is the you're discounting back

495
00:34:00,695 --> 00:34:07,295
just in oil and gas terms like you can buy stuff on the market on just oil and gas terms so since

496
00:34:07,295 --> 00:34:13,195
these were unattractive wells the costs were very high the midstream cost was high so the cash flow

497
00:34:13,195 --> 00:34:20,395
on oil and gas basis only was pretty low so the pb20 was cheap um no one else was thinking about

498
00:34:20,395 --> 00:34:25,375
layering in the Bitcoin mining economics on top of it. So when you look at the present value,

499
00:34:25,495 --> 00:34:31,695
assuming Bitcoin mining, you're getting a good price. You can layer in that capital and have

500
00:34:31,695 --> 00:34:36,815
a present value uplift and say, I'm buying this gas asset for cheap, you know, on gas terms,

501
00:34:37,235 --> 00:34:41,215
layering on the Bitcoin that no one else thinks about. And then you have upside for that asset.

502
00:34:42,675 --> 00:34:47,595
Maybe elaborate on that for people that aren't as familiar.

503
00:34:47,595 --> 00:34:52,155
because I think what you said there,

504
00:34:52,155 --> 00:34:57,155
there was something implied about the fact that

505
00:34:57,155 --> 00:35:02,655
if you're valuing net cash flows

506
00:35:02,655 --> 00:35:05,395
on the oil and gas side

507
00:35:05,395 --> 00:35:10,575
and what costs remain

508
00:35:10,575 --> 00:35:12,955
if you were to mine Bitcoin

509
00:35:12,955 --> 00:35:14,875
versus what costs would be eliminated

510
00:35:14,875 --> 00:35:20,035
such that if these assets are being sold out to the market

511
00:35:20,035 --> 00:35:25,235
and all of the market of potential buyers

512
00:35:25,235 --> 00:35:26,235
are looking at it one way,

513
00:35:26,295 --> 00:35:28,015
but you're looking at it through a different lens,

514
00:35:28,635 --> 00:35:33,035
why you would value it potentially more

515
00:35:33,035 --> 00:35:35,575
than somebody else that could only look through it

516
00:35:35,575 --> 00:35:36,815
through the traditional lens?

517
00:35:37,315 --> 00:35:37,515
Yeah.

518
00:35:37,775 --> 00:35:39,655
So on the cost side,

519
00:35:39,735 --> 00:35:41,835
a big cost you can eliminate with Bitcoin mining

520
00:35:41,835 --> 00:35:43,615
is your midstream fees.

521
00:35:43,615 --> 00:35:50,755
we have to pay you know call it 80 cents per mcf to the pipeline operator just to take our gas

522
00:35:50,755 --> 00:35:56,995
so if you're using your gas on your own pad that's a cost item you can eliminate but the real uplift

523
00:35:56,995 --> 00:36:04,815
comes in the revenue side of it right if you look at strip henry hub and it's you know call it three

524
00:36:04,815 --> 00:36:09,795
dollars ish for the next five years everyone else is looking at three dollars of revenue

525
00:36:09,795 --> 00:36:15,675
In the Bitcoin mining side, you have to invest capital day one, but your revenue is going to be a lot higher.

526
00:36:15,855 --> 00:36:16,495
Today, it's $15.

527
00:36:17,155 --> 00:36:18,675
When we looked at it, it was $40.

528
00:36:19,575 --> 00:36:27,175
You can run sensitivities, but inherently your cash flows that you're looking at are going to be higher because your revenue side is higher.

529
00:36:27,515 --> 00:36:28,735
That's what the Bitcoin mining brings.

530
00:36:29,235 --> 00:36:31,775
Are you still paying the lifting costs that you mentioned?

531
00:36:31,775 --> 00:36:34,115
You still have some lifting costs for the well.

532
00:36:34,255 --> 00:36:34,415
Yeah.

533
00:36:34,535 --> 00:36:35,995
You still have to put chemicals in the well.

534
00:36:36,375 --> 00:36:37,895
You still have to haul water, things like that.

535
00:36:37,895 --> 00:36:39,075
So those costs are the same.

536
00:36:39,075 --> 00:36:42,915
You can eliminate the midstream cost, and then you have higher revenue.

537
00:36:44,995 --> 00:36:47,275
With incremental capital.

538
00:36:47,835 --> 00:36:48,055
Exactly.

539
00:36:48,355 --> 00:36:51,075
So you do have to spend money to get that higher capital.

540
00:36:51,175 --> 00:36:52,195
So that's just the math problem.

541
00:36:53,055 --> 00:37:03,255
So if you can, without having to lose people in specifics of the individual dynamics,

542
00:37:03,255 --> 00:37:15,175
at least kind of order of magnitude help somebody understand the biggest levers.

543
00:37:16,115 --> 00:37:20,695
And then when you're thinking about bidding on an asset,

544
00:37:21,015 --> 00:37:24,835
what you'd be willing to pay relative to somebody else

545
00:37:24,835 --> 00:37:27,875
that was only looking at it through the conventional lens.

546
00:37:28,515 --> 00:37:29,835
Yeah, so really round numbers.

547
00:37:29,835 --> 00:37:37,215
let's say the oil and gas asset in a traditional oil and gas sense at strip pricing is expected to

548
00:37:37,215 --> 00:37:42,715
make a hundred thousand dollars of free cash flow a year and strip pricing is the forward the forward

549
00:37:42,715 --> 00:37:49,015
curve yeah of henry hub and then all your costs after all your costs after strip pricing after

550
00:37:49,015 --> 00:37:55,115
the production curve hundred thousand dollars a year is what the gas wells will make so the market

551
00:37:55,115 --> 00:38:00,655
is going to put a discount rate on that. And then that's what it trades for in the open market.

552
00:38:00,755 --> 00:38:05,515
Someone's willing to buy that for a round number, million dollars. They'll buy that for a million

553
00:38:05,515 --> 00:38:10,995
dollars in the oil and gas only sense. The beauty of it is we don't have to pay more than a million

554
00:38:10,995 --> 00:38:14,895
dollars. We can still buy that for a million dollars. So that's the market price. We're not

555
00:38:14,895 --> 00:38:19,655
going to overpay just because we're going to do Bitcoin mining, but we're willing to buy it for

556
00:38:19,655 --> 00:38:26,215
million and then invest an additional 2 million, call it, to build a Bitcoin mine.

557
00:38:26,595 --> 00:38:32,775
And then now instead of $100,000 a year of cashflow, it's $500,000 a year or whatever

558
00:38:32,775 --> 00:38:33,475
the math is.

559
00:38:33,895 --> 00:38:36,915
But you're investing, you're buying the asset for market price.

560
00:38:37,815 --> 00:38:42,435
But because you can invest the money and increase revenue that other people aren't thinking

561
00:38:42,435 --> 00:38:45,735
about, your return hopefully is going to be higher.

562
00:38:45,735 --> 00:38:52,035
on a both an absolute basis and on a percentage basis yes as a combined function of eliminating

563
00:38:52,035 --> 00:38:58,975
certain costs putting capital investment and to capitalize it but then when you reference a

564
00:38:58,975 --> 00:39:03,935
cash flow increasing by five times but increasing your capital base by three times

565
00:39:03,935 --> 00:39:09,595
the overall economics exactly the uplift is higher so if the strip pricing ended up playing

566
00:39:09,595 --> 00:39:14,475
out exactly how it was and you were operating it as just a oil and gas asset you would make

567
00:39:14,475 --> 00:39:18,555
whatever you bought it for 15 percent right because that's what you're buying the pv15

568
00:39:18,555 --> 00:39:26,995
everything plays out as modeled you're making a 15 return and how do you think about obviously

569
00:39:26,995 --> 00:39:34,795
bitcoin is volatile yeah but oil and gas are both volatile as well yeah

570
00:39:34,795 --> 00:39:38,775
how does somebody think about

571
00:39:38,775 --> 00:39:41,235
the

572
00:39:41,235 --> 00:39:43,095
volatility

573
00:39:43,095 --> 00:39:45,455
of gas because you talk about strip

574
00:39:45,455 --> 00:39:47,675
but you don't actually know what that's going to be

575
00:39:47,675 --> 00:39:49,715
maybe yeah it's never what strip

576
00:39:49,715 --> 00:39:50,875
actually is right

577
00:39:50,875 --> 00:39:55,755
is it from a from an underwriting

578
00:39:55,755 --> 00:39:57,815
perspective I'm not talking about

579
00:39:57,815 --> 00:39:59,675
ability to predict but

580
00:39:59,675 --> 00:40:01,735
how the difference in

581
00:40:01,735 --> 00:40:02,295
volatility

582
00:40:02,295 --> 00:40:06,375
in the revenue side of Bitcoin

583
00:40:06,375 --> 00:40:09,455
versus the revenue side of oil and gas?

584
00:40:09,535 --> 00:40:10,335
How do you account for that?

585
00:40:10,595 --> 00:40:10,815
Yeah.

586
00:40:11,675 --> 00:40:13,455
On the natural gas side especially,

587
00:40:13,915 --> 00:40:15,315
the volatility is pretty comparable

588
00:40:15,315 --> 00:40:17,315
from just an absolute basis.

589
00:40:18,335 --> 00:40:19,115
That's pretty wild.

590
00:40:19,255 --> 00:40:20,275
It's extremely volatile.

591
00:40:20,775 --> 00:40:21,675
And especially,

592
00:40:21,915 --> 00:40:23,475
you talked about it with Chris a little bit,

593
00:40:23,915 --> 00:40:26,135
but the various hubs are all different.

594
00:40:26,715 --> 00:40:28,035
Waha today is at negative $2.

595
00:40:29,175 --> 00:40:30,175
Henry Hub's at $3.

596
00:40:30,775 --> 00:40:31,875
Wait, why is it negative $2?

597
00:40:32,295 --> 00:40:33,355
Is that right?

598
00:40:33,415 --> 00:40:36,255
Because I felt like two weeks ago, it was like a dollar.

599
00:40:36,515 --> 00:40:37,195
Yeah, it was.

600
00:40:37,515 --> 00:40:41,735
It's negative $2 today because Kinder Morgan has an outage in some plant.

601
00:40:42,315 --> 00:40:45,635
And they're, you know, 2% of the volume of the Permian.

602
00:40:46,255 --> 00:40:52,235
Even though they're only 2%, that shutdown has just caused more supply than there is demand.

603
00:40:52,675 --> 00:40:53,775
And they're a processor.

604
00:40:54,135 --> 00:40:54,315
Yeah.

605
00:40:54,555 --> 00:40:56,875
They have a bunch of gas plants and pipelines.

606
00:40:57,415 --> 00:40:58,175
They're a midstream company.

607
00:40:58,175 --> 00:41:08,255
Yeah, it's really interesting because Bitcoin is clearly volatile and everyone generally knows that it's volatile.

608
00:41:08,255 --> 00:41:31,375
And it's oftentimes difficult for people to be able to invest long-term, not just in Bitcoin, but particularly a business that is either a service company or more directly involved day-to-day in the Bitcoin world.

609
00:41:31,375 --> 00:41:35,915
whether it's a Bitcoin exchange, custody business,

610
00:41:36,255 --> 00:41:37,975
I'm working on payments, you guys are working on mining,

611
00:41:38,475 --> 00:41:43,295
it's difficult for people to perceive how you can operate

612
00:41:43,295 --> 00:41:45,995
in a world that is so volatile.

613
00:41:46,615 --> 00:41:49,655
Cyclical is not the right, maybe cyclical is the right term,

614
00:41:49,715 --> 00:41:52,775
but it's cyclical with long-term adoption going in your favor.

615
00:41:52,775 --> 00:41:52,995
Yeah.

616
00:41:53,715 --> 00:41:59,495
Without the appreciation that something as mature of a market

617
00:41:59,495 --> 00:42:04,175
as natural gases is incredibly volatile.

618
00:42:04,475 --> 00:42:08,915
So if, you know, some people might be familiar with when,

619
00:42:08,915 --> 00:42:14,035
I think it was Henry Hub went from $2 or $3 to $9

620
00:42:14,035 --> 00:42:18,275
when I believe it was Nord Stream.

621
00:42:18,635 --> 00:42:20,075
Nord Stream and then Russia, Ukraine.

622
00:42:20,295 --> 00:42:20,475
Yeah.

623
00:42:20,775 --> 00:42:20,915
Yeah.

624
00:42:21,495 --> 00:42:25,995
And that if you actually look at the daily volatility,

625
00:42:25,995 --> 00:42:31,915
it's bitcoin's fairly comparable to natural gas for sure but the follow-up i was going to say is

626
00:42:31,915 --> 00:42:38,575
the helpful thing in natural gas markets that producers utilize it's very hedgeable it's

627
00:42:38,575 --> 00:42:46,255
extremely liquid market to hedge three years out so but not 15 not 15 no you could probably get

628
00:42:46,255 --> 00:42:51,775
five seven eight years out um someone will buy it because there's a lot of natural buyers of gas

629
00:42:51,775 --> 00:42:55,335
There's the producers want to sell into the future.

630
00:42:55,695 --> 00:42:57,495
Power plants, things like that want to buy.

631
00:42:58,275 --> 00:42:59,575
Oil has the same dynamic.

632
00:42:59,875 --> 00:43:03,695
In mining, Luxor is working on some hash price derivatives.

633
00:43:04,295 --> 00:43:05,695
It's nowhere near as liquid.

634
00:43:05,815 --> 00:43:10,855
You can hedge out maybe six months, maybe 12 months, but not even close to five years.

635
00:43:11,215 --> 00:43:15,115
And then since it's so illiquid, the bid-ask spread is wide.

636
00:43:15,835 --> 00:43:20,135
You're not able to really lock in your hash price as well as these guys can lock in their

637
00:43:20,135 --> 00:43:21,635
natural gas prices.

638
00:43:21,775 --> 00:43:32,275
So producers can say, hey, I know natural gas is going to be volatile, but I can at least lock in 80% of my production at $3 for the next three years.

639
00:43:32,635 --> 00:43:33,255
And they do that.

640
00:43:33,755 --> 00:43:42,735
So the ability to hedge in the Bitcoin world, in my view, is functionally non-existent.

641
00:43:42,755 --> 00:43:42,955
Correct.

642
00:43:42,955 --> 00:43:56,295
When I've done the analysis of lending dollars in an over-collateralized way with Bitcoin as the collateral, the hedge has been cost prohibitive.

643
00:43:57,875 --> 00:44:17,643
You functionally though trading Bitcoin volatility or natural gas volatility when you actually at the well site and owning the molecules Yep The decline of a natural gas well

644
00:44:17,782 --> 00:44:19,563
the ones that you were looking at conventionally,

645
00:44:19,643 --> 00:44:20,782
what are those typically?

646
00:44:20,782 --> 00:44:26,082
And how do you think about that in the context of Bitcoin mining?

647
00:44:26,582 --> 00:44:27,063
Yeah.

648
00:44:27,222 --> 00:44:27,602
In a site.

649
00:44:28,002 --> 00:44:29,082
So every well is different.

650
00:44:29,242 --> 00:44:32,823
Our specific wells are on terminal decline,

651
00:44:32,922 --> 00:44:34,242
which is three to 5% a year.

652
00:44:34,242 --> 00:44:41,422
they're very old very steady decline uh when a shale well first is drilled the first year is

653
00:44:41,422 --> 00:44:47,182
gonna have 80 decline that is not ideal for bitcoin mining because our generators and our

654
00:44:47,182 --> 00:44:56,063
minds would like a steady flow of gas so you want a steady flow of gas as you can get and you want

655
00:44:56,063 --> 00:45:02,242
to build your mine to where in three years you still have enough gas you might have to undersize

656
00:45:02,242 --> 00:45:07,782
it a bit today to plan for where the decline curve will be in three to five years so if

657
00:45:07,782 --> 00:45:14,242
a well was going to decline three to five percent for 10 years and it had a certain amount of volume

658
00:45:14,242 --> 00:45:24,563
you might build your mind to a capacity of say 60 percent of today of today yep what do you do

659
00:45:24,563 --> 00:45:30,202
with that excess or how do you account for it in your model so our asset was pipeline connected

660
00:45:30,202 --> 00:45:35,442
so we would just sell the excess into the pipeline and take take that if there is no pipeline you have

661
00:45:35,442 --> 00:45:41,202
to flare it or you can choke back your well um again every well is different but some wells

662
00:45:41,202 --> 00:45:48,162
you can choke back the production a little bit to make it more flat and you know you have to keep

663
00:45:48,162 --> 00:45:52,343
the reservoir pressure the same all these complicated things that petroleum engineers

664
00:45:52,343 --> 00:46:00,063
are really good at um to keep production pretty flat um in the interim but you might have you

665
00:46:00,063 --> 00:46:05,582
might not be able to do that it might have to just flare it that excess conceptually

666
00:46:05,582 --> 00:46:13,302
now one might be more predictable than the other but is it fair to think about the decline curve

667
00:46:13,302 --> 00:46:28,143
of a well with assuming hash rate is increasing the decline in production of bitcoin at a mining

668
00:46:28,143 --> 00:46:33,543
site. That's interesting. I've actually never thought about those two compared. But yeah,

669
00:46:33,782 --> 00:46:39,202
I mean, Bitcoin denominated hash price will go down forever pretty much in the long term

670
00:46:39,202 --> 00:46:44,343
as hash rate increases over time, right? Yeah, because that's one thing,

671
00:46:45,343 --> 00:46:50,602
and I've never participated directly in Bitcoin mining, but I've looked at Bitcoin mining models.

672
00:46:50,802 --> 00:46:57,323
I've built financial models around Bitcoin mining. I think one of the other things beyond just the

673
00:46:57,323 --> 00:47:03,442
volatility of Bitcoin, which somebody that is steeped in oil and gas and natural gas

674
00:47:03,442 --> 00:47:07,002
specifically would recognize that, hey, if I look at the historical volatility of these

675
00:47:07,002 --> 00:47:12,383
two things, at least over the last year, two years, three years, five years even, the volatility

676
00:47:12,383 --> 00:47:18,802
is fairly comparable, that it's difficult to project what the change in hash rate is

677
00:47:18,802 --> 00:47:19,282
going to be.

678
00:47:19,802 --> 00:47:27,302
So how do you guys think about that, both internally to 360, but also when you're

679
00:47:27,302 --> 00:47:33,202
And you're taking questions from customers that are looking at using your services.

680
00:47:33,722 --> 00:47:33,823
Yeah.

681
00:47:33,922 --> 00:47:37,682
For our customers, we think about things on dollar-denominated hash price.

682
00:47:38,182 --> 00:47:39,883
And we try to explain it to them.

683
00:47:40,043 --> 00:47:40,823
It's a little tricky.

684
00:47:40,823 --> 00:47:44,982
But we basically just say, dollar-denominated hash price is the same as Henry Hub.

685
00:47:45,442 --> 00:47:49,502
It is the clearing price you're going to get paid for the commodity you produce.

686
00:47:50,143 --> 00:47:53,962
So as a natural gas producer, the commodity is natural gas molecules.

687
00:47:54,383 --> 00:47:55,702
The price you get is Henry Hub.

688
00:47:55,702 --> 00:48:01,063
for bitcoin mining you're producing hash rate and the price you're going to get is dollar per petahash

689
00:48:01,063 --> 00:48:07,023
and we tell them just like natural gas we can't predict where it's going to go so what we do is

690
00:48:07,023 --> 00:48:13,502
we'll run sensitivity tables for them and say hey here's the all-time low if hash price is below the

691
00:48:13,502 --> 00:48:18,962
all-time low for five years your return is going to be this if it's at the all-time low it's you

692
00:48:18,962 --> 00:48:23,462
know the five-year average and we'll run sensitivities because we're not smart enough to know where hash

693
00:48:23,462 --> 00:48:28,422
prices no one is you know know where that's going to go um and they they appreciate that because

694
00:48:28,422 --> 00:48:35,762
they're used to every hub right um they wish they could hedge it and hopefully over time those

695
00:48:35,762 --> 00:48:42,143
markets get more built out in bitcoin mining um but they get that comparison because they're used

696
00:48:42,143 --> 00:48:47,442
to the fact that they don't know what henry hub's going to be in the next three years when you're

697
00:48:47,442 --> 00:48:54,582
underwriting a acquisition of a pdp portfolio something like what stone ridge just bought from

698
00:48:54,582 --> 00:49:00,102
anadarko yep they would inevitably have to be doing the same exactly same exact sensitivity

699
00:49:00,102 --> 00:49:05,222
analysis at blackstone we do the same thing you run henry hub from a dollar to five dollars

700
00:49:05,222 --> 00:49:11,143
and you look at your returns and sensitivity table and then you basically say i need to account for

701
00:49:11,143 --> 00:49:15,343
this range and so what do i think the downside is which in the case of bitcoin mining would be a

702
00:49:15,343 --> 00:49:18,882
faster increase in hash rate

703
00:49:18,882 --> 00:49:20,262
and then account for that

704
00:49:20,262 --> 00:49:22,043
and what you're willing to pay up front.

705
00:49:22,043 --> 00:49:22,402
Exactly.

706
00:49:22,982 --> 00:49:23,082
Yeah.

707
00:49:23,802 --> 00:49:23,922
Yeah.

708
00:49:24,742 --> 00:49:25,102
So

709
00:49:25,102 --> 00:49:27,482
now

710
00:49:27,482 --> 00:49:29,523
coming into

711
00:49:29,523 --> 00:49:32,262
where you guys started buying wells

712
00:49:32,262 --> 00:49:35,502
and thinking about the financing of individual wells

713
00:49:35,502 --> 00:49:38,982
and the economics of wells and well sites.

714
00:49:40,422 --> 00:49:42,402
My discussion with Chris,

715
00:49:42,442 --> 00:49:44,043
we talked about how

716
00:49:44,043 --> 00:49:48,702
you guys have shifted to being more of a service company

717
00:49:48,702 --> 00:49:53,782
to people that own assets in the oil field

718
00:49:53,782 --> 00:49:57,343
rather than owning the assets yourself.

719
00:49:58,262 --> 00:50:03,462
Talk about when you're discussing your services

720
00:50:03,462 --> 00:50:06,942
and how you structure your services with customers,

721
00:50:07,482 --> 00:50:13,343
how you actually approach the alignment of incentives

722
00:50:13,343 --> 00:50:18,563
and the various different pathways you evaluate

723
00:50:18,563 --> 00:50:21,182
and how you decide going down one path or another,

724
00:50:21,282 --> 00:50:23,902
what those decision points are based on the profile

725
00:50:23,902 --> 00:50:27,302
of the owners of the actual wells.

726
00:50:27,882 --> 00:50:28,582
Yeah, definitely.

727
00:50:28,863 --> 00:50:32,302
So started the company, we owned our own gas wells,

728
00:50:32,602 --> 00:50:34,482
and we viewed it through the lens of Bitcoin mining.

729
00:50:34,482 --> 00:50:35,742
We said, we want to achieve power.

730
00:50:36,442 --> 00:50:38,823
Let's do Bitcoin mining to make more money on this gas.

731
00:50:39,922 --> 00:50:41,663
Once we got good at that, it took us two years.

732
00:50:41,742 --> 00:50:42,742
You and Chris talked about that.

733
00:50:42,742 --> 00:50:49,182
um other producers came to us and said hey we want you to do this for us to make more money on our gas

734
00:50:49,182 --> 00:50:56,002
so we saw a need in the industry for someone to provide that service other these oil and gas guys

735
00:50:56,002 --> 00:51:00,802
don't want to learn how to be bitcoin miners so our original model was hey you can buy the

736
00:51:00,802 --> 00:51:07,023
infrastructure from us we will build it to our spec that we know that works um and we'll operate

737
00:51:07,023 --> 00:51:11,462
it for you it will take a service fee on that you're spending the capital you're the owner of

738
00:51:11,462 --> 00:51:16,682
the generators, you're the owner of the A6. And then you get that same economic uplift that we

739
00:51:16,682 --> 00:51:24,643
realize on our own wells. So in that model, the incentives are very aligned because the producer

740
00:51:24,643 --> 00:51:29,702
is spending a bunch of capital that they need to make return on. We're building it for them.

741
00:51:30,002 --> 00:51:35,543
And we are banking on the fact that they're going to flow gas to that system because they have

742
00:51:35,543 --> 00:51:41,222
millions of dollars invested in it and they need to make return. So our service fees, a percent of

743
00:51:41,222 --> 00:51:46,762
the hash rate we're aligned because we want to make sure the mine's running well to get our royalty

744
00:51:46,762 --> 00:51:53,323
or our service fee um but that's how we align it for that business model the other business model

745
00:51:53,323 --> 00:51:57,643
i think you and chris might have talked about if the producer doesn't want to spend a bunch of

746
00:51:57,643 --> 00:52:04,422
money on bitcoin mining they can rent our infrastructure we own the the generators and

747
00:52:04,422 --> 00:52:11,202
asics they pay us a fixed monthly fee to be out there no matter what they flow gas through the

748
00:52:11,202 --> 00:52:19,302
system, they get 90% of the revenue back from the Bitcoin mine. In that case, incentives are also

749
00:52:19,302 --> 00:52:24,902
in line. They have no capital skin in the game, but they're on the hook every month for this rental

750
00:52:24,902 --> 00:52:31,502
fee. And if they want to break even to make a little bit of money on the gas, they have to flow

751
00:52:31,502 --> 00:52:38,482
gas through the system as well. So we're also aligned incentive-wise there. There was a structure

752
00:52:38,482 --> 00:52:40,063
that I know you guys had considered,

753
00:52:40,782 --> 00:52:44,182
which was just going and buying the gas directly

754
00:52:44,182 --> 00:52:47,123
from an asset owner.

755
00:52:47,123 --> 00:52:47,762
Yep.

756
00:52:47,843 --> 00:52:52,802
So rather than them send it to a pipeline or layer,

757
00:52:53,782 --> 00:52:59,863
compare that and the incentives of that.

758
00:53:00,523 --> 00:53:03,922
So basically looking more similarly

759
00:53:03,922 --> 00:53:08,823
to the owner of the assets as gas offtake.

760
00:53:10,702 --> 00:53:14,182
Why or why not take that approach?

761
00:53:14,182 --> 00:53:16,643
And so that was the model Crusoe started with.

762
00:53:17,123 --> 00:53:19,082
They would go to guys in the Bakken, North Dakota,

763
00:53:19,802 --> 00:53:21,323
say, hey, you're flaring this gas,

764
00:53:22,323 --> 00:53:25,043
Marathon or Exxon, EOG, whoever.

765
00:53:25,563 --> 00:53:26,502
Instead of flaring it,

766
00:53:26,682 --> 00:53:30,643
why don't we, Crusoe, buy your gas for 25 cents at MCF?

767
00:53:31,222 --> 00:53:32,682
It sounds like a good idea.

768
00:53:33,922 --> 00:53:36,282
you make a little bit of money, you're not flaring,

769
00:53:36,702 --> 00:53:38,902
and we're getting really cheap power as a Bitcoin miner.

770
00:53:39,063 --> 00:53:40,882
So they were just trying to find cheap power.

771
00:53:41,782 --> 00:53:43,682
The incentives break down a little bit

772
00:53:43,682 --> 00:53:46,262
because the upstream producer in that case

773
00:53:46,262 --> 00:53:49,863
doesn't care about the 25 cents MCF.

774
00:53:50,043 --> 00:53:51,602
That's nominal to them.

775
00:53:52,462 --> 00:53:54,182
So if they have any operational issues,

776
00:53:54,482 --> 00:53:57,742
they will shut off the gas in a second

777
00:53:57,742 --> 00:54:00,702
because they don't care about the 25 cents at MCF.

778
00:54:00,902 --> 00:54:03,422
So there's a misalignment of incentives

779
00:54:03,422 --> 00:54:09,502
with the operator because they can just shut you down and if you have no gas off grid you know

780
00:54:09,502 --> 00:54:14,782
you're not hashing and you're going to have bad uptime that's one main issue the other is

781
00:54:14,782 --> 00:54:22,282
these producers aren't incentivized to lock up gas for long-term periods so they might only sell you

782
00:54:22,282 --> 00:54:28,382
gas for a year so you're you know you as crusoe whoever bitcoin miner you're spending a lot of

783
00:54:28,382 --> 00:54:33,002
capital to get your infrastructure out there. You're buying gas for cheap, which is great.

784
00:54:33,402 --> 00:54:37,762
But then in a year they might have a pipeline built to them and then they can kick you out.

785
00:54:38,382 --> 00:54:43,462
So, um, those are kind of the reasons that we don't just buy gas from people.

786
00:54:45,302 --> 00:54:54,823
And we were talking before about how you guys go and, and actually communicate, communicate

787
00:54:54,823 --> 00:54:58,002
around the incentives for both of these types of structures.

788
00:55:00,722 --> 00:55:06,902
Where would you say the legacy oil and gas industry is

789
00:55:06,902 --> 00:55:12,742
in terms of how receptive they are to these types of solutions?

790
00:55:14,143 --> 00:55:18,823
And what, in your mind, the level of understanding of Bitcoin

791
00:55:18,823 --> 00:55:21,823
someone would need to have in order to pursue?

792
00:55:21,823 --> 00:55:50,163
Yeah, I would say we are still in the first inning of understanding the oil and gas industry broadly. I think people have heard about this idea, or they've had someone approach them, maybe. But it typically has not gone well, for various reasons, it's hard to do. Or they just shut it down instantly, instantly, because there's still a stigma around Bitcoin. And they're like, that's a scam, we don't want to do that.

793
00:55:50,163 --> 00:55:53,082
That's often what we're up against.

794
00:55:54,202 --> 00:56:02,123
What percentage these days is the response that Bitcoin is just no-go zone?

795
00:56:02,363 --> 00:56:02,982
It's gotten better.

796
00:56:03,442 --> 00:56:08,302
It probably was 50%, 60% a couple years ago,

797
00:56:08,442 --> 00:56:12,143
and now it's down to 20%, 30% of just non-starter.

798
00:56:13,282 --> 00:56:17,323
And I think the reason, the way we pitch it is we say,

799
00:56:17,442 --> 00:56:18,722
it's not about Bitcoin mining, guys.

800
00:56:18,722 --> 00:56:24,982
like you have a gas problem this is oil field infrastructure that works that consumes your gas

801
00:56:24,982 --> 00:56:29,922
that monetizes it and oh by the way it happens to be bitcoin because this is what works in the oil

802
00:56:29,922 --> 00:56:36,282
field like we tell them if we could do ai computing we would um but bitcoin can run on starlink and

803
00:56:36,282 --> 00:56:41,222
there's no penalties for downtime so that's why we use it and they appreciate that they say okay

804
00:56:41,222 --> 00:56:48,082
fine as long as it works it solves our problem it can reduce our flaring you know problems or we can

805
00:56:48,082 --> 00:56:54,922
bring these walls on a production um that's what we care about so just because you mentioned it

806
00:56:54,922 --> 00:57:03,863
what describe the nature of the work and the the nature of bitcoin mining that allows

807
00:57:03,863 --> 00:57:11,163
a site to be viable for bitcoin mining upstream at the well site where it wouldn't work to

808
00:57:11,163 --> 00:57:19,442
set up an AI data center just because you brought that yeah so bitcoin mining the the computations

809
00:57:19,442 --> 00:57:24,543
at the ASIC level is very energy intensive you know running all those hashes per second

810
00:57:24,543 --> 00:57:31,682
but once you find the answer or just showing your proof of work it's a very small amount of data to

811
00:57:31,682 --> 00:57:36,482
actually transmit that to the to the network so we can run on Starlink because the bandwidth

812
00:57:36,482 --> 00:57:40,942
with required to run Bitcoin mining is much lower.

813
00:57:40,942 --> 00:57:43,942
If you're running complicated AI,

814
00:57:43,942 --> 00:57:45,643
you need high speed fiber.

815
00:57:47,482 --> 00:57:49,762
So that's why, that's a main reason why it doesn't work.

816
00:57:49,762 --> 00:57:52,422
Also in AI, you have to have perfect uptime.

817
00:57:52,422 --> 00:57:54,722
You're running these complicated LLMs,

818
00:57:54,722 --> 00:57:55,602
it's all above my head,

819
00:57:55,602 --> 00:58:00,602
but you can't just go down and lose a month of work.

820
00:58:00,602 --> 00:58:02,043
That would not be acceptable.

821
00:58:02,043 --> 00:58:05,442
So all of these data centers are on the grid,

822
00:58:05,442 --> 00:58:06,682
They have backup diesel generators.

823
00:58:06,682 --> 00:58:07,902
They have backup batteries.

824
00:58:08,023 --> 00:58:11,442
They have many redundancies to make sure they never lose power.

825
00:58:11,882 --> 00:58:13,602
In the oil field, you can't guarantee that.

826
00:58:14,043 --> 00:58:15,002
The well can go down.

827
00:58:15,202 --> 00:58:16,382
The generator will go down.

828
00:58:16,823 --> 00:58:18,442
Things just happen in the oil field.

829
00:58:19,343 --> 00:58:23,482
And then the third reason it doesn't work is the scale we're talking about is just much

830
00:58:23,482 --> 00:58:24,843
bigger for AI.

831
00:58:25,163 --> 00:58:27,563
You know, they're talking 20 megawatts plus.

832
00:58:28,242 --> 00:58:31,702
Each of our units is, you know, 1.3 megawatts.

833
00:58:31,702 --> 00:58:36,442
So it's connectivity, uptime, and scale.

834
00:58:37,682 --> 00:58:54,023
And if you think about the trade-offs of the structure where someone's effectively leasing your equipment versus putting the capital in...

835
00:58:54,048 --> 00:59:07,668
And also pairing that with the understanding that Bitcoin is still a non-starter for 20% to 30%, which means it's at least open to the conversation for 70% to 80%.

836
00:59:07,668 --> 00:59:17,468
but is there any credit financing in that is helping to bridge the gap between somebody that

837
00:59:17,468 --> 00:59:23,668
might want to own the asset themselves and take on the bitcoin mining risk versus not wanting that

838
00:59:23,668 --> 00:59:31,048
risk and just wanting to to pay you at least likely for the reason that it's solving or reducing a

839
00:59:31,048 --> 00:59:37,488
liability or unlocking say you know an oil asset yeah well the first thing i would say is oil and

840
00:59:37,488 --> 00:59:42,568
gas companies especially large ones they like renting oil field equipment anyways that's what

841
00:59:42,568 --> 00:59:47,588
they're used to they rent compressors they rent as much things as they can rent they like that

842
00:59:47,588 --> 00:59:53,108
model simply for the fact that it is in pattern for everything else they do on the purchase side

843
00:59:53,108 --> 00:59:59,668
um you asked about finance ability the generators are very financeable you know these are

844
00:59:59,668 --> 01:00:07,668
generators that have other applications outside bitcoin mining so there are banks credit shops

845
01:00:07,668 --> 01:00:14,108
they'll give you 80 ltv financing on that the asics are tougher you know back in 21

846
01:00:14,108 --> 01:00:22,108
people were doing asic loans that went very poorly so there's a lot less um credit willing

847
01:00:22,108 --> 01:00:29,468
to finance asics yeah nydig was lending against asics and now they're a large bitcoin miner which

848
01:00:29,468 --> 01:00:33,008
I think it was the right move for them, given the circumstance of what had happened.

849
01:00:33,228 --> 01:00:33,408
Yeah.

850
01:00:33,408 --> 01:00:44,648
They essentially became a Bitcoin miner when ASICs were at, I don't want to say dirt cheap prices, but were at a bottom of a period of high stress.

851
01:00:44,888 --> 01:00:45,108
Yep.

852
01:00:45,208 --> 01:00:59,188
But in the absence of financing, how does that factor into the decision in terms of the typical customer that you're...

853
01:00:59,188 --> 01:01:01,268
Yeah, since there's no financing for the ASICs.

854
01:01:01,348 --> 01:01:03,748
And then also, what's the relative amount of capital?

855
01:01:03,748 --> 01:01:11,808
If someone's looking at a site that's a megawatt or half a megawatt or 100 kilowatts,

856
01:01:12,468 --> 01:01:21,228
what percentage is the ASICs and the mining infrastructure and the tie-ins versus the generator?

857
01:01:21,748 --> 01:01:26,528
Yeah, so for a 1.2 megawatt site that'll consume 300 MCF a day,

858
01:01:26,528 --> 01:01:33,428
if they want to buy it with no financing and use top of the line asics it'll cost 2.3 million

859
01:01:33,428 --> 01:01:39,048
dollars call it that's the equity check that you're right if they want to finance a generator

860
01:01:39,048 --> 01:01:46,188
that can get down to 1.4 1.5 million but out of that you know all in 2.3 million dollar cost

861
01:01:46,188 --> 01:01:56,148
40 50 to 60 percent is the asics and the container um so and that's not financeable

862
01:01:56,148 --> 01:01:59,568
So they're going to have to equity fund a big chunk of that CapEx.

863
01:01:59,988 --> 01:02:03,648
And if they are spending CapEx on something, they're going to have to understand Bitcoin

864
01:02:03,648 --> 01:02:03,928
mining.

865
01:02:04,948 --> 01:02:07,508
So that's the purchase model is what we call it.

866
01:02:08,128 --> 01:02:13,648
We have seen more success with smaller operators that are willing to learn and willing to take

867
01:02:13,648 --> 01:02:18,448
that risk and say, hey, I do want to try to make $15 in MCF, which is if they buy the

868
01:02:18,448 --> 01:02:19,768
infrastructure, that's what they're making today.

869
01:02:19,768 --> 01:02:28,908
whereas if you're oxy or exxon it's going to be long putt to get approval capital approval

870
01:02:28,908 --> 01:02:33,308
internally to spend that kind of money on something so foreign as bitcoin mining

871
01:02:33,308 --> 01:02:40,148
so the the larger guys it's kind of ironic they have the capital but they don't want to spend

872
01:02:40,148 --> 01:02:45,868
capital on anything besides drilling new wells so they're they say hey i'll rent this it'll solve

873
01:02:45,868 --> 01:02:51,468
my gas problem and let's just see it work you know maybe in a couple years if they see it work

874
01:02:51,468 --> 01:02:57,808
they'll look into owning it but um the dynamic today has been the smaller guys are willing to

875
01:02:57,808 --> 01:03:03,988
you know take that risk they're kind of more the wildcatters um how much appetite has there been

876
01:03:03,988 --> 01:03:09,928
to do the work on bitcoin in terms of people combination of customers that you talk to on a

877
01:03:09,928 --> 01:03:21,168
day-to-day basis as well as folks that are in your network that are you know either working on

878
01:03:21,168 --> 01:03:27,408
financing structures for for conventional assets so where is that that appetite to dig in obviously

879
01:03:27,408 --> 01:03:30,908
i would always say that there's no more than one percent of people in the world that understand

880
01:03:30,908 --> 01:03:39,308
bitcoin so obviously it's a small base but yeah the oil and gas space specifically seems like

881
01:03:39,308 --> 01:03:46,848
the type of profile person that's more willing to take risk that the average person isn't yeah

882
01:03:46,848 --> 01:03:54,588
so i'm just curious um of of where and how you see people yeah i mean it's a really wide range

883
01:03:54,588 --> 01:04:00,888
we'll come across the the random person at xyz operator who's fully orange billed and they love

884
01:04:00,888 --> 01:04:05,688
this and they're pushing internally and those are always the best companies to work for because you

885
01:04:05,688 --> 01:04:11,028
have an internal champion who gets bitcoin who wants to try this on their assets so that's rare

886
01:04:11,028 --> 01:04:17,928
but it happens then you'll have a bigger chunk of people who are willing to learn about it the last

887
01:04:17,928 --> 01:04:22,008
really good questions we'll walk them through hash price walk them through how it all works

888
01:04:22,008 --> 01:04:26,948
and they actually want to learn about it and we'll send them materials and things like that

889
01:04:26,948 --> 01:04:31,848
we've gotten pretty good about educating these oil and gas people on bitcoin mining and how it

890
01:04:31,848 --> 01:04:37,588
works and then you know bitcoin itself um so maybe it's five percent of people are orange

891
01:04:37,588 --> 01:04:43,888
pilled a pretty good chunk of 50 of people willing to talk about it and then there still

892
01:04:43,888 --> 01:04:49,688
are some people that just hear the word bitcoin and just shut off um and like i said that number

893
01:04:49,688 --> 01:04:55,928
is slowly going down over time but there's not much you can do with those people um if they

894
01:04:55,928 --> 01:04:57,868
are just shutting it down day one.

895
01:04:58,728 --> 01:05:00,888
What do you think causes that to change

896
01:05:00,888 --> 01:05:02,228
in terms of

897
01:05:02,228 --> 01:05:06,528
shifting to looking at

898
01:05:06,528 --> 01:05:11,048
Bitcoin as either reducing a liability,

899
01:05:12,048 --> 01:05:13,568
whether they were flaring

900
01:05:13,568 --> 01:05:15,468
and now they have a better way

901
01:05:15,468 --> 01:05:18,408
to economize what they were previously doing

902
01:05:18,408 --> 01:05:22,768
to get rid of what was a waste product

903
01:05:22,768 --> 01:05:32,488
versus potentially enabling the ability to drill more oil in ones and twos,

904
01:05:33,268 --> 01:05:50,868
then maybe shifting how the overall industry looks at Bitcoin mining to be a solution to you know look at the map differently yeah totally i think the first step is just solving their day problems even if

905
01:05:50,868 --> 01:05:56,068
the person doesn't like bitcoin they're desperate for a problem in certain scenarios they have a

906
01:05:56,068 --> 01:06:00,828
well shut in gonna make a bunch of oil they can't flow that well because there's nowhere for the gas

907
01:06:00,828 --> 01:06:07,548
to go so if we bring them a solution for that gas they don't care if it's bitcoin mining um they

908
01:06:07,548 --> 01:06:12,348
might be skeptical but they'll say fine let's put two units out there let's try it we'll rent it

909
01:06:12,348 --> 01:06:18,328
and then once they see that work that'll slowly ease them into the fact that hey this is solving

910
01:06:18,328 --> 01:06:24,468
a gas problem let's learn a little bit more about bitcoin so i think the biggest step that we can do

911
01:06:24,468 --> 01:06:30,308
at least is educating these people on the operational benefits they'll get because that's

912
01:06:30,308 --> 01:06:35,848
what they cared about day to day i don't think it's our job to go around trying to orange pill

913
01:06:35,848 --> 01:06:41,708
people um that's probably not a good use of our time it's really just this is an oil and gas

914
01:06:41,708 --> 01:06:49,748
solution that's going to help you learn less right so if there's people that are already curious about

915
01:06:49,748 --> 01:06:55,408
bitcoin and get it we'll kind of nudge them down the rabbit hole a little bit um but for the

916
01:06:55,408 --> 01:07:01,068
skeptical people they just need to see at work i think and it's fair to say that in the current

917
01:07:01,068 --> 01:07:08,248
landscape there is still the no one got fired for buying apple stock or whatever the analogy

918
01:07:08,248 --> 01:07:16,208
used to be microsoft whatever blue chip yeah with the certainly the people at large operators

919
01:07:16,208 --> 01:07:23,628
but then to a large extent still folks that might work at private operators yeah i mean

920
01:07:23,628 --> 01:07:28,588
if you're a middle level guy at oxy you don't want to go to your boss and say

921
01:07:28,588 --> 01:07:34,728
hey i have this bitcoin mining thing you know if it works you're still a middle level guy at oxy

922
01:07:34,728 --> 01:07:41,888
if it goes terribly um you know you're gonna get fired how fraternal is that business though in

923
01:07:41,888 --> 01:07:48,308
terms of folks talking to each other yeah somebody seeing somebody take a risk

924
01:07:48,308 --> 01:07:57,908
that normalizing that it's okay for me to take a risk versus seeing it working yeah and i mean that

925
01:07:57,908 --> 01:08:04,128
is it's huge in oil and gas people are always looking at what their offset operators are doing

926
01:08:04,128 --> 01:08:08,988
the first guys that drilled horizontal wells people thought they were crazy the first guys

927
01:08:08,988 --> 01:08:13,408
that did the fracking you know george mitchell and the barnett people thought he was crazy like

928
01:08:13,408 --> 01:08:18,208
there's no way you're going to get that gas out of that tight shale but he just tried it it worked

929
01:08:18,208 --> 01:08:24,868
and now everyone is doing it and it changed the you know u.s global energy landscape it really did

930
01:08:24,868 --> 01:08:31,908
um so we think hopefully if we can get in with the right guys make this work they'll see it work

931
01:08:31,908 --> 01:08:36,368
their offset operators will see it work you know i was telling you earlier we we had meeting in

932
01:08:36,368 --> 01:08:43,948
midland and a lady said yeah we think we want to try this out we're curious to see it work and by

933
01:08:43,948 --> 01:08:49,628
the way we have three guys next to us that have the same exact problem um and they're very curious

934
01:08:49,628 --> 01:08:54,928
to see it work too so we really do think it's going to be a snowball effect we've already seen

935
01:08:54,928 --> 01:09:00,348
that with some of the early wins we've gotten inside the business itself you know if you are

936
01:09:00,348 --> 01:09:06,008
a large operator one group might see it work then their other their barnett group or their

937
01:09:06,008 --> 01:09:11,328
permian group will talk to the gulf coast group and say hey you know this is a solution that can

938
01:09:11,328 --> 01:09:18,248
work now so it really is a copycat industry um that might be slow to adopt things at first

939
01:09:18,248 --> 01:09:24,728
but once something's working people do it when you guys are thinking about repeatable opportunities

940
01:09:24,728 --> 01:09:30,828
for the reason that this is still so nascent it has the opportunity to solve problems in a big way

941
01:09:30,828 --> 01:09:38,168
but recognizing that you just can't go from where we are today to that future state and there needs

942
01:09:38,168 --> 01:09:43,608
to be demonstrated track record of both solving problems and the economics being sustained

943
01:09:43,608 --> 01:09:55,288
how do you guys because your time is scarce how do you guys create focus

944
01:09:55,288 --> 01:10:02,048
around where you're able to have repeatable success talking to the type of people that

945
01:10:02,048 --> 01:10:08,008
own the assets like that's a great example is it is it something of like there's a certain area

946
01:10:08,008 --> 01:10:15,228
And if one person has a problem or a profile of a well, then they're likely to have other opportunities around them.

947
01:10:15,928 --> 01:10:24,768
Or what are the different things that you, because you're not necessarily like needle in a haystack, but there's a lot of opportunities, but there's only a certain number of people that will say yes.

948
01:10:24,788 --> 01:10:29,328
And then how do you look at the board to then focus energy?

949
01:10:29,708 --> 01:10:30,228
No, you're right.

950
01:10:30,328 --> 01:10:33,808
Our time is scarce and also our capital is scarce on the rental side.

951
01:10:33,808 --> 01:10:36,768
Because in the rental model, it's our capital.

952
01:10:36,888 --> 01:10:37,428
It's our equipment.

953
01:10:37,428 --> 01:10:40,048
So we have to finance it with equity or with debt.

954
01:10:40,628 --> 01:10:45,328
So there's a limited amount of dry powder we have to go deploy rental units.

955
01:10:45,328 --> 01:10:51,848
So for that reason, we're very focused on focusing on the top 150 accounts for our rental product.

956
01:10:51,968 --> 01:10:59,768
The big public guys, the big private guys are who we are spending our time trying to get in front of for this rental product.

957
01:11:01,388 --> 01:11:04,108
And hopefully there'll be purchase customers one day too.

958
01:11:04,108 --> 01:11:11,628
the purchase products you know we're happy to put in front of anyone frankly because um the smaller

959
01:11:11,628 --> 01:11:16,528
guys are willing to spend the capital quicker than the bigger guys so that's kind of how we

960
01:11:16,528 --> 01:11:22,208
bifurcate what we focus on between the two the two products we offer one of the things that i've come

961
01:11:22,208 --> 01:11:32,128
to appreciate is just how dependent the legacy oil and gas business is to fiat financing and you

962
01:11:32,128 --> 01:11:40,928
used to sit on that other side at Blackstone have any of the conversations has that been a

963
01:11:40,928 --> 01:11:47,768
the nature of their credit relationships been an inhibitor saying yes and then on the other side

964
01:11:47,768 --> 01:11:55,108
is it a potential opportunity where they could tap financing based on their borrowing base non

965
01:11:55,108 --> 01:12:02,248
non-bitcoin yeah yeah no it's a great point i mean the oil and gas industry is built on

966
01:12:02,248 --> 01:12:06,628
barring basis reserve-based lending right so you have explain a little bit how that works

967
01:12:06,628 --> 01:12:11,988
yeah so high level you'll have producing wells you'll have some undeveloped acreage

968
01:12:11,988 --> 01:12:17,208
and the bank will look at all of that in totality they'll get a reserve report done so they'll have

969
01:12:17,208 --> 01:12:37,508
petroleum engineers look at all of the hydrocarbons that you have in the ground how much is producing how much is not producing And they look at all those cash flows again discount it back They say Hey all of your reserves are worth a hundred million dollars We going to advance you 80 of that in a credit facility So we give you

970
01:12:37,508 --> 01:12:44,008
an $80 million credit facility that you can draw and pay down as you wish. So that's a really key

971
01:12:44,008 --> 01:12:48,468
way that a lot of these companies finance themselves at the smaller level. You know,

972
01:12:48,468 --> 01:12:52,208
the bigger guys use it more as just kind of a working capital facility because

973
01:12:52,208 --> 01:12:55,588
they have access to institutional grade debt,

974
01:12:55,628 --> 01:12:56,608
like bonds and things.

975
01:12:57,148 --> 01:12:57,548
Um,

976
01:12:57,548 --> 01:12:58,508
but a lot of the smaller guys,

977
01:12:58,628 --> 01:13:01,488
their RBL is how they finance their business to drill more wells.

978
01:13:01,688 --> 01:13:04,448
The RBL is their revolving facility.

979
01:13:04,608 --> 01:13:05,808
So they basically have a revolver.

980
01:13:06,088 --> 01:13:06,288
Yep.

981
01:13:07,108 --> 01:13:12,048
And if the price of gas changes or the price of oil changes,

982
01:13:12,188 --> 01:13:14,288
how does that come into play?

983
01:13:14,288 --> 01:13:15,568
It'll get reassessed every year.

984
01:13:15,928 --> 01:13:17,028
So it's a great question.

985
01:13:17,028 --> 01:13:23,068
if gas prices go way down and strip comes down the value of reserves of your reserves is less

986
01:13:23,068 --> 01:13:30,248
so they're going to haircut what was 80 million the next year might get cut to 50 million and then

987
01:13:30,248 --> 01:13:38,328
you have less capital available it works in the reverse too um so it is a bit of a you know you

988
01:13:38,328 --> 01:13:44,008
don't want to ever be fully drawn your revolver on your rbl because that could happen you could

989
01:13:44,008 --> 01:13:47,548
get reassessed the next year and owe the bank money.

990
01:13:48,508 --> 01:13:55,688
And if, say, an operator that had a credit revolving credit facility

991
01:13:55,688 --> 01:14:00,888
or credit deals, loans owed to different banks,

992
01:14:02,248 --> 01:14:07,588
even if Bitcoin mining wouldn't be the principal activity

993
01:14:07,588 --> 01:14:09,628
that was being financed, maybe it's not financeable,

994
01:14:09,628 --> 01:14:17,748
in your mind or does it come up of whether or not that increases the perceived risk you know in

995
01:14:17,748 --> 01:14:22,228
terms of an operator maybe they haven't had a direct conversation with one of their banks but

996
01:14:22,228 --> 01:14:28,408
saying hey if we go down this path and do this they might view us as less credit worthy or greater

997
01:14:28,408 --> 01:14:33,528
risk does that come up it definitely comes it comes up all the time really i mean some guys

998
01:14:33,528 --> 01:14:39,788
will say hey my bank's willing to finance five million dollars that's no problem some guys say

999
01:14:39,788 --> 01:14:44,368
my bank would puke on this so every bank has different risk appetites or different views on

1000
01:14:44,368 --> 01:14:48,568
bitcoin and it also probably depends on the relationship and the size of the business

1001
01:14:48,568 --> 01:14:54,788
but some guys are very willing to put this on their credit facilities and use that a pretty

1002
01:14:54,788 --> 01:15:01,148
cheap cost of capital to do this others are just it's a non-stop with their banks so

1003
01:15:01,148 --> 01:15:08,768
um i mean even for our business like we to build out this rental fleet we're talking to banks and

1004
01:15:08,768 --> 01:15:12,748
credit shops and things like that and a frustrating aspect has been you know the bitcoin on our

1005
01:15:12,748 --> 01:15:18,968
balance sheet that we hold that we've accumulated over time is given almost zero credit in their

1006
01:15:18,968 --> 01:15:24,048
eyes they're like we don't have much cash like yeah we don't have much cash but we have a good

1007
01:15:24,048 --> 01:15:29,608
amount of bitcoin that you're giving zero credit to so um that's just a broader thing that i think

1008
01:15:29,608 --> 01:15:34,528
will get better over the next five years once banks come around to the fact that it is the

1009
01:15:34,528 --> 01:15:39,808
best collateral on earth you know um but i think we're still early it is interesting because i was

1010
01:15:39,808 --> 01:15:46,788
wondering why the oil and gas companies didn't start to accumulate bitcoin not necessarily running a

1011
01:15:46,788 --> 01:15:57,868
bitcoin treasury strategy yeah but then i came to understand that you know what you just described

1012
01:15:57,868 --> 01:16:03,368
which was if you would get zero credit for it to potentially borrow against,

1013
01:16:03,748 --> 01:16:10,248
that a lot of the free cash flow is swept through the credit facilities.

1014
01:16:10,508 --> 01:16:15,088
And the way the incentives in that legacy conventional business are

1015
01:16:15,088 --> 01:16:19,748
is that you're not incentivized to hold a lot of excess cash.

1016
01:16:19,748 --> 01:16:21,028
Yeah, for sure.

1017
01:16:21,208 --> 01:16:23,028
Based on how the credit agreements are structured.

1018
01:16:23,188 --> 01:16:23,528
Exactly.

1019
01:16:23,528 --> 01:16:28,788
so last question

1020
01:16:28,788 --> 01:16:31,528
to wind up

1021
01:16:31,528 --> 01:16:32,608
to wrap it up

1022
01:16:32,608 --> 01:16:33,568
is

1023
01:16:33,568 --> 01:16:37,068
over the next

1024
01:16:37,068 --> 01:16:39,268
one two three years

1025
01:16:39,268 --> 01:16:42,728
where are you guys focusing

1026
01:16:42,728 --> 01:16:45,008
because I would presume

1027
01:16:45,008 --> 01:16:46,868
everything is based on unit economics

1028
01:16:46,868 --> 01:16:48,008
but it's also strategically

1029
01:16:48,008 --> 01:16:50,428
of unlocking a much larger pie

1030
01:16:50,428 --> 01:16:52,948
and so

1031
01:16:52,948 --> 01:16:54,748
in terms of

1032
01:16:54,748 --> 01:16:58,448
really getting to that next step function

1033
01:16:58,448 --> 01:16:59,828
for this

1034
01:16:59,828 --> 01:17:03,868
industry, subset of the Bitcoin mining industry,

1035
01:17:04,188 --> 01:17:07,008
and the role that 360 is playing in it

1036
01:17:07,008 --> 01:17:10,668
on the strategic side of your business,

1037
01:17:11,368 --> 01:17:12,388
whether that's financing,

1038
01:17:12,628 --> 01:17:15,168
just kind of what aspect of the business

1039
01:17:15,168 --> 01:17:17,468
do you guys view as most strategic

1040
01:17:17,468 --> 01:17:20,368
to unlocking, say, a 10x wave of growth,

1041
01:17:20,568 --> 01:17:22,668
not based on anything about the price of Bitcoin,

1042
01:17:22,668 --> 01:17:30,388
but just in terms of the market of assets or capital to become interested and

1043
01:17:30,388 --> 01:17:32,588
view this face space as more investable.

1044
01:17:33,268 --> 01:17:33,368
Yeah.

1045
01:17:33,508 --> 01:17:33,728
I mean,

1046
01:17:33,748 --> 01:17:36,568
we kind of all focus on geography first.

1047
01:17:36,748 --> 01:17:39,128
Everything we've deployed to date has been in Texas.

1048
01:17:39,128 --> 01:17:40,068
We're based in Austin.

1049
01:17:40,848 --> 01:17:41,808
As we speak,

1050
01:17:41,808 --> 01:17:46,308
we're putting our first deal in Wyoming with the largest producer in the

1051
01:17:46,308 --> 01:17:47,188
Powder River Basin.

1052
01:17:48,468 --> 01:17:51,448
And that's going to be important for us because,

1053
01:17:51,448 --> 01:17:57,228
to your point earlier there's 10 other pads that are exact have the exact same problem there in

1054
01:17:57,228 --> 01:18:01,948
wyoming is interesting because their flaring rules are much stricter than texas so the pain

1055
01:18:01,948 --> 01:18:07,948
that producers feel is higher in wyoming higher in new mexico versus texas where they can just flare

1056
01:18:07,948 --> 01:18:12,828
with no real penalties so we're focused on getting into new mexico getting into wyoming

1057
01:18:12,828 --> 01:18:20,208
expanding their north dakota also has strict flaring rules um so focusing on the geographies

1058
01:18:20,208 --> 01:18:25,968
where the producers have the biggest pain because it's easier to rent our infrastructure if you're

1059
01:18:25,968 --> 01:18:30,728
feeling more pain. So that's where we're focused on on the geography side. And then on the financing

1060
01:18:30,728 --> 01:18:36,668
side, it's really about building a track record with these rental. This rental product is new,

1061
01:18:36,728 --> 01:18:42,808
like I said, showing people the track record. And then we believe and have already seen that

1062
01:18:42,808 --> 01:18:47,428
it is a financeable product because most of the capex we're spending on these rental units

1063
01:18:47,428 --> 01:18:50,548
is in this good collateral, which is generators

1064
01:18:50,548 --> 01:18:52,368
that banks understand.

1065
01:18:52,368 --> 01:18:53,448
And that's important for us

1066
01:18:53,448 --> 01:18:55,328
because we don't want to equity fund

1067
01:18:55,328 --> 01:18:56,508
our entire rental fleet.

1068
01:18:56,508 --> 01:18:59,708
That'll be expensive from an equity dilution standpoint.

1069
01:18:59,708 --> 01:19:03,848
So getting efficient financing on the rental fleet

1070
01:19:03,848 --> 01:19:17,408
is another big goal that we have And then broadly I mean it just getting our name out there getting producers positive experiences and hoping that their offset guys see them and say hey this works

1071
01:19:17,508 --> 01:19:19,468
This is a viable oilfield tool.

1072
01:19:19,468 --> 01:19:24,328
It's not some far-fledged, crazy Bitcoin bro thing.

1073
01:19:24,408 --> 01:19:26,108
It's an actual oilfield tool that works.

1074
01:19:26,328 --> 01:19:29,428
So that's what we're working on every day.

1075
01:19:29,428 --> 01:19:40,768
In the case where you mentioned in Wyoming, a large producer, just if you could, because you brought it up, what was the dynamic around that case specifically?

1076
01:19:40,988 --> 01:19:57,308
Not needing to understand who customers are, of course not, but just because there's signal there of if it's a large conventional producer rather than ones and twos or smaller operators.

1077
01:19:57,308 --> 01:20:02,508
yeah there's signal that's getting through even if it's not a you know fully seeing the field of

1078
01:20:02,508 --> 01:20:09,248
bitcoin yeah that's a great question so this specific example very large producer this is a

1079
01:20:09,248 --> 01:20:15,368
two well pad that they drilled i believe a year and a half ago and they produced the well when

1080
01:20:15,368 --> 01:20:19,188
they first drilled it but then they bumped up against their flaring permit and they weren't

1081
01:20:19,188 --> 01:20:24,308
able to get it renewed so they could not flare any more gas there was no gas pipeline so they

1082
01:20:24,308 --> 01:20:29,208
had to shut that well in. So there's been no oil or gas flowing out of the well for a year and a

1083
01:20:29,208 --> 01:20:36,668
half, which is very impactful for them. They can't flare the gas. So they are hiring us to consume

1084
01:20:36,668 --> 01:20:44,008
that gas, combust it with our generators, mine Bitcoin with it. And that is all to allow them

1085
01:20:44,008 --> 01:20:50,728
to flow their oil. So on the rental economics for them, they don't really care. They're going to be

1086
01:20:50,728 --> 01:20:56,328
happy if they break even on the gas because their alternative would be flaring it. But they are

1087
01:20:56,328 --> 01:21:02,888
unlocking 200 barrels plus a day of oil production that they can now flow given our units are up

1088
01:21:02,888 --> 01:21:13,848
there. Someone like that, do you think that the mindset is let's do this one with the mind that

1089
01:21:13,848 --> 01:21:20,608
they have a whole other portfolio where, again, it's not going to be every other well or every

1090
01:21:20,608 --> 01:21:26,648
other asset that they own but evaluating what they do have like is someone like this thinking

1091
01:21:26,648 --> 01:21:32,748
about it from that frame of mind of like hey let's test this out with the idea that we know we have

1092
01:21:32,748 --> 01:21:36,548
other opportunities if this proves to work yeah they've told us there's five other pads they've

1093
01:21:36,548 --> 01:21:41,528
already identified that are the same exact scenario and there's no line of sight in this area to gas

1094
01:21:41,528 --> 01:21:46,248
pipeline being built so they want to see this work and then there's a lot of opportunity to grow with

1095
01:21:46,248 --> 01:21:50,628
And then what it seems like,

1096
01:21:51,348 --> 01:21:55,348
it seems like everything is generally backward looking

1097
01:21:55,348 --> 01:21:59,768
in terms of this is how assets exist.

1098
01:22:00,848 --> 01:22:03,888
These are where pipelines either exist or don't.

1099
01:22:04,408 --> 01:22:09,508
So let's go out and find the wells that fit the profile

1100
01:22:09,508 --> 01:22:13,688
that best map to profitable Bitcoin mining.

1101
01:22:13,688 --> 01:22:14,688
Yeah.

1102
01:22:16,248 --> 01:22:43,908
So when do you think, just kind of, if you're painting a picture out into the future, I know we're not asking to predict Bitcoin prices, but are we thinking five years, 10 years, 20 years, maybe no horizon at all until the legacy oil and gas industry uses Bitcoin mining to change their development programs?

1103
01:22:43,908 --> 01:22:46,268
Yeah, on the drill program going forward.

1104
01:22:46,688 --> 01:22:49,008
Is that just too far out to conceive?

1105
01:22:49,208 --> 01:22:49,328
No, it's not.

1106
01:22:49,328 --> 01:22:50,288
Or is it like 10 years?

1107
01:22:50,608 --> 01:22:53,308
Maybe they're thinking we can go drill that well.

1108
01:22:53,728 --> 01:22:58,868
Being basically the difference of, hey, we've got a problem that we didn't foresee.

1109
01:22:59,128 --> 01:23:05,548
This can be a solution to it versus we can actually go drill where we couldn't or wouldn't have otherwise drilled.

1110
01:23:06,268 --> 01:23:10,188
So it's already happening today with small producers.

1111
01:23:10,188 --> 01:23:17,188
small wildcatters that understand this see the potential hey i don't need i can go wildcat in

1112
01:23:17,188 --> 01:23:22,288
a new location and have gas offtake where there's never gonna be a pipeline so i can plan a drill

1113
01:23:22,288 --> 01:23:27,128
schedule around that we've already had those conversations with people you know granted

1114
01:23:27,128 --> 01:23:34,548
they're smaller producers mom and pop type people um but again that's where a lot of the innovation

1115
01:23:34,548 --> 01:23:35,548
and oil and gas comes from.

1116
01:23:36,128 --> 01:23:37,688
The interesting thing will be

1117
01:23:37,688 --> 01:23:40,168
when is a big public guy

1118
01:23:40,168 --> 01:23:41,928
going to build this into the drill program?

1119
01:23:42,928 --> 01:23:45,888
And if I had to handicap a timeline for that,

1120
01:23:46,528 --> 01:23:50,208
I would say, I'd say four years from now

1121
01:23:50,208 --> 01:23:53,328
until a big public guy is actually

1122
01:23:53,328 --> 01:23:55,628
planning a drill program around this.

1123
01:23:56,248 --> 01:23:58,248
And I think that'd be amazing.

1124
01:23:58,788 --> 01:24:01,548
I was thinking you weren't even going to give me a forecast.

1125
01:24:01,868 --> 01:24:02,108
Four years.

1126
01:24:02,108 --> 01:24:19,828
No, I think that just in the spirit of wildcatting, I would think that, because I had conversations four or five years ago with someone who had assets in the Haynesville, I think it was northern Louisiana, about drilling a well specifically to mine Bitcoin.

1127
01:24:19,828 --> 01:24:23,628
and the idea that they might be the first to drill a well

1128
01:24:23,628 --> 01:24:27,288
and then exclusively mine Bitcoin on it

1129
01:24:27,288 --> 01:24:30,688
with the Wildcatter mentality

1130
01:24:30,688 --> 01:24:33,848
was something of interest to them.

1131
01:24:34,048 --> 01:24:36,248
Yeah, I mean, one of our clients drilled a well

1132
01:24:36,248 --> 01:24:37,208
specifically to mine Bitcoin.

1133
01:24:38,008 --> 01:24:38,628
So it's happened.

1134
01:24:39,008 --> 01:24:40,728
Whoever the next person is is not the first.

1135
01:24:41,288 --> 01:24:42,388
That's pretty amazing, though.

1136
01:24:42,408 --> 01:24:42,568
Yeah.

1137
01:24:42,968 --> 01:24:47,048
I mean, the fact that that type of activity,

1138
01:24:47,048 --> 01:24:50,708
that the fact that the example that you gave in wyoming the fact that somebody

1139
01:24:50,708 --> 01:24:57,308
in the world has drilled a gas well to mine bitcoin yep and in the future will drill an oil

1140
01:24:57,308 --> 01:25:07,028
well with bitcoin being the first off take yeah is uh is a sign of how far bitcoin and bitcoin

1141
01:25:07,028 --> 01:25:11,848
mining has gone totally and even if it's just a bridge right you can speed up your drill schedule

1142
01:25:11,848 --> 01:25:16,048
yeah the pipeline might be a year might be the permanent solution exactly but it reduces uncertainty

1143
01:25:16,048 --> 01:25:17,808
Yep. You can plan around it.

1144
01:25:18,048 --> 01:25:25,528
Yeah. Oh, Sean, appreciate you coming downtown from your new digs a little bit, uh, west of

1145
01:25:25,528 --> 01:25:31,608
downtown. Always enjoy conversations. The ones we have more frequently here, but excited for what

1146
01:25:31,608 --> 01:25:37,088
you guys are building at three 60 and just all the innovation that's happening in the oil field

1147
01:25:37,088 --> 01:25:42,448
and the gas fields from Bitcoin mining. So yeah, no, I appreciate it. You got to come by the new

1148
01:25:42,448 --> 01:25:44,168
office and grab lunch with us sometime.

1149
01:25:44,468 --> 01:25:45,488
Yeah, we'll have to do that.

1150
01:25:45,748 --> 01:25:46,108
Sounds good.

1151
01:25:46,288 --> 01:25:46,788
Appreciate it.