Sean’s path from Credit Suisse and Blackstone to co-founding 360 Energy reflects a broader shift from traditional finance to Bitcoin mining. At Blackstone, he saw oil and gas credit deals give way to ESG-driven renewables with poor returns, while 2020’s money printing highlighted fiat’s flaws. Bitcoin offered a scarce, durable alternative, and stranded natural gas provided the cheapest power to mine it. 360 Energy began by buying unattractive wells and converting gas into low-cost Bitcoin, later evolving into a service model for producers through infrastructure sales and rentals. Adoption is accelerating, especially in regions with strict flaring rules, and Sean believes major oil companies will integrate Bitcoin mining into drill programs within four years.
Sean’s story embodies the convergence of Wall Street, energy finance, and Bitcoin’s disruptive logic. Where Blackstone’s credit models hit diminishing returns amid fiat inflation and ESG fads, Bitcoin mining offered both higher economics and deeper alignment with physical energy systems. By reframing stranded gas as a competitive edge, 360 Energy is pioneering a new bridge between oilfields and digital money. The path forward lies in demonstrating reliability, building financing models, and expanding into flaring-constrained regions. If early momentum continues, Bitcoin mining could graduate from fringe solution to standard oilfield tool, and eventually reshape how drill programs themselves are planned.
0:00 - Investment Banking and Energy Finance Experience
4:30 - Deal Structure and Investment Focus at Blackstone
7:27 - COVID Impact and Shift to Renewables
9:51 - Bitcoin Discovery and Orange-Pilling Journey
13:18 - Connecting Energy Finance to Bitcoin's Value Proposition
17:20 - Partnership with Chris and 360 Energy Formation
21:29 - Renewable Energy Economics vs Bitcoin Mining
25:27 - Natural Gas Strategy and Asset Selection
29:14 - Low-Cost Producer Economics
32:12 - Asset Acquisition and Valuation Strategy
37:59 - Economic Modeling and Capital Requirements
42:22 - Volatility Comparison: Natural Gas vs Bitcoin
45:29 - Well Decline Curves and Mining Capacity Planning
50:28 - Transition to Service Business Model
55:54 - Industry Adoption and Bitcoin Perception
59:36 - Equipment Financing and Customer Decision Factors
1:07:23 - Industry Dynamics and Risk-Taking Culture
1:11:49 - Credit Facilities and Banking Relationships
1:18:58 - Strategic Focus and Geographic Expansion
1:21:48 - Future Industry Integration
(00:05) Sean, welcome to the center of hash. Thank you. It's good to be here. Your former home, Bitcoin Park. I was going to say it's good to be back in the com or Bitcoin park. We miss you guys. We've only been away for a few weeks, but I know there's a a vacuum that we need to fill a void. Yep. How are things going at the new office? Oh, they're great.
(00:28) You know, it's uh it's sad to leave this space, but it's good to have our own space. We're growing the team a lot, so it's nice to have conference rooms to take calls and things like that. Signs of success. Yeah. Yeah, we hope so. You know, the team's grown a lot, putting deals out, so blown and going. Well, Chris, your co-founder and partner at 360 Energy, recorded in July.
(00:54) Um, and he and I were catching up and I suggested that we should get you on as well. You have a very different background from Chris and wanted to start out just talking about your the history in the oil and gas space on the finance side and how you came to be working on Bitcoin and specifically Bitcoin mining. You were formerly at Blackstone.
(01:18) So just talk a little bit about and then investment banking at credit Swiss for that both on the oil and gas side energy energy side I guess but yeah talk a little bit about your history what you were doing and how you ultimately decided to become interested in Bitcoin and then and then work on Bitcoin mining. Yeah definitely.
(01:42) So started at Credit Swiss in the oil and gas group in Houston, went to school in Dallas. Um, and that was like we talked about earlier, led ship for finance. You know, being an analyst in investment bank is a lot of grunt work. Um, but you do learn a lot over your two-year period there after what years was that? That was 16 to 18 in Houston.
(02:01) I've done my pledge ship in investment banking as well. New York 2006 to 2009 bank. So that was a pretty wild time and I know what it's like. Yeah. Yeah. Um so that was great but the goal is always to get to the buy side. Um so did two years there and then moved to GSO which was the credit arm of Blackstone. It's rebranded to Blackstone Credit now. Um in New York 25 person team across New York and Houston.
(02:28) Um and we were investing when I first joined in all oil and gas companies. So investing across the capital stack mostly preferred equity down to or up to senior secured debt. Um and you know day one it was all oil and gas. So, a lot of upstream deals, some mid-stream deals, a little bit of OFS, and it was just if you need capital as a business to, you know, expand your drilling program or buy more equipment, um, we would be a capital provider to help them do that and make return for our LPS. Um, so that was a great
(03:03) experience. You know, it's it's a very intense environment for sure. Uh, a lot of very smart people and I learned a ton. You know, I was there for six years overall. um learned a lot in my first three years.
(03:20) It's almost like the first two years are almost like investment banking all over again, but with a different skill set. You're just, you know, working very hard. Um long hours as well, but it's your LP's capital you're investing. So, the the standard is a bit higher on you have to be really sure you're right. Um at an investment bank, it's kind of you're being salesy, right? Um so, that was a great experience.
(03:47) Um so a question there one just total as an aside what does GSO stand for? Uh the three founders so Goodman uh Smith and Orover and that was a unit within Blackstone. Yeah. So those three guys were DJ credit squeeze guys back in the 90s. They started GSO early 2000s I believe um I think 2004 and then Blackstone bought GSO in 2008.
(04:14) So, and then specifically talk about the like in terms of the deals that you would work on, were you typically working on primary equity financings, credit financing all throughout the capital structure and just the nature of the type of deals that you would yeah have experience with. An example, it was mostly credit focused because GSO was a credit shop.
(04:36) Um, we would do minority common equity, but we wouldn't do control common equity. If there was anything controlled, that would go to the private equity group. So, Blackstone kind of has many business segments, right? Private equity, real estate, and then GSO was the credit arm.
(04:53) So, a typical deal, for example, um, uh, a midstream or sorry, an upstream operator in the Perian needed $100 million to go drill 10 more wells. We would give them a term loan, $100 million term loan, pretty expensive capital. You know, we targeted mid- teens and then we might co-invest 10 million of common equity alongside. And were these typically I mean presumably if they're getting a $100 million term loan, these are wellestablished companies are really often public companies, private mix. It was a mix. I would say most of the deals were private companies. We would
(05:24) do some public stuff. The biggest deal I worked on was a $1.6 $6 billion preferred equity investment into a system called Target Badlands. So Target is a massive mid-stream company publicly traded and they wanted to monetize a part of their Bacan assets, their midstream assets there.
(05:47) So we bought a 45% interest preferred interest um for 1.6 billion. You know, that's an example of a a deal we would do with some public guys in Bakans, North Dakota owns oil and gas. Yep. Oil and gas North Dakota. Um, so a gathering system means they have the pipes that actually connect to the wells.
(06:05) 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. And so you were there for six years. You mentioned the first two years being very similar to an investment banking first few years, but in terms of exposure to different types of the energy markets, how did that look? How did it evolve? Yeah. Yeah. Great question. COVID changed a lot for us. Um, oil went negative that one day.
(06:36) our portfolio was, you know, not in shambles, but there was a lot of stuff breaking at Negative Oil, right? So, we spent a lot of time triaging that. That was probably a 3-month period of just making sure all of our portfolio companies had enough cash to make it through.
(06:54) And then when we came out the backside of that, the group kind of made a pivot saying, "Hey, we kind of the administration was very anti- oil and gas. the senior guys at Blackstone were kind of leaning away from oil and gas as well. Um so we actually rebranded the group from energy to sustainable resources and started doing new originations on more energy transition and related companies.
(07:19) So my background was oil and gas at credit Swiss. So it was interesting to look at a whole new you know sector of the industry in the energy industry. So, renewables, um, service companies that service those renewable projects, things like that. And I was really excited about it at first, you know, to kind of broaden my horizons within energy.
(07:42) Um, but quickly became fairly jaded, frankly, with the whole renewable craze. I think it was, um, overhyped. Um, the asel of returns were just not attractive, frankly. Like, they weren't good deals. Um, but there was so much LP demand for this. People wanted green investments at the time and ESG was all the rage. So, that's kind of the direction the group went in and that's a part of the reason um I ended up leaving and making the jump to 360.
(08:10) I just didn't feel like I liked the way the group was going. How large within Blackstone is that group just in terms of like total assets that are under management capital being deployed just for yeah Blackstone credit as a whole is pretty large. So I'd have to look at the latest numbers but let's say Blackstone is around a trillion or a year ago was around a trillion.
(08:34) I'm sure it's more now of total aum. I believe Blackstone credit is around 400 billion of that 300 to 400 billion. But then the energy and then the energy group we had 25 billion of AUM. Okay. So maybe 25% of the credit and then two and a half if on that trillion dollar total 2 and a half% of the total. Exactly. And we were a bit unique within Blackstone Credit.
(09:02) We were the only industry specific group just because energy by nature is a bit more technical and you need a little bit more industry knowledge. The rest of Blackstone Credit was more industry agnostic. um and covered, you know, broad parts of the the economy. You mentioned though preferred equity deals to credit. Did you specialize on one or the other over the course? No, you you kind of got staffed on a deal that came in as you were available and would work on various things.
(09:31) So, um I was I worked on anything from, you know, just vanilla senior secured term loans um to Harrier preferred equity stuff. So, now connect for folks the transition from what you were doing what what got you originally interested in Bitcoin before even 360? Yeah. Or maybe they're intertwined. Yeah.
(09:58) Now, so my origin story, if you will, in 2016, my buddy at Credit Swiss, a fellow analyst, told me to buy some Bitcoin, you know, and I 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. Didn't really think about it again until 2020. I was at Blackstone at the time and saw the whole COVID response printing trillions of dollars and I just, you know, the finance background in me was like if if they're going to print that much money, something's going to go wrong like that that has externalities, negative externalities. And I had my dad kind of
(10:35) like gold in the past. So, I I had some some gold exposure, just the ETF, and then kind of recircled around to Bitcoin. You know, Marty's podcast was one of the early things that kind of started getting me down the rabbit hole.
(10:54) Read the Bitcoin Standard and then just slowly fell down the rabbit hole kind of 2020 onwards. It was very similar for me in 2008 2009 which I think is fairly common for for people which was there's a financial crisis and 2020 2021 the response was different. And I'd say it was much quicker. But being in the middle of at the time for me investment banking, it was that something's broken here. I don't know exactly what, but none of this makes sense.
(11:28) Mhm. And then for me it was at at that time, tail end of it, I guess, at the time where it was happening in 2008, early 2009, Bitcoin was just being launched. I had no way to connect it to Bitcoin. but later came revisited to figure out what exactly was broken. But I think that's very logical where there's just an instinctive reaction that that something's wrong here and it sets you off on a course to to figure out what that is even if the immediate connection isn't directly there.
(12:04) No. Exactly. And we were doing all this hard diligence, all this hard work and making, you know, 11% yielding loans. And everyone knew inflation was around that. You know, it's like, what are we spending all this time on to make loans and make 11% when they're just printing all that money anyways and you're going to be breaking even really on an adjusted basis, you know? So, um, totally. Yeah.
(12:31) And that's also something that I've talked about it on a couple episodes just very briefly. Maybe we can talk about it in more detail. But one of the ways that if I'm describing Bitcoin to somebody that's new is connecting that and I don't have nearly as much knowledge as someone like you might have in terms of the operations of an upstream oil and gas business.
(12:58) say if that was example of a subset of the businesses that you were financing and working deals on. But that it doesn't make sense if you think about all the complexity that goes into those businesses, complexity to the supply chains, the amount of actual money required to make those operations work, the human capital, the physical capital, and then to sell the output of it.
(13:25) Just using the case of oil and gas, maybe gas that comes out of a pipeline or oil at a gathering station force some money that someone can click a button and print out of thin air. Totally. You know, you mentioned previously that when the COVID lockdown happened, a lot of the focus shifted to making sure companies that were in the portfolio had enough money to survive.
(13:55) What does that mean in practice for for some of the more like in a tangible case for the type of companies that you would work on? Yeah, for a tangible example was, you know, we were in a debt position and so we are owed interest, you know, every quarter, right? We could go to them and say, "Hey, for two quarters, we'll pick this interest.
(14:20) We'll let you not pay cash, just add it to the debt balance to give you some breathing room proactively." Uh, we didn't have to do that, but we didn't want them to default, you know, because of this really black swan event, right? oil going negative is very rare. So, you know, could give them some flexibility from our capital is one thing we could do.
(14:38) That's an interesting So, just as an aside, can you explain contextually why we all went negative? Yeah. I mean, it was a bit of a a freak event, but from my understanding, there was so much there's just no demand, right? There's no one's flying planes. There's no demand. No one's driving cars.
(15:01) So demand was so low, wells are still flowing and Cushing, Oklahoma, where WTI is cleared every day. That one for that one day there was just no buyers and all the oil was still there. So and there's a real cost. There was no place to store it. Exactly. Storage was full and there's a real cost to storing that. So people were effectively paying to have their oil go somewhere, which is a negative price.
(15:26) And there were speculators in that market that couldn't actually take delivery. Exactly. Okay. Exactly. Um, and so would your group do the restructuring or, you know, essentially if you were going to work on an amendment for a credit deal, would your group within Blackstone work on that directly or would that be outsourced to restructuring shop? We would work on that directly.
(15:51) We would hire restructuring attorneys to do the more technical document related things, but our deal teams, you know, we had some bankruptcies that we would have to work through. And so if you connected in this period of extreme money printing to thinking about the amount of effort and work that went into your deals and the type of returns versus how easily the money could be created to Bitcoin, how in a in a direct way did that did that help inform your understanding of Bitcoin when you started to go down the rabbit hole? like how like just like how you you came to how do you think about Bitcoin?
(16:26) Yeah, exactly. I mean, again, we're spending all this brain damage, all this effort on structuring creative deals and and trying to make alpha, you know, riskadjusted positive returns, but at the end of the day, like you said, someone can print a print money with the push of a button. Um, so once you learn about Bitcoin and you ingrain in your head there's only 21 million, that's a that's a fact.
(16:51) Um, it really changes the way I thought about it. You know, you can own an asset that can't be devalued by someone. Um, I would rather own that than do all this work trying to make 10% in a currency that's being debased. It's a lot easier to just go hold a an asset that can't be debased. Um, so that was kind of my original path down the rabbit hole was informed by that thought process.
(17:16) And so when that started to click, you called Chris. Yeah. So I was going down the rabbit hole. Um Chris called me. Yeah. Chris called me and you know said, "Hey, I want to do this Bitcoin mining thing. Cheap electricity is the name of the game. That's how you differentiate yourself as a Bitcoin miner. I have this idea with natural gas." He didn't know much about oil and gas at the time. He knew I did. We went to Destiny together.
(17:43) So kind of reconnected about that. I had first thought he was crazy. Um but then started running some numbers in Excel and then funnily enough at the same around the same time at Blackstone we looked at a deal for Crusoe Energy who was one of the first guys doing Bitcoin mining on the oil field.
(18:02) So the fact that Blackstone, you know, didn't make it through investment committee, but the fact that Blackstone was was at least looking at doing a deal with Crusoe, which was doing natural gas bitcoin mining, kind of made me think different about it, too. So I took another look at the numbers and said, "Hey, there actually might be something here.
(18:20) " And um Chris started the company. I was just helping him on the side in the beginning. And you know, over the next year, I started spending more time helping him. And it was much more interesting and dynamic and exciting to work on the beginning of that company versus, you know, going to credit committee for another 11% term loan. Um, and at the same time at Blackstone, we started doing more and more direct lending deals.
(18:47) You know, direct lending was kind of in its infancy back in 2019, but now it's everyone's doing it. And those deals are generally more boring than some of the hair preferred equity mezzanine type type stuff that I liked working on. Those deals are unique. There's a lot of structuring involved.
(19:06) You know, you have equity kickers, warrants, things like that. In your typical direct lending deal, it's really just, you know, sofur plus 6%. And that's the return you're going to make. So the interest in my Blackstone deals was going down. The interest in 360 was going up and uh eventually made the decision, you know, I don't want to be a managing director at Blackstone.
(19:27) You know, I I respect those people. They love it. I didn't love the deals I was working on. Was loving what I was doing at at 360 with Chris. So, you know, decided, hey, now's the time to to make the jump. Well, you know, again, difference in time period slightly, but I remember in 2008, 2009 when there were there were guys who were my age now that in my mind then seemed much older at the time, but I remember having the express thought that I didn't want to be sitting around waiting for somebody to come tap my tap me on the shoulder and say, "Hey, you're out."
(20:03) Yeah. after 10 years of service or 20 years of service and realizing that you're really at the the center. You know, again, at that time, my my reaction was just that like something's broken and I don't want to be that guy. Yep. Not the you know, there were a lot of good people there, right? Later I figured out that not necessarily investment banking because it's more on the the the edge of the the bank I'd say in terms of money creation and the problems but it's all interrelated. Yeah. You mentioned
(20:41) looking at the economics of some of the the traditional deals you were doing and looking at the economics and thinking to yourself they weren't sustainable. talk about maybe how that contrasted in your thinking looking at the sustainability of the economics around Bitcoin and Bitcoin mining. Yeah.
(21:06) I mean to to give an example on the renewable side, you know, a a typical renewable project has a lot of debt on it that you'll sign a 15-year power purchase agreement to sell your power that you make with hopefully an investment grade counterparty. So, it's very financable. So, you had a bunch of debt and then there's an equity piece like any deal.
(21:25) Um, those equity returns over the 15-year period were 0%. You were simply making your money back on the equity over 15 years. And then all of your return was some assumption on year 15 to year 25. What's the merchant power price going to be at that point in time? So, you're making a bet on power prices in 15 years.
(21:44) And then even then the equity returns at that point in time I don't know what they are now was still like six 7% on these deals and that just seemed crazy to me. And then you look at the Bitcoin mining economics um at the time you were making $40 in MCF and making you know year paybacks on your your infrastructure given you know granted it's a lot riskier because it's a fluctuating commodity price.
(22:09) You don't have a 15-year purchase power purchase agreement to finance. But in my mind, and once you understand Bitcoin, it becomes a lot less risky compared to that, you know, 6% IRR over 25 years. How much of it do you think was say long-term power purchase agreements versus the financing structures and then pipeline of money to underwrite those deals that was oh yeah creating the sustainability versus lack of the reason those equity turns were compressed so low was because how much money was chasing those deals. There was just so all a lot of this printed money
(22:49) was flowing into these deals. Um the equity returns should not have gotten bid down that low, but they were because everyone wanted to own a solar farm, you know. Uh and that, by the way, that those returns are after all the tax incentives. Like without the tax incentives, they're negative return projects.
(23:13) And so when you pull it forward to what you guys are working on at 360, you went from this world where when you started combination of credit Swiss going into Blackstone, the bulk or the volume was oil and gas shifted more towards wind and solar. Mhm. wind and solar and ancillary businesses, the guys who install the solar panels. Yeah.
(23:43) And now you you start to figure out Bitcoin start talking to Chris more, helping them out on the side. And Chris, maybe with your input or you know maybe if you can share the thinking on it in terms of how it evolved coming back to natural gas and why natural gas as a long-term strategy for mining Bitcoin made sense, right? Yeah.
(24:14) So, you know, given my experience in in oil and gas finance, I at least knew a little bit about the production profile of wells and how that works financially. So, the idea originally for the company was, let's find the cheapest power. How can we do that? And the idea was, let's get to the source. Let's buy these unattractive upstream assets that other people don't care about. You know, these were the wells we bought originally were drilled in 2006.
(24:37) They're well past their flesh production. and they're on their terminal decline. They're dry gas and they're selling into a high pressure pipeline, meaning you're not making a lot of money. So, from a traditional oil and gas standpoint, it's not attractive. It's a cash flow break even asset that people are willing to sell for very cheap.
(24:56) But we saw that as a opportunity to buy that very cheap and then monetize that gas through Bitcoin mining because you can control your own power. You make your power behind the meter and you effectively have 30 years of of almost fixed power costs, right? Your only cost at that point is maintaining your generators and producing the wells.
(25:17) You're not beholden to the market price. I guess you are for Bitcoin price, but again, at the time it was $40 in MCF when Henry Hub was at $2 in MCF. But in ter but in terms of your power cost, it's the capital you have invested in the well plus largely fixed cost. Exactly.
(25:42) In any infrastructure that that you need on site and then the efficiency of converting natural gas. Exactly. So you can model your costs in a pretty tight band unlike if you're on the grid, you sign a three-year power purchase agreement. In three years, you really don't know what your power price is going to be. And that was back in 21 when everyone was just trying to get AS6 plugged in. It was, you know, bull market. People were paying crazy prices for AS6 and just to get powered on.
(26:07) Um, 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 at a lower price. if you were to have a conversation with one of your former colleagues at Blackstone making the case for why the economics of Bitcoin mining say you know not necessarily what you're currently focused on upstream natural gas but just more generally how do you make that case oh man or just like how would you explain it in terms of the opportunity and why when I when I mean sustainable it's why this will continue to exist. Yeah.
(26:48) 5 years from now, 10 years from now, 20 years from now. Yeah. I I think an analogy that's good to use that we use with customers is if you're mining Bitcoin, your largest cost is your electricity cost. So, how do you become the lowcost producer? In oil and gas, the low LOE producer, lease operating expense producer can stay online when oil and gas prices go down, as they all often do. The same thing applies to Bitcoin mining.
(27:16) you know, the lowest cost producer is going to be able to weather the fluctuations fluctuations of Bitcoin. So, I would use that analogy, but then you're going to have to explain to them why Bitcoin will exist in 5 years. Um, and that is a whole another, you know, rabbit hole. I'm probably not the best person to orange pill people.
(27:35) You know, by the time I left Blackstone, I was the crazy Bitcoin guy trying to tell everyone about it. Um, and I found a couple other, you know, people within Blackstone who also loved the Bitcoin, but there was real no way to express that in the work we were doing at Blackstone. Um, could you maybe elaborate on the parallels and then maybe differences between those market dynamics of being the low cost producer and energy and when the price comes down, what happens in that market versus when the price goes up and then the parallel to Bitcoin mining and maybe just talk about similarities and differences.
(28:13) Yeah, sure. So in an oil and gas well, let's just say an oil well, you have lifting costs, which is how much are your expenses divided by how many barrels you make. So companies will say, "Hey, for every barrel of oil I produce, my costs are $10." Some guys cost might be $30. Other guys might might be $5.
(28:34) So the guys with $30, $40 lifting cost, when oil goes down to $40 a barrel, they're break even or cash flow negative. So, they have to shut in their well. The guys that are only their costs are $5 per barrel um can still make money at $40 WTI. Same exact thing happens in Bitcoin.
(28:58) If you're paying 7 cents per kilowatt hour on the grid, hash price goes down to 40, which it did, and it's not too far from that now. Um you're going to be break even to cash flow negative depending on what machines you have plugged in. So, those guys shut in. Same thing as shutting in a well.
(29:17) You shut down the Bitcoin mine because why are you going to mine if you're cash flow negative? Um our all-in costs off the grid, our LOE is, you know, 2 to 3 cents a kilowatt hour. So we can stay profitable with hash price a lot lower, but you know, there's no free lunch. You do have to spend capital upfront on generators and things like that. Um but that's that's the analogy. It's very comparable.
(29:36) And so in the oil and gas world, let's just talk oil. Price of oil drops. Certain producers become unprofitable. They physically have to cut off turn off the well. Yep. And that oil stops flowing. Yep. And the lowcost producer or those that are on the lower end that remain profitable functionally take more market share because other operators are turning off.
(30:09) Mhm. And those other operators maybe they become unprofitable overall, maybe they go away, maybe there's consolidation in the industry. I remember 2014 2015 when believe it was Saudi Yep. stopped or basically said they were going to continue to produce and not hold the 100 target. The weakest fail consolidation.
(30:34) The world of Bitcoin a mine will shut off and the amount of Bitcoin that are issued continues to remain functionally the same. price might be lower and those that are continuing to operate would get more nominal Bitcoin. Exactly.
(31:01) So in the in the oil and gas world, the direct feedback loop is you're still producing the same amount that you were. You're just able to continue to do it profitably, albeit less profitably. Yep. And maybe in the future, you might be able to go accumulate more assets to expand your production footprint. In Bitcoin, it's more dynamic where you might actually produce more Bitcoin at a lower price. Exactly.
(31:27) And it it's the same, you know, the saying goes, the cure for low prices is low prices. If oil prices go down, people shut in. that'll eventually cause a supply crunch and prices will go back up. Same thing in hash price. You know, hash price goes down, people are going to unplug at some point, uh which causes hash price to come back up.
(31:49) So, when you guys were looking at wells and you guys were looking at gas wells. Yeah. Were they for the initial well or set of wells that you invested in, were they just gas? They were dry gas only. Yeah. Okay. And when you look at the economics, were you who were the counterparties that you were buying from? Were they just other individuals that you knew? Were they larger companies? No, it was a privately held fairly large oil and gas operator just in the Barnett and they just were selling this package on Energyet, which is a Craigslist of oil and gas assets. You could log on today and there'd be 20 assets for sale.
(32:27) to describe in your terms and maybe this has evolved over time. You come more from you, you wear the CFO hat at 360 Energy. You've worked in oil and gas finance, but more broadly looking at a spectrum of preferred equity to MEZ debt to term loans, you understand the financing structures of oil and gas deals and the underwriting and then the the assets that are attached to them. Mhm. through the financing lens.
(33:07) What do you look for in attractive assets that are particularly interesting for Bitcoin mining? Yeah, it's a great question. So, the way PDP assets prove developed producing assets, so flowing wells are called PDP wells. The way they trade on the market is a discount cash flow analysis. So say I I'll buy that well for PB15. So you model out the cash flows, the production of the well. You assume strip pricing. You model out your costs.
(33:38) You discount all those cash flows back by some discount rate. That's what the market decides. And you can buy it for the present value. Discount it back 15% call it. So um depending on the the specific asset, it might be EV 20. You're getting a little cheaper. Um, but the the interesting part is the you're discounting back just in oil and gas terms.
(34:04) Like you can buy stuff on the market on just oil and gas terms. So since these were unattractive wells, the costs were very high. The midstream cost was high. So the cash flow on oil and gas basis only was pretty low. So the PV20 was cheap. Um, no one else was thinking about layering in the the Bitcoin mining economics on top of it.
(34:24) So when you look at the the present value, assuming Bitcoin mining, you're getting a good price. You can layer in that capital and have a a present value uplift and say, I'm buying this gas asset for cheap in oil and gas terms, layering on the Bitcoin that no one else thinks about, and then you have upside for that asset.
(34:43) Maybe elaborate on those on that for people that aren't as familiar because I think what you said there There was something implied about the fact that hey, if you're if you're valuing net cash flows on the oil and gas side and what costs remain if you were to mine Bitcoin versus what costs would be eliminated such that if these assets are being sold out to the market and All of the market of potential buyers are looking at it one way, but you're looking at it through a different lens. Yeah. Why why why you would value it
(35:32) potentially more than somebody else that could only look through it through the traditional lens? Yeah. So, on the cost side, a big cost you can eliminate with Bitcoin mining is your midstream fees. We have to pay, you know, call it 80 cents per MCF to the pipeline operator just to take our gas. So if you're using your gas on your own pad, that's a cost item you can eliminate.
(35:58) But the real uplift comes in the revenue side of it, right? If you look at strip Henry hub and it's, you know, call it $3ish for the next 5 years, everyone else is looking at $3 of revenue. In the Bitcoin mining side, you have to invest capital day one, but your revenue is going to be a lot higher. Today, it's $15. When we looked at it, it was $40.
(36:21) 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. That's what the Bitcoin mining brings. Are you still paying the lifting costs that you mention? You still have some lifting costs for the well. Yeah, you still have to put chemicals in the well. You still have to haul water, things like that. So, those costs are the same.
(36:40) You can eliminate the midstream cost and then you have higher revenue with incremental capital that you Exactly. So that's you do have to spend money to get that higher capital. So that's just a math problem. So, but so if you can without having to lose people in specifics of the individual dynamics at least kind of order of magnitude help somebody understand the um the the biggest levers and and and then you know when you're thinking about bidding on an asset what you'd be willing to a relative to somebody else that was only looking at it through the conventional lens. Yeah. So really round numbers. Let's say
(37:32) the oil and gas asset in a traditional oil and gas sense at strip pricing is expected to make $100,000 of free cash flow a year. And strip pricing is the forward the forward curve of Henry Hub. Um, and then all your costs after all your costs, after strip pricing, after the production curve, $100,000 a year is what the gas wells will make.
(37:55) So, the market is going to put a discount rate on that and then that's what it trades for in the open market. Someone's willing to buy that for a round number, a million dollars. They'll buy that for a million dollars in the oil and gas only sense. The beauty of it is we don't have to pay more than a million dollars.
(38:13) We can still buy that for a million dollars because that's the market price. We're not going to overpay just because we're going to do Bitcoin mining, but we're willing to buy it for a million dollars and then invest an additional $2 million, call it to build the Bitcoin mine.
(38:32) And then now instead of $100,000 a year of cash flow, it's $500,000 a year or, you know, whatever the math is. But you're investing, you're buying the asset for market price. Um, but because you can invest the money and increased revenue that other people aren't thinking about, your return hopefully is going to be higher on a both an absolute basis and on a percentage basis. Yes.
(38:50) As a combined function of eliminating certain costs, putting capital investment in to capitalize it. But then when you reference say cash flow increasing by five times but increasing your capital base by three times the overall economics exactly the uplift is higher.
(39:11) So if the strip pricing ended up playing out exactly how it was and you were operating it as just a oil and gas asset you would make whatever you bought it for 15%. Right? Because that's what you're buying the PV15 everything plays out as modeled. You're making a 15% return. And what how do you think about obviously Bitcoin is volatile. Yeah. But oil and gas are both volatile as well. Yeah.
(39:37) How does somebody think about the volatility of gas? Because you talk about strip, but you don't actually know what that's going to be. And maybe Yeah. It's never what strip actually is, right? Yeah. Um, is it from a from an underwriting perspective? I'm not talking about ability to predict, but how the difference in volatility in the revenue side of Bitcoin versus the revenue side of oil and gas, how do you account for that? Yeah, on the natural gas side especially, the volatility is pretty comparable from just an absolute basis.
(40:18) Natural gas, that's pretty wild. It's extremely volatile. Um, and especially you talked about it with Chris a little bit, but the various hubs are all different. You know, Waja today is at negative $2. Uh, Henry hubs at $3. Wait, why is it negative $2? Is that right? I felt like two weeks ago it was like a dollar.
(40:37) Yeah, it was. It's negative $2 today because Kinder Morgan has an outage in some plant and they're, you know, 2% of the volume in the Perian. Even though they're only 2%, that shutdown has just caused more supply than there is demand. And they're a processor. Yeah. They're they have a bunch of gas plants and pipelines. They're a mid-stream company. Yeah.
(41:02) It's really interesting because the you Bitcoin is is clearly volatile and everyone generally knows that it's volatile and it's often times 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. today in the Bitcoin world whether it's a Bitcoin exchange custody business I'm working on payments you guys are working on mining it's difficult for people to perceive how you can operate in a world that is that is so volatile cyclical is not the right
(41:48) maybe maybe cyclical is the right term but it's it's cyclical with long-term adoption going in your favor without the appreciation that something as mature of a market as natural gas is is incredibly volatile. So if you know some people might be familiar with when I think it was Henry Hub went from$2 or $3 to $9 when I believe it was Nordstream. Nordstream and then Russia Ukraine. Yeah.
(42:24) Yeah. Yeah. and that if you actually look at the the daily volatility, it's Bitcoin's fairly comparable to natural gas for sure. But the the followup I was going to say is the helpful thing in natural gas markets that producers utilize, it's very hedgeible. It's extremely liquid market to hedge three years out. So, but not 15. Not 15.
(42:47) No, you could probably get five, seven, eight years out. um someone will buy it cuz there's a lot of natural buyers of gas. There's the producers want to sell into the future. Power plants, things like that want to buy. Oil has the same dynamic. In mining, uh Luxer is working on some hash price derivatives. It's nowhere near as liquid.
(43:07) You can hedge out maybe 6 months, maybe 12 months, but not even close to 5 years. And then since it's so illquid, the bid ass spread is is wide. you're not able to really lock in your hash price as well as these guys can lock in their their natural gas prices.
(43:26) 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." And they do that. So the ability to hedge in in the Bitcoin world in my view is functionally non-exist non-existent. Correct. When I've done the analysis of lending dollars in a over collateralized way with Bitcoin as the collateral, the the hedge has been cost prohibitive.
(43:56) Yep. You're functionally though trading Bitcoin volatility for natural gas volatility when you're actually at the well site and owning the molecules. Yep. the decline of a natural gas well, the ones that you were looking at conventionally, what are those typically and how do you think about that in the context of Bitcoin mining? Yeah. In a site. So, every well is different.
(44:33) Our specific wells are on terminal decline, which is 3 to 5% a year. They're very old, very steady decline. uh when a shale well first is drilled, the first year is going to have 80% decline. That is not ideal for Bitcoin mining because our generators and our mines would like a steady flow of gas. So you want as steady flow of gas as you can get and you want to build your mine to where in 3 years you still have enough gas.
(45:05) So you might have to undersize it a bit today to plan for where the decline curve will be in 3 to 5 years. So if a well was going to decline 3 to 5% for 10 years and it had a certain amount of volume, you might build your mind to a capacity of say 60% of today of today. Yep. What do you do with that excess or how do you account for it in your model? So our asset was pipeline connected.
(45:31) So we would just sell the excess into the pipeline and take take that. If there is no pipeline, you have to flare it or you can choke back your well. Um, again, every well is different, but some wells you can choke back the production a little bit to make it more flat.
(45:49) And, you know, you have to keep the reservoir pressure the same. All these complicated things that petroleum engineers are really good at um to keep production pretty flat um in the interim. But you might have you might not be able to do that. I might have to just flare it that excess. Conceptually, now one might be more predictable than the other, but is it fair to think about the decline curve of a well with assuming hash rate is increasing, the decline in production of Bitcoin at a mining site? That's interesting. I've actually never thought about those two compared. Um,
(46:33) but yeah, I mean, Bitcoin denominated hash price will go down forever pretty much in the long term as hash rate increases over time, right? Yeah, because that that's one thing and I've never participated directly in Bitcoin mining, but I've looked at Bitcoin mining models. I've built financial models around Bitcoin mining.
(47:00) I think one of the other things beyond just the volatility of Bitcoin which somebody that is steeped in oil and gas and natural gas specifically would recognize that hey if I look at the historical volatility of these two things at least over last year two years three years 5 years even the volatility is fairly comparable that it's difficult to project what the change in hash rate is going to be so how do you guys how do you guys think about that both internally to 360, but also when you're taking questions from customers that are looking at using your services. Yeah, for our customers, we think about things on dollar denominated hash price
(47:38) and we try to explain it to them. It's a little tricky, but we basically just say dollar denominated hash price is the same as Henry Hub. It is the clearing price you're going to get paid for the commodity you produce. So as a natural gas producer, the commodity is natural gas molecules. The price you get is Henry hub.
(47:58) For Bitcoin mining, you're producing hash rate and the price you're going to get is dollar per pahash. And we tell them just like natural gas, we can't predict where it's going to go. So what we do is we'll run sensitivity tables for them and say, "Hey, here's the all-time low. If hash price is below the all-time low for 5 years, your return is going to be this.
(48:17) if it's at the all-time low, it's, you know, the five-year average. And we'll run sensitivities because we're not smart enough to know where hash prices, no one is, you know, know where that's going to go. Um, and they they appreciate that because they're used to every hub, right? Um, they wish they could hedge it and hopefully over time those markets get more built out in Bitcoin mining.
(48:42) Um, but they get that comparison because they're used to the fact that they don't know what Henry Hub's going to be in the next three years. When you're underwriting a acquisition of a GDP portfolio, something like what Stone Ridge just bought from Anadarko. Yep. They would inevitably have to be doing the same exact same exact sensitivity analysis. At Blackstone, we do the same thing.
(49:06) You run Henry Hub from a dollar to $5 and you look at your returns in the sensitivity table and then and then you basically say I need to account for this range and so what do I think the downside is which in the case of Bitcoin mining would be a faster increase in hash rate and then account for that and what you're willing to pay up front. Exactly. Yeah.
(49:27) Yeah. So now coming into where you guys started buying wells and thinking about the financing of individual wells and the economics of wells and well sites. my discuss discussion with Chris, we talked about how um you guys have shifted to being more of a service company to people that own assets in the oil field rather than owning the assets yourself.
(49:59) Talk about when you're discussing your services and how you structure your services with customers, how you actually approach the alignment of incentives and the various different pathways you evaluate and how you decide going down one path or another.
(50:25) what those decision points are based on the profile of the owners of the actual wells. Yeah, definitely. So, started the company, we owned our own gas wells and we viewed it through the lens of Bitcoin mining. We said we wanted cheap power. Let's do Bitcoin mining to make more money on this gas. Once we got good at that, it took us two years. You and Chris talked about that.
(50:48) Um, other producers came to us and said, "Hey, we want you to do this for us to make more money on our gas." So we saw a need in the industry for someone to provide that service. Other these oil and gas guys don't want to learn how to be Bitcoin miners. So our original model was, hey, you can buy the infrastructure from us. We will build it to our spec that we know that works.
(51:07) Um, and we'll operate it for you. You know, we'll take a service fee on that. You're spending the capital. You're the owner of the generators. You're the owner of the AS6. And then you get that same economic off uplift that we realized on our own wells. So in that model, the incentives are very aligned because the producer is spending a bunch of capital that they need to make return on.
(51:29) We're building it for them and we are banking on the fact that they're going to blow gas to that system because they have millions of dollars invested in it and they need to make a return. So our service fee is a percent of the hash rate. we're aligned because we want to make sure the mine's running well to get our royalty or our service fee.
(51:50) Um, so that's how we align it for that business model. The other business model I think you and Chris might have talked about. If the producer doesn't want to spend a bunch of money on Bitcoin mining, they can rent our infrastructure. We own the the generators and AS6. They pay us a fixed monthly fee to be out there no matter what. They flow gas through the system.
(52:15) They get 90% of the revenue back from the Bitcoin mine. Um that in that case, Incams are also in line. They have no capital skin in the game, but they're on the hook every month for this rental fee. And if they want to, you know, break even to make a little bit of money on the gas, they have to flow gas through the system as well. So, we're also aligned incentive wise there.
(52:38) Um there was a structure that I know you guys had considered which was just going and buying the gas directly from an asset owner. Yep. So rather than them send it to a pipeline or flare but talk compare that and the incentives of that. So basically being a more looking more similarly to the owner of the assets as gas offtake.
(53:11) Why or why not take that approach? And so that was the model Crusoe started with. They would go to guys in the Bakan in North Dakota say, "Hey, you're flaring this gas. Marathon or Exxon, EOG, whoever, instead of flaring it, why don't we, Crusoe, buy your gas for 25 cents at MCF?" You know, it sounds like a good idea.
(53:38) Um, you make a little bit of money, you're not flaring, and we're getting really cheap power as a Bitcoin miner. So, they were just trying to find cheap power. the incentives break down a little bit because the upstream producer in that case doesn't care about the 25 cents MCF. That's nominal to them. So if they have any operational issues, they will shut off the gas in a second because they don't care about that 25 cents at MCF.
(54:03) So there's a misalignment of incentives um with the operator because they can just shut you down and if you have no gas off grid, you know, you're not hashing and you're going to have bad uptime. That's one main issue. The other is these producers aren't incentivized to lock up gas for long-term periods. So they might only sell you gas for a year.
(54:28) So you're, you know, you as Crusoe or whoever Bitcoin miner, you're spending a lot of capital to get your infrastructure out there. You're buying gas for cheap, which is great, but then in a year they might have a pipeline built to them and then they can kick you out. So um those are kind of the reasons that we don't just buy gas from people. And we were talking before about how you guys go and and actually communicate around the incentives for both of these types of structures.
(55:01) Where would you say the legacy oil and gas industry is in terms of how receptive they are to these types of solutions and what in your mind the level of understanding of Bitcoin someone would need to have in order to p pursue? Yeah, I would say we are still in the first inning of understanding the oil and gas industry broadly.
(55:37) I think people have heard about this idea or they've had someone approach them maybe um but it typically has not gone well for various reasons. It's hard to do or they just shut it down instantly be instantly because there's still a stigma around Bitcoin and they're like that's a scam. We don't want to do that. That's often you know what we're up against.
(55:58) What percentage these days do you is the response that Bitcoin is just no go zone? It's gotten better. It's it probably was 50 60% a couple years ago and now it's down to 20 30% of just non-starter. And I think the reason, you know, the way we pitch it is we say it's not about Bitcoin mining, guys. Like you have a gas problem.
(56:27) this is oil field infrastructure that works that consumes your gas that monetizes it and oh by the way it happens to be Bitcoin because this is what works in the oil field like we tell them if we could do AI computing we would um but Bitcoin can run on Starlink and there's no penalties for downtime so that's why we use it and they appreciate that they say okay fine if it as long as it works solves our problem it can reduce our flaring you know problems or we can bring these wells on to production And um that's what we care about.
(56:57) So just because you mentioned it, what describe the nature of the work and the the nature of Bitcoin mining that allows a site to be viable for Bitcoin mining upstream at the well site where it wouldn't work to set up an AI data center just because you brought that. Yeah. So, Bitcoin mining the the computations at the ASIC level is very energy intensive, you know, running all those hashes per second.
(57:29) But once you find the answer or just showing your proof of work, it's a very small amount of data to actually transmit that to the the network. So, we can run on Starlink because the bandwidth required to run um Bitcoin mining is much lower. If you're running complicated AI, you need high-speed fiber. Um, so that's why that's a main reason why it doesn't work. Also, in AI, you have to have perfect uptime.
(57:53) You're running these complicated LLMs. It's all above my head, but you can't just go down and lose a month of work. That would not be acceptable. So, all these data centers, you know, are on the grid. They have backup diesel generators. They have backup batteries. They have many redundancies to make sure they never lose power. U in the oil field, you can't guarantee that the well can go down, the generator will go down.
(58:17) Uh things just happen in the oil field. And then the third reason it doesn't work is the scale we're talking about is just much bigger for AI. You know, they're talking 20 megawatts plus. Each of our units is, you know, 1.3 megawws. So it's connectivity, uptime, and scale.
(58:44) And if you think about the the tradeoffs of the structure where someone's effectively leasing your equipment versus putting the capital in what is and that 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%. But is there any credit financing in that is helping to bridge the gap between somebody that might want to own the asset themselves and take on the Bitcoin mining risk versus not wanting that risk and just wanting to to pay you a lease likely for the reason that it's solving
(59:30) or reducing a liability or or unlocking say, you know, an oil asset. Yeah. Well, the first thing I would say is oil and gas companies, especially large ones, they like renting oil field equipment anyways. That's what they're used to. They rent compressors. They rent as much things as they can rent.
(59:49) They like that model simply for the fact that it is in pattern for everything else they do. On the purchase side, um you asked about financeability. The generators are very financable. You know, these are generators that have other applications outside Bitcoin mining. So, there are banks, credit shops that'll give you 80% LTV financing on that. The AS6 are tougher.
(1:00:16) You know, back in 21, people are doing ASIC loans. That went very poorly. So, there's a lot less um credit willing to finance AS6. Yeah. Naidig was lending against AS6 and now they're a large Bitcoin miner which I think was the right move for them given the circumstance of what had happened.
(1:00:38) Yeah, they essentially became a Bitcoin miner when AS6 were at I don't want to say dirt cheap prices but were at a bottom of a period of high stress. Yep. But um in the absence of financing, how does that factor into the decision in terms of the typical customer that you're Yeah. since there's no financing for the AS6 and then also what's the relative amount of capital if someone's looking at a site that's um a megawatt or half a megawatt or you know 100 kilowatts. Yeah.
(1:01:16) What percentage is the the AS6 and the the mining infrastructure and the tie-ins versus the generator? Yeah. So, for a 1.2 megawatt site that'll consume 300 MCF a day, if they want to buy it with no financing and use top-of-the-line AS6, it'll cost $2.3 million, call it. That's the equity check they need to write. Um, if they want to finance a generator, that can get down to 1.4 4 1.5 million.
(1:01:43) But out of that, you know, all in $2.3 million cost, 40 uh 50 to 60% is the AS6 and the container. Um so, and that's not financable. So, they're going to have to equity fund a big chunk of that capex. And if they are spending capex on something, they're going to have to understand Bitcoin mining.
(1:02:06) Um so, that's the purchase model is what we call it. We have seen more success with smaller operators that are willing to learn, willing to take that risk and say, "Hey, I do want to try to make $15 in MCF," which is if they buy the infrastructure, that's what they're making today.
(1:02:24) Um whereas if you're Oxy or Exxon, it's going to be long putt to get approval, capital approval internally to spend that kind of money on something so foreign as Bitcoin mining. Um, so the the larger guys, it's kind of ironic, they have the capital, but they don't want to spend capital on anything besides drilling new wells. So they're they say, "Hey, I'll rent this.
(1:02:48) It'll solve my gas problem, and let's just see it work." You know, maybe in a couple years if if they see it work, they'll look into owning it. But, um, the dynamic today has been the smaller guys are willing to, you know, take that risk. They're kind of more of the wildcatterers. Um, how much appetite has there been to do the work on Bitcoin in terms of people combination of of customers that you talk to on a day-to-day basis as well as folks that are in your network that are, you know, either working on financing structures for for conventional assets. So, where is that that appetite to dig
(1:03:27) in? Obviously, I would always say that there's no more than 1% of people in the world that understand Bitcoin. So, obviously, it's a small base, but yeah, the oil and gas space specifically seems like the type of profile of person that's more willing to take risk that the average person isn't. Yeah.
(1:03:51) So, I'm just curious um of of where and how you see people. Yeah. I mean, it's a really wide range. we'll come across the the random person at XYZ operator who's fully orange and they love this and they're pushing internally and th those are always the best companies to work for because you have an internal champion who gets Bitcoin who wants to try this on their assets. So that's rare but it happens.
(1:04:12) Then you'll have a bigger chunk of people who are willing to learn about it. They'll ask really good questions. We'll walk them through hash price. We'll walk them through how it all works. and they actually want to learn about it and we'll send them materials and things like that.
(1:04:31) We've gotten pretty good about educating these oil and gas people on Bitcoin mining and how it works and then you know Bitcoin itself. Um so maybe it's 5% of people are orange pill, a pretty good chunk of 50% of people willing to talk about it and then there still are some people that just hear the word Bitcoin and just shut off. Um, and like I said, that number is slowly going down over time, but there's not much you can do with those people, um, if they are just shutting it down day one.
(1:05:05) What do you think causes that to change in terms of shifting to looking at Bitcoin as either reducing a liability, whether they were flaring and now they have a better way to economize what they were previously doing to get to get a to get rid of what was a waste product versus potentially enabling the ability to drill more oil um in ones and twos to 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-to-day problems.
(1:05:51) Even if the person doesn't like Bitcoin, they're desperate for a problem in certain scenarios. They have a well shut in, gonna make a bunch of oil. They can't flow that well because there's nowhere for the gas to go. So, if we bring them a solution for that gas, they don't care if it's Bitcoin mining.
(1:06:07) Um, they might be skeptical, but they'll say, "Fine, let's put two units out there. Let's try it. We'll rent it." And then once they see that work, that'll slowly ease them into the fact that, hey, this is solving a gas problem. Let's learn a little bit more about Bitcoin.
(1:06:27) So, I think the biggest step that we can do at least is educating these people on the operational benefits they'll get cuz that's what they care about dayto-day. I don't think it's our job to go around trying to orange pill people. Um, that's probably not a good use of our time. It's really just this is an oil and gas solution that's going to help you flare less, right? So, if there's people that are already curious about Bitcoin and get it, we'll kind of nudge them down the rabbit hole a little bit. Um, but for the skeptical people, they just need to see it work, I
(1:06:58) think. And it's fair to say that in the current landscape, there is still the no one got fired for buying Apple stock or whatever the analogy used to be, Microsoft, whatever blue chip. Yeah. with the certainly the people at large operators, but then to a large extent still folks that might work at private operators. Yeah.
(1:07:26) I mean, if you're a middle level guy at Oxy, you don't want to go to your boss and say, "Hey, I have this Bitcoin mining thing." You know, if it works, you're still a middle level guy at Oxy. If it goes terribly, um, you know, you're going to get fired. How fraternal is that business though in terms of folks talking to each other? Yeah.
(1:07:50) Somebody seeing somebody take a risk that normalizing that it's okay for me to take a risk versus seeing it working. Yeah. And I mean that is it's huge. Noring gas. People are always looking at what their offset operators are doing. The first guys that drilled horizontal wells, people thought they were crazy. the first guys that did the fracking, you know, George Mitchell in the Barnett, people thought he was crazy.
(1:08:14) They're like, "There's no way you're going to get that gas out of that tight shale, but he just tried it. It worked, and now everyone is doing it, and it changed the, you know, US global energy landscape. It really did." Um, so we think hopefully if we can get in with the right guys, make this work, they'll see it work, their offset operators will see it work.
(1:08:41) You know, I was telling you earlier, we we had a meeting in Midland and a lady said, "Yeah, we think we want to try this out. We're curious to see it work. And by the way, we have three guys next to us that have the same exact problem. Um, and they're very curious to see it work, too. So, we really do think it's going to be a snowball effect.
(1:08:58) We've already seen that with some of the early wins we've gotten inside the business itself. You know if you are a large operator one group might see it work then their other their barnet group or their perian group will talk to the Gulf Coast group and say hey you know this is a solution that can work now. So it really is a copycat industry um that might be slow to adopt things at first but once something's working people will do it.
(1:09:26) when you guys are thinking about repeatable opportunities for the reason that this is still so nent as the opportunity to solve problems in a big way but recognizing that you just can't go from where we are today to that future state and there needs to be demonstrated track record of both solving problems and the economics being sustained. How do you guys, because your time is scarce, how do you guys create focus around where you're able to have repeatable success talking to the type of people that own the assets? Like that's a great example. Is it is it something of like there's a certain area and if one person has a problem or a
(1:10:11) profile of a well then they're likely to have other opportunities around them or what what are the different things that you because you're you're not necessarily like needle in a hay stack but there there's a lot of opportunities but there's only certain number of people that will say yes and then how do you look at the board to then focus energy? No, you're right.
(1:10:35) our our time is scarce and also our capital is scarce on the rental side because in the rental model it's our capital it's our equipment so we have to finance it with equity or with debt. So there's a limited amount of dry powder we have to go deploy rental units. So for that reason we're very focused on focusing on the top 150 accounts for our rental product. 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.
(1:11:00) Um, and hopefully they'll be purchased customers one day, too. The purchase product, you know, we're happy to put in front of anyone, frankly, because um, the smaller guys are willing to spend the capital quicker than the bigger guys. So, that's kind of how we bifurcate what we focus on between the two the two products we offer.
(1:11:25) One of the things that I've come to appreciate is just how dependent the legacy oil and gas business is to fiat financing and you used to sit on that other side at Blackstone. Have any of the conversations has that been a the nature of their credit relationships been an inhibitor saying yes? And then on the other side, is it a potential opportunity where they could tap financing based on their borrowing base non non Bitcoin? Yeah. Yeah. No, it's a great point.
(1:12:02) I mean, the oil and gas industry is built on borrowing basis, reserve based lending, right? So, you have Explain a little bit how that works. Yeah. So, high level, you'll have producing wells, you'll have some undeveloped acreage, and the bank will look at all of that in totality. They'll get a reserve report done.
(1:12:19) So they'll have 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'll look at all those cash flows again, discount it back. They'll say, "Hey, all of your reserves are worth $100 million. We're going to advance you 80% of that in a credit facility.
(1:12:38) " So we'll give you an $80 million credit facility that you can draw and pay down as you wish. So that's a really, you know, key way that a lot of these companies finance themselves. At the smaller level, you know, the bigger guys use it more as just kind of a working capital facility because they have access to institutional grade debt like bonds and things. Um, but a lot of the smaller guys, their RBL is how they finance their business to drill more wells.
(1:13:02) The RBL is their revolving Yeah. facility. So they basically have a revolver. Yep. And if the price of gas changes or the price of oil changes, how does that yeah come into play? It'll get reassessed every year. So it's a great question. If gas prices go way down and strip comes down, the value of reserves of your reserves is less.
(1:13:24) So they're going to haircut what was 80 million, the next year might get cut to 50 million and then you have less capital available. It works in the reverse too. Um, so it it is a bit of a you know, you don't want to ever be fully drawn on your revolver on your RBL because that could happen.
(1:13:44) You could get reassessed the next year and owe the bank, you know, money. And if say an operator that had a a credit revolving credit facility or credit deals, you know, loans owed to different banks. Even if you know, Bitcoin mining wouldn't be the principal activity that was being financial or maybe it's not financable in your mind or does it come up of whether or not that increases the perceived risk, you know, in terms of an operator, maybe they haven't had a direct conversation with one of their banks, but saying, "Hey, if we go down this path and do this, they might view
(1:14:25) us as less creditw worthy or greater risk." Does that does that come up? It definitely comes It comes up all the time, really. I mean, some guys will say, "Hey, my bank's willing to finance $5 million. There's no problem." Some guys say, "My bank would puke on this." So, every bank has different risk appetites or different views on Bitcoin.
(1:14:46) And it also probably depends on the relationship and the size of the business. Um, but some guys are very willing to put this on their credit facilities and use that a pretty cheap cost of capital to do this. Others are just it's a non-slaughter with their banks. So um I mean even for our business like we to build out this rental fleet where talking to banks and credit shops and things like that and a frustrating aspect has been you know the bitcoin on our balance sheet that we hold that we've accumulated over time is
(1:15:16) given almost zero credit in their eyes they're like you don't have much cash like yeah we don't have much cash but we have a good amount of Bitcoin that you're giving zero credit to. So, um, that's just a broader thing that I think will get better over the next 5 years once banks come around to the fact that it is the best collateral on earth, you know. Um, but I think we're still early.
(1:15:42) It is interesting because I was wondering why the oil and gas companies didn't start to accumulate Bitcoin, not necessarily running a Bitcoin treasury strategy. Yeah. But then I came to understand that you know what you just described which was if you would get zero credit for it to potentially borrow against Yeah.
(1:16:09) that a lot of the free cash flow is swept to the credit facilities and the way the incentives in that legacy conventional business are is that you're not incentivized to hold a lot of excess cash. Yeah, for sure. Based on how the the credit agreements are structured. Exactly. Um, so last question to to wind up to wrap it up is over the next one, two, three years, where are you guys focusing? because I would presume everything is based on unit economics, but it's also strategically of unlocking a much larger pie. Mhm.
(1:16:56) Um and so in terms of really getting to that next step function, yeah, for this industry subset of the Bitcoin mining industry and the role that 360 is playing in it on the strategic side of your business, whether that's financing, just kind of what aspect of the business do you guys view as most strategic to unlocking say a 10x wave of growth? Yeah.
(1:17:22) Not based on anything about the price of Bitcoin, but just in terms of the market of assets or capital. Mhm. To become interested and view this face space as more investable. Yeah. I mean, we kind of I'll focus on geography first. Everything we've deployed to date has been in Texas. We're based in Austin.
(1:17:44) As we speak, we're putting our first deal in Wyoming um with the largest producer in the Powder River Basin. And that's going to be important for us because to your point earlier, there's 10 other pads that are exact have the exact same problem there. In Wyoming is interesting because their flaring rules are much stricter than Texas. So the pain that producers feel is higher in Wyoming, higher in New Mexico versus Texas where they can just flare with no real penalties.
(1:18:13) So we're focused on getting into New Mexico, getting into Wyoming, expanding there. North Dakota also has strict flaring rules. Um, so focusing on the geographies where the producers have the biggest pain because it's easier to, you know, rent our infrastructure if you're feeling more pain. So that's where we're focused on on the geography side.
(1:18:31) And then on the financing side, it's really about building a track record with these rental this rental product is new like I said. um showing people the track record and then we believe and have already seen that it is a financeable product because most of the capex we're spending on these rental units is in this good collateral widget which generators that banks understand and that's important for us because we don't want to equity fund our entire rental fleet that'll be expensive from an equity dilution standpoint. So,
(1:19:01) um, getting efficient financing on the rental fleet is another big goal that we have. And then broadly, I mean, it's just getting our name out there, getting producers positive experiences, and hoping that their offset guys see them and say, "Hey, this works. This is a viable oil field tool.
(1:19:21) It's not some far-fetched crazy Bitcoin bro thing. It's an actual oil field tool that works." So that's uh what we're working on every day. In the case where you mentioned in Wyoming a large producer. Yep. Just if you could because you brought it up, what was the dynamic around that case specifically not needing to, you know, understand who customers are? Of course not.
(1:19:48) But just be because there's signal there of if it's a large conventional producer. Yep. rather than ones and twos or um smaller operators. Yeah, there's signal that's getting through even if it's not a you know fully seeing the field of Bitcoin. Yeah, it's a great question. So this specific example, very large producer.
(1:20:11) This is a two well pad that they drilled I believe a year and a half ago and they produced the well when they first drilled it but then they bumped up against their flaring permit and they weren't able to get it renewed. So they could not flare any more gas. There was no gas pipeline. So they had to shut that well in.
(1:20:29) So the oil there's been no oil or gas flowing out of the well for a year and a half which is very impactful for them. They can't flare the gas. So they are hiring us to be consume that gas, combust it with our generators, mine Bitcoin with it. Um, and that is all to allow them to flow their oil. So on the rental economics for them, they don't really care.
(1:20:54) They're going to be happy if they break even on the gas because their alternative would be flaring it. Um, but they are unlocking 200 barrels plus a day of, you know, oil production that they can now flow given our units are up there. someone like that are they do you think that the mindset is let's do this one with the mind that they have a whole other portfolio where you know again it's not going to be every other well or every other asset that they own but evaluating what they do have like is someone like this thinking about it from that frame of mind of like hey let's test this out with the idea that we know
(1:21:32) we have other opportunities if this proves to work. Yeah, they've told us there's five other paths they've already identified that are the same exact scenario and there's no line of sight in this area to gas pipeline being built. So, they want to see this work and then there's a lot of opportunity to grow with them.
(1:21:50) And then what it seems like the last seems like everything is generally backward looking in terms of this is how assets exist. These are where pipelines either exist or don't. So, let's go out and find the wells that fit the profile that best map to profitable Bitcoin mining. When do you think just kind of if you're if you're painting a picture out into the future Mhm.
(1:22:23) I know you know we're not asking to predict Bitcoin prices, but are we thinking 5 years, 10 years, 20 years, no, maybe no horizon at all until the legacy oil and gas industry uses Bitcoin mining to change their development programs or on the drill program going forward.
(1:22:49) Do you like is that just too far out to conceive or is it like 10 years maybe they're thinking we can go drill that well because being basically the difference of hey we've got we've got a problem that we didn't foresee this can be a solution to it versus we can actually go drill where we couldn't or wouldn't have otherwise drilled.
(1:23:09) So, it's already happening today with small producers, small wildcatterers that understand this, see the potential. Hey, I don't need I can go wild in a new location and have gas offtake where there's never going to be a pipeline. So, I can plan a drill schedule around that. We've already had those conversations with people. You know, granted, they're smaller producers, mom and pop type people.
(1:23:33) Um but again that's where a lot of the innovation in the oil and gas comes from. The interesting thing will be when is a big public guy going to build this into their drill program. And if I had to handicap a timeline for that I would say I would say four years from now until a big public eye is actually planning a drill program around this. Um and I think that'd be amazing.
(1:24:00) I was thinking you weren't even going to give me a give me a forecast. No, I I think that, you know, just in the spirit of of wildcatting, I would think that as I had conversations four or five years ago with someone who had assets in the Hannesville, nor I think it was northern northern Louisiana. Hesville. Yeah.
(1:24:19) about drilling a well specifically to mine Bitcoin and the idea that they might be the first to drill a well and then exclusively mine Bitcoin on it with the wildcatter mentality was something of interest to them. Yeah. I mean, one of our clients drilled it well specifically my Bitcoin. So, it's whoever the next person is is not the first. That's that's pretty amazing though. Yeah.
(1:24:44) No, I mean the fact the fact that that type of activity that the fact that the example that you gave in Wyoming, the fact that somebody in the world has drilled a gas well to mine Bitcoin and in the future we'll drill an oil well with Bitcoin being the first offtake. Yeah. Is uh is a sign of how far Bitcoin and Bitcoin mining has come. Totally. And even if it's just a bridge, right, you can speed up your drill schedule. Yeah.
(1:25:13) The pipeline might be a year. Might not be the permanent solution, but it reduces uncertainty. Yep. You can plan around it. Yeah. Cool. Sean, appreciate you coming downtown from your new digs a little bit uh west of downtown. Always enjoy conversations, the ones we have more frequently here, but excited for what you guys are building at 360 and just all the innovation that's happening in the oil field and the gas fields from Bitcoin mining. So, yeah. No, appreciate it.
(1:25:42) You got to come by the new office and uh grab lunch with us sometime. Yeah, we'll have to do that. Sounds good. Appreciate it.
