Chuck Yates Needs A Job

0:20 Digital Wildcatters. My fans at Chuck Yates needs a job. Colin would not let me do another fuse a thong. I'm so bummed about this. So I drug them in here today. We've literally been having this

0:34 discussion out there. We've got our Empower Conference coming up, which the exact dates are March 26, 27, 26, 27. We've done it two times before. It is the Bitcoin mining for the energy

0:50 business. We have the thesis around here that at the end of the day, those two industries are converging because Bitcoin mining equals power so much in the way going on strategies on both sides that

1:03 we came up with a device we're going to try today on the air. What did Toby Rice just do? So EQT, largest natural gas producer in the US. I think you guys talked about it on BDE. Just decided

1:15 they're going to curtail one BCF. of production, they do six BCF a day, I think, now. So like one sixth of current production due to low natural gas prices. So the question that we were talking

1:26 about off the air is what would happen if they took that one BCF? And started mining Bitcoin, especially with Bitcoin being 65, 000, 66, 000 dollars of Bitcoin currently. And so, John is over

1:38 here. Upstream data, our friends over there just released a calculator, it's a little in depth, so I'm gonna see if we can get this thing fired up. And I'm not sure if they can get a equate for a

1:45 full BCF of gas, but we're gonna see if we can kind of focus on numbers. It just came out yesterday that AWS Amazon acquires this data center for650

1:59 million that's at a nuclear facility. And so, Chuck, you mentioned this in your intro that

2:05 there's kind of this point of singularity where tech companies are becoming energy companies and energy companies are becoming tech companies. It's not just Bitcoin mining, It's high performance

2:14 computing these GPU clusters for AI. These things are extremely energy intensive and require a lot of power I mean think about why did why did meta just add John Arnold as a board member? What was

2:27 what did Mark Zuckerberg said something along the lines of if we need to get smarter around energy because of what's required for our Our high performance computing needs and so yeah, it's crazy

2:38 Which is also only one connection away from Mark Zuckerberg now with John Arnold. Maybe we can be trying some jiu-jitsu If we can ask John to introduce us, but yeah, the It's interesting to see how

2:51 this has played out the last few years because when we started as the first in power back in 2022 That was the thesis was that hey Bitcoin mining is energy infrastructure and you've seen Companies

3:04 like Crusoe that were pure played Bitcoin mining companies have since moved on to full high performance computing Building out these GPU clusters for AI and so So it's not just Bitcoin. mining now.

3:18 It's high performance compute. And I think one thing, Jake, we're talking earlier in the office and you made a comment that you didn't realize just how fragile all the components of the grid were.

3:30 I had a similar realization. I was talking to Conduit Power on oil and gas startups podcast the other day. And I was like, you know, I didn't truly appreciate until about a year or two ago of how

3:39 much electrical infrastructure was in the oil field and how much oil and gas companies knew about electrical infrastructure. And now you have these companies like Conduit that are setting up these

3:50 distributed energy resources where, hey, we'll take in that gas turbine and run gas through it and we'll participate in the ancillary program and sell electricity into the grid. We'll tie into a

4:02 substation and we'll make bank during peak demand times. But also, if you want data centers out here, you want Bitcoin miners or, hey, you want to just power the rest of your lease so that you

4:14 don't have to pull power off the grid like What's happening in electrification? Well, and this is classic oil field playing defense. I, core competency

4:26 of a water-flug company is shaving pennies off of electricity, right? 'Cause that's your huge cost and all. You can literally play offense now with it. Yeah. Your core competency of generating

4:39 cheap power in some way, shape or fashion, whether accessing the grid, whether generating it on site, you can now make money with. Particularly at a buck 50 natural gas. This is crazy, perfect

4:51 storm that I'm seeing from a macro standpoint of what's happening, is for one, you know, when we did empower the first year, AI was not where it's at. You know, Chad GPT was not in the hands of

5:02 everybody, the man wasn't there. Nvidia just crossed2 trillion earlier than was earlier this week in market cap. They went from like being this video game GPU company to one of the most viable

5:14 companies in the entire world, Only behind. Microsoft and I think Apple they're like yeah, or Saudi RIMCO. So like number four I think then you've got the tightening of regulations for oil and gas

5:23 companies around emissions, right? And so now they have the camp flare, right? Or they can, but you're gonna be penalized for it. You're gonna be millions and millions of dollars. Well,

5:31 speaking of John Arnold, he just tweeted two days ago. He funded that powerful satellite, supposedly the world's most powerful methane detection satellite. They just launched it. And so methane

5:43 detection technologies are just increasing I mean, you look at oil and gas startups, the podcast, the companies that we've had on there over the last few years, you know, it went from like, oh,

5:53 yeah, you know, we're able to track, you know, points of leaks out of tank battery to now we have these high powered satellites that can monitor it across the world and zoom in to see where it's

6:04 coming from. So you line that up with like EPA regulations, like you are not going to be able to flare. You have to find the solution for that. And there's no better solution for that than being

6:15 able to Bitcoin mine or being able to power data centers. And then on the other side of the Bitcoin side, you've got a couple of factors. You've had an absolute tear in the price of Bitcoin and

6:24 appreciation there. And so mining and just becomes significantly more economical. And

6:30 what was my other point? Another point there. Well, and let me throw my little pet peeve in the ETF is a big part of that, right? So we're seeing more institutional capital coming to the space

6:40 than ever before. We have the having coming up. So why is that important? Let's not get technical, but the price appreciation over 12 months past each having historically is four to five X that.

6:49 So the economics of mining is crazy, absolutely crazy. So if you're an energy company, what does that mean for you? That means for one, if you want to get into mining, this is a great way to

6:58 diversify revenue. If you're wanting to get somebody to come and buy your gas, they're more willing to pay a lot more for your gas than you'll probably get a Henry Hub at current prices. Yeah.

7:06 This is an absolute paradigm shift. for energy producers. And now let's be long time energy boomer guy that says, you know. I hear that same shit about stripping out ethane and the commodities.

7:19 And they all, yes, we make that decision every day. We hook up, we don't know what the future's gonna hold, but just like you run things through the plant and you decide every day based on

7:30 economics to strip out liquids or not strip out liquids,

7:36 you should be hooked to mining. Well, you know what it's like It's gonna be hooked to data centers, you know, et cetera. I think what the interesting thing is and when I was talking to Condo it

7:43 the other day, we kind of touched base on this, but if you look at, even if you weren't mining Bitcoin or had data centers and you wanted to put in that guess, turban out on location, it's like,

7:54 hey, you can power all of your facilities without having to buy power off the grid. So it's probably, you know, cheaper and more reliable to do that and you start looking at that and. It's like,

8:08 okay, well, now you're not selling that gas to a midstream company that's going to a pique or plant. So you just shortened up the entire flow. So you just brought midstream boom, straight there,

8:18 um, mystery man down from the heart of you to something straight on the location. You look at Bitcoin mining. Same thing. Hey, you don't have to send your net gas into a pipeline and then to a

8:32 refinery to extract value out of that net gas or to pique or plant, you're extracting, you're turning it into a product right there on location. So you're taking this upstream, downstream and just

8:43 compacting it all to a pad out in West Texas. Because quite frankly, that's the biggest place that emissions come from. Yeah. It's the midstream. Yeah. I mean, the reduction of that goes a long

8:53 way to reducing and with the current regulatory environment, we're not building more pipelines, just not happening. Yeah. Yeah. Yeah.

9:04 Do we up and running? Did you get that computer to run? Are we running? I believe so. Okay, so we're gonna let you direct, 'cause you've got all the inputs, but - Terrible idea. I now have a

9:15 stream of a BCF a day that I'm shut in and I'm getting zero. What could we do? So we have a BCF a day. We are using upstream data's hash generator. Shout out Steve Barbara and the upstream team.

9:28 180 kilowatt with bit main at minor S19 pros.

9:35 We are assuming that we've got some backing this out from the, I've got a million MCF per day. So million times a thousand. 'Cause you have, you're BCF. I would never get that right. I'd be

9:47 sitting at 40 meetings with like, calculators looking at a, look at it. Jose gone, dude, what was that? How many zeros? Five years of intense. Calculus makes you pay attention and physics

9:60 makes you pay attention to all those things, but um so that would basically mean that we would have 550 a six per data center, which is not realistic and we would need two thousand of them Which

10:11 would cost roughly? What is that a hundred thousand a billion dollars in total capex at? 92 uptime

10:23 Okay, so not a hundred percent uptime at a dollar an MCF. So this is what the miners are paying

10:31 Plus, you know, there's maintenance cost appreciation all that fun stuff built into this on a monthly Revenue perspective you would generate 297 million dollars they had your

10:46 Operating income for the month would be 51 million dollars with a payback period of 225 months and an ROI of 500 so that's on where you should run it Since it's TQT, I mean, they've got all the

10:60 takeaway, you should run it at Buck, 50 bucks.

11:05 Yeah, buck, 50 bucks,

11:10 75, whatever dollar. So we let's do two. Yeah, no, we do two dollars. Let's see. Fuck, make it four. It went up to 25 months and 474 percent. But it's a good question, though, that I get

11:22 put the earnings all the time from EMPs is

11:27 how much gas do you need to mine Bitcoin and kind of roll a thumbs like 600 MCF a day is what we told people. So we should actually run numbers on that. Like what is what is that? You can have a

11:40 pretty system. I think it's like the 300 MCF per megawatts. I mean, you have something pretty substantial there. But with what upstream is doing, if you have smaller little instances, and you

11:49 just have a ton of little gas, they have their hash huts that can do That's, but that is purely as a tool. This is not something that you're gonna like build up.

11:57 And it's just like for like I always think about those wells that we bought up in Tulsa You know one of those wells you just the gas just got vented

12:09 We're not

12:12 Any other entity to the face was a fake story Hypothetically, but no, I mean and I had a good amount But it could put a hash out out there. Yeah, it just was an economic to run run a pipeline to

12:24 it And so you could have put a hash out there. Fuck dude. I wish like I wish we would have known barber and the guys back then But you know, I've had I had three you know two ENPs last week hit me

12:36 up one in michigan one in west texas and Both of these guys ranged from two million keep it feed a day to six And it's like hey, I'm getting slaughtered On that gas prices Where can I go to learn

12:53 about Big Line? It's funny, oil and gas guys and girls. Whereas capitalist, capitalist, I guess it gets. And so, like if there's a way to make more money than what you're getting for just

13:08 selling to midstream. But I think even like when we did the first empower, you know, Chuck and I went and sat down at Lime Rock and gave home the, how many people are in that border? 2020, 20

13:20 people. And purely like, hey guys, y'all should be looking at this and I love Chuck's like, hey, you know, there is some risk. You're probably gonna get sued by landowners and all this. Good,

13:29 what do you do about royalty interest? Yeah, and lo and behold, today Lime Rock is, they're partnering up with Bitcoin miners and selling their gas to the Bitcoin miners. They're doing it in the

13:42 Bakken and they're doing it in the Austin Chalk. And, you know, in the Austin Chalk case, just, I know this 'cause I sold that, this cane used to in this asset and sold it to Lime Rock, so I

13:54 knew it. And I'm off memory here, so I may be a little off, but it was, you were gonna have to put in a20, 25 million gathering system that would never pay back, but that was to get rid of all

14:06 the flaring. I think Lime Rock, I don't wanna disclose any secrets, but I think they've publicly said, they just sold natural gas for like a buck. Yeah, yeah, that's all it, yeah Long by old,

14:18 they didn't have any of that 20, 25 million bucks. So I think that one of the things that kind of hurt the space, and I'm not gonna name any names, but there were some early adopters who really

14:26 hit the, this market really, really heavy, and they went out and said, Hey, you're flaring, we wanna take your flare, we're not gonna pay you for your gas, but we're doing a civil service by

14:36 removing the flare, and we're gonna put some data centersand it's Bitcoin miners out there. And that chapped a lot of asses. Even to this day, I've heard so many stories people were like, Well,

14:45 you know what, fuck you, We're just not going to do anything, right? now people are starting to realize, Oh shit, miners will actually pay us a good amount for this gas. Well, it's not just

14:53 like, I want to pay you this amount for the next month. They're long-term, they're like pseudo-midstream contracts. Absolutely. They're long-term minimums. Many of these groups will do a deal

15:02 unless it's at least 24 months. And let's be fair here and list out some of the downside stuff because nothing is ever a panacea, right? Yeah.

15:12 There's volatility.

15:15 Well,

15:17 let's check. But real quick, on the flared gas thing, it's not super simple to run a natural gas turbine out there. You do need a steady flow of net gas. You need a certain amount of pressure and

15:31 a certain data you can't have any H2S Yeah, it can be super intermittent. Yeah, like there are things. So there are some requirements there.

15:44 We use 92 up time in our machines. You gotta keep the machines cool. I mean, it's not hard, but at the same time, it's not just easier. Dry gas is easier. It's not impossible with wet gas, but

15:57 dry gas is easier. H2S, I will say, if there's any H2S present, sorry, it just throws off the economics. It's just absolutely not possible. So that is needed to disqualify us. None of those

16:07 are unique though, right? Like, that's the same exact story if you're just producing oil and gas, right? H2S is more expensive. Production engineers that build facilities deal with all these

16:17 issues, every day, it's not more complex than running some simple separators. Yeah, you know, there are some other considerations too. Like, if you're an EMP, like, you do need ginsets out

16:29 there. So who's putting up the CapEx? Who's putting up the CapEx for the ginsets? Is it the EMP or is it the miner? Some of these miners, like Giga, for example, brings their own ginsets to the

16:41 deal. And so I think - that's a good point though. Can you there's the old talk about there's the models business model. So like if you're if you're an EP There's model number one you're doing a

16:51 gas purchasing agreement with a minor, right? So they're taking the gas they are putting up all the cap X for all the machines all the gen sets everything They being there's literally no risk to you.

16:60 You're just gonna get paid on your gas right credit credit risk of the buyer You're not you're not you're not participating in the upside You're just it's no different than you selling it to a

17:08 pipeline, right? The second is what Colin just mentioned with giga's they'll do a lot of these deals where it's it's kind of like a your Partners in this doesn't mean you're gonna put up all of the

17:15 cap X for the facility But maybe you put up half and maybe you share in a certain portion of the upside in the big win Which you can then convert to cash which which which which you have which you

17:24 have a which you have done Your whole career pop contracts with gathers And then you have a whole you have a third one which is you can once again you can put up the cap X But you're like man, I

17:36 don't want to maintain Bitcoin mining machines Well, you've got guys like 360 mining will come in and essentially be the operator for you Yeah, she don't have to worry about because maintaining it

17:44 let's let's be honest maintaining it. It is not as easy that sounds Yeah, these things trip up all the time circuit boards fry, especially when you're in your west texas You're it's windy. It's

17:54 sandy. There's all sorts of things that can go wrong Yeah, there's a there's a lot of maintenance that goes to you remember Jake and I had a friend this hour early like he was in bitcoin. He built

18:05 a bitcoin mining facility in waco in 2015 and um I remember him talking about how to maintain that thing. He sold it in like 2017 and uh He's just and back then they were running. I was like s9s

18:20 were like

18:22 The best the best technology which is funny to think about but um I remember him, you know talking about he was an it guy and you know the maintenance and so there is maintenance, but It's no

18:33 different than what surface facility engineers already do and oil and gas, you know When we first came up with idea from Powerback in 2022, what I saw was the miners are getting exiled out of China,

18:47 China was saying, hey, this is way too power intensive, banned all of them. And so you had all of these miners, it's like cockroaches. They become scaring out of China, looking for places to

18:56 mine and

18:59 they go to Google and Google United States oil and gas and we come up. And so they'd reach out to us. And the funniest, the funniest story that I have is I take these two guys from China, these

19:11 Chinese miners. They've got their Binance backpacks on. And I take them up to Tulsa, Oklahoma with my redneck, oil and gas friends. And we're walking around location. And I had this realization.

19:23 I was like, hey, I was like oil and gas companies are full of extremely technical dense engineering teams. They can figure out how to mine Bitcoin and plug in computers and maintain the computers.

19:34 If they want to or not, it is a different question. But if they want to, definitely can and so. What gets me excited is I want to see the first big oil and gas company that decides to start being

19:46 a tech company. Like AWS is acquiring these co-located data centers with energy assets. Tech has no problem becoming energy companies. I want to see energy companies start thinking about themselves

19:60 as tech companies and become vertically integrated. Oh yeah, I wrote a tweet about this six months ago, a year ago, something like that 'Cause if you think about it, five guys in a rusty pickup

20:12 truck and some private equity can double US oil production. We proved it, right? We did that. If we're gonna need two X, three X, the amount of electricity, and we've talked about this a

20:23 million times on BDE and various podcasts, that's hard. Grids are hard. Electricity has to be synchronized, et cetera. So I don't know that it's an entrepreneurial five guys in a rusty pickup

20:35 truck that are gonna be able to do this. And so given that, I think it's

20:43 a very, you may not do this as an oil and gas company, but you need to have a strategy and a thought about it in terms of integrating things and ultimately going to the consumer straight and taking

20:55 the grid out of the equation. I mean, you need to at least be thinking about it. You know what is funny is that all the pioneers in the Bitcoin mining oil and gas space are five guys in a rusty

21:06 pickup I mean, you look at Giga, you look at Gideon and Choya, you look at, you know, barber and upstream. Like, I mean, it's that rusty pickup. It's funny, everybody you just mentioned are

21:20 oil and gas guys first and foremost. Yeah. And they're coming from the space and they're literally laying the fountain. Those are like, the fucking route, the Mount Rushmore of fucking Bitcoin

21:29 mining in this space. Yeah, not gonna be legends, some guy, you know, so. I wanna point something out now that I'm going back Those numbers that we threw out were with no carbon credits or

21:40 environmental credit benefit at all either too. So like that's coming. We do need to dive into that sometime of, you know, what? I mean, if it's in the bigger trend, right? Like you've got

21:50 carbon capture. Oil and gas sitting here recommending it to be rice. Yeah, tell me, go ahead. We ran the numbers. Well, no one told me, I already know that Toby's eyes are rolling so fucking

22:02 hard at this No, but it does point out the fact that over the last, five years you've had depressed, lower for longer energy environment, compounded with all the energy policy stuff that we talk

22:14 about all the time. And it's forcing the oil and gas industry to figure out how to do more with less, how to clean up their shit, so to speak. And so one of the ways, like you've got carbon

22:26 capture, which is good for the environment where we're pulling the CO2 out, but then as a business thing, taking out the cost of the capture, of course. we know is willing to ask folks that you

22:38 inject CO2, you actually increased your recoverable reserves by a significant amount, right? And so it's like, you've got this weird closed loop thing that's kind of happening. And now Bitcoin

22:47 mining is another one of those things where it's like, hey, now that this cost center becomes a profit center, or a revenue center at least, and also it's clean. Like you just continue to do more

22:57 with - That's interesting about Bitcoin mining specifically is that it's not even just a, it's not even a clean or ESG play like, J energy back in the day. They weren't taking flirted gas. It

23:11 wasn't, this isn't just a flared gas thing. J energy was literally tapped into a pipeline and buying at spot price and mining Bitcoin, and they were getting like, you know, 10 net back, an MCF.

23:22 I mean, that's a pretty big arb there. It's made history in the history of

23:29 Bitcoin mining. I think this is a true statement. If not, it's close enough You would, if you had. Everything set up, you would always mind because you always are selling your gas for a higher

23:40 price. Now, there are periods where Bitcoin prices are depressed, natural gas prices are higher, where you're not making a return on your CapEx. But if everything's set up there and you're making

23:52 the economic decision every day, you would always mind. Yeah. And so. Well, even just having an alternative, right? Like if you're a mom and pop or even just a big independent, most pipeline,

24:03 there are a handful of pipeline companies that own pretty much all of the pipeline infrastructure in the country, right? And then it's like, well, if they're gonna give you the price that they're

24:12 gonna give you, whether you think it's the right price or not. And so, if you don't have an alternative, well, you shut your well in, you get to it, or you don't sell it, right? It's

24:20 optionality, like even if you have takeaway, like, hey, I'll just make up some allocation, but we're gonna put 50 into the pipeline and we're gonna, we're gonna,

24:31 You used 50 to mine with. Well, take it the next step further is, if I run an EP company, why am I not demanding of all my gathers and processors? 'Cause I go in and say, hey, I need to be able

24:44 to strip this or strip that. I want to be able to mine. I would be pushing back that when I have some leverage and some negotiations on a gathering and processing deal. Yeah, we had to hit up our

24:58 guy case and see what they're doing with their midstream company on that. Yeah. 'Cause I mean, I wonder if the economics support putting in a two and a half month payback they do, but hey, let's

25:11 put in this. We'll start offering it to our clients and we'll take 25 of the Bitcoin. Yeah. You've already got kind of what Colin was talking about. You've already got field-wide gathering systems

25:24 and plants and treatments The gas is getting to pipeline quality in most cases already. Yeah. Right. And then it's like, if you're an EP, especially if you're a good size one, you've got a

25:36 centralized field. You're pushing for electrification for everything else operationally already. Why aren't we just, you have the pipeline infrastructure. Why aren't you putting gensets next to

25:48 your pipeline quality gas where it comes out and then setting up a literal. Well, that's exactly what. Many power systems, like you could literally set up your entire field to run off of your

25:57 associated gas on the perimeter. You know what that one, that one EMP that reached out to me, that has 6 million cubic feet a day, I mean 555

26:07 million of it comes from one meter and it's like damn, it's a pretty big hot spot right there. You put a turban out there and all of a sudden you can power your entire lease. That's what I'm saying.

26:20 Yeah, like this is And we've talked about this for years on the oil and gas start up podcasting. Because it's expensive as shit to get power lines run to these remote locations. Especially where

26:29 this EMP is. I'm not gonna say right where they're at, but there is very little electricity infrastructure there. And so we've talked about this for years on the oil and gas start up podcasts is

26:40 building out these micro grids out on these leases. And the missing component was always ways to monetize. And so, but there are ways to monetize now through Bitcoin mining and the Incillary

26:53 program and ERCOT. And so it's just really cool to see that. There's eight programs now. Yeah, people think it's like one program. It's like, it's so much that people pay these people to manage

27:04 coming in and out of these programs at any given time. And you actually get paid even when you're not curtailing. Yeah, I was gonna - You paid to be a part of that program. I was gonna ask you to

27:12 - That's mailbox. Historically, ERCOT's been paid for power They've done some backdoor stuff where they're in effect paying for, uh, percussive.

27:25 But that significantly improves even further. The economics that we've already shown are ridiculous as of today, right, is it's like they're literally paying you. I've heard that Bitcoin miners

27:37 make just as much money when they're getting paid to shut down so they can use it for base load, as they do mining, depending on the price. And I will say this, you need to understand this because

27:47 I would never take a lease as an oil and gas company without having Bitcoin mining addressed in it. Oh, 100. I mean, no, 100 you just, yeah, I mean, that's, that's the thing is, I think if

28:03 you are in oil and gas or just an energy as a whole, this is what's coming down the pipeline. Yeah. And you have to be just like Lime Rock, like, hey, We sat down on Lime Rock, it's like you

28:12 need to understand this because it's coming down the pipeline. And within two years, Lime Rocks, like, hey, yeah, we're selling. Not only did we learn about it, we're actually selling our gas

28:20 because it made perfect sense. And so I think that you are just going to be left in the dark if you're not paying attention to what's happening on a macro level. And so there's just so many

28:33 different angles to go about it. And I think this is what's cool about Empower is getting so many people from different facets of the industry Empower again. March 26, 27, 713, 713. It's a good

28:47 time. It's fun. Yeah. Yeah. We treat it like a party and just inject content in the middle of it. And so lots of good people there and everyone just wants to build and really, you know, just

28:59 bring the future of the energy industry to life. So it's a good time. Cool.

29:07 I think we're gonna drop this on three podcasts. Yeah, we're dropping this on three podcasts also. So it's not just like, this is a mashup, baby. No, I mean, it's

29:17 a, yeah, if you're at an EMP and you're not looking into this, you're not doing your fiduciary responsibility to you. Oh, I'm all over die. Shuts, I love it. Chase and lawyer is out there.