In 2019, when Brent Whitehead and Matt Lohstroh were sophomores at Texas A&M University, the pair decided to get into the bitcoin mining business on oil fields in East Texas. At the time, the idea of oil companies joining forces with bitcoin miners was seen as a new direction, also a major taboo.
But Whitehead, an engineer from a family with a long history in oil and gas production, and Lohstroh, a financier with an obsession with bitcoin, ignored the skeptics and gambled it all away. the money they earned from tending the lawn during high school to start Giga Energy Solutions, a company that mines bitcoins from natural gas.
For years, oil and gas companies have struggled with the problem of what to do when they accidentally hit a natural gas field while drilling for oil. While oil can easily be transported to a remote location, transporting gas requires specialized pipelines. If a drilling site is right next to the pipeline, they will suck the gas in and exchange it for whatever cash the buyer on the other end is willing to pay that day. But if the site is several tens of kilometers from the pipeline, drillers often burn them. That’s why you often see flames rising from oil fields.
Aside from the environmental effects of gas, it’s practically no different from burning cash. But with the two 23-year-olds above, they found a clear solution to this big problem.
Their company, Giga, will place a container full of bitcoin mining rigs on an oil well, then turn the natural gas into generators, which will convert to electricity, which will then use the electricity to supply electricity. powering mining machines. According to the study, this process reduces CO2 emissions by the equivalent of about 63% compared to just burning them.
“Growing up and seeing gas towers all the time, I know how wasteful it is,” Whitehead shared. ″And this is a new way to not only reduce emissions, but also monetize gas.”
Whitehead said his company has entered into transactions with more than 20 oil and gas companies, four of which are large companies that have been publicly traded on the stock exchange. This young representative of Giga also said that the company is also in talks with property funds and is expanding its business model rapidly. The company’s 11-person team will add six more people this month.
Lohstroh and Whitehead are among the representatives of a movement that bets on the potential of bitcoin mining to transform the economy of the energy industry, a trend that shows signs of increasing.
Lee Bratcher, president of the Texas Blockchain Council said: “They are generating revenue for their customers through bitcoin mining with trapped energy and solving the environmental challenge of gas.”
And in Lohstroh’s view, he himself is a big believer in the power of bitcoin to create a new kind of financial freedom.
“No one controls it, and you don’t need permission to use it”Lohstroh said. “That’s really what drew me to bitcoin.”
As for Whitehead, his views are more about self-control, privacy and individualism. He said they were part of the reason he fell into bitcoin’s “rabbit hole”. I said: “I don’t focus much on price. I think this is something great for humanity.”.
A bitcoin mining rig runs a program on a computer to try to solve a math problem before anyone else does. Solving that problem earns block completion rewards, a process that both generates new bitcoins and updates a digital ledger that keeps track of all bitcoin transactions.
“One interesting thing about bitcoin is that it’s undervalued just because it’s a mobile market, but if you put it in the right energy it’s different.”said Steve Barbour, founder of Upstream Data, a Canadian company that manufactures and provides mobile crypto mining solutions to oil and gas facilities.
According to Barbour, in the oil and gas business, there are often extraction sites in remote areas, far from major population centers. Typically, if a gas well is not located near a pipeline, it will not be large enough to warrant the time and cost of building a completely new pipeline. And if a drilling crew can’t immediately find a way to sell the natural gas, most will dump it on the spot.
One of the disposal methods is ventilation, or releasing methane directly into the air. This is a bad choice for the environment, as its greenhouse effect is proven to be much stronger than carbon dioxide emissions. A more eco-friendly option is incineration.
However, gas burning is only 75 to 90 percent efficient, explains Adam Ortolf, head of business development in the US for Upstream Data. He said: “Even when a fire breaks out, some of the methane escapes without being burned.”
And this is where bitcoin mining on-site can prove particularly effective. According to Ortolf, when methane enters an engine or generator, 100% of the methane is burned and there are no vents for it to leak into the environment.
“But nobody is going to run it through a generator unless they can make money from it, because generators also cost money to buy and maintain.” he said. “So unless it’s economically sustainable, manufacturers won’t do it.”
Bitcoin is the key to making this economically sustainable for oil and gas companies, rather than just igniting them with a fire. But it took Ortolf years to convince people that parking a trailer full of ASIC miners on an oil and gas field was a smart and financially sound idea.
“In 2018, I made the whole room laugh when I talked about gas bitcoin mining.” Ortolf said. “The concept of bringing hydrocarbons to market without a partner is ridiculous.”
But four years have passed, and now business at Upstream is booming. The company currently operates 140 bitcoin mines across North America.
“This is the greatest gift the oil and gas industry can have,” Ortolf said. “Now, they are no longer limited by geography to selling energy.”
Meanwhile, bitcoin miners also get what they want most: cheap electricity.
“The problem with oil and gas is that it’s a very distributed and reliable source of energy, so something as distributed and as reliable as a bitcoin mine is suitable.” Barbour said. ″It really is a combination like in heaven.”
The summer before his senior year of college, Whitehead was mowing his parents’ lawn in the southeastern Texas town of Buna (which has a population of about 2,000) when he received a text from Lohstroh, then a close friend of his class. In the message, Lohstroh suggested they buy a portable bitcoin miner container from Upstream Data and ship it to a gas well themselves.
Whitehead says: “I stopped the lawn mower immediately, went straight to my dad, and said, ‘You have to go find gas now’.”
It was a natural response for Whitehead, who had a penchant for taking on high-risk projects. I said: “I call myself a representative of the digital mining sector because now is the next stage.p follow of wild mining – bitcoin mining at natural gas wells.”
A week after Whitehead received the text, he and Lohstroh boarded a plane to Canada. Logistical problems followed, including having to drive a van for three hours to get to Upstream’s facility while neither of them was old enough to rent a car. But nothing can stop this hot couple.
Upstream’s lead engineer and founder, Steve Barbour, said that he initially tried to warn Lohstroh against purchasing, as the containers were still being field tested. But Lohstroh was committed to wanting to order.
“True Bitcoiners, those two… they are money makers”, Barbour talks about the co-founders of Giga. “Both are what I, as a Canadian, think of Texans – entrepreneurial spirit and strong character. They are great boys.”
The pair then used a connection to find several mining fields that were burning gas. The two even gave out about a thousand notebooks, in an attempt to sell people the idea of making money on gas.
“A lot of people don’t know about it. Most people laugh at us. They all said, “That’s the dumbest thing I’ve ever heard,” Whitehead said. There are also people who say the idea is great, but they don’t think it will work.
Then the pandemic appeared.
“Covid strikes and shuts down the world”, Whitehead said. But despite the nationwide shutdowns, Giga continues to operate 35 mining rigs at its first facility, but business growth has mostly come to a halt.
“There is no traction in this area”Lohstroh said. “Bitcoin has been in a bear market. We were running around in meetings trying to get interest in bitcoin mining, and no one was interested.”
But not giving up, the team got more creative by reaching out to small customers in north and east Texas, small companies that often overlook regulatory compliance.
“We can come in and say, ‘Hey, you’re burning gas, and it shouldn’t be. You’re doing illegal things and you have a chance here, and it’s a good opportunity. We can take all of this gas.” Whitehead recounted.
But the real turning point for the company came in December 2020, when the bitcoin price hit $20,000. That’s when some of the bigger players in the oil and gas industry started to take notice and leaders from the big corporations started approaching them to talk about getting down to business.
Giga also has partner companies who fly in from overseas to see their operations and learn how the whole process works.
“We met people from companies in Saudi Arabia who came to our locations in east Texas. And you know, maybe they’ve never seen something like that before, and we’re taking them out to see a bitcoin mine. They really love it.” Whitehead confided.
Giga representatives said the company’s revenue is more than $4 million in 2021 and it is on track to earn more than $20 million by the end of 2022.
Whitehead says that some of their mining networks have helped revitalize the local economy by creating jobs, such as field technicians and bitcoin miners. In the small communities where they set up bitcoin mines, this is sometimes the biggest source of revenue.
“An area that used to be just a ghost town has found a way to take the energy they’re wasting and make money from it, and that’s what excites me, because that’s what’s helping. common to the community”, Whitehead said.
Countless bitcoin miners are now saying that oil and gas will dominate the crypto mining industry in the coming decades, and this bodes well for Giga’s business model.
And according to Barbour: “Things out there are crazy.”
But Lohstroh believes the next phase will be for energy producers to become bitcoin miners themselves.
“I think that’s the next big transition, whether it’s going to be power generation, natural gas producer, upstream, midstream, downstream. I think that in all areas of the industry space they will be affected by bitcoin mining, because bitcoin mining is innately tied to power and the point of energy is to create power. And so I think you’re going to see a lot of ways in which they’re related.” I said.