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Bitcoin Springs from Gas Wells in Texas


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    Big swings in the price of natural gas whipsaw producers. Chris Alfano thinks the solution lies in something even more volatile: bitcoin.

    The 29-year-old recently led a group of oil-and-gas veterans through a field of pipelines and wells outside Fort Worth, Texas, passing two giant orange generators before reaching a gleaming white structure about the size of a tractor trailer. Alfano’s company, 360 Mining, mines bitcoin here, using power generated from natural gas produced by the wells.

    Alfano’s pitch to these prospective clients: They can earn $10 or more from burning a thousand cubic feet of gas to mine the cryptocurrency instead of selling it for $1.50 or less. “This is wildcatting on the bitcoin side," he shouts over the generators’ roar.

    It’s an expensive bet on a risky asset. Building a gas-powered mine costs at least a million dollars, and bitcoin’s value is notoriously unstable. But natural-gas prices have slumped to about half of their levels a year ago, largely because of last year’s warm winter denting demand.

    That oil-and-gas producers would even contemplate bitcoin mining shows how desperate they are for solutions, even outlandish ones.

    The goal isn’t to replace natural gas. Instead, bitcoin serves as a counterweight. When gas prices go up, the producers will sell that. When prices go down, they can burn it to run banks of power-hungry computers cranking out reams of random numbers to generate freshly minted crypto coins.

    To Alfano, a self-described “spreadsheet guy" who built his own gas-powered bitcoin mine during the pandemic, the logic is straightforward. The oil-and-gas veterans aren’t so sure what to make of the ephemeral world of crypto.

    Using their own gas will minimize bitcoin mining’s major expense: power. But their revenues will rise and fall with bitcoin’s value, which has swung between about $3,000 and $60,000 over the past five years. Their returns also will be threatened by competition. The number of coins they will earn can be reduced by new miners joining the fray and by old ones upgrading their machines.

    Despite the risk, some producers are taking the plunge. Todd Hallmark, 37, oversees the family-run Bob Hughes Oil Company, named after his grandfather. Hallmark had no interest in crypto-anything until last year. The operator of the pipeline that transports gas from his 14 wells in Eldorado, Texas, jacked up rates so much he would have been better off burning it than selling it.

    Hallmark considers himself pretty handy and has worked on oil rigs since he was eight years old. He still hired Alfano to help build his bitcoin mine. He couldn’t imagine doing it on his own.

    “We’re a small oil and gas company," he said. “We’re not computer people."

    Alfano never aspired to become the oil-patch’s bitcoin Johnny Appleseed. He grew up in Manhattan Beach, Calif., the son of a car-dealership owner and a homemaker. He studied finance and economics at Southern Methodist University and, like many others, caught the bitcoin bug in 2020 when the pandemic sent the digital currency’s value soaring. He was astonished by the profits that could be made by “just plugging in a computer."

    Alfano was living in Austin, married to his college sweetheart with two young daughters, and mining was something he could do on his own. The autonomy reminded him of a business he ran in middle school, scouring local shops for underpriced used surfboards and selling them for a profit on Craigslist.

    Texas had oodles of gas, and buying his own wells would give him even more control over his fate, assets that reassured the investors he needed and the option to sell gas should bitcoin collapse. He thought it would be easy.

    It wasn’t.

    Alfano raised $6 million from investors in October 2021 when bitcoin was trading around $60,000. He closed on his site outside Fort Worth, bought hundreds of high-end computers, installed a state-of-the-art liquid-cooling system and leased seven generators to power the setup. Mining started in February 2022.

    Things didn’t go to plan. Generators kept shutting down. Servers didn’t run properly. The cooling system didn’t cool. Over the next four months, bitcoin tumbled to $30,000 in May and $20,000 in June.

    By then, Alfano concluded his mine’s design was fatally flawed. He shut it down and started selling his gas instead.

    Yet even as the “easy" profits evaporated, Russia invaded Ukraine. Natural-gas prices soared to more than $9 per thousand cubic feet from about $3.50 at the start of the year.

    That bought him time. Alfano redesigned and rebuilt his mine. In March of this year, after natural-gas prices collapsed and bitcoin had begun to rebound, he was ready to start mining again.

    Today, Alfano uses his initial failure as a selling point.

    Among the lessons he learned: you can’t hook the wells up directly to generators that power the mine. They need a steady flow of fuel. To provide that, Alfano installed two rocket-shaped tanks that moderate the flow of fuel between the wells and generators.

    “This was a lot of sleepless nights," he tells his recent tour group, “a lot of lost money before we put these things in."

    The oil-and-gas veterans remain skeptical, but don’t dismiss Alfano’s pitch.

    “I just don’t see how you can buy something and call it a coin, but yet it never falls into anyone’s hands," said Bobby Flournoy, 75, president of Dallas-based Energy Investment Partners, an oil and gas exploration and production company. “There isn’t a product, in my opinion, being generated here."

    Sandy Pofahl, 82, who has developed oil and gas properties since the 1980s, said he has similar doubts about crypto. Yet, after taking Alfano’s tour, he is looking into organizing a group to link some wells to a mine.

    “I don’t know if it’s for real," he said about bitcoin. “But it persists. It’s been around a long while and sure it goes up and it goes down, but it goes up three and comes down two and it’s been doing this forever. Bottom line, it’s hung in there."

    Write to Bob Henderson at [email protected]

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