Can Bitcoin Mining make Private Equity love the Oilpatch again?
Private equity lost it’s love for the oilpatch almost a decade ago, but recent trends in off-grid Bitcoin mining provides all the incentive for it to come roaring back.
It’s been almost a decade since the American shale revolution peaked. The advent of horizontal drilling + hydraulic fracturing unlocked incredible domestic energy production and cemented U.S. energy dominance worldwide. The mechanisms driving the trend were both technical and financial, with private equity discovering massive opportunity providing capital to aggressively develop new technologies & explore new production strategies.
Bitcoin mining in the oilfield echoes the NGL revolution, the shale revolution, and may catapult domestic energy innovation forward again.
The oilfield has learned from it’s mistakes and transitioned to more traditional investment strategies, prioritizing drilling out of cashflow. The aggressive capital from private equity in the late 2000s, early 2010s no longer seeks to pursue innovation in the industry as the ESG narrative distorts market signals. We only just recently got done picking ourselves off the floor from the 2014 shale peak. There just doesn’t seem to be a sector of oil & gas that attracts the aggressive, innovation-focused capital provided from private equity.
Bitcoin mining in the oilpatch sets the stage for that private equity to come roaring back. Here we have a business that lies at the intersection of every major investment trend: technology, energy innovation, bitcoin/cryptocurrency, flare/methane reduction (ESG et al). Mining is a cashflow positive business, often countercyclical to oil & gas, and it is rapidly scalable + deployable.
Where traditional investment moves too slowly, private equity steps in to juice the trend.
Our friends, Giga Energy, down in Texas.
While many in PE flock to the siren song of crypto startups with dubious tokenomics, others will begin to discover that the capital-intensive infrastructure play of Bitcoin mining offers outsized returns on innovation and speed. One of the most opportunistic plays is in integrating Bitcoin mining into existing oil & gas production, unlocking massive amounts of stranded energy & providing a real, profitable solution to the industry’s flaring & venting problems.
Just about every single producer we talk to has a beef with their pipeline, especially the smaller guys. What if we could skip the pipeline entirely? Avoid the protestors, regulators, and have more control over your production. It’s not too good to be true, we just need tons of capital yesterday.
The oilpatch’s previous run with private equity ran into a few issues, one of which resulted in massive amounts of stranded/flared gas in the Bakken. Now private equity has an opportunity to fix that previous problem, and all the incentive to do so.
We’ll expand on this on this in future Nakamotor Memos.
Charlie Spears
Strategy, Nakamotor