Exxon mining bitcoin with Crusoe Energy in North Dakota Bakken region

View of the Exxon Mobil refinery in Baytown, Texas.

Jessica Rinaldi | Reuters

ExxonMobil, the largest US oil and gas producer, is piloting a project to mine bitcoin in North Dakota, according to people with knowledge of the matter.

For more than a year, Exxon has worked with Crusoe Energy Systems, a Denver-based company, said the people who asked not to be identified because project details are confidential. Crusoe’s technology helps oil companies turn wasted energy, or flare gas, into a useful resource.

Similar to ConocoPhillips’ mining scheme in North Dakota’s Bakken region, Exxon is diverting natural gas that would otherwise be burned in generators, which convert the gas into electricity used to power containers filled with thousands of bitcoin miners. Exxon launched the pilot in late January 2021 and expanded its build in July.

While Exxon has not spoken publicly about his work in space, Eric Obrock, a 10-year veteran of the company, said on his LinkedIn profile that from February 2019 to January 2022, he “proposed and led the first commercial and technical success demonstration of the use of Bitcoin Proof-of-Work mining as a viable alternative to flaring natural gas in the oil slick.”

Obrock’s title in his profile is NGL Industry Outlook Consultant, referring to the natural gas liquids market. Obrock told CNBC via a LinkedIn message that he has been advised that he cannot speak to the media on this matter. Exxon did not respond to a request for comment.

Exxon’s bitcoin project isn’t really about making money from cryptocurrency. Instead, the company has committed to reducing emissions as part of an industry-wide effort to meet higher environmental demands. In early March, Exxon joined other oil companies in committing to the World Bank’s “Zero Routine Flaring by 2030” initiative, introduced in 2015.

The type of crypto mining arrangement you are pursuing with Crusoe reduces CO2 equivalent emissions by around 63% compared to continuous burning.

Exxon’s bitcoin mining work in North Dakota was first reported by Bloomberg, which said the company is also considering similar pilots in Alaska, the Qua Iboe Terminal in Nigeria, the Vaca Muerta shale field in Argentina, Guyana and Germany.

Bitcoin mining on Bakken

The problem that Exxon and Conoco have been tackling has been around for years: what happens when drillers accidentally hit a natural gas formation?

Unlike oil, which can be transported to a remote destination, gas delivery requires a pipeline. If a drilling site is close to a pipeline, producers can sell it immediately. But if the pipe is full or if the gas is 20 miles away, drillers often burn it. That’s why you often see flames rising from oil fields.

In addition to environmental hazards, drillers are also burning money.

Get into bitcoin mining, which only requires an internet connection and can be done from anywhere. And since miners’ primary variable cost is energy, they are incentivized to find the cheapest energy sources.

“This is just a great way to bring that demand into wasted energy and solve two problems at once,” said Cully Cavness, president of Crusoe, whose supporters include Valor Equity Partners, one of Tesla’s biggest investors. “Solve bitcoin’s appetite for energy and solve the problem of idle energy and burning gas for the energy sector.”

Cavness said Crusoe has 150 employees and works with Norway’s Equinor ASA, Canadian oil producer Enerplus and Oklahoma City-based Devon Energy.

North Dakota Air Quality Division licenses show Crusoe can operate 20 portable engines, with 11 currently in use at well sites across the state. Two of the engines are operational in wells operated by XTO Energy, Exxon’s oil and gas subsidiary, at the Jorgenson Deep Creek site. Cavness said most of Crusoe’s more than 80 data centers are located in Bakken.

“We’re really moving the needle at burnt volumes,” Cavness said. “More than 10 million cubic feet of gas a day that would be flared are not flared because we have our systems in place.”

The World Bank, in its latest Global Gas Flaring Reduction Partnership report, recognized Crusoe as offering an innovative flare solution.

Solving the methane problem

The Bakken formation has become a major source of new oil production in the US over the past two decades with the boom in hydraulic fracturing, or fracking.

Craig Thorstenson has worked on the North Dakota Division of Air Quality’s licensing program since 1989. He says North Dakota has always been an oil state to some extent, but growth in Bakken has elevated the state to second in the country before from dropping to the third last year.

Thorstenson, who was born and raised in Bismarck, the state capital, said the move “was a shock to us.” Residential housing could not keep up with demand.

“We were having a population boom,” Thorstenson said. “People coming in, wanting to get a job. People living in Walmart parking lots.”

More drilling meant more wasted gas, which affected the entire Williston Basin, which spreads across parts of Montana, the Dakotas and Canada. This is a big reason why Crusoe invested heavily in the area.

“At not-so-distant points in history, the basin was burning nearly a fifth of the gas that was being produced there,” said Cavness.

Thorstenson said the amount of wasted natural gas is finally decreasing. In a March report, the North Dakota Department of Natural Resources estimated that currently 93% to 94% of natural gas is being captured. In 2014, the commission had a catch target of 74%.

Drillers have historically chosen flaring as a way to dispose of excess gas because it is less harmful to the environment than venting, which releases methane directly into the air and produces greenhouse effects that have proven to be 84 to 86 times more powerful than CO2 in a period of 20-year period.

Even with burning, some methane escapes due to wind and other factors. On-site bitcoin mining can be especially impactful because 100% of the methane is burned and nothing leaks or leaks into the air, according to Adam Ortolf, who manages U.S. business development for Upstream Data, a company that manufactures bitcoin. and provides portable mining solutions for oil and gas facilities.

“Nobody is going to go through a generator unless they can make money, because generators cost money to buy and maintain,” Ortolf said. “So unless it’s economically sustainable, producers won’t burn the gas internally.”

Crusoe’s systems are built to make the process affordable for drillers. The company brings its equipment to the oil rig, allowing it to convert wasted natural gas into electricity, which then powers computing at the well site.

“When we put it in our generator, we get up to 99.9% combustion of that methane,” said Cavness. “Not only are we using wasted energy, we are also significantly reducing methane emissions.”

Cavness said his main lesson from the last UN global climate summit in Glasgow, Scotland, was that methane is the cheapest fruit.

“That’s what we want to solve as an energy industry,” he said.

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