To drill or not to drill?

This right here is the burning question on the minds of every wildcatter since Edwin Drake’s 1859 discovery of the precious hydrocarbons lying beneath earth’s surface. Make no mistake about it, methods of exploration, drilling and production in today’s world are lightyears beyond the time of the “Drake Well” and Patillo Higgins’ “Spindletop”. In fact, the accuracy, predictability, and safety with which modern E&Ps are able to execute is all but sorcery compared to the early explorers whose success relied on little more than a hunch and a prayer.

While the industry has shifted immensely over the past 150 years, one thing has remained constant, and that is the consideration of a capital investment followed by some level of anticipated return. Whether it’s 1859 or 2023, the brass tax questions to consider are, “what is this going to cost me?”, “how quickly will I recoup the costs?”, “what are returns post-payback?”, and “what is my risk of failure?”

To get off the ground, we made an initial $6 million capital investment. At this time Bitcoin was in a fever pitch, Bitcoin mining was immensely profitable and the capex load to acquire the infrastructure was at an all time high. To put that into context, the equivalent realized gas price mining Bitcoin at this time was $40 per Mcf. November to February 2022 was spent designing and deploying our first Bitcoin mine. Acquiring the infrastructure was costly but the expected return on investment was very attractive… So long as we executed flawlessly and Bitcoin maintained its high levels…

Walking through this capex exercise for drilling a modern-day gas well looks something like this:

Drilling & completions costs: $5M
Initial return on invested capital: ~5 years ($2/mcf, 1500 mcf/d)

And the risk of failure? Well, it’s certainly lower than that of our pioneering forefathers who struck man a dry hole, though still not entirely risk-free given the potential for unexpectedly low production and other unforeseen issues.

When considering if the juice is worth the squeeze, time has shown that the answer is often yes. After all, this is the status quo - the way things have always been done.

When 360 Mining entered the O&G production space however, we saw the distressed economics of our own natural gas assets as well as the broader gas market, and saw opportunity. Rather than capitulate to the unfavorable status quo, we developed our In-Field Mine solution which enables us to realize 8-10x value for our gas. For us, the decision of “to drill or not to drill” was an easy one - “No!”, not when an In-Field Mine can recoup the same $5M and get on to generating profits in a fraction of the time.

“Drill Baby Drill” is a familiar mantra that has undoubtedly carried our industry and transformed our world. However, there’s no denying that today’s wildcatters posit a compelling alternative - “Mine Baby Mine”.

Why 360, Why Bitcoin, Why Now?

You've probably seen some of the headlines regarding bitcoin's recent price jump, reaching $45,000 this month, the highest it's been since April 2022 and 70% higher than where it was in early Oct. That said, we want to share how this makes right now an interesting time for O&G producers to consider leveraging 360 Mining's In-Field Mining solution.

  • From $10/mcf to $14/mcf: First and foremost, the recent BTC price increase translates to the previously-stated $10/mcf, adjusting upward to be in the ballpark of $14 of realized revenue per mcf.
  • Infrastructure Pricing: Price of miners and other infrastructure needed for an In-Field Mine deployment is closely correlated to the price of bitcoin (though not perfectly elastic). That said, while we've observed some uptick in infrastructure pricing (5-10%), it has not done so proportionately to BTC's 70% spike. This essentially means that now is an advantageous time to deploy capital for infrastructure, before its prices have fully responded.
  • Institutional Adoption (ETFs): Many agree that BTC's recent jump can be partially attributed to the continued buzz of growing adoption by some of the biggest institutional investment firms. BlackRock, Fidelity, and 9 others received SEC approval in early January to launch spot Bitcoin ETFs.
  • Flat Price of Nat-Gas: Lastly, amidst exciting developments on the bitcoin front, the price of natural gas has remained in the sub-$3/mcf range for the past 10 months. The beauty of an In-Field Mine is the natural hedge it offers against the price of natural gas via Bitcoin, allowing you to monetize your gas for the highest value in the Bitcoin or natural gas market. Right now, monetizing via bitcoin is increasingly attractive generating $15 per mcf.

NY Times Article | CNBC Article