I’m beginning to hear about mining bitcoin (and other crypto currencies) using stranded and/or flared natural gas to drive a generator on location.
An interesting question can arise from this. Is the mineral owner getting his/her share of whatever gas supply deal is made with the bitcoin miner?
Has anyone come across this in their position as a mineral owner?
Great question, lots would depend upon the lease language. The existence of a non-deduct clause would need to be reconciled. Whether the mobile bitcoin generator operator takes a % would be interesting to ask. This will be a new and developing area. Currently, there doesn’t seem to be much deployment in the US. Probably for those issues.
Operators have been making two arguments: 1) the gas would otherwise be flared and if the lease does not pay royalty on flared gas no royalty is owed; and 2) “free use” of gas clause in the lease.
Both are big stretches, but look at your lease. The gas is not being flared, it is being sold in some form or fashion (probably for a piece of the bitcoin that get mined). A royalty is owed.
The free use clause only means to power a motor or something similar on the lease, not to sell the gas to a bitcoin miner. A royalty is owed.
Another interesting article here:
Bruce
Wouldn’t the operator have to treat that as selling the gas to the Bitcoin miner. They sure don’t give it away.
Here is a very detailed article about the subject: https://seekingalpha.com/article/4452010-bitcoin-energy-usage-isnt-a-problem-heres-why
Many of us mineral or royalty owners are in effect absentee (I’m in California, for instance). I’m thinking about writing all of my payors and asking them.
Food for thought…
Bruce
I delete the “Free Gas” clause in my leases to prevent this new problem and to prevent the operators from giving away my gas to power generators for operations onsite and possibly selling back to the grid without paying me for my gas.
Bitcoining farms typically buy gas with a third party if it’s going to make ends meet (larger midstream contracts) I doubt you will see many setups on a smaller flared gas pad came as the volume of gas to be profitable is very high. Now if the set up trailers on your lease or unit and use your flared gas then you should def be seeking royalties.
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