Frisco, TX
EnerBlock, an energy and Bitcoin focused asset management firm, introduces its innovative WBSS (Wellhead Bitcoin Spark Spread) and WBSSA (Wellhead Bitcoin Spark Spread Accretion) strategies to revolutionize natural gas monetization. By leveraging Bitcoin, these strategies demonstrate a 60 month average gross margin value enhancement of 1,112% per $/MMBtu of natural gas, significantly outperforming traditional market channels. This approach has resulted in an average $/MMBtu gross margin wellhead value of $16.83 when natural gas is monetized with Bitcoin. Furthermore, the potential gross marginal value per MMBtu through the Eb3 WBSSA corporate treasury strategy stands at $33.75, showcasing the immense economic potential of this groundbreaking methodology.
Problem:
Natural Gas Wellhead Economics in Mature Basins
Natural gas producers in mature basins face several economic challenges that hinder profitability. As reservoir pressure depletes and production declines, these producers encounter higher compression costs and increased system losses. Traditional contract structures further exacerbate the situation, making it difficult to maintain positive wellhead economics. Despite these challenges, there is a significant opportunity to enhance the value of these mature assets. By integrating natural gas production with innovative strategies such as onsite power generation and Bitcoin mining, producers can transform their economic landscape. This approach not only maximizes the utilization of natural gas but also capitalizes on the arbitrage poteontial between energy priced in USD and Bitcoin, creating a scalable and economically viable solution for revitalizing mature natural gas assets.
Key Factors Hindering Wellhead Economics
- Persistently Low Natural Gas Prices: Due to the abundance of natural gas, spot prices remain low, often between $2 and $3 per MMBtu. In contrast, the energy value of oil, using $80 per barrel as a basis, translates to approximately $13.80 per MMBtu, highlighting the significant disparity in market valuations of hydrocarbon energy types.
- Higher Compression Costs: As natural gas reservoirs deplete, the pressure drops, necessitating more energy and resources to compress and transport the gas. This can increase operational costs by up to 15-20%, eroding profit margins.
- Gathering System Losses: Losses during the gathering and processing stages can account for up to 35% of the initial production volume. These include compressor fuel usage, field losses, and processing plant deducts, significantly reducing the amount of gas available for sale.
- Traditional Gas Purchase Contract Structures: Gas producers in mature basins typically sell gas through percentage-of-proceeds (POP) contracts. These contracts often include volume-based sliding scale revenue terms, which are further burdened by high transportation and fractionation (T&F) fees, low volume gas fees, and high transit tolls. Such structures inadequately support the declined production rates in mature basins, leading to revenue losses of up to 25-40% compared to the early stages of the field’s production cycle.
- Transport & Fractionating Processor Fees: The costs associated with transporting and fractionating natural gas liquids (NGLs) can absorb upwards of 50% or more of the product value. This includes fees for transportation, processing, and fractionation, which significantly reduce the net revenue from NGL sales.
- Market Price Discrepancies: The difference between the Hub spot price and the actual revenue received by producers can be substantial, often resulting in producers receiving only 50-60% of the market price due to various deductions and fees along the supply chain.
Solution:
Wellhead Bitcoin Spark Spread (WBSS) Value Enhancement
EnerBlock’s WBSS and WBSSA strategies offer a groundbreaking solution to the economic challenges faced by natural gas producers in mature basins. By integrating Bitcoin monetization, these strategies significantly improve wellhead economics through the following methods:
Key WBSS Value Enhancement Factors
- Enhanced Contract Structures: Wellhead bitcoin mining eliminates the inefficiencies of traditional gas purchase contracts, avoiding high T&F fees, low volume gas fees, and transit tolls, thus preserving more revenue for producers.
- Minimized System Losses: Onsite power generation and direct Bitcoin mining minimize gathering system losses, ensuring more gas is effectively monetized.
- Lower Production Costs: The innovative approach reduces the need for extensive compression and transport infrastructure, cutting down operational costs associated with declining reservoir pressures.
- Mitigate Low Spot Natural Gas Prices: By bypassing traditional gas sales channels and directly monetizing natural gas through Bitcoin, producers can achieve the economics of gas-fired electricity production at the upstream wellhead, unlocking massive margins and mitigating the impact of persistently low natural gas prices.
- Optimized Utilization of Natural Gas: Onsite power generation and Bitcoin mining maximize the utilization of natural gas, turning what would be flared or undervalued gas into a highly profitable resource.
- Higher Gross Marginal Value: The average $/MMBtu gross margin wellhead value of $16.83 when natural gas is monetized with Bitcoin highlights the substantial economic uplift compared to conventional methods. This value surpasses even the energy value of crude oil on a $/MMBtu basis. Given that $80 per barrel of oil translates to approximately $13.80 per MMBtu, our approach effectively flips the hydrocarbon energy paradigm. Traditionally, crude oil has been more valuable on an energy equivalent basis, but our innovative strategy elevates the value of natural gas, positioning it as a superior energy source in terms of profitability.
- Increased Revenue Streams: By monetizing natural gas through Bitcoin mining, producers can achieve a gross margin value enhancement of 1,112% per $/MMBtu, significantly higher than traditional market channels.
- Arbitrage Opportunities: The integration of natural gas production with Bitcoin mining leverages the arbitrage potential between energy priced in USD and Bitcoin, creating a scalable value arbitrage investment play.
EnerBlock’s innovative WBSS and WBSSA strategies are set to transform the natural gas industry by offering a highly profitable and sustainable solution to the challenges faced by producers in mature basins. By leveraging Bitcoin monetization, we are not only significantly enhancing the wellhead economic value of natural gas but also providing a robust hedge against market volatility and price discrepancies.By harnessing the true potential of natural gas, an abundant and clean burning energy resource, our approach reimagines the conventional hydrocarbon energy market.
Derek S. Evans
CEO, EnerBlock Capital, LLC
devans@enerblockcap.com
www.enerblockcap.com