This Utah oil producer was wasting natural gas. Now it uses it to mine cryptocurrency.

The company was torching gas it couldn’t transport. Then its younger employees had an idea.

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The operators of an oil field near Moab say they’ve found a high-tech way to solve a years-old problem — the wastage of natural gas that can’t be shipped to market.

Wesco Operating Co. pumps crude oil out of 18 wells north of Moab, and it for several years was torching vast amounts of natural gas that are a byproduct of that production. The company’s predecessor spent upwards of $70 million on gathering lines that connected the wells to the Blue Hills gas-processing plant, but due to a problem with a pipeline there, the gas can’t be transported away from the plant.

Wesco’s younger employees, however, saw a solution in cryptocurrency mining — allowing the company, in essence, to bring the market to the oil field.

Rather than being “flared,” or burned, to eliminate it, the natural gas is burned to run electrical generators, which in turn power two mobile data centers that process Bitcoin transactions, Wesco representative Steve Degenfelder explained.

The company has connected with a Chicago-based firm, EZ Blockchain, to acquire the two Bitcoin “miners,” portable data processors tied to the Internet.

“You eliminate the flare and burn [the gas] more efficiently. We reduced emissions and we put the gas to work,” Degenfelder said. “It’s a unique opportunity.”

Since February, Wesco has flared almost no gas, according to Degenfelder. To get to that point, though, the company put in a steep capital investment that it hopes to recoup.

Wesco joins other oil producers that have, in recent years, turned to burgeoning markets in digital currencies as a way to capture revenue from “stranded” natural gas, a hydrocarbon that is burned or vented in the field when there are no financial incentives to capture it.

‘A win-win for everyone’

Wesco’s unused natural gas comes from federal and state leases. While Wesco was flaring it, it yielded no royalties to the Bureau of Land Management and Utah School and Institutional Trust Lands Administration (SITLA).

Now, the company is paying a 12.5% royalty on the gas it burns in the generators, Degenfelder said, pegging the royalty to current spot prices for Rocky Mountain natural gas.

The company’s solution won praise from the Utah Board of Oil, Gas and Mining.

“Thank you for looking for alternatives to flaring. I’m pleased this is working out. Congratulations,” board member Susan Davis told Wesco engineer Thomas Kirkwood at a February board meeting. “It looks like a win-win for everyone: You, the environment, the pipeline.”

Davis was referring to the independently owned Paradox Pipeline, which once shipped Wesco gas away from the Blue Hills gas-processing plant. Fidelity Exploration and Production Co., the plant’s original owner, placed it along that pipeline because it connected with the Northwest Pipeline several miles to the south.

But the Utah Public Service Commission (PSC) shut down the Paradox line last year after determining that its then-owner, the bankrupt Pacific Energy and Mining Co., operated it in a “hazardous” manner, and failed to follow several safety and bookkeeping requirements.

Dominion Energy, Utah’s largest natural gas retailer, is now exploring ways to repurpose the Paradox line to transport natural gas north to Green River, a town that has been clamoring for gas service for years.

But in the meantime, the commission’s closure of the line cut off Wesco’s access to market. State regulators and federal officials viewed burning off the gas as an unacceptable waste, but one that could not be blamed on Wesco. Utah regulators concluded choking off production at Wesco’s wells would damage them, so they allowed the company to flare far beyond regulatory limits.

That’s when some of Wesco’s younger employees proposed their idea, Degenfelder said.

‘Get rid of the problem’

EZ Blockchain’s CEO, Sergii Gerasymovych, said the company “is focused on helping oil and gas producers utilize their wasted energy, wasted gas — that could be flared gas, that could be stranded gas — ... to monetize the gas or at least to get rid of the problem.”

Wesco installed three generators at the Blue Hills site to convert the gas into electricity.

“You need to do something with that electricity. You need either to move it to an electrical line and sell it to the grid, which is kind of the same problem as with the [idled] pipeline. There is no grid. There is nowhere to sell the electricity,” Gerasymovych said.

“We use that electricity right on site to ‘mine’ Bitcoin,” he said. “Mining Bitcoin means running power-hungry computer equipment that validates transactions for Bitcoin network.”

EZ Blockchain provided two “miners,” which came in 30-foot-long boxes — called a Smartgrid Flaring Mitigation System — and adapted them to the site-specific needs at the Blue Hills plant. After four months of testing, the system went fully operational in February.

Wyoming-based Kirkwood Companies, Wesco’s parent company, takes a cut of each transaction the miners process.

Degenfelder estimated the generators now burn about 300,000 cubic feet of natural gas a day, an amount that is worth nearly $1,200 at Wednesday’s spot price of nearly $4 per thousand cubic feet.

That price is about 50% higher that when Kirkwood Companies began its crypto mining operation. Interest among U.S. oil and producers in this novel revenue stream has soared since then, the engineer Kirkwood told the oil and gas board.

So does the company see more revenue mining digital currency than it would selling the gas it produces?

“That depends what the prices are and when the equipment was purchased. It’s been a crazy market, not only on the Bitcoin side but the equipment side,” Kirkwood told the board. “Equipment costs have quadrupled since we invested in this. Reinvestment won’t be as good.”

The miners will wear out in about three to five years, Kirkwood said. He said he hopes the Paradox pipeline’s issues will be sorted out by then, so his company can return to selling natural gas the old-fashioned way.