How 360 Mining Uses Natural Gas to Mine Bitcoin

Recent tectonic shifts in the energy industry have brought on a range of new challenges, from growing renewable energy investments to innovating new ways to responsibly increase capacity. But if you ask Bruce Bullock, director of the SMU Cox Maguire Energy Institute, those challenges also come with a remarkable number of opportunities—particularly for recent graduates like 360 Mining founders Chris Alfano, BBA ’16 and Sean Milmoe, BBA ’16 and participant in the Cox School’s prestigious EnCap Investments and LCM Investment Group Alternative Assets Management Center program, more commonly known as the ALTS program.

“Industry brings us more opportunities than we can fill,” Bullock says. What those opportunities look like, of course, is not the same as it was a decade or two ago.

“Traditionally, the industry has been focused on molecules—oil and gas molecules,” Bullock says. “Now, there is a much greater focus on electrons—providing affordable, clean power to people.”

At the core of this shift is a chance for new graduates to pursue entrepreneurship and carve out a niche in an industry that has not always been easy to break into—but that eagerly rewards those who do.

“The energy industry was built by entrepreneurs,” Bullock says. “The innovation provided by entrepreneurs is key to this industry’s success.”

Alfano and Milmoe, who met on campus as freshmen, are seizing the opportunity to innovate within the traditional field of oil and gas. The two set out to create a bitcoin mining operation in 2021. But it has not been a simple journey.

SMU Cox students learned about that journey on March 27, when they toured 360 Mining, which was founded by Alfano and Milmoe to enable a new market for gas produced by old wells in the Barnett Shale. The co-founders led the students around an active natural gas site, where they saw 360 Mining’s producing wells, production and midstream infrastructure, as well as their bitcoin mine.

In addition to giving students an opportunity to tour 360 Mining, the Institute invited Alfano and Milmoe to come to the Cox School about a month later to share their story with students who weren’t able to take part in the tour or who just wanted to know more. Bullock says preparing students for the modern energy industry by exposing them to innovative entrepreneurs like Alfano and Milmoe and keeping up with industry trends is a priority for the Maguire Energy Institute.

“We participate in industry conferences such as CERAWeek, conduct our own lectures and conferences to bring subject matter experts to campus, and visit with members of our advisory boards as well as industry experts. Most of [our faculty and staff] have an extensive contact base, as [they] have spent significant time in the energy industry itself.”

Managing the Problem

After several bumps in the road, Alfano and Milmoe believe they’ve developed a business model that will allow 360 Mining to maximize the value of the energy it produces. And it could help other traditional oil and gas players do the same.

Alfano and Milmoe’s original plan was simple—at least, as simple as anything involving cryptocurrency could be. Bitcoin miners take on extremely complex math problems to verify transactions that occur using the currency. Their reward is paid as a set amount of newly issued bitcoin.

Mining requires an incredible amount of computing power and, therefore, energy. But for those interested in turning a profit, who have the mind for it and who can get their hands on the loads of up-front capital the requisite computing power calls for, the rewards can be considerable.

Alfano and Milmoe figured that maximizing profit was all about keeping energy costs low. “Bitcoin mining is a data center operation, and a data center’s biggest operating cost is electricity,” says Alfano. “So, for 360 Mining, it was, ‘How can I get the cheapest possible power?’”

At the time, most Texas-based bitcoin miners were simply plugging into Electric Reliability Council of Texas (ERCOT), which manages the state’s electrical grid. The downsides of that approach were twofold: cost and contracts. The former was high, and the latter generally locked miners into three years or longer. Alfano and Milmoe recognized how much could change in that period.

“We saw a lot of risk in that business model,” says Alfano, the company’s founder and CEO, who brought aboard Milmoe as the oil and gas expert to his business-building experience. Until recently, Milmoe was at Blackstone in New York, sizing up a wide range of energy investments. Alfano dove into bitcoin after he’d founded and successfully exited a credit investor software provider named KeyMan Intelligence, selling to Siepe in May 2021.

“Bitcoin was on an absolute tear in price, and bitcoin mining was so profitable that a lot of people weren’t thinking about their electricity cost,” Alfano says. “You just needed to plug machines in.”

Profit is tied to the cryptocurrency’s performance, so when the value of a single bitcoin topped $60,000 in April 2021 and again in November of that year, times were good for miners. Alfano and Milmoe, however, were busy figuring out an alternative to ERCOT. They considered buying from a solar farm or power plant, but each also came with contract risk, nonrenewal risk and counterparty risk.

Their desire for more autonomy over the model eventually led them to a vertical integration strategy. They couldn’t stomach the costs of building their own solar or wind farm, so in the end, they raised money and bought six natural gas wells. It took an initial funding round of $6 million to get a first site in Fort Worth off the ground.

How 360 Mining Is Becoming Part of the Solution

The bull market wouldn’t last forever. By the end of 2021, the price of a single bitcoin was back down below $50,000. By May of 2022, it hit $30,000. It bottomed out at around $16,000 in December of that year.

At the same time, Alfano and Milmoe were facing just how difficult and costly it could be to solve real-world infrastructure problems. A flaw in the company’s generator system was looking like it would require a ground-floor rebuild, while cooling infrastructure on the bitcoin mining side was proving entirely inadequate.

But here’s where 360 Mining leaned on the advantages it had established by moving upstream. In mere minutes, if the economics called for it, the company could shut off its mining operation and begin selling the gas it produced to the pipeline.

With gas prices having risen from around $2.50 in early 2021 to above $9.00 in August 2022, the company did just that. It raised an additional $2.2 million to recomplete three of their wells, which allowed it to push six or seven times as much gas into the pipeline as it could have previously. The resulting cash flow came quick.

In early 2023, the markets began to shift again as the price of natural gas fell off a cliff and settled again around $2.50, while bitcoin showed initial signs of a rebound. Alfano and Milmoe decided to reinvest the cash to shore up its mining infrastructure.

“We took all the learnings from that first deployment, all the optimizations, and rolled that into new generators, a new data center,” Alfano says. “We put it all together in a way that actually worked.”

Part of that equation: 360 Mining now sells back into the pipeline the portion of its natural gas that its generators don’t consume for mining.

“Increasingly … cryptocurrency has sought ‘off-grid’ types of power sources to utilize and in some instances provided their power back to the grid to help meet increasing loads at certain times of day,” Bullock says. “As this has occurred, they have moved from part of the problem to part of the solution. Chris and Sean’s business is an example of being part of the solution.”

Selling a Traditional Industry a Nontraditional Approach

After $8.2 million in raised funding, 360 Mining had stood up a viable mining business. In the spring of 2024, when natural gas hit $1.60 per 1,000 cubic feet, bitcoin had climbed back up over $60,000—meaning 1,000 cubic feet of gas powering the 360 bitcoin mining operation would produce $22.00, Alfano says.

But it’s what came next that has Alfano and Milmoe most excited for the future. They began to field interest from others in the industry who had caught wind of their new, market-optimized approach to monetizing natural gas without always being beholden to the pipeline.

“For the first time ever, an oil and gas producer can have optionality,” Alfano says.

360 Mining stood up one bitcoin mining operation for a natural gas producer, then decided to steer fully into a new services business, establishing a line of business they hope could produce as much as 60% or 70% of their revenue in 2024. Of course, that’s contingent on selling a very traditional industry on a very nontraditional approach.

For folks who’ve been beholden to the ups and downs of the cost of gas their entire careers, the pitch may prove appealing.

“You don’t have to become a bitcoin miner,” Milmoe says. “You do what you do best—produce hydrocarbons—and we’ll build and operate the mine for you. In exchange for that, we’ll get a percentage of the revenue in the bitcoin mine into perpetuity.”

Their customers, Alfano says, get the value prop of bitcoin mining without taking on the execution or operational risk.

“The reality is that these guys have no idea how to mine bitcoin,” he says. “And if they were to try to do it themselves, they would fall into the same booby traps we fell in.”

On the other side of those traps, Alfano and Milmoe feel well-positioned to push forward into what they see a massive addressable market.

“Three years ago, we never would’ve guessed that we’d be doing services,” Alfano says. “But now it’s really the growth engine of the business. You have to be willing to move and shake with what the market gives you.”