Reed Smith Client Alerts

As oil and gas producers evaluate emergent opportunities with cryptocurrency mining, it is imperative to conduct a comprehensive risk analysis and ensure any programs are compliant with existing leases and contracts. A new lawsuit filed by a lessor in the District Court for Denver, Colorado claiming the lessee breached its lease obligations, in part through its cryptocurrency mining operations, shows the potential legal exposure producers may face as they take part in this developing segment of the industry.

Opportunities and considerations for gas-to-crypto projects

In the last few years, oil and gas producers and other energy companies have explored and implemented projects to take advantage of the synergy between energy-intensive cryptocurrency mining, on the one hand, and natural gas that is uneconomic or infeasible to transport to market, on the other, including “flared” gas. Gas that is otherwise burned or not produced is delivered to generate electricity for remote, relatively portable cryptocurrency mining “rigs” in the oilfield, which mine cryptocurrencies like Bitcoin.

In the cryptocurrency space, particularly for “proof of work” currencies like Bitcoin, there is tremendous demand for affordable energy. The electricity used for computing power and cooling equipment constitutes the vast majority of the cost of such operations. At the same time, there is pressure from multiple interest groups for “green” or environmentally conscious sources of power generation, especially as more legislators, regulators, and activist groups take aim at the energy demands of cryptocurrency mining. After the Chinese government instituted a nationwide ban on cryptocurrency mining in 2021, the domestic demand for energy and hash power has increased dramatically. For these reasons, cryptocurrency mining operators are constantly on the lookout for innovative and affordable sources of energy.