Winklevosses, Private Equity Eye Power as U.S. Gas Glut Fix

(Bloomberg) -- The Winklevoss twins and a Dallas-based private equity firm are putting their money behind one way to shrink a glut of natural gas from U.S. shale basins: Burn it to produce on-site electricity.

Mesa Natural Gas Solutions LLC makes mobile generators that use gas from places like the Permian Basin of West Texas to power drilling operations. It's a portfolio company of BP Energy Partners LLC, in which oil tycoon T. Boone Pickens was an early investor and still has a limited financial interest.

Meanwhile, Crusoe Energy Systems Inc. has raised about $5 million in seed financing from investors including Bain Capital Ventures and Cameron and Tyler Winklevoss's Winklevoss Capital Management LLC to build small data centers that can mine cryptocurrency, running on gas from the wellsite.

Producing power on-site could help solve a problem that's dogged shale explorers for years: Too much supply, not enough pipelines. Prices in the Permian, where gas is extracted as a byproduct of oil drilling, have often traded below zero, meaning drillers have to pay someone to take their output. Though some gas can be burned off in a process known as flaring, the practice faces regulatory limits and pushback from environmental groups.

“It seemed ironic and broken to us that oil production gets limited by how well producers can handle natural gas,” Salil Deshpande, a partner at Bain Capital Ventures, said in a statement.

For more on negative Permian gas prices, click here

Crusoe was founded by childhoods friends Chase Lochmiller and Cully Cavness, mountaineering enthusiasts who hatched the idea while climbing 14,000-foot peaks in Colorado last year. Lochmiller spent his career in quantitative finance and cryptocurrency, while Cavness followed his grandfather and father into the energy industry.

Crusoe launched its first gas-to-power pilot in Wyoming's Powder River Basin in January. Each day about 70,000 cubic feet (1,982 cubic meters) of gas -- enough to heat about 416 U.S. homes -- is piped to an electricity generating unit, which runs a data center housed in a 20-foot shipping container. By early next week, the company will finish installing a much bigger one in North Dakota using seven times more gas.

“We targeted markets first with higher flaring regulation and a higher pain point for operators,” Lochmiller said. He said Crusoe is working with large publicly traded oil and gas companies, though he declined to name them, and is looking to begin operations in the Permian.

By capturing energy otherwise lost through flaring, “Crusoe Energy is in a unique position to reduce the cost of cloud computing and cryptocurrency mining,” Sterling Witzke, a partner a Winklevoss Capital, said in an emailed statement. “Their technology is a win-win for the environment, energy producers, and the digital economy.”

Mesa, meanwhile, manufactures generators that use raw gas from the well. That helps some drillers cut their electricity costs in the Permian, where power prices are surging as production growth stresses the grid, Mesa CEO Scott Gromer said.

The Wyoming-based company has 300 megawatts of generation -- enough to power about 225,000 homes at once -- spread across the central U.S. producing region. The 200 megawatts it has in the Permian take about 50 million cubic feet of gas to run at capacity. Crusoe is also using its generating units, according to Mesa.

These units could eventually supply power to the grid operated by the Electric Reliability Council of Texas, which has warned of Permian constraints, Gromer said. Mesa has already started talking to Ercot about a demand-response program in which customers would use Mesa's power to keep their facilities online during times of peak consumption.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Christine Buurma, Joe Richter

©2019 Bloomberg L.P.