The Texas Pacific Land Corporation was established in 1888 and owns more land than any other entity in the state. Now they are helping to mine Bitcoin through a deal with Mawson Infrastructure and JAI Energy to develop dozens of megawatts of Bitcoin mining on TPL’s land in West Texas.

  • Justin Ballard

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Transcript


Foxley: Welcome back to the Compass Podcast. Today I'm joined by my good friend Justin Ballard, CEO and co-founder of JAI Energy. JAI recently closed a large deal with Mawson infrastructure in Texas Pacific land to mine it before exa hash in Texas, we talked about the deal structure on versus off grid mining and TPL's foray into mining. This podcast is presented ad-free by Compass Mining, the largest marketplace for Bitcoin mining, check out compassmining.io today if you want to buy sell, or host an ASIC and now onto the show. Justin, welcome back to the compass podcast. Great to see you again. How you been?

JB: I'm good, man. Good to see you, too. I'm always always happy to talk to you Will.

Foxley: Good. Let's keep it that way. And was talking about the deal, as well. This is huge news. I mean, you talked to me about it a little bit in December, obviously, parts were still being put together at the time and these deals yet to be pre secretive about it. You don't want people to steal your hash rate or your energy, but it's out and it has a lot of big names, including Mawson. And then one name that I'm not familiar with. Texas Pacific Land TPL. Pretty big deal for both Jay and then also big deal for Texas and the energy scene to see TPL get involved. So we'll start there. A rundown on the deal be great.

JB: Yeah. So it's 120 megawatt deal across four separate substation locations. They make, you know, we have one sites, 20 megawatts to 30 megawatt sites and 140 megawatt site. They're all within about 40 miles of each other out in West Texas. Yet, like you mentioned, TPL is one of the largest, if not the largest, I believe they are the largest landowner in the state of Texas, they have about 900,000 acres. And they derive most of their income from oil and gas activities. So they are not like an oil and gas exploration company. But anybody that is out in West Texas that is dealing with TPL on on trying to get to their oil and trying to get to the property that they're mining on or started mining them. And I've been in here a long time that they're producing oil and gas on. They're gonna know who that name is. And I mentioned this the other day on your show, they're about a $10 billion plus market cap company. I had done a lot of deals with them in the past when I was at Anadarko petroleum. In fact, Ryan had some strong relationships with a couple of the guys over there as well. But one of my good friends at Anadarko Kevin Pierce was a director of our TPL. And so that's really what spurred the conversation in the first place. was Kevin just reaching out and saying, Hey, man, we're getting a lot of inquiries from these mining groups. And we don't really understand a whole lot about what's going on. But I know that you've gotten to the Bitcoin mining space, so why don't we? Why don't we kind of work together and figure out like what we got, and maybe you can help educate us on the on what's going on with this Bitcoin mining stuff. And so that was back early, like, April, May of last year. So right when, right after Ryan, and I'd really got things going. And so one thing led to another, we secured about a 10 megawatt site on them, but then we got a few more and they they've really got educated pretty fast about what they actually have within their portfolio and that land position out there. And so, you know, kudos to them to recognize that they wanted to make this a part of their revenue streams and part of their kind of portfolio going forward. And also, even more importantly, than just kind of having the property and trying to get miners on it. They've expressed a lot of interest in actually learning about mining themselves and providing some capital dollars to actual mining operations. So I do I agree with you. I think it's a huge thing for not only Jay and Mawson, but mtpl, but for the entire Bitcoin mining industry, because one of the things that Ryan and I really wanted to do when we got into this space was help educate oil and gas companies to, you know, the opportunity that they have within their portfolio. And getting TPL on board is really, I mean, I think it has a chance to open the floodgates for groups to see that, hey, this is something that is one legitimate because you have maybe the oldest publicly traded mining or publicly traded company in the country looking to allocate dollars to some mining operations, that's a big deal. And even even potentially holding some bitcoin on the balance sheet. So I don't want to speak for them. I am not speaking for them. Those are things that you know, they're still going to be going through, but it's all been part of the conversations that we've had with them. So to get back to the deal though, I'm sorry to go off on you know, me when I'm gonna go on a tangent.

Foxley: This conversation is gonna plan and it's not gonna go Yeah,

JB: One of those kind of bills but Uh, yeah, so the deal is 120 megawatts across four separate substations. Two of those substations are on TPL. The other two are owned by some private families that are large land holders out there. But on each one of those sites, Mawson is putting together an SPV that will basically manage that that operation. And Jay will have the opportunity to elect to participate with that entity, once they hit a certain number of megawatts online. And, you know, they're Mawson, one thing about them that I was really impressed from the get go. Number one was the people they have over there, they're a great group of guys, I don't, I know, they kind of fly under the radar a little bit with the public mining groups that are out there. But I met Leanne Wilson early on, and he's just an incredible guy. And then I got to know a lot of their other team members and, and I've been super impressed with James their CEO, James Manning, Nick Hughes, Liam everybody up, Craig. I mean, every their entire team is a bunch of fun guys, very knowledgeable, very hard working. And the thing that impressed me the most was probably their efficiency, we went out to a site of theirs in Atlanta in December of last year, and went back in January, and from the time that we were there about a month past, and they increased the capacity of their site, I think seven times it was six or seven times what it was from the time when we were out there, and they had barely even cleared out some trees when we were out there the first time. So their operational efficiency is, is very impressive. And I'm looking forward to learning from them as well, you know, we are in I guess, in the mining space, we're fairly established. But, you know, you looked at a group like moss, and they've been mining for about four years. So they're doing a good job. And I think that they are a group that people really should kind of keep their eyes on him. Because I think that they are watching how aggressive they are. And so creative in the way that they're willing to do things has really impressed me. And I think that they're going to have a lot of success going forward. So that's the way we kind of structured it with them. Now we do get we and TPL are getting a portion of the gross profits from that deal. It's you know, it's a small portion, but we structured it in a way to where it in Mawson's incentivize. And so as Jay and TPL. And so look, we're, we're very blessed to have it happen. I'm very honored to be a part of kind of orange peel in a very large, publicly traded oil and gas company. I think this is huge for Texas. I think it's huge for us, Mawson and TPL. And again, the Bitcoin mining industry in general, I think this could could hopefully be a first domino to fall with a lot of public public groups coming out,

Foxley: called the CJ, their first digging into the deal itself a little bit more, maybe just some clarification. So Jay is working on like the mining side, Mawson is providing the infrastructure for hosting and then tplo is providing the land and then the energy is going to be worked on with ERCOT through Maassen. That's my understanding, is that correct?

JB: That is correct. Mawson. Will, Mawson is doing the mining as well. So they're building it out completely, right, they're gonna build out 120 megawatts which we do have kind of forecast to all be online by the end of fourth quarter of this year. So they are doing that, but we get the right to elect to buy a portion of the SPV that is there. And so basically, we'd be jointly owning the entire asset with them just proportionately, we would have a smaller percentage than they do. So yeah, that's the way it's worked. And TPL is bringing the land, they own all the land around those substations. And they wanted to have the opportunity to participate as well. So they will be participating through J with within the Mosman entity. So that yeah, that was the structure. There's a lot of educating I think that is going to be going on in West Texas over the next year to two years. In fact, the last three days, I've just gotten bombarded with phone calls from ranchers and, and royalty owning groups, a lot of different folks operators that are wanting to know more about the deal and how to put these things together. And kind of looking at like, hey, we need help figuring out what we actually have and how this works. I'd say this a lot to people is that like you will me and a lot of the people that are coming in the Bitcoin Twitter world. We talk in this echo chamber a lot and we assume that this kind of knowledge about what they have and what they should do with this power that they're sitting on or that's in their portfolio. We act like we think that they know these things. They don't. And this goes back to us being so early in the game right now is that even though this stuff seems like second nature to a lot of us, and a lot of the people that are listening to this, we're still in the education phase of getting folks and companies to understand, number one, what Bitcoin is, how it can, how it can improve their lives financially, and how it actually gives them a lot of self sovereignty and power back. But also the companies can understand that this is a real use of capital, that you can create a whole nother aspect of your business that you haven't I kind of recognized before now.

Foxley: Yeah, definitely. The most awesome thing is cool as well, seeing out there publicly traded one, the only Pete There's only a few public traded Bitcoin mining companies out there, I think like 20. Now, which compared to the private lenders out there is, is pretty significant. And then for J, it's also like a pretty big step up your current megawatt under management, if I can make up that term really quickly. It's like eight megawatts, so

JB: close seven megawatts? Yeah, yeah. Yeah.

Foxley: So it's a big step up in terms of management and stuff up? What does that look like in terms of expanding je like, are you guys hiring or

JB: Not yet? Well, I'm hoping we will be pretty soon, with the structure being what it is on this deal. We really won't be hiring people for this specific deal. What it does create, though, is some revenue generation for us, that allows us to kind of take on new projects and grow our own self mining operations, not only in Wyoming, but also in Texas. And there's a lot of, you know, this is an on grid operation that we're doing. And, you know, you and I have talked about this a little bit, we've been a very kind of focus solely on off grid opportunities. We're not getting away from that. But we are also, you know, we're looking for the most competitive projects that we can find, and ways to make sure that we're able to be sustainable through, you know, we're in a down market right now, but things can get significantly worse. And so we want to be prepared to be able to kind of weather those storms. And if that means on great opportunities, and we go on great opportunities, if that means offered opportunities, when do offered opportunities. And again, to kind of reiterate, what I just said a little bit ago is that I've been getting really kind of bombarded with opportunities over the last few days. And, you know, I've had calls just today, the amount of flare gas, that opportunities there are with just a few companies, it was over 10 million a day and in gas that's available, that's being flared right now. And so things like this deal, kind of get your name out there a little bit more. And people again, go back to the legitimacy that TPL provides, when they see a group like TPL is doing a deal with us. It allows other folks that call those get TPL is doing a deal with them. Like they've gotta be legit, let's call them. And so yeah, we're going to be growing. Well, we are growing, obviously. But yeah, we're still going to be looking for opportunities off grid on grid renewable, I don't care what it is, we're going to be continuing to look for those opportunities. And, you know, as Ryan said before, I think he said it at the Bitcoin Conference. He's an energy maximalist, and I feel the same way. So we're oil and gas guys at heart is where we came from. But regardless of what that energy source is, if it's sustainable, by being profitable, because that's ultimately what's going to dictate what is sustainable is whether or not as profitable, then we will entertain it. And so we're going to continue to with that thesis going forward.

Foxley: That's awesome. Let's talk about off grid versus on grid, which you just mentioned a second ago, your primary site in Wyoming is off grid using stranded natural gas not flared. But midstream is my understanding. Right. And that's a very big difference from using on grid in our caught is having to work with grid operators, you're going to have to structure some sort of deal. It seems like those pieces have not been finalized yet. I'm curious to get like your perspective on the off grid versus on grid debate that we've seen in Bitcoin mining circles, and then also some information about how this deal is likely to be structured with working with ERCOT.

JB: Right. Okay. So the off grid versus off grid, there's obviously benefits to each and there's negatives to each. We initially started with off grid. Well, number one, gas prices were significantly lower. And so gas was not valued much by operators, midstream companies like that, you know, there was a lot more opportunity to get cheap gas, cheaper gas that has obviously changed. And so now you're gonna find some more strategic in locations where you can use off grid gas that is stranded or being flared, but you're always going to be limited by some of the scalability issues. And so that's one thing that we even knew early on, if you just go the flare out, there's a lot of downtime on wells, and there's a lot, there's a decline curve that you got to factor in. So you're never, you're if you're starting off right off the IP of a well, the initial production, for those of you that don't know what that is, then yeah, the well is going to decline rapidly very, very quickly. And it's the clients quite a bit. And so you still get in a situation where you the building too big, and you got to take it down as it declines, or your building is smaller to wait for the client, and then you're still flaring a lot of this gas and, and then you got those situations where the operators have to shut in for whatever reason, operational issues, things like that. So there's downtime that gets factored in there as well. That's kind of the negative, the positive, obviously, is you're removing flared gas from, you know, the environment, that's a that's a positive, right. You also are getting it extremely cheap for the most part, which is obviously a huge benefit for a minor. But again, the scalability issues is probably the biggest negative factor for me in the downtime for on grid, the benefits are, you're getting some of the cheapest power in the country, especially in the earth, right, the Western ERCOT hub, that is some of the most competitive power rates in the country, a negative for it for the grid is that they are tied to strip pricing. So right now, this pricing in the ERCOT hub, and what in the West ERCOT hub is not nearly what it was, you know, four months ago, five months ago, it's been it's gotten hit pretty hard by the the $8 in him gas prices. So now that will eventually correct itself, most likely, because you're gonna have more producers come on and drill more wells and bring more gas on the system and all that but you still have supply constraints out there, that I think we're going to be in a little bit higher price environment for quite a while. So the there's also a negative to being on grid and the regulatory risk in my mind. You know, I know Texas is very welcoming to to Bitcoin miners and they're doing a great job of bringing it in. But there's always in the back of my mind, and this was probably the lawyer brain and me, but there's always the fear that you know, we get another major winter storm, things don't go quite as well as we hope they do as far as curtailing power and send it back to the grid, you get some major outages and and you get the squeaky will kind of get in the grease issue where the as soon as the politicians see that there's some people throwing a fit about Bitcoin miners are having instability on the grid. Bitcoin miners could end up being one of the first ones targeted to be taken off. And so I think it's really important. And I think groups like riot are doing a really good job of really making sure that they are participating in the curtailment programs and being being a kind of proactive, cooperative group with ERCOT. And with encore and the other utilities out there to make sure that they are complying with those kinds of programs. So we need to make sure that all the miners that are getting on grid down there, we need to do the same. I think that I think it's something that if we're going to have that be our kind of narrative, which is true, I believe in Harley 100%, we need to make sure that we're participating in cooperating with that.

Foxley: Tell me about ERCOT a little bit as well, since we're on this part of the conversation, there's been so much Bitcoin mining going down there, it's a spike in demand off the grid. And a few years ago, we have a different problem, too much supply. And so we saw like a lot of windmills going out there. And now there was like negative pricing and Bitcoin miners come in as demand demands going up so dramatically that ERCOT is coming in and trying to re draw the rules for Bitcoin miners in the region. How does that look like for you guys trying to draw up contracts right now for this site? Maybe you can lend a little information for other miners in the area who are also trying to drum contracts and and hitting their heads against the wall in some cases.

JB: Yeah. Well, I'm shoot, I'm gonna give a little plug for myself right here probably. Go ahead. Sorry. That is an issue. Right? That is an issue there. There's the new workout rules came out and they're doing the kind of the test and the reviews over the modeling and the power drawers and all that type of stuff for sites that are over 75 megawatts. Now, this is 120 megawatts, but it's at four separate sites. And so we're kind of avoiding and I don't want to cause any undue attention to, or kind of tried to come and sneak in and get us. But you know, we're not violating any type of rules, and we're well with it from what they're trying to do. I think it still makes sense. But we are every one of our sites is less than 40 megawatts is 40 megawatts for the last. And so that's one way to, you know, reduce your, your kind of draw that you're having on one particular spot within that hub. And so it's dispersed more, it's decentralized. So it's better. And that's kind of one of the things that, you know, or if I didn't have that rule before we get going, but that was one of the things that we actually looked at, as an attractive thing is that you're dispersing the sides across. So if you have an issue at one, it's not taking down all of your operations. Right. So that's one aspect I think people need to consider. I know there's these massive farms out there that, you know, that's that's attractive. But I think that there's aspects to how we're setting this up with Lawson, that Lawson knew right off the bat, they identified that early on was like, we like having separate sites that are, you know, 40 megawatts, 20 3040 megawatts. So that especially considering they're fairly within their within a region that you can kind of get to fairly easily so yeah, that's one aspect of it that I think was very, really kind of, I don't know, forward thinking on their part was that they identified that that makes us probably more attractive. And it just was a kind of a, it was just the reality of the way it was going to work for us. Because we were going around I was trying to identify, alright, here's substations Do I know the landowner? Let's see if we do. And so that that was that was basically what I was doing is, it was like laying man one on one work is you go kind of lock up the property that you want, and, and then you go find a way to develop it. And the best way that we could do that was finding a good partner like Mohsen. And put it together. But as far as going back to ERCOT, again, sorry, will I jump off on tangents? So going back to

Foxley: my toes? Like, did I ask that question? I already know he's answering it. He answered, the question is going to

JB: my bad, my bad. Yeah, so the way that ERCOT kind of West hub works out there is that the prices will be bid out. And we're working with Priority power, as pretty much everybody out there is we're working with Priority power on this deal. And so they are going to bid out the PPA to the retail providers that are out there. And, you know, Mohsen will be able to decide who they want to utilize for that. As far as the pricing that you mentioned, like the there's negative pricing and the over build on on the grid and things like that, there are still negative pricing out there, despite the fact that your overall energy price is going to be higher than what it was just a few months ago, you still what I think miners going to do and when I think Mohsen will likely end up doing a lot of is kind of playing that power market game where you're looking for the arbitrage, during peak demand times at least sell power back during that time, during you know, lower, lower, like when the prices go negative, obviously, you want to probably consume more power at that point. So I anticipate them playing that kind of arbitrage game a lot. And I think that's what you got to do, considering gas prices are what they are, and you're not going to get the same kind of prices. But even with all the building of all the renewables over there. And yes, gas prices went up quite a bit, we're still going to see this same like wild swing on a day to day basis, like you'll, you'll see in the morning, it might be $400 per megawatt hour. And then later on in the day, you're gonna see negative $5 A megawatt hour. And so it fluctuates tremendously throughout the day. Even with, you know, there being the price fluctuation and you pay more as a retail purchaser, you're paying more than what you would have paid before you still can take advantage of those different kinds of markets, rather. Yeah. Yeah. And that's what makes ERCOT kind of unique. There, you don't have the same opportunities all over all over the country, you are caught some very kind of unique situation.

Foxley: One last question about that. Before we finish up with TPL. We haven't devoted enough attention to that topic itself. I've gotten some information from somewhere saying that are kind of starting to drag their feet on things or redrawing out the rules. What's your take on this in the next year? So there's supposed to be gigawatts Bitcoin miners going live in West Texas. Obviously, it's going to change the rules a little bit because there's there's pressure points are being hit. I'm curious to your take on it.

JB: Yeah, I think that's it's unavoidable. Right. The industry has exploded in Texas, and it's just going to continue to explode. Right now. We're just in the early phases of where people are trying to get deals set up and trip You're trying to secure power. Some of them are building their own substations right now. And so I think it's it's unavoidable. And I know most of us in the Bitcoin world are a lot of there's a lot of libertarian kind of mindset. And we would prefer there to be hardly any regulation over stuff. But I think just realistically in the society that we live in, there's going to be and, you know, ERCOT went through a lot with the winter show, and Murie, back in 2021. And I think that they want to make sure that they are prepared for any situation that comes down in the future. And so, yeah, I do think that we say they're redoing the rules. I don't know if it's redoing the rules, or if they're just trying to make the rules. And because we are, this is a new industry, I want to say I think there's about 150 megawatts that are actually participating in the like, LRW, response, and all that type of all the different workout programs out there. So that's not a ton when you think about the amount of bitcoin mining that is coming on, onto the grid. And so I think they're just trying to do their due diligence on making sure that the power that has been dedicated to mining operations is actually there. And the this isn't going to overwhelm the system. I just think when you hear like, even like you just said, like the five gigawatts that we're talking about coming on, that's a huge number. That's a huge number. And so I think that they would be doing themselves and they'd be doing the state a disservice by not looking into some of the stuff. And just trying to make sure that look, we're ready for this influx of miners that are going to be coming on. And, and we're we're prepared to handle that we've done the studies to make sure that our our grid is stable enough to handle this demand that we anticipate over the next two to three years.

Foxley: Yeah, I'm curious to see what the total gigawatt percentage comes online. A ton, a ton that was turned to TPL as we close up the conversation. So you gave us a little bit of the history beforehand there like when the earliest publicly listed companies are worth like $10 billion market caps $10 billion right now. Can you walk us back through TPL, though, like how they were formed in Texas, they've done in the meantime, and what they're up to now.

JB: Right? Yeah. So they've been around, basically, since Texas became Texas, since the land grant. And the way they got their property position was Texas Pacific Railroad. And so when they build the railroad through there, there was a land grant. And that property, it was kind of checkerboarded. And I don't know, I know, I use oil and gas lingo. And I know you guys don't know what I'm talking about. But they use section township range up there. And so that's the way the lanes kind of carved up. So you get, it looks like a checkerboard. And they've got kind of if they had all the black squares, it's here, here, here here, you know, it's kind of like that. And so and then over time that he started acquiring more property, and, and they were a trust for a long time to Texas Pacific Land Trust, they went public. And I want to say back in the 20s, maybe even before that, but they developed, they just so happened that that property is situated on some of the best oil and gas reserves in the nation, actually the best in the nation. And so once that discovery kind of happened, you got so many pipelines, they gotta go through, you got water that needs to get taken through, you have oil and gas companies trying to get surface size so that they can drill the put the pad on the on the property. And so they just slowly began to be a more and more prominent player in the oil and gas space. And they also own a lot of minerals as well, but most of their revenue is derived from surface operations. So SWD Well, saltwater disposal wells, that's the water that's produced from an oil and gas, well, they dispose of it back into the reservoir down underground. They also, like I said, their water team that handles putting water pipelines, I believe they even do some recycling. They own something in a recycling system. Not for sure on that, but they just continued to build out their their land position. And with it being in the oil and gas reserves area that it's in, in the Delaware basin, it just really kind of exploded the value. They've also been getting very heavily invested into renewable projects, which is another aspect of this whole deal. That I think is you know about people are probably not obviously thinking about it, but I think it gives moss and a huge opportunity for growth over the next several years by working with TPL in us on some of the renewable opportunities that are going to be situated on that property. And so, yeah, I mean, they are they are as, as conserved. have kind of old school group as you can get. But they're also showing that they're one of the most forward proactive thinking groups that you can get by becoming one of the first groups to allocate some large capital dollars towards a mining operation. So in that doing it off flared gas, like that's a big deal. You know, a lot of the public companies look for opportunities to kind of dip their toes in the water and mine Bitcoin, but they want to do it as flare gas for the ESG narrative. This is TPL is looking at this like this is a great opportunity for us to get involved in a space that we think is going to be huge in the future. And so I really applaud them for being aggressive and thinking forward on it. So I didn't get my plug, though, I want to tell you my plug. Yeah, man, I've had a lot of outpouring or interest calls from landowners, ranchers, oil and gas companies, really, all kinds of people other Bitcoin mining companies, to help them figure out how to structure deals. And in fact, I got really a call from a royalty on a group the other day, that was really big group, it was about the TPL job. I have opened up a, I'm an attorney. And I know that's a bad word some people do. But I have opened up a law firm, that I am going to be working with some folks on kind of helping them put together these types of deals on their own property and things like that. So if anybody ever has any questions about how to structure these things, or how to look at it, because while we're very similar to oil and gas, it's very different to and I think that the landowners need to recognize that the miners have certain economics that they got to hit. And it's better for both parties if they're able to hit those metrics. So there's a lot of kind of education that needs to go on, not only with the oil and gas companies, but with the landowners as well. So like, this is a new market, and you can't treat it just like oil and gas, even though it's very similar to oil and gas.

Foxley: Yeah. What's it called Ballard and sons are

JB:  32:08
J Ballard, law. J. Ballard, law, our law, J. Law. Established block height 730.

Foxley: People get really good with

JB: what is that? Totally, totally.

Foxley: Justin, thanks for coming on today. Where can people find you and track the developments at JAI energy?

JB: Yeah, Twitter's easy. @JLB_Oso and also our website, jaienergy.com. You reach me at email [email protected]. So really, any of those ways is good for me. LinkedIn too. I'm on LinkedIn. And you guys can reach out on LinkedIn if

Foxley: he's on LinkedIn.

JB: But yeah, any of those ways they call you and ask you to

Foxley: true, they can just hit me up. Not gonna give them my phone number though. Cool. Justin, thanks for joining us on the podcast and hopefully see you again soon. And maybe even TPL in the near future on this podcast.

JB: Actually, I would like to have them join us sometime. If you if you are open to it. I'd like to have always a spot. All right. Perfect. Kevin and Huntley, only barking Kevin Pierce were instrumental in in helping me get this done. So I want to really give them a shout out. Thank you for that. Liam Wilson. Two over and over. I'm awesome. Just thank you for putting up with me as well as Tom Hughes. Gotta give him credit. He really got annoyed, I'm sure but

Foxley: you only get one plug on the show. I'm sorry.

JB: It's one long string of plugs. All right. Well, thank you. Well, I appreciate you guys having me. Anytime you guys want to talk to me. I'd love to chat.

Foxley: For sure. Catch up soon.

Foxley: All right.

Hosted by Will Foxley