The Rising Influence of Rising Affluence

[DewDiligence]

Does it make sense for BHP to be in the oil & gas business?
Yes, it does, according to this discussion in the WSJ.

http://blogs.wsj.com/source/2012/03/22/should-miners-consider-tapping-oil-gas-for-profits/

BHP’s petroleum division has ranked as the company’s second-most profitable division after iron ore with an average adjusted Ebit margin or earnings before interest, taxes, and exceptional items margin of 56%, compared with 60% for iron ore, on average over the last two financial years thanks to higher crude-oil prices.

…Analysts say the synergies between mining and oil aren’t many and aren’t very apparent—one involves moving rock, the other involves moving liquids—but there are two reasons why such an investment may make sense:

First, investing in oil and gas acts as a natural hedge against energy costs. “Rio Tinto PLC and BHP Billiton use as much energy as a small country,” said Seth Rosenfeld of Jefferies. As a result miners can profit from rising oil and gas prices, thereby offsetting the negative impact of higher energy costs on their mining operations.

…Second, diversified miners can offer the whole gamut of energy products—through coal, natural gas and oil—that meets the competing demands of developing countries’ energy needs.

BHP’s BoD obviously agrees.