BHP - Astonishing result

[BlackPeter]

When you say historically, you are referring to the last 10-12 years, prior to that these prices would be considered high.

Don't forget inflation when comparing oil prices today with previous years. Have a look at this chart:

http://inflationdata.com/Inflation/I...ices_Chart.asp

So yes, oil was (even inflation adjusted) much cheaper than now before 1973, and it was (with ups and downs) a bit cheaper between 1986 and 2004. All other times oil was (inflation adjusted) much more expensive than it is now.

I think it is fair to say, that oil is currently quite cheap.

[BlackPeter]

You can't have it both ways, lower oil stimulates demand when BHP is an oil producer so wants higher oil prices.

Actually - you can. I am assuming here that oil prices will move up somewhat from the existing level, but not reaching the heights of the recent years (say maybe moving between US$$55 and US$70 per bl - but than, who am I to predict?).

Given that the current BHP price reflects the current oil price is it fair to assume that the SP will go up with increasing oil price.

If the oil price stays however under the average price over the last 10 years or so, than there is still enough spare cash left for the world economy to put more money into building / fixing infrastructure. Looks like a win - win to me.

As well - BHP is sort of a natural hedge. If the oil price rise is slower than assumed, than they will make more money on their other resources ... and if the oil price goes up faster, than at least they make money with the oil.

Discl: holding, but not too worried about accumulating some more on dips ... i.e. don't rush all out to buy cheap BHP. Be considerate and leave some for me .

[Daytr]

Yep fair enough.
I disagree though that the BHP SP reflects the current oil price let alone iron ore or copper price.
The problem I see for BHP is they have incurred a considerable amount of debt based off higher asset prices & this imo is going to catch a few out & in fact already is.
Where do you price oil in a deflationary world?
Personally I think oil's days are numbered, the Saudis know this & will pump as much as they can which will mean sustained lower prices to force out the higher cost production.

[BlackPeter]

Yep fair enough.
I disagree though that the BHP SP reflects the current oil price let alone iron ore or copper price.
The problem I see for BHP is they have incurred a considerable amount of debt based off higher asset prices & this imo is going to catch a few out & in fact already is.

Not sure, which debt you are referring to. Last time I checked (last annual report) their leverage (liabilities / total assets) was below 30%. Sure, could always be better, but in comparison with many others in the industry this ratio looks quite healthy to me.

Agree that I see some others (particularly Juniors and / or shale oil producers) where the leverage looks quite different. Agree - some of these are likely to bite the dust unless resources recover swiftly.

[BlackPeter]

Where do you price oil in a deflationary world?
Personally I think oil's days are numbered, the Saudis know this & will pump as much as they can which will mean sustained lower prices to force out the higher cost production.

Not quite sure whether the price of oil might be impacted by deflation (and I don't expect deflation to stay around forever ...). The price of oil (as of everyting else) is defined by supply and demand.

The big questions on the supply side is - which game are the Saudis playing (I've seen the article re big sale out due to people stopping to use oil for political reasons). Interesting perspective, but not sure, whether I'd take that as the only possible scenario. Other possible (and in my view more likely) scenarios would be
- desire to keep the price low enough to keep shale oil producers out (meaning oil will long term stay below roughly USD 70)
- desire to kill off the incumbent Russian Zar (meaning - oil will stay low for another 2 or 3 years and than rise again).

Who knows.

On the demand side ... I give you that the green lobby might have some impact on the politics of some of the western countries. Though most of them prefer not to put their money where their mouth is - and talk is cheap.

Big and fast growing consumers are however India, China, South East Asia, South America, at some stage Africa. I don't think that the Saudis have enough cheap oil to supply the world until the Greenies managed to convince the last African despot to spend more money for some more expensive source of energy, if they just can use cheap oil instead.

The only scenario I see for mankind changing its preferred energy source is if & when we manage to find a cheaper / easier transportable source. Haven't seen that yet.

[Daytr]

Watch what Toyota roll out this year.
I think what you argue is the general consensus, however I would suggest it wont be the 'greenies' necessarily needing to lobby, I think the impact will be quite apparent & their will be a global shift in sentiment to do something about it.
The environmental cost & I mean cost in dollars will far outweigh any differential of cost of production.
If man can develop a hydrogen bomb in a matter of years because what they deemed at the time as a necessity to win a global war, developing an engine that isn't powered by fossil fuels is a synch. The main reason why it hasn't happened is not cost, its that there is very little money in it, not like oil.

[Daytr]

Just shorted.
Been waiting for the divi announcement & the resulting spike in the SP.
Net debt of $25Bln !
Prices being received now are much lower than the previous.
Oil alone at the current price will mean revenue is down by over $1.5Bln on the previous six months, possibly more & that's at $60 oil.
What if it goes to $30 like I expect.
Well over valued imo with a market cap in the region of $170Bln, PE must be around 30+!
Let alone if prices deteriorate !
I reckon BHP could go to $20 in the coming months.
I bet the demerger is crap for share holders to.
Typically they give it away!

[BlackPeter]

Just shorted.

Ah well, so you have an agenda to ramp it down ...

I guess it all depends on where you see oil and resources going. If its all down from here, than your strategy is the right one. Personally I am not so sure ...

[macduffy]

I'm not convinced either, BP. Just one small point - yes, net debt is $25b - but market cap is $108b!

[macduffy]

I'm not convinced either, BP. Just one small point - yes, net debt is $25b - but market cap is $108b!



Apologies for the inadvertent duplication, but the point was probably worth repeating!