NEW YORK (TheStreet) -- BHP Billiton (BHP), the world's largest natural resources company, is transforming itself into more of an oil and natural gas company like Exxon Mobil (XOM) and Chevron (CVX). While BHP is well below the production levels of a Chevron or Exxon, it is a welcome change for investors. Here are three reasons why investors should seek to profit from BHP focusing more on oil.
There will be a greater demand for oil and natural gas in the future.
BHP is selling off industrial metals assets to focus on key sectors such as oil and natural gas. Towards that goal, it sold off or spun off its aluminum, bauxite, and nickel assets.
Its major move in oil and natural gas was the $15 billion purchase of Petrohawk Energy. BHP also spent $4.75 billion buying interests in the Fayetteville Shale from Chesapeake Energy (CHK). This $20 billion expenditure puts BPH in a better position to profit from the increasing demand for oil and natural gas, which is expected to supply 60% of the world's energy needs for the future according to Exxon's, The Outlook for Energy: A View to 2040.
Oil is becoming a safe haven holding, raising the value of sector assets.
Oil is evolving into a new safe haven asset. That resulted from liquidity, demand and its appeal to both speculators and investors. From that, the price of oil trades higher than it would based on pure economic demand. In testimony before Congress, Exxon CEO Rex Tillerson stated that oil was 50% higher due to speculative buying. With substantial oil and natural gas holdings, BHP benefits from the higher price for those assets.
This reduces BHP's reliance on the China market.
As an industrial mineral company, BHP was very reliant on demand from China. As the world's biggest consumer of aluminum, bauxite and other commodities, Chinese growth very much influenced the stock price of BHP and others in the natural resources sector. Reconfiguring itself to be more of a player in oil and natural gas, BHP is not as heavily reliant on China as it was before.