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BHP Billiton Limited share price climbs on oil demerger reports

The BHP Billiton Limited (ASX: BHP) share price is one of the few shares trading in the energy sector to be sitting in the black today.

The BHP share price has gained 0.3%, compared to a 6.3% decline for the Liquefied Natural Gas Ltd (ASX: LNG) share price, a 1.8% decline for the Senex Energy Ltd (ASX: SXY) share price and a 0.4% decline for the Woodside Petroleum Limited (ASX: WPL) share price.

Meanwhile, iron ore miners Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) are also trading in the red.

BHP’s move higher today could be at least partially attributed to an article that appeared in The Australian Financial Review today, which speculated that the miner could look to demerge its petroleum business.

Such a move wouldn’t be unprecedented. The miner completed a major demerger of its non-core assets to create South32 Ltd (ASX: S32) in mid-2015 as it looked to cut costs, improve efficiencies and re-focus on its core activities.

According to The AFR, London-based analyst Paul Gait, of Bernstein Investment Research, believes the arrival of Ken MacKenzie as BHP Billiton’s new chairman could spark a “radical shift in strategy” within the business. That could involve a demerger of the petroleum business, which Gait believes would create a more pronounced upside in the core mining business that would also become easier to see.

The article went on to suggest that a refocus of the business could also involve an exit from the potash market. By removing the petroleum and potash units, BHP would be left with “an incredibly high quality portfolio of enormously cash generative mining assets”, as quoted by The AFR.

Petroleum production accounted for roughly 22% of BHP Billiton’s revenue over the 2016 financial year (ended June 2016), compared to 25% in 2015. However, it produced an underlying loss (EBIT) of US$537 million during the year, down from an underlying profit of US$1,986 million the previous year.

The BHP share price has had a shaky start to 2017, and currently sits just above $24 per share. Although it remains one of Australia’s most widely-recognised businesses, investors do need to be careful and consider the risks associated with the miner’s heavy exposure to commodity prices. Any further declines in those commodity prices (especially iron ore, copper and petroleum) could prove damaging to the BHP share price.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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