BHP output stuns analysts

A strong quarterly report was expected. BHP delivered one that was far better than anticipated.

It has been bought strongly on the rumour for the past few days. Now BHP Billiton (BHP) is being bought on the fact.

The quarterly production report released this morning provides graphic evidence of why the Melbourne based miner is universally considered the world's best resources house.

While the initial attention was focused squarely on the stunning growth in iron shipments - with quarterly growth of 23% and full year production targets raised to 212 million tonnes - it was the turnaround in petroleum that should set hearts aflutter.

In particular, the improvement in the US oil and gas division will help override the strident criticism the company faced after its foray into US shale gas with the Petrohawk acquisition.

Petroleum output hit a record 62.7 million barrels of oil equivalent but more importantly, the Petrohawk properties appear to be moving in the right direction. A 16% lift in liquids production was underpinned by improved performances in onshore US properties, particularly in the Black Hawk region of the Eagle Ford.

The only cloud over the production numbers are from the Jansen project in Canada. With potash prices heading in the wrong direction, following the break-up of a Russian cartel, the economics of the project appear shaky.

The company, however, is adamant that with rising incomes and a rapidly developing emerging economies, demand for better quality food will underpin demand for fertiliser.

There stark difference in earnings profile between BHP and Rio Tinto (RIO) has never been more apparent.

Where Rio is moving towards a pure play iron ore operation - with 91% of revenues from the steel making ingredient - BHP now has five major earnings pillars of iron, copper, petroleum, coal and potash.

Iron ore accounts for about 45% of revenue with petroleum making up 43%, a mix that should deliver a more stable earnings profile than its single interest rivals.

The other major factor apparent in this morning's numbers is confirmation of the direction newly appointed chief executive Andrew Mackenzie is taking the conglomerate.

Along with the disposal of non-core assets, Mackenzie's focus is on improving the performance and lifting productivity at the company's tier one assets. The turnaround in the US petroleum division, not long ago considered a blunder, is evidence of that.

BHP stock has been bid aggressively higher in the past few sessions. It was again in hot demand after the figures were released, rising almost 2% to $36.90.

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