What's new?

Petrol prices maybe cheaper at the pump these days but
the bullish outlook for oil has not changed. And if that bullish
view proves correct, BHP Billiton will be a significant beneficiary
with more than a quarter of the diversified resource giant's
earnings derived from energy.

This week BHP Billiton announced plans to invest $783 million to buy a stake from Andarko Petroleum in the promising Genghis Khan oil and gas field, situated next to the company's Shenzi oil and gas field in the deepwater Gulf of Mexico.

Weighing in at $5.7 billion, it is one of the largest project developments undertaken by BHP, with production commencing in 2009.

The acquisition comes a few weeks after the company delivered an upbeat September quarter.

Despite a decline in production caused by strike action at the Escondida copper mine in Chile, output is set to recover strongly.

The outlook

Analysts believe that emerging economies will underpin long-term demand for commodities. China continues to power ahead, with gross domestic product in the first nine months of the year growing by 10.7 per cent from a year ago, which was faster than any other major economy. It could have been even higher had the Chinese authorities not tried to limit pockets of expansion. India is also proceeding rapidly down the path of industrialisation.

The combined population of two billion-plus consumers is likely to ensure the planet's overall thirst for commodities remains strong for many years ahead.

And let's not forget Japan. The economy there is undergoing its second-longest expansion since the end of World War II.

Meanwhile in the West, pockets of recovery are also emerging in Europe, most notably in Germany, the world's fifth-largest economy.

Supply-side pressures on the company remain, due to decades of underinvestment in new mines and infrastructure. Indeed, this was clearly evident in BHP Billiton's updated trading result.

Price

Despite the surge in its share price - it is presently about $27 - over the past few years, BHP Billiton remains one of the cheapest stocks on the Australian sharemarket.

The company is trading on a prospective price-to-earnings ratio of about 9 times. The market seems to be strangely reluctant to fully endorse the "stronger for longer" view of the commodity boom.

Worth buying?

BHP Billiton's pipeline of projects across the globe continues to be a major attraction of the company.

There are 23 projects at the feasibility stage or under construction, representing capital investments of about $14 billion. There are also about 200 projects in early stages of assessment in 35 countries around the world. The company is definitely building for the future. BHP Billiton is an attractive play on a long-term bull market in commodity prices and the shares are compelling value at the current price of $27.

Disclosure: Interests associated with Fat Prophets declare a holding in BHP Billiton.