BHP BILLITON, the world’s largest mining company, launched itself into competition with the oil and gas giants ExxonMobil, BP and Shell yesterday as it pledged to commit billions of dollars to the petroleum sector.

BHP, which announced record profits up 63 per cent to $10.5 billion (£5.6 billion), is planning to more than double its petroleum production within three years. Analysts regard this as a huge increase in an industry where the costs of raising production are measured in billions of dollars.

By 2009 the Anglo-Australian miner will have oil production equivalent to almost one fifth of BP’s current daily output. Its gas production will be equivalent to almost a quarter of the output of BP.

BHP is investing $5.2 billion to develop its petroleum division and bring on stream nine major projects in areas such as the Gulf of Mexico, the northwest coast of Australia, the Caribbean and Africa.

The company is also increasing its petroleum exploration budget by 12.5 per cent this year to $450 million. The petroleum exploration budget exceeded its mineral exploration budget for the first time last year. The company plans to spend about $350 million looking for new mineral deposits this year.

BHP said yesterday that it is spending so much to develop its petroleum business because it believes it is one of the few companies with the resources and expertise to challenge effectively in this capital-intensive sector.

It also wants to diversify out of minerals as protection against the cyclical nature of the mining industry.

But this diversification may also make BHP a target for the oil giants, which are also considering diversification for the same reasons. Analysts at JPMorgan believe that Exxon, BP and Shell could be tempted to bid for BHP. They said in a note that BHP and its close rival Rio Tinto have “assembled some of the globe’s best minerals real estate, have the best management, have the best operating practices, and have mineral resources positions that can support production plus growth for 100 years plus in many instances”.

BHP’s petroleum business has struggled in recent years but a number of major projects are about to come on line, including Atlantis, Neptune and Shenzi in the Gulf of Mexico.

These projects will boost its production from 318,000 barrels of oil a day to about 750,000 barrels — compared with BP’s 4 million barrels a day at current output.

BHP also announced yesterday that it would return $3 billion to shareholders through a share buyback. This is on top of the $2 billion announced in February.

Chip Goodyear, chief executive, said: “Five to six years ago we would have been happy with the profits we are now making in one month for the whole year. We expect the coming year to be another strong one and we should see the petroleum business really start to take off.”

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