The purpose of this lesson in history, and invoking the name of a leading communist, is to point out that great events now unfolding in the mining world have more than a little potential to flow into the oil and gas world.
BHP Billiton, one of the few companies to play both sides of the resources game, is the potential catalyst for what The Slug sees in his crystal ball.
The picture emerging, subject to cloudy conditions in the crystal, is one of wholesale restructuring, asset swaps, and ownership shake-ups flowing seamlessly across the resources sector.
To explain, petroleum people must first lift their noses out of the daily grind of pumping oil, or exploring for it, and have a look at events in the aluminium world.
It is here that they will see two non-oil companies merging at a very handsome price. Rio Tinto is the company buying Alcan for $44 billion to create the world’s biggest aluminium producer.
So what? Well, the second shoe to drop in the aluminium world is likely to be one worn by BHP Billiton, and it will fall when a widely forecast takeover bid is made for Alcoa.
That bid, should it come, is being seen in some circles as an opportunity for the triggering of a major internal shake-up in the structure of BHP Billiton itself – including the divestment of some aluminium assets to please anti-monopoly regulators, and the long-expected spin-off of the company’s petroleum division.
Followers of BHP Billiton will know that a petroleum float has been on the company’s cards for some time, but always returned to the deck as either unnecessary, or damaging to the business.
Those same followers might care to notice that events are moving quite quickly at BHP Billiton. Not only is it about to get a new chief executive in Marius Kloppers, but it is on the verge of making a move on Alcoa at a forecast cost of $70 billion – and while it’s doing all that it might even find the time to raise additional cash while completing its streamlining into a pure mining business without an oil rump hanging out the back.
The Slug is not the first to spot what might become a major shake-up at BHP Billiton. People much smarter in London and New York are already “running the numbers” on what a floated BHP Billiton Petroleum might be worth, how much ownership would stick with the parent, and who might invest in the float itself.
Interesting as those thoughts are there is even more interest in who might invest in, or buy, some of the BHP Billiton assets.
Now, this is where the game gets really interesting because if BHP Billiton does shuffle its oil assets, including a slice of the North West Shelf and production in the Gulf of Mexico, the conditions could be created for even bigger moves in the worldwide petroleum industry.
Just as Rio Tinto’s move on Alcan has triggered a much wider shake-out in the aluminium world, a BHP Billiton move on Alcoa has the potential to trigger a wholesale shake-up of the Australian oil patch, and potentially send a ripple across the entire oil world.
The Slug knows he is drawing a long bow but there are forces at work in the oil game which will need to flow somewhere. The critical one is what to do with the cash flowing into big oil companies that cannot replace reserves.
The only solution is to buy assets in the ground. And the time to buy is when other people reckon it’s time to deal, and that time simply needs a catalyst to make it happen – such as when a ripple flows out from aluminium world into the oil world.