Keep Oil and Gold In Your Portfolio, no substitutes renewables world reserve currency

No Oil Substitutes

Oil and Gas - Despite what many western governments and environmentalists are saying, the world has not moved away from oil.  While it is true that many modern vehicles are equipped with hybrid fuel technology, they still depend on gasoline for 80-90% of their fuel needs.  Virtually every home built twenty or more years ago is heated with oil and the cost to change that is high making the change to electricity an additional expense most homeowners simply cannot handle in a depressed economy.  Additionally the more popular modern power generators are only fueled by oil and gas.

Gold - The yellow metal holds a unique status in everything from religion to jewelry to wealth storage.  Even central banks and world governments look to gold as an inflation hedge and trade gold in times of economic trouble (2016 - Venezuela); no other metal enjoys this distinction not even platinum and there's no reason to think that will change anytime soon.  The last time fiat currency wasn't being used world trade relied fundamentally on the gold standard.  With the US dollar losing popularity as the world reserve currency and China looking to gold to prop up its own currency it appears as if the gold standard will once again run the world economic system.

Oil production still powers the economies of many key nations

And these are nations of influence - Saudi Arabia, Russia, Iran, Canada, United States.  Other key countries such as Nigeria and Venezuela are developing vast oil reserves as a source of future economic growth.  As long as oil is available there will be a market for it.  (nigeria oil reserves)

Renewable Energy Sources Continue To Be Too Expensive

With the world economy slumping along there is no reason to expect people to voluntarily shift to expensive sources of energy anytime soon.  Even the cheapest of these - energy derived from corn (corn demand, ethanol) in South America - is already wreaking havoc on commodity prices in that part of the world because it takes too much of the crop to replace just a fraction of the energy it needs.

Amec plc Is A Solid Company Built On Growth (LON:AMEC, Mactec, Urenco, BP, Clean Energy, Energy Investments, Earth & Environmental)

Here's a stock that should appeal to the pernickety investor, London-based engineering group Amec (LON:AMEC). The company is an important player in both the nonrenewable (oil & gas) and renewable (nuclear & other clean energies) sectors; It provides services ranging from oil rig maintenance to water supply management of municipal acquifers and conservation strategies to nuclear power plant decommissioning and other safety services.

What makes the company solid is the fact that the services it provides are so diverse. It operates in oil and gas but also the booming clean energy industry. There's also the minerals & metals and environment & infrastructure divisions. The group provides consulting, engineering and construction/project management primarily as designer-developer of strategic assets (also maintenance and decomissioning, in 2010 $2.45b of its $5.0b sales originated from the engineering design process). In the North Sea, it fabricates and designs oil rig platforms. It also services oil wells in Kuwait and aids oil safety efforts in the Gulf of Mexico where it designs and delivers components for the Marine Well Containment Company (MWCC). In Chile AMEC has a contract with Compañía Minera del Pacífico (EPCM) for work at the Cerro Negro Norte iron ore project.
After the nuclear meltdown in Japan, nuclear safety is also becoming a major issue. That's good for Amec because the company is experienced at nuclear cleanup and decommissioning problematic reactors. Amec's customers are diverse meaning the company appeals to a broad group of clients. Key clients include the US Navy, nuclear company URENCO, and oil and gas companies British Petroleum and ConocoPhillips.

Important points to consider
- Amec added 3500 new employees in 2011 bringing the total to just over 27,000.
- Amec runs AMEC academy which helps new employees develop skills.
- Amec added a number of new customers in 2011 among them GDF Suez (Cygnus gas field) and nuclear power company Urenco.
- World primary energy demand is forecast to increase by 40% between 2009 and 2035 (12.15M tones of oil equivalent --> 16.950Mtoe).
- According to the world's biggest company ExxonMobil (2012 Global 2000 list released in April) global population will increase by 25% between 2010 and 2040 with non-OECD nations contributing 90% of energy demand growth.
- The Clean Energy market which is integral to Amec's business mix, was the recipient of $260 billion in global investment in 2011 which is a record high for that market.

Key Financial Metrics to consider

In 2011 earnings per share (EPS) up +13% to 70.5 pence, grew faster than revenue/turnover (+11%). Amec also pays dividends ! 30.5 pence/share in 2011 which is +15% vs 2010 (26.5 pence). While we're talking about dividends keep this in mind, AMEC's dividends have gone up for four consecutive years. Dividends were 13.4p in 2007, 15.4p in 2008, 17.7p in 2009 and 26.5p in 2010. The company's operating cash flow was up +22% in 2011 to £267 million. Total pretax profit is up nearly 50% in just two years even though during that time revenue increased by only 28.4%.

In my opinion AMEC's products and services are invaluable to the energy industry. Though about 80% of revenue comes from Europe and North America, AMEC has offices in 40 countries worldwide. The company is also not afraid of making big acquisitions; Amec has a major growth strategy which is refers to as Vision 2015. It aims to make the company more multinational through acquisitions while also enhancing its capabilities in key sectors. Consistent with that goal, in 2011 Amec acquired Australian oil and gas consultancy group Zektingroup for AUS$48 million (gives it a presence on the East Coast of Australia, Zekting's workforce = 200) followed by Georgia-based Mactec on May 17, 2011 for US$280 million all in cash. The deal for Mactec was ingenious, although Mactec is already involved in the same kind of business its client base was a lot different (was more commercial and industrial). In its last year of being independent Mactec made $411M in revenue (compared to $5.0B for Amec in 2010).

Mactec
The Mactec deal added 2,600 employees to Amec and boosted its North American workforce up to about 14,000 (half of company total, NA operations account for roughly half of Amec's revenue). Mactec then became part of AMEC's Earth & Environmental division (environmental, water resources, infrastructure unit). Mactec gives Amec more business in the Western USA and Canada.

Other Strong Investments in the engineering industry (nyse: MTZ)
MasTec, Inc ! If you live in North America you probably make use MasTec built infrastructure on a regular basis. The company installs and maintains energy infrastructure most notaby that which is used in electrical utility transmission. For the first three months of 2012 calendar year MacTec revenue is up +25.87% quarter on quarter to $778.48 million. However, the bottom line didn't improve (in the quarter net income down -33% to $14M) because the cost of revenue was up +29.5% ($583.91m --> $684.66m). That may be an aberration owing to wildly fluctuating metal prices and other imput costs; The cost of revenue in the March 2012 quarter was at its lowest level in three quarters.