IEA Announcement: 2 Companies to Consider

09/11/2015 9:30 am EST

Focus: MLPS

Michael Berger

President & Founder, Technical420.com

The IEA expects United States shale production to decrease by 400,000 barrels a day and this could have a negative impact, so Michael Berger, of Technical420.com, highlights two companies in the MLP space for investors to consider as a way to possibly capitalize on this development.

The International Energy Agency (IEA) announced that they expect to see oil supply from non-OPEC countries decline by 500,000 barrels a day next year. This would be the largest decline since the collapse of the Soviet Union in 1992.

Although fuel demand is at its highest level since 2010, record high oil inventories will not start to diminish until the second half of next year. The IEA expects OPEC output to increase by 1.6 million barrels a day next year.

The decrease in supply outside of OPEC shows that Saudi Arabia's strategy to protect the group's market share by pressuring rivals with lower prices is working. The removal of Iranian sanctions will also revive the country's exports and increase OPEC supply.

United States Shale Output Revised Down

In July, the IEA said that they expect to see United States shale production increase by 60,000 barrels a day during 2016. Now, the agency expects production to decrease by 400,000 barrels a day.

We expect this development to have a negative impact, many United States energy companies and investors must be selective during this time. Investors should target companies that have stable and visible cash flow, visible growth backlog, and enough liquidity to capitalize on growth initiatives.

Newpark Resources (NR) represents an attractive investment because the company is levered to the North American energy services market and shares are trading at a discount to fair value.

During the last month, NR has fallen 14% following a negative second quarter guidance revision. NR possesses both short- and long-term value due to the numerous avenues for growth and its growth potential is significantly undervalued by investors. We expect to see NR increase its market share in the drilling fluids business following the Baker Hughes, Inc. (BHI) and Halliburton (HAL) merger.

We also see value in Tesoro Logistics LP (TLLP) and think they are one of the highest quality growth stories in the master limited partnership (MLP) industry. TLLP has a supportive parent company, Tesoro Corporation (TSO), which provides excellent financial support. TLLP has visible growth due to recent accretive acquisitions and dropdowns from TSO and offers investors a 5.9% dividend.

Michael Berger, Founder and President, Technical420.com

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