?Energy lenders’ first-quarter 2009 outlook for oil prices has fallen, according to a new survey of 46 commercial-capital providers.

Front-year oil prices have fallen below the $70-per-barrel threshold, with average price expectations dropping from $70.39 in December 2008 to $46.61 in this quarter.

The front-month gas-price forecast declined to $5.39 per million Btu, down from $6.81.

The results are according to gobal energy investment-banker and M&A advisor Tristone Capital Inc.’s “Quarterly Energy Lender Price Survey” of regional, national and international reserve-based lenders. The first-quarter data suggest the participating banks no longer believe in 2008’s stronger commodity prices.

The lenders’ five-year trend shows a forward price deck for both oil and gas, with average 2012 forecasts of $56.93 for oil and $5.95 for gas.

“Modest escalation of both oil and gas prices after 2012 is common, and prices are capped at an average of $59.13 and $6.08, respectively,” the firm reports.

The average discount rate used by participating banks is 9%. Operating costs on average are escalated 0.5% per year.

Using a 60/40 blended gas/oil weighting, the firm compared the average base case against Nymex futures as of January 28, 2009. The average base-case results were 100% of Nymex futures in 2009, gradually trending downward to 83% by 2013. Thus, banks appear to be adopting a much more conservative outlook than what is observed in the market.

Quarter-to-quarter trends. Compared with the fourth-quarter 2008 survey results, front-year pricing for oil and gas has fallen by 34% and 21%, respectively.

The amount of price decrease is much lower in the later years as forecasts for oil prices in 2013 decrease by 7% and gas prices decrease by 5% versus last quarter’s survey.

“Since starting the survey in second-quarter 2005, the participating banks’ oil and gas price decks have continually increased in the extended years from the previous-quarter results,” the firm reports. “With fourth-quarter 2008 being the first exception to this trend, first-quarter 2009 decks continue to decrease from last quarter’s results.

” Sensitivity-case results. The first-quarter 2009 survey also includes a sensitivity case, which represents the lenders’ low or conservative price decks. Of the 46 participating banks, 37 provided a sensitivity case, which averaged an 18% discount to base-case lending policies for both oil and gas for 2009.

The 2008 average sensitivity-case oil price is $38.29, for example; for gas, $4.41, according to Tristone’s findings. Reserve-based lending scenario. Using current assumptions, the base-case price decks from the first-quarter 2009 survey were used to calculate a discounted cash flow using PV9 from the bank average. With a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be about $54 million, representing a sizable decrease from the fourth-quarter 2008 estimate of $65 million.

Under the same assumptions, but using the base-case price decks from fourth-quarter 2008, the amount loaned to a possible acquirer would be about $59 million. The decrease in base-case pricing from fourth-quarter 2008 to first-quarter 2009 results in a 9% decrease in advance rate amounts.
Tristone Capital is a global energy advisory firm that provides fully integrated investment banking, acquisitions and divestitures, and global equity-capital-markets services. Tristone employs more than 150 technical and financial professionals with offices in Houston, Calgary, Denver, London and Buenos Aires. For more information, contact Miles Redfield at 713-651-4229.
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