Energy lenders continue to adjust their price forecasts in first-quarter 2011 as prices strengthen, according to Mac­quarie Tristone’s most recent “Quarterly Energy Lender Price Survey” of 41 participating regional, U.S. national and international reserve-based lenders.

For 2011, the first-quarter survey indicates a mean base-case WTI oil price forecast of $65.52 per barrel and a mean base-case Henry Hub gas price of $4.15 per million Btu. The five-year trend shows an increasing forward price deck for both oil and gas, with average 2015 oil and gas price forecasts of $68.63 and $5.25, respectively.

Modest escalation of both oil and gas prices after 2015 is common, but prices are capped at means of $69.66 per barrel and $5.49 per million Btu, respectively. The average discount rate used by participating banks is 9%, unchanged from the previous quarter’s average. Operating costs on average are escalated 0.8% per year for both oil and gas.

Using a 60/40 blended gas/oil weighting, Macquarie Tristone com­pared the average base case against Nymex futures pricing as of January 3, 2011. When compared with Nymex futures pricing, the average base-case results were 75% of Nymex futures in 2011 and 81% in 2015.

“This marks a slightly downward trend compared to last quarter when first-year results were 82% of Nymex futures,” reports the firm.

Quarter-to-quarter pricing trends. Compared with the fourth-quarter 2010 survey, front-year pricing has increased by 7% for oil and by 6% for gas. In the later years, forecasts for oil prices in the fifth year increase by 2%, and forecasts for gas prices in the fifth year increase by just 0.4%.

“Since starting the Macquarie Tristone Energy Lender Price Survey in second-quarter 2005, the participating banks’ oil and gas price decks have continually increased in the extended years from the previous quarter’s results,” according to the firm.

“The exception has been in the last six quarters. Third-quarter 2008 results showed the first quarter-to-quarter decrease, and the first-quarter 2009 results showed a shift from back­wardation to contango. This quarter, the contango trend continues, with base-case pricing increasing slightly from fourth-quarter 2010.”

Sensitivity-case results. The first-quarter 2011 survey also includes a sensitivity case, which represents the lenders’ low or conservative price decks. Of the 41 participating banks, 32 banks provided a sensitivity case, which averaged a 19% discount to base-case lending policies for oil and a 20% discount for gas over the five-year strip.

Reserve-based lending scenario. In order to show the impact of year-to-year changes in the base-case price decks on advance rate amounts, the firm analyzed a discounted cash-flow model for a U.S. onshore property acquisition using general assumptions. The objective is to calculate the change in the advance rate amounts (i.e. lending funds) using a typical acquisition project.

Using the same assumptions and the base-case price decks from the first quarter, with a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be $71 million. The increase in base-case pricing from first-quarter 2010 to first-quarter 2011 results in a 5% increase in advance rate amounts.

Macquarie Tristone is a global energy advisory firm that provides fully integrated investment banking, acquisitions and divestitures, and global equity-capital-markets services. For more information, contact Andrea Yuen at 713-651-4206.

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