According to Macquarie Tristone’s most recent “Quarterly Energy Lender Price Survey” of 41 participating regional, U.S., and international reserve-based lenders, banks are adjusting their price forecasts upward as prices continue to fluctuate.

For 2011, the fourth-quarter survey indicates a mean base-case WTI oil-price forecast of $70.09 per barrel and a mean base-case Henry Hub gas-price forecast of $3.89 per MMBtu. The five-year trend shows an increasing forward price deck for both oil and gas, with average 2015 oil- and gas-price forecasts of $73.29 per barrel and $4.92 per MMBtu, respectively.

Modest escalation of both oil and gas prices after 2015 is common, but prices are capped at means of $73.38 per barrel and $5.30 per MMBtu, respectively. The average discount rate used by participating banks is 9%, unchanged from last quarter’s average. Operating costs on average are escalated 0.7% per year for both oil and gas.

Using a 60/40 blended gas-oil weighting, the firm compared the average base case against Nymex futures pricing as of October 3, 2011. The average base-case results were 94% of Nymex futures in 2011 and 88% in 2015.

“This marks a notable upward trend compared to last quarter, when first-year results were 79% of Nymex futures,” Macquarie Tristone reports.

Quarter-to-quarter pricing trends

Compared to last quarter’s survey, front-year pricing has decreased by 3% for both oil and gas. In the later years, forecasts for oil prices in the fifth year decrease by 1%, and gas prices in the fifth year fall by 3%.

“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.

Third-quarter 2008 results showed the first quarter-to-quarter decrease, and first-quarter 2009 results showed a shift from backwardation to contango. This quarter, the contango trend continues, but there is a notable decrease in base-case pricing from third-quarter 2011.

Sensitivity-case results

The fourth-quarter 2011 survey also includes a sensitivity case, which represents the lenders’ low or conservative price decks. Of the 41 participating banks, 33 banks provided a sensitivity case, which averaged a 20% discount to base-case lending policies for oil and an 18% 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, we analyzed a discounted cash-flow model for a U.S. onshore property acquisition using general assumptions,” the firm notes. 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 fourth quarter, with a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be $68 million. The increase in base-case pricing from fourth-quarter 2010 to fourth-quarter 2011 results in an 8% increase in advance rate amounts.

Macquarie Tristone is a global energy advisory firm providing 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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