Banks are adjusting their price forecasts as commodity prices continue to rapidly fluctuate, according to Macquarie Tristone's "Quarterly Energy Lender Price Survey" of 41 participating regional, U.S. national and international banks that engage in reserve-based lending.

For 2012, the second-quarter survey indicates a mean base-case West Texas Intermediate (WTI) oil price forecast of $77.51 per barrel and a mean base-case Henry Hub gas price forecast of $2.48 per million Btu.

When compared with Nymex pricing, the average base-case results for oil were 73% of Nymex WTI futures in 2012 and 83% in 2016.

The five-year trend shows a decreasing forward price deck for oil and an increasing forward price deck for gas, with average 2016 oil and gas price forecasts of $75.93 per barrel and $4.07 per million Btu, respectively. Modest escalation of both oil and gas prices after 2016 is common, but prices are capped at means of $75.17 per barrel and $4.57 per million Btu. The average discount rate used by participating banks is 9%, unchanged from last quarter's average.

Operating costs on average are escalated 0.5% per year for both oil and gas.

The firm compared the average base case against Nymex futures pricing as of May 1, 2012, for oil and gas separately. When compared with Nymex pricing, the average base-case results for oil were 73% of Nymex WTI futures in 2012 and 83% in 2016. The average base-case results for gas were 92% of Nymex Henry Hub futures in 2012 and 95% in 2016.

Quarter-to-quarter pricing trends. Compared to last quarter's survey, front-year pricing has increased by 3% for oil and decreased by 19% for gas. In the later years, forecasts for oil prices in the fifth year increase by 1%, and forecasts for gas prices in the fifth year fall by 8%.

During the second half of 2011, base-case oil pricing followed an upward sloping forward curve. First-quarter 2012 showed a shift from contango to backwardation, and second-quarter base-case oil pricing continues the trend.

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Since third-quarter 2011, base-case gas pricing has decreased each quarter in contango.

Sensitivity case results. The second-quarter 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.

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.

Participants in the second-quarter 2012 survey include Amegy Bank, Banc-First, Bank of Texas, Bank of the West, BB&T Capital Markets, BBVA Compass Bank, BMO Capital Markets, Business Development Bank of Canada, Cadence Bank, Canadian Western Bank, Capital One, Citibank, Citigroup, Citizens Bank, Comerica Bank, Commonwealth Bank of Australia, Community National Bank, Coppermark Bank, Credit Agricole, F&M Bank, First Interstate Bank, FirstCapital Bank of Texas, Frost Bank, Iberiabank, ING Capital, Key Bank, Lloyds Bank, Macquarie Bank Ltd., Mizuho Corporate Bank, RBC Capital Markets, Regions Bank, Royal Bank of Scotland, Société Générale, Sumitomo Mitsui Banking Corp., SunTrust Robinson Humphrey, TD Securities, Texas Capital Bank, US Bank, Wells Fargo, West Texas National Bank, and Western National Bank.

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