At the time of Macquarie Capital’s first-quarter 2017 survey of bank price decks, bankers were showing some confidence that a crude price floor had been reached. They sensed that “near-term volatility in oil prices may have come to an end, at least for now,” according to Macquarie’s Energy Lender Price Survey, which polls energy reserve-based lenders for their forecasts of commodity prices.

The first-quarter survey collected data from 36 participating banks from Jan. 15 through Jan. 31.

Lenders responded by increasing the front years of their price decks while keeping the back end fairly similar to fourth-quarter 2016 outlooks, according to the survey.

“Overall this indicates an increasing confidence in a new long-term price level grounded in the lower $50s and missing the volatility seen in prior quarters,” said the Macquarie analysts led by Grant Butkus, senior vice president and head of A&D.

Several months later, as crude prices hung below $50 per barrel (bbl), analysts questioned how E&Ps would respond in their first-quarter 2017 conference calls.

Said a note from Tudor, Pickering, Holt & Co. (TPH), “As crude prices continue to stall, our clients have become increasingly focused on balance-sheet constraints and expanding levels of willingness for the industry to outspend cash flow in order to demonstrate growth.

“Those looking for signs that E&Ps will cut back at this point may be sorely disappointed with first-quarter conference calls as we expect the majority of our coverage universe to press ahead with capital programs and supplement incremental debt with asset sales.”

The TPH analysts noted that Whiting Petroleum, , indicated it was “comfortable continuing to drill through the cycle with spending only being cut if crude were to sustainably stay below $45/bbl.”

The bankers surveyed by Macquarie put front-year prices at $46.92/bbl for WTI, an increase of about 11.4% over the previous quarter and 86% of Nymex futures for the year. Brent outlooks increased by 7% to $46.21/bbl (85% of Nymex). AHenry Hub gas increased by 12.3%, to $2.84 per million British thermal units (MMBtu), or 89% of Nymex.

The average change in pricing for the five-year strip was a rise of 6.3% for WTI, 5% for Brent and 5% for Henry Hub.

“The five-year trend shows a continued flattening forward price deck for oil and gas, with average 2021 price forecasts of $53.71 for WTI, $55.13 for Brent and $2.97 for Henry Hub,” according to the survey.

A conservative stance underpinned the lenders’ forecasts, for the most part. Some 17% did not escalate prices past 2021, and prices were capped at means of $60.30/bbl for WTI, $57.17/bbl for Brent and $3.66/MMBtu for Henry Hub.

The banks reported an average discount rate of 9% for base-case WTI, Brent and Henry Hub.

“Participating banks consider proved reserve categories to different extents, but lenders that only consider proved developed producing reserves average an advance rate of 62%,” the analysts said.

It will be interesting to see how banks adjust forecasts in the second-quarter survey.

Participating banks were Amegy Bank, BancFirst, Bank of Oklahoma Financial, Bank SNB, BB&T, BBVA Compass, BDC, BMO Capital Markets, Cadence Bank, Capital One, Citi, Citizens Bank, Comerica Bank, Credit Agricole, DNB Bank, First Interstate Bank, First Tennessee Bank, FirstCapital Bank of Texas, Frost Bank, IberiaBank, Independent Bank, ING Capital, Mizuho Bank, Natixis, NBH Bank, RBC Capital Markets, Regions Bank, Santander, Societe Generale, SunTrust, TD Securities, Texas Capital Bank, US Bank, Wells Fargo, West Texas National Bank, and Whitney Bank.

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