Energy lenders’ third-quarter 2009 outlook for oil prices indicates that banks are adjusting their forecasts as prices continue to fluctuate, according to a new survey of 41 commercial capital providers.
Front-year oil prices are still below the $50-per-barrel threshold, but average price expectations rose to $47.83 in this quarter, up from $43.13 in June.
Conversely, the front-month gas-price forecast declined to $4.06 per million Btu, down from $4.36.
The results are according to global 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 lenders’ five-year trend shows an increasing forward price deck for both oil and gas, with average 2013 forecasts of $59.98 for oil and $5.85 for gas.
“Modest escalation of both oil and gas prices after 2013 is common, but prices are capped at an average of $60.75 and $5.93, respectively,” the firm reports.
The average discount rate used by participating banks is 8%. On average, operating costs are escalated 0.8% per year for both oil and gas.
Using a 60/40 blended gas/oil weighting, Tristone compared the average base case against Nymex futures as of August 4, 2009. The average base-case results were only 72% of Nymex futures in 2009, slightly trending upward to 76% by 2013. Thus, banks continue to use an outlook that is much more conservative than what is observed in the market.
Quarter-to-quarter trends. Compared with the past-quarter survey, the front-year pricing has increased for oil by 11% and has decreased for gas by 7%.
In later years, forecasts for oil prices in 2013 increase by 4%, and gas prices hardly budged, decreasing by 1% versus the past-quarter survey.
Since the survey began in second-quarter 2005, the participating banks’ oil and gas price decks have continually increased in the extended years from the previous-quarter results. However, third-quarter 2008 results showed the first quarter-to-quarter decrease, and first-quarter 2009 results showed a shift from backwardation to contango, as well as a continuing decrease. This quarter follows in contango, but marks the first increase in quarter-to-quarter base-case comparisons since third-quarter 2008.
Sensitivity-case results. The third-quarter 2009 survey also includes a sensitivity case, which represents the lenders’ low or conservative price decks. Of the 41 participating banks, 34 provided a sensitivity case, which averaged 21% and 19% discounts to base-case lending policies for oil and gas, respectively, over the five-year strip.
The 2009 average sensitivity-case oil price is $37.61, for example; for gas, $3.45, according to Tristone’s findings.
Reserve-based lending scenario. Using current assumptions, the base-case price decks from the third-quarter 2009 survey were used to calculate a discounted cash flow using PV8 from the bank average. With a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be about $79 million, representing a 24% increase from the second-quarter 2009 estimate of $64 million.
Using the same assumptions, but using the base-case price decks from third-quarter 2008, the amount loaned to a possible acquirer would be about $86 million. The decrease in base-case pricing from third-quarter 2008 to third-quarter 2009 results in an 8% 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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