Banks are adjusting their price forecasts as commodity prices continue to rapidly fluctuate, according to Macquarie Tristone's "Quarterly Energy Lender Price Survey" of 35 participating regional, U.S. national and international banks that engage in reserve-based lending.
The first-quarter 2012 survey indicates a mean base-case WTI oil price forecast of $75.15 per barrel and a mean base-case Henry Hub natural gas price of $3.05 per million Btu, respectively. Modest escalation of both oil and gas prices after 2016 is common, but prices are capped at means of $75.05 per barrel and $4.92 per million Btu, respectively. The average discount rate used by participating banks is 9%, unchanged from last quarter's average. Operating costs on average are escalated .6% per year for oil and .5% per year for natural gas.
Using a 60/40 blended gas-oil weighting, the firm compared the average base case against Nymex futures pricing as of January 3, 2012. When compared with Nymex futures pricing, the average base-case results were 78% of Nymex futures in 2012 and 85% in 2016.
"This marks a notable downward trend compared to last quarter, when first-year results were 94% of Nymex futures," reports the firm.
Quarter-to-quarter pricing trends. Compared with last quarter, front-year pricing has increased by 7% for oil and decreased by 22% for gas. In the later years, forecasts for oil prices in the fifth year increase by 3%, and forecasts for gas prices in the fifth year fall by 10%.
"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 the 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 fourth-quarter 2011."
Sensitivity case results. The first-quarter 2012 survey included the sensitivity case, which represents the lenders' low or conservative price tags. Of 35 participating banks, 29 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, Macquarie Tristone 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 first-quarter 2012, with a 60% advance rate and a 20% upside limitation, the amount loaned to a possible acquirer would be $73 million. The increase in base-case pricing from first-quarter 2011 to first-quarter 2012 results in a 1% 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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