The results are according to global energy investment-banker and M&A advisor Tristone Capital Inc.'s ninth "Quarterly Energy Lender Price Survey" of regional, national and international reserve-based lenders.
"The data provided for the (most recent) survey appears to show the participating banks still believe in strong commodity prices despite the recent volatility of Nymex futures contracts. Extended-year contracts are trading above $70 per barrel for oil and approximately $9 per MMBtu for gas," the firm reports.
The lenders' five-year outlook shows a backwardated forward price deck for both oil and gas, with average 2011 forecasts of $43.30 for oil and $5.61 for gas. "Modest escalation of both oil and gas prices after 2010 is common, but prices are capped at an average of $42.52 and $5.66."
For all years, the mean exceeded the median for both oil and gas. "Therefore, it could be argued the outlier points that are closer to Nymex strip prices are pulling the averages higher, and the median is a better representation of a typical lender's price deck."
Using a 60/40 blended gas/oil weighting, the firm compared the average "base case" against Nymex futures as of April 26, 2007. The average base-case results were 77% of Nymex futures in 2007, gradually trending downward to 67% by 2011.
Quarter-to-quarter trends. Compared with the first-quarter 2007 survey, the lenders' oil-price forecasts improved 4% for front-year pricing and their gas-price expectations improved 3% in the base-case price decks. By 2011, oil-price forecasts increase 2% while gas prices grow 1%.
"Since starting the Tristone Capital 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 prior-quarter's results."
Sensitivity-case results. The late-April survey also includes a sensitivity case, which represents the lenders' low or conservative price decks. Of the 40 participating banks, 33 provided a sensitivity-case, which averaged a 19% discount to base-case lending policies for both oil and gas for 2007. The 2007 average sensitivity-case oil price is $39.45, for example; for gas, $4.97.
Reserve-based lending scenario. With lenders' improved price outlooks, producers have stronger access to commercial debt. To show the impact of changes in lenders' base-case price decks in the 12 months, the firm 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 (that is, lending funds) using a typical acquisition project.
The base-case price decks from the late-April 2007 survey were used to calculate a discounted cash flow (using PV-9, a bank average). With a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be some $47.5 million, up from $42 million in April 2006. The difference is a 13% increase in the advance-rate amount.
Participants. Lenders in the fourth-quarter survey include Allied Irish Bank, Amegy Bank, American National Bank, AmSouth Bank, BancFirst, Bank of Montreal, Bank of Oklahoma/Bank of Texas, Bank of Scotland, Bank of the West, BNP Paribas, Calyon-Americas, Capital One Bank, CIT Energy, Comerica Bank, Community National Bank, Compass Bank, Coppermark Bank, Deutsche Bank Securities Inc., DNB Nor, DZ Bank, Frost Bank, Guaranty Bank, Key Bank, Macquarie Bank Ltd., Mizuho Corporate Bank, Natixis, National Bank of Canada, RBC Capital Markets, Regions Bank, Royal Bank of Scotland, Standard Bank Plc, TD Securities, Texas Capital Bank, Union Bank of California, US Bank, Wachovia Securities, Wells Fargo, Western National Bank, WestLB and Whitney National Bank.
Tristone Capital LP has more than 40 E&P technical professionals in Houston, Calgary, Denver, London and Buenos Aires. For more information, contact Miles Redfield at 713-651-4229.
2Q 2007 Price Survey: Mean of
40 Participating Banks (Base Case)
WTI Oil Henry Hub Gas
($/bbl)($/MMBtu)
200751.236.41
200848.076.15
200944.875.86
201043.915.72
201143.305.61
2012+0.5%0.3%
Cap42.525.66
LOE Esc1%1%
Discount Rate9%9%
Source: Tristone Capital Inc.
Reserve-Based Lending Scenario
Purchase Price$100MM
Proved Reserves7 MMBOE
(75% PDP, 2% PDNP,
13% PUD, 10% 2P)
% Oil60%
R/P13 years
Acquisition IRR11%
% Hedged80% of PDP through 2010
@ 4/26/2007 Nymex prices
Lending Scenario ()
@ 2Q/2007@ 2Q/2006
Price Deck Price Deck
PDP$72,245$65,685
PDNP$898$797
PUD$5,935$3,381
Total$79,079$69,863
Advance Rate: 60%$47,447$41,918
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