Energy lenders' outlook for oil prices has grown, according to a new survey of 39 commercial-capital providers. For front-month oil prices, their average price expectations grew from $52.74 per barrel cited in the third quarter to $57.14 in early November. Also, their front-month gas-price forecast rose to $6.47 per million Btu from $6.39.

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 data provided for the most recent survey appear to show the participating banks still believe in strong commodity prices with recent record oil prices. With oil breaking the $90 per barrel plain, we are seeing a big increase in the banks' forecast," the firm reports.

The lenders' five-year outlook shows a backwardated forward price deck for both oil and gas, with average 2011 forecasts of $47.77 for oil and $5.87 for gas. "Modest escalation of both oil and gas prices after 2011 is common, but prices are capped at an average of $47.16 and $5.81," the firm reports.

"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 the 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 October 26, 2007. The average base-case results were 72% of Nymex futures in 2007, trending down to 66% by 2011.

Quarter-to-quarter trends. Compared with the third-quarter 2007 survey, the lenders' oil-price forecasts increased 8% for front-year pricing. Expectations for gas prices showed an increase of 1% in the base-case price decks. By 2011, average oil-price forecasts increase 7% while gas-price expectations grow 2%.

"Since starting the (survey) in second-quarter 2005, the participating banks' oil and gas price decks have continually increased in the extended years from the previous-quarter results."

Sensitivity-case results. The early-November survey also includes a sensitivity case, which represents the lenders' low or conservative price decks. Of the 39 participating banks, 34 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 $44.11, for example; for gas, $5.12.

Blowdown. Canadian independent consultants (AJM Petroleum, GLJ Petroleum, McDaniel & Associates, Paddock Lindstrom & Associates and Sproule Associates) have only slightly increased their blended forecasts, increasing their oil forecasts, but offset by a decrease in gas. The energy lenders have posted a modest increase in their consensus forward-price deck, but still remain well below the current market expectations as indicated by the strip and consultants, Tristone reports.

"Looking at typical reserve-blowdown scenarios using the different forecast price decks (lenders' base-case, independent consultants' and Nymex strip prices) to generate a net present value per unit of resource, oil continues to generate higher values by a wide margin compared with natural gas on a thousand-cubic-foot-equivalent basis, assuming 6:1 energy equivalency."

The NPV based on the consultants' forecast on a blended basis is just below the current strip, a function of a slightly lower crude- and gas-price forecast.

"After narrowing in first-quarter 2007, the bias towards crude, as indicated by wider economic equivalencies between expected crude and natural gas prices, has widened on all three price forecasts to some 9.8 on current strip prices, 9.0 on the consultants' forecast and 8.5 on the energy-lenders' deck."

Participants. Lenders in the third-quarter survey include Allied Irish Bank, American National Bank, BancFirst, Bank of Scotland, Bank of Texas, Bank of the West, BMO Financial Group, BNP Paribas, Calyon-Americas, CIT Group, Comerica Bank, Commonwealth Bank of Australia, Community National Bank, Compass Bank, Coppermark Bank, Deutsche Bank Securities Inc., DNB Nor, DZ Bank AG, Frost Bank, Guaranty Bank, KeyBank, Macquarie Bank Ltd., Merrill Lynch Capital, Mizuho Corporate Bank (USA), National Bank of Canada, Natixis, RBC Capital Markets, RBS, Regions Bank, Sterling Bank, Sumitomo Mitsui Banking Corp., Texas Capital Bank, US Bank, Wachovia Securities, Wells Fargo Bank, West Texas Bank, Western National Bank, WestLB and Whitney National Bank.

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 in Houston, Calgary, Denver, London and Buenos Aires.