Energy lenders' fourth-quarter 2010 price forecasts indicate banks are adjusting their price forecasts as prices continue to fluctuate, according to Macquarie Tristone's latest "Quarterly Energy Lender Price Survey" of 42 regional, U.S. national and international reserve-based lenders.

For the remainder of 2010, the survey indicates a mean base-case WTI oil-price forecast of $61.37 per barrel and a mean base-case Henry Hub gas-price forecast of $3.91 per million Btu.

The five-year trend shows an increasing forward price deck for both oil and gas, with average 2014 oil and gas price forecasts of $67.34 per barrel and $5.23 per million Btu, respectively. Modest escalation of both oil and gas prices after 2014 is common, but prices are capped at means of $67.38 per barrel and $5.51 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 0.6% per year for both oil and gas.

Using a 60/40 blended gas/oil weighting, the firm compared the average base case against Nymex futures pricing as of October 1, 2010. When compared with Nymex futures pricing, the average base-case results were 82% of Nymex futures in 2010 and 82% in 2014.

"This marks a slightly upward trend compared to last quarter when first-year results were 78% of Nymex futures," the firm reports.

Quarter-to-quarter pricing trends. Compared to last quarter's survey, front-year pricing has increased by 2% for oil and decreased by 8% for gas. In the later years, forecasts for oil prices in the fifth year increase by 2%, and forecasts for gas prices in the fifth year fall by 8%.

"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.

"The exception has been in the last five quarters. 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, with base-case pricing falling slightly from third-quarter 2010."

Sensitivity-case results. The fourth-quarter 2010 survey also includes a sensitivity case, which represents the lenders' low or conservative price decks. Of the 42 participating banks, 34 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, 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 (i.e., lending funds) using a typical acquisition project. Using the same reserve assumptions, but using the base-case price decks from fourth-quarter 2009, the amount loaned to a possible acquirer would be $63 million. The increase in base-case pricing from fourth-quarter 2009 to fourth-quarter 2010 results in a 5% increase in advance rate amounts.

Macquarie Tristone is a global energy advisory firm that provides fully integrated investment banking, acquisitions and divestitures, and global equity-capital-markets services. For information, contact Andrea Yuen at 713-651-4206.

Participants in the fourth-quarter 2010 survey include Allied Irish Bank, Amegy Bank NA, BancFirst, Bank of Texas, BBVA Compass, BMO Financial Group, Macquarie Bank, BNP Paribas, Canadian Western Bank, Capital One NA, Citibank NA, Citizens Bank, Co­merica Bank, Commonwealth Bank of Australia, Community National Bank, Coppermark Bank, Credit Agricole, Deutsche Bank, DnB NOR Bank ASA, First Interstate Bank, First Capital Bank of Texas NA, Frost Bank, IberiaBank, ING Capital LLC, KeyBank, Mizuho Corporate Bank, National Bank of Canada, Natixis, RBC Capital Markets, Regions Bank, Société Générale, Sterling Bank, Sumitomo Mitsui Banking Corp., TD Securities, Texas Capital Bank, The Royal Bank of Scotland, Union Bank NA,US Bank, Wells Fargo, West Texas National Bank, Western National Bank and Whitney National Bank.