According to Macquarie Tristone's most recent "Quarterly Energy Lender Price Survey" of 39 regional, national and international reserve-based lenders, price forecasts continue to be adjusted for second-quarter 2011 on continued price strengthening.
The second-quarter survey indicates a mean base-case WTI oil-price forecast of $70.49 per barrel and a mean base-case Henry Hub gas-price forecast of $4.05 per million Btu. The five-year trend shows an increasing forward price deck for both oil and gas, with average 2015 oil and gas price forecasts of $72.14 per barrel and $5.19 per million Btu, respectively.
Modest escalation of both oil and gas prices after 2015 is common, but prices are capped at means of $72.85 per barrel and $5.53 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 April 1, 2011. The average base-case results were 71% of Nymex futures in 2011 and 75% in 2015.
"This marks a slightly downward trend compared to last quarter, when first-year results were 78% of Nymex futures," according to the report.
Quarter-to-quarter pricing trends
Compared to last quarter's survey, front-year pricing has increased by 8% for oil and decreased by 2% for gas. In the later years, forecasts for oil prices in the fifth year increase by 5%, and forecasts for gas prices in the fifth year fall by 1%.
"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's results," Macquarie Tristone reports.
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 increasing slightly from first-quarter 2011.
Sensitivity-case results
The second-quarter 2011 survey also includes a sensitivity case, which represents the lenders' low or conservative price decks. Of the 39 participating banks, 29 banks provided a sensitivity case, which averaged a 20% discount to base-case lending policies for oil and a 20% discount for gas over the five-year strip.
Reserve-based lending scenario
To show the impact of year-to-year changes in the base-case price decks on advance 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 amounts (i.e. lending funds) using a typical acquisition project.
Using the same assumptions and the base-case price decks from the second quarter, with a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be $79 million. The increase in base-case pricing from second-quarter 2010 to second-quarter 2011 results in a 5% increase in advance amounts.
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