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.

Macquarie Tristone is a global energy advisory firm that provides fully integrated investment banking, acquisitions and divestitures, and global equity-capital-markets services.

For more information, contact Andrea Yuen at 713-651-4206.

Participants in the second-quarter 2011 survey include Amegy Bank N.A., BancFirst, Bank of Texas, BB&T Capital Markets, BBVA Compass, BMO Financial Group, BNP Paribas, Business Development Bank of Canada, Canadian Western Bank, Capital One, N.A., Citizens Bank, Comerica Bank, Commonwealth Bank of Australia, Community National Bank, Coppermark Bank, Credit Agricole, DnB NOR Bank ASA, FirstCapital Bank of Texas, N.A., Frost Bank, IberiaBank, ING Capital LLC, Lloyds Bank, Macquarie Bank Ltd., Mizuho Corporate Bank, National Bank of Canada, Natixis, RBC Capital Markets, RBS, Regions Bank, Société Générale, Sumitomo Mitsui Banking Corp., TD Securities, Texas Capital Bank, Union Bank, N.A., US Bank, Wells Fargo Bank N.A., West Texas National Bank, Western National Bank, Whitney National Bank.