?Energy lenders’ second-quarter 2009 outlook for oil prices has fallen, according to a new survey of 45 commercial-capital providers.
Front-year oil prices have fallen below the $50-per-barrel threshold, with average price expectations dropping from $46.61 in March to $43.13 in the second quarter.
The front-month gas-price forecast declined to $4.36 per million Btu, down from $5.39.
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 second-quarter survey indicates that the banks continue to adjust their price forecasts as prices have declined.
The lenders’ five-year trend shows an increasing forward price deck for both oil and gas, with average 2013 forecasts of $57.86 for oil and $5.88 for gas.
“Modest escalation of both oil and gas prices after 2013 is common, but prices are capped at an average of $58.72 and $5.98, respectively,” Tristone reports.
The average discount rate used by participating banks is 9%. Operating costs on average are escalated 0.5% per year.
Using a 60/40 blended gas/oil weighting, the firm compared the average base case against Nymex futures as of April 24, 2009. The average base-case results were 91% of Nymex futures in 2009, gradually trending downward to 82% by 2013. Thus, banks continue to use an outlook that is much more conservative than what is observed in the market.
Quarter-to-quarter trends. Compared with last quarter’s survey, the front-year pricing for oil and gas has decreased by 7% and 19%, respectively.
The amount of price decrease is much lower in the later years as forecasts for oil prices in 2013 decrease by less than 1% and gas prices decrease by 1% versus last quarter’s survey.
“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,” Tristone reports. “With fourth-quarter 2008 being the first exception to this trend, second-quarter 2009 decks continue to decrease from last quarter’s results.”
Sensitivity-case results. The second-quarter 2009 survey also includes a sensitivity case, which represents the lenders’ low or conservative price decks. Of the 45 participating banks, 38 provided a sensitivity case, which averaged a 19% and 20% discount to base-case lending policies for oil and gas, respectively, for 2009.
The 2009 average sensitivity-case oil price is $35.62, for example; for gas, $3.67.
Reserve-based lending scenario. Using current assumptions, the base-case price decks from the second-quarter 2009 survey were used to calculate a discounted cash flow using PV-9 from the bank average. With a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be slightly less than $54 million, representing a 17% decrease from the fourth-quarter 2008 estimate of $65 million.
Using the same assumptions, but using the base-case price decks from first-quarter 2009, the amount loaned to a possible acquirer would be about $55 million. The decrease in base-case pricing from first-quarter 2009 to second-quarter 2009 results in a 2% decrease in advance amounts.
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 with offices in Houston, Calgary, Denver, London and Buenos Aires. For more information, contact Miles Redfield at 713-651-4229.
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