Energy lenders’ third-quarter 2010 price forecasts indicate banks are adjusting their price forecasts as commodity prices fluctuate, according to a new survey of 40 commercial-capital providers.
For the remainder of 2010, the survey returned a mean base-case WTI oil-price forecast of $59.98 per barrel, and a Henry Hub gas-price forecast of $4.25 per million Btu. The five-year trend shows an increasing forward price deck for both oil and gas, with average 2014 forecasts of $66.14 per barrel and $5.66 per million Btu. Modest escalation of both oil and gas prices after 2014 is common, but prices are capped at means of $64 and $5.41, respectively.
The results are according to global energy investment-banker and M&A advisor Macquarie Tristone’s “Quarterly Energy Lender Price Survey” of regional, national and international reserve-based lenders.
The average discount rate used by participating banks is 9%, unchanged from last quarter’s average. Operating costs on average are escalated 0.7% 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 July 30, 2010. The average base-case results were 78% of Nymex futures in 2010 and trending upward to 84% in 2014. “This marks a slightly upward trend compared to early 2010 when first-year results were 74% of Nymex futures,” the firm reports.
Quarter-to-quarter trends. Compared with the second-quarter 2010 survey, front-year pricing has increased by 1% for oil and decreased by 1% for gas. In the later years, forecasts for oil prices in the fifth year increase by 1%, and forecasts for gas prices in the fifth year hold with second-quarter results.
“Since starting the Macquarie Tristone energy-lender 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 remaining largely unchanged since first-quarter 2010.”
Sensitivity-case results. The third-quarter 2010 survey also includes a sensitivity case, which represents the lenders’ low or conservative price decks. Of the 40 participating banks, 33 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. The 2010 average sensitivity-case oil price is $47.62, for example; for gas, $3.44, according to Macquarie Tristone.
Reserve-based lending scenario. To show the impact of year-to-year changes in the base-case price decks on advance rate amounts, the firm analyses 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 assumptions above, the base-case price decks from the third-quarter 2010 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 $64 million. Using the same assumptions, but using the base-case price decks from third-quarter 2009, the amount loaned to a possible acquirer would be $61 million. The increase in base-case pricing from third-quarter 2009 to third-quarter 2010 results in a 4% 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 information, contact Andrea Yuen at 713-651-4206.
Participants in the third-quarter 2010 survey include Allied Irish Bank, Amegy Bank NA, BancFirst, Bank of Scotland, Bank of Texas, BBVA Compass, BMO Financial Group, BNP Paribas, Calyon, Canadian Western Bank, Citibank NA,Citizens Bank, Comerica Bank, Commonwealth Bank of Australia, Community National Bank, Coppermark Bank, Credit Agricole, DnB NOR Bank ASA, First Interstate Bank, First Capital Bank of Texas, Frost Bank, IberiaBank, ING Capital LLC, KeyBank, Macquarie Bank, Mizuho Corp. Bank, National Bank of Canada, Natixis, RBC Capital Markets, Regions Bank, Royal Bank of Scotland, SMBC, Societe Generale, Sterling Bank, Texas Capital Bank, Union Bank NA, US Bank, Wells Fargo, West Texas National Bank, Western National Bank, and Whitney National Bank.
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