For 2011, the fourth-quarter survey indicates a mean base-case WTI oil-price forecast of $70.09 per barrel and a mean base-case Henry Hub gas-price forecast of $3.89 per MMBtu. The five-year trend shows an increasing forward price deck for both oil and gas, with average 2015 oil- and gas-price forecasts of $73.29 per barrel and $4.92 per MMBtu, respectively.
Modest escalation of both oil and gas prices after 2015 is common, but prices are capped at means of $73.38 per barrel and $5.30 per MMBtu, respectively. 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 October 3, 2011. The average base-case results were 94% of Nymex futures in 2011 and 88% in 2015.
“This marks a notable upward trend compared to last quarter, when first-year results were 79% of Nymex futures,” Macquarie Tristone reports.
Quarter-to-quarter pricing trends
Compared to last quarter’s survey, front-year pricing has decreased by 3% for both oil and gas. In the later years, forecasts for oil prices in the fifth year decrease by 1%, and gas prices in the fifth year fall by 3%.
“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.
Third-quarter 2008 results showed the first quarter-to-quarter decrease, and first-quarter 2009 results showed a shift from backwardation to contango. This quarter, the contango trend continues, but there is a notable decrease in base-case pricing from third-quarter 2011.
Sensitivity-case results
The fourth-quarter 2011 survey also includes a sensitivity case, which represents the lenders’ low or conservative price decks. Of the 41 participating banks, 33 banks 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, we analyzed a discounted cash-flow model for a U.S. onshore property acquisition using general assumptions,” the firm notes. The objective is to calculate the change in the advance rate amounts (i.e., lending funds) using a typical acquisition project.
Using the same assumptions and the base-case price decks from the fourth quarter, with a 60% advance rate and 20% upside limitation, the amount loaned to a possible acquirer would be $68 million. The increase in base-case pricing from fourth-quarter 2010 to fourth-quarter 2011 results in an 8% increase in advance rate amounts.
Macquarie Tristone is a global energy advisory firm providing fully integrated investment banking, acquisitions and divestitures, and global equity-capital-markets services. For more information, contact Andrea Yuen at 713-651-4206.
Recommended Reading
Ohio Utica’s Ascent Resources Credit Rep Rises on Production, Cash Flow
2024-04-23 - Ascent Resources received a positive outlook from Fitch Ratings as the company has grown into Ohio’s No. 1 gas and No. 2 Utica oil producer, according to state data.
Tech Trends: Halliburton’s Carbon Capturing Cement Solution
2024-02-20 - Halliburton’s new CorrosaLock cement solution provides chemical resistance to CO2 and minimizes the impact of cyclic loading on the cement barrier.
To Dawson: EOG, SM Energy, More Aim to Push Midland Heat Map North
2024-02-22 - SM Energy joined Birch Operations, EOG Resources and Callon Petroleum in applying the newest D&C intel to areas north of Midland and Martin counties.
The OGInterview: How do Woodside's Growth Projects Fit into its Portfolio?
2024-04-01 - Woodside Energy CEO Meg O'Neill discusses the company's current growth projects across the globe and the impact they will have on the company's future with Hart Energy's Pietro Pitts.
Comstock Continues Wildcatting, Drops Two Legacy Haynesville Rigs
2024-02-15 - The operator is dropping two of five rigs in its legacy East Texas and northwestern Louisiana play and continuing two north of Houston.