Financiers are banking on higher commodity prices
Oil & Gas Investor, April 2004 issue
By Nissa Darbonne
Financiers have increased their commodity-price forecasts upon which they'll bank deals, compared with a year ago, but producers also report more hopefulness-relatively more than bankers, in both dollars and in terms of percentage increase.
"Commodity pricing near-term may be our newest challenge," says Bill Marko, chief operating officer of transaction advisory and asset-marketing firm OGJE/Madison Energy Advisors, Houston.
The firm's current quarterly pricing poll (QPP) shows both bankers as well as buyers and sellers (of assets in the $10- to $500-million range) have increased their expectations of commodity prices through 2008.
For example, the producers OGJE/Madison surveyed are expecting 2004 gas prices to average $4.85 per million Btu, while bankers are expecting $4. A year ago, the producers forecast $3.81, and bankers forecast $3.09.
Normally producers are more optimistic about future prices than financiers. And, while both groups have improved outlooks for 2004 and beyond, the gap has widened in a year-from 72 cents in January 2003 to 85 cents this year, for example. This can result in increased difficulty in getting buyer-banker consensus on a fair purchase price for assets.
"This is creating a larger gap between the [buyers and sellers] and banks. Historically this is an indication of weakening deal flow in the near future," Marko says.
The 12-month Nymex oil-price strip was more than $30 a barrel and the gas-price strip was more than $5.50 per million Btu in January when the OGJE/Madison polling was done. "While this high absolute price level makes it more difficult to match buyer and seller expectations, the stability of pricing bodes well for deal flow," Marko adds.
Transaction advisor and financial-service firm Randall & Dewey Inc., Houston, compared producers' expectations for West Texas Intermediate and Henry Hub spot prices with Nymex strips.
Producers' price expectations are more similar to near-term Nymex prices than the 12-month and longer strips, Randall & Dewey reports. In its poll, producers expect the Henry Hub spot gas price to average $5.11 this year, while the 12-month strip at the time of the poll was $5.63. |
