Standard & Poor's Ratings Services has published its revisions and new assignments to its oil and natural gas liquids (NGL) pricing assumptions for 2013, 2014, and 2015 in a report titled, "Standard & Poor's Revises Its Oil And Natural Gas Liquids Price Assumptions; Natural Gas Price Assumptions Remain Unchanged." The agency expects that its revised price assumptions will affect very few ratings.
"The price assumptions for 2013 and 2014 for oil and natural gas prices reflect a discount from forward market prices," said Standard & Poor's credit analyst Christine Besset. "Generally speaking, we apply a 15% to 20% discount relative to the futures curve, but this can change depending on our view of current prices. The discount ultimately applied will depend on our own views on near-term (12 to 24 months) supply-demand fundamentals, GDP growth outlook, and recent pricing trends, though our assumptions tend to be what we view as conservative.
“Recognizing the volatility in hydrocarbon prices and the unpredictable nature of prices, the long-term price assumptions reflect our view of the marginal full cycle cost of new production,” she added. “Our recovery price deck for exploration and production companies remains unchanged at $50 per barrel for oil, $3.50 per MMbtu for natural gas, and a 55% NGL/crude ratio assumption.”
The revised NGL price assumptions reflect Standard & Poor’s updated expectations and views of industry fundamentals. The assumptions take into account its belief that weak NGL prices could persist throughout 2013. The assumptions also reflect Standard & Poor’s view that the prices of ethane and propane could remain particularly weak and that the rest of the composite NGL barrel will continue to track crude oil prices fairly closely.