Houston-based gas driller testing market for South Texas assets

(Bloomberg) – Closely held gas driller Escondido Resources is working with financial advisers to test the market’s appetite for its assets in South Texas, according to people with knowledge of the situation.

The Mountain Capital-backed company is having discussions with some larger peers about a potential deal, said the people, who asked not to be identified because the talks are private. Escondido is inviting select parties to look at its assets and has not yet launched an official sale process, they said. It’s not clear what the assets could fetch in a potential sale.

Representatives for Escondido and Mountain Capital declined to comment. Talks are fluid and plans could change.

Based in Katy, Texas, Escondido primarily operates in South Texas, including the Austin Chalk and Eagle Ford shale. The company has more than 200 drilling locations across roughly 40,000 acres, producing roughly 200 million cubic feet equivalent of natural gas per day, according to its website.

Dealmaking in the shale patch is taking longer to finish, particularly for closely held natural gas producers. A nearly 75% drop in gas prices over the last seven months has made it hard for buyers and sellers to agree on a company’s value. Adding to that, a slowdown in drilling makes it harder for companies to generate out-sized free-cash flow and get bought out by larger peers.

The number rigs drilling for heating and power-plant fuel is down 8% since early September, when activity reached a three-year high, according to Baker Hughes Co.