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Shale-gas firm to lay off 600 in Arkansas

Southwestern Energy to let 40% go in U.S. as prices fall by Jessica Seaman | January 22, 2016 at 4:00 a.m.

Southwestern Energy Co., in announcing extensive workforce reductions nationwide, said Thursday that it will lay off 600 employees in Arkansas -- about 50 percent of its workers in the state -- as the company grapples with plunging natural-gas prices.

Southwestern Energy, the lead operator in the Fayetteville Shale, said the layoffs in Arkansas will occur throughout its operations in the shale formation, which runs through north-central Arkansas. The company, based in Houston, also will reduce its total workforce by about 40 percent, or more than 1,100 employees, nationwide.

The job cuts by Southwestern Energy come as many energy companies are looking to further reduce costs during a prolonged slump in oil and natural-gas prices. The explorers and producers have been idling drilling rigs, cutting spending and projects, and laying off tens of thousands of employees.

Analysts expect the pullback in the energy sector, including layoffs, to continue as weak demand and abundant supply keep oil and natural-gas prices low.

"This is just another reminder that this is such a boom-and-bust industry and companies have struggled with having enough employees in the boom times without losing them in the bust times," said Michael Lynch, president of Strategic Energy and Economic Research Inc.

Southwestern Energy employees were told about the layoffs Thursday during meetings with their managers, said spokesman Christina Fowler. She said employees will be offered severance packages and other benefits.

Fowler said the decline in natural-gas prices has reduced the cash flow for project funding, resulting in the company reducing its workforce to remain competitive.

"We are comfortable that, with the steps we made [Thursday], we will remain competitive ... going forward in this low gas prices environment," she said.

When asked where the layoffs will take place, Fowler did not name specific locations, saying they would take place throughout the Fayetteville Shale. The formation stretches across several counties including Conway, Faulkner, Cleburne, White and Van Buren counties.

Fowler also said she did not have information on whether any of Southwestern Energy's offices in the state will close.

Gov. Asa Hutchinson said Thursday that he was informed about Southwestern Energy's latest round of layoffs by the company's chief executive officer Wednesday night.

"We understand the changing climate in terms of gas prices and the slowdown of the exploration in the Fayetteville Shale," he said. "It doesn't necessarily come as a surprise, but that does not ease the challenge of it and the hardship that is for individual families that are impacted by it."

While energy companies have been struggling with low commodity prices for more than a year and a half, natural-gas prices have especially hit producers in the Fayetteville Shale, where drilling activities have significantly declined since activity peaked in 2008.

Highlighting the decline of activity in the Fayetteville Shale is the reduction in the number of active drilling rigs. During the shale's peak in 2008, there were 60 such rigs, but now that count is at zero, according to Baker Hughes, an oil-field service company.

As exploration and drilling activity has decreased in the Fayetteville Shale in the past several years, it has shifted to other shale formations, such as the Eagle Ford Shale in Texas and Marcellus in the nation's Northeast.

In these shale plays, companies are able to drill for oil and natural-gas liquids -- such as ethane and butane -- which are more profitable than the dry gas found in the Fayetteville Shale.

Two other companies that have been active in the Fayetteville Shale -- BHP Billiton Ltd. and XTO Energy Inc., a subsidiary of Exxon Mobil Corp. -- have reduced their operations in the state and are not actively drilling.

Southwestern Energy pulled its two remaining drilling rigs from the Fayetteville Shale in December. The decision to idle the rigs followed an announcement by the company in August that it would lay off 80 employees in Arkansas, a step it said it was taking to reduce costs while natural-gas prices were low.

In 2015, Southwestern Energy reduced its spending in the Fayetteville Shale by 40 percent as it slashed its overall capital budget.

The company's shares got a boost after the company's workforce-reduction announcement Thursday. Southwestern Energy shares surged 19.2 percent on Thursday to close at $8.80.

The company won't release its 2016 spending plans until next month, Fowler said.

She said the Fayetteville Shale remains a core asset for Southwestern Energy and that the company has about 4,000 wells in the area still producing natural gas.

"We will still have a presence here," Fowler said. "We still have to maintain those wells."

Information for this article was contributed by Michael R. Wickline of the Arkansas Democrat-Gazette.

A Section on 01/22/2016

Print Headline: Shale-gas firm to lay off 600 in Arkansas

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