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Chesapeake Energy To Lay Off 70 DFW Workers

By Kent Chapline, with additional reporting by Jack Douglas, Jr. & Jason Allen

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FORT WORTH (CBSDFW.COM)  –  Chesapeake Energy, one of the key companies that developed the Barnett Shale natural gas field in North Texas, is laying off about 70 local employees.

CBSDFW.COM broke the story this morning.

The company notified employees and some community leaders of the layoffs in an internal memo obtained by CBS 11 News, which we have published below.

Chesapeake blames the low price of natural gas.  The entire gas industry is suffering from low prices, brought on in part by the shale drilling technologies which made it possible to develop the Barnett Shale and similar gas fields.

But the company has also recently had a string of bad publicity, partly caused by questionable financial deals CEO Aubrey McClendon was allowed to make.

McClendon, who co-founded Chesapeake, made some personal financial deals that have been called a conflict of interest.  The company recently sped up the end date of those arrangements, and McClendon stepped down from his position as Chairman. He remains CEO.

Following the layoffs, Chesapeake says it will have about 700 local employees and just “one or two” active drilling rigs in the Barnett Shale. That’s down from a high of 44 local rigs the company operated in 2008.

TCU Energy Institute Ken Morgan said Tuesday the rigs could return just as fast as they have disappeared.

“I think the next few months will tell us more about that,” he said. “When we get out of summer and head into winter again. That’s when natural gas usage goes up usually.”

Morgan said it’s possible that when companies return that the Barnett could be reevaluated for liquids that are currently being produced in other shale plays.

In the meantime, business leaders said the slowdown they see as a “blip,” shouldn’t hurt Fort Worth’s desire to become a shale gas capital.

“We’ll still recover as long as we have that headquarter presence here,” said David Berzina, the head of economic development for the Fort Worth Chamber of Commerce.

“It might be two years from now, it might be 20 years from now, but I think the gas industry’s here to stay. There’s too much of it.”

Chesapeake also recently announced plans to sell some of its natural gas pipelines and related infrastructure for about $4 billion.  The company is trying to sell about $15 billion in assets before the end of the year.

As we reported earlier this month, its office tower in Fort Worth appears to be one of the assets up for sale. Chesapeake has a debt load of about $13 billion, which some financial analysts have said is too high.

This is the text of Chesapeake’s internal memo which CBS 11 obtained:

From: Julie Wilson
Sent: Tuesday, June 19, 2012 9:29 AM
Subject: News From Chesapeake/Barnett

I have some news to share.

This morning we informed our employees that we will reduce our North Texas workforce. While the news was not a surprise given historic low natural gas prices and our company’s ongoing strategy to redeploy assets to more economically promising fields, it was of course a disappointment.

We currently have two drilling rigs in the Barnett Shale and will have only one or two for the foreseeable future. This compares to 44 rigs drilling at our peak level of activity in 2008. As a result, we are trimming staff in our Fort Worth and Cleburne offices by about 70 employees, or roughly 8%­ – substantially less than some recent rumors have indicated, although still painful for those affected. The colleagues we’re releasing are wonderful people, passionate about their work and true assets to our community. I hope you’ll help us find new career opportunities for them. The positions being eliminated are in support departments such as public affairs, marketing communications, community relations, legal, land, land administration, administrative services and information technology. These are the departments most directly impacted by reduced leasing and drilling activity.

In addition to the 60-day notice pursuant to the WARN ACT (Worker Adjustment and Retraining Notification Act, Public Law 100-379), our terminated employees will receive generous severance packages along with outplacement assistance. I am confident that our departing colleagues have been treated well in their separation and know they leave with enhanced skills and experience that will be attractive to future employers.

We have already taken steps to transfer other employees to more prolific shale plays or to our headquarters in Oklahoma City where we have centralized certain support functions. As a result of those actions, Chesapeake’s North Texas employment now will be about 700. This is still a significant number of jobs in our local economy and of course our activities will continue to support many hundreds more indirect jobs.

So clearly, Chesapeake will continue to have a significant presence in the Barnett Shale, even though our rig count is lower and our pipeline activities are nearing completion.  The 700-some employees who will remain in our Fort Worth and Cleburne offices will focus their attention on the continued safe and responsible completion and production of almost 2,700 natural gas wells in the area. Our dedication and commitment to high standards of safety and security, as well as to safeguarding the environment at all our operations and facilities, will never change.

Our company will also continue to be an economic driver in North Texas for years to come. In addition to the $13 billion in capital expenditures we’ve invested in this community since 2004, we have paid more than $1.5 billion in royalties to area mineral owners and more than $4.3 billion in leasehold acquisition bonuses. With approximately 60 new wells anticipated to be in production before year end, we will be responsible for even more royalties and tax revenue. The discretionary income we have generated for families and businesses throughout North Texas has enhanced the quality of life for all.

Earlier this month, we announced the intended sale of our interest in Chesapeake Midstream Partners to Global Infrastructure Partners. The employees of Chesapeake’s midstream affiliates will become employees of the new owner when that transaction is completed later this year and our companies will be completely separated. We have approximately 160 midstream employees currently in the Barnett Shale. About 60 who have offices in Chesapeake Plaza will move to leased space in the D.R. Horton building in downtown Fort Worth. Timing of the move has not been determined but is likely to occur this summer. This news has no doubt led to the speculation of our intention to sell Chesapeake Plaza. While, as I was previously quoted, we will certainly remain open-minded to any offer that may come in, we are more interested in leasing some of the space that will be vacated and have been actively looking for tenants. It’s a spectacular building and we fully intend to continue occupying it, whether as owner or future tenant.

Although in no way do I want to trivialize our local staff reductions, I feel compelled to note that our company remains in a strong growth mode. We continue to add staff at our headquarters in Oklahoma City and in many of our field offices as the company continues to drill approximately 1,650 new wells this year to develop our enormous reserves of domestic oil, natural gas, and liquids.

We are very appreciative of all our employees, former and current, who have helped our growth in the Barnett Shale, and are especially grateful for the continuing support of our many lease holders, vendors, civic leaders and local elected officials who helped us pioneer urban drilling. Despite the current downturn in the price of natural gas, Chesapeake remains committed to a long and mutually rewarding future in the Dallas/Fort Worth Metroplex. I hope we have your support in encouraging fleet t conversions to compressed natural gas and power generation to natural gas-fired plants so we can look forward to a time when our drilling rigs – and employees! – are back to the Barnett Shale in full force.

Thank you.

Julie H. Wilson
Vice President – Urban Development
Chesapeake Energy Corporation
100 Energy Way
Fort Worth, Texas 76102

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