The Marcellus-based operations of EXCO Resources (NYSE: XCO) will be even lighter as the company is slashing its staff in Pittsburgh. With the company's rig count in the area falling from four to just one, it has made the decision to eliminate 70 of the 120 employees in its regional headquarters. While the company said that about half of the employees would be transferred back to its corporate headquarters in Dallas, it's still tough to see jobs being shed. It's especially tough when natural gas drilling was supposed to bring a hiring boom in the region.
I remember visiting EXCO's regional office and coming away impressed at how much it reminded me of the comfy setting typically associated with a technology company. It felt innovative, cutting edge, and reminded me how promising the future of natural gas looked. At the time, the company was in the midst of a hiring boom after signing a lucrative joint venture with BG Group. Unfortunately, that deal, and others the company signed, didn't fare very well as gas prices plunged. Instead, the region's hopes are being deflated slightly as the great promise has lost its luster.
These latest job cuts aren't the only ones to affect the region since the boom went bust. Canadian exploration and production company Talisman (NYSE: TLM) has all but pulled out of the region. It slashed its capital allocated to the Marcellus by 65% and has turned most of its focus on the liquids-rich Eagle Ford Shale. Like EXCO, it just has one rig running in the region as its breakeven is between $3.50 and $4.00 per thousand cubic feet.
Other exploration and production companies, though, are redoubling their focus in the area. With its coal business on the decline, CONSOL Energy (CNX +0.58%) has all but abandoned growing coal production in order to focus its capital on natural gas. Coal used to be half of CONSOL's budget, but now natural gas capital spending is outpacing coal by two-to-one. While some of its capital will be allocated to its more liquids-rich areas, the company still plans to end the year with 95% of its production being dry gas.
For producers it all boils down to where they can get the most bang for their buck. Range Resources (RRC +0.21%) is one of the top leaseholders in the Marcellus, but its advantage is where those acres are held. The company is planning to spend $1.3 billion in capital this year, with 85% of that capital directed toward its liquids-rich areas. Unlike EXCO and Talisman, it will be spending 79% of its budget on the Marcellus because it has acreage in the profitable wet-gas window. Because of this position, the company can get much more than $3.50 per thousand cubic feet for its gas; instead, it can get upwards of $7 per thousand cubic feet because it can sell the liquids for a much higher price.
Therein lies the great dichotomy between winners and losers in the very same energy play. A company's profitability can vary significantly depending on where it owns acres in a play. Because of this, some companies can keep hiring and growing while others need to cut back and hope for better days ahead.
