UPDATE 2-Stallion Oilfield Services files for Chapter 11

* Says has more than $80 mln in cash

* Both assets and liabilities in range of $500 mln-$1 bln

* Secured bondholders will receive $25 mln

* Current workforce levels 40 pct lower than Q4 2008 (Adds more details)

Oct 19 (Reuters) - Stallion Oilfield Services [STOIL.UL], a Houston, Texas-based oilfield services company, filed for Chapter 11 bankruptcy protection, hurt by a fall in the use of land-based drilling rigs and increased natural gas supply in the United States.

In a filing with the U.S. Bankruptcy Court for the District of Delaware on Monday, Stallion and 17 of its affiliates listed both estimated assets and liabilities in the range of $500 million to $1 billion.

As of Oct. 19, Stallion had more than $80 million of cash on hand to support its restructuring and operations, the company said in a statement.

Stallion said the secured lenders would receive about $25 million in principal payments, reducing the company's obligations outstanding under a secured credit agreement.

Stallion said the number of land-based drilling rigs -- a key indicator of the health of Stallion's industry -- has dropped precipitously from about 1,950 in September 2008 to less than 850 by June 2009, the court documents showed.

U.S. natural gas prices had hit their lowest level in nearly eight years in September. Tighter access to credit and a steep slide in natural gas prices have forced many producers to scale back gas drilling operations.

The company said technological advancements in the industry have resulted in increased drilling efficiencies, causing natural gas supply levels to increase despite the reduced rig count, the court documents showed.

"The reduction in drilling rigs, paired with the increased natural gas supply, has resulted in a significant decrease in the demand for oilfield services," the company said in the court documents.

The company said in a statement that about $259 million outstanding under an unsecured bridge loan deal and about $284 million under 9.75 percent unsecured notes would be converted on a pro-rata basis for 98 percent of the common equity in a reorganized Stallion.

Stallion said since Oct. 2008, it has initiated workforce reduction on all levels and as a result its current workforce is about 40 percent below its fourth quarter 2008 levels, the court documents showed.

Also, the company had cut its capital spending and had suspended its 401(k) matching retirement program, the court documents showed.

Stallion said on Oct. 7 it would file for bankruptcy protection, eliminating about $515 million in debt and positioning it to take advantage of an expected recovery in the oil and gas industry. (Reporting by Sakthi Prasad in Bangalore; editing by John Stonestreet and Rupert Winchester)