General Electric Co. plans to close a historic foundry and eliminate more than 250 jobs at its unit in Lufkin, Texas, as the company deals with a drop-off in demand for drilling equipment in the wake of plunging oil prices.

GE told local officials on Monday that the company will close one foundry in the city and cut jobs at another facility nearby. The two facilities were part of Lufkin Industries, a maker of oil-pumping and drilling equipment that GE bought for $3.3 billion in 2013.

"This was a tough decision to make," GE spokeswoman Stephanie Cathcart said in an email. The decision to close the foundry was a result of "increasingly challenging market conditions," she said.

GE will eliminate a total of 262 positions at the two sites in Texas' Angelina County, adding to the roughly 500 Lufkin job cuts that it has announced this year.

The reductions come as oil prices plunged to fresh six-year lows Monday amid worries about a slowdown in demand from China and a buildup of oil supplies in the U.S. The fall in oil prices has forced GE to cut its forecast for revenue and profit from its oil and gas equipment business by 10% this year.

Lufkin Industries has been especially hard hit by the decline in demand for drilling equipment. Orders for its products dropped 40% in the second quarter, GE Chief Financial Officer Jeffrey Bornstein said in July.

Lufkin Mayor Bob Brown said city officials were braced for bad news from GE when the company sought a meeting Monday.

"They haven't brought good news to our office in a long, long time," Mr. Brown said. The city has worked with GE to try to encourage growth since the company bought Lufkin Industries, an industrial presence in the small city since the early 20th century, he said.

"When they say they're going to dismantle the foundry, that pretty well seals the deal," Mr. Brown said. "I just passed the back gate and saw guys walking out of there with their heads down, and that just breaks my heart."

Write to Ted Mann at ted.mann@wsj.com

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(END) Dow Jones Newswires

August 24, 2015 18:05 ET (22:05 GMT)

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