Labor Conflict Threatens Production in Argentina


A nearly two-week-old labor union dispute is threatening to derail crude oil production and fuel supplies in Argentina, companies affected by the situation said Monday.

The conflict, which began Dec. 1, already has completed halted output at two facilities, one in Chubut Province and another Santa Cruz Province, owned by the YPF SA (YPF), the local unit of Spain's Repsol YPF SA (REP, REP.MC).

YPF has ceased producing roughly 100,000 barrels of oil a day at the facilities.

"The situation is very serious," a YPF official said Monday, noting that union officials have refused to abide by a government order to return to work.

The oil industry union that started the conflict accuses YPF of failing to adhere to a collective bargaining agreement and increase salaries. Meanwhile, YPF has said that people associated with the union have destroyed facilities, blocked a key transportation center and beaten YPF employees.

YPF offers storage facilities for multiple producers in the area, including Pan American Energy and Occidental Petroleum Corp. (OXY). In addition, virtually all producers in the region rely on the transportation center to send oil to refineries located elsewhere in the country.

This situation affects every oil company in Argentina, Occidental Spokesman Richard Kline said Monday.

Kline said it was too soon to say how the conflict might affect production for Occidental, which produces around 44,000 barrels a day in the area.

Pan American Energy continues to produce oil and is storing it at its own facilities, a person familiar with the company's output said. "But that storage capacity is finite," added the person, who asked to be unnamed.

Brazil's Petroleo Brasileiro SA (PBR, PETR4.BR) also has production facilities in the area and could be affected by the conflict, industry officials said. Numerous smaller oil and gas companies could also see business affected if the situation isn't resolved soon.

"The industry trusts that the conflict will be resolved," an industry official said.

Oil produced in this part of Patagonia, which reportedly accounts for around half of total national output, is shipped to refineries where it is converted into fuel.

Gas stations around the country run by the Argentine unit of Royal Dutch Shell PLC (RDSA), Petrobras and others eventually could run into bottlenecks, industry officials said.

Union conflicts are widespread and common in Argentina, especially in the oil and gas industry.

Last month oil industry union leaders signed a peace pact with energy companies and the government, pledging to avoid strikes and other conflicts.

The pact was hailed as step forward for the industry but it appears to have accomplished little.

So far this year, at least two-dozen labor conflicts have either reduced or completely shut down the equivalent of one month's production oil and gas in Argentina, according to industry data.

Last year, some 164 labor disputes, including strikes and roadblocks that prevented workers from reaching production facilities, affected output on 241 days.

A spokesman for the oil workers union that started the conflict could not be reached for comment.

Copyright (c) 2010 Dow Jones & Company, Inc.


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