Rubiales Aims to Restart Output As Colombian Protests Loom

BOGOTA (Dow Jones Newswires), Sep. 21, 2011

Labor protests against Pacific Rubiales a Toronto-based firm that has emerged as the leading emblem of Colombia's oil boom, could derail a surge in crude output in the Andean nation.

As labor protests Tuesday turned violent and erupted into clashes with police forces, the company was forced to halt output at its Rubiales and Quifa oil fields, which together represent nearly a quarter of Colombia's 953,000 barrels a day in total oil production.

The government has since stepped in to mediate talks between the company and the protesters, while the police have secured the oil fields. Wednesday afternoon, no protests were underway, but a workers union leader warned they could resume at any time.

Chief Executive Ronald Pantin said Pacific Rubiales would restore production as quickly as possible, but first needed to gauge the damage to the installations. He cautioned that restarting operations could take as long as three days.

The labor protests pushed Pacific Rubiales late Tuesday to declare a "force majeure" on its oil shipments, allowing the firm to break the conditions of its supply agreements because of factors beyond its control.

Although it's mediating the talks, the government condemned the protests. "These violent actions are unacceptable for the government," deputy Interior Minister Aurelio Iragorri said Wednesday.

The halt in output also hurts state-run oil firm Ecopetrol, which receives a large share of the oil pumped by Pacific Rubiales.

Pacific Rubiales has its stock listed in Toronto and Bogota. Its shares were down 1.9% to CAD24.88 on Wednesday afternoon. Ecopetrol's share price was off 0.4% at COP4,120.

Tuesday's protests were the latest in series of clashes between oil firms and labor unions that have prompted brief halts in production. Earlier this month, disgruntled workers placed roadblocks that forced Petrominerales, another Canadian oil firm, to close down its operations for nearly a week, stopping production of 30,000 barrels per day.

The impact of the protests against Rubiales is likely to be much greater for Colombia's overall oil production. Nearly 225,000 barrels of oil per day has been shut in because of the protests. If other clashes erupt, it could slow down Colombia's advance toward its target of 1 million barrels per day this year.

"These protests will definitely affect the country's production figures for this month," said Alejandro Martinez, president of the Colombian Oil Association. Oil production in August stood at 953,000 barrels per day, a 21% increase from a year earlier.

The protests are usually geared at demanding more jobs for local residents and better working conditions.

The oil firms say many of the protesters are employed by contractors and have no direct links to the oil companies. Additionally, some oil executives maintain that the protests are used to galvanize support for local political campaigns ahead of regional elections in October.

"These protests have nothing to do with working conditions on the ground," said Rubiales' Pantin in a phone interview. "The motivations are purely political."

Tarcisio Mora, the president of Colombia's largest union, which has been leading the protests, disputed the suggestion that the demonstrations are related to next month's elections. "What we want are better contracts for our workers," he said.

Mora conceded the protesters are employed by contractors, but contended that Rubiales still needed to be held accountable for their working conditions and labor contracts. He warned that protests against Rubiales or other oil firms could resume if worker demands are not met.

Colombia's has seen a dramatic surge in output in recent years as a result of improved security in areas that were once dominated by Marxist insurgents. Rubiales is a prime example of the recent success of Colombia's efforts to increase production.

Eight years ago, the country's oil industry was near a standstill with output around half of today's level because oil fields such as Rubiales' were too risky to operate. They were often surrounded by insurgents from the Revolutionary Armed Forces of Colombia, Latin America's oldest and largest guerrilla group, also known as FARC.

A military offensive started in 2002 by then-President Alvaro Uribe, helped secure much of the countryside, driving the FARC deep into the mountains. Pacific Rubiales was one of the first companies to take advantage of the improved security.

The company, led by Venezuelan oil executives, secured control of the Rubiales field in 2007 and brought in technical expertise that was missing in Colombia for extracting its goopy, sulfur-laden crude.

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