Strike at Argentina fracking sand plant threatens Vaca Muerta output

Buenos Aires — Workers went on strike Wednesday at the biggest fracking sand plant in Argentina, a situation that could reduce drilling activity in Vaca Muerta, the latest setback threatening to slow the country's overall oil and natural gas production growth this year.

Guillermo Pereyra, secretary general of the Union of Private Oil and Gas Workers in Rio Negro, Neuquen and La Pampa, announced the strike early Wednesday, saying that the operator of the play, the state-backed energy company YPF, was underpaying the nearly 200 workers at the plant.

"They work 12 hours a day and travel four hours to and from the plant, and they get 50,000 pesos ($817) [per month]," Pereyra said in a statement. "They should be getting twice that."

The union leader said he had held talks with YPF and the federal government to find a solution, but after not making any headway, the only remaining recourse was to go on strike.

YPF could not be reached for comment.

YPF, the country's biggest oil and gas producer, launched operations of the processing plant in 2016 to supply sand to its fracking operations in Vaca Muerta, a shale play it has been targeting for production growth.

LATEST SETBACK FOR VACA MUERTA

While YPF has been increasing its shale oil production, the company — and the industry as a whole — has been facing setbacks over the past six months, as a price freeze on diesel and gasoline cuts profits and capital controls make it harder to bring funds into the country for financing developments in Vaca Muerta.

To be sure, the number of fracking stages in the play fell 26% to 346 in January from 467 in December, and was down from a most recent peak of 676 in August, when the diesel and price price controls were enforced, according to data compiled by Houston-based services company NCS Multistage.

The decline in activity is threatening to slow production growth from Vaca Muerta, which led a 3.9% increase in the country's overall oil production to an average of 508,642 b/d in 2019 from 489,499 b/d in 2018, according to Energy Secretariat data. Over the same period, gas production rose 5% to an average of 135.2 million cu m/d from 128.8 million cu m/d in 2018, the data shows.

Pereyra's union signed a deal in 2017 to refrain from strikes in a bid to speed up development of Vaca Muerta. But with companies pulling back on investment, tensions are starting to swell. His union threatened to go on strike in the play last month, only to call it off after companies agreed at the last minute to not fire some 700 workers.

Still, with an estimated 17 rigs sidelined, the country's oil and gas production growth is expected to slow this year, said Gerardo Rabinovich, vice president of the Argentine Energy Institute, a think tank.

He said he doesn't expect the rigs to be put back into the fields in Vaca Muerta until the second half of this year.

The delay, he said, means that "mathematically, production is not going to grow as much this year as in 2019."