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Buenos Aires — A leading oil union in Neuquen, Argentina's biggest oil basin, is threatening to go on strike if companies lay off even one worker, a situation that could hit crude and natural gas production in the huge Vaca Muerta shale play.

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"If you want to hold workers hostage to fix your problems, you are wrong because we are organized and we will do what we have to do to reverse this situation," Guillermo Pereyra, secretary general of the Union of Private Oil and Gas Workers in Rio Negro, Neuquen and La Pampa, said Wednesday in reference to oil companies.

An estimated 2,000 jobs are at stake, according to the union.

Pereyra told an assembly of workers in Rincon de los Sauces, Neuquen that a rally will be held January 23, saying he expects attendance of up to 30,000 people.

He said any action taken will be against producers and services companies, not the federal government of President Alberto Fernandez, which he said the union supports. The new, left-leaning government took office in December.

The potential decline in support from the union for companies is a big change. In 2017, the union, led back then, like now, by Pereyra, signed a landmark agreement to work with companies on improving efficiency and productivity in Vaca Muerta to cut costs and ramp up production. As part of the deal, they vowed to hold off on protesting as only a last result.

However, tensions between companies and the union swelled in the second half of 2019 after a price freeze and the transition to a new government cut profits and made it harder to plan business. Fernandez has said little in terms of what his energy policy will be, while price controls continue to limit profit potential on production, prompting companies to cut back.

GOVERNMENT EXPECTED TO INTERVENE

"Until we know what the new rules are going to be for the sector and Vaca Muerta, companies are going to wait and see," Martin Polo, head of research at Mills Capital Markets in Buenos Aires, told S&P Global Platts. "The result is that companies have put the brakes on a lot of projects until the situation is clearer."

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This could slow production growth from Vaca Muerta, which has been driving a recovery in overall oil and gas output from more than a decade of decline. The country produced 514,002 b/d in November, up 3.6% from 496,009 b/d a year earlier, while gas production increased 3% to 127 million cu m/d from 123.2 million cu m/d over the same period.

If the energy policies of the new government "don't foster investment, employment is going to suffer," Polo said.

Even so, he said that he expects that the Fernandez government will intervene so that there are no layoffs, helping to prevent any strikes that could slow oil and gas production growth — and a recovery in the economy from a recession in its third year.

Chevron, ExxonMobil, Shell, Total and other companies are betting on the play for production growth — and eventually exporting the surplus. The development of Vaca Muerta, so far in less than 10% of the acreage, has already restored the country to an oil surplus all year and for gas during all seasons except winter.