By Juliana Castilla

BUENOS AIRES, Oct 31 (Reuters) - Argentina's government is negotiating more flexible oil workers' contracts to woo investors to the Vaca Muerta shale fields and overcome an energy deficit, the head of one of the sector's most powerful unions told Reuters on Monday.

High labor costs are thought to be the primary obstacle to investment in the country's oil and gas sector, and negotiations are politically sensitive in a country with an influential labor movement, meaning some changes are off the table.

"Negotiations are advanced, I'd say 80 percent, but the union will not budge on job security for workers," Guillermo Pereyra, General Secretary of the private oil and gas union in Rio Negro, Neuquen and La Pampa, and Senator for the province of Neuquen, said in an interview.

Argentine Production Minister Francisco Cabrera told reporters in Washington last week that state-controlled energy company YPF (YPFD.BA) and unions were holding labor talks "because it is impossible to be productive."

An agreement would allow companies to stop paying workers for commuting time, or so-called taxi hours, and would allow some workers to be hired only for short-term projects.

Vaca Muerta in southern Argentina, one of the world's largest shale reserves at some 30,000 square kilometers, has attracted investment from Chevron (CVX.N) and Exxon (XOM.N) , but remains largely unexplored.

Argentina's unions became more demanding in the days of $100-per-barrel oil, and have been resistant to change, making companies like BP (BP.L) say they need to see more flexibility in labor laws before committing investments.

It is not clear if the labor agreement will be enough to interest new companies.

"We got to the point where we had so many strikes and conflicts that we could not even work," the director of one company operating in Patagonia said on condition of anonymity.

New technology should allow drilling with a team of 16 workers, but the unions require companies to continue to employ 25 workers, the director said as an example.

On top of drilling costs, companies have to make a 10 percent contribution for "social peace," a subsidy for out-of-work oil workers. Some companies report up to 60 percent of their employees are frequently absent.

Daniel Gonzalez, financial director of YPF, said recently the company's production was affected by two strikes this year.

"We continue projecting stable output for the year, but it could be negatively affected by more labor conflicts," he said.