Vista Oil & Gas, the first independent oil and gas company to operate in the shale fields of Vaca Muerta in Argentina, on July 29, 2019 announced that it has entered into an investment agreement with affiliates of Riverstone, Southern Cross and other sponsors to create Aleph Midstream S.A. (“Aleph Midstream”), which is expected to become the first Argentine midstream company focused on Vaca Muerta. Riverstone is a company with a successful track record of building independent midstream companies across North America and Southern Cross Group, one of the largest and longest-standing Latin America-focused private equity firms.
Under the terms of the agreement, subject to the satisfaction of certain customary and regulatory conditions, the sponsors will contribute up to $160 million over two years into Aleph Midstream in exchange for a controlling equity interest of up to 78.4% and Vista will spin off and contribute the majority of its midstream assets located in the Neuquina basin, valued at approximately $45 million, in exchange for an equity interest in Aleph Midstream of at least 21.6%. The parties will guarantee their obligations under the agreement by granting certain security interests under Argentine law. The agreements also provide for certain required regulatory approvals relating to the concession titles to certain midstream assets to be obtained by Vista and assigned to Aleph Midstream.
Aleph Midstream expects to use these contributions to fund the development and construction of the midstream assets necessary for the gathering, processing and evacuation of Vista’s oil and gas production in the Neuquina basin in Argentina, including Vaca Muerta. Starting in January 2020, Aleph Midstream is expected to commence to provide midstream services to Vista, and is also expected to expand its midstream services to other oil and gas producers in the Neuquina Basin.
The main investment agreement and the midstream services agreement were negotiated and agreed under New York law following the leading experience of the US in the development of shale hydrocarbons. This transaction represents a new legal paradigm for the development of Vaca Muerta shale play since it is built on the premise of long-term dedicated partnerships between midstreamers and upstream producers, allowing upstream producers to focus on their core E&P activities, and allowing midstreamers to establish joint oil and gas evacuation systems resulting in synergies that individual operators cannot materialise alone, driving down development and lifting costs in the basin.