F-1 1 d668730df1.htm FORM F-1 Form F-1
Table of Contents

As filed with the Securities and Exchange Commission on July 2, 2019

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Vista Oil & Gas, S.A.B. de C.V.

(Exact name of Registrant as specified in its charter)

 

 

N.A.

(Translation of Registrant’s name into English)

 

 

 

United Mexican States   1311   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

Vista Oil & Gas, S.A.B. de C.V.

Calle Volcán 150, Floor 5

Colonia Lomas de Chapultepec, Alcaldía Miguel Hidalgo

Mexico City, 11000

Mexico

Tel: (+52) 55 4163-9205

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Puglisi & Associates

850 Library Avenue, Suite 204

Newark, Delaware 19711

United States of America

+1 (302) 738-6680

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Andrés de la Cruz, Esq.
Emilio Minvielle, Esq.
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
  Antonia E. Stolper, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company.  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate

offering price(1)

  Amount of
registration fee

Series A shares, with no par value(2)(3)

  US$100,000,000.00   US$12,120.00

 

 

(1) 

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

(2) 

Includes series A shares represented by ADSs that the international underwriters may purchase and series A shares that the Mexican underwriters may purchase, in both cases, solely pursuant to their option to purchase additional series A shares or ADSs, as applicable, if any, and series A shares which are to be offered outside the United States but that may be resold from time to time in the United States in transactions requiring registration under the Securities Act.

(3) 

The series A will be represented by American depositary shares, each of which represents one series A share, issuable upon deposit of the series A shares registered hereby, and that will be registered under a separate registration statement on Form F-6.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED     , 2019

PRELIMINARY PROSPECTUS

Series A Shares, including Series A Shares

represented by American Depositary Shares

 

 

LOGO

Vista Oil & Gas, S.A.B. de C.V.

 

 

This is a public offering of our series A shares of common stock, no par value and one vote per share, or the “series A shares.” We are offering series A shares in a global offering, which consists of (i) an international offering of series A shares represented by American Depositary Shares, or ADSs, in the United States of America, or the United States, and other countries outside of Mexico, which we refer to as the “international offering” and (ii) a concurrent public offering authorized by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores or “CNBV”) of series A shares in Mexico, which we refer to as the “Mexican offering,” and together with the international offering, the “global offering.” The international offering is being underwritten by the international underwriters named in this prospectus. The Mexican offering is being conducted by the lead Mexican underwriters named elsewhere in this prospectus, or the “Mexican underwriters,” pursuant to a prospectus prepared in accordance with the laws of Mexico. The closings of the international and Mexican offerings are conditioned upon each other. Each ADS represents one series A share.

Our series A shares are listed on the Bolsa Mexicana de Valores, S.A.B. de C.V., or the “Mexican Stock Exchange,” under the symbol “VISTA.” On                     , 2019, the last reported sales price of our series A shares on the Mexican Stock Exchange was Ps.              per series A share (equivalent to approximately US$             per series A share or US$             per ADS, based on the exchange rate of Ps.             per US$1.00 reported by the Mexican Central Bank on such date). Prior to this offering, no public market existed for the ADSs. The public offering price in the international offering of the ADSs is expected to be between US$             and US$             per ADS (equivalent to Ps.             and Ps.             per ADS based on the exchange rate of Ps.             per US$1.00 reported by the Mexican Central Bank on                     , 2019). After the pricing of this offering, we expect the ADSs to trade on the New York Stock Exchange, or the “NYSE,” under the symbol “VIST.”

Neither the U.S. Securities and Exchange Commission, or the “Commission” or the “SEC,” the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria de Valores or “CNBV”) nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Registration of the securities described in this prospectus with the Mexican National Securities Registry (Registro Nacional de Valores or “RNV”) does not imply any certification as to the investment quality of the securities offered pursuant to this prospectus, our solvency, liquidity, credit quality or the accuracy or completeness of the information contained herein, and does not ratify or validate acts or omissions, if any, undertaken in contravention of applicable law. The information set forth in this prospectus or in any other related materials is the sole responsibility of Vista Oil & Gas, S.A.B. de C.V. and has not been reviewed nor authorized by the CNBV. The information set forth in this prospectus will be notified to the CNBV only for informational purposes, which does not imply or represent any certification by such authority with respect to the investment quality of the securities offered pursuant to this prospectus or our solvency liquidity, credit quality or the accuracy or completeness of the information contained herein, and does not ratify or validate acts or omissions, if any, undertaken in contravention of applicable law. This prospectus may not be publicly distributed in Mexico.

We have granted to the international underwriters and the Mexican underwriters options, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of              additional series A shares, including series A shares represented by ADSs in the case of the international underwriters, at the public offering prices listed below, less the underwriting discounts and commissions. The international underwriters and Mexican underwriters may exercise these options solely for the purpose of covering over-allotments, if any, made in connection with the global offering, on an independent but coordinated basis.

We are an “emerging growth company” as defined in Section 2(a)(19) of the U.S. Securities Act of 1933, as amended, or the “Securities Act,” and, as such, are allowed to provide in this prospectus more limited disclosures than an issuer that would not so qualify. In addition, for as long as we remain an emerging growth company, we will qualify for certain limited exceptions from the Sarbanes-Oxley Act of 2002. See “Risk Factors—Risks Related to the ADSs and the Offering—As a foreign private issuer and an “emerging growth company,” we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.”

 

 

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 28 of this prospectus.

 

     Per
ADS
     Total
per ADS
     Per series
A share
     Total  

Public offering price

   US$                  US$                  US$                  US$              

Underwriting discounts and commissions(1)

   US$      US$      US$      US$  

Proceeds, before expenses

   US$      US$      US$      US$  

 

(1) 

See “Underwriting” for a description of the compensation payable to the international underwriters.

The international underwriters expect to deliver the ADSs to purchasers on or about             , 20     through the book-entry facilities of the Depository Trust Company, or “DTC.”

 

 

Joint Global Coordinators and Joint Bookrunners

 

Citigroup   Credit Suisse

The date of this prospectus is                     , 2019


Table of Contents

Table of Contents

 

    

Page

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     iii  

CERTAIN TECHNICAL DEFINED TERMS

     xi  

FORWARD-LOOKING STATEMENTS

     xiii  

PROSPECTUS SUMMARY

     1  

THE GLOBAL OFFERING

     11  

SUMMARY FINANCIAL AND OPERATING DATA

     15  

RISK FACTORS

     28  

USE OF PROCEEDS

     75  

DIVIDEND POLICY

     76  

MARKET INFORMATION

     77  

CAPITALIZATION

     84  

SELECTED FINANCIAL AND OPERATING DATA

     85  

UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION

     96  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     101  

INDUSTRY AND REGULATORY OVERVIEW

     134  

OUR BUSINESS

     165  

MANAGEMENT AND CORPORATE GOVERNANCE

     200  

PRINCIPAL SHAREHOLDERS

     211  

RELATED PARTY TRANSACTIONS

     212  

DESCRIPTION OF THE SERIES A SHARES AND BYLAWS

     215  

DESCRIPTION OF THE AMERICAN DEPOSITARY SHARES

     235  

TAXATION

     244  

UNDERWRITING

     251  

GLOBAL OFFERING EXPENSES

     259  

LEGAL MATTERS

     260  

EXPERTS

     261  

ENFORCEABILITY OF CIVIL LIABILITIES

     263  

WHERE YOU CAN FIND MORE INFORMATION

     265  

INDEX TO THE FINANCIAL STATEMENTS

     F-1  

 

 

We have not authorized anyone to provide any information or make any representation about this offering that is different from, or in addition to, that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the international underwriters, or any of our or their affiliates have authorized any other person to provide you with different or additional information. Neither we nor the international underwriters, or any of our or their affiliates are making an offer to sell the series A shares or ADSs in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the series A shares or ADSs. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

We are offering series A shares represented by ADSs, in the United States and countries other than Mexico solely on the basis of the information contained in this prospectus. No offer or sale of the ADSs may be made in Mexico. We are also offering series A shares in Mexico pursuant to a Spanish-language prospectus, prepared in accordance with Mexican law, dated the same date as this prospectus. The Mexican prospectus, which will be


Table of Contents

filed with, and approved for public disclosure by, the CNBV, contains information substantially similar to the information contained in this prospectus, except that the Mexican prospectus includes information that is required by Mexican law and which is not material in the context of the global offering. Persons outside of the United States who have come into possession of this prospectus must inform themselves about and observe restrictions relating to the offering of series A shares and ADSs and the distribution of this prospectus outside of the United States.

 

ii


Table of Contents

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Certain Definitions

Unless otherwise indicated or the context otherwise requires, (i) the terms “Vista,” “Company,” “we,” “us,” and “our,” when used in the context of (a) following the Initial Business Combination (as defined herein), refer to Vista Oil & Gas, S.A.B. de C.V., a corporation (sociedad anónima bursátil de capital variable) organized under the laws of Mexico, and its consolidated subsidiaries, and (b) prior to the Initial Business Combination, refer to the Predecessor Company (as defined herein), (ii) the term “Issuer” refers to Vista exclusive of its subsidiaries, (iii) the term “Vista Argentina” refers to Vista Oil & Gas Argentina S.A. (formerly known as Petrolera Entre Lomas S.A.); (iv) the term “PELSA” refers to Petrolera Entre Lomas S.A. (or following the change of its corporate name, Vista Argentina); (v) the term “Vista Holding I” refers to Vista Oil & Gas Holding I, S.A. de C.V.; (vi) the term “Vista Holding II” refers to Vista Oil & Gas Holding II, S.A. de C.V.; (v) the term “APCO International” refers to APCO Oil & Gas S.A.U. (which will be merged into Vista Argentina pursuant to the Argentine Reorganization (as defined herein), see “Prospectus Summary—Corporate Reorganization”); (vi) the term “APCO Argentina” refers to APCO International’s subsidiary APCO Argentina S.A. (which will be merged into Vista Argentina pursuant to the Argentine Reorganization, see “Prospectus Summary—Corporate Reorganization”); (vii) the term “APCO Argentina Branch” refers to APCO Oil and Gas International, Inc. (Argentina Branch), (together with APCO International and APCO Argentina, the “APCO Entities”); and (viii) the term “Predecessor Company” or “Predecessor” refers to PELSA and its subsidiaries, prior to the Initial Business Combination. See “Our Business—Our History.”

References to “series A shares” refer to shares of our series A common stock, no par value, and references to “ADSs” are to American Depositary Shares, each representing one series A share, except where the context requires otherwise.

In addition, the term “Mexico” refers to the United Mexican States, the term “United States” refers to the United States of America, and the term “Argentina” refers to the Argentine Republic. Moreover, the phrase “Mexican government” refers to the federal government of Mexico, the phrase “U.S. government” refers to the federal government of the United States, and the phrase “Argentine government” refers to the federal government of Argentina.

Accounting terms have the definitions set forth under International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS”).

Our Company

We are an oil and gas company principally engaged in the business of exploration and production (“E&P”) of oil and gas. We currently concentrate our operations in Argentina and Mexico, where we have participation interests in the following oil and gas concessions as of the date of this prospectus:

Argentina

Neuquina basin: (a) a 100% interest in the exploitation concessions 25 de Mayo-Medanito and Jagüel de los Machos (as operator); (b) a 100% interest in the exploitation concessions Entre Lomas Neuquén and Entre Lomas Río Negro, which we refer to collectively as “Entre Lomas,” and Charco del Palenque and Jarilla Quemada, which we refer to collectively as “Agua Amarga” (as operator); (c) a 100% interest in the unconventional exploitation concessions of Bajada del Palo Oeste and Bajada del Palo Este (as operator); (d) a 55% interest in the exploitation concession Coirón Amargo Norte (as operator); (e) a 10% non-operating interest in the unconventional exploitation concession Coirón Amargo Sur Oeste (“CASO”) (operated by Shell); and (f) a 90% interest in the exploration permit Águila Mora (as operator).

Golfo San Jorge basin: a 16.95% non-operating interest in the exploitation concessions Sur Río Deseado Este (operated by Petrolera Argentina S.A. (“Alianza Petrolera”)).

 

iii


Table of Contents

Noroeste basin: a 1.5% non-operating interest in the exploitation concessions Acambuco (operated by Pan American Energy LLC (Argentine Branch)).

Mexico

Cuenca del Sureste basin: (a) a 50% non-operating interest in the CS-01 exploitation block and (b) a 50% non-operating interest in the A-10 exploitation block, both to be operated by Vista (subject to the approval of the transfer of operatorship by the Mexican National Hydrocarbon Commission (Comisión Nacional de Hidrocarburos or “CNH”).

Tampico-Misantla basin: a 50% non-operating interest in the TM-01 exploitation block operated by Jaguar.

We are a sociedad anónima bursátil de capital variable organized under the laws of Mexico. We were originally incorporated in Mexico on March 22, 2017.

Our principal executive offices are located at Calle Volcán No. 150, Floor 5, Colonia Lomas de Chapultepec, Alcaldía Miguel Hidalgo, Mexico City, Zip Code 11000, Mexico. Our telephone number at this location is +52 (55) 4163-9205. Our website is http://www.vistaoilandgas.com. Information contained on, or accessible through, this website is not incorporated by reference in, and will not be considered part of, this prospectus.

The Initial Business Combination

On April 4, 2018, Vista consummated the Initial Business Combination. The term “Initial Business Combination” refers to the following transactions:

 

  (i)

The PELSA Acquisitions. The acquisition from Pampa Energía S.A. (“Pampa”) of:

(a) 58.88% of the capital stock of PELSA, an Argentine corporation that holds a 73.15% direct operating interest in each of the Entre Lomas, Bajada del Palo and Agua Amarga oil exploitation concessions located in the Neuquina Basin in the provinces of Neuquén and Río Negro, Argentina (the “EL-AA-BP Concessions”);

(b) a 3.85% direct interest in the EL-AA-BP Concessions; and

(c) a 100% direct interest in the 25 de Mayo-Medanito SE (“25 de Mayo-Medanito”) and Jagüel de los Machos (“JDM”) oil exploitation concessions located in the Neuquina Basin in the Province of Río Negro, Argentina, which were acquired by PELSA on the same day.

 

  (ii)

The APCO Acquisitions. The acquisition from Pluspetrol Resources Corporation (“Pluspetrol”) of:

(a) 100% of the capital stock of APCO International; and

(b) 5% of the capital stock of APCO Argentina.

At the time of the Initial Business Combination (i.e., April 4, 2018), APCO International held (a) 39.22% of the capital stock of PELSA; (b) 95% of the capital stock of APCO Argentina; and (c) through APCO Argentina Branch, the following interests:

(1) a 23% interest in each of the EL-AA-BP Concessions operated by PELSA;

(2) a 45% non-operating interest in an assessment block in the Neuquina Basin in the Province of Neuquén, Argentina, denominated “Coirón Amargo Sur Oeste”;

(3) a 55% operating interest in an exploitation concession in the Neuquina Basin in the Province of Neuquén, Argentina, denominated “Coirón Amargo Norte”;

 

iv


Table of Contents

(4) a 1.5% non-operating interest in an exploitation concession in the Noroeste Basin in the Province of Salta, Argentina, denominated “Acambuco”;

(5) a 16.95% non-operating interest in an exploitation concession in the Golfo San Jorge Basin in the Province of Santa Cruz, Argentina, denominated “Sur Río Deseado Este”; and

(6) a 44% non-operating interest in an exploration agreement relating to Sur Río Deseado Este.

At the time of the Initial Business Combination, APCO Argentina held a 1.58% equity interest in PELSA, which, together with (a) the 39.22% equity interest in PELSA held through APCO International, (b) the 58.88% equity interest held directly by the Company as described in (i)(a) above, and (c) the 0.32% equity interest directly acquired on April 25, 2018 by Vista Holding I from PELSA’s minority shareholders, accounted for 100% of the capital stock of PELSA that we hold as of the date of this prospectus.

For more information on the Initial Business Combination, see “Our Business—Our History.”

Emerging Growth Company Status

We qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth Company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth Company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth Company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. However, we have elected to “opt out” of this provision that would have allowed us to take advantage of an extended transition period and, as a result, we will comply with new or revised accounting standards as required. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

We have elected to adopt certain of the reduced disclosure requirements available to emerging growth companies. For a description of the qualifications and other requirements applicable to emerging growth companies and certain elections that we have made due to our status as an emerging growth Company, see “Risk Factors—Risks Related to the ADSs and the Offering—As a foreign private issuer and an ‘emerging growth company,’ we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.”

Financial Statements

The financial statements included in this prospectus have been prepared on a historical basis in accordance with IFRS or U.S. GAAP, as described herein.

We were incorporated on March 22, 2017 and commenced our upstream operations with the Initial Business Combination on April 4, 2018.Accordingly, our operating history is limited. We maintain our books and records in U.S. Dollars, which is the presentation currency for our financial statements and also the functional currency of our operations.

PELSA was determined to be the Company’s predecessor, and as a result, PELSA’s historical operations have been presented for the fiscal year ended December 31, 2017 and for the period from January 1, 2018 to April 3, 2018.

PELSA, as the Company’s predecessor, has applied IFRS for the first time as of and for the year ended December 31, 2017 with a transition date as of January 1, 2017. In the preparation of the predecessor financial statements, PELSA has applied all the IFRS that are mandatorily effective in the fiscal year beginning January 1, 2018, in all the periods presented.

 

v


Table of Contents

For periods up to and including the year ended December 31, 2017, PELSA originally prepared its financial statements in accordance with Argentine GAAP. See Note 2.5 to our Audited Financial Statements (as defined below) for a description of the differences between IFRS and Argentine GAAP applicable to PELSA.

The financial information contained in this prospectus includes:

 

  (i)

the audited consolidated financial statements as of December 31, 2017 and January 1, 2017 and for the year ended December 31, 2017, of PELSA, as the Company’s predecessor (the “Predecessor 2017 Audited Financial Statements”);

 

  (ii)

the audited consolidated financial statements as of December 31, 2018 and (a) for the period from January 1, 2018 to April 3, 2018, of PELSA, as the Company’s predecessor, and (b) for the period from April 4, 2018 to December 31, 2018, of the Company, as successor (the “Predecessor/Successor 2018 Audited Financial Statements,” and together with the Predecessor 2017 Audited Financial Statements, the “Audited Financial Statements”); and

 

  (iii)

the unaudited condensed consolidated interim financial statements as of March 31, 2019 and December 31, 2018 and for the three-month period ended March 31, 2019 of the Company, as successor and for the three-month period ended March 31, 2018 of PELSA, as the Company’s predecessor (the “1Q 2019 Unaudited Interim Condensed Financial Statements”).

The Audited Financial Statements (which include the Predecessor 2017 Audited Financial Statements and the Predecessor/Successor 2018 Audited Financial Statements) have been prepared in accordance with IFRS and are presented in U.S. Dollars. We prepared our 1Q 2019 Unaudited Interim Condensed Financial Statements in accordance with International Accounting Standard (“IAS”) No. 34, Interim Financial Reporting.

The accounting principles used in the preparation of our 1Q 2019 Unaudited Interim Condensed Financial Statements are the same as with those used in the preparation of our Audited Financial Statements, except (i) for the income tax expense recognition (see Note 2.1 to the 1Q 2019 Unaudited Interim Condensed Financial Statements) and (ii) that effective January 1, 2019, we adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application on January 1, 2019. Under this method, the standard is applied with the cumulative effect of initially applying the standard recognized at the date of initial application. Accordingly, certain comparisons between periods may be affected. See Note 2.2 to our 1Q 2019 Unaudited Interim Condensed Financial Statements. In addition, our 1Q 2019 Unaudited Interim Condensed Financial Statements do not include all the information and disclosures required in our Audited Financial Statements and accordingly should be read in conjunction with them.

As a result of the Initial Business Combination, the financial reporting periods in respect of fiscal year 2018 are presented herein as follows:

 

   

the “2018 Predecessor Period,” which refers to the period from January 1, 2018 to April 3, 2018 and includes the consolidated results of operations of the Predecessor Company; and

 

   

the “2018 Successor Period,” which refers to the period from April 4, 2018 to December 31, 2018 and includes the consolidated results of operations of Vista, as the successor company.

The comparability of our results of operations is affected by the consummation of the Initial Business Combination and purchase accounting. As a result of the predecessor treatment given to PELSA, our results of operations for periods prior to the Initial Business Combination do not include the results of the APCO Entities, JDM and 25 de Mayo-Medanito, and therefore are not comparable to our results for periods after the consummation of the Initial Business Combination. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Note Regarding Comparability of Our Results of Operations.”

 

vi


Table of Contents

Public Company in Mexico

Because we are a public company in Mexico, investors can access our historical financial statements published in Spanish on the Mexican Stock Exchange’s (Bolsa Mexicana de Valores, S.A.B. de C.V.), the CNBV’s (Comisión Nacional Bancaria y de Valores) and our websites at www.bmv.com.mx, www.gob.mx/cnbv and www.vistaoilandgas.com, respectively. The information found on the Mexican Stock Exchange’s, the CNBV’s and our websites is not a part of this prospectus. Pursuant to the General Regulations Applicable to Issuers and Other Market Participants (Disposiciones de Carácter General Aplicables a las Emisoras de Valores y a otros Participantes del Mercado de Valores), as amended, issued by the CNBV, we are not required to treat PELSA as our predecessor company in the preparation of our historical financial statements. The historical financial statements and other financial information filed with the CNBV and the Mexican Stock Exchange are not prepared and presented with the financial information of PELSA as predecessor.

Our financial statements and other financial information for periods ending after January 1, 2019 to be made available on the Mexican Stock Exchange’s and the CNBV’s websites will be prepared and presented substantially in the same manner as the financial information included in this prospectus for the 2018 Successor Period.

Supplemental Financial Statements

On April 4, 2018 we acquired through direct acquisitions the APCO Entities from Pluspetrol and PELSA acquired the 25 de Mayo-Medanito and JDM oil properties from Pampa.

We include in this prospectus the financial statements of APCO Argentina Branch, the branch of APCO International in Argentina, in lieu of the financial statements of APCO International, which would otherwise be required to be presented under Rule 3-05 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). See Note 31.3 to the Audited Financial Statements for more information on the assets and liabilities related to the acquisition of APCO International. We believe that APCO International’s pre-acquisition financial statements would not provide investors with any material information or financial trends related to the assets, liabilities or revenues of the three APCO Entities that would not otherwise appear in the historical financial statements of APCO Argentina Branch and/or our Audited Financial Statements, and substantially all of APCO International’s assets and liabilities are either eliminated in the consolidation process, not part of the Initial Business Combination (i.e., APCO Austral S.A., a wholly-owned subsidiary of APCO International, which was transferred by Pluspetrol on March 19, 2018, shortly prior to the consummation of the Initial Business Combination) or otherwise eliminated or subsumed in the purchase accounting recorded by the Company. For further information on these acquisitions, see “Our Business—Our History—The Initial Business Combination.”

The following are the supplemental financial statements (collectively, the “Supplemental Financial Statements”) included elsewhere in this prospectus:

 

  (i)

(a) the audited pre-acquisition financial statements of APCO Argentina Branch as of December 31, 2017 and January 1, 2017 and for the year ended December 31, 2017 and (b) the audited pre-acquisition financial statements of APCO Argentina Branch as of April 3, 2018 and for the period from January 1, 2018 to April 3, 2018, prepared under IFRS; and

 

  (ii)

(a) the audited combined abbreviated pre-acquisition statements of revenues and direct operating expenses of JDM and 25 de Mayo-Medanito oil & gas properties for the year ended December 31, 2017 and (b) the audited combined abbreviated pre-acquisition statements of revenues and direct operating expenses of JDM and 25 de Mayo-Medanito oil & gas properties for the period from January 1, 2018 to April 3, 2018, prepared under U.S. GAAP.

The Supplemental Financial Statements are presented in U.S. Dollars.

 

vii


Table of Contents

Pro Forma Financial Information

This prospectus includes unaudited pro forma financial information for the year ended December 31, 2018. The unaudited pro forma condensed statements of income have been prepared to give pro forma effect to the Initial Business Combination as if such acquisitions had occurred on January 1, 2018. The pro forma adjustments, which are based on currently available information and certain assumptions that we believe are reasonable, have been applied to the financial information included in the Predecessor/Successor 2018 Audited Financial Statements. Assumptions underlying the pro forma adjustments are described in the notes accompanying the unaudited pro forma financial information and should be read in conjunction with such unaudited pro forma financial information. The unaudited pro forma financial information is being furnished solely for informational purposes and is not necessarily indicative of the results of operations that we might have achieved for the periods indicated had the Initial Business Combination been completed for the period presented, and should not be taken as representative of our future results of operations. The unaudited condensed pro forma financial information should be read in conjunction with the information contained in “Summary Financial and Operating Data,” “Selected Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Audited Financial Statements and the Supplemental Financial Statements included elsewhere in this prospectus.

Non-IFRS Financial Measures

In this prospectus, we present Net Debt, Adjusted EBITDA and Adjusted EBITDA Margin, which are non-IFRS financial measures. A non-IFRS financial measure is generally defined as a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that: (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with IFRS in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.

We define Adjusted EBITDA as (loss) / profit for the year / period plus income tax expense, financial results, net, depreciation, depletion and amortization, transaction costs related to business combinations, restructuring expenses and impairment (recovery) of property, plant and equipment. We believe that the nature of the restructuring costs was such that they are not reasonably likely to recur within two years as they are mainly related to permanent reductions in our workforce derived from our business combinations, and that restructuring costs and transaction expenses are not normal, recurring operating expenses. We believe that by excluding restructuring costs and transaction costs related to business combinations, supplemental information is provided for our management and investors to analyze our core operating performance on a consistent basis from period to period. In addition, the impairment (recovery) of property, plant and equipment was excluded from the determination of our Adjusted EBITDA because it corresponds to an adjustment to the valuation of our fixed assets which charge is similar in nature to the depreciation of property, plant and equipment. This metric allows management and investors to analyze our operating performance on a consistent basis from period to period. In this regard, we note that the elimination of these costs and expenses does not result in a reduction of operating expenses necessary to conduct our business. In light of the foregoing factors, our management excludes restructuring expenses, transaction costs from business combinations and impairment (recovery) of property, plant and equipment from our Adjusted EBITDA to facilitate reviews of operational performance and as a basis for strategic planning. Our management believes that excluding such items will allow investors to supplement their understanding of our short-term and long-term financial trends.

We define Net Debt as current and non-current borrowings minus cash, bank balances and other short-term investments. We define Adjusted EBITDA Margin as the ratio of Adjusted EBITDA to revenue from contracts with customers.

 

viii


Table of Contents

We present Adjusted EBITDA, Adjusted EBITDA Margin and Net Debt because we believe they provide investors with supplemental measures of the financial condition and performance of our core operations that facilitate period to period comparisons on a consistent basis. Our management uses Net Debt, Adjusted EBITDA and Adjusted EBITDA Margin, among other measures, for internal planning and performance measurement purposes. Net debt, Adjusted EBITDA and Adjusted EBITDA Margin are not measures of liquidity or operating performance under IFRS and should not be construed as alternatives to net profit, operating profit, or cash flow provided by operating activities (in each case, as determined in accordance with IFRS). Net Debt, Adjusted EBITDA and Adjusted EBITDA Margin, as calculated by us, may not be comparable to similarly titled measures reported by other companies. For a reconciliation of Net Debt, Adjusted EBITDA and Adjusted EBITDA Margin to the most directly comparable IFRS financial measure, see “Selected Financial and Operating Data.”

We have also included pro forma Adjusted EBITDA and pro forma Adjusted EBITDA Margin to show the pro forma effect to Initial Business Combination over our Adjusted EBITDA and Adjusted EBITDA Margin. We present pro forma Adjusted EBITDA and pro forma Adjusted EBITDA Margin because we believe they provide investors with supplemental measures of the financial performance of our core operations that facilitates period-to-period comparisons of our pro forma results on a consistent basis. We define pro forma Adjusted EBITDA as pro forma (loss) / profit for the year / period plus pro forma income tax expense, pro forma financial results, net, pro forma depreciation, depletion and amortization, pro forma restructuring expenses and pro forma impairment loss of property, plant and equipment. We define pro forma Adjusted EBITDA Margin as the ratio of pro forma Adjusted EBITDA to pro forma revenue from contracts with customers. Pro forma Adjusted EBITDA and pro forma Adjusted EBITDA Margin are derived from the unaudited pro forma financial information included elsewhere in this prospectus. See “Unaudited Condensed Pro Forma Financial Information.” For a reconciliation of pro forma Adjusted EBITDA and pro forma Adjusted EBITDA Margin, to the most directly comparable IFRS financial measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-IFRS Financial Measures.”

Presentation of Currencies and Rounding

All references to “$,” “US$,” “U.S. Dollars” and “Dollars” are to U.S. dollars, the lawful currency of the United States of America, references to “Mexican Pesos” and “Ps.” are to Mexican pesos, the lawful currency of Mexico and “ARS,” “Argentine Pesos” and “AR$” are to Argentine pesos, the lawful currency of Argentina. The Audited Financial Statements, the 1Q 2019 Unaudited Interim Condensed Financial Statements and the Supplemental Financial Statements are presented in U.S. Dollars.

Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Market and Industry Data

This prospectus includes market share, ranking, industry data and forecasts that we obtained from industry publications and surveys, public filings, and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, including Wood Mackenzie Ltd. (“Wood Mackenzie”), but there can be no assurance as to the accuracy or completeness of included information.

We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. We believe data regarding the size of our markets and market share are inherently imprecise, but generally indicate size and position and market share within our markets. While we are not aware of any misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section titled “Risk Factors.”

 

ix


Table of Contents

Presentation of Oil and Gas Information

The Company’s Oil and Gas Reserves Information

The information included in this prospectus regarding estimated quantities of proved reserves is derived from estimates of the proved reserves as of December 31, 2018. The proved reserves estimates are derived from the report dated February 13, 2019 (the “2018 Reserves Report”) prepared by Gaffney, Cline & Associates, Inc. (“GCA”), independent reserves engineers, included as an exhibit to the registration statement of which this prospectus forms a part. The 2018 Reserves Report was prepared by GCA for us, based on information provided by us and presents an appraisal as of December 31, 2018 of oil and gas reserves located in the Entre Lomas, Bajada del Palo Oeste, Bajada del Palo Este, Agua Amarga, Coirón Amargo Norte, Águila Mora, Coirón Amargo Sur Oeste, Acambuco, Jagüel de los Machos, 25 de Mayo-Medanito blocks in Argentina, all of which were acquired by us pursuant to the Initial Business Combination.

Argentina and Mexico Oil and Gas Reserves Information

The information included in the “Industry and Regulatory Overview” section of this prospectus regarding Argentina’s and Mexico’s proved reserves has been prepared based on official and publicly available information of the Argentine Secretariat of Energy and Mexico’s National Hydrocarbon Commission. References to the “proved reserves” of Argentina and Mexico follow the definition of “proved reserves” as set forth in the guidelines published by the Argentine Secretariat of Energy and Mexico’s National Hydrocarbon Commission, as applicable. However, the information regarding Vista’s proved reserves included elsewhere in this prospectus has been prepared according to the definitions of Rule 4-10(a) of Regulation S-X or the Society of Petroleum Engineers’ Petroleum Resources Management System, which may differ from the relevant guidelines published by the Argentine and Mexican authorities. For more information, see “Industry and Regulatory Overview—Oil and Gas Regulatory Framework in Argentina—Reserves and Resources Certification in Argentina” and “Industry and Regulatory Overview—Oil and Gas Regulatory Framework in Mexico—Reserves and Resources Certification in Mexico.”

 

x


Table of Contents

CERTAIN TECHNICAL DEFINED TERMS

Argentine Secretariat of Energy” or “ME&M” means the current Argentine Secretaría de Gobierno de Energía under the supervision of the Ministry of Treasury (the Argentine Ministerio de Hacienda), and/or any of its predecessors (the Argentine Ministry of Energy and the Argentine Ministry of Energy and Mining), and/or any other Argentine federal governmental agency that is in charge of enforcing the Hydrocarbons Law in the future, as applicable.

BCRA” means the Argentine Central Bank (“Banco Central de la República Argentina”).

CNH” means the Mexican National Hydrocarbon Commission (Comisión Nacional de Hidrocarburos).

CNG” means compressed natural gas.

EIA” means the U.S. Energy Information Administration.

LNG” means liquefied natural gas.

LPG” means liquefied petroleum gas (includes butane and propane).

Management Team” means the Company’s management team that is comprised of Miguel Galuccio, Pablo Vera Pinto, Juan Garoby and Alejandro Cherñacov, and following the Initial Business Combination (i.e., April 4, 2018), Gaston Remy. As such term is used in this prospectus, our Management Team does not include our General Counsel, Javier Rodríguez Galli.

MMBtu” means million British thermal units.

NGL” means natural gas liquids.

production” when used with respect to (i) our gas production, it excludes flared gas, injected gas and gas consumed in our operations and (ii) our NGL production, consists only of LPG.

Proved developed reserves” means those proved reserves that can be expected to be recovered through existing wells and facilities and by existing operating methods.

Proved reserves” means those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. For a complete definition of “proved oil and natural gas reserves,” refer to the SEC’s Regulation S-X, Rule 4, 10(a)(22).

Proved undeveloped reserves” means those proved reserves that are expected to be recovered from future wells and facilities, including future improved recovery projects which are anticipated with a high degree of certainty in reservoirs which have previously shown favorable response to improved recovery projects. For a complete definition of “proved undeveloped oil and natural gas reserves,” refer to the SEC’s Regulation S-X, Rule 4, 10(a)(31).

 

xi


Table of Contents

Measurements, Oil and Natural Gas Terms and Other Data

In this prospectus, we use the following measurements:

 

   

“m” or “meter” means one meter, which equals approximately 3.28084 feet;

 

   

“km” means one kilometer, which equals approximately 0.621371 miles;

 

   

“km2” means one square kilometer, which equals approximately 247.1 acres;

 

   

“m3” means one cubic meter;

 

   

“bbl” “bo,” or “barrel of oil” means one stock tank barrel, which is equivalent to approximately 0.15898 cubic meters;

 

   

“boe” means one barrel of oil equivalent, which equals approximately 160.2167 cubic meters, determined using the ratio of 5,615 cubic feet of natural gas to one barrel of oil;

 

   

“cf” means one cubic foot;

 

   

“M,” when used before bbl, bo, boe or cf, means one thousand bbl, bo, boe or cf, respectively;

 

   

“MM,” when used before bbl, bo, boe or cf, means one million bbl, bo, boe or cf, respectively;

 

   

“Bn,” when used before bbl, bo, boe or cf, means one billion bbl, bo, boe or cf, respectively;

 

   

“T,” when used before bbl, bo, boe or cf, means one trillion bbl, bo, boe or cf, respectively;

 

   

“/d,” or “pd” when used after bbl, bo, boe or cf, means per day; and

 

   

“sxs” means sand bags of 100 pounds.

 

xii


Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements” concerning the future, mainly under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” The words such as “believes,” “expects,” “anticipates,” “intends,” “should,” “seeks,” “estimates,” “future” or similar expressions are included with the intention of identifying statements about the future. We have based these forward-looking statements on numerous assumptions, including our current beliefs, expectations and projections about present and future events and financial trends affecting our business. These expectations and projections are subject to significant known and unknown risks and uncertainties which may cause our actual results, performance or achievements, or industry results, to be materially different from any expected or projected results, performance or achievements expressed or implied by such forward-looking statements. Many important factors, in addition to those discussed elsewhere in this prospectus, could cause our actual results, performance or achievements to differ materially from those expressed or implied in our forward-looking statements, including, among other things:

 

   

uncertainties relating to future government concessions and exploration permits;

 

   

adverse outcomes in litigation that may arise in the future;

 

   

general political, economic, social, demographic and business conditions in Argentina, Mexico, in other countries in which we operate;

 

   

uncertainties relating to future election results in Argentina and Mexico, particularly presidential elections in Argentina and congressional elections in Mexico;

 

   

changes in law, rules, regulations and interpretations and enforcements thereto applicable to the Argentine and Mexican energy sectors, including changes to the regulatory environment in which we operate and changes to programs established to promote investments in the energy industry;

 

   

any unexpected increases in financing costs or an inability to obtain financing and/or additional capital pursuant to attractive terms;

 

   

any changes in the capital markets in general that may affect the policies or attitude in Argentina and/or Mexico, and/or Argentine and Mexican companies with respect to financings extended to or investments made in Argentina and Mexico or Argentine and Mexican companies;

 

   

fines or other penalties and claims by the authorities and/or customers;

 

   

any future restrictions on the ability to exchange Mexican or Argentine Pesos into foreign currencies or to transfer funds abroad;

 

   

the revocation or amendment of our respective concession agreements by the granting authority;

 

   

our ability to implement our capital expenditures plans or business strategy, including our ability to obtain financing when necessary and on reasonable terms;

 

   

government intervention, including measures that result in changes to the Argentine and Mexican, labor markets, exchange markets or tax systems;

 

   

continued and/or higher rates of inflation and fluctuations in exchange rates, including the devaluation of the Mexican Peso or Argentine Peso;

 

   

any force majeure events, or fluctuations or reductions in the value of Argentine public debt;

 

   

changes to the demand for energy;

 

   

environmental, health and safety regulations and industry standards that are becoming more stringent;

 

   

energy markets, including the timing and extent of changes and volatility in commodity prices, and the impact of any protracted or material reduction in oil prices from historical averages;

 

xiii


Table of Contents
   

changes in the regulation of the energy and oil and gas sector in Argentina and Mexico, and throughout Latin America;

 

   

our relationship with our employees and our ability to retain key members of our senior management and key technical employees;

 

   

the ability of our directors and officers to identify an adequate number of potential acquisition opportunities;

 

   

our expectations with respect to the performance of our recently acquired businesses;

 

   

our expectations for future production, costs and crude oil prices used in our projections;

 

   

increased market competition in the energy sectors in Argentina and Mexico;

 

   

potential changes in regulation and free trade agreements as a result of U.S., Mexican or other Latin American political conditions; and

 

   

additional matters identified in “Risk Factors.”

Forward-looking statements speak only as of the date on which they were made, and we undertake no obligation to release publicly any updates or revisions to any forward-looking statements contained herein after we distribute this prospectus because of new information, future events or other factors. In light of these limitations, undue reliance should not be placed on forward-looking statements contained in this prospectus.

 

xiv


Table of Contents

PROSPECTUS SUMMARY

This summary highlights certain relevant information included elsewhere in this prospectus. This summary does not purport to be complete and may not contain all of the information that is important or relevant to you. Before investing in our series A shares or the ADSs, you should carefully read this entire prospectus, including the Audited Financial Statements, the 1Q 2019 Unaudited Interim Condensed Financial Statements, the Supplemental Financial Statements and the sections entitled “Summary Financial and Operating Data,” “Risk Factors,” “Unaudited Condensed Pro Forma Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in each case included elsewhere in this prospectus.

Our Company

We are an independent Latin American oil and gas company operating since April 4, 2018. We own high-quality, low-operating cost, high-margin conventional producing assets in Argentina and Mexico, with most of our production and revenues originating in Argentina. In addition, most of our ongoing drilling and workover activities, estimated proved reserves and assets are located in Argentina, including our currently-producing Vaca Muerta wells. Led by an experienced management team, we seek to generate strong returns for our shareholders by leveraging our strong cash flow-producing conventional assets and developing our premier shale acreage in our approximately 134,000 net acres in the Vaca Muerta shale play in Argentina, as well as by increasing the oil recovery factor of the conventional assets we operate in Argentina, which is currently lower than the average 15% recovery factor observed in analogous on-shore fields with a solution gas drive drainage mechanism. Since the beginning of our operations, we increased our net acreage in Vaca Muerta by adding approximately 15,000 net core acres and acquired a 50% participation interest in three on-shore blocks in Mexico.

As of March 31, 2019, we were the sixth largest oil producer in Argentina according to the Argentine Secretariat of Energy. Our average daily production was 25,693 boe/d in the three-month period ended March 31, 2019. Driven by the development of our core shale oil acreage, we target reaching an average daily production of approximately 65,000 boe/d in 2022, representing approximately 28% compounded average growth rate over our average daily production for the three-month period ended March 31, 2019. As of the date of this prospectus, our portfolio of assets includes working interests in 16 hydrocarbons blocks, 13 of which are located in Argentina and 3 in Mexico. We operate ten of those blocks, which represent 99% of our net production. In Argentina, we hold approximately 525,000 net acres, of which we operate 96%.

As of December 31, 2018, our total proved reserves in Argentina were 57.6 MMboe, 94% of which are located in conventional reservoirs and of which approximately 60% consist of oil. We have identified more than 400 potential high-return locations within our core Vaca Muerta development acreage, amounting to an estimated 11-year drilling inventory that we plan to increase through further delineation of our prospective acreage, evaluation of additional stacked landing zones and reduced well spacing.

During our first year of operations, we successfully reversed six years of decline in production from our assets and achieved a 2.2% production growth quarter-over-quarter in the fourth quarter of 2018. In addition, our production growth path accelerated in the first quarter of 2019, when our production grew 3.9% quarter-over-quarter, driven by our unconventional development of shale in Bajada del Palo Oeste and the production in Mexico. At the end of March 2019, we produced more than 29,000 boe/d, compared to approximately 25,000 boe/d at the end of February 2019, as a result of the reversal of conventional production decline, coupled with the strong results of our unconventional development. Our first 4-well pad was tied-in in late February 2019 and took our shale production from zero to a peak of 6,500 boe/d in mid-April 2019, boosted by individual well performance. Since the beginning of our operations, we have significantly reduced operating costs and maximized productivity of our assets with state-of-the-art technology, streamlined service contracts and cost-efficient pay-for-performance contracts.



 

1


Table of Contents

During 2019, we expect to drill a total of 34 operated wells, including 16 wells to be drilled and connected in our conventional assets and 18 wells in our Bajada del Palo Oeste project in Vaca Muerta (12 of which will be tied-in this year). Our estimated investment in drilling and related facilities in 2019 is approximately US$300 million. With such investment we expect to (i) initiate our sustainable factory development of Bajada del Palo Oeste, (ii) increase average daily production to 29,900 boe/d in 2019 and (iii) continue building the infrastructure to support our targeted average daily production of 65,000 boe/d for 2022.

Our budgeted operating costs relating to our operations for 2019 total approximately US$143 million (13.1 US$/boe of lifting cost), and we estimate an Adjusted EBITDA of US$225 million for 2019, which represents an estimated Adjusted EBITDA Margin of 47%. Estimating Adjusted EBITDA involves risks and uncertainties, many of which are beyond our control. For more information regarding our estimated Adjusted EBITDA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Projected Financial Information” and “Risk Factors—Our financial estimates are based on various assumptions that may not prove to be correct.”

The following map illustrates the location of our concessions in Argentina, except for two non-operated blocks in the Noroeste and Golfo San Jorge basins, as of the date of this prospectus:

 

LOGO



 

2


Table of Contents

Our Competitive Strengths

The following are our main competitive strengths:

High-margin conventional assets. Our main conventional assets are the Entre Lomas, Bajada del Palo Oeste, Jagüel de los Machos, 25 de Mayo-Medanito, Bajada del Palo Este, Agua Amarga and Coirón Amargo Norte concessions, all of which are located in Argentina. Our average daily production for the three-month period ended March 31, 2019 was 25,693 boe/d, of which 59% was crude oil, 39% natural gas and the remaining 2% was NGL. We have reduced our average operating cost from US$16.9 per boe during the three-month period ended March 31, 2018 (information corresponding to all assets acquired in the Initial Business Combination) to US$12.0 per boe for the three-month period ended March 31, 2019 by controlling costs with a new contracting model and strong focus on absorbing unconventional production growth with the existing cost base. Maintaining and enhancing these assets provides us with low-risk, high-margin cash flows, allowing us to partially fund the development of our shale oil assets in the Vaca Muerta formation from our own cash flows.

Prime Vaca Muerta shale acreage. We have approximately 134,000 net acres in four blocks located in the Vaca Muerta shale oil formation. We operate three of these blocks, representing 99% of our shale net acreage. These assets are surrounded by blocks in which other operators have conducted successful pilots and are in full field development, including Loma Campana, La Amarga Chica, El Orejano, Bandurria Sur, Cruz de Lorena and Sierras Blancas blocks, with an oil average daily production of 60.5 Mbbl/d in the first quarter of 2019 (representing 79% of the total Vaca Muerta average daily oil production of the period). We believe our exposure to geological and operational risk is reduced as a result of the successful pilots and developments from the surrounding concessions. In addition, the Bajada del Palo Oeste block, where we tied-in our first 4-well pad targeting the Vaca Muerta formation in late February 2019, and which took our shale production from zero to a peak of 6,500 boe/d in mid-April 2019, boosted by strong individual well performance, is adjacent to our existing transportation and treatment facilities, which have sufficient spare capacity to process and deliver our initial shale production to the market, thus supporting our production ramp-up and cash flow generation targets. Given that most of our operated shale acreage is clustered together, we will be able to take advantage of the synergies generated by shared surface facilities, drilling rigs, completion service contracts and operations and maintenance service contracts to lower the development and operating costs of our shale production.

Large inventory of oil-weighted drilling locations supporting sustainable growth. We have a significant inventory of over 400 drilling locations targeting the Vaca Muerta shale oil formation within our core development acreage, which provide us with over 11 years of drilling inventory. Our drilling inventory is currently located in the Bajada del Palo Oeste block and provides attractive production growth and high return opportunities. We believe our performance during the completion of our first 4-well pad, and the resulting production of such wells, confirms the potential of, and our ability to deliver high returns from, this block. We intend to expand our drilling inventory by testing additional stacked pay zones, such as the Upper, Mid and Lower Carbonate, reducing well spacing in the Bajada del Palo Oeste block and further delineating our acreage in the Bajada del Palo Este and Águila Mora blocks. In addition, we are conducting studies aiming to improve the oil recovery factor of the conventional assets we operate in Argentina through in-fill and appraisal drilling and secondary recovery projects given that the oil recovery factor of such assets is lower than the average 15% recovery factor observed in analogous on-shore fields with a solution gas drive drainage mechanism.

High degree of operatorship providing flexibility and maximization of returns. As the operator of most of our assets, our capital expenditures and operating expenses are largely within our control. We adjust our capital expenditures based on the prevailing and anticipated prices of oil and gas and other factors, including the success of our drilling program, and the availability of necessary equipment, infrastructure and capital. We believe that maintaining a high degree of operatorship allows us to maximize returns to our shareholders.



 

3


Table of Contents

Lean and agile organization. Our employees are organized in a flat and lean organizational structure that we believe facilitates a rapid and effective decision-making process, allowing us to adapt to the continuous changes in the industry and business environment. Our Management Team works closely with our operations, prioritizing shareholders returns while committing to high safety and security standards. We incorporate new technologies in order to automate every-day operations, improve response time and achieve real-time reporting.

Experienced management and professional team. Our Management Team and professional staff has vast experience in executing complex projects worldwide. Our Management Team played a pivotal role in unlocking the Vaca Muerta formation as an economically viable shale play, drilling more than 500 unconventional wells and bringing shale production to 50,000 boe/d from zero in their previous jobs. Our Management Team has significant experience in the development of unconventional reservoirs and also in the implementation of secondary and tertiary recovery projects in mature fields. We believe that the experience of our Management Team and professional staff will be a key factor in successfully exploiting the Vaca Muerta formation.

Our Business Strategy

Our primary business strategy is to increase shareholder value through the implementation of the following priority actions:

Enhance strong cash flow generation. Enhancing the cash flow generation from our conventional production is a cornerstone of the strategy to fund the development of our shale acreage. We expect that the execution of our Vaca Muerta development plan, supported by the continued focus on maximizing efficiency of our conventional production, will be the main source of cash flow expansion and the main driver of shareholder returns.

Pursue development of our Vaca Muerta acreage. As the only large-scale, commercially developed shale play outside North America, Vaca Muerta has attracted significant investments from international firms such as Chevron, Shell, ExxonMobil, Total, Equinor, Petronas, Schlumberger, Dow, BP and CNOOC. We have defined a high-growth development plan for our Vaca Muerta acreage that includes the drilling of approximately 130 horizontal wells in the Bajada del Palo Oeste block through 2022. Our first 4-well pad development was tied-in in late February 2019 and took the Bajada del Palo Oeste shale production from zero to a peak of 6,500 boe/d in mid-April 2019, boosted by individual well performance. The implementation of the One Team Contracts (as defined below) model, which aligns the interests of key contractors and Vista behind the same goals, by sharing performance and compensation metrics, in conjunction with best practices in terms of logistics, enabled us to achieve outstanding completion results when compared to the basin. We believe that this pad represents a groundbreaking event for us, highlighting Vista’s technical prowess, dedication to efficiency, quality of infrastructure, and capabilities as a premier operator. Our second 4-well pad is currently under development in Bajada del Palo Oeste. We have already drilled all four wells and are currently starting their completions. We expect these wells to be fully operational by the third quarter of 2019. Our full development plan for the Bajada del Palo Oeste block, for which we were granted a 35-year unconventional concession, includes the drilling of over 400 horizontal wells ranging between 2,500 and 3,000 meters in lateral length with three walking drill rigs. We also intend to request a 35-year unconventional concession on the Águila Mora block and start drilling in 2020. Further, in the Bajada del Palo Este block, for which we were also recently granted a 35-year concession for unconventional exploitation, we have committed to the Province of Neuquén to drill and complete five horizontal wells by the end of 2021 with the objective of defining a full field development plan.

Become a leading operator. We aim to be a leading operator in the Vaca Muerta unconventional play by achieving the lowest development and operating cost while also extracting maximum value from our conventional production by continuing to decrease costs and profitably sustain production levels with primary, secondary and tertiary recovery. We believe that the experience and the know-how of our Management Team and



 

4


Table of Contents

professional staff in Vaca Muerta will improve our ability to lower our development and operating costs at a faster pace than other Vaca Muerta operators. We have already implemented a novel field services model, which allows us to maximize efficiency and enhance profitability, and we intend to continue innovating our operating model. In Coirón Amargo Sur Oeste, our first horizontal well, CASO x-1, has been producing since March 2018. Drilled by our partner, Shell, the well achieved an IP30 rate of 902 bbl/d. Three additional wells in CASO were completed in March 2019 and became operational in April 2019.

Our first 4-well pad drilled as an operator in Vaca Muerta was tied-in in February 2019. We landed two wells in La Cocina and two in Organic levels, with an average lateral length of approximately 8,366 lateral feet (2,550 meters), 10 clusters per stage and 34 average frac stages per well. Our plan follows a cube development scheduled to minimize the parent-child effect. The drilling and completion cost of these wells was an average of US$13.8 million (implying a cost of US$1,650 per lateral foot), of which US$7.5 million corresponded to completion costs. The focus and expertise of our team allowed us to achieve 19.3 hours of pumping time in a 24-hours period, fluids of 12,697 m3 and sand of 42,856 sxs, resulting in 8 frac stages in a single day and 5 average frac stages per day. We believe that this performance highlights Vista’s capabilities as a premier operator.

Since our first day of operations, we adopted a sustainable approach to develop our Vaca Muerta acreage, which involves long-term solutions to minimize the development cost and the impact of our operation on the environment. We laid a 22-kilometer flat hose from our water source to temporary frac ponds and used 100% sand boxes to transport and store sand on location, which guaranteed water and sand supply throughout the completion of the first pad. This allowed us to avoid an estimate of 7,500 truck trips, which would have resulted in a more expensive completion cost. The use of sand boxes provides for a more cost-efficient operation and a safer environment for our crews through a significant reduction of silica dust in the air. We also constructed our first early production facility in order to minimize gas flaring and trucking.

Preserve financial flexibility. We intend to maintain a solid balance sheet, with low leverage, through the generation of strong, low-risk cash flows from our conventional and unconventional assets. We seek to develop our Vaca Muerta acreage at a pace that allows us to maintain a sound financial position.

Pursue profitable growth opportunities in Latin America. We believe there are opportunities to acquire accretive assets in the Latin American E&P sector, which is rich in resources, has been historically under-invested and is increasingly open to investors. We recently entered into a joint operating agreement over three hydrocarbons blocks in Mexico, two of which will be operated by us upon approval by the CNH. This provides for an operational platform to continue seeking growth opportunities in Mexico. Our Management Team has substantial operating and management experience in Latin America and is well-qualified to identify attractive growth opportunities. Our long-term growth strategy focuses on developing a geographically diversified portfolio of high-quality conventional and unconventional assets in Latin America, including Argentina, Brazil, Colombia and Mexico.

Our History

We were originally incorporated in Mexico on March 22, 2017. Our Management Team is comprised of Miguel Galuccio, Pablo Vera Pinto, Juan Garoby, Alejandro Cherñacov and, following the Initial Business Combination, Gastón Remy.

The Initial Business Combination

We commenced our operating activities in the E&P business on April 4, 2018, when we consummated our Initial Business Combination and acquired certain assets and interests from Pampa and Pluspetrol.



 

5


Table of Contents

For more information on the Initial Business Combination, see “Presentation of Financial and Other Information—The Initial Business Combination.”

Farm-in to blocks held by Jaguar

On October 30, 2018, we completed the acquisition of a 50% interest in three blocks held by two Mexican E&P companies, Jaguar Exploración y Producción 2.3, S.A.P.I. de C.V., a company wholly-owned by Jaguar Exploración y Producción de Hidrocarburos, S.A.P.I. de C.V. (“Jaguar”), and Pantera Exploración y Producción 2.2, S.A.P.I. de C.V. (“Pantera”), a company 67% owned by Jaguar and 33% owned by Sun God Energía México, S.A. de C.V., pursuant to an assignment agreement (the “Jaguar JVA”).

As a consequence of this transaction, which was approved by the CNH on October 2, 2018, we hold a 50% working interest in the following blocks:

 

   

CS-01 (23,517 gross acres) and A-10 (85,829 gross acres), both to be operated by Vista (upon the approval of transfer of operatorship by the CNH), and

 

   

TM-01 (17,889 gross acres) operated by Jaguar.

Acquisition of Águila Mora

On August 22, 2018, our subsidiary APCO Argentina Branch entered into a cross assignment of rights agreement with O&G Developments Ltd. S.A. (“O&G”), a wholly-owned subsidiary of Shell (the “Águila Mora Swap Agreement”), pursuant to which (i) APCO Argentina Branch assigned to O&G a 35% non-operated working interest in the block Coirón Amargo Sur Oeste, and (ii) O&G assigned to APCO Argentina Branch a 90% operated working interest in the Águila Mora block and agreed to invest US$10 million to upgrade its current water supply infrastructure and serve our operations in the Bajada del Palo block. On November 30, 2018, the Province of Neuquén approved the assignment of the 90% interest in the Águila Mora block to APCO Argentina Branch. As a result of this transaction, we retained a 10% working interest in the Coirón Amargo Sur Oeste block and own a 90% working interest in the Águila Mora block, which we now operate pursuant to the terms of the Águila Mora Swap Agreement. For more information, see “—Our Business—Our Operations—Argentina.”

Corporate Reorganization

Beginning on January 1, 2019, APCO Oil & Gas S.A.U. and APCO Argentina are effectively operating as a consolidated entity under Vista Argentina pending the consummation of a corporate reorganization process whereby we expect to merge APCO Oil & Gas S.A.U. and APCO Argentina by absorption without liquidation into Vista Argentina (the “Argentine Reorganization”) as part of a tax-free reorganization under the terms of the Argentine Income Tax Law. The Argentine Reorganization was approved by the shareholders of the relevant entities. However, its registration before the Argentine Public Registry remains pending as of the date of this prospectus. Upon registration with the Argentine Public Registry, the Argentine Reorganization will be effective as of January 1, 2019.

On October 31, 2018, we completed the re-domiciliation of APCO International from the Cayman Islands to Argentina and changed its name to “APCO Oil & Gas S.A.U.” APCO Oil & Gas S.A.U. continues to operate APCO International’s activity in Argentina and APCO Argentina Branch ceased to exist. Further, as of the date of this prospectus, Vista Holding I, APCO Oil & Gas S.A.U. and APCO Argentina held a 35.21%, 62.29% and 2.5% ownership interest, respectively, in Vista Argentina (formerly PELSA, our predecessor) pursuant to a capital increase on July 20, 2018.



 

6


Table of Contents

Sale of Series A Shares to Kensington Investments B.V.

On February 12, 2019, we completed the sale to Kensington Investments B.V. (“Kensington”) of 5 million series A shares and 5 million warrants to purchase series A shares for an amount of US$50.0 million and, additionally, 500,000 series A shares for an amount of US$5.0 million. Kensington, a wholly-owned subsidiary of the Abu Dhabi Investment Council, a sovereign wealth fund of the government of the Emirate of Abu Dhabi in the United Arab Emirates, is the sole limited partner of Riverstone Vista Capital Partners, L.P. (“RVCP”). The aforementioned sale was consummated pursuant to a certain forward purchase agreement among Vista and RVCP, that provided for the sale by Vista of certain series A shares and warrants to purchase series A shares to RVCP and its permitted transferees, and a related subscription commitment between Vista and Kensington. At the closing of the aforementioned sale, RVCP instructed Vista to transfer the relevant series A shares and warrants to Kensington.

Recent Developments

Midstream Joint Venture

The growth of production of oil and gas from the Vaca Muerta shale formation in Argentina has created a need for gathering, processing and evacuation midstream investments, as well as potential needs for oil and gas storage, condensates handling and additional oil and gas trunk pipeline capacity. Together with Riverstone, 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, we are creating Aleph Midstream, a company that will seek to become an important midstream player in the Neuquina basin.

For more information on Aleph Midstream, see “Our Business—Our Operations—Oil and Natural Gas Reserves Production—Midstream Joint Venture” and “Related Party Transactions—Aleph Midstream.”

Potential OPIC Debt Financing

We are currently negotiating a potential debt financing from the Overseas Private Investment Corporation (“OPIC”), the U.S. government’s development finance agency, the proceeds of which we intend to use to fund capital expenditures relating to our development plan in the Bajada del Palo Oeste block. While the process for obtaining such financing has begun, no assurances can be given that OPIC will approve and grant such financing.

Emerging Growth Company Status

We qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth Company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. However, we have elected to “opt out” of this provision that would have allowed us to take advantage of an extended transition period and, as a result, we will comply with new or revised accounting standards as required. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

We have elected to adopt certain of the reduced disclosure requirements available to emerging growth companies. For a description of the qualifications and other requirements applicable to emerging growth companies and certain elections that we have made due to our status as an emerging growth Company, see “Risk Factors—Risks Related to the ADSs and the Offering—As a foreign private issuer and an “emerging growth company,” we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.”



 

7


Table of Contents

Corporate Information

Our principal executive offices are located at Calle Volcán No. 150, Floor 5, Colonia Lomas de Chapultepec, Alcaldía Miguel Hidalgo, Mexico City, Zip Code 11000, Mexico. Our telephone number at this location is +52 (55) 4163-9205. Our website is http://www.vistaoilandgas.com. Information contained on, or accessible through, this website is not incorporated by reference in, and will not be considered part of, this prospectus.

The following diagram shows our main subsidiaries and the working interests we have in our concessions as of the date of this prospectus before giving effect to the Argentine Reorganization:

 

LOGO

 

(1) 

On October 31, 2018, the Public Registry of the Autonomous City of Buenos Aim (the “Public Registry”) registered there-domiciliation of .APCO International from Cayman Islands to Argentina and its change of name to “APCO Oil & Gas S.A.U.” As a result, (i) APCO International was registered as an Argentine entity; (ii) APCO Oil & Gas S.A.U. continues APCO International’s activity in Argentina; and (iii) the registration of APCO Argentina Branch before the Public Registry was cancelled on October 31, 2018.

(2)

Formerly known as Petrolera Entre Lomas S.A. (“PELSA”).



 

8


Table of Contents

The following diagram shows our main subsidiaries giving effect to the Argentine Reorganization and the completion of this offering:

 

 

LOGO

 

(1) 

Information as of May 13, 2019. Vista Sponsor Holdings, L.P. and Vista SH, LLC are controlled by David Leuschen and Pierre Lapeyre, who are members of senior management of Riverstone Holdings LLC, a Delaware corporation that operates in the energy sector.

(2) 

Information as of February 13, 2019. Indirectly owned through Kensington Investments B.V., a wholly-owned subsidiary. The Abu Dhabi Investment Council is a sovereign wealth fund of the government of Emirate of Abu Dhabi in the United Arab Emirates.



 

9


Table of Contents

As of the date of this prospectus, 75,929,000 of our series A shares representing 100% of our outstanding capital stock were publicly traded on the Mexican Stock Exchange. Following the completion of this offering,              of our series A shares and ADSs representing 100% of our outstanding capital stock will be publicly traded on the Mexican Stock Exchange and the NYSE.



 

10


Table of Contents

THE GLOBAL OFFERING

The following is a brief summary of the terms of the global offering. For a more complete description of our series A shares and the ADSs, see “Description of the Series A Shares and Bylaws” and “Description of the American Depositary Shares” in this prospectus.

 

Issuer

Vista Oil & Gas, S.A.B. de C.V.

 

The international offering

We are offering              series A shares represented by ADSs, through the international underwriters in the United States and other countries outside of Mexico.

 

The Mexican offering

Concurrently with the international offering, we are offering             series A shares, through the Mexican underwriters in a public offering in Mexico authorized by the CNBV.

 

The global offering

The global offering consists of the international offering and the Mexican offering, totaling              series A shares, including series A shares represented by ADSs. The closings of the international offering and the Mexican offering are conditioned upon each other. The number of series A shares represented by ADSs to be offered in the international offering, and the number of series A shares to be offered in the Mexican offering, are subject to reallocation between the offerings.

 

International Underwriters

Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC.

 

Mexican Underwriters

Citibanamex Casa de Bolsa, S.A. de C.V., Casa de Bolsa, integrante del Grupo Financiero Citibanamex y Casa de Bolsa Credit Suisse (México), S.A. de C.V., Grupo Financiero Credit Suisse (México).

 

Offering price ranges

We expect the public offering price per ADS to be offered in the international offering will be between US$             and US$             . We expect the public offering price per series A share offered in the Mexican offering will be between US$             and US$             per series A share (equivalent to Ps.             and Ps.             per series A share, based on the exchange rate of Ps.             per US$1.00 reported by the Mexican Central Bank on                     , 2019).

 

Shares outstanding after the global offering

Immediately after the global offering, we will have an aggregate of series A shares, including series A shares represented by ADSs, and an aggregate of 2 series C shares, totaling an aggregate of             shares outstanding.

 

Over-allotment option

We have granted to the international underwriters and the Mexican underwriters options, exercisable for 30 days from the date of this prospectus, to purchase up to              additional series A shares, including series A shares represented by ADSs in the case of the



 

11


Table of Contents
 

international underwriters, at the public offering prices set forth on the cover of this prospectus less the underwriting discounts and commissions. Any series A shares, including series A shares represented by ADSs issued or sold under the options will be issued and sold on the same terms and conditions as the other series A shares, including series A shares represented by ADSs, that are the subject of the global offering. The international underwriters and Mexican underwriters may exercise these options solely for the purpose of covering over-allotments, if any, made in connection with the global offering, on an independent but coordinated basis.

 

Series A shares

The series A shares are listed on the Mexican Stock Exchange under the symbol “VISTA.”

 

ADSs

Each ADS represents one series A share. The ADSs will be issued under a deposit agreement among us, The Bank of New York Mellon, as depositary, and the registered holders, indirect holders and beneficial owners from time to time of ADSs issued thereunder.

 

Use of proceeds

We estimate that the net proceeds that we will receive in the global offering will be U.S.$             million from our sale of             series A shares (or US$             million if the international underwriters and Mexican underwriters exercise in full their over-allotment options) in the global offering after deducting the underwriting discount and estimated offering expenses payable by us for a total amount of US$             , based on an offering price per series A share of Ps.             and US$             per ADSs, the midpoint of the ranges set forth on the cover of this prospectus.

We currently intend to use the net proceeds from the international offering to fund capital expenditures relating to our development plan, which is focused on developing our shale acreage relating to (x) the Bajada del Palo Oeste block, where we plan to drill horizontal wells and (y) Águila Mora and Bajada del Palo Este blocks, which we will be delineating and subsequently starting their development. See “Use of Proceeds.”

 

Listing and registry

We have applied to list the ADSs on the New York Stock Exchange under the symbol “VIST.” Our series A shares are listed on the Mexican Stock Exchange under the symbol “VISTA.” We have applied to update the register of the series A shares in the RNV maintained by the CNBV.

 

Voting rights of ADSs

Holders of ADSs may instruct the depositary to vote the number of deposited series A shares their ADSs represent. See, “Description of the American Depositary Shares—Voting Rights.”

 

  Each series A share will have one vote. Series A shares may be voted as each holder thereof deems appropriate. See “Description of the Series A Shares and Bylaws—Shareholders’ Meetings.”


 

12


Table of Contents

Ownership limitations

Subject to certain exceptions (including those applicable to transfers or acquisitions or certain other transactions by or among our current shareholders), our bylaws require the approval of our Board of Directors (i) prior to any acquisition of shares resulting directly or indirectly in beneficial ownership of shares representing 10% or more of our outstanding capital stock and (ii) prior to entering into voting agreements or other similar arrangements that result in a change of control in our Company or apply to at least 20% of our outstanding capital stock. The approval of our Board of Directors must be granted or denied within 90 calendar days following notice of the above, so long as our Board of Directors has then received all of the information required to consider and approve such transactions. See ”Description of the Series A Shares and Bylaws—Restrictions on the Transfer of Shares.”

 

Depositary

The Bank of New York Mellon

 

Dividends

We have not paid any cash dividends in the past and do not expect to pay any cash dividends on our series A shares for the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth. In addition, the terms of our existing indebtedness impose certain restrictions on our ability to pay dividends. See “Risk Factors—Our debt obligations include operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.”

 

  Under Mexican law, we may only pay dividends from retained earnings included in financial statements that have been approved at a general shareholders’ meeting, after all losses from prior fiscal years have been satisfied and after at least 5% of net income (after profit sharing and other deductions required by Mexican law) has been allocated to legal reserves, up to an amount equal to 20% of our paid-in capital stock from time to time.

 

  See “Dividend Policy.”

 

Taxation

Under current Mexican law, dividends paid to non-Mexican Holders of our series A shares or ADSs would be subject to a 10% withholding income tax. The applicable income tax withholding, would be made by the Mexican broker acting as custodian for our series A shares. Non-Mexican Holders that are U.S. companies that are deemed as U.S. tax residents entitled to U.S.-Mexico Tax Treaty benefits may be subject to a 5% withholding tax rate to the extent they own 10% or more of our voting shares.

 

  Gains on the sale of ADSs by non-Mexican holders are exempt from income tax in Mexico insofar as the transaction is conducted through a recognized stock exchange as defined under Mexican applicable law.


 

13


Table of Contents
  For additional details on the Mexican, United States, and Argentine tax considerations, see “Taxation.”

 

Lock-up agreement

We and certain of our officers and directors have agreed that, for a period of 180 days from the date of this prospectus and subject to certain exceptions, we will not, without the prior written consent of Citigroup Global Markets Inc., as lock-up release agent, dispose of or hedge any of our series A shares, our series C shares, ADSs, or any securities convertible into or exchangeable for our series A shares, our series C shares or ADSs. Citigroup Global Markets Inc. in its sole discretion, and as lock-up release agent, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. This agreement is subject to a number of customary exceptions. See “Underwriting.”

 

Risk factors

See “Risk Factors” beginning on page 28 and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our series A shares or the ADSs.


 

14


Table of Contents

SUMMARY FINANCIAL AND OPERATING DATA

Our summary financial and operating data is qualified by reference to and should be read in conjunction with “Selected Financial and Operating Data,” “Unaudited Condensed Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Audited Financial Statements, the 1Q 2019 Unaudited Interim Condensed Financial Statements and the Supplemental Financial Statements included elsewhere in this prospectus. Our historical results for any prior period do not necessarily indicate results to be expected for any future period.

The summary unaudited condensed consolidated interim financial data as of March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018 has been derived from our 1Q 2019 Unaudited Interim Condensed Financial Statements included in this prospectus.

The summary consolidated financial data for the period from April 4, 2018 to December 31, 2018 (the 2018 Successor Period) and as of December 31, 2018 and for the period from January 1, 2018 to April 3, 2018 (the 2018 Predecessor Period) has been derived from our Audited Financial Statements included in this prospectus.

The summary consolidated financial data for our Predecessor as of December 31, 2017 and January 1, 2017 and for the year ended December 31, 2017 has been derived from the Audited Financial Statements included in this prospectus. Note 2.5 to the Audited Financial Statements contains the details of our transition to IFRS and application of IFRS 1.

The summary consolidated financial data for APCO Argentina Branch has been derived from the audited pre-acquisition financial statements of APCO Argentina Branch as of April 3, 2018 and for the period beginning on January 1, 2018 to April 3, 2018 and the audited pre-acquisition consolidated financial statements as of December 31, 2017 and January 1, 2017 and for the year ended December 31, 2017 included in this prospectus. The auditors’ reports include qualified opinions due to the omission of comparative financial information.

The summary combined financial data for JDM and 25 de Mayo-Medanito has been derived from the abbreviated combined financial statements of revenues and direct operating expenses for the period beginning on January 1, 2018 to April 3, 2018 and the abbreviated combined financial statements of revenues and direct operating expenses for the year ended December 31, 2017 included in this prospectus.

Our results of operations for the 2018 Successor Period are not directly comparable to our results of operations for the 2018 Predecessor Period and for the year ended December 31, 2017, due to the effects of the Initial Business Combination. Similarly, our results of operations for the three-month period ended March 31, 2019 are not directly comparable to our results of operations for the three-month period ended March 31, 2018, due to the effects of the Initial Business Combination. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Note Regarding Comparability of Our Results of Operations.”

In addition, effective January 1, 2019, we adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application on January 1, 2019. Under this method, the standard is applied with the cumulative effect of initially applying the standard recognized at the date of initial application. Accordingly, certain comparisons for the above mentioned new accounting standard and for the recognition of income tax expenses between periods may be affected. See Note 2.2 to our 1Q 2019 Unaudited Condensed Interim Financial Statements.

Under the JOBS Act, emerging growth companies, like Vista, may take advantage of specified reduced financial disclosure requirements. Pursuant to these reduced requirements, we have limited our disclosure in this prospectus to selected financial information of the two most recent fiscal years.



 

15


Table of Contents

All of the summary financial information included in the following tables is denominated in U.S. Dollars. The financial data that has been derived from our Audited Financial Statements was prepared in accordance with IFRS. The financial data that has been derived from our 1Q 2019 Unaudited Condensed Interim Financial Statements was prepared in accordance with IAS 34. The abbreviated combined financial information relating to JDM and 25 de Mayo-Medanito was prepared in accordance with U.S. GAAP. For further information, see “Presentation of Financial and Other Information—Financial Statements.”



 

16


Table of Contents

Summary Historical Financial Data

Statements of Financial Position

 

     Successor            Predecessor  
     As of
March 31, 2019

Unaudited
    As of
December 31, 2018
           As of
December 31, 2017
    As of
January 1, 2017
 
     (in thousands of US$, except for shares and per share data)  
                                 

Assets

           

Non-current assets

           

Property, plant and equipment

     872,298       820,722            259,229       286,149  

Right-of-use assets

     8,906       —              —       —  

Goodwill

     28,484       28,484            —       —  

Other intangible assets

     31,869       31,600            1,021       1,536  

Trade and other receivables

     19,748       20,191            297       927  

Other financial assets

     —         —              —       64  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total non-current assets

     961,305       900,997            260,547       288,676  
  

 

 

   

 

 

        

 

 

   

 

 

 

Current assets

             

Inventories

     22,566       18,187            8,215       16,924  

Trade and other receivables

     90,313       86,050            56,274       40,174  

Cash, bank balances and other short-term investments

     87,538       80,908            36,835       24,717  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total current assets

     200,417       185,145            101,324       81,815  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total assets

     1,161,722       1,086,142            361,871       370,491  
  

 

 

   

 

 

        

 

 

   

 

 

 

Shareholders’ equity and liabilities

             

Shareholders’ equity

             

Share capital

     567,646       513,255            39,239       39,239  

Share-based payment reserve

     5,265       4,021            —       —  

Legal reserve

     —         —              7,523       7,523  

Voluntary reserve

     —         —              385,033       349,248  

Accumulated other comprehensive loss

     (2,674     (2,674          (2,800     (2,569

Accumulated Loss

     (48,624     (34,946          (148,694     (120,081
  

 

 

   

 

 

        

 

 

   

 

 

 

Total shareholders’ equity

     521,613       479,656            280,301       273,360  
  

 

 

   

 

 

        

 

 

   

 

 

 

Liabilities

             

Non-current liabilities

             

Deferred income tax liabilities, net

     136,393       133,757            28,840       38,558  

Lease liabilities

     7,387       —              —         —    

Provisions

     16,498       16,186            15,902       14,571  

Borrowings

     279,867       294,415            —         —    

Warrants

     39,784       23,700            —         —    

Employee defined benefits plan obligation, net

     3,535       3,302            4,683       4,366  

Other taxes and royalties payable

     —         —              2       7  

Accounts payable and accrued liabilities

     1,003       1,008            —         —    
  

 

 

   

 

 

        

 

 

   

 

 

 

Total non-current liabilities

     484,467       472,368            49,427       57,502  
  

 

 

   

 

 

        

 

 

   

 

 

 

Current liabilities

             

Provisions

     3,743       4,140            925       1,615  

Leases liabilities

     2,378       —              —         —    

Borrowings

     55,351       10,352            —       —  

Salaries and social security payable

     4,161       6,348            2,540       2,387  

Income tax liability

     19,468       22,429            1,401       5,454  

Other taxes and royalties payable

     6,520       6,515            6,287       5,846  

Accounts payable and accrued liabilities

     64,021       84,334            20,990       24,327  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total current liabilities

     155,642       134,118            32,143       39,629  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total liabilities

     640,109       606,486            81,570       97,131  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total shareholders’ equity and liabilities

     1,161,722       1,086,142            361,871       370,491  
  

 

 

   

 

 

        

 

 

   

 

 

 

Dividends and Shares

             

Number of shares

     75,909,317       70,409,317            95,443,572 (1)      95,443,572 (1) 

Dividends declared

     —         —              6,733 (2)      —  

Dividends declared per share

     —         —              0.07 (2)      —  
  

 

 

   

 

 

        

 

 

   

 

 

 

 

(1) 

Refers to shares of PELSA, as the Company’s predecessor.

(2) 

Refers to dividends declared by PELSA, as the Company’s predecessor.



 

17


Table of Contents

Statements of Profit or Loss and Other Comprehensive Income

 

    Successor           Predecessor     Successor           Predecessor  
    For the
three-month
period ended
March 31, 2019
Unaudited
          For the
three-month
period ended
March 31, 2018
Unaudited
    For the
period from
April 4, 2018
through
December 31, 2018
          For the period
from
January 1, 2018
through
April 3, 2018
    For the year
ended
December 31,
2017
 
    (in thousands of US$, except per share data and margins)  
                                           

Revenue from contracts with customers

    93,727           44,463       331,336           44,463       198,075  

Cost of sales

    (65,713         (38,623     (212,581         (38,623     (174,401
   

Gross profit

    28,014           5,840       118,755           5,840       23,674  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Selling expenses

    (5,695         (3,091     (21,341         (3,091     (13,264

General and administrative expenses

    (8,705         (1,466     (24,202         (1,466     (6,774

Exploration expenses

    (126         (134     (637         (134     (1,049

Other operating income

    627           1,240       2,699           1,240       17,802  

Other operating expenses

    (2,118         (135     (18,097         (135     (5,125

Impairment Recovery of property, plant and equipment

    —             —         —             —         5,290  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Operating profit

    11,997           2,254       57,177           2,254       20,554  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Interest income

    75           239       2,532           239       166  

Interest expense

    (5,817         (23     (15,746         (23     (18

Other financial results

    (14,228         (1,159     (22,920         (1,159     (436
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Financial results, net

    (19,970         (943     (36,134         (943     (288
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

(Loss)/Profit before income tax

    (7,973         1,311       21,043           1,311       20,266  

Current income tax expense

    (3,069         (4,615     (35,450         (4,615     (15,956

Deferred income (tax expense) benefit

    (2,636         (3,345     (11,975         (3,345     9,595  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Income tax expense

    (5,705         (7,960     (47,425         (7,960     (6,361
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Net (Loss) profit for the period/year

    (13,678         (6,649     (26,382         (6,649     13,905  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Other comprehensive income (loss)

    —                    

Other comprehensive income (loss) that will not be reclassified to profit or loss in subsequent periods

                 

—Remeasurements loss related to defined benefits plans

    —             (89     (3,565         (89     (355

—Deferred income tax benefit

    —             22       891           22       124  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Other comprehensive loss that will not be reclassified to profit or loss in subsequent periods

    —             (67     (2,674         (67     (231
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Other comprehensive loss for the period/year, net of tax

    —             (67     (2,674         (67     (231
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Total comprehensive (loss) income for the period/year

    (13,678         (6,716     (29,056         (6,716     13,674  

(Losses) Earnings per share attributable to equity holders of the parent

    —                    

Basic—(In U.S. Dollars per share):

    (0.19         (0.07     (0.37         (0.07     0.14  

Diluted—(In U.S. Dollars per share):

    (0.19         (0.07     (0.37         (0.07     0.14  

Other Financial Information

                 

Adjusted EBITDA(1)

    37,135           16,966       146,347           16,966       78,541  

Adjusted EBITDA margin(2)

    0.40           0.38       0.44         0.38       0.40  

 

(1) 

We calculate Adjusted EBITDA as profit (loss) for the period / year plus income tax expense, financial results, net, depreciation, depletion and amortization, transaction costs related to business combinations, restructuring expenses and impairment recovery of property, plant and equipment. We present Adjusted EBITDA because we believe it provides investors with a supplemental measure of the financial performance of our core operations that facilitates period to period comparisons on a consistent basis. Our management uses Adjusted EBITDA, among other measures, for internal planning and performance measurement purposes. Adjusted EBITDA is not a measure of liquidity or operating performance under IFRS and should



 

18


Table of Contents
  not be construed as an alternative to net profit, operating profit, or cash flow provided by operating activities (in each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies.
(2) 

We calculate Adjusted EBITDA margin by dividing Adjusted EBITDA by revenues from contracts with customers.

The following table sets forth the reconciliation of Adjusted EBITDA, Adjusted EBITDA Margin and Net Debt:

 

    Successor           Predecessor     Successor           Predecessor  
    For the three-month
period ended
March 31, 2019

Unaudited
          For the three-month
period ended
March 31, 2018

Unaudited
    For the period from
April 4, 2018 to
December 31, 2018
          For the period from
January 1, 2018 to
April 3, 2018
    For the year ended
December 31,
2017
 
    (in thousands of US$, except margins)  
                                           

Net (Loss) Profit for the period/year

    (13,678         (6,649     (26,382         (6,649     13,905  

Income tax expense

    5,705           7,960       47,425           7,960       6,361  

Financial results, net

    19,970           943       36,134           943       288  

Depreciation, depletion and amortization

    24,471           14,712       74,772           14,712       63,277  

Transaction costs related to business combinations

    —             —         2,380           —       —  

Restructuring expenses

    667           —         12,018           —       —  

Impairment recovery of property, plant and equipment

    —             —         —             —       (5,290
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Adjusted EBITDA

    37,135           16,966       146,347           16,966       78,541  

Revenue from contracts with customers

    93,727           44,463       331,336           44,463       198,075  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Adjusted EBITDA margin

    0.40           0.38       0.44           0.38       0.40  

 

     Successor  
     As of
March 31, 2019
     As of
December 31, 2018
 
     (in thousands of US$)  

Current and non-current borrowings

     335,218        304,767  

Cash, bank balances and other short term investments

     87,538        80,908  
  

 

 

    

 

 

 

Net Debt

     247,680        223,859  

Summary Unaudited Condensed Pro Forma Financial Data

The following information sets forth our summary pro forma financial data for the year ended December 31, 2018. We have derived the summary pro forma consolidated financial data for the year ended December 31, 2018 from our unaudited pro forma condensed consolidated statements of income for the year ended December 31, 2018. The unaudited pro forma condensed consolidated statements of income have been prepared to give pro forma effect to the Initial Business Combination as if such acquisitions had occurred on January 1, 2018.

The summary pro forma financial data presented below should be read in conjunction with “Unaudited Condensed Pro Forma Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Audited Financial Statements and the Supplemental Financial Statements included elsewhere in this prospectus.



 

19


Table of Contents

Summary Unaudited Pro Forma Condensed Consolidated Statement of Profit or Loss for the year ended December 31, 2018

(in thousands of US$, except for shares, per share data and margins)

 

     VISTA
(Pro forma Consolidated)
 

Revenue from contracts with customers

     435,656  

Cost of sales

     (290,103 )(1) 
  

 

 

 

Gross profit

     145,553  
  

 

 

 

Selling expenses

     (25,342

General and administrative expenses

     (29,984

Exploration expenses

     (804

Other operating income

     9,548  

Other operating expenses

     (15,891

Impairment loss of property, plant and equipment

     (435
  

 

 

 

Operating profit

     82,645  
  

 

 

 

Interest income

     2,899  

Interest expense

     (26,237

Other financial results

     (10,673
  

 

 

 

Financial results, net

     (34,011
  

 

 

 

Profit before income tax

     48,634  
  

 

 

 

Income tax expense

     (58,153
  

 

 

 

Loss for the period

     (9,520
  

 

 

 

Basic losses per share:

     (0.17

Diluted losses per share:

     (0.17

Weighted average shares outstanding (basic)

     70,409,317  

Weighted average shares outstanding (diluted)

     70,409,317  

Other Pro Forma Financial Information

  

Pro Forma Adjusted EBITDA(2)

     194,958  

Pro Forma Adjusted EBITDA margin(3)

     44.8

 

(1) 

Includes pro forma operating expenses, pro forma depreciation, depletion and amortization and pro forma royalties by 124,455, 99,343 and 66,583, respectively, net of pro forma crude oil stock fluctuation gain of 278.

(2) 

We calculate pro forma Adjusted EBITDA as pro forma Loss for the year plus pro forma income tax expense, pro forma financial results, net, pro forma depreciation, depletion and amortization, pro forma restructuring expenses and pro forma impairment loss of property, plant and equipment. See “Presentation of Financial and Other Information—Non-IFRS Financial Measurements.”

(3) 

We calculate pro forma Adjusted EBITDA Margin as the ratio of pro forma Adjusted EBITDA to pro forma revenue from contracts with customers. See “Presentation of Financial and Other Information—Non-IFRS Financial Measurements.”



 

20


Table of Contents

The following table sets forth the reconciliation of pro forma Adjusted EBITDA and pro forma Adjusted EBITDA Margin:

 

     For the year ended
December 31, 2018
 

Pro forma loss for the year

     (9,520

Plus:

  

Pro forma income tax expense

     58,153  

Pro forma financial results, net

     34,011  

Pro forma depreciation, depletion and amortization

     99,861  

Pro forma restructuring expenses

     12,018  

Pro forma impairment loss of property, plant and equipment

     435  
  

 

 

 

Pro forma Adjusted EBITDA

     194,958  
  

 

 

 

Pro forma revenue from contracts with customers

     435,656  
  

 

 

 

Pro forma Adjusted EBITDA margin

     44.8

Summary Historical Reserves and Operating Data

Reserves Data

The following table sets forth summary information about the oil and natural gas reserves of the assets we own in Argentina pursuant to the Reserves Report as of December 31, 2018. The reserves included below were calculated at their respective working interest percentages as of December 31, 2018, including 100% in Entre Lomas, Agua Amarga, Bajada del Palo Oeste and Bajada del Palo Este concessions, 10% in Coirón Amargo Sur Oeste, 55% in Coirón Amargo Norte, 1.5% in Acambuco, 100% in JDM and 100% in 25 de Mayo-Medanito. Royalties payable to provinces have not been deducted from reported volumes given that substantially all of our reserves are currently in Argentina and under Argentine law royalties constitute a production tax payable in cash (and do not give provinces a direct interest in such production to make lifting and sales arrangements independently). We account for royalties as cost of sales.

We believe that our estimates of remaining proved recoverable oil and gas reserve volumes are reasonable and such estimates have been prepared in accordance with the SEC rules and ASC 932, as amended. Accordingly, crude oil prices used to determine proved reserves were the average price during the 12-month period prior to the ending date of the December 31, 2018 and 2017 and January 1, 2017 reports, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such periods. Additionally, since there are no benchmark market natural gas prices available in Argentina, we used average realized gas prices during the year to determine our gas reserves. For more information, see Note 35 of our Audited Financial Statements.



 

21


Table of Contents

Reserves quantity information for the year ended December 31, 2018

 

     Total     Total by product
 
    Argentina     Mexico(6)  
     All products     Crude oil,
condensate and
NGL (MMbbl)(4)
    Consumption(5)
plus natural gas
sales (MMboe)
    Crude oil,
condensate and
NGL (MMbbl)
     Consumption
plus natural gas
sales (MMboe)
 

Proved developed and undeveloped reserves in MMboe:

           

Beginning of year(1)

     52.2       32.6       19.6       —          —    

Revisions of previous estimates

     —         —         —         —          —    

Improved recovery

     —         —         —         —          —    

Purchases of minerals in place

     —         —         —         —          —    

Extensions and discoveries(2)

     15.0       7.2       7.8       —          —    

Production(3)

     (9.6     (5.6     (4.0     —          —    

Sales of minerals in place

     —         —         —         —          —    

End of year

     57.6       34.2       23.4       —          —    

 

(1) 

Proved technical volumes as of December 31, 2017 are based on the working interest of the entities and assets acquired in the Initial Business Combination.

(2)

Includes proved reserves from developments carried out by Vista since April 4, 2018 in unconventional concession Coirón Amargo Sur Oeste and the unconventional development in Bajada del Palo Oeste. Also includes development of conventional natural gas reserves in Lotena formation in Bajada del Palo Oeste. Extensions include the additional reserves of crude oil, condensate and natural gas stemming from the 35-year term unconventional exploitation concession granted on December 21, 2018 and expiring in December 2053 in the Bajada del Palo Oeste and Bajada del Palo Este concessions.

(3) 

Includes production of the entities and assets acquired in the Initial Business Combination based on their working interest from January 1, 2018 to April 3, 2018, and Vista’s production based on our working interest from April 4, 2018 to December 31, 2018.

(4) 

Our hydrocarbon liquid volumes include crude oil, condensate and NGL (LPG and natural gasoline). We do not include separate figures for NGL reserves because they represented less than 5.2% and 3.1% of our proved developed and undeveloped reserves as of January 1, 2018 and December 31, 2018, respectively.

(5) 

Natural gas consumption represented 27.2% of total natural gas reserves (consumption plus natural gas sales) as of January 1, 2018, and 16.9% as of December 31, 2018.

(6) 

Less than 1 MMboe.



 

22


Table of Contents

Reserves quantity information for the year ended December 31, 2017(1)

 

     Total     Total by product  
    Argentina     Mexico  
     All products     Crude oil,
condensate and
NGL (MMbbl)(2)
    Consumption
plus natural gas
sales (MMboe)(3)
    Crude oil,
condensate and
NGL (MMbbl)
     Consumption
plus natural gas
sales (MMboe)
 

Proved developed and undeveloped reserves in MMboe:

           

Beginning of year

     58.8       39.7       19.1       —          —    

Revisions of previous estimates

     3.4       (1.2     4.6       —          —    

Improved recovery

     —         —         —         —          —    

Purchases of minerals in place

     —         —         —         —          —    

Extensions and discoveries

     —         —         —         —          —    

Production

     (10.0     (5.9     (4.1     —          —    

Sales of minerals in place

     —         —         —         —          —    

End of year

     52.2       32.6       19.6       —          —    

 

(1) 

Proved technical volumes as of December 31, 2016 and 2017 are based on the working interest of the entities and assets acquired in the Initial Business Combination.

(2) 

Our hydrocarbon liquid volumes include crude oil, condensate and NGL (LPG and natural gasoline). We do not include separate figures for NGL reserves because they represented less than 4.8% and 5.2% of our proved developed and undeveloped reserves as of January 1, 2017 and December 31, 2017, respectively.

(3) 

Natural gas consumption represented 30.9% of total natural gas reserves (consumption plus natural gas sales) as of January 1, 2017, and 27.2% as of December 31, 2017.



 

23


Table of Contents

Production Results and Other Operating Data

The following table sets forth summary unaudited information about the oil and natural gas historical production volumes and other relevant operating and financial data of the assets we own in Argentina. The historical production volumes and other relevant operating data included below was calculated at their respective working interest percentages, including 100% working interest in Entre Lomas, Agua Amarga, Bajada del Palo Oeste and Bajada del Palo Este concessions, 10% in Coirón Amargo Sur Oeste, 55% in Coirón Amargo Norte, 1.5% in Acambuco, 100% in JDM and 100% in 25 de Mayo-Medanito, 90% in Águila Mora in each case for the periods indicated. Royalties payable to provinces have not been deducted from our net production amounts given that substantially all of our production is currently in Argentina and under Argentine law royalties constitute a production tax payable in cash (and do not give provinces a direct interest in such production to make lifting and sales arrangements independently). We account for royalties as cost of sales.

 

     Successor             Predecessor  
     Three-month
period ended

March 31,
     Period from
April 4 to
December 31,
            Period from
January 1 to
April 3,
     Year ended
December 31,
 
     2019      2018      2017  
                                    

Net production volumes(1):

             

Oil (MMbbl)

     1.4        4.0             0.5        2.4  

Natural Gas (Bncf)

     5.0        14.0             2.7        9.8  

NGL (MMboe)

     0.1        0.2             0.1        0.2  

Total (MMboe)

     2.3        6.7             1.1        4.4  

Average daily net production (boe/d)

     25,693        24,425             11,583        12,032  

Average realized sales price(2):

                

Oil (US$/bbl)

     56.7        67.2             60.8        60.7  

Natural Gas (US$/MMBtu)

     3.7        4.6             4.1        4.5  

NGL (US$/bbl)

     23.52        34.17             29.74        23.26  

Average realized sales price (US$/boe)

     40.5        49.3             42.7        45.1  

Average unit costs (US$/boe)(3):

                

Operating expenses

     12.0        12.8             17.6        17.6  

Royalties(4)

     6.4        7.5             6.5        6.4  

Depreciation, depletion and amortization

     10.6        11.1           13.6        13.9  

Other data (in thousands of US$)

                

Operating expenses

     27,769        86,245           18,367        77,461  

Royalties(4)

     14,799        50,323           6,795        28,163  

Depreciation, depletion and amortization

     24,471        74,772           14,194        61,211  

 

(1) 

Measured based on our working interest. There was no production due to others during the applicable periods. Oil production is comprised of production of crude oil, condensate and natural gasoline. Natural gas production excludes natural gas consumption. NGL production is comprised of production of propane and butane (LPG) and excludes natural gasoline. Our production of natural gasoline is mixed and sold with our crude oil and condensate production and represents less than 0.05% of our average daily production.

(2) 

For periods ending on or before April 3, 2018 we calculate our average realized sales price per bbl of oil, per MMBtu of natural gas, per ton of NGL and per boe of total production by dividing our total revenue from oil, natural gas, NGL and total production for the relevant period, respectively, by the production of oil, natural gas, NGL and total production in such period, respectively. For subsequent periods, we calculate our average realized sales price (i) per bbl of oil by dividing our total revenue from oil for the period by the volume of oil sold in such period, (ii) per MMBtu of natural gas and per ton of NGL by multiplying the monthly weighted sales price per client by the corresponding volume sold in each month, divided by the total volume sold during the relevant period, and (iii) per boe of total production by dividing our total revenues for the relevant period by our total production in that period.



 

24


Table of Contents
(3) 

We calculate average unit costs per boe by dividing operating expenses, royalties or depreciation, depletion and amortization for the relevant period, as applicable, by average daily net production multiplied by days in each period (365 days for 2017, 90 days for 2018 Predecessor Period, 275 days for 2018 Successor Period and 90 days for three-month period ended March 31, 2019).

(4) 

Measured based on our working interest. Royalties are applied to the total production of the concessions, and are calculated by applying the applicable royalty rate to the production, after discounting certain expenses in order to bring the value of the cubic meter of crude oil, natural gas and liquefied gas at a price from wellhead.



 

25


Table of Contents

Summary Financial Data for APCO Argentina Branch (currently APCO Oil & Gas S.A.U.)

Statements of Financial Position

 

     As of
April 3, 2018
     As of
December 31, 2017
     As of
January 1, 2017
 
     (in thousands of US$)  

Assets

        

Non-current assets

        

Property, plant and equipment

     73,741        78,078        85,943  

Intangible assets

     76        101        124  

Trade and other receivables

     24        29        130  
  

 

 

    

 

 

    

 

 

 

Total non-current assets

     73,841        78,208        86,197  
  

 

 

    

 

 

    

 

 

 

Current assets

        

Inventories

     1,977        1,191        1,213  

Other financial assets

     —        19        —  

Trade and other receivables

     14,798        12,266        36,559  

Cash and cash equivalents

     6,755        7,241        9,033  
  

 

 

    

 

 

    

 

 

 

Total current assets

     23,530        20,717        46,805  
  

 

 

    

 

 

    

 

 

 

Total assets

     97,371        98,925        133,002  
  

 

 

    

 

 

    

 

 

 

 

     As of
April 3, 2018
    As of
December 31, 2017
    As of
January 1, 2017
 

Head Office account and liabilities

      

Head Office account

      

Head Office contributions

     14,457       14,457       14,457  

Operating account with Head Office

     65,156       65,156       89,885  

Accumulated losses

     (7,704     (6,265     (6,265

Accumulated other comprehensive losses

     (880     (880     (587
  

 

 

   

 

 

   

 

 

 

Total Head Office account

     71,029       72,468       97,490  
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Non-current liabilities

      

Deferred income tax liabilities, net

     5,764       4,358       10,554  

Provisions

     5,778       5,796       5,116  

Employee defined benefits plan obligation, net

     1,514       1,473       1,372  

Salaries and social security payable

     —       —       4  
  

 

 

   

 

 

   

 

 

 

Total non-current liabilities

     13,056       11,627       17,046  
  

 

 

   

 

 

   

 

 

 

Current liabilities

      

Provisions

     278       300       232  

Borrowings

     —       —       3,978  

Salaries and social security payable

     564       828       776  

Income tax liability

     4,449       4,390       1,162  

Other taxes and royalties payable

     1,071       1,081       1,785  

Accounts payable and accrued liabilities

     6,924       8,231       10,533  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     13,286       14,830       18,466  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     26,342       26,457       35,512  
  

 

 

   

 

 

   

 

 

 

Total Head Office account and liabilities

     97,371       98,925       133,002  
  

 

 

   

 

 

   

 

 

 


 

26


Table of Contents

Statements of Profit or Loss and Other Comprehensive Income

 

     For the period
from
January 1, 2018
to April 3, 2018
    For the year ended
December 31, 2017
 
     (in thousands of US$)  

Revenue from contracts with customers

     17,690       66,059  

Cost of revenues

    

Crude oil stock fluctuation

     786        (22

Operating expenses

     (6,868     (32,261

Depreciation, depletion and amortization

     (5,614     (18,506

Royalties

     (2,909     (11,371
  

 

 

   

 

 

 

Gross profit

     3,085       3,899  
  

 

 

   

 

 

 

Selling expenses

     (789     (3,302

General and administrative expenses

     (1,154     (4,909

Exploration expenses

     (26     (148

Impairment of property, plant & equipment

     (435     (1,080

Other operating income

     588       5,165  

Other operating expenses

     —       (69
  

 

 

   

 

 

 

Operating profit / (loss)

     1,269       (444
  

 

 

   

 

 

 

Interest income

     5       629  

Interest expense

     (28     (811

Other financial results

     128       3,541  
  

 

 

   

 

 

 

Financial results, net

     105       3,359  
  

 

 

   

 

 

 

Profit before income tax

     1,374       2,915  

Income tax expense

     (2,813     (3,642
  

 

 

   

 

 

 

Loss for the period/year

     (1,439     (727
  

 

 

   

 

 

 

Other comprehensive loss

    

Other comprehensive loss that will not be reclassified to profit or loss in subsequent periods

    

—Remeasurements loss related to defined benefits plans

     —       (332

—Income Tax benefit

     —       39  
  

 

 

   

 

 

 

Other comprehensive loss that will not be reclassified to profit or loss in subsequent periods

     —       (293
  

 

 

   

 

 

 

Other comprehensive loss for the period/year, net of income tax

     —       (293
  

 

 

   

 

 

 

Total comprehensive loss for the period/year

     (1,439     (1,020
  

 

 

   

 

 

 

Summary Combined Financial Data for JDM and 25 de Mayo-Medanito

 

     Period from
January 1, 2018
to April 3, 2018
     Year ended
December 31, 2017
 
     (in thousands of US$)  

Revenues

     39,796        150,867  

Direct operating expenses

     (18,213      (78,674
  

 

 

    

 

 

 

Revenues in excess of direct operating expenses

     21,583        72,193  
  

 

 

    

 

 

 


 

27


Table of Contents

RISK FACTORS

You should carefully consider the following risk factors in evaluating us and our business before purchasing our series A shares or the ADSs. In particular, you should consider the risks related to an investment in companies operating in Argentina, Mexico and Latin America generally, for which we have included information in these risk factors to the extent that information is publicly available. In general, investing in the securities of issuers whose operations are located in emerging market countries such as Argentina and Mexico involve a higher degree of risk than investing in the securities of issuers whose operations are located in the United States or other more developed countries. If any of the risks discussed in this prospectus actually occur, alone or together with additional risks and uncertainties not currently known to us, or that we currently deem immaterial, our business, financial condition, results of operations and prospects may be materially adversely affected. If this were to occur, the value of our series A shares or the ADSs may decline and you may lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including the Audited Financial Statements, and the Supplemental Financial Statements and the related notes thereto. You should also carefully review the cautionary statements referred to under “Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in this prospectus.

Risks Related to our Business and Industry

The oil and gas industry is subject to particular operational and economic risks.

Oil and gas E&P activities are subject to particular economic and industry-specific operational risks, some of which are beyond our control, such as production, equipment and transportation risks, as well as natural hazards and other uncertainties, including those relating to the physical characteristics of onshore and offshore oil or natural gas fields. Our operations may be curtailed, delayed or canceled due to bad weather conditions, mechanical difficulties, shortages or delays in the delivery of equipment, compliance with governmental requirements, fire, explosions, blow-outs, pipe failure, abnormally pressured formations, and environmental hazards, such as oil spills, gas leaks, ruptures or discharges of toxic gases. In addition, we operate in politically sensitive areas where the local population or other stakeholders have interests that from time to time may conflict with our production or development objectives. If these risks materialize, we may suffer substantial operational losses, disruptions to our operations and harm to our reputation. Additionally, if any operational incident occurs that affects local communities and ethnic communities in nearby areas, we will need to incur additional costs and expenses in order to remediate affected areas and to compensate for any damages we may cause. These additional costs may have a negative impact on the profitability of the projects we may decide to undertake. Drilling may be unprofitable, not only with respect to dry wells, but also with respect to wells that are productive but do not produce sufficient revenues to return a profit after drilling, operating and other costs are considered.

We are exposed to the effects of fluctuations in the international prices of oil and gas.

International oil and gas prices have fluctuated significantly in past years and they will most likely continue fluctuating in the future. For example, during 2015, 2016 and 2017, the reference price of the Brent benchmark has fluctuated significantly, with average prices of US$53.50/bbl, US$45.13/bbl, and US$54.75/bbl for each of those years, respectively. During June 2017, the average price was US$47.55/bbl, and in December 2017 it was US$64.09/bbl. During the year ended December 31, 2018, the average price was US$72.18/bbl. During the three-month period ended March 31, 2019, the average price was US$63.83/bbl.

Factors affecting international prices for crude oil and related oil products include: political developments in crude oil producing regions, particularly the Middle East; the ability of the Organization of Petroleum Exporting Countries (“OPEC”) and other crude oil producing nations to set and maintain crude oil production levels and prices; global and regional supply and demand for crude oil, gas and related products; competition from other energy sources; domestic and foreign government regulations; weather conditions and global and local conflicts or acts of terrorism. Qatar left OPEC on January 1, 2019 and it has increased significantly its natural gas

 

28


Table of Contents

production capacity in the recent months. We cannot predict how these decisions will influence oil and related oil products prices and we have no control over these factors. Price volatility curtails the ability of industry participants to adopt long-term investment decisions given that returns on investments become unpredictable.

Furthermore, our realized crude oil price depends on several factors such as international crude oil prices, international refining spreads, processing and distribution costs, biofuel prices, exchange currencies, local demand and supply, domestic refining margins, competition, stocks, local taxation, and domestic margins for our products, among others.

A substantial or extended downturn in the international prices of crude oil and its derivatives could have a material adverse effect on our business, operating results, and financial condition, as well as the value of our reserves and the market value of our series A shares or ADSs.

Oil and gas price volatility could harm our investment projects and development plans.

In terms of investments, we budget capital expenditures related to exploration and development by considering, among others, current and expected local and international market prices for our hydrocarbon products.

Substantial or extended declines in international crude oil prices or its derivatives, may have an impact on our investment plans. Also, if crude oil prices in the domestic market drop for an extended period (or if prices for certain products do not match cost increases), this could cause a decline in the economic viability of our drilling projects.

Additionally, significant downturns in the prices of crude oil and its derivatives could force us to incur future impairment expenses, reduce or alter the term of our capital investments, and this could affect our production forecasts in the medium term and our estimate of reserves towards the future.

These factors could also lead to changes to our development plans, which could lead to the loss of proved developed reserves and proved undeveloped reserves and could also adversely affect our ability to improve our hydrocarbon recovery rates, find new reserves, develop unconventional resources and carry out our other capital expenditure plans. In turn, such change in conditions could have an adverse effect on our financial condition and results of operations. Additionally, it could also have an impact on our operating assumptions and estimates and, as a result, affect the recovery value of certain assets.

We are exposed to the effects of fluctuations and regulations in the domestic prices of oil and gas.

Most of our revenue in Argentina and Mexico is derived from sales of crude oil and natural gas. The domestic price of crude oil has fluctuated in the past in such countries not only due to international prices, but also due to local taxation, macroeconomic conditions and refining margins.

Although oil prices in Argentina and Mexico have not perfectly reflected the upward or downward changes in the international price of oil, such fluctuations have had an impact on the local prices for the commercialization of crude oil. In the event that the reference price of the international crude oil falls, and this substantially translates to the local market price of oil, which we cannot control, it could affect the economic viability of our projects, generating a loss of reserves as a result of changes in our development plans, our assumptions and our estimates, and consequently affect the recovery value of certain assets.

Additionally, the prices that we are able to obtain for our hydrocarbon products are also affected by domestic regulations. For example, the Argentine government has adopted a policy geared towards the convergence between domestic prices for crude oil and related products and international benchmark prices for such products. This convergence finally occurred during the second half of 2017. However, after the recent

 

29


Table of Contents

liberalization of the domestic market, the Argentine government introduced export duties on all products, including crude oil and natural gas exports. In the event that domestic prices for certain products decrease and export limitations remain in place or are imposed, our ability to improve hydrocarbon recovery rates, find new reserves and carry out certain other capital expenditure plans may be adversely affected, which in turn might have an adverse effect on our results of operations.

Also, in the context of fluctuations of the Brent Crude Oil benchmark, exchange rate and biofuel prices, in May 2018 the Argentine Executive Branch, acting through the Argentine Secretariat of Energy, entered into a price stabilization agreement with main refiners in Argentina involving a compensation account in order to stabilize gasoline pump prices in the local market in the short term (the “ Refiners Agreement”). The duration of the Refiners Agreement was set for an eight-month period beginning May 1, 2018. Through this agreement, the top three refiners in Argentina committed themselves not to increase oil prices during the months of May and June of 2018. In exchange, the Argentine Secretariat of Energy undertook the obligation to transfer to the compensating account the accumulated backlog as of the date of execution of the Refiners Agreement (12% over the public selling price of crude oil) and the necessary adjustments resulting from the variations of the costs (crude oil, exchange rate and biofuel prices) not transferred into the prices for May and June of 2018. All of this was calculated based on the fluctuations of the Brent benchmark, exchange rate and biofuel prices. Under the terms of the Refiners Agreement, as of July 2018 and for the period from July to December 2018, the refiners were entitled to determine oil prices if the adjustments made to them based on the variations of the Brent benchmark, exchange rate and biofuel prices were not enough to cover their costs. In case the refiners did not recover cost variations not transferred into the prices during the term of the agreement, the Argentine Executive Branch, through the Argentine Secretariat of Energy, undertakes the obligation to make such recovery effective before March 31, 2019. The Argentine Secretariat of Energy extended the invitation to enter into this agreement to all oil companies in the upstream business. Upstream companies undertook to sell their oil production at certain prices referenced to oil Brent price, with a compensatory mechanism not defined at that time.

Notwithstanding our expectation to substantially maintain our domestic prices with reference to those prevailing in international markets, we cannot assure you that other factors that are also considered in our pricing policy such as those mentioned above, resulting in our local prices not completely reflecting international prices, thus affecting our business, results of operations and financial condition.

Our results of operations may be affected by limitations on our ability to increase oil and gas prices.

In the recent past, as a result of economic, political, and regulatory developments, the prices of crude oil, diesel, and other fuels in Argentina have differed significantly from the international and regional markets, and the ability to increase or maintain such prices to match international standards has been challenged. International prices of crude oil and its derivatives have experienced a significant decline since the second half of 2014.

On January 11, 2017, the Argentine Secretariat of Energy and Argentine producers and refineries signed the “Agreement for the Transition to International Prices of the Argentina Hydrocarbon Industry,” establishing a price schedule in order for the price of the barrel of oil produced in Argentina to track international prices during 2017. This agreement (under which a price determination and review system was established for 2017) was in force until December 31, 2017, but before this date, the aforementioned price convergence was achieved. Therefore ME&M notified the parties to the agreement that, pursuant to its sub-section 9, starting from October 1, 2017, commitments assumed through such agreement would be suspended. As of the date of this prospectus, internal crude and refined fuel market prices in Argentina are determined by supply and demand rules.

However, the recent macroeconomic instability faced by emerging markets and Argentina have impacted the oil and gas sector as well. Between May 2, 2018 and October 1, 2018, the Argentine Peso slid from 20.9 to 38.7 Argentine Pesos per U.S. Dollar according to the U.S. Dollar buying rate published by Banco de la Nación Argentina. The fact that end user domestic prices are set in local currency and upstream companies were therefore

 

30


Table of Contents

to some extent unable to pass through the devaluation of Argentine currency downstream resulted in lower Dollar-denominated prices. Although the prices of natural gas in Argentina are denominated in U.S. Dollars, the rates paid by regulated end users are denominated in Argentine Pesos. Between May 1, 2018 and October 1, 2018, Brent Crude Oil increased from approximately US$73.1 to US$85.0 per barrel. On September 4, 2018, pursuant to Decree No. 793/2018, the Argentine government introduced export duties of 12% with a cap of 4 Argentine Pesos per U.S. Dollar, thus reducing export parity and affecting crude oil prices in the domestic market. Oil producers have been able to maintain realized prices in U.S. Dollars relatively flat during the second, third and fourth quarters of 2018, but have not been able to capture the upside of the increase in Brent Crude Oil in the second and third quarters of 2018 nor have been affected by its decrease in the fourth quarter of 2018.

In the past, the Mexican government has imposed price controls on the sales of natural gas, NGL, gasoline, diesel, gas oil intended for domestic use, fuel oil and other products. Although as of the date of this prospectus, sales prices of gasoline and diesel are determined by the free market, the Mexican government could impose additional price controls on the domestic market in the future.

We cannot assure you that we will be able to maintain or increase the domestic price for our products, and our inability to do so could adversely affect our operations, cash flows and/or expectations.

Our operations are subject to extensive and changing regulation in the countries in which we operate.

The oil and gas industry is subject to extensive regulation and control by governments in which companies like ours conduct operations, including laws, regulations and rules enacted by federal, state, provincial and local governments. These regulations relate to the award of exploration and development areas, production and export controls, investment requirements, taxation, price controls and environmental aspects, among others. As a result, our business is to a large extent dependent upon regulatory and political conditions prevailing in the countries in which we operate, as described below, and our results of operations may be materially and adversely affected by regulatory and political changes in these countries.

We cannot assure you that changes in applicable laws and regulations, or adverse judicial or administrative interpretations of such laws and regulations, will not adversely affect our results of operations. Similarly, we cannot assure you that future government policies will not adversely affect the oil and gas industry.

We also cannot provide assurances that concessions will be extended in the future as a result of the review by the controlling entities regarding the investment plans presented for analysis or that additional requirements to obtain extensions of permits and concessions will not be imposed.

Furthermore, there can be no assurance that regulations or taxes (including royalties) enacted by the provinces or states in which we operate will not conflict with federal law and regulations, and that such taxes or regulations will not adversely affect our results of operations or financial condition.

Argentina

The Argentine hydrocarbons industry is extensively regulated both by federal, provincial, and municipal regulations in matters including the award of exploration permits and exploitation concessions, investment, royalty, price controls, export restrictions and domestic market supply obligations. The Argentine government is further empowered to design and implement federal energy policy, and has used these powers before to establish export restrictions on the free disposition of hydrocarbons and export proceeds and to impose duties on exports, to induce private companies to enter into pricing agreements with the government or, more recently, to impose price agreements among producers and refiners or create fiscal incentive programs to promote increased production. Jurisdictional controversies among the federal government and the provinces are not uncommon. Any such controversies or export restrictions or any other measures imposed by Argentine authorities could have a material adverse effect on our future business, financial condition, results of operations, cash flows and/or prospects and as a consequence, the market value of our series A shares or ADSs may decline.

 

31


Table of Contents

Mexico

Mexico has developed a new legal framework for the regulation of the energy sector based on a number of constitutional amendments approved by the Mexican Congress in December 2013 and implementing legislation enacted in 2014, including the amendment of certain existing laws in August 2014 and the issuance of new regulations in October 2014. Given the recent creation of this legal framework and the lack of judicial precedents, it is uncertain how it could be interpreted by a court or governmental authority in practice. We therefore cannot predict the manner in which this new legal framework will affect our ability to complete additional acquisitions in Mexico and/or our future business, financial condition, results of operations, cash flows and/or prospects. For example, since the publication of the constitutional amendments relating to the Mexican energy sector in December 2013, a number of Mexican authorities and government-related entities have enacted more than 100 laws, regulations, resolutions, rules, notices and other provisions relating to hydrocarbons, the vast majority of which are intended to regulate the activities of participants in the Mexican energy sector. Additionally, a new president was elected in Mexico, taking office on December 1, 2018. As of the date of this prospectus, the new president’s political party holds an absolute majority in the Chamber of Deputies and in the Mexican senate. We cannot provide any assurances that the Mexican government will construe or enforce these new laws, rules and regulations in the same manner than the former administration and legislative power or that there will not be any material change to the oil and gas legal framework, which could adversely affect our business and prospects in Mexico.

Natural gas subsidies to natural gas producers may be limited or eliminated in the future.

We may benefit in the future from subsidies granted to natural gas producers of unconventional reservoirs in the Neuquina basin. We cannot assure you that any changes or adverse judicial or administrative interpretations of such regimes, will not adversely affect our results of operations. The Argentine government has announced that it will restrict or eliminate such subsidies in the future, although such changes have not been implemented as of the date of this prospectus. The restriction or elimination of such subsidies would negatively affect the selling price of our products and therefore result in a decrease of our revenues.

Oil and gas exploitation concessions, exploration permits and production and exploration contracts are subject to certain conditions and may be revoked or not renewed.

Argentina

Pursuant to the Hydrocarbons Law, oil and gas concessions or permits awarded by the Argentine government are valid for 25-,30- or 35-year periods depending on the type of concession and may be renewed for additional 10-year periods. The power and authority to extend the term of existing and future concessions, permits, and agreements lies with the government of the province where the relevant asset is located (or with the Argentine government in the case of assets located beyond 12 miles from the coast). In order for a concession or permit to be eligible for the extension, its holder must (i) be in compliance with its obligations under the Hydrocarbons Law and with the terms of such concession or permit, including those relating to the payment of taxes and royalties, the contribution of the requisite technology, equipment, and personnel, and the satisfaction of various environmental, investment, and development commitments; (ii) produce hydrocarbons in the area for which the concession was granted; and (iii) submit an investment plan for the development of the relevant areas as requested by the competent authorities at least one year prior to the expiration of the original term of the concession. In addition, holders of concessions who apply for extensions under Law No. 27,007 may be required to pay additional royalties ranging from 3% to 18%. Under the Hydrocarbons Law, failure to meet the aforementioned standards and obligations may result in the imposition of fines, and material violations which remain uncured upon expiration of the relevant cure period may result in the revocation of the concession or permit.

No assurance can be given that our concessions will be renewed in the future by the competent authorities based on the investments plans submitted to that effect, or that such authorities will not impose additional requirements for the renewal of such concessions or permits.

 

32


Table of Contents

Mexico

Our E&P license contracts are valid for 30 years and may be renewed for up to two additional periods of up to 5 years each, subject to the terms and conditions set out in the respective contracts. The power and authority to extend the term of existing and future contracts lies with the CNH. Under the existing contracts, in order for an E&P license contract to be eligible for an extension, the developer must (i) be in compliance with the terms of such contracts, (ii) submit an amendment proposal to the development plan and (iii) commit to maintain ‘sustained regular production’ throughout each extension.

No assurance can be given that our contracts will be renewed in the future by the CNH based on the investments plans submitted to that effect, that such authority will not impose additional requirements for the renewal of such contracts, or that we will continue to have a good business relationship with the new and future administrations.

Our business requires significant capital investments and maintenance cost.

The oil and natural gas industry is capital-intensive as it requires heavy investments in capital goods. We make and expect to continue to make substantial capital expenditures related to development and acquisition projects and in order to maintain or increase the amount of our hydrocarbon reserves, incurring significant maintenance costs.

We have funded, and we expect that we will continue to fund, our capital expenditures with cash generated by existing operations and the proceeds from this offering; however, our financing needs may require us to alter or increase our capitalization substantially through the issuance of debt or equity securities or the sale of assets. We cannot guarantee that we will be able to maintain our current production levels, generate sufficient cash flow or that we will have access to sufficient borrowing or other financing alternatives to continue our exploration, exploitation and production activities at current or higher levels.

Additionally, the incurrence of additional indebtedness would require that a portion of our cash flow from operations be used for the payment of interest and principal on our indebtedness, thereby reducing our ability to use cash flow from operations to fund working capital, capital expenditures and acquisitions. The actual amount and timing of our future capital expenditures may differ materially from our estimates as a result of various factors, including oil and natural gas prices; actual drilling results; the availability of drilling rigs and other services and equipment; and regulatory, technological and competitive developments. We may decrease our actual capital expenditures in response to lower commodity prices, which would negatively impact our ability to increase production.

If our revenues decrease as a result of lower oil and natural gas prices, operating difficulties, declines in reserves or for any other reason, we may have limited ability to obtain the capital necessary to sustain our operations at current levels. If additional capital is needed, we may not be able to obtain debt or equity financing on terms acceptable to us, if at all. If cash flow generated by our operations are not sufficient to meet our capital requirements, the failure to obtain additional financing could result in a curtailment of our operations relating to development of our properties. This, in turn, could lead to a decline in production, and could materially and adversely affect our business, financial condition and results of operations, and the market value of our series A shares or ADSs may decline.

Unless we replace our existing oil and gas reserves, the volume of our reserves will decrease over time.

The production of oil and gas deposits decreases as reserves drain with the range of decrease depending on the characteristics of the reserves and the available amount of reserves decreases as reserves are produced and consumed. The future level of oil and gas reserves, as well as the level of production, and therefore of our revenues and cash flows depend on our ability to develop current reserves, and to find or acquire recoverable

 

33


Table of Contents

reserves to be developed. We may not be able to identify commercially exploitable deposits, complete or produce more oil and gas reserves, and the wells we plan to drill may not result in the discovery or production of oil or natural gas. If we are unable to replenish production, the value of our reserves will decline and our financial condition, results of operations, cash flow and market value of our series A shares and ADSs could be negatively affected.

The oil and gas reserves that we estimate are based on assumptions that could be inaccurate.

The information as of December 31, 2018 regarding our proved reserves, included in this document as estimated quantities of proved reserves is derived from estimates as of December 31, 2018 included in the 2018 Reserves Report prepared by GCA, a third-party expert. Although they are classified as “proved reserves,” the reserve estimates established in the 2018 Reserves Report are based on certain assumptions that could be incorrect. Assumptions made by GCA include oil and gas sale prices determined in accordance with the guidelines established by the SEC, as well as future expenditures and other economic assumptions (including interests, royalties and taxes) as provided by us, in each case as set forth in the 2018 Reserves Report. For more information please refer to the 2018 Reserves Report attached hereto as Exhibit 99.1.

The estimation process begins with an initial review of the assets by geophysicists, geologists and engineers. A reserve coordinator ensures the integrity and impartiality of the estimates through the supervision and support of the technical teams responsible for preparing the reserve estimates. We maintain an internal staff of petroleum engineers and geoscience professionals who work closely with our independent reserves engineers to ensure the integrity, accuracy and timeliness of data furnished to our independent reserves engineers in their estimation process and who have knowledge of the specific properties under evaluation. Our Chief Operating Officer is primarily responsible for overseeing the preparation of our reserves estimates and for the internal control over our reserves estimation. Reserve engineering is an objective process to estimate the accumulations in the subsurface but entails a certain degree of uncertainty. Estimates of reserves depend on the quality of the engineering and geology data at the date of estimation and the manner in which it is interpreted.

Many of the factors, assumptions and variables involved in estimating proved reserves are beyond our control and are subject to change over time. Consequently, measures of reserves are not precise and are subject to revision. Any downward revision in our estimated quantities of proved reserves could adversely impact our financial condition and results of operations, and ultimately have a material adverse effect on the market value of our series A shares or ADSs.

In addition, reserve engineering is a subjective process for estimating oil and gas accumulations that cannot be accurately measured, and the estimates of other engineers may differ materially. A number of assumptions and uncertainties are inherent in estimating the amounts that make up the proven reserves of oil and gas, including the projection of production, the time and amount of development expenditures, testing and production after the date of the estimates, the quality of available geological, technical and economic data and its interpretation and judgment, the production performance of reservoirs, developments such as acquisitions and dispositions, new discoveries and extensions of existing fields and the application of improved recovery techniques and the prices of oil and gas, many of which are beyond our control and are subject to change over time. Consequently, measures of reserves are not precise and are subject to revision. Also, the results of drilling, testing, and production after the estimate date may require revisions. The estimate of our oil and gas reserves would be affected if, for example, we were not able to sell the oil and natural gas that we produced. In addition, the estimation of “proved oil and natural gas reserves” based on Argentine Secretariat of Energy Resolution No. 324/2006 and Secretariat of Hydrocarbon Resources Resolution No. 69-E/2016 may differ from the standards required by SEC’s regulations. See “–Oil and Gas Regulatory Framework in Argentina—Reserves and Resources Certification in Argentina.”

As a result, reserve estimates could be materially different from the amounts that are ultimately extracted, and if such amounts are significantly lower than the initial reserves estimates it could result in a material adverse effect on our financial performance, operating results and the market value of our series A shares and ADSs.

 

34


Table of Contents

We may not be able to acquire, develop or exploit new reserves which could adversely affect financial condition and our results of operations.

Our future success largely depends on our ability to produce oil and gas from existing reserves, to discover additional oil and gas reserves, and to economically exploit oil and gas from these reserves. Unless we are successful in our exploration of oil and gas reserves and their development or otherwise acquire additional reserves, our reserves would show a general decline in oil and gas as long as oil and gas production continue. The drilling activities are also subject to numerous risks and may involve unprofitable efforts, not only with respect to dry wells but also with respect to wells that are productive but do not produce enough net income to derive profit after covering drilling costs and other operating costs. The completion of a well does not assure a return on investment or recovery of the costs of excavation, completion and operating costs.

There is no guarantee that our future exploration and development activities will be successful, or that we will be able to implement our capital investment program to acquire additional reserves or that we will be able to economically exploit these reserves. Such events would adversely affect our financial condition and results of operations and the market value of our series A shares and ADSs could decline.

The lack of availability of transport may limit our possibility of increasing hydrocarbon production and may adversely affect our financial condition and results of operations.

Our capacity to exploit our hydrocarbon reserves largely depends upon the availability of transport infrastructure on commercially acceptable terms to transport the produced hydrocarbons to the markets in which they are sold. Typically, oil is transported by pipelines and tankers to refineries, and gas is usually transported by pipeline to customers. The lack of storage infrastructure, or adequate or alternative charge, or available capacity on existing long-range hydrocarbons transportation systems may adversely affect our financial condition and results of operations.

Developments in the oil and gas industry and other factors may result in substantial write-downs of the carrying amount of certain of our assets, which could adversely affect our financial condition and results of operations.

We evaluate on an annual basis, or more frequently where the circumstances require, the carrying amount of our assets for possible impairment. Our impairment tests are performed by a comparison of the carrying amount of an individual asset or a cash- generating unit with its recoverable amount. Whenever the recoverable amount of an individual asset or cash-generating unit is less than its carrying amount, an impairment loss is recognized to reduce the carrying amount to the recoverable amount.

Changes in the economic, regulatory, business or political environment in Argentina, Mexico or other markets where we operate, such as the liberalization of fuel prices and the significant decline in international crude oil and gas prices in recent years, among other factors, may result in the recognition of impairment charges in certain of our assets.

Exploration and development drilling may not result in commercially productive reserves.

Drilling involves numerous risks, including the risk that no commercially productive oil or gas reservoirs will be encountered. The cost of drilling, completing and operating wells is often uncertain and drilling operations may be curtailed, delayed or canceled, or become costlier, as a result of a variety of factors, including:

 

   

unexpected drilling conditions;

 

   

unexpected pressure or irregularities in formations;

 

   

equipment failures or accidents;

 

   

construction delays;

 

35


Table of Contents
   

fracture stimulation accidents or failures;

 

   

adverse weather conditions;

 

   

restricted access to land for drilling or laying pipelines;

 

   

title defects;

 

   

lack of available gathering, transportation, processing, fractionation, storage, refining or export facilities;

 

   

lack of available capacity on interconnecting transmission pipelines;

 

   

access to, and the cost and availability of, the equipment, services, resources and personnel required to complete our drilling, completion and operating activities; and

 

   

delays imposed by or resulting from compliance with environmental and other governmental or regulatory requirements.

Our future drilling activities may not be successful and, if unsuccessful, our proved reserves and production would decline, which could have an adverse effect on our future results of operations and financial condition. While all drilling, whether developmental, extension or exploratory, involves these risks, exploratory and extension drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons. We expect that we will continue to record exploration and abandonment expenses during 2019.

Our operations and drilling activity are concentrated in areas of high industrial activity such as the Neuquina basin in Argentina, which may affect our ability to obtain the personnel, equipment, services, resources and facilities access needed to complete our development activities as planned or result in increased costs; such concentration also makes us vulnerable to risks associated with operating in a limited geographic area.

As of March 31, 2019, most of our producing properties and total estimated proved reserves were geographically concentrated in the Neuquina basin, located in Argentina. A substantial portion of our operations and drilling activity are concentrated in areas in such basins where industry activity is high. As a result, demand for personnel, equipment, power, services and resources may increase in the future, as well as the costs for these items. Any delay or inability to secure the personnel, equipment, power, services and resources could result in oil, NGL and gas production being below our forecasted volumes. In addition, any such negative effect on production volumes, or significant increases in costs, could have a material adverse effect on our results of operations, cash flow and profitability.

As a result of this concentration, we may be disproportionately exposed to the impact of delays or interruptions of operations or production in this area caused by external factors such as governmental regulation, state politics, market limitations, water or sand shortages or extreme weather-related conditions.

Our operations are substantially dependent upon the availability of water and our ability to dispose of produced water gathered from drilling and production activities. Restrictions on our ability to obtain water or dispose of produced water may have a material adverse effect on its financial condition, results of operations and cash flows.

Water is an essential component of both the drilling and hydraulic fracturing processes. Limitations or restrictions on our ability to secure sufficient amounts of water (including limitations resulting from natural causes such as drought), could materially and adversely impact our operations. Severe drought conditions can result in local water districts taking steps to restrict the use of water in their jurisdiction for drilling and hydraulic fracturing in order to protect the local water supply. If we are unable to obtain water to use in our operations from local sources, it may need to be obtained from new sources and transported to drilling sites, resulting in increased costs, which could have a material adverse effect on our financial condition, results of operations and cash flows.

 

36


Table of Contents

Our business plan includes future drilling activities to obtain unconventional oil and gas and if we are not able to acquire and correctly use the necessary new technologies, as well as obtaining financing and/or partners, our business may be affected.

Our ability to execute and carry out our plan depends on our ability to obtain financing at a reasonable cost and in reasonable conditions. We have identified drilling opportunities and prospects for future drilling related to unconventional oil and gas reserves, such as shale oil and gas in the Vaca Muerta play. These drilling locations and prospects represent the most important part of our drilling plans for the future. Our ability to drill and develop these locations depend of several factors, including seasonal conditions, regulatory approvals, negotiations of agreements with third parties, commodity prices, costs, availability of equipment, services and personnel, and drilling results. Further, our identified potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional analysis. We cannot predict in advance of drilling and testing whether any particular drilling location will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in sufficient quantities to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially productive hydrocarbon bearing formation or experience mechanical difficulties while drilling or completing the well, possibly resulting in a reduction in production from the well or abandonment of the well. If we drill additional wells that we identify as dry holes in our current and future drilling locations, our drilling success rate may decline and materially harm our business. Further, initial production rates reported by us or other operators may not be indicative of future or long-term production rates. In addition, the drilling and exploitation of such oil and gas reserves depends on our ability to acquire the necessary technology and hire personnel or other means of support for the extraction, and on obtaining financing and partners to develop such activities. Due to these uncertainties, we cannot provide any guarantee as to the sustainability of these drilling activities, that such drilling activities will eventually result in proved reserves, or that we will be able to meet our expectations of success, which could adversely affect our production levels, financial condition and results of operations.

Climate change legislation or regulations restricting emissions of greenhouse gases (“GHGs”) and legal frameworks promoting an increase in the participation of energies from renewable sources could significantly impact our industry and result in increased operating costs and reduced demand for the oil and natural gas we produce.

In December 1993, Argentina approved the United Nations Framework Convention on Climate Change (“UNFCCC”) by Federal Law No. 24,295. The UNFCCC, which entered into force on March 21, 1994, deals with the stabilization of the GHGs concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.

On February 16, 2005, the Kyoto Protocol to the UNFCCC (“Protocol”) entered into force. This Protocol, which deals with the reduction of certain GHGs (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride) in the atmosphere, will be in force until 2020 as a consequence of the ratification of the Doha Amendment to the Protocol.

Argentina approved the Protocol by Federal Law No. 25,438 on June 20, 2001, and the Doha Amendment by Federal Law No. 27,137 on April 29, 2015.

The 2015 United Nations Climate Change Conference adopted by consensus the Paris Agreement. The agreement deals with GHG emission reduction measures, targets to limit global temperature increases and requires countries to review and “represent a progression” in their intended nationally determined contributions, which set emissions reduction goals at least. On October 5, 2016, the threshold for entry into force of the Paris Agreement was achieved. International treaties together with increased public awareness related to climate

 

37


Table of Contents

change may result in increased regulation to reduce or mitigate GHG emissions. Under Federal Law No. 27,270, dated September 1, 2016, Argentina approved the Paris Agreement.

Furthermore, Argentine Law No. 26,190, as amended and complemented by Law No. 27,191 and its implementing decrees, established a legal framework which promotes an increase in the participation of energies from renewable resources in Argentina’s electrical consumption. All electricity users must contribute to this goal.

Under Law No. 27,191, by December 31, 2017, 8% of the electric energy consumed must come from renewable sources, reaching 20% by December 31, 2025. It sets five stages to achieve the final goal: (i) 8% by December 31, 2017; (ii) 12% by December 31, 2019; (iii) 16% by December 31, 2021; (iv) 18% by December 31, 2023; and (v) 20% by December 31, 2025. It is within this framework that the Argentine government launched the RenovAr programs.

The effects upon the oil industry relating to climate change and the resulting regulations and regimes promoting alternative energy sources may also include declining demand for our products in the long-term. Any long-term material adverse effect on the oil industry could adversely affect the financial and operational aspects of our business, which we cannot predict with certainty at this time.

Compliance with legal and regulatory changes relating to climate change, including those resulting from the implementation of international treaties, may in the future increase our costs to operate and maintain our facilities, install new emission controls on our facilities and administer and manage any GHG emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.

The effects upon the oil industry relating to climate change and the resulting regulations may also include declining demand for our products in the long-term. In addition, increased regulation of GHG may create greater incentives for the use of alternative energy sources. Any long-term material adverse effect on the oil industry could adversely affect the financial and operational aspects of our business, which we cannot predict with certainty at this time.

Climate change could impact our operating results and strategy.

Climate change poses new challenges and opportunities for our business. More stringent environmental regulations can result in the imposition of costs associated with GHG emissions, either through environmental agency requirements relating to mitigation initiatives or through other regulatory measures such as GHG emissions taxation and market creation of limitations on GHG emissions that have the potential to increase our operating costs.

The risks associated with climate change could also manifest in difficulties accessing capital due to public image issues with investors; changes in the consumer profile, with reduced consumption of fossil fuels; and energy transitions in the world economy, such as the increased use of electric powered vehicles. These factors could have a negative impact on the demand for our products and services and may jeopardize or even impair the implementation and operation of our business, adversely impacting our operating and financial results and limiting our growth opportunities.

Our operations may pose risks to the environment, and any change in the applicable environmental laws could give rise to an increase in our operating costs.

Some of our operations are subject to environmental risks which could materialize unexpectedly and could have a material adverse impact on our financial condition and results of operations. These include the risk of injury, death, environmental damages and remediation expenses, damages to our equipment, civil liability, and administrative action. There can be no assurance that future environmental issues will not result in cost increases which could lead to a material adverse effect on our financial condition and results of operations.

 

38


Table of Contents

In addition, we are subject to extensive environmental regulation in Argentina and Mexico. Local authorities in the countries in which we operate could impose new environmental laws and regulations, which could require us to incur increased costs to comply with the new standards. The imposition of more stringent regulatory measures and permit requirements the countries in which we operate could give rise to a material increase in our operating costs.

We cannot predict the overall impact that the enactment of new environmental laws or regulations could have on our financial results, results of operations, and cash flows.

Likewise, activities related to oil and gas are subject to significant economic, environmental and operational risks, some of which are beyond our control, such as risks in terms of production, equipment, and transportation, as well as natural disasters and other uncertainties, including those related to the characteristics of land or marine gas deposits. Our operations may be delayed or canceled as a result of poor climate conditions, mechanical difficulties, delays or lack of supplies in the delivery of equipment, compliance with government regulations, fires, explosions, faults in oil pipelines, abnormal formations, and environmental risks, such as oil spills, gas leaks, ruptures, or release of toxic gases. If these risks materialize, we may suffer from substantial operational losses or disruptions to our operations. Drilling may not be profitable, not only for dry wells, but also for wells that are productive but do not produce enough net returns after drilling.

Adverse climate conditions may adversely affect our results of operations and our ability to conduct drilling operations.

Adverse climate conditions may lead to, among others, cost increases, drilling delays, power outages, production stoppages and difficulties in transporting the oil and gas produced by us. Any decrease in our oil and gas production could have a material adverse effect on our business, financial condition or results of operations.

Conservation measures and technological advances may lead to a decline in the demand for oil.

Fuel conservation measures, the demand for alternative fuels, and advances in fuel-saving and power generation technologies may lead to a decline in the demand for oil. Any change in the demand for oil could have a material adverse effect on our financial condition, results of operations, or cash flows.

Shortages and increases in the cost of drilling rigs and oil and gas-related equipment, supplies, personnel, and services may adversely affect our ability to execute our business and development plans.

The demand for drilling rigs, pipelines and other equipment and supplies, and for qualified personnel with experience with the drilling and completion of wells and in field operations, including geologists, geophysicists, engineers and other professionals, tends to fluctuate significantly, typically along with oil prices, giving rise to temporary shortages.

Our business operations rely heavily on our production facilities.

A material portion of our revenues depends on our principal on-site oil and gas production facilities. While we believe that we maintain adequate insurance coverage and appropriate security measures in respect of such facilities, any material damage to or accident or other disruption at such production facilities could have a material adverse effect on our production capacity, financial condition and results of operations.

Our operations are subject to social risks.

Our activities are subject to social risks, including potential protests of communities surrounding the operations of the corresponding platform. Although we are committed to operating in a socially responsible manner, we may face opposition from local communities regarding current and future projects in the jurisdictions in which we operate and may operate in the future, which could adversely affect our business, the results of operations and our financial performance.

 

39


Table of Contents

Our industry has become increasingly dependent on digital technologies to carry out daily operations.

As dependence on digital technologies has increased, cyber incidents, including deliberate attacks or unintentional events have also increased worldwide. The technologies, systems, and networks that we may implement in the future, and those of our service providers may be the object of cyberattacks or failures to the security of information systems, which could lead to interruptions in critical industrial systems, the unauthorized disclosure of confidential or protected information, data corruption, or other interruptions of our operations. In addition, certain cyber incidents, such as the advanced persistent threat, may not be detected for a prolonged period of time. We cannot assure that cyber incidents will not happen in the future and that our operations and/or our financial performance won’t be affected.

Information security risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication and activities of cyber-attacks. We depend on digital technology, including information systems to process financial and operating data, analyze seismic and drilling information and oil and gas reserves estimates. We have increasingly connected equipment and systems to the Internet. Because of the critical nature of their infrastructure and the increased accessibility enabled through connection to the Internet, they may face a heightened risk of cyber-attack. In the event of such an attack, they could have our business operations disrupted, property damaged and customer information stolen, experience substantial loss of revenues, response costs and other financial loss; and be subject to increased litigation and damage to their reputation. A cyber-attack could adversely affect our business, results of operations and financial condition.

Our relationship with federal, provincial and state authorities is important to our business.

Due to the nature of our businesses, we have an extensive relationship with federal, provincial and state authorities in places where we conduct our businesses. Although we believe that we have good relationships with the relevant authorities, these relationships could be adversely affected in the future, which could negatively affect our business and our results of operations. For example, the relevant authorities could reject or delay our current or future term-extensions requests or seek to impose unexpected or disproportionately high upfront fees or significant additional obligations upon us when negotiating our concessions or permits renewals or otherwise. Additionally, our relationship with the new Mexican administration may not be the same as with the prior administration.

The results of our planned development programs in new or emerging shale development areas and formations may be subject to more uncertainties than programs in more established areas and formations and may not meet our expectations for reserves or production.

The results of our horizontal drilling efforts in emerging areas and formations in Argentina such as in the Vaca Muerta formation in the Neuquina basin are generally more uncertain than drilling results in areas that are more developed and have more established production. Because emerging areas and associated target formations have limited or no production history, we are less able to rely on past drilling results in those areas as a basis to predict our future drilling results. In addition, horizontal wells drilled in shale formations, as distinguished from vertical wells, utilize multilateral wells and stacked laterals, which requirements could adversely impact our ability to maximize the efficiency of our horizontal wells related to reservoirs drainage over time. Further, access to adequate gathering systems or pipeline takeaway capacity and the availability of drilling rigs and other services may be more challenging in new or emerging areas. If our drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, access to gathering systems and takeaway capacity or otherwise, and/or natural gas and oil prices decline, our investment in these areas may not be as economic as we anticipate, we could incur material write-downs of unevaluated properties and the value of our undeveloped acreage could decline in the future.

 

40


Table of Contents

Part of our strategy involves using some of the latest available horizontal drilling and completion techniques, which involve risks and uncertainties in their application.

Our operations involve utilizing some of the latest drilling and completion techniques as developed by it and its service providers. Risks that we face while drilling horizontal wells include, but are not limited to, the following:

 

   

landing the wellbore in the desired drilling zone;

 

   

staying in the desired drilling zone while drilling horizontally through the formation;

 

   

running casing the entire length of the wellbore; and

 

   

being able to run tools and other equipment consistently through the horizontal wellbore.

Risks that we face while completing wells include, but are not limited to, the following:

 

   

the ability to fracture-stimulate the planned number of stages;

 

   

the ability to run tools the entire length of the wellbore during completion operations; and

 

   

the ability to successfully clean out the wellbore after completion of the final fracture stimulation stage.

Holders of our series A shares who sell or transfer series A shares acquired after January 1, 2018 and representing 10% or more of our equity may be subject to Argentine capital gains tax under Argentine tax law.

Under Argentine tax law, non-Argentine residents who sell or transfer shares or other interests in foreign entities acquired after January 1, 2018 may be subject to capital gains tax in Argentina if 30% or more of the market value of the foreign entity is derived from assets located in Argentina and the shares being sold or transferred represent 10% or more of the equity interests of such foreign entity. Therefore, any non-Argentine holder of our series A shares who sell or transfer series A shares acquired after January 1, 2018 representing 10% or more of our equity interests would be subject to the Argentine capital gains tax.

Risks Related to our Company

Our limited operating history as a consolidated company and recent acquisitions may make it difficult for investors to evaluate our business, financial condition, results of operations and prospects.

Our limited operating history as a consolidated company and recent acquisitions may make it difficult for investors to evaluate our business, financial condition, results of operations and prospects. We had no substantial operations prior to the consummation of the Initial Business Combination, and experienced rapid and significant expansion thereafter. Because the historical and pro forma financial information included elsewhere in this prospectus may not be representative of our results as a consolidated company, investors may have limited financial information on which to evaluate us and their investment decision. In addition, our results of operations for the 2018 Successor Period are not directly comparable to our results of operations for the 2018 Predecessor Period and for the year ended December 31, 2017, due to the effects of the Initial Business Combination. Similarly, our results of operations for the three-month period ended March 31, 2019 are not directly comparable to our results of operations for the three-month period ended March 31, 2018, due to the effects of the Initial Business Combination. Any statistical or operating data included in this prospectus, as it relates to the Predecessor Company prior to the consummation of the Initial Business Combination, is based on data provided to us by the APCO Entities, Pampa Energía and PELSA. We believe it is reliable, but it does not form part of our consolidated operating history. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Note Regarding Comparability of Our Results of Operations.”

The historical financial information in this prospectus may not be indicative of future results.

Our periodic operating results could fluctuate for many reasons, including many of the risks described in this section, which are beyond our control. Therefore, our past results of operations are not indicative of our

 

41


Table of Contents

future results of operations. Additionally, we believe that the experience of our Management Team constitutes a differentiated source of competitive strength for us. However, the experience of our Management Team in the past (whether in Vista or in other companies) may not be indicative of our future results of operations. For more information regarding our historical condensed consolidated financial information, see “Presentation of Financial and Other Information,” “Selected Financial and Operating Data” and the Audited Financial Statements and the Supplemental Financial Statements included elsewhere in this prospectus.

The imposition of export duties and other taxes have adversely affected the oil and gas industry in Argentina and could adversely affect our results in the future.

In 2002, the Argentine government imposed duties on oil exports at a rate of 20% for crude oil and 5% for liquid petroleum gas products initially for a five-year term. Exportation rights were extended in 2006 by Law No. 26.217 and again in 2011 by Law No. 26.732, for five more years. Since 2002, the rates have been progressively increasing. In November 2007, the Ministry of Economy and Production, through Resolution No. 394/2007, increased the export duties for oil and other refined products and established that when the international reference price (West Texas Intermediate or “WTI”) exceeded the reference price, set at US$60.90/bbl, producers would be allowed to charge US$42/barrel, and the rest would be retained by the Argentine government as an export tax. If the international price of WTI was lower than the reference price but exceeded US$45/bbl, a retention rate of 45% would be applied. If the mentioned price was lower than US$45/bbl, the Argentine government would determine the applicable export tax within a period of 90 business days.

In May 2004, Resolution No. 645/2004 of the Ministry of Economy and Production established an export duty on natural gas and NGL at a rate of 20%. The export duty on natural gas was again increased in July 2006 to 45% and the Customs General Administration was instructed to apply the price set by the Framework Agreement between Argentina and Bolivia as the base price to apply the tax, regardless of the sales price.

Resolution No. 127/2008 of the Ministry of Economy and Production increased export duties on natural gas from 45% to 100% and established a valuation basis for its calculation as the highest price established by any Argentine importer agreement for the import of natural gas (leaving behind the previously applicable price reference set by the Framework Agreement between Argentina and Bolivia).

Resolution No. 1077/14, which repealed Resolution No. 394/2007 and became effective on January 1, 2015, established a 1% withholding rate if the international price of crude oil was less than US$71/bbl and a withholding rate based on a preset formula if the international price of crude oil was equal to or exceeded US$71/bbl.

With respect to liquid petroleum gas products (including butane, propane, and their mixtures), Resolution No. 36/2015 modified the formula to calculate the export duty as of April 1, 2015, which in some cases generated an increase in commercial prices in the local market.

However, on January 1, 2017, the Argentine government did not extend the resolutions regarding withholdings on hydrocarbon exports. In addition, on December 31, 2017 the Economic Emergency Law (Ley de Emergencia Económica) expired, resulting in the elimination of discretionary ruling previously granted to the Argentine government, which were delegated and allowed it to enact foreign exchange regulations, the withholding percentage for hydrocarbon exports, and tariffs, as well as to renegotiate public services agreements, among others. On September 4, 2018, pursuant to Decree No. 793/2018, the Argentine government reestablished, until December 31, 2020, an export tax of 12% on commodities with a cap of Ps.4 for each U.S. Dollar for primary commodities with some exceptions. The impact that any change, of this nature, may have on our financial results, results of operations, and cash flows cannot be predicted.

Export duties and taxes may have a material adverse effect Argentina’s oil and gas industry and on our results of operations. We produce exportable goods and, therefore, an increase in export taxes is likely to result in

 

42


Table of Contents

a decrease in our products’ price, and, therefore, may result in a decrease of our sales. We cannot guarantee the impact of those or any other future measures that might be adopted by the Argentine government on demand and prices for hydrocarbon products and, consequently, our financial condition and result of operations.

Our properties may be subject to expropriation by the Argentine and Mexican governments for public interest reasons.

Our assets, which are mainly located in Argentina and, to a lesser extent, in Mexico, may be subject to expropriation by the Argentine and Mexican governments (or the government of any political subdivision thereof), respectively. We are engaged in the business of oil extraction and, as such, our business or our assets may be considered by a government to be a public service or essential for the provision of a public service. Therefore, our business is subject to political uncertainties, including expropriation or nationalization of our business or assets, loss of concessions, renegotiation or annulment of existing contracts, and other similar risks.

In such an event, we may be entitled to receive compensation for the transfer of our assets under applicable law. However, the price received may not be sufficient, and we may need to take legal actions to claim appropriate compensation. Our business, financial condition and results of our operations could be adversely affected by the occurrence of any these events.

In the past, the Argentine government has required the repatriation of foreign currency from oil and gas export sales and other amounts applicable to the production of liquefied gas, which has affected producers of oil and gas in the country. In April 2012, the Argentine government enacted Law 26,741 which expropriated 51% of YPF’s shares owned by Repsol YPF. By virtue of the law, 51% of the expropriated shares were assigned to the Argentine government, while the remaining 49% was assigned to the Argentine provinces engaged in oil and gas production.

Additionally, the law established that hydrocarbon related activities (including exploitation, industrialization, transport, and commercialization) in Argentina are considered to be part of the “national public interest.” The law “Hydrocarbon Sovereignty of Argentina” established that its primary objective is to achieve self-sufficiency in oil and gas supply for Argentina. We cannot assure you that these or other measures that may be adopted by the Argentine government will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations. Additionally, we cannot assure that similar measures will not be adopted by the Mexican government in the future.

We may be unable to successfully expand our operations.

We compete with the major independent and state-owned oil and gas companies engaged in the E&P sector, including state-owned E&P companies that possess substantially greater financial and other resources than we do for researching and developing E&P technologies and access to markets, equipment, labor and capital required to acquire, develop and operate our properties. We also compete for the acquisition of licenses and properties in the countries in which we operate.

The Argentine oil and gas industry is extremely competitive. When we bid for exploration or exploitation rights with respect to a hydrocarbon area, we face significant competition not only from private companies, but also from national or provincial public companies. In fact, the provinces of La Pampa, Neuquén and Chubut have formed companies to carry out oil and gas activities on behalf of their respective provincial governments. The state-owned energy companies Integración Energética Argentina S.A. (“IEASA,” formerly known as Energía Argentina S.A. or “ENARSA”), YPF and other provincial companies (such as Gas y Petróleo del Neuquén S.A. (“G&P”) and Empresa de Desarrollo Hidrocarburífero Provincial S.A. are also highly competitive in the Argentine oil and gas market. As a result, we cannot assure you that we will be able to acquire new exploratory acreage or oil and gas reserves in the future, which could negatively affect our financial condition and results of operations. There can be no assurance that the participation of IEASA or YPF (or any province-owned company)

 

43


Table of Contents

in the bidding processes for new oil and gas concessions will not influence market forces in such a manner that could have an adverse effect on our financial condition and results of operations.

Our competitors may be able to pay more for productive oil and natural gas properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit. Our competitors may also be able to offer better compensation packages to attract and retain qualified personnel than we are able to offer. In addition, there is substantial competition for capital available for investment in the oil and natural gas industry. As a result of each of the foregoing, we may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel or raising additional capital, which could have a material adverse effect on our business, financial condition or results of operations. See “Our Business—Competition.”

Although the Argentine Reorganization may qualify as part of a tax-free reorganization under Argentine law, we can provide no assurances as to the tax treatment of the Argentine Reorganization.

Although we expect that all requirements and conditions for the Argentine Reorganization to qualify as part of a tax-free reorganization will be met and satisfied, no assurances can be given that we will continue to meet such requirements and satisfy such conditions in the future or that the Argentine tax authority will not challenge the reorganization based on its possible interpretation that such requirements or conditions were not properly met or satisfied. If the Argentine Reorganization does not qualify as part of a tax-free reorganization, or the Argentine tax authority subsequently challenges the reorganization, we may be required to revise our tax return filings in order to reflect the fact that the proposed reorganization would not be tax-free, which may have an adverse impact on our results and financial condition.

We may fail to fully identify problems with any properties we acquire, and as such, assets we acquire may prove to be worth less than we paid because of uncertainties in evaluating recoverable reserves and potential liabilities.

We are actively seeking to acquire additional acreage in Argentina and Mexico and more broadly in Latin America, including Brazil and Colombia and other regions in the future. Successful acquisitions require an assessment of a number of factors, including estimates of recoverable reserves, exploration potential, future oil and natural gas prices, adequacy of title, operating and capital costs and potential environmental and other liabilities. Although we conduct a review of properties we acquire which we believe is consistent with industry practices, we can give no assurance that we have identified or will identify all existing or potential problems associated with such properties or that we will be able to mitigate any problems we do identify. Such assessments are inexact, and their accuracy is inherently uncertain. In addition, our review may not permit us to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities. We do not inspect every well. Even when we inspect a well, we do not always discover structural, subsurface, title and environmental problems that may exist or arise. We are generally not entitled to contractual indemnification for preclosing liabilities, including environmental liabilities. We may acquire interests in properties on an “as is” basis with limited remedies for breaches of representations and warranties. As a result of these factors, we may not be able to acquire oil and natural gas properties that contain economically recoverable reserves or be able to complete such acquisitions on acceptable terms.

We may be unable to integrate successfully the operations of recent and future acquisitions with our operations, and we may not realize all the anticipated benefits of these acquisitions.

Our business has and may in the future include producing property acquisitions that include undeveloped acreage. We can offer no assurance that we will achieve the desired profitability from our recent acquisitions or from any acquisitions we may complete in the future. In addition, failure to assimilate recent and future acquisitions successfully could adversely affect our financial condition and results of operations. Our acquisitions may involve numerous risks, including:

 

   

operating a larger combined organization and adding operations;

 

44


Table of Contents
   

difficulties in the assimilation of the assets and operations of the acquired business, especially if the assets acquired are in a new geographic area;

 

   

risk that oil and natural gas reserves acquired may not be of the anticipated magnitude or may not be developed as anticipated;

 

   

loss of significant key employees from the acquired business;

 

   

inability to obtain satisfactory title to the assets, concessions, or participation interests we acquire;

 

   

a decrease in our liquidity if we use a portion of our available cash to finance acquisitions;

 

   

a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions;

 

   

failure to realize expected profitability or growth;

 

   

failure to realize expected synergies and cost savings;

 

   

coordinating geographically disparate organizations, systems and facilities; and

 

   

coordinating or consolidating corporate and administrative functions.

Further, unexpected costs and challenges may arise whenever businesses with different operations or management are combined, and we may experience unanticipated delays in realizing the benefits of an acquisition. If we complete any future acquisition, our capitalization and results of operation may change significantly, and you may not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in evaluating future acquisitions. The inability to effectively manage the integration of acquisitions could reduce our focus on subsequent acquisition and current operations, which in turn, could negatively impact our results of operations.

We may be unable to successfully enter new markets outside Argentina and Mexico.

Part of our growth strategy is to increase our revenue and the market countries in which we operate through the acquisition of complementary operations. There can be no assurance that suitable candidates for acquisitions can be identified or, if suitable candidates are identified, that acquisitions can be completed on acceptable terms, if at all. Even if suitable candidates are identified, any future acquisitions may entail a number of risks that could adversely affect our business and the market price of our common stock and ADS, including the integration of the acquired operations, diversion of management’s attention, risks of entering new market regions in which we have limited experience, adverse short-term effects on our reported operating results, the potential loss of key employees of acquired businesses and risks associated with unanticipated liabilities.

We may be subject to unknown or contingent liabilities related to our recent and future acquisitions.

From time to time we undertake evaluations of opportunities to acquire additional oil and gas assets and businesses. Any resultant acquisitions may be significant in size, may change the scale of our business, and may expose us to new geographic, political, operating financial and geological risks. Our success in these acquisition activities depends on our ability to identify suitable acquisition candidates, to acquire them on acceptable terms, and integrate their operations successfully with ours. Any acquisition would be accompanied by risks, such as a significant decline in oil or gas prices; the difficulty of assimilating the operation and personnel; the potential disruption of our ongoing business; the inability of management to maximize our financial and strategic position through the successful integration of acquired assets and businesses; the maintenance of uniform standards, control, procedures and policies; the impairment of relationships with employees, customers and contractors as a result of any integration of new management personnel; and the potential unknown liabilities associated with acquired assets and business. In addition, we may need additional capital to finance an acquisition. Debt financing related to any acquisition will expose us to the risk of leverage, while equity financing may cause existing shareholders to suffer dilution. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.

 

45


Table of Contents

We are exposed to foreign exchange risks relating to our operations in Argentina and Mexico.

Our results of operations are subject to foreign exchange risks of the Argentine or Mexican Peso against the U.S. Dollar or other currencies could adversely affect our business and results of operations. Both the value of the Mexican Peso and the value of the Argentine Peso have experienced significant fluctuations in the past. The main effects of the depreciation of the Argentine or Mexican Peso against the U.S. Dollar would be on our expenses mainly related to salaries and services, but given several accounting rules it may negatively affect (i) deferred taxes associated with our fixed assets, (ii) current income taxes and (iii) foreign exchange differences associated with our Argentine or Mexican Peso exposure.

We cannot predict whether and to what extent the value of the Argentine or Mexican Peso will depreciate or appreciate against the U.S. Dollar nor the extent to which any such change may affect our business.

We are or could be subject to direct and indirect restrictions on imports and exports under Argentine law.

The Hydrocarbons Law allows hydrocarbons exports, as long as these are not required for the Argentine domestic market and as long as these are sold at reasonable prices. In the case of natural gas, Argentine Law No. 24.076 for natural gas and the related regulations require that all domestic market needs be considered when authorizing long-term exports of natural gas. In this sense, the ME&M may authorize export operations of natural gas surplus provided they are subject to interruption upon local supply shortages.

In recent years, Argentine authorities have adopted certain measures which resulted in restrictions on the exports of natural gas from Argentina. Because of these restrictions, oil and gas companies have been forced to sell part of their natural gas production in the local market that was originally intended for the export market and have been unable in certain cases to comply wholly or partially with their export commitments.

Crude oil and oil by-products exports operations currently require prior registration with the Registry of Export Operations Agreements (Registro de Contratos de Operaciones de Exportación) and authorization by the Argentine Secretariat of Energy (pursuant to the regime established under Resolution S.E. No. 241-E/2017 and its further amendments and supplements). Oil companies and oil refineries that intend to export crude oil, liquid petroleum gas or diesel, among others, must first demonstrate, prior to obtaining authorization, that the offer to sell that product has already been made to, and rejected by, local buyers.

On March 21, 2017, through Decree No. 192/2017, as amended by Decree No. 962/2017, the ME&M created a temporary Registry for Import Operations of Crude Oil and By-Products. Through this regulation, any company that wished to carry out import operations had the obligation to register the operation in this Registry and obtain the authorization from the ME&M before the import takes place. The abovementioned Registry and the obligation to register and obtain authorization for import operations of crude oil and specific by-products was in force until December 31, 2017.

On September 4, 2018, the Argentine government imposed export duties of 12% with a cap of 4 Argentine Pesos per U.S. Dollar across all goods, with some exceptions.

We cannot predict for how long these restrictions on exports will remain in force, or whether future measures will be taken that adversely affect our ability to export and import gas, crude oil, or other products and, consequently, affect our financial condition, results of operations, and cash flows.

In the event of an accident or other occurrence which is not covered by our insurance policies, we may suffer significant losses which may have a material adverse effect on our business and results of operations.

Even though we consider that we have insurance coverages consistent with international standards, there is no assurance concerning the availability or sufficiency of insurance coverage with respect to a particular loss or

 

46


Table of Contents

risk. In the event of an accident or other occurrence in our business which is not covered by insurance under our policies, we may suffer significant losses or be forced to provide compensation in a substantial amount from our own resources, which could have a material adverse effect on our financial condition

We are not concessionaires or operating partners in all of our joint ventures and exploration agreements, and actions taken by the concessionaires and/or operators in these joint ventures and exploration agreements could have a material adverse effect on their success.

Both, we and our subsidiaries carry out hydrocarbon E&P activities through unincorporated joint ventures and exploration agreements entered into through agreements with third parties (joint operations for accounting purposes). In some cases, our joint venture or exploration partners, rather than us, hold the rights to the concession or the E&P license contracts. Pursuant to the terms and conditions of such agreements, one of the parties assumes the role of operator, and therefore assumes the responsibility of executing all activities pursuant to the agreement. However, in certain cases, neither we nor our subsidiaries may be able to assume the role of concessionaire and/or operator, and in such cases we would be subject to risks related to the performance of, and the measures taken by, the concessionaire and/or operator to carry out the activities. Such actions could adversely affect our financial condition and operating results. As of March 31, 2019, we were not the operator of Coirón Amargo Sur Oeste, Sur Río Deseado Este and Acambuco blocks in Argentina, and CS-01, TM-01 and A-10 blocks in Mexico.

We face risks relating to certain legal proceedings.

We may be parties to labor, commercial, civil, tax, criminal, environmental and administrative proceedings that, either alone or in combination with other proceedings, could, if resolved in whole or in part adversely to us, result in the imposition of material costs, fines, judgments or other losses. While we believe that we have provisioned such risks appropriately based on the opinions and advice of our external legal advisors and in accordance with applicable accounting rules, certain loss contingencies, particularly those relating to environmental matters, are subject to change as new information develops and it is possible that losses resulting from such risks, if proceedings are decided in whole or in part adversely to us, could significantly exceed any accruals we have provided.

As of March 31, 2019, we employed third-party employees under contract, mostly with large international service providers. Although we have policies regarding compliance with labor and social security obligations for our contractors, we can provide no assurance that the contractors’ employees will not initiate legal actions against us seeking indemnification based upon a number of Argentine judicial labor court precedents that established that the ultimate beneficiary of employee services is joint and severally liable with the contractor, which is the employee’s formal employer.

In addition, we may be subject to undisclosed liabilities related to labor, commercial, civil, tax, criminal or environmental contingencies incurred by businesses we acquired pursuant to the Initial Business Combination or acquire in the future as part of our growth strategy, that we may not be able to identify or that may not be adequately indemnified under our acquisition agreements with the sellers of such businesses, in which case our business, financial condition and results of operation may be materially and adversely affected.

We have granted, and may continue to grant, share incentive awards, which may result in increased share-based compensation expenses.

We adopted our Long Term Incentive Plan in April 2018 for purposes of attracting and retaining talented people as officers, directors, employees and consultants which are key to us, incentivizing their performance and aligning their interests with ours. Under the Long Term Incentive Plan, our Board of Directors is authorized to grant restricted series A shares and options to purchase our series A shares to our officers, directors, employees and consultants. We have reserved 8,750,000 series A shares issued on December 18, 2017 for the

 

47


Table of Contents

implementation of the Long Term Incentive Plan. As of March 31, 2019 and the date of this prospectus, 2,173,826 restricted series A shares and 3,994,003 stock options to purchase series A shares have been granted, and 19,685 series A shares have vested and are outstanding, in each case in connection with the Plan. We believe the granting of share incentive awards is of significant importance to our ability to attract and retain employees, and we will continue to grant share incentive awards to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.

Our debt obligations include operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.

As of the date of this prospectus, the majority of our indebtedness relates to Vista Argentina’s obligations under the Syndicated Loan (as defined below), which obligations are guaranteed by us, Vista Holding I, APCO Argentina, APCO International and Vista Holding II (together with certain other entities that become a guarantor under the Syndicated Loan from time to time, the “Guarantors”), and are denominated in U.S. Dollars. For a description of the Syndicated Loan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” The Syndicated Loan contains a number of restrictive covenants that imposes on us, on the other Guarantors and on Vista Argentina significant operating and financial restrictions. These restrictions may limit our ability to engage in acts that may be in our long term best interest. This credit facility includes covenants restricting, among other things, Vista Argentina’s, the other Guarantors’ and our ability to:

 

   

create liens on assets to secure debt;

 

   

dispose of assets;

 

   

merge or consolidate with another person or sell or otherwise dispose of all or substantially all of its or our assets;

 

   

change its or our existing line of business;

 

   

declare or pay any dividends or return any capital, other than certain limited payments (in particular, during the eighteen month period (ending on January 19, 2020) following the date of the Syndicated Loan Agreement (as defined below), (i) Vista Holding I and certain of its subsidiaries are restricted in their ability to declare, pay or otherwise make any dividends to us and (ii) certain subsidiaries of Vista Holding I are restricted in their ability to declare, pay or otherwise make any dividends to any person other than Vista Holding I and certain subsidiaries of Vista Holding I);

 

   

make certain investments in bonds and capital stock, among others;

 

   

enter into transactions with affiliates;

 

   

change our existing accounting practices (except if required or permitted by applicable law and accounting rules); and

 

   

modify or terminate the organizational documents of Vista Argentina or any Guarantor.

In addition, as further described in Note 17.2 to the Audited Financial Statements, the Syndicated Loan includes some financial covenants by which we are required to maintain, on a consolidated basis, certain financial ratios within specified limits. These ratios include:

 

   

consolidated total debt / consolidated EBITDA; and

 

   

consolidated interest coverage ratio.

Moreover, our subsidiary Vista Holding I is required to maintain an adjusted consolidated net debt / adjusted consolidated EBITDA ratio (excluding the indebtedness and the EBITDA of Vista Holding I, respectively).

 

48


Table of Contents

These covenants could limit our ability to finance our future operations and capital needs and our ability to pursue business opportunities and activities that may in our interest.

A breach of any covenant contained in the Syndicated Loan could result in a default under this agreement. If any such default occurs, the administrative agent or the required lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable. If the Syndicated Loan were to be accelerated, the assets of Vista Argentina and those of each of the Guarantors, including us, may not be sufficient to repay in full that debt, or any other debt that may become due as a result of that acceleration, and consequently, it could materially and adversely affect our business, financial condition, results of operations and prospects.

We are subject to Mexican, Argentine and international anti-corruption, anti-bribery and anti-money laundering laws. Our failure to comply with these laws could result in penalties, which could harm our reputation and have an adverse effect on our business, financial condition and results of operations.

The United States Foreign Corrupt Practices Act of 1977, the United Kingdom Bribery Act 2010 (the “U.K. Bribery Act”), the Organisation for Economic Co-Operation and Development Anti-Bribery Convention, the Mexican Administrative Responsibilities Law (Ley General de Responsabilidades Administrativas), the Mexican Anti-Money Laundering Law (Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita), the Argentine Anti-Money Laundering Law (Ley de Prevención del Lavado de Activos), the Argentine Corporate Criminal Liability Law (Ley de Responsabilidad Penal Empresaria) and other applicable anti-corruption laws in other relevant jurisdictions prohibit companies and their intermediaries from offering or making improper payments (or giving anything of value) to government officials and/or persons in the private sector for the purpose of influencing them or obtaining or retaining business and require companies to keep accurate books and records and maintain appropriate internal controls. The U.K. Bribery Act also prohibits such payments or financial or other advantages being made, offered or promised to or from commercial parties and makes it a criminal offense for a commercial organization to fail to prevent bribery by an associated person (i.e., someone who provides services on behalf of the organization) intending to obtain or retain business or an advantage in the conduct of business on its behalf. In particular, the Argentine Corporate Criminal Liability Law provides for the criminal liability of corporate entities for criminal offences against public administration and transnational bribery committed by, among others, its attorneys-in-fact, directors, managers, employees, or representatives. In this sense, a company may be held liable and subject to fines and/or suspension of its activities if such offences were committed, directly or indirectly, in its name, behalf or interest, the company obtained or may have obtained a benefit therefrom, and the offence resulted from a company’s ineffective control.

It may be possible that, in the future, there may emerge in the press allegations of instances of misbehavior on the part of former agents, current or former employees or others acting on our behalf or on the part of public officials or other third parties doing or considering business with us. While we will endeavor to monitor such press reports and investigate matters which we believe warrant an investigation in keeping with the requirements of compliance programs, and, if necessary make disclosure and notify the relevant authorities, however, any adverse publicity which such allegations attract might have a negative impact on our reputation and lead to increased regulatory scrutiny of our business practices.

If we or individuals or entities that are or were related to us are found to be liable for violations of applicable anti-corruption laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we or other individuals or entities could suffer from civil and criminal penalties or other sanctions, which in turn could have a material adverse impact on our future business, financial condition and results of operations.

 

49


Table of Contents

We rely on key third-party suppliers, vendors and service providers to provide us with parts, components, services and critical resources that we need to operate our business.

Companies operating in the energy industry, specifically the oil and gas sector, commonly rely upon various key third-party suppliers, vendors and service providers to provide them with parts, components, services and critical resources, needed to operate and expand their business. If these key suppliers, vendors and service providers fail to deliver, or are delayed in delivering, equipment, service or critical resources, we may not meet our operating targets in the expected time frame, which could have an adverse effect on our business, financial condition, results of operations, cash flows and/or prospects.

Our operations in the industry could be susceptible to the risks of performance, product quality and financial conditions of our key suppliers, vendors and service providers. For instance, their ability to adequately and timely provide us with parts, components, services and resources critical to our operations may be affected if they are facing financial constraints or times of general financial stress and economic downturn. There can be no assurance that we will not encounter supply disruptions in the future or that we will be able to timely replace such suppliers or service providers that are not able to meet our needs, which might adversely affect a successful execution of our operations, and consequently, our business, financial condition, results of operations, cash flows and/or prospects.

We employ a highly unionized workforce and could be subject to labor actions such as strikes, which could have a material adverse effect on our business.

The sectors in which we operate are highly unionized. We cannot assure that we or our subsidiaries will not experience labor disruptions or strikes in the future, which could result in a material adverse effect on our business and returns. We cannot assure that we will be able to negotiate new collective bargaining agreements in the same terms as those currently in force or that we will not be subject to strikes or labor interruptions before or during the negotiation process of said agreements. The collective bargaining agreement for the period April 2019 to March 2020 was signed on May 3, 2019. In the future, if we are unable to renegotiate the collective bargaining agreement in satisfactory terms or are subject to strikes or labor interruptions, our results of operations, financial condition and the market value of our shares could be materially affected.

Our performance is largely dependent on recruiting and retaining key personnel.

Our current and future performance and business operations depend on the contributions of our Management Team, our engineers, and other employees. We rely on our ability to attract, train, motivate, and retain qualified and experienced administrative staff and specialists. No assurance can be given that we will be able to attract and retain personnel for key positions, and replacing any of our key employees could prove difficult and time consuming. The loss of the services and experience of any of our key employees, or our inability to recruit a suitable replacement or additional staff, could have a material adverse effect on our operations, cash flows and/or expectations.

The Mexican nation owns the hydrocarbons reserves located in the subsoil in Mexico.

The Mexican Constitution provides that the Mexican nation, and not us, owns all petroleum and other hydrocarbon reserves located in the subsoil in Mexico. Article 27 of the Mexican Constitution provides that the Mexican government will carry out E&P activities through contracts with third parties or allocations awarded to State Productive Enterprises (empresas productivas del Estado). The Mexican Hydrocarbons Law allows us and other oil and gas companies to explore and extract the petroleum and other hydrocarbons reserves located in Mexico, subject to the entry into agreements pursuant to a competitive bidding process. See “Industry and Regulatory Overview—Mexico’s Oil and Gas Industry Overview—Oil and Gas Regulatory Framework in Mexico.”

 

50


Table of Contents

We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined, or by variations in interest rates.

As of the date of this prospectus, our outstanding debt included loans indexed to the London Interbank Offered Rate (“LIBOR”). On July 27, 2017, the Financial Conduct Authority (the “FCA”) announced its intention to phase out LIBOR rates by the end of 2021. It is not possible to predict the further effect of the rules of the FCA, any changes in the methods by which LIBOR is determined, or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere. Any such developments may cause LIBOR to perform differently than in the past, or cease to exist. In addition, any other legal or regulatory changes made by the FCA, ICE Benchmark Administration Limited, the European Money Markets Institute (formerly Euribor-EBF), the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. Dollar LIBOR rate is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. Dollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the discontinuation or unavailability of U.S. Dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs.

Additionally, we are exposed to the fluctuations of the variable interest rates applicable to our indebtedness. We may also incur additional variable-rate debt in the future. Increases in interest rates on variable-rate debt would increase our interest expense, which would negatively affect our financial costs.

Our financial estimates are based on various assumptions that may not prove to be correct.

The financial estimates set forth in the projections included under “Prospectus Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Projected Financial Information” and elsewhere in this prospectus are based on assumptions made, and information available to us, at the time they were prepared. We do not know whether such assumptions will prove to be correct. If one or more of these assumptions prove inaccurate or if future results differ from expected results, then our actual future results could be less favorable, and could be materially less favorable, than the above-referred projections. Any or all of such estimates may not necessarily be realized. Such estimates can be adversely affected by inaccurate assumptions or by known or unknown risks and uncertainties, many of which are beyond our control. Many factors mentioned in this prospectus, including the risks outlined in this “Risk Factors” section and the events or circumstances described under “Forward-Looking Statements,” will be important in determining our future results. As a result of these contingencies, actual future results may vary materially from our estimates. In view of these uncertainties, the inclusion of our financial estimates in this prospectus is not and should not be viewed as a representation that the projected results will be achieved.

Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update our respective financial estimates herein to reflect events or circumstances after the date those financial estimates were prepared or to reflect the occurrence of anticipated or unanticipated events or circumstances.

The prospective financial information included in this prospectus was prepared by, and is the responsibility of, our management. Mancera, S.C. (“EY”), our auditor, and Price Waterhouse & Co. S.R.L (“PwC”), the auditor of PELSA, the Company’s predecessor, have not audited, reviewed, examined, compiled nor applied agreed-

 

51


Table of Contents

upon procedures with respect to the accompanying prospective financial information and, accordingly, EY and PwC do not express an opinion or any other form of assurance with respect thereto. The EY and PwC reports included in this prospectus relate to our and the Company’s predecessor financial statements included herein. They do not extend to the prospective financial information and should not be read to do so. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Projected Financial Information” for more information.

Risks Related to the Argentine and Mexican Economies and Regulatory Environments

Our business is largely dependent upon economic conditions in Argentina.

Substantially all of our operations, properties and customers are located in Argentina, and, as a result, our business is largely dependent on economic conditions prevailing in Argentina. The changes in economic, political, and regulatory conditions in Argentina and measures taken by the Argentine government may have a significant impact on us. You should make your own assessment about Argentina and prevailing conditions in the country before making an investment decision.

The Argentine economy has experienced significant volatility in past decades, including numerous periods of low or negative growth and high and variable levels of inflation and currency devaluation. We cannot assure that the growth rate experienced over past years will be maintained in subsequent years or that the national economy will not suffer a recession. If economic conditions in Argentina were to deteriorate, if inflation were to accelerate further, or if the Argentine government’s measures to attract or retain foreign investment and international financing in the future are unsuccessful, such developments could adversely affect Argentina’s economic growth and in turn affect our financial health and results of operations.

Argentine economic conditions are dependent on a variety of factors, including (but not limited to) the following:

 

   

international demand for Argentina’s principal exports;

 

   

international prices for Argentina’s principal commodity exports;

 

   

stability and competitiveness of the Argentine Peso with respect to foreign currencies;

 

   

competitiveness and efficiency of domestic industries and services;

 

   

levels of domestic consumption and foreign and domestic investment and financing; and

 

   

the rate of inflation.

The Argentine economy is also particularly sensitive to local political developments. Notwithstanding certain measures that the Argentine government, elected on December 10, 2015, has already taken, such as the elimination of exchange restrictions, the partial adjustment of gas and electricity prices, and the elimination or reduction of export taxes for certain products, it continues to face challenges in respect to Argentina’s economy.

Additionally, Argentina’s economy is also vulnerable to adverse developments affecting its principal trading partners. A continued deterioration of economic conditions in Brazil, Argentina’s main trading partner, and a deterioration of the economies of Argentina’s other major trading partners, such as China or the United States, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth and may consequently adversely affect our financial health and results of operations. Furthermore, a significant devaluation of the currencies of our trading partners or trade competitors may adversely affect the competitiveness of Argentina and consequently adversely affect Argentina’s economic and our financial health and results of operations.

 

52


Table of Contents

Economic and political developments in Argentina may adversely and materially affect our business, results of operations and financial condition.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation. As a consequence, our business and operations could in the future be, affected from time to time to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as: inflation; price controls; foreign exchange controls; fluctuations in foreign currency exchange rates and interest rates; governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement with economic activity; civil unrest and local security concerns. You should make your own investigation into Argentina’s economy and its prevailing conditions before making an investment in us.

The Argentine economy remains vulnerable, as reflected by the following economic conditions:

 

   

inflation remains high and may continue at similar levels in the future: according a report published by Argentine National Institute of Statistics (Instituto Nacional de Estadísticas y Censos, or “INDEC”), cumulative consumer price index (“CPI”) for the year 2018 was 47.6%;

 

   

according to the revised calculation published by the INDEC on March 21, 2019, gross domestic product (“GDP”) decreased by 2.5% in 2018 compared to 2017. For comparison purposes, it should be noted that GDP increased 2.9% in 2017 and decreased 2.3% in 2016. Argentina’s previous GDP performance has depended to some extent on high commodity prices that, despite having a favorable long-term trend, are volatile in the short-term and beyond the control of the Argentine government and private sector;

 

   

Argentina’s public debt as a percentage of GDP remains high;

 

   

the discretionary increase in public expenditures has resulted and continues to result in fiscal deficits;

 

   

a significant number of protests or strikes could take place, as they did in the past, which could adversely affect various sectors of the Argentine economy, including the oil extraction industry;

 

   

energy or natural gas supply may not be sufficient to supply industrial activity (thereby limiting industrial development) and consumption;

 

   

unemployment and informal employment remain high, according to INDEC, unemployment rate during the first quarter of 2019 was 10.1%;

 

   

in the climate created by the above-mentioned conditions, demand for foreign currency could grow, generating a capital flight effect as in recent years;

 

   

on June 7, 2018, the Argentine government and the International Monetary Fund (the “IMF”) announced that a technical agreement on a US$50 billion three-year stand-by agreement was reached (the “SBA”), subject to approval by the IMF’s Executive Board, which will consider Argentina’s economic plan. The authorities have indicated that they intend to draw on the first tranche of the arrangement but subsequently treat the loan as precautionary reserves in case such reserves are needed in the future. On June 20, 2018, the IMF’s Executive Board approved the aforementioned agreement. On June 21, 2018, the IMF made the first disbursement under the agreement for an amount of US$15 billion. Additionally, on September 26, 2018 the Argentine government announced that a new technical agreement with the IMF was reached. This technical agreement will underpin the three-year stand-by agreement approved on June 20, 2018. The revised agreement includes an increase in the IMF’s available funds by US$19 billion through the end of 2019 and brings the total amount available under the program to US$57.1 billion through 2021. The funds available under the program would no longer be treated as precautionary reserves, as the authorities have indicated that they intend to actually use IMF financing for budget support. On October 26, 2018, the IMF authorized a second disbursement under the agreement for US$5.7 billion. On December 19, 2018, the IMF authorized a third

 

53


Table of Contents
 

disbursement under the agreement for US$7.6 billion. Additionally, on April 5, 2019, the IMF authorized a fourth disbursement under the agreement for US$10.9 billion, bringing total disbursements under the agreement to approximately US$39 billion; and

 

   

as part of the commitments of the Argentine government under the agreement with the IMF, the Monetary Policy Committee of the BCRA announced on September 28, 2018 the goal of achieving a 0% growth in the monetary base until June 2019. Subsequently, the Monetary Policy Committee announced that the goal of achieving a 0% growth in the monetary base will be extended until December 2019. See “—Significant fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy and our business and results of operations in Argentina.”

Further, presidential and federal congressional elections in Argentina will be held in October 2019, and their impact on the future economic and political environment is uncertain, but likely to be material. On March 10, 2019 provincial Governor and Congressional elections took place in the Province of Neuquén where Governor Omar Gutierrez of local political party Movimiento Popular Neuquino was reelected with approximately 39.92% of the votes. See “—The upcoming Argentine presidential and provincial elections could generate uncertainty in the Argentine economy and, consequently, on our businesses.”

As in the recent past, Argentina’s economy may be adversely affected if political and social pressures inhibit the implementation of certain policies designed to control inflation, generate growth and enhance consumer and investor confidence, or if policies implemented by the Argentine government that are designed to achieve these goals are not successful. These events could materially adversely affect our financial condition and results of operations.

Any decline in economic growth, increased economic instability or an expansion of economic policies and measures taken by the Argentine government to control inflation or address other macroeconomic developments that affect private sector entities such as us, all developments over which we have no control, could have an adverse effect on our business, financial condition or results of operations.

In the event of any economic, social or political crisis, the Argentine government’s ability to obtain additional international or multilateral private financing or direct foreign investment may also be limited, which may in turn impair its ability to implement reforms and public policies to foster economic growth, as well as impair its ability to service its outstanding debt obligations, all of which could have an adverse effect on our business, financial condition or results of operations. In such scenario, companies operating in Argentina may also face the risk of strikes, expropriation, nationalization, forced modification of existing contracts, and changes in taxation policies including tax increases and retroactive tax claims. In addition, Argentine courts have issued rulings changing the existing case law on labor matters and requiring companies to assume greater responsibility for, and assumption of costs and risks associated with, sub-contracted labor and the calculation of salaries, severance payments and social security contributions. Since we operate in a context in which the governing law and applicable regulations change frequently, it is difficult to predict if and how our activities will be affected by such changes.

The Mexican Federal Economic Competition Commission (“COFECE”) is the antitrust authority in Mexico with jurisdiction over a number of sectors of the Mexican economy, including the oil and gas sector, and as such, has jurisdiction over the activities conducted by Vista.

The Mexican government has granted COFECE broad powers to investigate and prosecute absolute monopolistic practices (cartel activity), relative monopolistic practices (abuse of dominance) and illegal concentrations, as well as to prevent concentrations which could have anticompetitive effects. Additionally, COFECE can determine the existence of essential facilities and regulate their access and identify barriers to entry and issue recommendations to federal, local and municipal authorities to eliminate such barriers and encourage competition. Therefore, many of our activities may be reviewed by COFECE and, in the particular case of equity transactions involving certain monetary and ownership thresholds, we may be required to notify COFECE of our

 

54


Table of Contents

intent to enter into such transactions and the consummation of such transactions may be subject to COFECE’s authorization in accordance with applicable Mexican laws. As a result, the closing of pending or future acquisitions of assets or common shares in the Mexican market may be subject to the satisfaction or waiver of customary closing conditions, including, among others, the authorization of COFECE. Completion of such transactions is not assured, and they will be subject to risks and uncertainties, including the risk that the necessary regulatory approvals are not obtained or that other closing conditions are not satisfied. If such transactions are not completed, or if they are otherwise subject to significant delays, it could negatively affect the trading prices of our common shares and our future business and financial results.

Further, COFECE might decide to impose penalties or establish conditions on our business if we are unable to request or receive, or are delayed in requesting or receiving, the aforesaid authorizations and, if these were to materialize, such claims could have a material adverse effect on our results and financial condition. Similarly, it cannot be guaranteed that the authorizations that have not been obtained can be obtained or can be obtained without conditions. Failure to obtain those authorizations, or the conditions to which they may be subject, could have a material adverse effect on our results and financial condition.

Certain risks are inherent in any investment in a company operating in an emerging market such as Argentina and Mexico.

Argentina and Mexico are emerging market economies and investing in emerging markets generally carries risks. These risks include political, social and economic instability that may affect Argentina’s and Mexico’s economic results which can stem from many factors, including the following:

 

   

high interest rates;

 

   

abrupt changes in currency values;

 

   

high levels of inflation;

 

   

exchange controls;

 

   

wage and price controls;

 

   

regulations to import equipment and other necessities relevant for operations;

 

   

changes in governmental economic, administrative or tax policies; and

 

   

political and social tensions.

Any of these factors, as well as volatility in the capital markets, may adversely affect our business, results of operations, financial condition, the value of our series A shares and ADSs, and our ability to meet our financial obligations.

The implementation in the future of new exchange controls, including the mandatory repatriation of proceeds arising from hydrocarbon export sales, could adversely affect our results of operations.

Although the Argentine government has eliminated all remaining provisions regarding the repatriation of export proceeds, in the past, the Argentine government had established the obligation to repatriate and convert into Argentine Pesos through the local exchange market the export proceeds arising from the export sales of oil and gas.

Through Decree 2703/2002, the Argentine Executive Branch established the obligation for oil and gas producers to settle through the local exchange market at least 30% of the proceeds arising from the export of freely available crude oil or its derivatives. Subsequently, on October 25, 2011, through Decree 1722/2011, the Argentine Executive Branch extended such repatriation obligation to 100% of the export proceeds.

 

55


Table of Contents

However, since the election of President Mauricio Macri, a significant portion of foreign exchange restrictions have been eliminated through the partial abrogation of certain regulations in force, including Decree 1722/2011. Thus, on November 1, 2017 through Decree 893/2017, and subsequently through Communication “A” 6363 (as amended) of the BCRA, all the provisions related to the repatriation of export proceeds were eliminated, including the obligation to settle foreign exchange proceeds arising from the export of oil and gas.

We cannot assure you that the Argentine government will not impose new export requirements in the future, including requirements to repatriate proceeds arising from oil and gas exports, which could adversely affect our business, results of operations and financial condition nor that the Mexican government would not impose exchange controls or other confiscatory measures.

The impact of inflation in Argentina on our costs could have a material adverse effect on our results of operations.

Historically, inflation has materially undermined the Argentine economy and the Argentine government’s ability to create conditions that permit growth. In recent years, Argentina has experienced high inflation rates.

In January 2014, a new consumer price index, the National Urban Consumer Price Index (Índice de Precios al Consumidor Nacional Urbano or “IPCNu”) was published with the aim of improving the accuracy of measurements of the evolution of prices in the Argentine economy. The IPCNu integrates a set of price indexes which allows for the monitoring of the change in several prices in the economy (wholesale, commodities and construction costs, among others) by considering the price information from all the provinces in Argentina. The IPCNu increased by 10.7% over the period from January to October 2015 (according to last available data); and by 20.9% in 2014. In the past, there has been a substantial disparity between the inflation indexes published by the INDEC and the higher inflation indexes estimated by private consulting firms. The INDEC estimated that the Argentine wholesale price index increased by 13.1% in 2012, 14.8% in 2013, 28.3% in 2014 and 10.6% in the period of January to October 2015 (according to the last available data because INDEC has not disclosed figures for November and December 2015). As a consequence of the aforementioned events, the full year 2015 inflation measure for IPCNu index was not disclosed, and according to last available data (from October 2015) the IPCNu registered an increase of 10.7% over the January to October 2015 period. As alternative guidance to IPCNu, the authorities suggested that other measures should be observed, such as those published by the statistical entity of the Autonomous City of Buenos Aires (IPC CABA) and the Province of San Luis that registered an annual increase of 26.9% and 31.6% in 2015, respectively.

On January 8, 2016, the current administration issued Decree No. 55/2016 declaring a state of administrative emergency with respect to the national statistical system and the INDEC until December 31, 2016 (which was not extended). During this state of emergency, the INDEC had suspended publication of certain statistical data (regarding prices, poverty, unemployment and GDP) until it completed a reorganization of its technical and administrative structure capable of producing sufficient and reliable statistical information. During this reorganization period, the INDEC published official CPI figures published by the City of Buenos Aires and the Province of San Luis for reference. As of the date of this prospectus, INDEC has resumed publication of mentioned statistical data, although for some indicators it has not disclosed or provided reestimated figures for certain time periods.

After implementing the announced reforms, on December 2016 the INDEC began to publish official measurements of its main inflation indicator, the Consumers Price Index (Índice de Precios al Consumidor, or IPC, per its initials in Spanish). During 2017, the INDEC published monthly IPC regularly, registering an increase of 24.8% on a year-over-year comparison. The IPC variation for the period from January to December 2018 totaled 47.6% compared to the same period in 2017. Moreover, INDEC reported that the 2019 monthly IPC increased by 2.9% in January compared to December 2018, 3.8% in February compared to January 2019, 4.7% in March compared to February 2019, 3.4% in April compared to March 2019 and 3.1% in May compared to April 2019.

 

56


Table of Contents

The Argentine government continued implementing measures to monitor and control prices for the most relevant goods and services. Despite such measures, the Argentine economy continues to experience high levels of inflation. If the value of the Argentine Peso cannot be stabilized through fiscal and monetary policies, an increase in inflation rates could be expected.

High inflation rates affect Argentina’s foreign competitiveness, social and economic inequality, negatively impact employment, consumption and the level of economic activity and undermines confidence in Argentina’s banking system, which could further limit the availability of and access to domestic and international credit by local companies and political stability.

Inflation remains a challenge for Argentina given its persistent nature in recent years. The Macri administration has announced its intention to reduce the primary fiscal deficit as a percentage of GDP over time and also reduce the Argentine government’s reliance on BCRA financing. If, despite the measures adopted by the Macri administration, these measures fail to address Argentina’s structural inflationary imbalances, the current levels of inflation may continue and have an adverse effect on Argentina’s economy and financial condition. Inflation can also lead to an increase in Argentina’s debt. Inflation in Argentina has contributed to a material increase in our operating costs, particularly labor costs, and has negatively impacted our results of operations, financial position and business.

Inflation rates could escalate in the future, and there is uncertainty regarding the effects that the measures adopted, or that may be adopted in the future, by the Argentine government to control inflation may have. See “Risk Factors—Risks Related to our Business and Industry—Government intervention may adversely affect the Argentine economy and, as a result, our business and results of operations in Argentina” below. Increased inflation could adversely affect the Argentine economy and, in turn, could adversely affect our business, financial condition and the market price of our series A shares and the ADSs.

Argentina’s ability to obtain financing from international markets is limited, which could affect its capacity to implement reforms and sustain economic growth.

After Argentina’s default on certain debt payments in 2001, the government successfully restructured 92% of the debt through two debt exchange offers in 2005 and 2010. Commencing in 2002, holdout creditors filed numerous lawsuits against Argentina in several jurisdictions, including the United States, Italy, Germany and Japan. These lawsuits generally assert that Argentina failed to make timely payments of interest and/or principal on their bonds and seek judgments for the face value of and/or accrued interest on those bonds. Judgments have been issued in numerous proceedings in the United States, Germany and Japan. As of the date of this prospectus, creditors with favorable judgments have not succeeded, with a few minor exceptions, in executing on those judgments.

In 2014, the New York courts enjoined Argentina from making payments on its bonds issued in the 2005 and 2010 exchange offers unless it satisfied amounts due to the holders of defaulted bonds. The Argentine government took a number of steps intended to continue servicing the bonds issued in the 2005 and 2010 exchange offers, which had limited success. Holdout creditors continued to litigate expanding the scope of issues, aiming to include payment by the Argentine government on debt other than the 2005 and 2010 exchange bonds and disputed albeit and successfully the independence of the BCRA.

The current administration submitted a settlement proposal to holders of defaulted bonds in December 2015 with a view to bringing closure to fifteen years of litigation. Between February and April 2016, the Argentine government entered into agreements in principle with certain holders of defaulted debt and put forward a proposal to other holders of defaulted debt, including those with pending claims in U.S. courts, subject to two conditions: (i) obtaining approval by the Argentine National Congress and (ii) the lifting of the pari passu injunctions. On March 31, 2016, the Argentine Congress eliminated the legislative obstacles to the settlement and approved the settlement proposal. On April 22, 2016, Argentina performed an issuance of government bonds for

 

57


Table of Contents

US$16.5 billion, of which US$9.3 billion were applied to satisfy payments under the settlement agreements reached with holders of defaulted debt. Since then, substantially all of their remaining claims under defaulted bonds have been settled. Judge Thomas Griesa ordered the lifting of the precautionary measures that prevented payments to participants from the debt exchange offers of 2005 and 2010, subject to confirmation of the payments indicated above.

As of the date of this prospectus, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions, although the size of the claims involved has decreased significantly.

In addition, since 2001 foreign shareholders of some Argentine companies initiated claims for substantial amounts before the International Centre for Settlement of Investment Disputes (“ICSID”) against Argentina, pursuant to the arbitration rules of the United Nations Commission on International Trade Law. Claimants allege that certain measures of the Argentine government issued during the economic crisis of 2001 and 2002 were inconsistent with the norms or standards set forth in several bilateral investment treaties by which Argentina was bound at the time. To date, several of these disputes have been settled, and a significant number of cases are in process or have been temporarily suspended due to the agreement of the parties.

Notwithstanding that the lifting in 2016, following the settlements with holdout bondholders, of the injunction affecting payments to bondholders that participated in the debt exchange offers of 2005 and 2010 eliminates an important obstacle for the country’s access to international capital markets, there can be no assurance that litigation initiated by non-accepting bondholders, as well as pending claims before the ICSID, could result in legal procedures against the Argentine government and this could entail embargoes/seizures or precautionary measures in relation to Argentine assets that the Argentine government allocated to other uses. As a result, the Argentine government may not have the financial resources to implement reforms and boost growth, which could have a significant adverse effect on the country’s economy and, consequently, on our activities. Likewise, Argentina’s inability to obtain credit in international markets could have a direct impact on our and our subsidiaries’ ability to access those markets to finance our operations and growth, including the financing of capital investments, which would negatively affect our financial condition, results of operations and cash flows.

Significant fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy and our business and results of operations in Argentina.

Fluctuations in the value of the Argentine Peso may adversely affect the Argentine economy, our financial condition and results of operations. While most of our revenues are denominated in U.S. Dollars, upstream players could be limited by the ability of refiners to push cost increases to the pump prices, which are denominated in local currency. This can generate risk to our revenue stream in volatile macroeconomic environments. We are therefore exposed to the risks associated with the fluctuation of the Argentine Peso relative to the U.S. Dollar. After several years of moderate variations in the exchange rate, between May 2, 2018 and October 1, 2018, the Argentine Peso slid from 20.9 to 38.7 Argentine Pesos per U.S. Dollar according to the U.S. dollar buying rate published by Banco de la Nación Argentina, following the aforementioned financial crisis. We are unable to predict whether, and to what extent, the value of the Argentine peso may further depreciate or appreciate against the U.S. Dollar and how any such fluctuations could affect our business or the effect that Argentine elections could have on the Argentine Peso.

As a result of the Argentine Peso’s increased volatility, the Argentine government announced several measures to restore market confidence and stabilize its value. Measures implemented by the BCRA include, among others, increasing short term interest rates to 70%, increasing the reserve requirements of Argentine Peso deposits for Argentina’s largest banks from 28% to 31%, and selling foreign currency reserves. The Argentine government in turn announced that it would accelerate the proposed reduction of the fiscal deficit.

On September 28, 2018, the Monetary Policy Committee of the BCRA introduced an exchange rate band in effective as of October 1, 2018, as part of the terms and conditions of the revised agreement with the IMF

 

58


Table of Contents

approved on June 20, 2018. The Argentine Peso’s exchange rate with the U.S. Dollar will be allowed to fluctuate between AR$34.00 and AR$44.00 per US$1.00 without the BCRA’s intervention. The band was adjusted at a 3% monthly rate until the end of 2018. In case the exchange rate fluctuates over or below the band’s range, then the BCRA may intervene by selling or purchasing foreign currency, as the case may be, to maintain the exchange rate within the band. Additionally, on January 2, 2019, the Monetary Policy Committee of the BCRA decided to maintain the same non-intervention exchange rate range band effective since December 2018 for January 2019, with 2% monthly rate adjustments until the end of March, 2019. In March 2019, the Monetary Policy Committee of the BCRA defined the non-intervention exchange rate band for the second quarter of 2019. As a result, the Argentine Peso’s foreign exchange value against the U.S. Dollar will be allowed to fluctuate between AR$39.39 and AR$50.97 per US$1.00 (limits as of March 2019), subject to daily adjustments, at a monthly rate of 1.75% between April 1 and June 30, 2019. In order to reinforce the disinflation process, on April 16, 2019, the Monetary Policy Committee of the BCRA decided to reduce the daily adjustments rate of the non-intervention zone to 0% for the remainder of 2019. In this regard, the limits will remain constant at AR$39.755 and AR$51.448, respectively, until December 31, 2019. However, given the volatility observed in the last days of April 2019, on April 29, 2019, the Monetary Policy Committee of the BCRA considered appropriate to reinforce the contractionary monetary policy by modifying the current monetary-exchange regime. In this sense, the BCRA will be able to intervene by selling foreign currency even if the Argentine Peso’s exchange rate with the U.S. Dollar is below AR$51.448 (the amount and frequency of such interventions will depend on the market dynamics). Furthermore, if the Argentine Peso-U.S. Dollar exchange rate were to exceed the non-intervention limit of AR$51.448, the BCRA may increase the amount of daily sales stipulated so far from US$150 to US$250 million. Likewise, the BCRA may determine the need of additional interventions to counteract episodes of excessive volatility if deemed necessary.

We cannot predict whether the Argentine government will be able to comply with all terms of the SBA. The ability of the Argentine government to stabilize the foreign exchange market, restore economic growth and meet the terms of the SBA, is subject to uncertainty. The continued depreciation of the Argentine Peso and the failure to meet the terms of the SBA could have a material adverse effect on Argentina’s economy and, consequently, our cash flows, financial condition and results of operations.

Government intervention may adversely affect the Argentine economy and, as a result, our business and results of operations in Argentina.

In the past, the Fernández de Kirchner administration increased its direct intervention in the economy, through the implementation of expropriation and nationalization measures (including the abovementioned expropriation of the 51% of the shares of YPF by the Argentine government), price controls and exchange controls, among others. Although the Macri administration has reversed some of these measures, there is no guarantee that this trend will continue.

In 2008, the Fernández de Kirchner administration absorbed and replaced the former private pension system for a public “pay as you go” pension system. As a result, all resources administered by pension funds, including significant equity interests in a wide range of listed companies, were transferred to a separate Social Security Fund (Fondo de Garantía de Sustentabilidad) to be administered by the National Social Security Administration (Administración Nacional de la Seguridad Social, or the “ANSES”). With the nationalization of Argentina’s private pension funds, the Argentine government, through the ANSES, became a significant shareholder in many of the country’s public companies.

In addition, historically the Argentine government has adopted measures to directly or indirectly control the access of private companies and individuals to foreign trade and foreign exchange markets, such as restricting its free access and imposing the obligation to repatriate and sell within the local foreign exchange market all foreign currency revenues obtained from exports. These regulations prevented or limited us from offsetting the risk derived from our exposure to the U.S. Dollar. Our business and operations in Argentina may also be adversely affected by measures adopted by the Argentine government to address inflation and promote sustainable macroeconomic growth.

 

59


Table of Contents

A low growth rate and high inflation scenario is likely going forward, as a result of the accumulation of macroeconomic imbalances over recent years, the actions of the Argentine government in regulatory matters and challenging conditions in the international economy. We can offer no assurance that policies implemented by the Argentine government will not adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.

Argentina is an emerging market economy that is highly sensitive to local political developments which have had an adverse impact on the level of investment in Argentina. Future developments may adversely affect Argentina’s economy and, in turn, our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.

Even though the Macri administration took several measures that had the positive effect of lifting most exchange controls in Argentina, we cannot provide any assurance that we will be able to access foreign exchange markets or that these measures will not cause fluctuations in the value of the Argentine Peso. The lifting of certain exchange controls and other future economic, social and political developments in Argentina, over which we have no control, may adversely affect our business, results of operations, financial condition, the value of our securities, and our ability to meet our financial obligations.

Notwithstanding the measures adopted by the Macri administration and its planned liberalization of the economy, we cannot assure you that measures that may be adopted by the current or any future Argentine government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, changes in laws, regulations and policies affecting taxes, foreign trade and investments will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations or cause the market value of the ADSs and series A shares to decline.

In the future the Argentine government could re-introduce exchange controls, impose restrictions on transfers abroad, restrictions on the movement of capital or take other measures in response to capital flight or a significant depreciation of the Argentine Peso, which could limit our ability to access the international capital markets. Such measures could lead to political and social tensions and undermine the Argentine government’s public finances, as has occurred in the past, which could have an adverse effect on economic activity in Argentina and, consequently, adversely affect our business and results of operations and cause the market value of our series A shares or ADSs to decline.

A global or regional financial crisis and unfavorable credit and market conditions may negatively affect our liquidity, customers, business, and results of operations.

The effects of a global or regional financial crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, which is likely to be more severe on emerging market economies, such as Argentina and Mexico. This was the case in 2008, when the global economic crisis led to a sudden economic decline in Argentina in 2009, accompanied by inflationary pressures, depreciation of the Argentine Peso and a drop in consumer and investor confidence.

The effects of an economic crisis on our customers and on us cannot be predicted. Weak global and local economic conditions could lead to reduced demand or lower prices for energy, hydrocarbons and related oil products and petrochemicals, which could have a negative effect on our revenues. Economic factors such as unemployment, inflation and the unavailability of credit could also have a material adverse effect on the demand for energy and, therefore, on our business financial condition and results of operations. The financial and economic situation in Argentina, Mexico or in other countries in Latin America, such as Brazil, may also have a negative impact on us and third parties with whom we do, or may do, business. See “Risk Factors—Risks Related to the Argentine and Mexican Economies and Regulatory Environments—The Argentine economy can be adversely affected by economic developments in other markets and by more general “contagion” effects, which could have a material adverse effect on Argentina’s economic growth” below.

 

60


Table of Contents

The global economic crisis that began in the fourth quarter of 2008, triggering an international stock market crash and the insolvency of major financial institutions, limited the ability of Argentine companies to access international financial markets as they had in the past or made such access significantly more costly. A similar global or regional financial crisis in the future could limit our ability to access the credit or capital markets at a time when we require financing, thereby impairing our flexibility to react to changing economic and business conditions. See “Risk Factors—Risks Related to the Argentine and Mexican Economies and Regulatory Environments—Argentina’s ability to obtain financing from international markets is limited, which could affect its capacity to implement reforms and sustain economic growth.” For these reasons, any of the foregoing factors could together or independently have an adverse effect on our results of operations and financial condition and cause the market value of the ADSs to decline.

In addition, the crisis affecting emerging markets that began in the second quarter of 2018 as a result of the rise in interest rates by the US Federal Reserve and the trade war between the United States and China, among other factors, had a material impact on the Argentine economy. Between May 2, 2018 and October 1, 2018, the Argentine Peso slid from 20.9 to 38.7 Argentine Pesos per U.S. Dollar according to the U.S. dollar buying rate published by Banco de la Nación Argentina. Although the IMF and the Argentine government signed an agreement to normalize the Argentine fiscal budget, we cannot guarantee financial stability in the international nor the domestic fronts.

The Argentine economy can be adversely affected by economic developments in other markets and by more general “contagion” effects, which could have a material adverse effect on Argentina’s economic growth.

Argentine financial and securities markets are influenced, to varying degrees, by economic and financial conditions in other markets and Argentina’s economy is vulnerable to external shocks, including those related or similar to the global economic crisis that began in 2008 and economic and financial conditions in Argentina’s major trading partners, in particular, Brazil. For example, the current devaluation of the Brazilian currency and the slowdown of its economy may negatively affect the Argentine economy, and in turn, our business and results of operations. Although economic conditions can vary from country to country, investors’ perception of the events occurring in other countries have substantially affected in the past, and may continue to substantially affect capital flows to other countries and the value of securities in other countries, including Argentina. The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including those in Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation of its currency in January 1999.

In addition, international investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors, Argentina could be adversely affected by negative economic or financial developments in other countries, which in turn may have material adverse effect on the Argentine economy and, indirectly, on our business, financial condition and results of operations, and the market value of our series A shares or ADSs.

Restrictions on the supply of energy could negatively impact the Argentine economy.

As a result of prolonged recession and the forced conversion of energy tariffs into Argentine Pesos and subsequent freeze of natural gas and electricity tariffs in Argentina, there has been a lack of investment in natural gas and electricity supply and transport capacity in Argentina in recent years. At the same time, demand for natural gas and electricity has increased substantially, driven by a recovery in economic conditions and price constraints, which prompted the Argentine government to adopt a series of measures that have resulted in industry shortages and/or higher costs. In particular, Argentina has been importing natural gas to compensate for shortages in local production. In order to pay for natural gas imports the Argentine government has frequently used BCRA reserves given the absence of foreign direct investment. If the Argentine government is unable to pay for imports of natural gas, economic activity, business and industries may be adversely affected.

 

61


Table of Contents

The Argentine government has taken a number of measures to alleviate the short-term impact of energy shortages on residential and industrial users. If these measures prove to be insufficient, or if the investment required to increase natural gas production and electric energy transportation capacity and generation over the medium- and long-term is not available, economic activity in Argentina could be curtailed, and with it our operations. As a first step of these measures, a series of tariff increases and subsidy reductions (primarily applicable to industries and high-income consumers) were implemented. On December 17, 2015, and after publication of Decree No. 134/2015, the Macri administration declared the National Electricity System Emergency until December 31, 2017 and ordered the Argentine Secretariat of Energy to propose measures and guarantee the electrical supply. The Argentine Secretariat of Energy Resolution No. 06/2016 of January 2016 set new seasonal reference prices for power and energy on the Mercado Eléctrico Mayorista (MEM) for the period from February 1, 2016 to April 30, 2016 and set an objective to adjust the quality and security of electricity supply.

In February 2016, the Argentine government reviewed the schedule of electricity and gas tariffs and reduced the demand subsidies of these services, increasing over 500% energy costs, excepting for low-income consumers from the subsidies reduction. By re-stablishing tariff levels, modifying the regulatory framework and reducing the Argentine government’s participation in the energy sector, the Argentine government sought to correct distortions in the energy sector and make the necessary investments. In July 2016, a federal court in the city of La Plata suspended the increase in the gas tariff throughout the Province of Buenos Aires. On August 3, 2016, a federal court in San Martín suspended the increase in gas tariffs throughout the country until a public hearing was held to discuss the rate increase. The judgment was appealed to the Supreme Court, and on August 18, 2016, the Supreme Court ruled that the increase in the gas tariff of residential users could not be imposed without a public hearing. On September 16, 2016, the public hearing was held where it was agreed that the gas tariff would be adjusted by approximately 200% in October 2016, with bi-annual price adjustments in 2019. In this sense, through resolutions No. 205-207/2019, dated April 5, 2019, ENARGAS established the new gas tariff scheme for gas transportation and distributions companies to be applicable for the semester April-October 2019.

In connection with the framework determining the value of the rates for the public service in gas distribution for 2017, the Argentine Secretariat of Energy issued Resolution No. 74/2017 on March 30, 2017, which adopted the gas values at the point of entry into the transport system, applicable as of April 1, 2017. Additionally, on November 30, 2017, the Argentine Secretariat of Energy issued (i) Resolution No. 474-E/2017 which adopted the gas values at the point of entry into the transport system, applicable as of December 1, 2017, and also (ii) issued Resolution No. 133/2017 approving the tariffs to be applied to the gas consumption as of December 1, 2017.

As for other services, including electricity, a public hearing was held on October 28, 2016 to consider a proposed 31% tariff increase sought by energy distributors. Subsequently, the Argentine government announced increases in electricity rates of between 60% and 148%. On March 31, 2017, the Argentine Secretariat of Energy published a new tariff schedule with increases of approximately 24% for supply of natural gas by networks that had been partially regulated since April 1, 2017. In addition, on November 17, 2017, a public hearing convened by the former Minister of Energy and Mining was held to update the tariff schedule for natural gas and electricity. The new tariff schedule foresees a gradual reduction of subsidies, resulting in an increase, between December 2017 and February 2018, between 34% and 57% (depending on the province) for natural gas and 34% for electricity. In addition, on May 31, 2018, the Argentine Congress approved a law seeking to limit the increase in energy tariffs implemented by the Macri administration, which was subsequently vetoed by President Macri. On August 1, 2018, pursuant Resolution No. 208/2018 of the National Electricity Regulatory Board (ENRE), the Argentine Secretariat of Energy published a new tariff schedule with increases in electricity rates.

Additionally, through Resolution No. 46/2018, the Argentine Secretariat of Energy instructed the Compañía Administradora del Mercado Mayorista Eléctrico Sociedad Anónima (“CAMMESA”) to acquire gas, to be provided to electricity generators operating in the Argentine Interconnection System (“AIS”), pursuant to maximum reference prices, at the point of entry into the transportation system, set forth in such resolution, which vary depending on the basin in which the gas is produced. Pursuant to Resolution No. 25/2018 of the Argentine

 

62


Table of Contents

Secretariat of Energy, these maximum reference prices are not applicable if gas is provided by Integración Energética Argentina S.A. (formerly named “ENARSA”), a company owned by the Argentine State, which, pursuant to such resolution, must provide such good at the cost of acquisition and commercialization. The issuance of Resolution No. 46/2018 (as amended by Resolution No. 25/2018), meant a reduction of the prices previously set forth by the Argentine Secretariat of Energy by means of Resolution No.41/2016 of April 7, 2016.

Changes in the energy regulatory framework and the establishment of increased tariffs for the supply of gas and electricity could affect our cost structure and increase operating and public service costs. Moreover, the significant increase in the cost of energy in Argentina, could have an adverse effect on the Argentine economy, and therefore, on our business, financial condition and results of operations.

There is uncertainty about what other measures the Argentine government may adopt related to tariffs, and the impact they may have on the economy of the country. If the federal Argentine government does not resolve the negative effects on the exploitation, transportation and distribution of energy in Argentina with respect to both the residential and industrial supply, this could reduce confidence and adversely affect Argentina’s economy and financial situation and cause political instability. On the other hand, if the necessary investment to increase the production of non-liquefied natural gas and the transportation and distribution of energy is not specified in a timely manner, the economic activity in Argentina could be negatively affected and our business, financial condition and results of operations could be negatively affected.

The upcoming Argentine presidential and provincial elections generate uncertainty in the Argentine economy and, consequently, on our businesses.

Argentina’s presidential elections will take place between August and October 2019 (primaries and first round, respectively, with a potential run-off in November 2019). Other relevant local and federal elections will also take place during 2019. The impact of such electoral processes and the effect they could have on the Argentine economic policies are uncertain, and include uncertainty as to whether the newly elected Argentine government will implement changes in policy or regulation or if it will maintain the current policies or regulations. We cannot guarantee that current programs and policies that apply to the oil and gas sector both at the provincial and national level will continue in place in the future. Argentina’s president and its Congress, each have considerable power to determine governmental policies and actions that relate to the Argentine economy. Therefore, we cannot foresee measures that might be adopted by the Macri administration, or by any potential new administration at the national or provincial levels, and the effect any such measures might have on the Argentine economy and the ability of Argentina to comply with its financial obligations, which could negatively affect our business, financial condition and results of operations. In addition, we cannot assure you that economic, regulatory, social and political developments in Argentina following the elections will not impair our business, financial condition or results of operations, or cause the market value of our shares to decline.

Failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition and, consequently, our business.

A lack of a solid and transparent institutional framework for contracts with the Argentine government and its agencies and corruption allegations have affected and continue to affect Argentina. Argentina ranked 85 of 180 in the Transparency International’s 2018 Corruption Perceptions Index and 119 of 190 in the World Bank’s Doing Business 2019 report.

As of the date of this prospectus, there are various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Argentine Federal Prosecutor, including the largest such investigation, known as Los Cuadernos de las Coimas (the “Notebooks Investigation”), which have negatively impacted the Argentine economy and political environment. Depending on how long it takes to close said investigations and their results, companies involved in the investigations may be subject to, among other consequences, a decrease in their credit ratings, claims filed by their investors, and may further experience

 

63


Table of Contents

restrictions in their access to financing through the capital markets, together with a decrease in their income. Additionally, as the criminal cases against the companies involved in the investigations move forward, said companies may be restricted from rendering services or may face new restrictions, due to their customers’ internal standards. These adverse effects could restrict these companies’ ability to conduct their operating activities and to meet their financial obligations. As a consequence of the above, the number of suppliers available for our operations may be reduced and, as such, have an adverse effect on our commercial activities and results of operations.

Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the Argentine government has announced several measures aimed at strengthening Argentina’s institutions and reducing corruption. These measures include the reduction of criminal sentences in exchange for cooperation with the government in corruption investigations, increased access to public information, the seizing of assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción), submitting a project for a new public ethic law, among others. The Argentine government’s ability to implement these initiatives is uncertain as it would be subject to independent review by the judicial branch, as well as legislative support from opposition parties.

We cannot give any assurance that the implementation of these measures by the Argentine government will be successful in stopping institutional deterioration and corruption.

Economic conditions and government policies in Mexico and elsewhere may have a material impact on our operations.

A deterioration in Mexico’s economic condition, social instability, political unrest, changes in governmental policies, or other adverse social developments in Mexico could adversely affect our business and financial condition. Those events could also lead to increased volatility in the foreign exchange and financial markets, thereby affecting our ability to obtain financing. Additionally, the Mexican government announced budget cuts in November 2015, February 2016 and September 2016 in response to declines in international crude oil prices. Any new budget cuts could adversely affect the Mexican economy and, consequently, our business, financial condition, operating results and prospects.

In the past, Mexico has experienced several periods of slow or negative economic growth, high inflation, high interest rates, currency devaluation and other economic problems. These problems may worsen or reemerge, as applicable, in the future and could adversely affect our business and ability to service our debt. A worsening of international financial or economic conditions, such as a slowdown in growth or recessionary conditions in Mexico’s trading partners, including the United States, or the emergence of a new financial crisis, could have adverse effects on the Mexican economy, our financial condition and our ability to service our debt.

Also, the Mexican government has had significant influence in the Mexican economy in the past and will likely continue to do so. Changes in the legal framework and policies may adversely affect our business and the value of our securities.

Mexico has experienced a period of increasing criminal activity, which could affect our operations.

In recent years, Mexico has experienced a period of increasing criminal activity, primarily due to the activities of drug cartels and related criminal organizations. In addition, the development of the illicit market in fuels in Mexico has led to increases in theft and illegal trade in the fuels that we produce. In response, the Mexican government has implemented various security measures and has strengthened its military and police forces. Despite these efforts, criminal activity continues to exist in Mexico, some of which may target our facilities and products. These activities, their possible escalation and the violence associated with them, in an extreme case, may have a negative impact on our financial condition and results of operations. We are

 

64


Table of Contents

particularly exposed to this risk in blocks where we hold non-operating interests and have more limited capacity to take actions against any criminal activity affecting our operations, such as Block TM-01, located in Tampico-Misantla basin in Mexico.

Economic and political developments in Mexico may adversely affect Mexican economic policy and, in turn, our operations.

Political events in Mexico may significantly affect Mexican economic policy and, consequently, our operations. Presidential and federal congressional elections in Mexico were held on July 1, 2018. Mr. Andrés Manuel López Obrador, a member of the Movimiento Regeneración Nacional (National Regeneration Movement, or “MORENA”), was elected President of Mexico and took office on December 1, 2018, replacing Mr. Enrique Peña Nieto, a member of the Partido Revolucionario Institucional (Institutional Revolutionary Party, or “PRI”). The new President’s term will expire on September 30, 2024. As of the date of this prospectus, the National Regeneration Movement holds an absolute majority in the Chamber of Deputies and no political party holds a majority in the Senate. The newly-elected members of the Mexican Congress took office on September 1, 2018. We cannot provide any assurances that political developments in Mexico will not have an adverse effect on the Mexican economy or oil and gas industry and, in turn, our business, results of operations and financial condition, including our ability to repay our debt.

Economic conditions in Mexico are highly correlated with economic conditions in the United States due to the physical proximity and the high degree of economic activity between the two countries generally, including the trade facilitated by the North American Free Trade Agreement (“NAFTA”). As a result, political developments in the United States, including changes in the administration and governmental policies, can also have an impact on the exchange rate between the U.S. Dollar and the Mexican peso, economic conditions in Mexico and the global capital markets.

Since 2003, exports of petrochemical products from Mexico to the United States have enjoyed a zero-tariff rate under NAFTA and, subject to limited exceptions, exports of crude oil and petroleum products have also been free or exempt from tariffs. In August 2017, Mexico, the United States and Canada commenced renegotiation of NAFTA. On November 30, 2018, Mexico, the United States and Canada signed the new United States-Mexico-Canada Agreement (the “USMCA”). As of the date of this prospectus, parties to the USMCA had to pursue their domestic processes towards ratification and implementation of the USMCA. Any increase of import tariffs resulting from the USMCA or any other future arrangement could make it economically unsustainable for U.S. companies to import our oil and gas products if they are unable to transfer those additional costs onto consumers, which would increase our expenses and decrease our revenues, even if domestic and international prices for our products remain constant. Higher tariffs on products that we export to the United States could also require us to renegotiate our contracts or lose business, resulting in a material adverse impact on our business and results of operations.

Because the Mexican economy is heavily influenced by the U.S. economy, the implementation of the USMCA and/or other U.S. government policies that may be adopted by the U.S. administration may adversely affect economic conditions in Mexico. These developments could in turn have an adverse effect on our financial condition, results of operations and ability to repay our debt.

Additionally, President Andrés Manuel López Obrador and his administration have recently taken actions for limiting new private investment in the hydrocarbons industry, including the cancellation of tender bids for the execution of E&P agreements. As of the date of this prospectus, no other tender bids have been announced. These actions may adversely affect our ability to expand our operations in Mexico.

The U.K.’s referendum to exit from the E.U. will have uncertain effects.

On June 23, 2016, the U.K. voted to exit from the E.U. (commonly referred to as “Brexit”). The terms of Brexit and the resulting U.K./E.U. relationship are uncertain for companies doing business both in the U.K. and

 

65


Table of Contents

the overall global economy. In addition, our business and operations may be impacted by any subsequent vote in Scotland to seek independence from the U.K. Risks related to Brexit that we may encounter include:

 

   

adverse impact on macroeconomic growth and oil and gas demand;

 

   

continued volatility in currencies including the British pound and U.S. Dollar that may impact our financial results;

 

   

volatile capital and debt markets, and access to other sources of capital;

 

   

business uncertainty resulting from prolonged political negotiations; and

 

   

uncertain stability of the E.U. and global economy if other countries exit the E.U.

Given the lack of comparable precedent, it is unclear what financial, trade and legal implications the withdrawal of the U.K. from the E.U. would have and how such withdrawal would affect us. In addition, Brexit may lead other E.U. member countries to consider referendums regarding their E.U. membership. Adverse consequences concerning Brexit or the E.U. could include deterioration in global economic conditions, instability in global financial markets, political uncertainty, continued volatility in currency exchange rates, or adverse changes in the cross-border agreements currently in place, any of which could have an adverse impact on our financial results in the future.

Risks Related to the ADSs and the Offering

The offered securities will be traded on more than one market and this may result in price variations; in addition, investors may not be able to easily move shares for trading between such markets.

Prior to the date of this prospectus, our series A shares were listed and traded on the Mexican Stock Exchange only. We have applied to list the ADSs on the NYSE. Any markets that may develop for our series A shares or for the ADSs may not have liquidity and the price at which the series A shares or the ADSs may be sold is uncertain.

Trading in the ADSs or our series A shares on these markets will take place in different currencies (U.S. Dollars on the NYSE and Mexican pesos on the Mexican Stock Exchange), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Mexico). The trading prices of the securities on these two markets may differ due to these and other factors. Any decrease in the price of our series A shares on the Mexican Stock Exchange could cause a decrease in the trading price of the ADSs on the NYSE. Investors could seek to sell or buy our shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the ADSs available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying series A shares for trading on the other market without effecting necessary procedures with the Depositary. This could result in time delays and additional cost for holders of the ADSs.

The trading prices for the series A shares and the ADSs may fluctuate significantly after the global offering.

Volatility in the market price of our series A shares and the ADSs may prevent investors from selling their securities at or above the price that they paid for them. The market price and market liquidity of our series A shares and the ADSs may be adversely affected by a number of factors, including, but not limited to, the extent of investor interest in us, the attractiveness of our series A shares in comparison to other equity securities (for instance, shares issued by a company with larger operating history in our own industry), our financial performance and general market conditions. Certain additional factors that could negatively affect, or result in fluctuations in, the price of our series A shares and the ADSs include:

 

   

actual or anticipated variations in our operating results;

 

66


Table of Contents
   

potential differences between our actual financial and operating results and those expected by investors;

 

   

investors’ perceptions of our prospects and the prospects of our sector;

 

   

new laws or regulations or new interpretations of laws and regulations, including tax guidelines, applicable to the energy sector, our series A shares and/or the ADSs;

 

   

general economic trends and risks in the United States, Latin American or global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events;

 

   

changes in our operations or earnings estimates or publication of research reports about us or the Latin American energy industry;

 

   

market conditions affecting the Latin American economy generally or borrowers in Latin America specifically;

 

   

significant volatility in the market price and trading volume of securities of companies in the energy sector, which are not necessarily related to the operating performance of these companies;

 

   

additions to or departures from our Management Team;

 

   

completing (or failing to complete) additional acquisitions or executing additional concession agreements;

 

   

speculation in the press or investment community;

 

   

changes in the credit ratings or outlook assigned to Latin American countries, particularly Mexico and Argentina, and entities of the energy sector;

 

   

political conditions or events in Argentina, Mexico, the United States and other countries; and

 

   

enactment of legislation or other regulatory developments that adversely affect us or our industry.

The stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the companies involved. We cannot assure you that trading prices and valuations will be sustained. These broad market and industry factors may materially adversely affect the market price of our series A shares and the ADSs, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions in the markets in which we operate, such as recession or currency exchange rate fluctuations, may also adversely affect the market price of our series A shares and ADSs. Following periods of volatility in the market price of a company’s securities, that company may often be subject to securities class-action litigation. This kind of litigation may result in substantial costs and a diversion of management’s attention and resources, which would have a material adverse effect on our business, results of operations and financial condition.

The relatively low liquidity and high volatility of the Mexican securities market may cause trading prices and volumes of our series A shares and the ADSs to fluctuate significantly.

The Mexican Stock Exchange is one of Latin America’s largest exchanges in terms of aggregate market capitalization of the companies listed therein, but it remains relatively illiquid and volatile compared to other major foreign stock markets. Although the public participates in the trading of securities on the Mexican Stock Exchange, a substantial portion of trading activity on the Mexican Stock Exchange is conducted by or on behalf of large institutional investors. The trading volume for securities issued by emerging market companies, as Mexican companies, tends to be lower than the trading volume of securities issued by companies in more developed countries. These market characteristics may limit the ability of a holder of our series A shares and may also adversely affect the market price of the series A shares and, as a result, the market price of the ADSs.

 

67


Table of Contents

If securities or industry analysts do not publish research reports about our business, or publish negative reports about our business, the price and trading volume of our series A shares and the ADS could decline.

The trading market for our series A shares and the ADSs will depend in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If no securities or industry analysts covers us, the trading price for our series A shares and the ADSs may be negatively impacted. If one or more of the analysts who covers us downgrades us or releases negative publicity about our series A shares and ADSs, our share price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our series A shares and the ADSs may decrease, which may cause our share price or trading volume to decline.

As a foreign private issuer and an “emerging growth company,” we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.

As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act), we may be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow Mexican legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.

Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure under the Securities Act, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, even though we are required to file reports on Form 6-K disclosing the information which we have made or are required to make public pursuant to Mexican law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.

The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we will not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, we will not have to comply with future audit rules promulgated by the PCAOB (unless the SEC determines otherwise) and our auditors will not need to attest to our internal control under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual revenues of at least US$1.07 billion (as adjusted for inflation), or (c) in which we are deemed to be a large accelerated filer, which means the market value of our series A shares that is held by non-affiliates exceeds US$700.0 million as of the prior September 30, and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company.

 

68


Table of Contents

We cannot predict if investors will find our series A shares or the ADSs less attractive because we will rely on these exemptions. If some investors find our series A shares and the ADSs less attractive as a result, there may be a less active trading market for our series A shares and the ADSs and our share price may be more volatile.

ADS holders may be subject to additional risks related to holding ADSs rather than series A shares.

Because ADS holders do not hold their series A shares directly, they are subject to additional risks, including:

 

   

as an ADS holder, we do not treat you as one of our shareholders and you may not be able to exercise shareholder rights;

 

   

distributions on the series A shares represented by your ADSs are paid in Mexican Pesos to a custodian through Indeval, and before such custodian transfers any such distributions to the depositary for your benefit, it would be required to deduct withholding taxes, if any. The depositary would also be required to convert distributions made in Mexican Pesos into U.S. Dollars. Additionally, if the exchange rate fluctuates significantly prior to the depositary converting any distribution into U.S. Dollars, the amount of such distribution may decrease in terms of U.S. Dollars; and

 

   

we and the depositary may amend or terminate the Deposit Agreement without the ADS holders’ consent in a manner that could prejudice ADS holders or that could affect the ability of ADS holders to transfer ADSs.

ADS holders may be unable to exercise voting rights with respect to the shares underlying the ADSs at our shareholders’ meetings.

The depositary will be treated by us for all purposes as the shareholder with respect to the shares underlying your ADSs. As a holder of ADSs, you will not have direct shareholder rights and may exercise voting rights with respect to the shares represented by the ADSs only in accordance with the Deposit Agreement relating to the ADSs. There are no provisions under Mexican law or under our bylaws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying series A shares. However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. ADS holders may be unable to exercise voting rights with respect to the series A shares underlying the ADSs as a result of these practical limitations.

Preemptive rights may be unavailable to non-Mexican holders of ADSs and, as a result, such holders may suffer dilution.

Under our current by-laws, whenever we issue new shares for subscription and for payment in cash, subject to certain exceptions (such as those related to public offerings, mergers, or conversion of convertible securities, including our Warrants), we must grant preemptive subscription rights to our shareholders, giving them the right to purchase a sufficient number of shares to maintain their existing ownership percentage. We may not be able to offer preemptive rights to foreign shareholders and ADS holders identical to those of our shareholders residing in Mexico in connection with any future issuance of shares, unless we comply with certain specific requirements under the laws and regulations of the applicable jurisdictions of our non-Mexican shareholders. In the case of United States shareholders and ADS holders, we might not be able to offer them shares pursuant to preemptive rights granted to our shareholders in connection with any future issuance of shares, unless the offer of such shares is registered under the Securities Act or an exemption from the registration requirement is available.

We intend to evaluate, at the time of any preemptive prescription rights offering, the costs and potential liabilities associated with a registration statement or similar requirement to enable U.S. or other non-Mexican shareholders and ADS holders to exercise their preemptive subscription rights in the event of an issuance of shares; the indirect benefits of enabling U.S. and other non-Mexican shareholders and ADS holders to exercise preemptive subscription rights; and any other factors that we consider appropriate at the time. We will then decide whether to file such a registration statement or otherwise comply with a similar requirement.

 

69


Table of Contents

In the event that a required registration statement or similar requirement is not filed or satisfied, U.S. or other non-Mexican shareholders or ADS holders, would not be able to exercise their preemptive subscription rights in connection with future issuances of our shares, and their stake in the Company might be diluted. In this event, the proportion of the economic and voting interests of such U.S. or other non-Mexican shareholders or ADS holders in our total equity could decrease in proportion to the size of the issuance. Depending on the price at which shares are offered, such an issuance could result in dilution in the book value per share to U.S. or other non-Mexican shareholders or ADS holders not participating in the capital increase.

Holders of our series A shares and the ADSs may suffer further dilution as a result of the exercise of our outstanding warrants.

The issuance of shares upon the exercise of outstanding warrants may cause immediate dilution to our existing shareholders. As of the date of this prospectus, we had 70,000,000 Warrants and 29,680,000 Sponsor Warrants outstanding (totaling 99,680,000 warrants outstanding) that are exercisable for 23,333,333 and 9,893,333 series A shares, respectively. Three warrants entitle the holder thereof to purchase one series A share at a price of US$11.50 per series A share. The exercise of such warrants and the corresponding issuance of series A shares may also have a dilutive effect in our earnings per share. The warrants expire on April 4, 2023 or earlier if, after exercisability, the closing price for a series A share for any 20 trading days within an applicable 30-trading day period equals or exceeds the Mexican Peso equivalent of US$18.00 and we decide to early terminate the exercise period thereof. See “Description of the Series A Shares and Bylaws—Warrants.”

If all outstanding warrants were exercised, our issued and outstanding share capital would increase by 33,226,667 series A shares, or approximately 43.77% based on 75,909,315 series A shares outstanding as of March 31, 2019. This would result in an immediate dilution to our shareholders and ADSs holders. Exercise of the outstanding warrants may also put demand pressure on the price of our series A shares and the ADSs.

Substantial sales of our series A shares or the ADSs after the global offering could cause the price of our series A shares or the ADSs to decrease.

The market price of our series A shares and the ADSs may decline as a result of sales of a large number of series A shares and ADSs in the market after this offering or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Our shareholders or entities controlled by them or their permitted transferees will be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC, as well as any other regulation (including anti-trust rules) that may apply. If any of shareholders, the affiliated entities controlled by them or their respective permitted transferees were to sell a large number of their shares, the market price of our series A shares may decline significantly and, as a result, the market price of the ADSs. In addition, the perception in the public markets that sales by them might occur may also adversely affect the market price of our series A shares and the ADSs.

We and certain of our officers and directors have agreed that, for a period of 180 days from the date of this prospectus and subject to certain exceptions, we will not, without the prior written consent of Citigroup Global Markets Inc., as lock-up release agent, dispose of or hedge any of our series A shares, our series C shares, ADSs, or any securities convertible into or exchangeable for our series A shares, our series C shares or ADSs. Citigroup Global Markets Inc. in its sole discretion, and as lock-up release agent, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. This agreement is subject to a number of customary exceptions. See “Underwriting.”

 

70


Table of Contents

The protections afforded to minority shareholders in Mexico are not as comprehensive as those in other jurisdictions, such as the United States.

Under Mexican law, the protections afforded to minority shareholders and the responsibilities and duties of directors and senior officers are different or not as complete as those in the United States. Although Mexican law establishes specific duties of care and loyalty applicable to our directors, committee members and senior officers, the Mexican legal regime governing directors, committee members and senior officers, and their duties, is not as comprehensive or developed as in the United States and has not been the subject of as broad and precise judicial interpretation. In addition, the criteria applied in other jurisdictions, including in the United States, to ascertain the independence of corporate directors may be different from the criteria applicable under corresponding Mexican laws and regulations. Furthermore, in Mexico, there are different procedural requirements for shareholder suits that work exclusively for our benefit (such as with respect to derivative suits) and not for the benefit of our shareholders (even those that initiate an action). As a result, it may be more difficult in practice for our minority shareholders to enforce their rights against us or our directors, committee members or senior officers, including for breach of their duties or care or loyalty) than it would be for shareholders of a United States or other non-Mexican company or to obtain compensation for minority shareholders, for losses caused by directors, committee members or senior officers as a result of a breach of their duties.

Our bylaws contain provisions aimed at restricting the acquisition of our shares and restricting the execution of voting agreements among our shareholders.

Pursuant to our bylaws, every direct or indirect acquisition of shares, or attempted acquisition of shares, of any nature by one or more persons or entities requires the prior written approval by the Board of Directors each time that the number of shares to be acquired, when added to any shares already owned by such person or entity, results in the acquirer holding 10% or more of our outstanding capital stock. Once such percentage is reached, such person or entity must notify our Board of Directors of any subsequent acquisition of shares by any such person or entity through which they acquire additional shares representing 2% or more of our outstanding capital stock. Prior, written approval must also be requested from our Board of Directors for the execution of written or oral agreements, as a consequence of which voting association, block voting, or binding or joint vote mechanisms or covenants are formed or adopted or certain shares are combined or shared in any other manner, which effectively results in a change in control of our Company or a 20% ownership interest in our Company. No additional authorization is required to carry-out such acquisitions or to execute a voting agreement until the ownership percentage of our outstanding capital stock is equal to or greater than 20%, nor is any additional authorization required with respect to entering temporary agreements for appointment of minority directors.

If an acquirer does not comply with the procedures described above, such acquired shares or shares regarding any voting agreement will not have any voting rights at any shareholders’ meeting of our Company. Any such acquired shares which have not been approved by our Board of Directors shall not be registered in our stock registry book, entries in our stock registry book made beforehand will be canceled and the Company will not acknowledge or give any value to the records or listings referred to in Article 290 of the Mexican Securities Market Law (Ley del Mercado de Valores), any other provision that might substitute it from time to time and other applicable law. Therefore, such records or listings mentioned above will not be considered evidence of ownership of shares, shall not grant the right to attend shareholders’ meetings or validate the exercise of any legal action, including any legal action of a procedural nature.

The provisions in our bylaws described above may only be amended or removed by the approval of shareholders holding at least 95% of our shares. This could hinder the process of selling our shares or the execution of agreements in connection with those shares.

These provisions in our bylaws could potentially discourage future purchases of a significant number of our shares, including potential future acquirers of our business, and, accordingly could adversely affect the liquidity and price of our series A shares.

 

71


Table of Contents

The payment and amount of dividends are subject to the determination of our shareholders.

The amount available for cash dividends, if any, will be affected by many factors, including our future operating results, financial condition and capital requirements as a result thereof, and the terms and conditions of legal and contractual restrictions. Also, the amount of cash available for dividend payments may vary significantly from estimates. There can be no assurance that we will be able to pay or maintain the payment of dividends. Our actual results may differ significantly from the assumptions made by our Board of Directors in recommending dividends to shareholders or in adopting or amending a dividend policy in the future. Also, there can be no assurance that our Board of Directors will recommend a dividend payment to our shareholders or, if recommended, that our shareholders will approve such a dividend payment. The payment of dividends and the amounts of dividend payments paid by us to our series A shares are subject to the approval of our shareholders and our having absorbed or repaid losses from prior years and also may only be paid from retained earnings approved by our shareholders and if legal reserves have been created.

Dividend distributions to holders of our series A shares will be made in Mexican Pesos.

We will make dividend distributions to holders of our series A shares in Mexican Pesos. While the Mexican government does not currently restrict the ability of Mexican or foreign persons or entities to convert Mexican Pesos into U.S. Dollars or other currencies, it could institute restrictive exchange control policies in the future. Future fluctuations in exchange rates and the effect of any exchange control measures adopted by the Mexican government on the Mexican economy cannot be predicted.

We will be required to assess our internal control over financial reporting on an annual basis and any future adverse findings from such assessment could result in a loss of investor confidence in our financial reports, and significant expenses to remediate any internal control deficiencies and could ultimately have an adverse effect on the market price of the ADSs.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual Report on Form 20-F for the year ending December 31, 2020, our management will be required to report on the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. We are currently in the process of reviewing, documenting and testing our internal control over financial reporting, and can provide no assurance that from time to time we will not identify concerns that could require remediation. We may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal control over financial reporting. In connection with the attestation process by our independent registered public accounting firm, we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation. In addition, if we fail to maintain the adequacy of our internal control over financial reporting we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 which may have an adverse effect on us.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

Following the completion of the global offering, we will be required to comply with various regulatory and reporting requirements, including those required by the Commission in addition to our existing reporting requirements by the CNBV. Complying with these reporting and regulatory requirements will be time consuming, resulting in increased costs to us or other adverse consequences. As a public company, we will be subject to the reporting requirements of the Exchange Act, and the requirements of the Sarbanes-Oxley Act, in addition to the existing disclosure requirements by the Mexican Securities Market Law and CNBV rules. These requirements may place a strain on our systems and resources. The Exchange Act rules applicable to us as a foreign private issuer requires that we file annual and current reports with respect to our business and financial

 

72


Table of Contents

condition. Likewise, CNBV rules require that we make annual and quarterly filings and that we comply with disclosure obligations including current reports. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, results of operations and financial condition.

Our bylaws, in compliance with Mexican law, restrict the ability of non-Mexican shareholders to invoke the protection of their governments with respect to their rights as shareholders.

As required by Mexican law, our bylaws provide that non-Mexican shareholders are considered to be Mexican with respect to shares held by them. Moreover, non-Mexican shareholders explicitly agree not to invoke the protection of its own government by asking such government to interpose a diplomatic claim against the Mexican government with respect to the shareholder’s rights as a shareholder, though such agreement is not deemed to include a waiver to any other rights (for instance, any rights under the United States securities laws, with respect to its investment in us). If you invoke such governmental protection in violation of this provision of the bylaws, your series A shares may be forfeited to the Mexican government.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain NYSE corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of the ADSs.

The NYSE’s rules require listed companies to have, among other things, a majority of their board members be independent and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer and a controlled company, we are permitted to follow home country practice in lieu of the above requirements. Mexican law does not require that a majority of our board consist of independent directors or the implementation of a compensation or nominating committee, and our board may thus not include, or include fewer, independent directors than would be required if we were subject to the NYSE rules applicable to most U.S. companies. As long as we rely on the foreign private issuer and controlled company exemptions to the NYSE rules, a majority of our Board of Directors is not required to consist of independent directors and we will not be required to have a compensation or nominating committee. Therefore, our board’s approach may be different from that of a board with a majority of independent directors, and, as a result, the management team’s oversight of the Company may be more limited than if we were subject to the NYSE rules applicable to most U.S. companies.

It may be difficult to enforce civil liabilities against us or our directors or officers.

We are a publicly traded company with variable capital (sociedad anónima bursátil de capital variable) organized under the laws of Mexico, and a majority of the members of our Board of Directors and Management Team, our advisors and independent auditors reside or are based outside the United States. All of our assets and the assets of our subsidiaries are located, and all of our revenues and the revenues of our subsidiaries are derived from, sources outside the United States, particularly in Mexico and Argentina. Consequently, it may not be possible for you to effect service of process upon us or these other persons. Because judgments of U.S. courts or courts of other jurisdictions outside of Mexico and/or Argentina for civil liabilities based upon foreign laws of other jurisdictions outside Mexico and/or Argentina may only be enforced in Mexico and/or Argentina if certain requirements are met, you may face greater difficulties in protecting your interests through actions against us, our directors or the members our Management Team than would shareholders of a corporation incorporated in the United States or in other jurisdictions outside of Mexico. There is doubt as to the enforceability, in original actions in Mexican courts and/or Argentine courts or in actions for enforcement of judgments obtained in courts of jurisdictions outside Mexico and/or Argentina, of liabilities predicated, in whole or in part, on the civil liability

 

73


Table of Contents

provisions of U.S. federal securities laws. No treaty exists between the United States and Mexico for the reciprocal enforcement of judgments issued in the other country. In addition, the enforceability in Argentine courts of judgments of U.S. or non-Argentine courts with respect to matters arising under U.S. federal securities laws or other non-Argentine regulations will be subject to compliance with certain requirements under Argentine law, including the condition that any such judgment does not violate Argentine public policy (orden público argentino) and provided that an Argentine court will not order the attachment on any property located in Argentina and determined by such court to be essential for the provision of public services.

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement. If this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. If we or the depositary opposed a jury trial demand based on the waiver, the court would analyze whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and / or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.

No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

 

74


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds that we will receive in the global offering will be U.S.$         million from our sale of              series A shares (or US$         million if the international underwriters and Mexican underwriters exercise in full their over-allotment options) in the global offering after deducting the underwriting discount and estimated offering expenses payable by us for a total amount of US$        , based on an offering price per series A share of Ps.          and US$         per ADSs, the midpoint of the ranges set forth on the cover of this prospectus.

We currently intend to use the net proceeds from the international offering to fund capital expenditures relating to our development plan, which is focused on developing our shale acreage relating to (x) the Bajada del Palo Oeste block, where we plan to drill horizontal wells and (y) Águila Mora and Bajada del Palo Este blocks, which we will be delineating and subsequently starting their development.

The foregoing represents our current intentions with respect to the use and allocation of the net proceeds of this offering based on our present plans and business condition. The amounts and timing of any expenditure may vary depending on the amount of cash generated by our operations, competitive developments, our rate of growth and inorganic growth opportunities, if any, of our business. Therefore, as of the date of this prospectus, we cannot estimate the amounts or timing in respect of any of the purposes for the use of proceeds listed above.

An increase (decrease) of US$1.00 in the price per series A share would increase (decrease) the net proceeds to us in connection with the global offering by             (assuming the over-allotment option is not exercised).

 

75


Table of Contents

DIVIDEND POLICY

Under Mexican law, subject to the satisfaction of certain quorum requirements, only shareholders at a general meeting have the authority to declare a dividend. Although not required by law, such declarations typically follow the recommendation of the board of directors. Additionally, under Mexican law, we may only pay dividends from retained earnings included in financial statements that have been approved at a general shareholders’ meeting, after all losses from prior fiscal years have been satisfied and after at least 5% of net income (after profit sharing and other deductions required by Mexican law) has been allocated to legal reserves, up to an amount equal to 20% of our paid-in capital stock from time to time. We have paid no dividend since our incorporation.

Our Board of Directors is not currently considering the adoption of a dividend policy. Changes in our operating and financial results, including those derived from extraordinary events, and risks described in “Risk Factors” that affect our financial condition and liquidity, could limit any distribution of dividends and their amount. We cannot provide any assurances that we will pay dividends in the future or as to the amount of dividends, if any are paid.

The amount and payment of future dividends, if any, will be subject to applicable law and will depend upon a variety of factors that may be considered by our Board of Directors or our shareholders, including our future operating results, financial condition, capital requirements, investments in potential acquisitions or other growth opportunities, legal restrictions, contractual restrictions in our current and future debt instruments and our ability to obtain funds from our subsidiaries. Such factors may limit or prevent the payment of any future dividends and may be considered by our Board of Directors in recommending, or by our shareholders in approving, the payment of any future dividends.

We are a holding company and our income, and therefore our ability to pay dividends, is dependent upon the dividends and other distributions that we receive from our subsidiaries. The payment of dividends or other distributions by our subsidiaries will depend upon their operating results, financial condition, capital expenditures plans and other factors that their respective boards of directors deem relevant. Dividends may only be paid out of distributable reserves and our subsidiaries are required to allocate earnings to their respective legal reserve funds prior to paying dividends to us. In addition, covenants in loan agreements, if any, of our subsidiaries, may limit their ability to declare or pay cash dividends.

In the event we were to declare dividends they would be paid in Mexican Pesos through Indeval to each custodian, which would deduct any applicable withholding taxes. In the case of series A shares represented by ADSs, the depositary will convert the cash dividends it receives in Mexican Pesos into U.S. Dollars at the prevailing rate of exchange, and thereafter it would distribute the amount so converted to the holders of ADSs, net of conversion expenses of the depositary. Fluctuations in the Peso—U.S. Dollar exchange rate will affect the amount of dividends that ADS holders would receive.

 

76


Table of Contents

MARKET INFORMATION

Market Price of Our Shares

Our series A shares are listed on the Mexican Stock Exchange under the symbol “VISTA.” As of March 31, 2019, the variable portion of our outstanding capital stock was comprised by 75,909,315 series A shares, registered with the RNV and listed on the Mexican Stock Exchange. The variable portion of our capital stock is of unlimited amount pursuant to our bylaws and the applicable laws, whereas the fixed portion of our capital stock is divided into two series C shares, registered with the RNV and listed on the Mexican Stock Exchange.

On February 12, 2019, we completed the sale to Kensington Investments B.V. (“Kensington”) of 5 million series A shares and 5 million warrants to purchase series A shares for an amount of US$50.0 million and, additionally, 500,000 series A shares for an amount of US$5.0 million. Kensington, a wholly-owned subsidiary of the Abu Dhabi Investment Council, a sovereign wealth fund of the government of the Emirate of Abu Dhabi in the United Arab Emirates, is the sole limited partner of Riverstone Vista Capital Partners, L.P. (“RVCP”). The aforementioned sale was consummated pursuant to a certain forward purchase agreement among Vista and RVCP, that provided for the sale by Vista of certain series A shares and warrants to purchase series A shares to RVCP and its permitted transferees, and a related subscription commitment between Vista and Kensington. Prior to the aforementioned sale, RVCP instructed Vista to transfer the relevant series A shares and warrants to Kensington. Both transactions received regulatory approval in Mexico.

As of the date of this prospectus, we had 70,000,000 Warrants and 29,680,000 Sponsor Warrants outstanding (totaling 99,680,000 warrants outstanding) that are exercisable for 23,333,333 and 9,893,333 series A shares, respectively. Three warrants entitle the holder thereof to purchase one series A share at a price of US$11.50 per series A share. The exercise of such warrants and the corresponding issuance of series A shares may also have a dilutive effect in our earnings per share. The warrants expire on April 4, 2023 or earlier if, after exercisability, the closing price for series A shares for any 20 trading days within an applicable 30-trading day period equals or exceeds the Mexican Peso equivalent of US$18.00 and we decide to early terminate the exercise period thereof. In the event that we declare an early termination, we will have the right to declare that the exercise of the warrants be made on a “cashless basis.” If we elect the cashless exercise, holders of warrants electing to exercise such warrants shall do so by surrendering warrants and receiving a number of series A shares resulting from the formula set forth in the warrant indenture, which captures the average of the U.S. Dollar equivalent of the closing price of the series A shares during a 10-day period. The warrants are subject to certain additional adjustments, terms and conditions. See “Description of the Series A Shares and Bylaws—Warrants.”

Prior to this offering, no public market existed for the ADSs. We cannot assure you that an active trading market will develop for the ADSs, or that the ADSs will trade in the public market subsequent to the offering at or above the initial public offering price. Each ADS will represent one series A share. After the pricing of this offering, we expect the ADSs to trade on the NYSE under the symbol “VIST” and the series A shares to continue to be listed on the Mexican Stock Exchange under the symbol “VISTA.”

Trading on the Mexican Stock Exchange

The Mexican Stock Exchange, located in Mexico City, is one of two stock exchanges currently operating in Mexico. Operating continuously since 1907, the Mexican Stock Exchange is organized as a variable capital public stock corporation (sociedad anónima bursátil de capital variable). Securities trading on the Mexican Stock Exchange occurs each business day from 8:30 a.m. to 3:00 p.m. Mexico City time, subject to adjustments to operate uniformly with certain markets in the United States.

Since January 1999, all trading on the Mexican Stock Exchange has been effected electronically. The Mexican Stock Exchange may impose a number of measures to promote an orderly and transparent trading price of securities, including the operation of a system of automatic suspension of trading in shares of a particular issuer, when price fluctuations exceed certain limits.

 

77


Table of Contents

Settlement of transactions with equity securities on the Mexican Stock Exchange are effected three business days after a share transaction is agreed to. Deferred settlement is not permitted without the approval of the Mexican Stock Exchange, even where mutually agreed. Securities traded on the Mexican Stock Exchange are on deposit in book-entry form through the facilities of Indeval, a privately owned securities depositary that acts as a clearinghouse, depositary, and custodian, as well as a settlement, transfer, and registration agent for Mexican Stock Exchange transactions, eliminating the need for physical transfer of securities. Transactions must be settled in Mexican Pesos except under limited circumstances and in respect of limited transactions in which settlement in foreign currencies may be permitted.

Market Regulation

In 1924, the Mexican National Banking Commission (Comisión Nacional Bancaria) was established to regulate banking activity and in 1946, the Mexican Securities Commission (Comisión Nacional de Valores) was established to regulate securities market activity. In 1995, these two entities merged to form the CNBV.

Among other things, the CNBV regulates the public offering and trading of securities, public companies and participants in the Mexican securities market (including brokerage houses and the Mexican Stock Exchange), and imposes sanctions for the illegal use of insider information and other violations of the Mexican Securities Market Law. The CNBV regulates the Mexican securities market, the Mexican Stock Exchange, and brokerage firms, through its staff and a board of governors composed of thirteen members.

Mexican Securities Market Law

The current Mexican Securities Market Law was published in the Federal Official Gazette of Mexico on December 30, 2005, and became effective on June 28, 2006, and is referred to as the Mexican Securities Market Law. The Mexican Securities Market Law changed the then Mexican securities laws in various material respects to further align Mexican laws with the securities and corporate governance standards laws in effect in other jurisdictions that maintained more developed securities markets.

In particular, the Mexican Securities Market Law:

 

   

includes private placement exemptions directed to Mexican institutional and qualified investors, and specifies the requirements that need to be satisfied for an issuer or underwriter to fall within the exemption;

 

   

includes improved rules for tender offers, dividing them in either voluntary or mandatory;

 

   

establishes standards for disclosure of holdings applicable to shareholders of public companies;

 

   

expands and strengthens the role of the board of directors of public companies;

 

   

defines the role of the chief executive officer and other relevant officers of public corporations;

 

   

defines the standards applicable to the board of directors and the duties and potential liabilities and penalties applicable to each director, the chief executive officer and other executive officers and the audit and corporate governance committee (introducing concepts such as the duty of care, duty of loyalty and safe harbors for actions attributable to directors and officers);

 

   

replaces the statutory auditor (comisario) with the audit and corporate governance committee and establishes the audit and corporate governance committee with clearly defined responsibilities;

 

   

improves the rights of minority shareholders (including the right to initiate shareholders’ derivative suits);

 

   

defines applicable sanctions for violation of law;

 

   

provides flexibility to allow regulated Mexican brokerage firms to engage in certain limited activities;

 

78


Table of Contents
   

regulates stock exchanges, clearinghouses, futures and derivatives markets, and rating agencies;

 

   

establishes penalties (including incarceration), arising from violations of the Mexican Securities Market Law and regulations thereunder;

 

   

establishes that public companies are considered a single economic unit with the entities they control for reporting accounting and other purposes;

 

   

introduces concepts such as consortiums, groups of related persons or entities, control and decision-making power;

 

   

defines rules relating to the types of securities that may be offered by public companies;

 

   

sets forth information for share repurchases; and

 

   

specifies requirements for implementing anti-takeover measures.

In March 2003, the CNBV issued certain general regulations applicable to issuers and other securities market participants, which regulations have since been amended, or the General Regulations, and in September 2004, the CNBV issued certain general regulations applicable to brokerage firms. The General Regulations, which repealed several previously enacted CNBV regulations, provide a consolidated set of rules governing public offerings, reporting requirements and issuer activity, among other things.

On January 10, 2014, a decree amending 34 financial laws, including the Mexican Securities Market Law, was published in the Mexican Federal Official Gazette (collectively, the “Financial Reform” (reforma financiera)). The amendments to the Mexican Securities Market Law became effective on January 13, 2014, with the exception of certain provisions regarding the use of insider information and other related policies that are required to be implemented by some entities. Furthermore, certain entities that are required to comply with these amendments, such as broker dealers and investment advisors, were granted grace periods of six months to one year to comply with the new requirements of the Financial Reform.

Issuance, Registration and Listing Standards

In order to offer securities to the public in Mexico, an issuer must meet specific qualitative and quantitative requirements. Only securities that have been registered with the RNV, pursuant to approval by the CNBV may be listed on the Mexican Stock Exchange.

The General Regulations require the Mexican Stock Exchange to adopt minimum requirements for issuers that seek to list their securities in Mexico. These requirements relate to operating history, financial and capital structure, and minimum public floats, among other things. The General Regulations also require the Mexican Stock Exchange to implement minimum requirements (including minimum public floats) for issuers to maintain their listing in Mexico. These requirements relate to the issuer’s financial condition, capital structure and public float, among others. The CNBV may waive some of these requirements in certain circumstances. In addition, some of the requirements are applicable for each series of shares of the relevant issuer.

The CNBV’s approval for registration with the RNV does not imply any kind of certification or assurance related to the investment quality of the securities, the solvency of the issuer, or the accuracy or completeness of any information delivered to the CNBV or included in any offering document (including this prospectus).

The Mexican Stock Exchange may review compliance with the foregoing requirements and other requirements at any time, but will normally do so on an annual, semi-annual and quarterly basis. The Mexican Stock Exchange must inform the CNBV of the results of its review, and this information must, in turn, be disclosed to investors. If an issuer fails to comply with any of these minimum requirements, the Mexican Stock Exchange will request that the issuer propose a plan to cure the violation. If the issuer fails to propose a plan, if the plan is not satisfactory to the Mexican Stock Exchange, or if an issuer does not make substantial progress

 

79


Table of Contents

with respect to the implementation of the corrective plan, trading of the relevant series of shares on the Mexican Stock Exchange may be temporarily suspended. In addition, if an issuer fails to implement the plan in full, the CNBV may cancel the registration of the shares, in which case the majority shareholder or any controlling group will be required to carry out a tender offer to acquire all of the outstanding shares of the issuer in accordance with the tender offer provisions set forth in the Mexican Securities Market Law (under which all holders must be treated in the same manner).

Reporting Obligations

Issuers of listed shares such as the Company, are required to file unaudited quarterly financial statements and audited annual financial statements (together with an explanation thereof) and periodic reports, in particular reports dealing with material events, with the CNBV and the Mexican Stock Exchange. Mexican issuers must file the following reports:

 

   

a comprehensive annual report prepared in accordance with the General Regulations, by no later than April 30 of each year, which must include (i) audited annual financial statements and (ii) reports on the activities carried out by the audit and corporate governance committee;

 

   

quarterly reports, within 20 business days following the end of each of the first three quarters and 40 business days following the end of the fourth quarter;

 

   

reports disclosing material information;

 

   

reports and disclosure memoranda revealing corporate restructurings such as mergers, spin-offs or acquisitions or sales of assets, approved by shareholders’ meeting or the board of directors;

 

   

reports regarding the policies and guidelines with respect to the use of the company’s (or its subsidiaries) assets by related persons; and

 

   

details dealing with agreements among shareholders.

Pursuant to the General Regulations, the internal rules of the Mexican Stock Exchange were amended to implement an automated electronic information transfer system (Sistema Electrónico de Envío y Difusión de Información, or SEDI) called the Sistema Electrónico de Comunicación con Emisoras de Valores, or EMISNET, for information required to be filed with the Mexican Stock Exchange. Issuers of listed securities must prepare and disclose their financial and other information via EMISNET. Immediately upon receipt, the Mexican Stock Exchange makes this financial and other information available to the public.

The General Regulations and the rules of the Mexican Stock Exchange require issuers of listed securities to file through SEDI information that relates to any event or circumstance that could influence an issuer’s share prices and investor decisions to acquire stock. If listed securities experience unusual price volatility, the Mexican Stock Exchange must immediately request that an issuer inform the public as to the causes of the volatility or, if the issuer is unaware of the causes, that it make a statement to the effect that it is unaware of the causes of such volatility. In addition, the Mexican Stock Exchange must immediately request that issuers disclose any information relating to material events when it deems the available public information to be insufficient, as well as instruct issuers to clarify information when necessary. The Mexican Stock Exchange may request that issuers confirm or deny any material event that has been disclosed to the public by third parties when it deems that the material event may affect or influence the price of the listed securities. The Mexican Stock Exchange must immediately inform the CNBV of any such request. In addition, the CNBV may also make any of these requests directly to issuers. An issuer may delay the disclosure of material events if:

 

   

the information is related to transactions that have not been consummated;

 

   

there is no public information in the mass media relating to the material event; and

 

   

no unusual price or volume fluctuation occurs.

 

80


Table of Contents

If an issuer elects to delay the disclosure of material, it must implement adequate confidentiality measures (including maintaining a log with the names of parties in possession of confidential information and the date when each such party became aware of the relevant information).

Similarly, if an issuer’s securities are traded on both the Mexican Stock Exchange and a foreign securities exchange, the issuer must simultaneously file the information that it is required to file pursuant to the laws and regulations of the foreign jurisdiction with the CNBV and the Mexican Stock Exchange.

Suspension of Trading

In addition to the authority of the Mexican Stock Exchange under its internal regulations described above, the CNBV and the Mexican Stock Exchange may suspend trading in an issuer’s securities:

 

   

if the issuer does not disclose a material event;

 

   

failure by the issuer to timely or adequately comply with its reporting obligations;

 

   

significant exceptions or comments contained in the auditors’ opinions of the issuer’s financial statements, or determinations that such financial statements were not prepared in accordance with the applicable accounting procedures and policies; or

 

   

upon price or volume volatility or changes in the trading of the relevant securities that are not consistent with the historic performance of the securities and cannot be explained solely through information made publicly available pursuant to the General Regulations.

The Mexican Stock Exchange must immediately inform the CNBV and the general public of any suspension. An issuer may request that the CNBV or the Mexican Stock Exchange permit trading to resume if it demonstrates that the causes triggering the suspension have been resolved and that it is in full compliance with periodic reporting requirements. If an issuer’s request has been granted, the Mexican Stock Exchange will determine the appropriate mechanism to resume trading (which may include a bidding process to determine applicable prices). If trading in an issuer’s securities is suspended for more than 20 business days and the issuer is authorized to resume trading without conducting a public offering, the issuer must disclose via SEDI, before trading may resume, a description of the causes that resulted in the suspension.

Under consent regulations, the Mexican Stock Exchange may consider the measures adopted by other non- Mexican exchanges to suspend and/or resume trading of an issuer’s shares, in cases where the relevant securities are simultaneously traded on stock exchanges located outside of Mexico.

Insider Trading, Trading Restrictions and Tender Offers

The Mexican Securities Market Law contains specific regulations regarding insider trading, including the requirement that persons in possession of information deemed privileged abstain (i) from directly or indirectly, trading in the relevant issuer’s securities, or derivatives with respect to such securities, the trading price of which may be affected by such information, (ii) from making recommendations or providing advice to third parties to trade in such securities, and (iii) disclosing or communicating such privileged information to third parties (except for persons to whom such information must be disclosed as a result of their positions or employment).

Pursuant to the Mexican Securities Market Law, the following persons must notify the CNBV of any transactions undertaken by them with respect to a listed issuer’s securities, whether on a case-by-case basis or quarterly:

 

   

members of a listed issuer’s board of directors;

 

   

shareholders directly or indirectly controlling 10% or more of a listed issuer’s outstanding capital stock; and

 

   

officers.

 

81


Table of Contents

These persons must also inform the CNBV of the effect of the transactions within five days following their completion. In addition, insiders must abstain from purchasing or selling securities of the issuer within three months from the last sale or purchase, respectively.

Also, directors and relevant officers that are holders of 1% or more of the outstanding shares of a Mexican public company, must disclose their holdings and the relevant issuer.

Subject to certain exceptions, any acquisition of a public company’s shares that results in the acquirer owning 10% or more, but less than 30%, of an issuer’s outstanding capital stock, must be publicly disclosed to the CNBV and the Mexican Stock Exchange by no later than one business day following the acquisition.

Any acquisition or disposition by certain insiders that results in such insider increasing or decreasing in 5% or more such insider’s holdings in shares of the public company to which it is related must also be publicly disclosed to the CNBV and the Mexican Stock Exchange no later than one business day following the acquisition or disposition. The Mexican Securities Market Law requires that convertible securities, warrants and derivatives to be settled in kind be considered in the calculation of share ownership percentages of public companies.

Tender Offers

The Mexican Securities Market Law contains provisions relating to public tender offers and certain other share acquisitions occurring in Mexico. Under the Mexican Securities Market Law, tender offers may be voluntary or mandatory. Both are subject to prior approval of the CNBV and must comply with general legal and regulatory requirements. Voluntary tender offers, or offers where there is no requirement that they be initiated or completed, are required to be made pro rata. Any intended acquisition of a public company’s shares that results in the acquirer owning 30% or more requires the acquirer to make a mandatory tender offer for the greater of (i) the percentage of the capital stock intended to be acquired, or (ii) 10% of the company’s outstanding capital stock, provided that if such acquisition is aimed at obtaining control, then the potential acquirer is required to launch a mandatory tender offer for 100% of the company’s outstanding capital stock (however, under certain circumstances, the CNBV may permit an offer for less than 100%). The tender offer must be made at the same price to all shareholders and classes of shares. The board of directors, with the advice of the audit and corporate governance committee, must issue its opinion in respect of the fairness of the price applicable to any mandatory tender offer, which may be accompanied by an independent fairness opinion. Directors and the chief executive officer of a public company, in respect of which a tender offer has been made, must disclose whether or not each of them will tender his respective shares in the tender offer.

Under the Mexican Securities Market Law, all tender offers must be open for at least 20 business days and purchases thereunder are required to be made pro rata to all tendering shareholders. The Mexican Securities Market Law also permits the payment of certain amounts to a controlling shareholder over and above the offering price if these amounts are fully disclosed, approved by the board of directors, and paid solely in connection with non-compete or similar obligations. The law also provides exceptions to the mandatory tender offer requirements and specifically sets forth remedies for non-compliance with these tender offer rules (e.g., suspension of voting rights, possible annulment of purchases, etc.) and other rights available to prior shareholders of the issuer.

Joint Trading of Common Shares and Limited or Non-Voting Shares

The Mexican Securities Market Law does not permit issuers to implement mechanisms for common shares and limited or non-voting shares to be jointly traded or offered to public investors, unless the limited or non-voting shares are convertible into common shares within a period of up to five years, or when, because of the nationality of the holder, the shares or the securities representing the shares limit the right to vote to comply with foreign investment laws. In addition, the aggregate amount of shares with limited or non-voting rights may not exceed 25% of the aggregate amount of publicly held shares. The CNBV may increase this 25% limit by an additional 25%, provided that the limited or non-voting shares exceeding 25% of the aggregate amount of publicly held shares are convertible into common shares within five years of their issuance.

 

82


Table of Contents

Anti-Takeover Protections

The Mexican Securities Market Law provides that public companies may include anti-takeover provisions in their by-laws if such provisions (i) are approved by a majority of the shareholders, without shareholders representing 5% or more of the capital stock present at the meeting voting against such provision, (ii) do not exclude any shareholders or group of shareholders, (iii) do not restrict, in an absolute manner, a change of control, and (iv) do not contravene legal provisions related to tender offers or have the effect of disregarding the economic rights related to the shares held by the acquiring party.

 

83


Table of Contents

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2019 (i) on a historical basis and (ii) on an as adjusted basis to give effect to the global offering of the series A shares and assuming that we sell              series A shares, including series A shares represented by ADSs in the global offering, at a price of US$             per series A shares, or US$             per ADS (equivalent to Ps.             per series A share, based on the exchange rate of Ps.             per US$1.00 reported by the Mexican Central Bank on             , 2019), the midpoint of the ranges included in this prospectus.

This table should be read in conjunction with the 1Q 2019 audited Condensed Interim Financial Statements and information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of March 31, 2019  
     Actual      As adjusted  
     (Thousands of US$)  

Current borrowings

     55,351     

Non-current borrowings

     279,867     
  

 

 

    

 

 

 

Total debt(1)

     335,218                      

Total warrants(2)

     39,784     

Total shareholders’ equity

     521,613     
  

 

 

    

 

 

 

Total capitalization(3)

     896,615     

 

(1) 

Correspond to the US$300 million principal amount of the Syndicated Loan and US$35 million principal amount of short-term debt from local commercial banks in Argentina. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”

(2) 

Corresponds to the Warrants and the Sponsor Warrants.

(3) 

Total capitalization is the sum of total debt, total warrants and total shareholders’ equity.

For every US$1.00 increase or decrease in the price per series A shares received by us in the global offering, our shareholders’ equity will increase or decrease by Ps.             (US$             ).

Since March 31, 2019, there have not been material changes in our consolidated capitalization, except for the two loans entered into by us on May 13, 2019 for an aggregate amount of US$25 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”

 

84


Table of Contents

SELECTED FINANCIAL AND OPERATING DATA

Our financial and operating data is qualified by reference to and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Audited Financial Statements and the Supplemental Financial Statements included elsewhere in this prospectus. Our historical results for any prior period do not necessarily indicate results to be expected for any future period.

The unaudited condensed consolidated interim financial data as of March 31, 2019 and for the three-month periods ended March 31, 2019 and 2018 has been derived from our 1Q 2019 Unaudited Interim Condensed Financial Statements included in this prospectus.

The consolidated financial data for the period from April 4, 2018 to December 31, 2018 (the 2018 Successor Period) and as of December 31, 2018 and for the period from January 1, 2018 to April 3, 2018 (the 2018 Predecessor Period) has been derived from our Audited Financial Statements included in this prospectus.

The consolidated financial data for our Predecessor as of December 31, 2017 and January 1, 2017 and for the year ended December 31, 2017 has been derived from the Audited Financial Statements included in this prospectus. Note 2.5 to the Audited Financial Statements contain the details of our transition to IFRS and application of IFRS 1.

The consolidated financial data for APCO Argentina Branch has been derived from the audited pre-acquisition financial statements of APCO Argentina Branch as of April 3, 2018 and for the period beginning on January 1, 2018 to April 3, 2018 and the audited pre-acquisition consolidated financial statements as of December 31, 2017 and January 1, 2017 and for the year ended December 31, 2017 included in this prospectus. The auditors’ report includes qualified opinions due to the omission of comparative financial information.

The combined financial data for JDM and 25 de Mayo-Medanito has been derived from the abbreviated combined financial statements of revenues and direct operating expenses for the period beginning on January 1, 2018 to April 3, 2018 and the abbreviated combined financial statements of revenues and direct operating expenses for the year ended December 31, 2017 included in this prospectus.

Our results of operations for the 2018 Successor Period are not directly comparable to our results of operations for the 2018 Predecessor Period and for the year ended December 31, 2017, due to the effects of the Initial Business Combination. Similarly, our results of operations for the three-month period ended March 31, 2019 are not directly comparable to our results of operations for the three-month period ended March 31, 2018, due to the effects of the Initial Business Combination. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Note Regarding Comparability of Our Results of Operations.”

In addition, effective January 1, 2019, we adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application on January 1, 2019. Under this method, the standard is applied with the cumulative effect of initially applying the standard recognized at the date of initial application. Accordingly, certain comparisons for the above mentioned new accounting standard and for the recognition of income tax expenses between periods may be affected. See Note 2.2 to our 1Q 2019 Unaudited Condensed Interim Financial Statements.

Under the JOBS Act, emerging growth companies, like Vista, may take advantage of specified reduced financial disclosure requirements. Pursuant to these reduced requirements, we have limited our disclosure in this prospectus to selected financial information of the two most recent fiscal years.

All of the selected financial information included in the following tables is denominated in U.S. Dollars. The financial data that has been derived from our Audited Financial Statements was prepared in accordance with

 

85


Table of Contents

IFRS. The financial data that has been derived from our 1Q 2019 Unaudited Condensed Interim Financial Statements was prepared in accordance with IAS 34. The abbreviated combined financial information relating to JDM and 25 de Mayo-Medanito was prepared in accordance with U.S. GAAP. For further information, see “Presentation of Financial and Other Information—Financial Statements.”

 

86


Table of Contents

Historical Financial Data

Statements of Financial Position

 

     Successor            Predecessor  
     As of
March 31, 2019

Unaudited
    As of
December 31, 2018
           As of
December 31, 2017
    As of
January 1, 2017
 
     (in thousands of US$, except for shares and per share data)  
                                 

Assets

           

Non-current assets

             

Property, plant and equipment

     872,298       820,722            259,229       286,149  

Right-of-use assets

     8,906       —              —         —    

Goodwill

     28,484       28,484            —       —  

Other intangible assets

     31,869       31,600            1,021       1,536  

Trade and other receivables

     19,748       20,191            297       927  

Other financial assets

     —         —              —       64  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total non-current assets

     961,305       900,997            260,547       288,676  
  

 

 

   

 

 

        

 

 

   

 

 

 

Current assets

             

Inventories

     22,566       18,187            8,215       16,924  

Trade and other receivables

     90,313       86,050            56,274       40,174  

Cash, bank balances and other short-term investments

     87,538       80,908            36,835       24,717  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total current assets

     200,417       185,145            101,324       81,815  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total assets

     1,161,722       1,086,142            361,871       370,491  
  

 

 

   

 

 

        

 

 

   

 

 

 

Shareholders’ equity and liabilities

             

Shareholders’ equity

             

Share capital

     567,646       513,255            39,239       39,239  

Share-based payment reserve

     5,265       4,021            —       —  

Legal reserve

     —         —              7,523       7,523  

Voluntary reserve

     —         —              385,033       349,248  

Accumulated other comprehensive loss

     (2,674     (2,674          (2,800     (2,569

Accumulated Loss

     (48,624     (34,946          (148,694     (120,081
  

 

 

   

 

 

        

 

 

   

 

 

 

Total shareholders’ equity

     521,613       479,656            280,301       273,360  
  

 

 

   

 

 

        

 

 

   

 

 

 

Liabilities

             

Non-current liabilities

             

Deferred income tax liabilities, net

     136,393       133,757            28,840       38,558  

Lease liabilities

     7,387       —             
—  

   
—  

Provisions

     16,498       16,186            15,902       14,571  

Borrowings

     279,867       294,415            —         —    

Warrants

     39,784       23,700            —         —    

Employee defined benefits plan obligation, net

     3,535       3,302            4,683       4,366  

Other taxes and royalties payable

     —         —              2       7  

Accounts payable and accrued liabilities

     1,003       1,008            —         —    
  

 

 

   

 

 

        

 

 

   

 

 

 

Total non-current liabilities

     484,467       472,368            49,427       57,502  
  

 

 

   

 

 

        

 

 

   

 

 

 

Current liabilities

             

Provisions

     3,743       4,140            925       1,615  

Leases liabilities

     2,378       —              —         —    

Borrowings

     55,351       10,352            —       —  

Salaries and social security payable

     4,161       6,348            2,540       2,387  

Income tax liability

     19,468       22,429            1,401       5,454  

Other taxes and royalties payable

     6,520       6,515            6,287       5,846  

Accounts payable and accrued liabilities

     64,021       84,334            20,990       24,327  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total current liabilities

     155,642       134,118            32,143       39,629  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total liabilities

     640,109       606,486            81,570       97,131  
  

 

 

   

 

 

        

 

 

   

 

 

 

Total shareholders’ equity and liabilities

     1,161,722       1,086,142            361,871       370,491  
  

 

 

   

 

 

        

 

 

   

 

 

 

Dividends and Shares

             

Number of shares

     75,909,317       70,409,317            95,443,572 (1)      95,443,572 (1) 

Dividends declared

     —         —              6,733 (2)      —  

Dividends declared per share

     —         —              0.07 (2)      —  
  

 

 

   

 

 

        

 

 

   

 

 

 

 

(1) 

Refers to shares of PELSA, as the Company’s predecessor.

(2) 

Refers to dividends declared by PELSA, as the Company’s predecessor.

 

87


Table of Contents

Statements of Profit or Loss and Other Comprehensive Income

 

    Successor    

 

    Predecessor     Successor    

 

    Predecessor  
   

For the

three-month
period
ended
March 31,
2019
Unaudited

         

For the

three-month
period
ended
March 31,
2018
Unaudited

   

For the period

from
April 4, 2018
through
December 31,
2018

          For the period
from
January 1, 2018
through
April 3, 2018
    For the year
ended
December 31,
2017
 
    (in thousands of US$, except per share data and margins)  
                                           

Revenue from contracts with customers

    93,727           44,463       331,336           44,463       198,075  

Cost of sales

    (65,713         (38,623     (212,581         (38,623     (174,401
   

Gross profit

    28,014           5,840       118,755           5,840       23,674  
 

 

 

       

 

 

   

 

 

       

 

 

   

 

 

 

Selling expenses

    (5,695         (3,091     (21,341         (3,091     (13,264

General and administrative expenses

    (8,705         (1,466     (24,202         (1,466     (6,774

Exploration expenses

    (126         (134     (637         (134     (1,049

Other operating income

    627           1,240       2,699           1,240       17,802