Volumetric Production Payment (VPP)

A Volumetric Production Payment (VPP) is a type of production payment that is based on the volume of oil or gas produced from a well. The payment is made to the lender in installments over time, and the amount of each installment is based on the volume of production.

VPPs are often used to finance the development of new oil and gas fields. The lender provides the funds to develop the field, and the borrower repays the loan with production from the field. VPPs can be structured in a variety of ways, but they typically have the following features:

• The lender receives a fixed percentage of the production from the field.
• The payment is made in installments over time.
• The installments are based on the volume of production.
• The lender has a security interest in the production from the field.

VPPs can be a good way for oil and gas companies to finance the development of new fields. However, they also have some risks. For example, if the field does not produce as much oil or gas as expected, the borrower may not be able to make the payments on the loan.

Here are some additional details about VPPs:

• VPPs are often used in conjunction with other types of financing, such as debt or equity.
• VPPs can be structured to provide the lender with a variety of protections, such as a right to take over the field if the borrower defaults on the loan.
• VPPs can be a complex financial instrument, and it is important to have an experienced attorney review any VPP agreement before signing it.

If you are considering using a VPP to finance the development of an oil or gas field, it is important to speak to an experienced oil and gas attorney.