Historically used in the North American markets as a form of financing, a volumetric production payments (VPP) structure is useful for producers of lower credit strength, especially where commodity prices are high.

Key features of this structure are:

• The buyer (the VPP buyer) makes an upfront cash payment to a producing entity (the VPP seller) in exchange for a non-operating interest, for which in the future the VPP buyer will receive a specified portion of offtake according to a specified timeline.
• The VPP buyer receives payments from the VPP seller over a period of five to ten years in the form of cash or units of hydrocarbons up to an agreed amount calculated by reference to the proven reserves.
• Any shortfall in the agreed amount provided to the VPP buyer, except where this is due to production shortfalls, are met and compensated by additional deliveries in the future.
• Once the agreed quantity of hydrocarbons has been transferred, the non-operating interest is conveyed back to the VPP seller.

The buyers are usually organizations (including commodity traders) that want to hedge against expected price rises, and so they prefer paying an upfront amount to secure those quantities of oil and/or gas.