A volumetric production payment (VPP) deal is a means of financing that has been used in the oil and gas industry for several decades.
[1] A VPP involves the owner of an oil and gas property selling a percentage of their production in exchange for an upfront cash payment.
The model has proven to be wildly successful as Silver Wheaton became a multibillion-dollar company within a few years of operation.
In the oil and gas industry Chesapeake Energy is the most visible user of VPPs, having raised around $5 billion in operating capital since 2008 without creating debt on its books or diluting shareholders by issuing more stock.
This raises legal issues when the VPP seller (usually the operator of the lease(s) and subject to a joint operating agreement with its co tenants) sells and conveys a portion of the mineral reserves in place in which it owns an undivided interest and then retains for itself all of the upfront VPP cash payment without sharing it with its co tenants (other working interest owners).