Volumetric Production Payment - VPP

You can get in on the oil and gas extraction biz by getting working interests, a type of investment where you reap the rewards when there’s success, and take the hit when there are losses. For those looking for more structure, a VPP might be more your style.

A Volumetric Production Payment, or VPP, is an investment vehicle where the owner of gas or oil interests can borrow money against a certain portion of volume of production in that specific drilling field. You get to cash out some of the value of the oil or cash while the extraction is in play over time.

VPPs are structured. The oil or gas interest owner gets a consistent amount of the output. If the supplier’s extraction supply is higher than promised one month, then lower the next, the supplier will use this variability to even out what the investor pockets monthly.

It’s common for VPPs to be paired with other financial vehicles. For instance, oil producers may take cash VPPs on the output and use that to pay back investors who are funding the drilling operation. Likewise, VPP investors will oftentimes hedge their bets with derivatives, since working in straight-up commodities can be a risky venture.