VPPs can be used to monetise a portion of the value of existing reserves which enables a producer to raise capital from its designated fields while keeping control over the designated fields and maintaining the upside from enhancements of reserves and production. The buyer of the VPP is entitled to receive a first priority share of the oil or gas produced that is either a fixed percentage of the actual production or a specified monthly quantity.

The proceeds of a monetization transaction can be used to pay down debt, increase exploration and development budgets and other corporate purposes. Deliveries of production to the VPP buyer are contingent on actual production from the applicable properties, and no margin or other collateral is required to be provided by the producer after the transaction is entered into.

Benefits

Accelerates Cash Flow
It has a limited term (it terminates after specific quantities have been produced and received).
Tax Efficient - upfront cash payment is generally not subject to tax upon receipt.
Reserve risk and production risk shifted to financial investor
Treated as a mortgage loan debt on the property
Ability to limit political and country risk
Recourse only to specified fields and not to other assets of company
VPP recognised as a separate property interest
VPP can be competitive to other debt instruments based on advance rate and cost of capital
Removes earnings volatility
The sale of a VPP can change production profile of a declining asset to flat.
Can use VPP to acquire other producing reserves

Criteria

Must own domestic reserves
Predictable production profile
VPP buyer must be able to hedge the expected production
Agreed use of funds
Due Diligence
Reserve Reports
Site Inspections
VPP must be of shorter duration than economic reserves
Taxation treatment in different jurisdictions
Accounting Treatment

If you would like to explore how our Volumetric Production Payment Program may be of value to your company, please give us a call at 818-591-0753 USA (West Coast) or 646 358 3469 USA (East Coast) or +353 65 684 5862 or contact us

(Program descriptions, terms, benefits and characteristics are subject to market change)