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During recent years, volumetric production payments (VPP) have regained popularity as financing vehicles for oil and natural gas exploration and production (E&P) companies. From the perspective of producers raising funds by selling VPPs (often referred to as the Seller), VPPs can raise funds on attractive terms. Investors advancing funds to the producer under the VPP (usually financial institutions and other E&P companies referred to as the Buyer) can profit from a relatively safe investment if appropriately structured. In fact, as these transactions greatly dampen commodity price risk (which is by far the greatest contributor to swings in oil and gas corporate credit quality), eliminate management's discretion to change the capital structure and asset base through transactions (the next largest risk), diminish the probability of fraud (as a result of independent evaluations of the property base), and have the most senior claim on the assets as a result of their senior secured status in the bankruptcy process, VPP-backed obligations can be structured to be substantially less risky than either secured or unsecured corporate oil and gas corporate debt.
 
 
 
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