Legal Definitions - production payment

A production payment is a type of agreement in the oil and gas industry where an investor receives a share of the production from a property, without having to pay for the costs of production. This agreement ends once an agreed-upon sum has been paid.

Let's say that a company owns an oil well and wants to raise money to fund its operations. The company could enter into a production payment agreement with an investor. The investor would provide the company with a lump sum of money upfront, and in return, the investor would receive a share of the oil produced by the well. The investor would not have to pay for any of the costs associated with drilling or operating the well. Once the agreed-upon sum has been paid to the investor, the agreement would end.

Another example could be a landowner who owns a piece of land with oil and gas reserves. The landowner could enter into a production payment agreement with an oil and gas company. The company would pay the landowner a share of the production from the property, without having to pay for the costs of production. This agreement would end once the agreed-upon sum has been paid to the landowner.

These examples illustrate how a production payment agreement works in the oil and gas industry. It allows investors or landowners to receive a share of the production without having to pay for the costs of production, while also providing companies with a way to raise money to fund their operations.