A production payment is a right to oil, gas, or other minerals in place that entitles its owner to a specified fraction of production until a specified amount of money or minerals has been received. A production payment is payable only out of the working interests’ share of production.
There are two basic types of production payments. The first is a retained production payment. This is created when an owner of an interest in a mineral property assigns the interest and retains a production payment. The payment is payable out of future production from the property interest assigned. The other is a carved out production payment. It is created when an owner of any interest in a mineral property assigns a production payment to another person but retains the interest in the property from which the production payment is assigned.