An Authorization for Expenditure (AFE) software is nothing but a budgeting and approval form. It gets used during the planning process for an oil well that is about to be drilled and also for other projects. The AFE software also includes an estimate of pricing to be acquired during both the Intangible Drilling Cost (IDC) category and in the tangible equipment category.
“AFE” gets used in extremely high frequency across departments in the oil and gas firms. Before almost any well-related cost is incurred, it must be accounted for in an AFE. Supplemental AFEs are often tied to initial authorizations for unplanned, but related work.
Preparing cost estimates for a well and getting management approval in the form of an AFE is the final step in well planning. The AFE is often accompanied by a projected payout schedule or revenue forecast. Although an essential part of good planning, the cost estimate is often the most difficult to obtain with any degree of reliability.
Costs are shown in total with accompanying breakdowns.
The AFE form represents:
- The budget for the project against which actual expenditures are compared and
- A joint venture form for evidencing agreement by joint interest owners to participate in the budgeted project.
The following are some of the major cost estimates captured in the AFE:
- Projected drilling time
- Time categories/time considerations
- Location preparation
- Drilling rig and tools
- Drilling fluids
- Rental equipment
- Support services
- Supervision and administration
- Wellhead equipment
- Completion equipment
Engineering considerations include:
- Dry-hole and completed costs
- Logical groupings, such as completion equipment or tubular goods
- Convenience groupings, such as rental equipment
Accounting considerations include:
- Tangible items
- Intangible items
- Contingency items
Obtaining an internal project financing with an Authorization For Expenditure (AFE) consists of doing a project cost estimate and schedule for the total internal and external project expenditures and presenting it to management and partners for approval of these future expenditures.
Using the data available from previous similar projects and with help from an engineering contractor, an AFE can be prepared. A company’s standard forms and conditions for AFEs should be taken into careful consideration while preparing an AFE.
A standard oil & gas industry solution is to use the engineering company to assist in the preparation of the AFE estimate. It is always advantageous to have the project engineering contractor involved in the AFE estimating process because doing so would allow the preliminary process flow diagrams (PFDs), process and instrumentation diagrams (P&IDs), schedule, and layout to be completed for presentation with the AFE or at the partners’ meeting called to discuss the project and AFE.
By using these more complete documents to do the AFE estimate, it is possible to obtain a much more accurate project cost and schedule. This is usually well worth the extra money and time spent to obtain it. However, this expenditure will occur before approval of the AFE, and hence getting management approval before following this course of action is advisable. For smaller projects, one way out of this problem is to obtain permission to charge this cost to the well drilling or completion AFE.
The task of an AFE tracker is to streamline the authorization for expenditure procedure from the beginning to its closure. It creates the process by providing a web-based solution that helps in automating workflows, improves visibility, and also generates reports real fast for analysis. The solution can easily automate and standardize through expenditure approval request, thus enabling projects to start promptly and on time.
The best part about AFE tracker is that it can configure solutions for forms with complex workflows and helps fit into their running business pattern. Most of the AFE software is fully customizable and hence can be easily configured to meet the changing requirements of a company or a firm. Most of these trackers have properties that allow tracking of project status in real-time, gives a detailed insight of the accounts.
Hence, for a complete solution in O&G organizations where the accounts sheet is a little complex, the AFE software can actually ease the work pressure and provide an easy solution to the cumbersome process.