Spending Too Much Time and Money on Your AFE Processes?03/25/2015
Streamlining AFE processes eliminates duplicate work and helps trim costs for upstream oil and gas companies
When we think about AFE management, we break it into two parts: effectively managing the workflow and approval process and cost control throughout the project. Today, let's address the workflow and approval process.
The mention of “AFE approvals” doesn’t exactly paint the picture of a smooth, fluid exercise.
We know how these things go – it’s a scramble to the finish and a mess of meetings, urgent emails, and overflowing manila folders.
The fact is that most companies’ AFE processes are costing them precious time and expense because they rely on manual processes that can move only as fast as the slowest employee for data gathering and completion of approvals.
To illustrate the real costs of this ad-hoc process, let’s take a look at an operator I recently met with. They operate primarily in the Eagle Ford and Woodford.
This operator has 450 wells and recently cut its capital budget for this year and is now planning to drill 10 new wells. In addition, they created 78 AFEs last year and estimate that in 2015 they will plan and approve 45 AFEs. With manual AFE processes in place, they spent more than 1,000 hours last year on the administration of AFEs, costing them over $50,000 on AFE creation, cost estimation, project iterations, and duplicate data entry. They also had slow approvals – 28 days were needed to get an AFE created, approved, and have it go through all the necessary steps in between.
This year, while their drilling plans are scaled back, they plan to make strategic improvements that will deliver an 80-percent time-savings on administrating every AFE and shave 10 days off their AFE approval cycle time.
How can this operator expect to achieve these kinds of time-savings goals?
Answer: streamlined processes.
Even with less personnel, this company has already started to operate more efficiently and looks forward to more gains thanks to these best practices.
A Connected Field And Back Office: The operator is implementing a tight integration between their Accounting, Land, Procurement, and AFE solutions. They plan to strike out duplicate data entry and management efforts, and use their integrated tools to drive real, cross-team collaboration.
Automated, Consistent, And Accessible AFE Approvals And Balloting: Giving their internal teams access to accurate and integrated data, as well as allowing them to add their information when prepared, will make their data-gathering a fluid process … folders zigzagging from room-to-room will be a thing of the past. Further, automation will give them the ability to fine-tune their workflows and easily identify any lingering bottlenecks.
AFE Close: This company had some nasty errors in their project costs last year, where a bunch of field tickets were added to an already-completed project; to say things were a mess would be an understatement. Soon they’ll be able to soft-close AFEs on the operations side, eliminating unnecessary errors like this from happening again. They also won’t have to call their partners to hash out reporting corrections.
A lot of companies continue to experience AFE challenges similar to the ones this operator faced. AFE management isn’t often seen as an area ripe for cost-reduction, but it is a relatively easy way to eliminate unnecessary work and get AFEs processed quicker and more accurately. The streamlining of processes can really make a difference in cutting costs and duplicate efforts when budgets are low, and when drilling activity picks up again, there can be more projects to pick from. In short, improvements to your AFE processes can make a big difference for your organization … no matter the price of oil.
Want to Learn More?
Check out this webinar, “Strategies For Controlling Project Overspend In 2015,” to see how streamlined processes can give your AFE program a boost.
About the Author
Jordan joined P2 in January 2014 and has five years’ experience delivering software solutions to various organizations. Before coming on board at P2, he created innovative governance, risk, and compliance solutions for a wide range of publicly-traded companies. Jordan graduated from Purdue University and is heavily involved in nonprofit work, including at Habitat for Humanity of Metro Denver. He’s passionate about spending time in the field with oil and gas teams, learning more about what they do, and finding ways to make their day-to-day jobs easier. When he’s not working, chances are you’ll find Jordan on his mountain bike or on his skis.