Create Efficient & Effective Authorization for Expenditure (AFE) Management01/15/2019
Authorizations for expenditure (AFEs) are the means for communicating and tracking final approval of expenditures for proposed projects in the oil and gas industry. They also help customers monitor project spending by providing insight into real-time expenses and comparing the spend to the approved budget.
Often managing numerous multi-stage projects at any given time, AFEs provide customers with a way to track spending by specific accounts or categories and help manage the process and approvals required if more expenditures are needed.
Within an upstream oil and gas company, AFEs are the vehicle used to propose, manage, approve, and track investments. Whether you’re in the drilling and operations, accounting and finance, land, or management departments, all are involved in the AFE process – along with joint venture partners.
Challenges Faced with AFE Management
AFEs are circulated to many different teams for both review and approval. Visibility into where the AFE is in these processes and what concerns or issues there may be is critical, as inefficiency in the process can cost time and money and could potentially delay project start times. Companies using manual processes or spreadsheets don’t have this needed visibility.
Once a project is underway, AFEs become the vehicle to track and monitor ongoing expenses. Currently, this is often done using the AFE module within an accounting application. However, accounting only tracks costs once they’re invoiced and approved – often taking up to 60 days after the work is completed. With this current method, there is no real-time tracking to ensure that AFEs are supplemented or revised if issues like cost overruns occur.
Solutions to Common Challenges with AFE Management
An AFE management tool should focus on the needs of the team responsible for creating the AFEs and managing reviews and approvals and should be designed to accommodate the needs of all stakeholders. This type of tool will bring to the table:
- A modern, web-based application with a modern user interface that makes it easy to navigate, setup, and track AFEs.
- Out-of-box integration with financial systems that avoids the inconvenience of dual maintenance in two systems.
- A mobile-friendly way to approve AFEs that allows for timely and efficient approval – anytime, anywhere.
- The ability to upload, integrate, and enter real-time costs from field cost estimate systems (i.e. field operation applications), allowing early and ongoing visibility into spending issues that can be actioned.
AFEs can be very complex. They span multiple roles within the organization and involve many stakeholders. A proper AFE solution is essential for efficiently reducing time from origination to approval and increases budget accuracy through formalized AFE workflows.
About The Author
Sherry Sturko, VP of Canadian Solutions, joined P2 Energy Solutions in 1998, after 15 years in the oil and gas industry in a variety of roles ranging from production and operations accounting to management. She spends her days working with customers and industry partners helping to ensure the Qbyte Suite of applications continues to support the ever-changing oil and gas industry.