It is easy to reduce AFE turnaround time. Just make ball park estimates, use some data from a previous project, some quick calls to equipment providers, some high level assumptions and bang out an AFE. Right?
Whilst the above scenario is exaggerated, there is pressure on upstream O&G Exploration & Production operators to fast-track work programs and get approvals quickly to speed up project execution.
The implications are that the operator will give a less than favourable impression to investors and AFE participants alike if costly overruns are the consequence.
The converse of this is that the O&G operator implements compliance measures on the operations. Although the standardization creates greater accuracy and certainty, it builds pressure within the organisation. AFE approvals are slowed down, decision bottlenecks are created. The consequences are that projects can be cancelled or project costs could increase.
To understand the AFE creation process, we need to consider that the AFE is the final step of many during the estimation process.
The final, most detailed estimate is the AFE estimate. But there are other estimates made first that will inform this. At the top end, we have an Order of Magnitude estimate (50-100%) which is used for project screening. Then Equipment Factored (25-50%), used for feasibility studies, where each of the major equipment components are given numbers and factors such as $/metre drilled . An Economic estimate at around 25%, provides a level of confidence. Contractors are contacted to provide their input and greater equipment detail costing is sought. The final stage is the AFE Estimate which should be the cost control estimate used in reporting internally and to participants. An AFE estimate should be reliable, within 10%.
To get the required AFE estimate accuracy of within 10%, the operator will need a robust policy, compelling workers to follow extensive and complex processes for AFE approvals.
It is easy to see the effect this can have as many AFEs work their way through the layers of the organisation creating decision bottlenecks. Along the way, a variety of word documents, forms, quotations from suppliers and commentary are attached to the AFE before it reaches the CEO’s desk for final approval.
The conundrum then is how does an organisation get reliability and certainty in the process, following policies and procedures, yet at the same time speed up the turnaround time?
Ultimately, it is about being able to manage the process. We have to make the process effective in achieving the goals of time and accuracy and at the same time, easy and user-friendly for operations staff.
This all points to having a workflow solution. Workflow, though, is not just about providing a structured, pre-defined workflow. In a multi-disciplined team, we may need more flexibility to allow more ad hoc, unstructured processes to occur yet still maintain control. This allows for decision making within the process itself, for instance, routing to another department or supplier as project details clearer.
In the next blog, I will write about the final stage of the AFE process. This is the Review stage. How can we perform better? How can the process be more effective? How do I measure effectiveness?