One of the consistent issues faced by operators in the Oil and Gas industry is how to manage AFEs. The AFE (Authorisation for Expenditure) is the mechanism used particularly in a joint venture environment to ensure good cost and budgetary control.
What can go wrong? Well lots actually, but lets look at one aspect: there are many touch points where costs are incurred. This can be on an oil rig, on a site or in the head office and include such costs as technical experts’ time spent on a project or physical ordering of goods and services.
People incurring these costs are dispersed geographically.
I asked what can go wrong, well let’s start with the fact that frequently this process is managed using spreadsheet templates. This raises a number of problems:
1) there is no easy way to ensure that time or cost is being put against an up to date AFE list
2) authorisers will most likely be in a different location to where the cost is incurred and won’t have a full picture of the budget position to effectively make a decision; and
3) Old, closed AFEs can still be in circulation on the ground, and so there may not be the budget for that AFE.
Consequence? The cost is put against AFEs where there is no budget. Either this cost has to be argued out or attempt to allocate against another budget. The non operator participants will be closely monitoring the spend against the agreed budget. Or worse still, we the operator have to bear the cost.
And there are many more issues which are created in this offline spreadsheet environment.
AFE needs to be controlled online. The benefits of this? Well by being online means, firstly, realtime. Realtime means any activity is recognised as it occurs. As soon as an order is raised anywhere in the world, it is accounted for against the budget and therefore we can recognise potential cost overruns before it occurs rather than after the event.
Another online benefit is that people on the ground have access to only the AFEs and cost codes that they are allowed access. This means one centrally controlled master list. No old versions.
Of course, this only works if the people on the ground use it. The goal then is to make it as usable and simple as possible, taking away the accounting complexities from the end users.