Authorization For Expenditure - "AFE"
Definition and meaning
The Authorization For Expenditure (AFE) is a financial document used in the oil and gas industry. It serves as an official request for the allocation of funds necessary to cover the costs associated with projects such as drilling, completing, and maintaining wells. An AFE outlines the estimated expenses for tangible and intangible costs, providing a clear budgetary framework for stakeholders.
Key components of the form
The AFE typically includes the following essential components:
- Company Name: Identifies the organization responsible for the expenditure.
- Lease Name: Indicates the specific lease associated with the project.
- Location: Specifies the geographical area of the project.
- Cost Breakdown: Provides a detailed account of both tangible and intangible costs involved in drilling and completion.
Understanding these components is crucial for properly completing and utilizing the AFE.
How to complete a form
Filling out an AFE requires detailed attention to ensure accuracy. Here are the steps to complete the form:
- Fill in the header section with the AFE number, date, and responsible party.
- Input the company name, lease name, and location details.
- Estimate drilling costs, categorizing them as tangible or intangible.
- Calculate completion costs in a similar fashion, ensuring all expenses are accounted for.
- Summarize total costs, including the company's share of the overall expenditure.
Finally, review the form thoroughly before submission to ensure all data is accurate and complete.
Common mistakes to avoid when using this form
When completing an AFE, users should be vigilant to avoid these frequent errors:
- Failing to double-check numerical entries, which can lead to significant budget discrepancies.
- Neglecting to include all relevant costs, specifically intangible expenses that are easy to overlook.
- Using outdated project information or assumptions.
- Not obtaining necessary approvals before submitting the AFE.
Avoiding these pitfalls will enhance the reliability and validity of the expenditure authorization process.
Who should use this form
The AFE should be utilized by project managers, financial analysts, and executives within oil and gas operating companies. It is particularly relevant for teams involved in budgeting, financial planning, and capital expenditures associated with drilling and completion projects. Understanding its purpose ensures informed decision-making regarding funding allocations.
What documents you may need alongside this one
When preparing an AFE, it may be necessary to gather additional supporting documents, including:
- Previous AFEs for similar projects.
- Cost estimation reports and analysis from operational teams.
- Approval letters or memos from upper management.
- Vendor quotes for materials and services required for the project.
Compiling these documents can assist in justifying the AFE and streamlining the approval process.
