Importance of AFE in Oil & Gas Industry
If you have a chance to navigate vocabulary for Oil & Gas then you will definitely notice the term AFE. There is no doubt people working in Oil & Gas Industry are very much aware about the term AFE however for others it could be new.
The term AFE stands for Authorisation for Expenditure.This particular term is used in order to drilling and completion costs.
As you might have already noticed in my earlier Upstream component overview (In case you still want to refer, check: http://scn.sap.com/community/oil-and-gas/blog/2015/04/27/upstream-industry-process-overview-sap-solutions), it was quite evident that expenditures in Upstream Oil & Gas Indusry are huge and quite capital inventive and every time, whenever such expenditure is proposed and need to be incurred by the operator, it is required to be documented in detail and that proposal definately requires approval by the associated partners in the joint venture before the starting of the project. Business can incur this expenditure only when the proposal is approved and mandate is provided.
So in short, AFE is used for approval of large Capital expedenture related to exploration, development and production. Sometime even for approval of Operating Expenditure related to exploration, development and production as well AFE is used.
Off course we are talking about SAP design so the question comes How the AFE is represented in SAP
An AFE is genrally represented through a Project captured at WBS Level.
When an expense can be booked against the AFE
Once the AFE proposal is approved by all respective partners in the JV, the WBS representing AFE can be released in the system and required expenses can be booked against it.
Now probably its time to speak for which are the AFE Processes followed in SAP
Two types of AFE are generally followed in the Industry:
- Operated AFE
- Non – Operated AFE
Lets know about the AFE Processes followed by various upstream majors:
- Standard SAP Workflow
- Custom Workflow
Standard SAP Workflow : We have noticed some companies using the Standard SAP Workflow with Appropriation Requests and approval from partners is obtained via email or hard copy.
Custom Workflow: Whereas it is seen that some companies is using the custom worlow with PRF (Program/Project Request Form) and in this case the approvals from partners are taken through the AFE Link or even via e-mails.
It could be an important question that which Workflow design to refer to address What Requirement:
Though there is no definite rulebook documented the appropriateness of the design to be followed however based on our experience we have noticed that if the business requirement is quite simple in reference to the information to be captured on AFE and also related internal approvals, the standard workflow solution can be followed.
However if the business requirement is to capture a large number of oil fields or information through AFE or if there is an additional requirement to extract the data from SAP to other 3rd party tool, then PRF with customised workflow would suit better.