Authority for expenditures (AFE) -

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Preparing cost estimates for a well and getting management approval in the form of an AFE is the final step in well
planning. The AFE is often accompanied by a projected payout schedule or revenue forecast. Although an essential
part of well planning, the cost estimate is often the most difficult to obtain with any degree of reliability.

1 Overview
2 Factors/cost estimates evaluated in an AFE
3 Cost estimate categories
3.1 Tangible and intangible costs
3.2 Detailed cost analysis[1]
4 References
5 Noteworthy papers in OnePetro
6 External links
7 See also

A properly prepared well cost estimate may require as much engineering work as the well design. The costs should
address dry holes and completed wells. In addition, accounting considerations such as tangible and intangible items
must be taken into account. Unfortunately, many cost guestimates are the back of the napkin type, with only a
small amount of engineering work used in the process.
The cost estimate is the last item to be considered in the well plan, because it is heavily dependent on the technical
aspects of the projected well. After the technical aspects are established, the expected time required to drill the well
must be determined. The actual well cost is obtained by integrating expected drilling and completion times with the
well design.

The following are some of the major cost estimates captured in the AFE:

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Projected drilling time (/AFE%3A_projected_drilling_time)

Time categories/ time considerations (/AFE%3A_projected_drilling_time)
Location preparation (/AFE%3A_location_preparation)
Drilling rig and tools (/AFE%3A_drilling_rig_and_tools)
Drilling fluids (/AFE%3A_drilling_fluids)
Rental equipment (/AFE%3A_rental_equipment)
Cementing (/AFE%3A_cementing)
Support services (/AFE%3A_support_services)
Transportation (/AFE%3A_transportation)
Supervision and administration (/AFE%3A_supervision_and_administration)
Tubulars (/AFE%3A_tubulars)
Wellhead equipment (/AFE%3A_wellhead_equipment)
Completion equipment (/AFE%3A_completion_equipment)

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Authority for expenditures (AFE) -

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Engineering considerations include:

Dry-hole and completed costs
Logical grouping, such as completion equipment or tubular goods
Convenience groupings, such as rental equipment
Accounting considerations include:
Tangible items
Intangible items
contingency items
The sample AFE summary in Fig. 1 illustrates several cost categories.

(/File%3ADevol2_1102final_Page_499_Image_0001.png)
Fig. 1Summary of the authority for expenditure.

Tangible and intangible costs

Accounting and tax principles treat tangible and intangible costs in different ways. As a result, they must be
segregated in the cost estimate. Although intangible costs are difficult to define precisely, they include expenditures
incurred by the operator for:
Labor
Fuel
Repairs
Hauling
Supplies
These expeditures are generally used for:
Drilling, perforating, and cleaning wells.
Preparing the surface site prior to drilling.
Construction derricks, tanks, pipelines, and other structures erected in connection with drilling, but not
including the cost of the materials themselves.
The fundamental test is defining the salvage value of the item. If the item does not have a salvage value, it is an
intangible.
Intangible drilling and development costs do not include the following:

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Tangible property ordinarily considered as having salvage value.

Wages, fuel, repairs, hauling, supplies, etc., in connection with equipment facilities or structures not incident to
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Authority for expenditures (AFE) -

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or necessary for the drilling of wells, such as structures for storing oil.
Casing, even though required by state law.
Installation of production facilities.
Oilwell pumps, separators, or pipelines.

Detailed cost analysis[1]

It is usually desirable to provide more cost detail than the general summary in Fig. 1. A sample of a detailed
summary is shown in Fig. 2.
Factors considered in the detailed cost analysis will be presented in the AFE page. The cost divisions presented in
Fig. 1 will be used. These factors are heavily dependent on company drilling philosophy and, as such, may not apply
to all companies.

(/File%3ADevol2500.png)
Fig. 2AFE detailed summary.

1. Adams, N. and Charrier, T. 1985. Drilling Engineering: A Complete Well Planning Approach. Tulsa,
Oklahoma: PennWell Publishing Company.

Well planning (/Well_planning)

PEH:Introduction_to_Well_Planning (/PEH%3AIntroduction_to_Well_Planning)
Categories (/Special%3ACategories):
1.1.2 Authority for expenditures (AFE) (/Category%3A1.1.2_Authority_for_expenditures_(AFE))
YR (/Category%3AYR)

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