AFE Transformation for Oil & Gas

Overview

Crude oil prices were uncharacteristically high and stable from 2016 to 2019, which led to a 280% increase in global Capex budgets. This operating strategy reflected a volume over value method. Recently, Crude Oil has dropped by 70% based on a slowing Chinese economy, a surge in US production, and OPEC production disputes. Companies are challenged to continue to increase production while driving down cost, however, operations regardless of cost is no longer the status quo. The best operating strategy is now value over volume.

The industry is suffering through one of the worst commodity price downturns in history and operators need an innovative way to enable financial discipline.The leading industry method for cost control is the Authorization For Expenditure (AFE) process; however, most clients express that these systems have poor user interfaces, slow workflow processes, and require users to understand complex General Ledger coding. These AFE complications and inefficiencies create volumes of wasted man hours and millions of dollars in lost revenue every year. Sia Partners & Appian have developed a better AFE system which speaks the language of oil & gas operations and eliminates complicated GL language and workflow processes. The objective of the AFE process is to communicate a responsible plan for employing the company’s capital, ensuring accuracy and control in reporting the results of project performance.

Real world examples of AFE Problems:

• A dummy AFE used to collect development costs which never get allocated to the right project (can be Millions of $)
• Supplemental AFE never gets created, therefore clients "cashflow" their partners (can be Millions of $)
• Unauthorized spending collects to your AFE (can be Millions of $)
• The AFE developer leaves the company
• Engineers doing Accounting
• Accountants doing Engineering

Key Features & Functionality

With Appian's AFE Transformation application, O&G companies can streamline, track, and learn from all their AFE's.

1. Operationalize the AFE
   • Establish consistent estimating methodology process and procedures
   • Update estimating language from financial terms to operational terms
   • Link reporting to operational tasks to enable better business decisions and continuous process improvement
2. Link to Supply Chain
   • Link estimate details to supply chain contracting for accurate pricing
   • Enable seamless procurement and AP processes by linking to AFE Approval
   • Negotiate contracts with suppliers based on predictive analytics and forecasting from AFE data
3. Enable with Technology
   • Create the AFE forms to be simple and user friendly to aid adoption
   • Link system data to forms and establish base case scenario to speed up user performance
   • System workflow base on DOA requirements, with approval notification sent to subscribers