What Is AFE (Authorization for Expenditure)?
An Authorization for Expenditure (AFE) is a detailed cost estimate and formal approval document prepared before drilling a well, performing a workover, or undertaking any major capital expenditure in oil and gas operations. The AFE itemizes all expected costs — drilling, completions, facilities, and associated services — and is circulated to working interest partners for approval before the operator proceeds.
What's Included in an AFE?
A typical drilling AFE includes:
- Drilling costs: Rig day rate, bits, mud/fluids, directional drilling services, MWD/LWD, cement, casing
- Completion costs: Frac spread, proppant, frac fluid, wireline services, perforating, production tubing
- Facilities costs: Tank batteries, separators, flowlines, SCADA equipment, electrical
- Overhead and contingency: Operator overhead allocation and contingency for cost overruns
- Location and permitting: Pad construction, access roads, permitting fees, environmental compliance
How Do AFEs Work with JOAs?
Under most JOAs, the operator circulates the AFE to non-operating partners with a response deadline (typically 30 days). Partners can either consent to participate (paying their proportional share of costs) or non-consent (declining to participate, which triggers penalty provisions under the JOA — often a 300–500% cost recovery).
How AI Improves AFE Accuracy
AI can analyze historical well cost data across an operator's portfolio to generate more accurate AFE estimates, identify cost overrun patterns, and benchmark proposed AFEs against actual costs of similar wells in the same area and formation.