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Authorization for Expenditure (AFE) is a formal cost estimate and authorization document provided by the operator to non operators outlining the expected capital and operational costs of a proposed activity. These activities can include drilling, completions, workovers, or facilities. Non operators review the AFE to evaluate scope, timing, and cost exposure before approving participation and committing their working interest share of the expenditures.
For non operated assets, the operator prepares and distributes the AFE to all working interest partners. The AFE details the planned activity, estimated costs by category, and the net amount owed by each partner based on their ownership percentage. Non operators review the AFE to assess economic impact, alignment with budgets, and technical rationale before electing to approve, contest, or go non consent depending on joint operating agreement terms.
A non operated AFE typically includes drilling or workover costs, completion expenses, equipment, services, facilities, and contingency estimates. It may also include non capital items such as supervision or regulatory fees depending on how the operator structures the estimate. Cost detail and categorization are critical for non operators to forecast cash flow, manage capital programs, and reconcile actuals against the approved budget once joint interest billings are issued.
An AFE is a forward looking estimate and authorization, while joint interest billing reflects actual incurred costs after work begins. Non operators use the AFE as a benchmark to evaluate whether billed amounts are reasonable and aligned with the approved scope. Variances between AFE estimates and joint interest billings are common and require tracking to ensure cost control, proper allocation, and compliance with the joint operating agreement.
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