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AFE: supervision and administration
Project management costs must be considered in the authority for expenditure (AFE). These charges include well supervision and administration. Large costs can be incurred for deep wells or problem wells, such as those that encounter H2S.
Supervision includes direct management of the well, including the on-site supervisor and any members of the office staff who are dedicated to the project. Mud or completion consultants may be considered as supervision. Specialized personnel such as mud loggers are not considered in the supervisory charges.
Administration charges can be handled in several manners. Some companies prefer to apply only direct supervision charges to a given well and charge support office staff members to general company overhead. Other companies divide all overhead charges among the wells to be drilled in a fiscal year.
Regardless of the accounting method, some of the charges that must be considered are
- Staff engineering support.
- Clerical support.
- Office overhead.
- Special insurance, including blowout insurance, and bonds.
- Legal work.
- Special document preparation.
Method for cost estimation
A method for computing supervision and administration costs is to assume that a consultant will handle all operations. The on-site supervisor is the drilling consultant. An office consultant performs all administrative functions on an hourly basis (e.g., 200 hours for a dry hole and 300 hours for a completed well).