AFE is used for approval of large capital expenditures related to oil and gas exploration, development and production. It is mainly associated with joint operations, where partners in a joint venture need to sign off on the proposed expenditure.
The current process for AFE is conducted manually, which is slow and time-consuming. It usually involves several meetings, e-mails and overflowing cost estimation folders.
With blockchain, AFE can be streamlined using smart contracts and immutable data. The balloting process can be automated and all the parties in a joint venture can monitor the process in real-time, cutting down the time taken to settle disputes.
“Blockchain is a promising instrument for industry collaboration in oil and gas benefiting all connected parties,” said Rebecca Hofmann, chairman of the OOC Oil & Gas Blockchain Consortium.
“This proof of concept is a step in the right direction to start the transformation of how we handle the joint operating agreement process for the future.”
Founded in February this year, OOC Oil & Gas Blockchain Consortium has many heavyweight members including Chevron, ConocoPhillips, Equinor, ExxonMobil, Hess, Pioneer Natural Resources and Repsol. Shell joined a little later.
In 2018, GuildOne launched its blockchain for oil and gas royalty transactions, the Energy Block Exchange (EBX), built on R3’s Corda platform. The tech company later released ConTracks, a smart-contracting engine on EBX for joint venture interest billing, AFE balloting and road use allowances.
“We look forward to proving beyond a doubt that blockchain solutions in oil and gas are ready for primetime,” said GuildOne CEO James Graham.
This contract is in line with the consortium’s planned blockchain use cases for 2019. These include faster approvals of expenditures, tracking wastewater disposal, automated billing and payments between parties and automated digital rights ownership for seismic data.
Among other initiatives, last year UK-based oil blockchain platform VAKT launched its post-trade blockchain for the Brent crude oil market. Several stockholders of VAKT are also members of the OOC consortium.