Good morning, ladies and gentlemen, and welcome to our 2022 Half Year Results Presentation. I'm Amjad Bseisu, and I'm the Chief Executive Officer of EnQuest. Joining me today at this presentation are Salman Malik, our new Chief Financial Officer, and Richard Hall, to my left, our Managing Director, Global Operations and Developments. Salman will present after me the financial results with Richard then covering our global operations performance. This is a continued volatility time in financial and commodity markets, and of course, it's of concern to us that there is yet to be conclusion to the conflict in Ukraine. The ongoing crisis in Ukraine, coupled with rapid inflation in the U.K., has highlighted the importance of affordable and secure energy supply, including the long-term transition to renewable energy. We'll talk a lot about this today.
Companies like ourselves continue to have an important role in making the most of the resources we have to meet society's energy demand as we make the transition to lower carbon economy over time. For some time now, our strategy has been focused on our three pillars of deliver, and grow. This slide lays out a summary of our key areas of progress. With a strong safety performance, again, safety is our first priority, production towards the top end of guidance, and the successful execution of our well programs in the U.K. and Malaysia, we remain on track to deliver against our 2022 guidance targets. Also reflecting our strong operational delivery and higher commodity prices, we have generated a very strong $332 million of free cash flow in the first half of the year.
As such, we've maintained our strong trajectory to accelerated deleveraging with net debt at the half year $800 million and at the end of August at $818 million. We've made excellent progress in bringing our net debt to EBITDA below our target of 1. As you see, we are at 0.9. Towards our new stated target of 0.5 x net debt to EBITDA. This strong cash flow generation also enables us to look at greater optionality as we look to refinance the high yield bond. A stronger balance sheet also will provide a platform to balance future organic and inorganic investments, further deleveraging, and in the longer term, returns to shareholders as part of our capital allocation framework.
We continue to assess our future organic growth opportunity set across our business, remaining very disciplined in our investment decisions, and we will continue to mature the strategically important and advantaged opportunity set we have in our infrastructure and new energy business, as I will outline. We remain focused on maximizing value by investing in highly economic opportunities in our existing assets, as well as unlocking value through new development opportunities in upstream and decarbonization. Starting with our existing assets at Magnus, PM8/ Seligi, and Golden Eagle, we have plans to deliver multi-year well programs to mitigate decline, drive growth, and maximize recovery from these mature assets. At Kraken, we are excited about future drilling opportunities where we plan to drill a sidetrack well and further develop the western flank in the coming years. We'll finalize our seismic interpretation work that started this year.
We also have the opportunity to unlock significant value from new developments in the traditional oil and gas and new energy areas. We're exploring options with PETRONAS to unlock development of a material gas resource at Seligi. In Bressay and Bentley, which each have around 1 billion barrels of oil in place, we're working diligently with our partners to progress field development studies for Bressay. The Bressay team and the Bentley team is focused on reevaluation of the existing subsurface data at present. These two projects are not without challenges, but we're working to utilize our experience in this heavy oil area to move these projects forward. Of course, we have an extensive new energy and decarbonization opportunities at Sullom Voe terminal, a very valuable resource and infrastructure.
I'm very confident that EnQuest's core strength of operational excellence, value enhancement, and differential operating capability, underpinned by financial discipline, positions us well to execute the opportunities which exist in this arena. As you see in the slide, and with this mix of opportunities, I truly believe EnQuest is a unique transition company. We operate across the asset life cycle to deliver U.K.'s twin objectives of energy security and decarbonization. Energy security by developing and maximizing the life of existing fields through cost management and selective investment while reducing emissions. We have reduced our emissions by over 40% from the U.K. Government guideline. Decarbonization by repurposing our existing infrastructure, pipelines, and reservoirs to deliver material emission reductions. We are demonstrating this ambition and capability at the Sullom Voe Terminal and the Magnus and Thistle reservoirs. I'll talk more about this shortly.
Lastly, we're demonstrating and building capability delivering significant decommissioning projects, including successful vessel off station projects at Alma and the Dons, as well as the concurrent major well plug and abandonment programs and projects at both Heather and Thistle. In summary, our business model supports delivery of energy security through new developments and life extension of existing assets. We then look to repurpose existing infrastructure and assets to deliver significant decarbonization projects like carbon capture and storage, electrification, and green hydrogen. That takes the assets further into decommissioning, truly maximizing the full value potential from these assets. Moving on to the new and exciting area of infrastructure and new energy. We continue to develop cost-effective and efficient plans to transform the Sullom Voe Terminal and prepare and repurpose the site to progress decarbonization opportunities at scale, focused on carbon capture, storage, electrification, and green hydrogen.
We have secured exclusivity from the Shetland Islands Council to progress these opportunities on the site, and we look to deliver our new energy ambitions alongside delivery partners in a very capital-light manner. We're progressing three opportunities, one which is more advanced, the carbon capture and storage. At Sullom Voe, we've access to deep water ports with four jetties, some of the deepest water ports in the U.K. We have a pipeline network linked to several well understood offshore reservoirs that present an opportunity to repurpose the infrastructure and import and permanently store material quantities of carbon dioxide from isolated emitters. Initial studies have indicated the capability to use the existing infrastructure, including the EnQuest-operated East of Shetland pipeline system and storage sites to support the project of 5-10 million tons per annum of carbon dioxide injection.
This is a huge amount of CO2 that we could safely and securely remove from the atmosphere. To give you an idea of the scale and purpose compared to our existing emission footprint, we've included an indicative graph to the right-hand side of the slide. We've reduced our emissions from probably over 1.5 million tons a year to just above 1, but this will make a marked difference in giving us a truly net negative footprint. On electrification, we're in discussions with the West of Shetland field owners to provide a shore-based electrification solution for their fields. Sullom Voe is very well positioned in this respect, having power and being connected possibly to the grid in the future. On hydrogen, we sit at the heart of an enormous amount of offshore wind resources being developed.
We believe the site is well positioned to harness the resource into green hydrogen and its derivatives. As you can see, we've made great strides in reducing our scope one and two emissions over the last few years. I've mentioned we are 40% below the 2018 baseline, and we continue to explore opportunities for further reduction of our emission footprint. However, it's clear the step change can come from progressing our carbon capture and storage initiative, and a multiple of our own emissions would effectively allow us to become beyond net zero contributor, and indeed a net negative contributor. Our strategy is anchored on our unique infrastructure position with a strong engineering capability and execution capability. Therefore, we expect to unlock these opportunities in a capital-light manner with support from strategic and financial partners.
As I've outlined, we have a great opportunity set in our core business upstream with investment opportunities in assets like Magnus, PM8/ Seligi, and unlocking new development potential in Bressay and Bentley. Our energy transition strategy also provides significant repurposing potential while lowering our carbon footprint in the long term. As we move through the energy transition spectrum, I look forward to making further progress in each of these areas in a disciplined and innovative manner. I will now hand over to Salman to go through the financial performance in the first half.
Thanks, Amjad, and good morning, everyone. Let's begin with a summary of our financial performance. Turning to slide eight. During the first half of the year, we achieved record revenue of $944 million, representing an 82% increase relative to the same period last year. This increase was primarily driven by higher commodity prices as well as strong production performance on the back of completion of the Golden Eagle transaction last year. During this period, our sales barrels were lower than our production barrels as we moved from an over-lift position at the beginning of the year to an under-lift position at the end of the half year. In terms of costs, we witnessed an increase during this period as a result of contribution from the Golden Eagle acquisition, an increase in diesel and chemical costs, and higher emission costs.
We also increased our spend on maintenance and well work activities on our fields, including Magnus and PM8. Overall, despite the increase in costs, we witnessed an 82% increase in our cash generated from operations of $523 million. We also generated record free cash flow of $332 million, which is a record in a half year since the inception of the company. However, despite the strong cash generation, we remain focused on cost control, maintaining capital discipline, and deleveraging the balance sheet. We've reduced the group's net debt position from over $1.2 billion at the beginning of the year to $880 million by half year, bringing our net debt to EBITDA ratio below 0.9 x. Turning over to slide nine.
The bridge chart on the left-hand side shows the key components that help deliver a $342 million reduction in our net debt since the beginning of the year. As I mentioned earlier, we generated cash from operations of $523 million. This was offset by $25 million of net expenditure on decommissioning tax and insurance proceeds. We spent $55 million on CapEx, $52 million in cash interest on our debt facilities, and $59 million in lease payments, predominantly relating to the Kraken FPSO. Now I would like to talk about the movement in different elements of our capital structure.
Starting with our RBL facility, we reduced our drawings from $415 million at the beginning of the year to $115 million by half year, and a subsequent reduction to $90 million at the end of August, far ahead of our amortization schedule. In relation to our U.S. high yield bond, as we announced in our operations update, we've embarked on a program to selectively buy back some of those bonds. By the end of August, we had bought back $33 million of those bonds from the market, bringing the outstanding balance down by 4% from $827 million to $794 million.
In terms of the Sterling bond, back in April this year, we extended the maturity of some of the bonds with GBP 133 million now maturing in October 2027. Overall, we delivered strong free cash flow and reduced and extended our debt instruments across the board. Turning to slide 10. As you can see from the chart on the right-hand side of the slide, our financial position continues to strengthen. We've steadily reduced our net debt position and leverage ratio over the last few years. Our net debt of $880 million at the end of June now stands at its lowest level since 2014. Our indicative net debt at the end of August is $880 million.
Similarly, from a leverage perspective, our net debt to EBITDA ratio has declined steadily over the last few years to around 0.9x at mid-year, demonstrating excellent progress towards our target of 0.5x. We have a hedge program that seeks to balance our desire to protect cash flows while providing reasonable exposure to the strong commodity price environment, that will help drive further deleveraging. We hedged 8.7 million barrels during 2022, of which 3.4 related to the second half of the year as an average floor price of $60 and a ceiling of $79. For 2023, we have 3.5 million barrels hedged, predominantly relating to the first half of the year at an average floor price of $57 a barrel and a ceiling of $77 a barrel.
Going back to our capital structure, our priority is to further strengthen the balance sheet. We continue to explore a variety of financing options in advance of the maturity of our 2023 high yield bond. We believe the appropriate financing solution would provide us with greater financial flexibility, help reset the capital structure, and bring our weighted average cost of capital down. Turning to slide 11 and our expectations for 2022. Overall, our expectations for 2022, they remain unchanged. We expect full year OpEx at $430 million, CapEx of $165 million, and decommissioning expenditure of $75 million. We're also maintaining our full year production guidance of 44,000-51,000 barrels. On a year-to-date basis by the end of June, we averaged 49,726 barrels.
Activities in the second half of 2022 include our shutdown campaigns at Magnus and Kraken, as well as execution of our extensive well work program at Magnus and PM8/ Seligi. As you can see from the charts, our expenditure in the first half of the year was lower than the expectation for the second half. Accordingly, our free cash flow is weighted towards the first half of the year. The second half of 2022 would also see our first payment of the energy profits levy in December this year. We also expect to make a profit share payment for Magnus to BP during the second half of the year. Total operating expenses are tracking in line at the end of June and the $430 million incorporates cost inflation, including increased emission costs, diesel costs with partial offset from a favorable foreign exchange rate.
We expect an uptick in CapEx and DECOM expenditures in the second half of the year, reflecting the phasing of our various work programs, but are comfortable that we will remain in line with our original guidance. Now turning over to slide 12. As Amjad and I have outlined, we've made significant progress on our strategic objectives of deliver, delever, and grow. The balance sheet is already in a lot stronger position, with strong cash generation, acceleration of debt reduction, and partial extension of our debt maturities. We intend to leverage our improving balance sheet, our material tax position, and build on our ability to maximize value from existing assets by focusing on operations, differential capability, to deliver life extension. With the additional impact of our strong new energy and renewable opportunity pipeline, we believe we're well-placed to deliver five key financial priorities.
Number one, continue to delever the balance sheet towards our target of 0.5x . Number two, reset the capital structure by pursuing appropriate refinancing opportunities. Number three, exercise capital discipline and optimize the execution and delivery of our capital program in light of the energy profits levy. Number four, unlock accretive M&A and progress the maturation of renewables and decarbonization opportunities set at Sullom Voe in a manner that involves limited capital exposure for EnQuest. As Amjad said, we would look to do that in partnership with strategic and financial partners. Last but not least, number five, create a pathway to deliver shareholder returns in the long term. Thank you. I will now hand over to Richard to take you through our operational performance.
Yeah. Thank you, Salman, and good morning, everyone. Let me start with an overview of our performance, before moving on to each of the assets in detail. Overall, we've delivered a strong performance in the first half of this year, with production up almost 8% on the same period last year and towards the top end of our full year guidance range. In general, strong uptime has been a feature across our portfolio of assets, including the continuation of top-quartile production efficiency at Kraken, and which is an FPSO. Although we've had further equipment and well-related challenges, as you would imagine and expect at Magnus, to manage the asset being 40 years old. Our high uptime performance can in part be attributed to the focused management of critical components and work scopes.
We've been mitigating shortages of personnel and equipment within the industry at the same time. Further to this, we've moved to globalize certain key operational roles, and that entails a more consistent approach to managing operations across our asset portfolio, which includes Malaysia. As you would imagine in this time of skill shortages, access to our Malaysia talent pool is very helpful to the organization. Our well intervention programs in Magnus and Malaysia during the first half represented low-cost production enhancement scopes, and we've clearly benefited also on the production side from the acquisition of the Golden Eagle asset. If I go to the assets in more detail, you'll see Kraken here was ahead of guidance with average daily production of 19.5 thousand barrels per day net.
Production and water injection efficiency, as I said, for an FPSO, were very strong, at 92% and 95% respectively. The subsurface and well performance from the asset continues to be good with year-on-year reduction, which you see there at 18%, essentially reflecting the natural decline of the reservoir. The near-term focus on this asset is our planned maintenance shutdown program, which will begin later this week. We've optimized the work scope to minimize disruption to our production. With half of the two-week duration, we will operate in a single processing train, and we'll have a full shutdown for the rest of the period.
Looking further ahead, we are continuing to assess near-field drilling and subsea tieback opportunities, and we're looking at 2024 for a drilling program in the western area and probably a sidetrack, as Amjad has already alluded to. At Magnus, on the right-hand side of the slide, you'll see the production efficiency is noted as 73%. I should tell you that excluding the impact of well head issues, which we've been very open about previously, that Magnus production efficiency is currently around 85%. Well head failures are there. They reflect aging equipment and the limitations of a 40-year-old design, but we're on top of this and looking at a reinvigoration program later this year.
Notably, one of our best producers has unfortunately been impacted by this wellhead issues, but we will be working this over as soon as possible after completion of the Northwest Magnus well, which I'll turn to now. In support of our 2022 program, we completed the restart of the rig after two years without any drilling at Magnus. That was a significant achievement, which stands us in good stead for the future. Two wells were successfully returned to service during the first half of the year, and the Northwest Magnus infill well was successfully drilled and logged in late July. Now, this well has the longest reservoir section drilled since 2000 anywhere. It's 1,900 meters, and it's got the longest liner ever run in Magnus, which is over 6,000 meters. So far, so good.
Log results are very encouraging. We expect to complete the well later this month after the planned maintenance shutdown. That planned maintenance shutdown is already underway and should be completed very shortly. Our well work program then will continue, and it's evolving from the original, the originally envisaged program. One of the things I'd like to point out is that one of the wells, A6, was nominated as a drill prospect, but actually we've used a value-accretive execution technique using an alternative approach, which has delivered similar barrels to those expected from the originally planned sidetrack, but at an appreciably lower cost.
The change in program focus means that it's unlikely we will drill any further wells in 2022, that's infill wells, but we do plan to continue that infill drilling in 2023, and in future years, given the extensive opportunity set on Magnus. Once again, I would emphasize that the A6 interventions effectively replaced one of our planned infill wells in the first half. If I turn now to Golden Eagle. This acquisition has proved a highly cash-generative addition to the group's portfolio, and the asset has already generated around $200 million of the $250 million we spent in cash acquisition costs. Production efficiency is strong, 95%, and the annual shutdown was executed in two days rather than four.
The joint venture has indeed approved a two-well infill drilling campaign, which is gonna commence this quarter, with first oil expected early next year. We are proactively working with the operators to share insights on the field performance. On the right-hand side of your slide, you'll see a 16% increase in other U.K. assets, and that's most notably the Greater Kittiwake Area, GKA, and the continued positive impact of work that we undertook to complete in the first quarter to optimize gas lift delivery pressures. Also of note is that we completed the planned shutdown in 11 days instead of 14.
In continuation of our innovative approach to managing our assets, we've taken a subsea gas accumulator concept right the way through to implementation, and this has now mitigated the need for gas import to support any GKA restart requirements. Moving next to my alma mater in Malaysia. I'm really pleased to report that production during the first half of the year increased 31% to 6,300 barrels a day, and the team over there has delivered excellent performance again following the early replacement of the riser system back at the start of the year. Production efficiency very high, 93%, and we've seen very efficient delivery of our well program. It was a comprehensive well program. Four planned workovers were completed on budget and ahead of schedule.
Production has been in line with expectations, and we've also successfully done a three-well P&A, that's plug and abandonment campaign, 30% below budget. In recognition of some of this work, which was done with a hydraulic workover unit, we've received three PETRONAS recognition awards based on our commitment to safety, application of new technology, and leveraging of efficiencies in schedule and cost savings. The Malaysia team has also had further success in bringing the group's first horizontal well at this PM8 asset online. It was drilled at the Seligi Charlie platform. It was on stream in July with very encouraging initial production rates. All in all, a good first half, and we actually reached a good spot rate of 18,000 barrels a day gross from the platforms, as last seen about three years ago.
The drilling rig that we've used on Charlie is a semi-tender. We've moved that now to the Seligi Delta satellite platform, where we have two further horizontal wells to drill. Looking further ahead to next year, we have a three-well infill drilling program, which is consistent with our asset strategy to optimize recovery of the significant oil and gas resources still in place at Seligi. We also plan an exploration well next year in Block PM409, which is a potential tieback to the Seligi complex. I'll move on just further to repurposing at Sullom Voe. The Sullom Voe terminal's already been mentioned by Amjad, and it's a place where we continue to explore options to repurpose areas of the terminal to progress our energy transition opportunities. Very important to this is the right sizing of the plant there.
It's high on our agenda to bring efficiencies for existing users and provide space for our decarbonization ambitions. As part of our upcoming carbon capture and storage licensing round applications, also previously mentioned, we will be outlining our plans to leverage the existing site infrastructure and our desire to continue to investigate the potential for transforming some of our previously depleted reservoirs offshore into carbon storage acreage. Finally, decommissioning. In terms of the extensive decommissioning work we are undertaking at both Heather and Thistle, the P&A campaign there is progressing well. Six wells have been completed at Heather and nine wells at Thistle, with a target which we should attain of 16 wells at each installation by the end of the year.
We've also been out to market for heavy lift vessels to take out the topsides and jackets, and that effort has now been concluded. At the Dons, the subsea infrastructure removal is progressing as expected, with two phases already completed in the first half of the year. The final phase will be done this quarter. Now this follows up from work last year to remove the Northern Producer floating facility itself from its station. Since then, it's been very pleasing to hear that the North Sea Transition Authority has described the project as an example of exemplary execution and best-in-class performance in the North Sea for prompt asset removal, reduction of post cessation production OpEx, and reduction of carbon dioxide. I'm sure everyone would appreciate the achievements of our decommissioning team in delivering such a strong performance.
In summary, let me summarize. We've had a good first half of the year and remain confident in delivering on our near-term targets while progressing further barrel-adding opportunities. We remain focused on maximizing value from our existing assets, through targeted maintenance and enhancement programs and by identifying repurposing opportunities. With that, I'll now hand you back to Amjad for some closing remarks. Thank you.
Thank you very much, Richard. As you've heard, we have a strong business that has this opportunity set across the energy transition landscape. We've continued to make excellent progress on delivery of our strategy with strong production performance and material free cash flow generation, driving a significant reduction in net debt since 2017. As we move forward to our targeted net debt to EBITDA ratio of 0.5x, which is a new target. Our strategy remains unchanged, but we are beginning to look forward to a future with a strong balance sheet that will allow us to evolve our capital allocation mix. Balancing disciplined investment in organic and inorganic opportunity in traditional oil and gas with new energies, with sustainable returns to shareholders. I'm excited about our future. It starts and ends with safety, but it's also about capability.
You've heard many instances where we are delivering exceptional performance. We are upper quartile delivering in drilling and have delivered upper quartile drilling performance for a long time. We are now delivering P&A performance and decommissioning, which is also exemplary, and we are delivering project execution, which also is very strong and exemplary. This gives us a strong footing to be strongly positioned, not only in our upstream business, but also in the important role in the energy transition by responsibly optimizing production and energy security, leveraging our existing infrastructure, and using the same skill sets, which can deliver strong decommissioning as well as exploring new energy opportunities. Decarbonization will also figure in our future, and we've discussed that, which is also quite exciting. I think we have a great future ahead. Our upstream business is strong.
We are developing our DECOM business, and we are looking for opportunities, very low capital opportunities in a new repurposed energy, new energy business. Thank you for your time. We'll now move to the Q&A part of the presentation. Before we take questions from the room, I will ask the operator to provide instructions on how those who have dialed in can raise a question.
Thank you. If you wish to ask a question from the phone line, please press star one on telephone.
I guess what we'll do is we'll move to the room here first to ask questions, and then we'll take questions from the audience that's not in the room.
Thank you. It's Mark Wilson at Jefferies. First, a point. Can I ask on that EPL payment you're making in December? Are you prepared to say how much that is in cash and how much the overall 2022 EPL is?
Are you asking more than one question, Mark, or just that question?
I'll start with that one.
Yeah. I think to be honest with you, we are looking at our capital program for the second half. We have spent about $50 million, and we have another $115 million to spend in the second half. We are considering how that is best impacted by the EPL, which was new to us, obviously, when we put the plans together. Given the price, given the program, I think it's difficult to give an exact number.
Okay, cool. On the longer term projects that you spoke to, Bressay, just remind us of the tieback distances they would be to Kraken and if there's any other technical specifications that are important to be told to us regarding the crude. In Sullom Voe on the carbon capture, very interesting and with the pipeline system, are there depleted reservoirs in that area, or would it more be an enhanced recovery method of injecting CO2? Thanks.
I'll answer the first question and partly the second question and then take it to give it to Salman to give us a bit more detail on the methods and the reservoirs. On Bressay and Bentley, Mark, we the distances to Kraken are quite small. They're probably between 15 and 20 kilometers. It's probably similar to the Western Flank area in terms of distance, so it's not a very long distance. The issue is that we are looking at different options and whether the compatibility of crude works, and whether the risks of putting the two groups together or dedicating, you know, a different train, because we have two trains at Kraken, and whether that would make sense and when that would make sense.
Clearly with the good performance at Kraken, I think that would make sense in the longer term, but maybe not in the shorter term. We are also looking at the option of utilizing the EnQuest Producer as an early production solution where we drill a small number of wells, and that would allow us to use existing infrastructure, test the reservoir, especially at Bressay, with a small well program and a small investment program to give us confidence in the full field development. As you know, Bressay has 1 billion barrels in place and is very similar in characteristics to Kraken.
It would be prudent before we embark on a full program to try and see if we can have an initial period with a field development that's an early field development type program. On Sullom Voe, we're very excited about the opportunities there. Clearly, we have infrastructure which is quite valuable, both deepwater jetties, power, offshore gas and offshore oil and, you know, gas pipelines going west and east of Shetland. The west of Shetland ones have a limited life.
We are excited about the opportunities, and we will be looking to use the terminal, the compression in the terminal, the footprint in the terminal, the expertise in the terminal, the people, the engineering and operations expertise in the terminal to see if we can leverage that. We have said we are applying for two licenses east of Shetlands on reservoirs that we've had in the past that we're familiar with. The combination of understanding the subsurface and understanding the reservoir, repurposing the pipeline, and having the onshore location gives us a very low cost capital entry point into this project, versus somebody that's trying to start from a scratch position. We feel that's a competitive advantage in terms of a low cost capital solution.
Salman, I don't know if you wanna talk more about the reservoirs and the OR methods.
Yeah. Just in terms of the reservoirs, there's a whole host of depleted reservoirs in close proximity to our pipeline. We have in fact nominated two areas for the upcoming CCS licensing round. The North Sea Transition Authority included those areas in the applications, and we intend to submit applications for two, as Amjad said. They're due by the 13th of September, with awards likely Q1 next year. The early works we've done demonstrate that there is an enormous amount of storage capacity in a whole host of reservoirs which could justify projects lasting into decades.
JP Morgan. In the interest of time, I guess I've got four questions, please. Just following up on Sullom Voe. You know, you talk about a sort of capital light opportunity, but presumably there is, you know, some fairly significant repurposing of the site, you know, whether it's building HVDC or AC type, you know, converters, you know. Could you maybe talk a little bit more about, you know, the potential capital requirements for it and the kinda need to bring in partners? That'd be first. I think it's an interesting opportunity.
Should we start with that, James? Or you wanna go to?
Yeah. No, yeah. It'd be good to start with that. The other question's slightly different.
There is no question that we are looking for a capital light approach. In terms of the carbon capture, these are also opportunities which are this decade, but probably later part in terms of, will take time for gestation and for them to be developed properly. You know, if we are awarded the blocks, we'll have to do studies on the blocks. We'll have to do studies on repurposing. We'll have to look at the compression onshore. There, you know, there's a lot of front-end engineering work that has to be done to look at, what the project looks like and, you know, prior to execution of such a project. I think these cycles are quite long.
I do believe we have an absolute, we're front-footed on the CapEx here because we have an infrastructure which is usable. If this, you know, if the carbon prices are such that we can move this forward, we will be ahead of the pack because of the existing infrastructure which is there. In terms of our capital allocation, it's been very small. It's been in the single-digit millions, and will continue to be so until we FID a project. When we FID a project, we will look for outside capital, and that will be, you know, whether we end up with a smaller share of the project, that is not our intent.
Our intent here is to look for really strategic partners and outside capital to help us with something which is, you know, which will access a different pool of capital than we normally do at the upstream business.
Okay. Thanks for that. Just thinking about the next couple of years, you know, the EPL is gonna be in place probably until 2025. Could you maybe talk a little bit more about your response to that levy, you know, could you maybe provide some kind of high level guidance or granularity about CapEx expectations, things like that for the next couple of years? I mean, obviously you're spending $165 million or so on CapEx this year, but maybe some pointers about how you might be responding to the levy.
I think we're looking at our existing assets at present and just seeing what sort of additional CapEx would make sense as the economics have changed for us with the capital allowances. You know, that set, which we were looking for very short paybacks, very attractive economics, that set has increased. We are looking at that set. In Magnus, we're limited by the number of slots, and I think Richard and the team have done an excellent job at coming up with some innovative programs to have a dual approach to wells. I mean, he mentioned A6, which is a new approach to having simultaneous operation on the platform, so the ability to do more.
That also segues into the ability to invest more in Magnus. At Kraken, we're accelerating the team looking at the subsurface and seismic, which just finished, to try and make sure that we get a feeling for what the subsurface looks like, you know, to get an understanding of how many wells and, you know, what sidetracks as well as the western flank, how do we move that forward into the window of the EPL. Farther afield, you know, we mentioned Bressay and Bentley, we will be looking at trying to ensure that we have something in the window if possible, because the economics would make sense. Those are the three things that we're really focused on at present.
Okay, thanks. I guess thirdly, the market's obviously very interested in the refinancing of your high yield debt. You know, I think both in terms of sort of duration and also obviously the ability to return cash to shareholders given the free cash that you're generating. Could you maybe kind of give us an update in terms of the market environment it is now and maybe some of your preferences or how you're leaning to in terms of refinancing the debt side of the business in the near term?
Okay. I will turn this one to Salman.
Thanks, Amjad. We've had very strong free cash flow generation that's already brought net debt levels down considerably. The leverage ratio 2.9 x, net debt end of August at $818. I think we've always said we are looking to have a balanced capital structure. With this deleveraging, we believe that a 50/50 ratio or perhaps a slightly stronger orientation towards RBL support, lower cost of funding, is what our preference would be, supported with a variety of options that we're exploring in relation to a subordinated instrument. Ultimately, our aspiration, our driver is a set of options that maximize financial flexibility to unlock future growth potentials for us or future shareholder return potential for us, but also to minimize the cost of debt capital for the company.
In terms of the environment, it's been extremely volatile. As we know, the high-yield market environment in the summer, the window was essentially shut for a period of time. We did see some green shoots towards the tail end of the summer. I think we've said previously that we typically have windows after our half year and full year results, and we wanna make sure that we're ready in each of those windows. Moreover, as I've said, we are looking at a variety of options that would compete with each other to deliver the lowest cost and most flexible form of financing.
Thanks, Salman. Just final one for me then. You know, when you did the Malaysia acquisition, you know, part of the concept there or the opportunity was obviously around the gas in and around PM8 /Seligi. Obviously, with global gas prices as they are, could you maybe talk about your ambitions to allocate capital into the gas projects in Malaysia? How quickly should you be doing that? Are there kind of domestic market obligations that might make gas less attractive than, you know, spot markets globally? It'd be good to understand that because it feels like an opportune time to chase what is quite big gas in place.
Yes. Thank you. Thank you, James. No, it's not lost upon us that this is a very unique and a very strong opportunity. I think in the past, there has been excess supply of gas in Peninsular Malaysia, and their estimates was around the mid-twenties where they will need gas. But I think that may have shifted. We are in active discussions, and we indeed would love to invest there. At present, we only have rights to the PM8 gas, and we are selling some PM8 gas, as you see, and that is continuing. The market isn't as robust or as strong as the markets that you see with LNG and certainly not European gas markets.
It's linked to HSFO prices there, which. It's a fraction of that. It's a domestic market type obligation at a lower price. However, it's still attractive enough given the possible terms that we can negotiate with PETRONAS to put something in place. We are in discussions, and we're, you know, we look forward to having an economic program where we do allocate capital there too.
Okay.
Okay. Should we go for questions from outside the audience here?
Once again, if you wish to ask a question over the phone, please press star one and one on your telephone keypad. That's star one and one.
In the meantime, we have some questions remotely. Do you want to ask those, Ian?
Thank you, Amjad. Yes, we have a few questions from the webcast, many of which actually you've answered already, but so I'll focus on the new ones. First one from a variety of private investors relates to dividends. When do you expect to pay a dividend, and what sort of size and structure would this be? Secondly, why were you not doing share buybacks now, given the cheap valuation and the progression on the debt that you've already made to date?
Okay. In terms of dividend, we have said that now as we get closer to our target of 0.5 and get the refinancing done, the allocation of capital going forward will include a return to shareholders. I think that's something that we're looking at and continue to assess. You know, as we get to our target and as we refinance, I think that would be the next step for us to consider. In terms of buybacks, we have been clear about our buyback program in advance. We have bought, I think 33 million up to the end of August, 33.5 million or so. That has...
We feel that that's the right approach as we look into the refinancing, instead of buying equity or looking at repurchase of equity shares. That's. I think that's.
Thank you, Amjad. Moving on to our hedge book and the position for hedges in 2023 appear to be relatively low compared to 2022. Is this a shift in hedge policy, or is this linked to the liquidity in hedging markets at present?
Yeah, Salman?
Yeah, I will take that. We've got 3.5 million barrels hedged next year, and that, as I said, predominantly relates to the first half of the year. We're fairly consistent with our hedge policy over the years, whereby we hedge approximately 50% of our production. We are unhedged and exposed to fairly constructive environment for the remainder of 2023. That approach, that strategy, has been well supported by our lenders at the moment. As we think about refinancing, we would expect to maintain our hedging policy of approximately 50% of our production. I would say there is a slight shift in orientation towards protecting cash flow, but create or maintaining exposure to upside. We're thinking about other kinds of instruments, particularly puts, for our future hedging program as well.
I'd expect a slightly higher orientation towards upside exposure in addition to downside risk management.
Thank you, Salman. Next question, linked to the debt and oil prices. At current oil prices, when would you expect to reach your targeted leverage ratio of 0.5 x?
That's for Salman.
I will take that as well. We do provide component parts of our business our OpEx, CapEx, Abex guidance, as well as activities that we've got planned for the current year, but also we've provided an indication on what's there to come. We obviously will not predict where oil prices are gonna be, but depending on business performance and oil prices, you can formulate a view on the pace of deleveraging. What I can say is the first half of the year, free cash generation was very strong and allowed us to reduce net debt considerably. I would expect that trend to continue in a constructive oil price environment and subject to business performance.
Thank you. Maybe returning to the energy profits levy. You talked about capital allocation plans changing with regards to the organic opportunities, but is there any implication on M&A activities as well?
I think the energy profits levy has limited impact from a financial or tax perspective on M&A. For companies that would look for development opportunities and are paying tax, that would be different. For us, I think we would only see the advantage being maybe some fewer players that are not as keen on the M&A landscape in the U.K. We still have a significant tax synergy in terms of buying assets, and we will continue to look at M&A opportunities in the U.K. as you would expect us to do.
Thank you. Final question from the webcast before we move to any on the phone lines. Given the drilling program, what is the expectation for production in 2023?
I mean, we don't give guidance for 2023 at this stage. I think the only thing to say is we are accelerating our program given the last two years of very low activity. You know, the preservation mode that we were in the times of COVID, really 2020 and 2021. As you can see, we're seeing early results, which are very positive. We drilled the first horizontal well in Malaysia successfully. This is after the previous operators who tried for many occasions, with the last program being six wells, unsuccessful horizontal wells. That well is making a big impact. Richard mentioned 18,000 barrels a day we're producing now. We're still drilling. We've got two more wells to drill there.
We've come up with an innovative manner in terms of drilling pilot holes before we drill the full horizontal area. So that's an example. Richard's also given some very strong examples in the U.K. of the northwest, the Magnus well. So I would say our performance is positive. We're looking to both do intervention workovers as well as drilling to mitigate our declines. Results have been very positive, both in Malaysia as well as the U.K. so far.
Thank you very much, gentlemen. I understand there are no questions from the phone line, so unless there's any more from the room, we can move to closing remarks.
Okay. Well, thank you everyone for attending. Mark, do you have one more?
Yeah. I'd just like to ask with regard to the refinancing. You said how earlier in the year, the markets almost appeared closed for the listed bonds. You've paid down your RBL almost completely. Could you give us a sense of where you think the banks sit now, in terms of their outlook for lending against companies like yourselves versus where you think the market is? Thank you.
Do you wanna take that one?
Yeah, I will take that. The banks have been very constructive with us over the years, and I am pleased to say that support remains there. It's enhanced by the role that we're playing in the energy sector, particularly energy transition. They see the potential to work with us in helping drive our energy transition ambitions as well. Overall, I think the support has enhanced over the last few months from a senior lending perspective. As you said, net debt levels have come down considerably, so the overall size of the ask from a refi perspective is considerably lower, and the senior lending will become a more meaningful component of the capital structure going forward.
As regards moving into a current debt position, you've got two windows, interims now, full year results obviously next year. No concerns about moving, delaying into the coming year, and current net debt, which would be offset by obviously further deleverage theoretically by then. Just how do you weigh that up?
Mark, let me just say, if you recall, our RBL capacity last year was $750 million. We raised $750 million around October a year ago. I think we have significant RBL capacity. I mean, Salman talked about the banks being very constructive. In some ways, I think whether we have access or we want to continue to have access to the institutional market is a choice we will continue to have. I think we're looking at our capital structure. Obviously, it gives you much more flexibility to have access to the institutional market, and it you know, it comes as an unsecured instrument, which is also very attractive. I think we have very significant cash flows. Our cash flows are very strong.
In the first half of the year, our cash flows before hedging were $475 million. We had a hundred and fifty million dollar hedging loss effectively. We realized $90 a barrel. We had roughly 5.2 million barrels hedged. In the second half, we have a lot less, so there's the upside of less hedging impact. Obviously, the EPL will be there, which is on the other side of the equation. What I just have to say is that, you know, our cash flows are very significant. Our position, our balance sheet is very significant. We have transformed the company into a much stronger company.
I don't think there's any looming issues in terms of debt. Our RBL capacity and the RBL banks are still there and, you know, we still have options. The options is do we want to have access to a balanced arrangement between institutional and RBL debt or do we want to have a different type of arrangement, which is what Salman was referring to. Okay. With that, I will close the session. Thank you very much for attending and looking forward to seeing you at the full year results in March.