Good morning. Welcome to Athabasca's annual shareholders meeting. I'm Ronald Eckhardt, chair of the company's board of directors. Pursuant to the company's bylaws, I will be chair of this meeting. In light of scheduling uncertainties due to COVID-19, we have chosen a virtual only meeting, which allows registered shareholders and duly appointed proxy holders to participate, submit questions, and vote in the meeting regardless of their location. On the agenda today is the formal business described in the notice of the meeting and the notice and access notification. After we take care of formal business, I will ask Rob Broen, Athabasca's CEO, to give an update on the company's recent activities and strategic objectives.
During the meeting, registered shareholders and duly appointed proxy holders may at any time submit questions or communicate with the chair and the secretary by clicking on the messaging tab, typing in and submitting their question or comment. If you are attending as a guest, you will not be able to ask questions during the meeting. Given the virtual format of this meeting, and in order for us to expediently address as many questions as we can, we would encourage shareholders who have a specific question on an item of business to submit their question now. If you have further questions not specifically relating to the items of business, please feel free to submit those questions at any time and they will be addressed at the conclusion of the meeting. I will now call the meeting to order.
In addition to myself, the other board nominees attending virtually today are Angela Avery, Bryan Begley, Rob Broen, Tom Ebbern, John Festival, and Marty Proctor. Let's get started with the formal part of the meeting. Lindsay Hofer will act as secretary of the meeting, and Marina St. Denis from Computershare will act as scrutineer. I've been advised as to the due mailing of notice and access notification and the instrument of proxy to our beneficial shareholders, and the notice of meeting information circular and instrument of proxy to our registered shareholders. Such materials were mailed to our shareholders of record at the close of business on March 25, 2022. Our circular and other meeting materials were made available to beneficial shareholders through the notice and access system. With the consent of the meeting, I will dispense with reading the notice calling this meeting.
I've been provided the scrutineer's report. At this meeting are 63 persons holding or representing by proxy 161,537,207 shares, or 30.38% of the common shares entitled to vote at this meeting. This represents a quorum of shareholders. Therefore, I declare this meeting regularly called and properly constituted for the transaction of business. To facilitate the formal business of the meeting, Matthew Taylor will propose and Karla Ingoldsby will second the formal motions. At this meeting, each share held as of the record date is entitled to one vote. If you have voted your shares prior to the start of the meeting, your vote has been received by the scrutineer and there is no need to vote those shares during the meeting, unless you wish to revoke or change your vote.
As such, if you have already voted and do not wish to revoke or change your vote, please do not vote during the meeting. In order to streamline the voting procedure, we will now open the polls, and at any time during the meeting, registered shareholders and duly appointed proxy holders that are logged on and wish to vote their shares may do so by clicking on the Voting tab on your screen. The polls will remain open until just before the conclusion of formal business of the meeting. If you are attending the meeting as a guest, you will not be able to vote or ask questions during the meeting. We've been advised by Computershare that based on proxies already deposited with them, enough votes have been cast to carry each of the motions.
The first item of business is the presentation of the company's financial statements for the period ended December 1, 2021, and the related auditor's report. Copies are available online on the company's website. Extra copies are also available to shareholders upon request. The next item of business is fixing the number of directors to be elected at this meeting at seven. Mr. Taylor, may I have a motion for this?
I move that the number of directors of the company be elected at the meeting be fixed at seven.
I second the motion.
The motion has been made and seconded to fix the number of directors of the company at seven. Ms. Hofer, have we received any questions relating to this item of business?
No, Mr. Chairman, there are no questions.
Thank you. You can cast your vote on this item of business until I announce that the polls are closed. I will announce the voting results of this item of business and all other items of business after the polls are closed. The next item of business is the election of the company's directors. I would like to take a moment to recognize Anne Downey and Carlos Fierro, who will both be retiring and will not be standing for re-election this year. We want to thank them for their years of service on the board and committees and their ongoing business expertise and wisdom. Mr. Taylor, may I have a motion for the election of the company's directors?
I nominate each of the following individuals as directors of the company to hold office until the next annual meeting or until his or her successors duly elected or appointed, unless his or her office is earlier vacated. Angela Avery, Bryan Begley, Rob Broen, Thomas Ebbern, Ron Eckhardt, John Festival, and Marty Proctor.
I second the motion.
Thank you. No other nominations have been made in the timeframe specified in the company's advance notice bylaw. Accordingly, I declare that the nominations are now closed. Ms. Hofer, have we received any questions relating to this item of business?
No, Mr. Chairman, there are no questions.
Thank you. You can cast your vote on this item of business until I announce that the polls are closed. Next item of business is to appoint Athabasca's auditors. Mr. Taylor, may I have a motion for this?
I move that Ernst & Young LLP chartered accountants be appointed auditors of the company until the next annual meeting and the remuneration as such be fixed by the board of directors.
I second the motion.
The motion has been made and seconded to appoint Ernst & Young LLP as Athabasca's auditor and to authorize the board of directors to fix its remuneration. Ms. Hofer, have we received any questions relating to this item of business?
No, Mr. Chairman, there are no questions.
Thank you. You can cast your vote on this item of business until I announce that the polls are closed. You may not vote for any accounting firm other than Ernst & Young LLP. We will now wait for about 30 seconds to allow registered shareholders and duly appointed proxy holders to submit their votes, and we will then close the polls. The polls are now closed with respect to voting on all of the motions. Ms. Hofer, could you please provide the preliminary voting results?
Mr. Chairman, based on the preliminary report of the scrutineer, all items voted upon at the meeting have received more than the number of votes required, and therefore all items are passed. The final voting results will be posted online on SEDAR under Athabasca's profile.
Thank you, Ms. Hofer. In light of the results of voting, I now declare the number of directors of Athabasca is fixed at seven. The seven director nominees named in the management information circular have been duly elected as directors to hold office until the next annual meeting or until his or her successor is duly elected or appointed, unless his or her office is earlier vacated. Ernst & Young LLP is appointed as auditor of Athabasca until the next annual meeting, and the board of directors is authorized to fix its remuneration. The final report to be furnished by the scrutineer subsequent to the meeting will be incorporated into the minutes of the meeting. That concludes the formal business as set out in the notice of the meeting. I will now give our shareholders the opportunity to ask other questions. Ms. Hofer, have we received any other questions?
No, Mr. Chairman, there are no questions.
Thank you. I will now call for a motion to terminate the meeting.
I move that the meeting be terminated.
I second the motion.
Thank you all for attending. I now declare this meeting closed. I would now like to invite Rob Broen to provide an update on business. Rob?
Thank you, Ron, and good morning, ladies and gentlemen. Thank you for dialing in to our virtual AGM. My name is Rob Broen, and I'm the CEO of Athabasca Oil. It's a very exciting time to be a shareholder of Athabasca. We have emerged from COVID-19 pandemic strong, and the future looks better than it ever has. I'm very pleased this morning to provide an update on our company. As our investors on this call know, Athabasca has a diverse asset base. Our assets can be characterized as low decline, large resource base underpinned by our thermal oil assets, complemented by high return, short cycle time assets in light oil Montney and Duvernay. We are intentionally oil weighted, resulting in exceptional cash flow in today's environment.
These assets have performed exceptionally well, even during periods of low capital investment like the last two years, maintaining a very strong and stable production base. The assets also provide a deep inventory of opportunities and are the basis for a long period of significant cash flow generation. I will share this with you in the next few slides. Before I talk about our current results and the future direction, I wanna take a moment to describe the transformation our company has been going under for the last several years. Over the last eight years, we've done a series of transactions and completed many development programs in order to generate significant shareholder value. These include a JV in light oil that is now seeing well over CAD 1 billion invested into our land base.
These assets are now completely de-risked and poised for future development with over 850 future locations. We purchased a high quality thermal oil asset from Statoil. This acquisition proved to be very opportunistic. It's a core asset with a proven track record and has decades of compelling low-cost developments in front of it. We've made our financial position a top priority. Last fall, we completed a refinancing of the company. This refinancing was done as commodity prices were recovering and was designed to allow us to delever the company very quickly, establishing an ultra-low debt company. All this was done to transform the company to one that has excellent quality assets, disciplined operations, and a strong balance sheet capable of generating strong free cash flow. Yesterday, after market closed, we released our Q1 2022 results.
Some highlights included production of almost 35,000 BOE per day with 92% liquids. We have started the year strong, well ahead of our annual guidance that we had previously provided. This was supported by strong performance at Leismer of 19,000 barrels a day with 5 new well pairs at Pad L-8 recently placed on production. The asset will grow this year to an exit rate of approximately 21,000 barrels a day. Our drilling program will start in June, and that will continue growth on this asset into the future. In the Duvernay, we've seen continued strong results in the oil window with 3 new wells averaging IP30s of 840 BOE per day, 92% liquids, consistent with previous excellent well results. Our plan is to maximize cash flow, and in Q1 it was a record quarter for the company.
Our funds flow was CAD 75 million with free cash flow of CAD 44 million. We are on our way in 2022 to CAD 300 million of funds flow and CAD 180 million of free cash flow based on an $85 WTI and a $12.50 per barrel heavy differential assumption. That seems pretty conservative at this point in time. As you will see in a few slides, we expect to continue to grow significantly that cash flow into 2023. After the refinancing last fall, we were clear that our priority was to utilize free cash flow for debt repayment. I'm happy to report that we've already reduced our debt by CAD 110 million this year, significantly ahead of our targets. More specifically, our capital structure is now clear.
In October 2021, we put new five-year term notes in place for $350 million. The notes were specifically designed to allow us to redeem debt using free cash flow. This feature allows us to pay down our debt very quickly. The mechanics are such that we make debt payments based on the prior two quarters. Our debt payments in 2022 so far have been based on free cash flow from Q4 2021 and Q1 of this year. As mentioned, we have taken advantage of that feature, allowing us to pay down $110 million so far. The pro forma principal of the notes is now $264 million. That's a 25% reduction in just six months. Our net debt is at a low amount of approximately CAD 127 million.
The sector is seeing renewed investor interest, and this is starting to be reflected in our securities valuation. Our current market cap is approximately CAD 1.4 billion, and we are now back to a threshold to be potentially included in broader indices, which could be an upcoming catalyst for the stock. I would like to expand on our cash flow generation plans into the future. Our near term strategic priority is to manage for strong free cash flow. You can see in the graph on this slide in the top right-hand side that we expect to grow our free cash flow significantly into 2023 and beyond. In fact, we expect to generate CAD 900 million of free cash flow over the three-year time period from 2022 to 2024, assuming an $85 WTI oil price.
Our cash flow continues to grow even if commodity prices stay constant for two reasons. Number one, we're lowering our debt servicing costs by reducing our total amount of debt. Number two, our exposure to current commodity prices will be significantly greater in 2023. I'd like to clarify our philosophy on hedging. We put hedges in place to secure cash flow to execute our modest capital program with certainty. We put fixed WCS swaps in place for 2022 on 30% of our sales production at an implied WTI price of about $68. That was necessary to hedge to meet our hedging criteria, and it was a very competitive hedge based on the volatility and pricing last fall. We also kept tremendous upside for 2022.
50% of our sales volumes are unhedged and 20% are protected by a wide collar that has upside to CAD 115. Gas, natural gas is an input cost for us, and we were able to protect against the volatility through our gas production in light oil, and we hedged the remaining consumption for all of 2022 at an AECO price of about four dollars Canadian per MCF. In 2023, we expect a smaller hedge position will be required as we generate significant funds flow with a much lower debt burden. I should also mention that the outlook for Canadian heavy differentials looks very good with egress capacity now in place and Alberta inventories at 5-year lows. This has been many years in the making.
The bottom graph on this slide shows how our cash flow grows in 2023 at various oil prices. A $5 move in WTI is approximately $45 million of free cash flow to our company unhedged. We're working hard on our objective of transitioning enterprise value to our shareholders. In the short term, we're directing 100% of our free cash flow to debt repayment. We expect to be in a net cash position by the end of this year, and as mentioned previously, our current net debt is only CAD 127 million. We are targeting a term debt position of $175 million, and that's a 50% reduction from the original term debt.
We are already halfway there on this target, established only six months ago, and we expect to achieve the target in the first half of 2023. Once we achieve our debt target, we will continue to focus on shareholder returns. At this point, our preference would be for share buybacks, given the tremendous cash flow generation in our company relative to current cash flow multiples. It simply will provide the quickest share value appreciation for our shareholders. We will provide further guidance on this in the second half of 2022. I'd like to spend some time, briefly on each of our core operated assets. Before I do that, I wanna highlight the value of thermal oil assets in our portfolio. Thermal oil assets provide unparalleled long life reserves with low decline rates. The stability of the production base minimizes the sustaining capital requirements to chase declines.
Our assets are all brownfield, meaning the large capital expenditures associated with infrastructure and delineation are behind us. In our company, we now have 1.2 billion barrels of 2P reserves in front of us, with production that can be maintained at very low capital costs. Further, netbacks are particularly compelling at today's commodity prices. Royalty rates are low, and operating income is well beyond the fixed costs of these assets. You can see in the graph on the bottom right that our netbacks have historically always been positioned competitively against some of the very best light oil companies, and they become even more compelling going into the future as we realize the oil prices of today. Finally, our investments have unmatched economics. Our profit to investment ratios and recycle ratios are in the double digits.
The virtues of thermal oil assets are significant and often misunderstood at today's commodity prices. As investors, I hope that you're very pleased with the quality of our assets. Leismer is a top-quality oil sands project and is our largest producing property. We have focused the majority of our capital spend on this property, which will be approximately CAD 100 million in 2022, and that includes a two-week turnaround that will be completed this month. Our most recent activity was drilling a five-well pad in 2021 in the northern part of this field at pad L8. This pad recently came on production and is currently producing about 2,500 barrels per day, and it will continue to ramp up to approximately 5,400 barrels per day later this year.
The economics at the bottom of the slide demonstrate the tremendous value these types of investments are making with a profit to investment ratio of 10x at $85 WTI. In 2022, we plan to drill 2 infill wells, and then we will drill an additional 5 well pairs off the existing pad at Leismer. You can see in the production graph on this slide that drilling at this cadence will generate a growth profile to just under 25,000 barrels per day in the next few years. This asset will exit 2022 at 21,000 barrels per day. We've put particular focus on technology, including drilling 1,250-meter long horizontals, utilizing flow control devices, and employing gas co-injection on our base production.
The current SOR is approximately 3 times, keeping costs and emissions low while allowing facility room for growth without the need for facilities expansions. We also have a clear carbon plan for this asset that will move us towards an aspiration of achieving a net zero emissions barrel in the future. I will expand on that in a couple slides. Hangingstone is an asset that has demonstrated tremendous resilience and is in its plateau phase from its initial development. It does not require sustaining capital in the next two years to maintain its production. We've worked very hard to implement projects to optimize cost structure, including last year, we built a truck-in terminal, where we now accept over 5,000 barrels a day from third parties that generates revenue and reduces our operating costs.
We negotiated amended transportation contracts to remove the onerous financial letters of credit requirements. Lastly, we've implemented gas co-injection field-wide here to reduce steam requirements. The result has been improving our SOR to approximately 3.7x , and our operating costs are now very competitive. The asset had an operating netback in March of this year of CAD 58.50 a barrel, and it will generate an estimated CAD 130 million in operating income at strip prices. It's worth mentioning one significant financial advantage Athabasca has on its thermal assets. In Alberta, royalties are paid to the Crown. The amount of royalties paid are much lower when the assets are in pre-payout status to account for the cost of initial development.
Our assets are expected to maintain this status to 2018-2028 and beyond, allowing the company to continue to benefit from very low Crown royalty rates of 5% to 9% for the foreseeable future. The majority of thermal projects in industry are or will imminently be in post-payout phase, where royalty rates rise significantly. This is a distinct advantage Athabasca assets have compared to most other assets. Switching to light oil. Our light oil assets consist of both Montney and Duvernay development areas. Through several years of de-risking and development, we now have an inventory of approximately 850 future locations. These assets have very established and compelling economics, as can be seen by the single well economics on this page. It is also an area seeing significant competitor activity all around our assets.
In the first quarter of 2022, we completed three Duvernay wells in the Two Creeks area. These wells have achieved average IP30 rates of 840 BOE per day with 94% liquids. They screen as some of Alberta's top oil wells this year, and the results are consistent with the established rates from many wells across this large area. The land is largely held now across the operating area, and it's set up for future development. We are very excited about the results of this area, its competitive economics, and our operated infrastructure position across the region. Our priority in 2022 has been on our balance sheet objectives. Our light oil areas will be targeted for future development once those objectives have been achieved. Yesterday, we were very pleased to publish our 2022 ESG report.
This report is aligning to leading ESG standards and frameworks and can be found on our website. At Athabasca, we believe that responsible energy we produce here in Alberta makes people's lives better. In this year's report, we outlined the company's strong track record in all areas of ESG performance. We are utilizing technology to lower emissions intensity. We've achieved 20% reduction in emissions intensity since 2015, and we're targeting a 30% reduction by 2025. Our safety culture is deeply embedded, and we continue to demonstrate industry-leading numbers with a three-year average total recordable injury frequency of 0.2 per 200,000 man-hours. We also have not had a reportable hydrocarbon spill in the last three years. We have a robust corporate governance policy, and our ESG strategy and performance is fully integrated at the board level.
We are also pleased to be continuing our progress with carbon capture and sequestration at our Leismer facility. We now have a letter of intent finalized with Entropy Inc. Entropy will provide modular CCS technology to Athabasca to help us achieve our goal of a net zero barrel at Leismer. Our letter of intent outlines the commercial terms whereby Entropy funds the installation of CCS and then benefits from a share of the carbon credits generated by our emissions reduction. The federal government has recently announced a refundable tax credit policy, allowing 50% of investments for carbon capture to qualify for that credit. This will help ensure the viability and certainty of our projects. We are currently completing detailed engineering design. As far as sequestration is concerned, we're evaluating short-term options into local reservoirs.
Longer term, we are planning to tie into one of the planned open access carbon trunk line systems. Leismer has the advantage of being in the same corridor as the Pathways project. Our intent is to move this project to a final investment decision following the completion of front-end engineering design and a local injection test. Ladies and gentlemen, I hope this overview has helped you with why you should invest in Athabasca. I want to thank our outgoing board members, Carlos Fierro and Anne Downey, for their dedication, support, and guidance over the past many years. I would also like to welcome our newest board members, Marty Proctor and Angela Avery. We are fortunate to have such qualified individuals join our board as we plan for the future.
Finally, I want to say a very special thank you to the staff at Athabasca, who have worked so hard. In particular, it is their dedication that ensured we made it through the last two years of COVID and that we have emerged with such a strong position. I'm very proud to work with such talented people. This concludes my presentation, and we would be happy to take questions.
Well, there are no further questions. Thank you, Rob. That was a great review, and we'll call it a day. Thank you all for participating.