Good day, ladies and gentlemen, welcome to the Pieridae Energy Q4 2022 and year-end financial results conference call. Please be advised that today's conference is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If you have a question and you are viewing on webcast, please use the Ask a Question button in the top right-hand corner to type your question at any time during the presentation.
If you are participating via telephone and would like to ask a question, please press star one one at any time. You will hear an automated message advising your hand is raised. You will be in the queue for the question and answer session at the end of the call. I would now like to turn the meeting over to Mr. Dallas McConnell, Vice President, Corporate Finance. Please go ahead, Mr. McConnell.
Thanks very much, good morning, everyone. I would like to welcome you to Pieridae Energy's fourth quarter and full year 2022 conference call. With me today, our Chief Executive Officer, Alfred Sorensen, President and Chief Operating Officer, Darcy Reding, and Chief Financial Officer, Adam Gray. Darcy and Adam will begin today with a brief review of our operating and financial results for the fourth quarter and certain other company developments. Following their prepared remarks, we will turn the call over to the conference coordinator for your questions. Before Darcy begins, I would like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by Pieridae with the Canadian Securities Administrators on sedar.com.
I will now turn the call over to our President and COO, Darcy Reding, who will provide more detail on our performance last quarter and recent corporate developments.
Thank you, Dallas. We thank everyone for joining us this morning. We are pleased to speak to you today about our fourth quarter and full year 2022 results, which delivered record annual cash flow and realized a substantial year-over-year increase in our corporate reserve value. Our strategy remains focused on enhancing shareholder value through the efficient production and upside development of conventional natural gas opportunities in the foothills of Western Canada. Our historical base production decline remains one of the lowest in the Western Canadian Sedimentary Basin, as supported by our year-end 2022 reserves evaluation that shows an 8.5% decline on proved, developed, producing or PDP basis. The fourth quarter also saw the spud of the first well of Pieridae Inaugural Well Drilling Program. I will have more information on that topic later in the call.
Despite out of money physical commodity hedges partially impacting fourth-quarter revenue, our n et operating income was CAD 68 million in the quarter. These remaining low price hedges rolled off in October. We are pleased to have a strong hedge position in place in the first quarter of 2023. Our focus on debt reduction was aided by strong commodity prices in the fourth quarter and for most of 2022, and nearly CAD 100 million was used to help reduce net debt. Adam will share some additional details on our 2022 financial performance and our current year hedge position in a few moments. Commodity prices also significantly enhanced the company's year-over-year reserves evaluation, with PDP reserves increasing in value by 89% and full 2P reserves increasing in value by 52% on an NPV10 basis.
I'll speak to our reserves evaluation briefly later in the call. Briefly summarizing our operating results, fourth quarter production of just over 34,700 BOE/D was materially impacted by an unscheduled maintenance outage at our Caroline Gas plant that impacted part of November and all of December. Although we have the ability to redirect approximately two-thirds of this impacted production to another non-operated facility in the area, processing capacity restrictions at that facility delayed this redirect and increased the magnitude of this unscheduled outage at Caroline. Repairs were successfully completed and the Caroline plant returned to normal processing and throughput volumes by mid-January 2023. Note that full year 2022 production averaged nearly 36,900 BOE/D , substantially higher than the fourth quarter production that was impacted by that Caroline Gas plant outage.
Company's annual production was 82% natural gas weighted, and that is forecasted to increase slightly to about 85% for 2023. Operating costs in the fourth quarter were just under CAD 52 million or CAD 16.24 per BOE , while full year 2022 operating costs were CAD 220 million or CAD 16.32 per BOE . Despite significant year-over-year inflationary cost pressures, annual operating costs in 2022 were held to within 1% of our 2021 costs. Of note, the company's operating cost reporting excludes the contribution of third-party processing and other income streams generated as a result of our gas plant and infrastructure ownership. In 2022, this income was CAD 31 million. Additionally, our gas plants delivered CAD 24 million in sulfur sales for the year.
We consider these income streams as offsets to our operating costs, and we report adjusted operating costs after applying these offsets. In 2022, the company's adjusted operating costs were $3.53 per BOE lower or $12.79 per BOE. As mentioned in my review of our highlights, the company achieved record net operating income in the fourth quarter of $68 million or over $21 per BOE on the basis of continued strong natural gas and gas liquids pricing and a substantially higher exposure to market pricing for our products, with the last of the previously mentioned low price commodity hedges rolling off by the end of October.
Lastly, for this slide, fourth quarter capital spending was slightly over $20 million, with the majority of that capital allocated towards our drilling program that is represented by the $14 million development capital wedge depicted in the pie chart in the lower portion of the slide. Pieridae's year-end 2022 reserve evaluation was independently completed by Deloitte, with net present values determined by applying evaluator consensus commodity pricing. These higher price forecasts, along with higher reserve volumes, improved our year-over-year total proved and total proved plus probable reserves to just over $800 million and $1.5 billion, respectively, on an NPV10 basis. A note of interest, our PDP NPV10 on a per share basis is approximately 2.4 times the company's current enterprise value, calculated on a share price of $0.70 per share.
Although 6 new undeveloped locations were added to this year's evaluation, our upside is conservatively booked, nearly three-quarters of our total Proved plus Probable reserves reside in the Proved category, as depicted in the pie chart in the lower left of this slide. The chart in the top right of this slide shows the 3-year history of the company's year-end reserve evaluations. You can see from the bars, which depict reserve volumes using the left scale of the chart, reserves have been stable to slightly growing despite minimal investment of development capital over that time period. On a similar note, we believe we can sustain flat production with a development capital investment of less than $50 million annually on the basis of our net risked drilling inventory that currently exceeds 230 well locations.
At this time, I would like to turn things over to Pieridae's Chief Financial Officer, Adam Gray.
Thanks, Darcy. We're happy to report transformational 2022 financial results driven by strong gas and liquids pricing and further supported by our cost control during an inflationary year and a revitalized hedging program. I'm also pleased to see our balance sheet continue to strengthen as our focus on debt reduction begins to bear fruit. Earnings per share for 2022 was CAD 0.91 on a fully diluted basis. Approximately CAD 0.50 of this was as a result of Pieridae recognizing our CAD 79 million deferred tax asset, value we have not been able to recognize in the past. Net operating income for the year came in at just over CAD 200 million or CAD 1.24 per fully diluted share. During 2022, Pieridae was able to pay nearly CAD 50 million in term debt plus another CAD 50 million in working capital deficit reduction.
In total, we allocated over CAD 100 million towards net debt reduction during the year. Since January 1, 2023, we have paid off an additional CAD 28 million of term debt, and as of today, our loan balance sits at just under CAD 190 million. I'll remind you that due to the accounting treatment of our term debt, these figures are slightly different than those in our balance sheet but represent the cash amounts owing under the loan. We are actively working to refinance this term debt prior to its October maturity. While I do not have an update for you today on that process, I hope to update the market on refinancing in the very near future. Looking now at the fourth quarter in particular, there's a number of results I'll draw your attention to.
While production was slightly below target, as Darcy mentioned, we achieved record revenue for Pieridae at slightly over CAD 137 million. Stable operating costs and transportation costs translated into record NOI of CAD 68 million and a record fund flow of CAD 58 million. Within our revenue figure, realized gains on hedging from our physical forward sales deals were just over CAD 4 million. It's nice to report a hedging gain after 9 quarters of hedging losses. It does reflect the gradually declining commodity prices during the quarter. Our realized natural gas price of CAD 5.24 in the quarter was slightly above benchmark of CAD 5.20. Similarly, our realized condensate price of CAD 118 was slightly above benchmark of CAD 115. As Darcy mentioned, netback for the quarter came in at CAD 21.20.
Included in this is CAD 9.5 million in third-party processing revenue, which are fees from other producers who pay to process their production through our facilities. While there is some variation in this revenue stream associated with fluctuations in commodity prices and OpEx, this tends to be a relatively stable cash flow stream during periods when commodity revenue can otherwise be very volatile. I'll speak now to just a couple per BOE metrics. Operating costs in the quarter were CAD 16.24 and remained consistent throughout the year, but up about 10% from 2021 on a per BOE basis. As Darcy mentioned, we've kept controllable OpEx nearly flat or down year over year, and the increases we have seen are primarily associated with costs that are correlated to commodity prices such as power, and to increases in carbon tax.
OpEx remains our single largest opportunity to improve netback for this business, and management continues to focus on operating more efficiently and adding additional midstream volumes, both of which will drive per BOE OpEx lower. Royalties per BOE , excuse me, came in at CAD 3.73 in the quarter, well below the annual average of CAD 5.61. While royalties are naturally substantially higher than 2021 as a result of pricing, we did see a favorable adjustment to Gas Cost Allowance for the fourth quarter. Turning to the next slide, I'll first update you on our hedge program. We actively hedged to the extent our credit would allow, sorry, in September through December of 2022 as AECO prices gradually fell. These have been very valuable hedges.
As you can see from the graph on the right-hand side of this slide, we have been 65% hedged on AECO during the first quarter of 2023 at approximately CAD 5.80 per GJ, and 45% hedged on condensate at approximately CAD 103 per barrel. Our natural gas hedges reduced in April of this year to approximately 25% of production, running flat at that level through the end of October. Our condensate hedges continue at approximately 45% of production through 2023 and the first half of 2024. In the first quarter of 2023, we also executed our first basis swap from AECO to NYMEX.
While this represents only a small volume and only for the spring and summer of 2023, it reflects our desire to diversify our risk away from 100% AECO in the future, especially as differentials appear to be historically low. I'll remind you that we remain highly hedged on our power cost, which is our largest operating expense category for both 2022 and 2023. That power hedge is approximately $44 million in the money as of today, even following a drop in near-term power price forecast associated with the drop in AECO. In 2022, our Power Hedge portfolio allowed us to save $34 million in electricity costs or $2.57 per BOE . Looking out for the rest of the year.
While 2022 was a banner year for natural gas and liquids pricing, at the moment we're facing a substantially different short-term pricing outlook. As you will see, we are reducing our hedge-adjusted expected realized gas price for 2023 from CAD 4.40 per GJ down to CAD 2.85 per GJ to reflect current strip. Our net operating income guidance is similarly reduced to between CAD 120 million and CAD 150 million. AECO in particular remains in pretty steep contango in the long-term forecast. While we look to tighten our belts during the spring and summer of this year, we believe this price dip will be relatively contained to 2023. In order to manage our business over the next two quarters, we've taken a close look at our operating and capital expenditures and are cutting and deferring non-essential projects and initiatives wherever possible.
We are also investigating our ability to defer our Waterton gas plant turnaround, currently scheduled for Q3 into Q2 of next year. We are somewhat optimistic that we'll be successful in obtaining regulatory approval to do this and have updated our maintenance capital guidance to reflect it. Okay, to wrap this up, I'd like to say in summary that I believe we've made great strides towards improving Pieridae's balance sheet and long-term resiliency. Our drilling program is beginning to remind us that the foothills is a competitive development play. I believe 2023 is shaping up to be another transformational year for the company. With that, I'll turn things back to Darcy to finish us off. Thank you.
Thank you, Adam. I'd like to conclude the formal portion of the Q4 2022 investor call with a brief update of our drilling program, as Adam alluded to. We are currently drilling the second well of our winter program in Brown Creek, located northwest of Nordegg, Alberta. This well was spot on February 10th, and we anticipate immediate completion of the well upon rig release, pending lease access conditions. Consistent with Pieridae's press release of this morning, our first well of the drilling program at Brown Creek 6 of 35 was recently completed and is on an extended production test with all tested gas production gathered and sold into the NOVA system. At the conclusion of this production test, the well will be shut in for an extended buildup, at which time permanent well site equipment will be installed.
As indicated in our press release, after approximately 90 hours of continuous flow, the well was producing sweet gas at a downhole choke restricted rate of 6.8 million cubic feet a day and at a tubing pressure of approximately 11 MPa, with a corresponding shut-in casing pressure of approximately 17 MPa. We are encouraged by this early result, and we look forward to placing this well on production by May first at a restricted rate similar to the production test rate. With that, I would like to conclude the formal portion of our investor call. At this time, I will ask Dallas to wrap things up and to prepare for questions. Thank you.
Thank you, Darcy. I'll now turn the call over to the conference coordinator to manage, questions coming from the telephone.
Thank you. We will now take questions. If you have a question and you are viewing on webcast, please use the Ask a Question button in the top right-hand corner to type your question. If you have a question and you're participating via telephone, please press star one one on your telephone keypad. There will be a brief pause while the participants register. Thank you for your patience. Again, if you have a question and you are participating via telephone, please press star one one on your telephone keypad now.
We have a question on the webcast. Can the in-the-money hedges be monetized to reduce the debt? The debt financing is long overdue. Any update on this? Would you consider evaluating strategic alternatives again?
Thanks, Mark. This is Adam. I'm happy to answer your question. The in-the-money hedges can probably be monetized. It's something we've talked about. It would be a very expensive monetization. These are physical hedges, not financial hedges that you can simply sell. Specifically on the power, selling those hedges would result in us being exposed to power in the near and longer terms, which is not something that we're comfortable with at this time. I do agree the refinancing is long overdue. We're working very hard on that process, during a period of declining commodity prices. We're optimistic we'll be able to update the market very soon on that. I don't have anything more to say about that today. At this time, we're not considering evaluating strategic alternatives.
If you have a question and you are participating via telephone, please press star one one on your telephone keypad now. Thank you. There are no further telephone questions at this time. I'd like to turn it back to Mr. McConnell.
We also have no further questions on the webcast at this time. Thanks to all of you for participating today. We very much appreciate your interest in Pieridae Energy. If you have further questions, you can call us at 403-261-5900, or email us at investors@pieridaeenergy.com. Thanks again. We look forward to speaking with you soon.
Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.