Good morning. My name is Ludi and I'll be your conference facilitator today. Welcome to Frontera Energy's Fourth Quarter and Year-End 2023 Operating and Financial Results Conference Call. All lines are currently on mute to prevent any background noise. I would like to remind you that this conference call is being recorded today and is also available through audio webcast on the company's website. Following the speaker's remarks, there will be time for questions. Analysts and investors are reminded that any additional questions can be directed to Frontera following today's call at ir@fronteraenergy.ca. This call contains forward-looking information within the meaning of applicable Canadian securities laws relating to activities, events, or developments the company believes or expects will or may occur in the future. Forward-looking information reflects the current expectations, assumptions, and beliefs of the company based on information currently available to it.
Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information. The company's MD&A for the quarter ended December 31, 2023, and the company's annual information form dated March 7, 2024, and the other documents it files from time to time with securities regulatory authorities describe the risks and uncertainties, material assumptions, and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which it is made, and the company disclaims any intent or obligation to update any forward-looking information except as required by law. I would now like to turn the call over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy. Mr.
De Alba, please go ahead.
Thank you, Operator. Good morning and welcome to Frontera's fourth quarter and year-end 2023 earnings call. Joining me on today's call are Orlando Cabrales, Frontera's CEO; René Burgos Díaz, Frontera's CFO. Also available to answer questions at the end of the call we have Victor Vega, VP Field Development, Reservoir Management and Exploration; Alejandra Bonilla, General Counsel; Iván Arévalo, VP Operations; and Renata Campagnaro, VP Marketing, Logistics, and Business Sustainability. Thank you for joining us. Frontera successfully achieved its strategic capital and production targets across our three core businesses in 2023. In our Colombia and Ecuador offshore business, the company delivered average daily production of over 4,900 barrels of oil per day. In line with 2023 production guidance, what it also generated operating EBITDA of $467 million at the higher end of guidance for 2023.
Our value center approach resulted in closing the year with a strong balance sheet, low leverage, and a solid cash position. In our standalone and growing infrastructure Colombia business, the business segment delivered strong results, generating 2023 full year adjusted infrastructure EBITDA of $120 million and received $47 million in capital distributions from ODL. Expecting breaking ground soon, we remain focused on development of the connection between Refinería de Cartagena, Reficar, and Puerto Bahía's liquids terminal, which we expect will importantly increase throughput volumes through our liquids port and drive economic growth for the Cartagena Bay area. Frontera's interest in the ODL pipeline and in Puerto Bahía, a unique standalone infrastructure business, provides shareholders with significant upside potential.
In our Guyana exploration business, Frontera and its joint venture partner CGX Energy continue its active efforts in pursuing the strategic options, including a potential farm down to develop its interest in the Corentyne block in offshore Guyana, following the announcement of a second oil discovery in the Corentyne block. A data room is open. Several management presentations have been completed, and other ones are ongoing. Looking ahead, Frontera's significant maturing assets, value-centric production, capital plan, and strong balance sheet position the company to deliver its 2024 objectives and drive value for shareholders from its three core separate businesses. Supported by its ongoing NCIB program and recently initiated dividend program, Frontera remains committed to enhancing shareholder returns.
Furthermore, the company will continue to consider future shareholder initiatives in 2024 and beyond, including potential additional dividend distributions or bond buybacks based on the overall results of our business and the company's strategic goal. I'll now turn the call over to Orlando Cabrales, Frontera's CEO, and our CFO René Burgos, who will share their views on our fourth quarter and full year results. Orlando?
Thank you. Thank you, Gabriel. Good morning, everyone. Thank you for taking the time to join us this morning. We are going to present just a few slides to help us facilitate the understanding of our remarks. 2023 was a strong financial and operational year for Frontera as the company continued to take steps to deliver additional value to shareholders. In our Colombia and Ecuador upstream onshore business, we deliver average daily production of 40,919 BOE per day, with an increase in our heavy crude oil production of 9% year-over-year. I'm also pleased with our continued efforts to diligently manage our cost structure. Despite inflationary pressures, we deliver production costs, transportation costs, and capital expenditures within our 2023 guidance. In total, we safely and responsibly executed $285 million in capital spending across our Colombia and Ecuador upstream onshore business.
In 2023, we drilled 65 development wells, including two injector wells at Quifa, CPE-6, Cajua, and Cubiro blocks, and completed 73 well interventions. We advanced our recommissioning efforts at Sahara, our reverse osmosis water treatment facility for Quifa. By the end of 2023, the plant had processed just under 21 million barrels of water as part of the recommissioning program, providing irrigation source water to Frontera's nearby ProAgro Llanos palm oil plantation. At the beginning of 2024, we successfully completed the pilot phase of the Sahara project with Ecopetrol. The company intends to invest in the commissioning of the first phase of the project as a realization phase to reach a minimum of 250,000 barrels of water per day available for the Quifa block, subject to final JV approval, and targeting additional net production of up to 3,000 barrels of oil per day once target water levels are reached.
Additionally, the company invested in the expansion and improvement of development facilities at CPE-6, which doubled our water handling capacity to 240,000 barrels of water per day. In 2024, we plan to further expand our water handling capacity for the block to 360,000 barrels of water per day. These efforts will continue to support future production growth at the block. Turning now to our 2023 year-end results, our commitment to value our volumes in our upstream Colombia and Ecuador business continues to deliver results as we close the year with about 109 million and 164 million BOE in the 1P and 2P gross reserves, respectively. We achieved a three-year average gross reserves replacement ratio of 104% for 1P reserves and 79% for 2P reserves, while maintaining a reserves life index of 7.3 years for the 1P reserves and 11 years for 2P reserves.
The net present value of our 2P reserves before tax and discounted at 10% at December 31st, 2023, was estimated at $3 billion before tax or $21.60 per BOE. Notably, the NP10 per BOE increased by 2% as compared to 2022, driven by operational efficiencies and reduced future development costs and despite a decrease in the forecast oil price. In CP6, we successfully replaced close to 100% of the block's 2P net reserves while reaching another annual average production record from the block of approximately 6,200 BOE per day. In Ecuador, we increased our 2P reserves by close to 4 million barrels for a total of 4.7 million BOE. We expect to continue building on our recent wins in Ecuador. For 2024, we will invest $35-$45 million in exploration opportunities.
In Colombia, we expect to drill the high-impact Hydra One exploration well during the second half of the year, while in Ecuador, we will drill two additional wells in the Espejo block, our non-operated block with our JV partner GeoPark. Additionally, we are also advancing pre-drilling and seismic investment for our VIM- 46, Llanos 99, and Llanos 119, which we expect to drill in 2025. We believe these near-field exploration opportunities will help reload our reserves, setting us up for future growth. In our standalone and growing infrastructure business, ODL transported over 243,000 barrels per day, generating $285 million in 2023 EBITDA and returning over $135 million to its shareholders. Puerto Bahía generated approximately $20 million in 2023 EBITDA and achieved two significant milestones: the successful refinancing of the port's legacy project finance debt and the signing of the commission agreement with Reficar.
During the first quarter, Frontera anticipates breaking ground on the connection. Frontera has secured an additional $30 million in committed funding, subject to certain conditions present in connection with these projects from its existing group of lenders led by Macquarie Group and expects connection to start up by the end of 2024. For the full year, our infrastructure segment generated an adjusted infrastructure EBITDA of $120 million and $54 million in segment cash flows from operations, including $47 million in distributions from ODL, highlighting the strong profitability and cash flow generation capacity of our standalone and growing infrastructure business. In our potentially transformational Guyana exploration business, we successfully completed Wei-1, the second well of our 2-well program, where we believe that approximately 500-600 million BOE of PMean on-risk gross prospective resources are present in multiple Maastrichtian horizons in the northern portion of the Corentyne block.
We continue to work with our advisors in exploring potential strategic alternatives, including a potential farm-down. Before turning the call over to René, I would like to take a moment to discuss Frontera's strong sustainability performance in 2023. We achieved 108% of our 2023 ESG goals. We began operations of our first solar farm called Icotea in December, which we expect will reduce CP6 oil power consumption and offset 50% of the block's Scope 1 emissions. With almost one quarter of the year in the books, we remain focused on executing our recently announced capital and production targets and continuing to deliver strong operational and financial results and maximize shareholder returns. I would now like to turn the call over to René Burgos, Frontera's CFO.
Thank you, Orlando. Thank you, everyone, for joining us today. I'd like to take a moment to highlight a few key financial aspects of our full year results. For the full year, the company recorded net income of $183 million or $2.27 per share. The company's full year net income included operating income of $154 million, current income from associates related to our ODL investment of $57 million, gains related to our hedging activities of $19 million, partially offset by net financial expenses of $45 million, and income tax expense of $4 million. During the year, the company benefited from its deferred taxes deposition, helping reduce its overall tax exposure. We will touch base again on this a little bit later. Operating EBITDA for the year was approximately $467 million, on the higher end of the guidance range presented for 2023.
This was primarily as a result of better Brent oil prices as compared to our $80 budget, partially offset by higher differentials, as well as higher than expected production-related energy costs.
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Drilling down on our operating costs, our production and transportation costs per barrel for the year totaled $13.25 and $11.21, respectively, in line with our guidance. This compares to $12.14 and $10.44 in the prior year. The increase in production costs year-over-year was primarily a result of inflationary pressures, the impact of FX volatility, higher electricity costs, and higher fuel consumption. In particular, we have seen a significant increase in our energy costs related to electricity prices. Driven by the drier than expected weather resulting from El Niño phenomenon, this has actually resulted in a 34% increase in this line item, with us seeing particularly the sharpest increase in the second half of the year as we see energy prices reaching the $5 per BOE mark. Our guidance for 2024 provides additional clarity on energy prices, giving investors better insight into this key input.
Today, electricity costs represent about 35% of our total energy costs. We will continue to update the market on developments related to this critical input. But as a point of reference, we would like to highlight total energy costs for 2022, a relatively more normal year, which were approximately $3.50. Moving on to cash generation, cash generation for the year was strong, with cash flows for operations totaling $411 million, remaining strong due to the strong Brent oil price environment, partially offset by an increase in withholding taxes during the year. At year-end 2023, however, the company closed with a $128 million income tax receivable associated to these withholding taxes and the company's deferred taxes position. The company expects to recover approximately $100 million of these receivables during 2024.
Capital expenditures for the year were in line with our guidance at $443 million and included $157 million in investments related to our potentially transformational Guyana exploration business. As of December 23, 2023, the company closed the year with a total cash position of $190 million, including $160 million of unrestricted cash. Prior to wrapping up, I would like to provide an update on our Guyana 2023 spending, our financing efforts, our risk management strategy, and an update on our shareholder initiatives. Total costs associated to the Wei-1 well were $189 million. Cash outflows pending related to this Wei-1 well CapEx as of the end of 2023 are now estimated at under $4 million. With well costs now finalized, Frontera has closed its direct working interest for the block at 72.52%, resulting in an indirect working interest of 93.42%.
On the financing front, and as had alluded by both Orlando and Gabriel, the company has successfully secured committed funding from its existing lender group led by Macquarie Group to support its strategic Reficar connection project construction and goal to have this connection completed this year. We appreciate all our bank efforts and support. On our current risk management strategy, we continue to show how the impact of our hedging discipline has benefited us and supported our operations and planning. Frontera uses derivative instruments to manage exposure of oil prices and effect volatility. On the oil side, the company entered into new put hedges for 2.6 million barrels, with puts averaging $73.36 per barrel. This will help protect approximately 40% of the company's after-royalty estimated production through June 2024.
Frontera has also entered into forex exchange rate hedges totaling $120 million or approximately 40% of our estimated Peso exposure at above the 4,100 Peso rate for the first half of 2024. These hedges provide the company with visibility and will help mitigate future fluctuations, allow the business to deliver on its targets. Finally, on our shareholder value initiatives, under the current company's NCIB program, which commenced in November 21st, 2023, the company has repurchased approximately 600,000 shares, common shares for cancellation, for approximately $3.7 million as of March 7th, 2024. I would like to remind you that Frontera is authorized to repurchase up to 3.9 million shares under this program. With respect to our recently announced dividend, Frontera will pay a quarterly dividend of CAD 0.0625 per share to shareholders of record as of April 2nd, 2024, and again payable on or around April 16th, 2024.
With respect to bond buybacks, the company has repurchased $1.5 million in notional of its 2028 senior secured notes. As our chairman said, Frontera will continue to consider future shareholder value enhancement initiatives in 2024 and beyond, including potential additional dividend distribution or bond buybacks based on the overall results of the business and strategic goals. I would like to now turn the call back to Orlando.
Thank you, René. As you have heard, Frontera had a very busy and successful 2023, and we aim to build on that success in 2024. I want to provide some color to our 2024 capital program. We have a fully funded plan for 2024, delivering approximately $400-$450 million in consolidated operating EBITDA at $80 Brent prices. Our plan will leverage our advantaged transportation and logistic structure to maximize realized prices while also investing for future growth through facilities expansion and near field and high-impact exploration. We expect to generate consolidated free cash flow of approximately $65-$105 million from our core business. In our Colombia and Ecuador upstream business, we are targeting production of approximately 40,000-42,000 BOE flat compared to 2023 and generate $400-$430 million in upstream operating EBITDA.
We will invest between $180-$210 million in development activities, a 10% decrease in development spending. We will also invest $35-$45 million in exploration activities and $15-$25 million in other investments, mainly in the reactivation of the Sabanero block to be funded primarily from proceeds related to insurance claims. We will focus on our inventory of near field development drilling opportunities at our core heavy oil fields, supplement our drilling activities with our low-cost well intervention program, as well as invest in development facilities to increase water handling capacity and increase our gas processing at VIM- 1.
We expect our upstream business to generate free cash flow between $60-$100 million, inclusive of $10-$20 million in cash tax payments, net of recovery, and debt service of $60-$70 million, which include $32 million of bond interest and $30 million related to debt service for local bank facilities. For our growing and standalone infrastructure business, we are targeting an adjusted infrastructure EBITDA of approximately $95-$150 million for 2024, including $35-$45 million in distribution from ODL. The segment is expected to generate free cash flow of approximately $5-$10 million, inclusive of $30 million of net funding associated with the Puerto Bahía Reficar connection project CapEx. Before closing, we have prepared a slide bridging our current production and the buildup of the components supporting our 2024 production targets.
Our starting point is the company's four-quarter 2023 average daily production rate of 39,200 BOE per day. Assuming an asset decline rate of between 25%-30% to sustain production, the company would need to replace an annual average 5,000-6,000 BOE per day or a rolling 2%-3% of production per month. Frontera's development CapEx program was designed to fully replace our declining barrels via a combination of new wells as well as low-cost decline management well interventions and strategic investment in facilities. Our 2024 new well CapEx program seeks to replace between 80%-85% of the expected decline, investing $105-$130 million in 60-65 new wells focused primarily on our heavy oil assets.
On average, each new well carries an estimated cost of approximately $1.5-$2 million and targets an annualized production rate between 100-120 BOE per day. These wells have an average, wells have on average an attractive under 1-year payback period and capital efficiency metric of $16,000-$18,000 per flowing barrel. Under our low-cost decline management well intervention program, the company invests in well interventions, work orders, overhauls, and new technologies to reduce the impact of the natural decline and optimize the portfolio production rate. For 2024, the company expects to invest approximately $15-$20 million in decline management activities with average investment per intervention ranging between $200-$500 thousand per well and generating an additional 30-40 BOE of annualized production.
Finally, we plan to invest $45 million in strategic projects, including Sahara, our reverse osmosis water treatment facility, commissioning the first phase of the project, which will enable the company to process a minimum of 250,000 barrels of water from the Quifa block, subject to final JV approval. Increasing water processing at CP6, continue our strong growth trend in the block, and initiating phase one expansion of La Reyesa facilities and flow lines to increase gas processing capacity from 20,000 to 13,000 million cubic feet per day. These strategic capital expenditures will not only increase production in 2024 but set the foundation for further growth and expansion of these key assets for years to come. Overall, these capital projects will allow us to maintain production from last year at around 40-42 thousand BOE per day with 10% less CapEx.
We will advance our exciting exploration portfolio in Colombia and Ecuador, including investing $35-$45 million in exploration opportunities, including drilling the high-impact Hydra-1 well in the VIM-1 block and two wells in Ecuador. We will mature our self-sustaining and growing infrastructure business, including the Reficar connection with Puerto Bahía. In summary, in 2023, we continue to deliver on our operating and financial targets and expect to continue the trend in 2024. We have a solid outlook, strong balance sheet, and an excellent team. With that, I would like to conclude by saying thank you to Gabriel and René for your comments, and thank you everyone for attending our call. I will now turn the call back to our operator.
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press the star, then the number one on your cell phone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ariana Cobalt from Balanz. Your line is open.
Hi. Thanks for taking my questions. Hi to our team. I just had three brief questions. If we may go one by one, that would be great. The first one is related with quality discounts to brands, especially looking at the average numbers for 2023. It was well above what we are normally seeing. So just how are these quality discounts evolving thus far in the year, and what are your expectations for 2024?
Ariana, hi. Thank you for the question. Our target discount last year was roughly $5. We realized it was $5.60. That was 2023. In our guidance for 2024, we're seeing we started out the year better than we did last year. So we're expecting our guidance was $4.50 differential.
Okay. Maybe more on the Guyana side of the story. I just was wondering if there's any updates or additional colors that you could provide in terms of how is this process with Houlihan Lokey moving forward and an estimated next step and/or estimate timeframe. Hear more on this process.
As we told investors, this is a 2024 event. In our Chairman's letter, we've had multiple management presentations, a VDR open, and as soon as we have any news, we will look to very excitedly share with them. Okay.
Got it. And just one final one. You mentioned that you've bought back in that you've carried bond buybacks for $1.5 million in notional value. So just with bonds that continue to trade at such discounts perhaps 20s in the area, have you considered moving more aggressively in this respect in terms of returning value to different stakeholders?
Ultimately, capital allocation is a discretion of the board. I think that our shares are even more discounted than our current bond prices. However, we believe it's important to create value for our shareholders on multiple fronts. So we were very happy that we were successful in acquiring $1.5 million of notional this quarter.
Got it. Well, that would be it from my side. Thank you, guys.
And once again, if you would like to ask a question, simply press the star followed by the number 1 on your telephone keypad. And there are no further questions at this time. Should you have any further questions, please email ir@fronteraenergy.ca. This concludes the call. Thank you all for participating. You may now disconnect.