Good morning. My name is Marjorie. I will be your conference operator today. At this time, I'd like to welcome everyone to Vermilion Energy's conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press Star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press the pound key. Thank you. Mr. Dion Hatcher, you may begin your conference.
Thank you, Marjorie. Good morning, ladies and gentlemen. Thank you for joining us. I'm Dion Hatcher, President of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO, Bryce Krempien , Vice President, North America, Geoff MacDonald , Vice President, Geosciences, Jenson Tan , Vice President, Business Development, and Kyle Preston, Vice President of Investor Relations. We will be referencing a PowerPoint presentation to discuss our 2023 budget and guidance. This presentation can be found on our website under Invest with Us in Events and Presentations. Please refer to our advisory and forward-looking statements at the end of the presentation. It describes the forward-looking information, non-GAAP measures, and oil and gas terms used today, and outlines the risk factors and assumptions used in this discussion. This morning, we announced a $570 million capital budget for 2023, split roughly 60/40 between North America and international operations.
This capital program is expected to deliver annual average production of 87,000 to 91,000 BOEs per day, representing a year-over-year increase of approximately 3%. This production guidance assumes the March 31st closing of the Corrib acquisition. We've recently obtained Irish government approval for the acquisition and continue to work closely with our partners to close the acquisition in Q1. Factored in our 2023 production guidance is the optimization of our Montney development to minimize incremental Alberta infrastructure due to the recent progress obtaining permits on our BC lands. I will provide more detail on this later in the presentation. Our North American capital is up just slightly year-over-year at CAD 340 million and will be deployed across our Mannville and Montney liquids-rich gas plays in Alberta and BC, and our light oil plays in Wyoming and Southeast Saskatchewan.
We plan to drill a total of 52 gross, 40 net wells, including seven gross, seven net in the Montney, seven gross, six net in Mannville, 16 gross, eight net in Wyoming, and 22 gross, 18 net in Southeast Saskatchewan. Our international capital investment has increased approximately 7% year-over-year to CAD 230 million. While it may seem counterintuitive given the windfall tax, we are allocating a greater portion of capital to European gas, given the constructive long-term outlook for European gas. Later in the presentation, Lars will provide an update on our windfall tax estimates for 2022 and 2023, but keep in mind that most of the production and cash flow from this capital investment will not be realized until 2024 and beyond when the temporary windfall tax has expired.
The largest portion of our European drilling capital will be allocated to Germany. Although Germany has implemented a windfall tax for 2022 and 2023 as mandated by the EU, they have implemented at the minimum level and are taking a more pragmatic approach to domestic gas development. We continue to have positive dialogue with local and state officials about Vermilion's ability to contribute to Germany's energy security. Our 2023 German drilling program will include two oil wells and 1 high-prospect gas well while putting plans in place to drill additional high-prospect gas wells in 2024 and beyond. We look forward to sharing more details on these gas prospects in the months ahead.
When we announced the Leucrotta Exploration acquisition in March of 2022, we referenced an exit rate of 95,000-100,000 BOEs a day, following the tie-in of the first Montney pad and expected closing of the Corrib acquisition. As we work through our 2023 capital investment options while taking into account the recent developments in Europe and BC, we made the decision to forego some of the 2023 production in order to optimize near-term capital allocation and maximize long-term financial returns. The chart on slide three provides a reconciliation of our previous 2022 exit reference to the midpoint of our 2023 production guidance. As you can see, there are four main drivers for this lower production.
The optimization of the Montney development to drive the best return on capital by minimizing the incremental Alberta infrastructure spend, the delayed closing of the Corrib acquisition, which has no financial impact, the decision to conduct some major non-routine maintenance at Corrib in 2023, and permitting delays related to our gas plant in Croatia. On slides four and five, I will provide an update on our recent Montney results and optimized development plans. We continue to see positive developments on the Blueberry River First Nations permitting negotiations, and are pleased to report that we've received three permits in BC, including one of the permits to construct a 16,000 BOE per day battery in BC. While additional permits are still required, our increasing confidence in permitting allows a return to the initial drilling and infrastructure plan made at the time of the acquisition.
This drives the best long-term return on capital, yet defers the production ramp up by a year relative to the backup plan, which had contemplated an Alberta-focused development in 2023. Our increased confidence in the BC permits provided an opportunity to reduce our infrastructure spend in 2023 by deferring the Alberta investment and focusing on BC infrastructure, where the majority of our drilling inventory exists, as you can see on the map on slide four. We also recently signed agreements to acquire 11 sections of adjacent land at Mica, which will further consolidate our contiguous land base and increase our tier one inventory, which we now estimate at approximately 300 multi-zone extended reach locations. During the fourth quarter, we tied in 6 wells from our first Alberta Montney pad in late November.
Production rates continued to be optimized and total Montney production increased to approximately 7,500 BOEs a day during the month of December. This was Vermilion's first Montney pad after taking over operations from Leucrotta during drilling, and we are very pleased with the initial results as they validate the high return profile and long-term development potential of this asset. We recently commenced drilling on the follow-up three-well pad in Alberta, which is expected to be completed and tied in during the first half of 2023. Our plans for 2023 is to optimize the existing infrastructure while we wait for final permits to expand infrastructure capacity in BC. Assuming we receive the remaining BC permits in a reasonable time, we expect to achieve average annual production of 12,000-13,000 BOEs a day in 2024.
Our longer-term development plans remain unchanged as we work towards expanding the infrastructure to 28,000 BOEs a day over the next several years and maintain production at that level for over two decades. I'm now gonna pass it over to Lars to provide an update on the European windfall tax and Vermilion's financial outlook.
Thanks, Dion. As Dion referenced in his earlier remarks, our 2023 capital allocation decisions were impacted by the introduction of a temporary European windfall tax late in the third quarter of 2022. We continue to firmly oppose the windfall tax policy due to its inability to address Europe's challenge of structurally increasing gas supply to better match demand. In fact, the tax encourages the inverse. We will continue to explore options to mitigate the windfall tax, but have incorporated the potential impact into our 2023 plans. Based on the information we have today, including lower strip pricing for 2023 European gas, we now estimate our 2022 and 2023 windfall tax estimate at the lower end of our previous range or approximately EUR 250 million in 2022 and approximately EUR 300 million in 2023.
We have also provided a percentage range with our guidance, but would note that the windfall tax amount is highly sensitive to European gas prices. Let's now step back to understand what this all means around our ability to generate FCF over the next couple years. The bar charts on this slide incorporate windfall tax and hedges over the 2022-2024 period. Incorporating these items, we expect to generate over $1 billion of free cash flow in 2022, which excludes any contribution from the Corrib acquisition, and approximately $800 million of free cash flow in 2023, which includes nine months contribution from the Corrib acquisition. We remain confident that the Corrib acquisition will close in Q1 and are assuming a March 31 closing date for our 2023 production and financial guidance.
Based on forward strip pricing and preliminary development plans for 2024, we forecast free cash flow of approximately CAD 1.3 billion in 2024, a 60% increase over the 2023 estimate. For 2024, we have also provided a European gas marker that is 35% lower than current strip to highlight the strong FCF generation at various European gas prices. Our internationally diversified asset base is robust and has the capacity to generate significant free cash flow. Before I hand it back to Dion, I would just like to summarize our hedge book for 2023 and 2024. As you can see, we have approximately 16% of our corporate production hedged in 2023, comprised mainly of European gas, which is approximately 50% hedged.
Over half of our European gas hedges are tied to the Corrib acquisition and put in place shortly after the deal was announced in November 2021. Looking into 2024, you can see that we are relatively unhedged, which will translate to much stronger free cash flow generation at current commodity prices. Given our stronger balance sheet, we will likely target a future hedge position at the lower end of our target range of 25%-50% and will continue to be opportunistic when adding new hedges. I will pass it back to Dion.
Thank you, Lars. I would like to remind the listeners of Vermilion's capital allocation priorities, which are shown on slide 8. First and foremost, our number 1 priority is to maintain a strong balance sheet. We set some very stringent debt targets last year, and we're on track to achieve them prior to the windfall tax being imposed on us. As a result of the unexpected windfall tax, our current debt levels are higher than we anticipated. As such, we believe it's prudent to remain focused on debt reduction in 2023. Our second priority is to maintain a robust asset base. We made significant progress on this objective in 2022 with the Corrib and Montney acquisitions, and we believe we have a very robust asset base with a deep inventory of high return drilling opportunities across North America and international assets.
Any North America acquisition in 2023 will be limited to small tuck-in deals that are existing core areas and will need to compete for capital with share buybacks. Our third capital priority is to provide a resilient and increasing base dividend. To that end, today we are announcing a 25% increase to our Q1 2023 quarterly cash dividend to $0.10 per share, which equates to an annual dividend of $0.40 per share, approximately 5% of our forecasted 2023 fund flow. This increase aligns with our dividend policy of providing ratable increases while ensuring the annual dividend amount is sustainable at mid-cycle pricing. We made a commitment in 2022 to increase capital returns to shareholders as debt levels decrease.
We commenced our share buyback program in Q3 2022 and paused it in Q4 2022. Our decision to pause share buybacks in Q4 was entirely due to the uncertainty related to the EU windfall tax and how each country was going to implement. Although we are not pleased with windfall tax, we now have much better clarity on it, and are pleased to announce the resumption of our share buyback program. We continue to see significant long-term value in our asset base, which we do not believe is accurately reflected in the share price today, especially given recent weakness. As such, we expect the primary method of returning capital beyond the base dividend to be through share buybacks in the near term. Taking these capital allocation priorities into account, we have provided a summary of our 2023 return on capital plans on this slide.
We will remain focused on debt reduction in 2023, with the next target set at CAD 1 billion, which implies non-drawn credit facilities. We will continue to allocate up to 25% of our free cash flow to shareholder returns, primarily through base dividends and share buybacks. As mentioned, our quarterly dividend will increase by 25% to CAD 0.10 per share commencing in Q1 2023. We will resume our share buyback program in early January. In summary, on slide 9, our 2023 budget of $570 million is expected to deliver average annual production of 87,000-91,000 BOE per day. We've obtained the Irish government approval on the Corrib position. We are confident we will close by March 31st, 2023. Our long-term Montney development is unchanged. Our near-term capital allocation will prioritize the BC developments in 2024.
We forecast 2023 free cash flow of approximately CAD 800 million, net of the temporary windfall taxes and hedging. We expect stronger free cash flow in 2024 and beyond. We expect to return up to 25% of our free cash flow to shareholders in 2023 through base dividend share buybacks, with the balance allocated to debt reduction, targeting a CAD 1 billion of debt. We announced a 25% increase to our Q1 2023 quarterly cash dividend to CAD 0.10 per share and plan to reinstate our share buyback program in early January. Despite the windfall tax headwinds, we are very well positioned to generate strong free cash flow in the years ahead, which will support a return capital strategy. That concludes my prepared remarks, and with that, we would like to open it up for questions.
Thank you very much. As a reminder, ladies and gentlemen, that is star one on your telephone keypads if you'd like to ask a question. We'll pause for a moment to assemble that queue. At this time, we have no questions.
Okay. Well, with that, I would like to thank everyone for
We do have one question from a line.
With that, I would like to thank everyone for participating in our 2023 budget conference call. The call back to you, Marjorie.
Thank you very much. Ladies and gentlemen, that does conclude today's conference. We appreciate your participation, and have a wonderful day.
Thank you.