For the three months ended March 31, 2023, we recorded a deferred income tax expense of $23.9 million, compared to an expense of $9.8 million for the same period in 2022 due to higher income during the first quarter of 2023.
We assess the recoverability of our deferred income tax assets each period to determine whether it is more likely than not all or a portion of our deferred income tax assets will not be realized. We have considered available positive and negative evidence including future taxable income and reversing existing temporary differences in making this assessment. This assessment is primarily the result of projecting future taxable income using total proved and probable forecast average prices and costs. There is risk of a valuation allowance in future periods if commodity prices weaken or other evidence indicates that some of our deferred income tax assets will not be realized. See “Risk Factors and Risk Management – Risk of Impairment of Oil and Gas Properties and Deferred Tax Assets” in the Annual MD&A. For the three months ended March 31, 2023, no valuation allowance was recorded against our Canadian income related deferred tax asset, however, a full valuation allowance has been recorded against our deferred income tax assets related to capital items. Our deferred income tax asset recorded in Canada was $150.3 million offset by a deferred income tax liability in the U.S of $74.5 million at March 31, 2023 (December 31, 2022 - $155.0 million deferred income tax asset in Canada offset by a $55.4 million deferred income tax liability in the U.S.).
LIQUIDITY AND CAPITAL RESOURCES
There are numerous factors that influence how we assess liquidity and leverage, including commodity price cycles, capital spending levels, acquisition and divestment plans, commodity derivative contracts, share repurchases and dividend levels. We also assess our leverage relative to our most restrictive debt covenant, which is a maximum senior debt to earnings before interest, taxes, depreciation, amortization, impairment and other non-cash charges (“adjusted EBITDA”) ratio of 3.5x for a period of up to six months, after which it drops to 3.0x. At March 31, 2023, our senior debt to adjusted EBITDA ratio was 0.2x and our net debt to adjusted funds flow ratio was 0.1x. Although a capital management measure that is not included in our debt covenants, the net debt to adjusted funds flow ratio is often used by investors and analysts to evaluate liquidity.
Net debt at March 31, 2023 decreased to $150.6 million, compared to $221.5 million at December 31, 2022. Net debt was comprised of our senior notes totaling $203.2 million, less cash on hand of $52.6 million.
At March 31, 2023, through our Bank Credit Facilities, we had total credit capacity of $1.3 billion. We expect to finance our working capital requirements through cash, adjusted funds flow and our credit capacity. We have sufficient liquidity to meet our financial commitments for the near term.
Our reinvestment rate1 was 53% for the three months ended March 31, 2023, compared to 38% for the same period in 2022.
During the first quarter of 2023, a total of $66.6 million was returned to shareholders through share repurchases and dividends, compared to $45.1 million for the same period in 2022. During the three months ended March 31, 2023, a total of 3.5 million common shares were repurchased and cancelled under the NCIB at an average price of $15.37 per share, for total consideration of $54.6 million. During the three months ended March 31, 2022, 3.1 million common shares were repurchased and cancelled under the NCIB at an average price of $11.87 per share, for total consideration of $37.2 million. Subsequent to March 31, 2023 and up to and including May 3, 2023, we repurchased 1.1 million common shares under the NCIB at an average price of $14.81 per share, for total consideration of $16.0 million.
We plan to continue to return at least 60% of free cash flow2 to our shareholders in 2023 through share repurchases and dividends, based on current market conditions. Remaining free cash flow not allocated to return of capital is expected to be directed to reinforcing the balance sheet. We intend to complete the current NCIB authorization by the end of July 2023 and subsequently renew the NCIB in August 2023. Subsequent to March 31, 2023, the Board of Directors approved a second quarter dividend of $0.055 per share to be paid in June 2023. We expect to fund the dividend through the free cash flow generated by the business.
At March 31, 2023, we were in compliance with all covenants under the Bank Credit Facilities and outstanding senior notes. If we exceed or anticipate exceeding our covenants, we may be required to repay, refinance or renegotiate the terms of the debt. See “Risk Factors – Debt covenants of the Corporation may be exceeded with no ability to negotiate covenant relief” in the Annual Information Form. Agreements relating to our Bank Credit Facilities and the senior note purchase agreements have been filed under our SEDAR profile at www.sedar.com.
1 This financial measure is a supplementary financial measure. See “Non-GAAP and Other Financial Measures” section in this MD&A.
2 This financial measure is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” section in this MD&A.
