Welcome to SM Energy's first quarter 2022 results webcast. We are off to a great start this year. Before we get started on our prepared remarks, I'll remind you that our discussion today will include forward-looking statements. I direct you to slide two of the accompanying slide deck, page four of the accompanying earnings release, and the Risk Factors section of our most recently filed 10-K and 10-Q, which describe risks associated with forward-looking statements that could cause actual results to differ. We will also be discussing non-GAAP measures. Definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and the discussion of forward-looking non-GAAP measures can be found in the back of the slide deck and earnings release. Today's prepared remarks will be given by our President and CEO, Herb Vogel, and our CFO, Wade Pursell.
With that, I'll now turn the call over to Herb.
Thank you, Jennifer. Good afternoon, and thank you for your interest in SM Energy. It's only been two months since our last call, and we have made substantial progress on our key objectives for 2022. Starting on slide three, the inflection point of reducing net debt to EBITDAX to 1x and absolute debt to $1 billion is fast approaching. We are very pleased to announce the redemption of the $447 million of principal outstanding 10% senior notes in June. The combination of this redemption and the $105 million principal outstanding 5% senior notes redeemed in February reduced absolute debt by $550 million since year-end 2021.
It's really exciting to have clear visibility to this inflection point as we transfer that enterprise value to the equity holder and position the company to generate even stronger growth in free cash flow and grow shareholder value. A second objective for 2022 is to demonstrate the value of our Austin Chalk position through increased investment. This goes hand in hand with our long-term strategy of maintaining a top-tier portfolio of high-quality assets and ranking among the best operators. We put together a few slides to emphasize these qualities as well as our confidence in the Austin Chalk as new wells continue to demonstrate strong, repeatable, and predictable performance. Our third objective is to demonstrate measurable top-tier ESG stewardship.
Since our last call, the importance of energy security and affordability have come into focus globally, along with the realization that oil and natural gas production is needed in the coming decades. Global climate change objectives will be best tackled by a combination of efforts on several fronts that include innovation and new technologies. At SM, while we report very low methane emissions, we are continuing to pursue better technologies to identify and reduce carbon emissions. Most recently, this includes controlled testing to evaluate five different technologies to best pinpoint the location of and quantify methane emissions from our operations, which will in turn enable our team to more quickly respond and mitigate. We'll share more about this in coming months. Turning to slide four, we took a large peer group including 24 companies, both mid and large cap, and looked at the value of proved reserves.
Using the SEC-defined and comparable standardized measure of discounted future net cash flows for oil and gas, well known as SMOG, for value and total proved reserves, SM ranks among the top two companies for the value of each barrel and equivalent barrel. Turning to the next slide, we look at third-party data provided by Enverus Intelligence Research. In the top chart, they rank 23 areas of operations to determine which basins have the lowest average well breakevens. SM operates in the West Austin Chalk, number one, and the Midland Basin, number four on the chart. Our high-value assets indicated on the previous slide are supported by operating in the best geology. As an aside, I really need to hand it to our geosciences team for having a track record of knowing what geologic attributes lead to commercial success in unconventional resource plays.
The lower chart looks at inventory life and inventory quality. While certain large cap peers have longer inventory life, comparison of SM to similar-sized peers shows that SM has the longest inventory life among the group with a breakeven oil price at or below $40. Nine years with breakevens below $40. I will add that this is recent data and reflects an increase on our Austin Chalk inventory as evaluated by Enverus. When looking at this figure, remember that low breakeven prices mean not only that our portfolio is resilient to a downturn in commodity prices, but it also means more free cash flow generation per BOE relative to peers during periods of high prices. Turning to slide six, we also like to give credit to our team for their relentless effort to drive capital efficiency, which has included drilling long laterals.
The top chart also uses Enverus data and compares well costs across a broad peer group on wells drilled since 2017. Here, SM is the number two lowest-cost drilling and completions operator, and this peer group includes larger cap peers. The bottom chart compares average lateral length, where SM ranks number one. Perhaps these two figures dispel in part the notion that only large cap peers can achieve outstanding capital efficiency. Turning to slide seven, great assets and capital efficiency position SM to deliver among the highest projected 2023 free cash flow yield relative to our peers. On slide eight. In addition, our high reserve value per BOE supports a standardized measure of proved reserves calculation that exceeds our current enterprise value, and the standardized measure calculation was run at $66 oil. I would suggest that we have substantial unrecognized value beyond just proved reserves.
With that overview, I'll pass it to Wade to talk about the quarter. Wade?
Thank you, Herb, and good afternoon. Turning to slide nine. As we make great strides towards the balance sheet inflection point, demonstrating the quality of our asset base and pursuing leadership in ESG, I think you can say we're doing all things we said we wanted to achieve, only faster. Looking at slide 10 now in the balance sheet for a little more detail. During the first quarter, we redeemed the 2024s, ended the quarter with $420 million of cash equivalents, and reduced the leverage ratio to 1.05 times. Year to date, all three rating agencies have upgraded our ratings, and we've just announced redemption of the 10% Senior Secured Notes. These two redemptions alone reduced interest expense more than $50 million annualized.
Putting strip prices into our three-year plan delivers our goal of $1 billion of net debt sometime in the fourth quarter this year. While meeting our leverage targets is fast approaching, I'll reiterate what we have said the last few quarters. At the time we achieve our leverage objectives, we will evaluate a number of factors to determine what makes the most sense in regards to return of capital in a manner that is sustainable and delivers long-term value to our shareholders. Turning to slide 11. Production was at the high end of our guidance, attributable to some particularly strong pads in the RockStar area. I'll point out that NGL volumes were higher than certain street estimates. As a reminder, we are processing ethane this year, thereby increasing the NGL volumes. Costs were on track, and given the nice commodity price tailwind, we had tremendous results.
We generated record high quarterly EBITDAX of $525 million and generated $314 million of free cash flow. While we originally projected that free cash flow would approximately double in 2022 versus 2021, at current commodity pricing, it would surpass that handily. Moving to slide 12. We reiterate our original guidance for the year. All line items, including production and capital, are unchanged. For the second quarter, as planned, production volumes should see a small sequential drop. We're expecting the production mix to be about 45% oil and about 60% liquids, reflecting again the higher NGL volumes consistently processing ethane.
Scheduled for the second quarter, we plan to drill 27 net wells and complete 20 net wells, which again, as planned, increases drilling and completion activity from the first quarter and will translate into increasing production in the second half of the year. Capital expenditures guidance for the second quarter reflects some carryover from the first quarter, which is just timing, as well as an effort to optimize activity in the second and third quarters to take advantage of current drilling and completion contract rates. When we announced the plan, we indicated that capital would approximate a 50% reinvestment rate. However, the current outlook for commodity prices brings that reinvestment rate even lower. We are frequently asked about exposure to inflation, particularly as it relates to capital expenditures.
We baked in overall 15% inflation in 2022 versus 2021 and plan for an increasing trajectory in inflation through the year as a number of components are under contract through the second and third quarter. In general, the components most exposed to inflation are labor, diesel, and steel, which combined represents around 20% of capital costs. That being said, we've seen a lot happen in the macro environment in the past six months, and it's impossible to say what the next six months will bring. We'll continue to monitor closely, both in terms of absolute inflation as well as potential impacts related to timing. Turning to slide 13. In regards to hedges, the strategy is unchanged. We've hedged about 50% of oil and natural gas production for 2022.
That's less than 40% of 2022 total production, including NGLs. In 2023, we project to have met our leverage targets and consequently expect to hedge in the range of 30%-35% of production. I would say overall, we're on track with our plan to significantly reduce leverage and significantly grow free cash flow and actually at a somewhat accelerated pace in the current commodity price environment. With that, I'll turn it back to Herb for a brief operations update. Herb?
Thank you, Wade. Turning to the Midland Basin on slide 14. We are right on track with our 2022 activity. We've updated the Miracle Max chart on slide 15, where you can see outperformance continues to hold. On the next slide, 16, we reiterate the performance of certain pads in North Martin, which specifically contributed to first quarter production reaching the high end of guidance. This slide was updated from last quarter to report the outstanding average cumulative production from those same three wells through 180 days. Skipping now to slide 18 and South Texas, I'd like to share some analysis done by our team.
They looked at production data from thousands of old Austin Chalk horizontal wells completed between 1988 and 2010, primarily located in East Texas, which had a reputation for inconsistent results, as demonstrated by the P10, P90 ratio of their EURs. A wide ratio of 41 is indicative of significant variation across the wells. We also ran a data set of 228 old vertical Austin Chalk wells drilled between 1981 and 2011, which resulted in a wide P10, P90 EUR ratio of 17. Applying P10, P90 analysis to our Permian program, which is highly predictable, and to our Austin Chalk program to date, here we see the excellent consistency of outstanding unconventional resource plays with P10, P90 ratios around two that supports our confidence in the Austin Chalk.
We have elaborated in the past that the West Austin Chalk is a different animal, as also recognized by the Enverus data shown previously on slide five. There's a large amount of hydrocarbon in place, it is more liquids rich than the underlying Eagle Ford, and in our area, higher permeability leads to highly productive and economic wells, which we are now showing as also repeatable and predictable. Turning to slide 19, I will also note a simple metric to reinforce the quality of our wells in South Texas. The estimated payout for our 2021, 2022 Austin Chalk program is now an average of eight months per well. As of the end of March, 17 of the 31 wells to date have already paid out. I will also point out that our cumulative production graph now extends to 800 days as these wells perform predictably.
I'd like to give a little call-out to the Eagle Ford. As shown on the slide, two Eagle Ford completions in November paid out in six months. We also completed a couple of Eagle Ford wells in the first quarter, which are not shown since they have not yet reached their IP30. These Eagle Ford wells are expected to also pay out in less than six months. These strong Eagle Ford wells are well-timed in today's gas market, and we expect to complete three more in the second quarter. The Eagle Ford remains a gassier option in our inventory that we haven't talked about much over the past couple of years. With that, I will reiterate some highlights today. First, the balance sheet inflection point is fast approaching.
Second, our increased activity in the Austin Chalk in South Texas is producing some great wells, consistent, predictable performance that support a third-party assessment of it being the lowest breakeven basin in the country. Third, we have a long runway of very high-quality inventory and the operational expertise to optimize this development, which we believe will deliver substantial growth in free cash flow and free cash flow yield levels favorable to our peers. Put these all together, and you can see we are well-positioned to continue to grow shareholder value. I look forward to speaking live tomorrow and answering your questions.