Welcome to SM Energy's 2021 Results and 2022 Operating Plan Webcast. We have a lot of good news to cover today. 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 eight 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. Please see slides 30-33 of the deck and pages 15-23 of the earnings release for definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures and discussion of forward-looking non-GAAP measures. Today's prepared remarks will be given by our President and CEO, Herb Vogel, and our CFO, Wade Pursell.
I will now turn the call over to Herb.
Thank you, Jennifer. Good afternoon, and thank you for your interest in SM Energy. 2021 was an awesome year. It was an exceptional year for many reasons, and what makes today's discussion even more exciting is that 2022 looks to be even better. Our four key priorities in 2021 were to, first, generate free cash flow. Second, improve the balance sheet by reducing absolute debt and lowering our leverage. Third, maintain top-tier inventory. Fourth, demonstrate differential ESG performance. Turning to slide three, let's see how we did. Last year at this time, we estimated that our optimized 2021 operating plan could generate approximately $100 million in free cash flow based on then current strip prices. In 2021, we generated $378 million in free cash flow, exceeding expectations by nearly 3x .
We targeted leverage at less than 2x EBITDAX by year-end 2022. Instead, we were at 1.47x at year-end 2021, and we reduced net debt by more than $475 million. We not only maintained our high-quality drilling inventory of 13+ years, but increased proved reserves by 22%, with the largest portion of proved reserve additions attributable to our success in the Austin Chalk. Our fourth priority, to demonstrate differential ESG performance, was evidenced by meeting our internal targets for methane intensity, greenhouse gas intensity, and spill rates, all of which were tied to compensation. Exceeding all of our 2021 priorities results from the hard work, excellent ideas, and collaboration of the SM Energy team from all functional areas, and I thank each of our employees and contractors. Turning to slide four.
Key factors that led to our 2021 successes include outstanding well performance, capital efficiency and discipline, a long-term plan designed to optimize sustainable free cash flow, and high-quality assets that support continued reserve growth. Turning to slide five, let's look at our updated balance sheet metrics. Including the redemption this month of all of the outstanding 5% senior notes due in 2024, SM has no maturities before 2025, and the majority of remaining outstanding debt is callable by the company or will be callable by mid-year. We will continue to apply free cash flow to the reduction of absolute debt, transferring that value to our equity holders. Net debt to adjusted EBITDAX was at 1.47x at year-end 2021, and at current strip prices, we expect to be around 1x sometime in the middle of the year.
We have said before that we are targeting around 1x debt to EBITDAX, assuming sustainable commodity prices and around $1 billion in absolute debt as an inflection point at which time we will consider additional options to drive shareholder value. Turning now to slide six, improved reserve growth. This is a great story that really highlights the quality of our asset base and reflects the success of the Austin Chalk. 22% proved reserve growth includes 143 million barrels equivalent net reserve additions and performance revisions, equating to 277% production replacement. Reserve additions include 83 million barrels equivalent from the Austin Chalk, plus another 46 million barrels equivalent from our RockStar and Sweetie Peck assets in the Midland Basin. I'll also highlight a few metrics here.
Our standardized measure of future net cash flows from proved reserves was $7 billion, and proved pre-tax PV-10, $8 billion. It almost goes without saying that our enterprise value is less at approximately $6 billion, and we have a whole lot of upside beyond proved reserves. Turning to slide seven in inventory. We have maintained our long runway, 13+ years of inventory, replacing 2021 drilling, and continue to have one of the highest quality inventories among our peers. Based on internal calculations run at $55 oil, the average return exceeds 55%. Based on Enverus data, we have 9 years of inventory at sub-$50 oil and $2.50 gas, which just speaks to the high quality and resiliency of our portfolio. I'll now hand the call over to Wade to talk about our 2022 plan and guidance. Wade?
Thank you, Herb, and good afternoon, everyone. I agree, 2021 was a tremendous year, and 2022 is shaping up to be even better. We generated $378 million of free cash flow in 2021, and in 2022, we should roughly double that, delivering a very attractive and competitive free cash flow yield. We expect to achieve this with a reinvestment rate of around 50%, generating low single-digit production growth.
I'll reiterate that we reduced net debt by more than $475 million in 2021. After year-end, we redeemed the 5% 2024 senior notes. The majority of the remainder of our outstanding debt is callable, and the 10% second lien notes are callable mid-year 2022. The one and one inflection point Herb mentioned should be achieved late in 2022 or early 2023, depending on commodity prices. As we have indicated, that would be the appropriate time, we believe, to consider a return of cash to shareholders. Regarding 2021 results, I think the numbers speak for themselves, so I'm gonna use the remainder of my time today to look forward.
We are very excited about the 2022 plan, where we have opted to increase the capital allocation to South Texas to approximately 45%, which underscores our confidence in the Austin Chalk and presents the opportunity to drive NAV growth. Let's go to slide nine. Our 2022 objectives are largely a continuation of what we pursued last year. One, build net asset value through establishment of a scaled up Austin Chalk program. Two, grow free cash flow generation and reduce leverage and absolute debt to the targeted levels of around 1x and $1 billion respectively, while maintaining a low single-digit production growth trajectory. Three, maintain top-tier inventory. Four, demonstrate differential ESG performance, including progress on near-term goals for flaring, Scope one and two emissions, and methane emissions.
Turning to slide 10 on the nuts and bolts of 2022 guidance. Capital expenditures are expected to approximate $750 million, with D&C capital allocated about 45% again to South Texas and 55% to the Midland Basin. This will include drilling a total of 90-95 wells and completing 75-80 wells, although I will note that capital costs also include about 50% of the capital for four pads with 20 wells in Midland that are scheduled to turn in line in early 2023. Well costs bake in around 15% inflation over 2021.
Extending the Austin Chalk program requires some additional investment, including $18 million for additional science and completion testing in order to optimize well design, very similar to what we've done in Midland, and an incremental $20 million for oil handling infrastructure and facilities to accommodate the higher oil volumes from the region. For the year, capital activity should be highest in the second and third quarters. Production is expected to range between 51-54 million BOE, or 140-148 thousand BOE per day, with about 46%-47% of that being oil. That results in low single-digit growth, as I mentioned earlier. The higher capital allocation in South Texas will result in increased NGLs and natural gas in the commodity mix, but very importantly, deliver the same great returns.
LOE ticks up a little from 2021, including more workovers and inflation for certain components, partially offset by lower cost Austin Chalk. Transportation also ticks up slightly per unit due to increased South Texas gas volumes. For the first quarter of 2022, we expect capital to range between $180-$190 million, and production to range between 13.5-13.8 million BOE, or 150-153 thousand BOE per day with 46% oil. Looking beyond 2022, I would expect continuation of our sustainable long-term plan. That is modest reinvestment rate, significant free cash flow generation, nominal production growth, maintenance of a high quality long-term inventory, and premier operatorship. On slide 11, we update our hedging summary.
Consistent with our policy to align hedge volumes with debt levels, we have reduced hedge volumes to less than 50%. In addition, with leverage continuing to fall, you can expect a further reduced percentage in 2023, say 30% or 40%. Summing it up, the 2022 plan is a piece of a longer term strategy to deliver value creation to shareholders. In 2022, we have the opportunity to realize value creation to shareholders through both debt reduction and building the Austin Chalk, which could be sizable. With that, I will now turn it back to Herb to elaborate on the plan by region. Herb?
Thanks, Wade. I'll start with the Midland Basin. Slide 13 gives a general overview of Midland operations, including plan details. Here we plan to drill about 55 net wells and complete about 40 net wells. Turning to slide 14, last quarter, we highlighted the performance improvements from our latest completion design at our Miracle Max pad, which is located in the northeast portion of our acreage position. This slide updates the performance chart. For the first nine months of production, you can see that cumulative oil production for the three wells on that pad is more than 50% higher than our forecast for these wells, assuming our previous completion design. Additionally, the 50-plus completions with higher sand loading occurring in the first half of 2021 are beating the base completion type curve by nearly 15%.
Turning to slide 15, we are again seeing superior performance, this time in the northwest portion of our Midland Basin position. Those of you who subscribe to Enverus may have seen the write-up last week with the headline quote, Larger Frac Jobs Make SM a Midland Rock Star, unquote, highlighting three wells in the North Martin area that recently set record IP90 rates for our company. The Matador B well in the Wolfcamp A, the Slider D well in the Wolfcamp B, and the Smails D well in the Dean had IP90s ranging from 2,200-2,900 BOE per day with 90%-91% oil. These record wells have break-even oil prices below $20 per barrel. Last quarter, I described this kind of performance improvement as part of our relentless drive to optimize returns.
The next slide, 16, provides a general overview of our South Texas operations, where we intend to drill about 37 net wells and complete about 38 net wells. 85% of new wells are Austin Chalk, plus we will co-develop a couple of Eagle Ford wells and complete four Eagle Ford DUCs. Turning to slide 17, we highlight the Austin Chalk program in South Texas. To date, we have delineated a large portion of our 155,000-acre position. We are partway through testing development spacing, and we are just getting started with completion design optimization. As a reminder, the Austin Chalk program is pure value add, building high-value inventory on our existing acreage position. In 2021, we completed 26 gross wells in the Austin Chalk for a total of 35 producing by year-end.
2021 was a really pivotal year in delineating the area and initiating development spacing in the play. Early this year, we turned in line another five Austin Chalk wells, and they are also performing well. As we've indicated before, we believe we have the potential to develop around 400 Austin Chalk locations across our position, and this continues to be the case. On the right side of the slide, we have mapped wells drilled to date in the area. It looks like our 2021 program will deliver an average 9-month payout per well, and these high return wells are spread across a large portion of the acreage position. You can also see on this map that our planned 2022 activity spans across the position.
As I mentioned last quarter, our 2021/2022 drilling program in the Austin Chalk has an average PV-10 greater than $10 million per well, assuming flat $60 oil and $3 gas prices. Confidence gained from the 35 wells producing through year-end resulted in the addition of 83 million barrels equivalent to our year-end 2021 proved reserves. The chart on the left provides an average production curve of wells drilled to date, intended to be somewhat directional for your modeling. Of course, it is higher liquids content to the north and higher gas content to the south. As Wade discussed, our capital costs in South Texas will include some additional investment in science to further refine targeted landing zones and completion designs.
This will include cores and advanced open hole log analysis, microseismic, fiber optics, and pressure data in support of our fracture and reservoir models. I'll not go into specifics as we consider our work here leading edge. If you've been tracking rigs over the past year, you'll have seen a large uptick in activity offsetting our acreage in Webb County. Clearly, our Austin Chalk success has not been a secret. With 141 industry completions in the county during the year, almost a third of them Austin Chalk. Now, let me conclude with slide 18. Our strategic priorities remain unchanged. First, optimize free cash flow, which we expect to roughly double in 2022. Second, reduce debt and transfer that value to the equity holder, where we expect to meet long-term targets by late 2022 or early 2023.
Third, maintain a sustainable reinvestment rate over the long term, which for 2022 should be around 50%. Fourth, demonstrate measurable top-tier ESG stewardship, including working toward new near-term emissions objectives announced in December, as well as safety and spill performance, all tied to compensation. With that said, we look forward to our live call tomorrow morning to take your questions.